Option Investor
Newsletter

Daily Newsletter, Monday, 08/28/2006

HAVING TROUBLE PRINTING?
Printer friendly version

Table of Contents

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

Market Wrap

Stocks; Tropical Storm Ernesto Turn North

The major indexes recouped more than half of last week's losses on summer-like volume as the National Hurricane Center's recent forecast for Tropical Storm Ernesto had the storm's path tracking north/northeast and steering clear of oil and gas platforms in the Gulf of Mexico.

Energy futures fell sharply and overshadowed several merger announcements in the sector.

On Friday, October Natural Gas futures (ng06v) surged higher by $0.2046/btu, or +11.00% to settle at $7.34 as trader's contemplated last year's weekend arrival of Hurricane Katrina, which had the Nov05 contract jumping 19% the following Monday, but plunged more than $0.29/btu, or 14% today.

Exacerbating today's declines for natural gas prices is Tuesday's expiration of the September contract (ng06u) as traders rushed to sell rather than take delivery with winter still a couple of months away.

October Crude Oil futures (cl06v) were also weak and fell back near psychological and technical support of $70/bbl to settle down $1.90, or -2.62% at $70.61.

Advertisement

Get 50% of your trades wrong and still make big profits in the stock market!

We'll show you exactly when to buy and sell stocks with a proven method used by professional traders to manage risk, nail short-term gains, and pile up amazing profits. Master short-term trading with our expert analysis, detailed technical charts, and precise trade setups including specific entry, stop, and target prices. Now Completely FREE for 30 Days!

CLICK HERE: http://www.hotstix.com/public/default.asp?aid=10383

BP (NYSE:BP) $68.30 -0.01% said it restored production in the western portion of its Prudhoe Bay, Alaska, field to more than 200,000 barrels of oil a day.

As if weather patterns aren't enough to keep oil trader's on their toes, some traders are concerned about the possibility that Iran, the world's fourth-biggest oil producer, may block oil exports if it suffers sanctions by the United Nations over its nuclear program. The U.N. set an August 31 deadline for Iran to halt its nuclear program, but Tehran said Tuesday that it wants to negotiate further.

The United States said Iran's response fell far short of U.N. Security Council demands it halt uranium enrichment, which can be used in the development of nuclear weapons.

Industry analysts remain uncertain as to the likelihood that Iran would cut off its oil exports, or that the West would take any actions that would force Tehran to retaliate in such a way.

Wachovia analyst Jason Schenker said, "We (the United States) don't want them to cut their oil exports, and they don't want to cut their exports," and added that oil could very well trade in the $60-$65 range in 2007, assuming economic growth continues to taper off.

Tropical Storm Ernesto - 5-day Cone / Projected Path

Friday's update from the National Hurricane Center had Ernesto headed northwesterly, but Sunday morning's forecast had the storm headed right for the southern top of Florida. When Sunday's electronic trade opened, energy futures gapped sharply lower.

I can only imagine that into Friday's close, a trader short natural gas was likely pressed to cover as he/she contemplated the possibility that natural gas prices could gap higher by 19% as witnessed on Monday, August 29, 2005, while a speculative bull felt deflated Sunday evening as Ernesto's path and natural gas futures deviated from plan.

U.S. Market Watch - 08/28/06 Close (04:20 PM EDT)

The Natural Gas Index (XNG.X) 435.65 -0.71% traded weak, but not nearly as weak as the commodity and closed just under its 21-day SMA (436.00).

Merger-related news had Kinder Morgan (NYSE:KMI) $104.27 +2.52% agreeing to be bought by a group of investors for $107.50 a share, a 27% premium to the closing price on May 26, the day before the investor group made its $100 a share proposal to take the company private.

Additional merger news in the energy sector had Woodside, an Australian petroleum firm, saying it will make a $1.2 billion, or $23 a share, bid for Energy Partners (NYSE:EPL) $24.14 +31.19% if that company's shareholders vote down a pending deal with Stone Energy (NYSE:SGY) $44.35 -6.80%.

