Option Investor
New Plays
Click here to email James
Printer friendly version
New Plays
Long Plays
Short Plays


Play Editor's Note: Thursday night I told readers that I was bearish on stocks, thought we were headed lower, but warned we were probably near a short-term bounce. I am repeating that same concern tonight. My concern is that stocks will bounce near the intraday January lows on the DJIA, the S&P 500 and the Russell 2000. Furthermore, Asian markets should sell-off on the U.S. market's weakness from Friday. That will lead European markets lower and we could see another capitulation day on Monday. Yet to really be interpreted as capitulation we need to see a big volume day and see the VIX spike to more than 30, probably somewhere in the 31-36 zone.

If we actually see a big sell-off with the spike in the VIX it will be a buying opportunity. It's probably a short-term buying opportunity but still worth a multi-day rally. That's why I STRONGLY hesitate to list any new bearish plays right here. However, there is no guarantee that we're going to see that washout any time soon and equities could just keep falling. Do we sit on the sidelines and wait for the sell-off that could take days to show up? Or do we trade what the market is providing?

Right now all the market is providing is bearish opportunities, aside from a few exceptions. That can be an alarming observation in and of itself. When everything looks bearish a trader should have caution flags going off in their heads. Basically if everyone is leaning on the same side of the boat it could tip over and rebound. We also have to remember that we are in a bear market. Bear market rallies tend to be fast and sharp and they sucker in another herd of bulls that eventually get slaughtered when the rally runs out of steam and forms a new lower high. We can still trade the rallies but we have to get in knowing we only have a few days before it's time to exit.

We are adding new short plays tonight. However, readers need to decide if A) they're willing to trade in this market, and B) what sort of stop loss strategy are you going to use? You could use a very tight, conservative stop loss strategy so that if we do see a bear market rally we're stopped out quickly. Or you could use a very aggressive, wide stop loss strategy and try to weather any rebound. If you choose not to trade right now then just wait for the bounce and when the rally starts to stall then start picking your bearish entry points.

New Long Plays

Pengrowth Energy Trust - PGH - cls: 18.85 chg: -0.05 stop: 17.89

Company Description:
Pengrowth Energy Trust is a royalty trust based in Canada that offers royalty interests on its oil and natural gas properties.

Why We Like It:
Oil and natural gas are hitting highs for the year and still look poised to remain strong. If the rest of the market is headed lower then investors may start moving more money into high dividend equities. PGH should be a big target for the bulls. This trust has a dividend in excess of 14% a year and pays out every month. The recent March low was $18.04 so we're listing a stop loss at $17.89. We are suggesting new long positions now or on a dip anywhere in the $18.00-19.00 zone. More conservative traders may want to wait for a breakout over $19.50; such a breakout would produce a new Point & Figure chart buy signal. There is potential resistance near $20.00 but we anticipate holding this stock for a while. Our target is the $21.85-22.00 zone.

Picked on March 09 at $18.85
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume: 966 thousand

New Short Plays

Coach Inc. - COH - close: 28.46 chg: -0.26 stop: 31.31

Company Description:
Coach, with headquarters in New York, is a leading American marketer of fine accessories and gifts for women and men, including handbags, womens and mens small leathergoods, business cases, weekend and travel accessories, footwear, watches, outerwear, scarves, sunwear, fragrance, jewelry and related accessories. (source: company press release or website)

Why We Like It:
COH looks like a short. The stock just spent several weeks consolidating sideways and now the stock is breaking down from its trading range, within a larger pattern of lower highs. Fundamental investors might be drawn to COH for its balance sheet. The company has very little debt. However, if we are in a consumer-lead recession then COH, a purveyor of luxury goods, could be in for an uphill battle. We are going to use an aggressive (a.k.a. wide) stop loss at $31.31 to give the stock room to maneuver. We're listing two targets. Our first target is the $25.25-25.00 zone. Our target is the $20.50-20.00 zone, which doesn't even come close to its trendline of lower lows. The Point & Figure chart is bearish with an $11 target. FYI: The most recent data lists short interest at 3.1% of the 347 million-share float or about 1.9 days worth of short interest.

Picked on March 09 at $28.46
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 6.9 million


eBay Inc. - EBAY - cls: 25.78 chg: -0.35 stop: 28.15

Company Description:
Founded in 1995, eBay Inc. connects hundreds of millions of people around the world every day, empowering them to explore new opportunities and innovate together. eBay Inc. does this by providing the Internet platforms of choice for global commerce, payments and communications. (source: company press release or website)

Why We Like It:
We suspect that EBAY is in trouble and could be suffering a rough quarter. Not only does business appear to be slowing down but the once rabid fans of the company, its online community of sellers, is growing more dissatisfied with some of the recent changes. We are suggesting shorts here at current levels. However, readers may want to strongly consider waiting for a new relative low under $25.25 or even $25.00 before initiating positions. There is potential support near $22.80 but we're aiming for the $21.00-20.00 zone. The P&F chart happens to point to a $21 target. We are suggesting an aggressive stop loss at $28.15. More conservative traders may want to try a stop closer to $27.15 instead. FYI: The most recent data lists short interest at 2.7% of the 1.04 billion share float, which is about 1.5 days of short interest.

Picked on March 09 at $25.78
Change since picked: + 0.00
Earnings Date 04/16/08 (confirmed)
Average Daily Volume: 17.8 thousand


Kilroy Realty - KRC - close: 45.68 chg: +0.02 stop: 46.76

Company Description:
Kilroy Realty Corporation, a member of the S&P Small Cap 600 Index, is a Southern California-based real estate investment trust active in the office and industrial property sectors. (source: company press release or website)

Why We Like It:
The REIT stocks look poised to breakdown again. KRC has spent the last two months consolidating sideways with support near $45.00. Now shares are on the verge of collapsing. The stock is already in a long-term down trend and the Point & Figure chart is suggesting a $38 target. We are suggesting that readers short KRC at $44.75, which just under Friday's low. If triggered our target is the $40.40-40.00 range. FYI: The latest data puts short interest at 6.9% of the 30.3 million-share float. That does elevate our risk of a short squeeze.

Picked on March xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume: 521 thousand


Manitowoc - MTW - close: 39.00 chg: -1.70 stop: 41.27

Company Description:
The Manitowoc Company, Inc. is one of the world's largest providers of lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. (source: company press release or website)

Why We Like It:
January 2008 saw MTW break its 18-month up trend. The rebound from its January lows was pretty sharp and lasted until late February but shares eventually produced a lower high. Now technicals are rolling over again. Friday's move is a breakdown into a new sell signal. We're suggesting shorts at current levels or a failed rally near $40.00. Our short-term target is the $35.35-35.00 zone. FYI: The most recent data puts short interest at 6.9% of the 126 million-share float. That is an above average amount of short interest and elevates our risk for a short squeeze.

Picked on March 09 at $39.00
Change since picked: + 0.00
Earnings Date 04/28/08 (unconfirmed)
Average Daily Volume: 2.6 million

Premier Investor New Play Archives