NEW BULLISH Plays

Auxilium Pharma - AUXL - close: 15.91 change: +0.52

Stop Loss: 14.49
Target(s): 17.95
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
AUXL is a biopharmaceutical stock that has been showing relative strength last week. The August decline was pretty steep with massive volume but the bounce is starting to see pretty big volumes too. The stock hit four-year lows two weeks ago but definitely seemed to find a bottom near the $14.00-13.75 area.

Readers may want to wait for a dip into the $15.50-15.25 area before considering new bullish positions. I am suggesting we launch bullish trades now if both AUXL and the S&P500 open positive on Monday morning. We'll use a stop loss at $14.49. More conservative traders could try a stop closer to the 10-dma near $14.82 instead. Our first target is $17.95 or the 50-dma.

Given the market's recent volatility we do want to keep our position size small.

open bullish positions if AUXL and S&P500 open positive on Monday.

Suggested Position: buy AUXL stock @ open

- or -

buy the SEP $17.50 call (AUXL1117I17.5) current ask $0.45

Annotated chart:

Entry on August xx at $ xx.xx
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on August 20, 2011


Sturm Ruger & Co - RGR - close: 29.50 change: +1.11

Stop Loss: 27.25
Target(s): 33.75
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
I do not remember the last time we traded a firearm company. Shares of RGR have been showing relative strength over the last several weeks. The stock managed to consolidate sideways near its all-time highs last week instead of correcting lower. Traders bought the dip near its 10-dma on Thursday and Friday.

If RGR can ignore the widespread market weakness then we want to hop on board. However, I'll still place the conditional entry point to only launch positions if both RGR and the S&P500 open positive on Monday morning. You never know what the weekend headline risks might be that could cause the market to plunge sharply on Monday.

If our trade is opened on Monday we'll use a stop loss at $27.25. More aggressive traders may want to put their stop under the 30-dma instead. Speaking of alternatives, you could use a close over the $30.00 level as an alternative entry point to launch bullish positions.

We'll set our first target at $33.75. FYI: The Point & Figure chart for RGR is bullish with a $40 target.

open bullish positions if RGR and S&P500 open positive on Monday

Suggested Position: buy RGR stock @ open

- or -

buy the SEP $30 call (RGR1117I30) current ask $1.85

Annotated chart:

Entry on August xx at $ xx.xx
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 310 thousand
Listed on August 20, 2011


RealD Inc. - RLD - close: 13.63 change: +0.89

Stop Loss: 11.99
Target(s): 18.00
Current Gain/Loss: unopened
Time Frame: 6 to 10 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
There has been an explosion of 3D movies over the last couple of years. Yet it looks like the bloom has fallen off the rose with shares of RLD falling from $35 in May to trade under $11 on August 9th. The prior week did set new record lows for the stock but shares seem to have found a bottom.

I would consider this an aggressive, higher-risk trade. The prior lows from the summer of 2010 could be new resistance. I am suggesting bullish positions now if both RLD and the S&P500 both open positive on Monday. If the trade is opened we'll use a stop loss at $11.99. That's a little wide for a stop and another reason why we want to keep our position size pretty small to limit our risk.

The top of the gap down in late July could be resistance so I'll set our first target at $18.00.

NOTE: If you trade options you may want to use the November instead of Octobers but the spreads are a little wider.

open bullish positions if RLD and S&P500 index open positive on Monday

Suggested Position: buy RLD stock @ open

- or -

buy the SEP $15.00 call (RLD1117I15) current ask $0.95

Annotated chart:

Entry on August xx at $ xx.xx
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on August 20, 2011


NEW BEARISH Plays

Nordic American Tanker - NAT - close: 16.70 change: -0.27

Stop Loss: 18.55
Target(s): 12.75, 10.50
Current Gain/Loss: +0.0%
Time Frame: 6 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Shipping stocks are getting hammered and investors have a right to be worried. A few years ago when shipping rates were soaring (they reached more than $220,000 a day back in the 2007-2008 period) the industry accelerated their orders for new double-hulled freighters. Shipping companies have been replacing old ships with new double-hulled ships ever since the Exxon Valdez spill. The combination of a slowing global economy and new ships coming online has killed the shipping rates. There is too much supply for demand and rates have fallen to less than $20,000 a day and for some of the busiest routes rates are essentially negative. Some of this shipping companies, like Frontline, need rates at $30,000 a day just to breakeven. Right now demand continues to look weak and new ships continue to come online. The group is likely to fall for weeks and months to come.

The fundamental troubles with the shipping industry isn't a secret. This group has been falling for months. The recent market sell-off has accelerated the decline. NAT is actually testing support in the $17-16 area. Launching positions now is an aggressive, higher-risk trade. Readers may want to wait for a bounce or failed rally near $18.00 or the 10-dma as an alternative entry point or wait for a new close under $16.50 instead. I'm listing a stop loss at $18.55, which is a little wide and another reason why we want to keep our position size small to limit our risk. Start small and add to positions later. You may want to consider using put options instead since your risk is limited to the cost of the put you purchase.

- small positions -

Suggested Position: short NAT stock @ current levels

- or -

buy the OCT $15 PUT (NAT1122V15) current ask $0.85

Annotated chart:

Entry on August xx at $ xx.xx
Earnings Date 11/07/11 (unconfirmed)
Average Daily Volume = 583 thousand
Listed on August 20, 2011


Overseas Shipholding Group - OSG - close: 15.35 change: -0.72

Stop Loss: 17.55
Target(s): 12.50, 10.25
Current Gain/Loss: + 0.0%
Time Frame: 6 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
OSG is another bearish candidate in the shipping industry. I explain our bearish outlook for the shippers in the NAT trade above. We are going to label this an aggressive, higher-risk trade. The fundamental story for the shippers is not a secret and short interest on OSG is huge at 41% of the small 24.7 million-share float. You might want to consider limiting your risk by using put options - at least this way your risk is limited to the cost of the put you purchase.

Another reason I am labeling this an aggressive bearish trade is because OSG has fallen to support near its late 2002 and early 2003 lows in the $15.00 region. There is a chance the stock could see a bounce and with that much short interest any bounce could be a sharp one.

I would keep positions very small to start. We are suggesting new bearish positions now but you could wait for a bounce or failed rally near the 10-dma or the $17.00 area instead as your entry point. We will start this trade with a stop loss at $17.55. Our current targets are $12.50 and $10.25.

- Small Bearish Positions -

Suggested Position: short OSG stock @ current levels

- or -

buy the OCT $14 PUT (OSG1122V14) current ask $1.35

Annotated chart:

Entry on August 22 at $ xx.xx
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 981 thousand
Listed on August 20, 2011