Option Investor
Newsletter

Daily Newsletter, Saturday, 8/27/2011

Table of Contents

  1. Market Wrap
  2. Index Wrap
  3. New Option Plays
  4. In Play Updates and Reviews

Market Wrap

Kicking The Can Into September

by Jim Brown

Click here to email Jim Brown

Bernanke disappointed traders to some extent by not announcing anything definite. However, he kicked the can down the road to the Sept 20th FOMC meeting by teasing investors saying the meeting had been extended to two days to fully explore existing policy options. Now we have a new date for the market to fret over.

Market Statistics

Bernanke avoided a political confrontation by not listing available policy options as he has done in the past. With various groups hostile about expectations the Fed will act again soon he avoided giving them any indications of what actions the Fed might take. That would have given them time to ramp up specific objections to those actions. Secondly he avoided stealing any thunder from the President's speech on economic spending and jobs scheduled for Tuesday evening. He walked a thin line very skillfully but at the same time he basically told Fed watchers to prepare for action at the Sept 20th meeting. The expanded two-day meeting will give him time to form a consensus and win the dissenters over to his views.

Bernanke said the long recovery process was hindered by the Japanese earthquake to some extent but regulators are now applying much less impact to the break in the supply chain than previously. Instead the Fed now believes the longer term factors resulting from the worst recession in history are still weighing on the economy. Those factors are the weak housing market and lower home prices plus the high unemployment and the lack of demand for consumer goods. Businesses and consumers suffered more in the 2008 financial recession than in normal business cycle recessions and the severity of 2008 has harmed the credit worthiness of the consumer and confidence in the recovery by businesses. However, he said he is more optimistic now than in recent months. He believes, despite the economy recovering slowly today, that the pace of the recovery is stable and should average growth of +2.0% for the rest of the year.

He did take a couple shots at lawmakers for the debt debacle and blamed them for the deterioration in business and consumer confidence over the last two months. "The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses." He also warned that a comprehensive plan to deal with the extraordinary high levels of debt was a must in order to rebuild long-term confidence and accelerate the recovery.

He also said, "The quality of economic policymaking in the United States will heavily influence the nation's longer-term prospects. To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies."

He spoke for several paragraphs about the need to lower unemployment, the impact of the Fed's monetary policy on employment and the hardships inflicted by long-term unemployment. He stressed the "urgency" to achieve a cyclical recovery in employment. I read those paragraphs as his reasoning behind the next Fed policy action to be taken at the Sept 20th FOMC meeting.

He closed with the following. "Economic policymakers face a range of difficult decisions, relating to both the short-run and long-run challenges we face. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability." He did not say the Fed "has done" but instead said "will certainly do all that it can" which suggests further actions.

I believe there were certain sections of the speech designed to address objections of dissenters on the FOMC and to setup the parameters for action at the September meeting. I am not going to outline those possible actions because they will be repeated daily in the financial press for the next three weeks.

To summarize the speech Bernanke attempted to cheerlead for the economy as we expected. He tossed the debt ball back towards lawmakers and he might as well of said, "There will be action at the expanded September meeting." By holding off on any action until Sept 20th he gets to see what the president is going to suggest on the 6th and then he can decide on future Fed direction.

Link to full speech

The lack of any firm details disappointed some investors and the Dow dropped -221 points immediately after the speech to a low of 10,929. However, we were expecting a sell the news event because the market was expecting far too much from a general speech on the economy. As the analysis of the speech started to filter through the market and analysts focused on the implied action at the Sept 20th FOMC meeting the rebound began and shorts were again squeezed. Even a decent attempt to sell it off again at 2:PM was defeated.

Analysts will now focus on the Sept 20th meeting as the next Fed turning point. This suggests the next three weeks could see the markets drift higher in anticipation of additional Fed action. Remember, at the August 2010 conference Bernanke did not say the Fed was launching QE2. He alluded to further quantitative easing as well as several other options.

The key sentences in 2010 were, "I believe, the most plausible outcome, macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments. The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. Should further action prove necessary, policy options are available to provide additional stimulus. Any deployment of these options requires a careful comparison of benefit and cost. However,the Committee will certainly use its tools as needed to maintain price stability --avoiding excessive inflation or further disinflation--and to promote the continuation of the economic recovery."

Nowhere in his speech did he say QE2 was coming. Nowhere in Friday's speech was a mention of QE3. However, he did say, "The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability." That is almost exactly the same sentence he used in 2010 and I believe there will be further action of some sort at the Sept 20th meeting.

In other economic news the second GDP revision was less bad than expected. The GDP for Q2 was revised down to +0.99% growth from the +1.28% in the first reading. There were whisper numbers under +0.5% so this number was actually a relief even though it was revised lower. Corporate profits rose +3% for the quarter. That is an increase from the 1% profits growth in each of the prior two quarters. Profits are up +8% year over year.

Growth at +0.99% is still very anemic but there was a big hit from the Japanese earthquake that will be a one-time event. Retail sales of domestic products rose only +1.2%. The recent market crash could cause higher income consumers to cut back on purchases even more in Q3. Corporations have the money to hire but they don't have any incentive to hire until demand increases. It is a classic chicken and egg scenario. Businesses won't hire until demand improves and consumers won't buy until they have a job.

GDP Chart

Unfortunately you have probably read in the news that since 1950 whenever the year over year GDP declines below 2% growth we have always fallen into a recession. Will this time be different?

Bloomberg GDP Chart

The final reading on Consumer Sentiment for August rose slightly to 55.7 from 54.9. The earlier reading of 54.9 was a 30-year low. The 55.7 revision lifted it above the 55.3 28-year low set in November 2008. I know that is a small move and relatively speaking it is insignificant.

Consumer Sentiment Chart

Next week is very busy economically and several of the reports are critical. There are three ISM reports, NY, Chicago and the national ISM. The consensus for the national ISM is for a drop to 50 and right on the border between expansion and contraction. The FOMC minutes on Tuesday will give us insight into the discussions that led to three members dissenting with the decision to keep long term rates on hold until 2013 and it may provide a clue about Fed actions in September.

The ADP Employment report on Wednesday will predict the number of jobs gained or lost in the Nonfarm Payroll report due out on Friday. Current projections for the Nonfarm Payroll report is a gain of only 30,000 jobs compared to +117,000 in July.

On Tuesday President Obama will give his long awaited speech on his jobs proposal. Preliminary excerpts from the speech suggest he will call for more stimulus spending to create new jobs. The president was forced to cut short his vacation on Martha's Vineyard because of the hurricane.

Economic Calendar

The European debt crisis is depressing confidence in the financial system and that will bleed over into the corporate sector. The German DAX is down -24% so far in August and that is the strongest economy in Europe. Because of the short selling ban in other European markets traders are shorting the German market for protection against further declines in their home markets. If the European debt crisis intensifies it will further depress business confidence in the USA.

John Mauldin had an interesting letter this weekend suggesting Germany was not going to approve the bailout plans for Greece and Italy. Citizen support for the bailout is running 5:1 against it. The German courts will rule on Sept 7th on the constitutionality of the bailout. The Bundersbank claims the ECB bond purchases and broader bailout plans violates EU treaties and lacks "democratic legitimacy." Based on recent comments a negative vote is a real possibility and without Germany onboard the bailouts will likely fail. The EU is rushing towards a serious breakdown if something does not change quickly.

Gold rallied again on the potential for future Fed action and on the escalating problems in Europe. Gold rallied +64 to $1827 in regular trading and it continued to 1831.70 in after hours. That is a +$126 rebound off the $1705 low on Thursday. On the 100-ounce contract that is a $12,600 move in two days. Of course that followed a $21,200 drop from the $1917 high on Tuesday. In today's gold market you have to have nerves of steel to hold a contract for more than a few hours.

Gold Chart

Amazon (AMZN) rallied $7.24 (+3.8%) on news their tablet, expected to be announced in October, would be discounted compared to the iPad's $499 entry price. The New York Post reported on Friday the new tablet could sell for "hundreds" of dollars less than the iPad. The tablet will run Google's android operating system. Amazon will be a viable competitor to the iPad because they have the customer base and the global scale to market the Amazon tablet.

Amazon registered the domain name KindleScribe.com on August 22nd. That suggests the new Kindle may have the long awaited stylus and touch screen. Amazon also registered the names KindleAir.com and KindleSocialNetwork.com. Since existing Kindles are fairly limited on Internet usage this means we could see added functionality in the new Kindles.

Amazon Chart

Aruba Networks (ARUN) rallied +20% on Friday after reporting income of $68.2 million or 57-cents per share compared to $400,000 and breakeven in the year ago quarter. Aruba said the current customer base was very robust and they added 1,500 customers for the quarter. Excluding items Aruba earned $20.2 million or 17-cents per share. Revenue rose +47% to $113.8 million.

Apple's new CEO Tim Cook got a nice surprise after only three days in the permanent position. The board awarded him one million shares of Apple stock. That has a current value of $383 million. Not a bad payday! Half of it has a five-year lockup and the other half a ten-year lock. Assuming he does not make a mess of things he is now set for life. TMZ posted a current picture of Steve Jobs on Friday. Money can't buy health and it is obvious why he resigned. Steve Jobs

Cash on deposit in U.S. financial institutions rose to a record high of $9.8 trillion at the end of June. Given the recent market crash and the steady flow of cash out of the market those balances could be even higher today. That total is only for those accounts backed by FDIC insurance. With all the stress in the economy, the market crashing and worries over which bank owns what European debt, depositors are looking for institutions with FDIC insurance. The FDIC insures up to $250,000 but as a result of the recession is providing unlimited insurance coverage for non-interest bearing checking accounts through the end of 2012.

Banks are trying to come up with ways to avoid the cash. They don't want the money. It drives up their cost of insurance and they really can't put it to work making money because checking deposits can be withdrawn at any time. The Bank of New York Mellon (BK) is now charging its largest depositors for the privilege of storing money in their bank. JP Morgan said they received $63 billion in new deposits in Q2 that were tied to the weakness in Europe. I remember when banks used to give new customers things like toasters or microwaves as an incentive for opening a new account. Big depositors were wined and dined and given tickets to sports events and concerts. I remember one bank gave Green Stamps for savings account deposits. Younger readers won't know what those were. Times have certainly changed.

Bank of America (BAC) could be close to selling half its 10% stake in China Construction Bank for close to $9 billion and the deal could be done as early as Monday. They got a 10% stake in CCB back in 2005 for $3 billion. That stake is now estimated to be worth $19.6 billion and several parties have indicated they were interested in buying it. BAC is interested in selling in order to conform to the new capital rules under Basel III requirements. There is a six-year lockup on 23.6 billion shares of CCB owned by BAC that expires on Monday. Another 2.0 billion expires next August. BAC shares rose fractionally on Friday.

Hurricane Irene is causing a lot of trouble this weekend. There are evacuations all over the east coast with New York preparing for the worst. There are long lines of consumers stocking up on food, water, batteries, chain saws, generators, jerky, etc from South Carolina to Massachusetts. The pronounced jump in retail sales could provide a silver lining to Irene's clouds. Typically hurricanes provide a retail spike both before and after they hit. Stores like Home Depot, Lowe's and Wal-Mart are bringing in additional supplies as fast as they can stock them.

However, not every sector is benefiting from the news. U.S. airlines will cancel at least 6,100 flights over the next three days as the storm produces havoc on airline schedules. Airlines are moving planes away from the coast to avoid damage. United has already canceled 2,300 flights for Saturday and Sunday. Delta is shutting down 1,300 and U.S. Airways canceled 1,166. The airline sector has got to be one of the worst businesses in the world. Competition is extremely stiff, planes are grossly expensive, maintenance is extremely difficult and there is bad weather somewhere in the U.S. every day. On top of that their number one expanse, jet fuel, is on a non-stop move higher.

