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Daily Newsletter, Saturday, 01/14/2006

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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
AAPNone
PTEN 
SNDA 

New Long Plays

Advance Auto Parts - AAP - close: 44.37 chg: +0.01 stop: 43.69

Company Description:
Headquartered in Roanoke, Va., Advance Auto Parts is the second-largest retailer of automotive parts, accessories batteries and maintenance items in the United States based on sales and store count. As of October 8, 2005, the company had 2,829 stores in 40 states, Puerto Rico and the Virgin Islands. The company serves both the do-it-yourself and professional installer markets. (source: company press release or website)

Why We Like It:
The consolidation pattern in shares of AAP has a bullish twist to it. The rising trend of higher lows suggests that shares will eventually breakout over resistance at the $45.00 level. The Point & Figure chart is also bullish with a $61 target. We want to capture any breakout with a trigger to go long at $45.05. If triggered we'll target a rally into the $48.00-49.00 range. This play might be considered more aggressive than normal because of our time frame. We do not want to hold over the early February earnings report.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 891 thousand

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Patterson-UTI - PTEN - close: 36.18 change: +0.46 stop: 33.85

Company Description:
Patterson-UTI Energy, Inc. provides onshore contract drilling services to exploration and production companies in North America. The Company owns 403 land-based drilling rigs that operate primarily in the oil and natural gas producing regions of Texas, New Mexico, Oklahoma, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota and western Canada. Patterson-UTI Energy, Inc. is also engaged in the businesses of pressure pumping services and drilling and completion fluid services. Additionally, the Company has an exploration and production business. (source: company press release or website)

Why We Like It:
The oil service stocks have turned in a very strong month so far this year and there's no reason to suspect they won't continue to out perform the market. Analysts estimates are running pretty strong for earnings growth in the sector this quarter. PTEN has been showing relative strength the last few days. The stock broke out over resistance at the $35.00 level on above average volume. We considered going long right here with the recent breakout but PTEN still has some resistance overhead. Therefore we're suggesting a trigger to go long at $36.85 (a new high). If triggered we'll target a rise into the $39.85-40.00 range. More aggressive traders may want to initiate positions now or on a dip back toward the $35 level, which should now act as support. The P&F chart is bullish with a $46.50 target but a move over $37.00 would produce a new triple-top breakout buy signal. We do not want to hold over the earnings report. Unfortunately, we can't find a good date for PTEN's upcoming announcement. Some sources say January 26th other say the 31st, while other suggest PTEN will report earnings in February or even March.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume: 3.2 million

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Shanda Inter. - SNDA - close: 17.17 change: -0.21 stop: 16.75

Company Description:
Shanda Interactive Entertainment Limited is a leading interactive entertainment media company in China. Shanda offers a portfolio of diversified entertainment content including some of the most popular massively multi-player and casual online games in China, along with online chess and board games, a network PC game platform and a variety of cartoons, literary and music content. Shanda's interactive entertainment platform attracts a large and loyal user base. Each user can interact with thousands of others and enjoy the interactive entertainment content that Shanda provides. Interaction enriches your life. (source: company press release or website)

Why We Like It:
SNDA is an aggressive, speculative play. If Intel, IBM and YHOO report bullish earnings numbers and/or offer some positive guidance during their conference calls then the technology sector is likely to rally on Wednesday. If technology rallies then SNDA's nascent rebound could pick up momentum. The stock is still battling with its five-month bearish trend and technical resistance at its 50-dma but the Point & Figure chart has already reversed into a new buy signal with a $24 target. The stock to really watch is YHOO. SNDA tends to get lumped in with some of the Internet stocks so YHOO's earnings report will probably have the biggest influence on SNDA this week. We are going to suggest a trigger to go long SNDA at $18.10, which is above technical resistance a the 50-dma. Please note - more conservative traders will probably want to wait until Wednesday to even consider going long SNDA. It would be dangerous to see SNDA breakout on Monday only to have YHOO bomb its earnings report and then see SNDA reverse on us. If triggered we will target a rally into the $19.90-20.00 range.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 1.6 million
 

New Short Plays

None today.
 

Play Updates

Updates On Latest Picks

Long Play Updates

Amer. Power Conv. - APCC - cls: 23.35 chg: +0.16 stop: 22.90 *new*

We debated over whether or not to keep APCC on the play list as a long candidate. The stock's breakout over resistance at the $23.00 level and its five-month trendline of resistance is very bullish but there has been no upward momentum, no follow through higher. Yet at the same time broken resistance at $23.00 has become new support. While APCC remains under short-term resistance at its 100-dma, which has held strong for the past week, the stock was still able to show some relative strength on Friday. We are going to keep the play alive with an end of January target in the $26.50-27.00 range. However, we're going to raise our stop loss to $22.90. We would probably not open new positions until APCC traded over $23.55 or $23.60. We do not want to hold over the early February earnings report.

Picked on January 08 at $23.57
Change since picked: - 0.22
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 1.5 million

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ATI Tech. - ATYT - close: 17.14 change: -0.08 stop: 16.45 *new*

News that Apple (AAPL) had chosen ATYT to supply the graphics card/chip for one of AAPL's new notebooks gave shares of ATYT a boost midday on Friday. Unfortunately the boost wasn't enough to push ATYT back into the green. The stock's direction next week will probably depend on what Intel reports for earnings on Tuesday and how the markets react to the Intel news and guidance. If you don't want to risk a bad report from Intel sinking the semiconductor sector then you should consider exiting early in this ATYT play. On a more positive note the Friday session produced a hammer-type candlestick, which tends to be bullish. We are not suggesting new positions and would not consider new positions until ATYT traded back over the $17.50 level. We will try and reduce our risk by raising the stop loss to $16.45.

