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Daily Newsletter, Monday, 04/09/2007

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Table of Contents

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

Market Wrap

Railroaded

Friday's stronger-than-expected jobs data had equity traders anticipating an active trade for Monday, and while there was some action, the major indexes were little moved, as Treasuries, oil and transports provided some volatility.

The S&P 500 Index (SPX.X) 1,444.61 +0.05% finished fractionally higher, hard-pressed to hold gains above 1,445 as the S&P Regional Banks Index (BIX.X) 383.37 -0.51% price action since last Tuesday bounce has traders feeling their oats.

Bond traders were notably bearish in today's session, with selling concentrated on shorter-dated maturities. The 5-year Yield ($FVX.X) jumped 9.6 basis points to 4.660%, while the longest-dated 30-year Yield ($TYX.X) rose 4.8 basis points to 4.916%. The benchmark 10-year Yield ($TNX.X) finished up 7.1 basis points at 4.745%, but didn't find enough selling to pierce its 200-day SMA at 4.752%.

Shorter-dated maturities may well have been hit by the proverbial double-edged sword today.

Late last week, the "defensive" trader that had been buying/holding shorter-dated maturities may have been questioning the "defensive" nature of that position after Iran released the 15 British sailors.

Then on Friday, with bond/equity markets closed here in the U.S., the stronger jobs data was enough to have momentum bulls thinking twice about any Fed rate cut at the June 27/28 meeting at today's opening tick.

June Fed Fund futures (ff07m) were unchanged at 94.76, with traders here still forecasting no policy change at the June meeting. (100 - 94.76) = 5.24%. The FOMC's current target on Fed Funds is 5.25%.

In early March, August Fed Fund futures (ff07q) were trading just above 95.00, and forecasting the possibility of a 25 basis point cut to 5.00%, but here too have been pulling back to settle 94.81, with market participants rather uncertain of any Fed action.

U.S. Market Watch - 04/09/07 Close

While Treasuries were finding selling, oil prices also headed south for a fourth-straight session with Nymex May Crude Oil futures (cl07k) settling down $2.77, or -4.31% at $61.51.

After trading as high as $54.22 last Monday, the U.S. Oil Fund (AMEX:USO) $50.35 -3.19% fell as low as $50.02 late this afternoon.

News flows out of Iran kept traders on their toes.

Just after 11:00 AM EDT, oil prices reversed fractional losses to bid fractionally green after Iran's President said the country had entered an "industrial stage" in its production of nuclear fuel.

During a ceremony at an enrichment facility at Natanz, President Ahmadinejad said the country was now capable of enriching nuclear fuel using 3,000 centrifuges.

Some Iran-watchers question Iran's ability to currently product 3,000 centrifuges, which Iran stated is to be utilized to power the Natanz plant.

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Some continue to speculate Iran's enrichment program is for weaponry.

Citigroup Global Markets energy analyst Tim Evans said he an oversupply at the storage hub in Cushing, OK, while localized, had a disproportionate effect on prices and thought traders "simply woke up on the wrong side of the bed," adding that "somebody's alarm went off and it was time to sell May crude."

These notes out of Citigroup could well be meaningful into next week's (04/20/07) May Crude Oil (cl07k) settlement.

Energy traders have been less-than-willing to "roll" contracts from month-to-month due to cost, instead more willing to simply close out, then selectively buy forward-month's contracts to suit their strategy for managing larger positions.

I've (Jeff Bailey) been looking for a decent reentry point for a bullish oil trade and thought traders should dip their bullish hooves back in the pool today with a 1/4 position in the U.S. Oil Fund (AMEX:USO) at $50.64. The smaller initial position allows for a wider stop near-term at $48.80, with a bullish target of $56.00 later this summer. Look for signs of STRENGTH on a USO close above $51.05 and its WEEKLY S1 (support #1) of $51.03. The USO did see trade at WEEKLY S2 (support #2). After March's near-trade at MONTHLY R2, I think computers will be turned on for firm buying at April's MONTHLY S1 of $49.39.

U.S. Oil Fund (USO) - 60-minute interval chart

Lacking some type of geopolitical event, I do think the USO hard pressed to trade much above $53.30 this week, and the downward momentum built again today. As if, well, "somebody woke up on the wrong side of the bed this morning," and yes, the "alarm went off" on the break below April's MONTHLY Pivot of $51.78.

But I believe the MARKET is a forward-looking instrument and bulls will be nipping away (accumulating) bullish positions as summer driving season nears.

If my beliefs are correct, then we should not observe weakness much below MONTHLY S1 ($49.39), and eventual strength above WEEKLY S1 ($51.03), say $51.05 on a session closing basis.

Today's decline in oil certainly didn't hurt the Dow Transports (TRAN) 5,010 +1.89%, which surged as high as 5,069 in early morning trade. However, today's bid came well before oil's decline, with buyers looking aggressive after Warren Buffet's Berkshire Hathaway disclosed it has acquired a 10.9% stake in shares of TRAN component Burlington Northern Santa Fe (NYSE:BNI) $88.08 +6.47%.

Dow Transports (TRAN) - Daily Intervals

In late February, Mr. Buffett reported to shareholders all the company's holdings with a market value of more than $700-million at the end of 2006. At the time, Mr. Buffett teased investors, telling them there were two exceptions to the list with a value of $1.9 billion that he didn't itemize "because we continue to buy them." Mr. Buffett added, "I could, of course, tell you their names. But then, I would have to kill you."

According to recent filings, Mr. Buffett paid between $81.18 to $81.80 in three stock transactions on April 4 and April 5.

Mr. Buffett's Berkshire is not the largest shareholder of BNI. Denver-based Marsico Capital Management LLC, which owned 32 million shares for an 8.9% stake in December, is/was the second-largest holder.

If the name "Marsico" is familiar to investors, you may remember Thomas Marsico as having headed the Janus Twenty Fund, before starting his own mutual fund company. Mr. Marsico left Janus in 1997.

Banks still a wet blanket

With the Dow Transportation Index (TRAN) looking to confirm "Dow Theory" with their price action suggesting strong underlying economic trends, the broader S&P 500 Index (SPX.X) still feels a little heavy as it claws its way back to February's highs.

I don't know about you, but when I looked at my U.S. Market Watch this morning, and saw the BIX.X and fellow BKX.X in the red, even though fractionally so, I got the feeling the major indices, even the NDX/QQQQ that doesn't have a bank in the bunch, were still going to be hard-pressed for gains.

S&P Banks Index (BIX.X) - Daily Intervals

The transports make a bold move, but gains were focused on the rails and surrounded Mr. Buffett's recent buying.

The "crazy train" looks like it is leaving the station, full of bulls, which should bode well for the major indices, but I think bulls still need to see a strong move higher from the banks before buyers shout "all aboard!"

Since last Monday's close, the BIX.X is up a now fractional 0.60%, and to me, the SPX.X is "feeling" if not looking a bit tired. As if it (the S&P 500) is looking over its shoulder at the banks for a "lift from the bottom."

AMEX Securities Broker/Dealer (XBD.X) - Daily Intervals

Each day it seems like the brokers are ready to "launch," but as each day passes, I find myself looking at the BIX.X and saying, "they've got to get a move on, if the brokers are going to break 240 and send the SPX higher still."

S&P 500 Index (SPX.X) - Daily Intervals

Same SPX.X chart we looked at last week. Just from Tuesday benchmarking we can see some of the "impact" the BIX.X and XBD.X had as financial sectors, still the heaviest weighting for the SPX and S&P Depository Receipts (AMEX:SPY) $144.44 +0.13%.

There's been PLENTY of cash freed up by the SELLING in Treasuries, which finds their YIELDS higher.

Technically, there was/is NOTHING that should have stopped the SPX.X from trading its MONTHLY R1 of 1,451.81 today. Except of course, the weakness in the BIX.X, which each day, really seems to be a drag on the brokers.

If those two sectors make a move higher, then DON'T be short/put the SPX/SPY.

If they both fail (BIX.X and XBD.X) to make the move higher, especially the XBD.X at 240-242, there could be some rainy days ahead for bulls.

