Editor's Note:
We're going to check out a short-term exchange traded note as we look ahead at this week's economic data. Plus, a new bearish candidate in the tech sector.

We are expecting a market-wide pull back later this week. It's time to start looking for which stocks you want to buy on a correction. We'll be adding more buy-the-dip candidates as we get closer to Wednesday.

-James


NEW BULLISH Plays

iPath S&P500 Short-Term VIX ETF - VXX - close: 13.10 change: +0.05 stop: 11.99

Target(s): 15.00, 17.50
Key Support/Resistance Areas: 12.00, 14.00, 15.00, 17.50. 20.00
Current Gain/Loss: +0.00%
Time Frame: 1 to 2 weeks
New Positions: Yes

Company Description:
The iPath S&P 500 VIX Short-Term Futures ETN is an exchange traded note that tracks a basket of volatility futures. Basically this ETN bets on where VIX futures will close at expiration. This ETN has a 0.89% expense ratio.

Why We Like It:
I want you to look at a two-year chart of the VXX. That's what happens when volatility contracts from record levels. Plus, this ETN has been sabotaged by contango issues. Contango happens when future contracts are more expensive than spot (short-term) contracts. This VIX ETN lost money every time they had to replace expiring contracts with higher price ones. With that in mind we do NOT want to hold this ETN for very long.

This is a very short-term bet that volatility is going to spike significantly come this Wednesday after the FOMC announcement regarding any QE program. You can launch positions on Monday morning (with the newsletter) or you can wait until Wednesday. The key is to have bullish positions open ahead of the FOMC announcement. I'm only expecting to hold this position for a week maybe a little longer. I'm suggesting a stop loss at $11.99. Our first target is $15.00. Our second target is $17.50. More aggressive traders could aim higher.

FYI: You need to know that Barclays is planning a 1-for-4 reverse split for this ETN scheduled for November 9th, 2010. Hypothetically, if the VXX was trading at $13.00 on November 8th and you had 40 shares. On November 9th you would have 10 shares worth $52 each. It is possible we will be in and out of this trade before the reverse split occurs.

Suggested Position: Long the VXX (ETN) @ $13.10

Annotated chart:

Entry on November 01 at $xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume:
Listed on October 30th, 2010


NEW BEARISH Plays

Cree Inc. - CREE - close: 51.29 change: +0.36 stop: 54.05

Target(s): 48.00, 42.50
Key Support/Resistance Areas: 54.00, 52.00, 50.00, 48.00, 46.00, 40.00
Current Gain/Loss: +0.00%
Time Frame: 4 to 6 weeks
New Positions: Yes

Company Description:
Cree is leading the LED lighting revolution and setting the stage to obsolete the incandescent light bulb through the use of energy-efficient, environmentally friendly LED lighting. Cree is a market-leading innovator of lighting-class LEDs, LED lighting, and semiconductor solutions for wireless and power applications. Cree’s product families include LED fixtures and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and radio-frequency/wireless devices. Cree solutions are driving improvements in applications such as general illumination, backlighting, electronic signs and signals, variable-speed motors, and wireless communications (source: company press release or website)

Why We Like It:
Traders were unhappy with CREE's recent earnings report and shares collapsed to their 2010 lows. The oversold bounce has stalled under new resistance near $52.00. Given the stock's under performance I expect shares to break support near $48.00 and hit new lows before November is over.

I'm suggesting new bearish positions now. We'll use a stop at $54.05. Our first target to take some money off the table is $48.00. Our second, longer-term target is $42.50.

FYI: Traders may want to buy the puts on CREE instead of shorting the stock. There were some rumors last month that CREE was a takeover candidate. If a bid for the company appears it could be very painful for those short the stock. The put limits your risk to what you paid for the option. Plus, CREE already has a high amount of short interest (about 24% of the float) so any unexpected rallies could turn into short squeezes. For this reason you may want to limit your position size.

Suggested Position: Short the stock @ 51.12

- or

BUY the 2010 December $50 put (CREE1018X50) ask $2.92

Annotated chart:

Entry on November 01 at $xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume: 4.9 million
Listed on October 30th, 2010