Option Investor

Daily Newsletter, Saturday, 10/08/2005

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Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Market Wrap

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays

New Long Plays

EMC Corp - EMC - close: 13.21 change: +0.13 stop: 12.95

Company Description:
EMC Corporation is the world leader in products, services and solutions for information storage and management that help organizations extract the maximum value from their information, at the lowest total cost, across every point in the information lifecycle. (source: company press release or website)

Why We Like It:
Analysts have turned more bullish on EMC lately even though the GHA.X hardware index has broken down from a four-month sideways consolidation. If you look at the daily chart for EMC you'll notice the rally higher in late September. This run helped push the stock through its trendline of resistance dating back to July. It's common to see stocks pull back and retest the broken resistance as new support and that's what EMC appears to be doing with the pull back toward the $13.00 level. We believe that EMC could be poised to run higher into its earnings report due out October 19th, especially with the NASDAQ near support and poised to produce an oversold bounce. Our plan is to initiate longs with EMC above $13.00 and target a move into the $14.25-14.50 range. We'll use a tight stop at $12.95 to limit our risk. We will plan to exit on October 18th to avoid holding over the earnings report.

Picked on October 09 at $13.21
Change since picked: + 0.00
Earnings Date 10/19/05 (confirmed)
Average Daily Volume: 12.8 million

New Short Plays

Cree Inc. - CREE - close: 23.38 chg: -0.68 stop: 24.01

Company Description:
Cree, Inc. is a market-leading innovator and manufacturer of semiconductors that enhance the value of solid-state lighting, power and communications products by significantly increasing their energy performance. Key to Cree's market advantage is unrivaled materials expertise in silicon carbide (SiC) with gallium nitride (GaN) to deliver chips and packaged devices that can handle more power in a smaller space while producing less heat than other available technologies, materials and products. Cree drives its increased Return on Energy(TM) (ROE(TM)) solutions into multiple applications including exciting alternatives in brighter and more tunable light for general illumination, backlighting for more vivid displays, optimized power management for high-current switch-mode power supplies and variable speed motors, and more effective wireless infrastructure for data and voice communications. Cree customers range from innovative lighting fixtures makers to defense related federal agencies. (source: company press release or website)

Why We Like It:
CREE looks poised to breakdown from its seven-week trading range between $23.50 and $26.00. The stock was already trading in a bearish pattern with the sharp double-top pattern with peaks in May and August. Technicals are naturally bearish following last week's four-day slide. We want to see confirmation that CREE is going to turn lower. Our plan is to use a trigger at $22.99 to open the play. If triggered we will target the March lows (20.68). We'll plan to exit in the $21.00-20.75 range. The biggest risk here is a short squeeze. The most recent data puts short interest at 16.4% of CREE's 75.5 million shares outstanding. Therefore traders should consider positions very carefully! We plan to exit before the company's October 20th earnings report so it's very possible that CREE may not hit our target before we close the play.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/20/05 (confirmed)
Average Daily Volume: 1.3 million


Corning Inc. - GLW - close: 18.54 chg: -0.06 stop: 20.01

Company Description:
Corning Incorporated is a diversified technology company that concentrates its efforts on high-impact growth opportunities. Corning combines its expertise in specialty glass, ceramic materials, polymers and the manipulation of the properties of light, with strong process and manufacturing capabilities to develop, engineer and commercialize significant innovative products for the telecommunications, flat panel display, environmental, semiconductor, and life sciences industries. (source: company press release or website)

Why We Like It:
GLW was a big winner for investors through late spring and summer of this year. Yet now it looks like the trend is changing. Shares broke down below its bullish trend and simple 50-dma about three weeks ago. The stock dipped to the 100-dma and then produced an oversold bounce. The bounce hit round-number resistance at the $20.00 level and failed. This really was the bearish entry point and we're just hopping on a couple of days late. A quick look at the Point & Figure chart shows that the breakdown in September produced a new sell signal that now points to a $13.00 target. We are going to target a decline into the $16.50-16.00 range since the $16.00 level was support back in June and July and is currently underpinned by its exponential 200-dma. We do plan to exit ahead of the company's October 26th earnings report. If shares bounce again next week look for a failed rally under the 50-dma (19.50) or the $20.00 level as a new entry point.

