Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/28/2011

Table of Contents

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

Market Wrap

Hope Turns to Fear

by Keene Little

Click here to email Keene Little
Market Stats

The market continues to struggle under the weight of a slowing economy, a Fed that has as much as admitted there's not much more they can do and Europe, which is slowly imploding. The market got all excited since Friday after hearing about the plan to leverage up Europe's bailout fund (EFSF) as a way to pay off Greece and the other insolvent countries. The only problem was the lack of enthusiasm about such a plan by the ones who would be on the hook for the payments. Germany is not at all happy about having to bail out their profligate EU members and their vote tomorrow on supporting EFSF, or not, should move the markets (down hard if they vote not to support it).

This morning's economic reports had little impact on the market. For one thing, no one really cares anymore about economic statistics. The only thing on the minds of traders is whether more bailout money is coming or not. That concern comes from the desire to have more liquidity for the market (hence the desire for the Fed to kick off QE3) but lately it's been more of a concern about the survivability of the financial markets and the banks in particular.

I continue to hear from friends and family, even those who follow the market somewhat, that they don't understand why everyone is fretting so much about little ol' Greece. It's such a small country and doesn't have much of impact on other countries, or so the thinking goes. What I explain to them is that the weight of Greece is like the weight of one domino in a line of them. Pushing one domino down is not hard to do and normally it would have no effect on its surroundings. That changes of course if there is a line of dominoes and that one little one starts a chain reaction of a long line of dominoes tipping over as well. Those dominoes represent the banks around the world.

Most analysts who understand the problem recognize that the failure of Greece will be like the failure of Lehman Brothers on steroids. The bank failures that would result from that would cause a chain reaction throughout the global financial system and very likely see lending between banks come to a screeching halt. Credit to the world is like blood to us -- if a heart attack stops the flow of blood we die. Companies can't ship their products to another country without a Letter of Credit from the bank. It's not just banks who suffer, it's everyone.

This is what happened after Lehman failed and we saw LIBOR rates spike higher as banks refused to lend to each other for fear of not getting their money back. Consequently they raised their rates to ensure they were somewhat protected from defaults. That problem would get far worse if some of the major European banks start to go under. So the Germans have a big vote in front of them and the rest of us are mere spectators now. How you're positioned in the stock market will clearly be of interest to you and where the stock market goes next has nothing to do with the fundamentals of the companies or even our economy at the moment. They're all linked of course but right now we're suffering a significant global financial problem.

The charts almost always point the way and we wait for a catalyst to "help" it get to where it was pointing. So let's see where they're pointing to. Starting off with DOW's weekly chart tonight, notice that the price action since the August low has basically been a consolidation on top of support at its long-term uptrend line from 1990-2002. You can see how price waffled around it in early 2010 before bolting higher into the 2011 highs. Here we are back down to it, fighting to hold on. I have little doubt the DOW will break below it, currently near 10860, and then the question is how much further it will drop.

Dow Industrials, INDU, Weekly chart

In addition to the long-term uptrend line the DOW has found support at its 200-week MA, and you can see how that MA acted as resistance in April 2010 and then support in November 2010 after the DOW broke above it in October 2010. For the decline from May I am showing a wave count that calls for one more leg down to complete a 5-wave decline. Once the next leg down plays out a little more I should get a better feel for a downside target. For now I'm showing a drop to the 38% retracement of the 2009-2011 rally, near 10350, before setting up a bigger bounce pattern into the end of the year.

On the DOW's daily chart below I'll continue to carry a more bearish wave count as a way to watch how it develops and determine the odds of getting a more significant selloff. I want to consider the more bearish possibility because of the importance of it -- it would mean a slam down selloff in the coming month. If the July 21st high was a truncated finish to the 2009-2011 rally, instead of the May high, then the July-August decline is only the 1st wave down and the bounce into the August 31st high is the 2nd wave correction. Since the August 31st high I can count a 1-2, 1-2 wave count to the downside (and labeled it as such).

Dow Industrials, INDU, Daily chart

The bearish significance of this wave count, with multiple degrees of 2nd wave corrections, cannot be over emphasized. The setup is pointing to multiple degrees of 3rd waves to the downside. This is basically a crash scenario that's about to happen and would have a few breakaway gaps thrown in for good measure. While it's never a good idea to bet on a crash I think it's important to highlight the potential for one since holders of stock would get crushed and the market would not bounce back anytime soon to let them recover.

Key Levels for DOW:
- bullish above 11,370
- bearish below 10,930

For SPX I'll continue to show an expected move down to the bottom of its down-channel from May/July, which crosses the 950 area by mid month. The wave count suggests the next time it visits the 1100 area it won't be much more than a speed bump on its way lower. But if price chops its way lower, instead of spiking down hard, it will begin to look like an ending pattern that might not make it much below 1100. There are multiple support levels between 1100 and 950 and there's a strong Gann relationship at 975 by October 12th so that will remain on the radar screen until price says otherwise.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1229
- bearish below 1130

The whippy market that we've been in should be concluding. Most market participants have been dying to see this stop but they might want to be careful what they wish for. Today saw a minor break back below its uptrend line from August 9 - Sept 12 and back below the 38% retracement of last week's decline and both could be the signal that the next leg down in already in progress. A break below last week's low near 1114 would have the bulls scurrying to get out of positions quickly and at any price, especially this week when the only thing the fund managers will be worried about will be protecting their accounts from further loss.

S&P 500, SPX, 120-min chart

NDX has held up the best in relationship to its flag pattern off the August 9th low and is still inside its flag. But the choppy overlapping nature of the bounce pattern says it's a correction to the sharp decline (July-August) that preceded it. At least another leg down is expected and if it were to equal the first leg down we get a downside target at 1934. Not shown on the daily chart below is potential price-level support near the same level from its June 2010 high. After attempting to get back above its broken uptrend line from March 2009 -August 2010, today's selloff dropped it back below its 50-dma, which is what it gapped above yesterday. So not a good day for the bulls.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2292
- bearish below 2189

Yesterday the RUT bounced up to its downtrend line and tagged it almost to the penny and then rolled over, setting up one of the prettiest shorting opportunities in this index that I've seen for a while. The afternoon selloff followed by the strong selling today (the RUT was down -4.1% vs. the stronger NDX being down only -1.4%) was a good move if you were short this index. The break back below the uptrend line from August 9th confirmed yesterday's rally as a bull trap. The selloff from here should be strong and it should drop quickly through 600. But if we get a positive reaction out of Europe tomorrow and our market rallies strong, the RUT could spike back above 695. In that case it should head higher if it can get through several layers of resistance, starting with its 50-dma near 715.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 695
- bearish below 645

The RUT's 120-min chart below shows the nice setup yesterday for the bears who were waiting near 695 to pounce on the hapless bulls. Between the downtrend line from July 22nd and the price-level resistance at the low on September 19th, the 695 area was begging to be shorted. The bears obliged and drove it back down. The RUT found temporary support today at its uptrend line from August 19th, near 667, but when that level broke this afternoon the selling accelerated lower. I would expect a bounce off the low near 635 but would view it as another shorting opportunity.

Russell-2000, RUT, 120-min chart

TNX had dropped down to its trend line along the lows since March and started a nice bounce last Friday, the same day the stock market did. It would appear the end-of-quarter rebalancing in balanced funds was occurring. Whether that rebalancing has completed is anyone's guess since TNX pulled back only marginally, albeit somewhat sharply, today. We could see the bond market consolidate a little longer before heading higher again, which would push TNX even lower. I've identified 1.5% on the chart below as a place where it could head over the next couple of weeks, which would keep in synch with the stock market (bonds rallying while stocks selling). Otherwise, if the low for yields is in for now we could see TNX start to head back up towards 2.5% by the end of the year. This might happen if there's been a lot of anticipation of a rally in the long bond due to the Fed's Operation Twist and the trade is already finished.

10-year Yield, TNX, Daily chart

Banks have been swaying in the breeze since August for the same reason the stock market has -- everyone is wondering what the exposure of the banks is really like and who's going to make it through OK. The consolidation for the BIX fits as a 4th wave (it could be a b-wave in some kind of more complex pattern), calling for another leg down. I'm projecting a move down to the $95 area in October to put in a low for the year and then start a bigger bounce into the end of the year. But if the stock market sells off hard, as I alluded to the possibility with the more bearish wave count on the DOW, BIX would likely break below its down-channel and drop well below $90.

S&P Banks index, BIX, Daily chart

Using the TRAN's chart I'm toying with an idea for a descending wedge pattern to finish the decline from July. It calls for one more leg down (possibly with a bounce first and then down) and could see the TRAN find support at either its August 2010 low (4010) or July 2010 low (3872) so keep an eye on those levels if it looks like the descending wedge might hold. Otherwise a fast break below 4000 would very likely mean it's going to head much lower.

