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Daily Newsletter, Monday, 09/18/2006

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Table of Contents

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

Market Wrap

Majors finished unchanged; Commodities get a bounce

The major indexes finished mixed to modestly higher after last week's quarterly option expiration, as decliners edged out advancers at both the NYSE and NASDAQ.

Commodity prices stabilized with the CRB Index (cr00y) 308.15 +0.36% closing up more than 1 point after breaking to new 52-week lows last week.

October Crude Oil (cl06v) settled up 47 cents, or +0.75%, while shiny metals found a stronger bounce ahead of tomorrow's August PPI data with the StreetTracks Gold (NYSE:GLD) $58.23 +1.44% and iShares Silver Trust (NYSE:SLV) $111.70 +3.43% recouping recent losses.

In Friday evening's Market Monitor at OptionInvestor.com, I began to outline some of this week's potential "key stocks."

The Semiconductor HOLDRs (AMEX:SMH) $34.65 +0.87% was a percentage gainer with one of my "key stocks," Applied Materials (NASDAQ:AMAT) $17.78 +3.37%, continuing its recent rise and finishing atop today's list of most actives.

The chip equipment giant announced it had recently repurchased 145 million shares of its common stock for approximately $2.5 billion under an accelerated stock repurchase program. The company said the recent buyback, combined with near 9 million shares already repurchased in the current fiscal quarter, resulted in a 10% reduction in outstanding common shares at the end of its third fiscal quarter.

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Applied Materials said its board of directors also approved a new repurchase program authorizing up to $5.0 billion in stock repurchases over the next three years.

Homebuilders as depicted by the Dow Jones Home Construction Index (DJUSHB) 664.52 +0.38% finished fractionally higher.

The National Association of Home Builders' index for U.S. sales of new, single-family homes dropped for an eighth month in a row and hit the lowest level since February 1991. The group said it doesn't expect sales to flatten out until mid-2007.

The NAHB's thoughts about a mid-2007 "flattening out" might be confirmed as I track the CME's Real Estate Housing futures, where the May2007 where at Friday's settlement, the Composite (comprised of Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York Metro, San Diego, San Francisco, Washington DC) was last traded at 212.60, down from its August 9, 2006 01:35 PM EDT trade of 214.60.

On Friday, the CME Real Estate August07 futures last traded $211.40.

As noted in several market wraps, and Market Monitor postings, it is/was housing prices that the Fed saw as reason to continue their steady pace of interest rate hikes earlier this year, as the then torrid rise in single family homes was deemed inflationary.

U.S. Market Watch - 09/18/06 Close

In Monday's Market Wrap, I thought the Securities Broker/Dealer Index (XBD.X) 224.05 -0.38% would be a sector/index that traders and investors monitor for "bullish confirmation."

A quick look at the 5-dayNet% change in the above U.S. Market Watch does have the XBD.X up 7.11% since our last visit, with Airlines, Networking and Software lending to broader market strength.

Retailers as depicted by the S&P Retail Index (RLX.X) 470.22 -0.50% traded soft, but they too have advanced nicely since Monday's close, with electronics retailer BestBuy (NYSE:BBY) $54.10 +0.50% having risen an impressive 13.25% since last Monday's close. Evidently "the MARKET" was impressed by some of last week's "key earnings."

There have also been some MAJOR status changes in the institutionally followed major market bullish % at Dorsey/Wright & Associates, as well as StockCharts.com.

While I have provided greater detail in the Market Monitor at OptionInvestor.com on several of these, let's cover the S&P 500 Bullish % ($BPSPX) from StockCharts.com, as it gives traders and investors around the world a recognizable and rather broad observation of how demand is back in control of this market and "confirms" recent technical strength.

S&P 500 Bullish % ($BPSPX) - 2% box chart

Today's action (Monday) did see a net gain of 5 stocks generating REVERSING HIGHER point and figure buy signals, where internals from this institutionally monitored measure of internal strength continues to improve. In July, I was "on the alert" for any weakness and a reading of 46%, where internals could have deteriorated and really had another powerful wave of selling (supply/O) taking hold.