All aboard??
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None None

New Long Plays

None today.
 

New Short Plays

None today.
 

Play Updates

Updates On Latest Picks

Long Play Updates

Apria Healthcare - AHG - cls: 33.46 chg: +0.01 stop: 30.95

The major market indices really didn't move much on Monday and neither did AHG. The stock bounced around with traders buying the dip near $33 this morning but shares only closed with a fractional gain. We remain bullish. Our target is the $35.75-36.00 range. We do not want to hold over the May 1st earnings report.

Picked on March 27 at $32.37
Change since picked: + 1.09
Earnings Date 05/01/07 (confirmed)
Average Daily Volume: 910 thousand

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Arrow Elctr. - ARW - cls: 40.16 chg: +0.53 stop: 37.74

We didn't have to wait long for our new play in ARW to hit our trigger. We were suggesting a trigger to buy the stock on a breakout over resistance at $40.00 at $40.15. Investors ignored the AMD earnings warning as company-specific and continued to buy tech stocks. Shares of ARW surged to a 1.3% gain on strong volume. Our target is the $43.75-45.00 range. We don't have much time and plan to exit ahead of the April 19th (unconfirmed) earnings report. FYI: More aggressive traders may want to use a wider stop loss under the 50-dma.

Picked on April 09 at $40.15
Change since picked: + 0.01
Earnings Date 04/19/07 (unconfirmed)
Average Daily Volume: 896 thousand

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Brookfield Asset Mgmt - BAM - cls: 55.54 chg: +0.78 stop: 52.35

BAM is off to a strong start. Shares rallied another 1.4% and pushed through potential resistance near $55.00 on above average volume. We're suggesting long positions with BAM above $54.00. Readers can choose to buy the stock now of look for a dip. Our target is the $58.75-59.00 range. We do not want to hold over the early May earnings.

Picked on April 08 at $54.76
Change since picked: + 0.78
Earnings Date 05/02/07 (confirmed)
Average Daily Volume: 675 thousand

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Bristow Group - BRS - close: 36.42 chg: +0.11 stop: 34.99

BRS, an oil services company, ignored the pull back in crude oil today and saw its stock inch higher. Shares appear to be trying to breakout past the bearish trend of lower highs. We don't see any changes from our weekend comments. We hesitate to suggest new long positions until we see BRS break the short-term trend of lower highs. Our target is the February highs in the $38.40-38.50 range. FYI: The P&F chart is bullish and points to a $47 target.

Picked on March 11 at $35.88
Change since picked: + 0.54
Earnings Date 05/07/07 (unconfirmed)
Average Daily Volume: 243 thousand

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Canadan Nat.Res. - CNQ - cls: 56.49 chg: -0.33 stop: 53.05

CNQ is another oil-related stock and shares saw some profit taking on Monday. A 4% sell-off in crude oil didn't help matters. The trend is still bullish but CNQ does look a little overbought. We're not suggesting new positions at this time and more conservative traders may want to exit early to lock in a profit or at least tighten their stops. FYI: The P&F chart is bullish and its target has risen from $71 to $74.

Picked on March 21 at $53.05
Change since picked: + 3.44
Earnings Date 03/07/07 (confirmed)
Average Daily Volume: 2.0 million

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eBay Inc. - EBAY - close: 33.74 chg: +0.03 stop: 30.49

We do not see any changes from our weekend comments on EBAY. Time is running low for our play on EBAY. The stock hit our conservative target in the $33.85-34.00 range last week. Now shares are trying to breakout past resistance in the $34.00-34.40 range. The company is due to report earnings on April 18th and we plan to exit ahead of the announcement. We are not suggesting new plays but aggressive traders might want to consider new positions if EBAY can produce a new relative high over $34.40. Our aggressive target in the $37-38 zone might be too optimistic given our time frame.

Picked on March 05 at $30.49
Change since picked: + 3.25
Earnings Date 04/18/07 (confirmed)
Average Daily Volume: 18 million

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Helmerich Payne - HP - cls: 31.03 chg: +0.13 stop: 28.99

HP displayed relative strength on Monday in spite of the weakness in crude oil. Shares of HP managed to breakout over the top of its trading range near $31.00. Nimble traders may want to consider new positions but we would suggest a tighter stop near $30.00. Our target is the $32.50 mark. More aggressive traders may want to aim higher, especially since the P&F chart points to a $48 target.

Picked on March 19 at $28.77 *gap higher*
Change since picked: + 2.13
Earnings Date 04/26/07 (unconfirmed)
Average Daily Volume: 1.4 million

---

James River Coal - JRCC - cls: 9.07 chg: +0.92 stop: 7.89 *new*

Coal stocks turned in a solid session. Traders rushed in to get positions ahead of any M&A activity in the sector. JRCC managed to out perform most of its peers with an 11.2% gain. Volume came in about three times the daily average, which is bullish. If you missed the entry point this morning we'd probably wait for a dip before considering new positions. Our target is the $9.90-10.00 range. We do not want to hold over the early May earnings report. FYI: We are adjusting our stop loss to $7.89.

Picked on April 08 at $ 8.15
Change since picked: + 0.92
Earnings Date 05/01/07 (unconfirmed)
Average Daily Volume: 647 thousand

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KLA-Tencor - KLAC - cls: 55.53 chg: -0.32 stop: 52.75

Semiconductor stocks struggled to maintain any gains after chip giant AMD issued a first-quarter earnings warning. Traders did buy the dip in KLAC near $55.00 this morning. The lack of a big sell-off in the group is encouraging. In reality the afternoon bounce in KLAC looks like a new entry point. Our target is the $59.50-60.00 range. Please note that we do not want to hold over the April earnings report. FYI: The P&F chart is bullish with a $69 target.

Picked on April 04 at $55.15
Change since picked: + 0.38
Earnings Date 04/26/07 (confirmed)
Average Daily Volume: 4.9 million

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Titan Intl - TWI - cls: 27.61 chg: +0.68 stop: 25.45 *new*

TWI continues to show great relative strength. The stock rose another 2.5% on top of last week's gains. Shares hit an intraday high of $27.80. Our target is the $27.90-28.00 range. We're adjusting our stop loss to $25.45.

Picked on April 04 at $26.25
Change since picked: + 1.36
Earnings Date 04/23/07 (unconfirmed)
Average Daily Volume: 339 thousand

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UNIT Crp. - UNT - cls: 52.02 chg: +0.07 stop: 49.89

Be careful with UNT. The stock posted a gain today but the action looks like a failed rally. Shares hit an intraday high of $52.72 before giving most of it back. We would watch for a dip near $50.00 as a new entry point to buy the stock. More conservative traders may want to wait for signs of a bounce first or wait for a new relative high over $53.00 before initiating positions. Our target is the $58.00-60.00 range. We do not want to hold over the late April earnings report.

Picked on April 08 at $51.95
Change since picked: + 0.07
Earnings Date 04/25/07 (unconfirmed)
Average Daily Volume: 407 thousand
 

Short Play Updates

Hovnanian - HOV - cls: 23.85 chg: -0.64 stop: 26.16

HOV under performed the market and its peers on Monday. The stock dropped 2.6% and erased Friday's bounce. Fueling the move was news that credit agency Fitch lowered its outlook on HOV from "stable" to "negative". Our target for HOV is the $20.50-20.00 range. FYI: HOV does have a very high amount of short interest at almost 35% of the 31.3 million-share float. That does raise the risk of a short squeeze should the stock suddenly move higher!

Picked on April 02 at $24.69
Change since picked: - 0.84
Earnings Date 06/07/07 (unconfirmed)
Average Daily Volume: 1.9 million
 

Closed Long Plays

EMC Corp. - EMC - cls: 14.38 chg: -0.06 stop: 13.24

Target achieved. After flirting with our target in the $14.50-15.00 range for the last few days shares of EMC finally hit it. The intraday high today was $14.50. If you failed to exit with us we suggest caution. The stock does look short-term overbought and due for a dip.

Picked on March 21 at $13.26
Change since picked: + 1.12
Earnings Date 04/17/07 (unconfirmed)
Average Daily Volume: 29.1 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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