Good evening. Regardless of whether last week's rally was short covering or not, we have to respect the move. I believe the market sent a strong message to us last week, and that message is that the market is not ready to go lower, at least not yet. I'm not saying we go straight up from here but I do think dips will be bought. As such, I plan to exploit those dips by focusing more on long positions in the coming days/weeks. We will also tread lightly in the coming days to get a better sense of how far a pullback will take us, but SPX 1,080 offers strong support. Another scenario is that we go straight up to 1,130 resistance and the market doesn't let us in new long positions. We'll have to see how things play out this week. Trading will inevitably continue to be choppy so picking your exits and sticking with them is the right plan of action for now. Please email me with any questions.
NEW BULLISH Plays
Brocade Communications - BRCD - close 5.61 change +0.01 stop 4.95
Brocade Communications Systems, Inc. (Brocade) is a supplier of data center networking solutions that help enterprises connect and manage their information. The Company offers a line of data center networking hardware, software products and services. The Company is organized in four operating units: The Data Center Infrastructure (DCI), The Server Edge and Storage (SES), The Services, Support and Solutions (S3) and The Files (Files). Brocade products and services are marketed, sold to end-user customers through distribution partners, including original equipment manufacturers (OEMs), distributors, systems integrators, value-added resellers (VARs) and by Brocade directly.
Target(s): 5.95, 6.20, 6.50
Key Support/Resistance Areas: 6.60, 6.20, 6.00, 5.75, 5.40, 5.00
Time Frame: 1 to 3 weeks
Why We Like It:
Data center networking and storage is the hot technology sector as of late with M&A activity continuing to gain energy. Companies like Dell, HPQ, and MSFT have cash and want to expand their services. Companies like BRCD are good takeover targets. BRCD has been pummeled since its highs near $10 in late 2009 and now trades at a discounted PE when compared to many of its peers. Technically, the stock has broken through and closed above two primary downtrend trend lines. I suggest readers initiate long positions on any weakness in the stock early this week. Our official trigger will be $5.46 which is also near its recent upward trend line and a prior resistance level. There has also been a huge amount of call buying in the September and October strikes over the past few days. Our stop is $4.95. NOTE: This is a cheap stock so expect volatility. We are looking for a 50 cent to 1 dollar move higher.
Suggested Position: Long BRCD stock if it trades to $5.46
Options Traders: Buy October $6 CALL, current ask $0.23
Annotated daily chart:
Entry on September XX
Earnings 11/23/10 (unconfirmed)
Average Daily Volume: 12.7 million
Listed on September 4, 2010