However, just last week, this internal measure turned "bull confirmed" and there is no doubt here, that demand and buying is back in control of this market.

Now let's take a look at the S&P 500 Index ($SPX) 1,321.18 +0.09% and its point and figure chart.

S&P 500 Index ($SPX.X) - 10-point box chart

The S&P 500 Index ($SPX) now challenges multi-year highs found in May and the Bullish % for this major market average is gaining strength and adding to the number of reversing higher point and figure buy signals.

On August 4, the $SPX gave a reversing higher point and figure buy signal at 1,290.

Real trading! I review my Market Monitor trade blotters on a frequent basis. I've encouraged traders and investors to do the same for their own accounts!

On July 21, after having just closed a profitable trade in some S&P Depository Receipts (AMEX:SPY) I profiled another BEARISH trade with some SPY August $126 Puts. That trade was STOPPED out for a LOSS on 08/02/06! The first entry for the SPX on the above chart for the MONTH of August is the "8".

Where I'm going by mentioning a LOSING BEARISH trade is how a BEAR might have actually turned BULLISH at SPX 1,290!

In my mind, and on the above SPX point and figure chart, that has to be deemed FORMIDABLE near-term support.

Do you see/feel how the internals are building bullish? And they're (the internals) "just starting" to confirm what PRICE for the SPX itself is saying.

Remember! For the bullish % indications, imagine that you have TWO stacks of charts and each night you hand chart all 500 of the SPX components! In one stack you place all the "buy signal" charts, and the other stack you place all the "sell signal" charts. The stack of "buy signal" charts is getting thicker.

Bottom Line:

This market is turning BULLISH. As a trader/investor, you want to FOCUS the BULK of your trading as BULLISH. A trader/investor does NOT BUY ALL AT ONCE. Buy a little NOW (index, or stock) to get SOME BULLISH EXPOSURE.

It is thought by some that a trader/investor has to do everything at once. This is NOT the case.

This week's "key sector" ...

Dow Jones Home Construction Index ($DJUSHB) - 5-point box

The $DJUSHB gets my "sector of the week" as there is NO GOOD NEWS in the sector that I have been able to find (big guide higher on earnings, inventories, sales, etc.) yet the DJUSHB breaks above 665, triggers a "spread triple top" buy signal at 670 and challenges its BEARISH resistance trend, which in April was "kissed" at 920 and sellers sent the index lower yet again!

See that "9" at 625? That's the first chart entry for September (09/01/06 to be exact) at 625. See how PRICE fell to 575, then ramped back up to 645 (gave the double top buy signal at 630) and for some reason, when it tried to pull back, buyers stood their ground at 630, and demand (X) builds further.

Monitor STOCKS and Indexes you're interested in for these types of 3-box reversals to SUPPORT.

The reason Applied Materials (NASDAQ:AMAT) $17.78 +3.37% was one of my "key stocks" for this week was largely technical, but as explained in the OptionInvestor.com Market Monitor, tied in with this spring's warning from Dell Computer (NASDAQ:DELL) and resulting action in Intel (NASDAQ:INTC).

Today's technical action in AMAT is indeed "key" in my opinion and bodes bullish for this STOCK, and can be a catalyst for further gains in the SECTOR.

Applied Materials (AMAT) - Daily Interval Chart

Friday evenings Market Monitor comments and today's action out of Applied Materials (AMAT) $17.78 +3.37% on HEAVY volume should give some conviction to bulls.
 

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

Advance Auto Parts - AAP - cls: 31.99 chg: -0.48 stop: 31.69

There are no surprises with AAP yet. We've been telling readers to expect a dip back toward $32.00. The close under $32.00 is a bit discouraging but AAP may be using the rising 10-dma, currently at 31.92, as its support. Wait for a bounce before considering new long positions. Don't forget that rival AZO is due to report earnings tomorrow morning and AZO's news could affect shares of AAP. Our target remains the $35.80-36.00 range. We do not want to hold over the early November earnings report for AAP.

