Option Investor
New Plays

Bears Remain In Control

HAVING TROUBLE PRINTING?
Printer friendly version

Play Editor's Note: This remains one of the most volatile markets in U.S. history. The Dow Jones Industrial Average delivered not one but three different 300-point moves on Friday. The last half of the day saw two 400-point moves. The lack of follow through on Thursday's bounce is bearish and as a trading newsletter we need to adapt to market conditions quickly. We're dropping our new bullish plays from Thursday night and adding new bearish plays.


NEW BEARISH Plays

Chemed Corp. - CHE - close: 39.93 change: -2.90 stop: 42.55

Why We Like It:
CHE has been out performing the market the last several weeks but that relative strength is starting to wane. There was no follow through on Thursday's bullish reversal pattern and Friday saw CHE fall back under its 200, 100 and 50-dma. This looks like an opportunity to open short positions. If the market does sink to new lows then CHE could be a big target for profit taking consider its bounce from $30.00.

We are suggesting a stop loss at $42.55, just above Friday's high. We have two targets. Our first target is $35.25. Our second target is $31.50.

FYI: It is important for traders to note that CHE's short interest is about 9.5% of the 21.4 million-share float. That is a relatively high amount of interest and a very small float. Together they raise the risk of a short squeeze. Consider this a higher-risk play.

Annotated chart:
CHE

Picked on November 15 at $39.93 
Change since picked:     + 0.00   			
Earnings Date          02/19/09 (unconfirmed)    
Average Daily Volume:       357 thousand    


iShares Germany - EWG - close: 16.71 change: -1.20 stop: 18.01

Why We Like It:
The U.S. is leading the globe into a recession and Germany, Europe's largest economy, has officially beat us there. Germany, a large exporter, has fallen into recession has consumer spending slows. The German iShares (EWG) is in a long-term bearish trend.

Lack of follow through on Thursday's bounce is a new entry point for us to open short positions. We are suggesting a stop loss at $18.01, which is just above Thursday's high. More conservative traders may want to use a tighter stop. The October low was $14.75. We're aiming for $15.05. More aggressive traders may want to aim lower.

Annotated chart:
EWG

Picked on November 15 at $16.71 
Change since picked:     + 0.00   			
Earnings Date          00/00/00 
Average Daily Volume:       1.0 million     


iShares S&P SmallCap 600 - IJR - close: 40.35 chg: -2.98 stop: 43.55

Why We Like It:
This might be considered an aggressive play. The small cap index slipped under its October lows and bounced back sharply just like the S&P 500 index. Yet there was no follow through on Friday and the IJR didn't even make it into positive territory before the late Friday sell-off. Bulls could argue that the IJR still has support near $39-40. I suspect it's going to breakdown to new lows.

We're suggesting shorts with a stop loss at $43.55, just above Thursday's high. More conservative traders may want to use stop above the late Friday high of 42.73. Our target is $35.50. The Point & Figure chart is bearish with a $17.00 target.

Annotated chart:
IJR

Picked on November 15 at $40.35 
Change since picked:     + 0.00   			
Earnings Date          00/00/00 
Average Daily Volume:       2.9 million     


J.C.Penney - JCP - close: 17.27 change: -2.01 stop: 20.01

Why We Like It:
No one should have been surprised by bad retail sales numbers and yet the retail sector was clobbered on Friday for a 7% loss. JCP under performed its peers with a 10.4% decline. The action on Friday produced the fourth failed rally near $20.00 in the last four days. The technical picture is decaying rapidly and we're quickly approaching the worst holiday shopping season in twenty years.

We're suggesting bearish positions in JCP now with a stop loss above Friday's high at $20.01. We have two targets. Our first target is $15.05 since the $15.00 mark might offer some psychological support. Our second, much more aggressive target is $11.00. Again, the $10.00 level could offer round-number support. The weekly chart suggests some support near $14.00-14.50. The Point & Figure chart is bearish and forecasting an $8.00 target.