Refiner Giant Industries (NYSE:GI) $82.22 +14.42% bucked today's weakness among many refiners after Western Refining (NYSE:WNR) $25.14 -3.27% offered to pay $83.00 a share in cash for its shares. Western said it would also assume $275 million of Giant's debt.

The CBOE Internet Index (INX.X) got a boost after Google (NASDAQ:GOOG) $380.95 +2.06% and eBay (NASDAQ:EBAY) $25.79 +1.93% said Google will exclusively display test ads on eBay's auction Web sites outside the U.S. and introduce "click-to-call" Web-site technology to quickly connect online consumers with advertisers.

The Semiconductor HOLDRs (AMEX:SMH) $33.24 +1.43% closed at its highest level since 07/03/06 ($33.34) with Intel (NASDAQ:INTC) $19.38 +2.53% and NIVIDIA (NASDAQ:NVDA) $27.39 +3.43% benefiting from an upgrade by Chris Caso at Friedman, Billings, Ramsey & Company.

Mr. Caso raised his rating on Intel to "outperform" from "market perform" saying channel checks in Asia suggest microprocessor demand is stabilizing and inventories are showing signs of improvement.

Mr. Caso cited the upcoming release of the Vista operating system from Microsoft (NASDAQ:MSFT) $25.95 +0.38% for his upgrade on NVIDIA to "outperform" from "underperform," and that the company should see more demand from personal-computer makers.

There were no major economic reports slated for Monday, but regional Fed data had the Chicago Fed Index up 0.6% in July and rising for a second-straight month despite a drop in auto production. Regional output was up 6.1% from a year earlier.

The Dallas Fed said its production index rebounded to 33.4 in August, up from a 9.4 reading in July, but largely unchanged versus over the past 6-months.

Tomorrow morning at 10:00 AM EDT we'll get a look at August consumer confidence (consensus 102.5 vs prior 106.5). Then at 02:00 PM EDT the Federal Open Market Committee (FOMC) will release the minutes from its August 8th meeting.

Good Setup for Tech Year-End Rally

On Friday, as I reviewed some of the market internals, various major market technicals and turned the page in my StockTrader's Almanac to this week's calendar, "the stars aligned" for what look(ed) to be a setup for some further weakness early this week, that would lead to some very good pullback entries, where option traders could find some lower volatilities to gather up some index call options for a very profitable year-end push.

One set of internals I noted in last week's Market Monitor at OptionInvestor.com was that for the first time since earlier this Spring, the NASDAQ's 10-day NH/NL ratio (see table at top of tonight's Market Wrap) had given a "buy signal" with a 38% reading on Friday, suggesting to me that on an intermediate-term basis, leadership was shifting more bullish.

Not that the number of new 52-week highs are growing at a rapid rate, but enough to begin outpacing the number of new 52-week lows.

In mid-July, 07/07/06 similar 10-day NH/NL readings were present for the NYSE, which was a "heads up to buy weakness" for the very broad NYSE Composite ($NYA.X).

Let's take another quick look at the very broad NYSE Composite ($NYA.X) with our high/low close retracement. This is what I would use as a "guide" and "confidence builder" for bulls to buy a potential decline in the NDX/QQQQ.

NYSE Composite ($NYA.X) - Daily Intervals

When I "turned the page" to this week's calendar for The StockTrader's Almanac, Monday's entry is "End of August murderous 6 of last 9 years, average loss last 5 days: Dow -2.9%, S&P -2.7%, NASDAQ -2.4%."

Now, I've set my QCharts cursor box to 07/07/06 on the above NYSE Comp. bar chart, where it was that day that the NYSE 10-day NH/NL ratio gave its first "buy signal," and over the course of the next 7 sessions fell roughly 300 points, or -3.6%.

While there is NO GUARANTEE that history would ever repeat itself (StockTrader's Almanac, or NASDAQ Comp showing similar trade as NYSE Composite did when its 10-day NH/NL ratio gave its first "buy signal") there's enough similarity presenting itself to be on the alert.