Picked on October 09 at $18.54
Change since picked: + 0.00
Earnings Date 10/26/05 (confirmed)
Average Daily Volume: 11.9 million

Play Updates

Updates On Latest Picks

Long Play Updates

Mckesson - MCK - close: 45.60 chg: -0.83 stop: 44.85

The action in MCK on Friday was interesting. The stock continued to sell-off despite the fact the major averages we trying to bounce. Shares of MCK did rebound from their lows of the session near $45.00 but the relative weakness is a warning and it produced a new MACD sell signal. If MCK breaks down under the $45.00 level traders may want to reverse positions and short the stock since such a move would make the peak in August and the new one last week look like a double-top pattern. We are not suggesting new plays at this time.

Picked on September 18 at $46.47
Change since picked: - 0.87
Earnings Date 11/08/05 (unconfirmed)
Average Daily Volume: 1.5 million

Short Play Updates

Career Educ. - CECO - close: 34.36 chg: +0.76 stop: 36.51

CECO produced a strong oversold bounce on Friday with a 2.2% gain but volume came in relatively light. We remain bearish on the stock but there is a chance the bounce isn't over yet. Readers can watch for a failed rally under the $35.00-35.50 region as a new bearish entry point. Our target is the $31.00 level compared to the Point & Figure chart which points to a $25 target.

Picked on October 04 at $34.99
Change since picked: - 0.63
Earnings Date 10/26/05 (unconfirmed)
Average Daily Volume: 1.6 million


Cost Plus - CPWM - close: 17.32 change: +0.37 stop: 19.01 *new*

CPWM is very oversold after setting a string new four-year lows this past week so we are not surprised by Friday's oversold bounce. Shares almost hit our target in the $16.50-16.00 range and this close to our target we've been suggesting that more conservative traders seriously consider exiting here for a profit. That suggestion still stands today. We're not suggesting new plays. Our new stop loss is $19.01.

Picked on September 20 at $19.78
Change since picked: - 2.45
Earnings Date 11/17/05 (unconfirmed)
Average Daily Volume: 390 thousand


Enzo Biochem - ENZ - close: 13.77 chg: -0.03 stop: 15.01*new*

Time is running out for our play in ENZ. The company is due to report earnings on Friday, October 14th. We do not know if they report before the bell or after the close so we plan to exit on Thursday afternoon at the closing bell for that session. There are too many unknown variables during an earnings report and it normally it's too risky to hold a directional position. Shares of ENZ failed to really participate with any market bounce on Friday and the stock produced one of its least volatile sessions we've seen in several days. Our target is the $12.25-12.00 range. We are lowering the stop loss to $15.01.

Picked on October 03 at $14.36
Change since picked: - 0.59
Earnings Date 10/14/05 (unconfirmed)
Average Daily Volume: 90 thousand


99c Only Stores - NDN - close: 9.18 chg: -0.10 stop: 10.01

NDN tried to bounce higher on Friday with the rest of the retail sector but it could not hold its early morning gains. This is probably due to the press release put out by the company on Friday morning. NDN pre-announced its Q3 sales figures that came in below analysts' estimates. NDN also said that same-store sales fell 0.7% for the quarter. The company blamed higher gasoline prices for the downturn. We remain bearish on the stock and continue to target the $8.60-8.50 range.

Picked on September 27 at $ 9.40
Change since picked: - 0.22
Earnings Date 10/20/05 (unconfirmed)
Average Daily Volume: 581 thousand


Toll Brothers - TOL - close: 39.91 chg: +0.65 stop: 44.55

Homebuilders produced an oversold bounce on Friday after a very tough week. The DJUSHB home construction index broke down under significant support at the 900 level and its simple and exponential 200-dma's. Shares of TOL were already under their 200-dma's and broke down from a bear-flag type pattern. Inflation fears are not going to go away any time soon and the homebuilders will probably continue to see more selling pressure. Readers can watch for a failed rally under the $42 level as a new bearish entry point to short the stock. Our target is the $36.50-36.00 range.

Picked on October 05 at $40.95
Change since picked: - 1.04
Earnings Date 08/25/05 (confirmed)
Average Daily Volume: 4.6 million

Closed Long Plays


Closed Short Plays


Today's Newsletter Notes: Market Wrap by Jim Brown and all other plays and content by the Option Investor staff.


Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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