Stranded passengers could be stuck for days until planes can be rerouted back to their original routes and enough empty seats available to handle the roughly two million passengers whose flights were canceled. Those starting trips will likely cancel the excursion but those already on a trip are stuck.

In New York all public transportation was shutdown at noon on Saturday. Manhattan, only a few feet above sea level, is bracing for a monster storm surge that could flood subway tunnels, basements, utility tunnels, etc and cripple the city for weeks. The New York stock exchange was building sand bag dikes around all its underground access points and they plan on being open for business on Monday come heck or high water. Many employers have rented hotel rooms for critical employees in New York just in case the trains don't run again for a long time. It has been a long time since New York has been hit by a major hurricane. Bob passed by with only a glancing blow as it headed to Massachusetts and Maine in 1991. The last major hurricane before that was Gloria in 1985. Gloria did $2 billion in damage. Before that was Agnes in 1972 and Donna in 1960. Donna did $21 billion in damages.

Hurricane Irene Path

Casinos in Atlantic City, NJ closed their doors for only the third time in history at 8:PM on Friday night. Eleven major casinos closed then and the rest were told to close by noon on Saturday. Operators moved the money to banks and secured the chips in onsite vaults. All power was turned off with only security personnel on the premises. The shutdown will cost the casinos an estimated $30 million a day and the state government $2.0 million a day in taxes.

Dairy Case in New York Target Store

I was actually surprised to see any trading in the last few minutes on Friday with the very likely possibility traders in New York won't be able to get to work on Monday. It is likely the afternoon activity was traders closing positions just in case the unthinkable happened and the exchanges did not open for business on Monday. The NYSE computers are actually in New Jersey and fully redundant so the chances they will be offline are slim. Although the NYSE can operate without the market makers at their posts it would be at significantly less volume.

With Europe in a death spiral a lot of traders probably did not want to hold positions over the weekend. The German DAX is down -24% for the Month of August and with 400-600 point swings in the Dow the damage of holding a trading position for an extra 24-28 hours could be huge. However, as long we the NYSE is open electronically that risk is minimal.

The Dow dropped to a low of -220 after the Bernanke speech and then rallied to a high of +176 around lunchtime. At that point volume died and that was probably when traders packed up and headed for higher ground.

The S&P rebounded to initial resistance at 1175-1180 and that is where it stalled at noon. There was a dip to 1168 about 20 min before the close but it was bought on low volume to close just over 1175. The intraday dip to 1135 was clearly the result of two sell programs and those sales would probably have occurred regardless of what Bernanke said.

Since the initial crash on August 9th we have seen a pattern of higher lows and lower highs. The rebound on Friday should be discounted to some extent but we did close near the highs for the week. It is entirely possible we will retest the lows but I am becoming more optimistic that the double bottom is going to hold.

The economics were not as bad as expected. The U.S. will still have more than $20 trillion in GDP by year-end and corporate profits are rising at a faster pace. There are still some headwinds and the rate of growth is definitely less than desirable but it is growth. Bernanke has dangled the Fed action carrot in front of us on September 20th and traders looking for any reason to buy something are likely to take the bait. As long as Europe does not melt down over the weekend we could retest overhead resistance at 1200-1205 next week.

We are a long way from a bullish rally. I expect the markets to be choppy with an upward bias until the next unexpected event arrives to spoil the party. Strong support at 1120 and strong resistance at 1205.

S&P-500 Chart

The Dow traded in a 396-point range on Friday and closed with a gain of +134. That is scary if you think about it. The range was three times the closing gain. Dow 11,325 appears to have formed as initial resistance and the index slammed to a dead stop when it was hit. This was about the time the volume died so I don't know if we can attach too much value to that level although it is a recurring level of interest.

Much of the Dow's gains came from IBM with +28 Dow points. CAT, MMM, BA and MCD were the other leaders and while I am happy to see CAT and MMM catch a bid I am not sure if I believe their individual charts. Both look like one-day wonders. At least MCD has a steady uptrend. Despite IBM's gains is still looks like a buy. However, all three are more than likely benefiting from fund managers storing money in a safe blue chip. Boeing has the best chart of the group with a pending breakout over $63.

What I am saying is the Dow components don't inspire confidence in me that they are going higher. Solid resistance at 11,325 and 11,500. I would immediately turn bullish over 11,500 but until then I am only cautiously optimistic.

Dow Components

Dow Chart

The Nasdaq was another index that slammed to a stop at prior mediocre resistance of 2480. There were only minimal indications 2480 would be much more than a downtick when touched but it turned into a brick wall instead. At least it was solid resistance in the slow volume on Friday afternoon.

Tech stocks were almost universally positive on Friday with PCLN and ISRG leading the winners list. On the losers list there were only four stocks that lost more than $1. That is pretty amazing to me after the big dip at the open. Even with all those individual gains it looked more like short covering on the bounce rather than actual buyers adding positions.

The morning short covering and afternoon stagnation is not awe inspiring but the afternoon market was dominated by hurricane news and very low volume. I am not sure we can actually draw any conclusions about Friday afternoon's lack of direction.

Nasdaq Top Point Gainers

Nasdaq Top Point Losers

Nasdaq Chart

Russell Chart

The Transports are a secondary indicator to the Dow Industrials. Unfortunately the transports are weaker than all the other major indexes. This suggests traders are not convinced there is even a minimal economic recovery in progress and the Dow 30 may have trouble moving higher.

The transports closed at the highs for the day and week BUT the airline stocks were mostly higher. I expect airlines to trade down next week after the hurricane-induced cancellation of more than 6,000 flights. That should push the transports lower and produce a drag on the Dow.

Dow Transport Chart

I expect next week to be choppy and possibly volatile due to the large number of economic headlines with many of them critical events. The FOMC minutes, national ISM, ADP and Nonfarm Payrolls and more than a dozen other reports will provide plenty of opportunity for bad news. If by chance the ISM remains over 50 and the ADP jobs are close to 100,000 the bulls could shake off all the other bad news and push higher. The real pothole that traders will want to avoid is the Friday Nonfarm Payrolls followed by a three-day weekend that just happens to be the last weekend of summer. Volume should slow significantly on Thursday afternoon and die completely about an hour after the payroll report on Friday.