The "dotted blue" horizontal line at 8,388 is the 5/16/06 close for the NYSE Composite, the same day its 10-day NH/NL ratio first gave a "sell signal."

NASDAQ Composite Index (COMPX) - Daily Intervals

It would be a "tough trade" to say traders, or investors should be taking FULL positions in 4 and 5-lettered stocks at this point, but I think the "ideal" trade would be to look for some type of 3% pullback in the NASDAQ Comp (and/or NDX/QQQQ) for a bullish entry and have some CONFIDENCE for a nice sharp recovering back higher, when using a past observation from the NYSE Composite trade.

Partial bullish positions can't be criticized either at this point, with the thought that a pullback might come.

The recent spats of weakness sure haven't had much long liquidators (that is ... longs willing to relinquish their grip on recent gains).

Now let's look at the much narrower NASDAQ-100 Tracker (AMEX:QQQQ) $38.61 +0.75% and some technicals that a trader looking for a PULLBACK might relish.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

As internals look to improve for the NASDAQ, and history hints a pullback to the end of the month might present itself, I can remember the Market Wraps from mid-August and the notable gains for the QQQQ above $37.25 on August 15. A reverse head/shoulder pattern would have a VERY NICE "right shoulder" pullback at $37.25.

Conclusions: The weather can change on dime, but the internal repair and actual PRICE action for the NASDAQ suggests it should be time to focus on buying pullbacks. If history is any indications, there are some very good setups for bulls to have some confidence to be buying pullbacks and looking for some very nice gains into year's end.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None None

New Long Plays

None today.
 

New Short Plays

None today.
 

In Play Updates and Reviews

Long Play Updates

Brookfield Asset Mgt. - BAM - cls: 44.04 chg: +0.98 stop: 41.95

Volume came in relatively light but shares of BAM still managed a decent 2.2% bounce on Monday. The rebound almost erased Friday's sell-off. This is encouraging so we're suggesting a move over $44.25 or $44.50 as potential entry points to consider going long again. 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: - 0.78
Earnings Date 08/03/06 (confirmed)
Average Daily Volume: 393 thousand

---

eBay Inc. - EBAY - close: 25.79 chg: +0.49 stop: 24.49

EBAY made headlines on Monday by partnering up with Google (GOOG). The company signed a multi-year agreement to let GOOG supply all the text ads on all of its non-U.S. websites. The move fueled a rebound in EBAY to $26.15 but shares pared their gains by the closing bell and were unable to breakout (again) over its 50-dma. Traders can choose to buy this bounce or wait for a rise past the 50-dma near $26.43 before initiating positions. Our target is the $29.85-30.00 range.

Picked on August 24 at $26.25
Change since picked: - 0.46
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 19.6 million

---

Elk Corp. - ELK - close: 27.03 change: +0.32 stop: 25.80

Shares of ELK displayed some strength on Monday with a 1.19% rally from its rising 10-dma. The stock is still trading under what appears to be resistance in the $27.15-27.30 region but we remain bullish and see today's rally as a new entry point to go long. Conservative traders might want for a new relative high before opening plays. 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: - 0.07
Earnings Date 08/17/06 (confirmed)
Average Daily Volume: 245 thousand

---

Goodyear Tire - GT - close: 12.60 chg: +0.44 stop: 11.64

Our new bullish play in GT is now open. The rally that began on Friday continued today and shares broke out over resistance at its 100-dma and hit new three-month highs. Our trigger to go long the stock was at $12.35. Our target is the $13.75-14.00 range. Our time frame is about six weeks.

Picked on August 28 at $12.35
Change since picked: + 0.00
Earnings Date 11/03/06 (unconfirmed)
Average Daily Volume: 2.9 million

---

JDS Uniphase - JDSU - close: 2.65 change: +0.07 stop: 2.48*new*

JDSU is still inching higher but shares are struggling to breakout over its exponential 200-dma near $2.66. We only have two days left. JDSU is due to report earnings on Wednesday after the closing bell and we're planning to exit on Wednesday afternoon right at the close to avoid holding over the announcement. We're going to try and reduce our risk by raising the stop loss to $2.48. Our target remains the $2.85 level.