Picked on September 12 at $32.93
Change since picked: - 0.94
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 1.4 million

---

Brookfield Asset Mgt. - BAM - cls: 44.44 chg: -0.17 stop: 43.45*new*

We are raising our stop loss to $43.45 on BAM. We're still worried about the fading upward momentum and some of the short-term indicators are suggesting the next move will be down. We're not suggesting new positions. We're still suggesting that more conservative traders consider cutting their losses early right here or at least consider tightening their stops (maybe 43.49).

Picked on August 22 at $44.82
Change since picked: - 0.38
Earnings Date 08/03/06 (confirmed)
Average Daily Volume: 393 thousand

---

Elk Corp. - ELK - close: 29.02 change: -0.23 stop: 27.95

There is no change from our weekend update on ELK. We're worried that the upward momentum is running out of steam and that the market is headed for trouble the next few weeks. Therefore traders may want to seriously consider exiting early right now for a gain. Our target is the $29.60-30.00 range and ELK almost hit it with today's high of $29.38.

Picked on August 22 at $27.10
Change since picked: + 1.92
Earnings Date 08/17/06 (confirmed)
Average Daily Volume: 245 thousand

---

Hovnanian - HOV - close: 29.30 change: +0.00 stop: 27.74

HOV continued to rally early this morning but the bulls ran out of gas at resistance near $30.00 (the high was 29.99). That's not a surprise and is why we are suggesting a trigger to go long at $30.11. Monday's move looks a bit like a short-term top so we would not be surprised to see a dip back toward the $28 region. If we're triggered at $30.11 our target is the $34-35 range. Our time frame is six to eight weeks. FYI: Even though our market outlook is less than bullish the homebuilders are so beat up we suspect they will be able to continue the bounce higher.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 09/06/06 (confirmed)
Average Daily Volume: 1.6 million

---

Intl. Game Tech. - IGT - close: 39.40 chg: -0.86 stop: 38.24

Bad news! There was no follow through higher on IGT's bullish breakout over $40.00 on Friday. Instead IGT sank right at the open and the midday bounce failed under the $40 level. We would watch for a bounce in the $38.75-39.50 region as a potential entry point but more conservative traders may want to see a move over today's high (40.32) before considering new positions. Our target is the $44.00-45.00 range. We do not want to hold over the early November earnings report. Bear in mind that we're worried the market is near a top so traders need to monitor their stop loss and risk pretty closely! FYI: The P&F chart is bullish with a $57 target.

Picked on September 17 at $40.26
Change since picked: - 0.86
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 2.2 million

---

Regal Beloite - RBC - close: 44.36 change: +0.18 stop: 42.49

The bounce in RBC is encouraging but we would still wait for a move over $45.25 before considering new bullish positions. Volume was pretty low today, which doesn't help us much. Conservative traders, if you are long RBC at $45.11, might want to cut their losses now with a minor loss and wait for a new relative high.

Picked on September 15 at $45.11
Change since picked: - 0.75
Earnings Date 10/26/06 (unconfirmed)
Average Daily Volume: 291 thousand

---

SafeNet Inc. - SFNT - close: 18.39 chg: -0.40 stop: 18.15

There is no change from our weekend update on SFNT. We remain hesitant to open new bullish plays given our outlook for the market for the next few weeks. Right now our suggested entry point for SFNT will be a trigger to go long at $19.60. Normally we'd be wary of the $20.00 mark as round-number resistance but the trading in SFNT has marked the $19.50 region as the level of resistance to beat. If triggered our target is the $22.00 level. More conservative traders may still want to wait for a rally over $20.00 before opening plays.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/26/06 (unconfirmed)
Average Daily Volume: 300 thousand

---

United Tech. - UTX - close: 64.07 chg: -0.54 stop: 61.99

UTX helped lead the Industrials' rally on Friday but the stock failed to see any follow through today. More conservative traders might want to tighten their stops. Our target is the $66.00 level.