I will enter the week cautiously optimistic but fully realize there are multiple events both in and out of the U.S. that could impact the markets negatively. Be prepared.

Jim Brown

Send Jim an email

"Life is pleasant. Death is peaceful. It's the transition that's troublesome."
Isaac Asimov


Index Wrap

Back From the Brink

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P, Dow and Nasdaq indices held at or above their prior lows and then worked higher, setting up minor double bottoms. The indexes could now have a period of back and forth choppy action before they're in a position to mount a sustained rally.

It was apparent from the charts that the low-1100 area in SPX and the low-2300 area in the Nasdaq Composite (COMP) were 'must hold' areas for the bulls. It was unlikely that a market as oversold as this one got that there would be a sizable further down leg, but with the climate of fear coming into this past week, it was easy to imagine a further meltdown.

Psychologically, fear and panic tend to be signature events that get quite extreme at a bottom. I am assuming that a bottom is in place but 1125-1100 in SPX and 2330-2300 in COMP continue to be the must hold areas for the bulls, especially on a daily and weekly chart Closing basis.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The chart turned from bearish to one with possible bottoming action. The intermediate-term trend is down, the long-term trend up. Sooner or later a trend will resolve (or reverse) in the direction of the major or primary trend.

A 'V' type bottom went by the wayside, but bullish action is seen in SPX's possible double bottom. It would have been a signature event if SPX had had a decisive downside penetration of 1100, given the oversold extreme seen on both a daily and weekly chart (not shown) perspective. I put some stock in the fact that the retracement of the July (2010) to May advance of between 2/3rds and 3/4ths of it, followed by a rebound, as suggesting that it was not going to be a 100% retracement to retest SPX 1010.

SPX is again trading within my 4% moving average envelope lines and common enough, to find initial recent resistance at the 21-day centered moving average. The upper and lower envelope values, give some idea of a possible trading range ahead, assuming of course that volatility continues to damp down.

I have no trading recommendations given how the market is still unsettled. Longer-term I see the major indexes rebounding further, but after such a shock as we've had, this could be a relatively slow back and forth process. Tough action if you buy calls, perhaps better if you trade based on an expectation of a range-bound trade in the coming 2-3 weeks; e.g., an expected maximum price range of 1100 to 1250-1260. This later area was the major 'break down' point and there could be a sizable overhang of stock in this area.

I've noted resistance at 1200, with fairly major resistance around 1260. Pivotal technical support is seen in the 1120 to 1100 area.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart has turned from a straight bearish pattern to one suggesting potential bottoming action given the minor double bottom in the 508 area. If you're looking to trade this market, it's tricky except that those with bearish positions would have been wise to exit given the 3-days of lows in the same area. You often don't get 3-days of similar highs that 'prove' a tradable top so to speak, or strongly imply a bottom.

As with the S&P 500 there may be a sizable supply overhang in OEX in the 560-565 area that may keep a lid on a further sustained advance. Stay tuned on that but investors are starting to realize, like Warren Buffet, that there are some stocks worth buying at current levels.

508 is near support, with further support in the 500 area, extending to 480.

I've noted next resistance (with my usual red down arrows) at 543-545, with more major resistance coming in at 562-567.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) chart shows the same potential bottoming action as the other indexes. With the Dow we're seeing a little bit of a 'stair-step' action as each downswing low after the initial bottom around 10600 has been a stair step higher. As with the others, initial resistance came in at the 21-day moving average. This average so often acts as a 'litmus test', after a trend reversal, as to the ability for the index to resume its prior trend.

I anticipate a struggle for the Dow in the near-term to sustain rallies above 11400-11450, although INDU could get back to the 11500 resistance area, for how long is the question. If INDU not only pierces 11400 but subsequently finds support on pullbacks to this same 1400 area, such action suggests basing action that could 'support' a next up leg. One that might reach what I think will be the toughest supply overhang (lots for sale there!) in the 11800-12000 price zone.

On the bearish side, if initial support at 10800 gives way, 10600 may get retested. If the Dow can't hold above 11000, I start thinking that the 10000 area might be seen again. Recall that the current advance began last summer (early-July) when INDU traded down to near 9600 so testing 10000 again can't be ruled out. Most of the KNOWN bearish possibilities for the economy, Europe, etc. are now discounted or priced into the market. It's those (currently) unknown jolts that are a killer!

Here's my take on 12 stocks in the Dow that most look like they could continue to have some gains: AXP, BA, CSCO, HD, IBM, JNJ, KFT, KO, MCD, MSFT, T, and WMT.

There are other Dow stocks that could rally some more but mostly just seem capable of following the direction of the stronger stocks; e.g., AA, CAT, GE, DD, DIS, INTC, MMM, and UTX.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) chart has been bearish, but with possible 'W' bottom that's formed. A resulting double bottom formation is based on two (down) swing lows at the same level. It's a minor double bottom. Potential 'major' double bottoms, or tops, are thought to form when there's many weeks or months separating the prior extremes, rather than days separating two lows as is the case here. Still, there were two distinct downswings and two distinct lows at the same level. This should have been enough evidence to get traders out of, or to partly exit, bearish positions.

COMP is back trading between 5% envelope bands; i.e., lower and upper lines that adjust each day to a value that is 5 percent below and 5 percent above COMP's 21-day moving average. I use this simple study as a way to define so to speak the index's most common price range. In extremes like panic selling, values temporarily fall outside these envelopes but prices and the average and the resulting 'envelopes' will converge again.

I'm anticipating a 2350 to 2600 price range ahead for COMP. I doubt COMP's near-term potential to trade above 2600. On the downside, there's the possibility of another bearish stampede, maybe a test of 2300. I mostly think that we've seen the lows already for the current decline. The first low has been RE-tested and held which suggests bottoming action.

