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Play Editor's note: I am going to stick my neck out and add some bullish plays to the newsletter. The market has been crushed in the last couple of weeks with a climactic 7% drop in the Dow Industrials and S&P 500 on Thursday. Stocks closed at their lows for the session, which is normally bearish for the next day's open. There is still a lot of fear in the market place and some are still calling for an even greater crescendo of selling to take place before we truly rebound.

On Tuesday, after the DJIA lost 5%, someone made the joking remark that it would only take another 19 days at that sort of burn rate for the markets to hit zero. After today's session it will only take another 18 days. I am joking too. The market isn't going to zero. In just the last few days I've heard several market pundits call for a bottom around 8500 on the Dow. We are essentially there. However, I wondered what if stocks keep falling? The thought prompted me to look at some long-term monthly charts.

The monthly chart of the DJIA doesn't show anything that looks like significant "support" until the 7500 region although you might be able to argue that there is some support near 8000. The monthly chart of the S&P 500 index doesn't show a lot of "support" until the 800 area. I am not predicting that the market will hit these levels but if we don't see a snap-back, oversold, relief, [insert additional adjective here] rally soon stocks might hit those levels before the month is out.

I want to repeat that the bullish plays I'm adding tonight are very speculative since we're trying to pick a bottom in what has been a bottomless market.


New Long Plays

American Express - AXP - close: 24.00 change: -3.12 stop: 20.90

Company Description:
American Express is a leading global payments, network and travel company founded in 1850. (source: company press release or website)

Why We Like It:
Financial stocks have been hit the worst and eventually this sector will find a bottom. Those companies that survive could see significant price appreciation. If we can catch a dip near what should be "support" then that sets up for a lower-risk entry point. Today is actually a tempting entry point. AXP hit $23.33 intraday, which is near the 2002 lows where AXP bounced twice around $23.40-23.50. More aggressive traders may want to step in right now or around $23.50 again. We suspect that the selling may not be over so we're suggesting readers buy AXP at $21.65. The post 9/11 2001 low was $21.38. We're suggesting a stop loss at $20.90. If triggered we have two targets. Our first target is $24.95. Our second target is $28.00.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/20/08 (unconfirmed)
Average Daily Volume: 16 million

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Home Depot - HD - close: 19.93 change: -1.24 stop: 18.75

Company Description:
We are the world's largest home improvement specialty retailer with stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexico and China. (source: company press release or website)

Why We Like It:
Concerns over a recession have pushed shares of HD past their 2003 lows near round-number support at $20.00. Given the panic at the end of the day the close under $20.00 might just be a little over done and more aggressive traders may want to jump in now with a tight stop. We suspect there could be more selling tomorrow. Thus we're going to try and grab HD on a test of its trendline of lower lows. We're suggesting readers buy HD at $19.25 with a stop loss at $18.75. If triggered our first target is $20.95. Our second target is $22.45.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/18/08 (unconfirmed)
Average Daily Volume: 24 million

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Merck - MRK - close: 26.21 change: -2.31 stop: 24.90

Company Description:
Merck & Co., Inc. is a global research-driven pharmaceutical company dedicated to putting patients first. Established in 1891, Merck discovers, develops, manufactures and markets vaccines and medicines to address unmet medical needs. (source: company press release or website)

Why We Like It:
Years ago major drug stocks used to be considered "safe haven" investments during volatile periods in the market. That is no longer the case. The major drug companies like MRK and PFE have seen their stocks slowly wither and die. However, that doesn't mean they don't offer the occasional entry point to catch a short-term move. Shares of MRK dipped toward the $25.50 region this afternoon, which was significant support back in 2005 and 2004. Investors immediately bought the dip but that bounce began to fade as the market accelerated lower into the closing bell. I suspect that MRK will retest the $25.50 level again tomorrow. We're suggesting readers buy MRK at $25.65 with a stop loss at $24.90. More conservative traders may want to use a tighter stop loss around $25.40 instead. If triggered at $25.65 Our target is the $29.65 mark.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/22/08 (unconfirmed)
Average Daily Volume: 14 million

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Microsoft - MSFT - close: 22.30 change: -0.71 stop: 20.90

Company Description:
Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realize their full potential. (source: company press release or website)

Why We Like It:
Shares of software giant MSFT seem a little less volatile than the wider market but they have not been immune to the sell-off. We suspect that MSFT could dip toward its 2006 lows near $21.45. Such a move would appear to be a lower-risk entry point to get long the stock. We're suggesting readers buy MSFT at $21.55 with a stop loss at $20.90. If triggered our first target is $23.90. Our second target is $25.75. We do not want to hold over the late October earnings report.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/23/08 (unconfirmed)
Average Daily Volume: 79 million
 

New Short Plays

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