Transportation Index, TRAN, Daily chart

Last week's rally in the U.S. dollar had it breaking out of a parallel down-channel for price action since mid 2010. It stopped at its 200-week MA and has bounced between the top of the channel and its MA. It looks like it should pull back a little further before rallying some more and its 50-week MA at 76.57 would likely be support in that case. It could also drop back down for a retest of this year's low but at this point that's looking like the lower probability move.

U.S. Dollar contract, DX, Weekly chart

We've had plenty of signs of an economy that is slowing down and of course that's been making stock market bulls more than a little nervous. Last week I pointed out the drop in copper and the break below its May and August lows. It also broke below its uptrend line from December 2008 through the June 2010 low, indicating a change in its trend.

The August low is the more important one at the moment and as can be seen on the top chart below, the break is significant. The lower chart is SPX and after making a high on August 31st it has managed to hold above the August 9th low, unlike copper. Any wagers what SPX is going to do from here if copper is showing us the way?

Copper contract, HG, Daily chart

It could be fairly argued that SPX had a bigger drop into the August low and that copper is just catching up. But copper is closing in on its 50% retracement of its 2008-2011 rally, which is at 2.95. For SPX to make it to its 50% retracement it needs to drop to 1018, which by the way I think is a good downside target for October. So far SPX has only retraced 38% (1101) at its August low.

The big news last week, to the shock and horror of gold and silver bulls, was the crushing selloff in the metals. Gold dropped hard and intraday broke through support near 1580 which was the Fib projection for the 2nd leg down from the high in August (162% of the August decline). At the same location is the uptrend line from October 2008. Gold quickly bounced back above support and closed above it last week. It's now dropping back down for what could be a test and then a higher bounce as depicted. But if 1580 gives way again I think we'll see gold drop to either its 200-dma near 1528 or down to its July 1st low near 1478 before starting a bigger bounce. I believe the high for gold is now in place, one that will stand for a couple of years at least. I know, I know, such blasphemy.

Gold continuous contract, GC, Daily chart

Silver also poked through support at its uptrend line from October 2008 and a price projection at 26.75 where it had two equal legs down from its April high. On its weekly chart below I'm showing a break of support and a continuation lower to its 200-week MA near 20.50. A multi-month consolidation and then lower to a Fib projection near 16 in early 2012. I know, I know, more blasphemy. I'm confident it will happen (it doesn't mean I'm right, just confident).

Silver continuous contract, SI, Weekly chart

Oil has broken its uptrend line from 1998-2001, which held pullbacks in early 2010, as shown on its weekly chart below. It's holding at support by its 38% retracement of the 2008 decline, at 76.77, and a little lower is the 50% retracement of the 2009-2011 rally, at 74.01. I'm currently thinking we'll see oil drop down to the $64 area before setting up a bounce into year end, perhaps back up to the $83 area before diving lower next year. You can see how it would build a H&S topping pattern from 2009 in the process.

Oil continuous contract, CL, Weekly chart

Normally I'd say the GDP and Pending Home Sales reports tomorrow could be a market mover but in this case I don't think it will mean a hill of beans. The market is waiting for news out of Europe about the ability to bail out the sovereign debts.

Economic reports, summary and Key Trading Levels

Today's selloff was likely on fears about the German vote tomorrow to see whether or not Germany will support Europe's ESFS bailout fund. If they do then we could get a relief rally as the can gets kicked further down the road. Banks will feel relieved and if they rally we'll see a broader market rally. If Germany does not support the bailout fund then Greece will default and likely do it sooner rather than later.

As pointed out in a few of tonight's charts, there is significant risk for a very strong selloff (another crash leg lower). While I never recommend planning a trade around a crash, I will warn whenever I see the possibility setting up and we've got a strong setup for one right now from right here. It would be negated with a violation of the series of lower highs since August 31st.

One thing to keep in mind in case we get a quick decline into next week and then a quick recovery -- if we see a new low below the August lows and then a v-type recovery with a rally back above yesterday's highs, it would be a strong signal that the bottom is in for now. The start of a much larger bounce pattern into the end of the year would likely be starting in that case. So if you're playing the short side don't get complacent. It will be far better to take profits too soon, even if it means you miss some of the move, than to have the market fly back in your face and turn a profit into a loss. Never ever let that happen. That's rule #1. Rule # 2 is "see Rule #1".

It's been a wild market and one that's not a good one for traders who are not experienced (several years) and who cannot keep emotions out of their trading. It's not being weak when you recognize this is not the market for you. Cash is good even if not trading is boring. I'd rather be bored than broke. The past month has been a phenomenal trading environment but it hasn't been easy.

And if we get a wicked selloff it's going to be filled with emotion (be sure you're NOT watching CNBC). It'll be a real money maker if you can catch even a small portion of the ride but be sure to always have trailing stops in place because when the market finds a bottom, which could be in just a couple of weeks (October 12th is a turn date), we could see the DOW rally 500 points before you figure out what happened. This is definitely a market where you want to take profits too early and stop yourself out quickly if you're on the wrong side.

Good luck and I'll be back with you next Wednesday.

Key Levels for SPX:
- bullish above 1229
- bearish below 1130

Key Levels for DOW:
- bullish above 11,370
- bearish below 10,930

Key Levels for NDX:
- bullish above 2292
- bearish below 2189

Key Levels for RUT:
- bullish above 695
- bearish below 645

Keene H. Little, CMT


New Option Plays

Industrial Stocks Roll Over

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidates there were plenty of stocks that look like put candidates. We did not have room for all of them. If you're looking for bearish trades then take a look at these symbols:

JOYG, XEC, APOL, BWA, CMP, UNP, FDX, OXY, MUR, GD, FISV, CVX, and BA

I would also keep an eye on Monsanto (MON). A breakdown under $62.00 could be an entry point for bearish positions.

- James


NEW DIRECTIONAL PUT PLAYS

Flowserve Corp. - FLS - close: 77.90 change: -2.73

Stop Loss: 82.75
Target(s): 71.00, 66.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
FLS has been trading in a bearish down trend since the double top back in April. You can see on the chart below that FLS has recently broke down from another multi-week sideways consolidation into what looks like a new leg lower. This pattern would suggest a $60 target. Meanwhile FLS also has a bearish head-and-shoulders pattern, which would suggest a target of $65.00.

The oversold bounce has failed near the $82.00-82.50 area. I am suggesting we take advantage of this reversal and buy puts now. We'll use a stop loss at $82.75. Our first target is $71.00. Our secondary, more aggressive target is $66.00.

- Suggested Positions -

buy the OCT $75 PUT (FLS1122V75) current ask $3.40

- or -

buy the NOV $70 PUT (FLS1119W70) current ask $3.80

Annotated Chart:

Entry on September 29 at $ xx.xx
Earnings Date 10/26/11 (unconfirmed)
Average Daily Volume = 721 thousand
Listed on September 28, 2011


Regal-Beloit - RBC - close: 47.95 change: -2.86

Stop Loss: 51.55
Target(s): 43.50, 40.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
RBC is another industrial name that is underperforming the market. The stock sold off hard last week. Now after a few days of hovering near support shares are breaking down to new 52-week lows. I am suggesting bearish positions now with a stop loss at $51.55. More aggressive traders may want to put their stop above yesterday's high, which was $52.91 instead. Our targets are $43.50 and $40.50. FYI: The Point & Figure chart for RBC is bearish with a $38 target.

Warning! The option spreads are a little wide. We want to keep our position size small to limit our capital at risk.

- Suggested Positions -

buy the OCT $45 PUT (RBC1122V45) current ask $1.70

- or -

buy the NOV $45 PUT (RBC1119W45) current ask $2.60

Annotated Chart:

Entry on September xx at $ xx.xx
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 456 thousand
Listed on September 28, 2011



In Play Updates and Reviews

Metals Lead Retreat Lower

by James Brown

Click here to email James Brown

Editor's Note:

Silver, copper, and gold helped lead the stock market's decline.

I am concerned that the market's intraday pull back yesterday and today's weakness looks like a failed rally and bearish reversal pattern. Combine that with the bear-flag pattern on the major indices and it does not bode well for stocks if you're bullish.

-James

Current Portfolio:


CALL Play Updates

Celgene Corp. - CELG - close: 62.40 change: -1.57

Stop Loss: 61.25
Target(s): 69.00
Current Option Gain/Loss: -25.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: It was an ugly day for stocks and CELG gave up -2.4%. The stock has pulled back to short-term support near $62.00 as expected. A bounce from here could be used as a new entry point. I am concerned that the market will continue lower and hit our stop loss at $61.25. Cautious traders may want to exit early now.

