Option Investor
New Plays

New plays and watch list

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Play Editor's Note: Friday's rebound in the markets was impressive. Yet it was just another bear market rally fueled by short covering compounded by option expiration. We were way overdue for a bounce and the rebound might actually last a few days. It does have the potential to be a short-term trade-worthy bottom. Unfortunately, one day is not much to build on. The technical damage to the major averages last week was extremely bearish.

We are adding new bullish positions but I consider all of them to be very aggressive, higher-risk trades. I think we've found a few stocks were some of the indicators are suggesting that the selling has, if only temporarily, exhausted itself and that the risks for opening new bearish positions outweigh the risks for betting on a bounce. Readers should continue to trade defensively and use smaller position sizes to limit their risk.

FYI: A few more stocks for your watch list are:

PCAR - delivered a nice bounce after testing its October lows near $22.00. This might have room to run up to the $27-28 zone.
HPQ - showed a lot of relative strength on Friday. Shares gapped higher last week on positive earnings guidance. The company reports earnings this week. Watch for a breakout over $35.00 but don't hold over earnings.
AYE - This electric utility stock has been consolidating sideways for several weeks in a row. AYE looks close to breaking out through the top of this pattern. Volume was big on Friday's gain.
GLW - It's possible that GLW has produced a mini-bullish double-bottom pattern last week. Unfortunately, the bearish trend is so strong it's hard to see. A move over $8.50 or $9.00 might be a short-term bullish entry point. Expect resistance at $10.00.
TEL - Here's another stock that appears to have built a bullish double-bottom pattern. A move over $15.00 might be an aggressive entry point for long positions.
VR - The consolidation in VR the last few days has had a bullish bias to it sort of like a squashed bull-flag pattern. Friday's close over the 50-dma is positive. There is resistance at $20.00 but if the rally continues I could see a run at the 200-dma near $22.00.


NEW BULLISH Plays

Broadcom - BRCM - close: 14.09 change: +0.45 stop: 12.99

Why We Like It:
BRCM failed to make a new low last week while the S&P sank past its 2002 lows. The SOX semiconductor index also sank to new lows, which means BRCM is out performing its peers. Friday's bounce back above the $14.00 level looks like a new entry point for short-term trades. I think readers can buy BRCM here with a stop loss under Friday's low. We're setting two targets. Our first target is $16.00, which is where readers should unload most of their position. Our secondary, more aggressive target is $17.50. The $18.00 level looks like it could be tough resistance.

Annotated chart:
BRCM

Picked on November 22 at $14.09 
Change since picked:     + 0.00   			
Earnings Date          01/20/09 (unconfirmed)    
Average Daily Volume:      15.8 million     


Marshall & Ilsley - MI - close: 13.06 change: +1.20 stop: 11.74

Why We Like It:
Volume was very strong on MI's Friday bounce. The stock has an above average amount of short interest and shares could see a squeeze higher if the financials can actually reverse. MI is a regional bank and the banking sector has been leading the market lower. The financial sector is so oversold that if it does reverse the moves could be very large. MI looks like a bullish candidate because shares are bouncing from a test of their July 2008 lows. We considered putting our stop loss under Friday's low (10.98) but it just seemed too wide. If this rally is going to continue then it should do so with out too much back pedaling.

This should be considered a very aggressive play. We're suggesting readers buy MI here with a stop loss at $11.74. Our target is $16.00. More aggressive traders may want to aim higher.

FYI: The most recent data listed short interest at more than 9% of the 256 million-share float.

Annotated chart:
MI

Picked on November 22 at $13.06 
Change since picked:     + 0.00   			
Earnings Date          01/14/09 (unconfirmed)    
Average Daily Volume:       5.2 million     


NetApp Inc. - NTAP - close: 12.51 change: +0.48 stop: 11.69

Why We Like It:
Tech stocks have been crushed this year but it looks like NTAP actually bottomed two weeks ago. When the S&P 500 was hitting new lows last Thursday shares of NTAP actually set a higher low. Volume has been rising on the rallies, which is a bullish sign. Many of the technical indicators have changed direction. Friday's move looks like a new entry point for bullish trades.

We're going to try and limit our risk with a relatively tight stop loss at $11.69. More aggressive traders may want to use a wider stop. There is short-term resistance at $13.00 and more conservative traders may want to wait for a rise above $13.00. We are listing two targets. Our first target is $14.25. Our secondary target is $15.50.

Annotated chart:
NTAP

Picked on November 22 at $12.51 
Change since picked:     + 0.00   			
Earnings Date          02/11/09 (unconfirmed)    
Average Daily Volume:      11.4 million     


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