Option Investor
New Plays

Time for a Correction

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Play Editor's Note: The stock market just delivered its best five-day run in several decades. While this is encouraging we don't want to chase the move. Looking at the big picture we are still in a bear market. The last two weeks may have produced a significant bottom but we don't know yet if it is "the" bottom. I do think there is more upside but we want to see a correction first within this rally. After a +20% or more rebound I'd expect a 5% pull back or more before stocks begin moving higher again.


NEW BULLISH Plays

Allegheny Energy - AYE - close: 35.25 change: +1.47 stop: 29.95

Why We Like It:
Rightly or wrongly I found myself with the impression that utility stocks were boring and moved slowly. That may not be true when it comes to AYE. The stock exploded higher this past week. Shares had been consolidating sideways for almost two months and finally broke out to the upside. We don't want to chase it but a pull back could end up being a great entry point. We are suggesting that readers buy the stock in the $32.00-31.00 zone with a stop loss at $29.95. We have two targets. Our first target is $34.95. Our second target is $38.50. The Point & Figure chart has turned bullish with a $52.00 target.

Annotated chart:
AYE

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          02/05/09 (unconfirmed)    
Average Daily Volume:       2.8 million     


Ultra Dow30 ProShares - DDM - close: 32.92 change: +0.76 stop: 28.45

Why We Like It:
If the rally is going to continue then the DJIA could see another round of big moves. What better way to play it than the double-long DDM, which is an ETF for the DJIA. We are suggesting readers buy the DDM on a dip into the $30.10-29.00 zone with a stop loss at $28.45. If triggered we have two targets. Our first target is $32.90. Our second target is $36.00. Don't forget that the DDM will typically move twice as much (be twice as volatile) as the DJIA.

Annotated chart:
DDM

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          00/00/00 
Average Daily Volume:        35 million     


Emergent BioSolutions - EBS - close: 22.62 change: +1.16 stop: 19.45

Why We Like It:
EBS has been out performing the market for months. The stock bottomed around $5.00 in the fourth quarter of 2007 and has been slowly marching higher ever since. Friday's session produced a new all-time high. We like the relative strength but don't want to chase it. Our plan is to buy a dip. We're suggesting readers buy EBS on a pull back into the $20.50-20.00 zone with a stop loss at $19.45. We have two targets. Our first target is $22.50. Our second target is $24.50. FYI: The Point & Figure chart is bullish with a $35 target.

Annotated chart:
EBS

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          03/05/09 (unconfirmed)    
Average Daily Volume:       626 thousand    


Expedia Inc. - EXPE - close: 8.40 change: +0.17 stop: 6.85

Why We Like It:
Is the death march lower for EXPE finally over? We don't know but the stock has made a significant rebound and their could still be plenty of upside. If investors start ignoring bad news about the economy then EXPE could start to look cheap down here. We want to buy the dip. Our plan is to buy EXPE on a pull back into the $7.50-7.25 zone with a stop loss at $6.85. If triggered we have two targets. Our first target is $8.45. Our second target is $9.75. More aggressive traders may want to aim higher.

Annotated chart:
EXPE

Picked on November xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          02/05/09 (unconfirmed)    
Average Daily Volume:       4.7 million     


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