Picked on September 10 at $63.34
Change since picked: + 0.73
Earnings Date 10/17/06 (unconfirmed)
Average Daily Volume: 3.5 million

---

WebEx Comm. - WEBX - close: 39.02 chg: +0.31 stop: 35.74

WEBX displayed some strength today with a new multi-year high but don't believe what you read. Most quotes services will probably show the intraday high today was $39.96 but if you check the intraday chart WEBX never got over $39.50. There appears to be a bad tick that occurred this afternoon. Looking at the daily chart with the high at $39.96 the move looks like a failed rally at resistance. If that were the case then WEBX's next move would probably be down. Double check your stop loss and conservative traders may want to tighten theirs. Our target remains the $42.50-44.00 range. The P&F chart is very positive with a bullish triangle breakout buy signal.

Picked on September 12 at $38.49
Change since picked: + 0.53
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 625 thousand
 

Short Play Updates

Charlotte Russe - CHIC - close: 26.79 chg: +0.79 stop: 27.05

There is no change from our weekend new play description on CHIC. The stock dipped to its 50-dma this morning and bounced sharply. Volume came in pretty strong on the move today so buyers may not have given up just yet. We are waiting for a breakdown and our suggested entry point to short the stock is at $25.65. If triggered our target is the $22.10-22.00 range, which is just above rising technical support at the 200-dma. FYI: The latest (August) data puts short interest at 6.9% of CHIC's 22.2 million-share float.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume: 497 thousand

---

Commercial Metals - CMC - close: 21.00 chg: +0.45 stop: 21.55

Several of the metal and steel-related stocks rallied on Monday. CMC was one of them with a 2.1% bounce. Aggressive traders may want to watch this bounce for a failed rally under $21.50 as a potential entry point. We're still suggesting that readers wait for a drop under round-number support at $20.00. Our suggested entry point for shorts is at $19.90. If triggered our target is the $17.50-17.00 range. We do not want to hold over the late October earnings report.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume: 1.5 million

---

Hormel Foods - HRL - close: 35.72 chg: -0.04 stop: 36.65

Just looking at the closing numbers today would not tell the whole story with HRL. The stock bounced but ran out of steam at broken support near $36.00 and its 100-dma. This failed rally is good news and suggests the next move will be lower. Our target remains the $35.00-34.50 range.

Picked on August 31 at $36.65
Change since picked: - 0.93
Earnings Date 11/23/06 (unconfirmed)
Average Daily Volume: 331 thousand

---

Precision Castparts - PCP - cls: 59.89 chg: +2.48 stop: 58.05

It looks like the bounce in PCP wasn't over yet. Shares rallied strongly on Monday adding 4.3% with volume coming in strong to support the move. The rally over the 50-dma and the strong volume is not good news for the bears. The move today was also a bullish breakout over its four-week trendline of resistance. Fortunately, we're still on the sidelines awaiting a breakdown under $55.00. Our trigger to open bearish plays is at $54.95. However, if PCP closes over $60 we'll drop it as a candidate.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/17/06 (unconfirmed)
Average Daily Volume: 978 thousand

---

Patterson-UTI - PTEN - cls: 23.71 change: +0.63 stop: 26.05

News of an analyst downgrade on PTEN could not stop the stock from joining the rest of the energy/oil sector in a big oversold bounce higher. There was some chatter today about potential supply disruptions and oil stocks rebounded strongly from their oversold conditions. We are not suggesting new positions at this time.