Support is noted at the double bottom low at 2337, then at 2250. Near resistance, looks like 2500, with a next higher resistance zone at 2550 to 2600.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) index, which had been in bearish free fall, rebounded after a second low was reached in the 2035 area. I assume the second low is a 'final' low for the steep August decline. If the downside risk is perhaps not lower than 2035, what's the upside?

I tend to use the 21-day moving average as a barometer of a next move. A further rally to above this key average (currently at 2174), assuming support is also found on subsequent pullbacks to the average, suggests upside potential to the 2250 area, perhaps to 2300 again, where the upper (5%) envelope line is headed.

Below 2035, I've highlighted 2000 as support and would further note it's what I think would be a major support. Am I expecting that kind of further downside, no. Do I prepare for that possibility, yes.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bearish but with potential for a bottom in the second downswing low being equal to the first. We saw good QQQ buying interest back in the $50 area, as anticipated. Only if the 50 level gave way was I looking for further downside potential to the 48.6 area. Currently, I've noted 'support' (below 50) at 48.6.

Resistance begins in the 54 area and I've highlighted 54.3 as the 'initial' resistance but should also make mention again of the relative importance of the Q's trading above the 21-day moving average, currently intersecting at 53.4. I've also highlighted the 56 even level as a possible target or uppermost projected resistance.

It was interesting to see daily trading volume moderate on the second recent sell off relative to the tail end of first decline to the 50 area. This suggests that many who were spooked by the recent market turmoil have already exited, leaving as they say this stock in 'stronger' hands; e.g., more long-term investor types.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) is bearish in its pattern except that the index has the same 'W' bottom formation as the other major indexes, especially the Nasdaq indices. RUT sold off the most relative to how much it retraced (81%) of its major advance from RUT's (double bottom) low at 588 from July 2010, up to its early-May intraday high at 868.

On the bullish side, RUT has had now 3 weekly lows in the same area; i.e., at 640, 650 and 647. Moreover, weekly oversold indicators like the 8-week RSI (not shown) got as low as it did when RUT made a major bottom in the 343 area at the end of the 2007-2009 bear market. This type of indicator-related event is not conclusive for a bottom compared to price action, but we have both a potential double bottom and an extremely oversold group of stocks.

I'm betting on some more upside. In this environment, there should be further bouts of weakness if you were looking to buy dips. A close below the 650-640 zone would be bearish if not just a single day thing. Upside potential looks governed by the ability for RUT to climb above 700-715. If RUT can manage this, there's ultimate upside potential back to the 770 area, which was a significant 'breakdown' point where there's probably substantial selling potential.



GOOD TRADING SUCCESS!


New Option Plays

Oil, Food, Apparel

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidates I'm providing a list of stocks that might offer some bullish trading opportunities if the stock market continues to rally:

AGN, BA, WPI, TUP, FSLR, SOHU, CTSH, GDI, FFIV.

- James


NEW DIRECTIONAL CALL PLAYS

Cabot Oil & Gas - COG - close: 71.95 change: +2.45

Stop Loss: 67.75
Target(s): 75.85, 79.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
COG continues to outperform its peers in the energy sector. The stock is currently bouncing from support near $65 and the close over $70-71 on Friday looks bullish. However, bears could argue that COG has yet to breakout past the gap down from August 18th and the chart is showing a neutral pattern of lower highs and higher lows. I would turn your attention to COG's longer-term up trend. If the stock market can build on last week's bounce then COG might be able to retest its highs in the $79 area.

Tonight I am suggesting we buy calls on COG now but only if the stock and the S&P500 index both open positive on Monday - or if we see COG trade over $73.00. I'm not trying to confuse you, but that's two different entry points. One is if both COG and the S&P500 open positive. The other is if COG trades above $73.00 no matter what the market is doing. I'd rather not miss the breakout just because the S&P500 underperforms.

I'm listing two different targets to take profits at $75.85 and $79.25.

buy calls if both COG and the S&P500 open positive on Monday

- Suggested Positions -

buy the SEP $75 call (COG1117I75) current ask $2.65

- or -

buy the OCT $75 call (COG1122J75) current ask $4.90

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on August 27, 2011


Hansen Natural Corp. - HANS - close: 84.63 change: +0.12

Stop Loss: 80.90
Target(s): 89.75, 94.50
Current Option Gain/Loss: Unopened
Time Frame: 2 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
HANS has been one of the NASDAQ's best performers this year. The stock hit new all-time highs this past week after breaking out past resistance in the $82 area. Friday's dip and intraday bounce near its prior highs looks like a very attractive entry point to buy calls.

I am suggesting bullish positions now with a stop loss at $80.90 but we only want to launch positions if both HANS and the NASDAQ open positive on Monday morning. The exception will be if we see HANS rally past $87.00 and we'll buy the breakout over $87.00 with a new stop at $83.75 instead.

See Entry Conditions Above

- Suggested Positions -

Buy the SEP $90 call (HANS1117I90) current ask $1.80

- or -

buy the OCT $90 call (HANS1122J90) current ask $3.70

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on August 27, 2011


Lululemon Athletica - LULU - close: 52.31 change: +3.19

Stop Loss: 47.90
Target(s): 56.00, 59.50
Current Option Gain/Loss: Unopened
Time Frame: up to September 9th
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of the fashionable athletic and yoga apparel store have seen a volatile August but the long-term trend is still higher. The recent bounce from its exponential 200-dma looks like it could be a bottom. However, the stock is trading inside a bearish trend of lower highs and lower lows since the August decline began. Thus, I would consider this a more aggressive and speculative trade. We want to keep our position size small to limit risk.

I am suggesting bullish positions now but only if LULU and the S&P500 both open higher on Monday morning. If triggered we'll use a stop under Friday's low at $47.90. Our targets are $56.00 and $59.50.

NOTE: This is a short-term trade. We do not want to hold over the Sept. 9th earnings report.

*See Entry Details Above*

- Suggested Positions -

buy the SEP $55 call (LULU1117I55) current ask $2.70

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 09/09/11 (confirmed)
Average Daily Volume = 4.2 million
Listed on August 27, 2011



In Play Updates and Reviews

Strategy Update

by James Brown

Click here to email James Brown

Editor's Note:

The market survived another speech by Bernanke and stocks are rebounding off their Friday morning lows.

