Dow Chemical - DOW - close: $39.72

05/07 update: We added DOW to our watch list a week ago hoping for a dip to $39.00. The stock slipped to $39.11 on Thursday before bouncing. Now there is still a chance that DOW will hit $39.00 or even drop toward its 30 or 50-dma in the $38.50-38.00 area. If that occurs I'd use it as a new bullish entry point to buy calls. However, after a weeklong correction lower I suspect the market is poised to rally from current levels. We want to go ahead and launch positions in DOW now instead of waiting.

Bears could argue that this past week was a bearish reversal for DOW but I would argue it was just an overdue bout of profit taking. Readers may want to keep their position size small to limit their risk. We'll use a stop loss at $35.90. More conservative traders could put their stop closer to the rising 100-dma instead. Our long-term targets are $47.00 and $56.00. FYI: The Point & Figure chart is bullish with a $69 target.

BUY the 2012 Jan. $40 call (DOW1221A40) current ask $3.75

- or -

BUY the 2013 Jan. $45 call (DOW1319A40) current ask $4.00

Chart of DOW:

Current Target: $47.00, $56.00
Current Stop loss: 35.90
Play Entered on: 05/09/11
Originally listed on the Watch List: 04/30/11