Picked on September 10 at $25.28
Change since picked: - 1.57
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 2.8 million

---

Tessera Tech. - TSRA - close: 31.48 chg: +0.02 stop: 33.01

TSRA's 2-cent bounce on Monday looks like relative weakness to us. Shares actually traded to $32.05 but quickly gave it all back this afternoon. The rest of the semiconductor sector got a boost from news that Freescale Semiconductor was taking a buyout offer from some private investors. Overall there is no change from our weekend play description. Shares of TSRA have been consolidating sideways in a bearish pattern of lower highs (sort of a bearish wedge or pennant). This bearish consolidation is taking place at the top of TSRA's longer-term $25-35 trading range. We expect the next big move will be down toward the bottom of the trading range. We're suggesting that readers use a trigger to short TSRA at $30.95, which is under six-week support at the $31.00 level. If triggered our target is the $26.00-25.00 range. We do not want to hold over the late October earnings report. FYI: Readers should note that the latest (August) data puts short interest at 11.7% of the stock's 42.8 million-share float. That is a relatively high amount of short interest and makes this a higher-risk play.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 634 thousand
 

Closed Long Plays

Akamai Tech. - AKAM - close: 46.41 chg: -0.77 stop: 42.05

Target achieved. Shares of AKAM began to see some profit taking on Monday but not before the stock managed to hit an intraday high of $47.84. Our target was the $47.50-50.00 range. Shares continue to look short-term overbought so we would expect the dip to continue.

Picked on September 11 at $42.05
Change since picked: + 4.36
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 3.8 million

---

eBay Inc. - EBAY - close: 26.84 chg: -1.01 stop: 27.49

We have been stopped out of EBAY at $27.49. The breakdown today was not a surprise (see the last few updates on this stock) and chart readers will note that the move has produced a new MACD sell signal on the daily chart. While we are out of the stock we'd still watch to see if shares bounce at the 50-dma or maybe near $25.00.

Picked on August 24 at $26.25
Change since picked: + 0.59
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 19.6 million
 

Closed Short Plays

None
 

Play Updates

Updates On Latest Picks

Long Play Updates

Advance Auto Parts - AAP - cls: 31.99 chg: -0.48 stop: 31.69

There are no surprises with AAP yet. We've been telling readers to expect a dip back toward $32.00. The close under $32.00 is a bit discouraging but AAP may be using the rising 10-dma, currently at 31.92, as its support. Wait for a bounce before considering new long positions. Don't forget that rival AZO is due to report earnings tomorrow morning and AZO's news could affect shares of AAP. Our target remains the $35.80-36.00 range. We do not want to hold over the early November earnings report for AAP.

Picked on September 12 at $32.93
Change since picked: - 0.94
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 1.4 million

---

Brookfield Asset Mgt. - BAM - cls: 44.44 chg: -0.17 stop: 43.45*new*

We are raising our stop loss to $43.45 on BAM. We're still worried about the fading upward momentum and some of the short-term indicators are suggesting the next move will be down. We're not suggesting new positions. We're still suggesting that more conservative traders consider cutting their losses early right here or at least consider tightening their stops (maybe 43.49).

Picked on August 22 at $44.82
Change since picked: - 0.38
Earnings Date 08/03/06 (confirmed)
Average Daily Volume: 393 thousand

---

Elk Corp. - ELK - close: 29.02 change: -0.23 stop: 27.95

There is no change from our weekend update on ELK. We're worried that the upward momentum is running out of steam and that the market is headed for trouble the next few weeks. Therefore traders may want to seriously consider exiting early right now for a gain. Our target is the $29.60-30.00 range and ELK almost hit it with today's high of $29.38.

