Editor's Note:

Stocks remain oversold in spite of the late week bounce. The risk is to the upside.

Two more stocks that caught our eye as potential bullish trades this week are: DRC and TGI

- James


NEW BULLISH Plays

Giant Interactive Group Inc. - GA - close: 8.20 change: +0.10

Stop Loss: 7.20
Target(s): 9.30
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
GA designs and operates online video games in China. The company reported earnings on Aug. 8th. The results of 18 cents a share were 3 cents better than expected. Revenues also beat expectations. Shares initially rallied on this news. You can see the spike higher on Aug. 9th.

This stock displayed relative strength on Wednesday when the U.S. markets were down. It has now rallied to a new two-week high. GA is also one of the few stocks that still has a bullish P&F chart.

I am suggesting bullish positions on Monday but only if GA and the S&P500 index both open positive on Monday morning. I am setting our stop loss on the stock at $7.20. That's a little wide so readers should consider this a higher-risk, more aggressive trade. If you don't feel like buying GA here then look for another dip or bounce near the $7.80 area instead.

We want to keep our position size small to limit our risk.

If GA and the S&P500 index open positive on Monday, then launch bullish positions.

Suggested Position: buy GA stock @ open

- or -

buy the SEP $7.50 call (GA1117I7.5) current ask $0.95

Annotated chart:

Entry on August xx at $ xx.xx
Earnings Date 11/16/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on August 13, 2011


Honeywell Intl. - HON - close: 46.88 change: +2.25

Stop Loss: 44.40 (stock only)
Target(s): 49.75, 53.50
Current Gain/Loss: unopened
Time Frame: 2 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The sell-off in HON has been pretty horrendous. When the market collapse began HON was trading above $58. Shares saw a -25.7% drop to this past week's closing low. The drop is -30% from its 52-week high. Industrial names like HON were hammered lower on fears of a double-dip recession in the U.S. The breakdown under $55 and its 200-dma was also the sell signal from a bearish head-and-shoulders pattern. The stock has already exceeded that H&S pattern's bearish target. Essentially the sell-off was overdone. Now HON is beginning to bounce from oversold conditions.

We want to launch bullish positions if both HON and the S&P500 index both open positive on Monday morning. If the play is open we'll use a stop loss at $44.40. Unfortunately, that means if the market sees another big down day like Monday or Wednesday last week we'll get stopped out (assuming the trade is opened on Monday morning). Thus we want to keep our position size pretty small to limit our risk. We'll set our first upside targets at $49.75 and $53.50. We're not using a stop loss on our option positions.

If HON and the S&P500 index open positive on Monday, then launch bullish positions.

Suggested Position: buy HON stock @ open

- or -

buy the SEP $50 call (HON1117I50) current ask $0.95

Annotated chart:

Weekly chart:

Entry on August xx at $ xx.xx
Earnings Date 10/21/11 (unconfirmed)
Average Daily Volume = 7.8 million
Listed on August 13, 2011