Annotated chart:
JCP

Picked on November 15 at $17.27 
Change since picked:     + 0.00   			
Earnings Date          02/13/09 (unconfirmed)    
Average Daily Volume:       7.4 million     


Juniper Networks - JNPR - close: 15.03 change: -1.07 stop: 16.15

Why We Like It:
Wednesday last week JNPR broke down from a very wide $15.50-20.00 trading range. Thursday saw it bounce back into that range but there was no follow through. Technicals are bearish and the P&F chart is forecasting a drop toward $10.00.

Given the stock's recent action this does look like an entry point for shorts. We're suggesting a stop loss at $16.15, just above Thursday's high. Our target is only $11.00.

Annotated chart:
JNPR

Picked on November 15 at $15.03 
Change since picked:     + 0.00   			
Earnings Date          01/22/09 (unconfirmed)    
Average Daily Volume:      12.9 million     


Northrop Grumman - NOC - close: 40.34 change: -2.06 stop: 43.01

Why We Like It:
NOC's bullish reversal on Thursday was immediately followed by a bearish reversal on Friday. Investors could still argue that NOC has support near $40.00 but it's been pierced more than once. I suspect NOC is setting up for a new leg lower. The Point & Figure chart is forecasting a drop toward $29.00.

We're suggesting a stop loss at $43.01. Our target is $35.50. More aggressive traders may want to aim lower.

Annotated chart:
NOC

Picked on November 15 at $40.34 
Change since picked:     + 0.00   			
Earnings Date          01/22/09 (unconfirmed)    
Average Daily Volume:       3.6 million     


Pitney Bowes Inc. - PBI - close: 23.37 change: -1.30 stop: 24.75

Why We Like It:
PBI is yet another stock that has seen its late October rebound fade away. Technicals are turning bearish again. The Point & Figure chart is extremely bearish with a $6.00 target. With the economy sliding fast PBI may be facing an uphill battle with its office equipment sales and major corporations laying people off.

We're suggesting bearish positions now with a stop loss at $24.75. Our first target is $21.00 and suggest that readers exit the majority of their position here. We are setting an aggressive, secondary target at $18.00.

Annotated chart:
PBI

Picked on November 15 at $23.37 
Change since picked:     + 0.00   			
Earnings Date          02/05/09 (unconfirmed)    
Average Daily Volume:       2.1 million     


Market Vectors Steel ETF- SLX - cls: 27.39 change: -2.31 stop: 30.05

Why We Like It:
Steel stocks are in a long-term bearish trend and we don't seem them breaking out any time soon as the globe slips further into recession. However, this remains an aggressive entry point for bearish positions. The SLX does have support near $25.00. This is a bet that the SLX will break that support. More conservative traders may want to wait for the SLX to trade under $25.00 before initiating positions.

We're suggesting a stop loss at $30.05. Our target is $21.00. The P&F chart is bearish with an $18.00 target.

Annotated chart:
SLX

Picked on November 15 at $27.39 
Change since picked:     + 0.00   			
Earnings Date          00/00/00 
Average Daily Volume:       459 thousand    


Staples Inc. - SPLS - close: 17.09 change: -0.86 stop: 18.51

Why We Like It:
SPLS may be out doing its rivals in the specialty office retail industry but the trend in the stock is still bearish. The late October rebound failed at its 50% retracement level and its 30-dma. Since then the 30-dma has been consistent resistance. Friday's rally attempt failed under the 30-dma again and shares look poised to renew their slide. SPLS could be heading into a real rough patch. The global economy is slowing. Retail sales are falling and corporations are laying people off.

We're suggesting a stop loss at $18.51, just above Friday's high. Our target is $14.00. The October lows were near $13.60.

Annotated chart:
SPLS

Picked on November 15 at $17.09 
Change since picked:     + 0.00   			
Earnings Date          12/02/08 (unconfirmed)    
Average Daily Volume:      13.4 million     


Premier Investor New Play Archives