Picked on August 22 at $27.10
Change since picked: + 1.92
Earnings Date 08/17/06 (confirmed)
Average Daily Volume: 245 thousand

---

Hovnanian - HOV - close: 29.30 change: +0.00 stop: 27.74

HOV continued to rally early this morning but the bulls ran out of gas at resistance near $30.00 (the high was 29.99). That's not a surprise and is why we are suggesting a trigger to go long at $30.11. Monday's move looks a bit like a short-term top so we would not be surprised to see a dip back toward the $28 region. If we're triggered at $30.11 our target is the $34-35 range. Our time frame is six to eight weeks. FYI: Even though our market outlook is less than bullish the homebuilders are so beat up we suspect they will be able to continue the bounce higher.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 09/06/06 (confirmed)
Average Daily Volume: 1.6 million

---

Intl. Game Tech. - IGT - close: 39.40 chg: -0.86 stop: 38.24

Bad news! There was no follow through higher on IGT's bullish breakout over $40.00 on Friday. Instead IGT sank right at the open and the midday bounce failed under the $40 level. We would watch for a bounce in the $38.75-39.50 region as a potential entry point but more conservative traders may want to see a move over today's high (40.32) before considering new positions. Our target is the $44.00-45.00 range. We do not want to hold over the early November earnings report. Bear in mind that we're worried the market is near a top so traders need to monitor their stop loss and risk pretty closely! FYI: The P&F chart is bullish with a $57 target.

Picked on September 17 at $40.26
Change since picked: - 0.86
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 2.2 million

---

Regal Beloite - RBC - close: 44.36 change: +0.18 stop: 42.49

The bounce in RBC is encouraging but we would still wait for a move over $45.25 before considering new bullish positions. Volume was pretty low today, which doesn't help us much. Conservative traders, if you are long RBC at $45.11, might want to cut their losses now with a minor loss and wait for a new relative high.

Picked on September 15 at $45.11
Change since picked: - 0.75
Earnings Date 10/26/06 (unconfirmed)
Average Daily Volume: 291 thousand

---

SafeNet Inc. - SFNT - close: 18.39 chg: -0.40 stop: 18.15

There is no change from our weekend update on SFNT. We remain hesitant to open new bullish plays given our outlook for the market for the next few weeks. Right now our suggested entry point for SFNT will be a trigger to go long at $19.60. Normally we'd be wary of the $20.00 mark as round-number resistance but the trading in SFNT has marked the $19.50 region as the level of resistance to beat. If triggered our target is the $22.00 level. More conservative traders may still want to wait for a rally over $20.00 before opening plays.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/26/06 (unconfirmed)
Average Daily Volume: 300 thousand

---

United Tech. - UTX - close: 64.07 chg: -0.54 stop: 61.99

UTX helped lead the Industrials' rally on Friday but the stock failed to see any follow through today. More conservative traders might want to tighten their stops. Our target is the $66.00 level.

Picked on September 10 at $63.34
Change since picked: + 0.73
Earnings Date 10/17/06 (unconfirmed)
Average Daily Volume: 3.5 million

---

WebEx Comm. - WEBX - close: 39.02 chg: +0.31 stop: 35.74

WEBX displayed some strength today with a new multi-year high but don't believe what you read. Most quotes services will probably show the intraday high today was $39.96 but if you check the intraday chart WEBX never got over $39.50. There appears to be a bad tick that occurred this afternoon. Looking at the daily chart with the high at $39.96 the move looks like a failed rally at resistance. If that were the case then WEBX's next move would probably be down. Double check your stop loss and conservative traders may want to tighten theirs. Our target remains the $42.50-44.00 range. The P&F chart is very positive with a bullish triangle breakout buy signal.

Picked on September 12 at $38.49
Change since picked: + 0.53
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 625 thousand
 

Short Play Updates

Charlotte Russe - CHIC - close: 26.79 chg: +0.79 stop: 27.05

There is no change from our weekend new play description on CHIC. The stock dipped to its 50-dma this morning and bounced sharply. Volume came in pretty strong on the move today so buyers may not have given up just yet. We are waiting for a breakdown and our suggested entry point to short the stock is at $25.65. If triggered our target is the $22.10-22.00 range, which is just above rising technical support at the 200-dma. FYI: The latest (August) data puts short interest at 6.9% of CHIC's 22.2 million-share float.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume: 497 thousand