- Suggested Positions -

Long OCT $65 call (CELG1122J65) Entry $1.53

09/27 new stop loss @ 61.25

Entry on September 26 at $63.03
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 4.0 million
Listed on September 22, 2011


Cerner Corp. - CERN - close: 70.36 change: -2.52

Stop Loss: 69.50
Target(s): 74.90, 78.50
Current Option Gain/Loss: -41.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: CERN completely erased yesterday's gains and more with a -3.4% decline. I cautioned readers last night that a market pull back could pull CERN back down toward the $70.00 area. A bounce from here can be used as a new entry point. If the market continues lower tomorrow then odds are good we will get stopped out at $69.50.

- Suggested Positions -

Long OCT $75 call (CERN1122J75) Entry $1.95

09/27 new stop loss @ 69.50

Entry on September 27 at $72.79
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on September 26, 2011


Check Point Software - CHKP - close: 53.59 change: -0.97

Stop Loss: 50.80
Target(s): 55.75 , 57.75
Current Option Gain/Loss: - 8.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: CHKP lost less than one dollar and did so on low volume. Yet today's action still looks like a bearish reversal. We can probably expect another dip back toward the $52 area or its recent support at the exponential 200-dma. Nimble traders could buy another dip or a bounce near these levels.

- Suggested Positions -

Long OCT $55 call (CHKP1122J55) Entry $1.80

09/26 trade opened.

Entry on September 26 at $53.00
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on September 20, 2011


Dollar Tree Inc. - DLTR - close: 76.56 change: +0.85

Stop Loss: 74.75
Target(s): 79.75, 82.50
Current Option Gain/Loss: Oct$77.50: -18.5% & Nov$80: - 6.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: DLTR displayed some relative strength today. The stock closed well off its highs of the session but still posted a gain. Today's move does not confirm yesterday's bearish reversal candlestick pattern but DLTR remains in jeopardy. I am not suggesting new positions at this time.

NOTE: Readers might want to consider an early exit right now. Even though DLTR held up today the broader market looks very vulnerable. Traders may want to cut their losses early.

- Suggested Positions -

Long OCT $77.50 call (DLTR1122J77.5) Entry $2.70

- or -

Long NOV $80.00 call (DLTR1119K80) Entry $2.90

09/27 new stop loss @ 74.75, DLTR showing relative weakness today

Entry on September 26 at $76.51
Earnings Date 11/17/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on September 24, 2011


Hansen Natural Corp. - HANS - close: 89.30 change: -1.09

Stop Loss: 86.90
Target(s): 94.75, 99.00
Current Option Gain/Loss: -32.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: Today's close under the $90.00 level is short-term bearish but I'm honestly surprised that HANS' performance was not worse, especially given the market's widespread declines. We are not suggesting new positions at this time.

Earlier Comments:
This stock can be volatile so we do want to keep our position size small.

- Suggested Positions - (Small Positions)

Long OCT $95 call (HANS1122J95) Entry $3.50

09/27 new stop loss @ 86.90

Entry on September 27 at $92.17
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on September 26, 2011


Hewlett Packard - HPQ - close: 23.19 change: -0.40

Stop Loss: 21.45
Target(s): 29.50
Current Option Gain/Loss: + 7.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: HPQ almost hit $24 this morning but shares reversed and closed down -1.6%. If the stock breaks down under $23.00 I suspect HPQ will see a quick drop toward the next level of support at $22.00. More conservative traders may want to raise their stop loss closer to the $22.00 level.

I am not suggesting new positions at current levels. Our multi-week target is $29.50.

- Suggested Positions -

Long 2012 Jan. $24 call (HPQ1221A24) Entry $2.14

09/27 new stop loss @ 21.45

Entry on September 23 at $22.52
Earnings Date 11/21/11 (unconfirmed)
Average Daily Volume = 26.6 million
Listed on September 22, 2011


Whole Foods Market - WFM - close: 70.09 change: -0.85

Stop Loss: 67.45
Target(s): 73.00, 77.50
Current Option Gain/Loss: OCT$70: + 0.0% & NOV$72.50: + 3.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/28 update: Shares of WFM held up reasonably well. The S&P 500 lost -2.0% while WFM only fell -1.1%. Holding the $70 level is encouraging but if the market continues to drop tomorrow I would expect WFM to decline toward the $68.00 level. More conservative traders may just want to abandon ship now. I am not suggesting new positions at this time.

