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Daily Newsletter, Saturday, 08/26/2006

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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
GTBBOX

New Long Plays

Goodyear Tire - GT - close: 12.16 chg: +0.43 stop: 11.64

Company Description:
Goodyear manufacturers and markets tires, several lines of belts, hose and other engineered rubber products for the transportation industry and various industrial and consumer markets, as well as rubber-related chemicals for various applications. Goodyear operates more than 100 plants in 29 countries. (source: company press release or website)

Why We Like It:
GT displayed some relative strength on Friday. The stock added 3.6% and on above average volume, which is a feat considering that Friday was the lowest volume day of the year. Unfortunately for the bulls the rally stalled near the early August highs and its descending 100-dma (technical resistance). Looking at the chart it appears that GT has spent the last three weeks digesting its late July and early August gains and now shares look poised to begin another leg higher. We're suggesting a trigger to go long the stock at $12.35, which is above Friday's high. If triggered our target is the $13.75-14.00 range. Our time frame is about six weeks. The P&F chart on GT is still bearish.

Picked on August xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/03/06 (unconfirmed)
Average Daily Volume: 2.9 million
 

New Short Plays

Black Box - BBOX - close: 38.25 change: -0.49 stop: 40.26

Company Description:
Black Box is the world's largest technical services company dedicated to designing, building and maintaining today's complicated data and voice infrastructure systems. Black Box services 175,000 clients in 141 countries with 168 offices throughout the world. (source: company press release or website)

Why We Like It:
BBOX is under performing its peers in the networking sector. The NWX networking index has broken out from its bearish channel and appears to be consolidating its gains before heading higher. BBOX is moving the opposite direction. The stock has produced a bearish double-top pattern over the last couple of months and now the stock is breaking down to new relative lows. Technicals are bearish and its Point & Figure chart points to a $17 target. We are suggesting shorts with BBOX under $39.00 and our target is the $35.25-35.00 range. More conservative traders might want to consider an early exit near the June lows around $36.65.

Picked on August 27 at $38.25
Change since picked: + 0.00
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 243 thousand
 

Play Updates

Updates On Latest Picks

Long Play Updates

Brookfield Asset Mgt. - BAM - cls: 43.06 chg: -1.03 stop: 41.95

The sell-off on Friday was a little bit worse than we expected. Our Thursday update said the pull back may not be over and be ready for a dip toward the 10-dma. BAM lost 2.3% on Friday and actually closed under the 10-dma. This is a bearish move and traders need to turn defensive (actually we suggested caution on Wednesday with the failed rally). Considering BAM's bearish reversal and breakdown under what should have been support in the $43.50-44.00 region we are not suggesting new long positions at this time. If you look at the weekly chart (below) you'll see the failed rally pattern and how the whole move looks like a big bull trap (and we took the bait). More conservative types might want to seriously consider an early exit right here! Our target is the $49.00-50.00 range. Our time frame is four to six weeks.

Picked on August 22 at $44.82
Change since picked: - 1.76
Earnings Date 08/03/06 (confirmed)
Average Daily Volume: 393 thousand

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eBay Inc. - EBAY - close: 25.29 chg: -0.48 stop: 24.49

We were looking for EBAY to pull back and offer us an entry point to go long the stock. Shares complied on Thursday with the downgrade-induced sell-off. The weakness continued on Friday with a 1.8% loss. At this point we'd wait and watch for EBAY to dip to and bounce from the $25.00 level before considering new long positions. If you're the conservative type then consider waiting for EBAY to trade back above its 50-dma before considering new long plays. Our target is the $29.85-30.00 range.

Picked on August 24 at $26.25
Change since picked: - 0.96
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 19.6 million

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Elk Corp. - ELK - close: 26.71 change: +0.06 stop: 25.80

Traders bought the dip at $26.30 on Friday for the third time in as many days. The rebound looks like a new entry point to go long the stock, especially with short-term support at its 10-dma under Friday's low. However, readers might want to wait for a move over $27.00 before initiating new longs. The current pattern of higher lows and higher highs and its breakout from the five-month bearish channel continues to look good for the bulls. Our target is the $29.75-30.00 range but we are somewhat concerned about potential resistance at its descending 100-dma, currently nearing the $28 level.

Picked on August 22 at $27.10
Change since picked: - 0.39
Earnings Date 08/17/06 (confirmed)
Average Daily Volume: 245 thousand

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JDS Uniphase - JDSU - close: 2.58 change: -0.01 stop: 2.29*new*

Time is almost up for our bullish play on JDSU. The stock turned in a decent week but shares are currently consolidating under its exponential 200-dma near $2.66. We say time is almost up because JDSU is due to report earnings on August 30th after the market's close. We're planning to exit on Wednesday afternoon at the closing bell to avoid holding over the company's earnings report. Due to our limited time frame we're not suggesting new positions. Please note that we're raising the stop loss to $2.29, which is under the 50-dma. More conservative traders might want to put their stop under the 10-dma near 2.40.

Picked on August 16 at $ 2.50
Change since picked: + 0.08
Earnings Date 08/30/06 (confirmed)
Average Daily Volume: 42.3 million

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Lucent Tech. - LU - close: 2.25 change: +0.04 stop: 2.17*new*

LU displayed some relative strength on Friday. The stock added 1.8% and actually produced a bullish engulfing candlestick pattern. This looks like a new bullish entry point to go long the stock. Our only concern is that merger-partner ALA's stock doesn't look as healthy and a decline in ALA next week could derail this bullish reversal in LU. We are going to raise our stop loss to $2.17, which is underneath Friday's low. Don't forget that Alcatel (ALA) members are set to vote on the LU-ALA merger on September 7th. Traders should definitely keep an eye on shares of ALA since weakness in ALA will affect LU. Our target for LU is the $2.50-2.60 range.

Picked on August 20 at $ 2.31
Change since picked: - 0.06
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 42 million

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Maxim Integrated - MXIM - close: 28.57 chg: -0.12 stop: 27.95

We believed that the big rally in the semiconductor sector about two weeks ago was a potential trend change (higher) for the industry. We expected there to be some consolidation of those gains and then a continuation higher. So far all we've seen is consolidation. The lack of any follow through buying in the group has left shares of MXIM stuck in its bearish channel and under resistance at its 50-dma. Currently we have a suggested trigger to go long the stock at $30.15. If triggered at $30.15 our target is the $33-34 range. However, if MXIM trades under short-term support at the $28.00 mark we're going to consider switching to short positions and playing the current and unbroken bearish channel.

Picked on August xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/03/06 (unconfirmed)
Average Daily Volume: 6.0 million

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Knight Cap. Grp - NITE - cls: 16.45 chg: -0.21 stop: 15.45

We added NITE to the play list as a bullish candidate on August 22nd after the stock closed at a new multi-year high and produced a breakout from a very long-term (bullish) cup-and-handle pattern. Since then the stock has consolidated lower. Considering NITE's recent weakness and weakness in the XBD broker-dealer index we would be cautious about opening new bullish plays. We see two potential entry points. One would be on a dip to and bounce from the $16.00 level. Another would be to wait for a new relative high over $17.50. Our target is the $19.85-20.00 range.

Picked on August 22 at $17.36
Change since picked: - 0.91
Earnings Date 07/18/06 (confirmed)
Average Daily Volume: 1.5 million

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Novellus - NVLS - close: 26.81 change: +0.12 stop: 25.75 *new*

We would like to think the consolidation in NVLS is about over but it may not be the case. The stock's breakout over resistance at $26.00 several days ago was very bullish and the stock appears to be rising in a bullish channel (see chart). We would either watch for another bounce from the $26.00 level as another entry point to go long or a move over Friday's high at $27.20. We're going to adjust our stop loss to $25.75 to reduce our risk. Our target is the $29.50-30.00 range. Our time frame is four to six weeks.

Picked on August 16 at $26.65
Change since picked: + 0.16
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 2.8 million

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Stereotaxis - STXS - cls: 10.95 change: -0.29 stop: 9.99

STXS experienced another round of profit taking on Friday. The stock lost 2.5% but on below average volume. Shares might drift all the way back to the 200-dma near $10.40 or the $10.00 region. Traders might still want to consider locking in some profits here. We are not suggesting new positions at this time. Our target in the $11.85-12.00 range. FYI: The short interest is around 14% of the float but that reading was taken before the big squeeze in August.

Picked on August 21 at $10.31
Change since picked: + 0.64
Earnings Date 08/09/06 (unconfirmed)
Average Daily Volume: 272 thousand

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Teradyne - TER - close: 13.48 change: -0.07 stop: 12.89

A sideways market and profit taking in the semiconductor sector left shares of TER to consolidate sideways all of last week. The stock even suffered a downgrade on Thursday but traders bought the dip near its 50-dma. We would wait for a bounce from the $13.25 region before considering new bullish positions. Bear in mind that TER still has overhead resistance near $14.00. Our target is the $14.75-15.00 range.

Picked on August 16 at $13.53
Change since picked: - 0.05
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 2.4 million

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XTO Energy - XTO - close: 47.88 chg: +1.16 stop: 45.49 *new*

Merrill Lynch upgraded a handful of energy stocks on Friday morning. XTO was one of them with a upgrade from "neutral" to a "buy". The stock responded by gapping higher and closing with a 2.48% gain. The move helped support the already improving technical picture. Yet we would not consider new bullish plays right here. Wait for a dip back towards $46.75-46.50 so XTO can "fill the gap" before considering new long positions. We are adjusting the stop loss to $45.49. Our target is the $49.75-50.00 range although more conservative types might want to exit near $49.20 (currently the August high).

Picked on August 22 at $46.70
Change since picked: + 1.18
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume: 3.7 million
 

Short Play Updates

Brookefield Homes- BHS - close: 23.23 chg: -0.41 stop: 24.55

Our bearish short play in BHS has been opened. The stock broke down under support at $23.00 on Friday. Our trigger to short the stock was at $22.99. Unfortunately, the move was only on an intraday basis. We are not suggesting positions with BHS above $23.00 - wait for another move under $22.99 before initiating new plays. Our target is the $20.10-20.00 range. Please note that the latest (July) data puts short interest at 20% of BHS' 26.2 million-share float. That is a high degree of short interest and increases the risk of a short-squeeze!

Picked on August 25 at $22.99
Change since picked: + 0.24
Earnings Date 07/20/06 (confirmed)
Average Daily Volume: 497 thousand

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Portfol.Recov.Assoc. - PRAA - cls: 38.37 chg: -0.27 stop: 41.65*new*

Shares of PRAA continue to sell-off. This past week was pretty bearish for the stock. PRAA broke down to new multi-month lows and Friday marked the seventh loss in a row. We remain bearish but readers should prepare for an oversold bounce sooner rather than later. A failed rally under $40.00 could be used as a new entry point for shorts. Our target is the $36.00-35.00 range. Please note that we're adjusting our stop to $41.65.

Picked on August 24 at $39.49
Change since picked: - 1.12
Earnings Date 08/02/06 (confirmed)
Average Daily Volume: 166 thousand

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Steel Dynamics - STLD - close: 50.58 chg: -0.02 stop: 53.95

STLD continues to look weak but the stock is also near support at its exponential 200-dma (50.78), round-number support at $50.00, and its simple 200-dma (49.82). Our target is the $50.25-50.00 range but traders might want to seriously consider just exiting early right here! We're not suggesting new positions.

Picked on August 09 at $53.95
Change since picked: - 3.37
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume: 1.6 million
 

Closed Long Plays

None
 

Closed Short Plays

None
 

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

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