The recent breakdown under key support in the market's major averages is a very bearish development. This is suggesting we have a new leg down in front of us. The S&P 500 could eventually drop toward the 950 or even the 870 area although there will be significant bounces during the journey lower.
I am looking at several ETFs as potential candidates and they're all bearish. Readers may want to check out the DBC, XLY, or KOL ETFs. In the financial sector I would look at the UGY, FAS, IYG, and XLF ETFs. We may want to consider some inverse ETFs, which rise in value as the underlying index falls. Examples are the SRS, EEV, SZK, and the DUG. One of the most simple trades will be puts on the major index ETFs like the SPY (S&P 500) or the IWM (Russell 2000). However, I would not launch any new positions right this moment. On a short-term basis the stock market is oversold and oversold bounces tend to be pretty sharp. Look for a rebound and then as the rally stalls we can look for bearish entry points.
On a side note readers may want to do a little research on Baxter Intl. (BAX). If BAX can breakout over the $43.00 level it might be a bullish candidate.
New Watch List Entries
None, no new watch list candidates
Active Watch List Candidates
BVN - Compania de Minas Buenaventura
CRM - Salesforce.com
GLD - SPDR Gold ETF
MET - MetLife Inc.
Dropped Watch List Entries
CRS, INFY, and MCD have all graduated to the play list.
Active Watch List Candidates:
Compania de Minas Buenaventura - BVN - close: 37.03 change: -0.06
The mining sector followed the market lower this past week. The gold miners really under performed on Thursday when gold plunged. Shares of BVN slipped toward $36 and its rising 50-dma. I remain bullish on BVN but the pull back may not be over yet. I am suggesting we adjust our entry point from $35.15 to $32.00. We'll keep our stop loss at $29.90. Our first target is $42.25. Our second, more aggressive target is $47.50.
Buy-the-Dip trigger: $32.00
BUY the 2010 December $40 calls (BVN1018L40)
Chart of BVN:
Salesforce.com - CRM - close: 87.11 change: +0.04
The correction in CRM continues. The oversold bounce just failed near the 50-dma. I suspect this stock might trade back toward support near $75 and its rising 200-dma, especially now that the S&P 500 has broken down. We are adjusting our entry point for bullish positions down to $76.00. If triggered we'll use a stop loss at $69.00. Our first long-term target is $97.00. Our second target is $119.00. Please note our new options below.
Buy-the-Dip trigger: $76.00
BUY the 2011 January $80 calls (CRM 11A80.00)
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BUY the 2012 January $90 calls (CRM 12A90.00)
Chart of CRM:
SPDR Gold ETF - GLD - close: 118.49 change: +1.45
The rally in gold has stumbled. Shares of the GLD struggled at new highs for three weeks above the $122 level. Now gold has broken the three-month trendline of support. I am expecting a correction toward the $112 level. I'm suggesting we adjust our trigger down to $112.50. We'll move our stop down to $107.40. Our target is $140.
Buy-the-Dip trigger: $112.50
BUY the 2010 March $120 call (GLD 11C120.00)
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BUY the 2012 Jan. $130 call (GLD 12A130.00)
Weekly Chart of GLD:
MetLife Inc. - MET - close: 37.20 change: -0.18
Any relative strength in the insurance stocks just vanished last week. MET posted five declines in a row. If this stock closes under $36.00 we'll drop it as a bullish candidate. Right now our plan is to wait for a breakout over $42.00. I am suggesting we use a trigger at $42.75 as our entry point to buy call LEAPS. If triggered we'll use a stop loss at $36.40, which is just under the May low. There is some resistance near $48 and $50 but our long-term target is the $55-60 zone.
Keep your positions small. We can add to this trade as MET reaffirms the up trend.
Breakout trigger: $42.75
BUY the 2011 January $45 call (MET 11A45.00)
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BUY the 2012 January $50 call (MET 12A50.00)
Chart of MET: