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Daily Newsletter, Saturday, 07/14/2007

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Table of Contents

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

Market Wrap

Lucky 13

Friday the 13th turned out to be lucky for investors with another round of new highs across the board. The Dow broke 13900 for the first time and the S&P broke through its prior historic intraday high of 1552.87 set back on March 24th 2000 and came within a few cents of closing over that level. The Friday follow through to the Thursday breakout was lukewarm but still positive. New records highs on a Friday make good headlines for the weekend news.

Dow Chart - Daily

Nasdaq Chart - Daily

The continued market gains were even more surprising in the face of the very negative Retail Sales numbers for June. The report out Friday showed retail sales fell -0.9% in June due to major drops in auto dealers, furniture stores and building supply dealers. Anything housing related showed accelerating weakness. Sales were weak across the board with the exception of drug stores and nonstore retailers. The sharp drop reversed more than half of the strong 1.5% gain in May. Year over year growth, now 3.8%, has been cut by more than half since January-2006 when overall sales growth was 9.4%. This was a negative report but it was somewhat expected so the market damage was minimal and the dip was quickly bought.

On the positive side the July Consumer Sentiment surged to 92.4 from June's 85.3 number. This wiped out five months of declines that led to that June low. January's 96.9 was a 3-year high and July's reading suggests there has been a significant reversal of fortunes back towards that high. The expectations component jumped nearly 10 points from 74.7 to 83.9. The current conditions component was less exuberant with a still decent gain to 105.7 from 101.9. This was the biggest headline increase since October of 2006. Gasoline prices contributed to the gain with a -25 cent fall from their record early July level. This was a positive report but risks still remain with the housing decline still expected to hit consumer finances harder by year-end.

This was not a busy week for economics but next week the calendar is full. We have both the Producer Price Index (PPI) and the Consumer Price Index (CPI), both keys to pegging current inflation changes. The FOMC minutes for June's meeting will be out on Thursday and they could be market moving. The regional Fed surveys are headed our way led by the Philly Fed on Thursday. There are two sets of housing numbers due out on Tuesday and Wednesday and there are plenty of filler reports to crowd the headlines.

Economic Calendar

The full economic calendar will take a back seat to the increased pace of earnings reports with numerous key reports that could add fuel to the current rally rocket. The major reports are Intel and Yahoo on Tuesday, Ebay, Juniper and JP Morgan on Wednesday and AMD, GOOG, MSFT, BRCM and MOT on Thursday. One interesting report could be the MGIC (MTG) earnings on Thursday. MGIC is the company that insures the majority of subprime loans and their earnings are expected to be under extreme pressure. An upside surprise here could light a fire under all the financials. With expectations for financials in general extremely low any good news could produce a strong rebound in the sector. Financials are 21% of the S&P so a major rebound would strongly impact the S&P.

Earnings Calendar

Earnings last week got off to an ugly start with the first few reporters missing the targets either on actual earnings or future guidance. Warnings were coming from every sector including the very robust energy sector. This further depressed overall estimates and expectations.

GE turned the tide on Friday with earnings that rose 10.2% and inline with expectations. The market moving news was the guidance and their announcement of a $2 billion addition to their existing $12 billion buyback program over the next six months. GE stock broke $40 and hit a new 5-year high on the news. With their market cap of $410 billion it would take major news to move the stock very much more than the 50 cent gain posted on Friday. They have 10.3 billion shares outstanding. GE also said the subprime heat was too hot to handle and they were going to sell WMC their subprime mortgage company. WMC did $22 billion in loans in 2006 and was one of the biggest players in the sector. GE sold off $3.7 billion of poorly performing loans in the last quarter in an effort to shed exposure to those subprime losses. They only have $1.1 billion in remaining loans outstanding so that give you an indication of how much they have been liquidating of the $22 billion in loans in 2006. WMC is a subprime arm of GE Money and the subprime losses were offset by the rest of the GE Money profits letting the entire division add 8% to the total GE earnings. GE said WMC lost -$182 million in Q2 and that was on top of a -$370 million loss in Q1. GE took a $500 million charge in Q1 when it laid off 460 WMC employees and sold off part of its subprime assets. GE did not say if it had any offers for WMC or what value they expected to get for the ailing company. A division leading the GE earnings parade was the energy services group posting a 76% profit jump. GE has several ventures in the oil and gas and energy services sector and you can expect them to have more soon. GE is so positive on energy you can bet there will be some acquisitions down the road to help fill out that services portfolio. GE did say they did not expect any acquisitions over $2 billion for the rest of 2007 preferring to buy back stock instead. Makes no sense to me why they want to buyback stock rather than spend their $20 billion cash hoard for improvements to existing divisions. Given their 10 billion shares outstanding and the current price at $40 a $14 billion buyback is only 350 million shares or 3.5%. It probably won't make a material difference in the stock price and does nothing for individual investors. Using that money to pay a tax advantaged dividend or improve the business would make more sense to me.

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Thomson Financial reported 13 buyback announcements for the week for a total of $45 billion. This was the second strongest week on record. Recent announcements included GE $14B, COP $15B, Home Depot $11B, JNJ $10B and AMGN $5B. There were $117.7 billion in buybacks completed in Q1 and that was the sixth straight quarter over $100 billion in completed buybacks. In 2006 there were a record $432 billion in announced buybacks and Thomson is estimating that record will rise to $459 billion in 2007. You have to ask yourself why so many companies are opting for buybacks at market highs rather than using the cash in their business or giving the cash back in tax advantaged dividends. Could it be that so many executives at these companies are compensated based on stock prices? I am sure that is a big factor. Executives have compensation plans, which kick in at various stock prices, and the stock option plans are almost exclusively related to stock prices. Buying back stock benefits officers and employees more than the actual stockholders. Also, buying back stock increases earnings per share by reducing the number of shares in the calculation. That helps them beat earnings estimates, which makes them look like winners to the retail investor. Also, buying back stock does not erase it. That stock goes back into the company treasury and they can use it for acquisitions or stock options exercised by those executives with millions in stock option compensation. Follow this train of thought. Executives are given millions of shares of stock options, which are only exercisable above a certain stock price. The executives plan massive stock buybacks to temporarily push the stock prices higher. The company puts the shares in the treasury. The executives exercise those massive option grants and the stock comes back out of the treasury and into executive pockets. They then sell that stock back into the market making tens of millions in the process. The amount of stock in circulation did not go down materially and the price of the stock fades again when the shenanigans end. If they issued dividends to stockholders with a 15% tax rate it would be real money into the pockets of millions of stockholders. Instead the executives pocket the money and the stockholders end up holding the same stock as it fades back to mediocrity. Sorry for the rant but this buyback craze needs to be exposed for what it really is.

Earnings next week will be the focus with several high profile big cap techs likely to take the spotlight. Microsoft reports on Thursday and earnings are expected to be decent but tempered by problems with the Xbox consoles. They reported they have sold 40 million copies of Vista and have not even scratched the surface of their long-term expectations. Unfortunately outside reports claim Vista acceptance is slowing due to the upgrade problems associated with the conversion. The word of mouth from existing Vista owners about how much horsepower is required to run it has been negative. Several reports I heard claim many users had to upgrades several times to get to a level of performance that was acceptable. More memory, faster processors and even motherboard upgrades were needed to solve the resource demand problems.

That is great news for Intel, which reports on Tuesday night. They are expected to report a very robust quarter and strong margins due to the Vista upgrade cycle. Intel hit a new 18-month high on Friday at $26 and most analysts expect them to move even higher after earnings. Intel has another new product cycle coming and we could get the next announcement with earnings. It is also rumored that they will cut prices on existing processors by as much as 50% on July 22nd. That will crush AMD again only weeks before their Barcelona chips are scheduled for release. So far the Barcelona chip has failed to impress analysts, as it is too little, too late. First shipments are due in August. The current Intel Xeon Quad Core, 4 processors on one chip, is extremely popular for the current server upgrade cycle currently underway. Those processors require lots of memory and faster disks before they can be stressed to any degree so the rest of the tech sector is benefiting from the Intel processor growth path. I look for Intel to surprise higher than their optimistic statements from last week.

Intel Chart - Weekly

AMD Chart - Weekly

AMD reports on Thursday and their earnings loss is not expected to impress traders. AMD is expected to report a loss of 85 cents so there is a chance of an upside surprise. Intel price cuts have been crushing AMD margins and taking back market share. The Barcelona chip is also a quad core meant to compete with Intel's offerings and AMD claims it will be 70% faster than prior AMD chips when running database programs and 40% when doing scientific calculations. The AMD chip will run at speeds of up to 2.0 Ghz while the top line Intel quad core already runs at 2.66 Ghz. Intel is expected to announce an even faster quad core chip over the next several weeks, probably along with their rumored price cuts on July 22nd. An 8-processor core is rumored to follow later this year. AMD has a tough battle ahead of them and Intel is quickly stretching its lead.

By year end Intel will be making chips with transistors measuring 45 nanometers (45 billionths of a meter) and smaller than most human viruses. Using a 300mm wafer (12 inches across) Intel can etch 2,500 chips on each wafer slashing their production costs. The super small chips are targeted for super cheap mobile PC products that currently don't exist. Intel expects three new $10 billion a year markets, one each in mobile, consumer electronics and handheld PCs to devour these chips on a massive scale. Intel claims PCs powered by its chips now make up over 850 million of the slightly more than one billion computers connected to the Internet. That took 12 years to reach the one billion PC mark. Intel expects that number to more than double in less than half of that time and they are preparing the chips for that to happen. I know this sounds like a sales pitch for Intel but computers have always been my hobby and I own a server company. Intel is smoking hot in the server market today and I believe their earnings will show it.

Partial Earnings Calendar

Google, Yahoo and Ebay report next week with Google expected to wow investors once again. Many analysts claim the good news for Google is already baked into the stock price and this could be the quarter that the walls come tumbling down. They keep saying that and Google continues to surprise and move higher. Google does have a history of declining after earnings twice as often as it rose so a word to the wise is to take profits early. Over the last ten quarters Google has always beaten estimates but seven of those quarters saw Google decline, sometimes sharply, after their report.

Google Earnings Chart - Weekly

Yahoo will report on Tuesday and they already toned down expectations so most traders are not expecting any excitement over the report. Ebay reports after the bell on Wednesday and expectations are mixed but positive with Ebay maintaining its lead over Google in the PayPal/Checkout war. Motorola will report on Thursday but they already warned of a Q2 shortfall last week so no trade there.

Also important next week will be a flurry of earnings from various financials. Merrill and State Street lead on Tuesday, JP Morgan on Wednesday and followed by Citigroup on Friday. There are about a dozen smaller names scattered throughout the week. Two names that might make good reversal trades are US Bank (USB) and Piper Jaffray (PJC). Both have been sold hard on the subprime problem but neither has significant exposure. Warren Buffet increased his position in USB from 6 million shares to 23 million shares back in March and he is a very conservative investor.

The subprime slime has pushed expectations for financials to extreme lows. Everyone is afraid to even guess which ones will confess subprime losses from mortgages, auto loans and credit cards. The term subprime does not just apply to mortgages. Defaults are also soaring in auto loans and credit card accounts. If people are bailing on their home loans in record numbers it stands to reason the less important consumer goods loans are also going into default. The mortgage lender has something to foreclose on. The auto lender also has collateral to some extent but the credit card companies are going to be hung out to dry.

With these factors pressuring earnings expectations there is a real possibility for an upside surprise in the financial sector. The bad news is already priced in and a sudden rush of better than expected news could start a real flurry of bargain hunting. The real key for me will be the MGIC earnings on Thursday. They write private mortgage insurance for residential mortgages where the homeowner puts less than 20% down. That would normally be subprime or alt-a borrowers or those will little cash reserves. By insuring these loans the lender can sell them into the secondary market and reduce the implied risk. When these loans default MGIC has to jump into the gap and take the loss. How much loss they have had to eat over the last quarter is going to be the key factoid the markets are eagerly awaiting. This is a true glimpse into the health of the subprime market. UBS downgraded MGIC last week to neutral saying the reserve allowance for bad loans could be substantially greater than the previous MGIC forecast. UBS expected a reduction in earnings and slower returns through 2008. According to UBS, mortgage credit quality is deteriorating rapidly, especially in California and that is a problem because of the larger loans. UBS cut MTG and PMI but said they still liked PMI Group because of their lower exposure to California.