We are updating our strategy on a lot of the candidates below. You'll see updated stop losses and targets for many of them.

Do not forget that September options expire in three weeks.

-James

Current Portfolio:


CALL Play Updates

CR Bard Inc. - BCR - close: 91.46 change: +2.00

Stop Loss: 87.40
Target(s): 94.75, 98.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
08/27 update: BCR fared much better than expected. The dip on Friday only hit $87.70. We had a buy-the-dip entry point at $86.50. Given the market's rebound off its lows this stock looks poised to rally. BCR closed at its high for the week. I am suggesting we launch new bullish call positions now but only if BCR and the S&P500 both open positive on Monday morning. We will adjust our stop loss to $87.40.

NOTE: I've adjusted both the September and October strikes to $95 each.

buy calls now if BCR & S&P500 index open positive on Monday

- Suggested (small) Positions -

buy the SEP $95 call (BCR1117I95)

- or -

buy the OCT $95 call (BCR1122J95)

08/27 Adjusted back to old strategy. Buy calls now if both BCR and S&P500 open positive on Monday.
08/27 move stop loss to $87.40 and adjusted strikes to $95
08/25 New strategy. Buy the dip at $86.50, new stop 84.85

chart:

Entry on August xx at $ xx.xx
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 1.25 million
Listed on August 23, 2011


Caterpillar Inc. - CAT - close: 83.25 change: -2.15

Stop Loss: 79.49
Target(s): 87.00, 94.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
08/27 update: CAT dipped to $81.05 on Friday. We had a trigger to buy the dip at $80.50 so our trade is not open yet. It looks like the market may have put in a bottom last week so we will switch back to our earlier entry point strategy. That means buying calls on CAT now but only if both CAT and the S&P500 both open positive on Monday morning. Last week's low was $79.56. I'll adjust our stop loss up to $79.49. That's a little bit wide so we want to keep our position size small.

Adjusted strikes to $90 strike for both Sept. and Oct.

buy calls now if CAT and S&P500 both open positive on Monday

- Suggested Positions -

buy the SEP $90 call (CAT1117I90)

- or -

buy the OCT $90 call (CAT1122J90)

08/27 buy-the-dip trigger not hit. We will switch back to buying calls now if both CAT and S&P500 open positive on Monday.
08/27 new stop loss at $79.49
08/24 play was not triggered. New strategy to buy the dip at $80.50 with a stop at $78.75.

chart:

Entry on August xx at $ xx.xx
Earnings Date 10/24/11 (unconfirmed)
Average Daily Volume = 13.9 million
Listed on August 23, 2011


Deckers Outdoor - DECK - close: 84.65 change: +3.91

Stop Loss: n/a
Target(s): 93.50, 97.00
Current Option Gain/Loss: -50.0%
Time Frame: 1 to 3 weeks
New Positions: see below

Comments:
08/27 update: DECK experienced a sharp rebound off its Friday morning lows near support at $80.00. I say near but the low was really $79.26. Shares rallied right up to resistance near $85.00 and its 200-dma. The move looks like a bullish engulfing candlestick pattern. Nimble traders might want to consider buying calls on a new breakout above $85.00 but the newsletter is not suggesting new positions. Cautious traders might want to add a stop under Friday's low.

Earlier Comments:
I do consider this an aggressive trade. DECK can be a volatile normally and in this market the moves get a little crazy. We definitely want to keep our position size small. I am not listing a stop loss on this trade.

- Suggested (SMALL) Positions -

Long SEP $90 call (DECK1117I90) Entry $4.70

08/20 Remainder of our August $90 call position expires at $0.00 (-100%), We took profits on these on the 12th at +232%
08/18 DECK is down nearly 20 points in three days
08/12 1st target hit @ 93.50
bid on Aug. $90 call @ $5.05 (+232.2%)
bid on Sep. $90 call @ $8.45 (+79.7%)

chart:

Entry on August 11 at $83.53
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on August 9, 2011


Dow Jones Industrial (ETF) - DIA - close: 112.70 change: +1.44

Stop Loss: 108.90
Target(s): 114.50,
Current Option Gain/Loss: Sep $110: +53.9% & Sep $112: +59.0%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/27 update: The DIA dipped to $109.09 on Friday morning before soaring off its lows to post a +1.2% gain for the day. The index has been forming a neutral pattern of lower highs and higher lows. At least it is supposed to be neutral. Usually the previous trend resumes, which would be bearish. Thus we need to stay cautious and keep our position size small. The DIA still faces some resistance in the $113.50-115.00 area.

We have September options, which expire in three weeks so I am not suggesting new positions at this time. Currently our target to exit is $114.50. I am adding a secondary, more aggressive target at $117.50. Please note we will raise our stop loss to $108.90.

Earlier Comments:
We will need to use our position size to limit risk.

- Suggested (small) Positions -

Long SEP $110 call (DIA1117I110) Entry $3.15

- or -

Long SEP $112 call (DIA1117I112) Entry $2.20

08/27 new stop loss at $108.90
08/27 added 2nd target at $117.50. We still want to take $$ off the table at $114.50
08/20 add a stop loss at $105.70

chart:

Entry on August 19 at $108.00
Earnings Date --/--/--
Average Daily Volume = 15 million
Listed on August 18, 2011


Energy XXI Ltd. - EXXI - close: 24.46 change: +0.58

Stop Loss: 20.90
Target(s): 27.50, 29.75
Current Option Gain/Loss: + 30.7%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
08/27 update: Oil stocks saw a decent rebound on Friday. The OIX added +1.4% while the OSX oil services index was up +3%. EXXI managed to deliver a +2.4% gain but was up +6.5% off its Friday morning low. The action recently looks a lot like the major indices, although EXXI has been more volatile. You can still see that EXXI is trading in a neutral pattern of higher lows and lower highs. Fundamentally we're bullish on EXXI but readers may want to wait for another dip near $22.00 or a close over $26.00 before initiating positions.