Picked on August 16 at $ 2.50
Change since picked: + 0.15
Earnings Date 08/30/06 (confirmed)
Average Daily Volume: 42.3 million

---

Lucent Tech. - LU - close: 2.26 change: +0.03 stop: 2.17

LU seems like it's trying to rally but the stock gave back most of its gains today. The stock failed to breakout over the $2.29 level multiple times. More conservative traders may want to use a tighter stop loss. 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: - 0.05
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 42 million

---

Maxim Integrated - MXIM - close: 28.78 chg: +0.21 stop: 27.95

There is no change from our weekend update on MXIM. 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

---

Knight Cap. Grp - NITE - cls: 17.16 chg: +0.71 stop: 15.45

Traders decided to buy the dip in NITE and the stock produced a 4.3% rally on Monday. Volume came in above average, which is both bullish and impressive given the weak volume across the markets today. This rebound looks like a new entry point to go long the stock but more conservative traders may want to wait for a new high before initiating positions. Our target is the $19.85-20.00 range.

Picked on August 22 at $17.36
Change since picked: - 0.20
Earnings Date 07/18/06 (confirmed)
Average Daily Volume: 1.5 million

---

Novellus - NVLS - close: 27.29 change: +0.48 stop: 25.75

NVLS out performed its peers in the semiconductor sector with a 1.79% rally on Monday. Volume came in relatively strong and the stock continues to climb with its trend of higher lows. We need to remind readers that the situation could get riskier in just a couple of days. NVLS is due to report its mid-quarter update on Wednesday, August 30th. The conference call begins after the closing bell. Traders might want to exit early to eliminate risk or tighten their stop losses before the update. 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: + 0.64
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 2.8 million

---

Stereotaxis - STXS - cls: 10.70 change: -0.25 stop: 9.99

The profit taking in STXS continues. The stock lost another 2.2% and posted its third loss in a row after last week's big spike higher. We are not suggesting new plays at this time. Watch to see if STXS can bounce from its simple 200-dma near $10.40. 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: + 0.39
Earnings Date 08/09/06 (unconfirmed)
Average Daily Volume: 272 thousand

---

Teradyne - TER - close: 13.62 change: +0.14 stop: 12.89

We were expecting more of a dip in TER. Monday's relative strength is a positive sign and traders might want to consider opening new plays right here. Bear in mind that TER still has some overhead resistance near $14.00. Our target is the $14.75-15.00 range.

Picked on August 16 at $13.53
Change since picked: + 0.09
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 2.4 million

---

XTO Energy - XTO - close: 47.11 chg: -0.77 stop: 45.49

Oil and gas stocks traded lower on Monday. Over the weekend the weather service downgraded hurricane Ernesto into a tropical storm and said the path of the storm would curve north and miss the oil-producing platforms in the Gulf. This sent crude oil futures and natural gas futures lower and the stocks followed. XTO dropped 1.6% and appeared to fill the gap from last week. We're not suggesting new positions at this time. 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: + 0.41
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume: 3.7 million
 

Short Play Updates

Black Box - BBOX - close: 38.30 change: +0.05 stop: 40.26

We do not see any changes from our weekend new play description on BBOX. Shares continue to under perform the market and its peers. 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: + 0.05
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 243 thousand

---

Brookefield Homes- BHS - close: 23.86 chg: +0.63 stop: 24.55

Homebuilders produced a bounce on Monday. The DJUSHB home construction index added 1.8%. Shares of BHS out performed its peers and produced a 2.7% rebound albeit on very low volume. We are not suggesting new plays at this time. Wait for a new decline under $23.00. 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: + 0.87
Earnings Date 07/20/06 (confirmed)
Average Daily Volume: 497 thousand

---

Portfol.Recov.Assoc. - PRAA - cls: 39.54 chg: +1.17 stop: 41.65

PRAA erased all of our unrealized gains with Monday's 3% oversold bounce. Watch for a failed rally near $40 or its simple 10-dma (near $40.38) as a potential entry point for new shorts. Our target is the $36.00-35.00 range.