- Suggested Positions - (Small Positions)

Long OCT $70 call (WFM1122J70) Entry $3.18

- or -

Long NOV $72.50 call (WFM1119K72.5) Entry $4.10

09/27 new stop loss @ 67.45
09/26 new stop loss @ 65.90

Entry on September 26 at $69.10
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on September 22, 2011


Watson Pharmaceuticals - WPI - close: 70.61 change: -1.49

Stop Loss: 69.75
Target(s): 74.75, 78.50
Current Option Gain/Loss: Oct$75: -35.0% & NOV$75: -19.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/28 update: The -2% drop in WPI was in-line with the -2% drop in the market's major indices. The $70.00 level should offer some short-term support and if it does not we'll be stopped out at $69.75. I'd wait for a bounce from $70.00 before considering new bullish positions.

- Suggested Positions -

Long OCT $75 call (WPI1122J75) Entry $1.00

- or -

Long NOV $75 call (WPI1119K75) Entry $2.10

09/27 new stop loss @ 69.75

Entry on September 26 at $71.26
Earnings Date 11/01/11 (confirmed)
Average Daily Volume = 1.4 million
Listed on September 24, 2011


PUT Play Updates

Caterpillar Inc. - CAT - close: 75.08 change: -2.59

Stop Loss: 80.25
Target(s): 73.50, 70.50
Current Option Gain/Loss: +45.0%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
09/28 update: Our new CAT put play is off to a good start. Shares opened at $78.13, failed at $79.15 and then dropped to a -3.3% loss for the session. Our targets are $73.50 and $70.50.

- Suggested Positions -

Long OCT $75 PUT (CAT1122V75) Entry $2.93

Entry on September 28 at $78.13
Earnings Date 10/24/11 (unconfirmed)
Average Daily Volume = 11.2 million
Listed on September 27, 2011


CLOSED BULLISH PLAYS

iPath Copper ETN - JJC - close: 40.95 change: -3.17

Stop Loss: 41.75
Target(s): 46.50, 49.75
Current Option Gain/Loss: Oct$45: -33.3% & Dec$45: -12.5%
Time Frame: 10 weeks
New Positions: Yes, see below

Comments:
09/28 update: Copper prices were crushed lower today and the JJC fell -7.1%. It was a very ugly day for the metals. JJC actually closed at a new 52-week low. Our stop loss was hit at $41.75. If this sell-off continues then the next level of significant support appears to be the $37.00 area.

JJC gapped open lower this morning, which pushed the options to really gap down. The bid on the October $45 calls was trading near $0.50 when JJC hit our stop loss. The bid on the Dec. $45 calls was trading near $1.75.

- Suggested Positions -

OCT $45 call (JJC1122J45) Entry $0.75, Exit $0.50 (-33.3%)

- or -

DEC $45 call (JJC1117L45) Entry $2.00, Exit $1.75 (-12.5%)

09/28 stopped out @ 41.75
09/27 new stop loss @ 41.75
09/27 Consider taking profits now:
bid Oct. $45 call @ 1.25 (+66.6%), bid Dec. $45 call @ 2.65 (+32.5%)
09/26 new stop loss @ 40.95

chart:

Entry on September 26 at $41.92
Earnings Date --/--/--
Average Daily Volume = 267 thousand
Listed on September 24, 2011


ishares Silver ETF - SLV - close: 28.87 change: -2.30

Stop Loss: 28.75
Target(s): 34.50, 37.75
Current Option Gain/Loss: Nov$32: +17.4% & Jan$35: + 1.2%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
09/28 update: Silver was also hammered lower and the SLV gave up -7.3%. The breakdown under $30 and $29 is bearish and shares hit our stop loss at $28.75 late in the day.

- Suggested Positions - (Small Positions)

NOV $32 call (SLV1119K32) Entry $1.36, Exit $1.60 (+17.4%)

- or -

2012 Jan $35 call (SLV1221A35) Entry $1.58, Exit $1.60 (+1.2%)

09/28 stopped out at $28.75
09/27 new stop loss @ 28.75
09/27 readers may want to take profits now:
bid Nov $32 call @ 2.49 (+83.0%), bid on Jan $35 call @ 2.29 (+44.9%)

chart:

Entry on September 26 at $27.51
Earnings Date --/--/--
Average Daily Volume = 24.4 million
Listed on September 22, 2011