Note our new stop loss at $20.90.

- Suggested Positions -

Long DEC $25 call (EXXI1117L25) Entry $2.60

08/27 new stop loss @ 20.90

chart:

Entry on August 22 at $22.00
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on August 20, 2011


Green Mountain Coffee Roasters - GMCR - close: 97.91 change: + 5.81

Stop Loss: 89.50
Target(s): 104.00
Current Option Gain/Loss: ---.-- & (+ 8.2%)
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/27 update: It is amazing the difference a few days can make. A week ago we were hoping for a bounce so we could recoup some of our capital. In the last week GMCR has seen a significant bounce. Friday's +6.3% gain is a bullish breakout over resistance at $95.00 and its 50-dma. Our September calls are actually profitable. I will point out that GMCR closed right at the top of its gap down from August 18th, which means the stock closed just under resistance. Plus the $100 level could be round-number, psychological resistance. These two factors are bearish. Yet at the same time GMCR has broken the three-week trend of lower highs, which is bullish.

We are making changes to our exit strategy in GMCR. I am consolidating our two exit targets of $99.50 and $107.50 down to just one at $104.00. Cautious traders may still want to exit near $100 since the $100.00 mark could be round-number resistance. Aggressive traders may still want to aim for the August highs. The newsletter will plan on an exit at $104.00. Please note that we're also adding a stop loss at $89.50.

Earlier Comments:
As a high-risk, speculative play we wanted to keep our position size very small.

- Suggested (SMALL) Positions -

Long SEP $100 call (GMCR1117I100) Entry $3.65

08/27 Strategy Update: Stop loss @ 89.50. New target at $104.00.
08/23 Cautious traders may want to exit now with the bid on our Sep. $100 call at $3.25 (-10.9%)
08/18 if you're bearish on the market, then exit now! Sep.bid @$2.29
08/15 exit August $95 calls immediately. Bid @ $7.95 (+190.1%)
08/10 Consider exiting all August options now
08/09 adjusting 2nd target to $107.50
08/09 1st target hit at $99.50.
Aug. $95 call bid $6.30 (+129.9%), Sep. $100 call bid $6.95 (+90.4%)
08/08 we are not using a stop loss on this trade

chart:

Entry on August 8 at $91.26
Earnings Date 12/08/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on August 6, 2011


O'Reilly Automotive - ORLY - close: 63.93 change: +1.00

Stop Loss: 61.75
Target(s): 63.75, 66.00
Current Option Gain/Loss: +115.7%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/27 update: Traders bought the dip at $62.22 on Friday morning. ORLY managed to recoup its Thursday losses. The stock looks poised to challenge resistance near $65.00 and its all-time highs near $66.50. Our final target to take profits is at $66.00. More aggressive traders may want to aim higher. Keep in mind we only have September calls.

I'm not suggesting new positions at this time.

Earlier Comments:
Use a small position size to limit your risk.

- Suggested (small) Positions -

Long SEP $60 call (ORLY1117I60) entry $1.90

08/24 new stop loss @ 61.75
08/24 1st target hit @ 63.75, option @ $4.00 (+110.5%)
08/23 new stop loss @ 59.40
08/20 new stop loss @ 57.80
08/15 trade opened
08/13 adjusted entry point. removed Aug. strike
08/10 new trigger at $55.00
08/09 adjusted targets to $63.75 and $66.00.

chart:

Entry on August 15 at $60.37
Earnings Date 10/26/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on August 6, 2011


SPDR S&P500 ETF - SPY - close: 117.97 change: +1.69

Stop Loss: n/a
Target(s): ---.--, 122.50
Current Option Gain/Loss: Sep.$120call (- 5.8%)
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/27 update: The SPY reversed off its Friday morning lows but this index, like so many others, is trading in a neutral pattern of higher lows (bullish) and lower highs (bearish). The last couple of days has seen technical resistance near the 20-dma and the top of its gap down from August 18th.

We are not suggesting new positions at this time but nimble traders could try scalping positions between $121 and $126. Currently our final target is $122.50 but readers may want to aim for the $124-125 area. Just remember that we have September options, which expire in three weeks.

Earlier Comments:
We are not using a stop loss on this trade.

- Suggested (SMALL) Positions -

Long SEP $120 call (SPY1117I120) Entry $2.55

08/20 Trigger to add positions at $112.00 was NOT hit. We are removing the entry point. Do not add to positions at this time.
08/18 adding a new entry point to buy the Sep.$118call at $112.00
08/16 exit Aug. $118 call now. bid $2.26 (+5.1%)
08/15 1st target hit @ 119.75
bid on the Aug. $118 call @ $2.15 (+0.0%)
bid on the Sep. $120 call @ $3.32 (+30.1%)
08/08 trade opened at $115.00. We are not using a stop loss.

chart:

Entry on August 8 at $115.00
Earnings Date --/--/--
Average Daily Volume = 235 million
Listed on August 6, 2011


Stericycle Inc. - SRCL - close: 84.34 change: +1.19

Stop Loss: 81.25
Target(s): --.--. 88.50
Current Option Gain/Loss: +25.7%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/27 update: Traders bought the dip in SRCL near its rising 10-dma on Friday morning. Shares rallied back toward its highs for the week. The stock now looks poised to breakout past resistance near $85.00 and its 200-dma.

We are not suggesting new positions at this time but nimble traders could use a breakout past $85.00 as a new entry point. Our second and final target remains the $88.50 mark. Please note our new stop loss at $81.25.

- Suggested (small) Positions -

Long SEP $85 call (SRCL1117I85) Entry $1.75

08/27 new stop loss @ 81.25
08/25 new stop loss @ 79.75
08/25 1st target hit @ 84.90, option @ $2.75* (+57.1%)
*this is an estimate. the option did not trade today.

chart:

Entry on August 23 at $81.29
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 858 thousand
Listed on August 22, 2011


U.S. Oil Fund - USO - close: 33.15 change: +0.18

Stop Loss: 31.90
Target(s): $37.50, 40.00
Current Option Gain/Loss: + 9.2%
Time Frame: 2 to 3 months
New Positions: see below

Comments:
08/27 update: The USO has also been trading in a neutral pattern of higher lows and lower highs. A new dip toward the August lows seems unlikely. We will remove the buy-the-dip entry point to add positions. Instead we're adding a new stop loss at $31.90.