Picked on August 24 at $39.49
Change since picked: + 0.05
Earnings Date 08/02/06 (confirmed)
Average Daily Volume: 166 thousand
 

Closed Long Plays

None
 

Closed Short Plays

Steel Dynamics - STLD - close: 50.04 chg: -0.54 stop: 53.95

Target achieved. A downgrade for U.S.Steel (X) impacted the whole sector. Shares of STLD dipped to $49.47 before bouncing back to round-number support at $50 and technical support at its 200-dma. Our target was the $50.25-50.00 range.

Picked on August 09 at $53.95
Change since picked: - 3.91
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume: 1.6 million
 

Play Updates

Updates On Latest Picks

Long Play Updates

Brookfield Asset Mgt. - BAM - cls: 44.04 chg: +0.98 stop: 41.95

Volume came in relatively light but shares of BAM still managed a decent 2.2% bounce on Monday. The rebound almost erased Friday's sell-off. This is encouraging so we're suggesting a move over $44.25 or $44.50 as potential entry points to consider going long again. 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: - 0.78
Earnings Date 08/03/06 (confirmed)
Average Daily Volume: 393 thousand

---

eBay Inc. - EBAY - close: 25.79 chg: +0.49 stop: 24.49

EBAY made headlines on Monday by partnering up with Google (GOOG). The company signed a multi-year agreement to let GOOG supply all the text ads on all of its non-U.S. websites. The move fueled a rebound in EBAY to $26.15 but shares pared their gains by the closing bell and were unable to breakout (again) over its 50-dma. Traders can choose to buy this bounce or wait for a rise past the 50-dma near $26.43 before initiating positions. Our target is the $29.85-30.00 range.

Picked on August 24 at $26.25
Change since picked: - 0.46
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 19.6 million

---

Elk Corp. - ELK - close: 27.03 change: +0.32 stop: 25.80

Shares of ELK displayed some strength on Monday with a 1.19% rally from its rising 10-dma. The stock is still trading under what appears to be resistance in the $27.15-27.30 region but we remain bullish and see today's rally as a new entry point to go long. Conservative traders might want for a new relative high before opening plays. 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: - 0.07
Earnings Date 08/17/06 (confirmed)
Average Daily Volume: 245 thousand

---

Goodyear Tire - GT - close: 12.60 chg: +0.44 stop: 11.64

Our new bullish play in GT is now open. The rally that began on Friday continued today and shares broke out over resistance at its 100-dma and hit new three-month highs. Our trigger to go long the stock was at $12.35. Our target is the $13.75-14.00 range. Our time frame is about six weeks.

Picked on August 28 at $12.35
Change since picked: + 0.00
Earnings Date 11/03/06 (unconfirmed)
Average Daily Volume: 2.9 million

---

JDS Uniphase - JDSU - close: 2.65 change: +0.07 stop: 2.48*new*

JDSU is still inching higher but shares are struggling to breakout over its exponential 200-dma near $2.66. We only have two days left. JDSU is due to report earnings on Wednesday after the closing bell and we're planning to exit on Wednesday afternoon right at the close to avoid holding over the announcement. We're going to try and reduce our risk by raising the stop loss to $2.48. Our target remains the $2.85 level.

Picked on August 16 at $ 2.50
Change since picked: + 0.15
Earnings Date 08/30/06 (confirmed)
Average Daily Volume: 42.3 million

---

Lucent Tech. - LU - close: 2.26 change: +0.03 stop: 2.17

LU seems like it's trying to rally but the stock gave back most of its gains today. The stock failed to breakout over the $2.29 level multiple times. More conservative traders may want to use a tighter stop loss. 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: - 0.05
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 42 million

---

Maxim Integrated - MXIM - close: 28.78 chg: +0.21 stop: 27.95

There is no change from our weekend update on MXIM. 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

---

Knight Cap. Grp - NITE - cls: 17.16 chg: +0.71 stop: 15.45

Traders decided to buy the dip in NITE and the stock produced a 4.3% rally on Monday. Volume came in above average, which is both bullish and impressive given the weak volume across the markets today. This rebound looks like a new entry point to go long the stock but more conservative traders may want to wait for a new high before initiating positions. Our target is the $19.85-20.00 range.

