Editor's Note:

The U.S. stock market is flashing some mixed signals. Some of the short-term technicals have turned bearish. New relative lows for the banking stocks have been a stumbling block for the market. Strength in the U.S. dollar is definitely having an impact, especially on commodities. Readers may want to take a step back and just wait. Give the market a couple of days to determine its direction. At the moment the S&P 500 has not yet broken the bullish trend of higher lows and higher highs but it certainly looks vulnerable.

- James


NEW BULLISH Plays

Dr. Pepper Snapple Group - DPS - close: 41.78 change: +0.36

Stop Loss: 37.90
Target(s): 44.90
Current Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
DPS has been showing relative strength almost all week long. The stock broke out to new all-time highs. The rally past resistance near $40 is a breakout from its multi-month $34-40 trading range. We don't want to chase it here. I am suggesting a buy-the-dip trigger to open bullish positions at $40.25. If triggered we'll use a stop loss at $37.90. Our target is $44.90.

buy-the-dip Trigger @ $40.25

Suggested Position: buy DPS stock @ $40.25

- or -

Buy the August $45 call (DPS1120H45) current ask $0.80

Annotated chart:

Entry on May x at $xx.xx
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 2.1 million
Listed on May 14th, 2011


NEW BEARISH Plays

Valero Energy - VLO - close: 26.68 change: +0.15

Stop Loss: 27.05
Target(s): 23.00
Current Gain/Loss: unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
VLO's 2010 rally finally ran out of gas in February this year. The stock did manage a new high in late March and early April but it didn't get very far. Upward momentum has vanished. If you squint your eyes at the daily chart is almost looks like a bearish head-and-shoulders pattern. The most recent bounce failed at resistance near its 50-dma. VLO has seen its stock start to produce a bearish trend of lower highs and lower lows in the last few weeks. Put it all together and VLO looks vulnerable to more selling.

The recent low was $25.76. I am suggesting a trigger to open bearish positions at $25.49. If triggered we'll use a stop at $27.05 and target a drop to $23.00 near the 200-dma. However, while we wait for VLO to hit our trigger at $25.49 I am watching for another failed rally type of move. If we see VLO bounce and reverse near $28 and its 50-dma then we'll probably switch our entry point, short the failure at resistance and adjust our stop.

Trigger @ $25.49

Suggested Position: Short VLO stock @ $25.49

- or -

buy the June $25 PUT (VLO1118R25) current ask $0.70

Annotated chart:

Entry on May x at $xx.xx
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume: 11 million
Listed on May 14th, 2011