Earlier Comments:
Keep your position size small! This is a lottery-ticket style of play.

- Suggested Positions -

Long NOV $34 call (USO1119K34) Entry $2.05

08/27 new stop loss @ $31.90
08/27 removing 2nd trigger to add another position.
08/20 Adding a new buy-the-dip entry at $30.50, stop @ 29.00

chart:

Entry on August 9 at $31.97
Earnings Date --/--/--
Average Daily Volume = 10.7 million
Listed on August 8, 2011


United Technologies Corp. - UTX - close: 71.56 change: +0.81

Stop Loss: 68.75
Target(s): 76.40, 79.75
Current Option Gain/Loss: (Sep. - 55.7%)
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/27 update: UTX is pretty much right back where it was on Wednesday. Granted shares look a bit stronger now. The low on Friday was $68.87. We are adding a stop loss at $68.75. Officially we're not suggesting new positions at this time but readers might want to consider a close over $72.00 as a potential entry point.

Earlier Comments:
We want to keep our position size small.

- Suggested Positions -

Long SEP $75 call (UTX1117I75) Entry $1.83

08/27 Adding a stop loss at $68.75
08/27 We have removed the buy-the-dip entry at $65.00
08/20 New entry point to buy calls on dip at $65.00
08/20 Our aggressive, higher-risk trade with August options has expired. Entry price on Aug. $75 call (UTX1120H75) was $0.29. exit 0.00 (-100%)

chart:

Entry on August 15 at $73.21
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 6.6 million
Listed on August 13, 2011


Whole Foods Market, Inc. - WFM - close: 61.08 change: +2.65

Stop Loss: 57.25
Target(s): 63.50
Current Option Gain/Loss: + 22.4%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/27 update: Friday proved to be a bullish day for WFM. Traders bought the dip near the stock's rising 200-dma. Shares rallied to a +4.6% gain. The breakout over $60.00 is bullish. We are adding a new stop loss at $57.25. I am adjusting our exit target to $64.00 (from 63.50). Aggressive traders could aim higher.

Earlier Comments:
We want to keep our position size small.

- Suggested Positions -

Long SEP $60 call (WFM1117I60) Entry $2.45

08/27 new stop loss @ 57.25

chart:

Entry on August 15 at $58.68
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on August 13, 2011


PUT Play Updates

Alexander & Baldwin, Inc. - ALEX - close: 38.85 change: +1.12

Stop Loss: 40.75
Target(s): 32.50
Current Option Gain/Loss: Sep: -60.0%, DEC: -36.3%
Time Frame: 4 to 12 weeks
New Positions: see below

Comments:
08/27 update: The market's widespread rebound on Friday buoyed the shipping stocks too. ALEX rallied from $37.00 toward its highs for the week. We are not suggesting new bearish positions at this time.

- Suggested Positions -

Long SEP $35 PUT (ALEX1117U35) Entry $1.00*

- or -

Long DEC $30 PUT (ALEX1117X30) Entry $1.10*

08/22 ALEX gapped open higher at $38.33
* options did not trade on Monday. These entries are estimates.

chart:

Entry on August 22 at $38.33
Earnings Date 11/10/11 (unconfirmed)
Average Daily Volume = 279 thousand
Listed on August 20, 2011


CBOE Volatility Index - VIX - close: 35.59 change: - 4.17

Stop Loss: n/a
Target(s): 26.00, 22.50
Current Option Gain/Loss: -93.7%
Second Position Gain/Loss: - 90.0%
Third Position Gain/Loss: -70.1%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/27 update: The VIX saw a big spike to 43.84 on the Friday morning dip. Yet the index reversed as stocks rallied. By the closing bell on Friday the VIX was down -10.4% and off -18.8% from its Friday morning high.

We are not suggesting new positions at this time but aggressive traders may want to take a second look at bearish positions on the VIX.

Earlier Comments:
I am not listing a stop loss on this trade. We should consider this a higher-risk, speculative trade. I'm setting our targets at 26.00 and 22.50.

- Suggested Positions -

Long SEP $25.00 PUT (VIX1121U25) Entry $4.00

- Second Position, entered at the open on Monday, Aug. 8th -
(very small positions)

Long SEP $25.00 PUT (VIX1121U25) Entry $2.50

- 3rd Position, listed Aug. 8th, Open Aug. 9th @ open. -

Long SEP $30.00 PUT (VXI1121U30) Entry $5.70

08/17 August VIX options expire
1st position Aug. $25 put @ $0.00 (-100%)
2nd position Aug. $25 put @ $0.00 (-100%)
08/08 3rd position listed to buy at the open on Aug. 9th
08/08 2nd position was filled the open.

chart:

Entry on August 5 at $28.48
Earnings Date --/--/--
Average Daily Volume = xxx
Listed on August 4, 2011


CLOSED BEARISH PLAYS

Teekay Corp. - TK - close: 24.58 change: +0.64

Stop Loss: 24.55
Target(s): 20.25, 17.50
Current Option Gain/Loss: SEP: -64.7%, OCT: -46.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
08/27 update: The bounce in TK was just a little too strong. Shares hit our stop loss at $24.55. I suspect most of this is just short covering but I can't blame them with the market in rally mode. Friday's close is technically bullish. We will keep TK on our watch list for a new entry point down the road. The stock could see a big oversold bounce if the short covering continues.

- Suggested Positions -

SEP $22.50 PUT (TK1117U22.5) Entry $0.85, exit $0.30 (-64.7%)

- or -

OCT $20.00 PUT (TK1122V20) Entry $0.75*, exit $0.40 (-46.6%)

08/26 stopped out at $24.55
08/22 *option did not trade, this is an estimate.

chart:

Entry on August 22 at $23.44
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 531 thousand
Listed on August 20, 2011