Picked on August 22 at $17.36
Change since picked: - 0.20
Earnings Date 07/18/06 (confirmed)
Average Daily Volume: 1.5 million

---

Novellus - NVLS - close: 27.29 change: +0.48 stop: 25.75

NVLS out performed its peers in the semiconductor sector with a 1.79% rally on Monday. Volume came in relatively strong and the stock continues to climb with its trend of higher lows. We need to remind readers that the situation could get riskier in just a couple of days. NVLS is due to report its mid-quarter update on Wednesday, August 30th. The conference call begins after the closing bell. Traders might want to exit early to eliminate risk or tighten their stop losses before the update. 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: + 0.64
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 2.8 million

---

Stereotaxis - STXS - cls: 10.70 change: -0.25 stop: 9.99

The profit taking in STXS continues. The stock lost another 2.2% and posted its third loss in a row after last week's big spike higher. We are not suggesting new plays at this time. Watch to see if STXS can bounce from its simple 200-dma near $10.40. 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: + 0.39
Earnings Date 08/09/06 (unconfirmed)
Average Daily Volume: 272 thousand

---

Teradyne - TER - close: 13.62 change: +0.14 stop: 12.89

We were expecting more of a dip in TER. Monday's relative strength is a positive sign and traders might want to consider opening new plays right here. Bear in mind that TER still has some overhead resistance near $14.00. Our target is the $14.75-15.00 range.

Picked on August 16 at $13.53
Change since picked: + 0.09
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 2.4 million

---

XTO Energy - XTO - close: 47.11 chg: -0.77 stop: 45.49

Oil and gas stocks traded lower on Monday. Over the weekend the weather service downgraded hurricane Ernesto into a tropical storm and said the path of the storm would curve north and miss the oil-producing platforms in the Gulf. This sent crude oil futures and natural gas futures lower and the stocks followed. XTO dropped 1.6% and appeared to fill the gap from last week. We're not suggesting new positions at this time. 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: + 0.41
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume: 3.7 million
 

Short Play Updates

Black Box - BBOX - close: 38.30 change: +0.05 stop: 40.26

We do not see any changes from our weekend new play description on BBOX. Shares continue to under perform the market and its peers. 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: + 0.05
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 243 thousand

---

Brookefield Homes- BHS - close: 23.86 chg: +0.63 stop: 24.55

Homebuilders produced a bounce on Monday. The DJUSHB home construction index added 1.8%. Shares of BHS out performed its peers and produced a 2.7% rebound albeit on very low volume. We are not suggesting new plays at this time. Wait for a new decline under $23.00. 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: + 0.87
Earnings Date 07/20/06 (confirmed)
Average Daily Volume: 497 thousand

---

Portfol.Recov.Assoc. - PRAA - cls: 39.54 chg: +1.17 stop: 41.65

PRAA erased all of our unrealized gains with Monday's 3% oversold bounce. Watch for a failed rally near $40 or its simple 10-dma (near $40.38) as a potential entry point for new shorts. Our target is the $36.00-35.00 range.

Picked on August 24 at $39.49
Change since picked: + 0.05
Earnings Date 08/02/06 (confirmed)
Average Daily Volume: 166 thousand
 

Closed Long Plays

None
 

Closed Short Plays

Steel Dynamics - STLD - close: 50.04 chg: -0.54 stop: 53.95

Target achieved. A downgrade for U.S.Steel (X) impacted the whole sector. Shares of STLD dipped to $49.47 before bouncing back to round-number support at $50 and technical support at its 200-dma. Our target was the $50.25-50.00 range.

Picked on August 09 at $53.95
Change since picked: - 3.91
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume: 1.6 million
 

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

DISCLAIMER

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.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives