Use Small Positions to Limit Risk!


Boeing Co. - BA - close: 65.38 change: +1.49

We have had BA on the watch list for a while and it is time we take a more active approach. One of the biggest risk BA faces is a potential budget cut by the Pentagon. However, defense is only part of their business. BA is a major player in the airline industry and the IATA just revised their 2010 forecast from a loss to a profit.

Instead of waiting for BA to dip toward support near $55.00, which may not happen, I'm suggesting very small bullish positions now. The stock delivered a solid bounce from round-number support near $60.00 and technical support at its rising 200-dma this past week. The close over $65.00 is another bullish development. Bears could argue this is just an oversold bounce but it looks like a text-book rebound from support.

Let's keep our positions very small. If BA continues to move in our favor we can slowly add to positions. I'm suggesting a stop loss at $59.45. Our long-term target is $79.00.

FYI: Readers may want to consider 2012 calls.

Jun 12, 2010 - entry price on BA @ 65.38, option @ 5.25
symbol: BA1122A70 JAN 2011 $70 LEAP call - current bid/ask $5.10/5.25
-stop loss on BA @ 59.45

Chart of BA:


Popular Inc. - BPOP - close: 2.90 change: +0.13

Why We Like It:
Many of the financial stocks appear handicapped as the market awaits the next round of rhetoric and headlines regarding the government's attempt at the biggest banking reform bill since the 1930s. The recent weakness in financials has created an entry point for us in BPOP. The stock has spent over a year building a base and now this correction is an entry point for speculative positions. I do consider this somewhat aggressive since we don't know what the final form of the banking reform will look like or how investors will react to it.

Fortunately, shares of BPOP are cheap enough they are like an option without an expiration date. Keep your position size limited. BPOP is still a bank and nonperforming loans could be a problem, especially since unemployment in Puerto Rico is more than 15% (Puerto Rico is BPOP's home base).

I am suggesting a stop loss at $2.40. Our first long-term target is $4.00. More aggressive traders may want to aim higher.

Company Info:

Founded in 1893, Popular, Inc. is the leading banking institution by both assets and deposits in Puerto Rico and ranks 34th by assets among U.S. banks. In the United States, Popular has established a community-banking franchise providing a broad range of financial services and products with branches in New York, New Jersey, Illinois, Florida and California. Popular provides processing technology services through its subsidiary EVERTEC, which processes approximately 1.1 billion transactions annually in the Caribbean and Latin America. (source: company press release or website)

Keep your position size small to limit your risk!

BUY the STOCK (BPOP) not the option.
Stop loss at $2.40.

Chart of BPOP:


U.S. Natural Gas ETF - UNG - close: 8.17 change: +0.18

We recently added the UNG to our watch list after the natural gas ETF broke out from a two-month basing pattern. Our original plan was to buy long-term call LEAPS on a dip near $7.80. I don't want to wait. I'm concerned we might miss the move if we wait for the dip. I would still keep our positions small to limit risk but I would go ahead and open positions now. I'm suggesting a stop loss at $7.35. Our first long-term target is $10.85 but we will probably adjust this as necessary.

Just because the options look "cheap" don't buy too many. Be disciplined with your position size. You can add to positions later once UNG confirms the trend change.

Jun 12, 2010 - entry price on UNG @ 8.17, option @ 1.38
symbol: UNG1122A8 JAN 2011 $8 LEAP call - current bid/ask $1.30/1.38
-stop loss on UNG @ 7.35

- or -

Jun 12, 2010 - entry price on UNG @ 8.17, option @ 1.59
symbol: UNG1221A10 JAN 2012 $10 LEAP call - current bid/ask $1.45/1.59
-stop loss on UNG @ 7.35

Chart of UNG: