NEW BULLISH Plays

Cypress Semiconductor - CY - close 11.39 change -0.32 stop 10.35

Company Description:
Cypress Semiconductor is a broad-line semiconductor company and a supplier of programmable solutions in systems. Approximately 7,000 customers use Cypress' flagship PSoC programmable system-on-chip platform, and various end products that range from cell phones and MP3 players to washing machines, personal computers, and communications switches. In addition to PSoC, its offerings include capacitive sensing and touch screen solutions, universal serial bus (USB) controllers, and general-purpose programmable clocks. It has four segments: Consumer and Computation Division, Data Communications Division, Memory and Imaging Division and Emerging Technologies and Other.

Target(s): 11.95, 12.25, 12.95
Key Support/Resistance Areas: 12.40, 12.00, 11.75, 11.40, 11.00, 10.75
Time Frame: 1 to 2 weeks

Why We Like It:
CY has found a long term support/resistance area in the $10.50 to $11.00 range that dates back to August 2009. This area was prior resistance in July, August, and September of 2009 and again in December 2009. The stock broke out of the resistance in January and again in February of this year after the February 5 lows, which were just below $10.50. There is a lot of congestion in this area over the past year that is now providing solid support for the stock. I am looking for CY to trade down near the $11.20 area which is where I suggest readers initiate long positions. This would also be an area that would form a bullish inverse head and shoulders pattern (see ovals on chart) which may be a catalyst for CY to trade higher in the coming days. CY also remains above its 200-day SMA. On Tuesday when the S&P 500 double bottomed with February lows, CY peeked its head below the 200-day SMA and then rallied up to its 20-day SMA where it reversed on Friday. The stock has also retaken its long term upward trend line drawn from the lows of 11/08 to 11/09. Finally, CY has broken out of its recent downward trend line and has some room to rally up into the $12.00 area, or higher if the overall market can continue its bounce off of Tuesday's lows. A 75 cent rally from our anticipated entry would constitute a +6.75% gain. I have listed three targets above as areas to take profits or tighten stops. We'll use an initial stop $10.35, but a more conservative stop could be placed at $10.70 which is just below the opening print from Tuesday.

Suggested Position: Long CY stock if it trades down near $11.20

Option Traders:
Suggested Position: Buy July $11.00 CALL, current ask $1.20, estimated ask at entry $1.05

Annotated Chart:

Entry on May xx
Earnings Date 7/22/10 (unconfirmed)
Average Daily Volume: 4.7 million
Listed on 5/29/10


K12 Inc - LRN - close 25.02 change +0.19 stop 23.15

Company Description:
K12 Inc. is a technology-based education company. The Company offers curriculum and educational services created for online delivery to students in kindergarten through 12th grade, or K-12. The Company delivers its learning system to students primarily through virtual public schools. It offers virtual schools its curriculum, online learning platform and varying levels of academic and management services, which can range from targeted programs to complete turnkey solutions, under long-term contracts. All of its enrollments are served through virtual public schools, to which it provides either full turnkey solutions or limited management services. K12 offers a student account management system, teacher training programs, administrator support, and student placement support. It also sells its foreign language curriculum to third parties. In addition, Parents can purchase its curriculum and learning solutions directly to facilitate or supplement their children's education.

Target(s): $27.35, 28.25
Key Support/Resistance Areas: 25.35, 24.40, 24.00
Time Frame: 1 to 2 weeks

Why We Like It:
LRN is a relative strength play that continues to make higher lows despite the recent weakness in the market. I am looking for LRN to break out above its recent highs and then test its prior highs from 2007 and 2008, which are near our targets of $27.25 and $28.25. The stock's volume has been increasing in recent weeks as the price has been increasing which signals accumulation and may indicate institutional money is being put to work in LRN. This is normally a bullish indicator. We'll use one of two triggers to enter long positions. If LRN trades down near $24.50 or if it trades up to $25.50 which would be the highest print of the past 52 weeks. Our initial stop will be $23.05 which is below the lowest close of this past week and below its 20 and 50-day SMA's. *NOTE: LRN's average volume is about 200,000 shares. Therefore I consider this an aggressive trade so please use proper position size to manage risk.*

Suggested Position: Long LRN stock if it trades down near $24.50 or up to $25.50, whichever occurs first.

Annotated Chart:

Entry on May xx
Earnings Date 9/9/10 (unconfirmed)
Average Daily Volume: 200,000
Listed on 5/29/10


NEW BEARISH Plays

Smith International, Inc - SII - close 37.56 change -2.61 stop 42.05

Company Description:
Smith International, Inc. (Smith) is a provider of products and services used during the drilling, completion and production phases of oil and natural gas exploration and development activities. The Company operates in three business segments: M-I SWACO, Smith Oilfield and Distribution. In addition the Company also provides a range of technologically-advanced products and engineering services, including drilling and completion fluid systems, solids-control and separation equipment, waste-management services, three-cone and diamond drill bits, borehole enlargement services, tubulars, directional systems, measurement-while-drilling and logging-while-drilling services, coiled tubing, cased-hole wireline and other downhole tools and services. The Company also offers supply-chain management solutions through an extensive North American branch network providing pipe, valves and fittings as well as mill, safety and other maintenance products.

Target(s): $34.55, 32.15
Key Support Areas: 42.00, 40.90, 39.00, 37.00, 34.00
Key Resistance Areas: 59.50, 60.50
Time Frame: 1 to 2 weeks

Comments:
SII looks very vulnerable and is on the verge of possibly filling a gap all the way down to the $34.00 area. The oil services sector has been beaten down recently and SII has not been spared. SII remains below its downtrend line and if it trades below $36.95 there is a lot of air underneath. I'm looking for SII to fill this gap and I suggest readers initiate short positions if the stock trades up near $38.95 or down to $36.90, whichever occurs first. I view this trade as a good candidate to buy options as opposed to simply shorting the stock so that you know how much money is at risk. We are placing a wide initial stop on the trade at $42.05 until we're in and will adjust it accordingly. *NOTE: I view this trade as aggressive so please use proper position size to manage risk.

Suggested Position: Buy July $37.00 PUT (current ask $2.70) if SII trades up near $38.95 or down to $36.90, whichever occurs first.

Annotated chart:

Entry on May xx
Earnings 7/28/10 (unconfirmed)
Average Daily Volume: 7.6 million
Listed on May 29, 2010