---

Commercial Metals - CMC - close: 21.00 chg: +0.45 stop: 21.55

Several of the metal and steel-related stocks rallied on Monday. CMC was one of them with a 2.1% bounce. Aggressive traders may want to watch this bounce for a failed rally under $21.50 as a potential entry point. We're still suggesting that readers wait for a drop under round-number support at $20.00. Our suggested entry point for shorts is at $19.90. If triggered our target is the $17.50-17.00 range. We do not want to hold over the late October earnings report.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume: 1.5 million

---

Hormel Foods - HRL - close: 35.72 chg: -0.04 stop: 36.65

Just looking at the closing numbers today would not tell the whole story with HRL. The stock bounced but ran out of steam at broken support near $36.00 and its 100-dma. This failed rally is good news and suggests the next move will be lower. Our target remains the $35.00-34.50 range.

Picked on August 31 at $36.65
Change since picked: - 0.93
Earnings Date 11/23/06 (unconfirmed)
Average Daily Volume: 331 thousand

---

Precision Castparts - PCP - cls: 59.89 chg: +2.48 stop: 58.05

It looks like the bounce in PCP wasn't over yet. Shares rallied strongly on Monday adding 4.3% with volume coming in strong to support the move. The rally over the 50-dma and the strong volume is not good news for the bears. The move today was also a bullish breakout over its four-week trendline of resistance. Fortunately, we're still on the sidelines awaiting a breakdown under $55.00. Our trigger to open bearish plays is at $54.95. However, if PCP closes over $60 we'll drop it as a candidate.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/17/06 (unconfirmed)
Average Daily Volume: 978 thousand

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Patterson-UTI - PTEN - cls: 23.71 change: +0.63 stop: 26.05

News of an analyst downgrade on PTEN could not stop the stock from joining the rest of the energy/oil sector in a big oversold bounce higher. There was some chatter today about potential supply disruptions and oil stocks rebounded strongly from their oversold conditions. We are not suggesting new positions at this time.

Picked on September 10 at $25.28
Change since picked: - 1.57
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume: 2.8 million

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Tessera Tech. - TSRA - close: 31.48 chg: +0.02 stop: 33.01

TSRA's 2-cent bounce on Monday looks like relative weakness to us. Shares actually traded to $32.05 but quickly gave it all back this afternoon. The rest of the semiconductor sector got a boost from news that Freescale Semiconductor was taking a buyout offer from some private investors. Overall there is no change from our weekend play description. Shares of TSRA have been consolidating sideways in a bearish pattern of lower highs (sort of a bearish wedge or pennant). This bearish consolidation is taking place at the top of TSRA's longer-term $25-35 trading range. We expect the next big move will be down toward the bottom of the trading range. We're suggesting that readers use a trigger to short TSRA at $30.95, which is under six-week support at the $31.00 level. If triggered our target is the $26.00-25.00 range. We do not want to hold over the late October earnings report. FYI: Readers should note that the latest (August) data puts short interest at 11.7% of the stock's 42.8 million-share float. That is a relatively high amount of short interest and makes this a higher-risk play.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume: 634 thousand
 

Closed Long Plays

Akamai Tech. - AKAM - close: 46.41 chg: -0.77 stop: 42.05

Target achieved. Shares of AKAM began to see some profit taking on Monday but not before the stock managed to hit an intraday high of $47.84. Our target was the $47.50-50.00 range. Shares continue to look short-term overbought so we would expect the dip to continue.

Picked on September 11 at $42.05
Change since picked: + 4.36
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume: 3.8 million

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eBay Inc. - EBAY - close: 26.84 chg: -1.01 stop: 27.49

We have been stopped out of EBAY at $27.49. The breakdown today was not a surprise (see the last few updates on this stock) and chart readers will note that the move has produced a new MACD sell signal on the daily chart. While we are out of the stock we'd still watch to see if shares bounce at the 50-dma or maybe near $25.00.

Picked on August 24 at $26.25
Change since picked: + 0.59
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume: 19.6 million
 

Closed Short Plays

None
 

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

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