Picked on January 08 at $17.71
Change since picked: - 0.57
Earnings Date 03/23/06 (unconfirmed)
Average Daily Volume: 4.8 million

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Bluelinx - BXC - close: 12.85 change: +0.02 stop: 11.45

We don't see any change from our previous updates. So far BXC is holding on to its gains from earlier in the week. Yet if the markets see some profit taking or sell on the news sort of reaction we'd expect BXC to retrace back toward the $12.00 level, which should act as support. We would consider new longs in the $12.00-12.55 region. Our target will be the $15.00-15.50 range by late February through early March. FYI - the P&F chart points to a $25 target.

Picked on January 10 at $12.47
Change since picked: + 0.38
Earnings Date 03/09/06 (unconfirmed)
Average Daily Volume: 142 thousand

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Evergreen Solar - ESLR - close: 12.26 change: -0.21 stop: 10.99

ESLR continued to slip on Friday after Thursday's failed rally. ESLR, a solar power company, got a big boost this past week as investors bid up the stock ahead of the big vote in California. On Thursday the solar energy bill passed making it the largest solar energy policy in the U.S. ever enacted. We would consider new long positions in the $11.50-12.50 range. More conservative traders may want consider using a tighter stop loss. Our target is the $13.90-14.00 range. It would be tempting to aim higher but we do not want to hold over the company's earnings February earnings report.

Picked on January 10 at $12.25
Change since picked: + 0.01
Earnings Date 02/03/06 (unconfirmed)
Average Daily Volume: 2.4 million

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LifeCell Corp. - LIFC - close: 21.79 change: +1.71 stop: 19.24

Great news! LIFC displayed some solid relative strength on Friday. The stock was upgraded before the open and shares gapped higher and ran for an 8.5% gain. Volume was very strong at almost four times the daily norm, which is pretty bullish. The analyst upgrading the stock moved their rating to an "out perform" and said that concerns over increasing competition are overblown. Our target is the $24.00-25.00 range but we don't want to hold over the January earnings report and that doesn't give us a lot of time.

Picked on January 11 at $20.65
Change since picked: + 1.14
Earnings Date 01/24/06 (confirmed)
Average Daily Volume: 598 thousand

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Nexen Inc. - NXY - close: 50.64 change: -0.17 stop: 47.95

We are urging traders to be a little cautious here. The oil sector continued higher in the U.S. markets on Friday but Canadian NXY slipped lower. The decline wasn't a surprise. We warned readers that Thursday's session produced a bearish reversal pattern. If you're feeling optimistic you could say that bulls were there on Friday to buy the dip near $49.60. We would not suggest new bullish positions at this time. Wait for a new move over $52.00 before initiating new longs just to make sure the trend is intact. The good news is that this week produced a new triple-top breakout buy signal on its Point & Figure chart. Our target is the $57.50-58.00 range by mid February.

Picked on January 11 at $52.11
Change since picked: - 1.47
Earnings Date 02/17/06 (unconfirmed)
Average Daily Volume: 424 thousand
 

Short Play Updates

GMX Resources - GMXR - close: 35.47 chg: -0.18 stop: 37.01

The OIX oil index and OSX oil services index produced a decent gain on Friday so GMXR's decline continues the recent pattern of relative weakness. Unfortunately, GMXR isn't making much progress moving lower. The stock has been relatively volatile making this a dangerous stock to short. We are not suggesting new positions at this time. Our new target is the $32.00-31.50 range (we're aiming for the 50-dma).

Picked on January 01 at $36.00
Change since picked: - 0.53
Earnings Date 02/20/06 (unconfirmed)
Average Daily Volume: 256 thousand

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Landstar System - LSTR - close: 41.24 change: +0.21 stop: 42.01

Historically the transportation stocks don't tend to perform very well in January and so far LSTR is holding true to the pattern. The stock has not participated in the market's rally and shares look poised to breakdown and hit new relative lows. The failed rally on Friday looks like a new bearish entry point but our trigger to short the stock is at $39.95, under support at the $40.00 mark. If triggered we'll target a decline into the $36.50-36.00 zone above its simple 200-dma. We do not want to hold over the early February earnings report.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 406 thousand

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MedImmune - MEDI - close: 34.11 change: -0.48 stop: 35.41

The upward momentum in MEDI failed back in November and the stock has failed repeatedly to breakout over the $37.00 level. Now the stock is drifting lower and poised to breakdown below support near $33.50 and its 100-dma (33.45). Our trigger to short the stock and catch the breakdown is $33.45. If triggered we'll target a decline into the $30.50-30.00 range above its 200-dma. We do not want to hold over the early February earnings report.

Picked on January 0x at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 2.1 million
 

Closed Long Plays

None
 

Closed Short Plays

Mercury Computer - MRCY - close: 20.34 change: +0.68 stop: 20.51

We are choosing to exit early in MRCY. The stock showed way too much relative strength on Friday with a 3.4% gain and a breakout over resistance at the $20.00 mark and its 50-dma. Technical oscillators are turning higher and that doesn't bode well for the shorts.

Picked on January 05 at $19.34
Change since picked: + 1.00
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume: 296 thousand
 

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

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