MGIC Chart - Daily

MGIC has $178.3 billion of primary insurance in force covering 1.3 million loans as of March 31st. As I said, this is going to be a critical look inside the subprime problem. At the current 5.3% default rate being tossed around in the news that would be roughly a $10 billion hit but remember they reinsure by selling the risk and are only out the difference between the loan amount and the eventual sale value of the property. Their net profits have declined from $149 million in Q2-06 to $129M in Q3, $121M in Q4 to $92M in Q1 but they are still profitable. Analysts are expecting earnings of $1.44 per share. They missed estimates of $1.71 in Q1 due mostly to an increase in loan loss reserves and lower income from a joint venture. The shares hit a nine month low at $54.30 on the report but rocketed back to $67 over the following weeks. The news was not as bad as many had expected. Fast-forward to June and the reemergence of the subprime meltdown. MGIC has fallen back to support at $56 and has held there for the last two weeks. This is strong support and it is poised to fly again if the news is better than expected.

Next week is poised to be a monster earnings week. Earnings expectations were hammered last week and those few whisper numbers for earnings growth of nearly 10% were quickly quieted. Official estimates have fallen back to the 3.1% to 4% range and the whisper numbers are now 6-7%. There are solid fears about financials, retailers, automakers and consumer goods. The stage is set for an upside surprise because the bad news is already priced into stock prices. That is amazing when you consider stocks closed on Friday at record highs. Why do you think that happened?

S&P Futures Chart - Daily

As of Tuesday's close the short interest on the S&P futures was the second highest since 2004. The short interest on the Russell 2000 futures was the highest on record. Tuesday's decline on various news events and earnings misses had every hedge fund on the planet loading up on shorts for a summer correction. Wednesday's news was not that bad and there was no follow through to the downside. Nervous fingers caressed the mice buttons as Wednesday closed but volume was tame and internals were neutral. Shorts probably thought the lack of follow through to the downside or a material rebound was just a pause before the next big drop. There was a clear lower high formation in place and the outlook for earnings was turning even more negative by the minute. Surprise, surprise as a $38 billion Alcan buyout deal, multiple share buyback announcements and some better than expected retail news hit the wires before Thursday's open. The Dow opening gap was 120 points to 13696 and above the three prior tops. A new historic high and short interest was at record levels. Is it any wonder that the Dow posted a 283 point gain and the Nasdaq 50 before the day was over? This was a textbook short squeeze and it could not have been scripted better if the bulls had tried. Friday's follow through was listless with internals dead even and the lowest volume since the July 4th holiday sessions.

Technically we have a clear breakout in progress across all the major averages and the possibility for positive earnings surprises next week. According to an analyst at Merrill Lynch there are over $24 billion in S&P shorts, which could have the impact of $48 billion in a crowded cover scenario. That means if they all tried to cover on the same week it would generate additional market buys from other investors buying the bounce. I normally try to go into the weekend short the Russell futures just in case there is a geopolitical event or a terrorist attack somewhere over the weekend. Because I am watching for a short entry right at the close I saw a lot of selling in the futures in the last ten min of trading, both Russell and S&P. The S&P futures lost 5.5 points and the Russell futures -3 points in the last 20 min of trading. That covers the last 5 min of the cash market and the 15 min of extended trading in the futures market to 4:15. I doubt everyone was taking a position for the same reason I do so that last minute bout of selling was confusing. The cash markets also dropped in the last 5 min so the selling was broad based, likely a couple of program trades. I am not going to worry about it in the larger scheme of things because I think the shorts will still be on the run next week.

Russell 2000 Chart - Daily

Monday is a blank for economics and earnings are slow as well. Tuesday is when the fireworks should start and I plan on being long for the show. Let's hope there are some positive earnings surprises to fuel the party. There is always the chance the negativity from last Tuesday returns but I don't see it from the information I have seen today.

Oil is going to be another major factor for next week. Crude closed at $73.97 in after hours trading and an 11-month high. The all time high was $78.40 intraday and a close at $77.03 on July 14th 2006 one year ago Friday. That should give anyone long oil a cause for pause. Crude inventories fell -1.5 million barrels last week but gasoline stocks rose 1.1 mb. The drop in crude was due to a pickup in refinery utilization and that is expected to continue. There has not been any hurricane activity but we are still eight weeks away from the peak of the season on Sept 10th. With oil at $74 the appearance of a hurricane in the Gulf would send prices to $80 in a heartbeat. BUT, the farther we get into the summer the less gasoline inventories matter. Nymex gasoline futures fell -5.5% from Tuesday's high to close just over support at $2.20 on Friday. If gasoline traders decide there is enough inventory to last out the summer even if a hurricane appears that support at $2.20 will break and it could be a sharp drop. If it does crack that level the loud whoosh you will hear will be crude prices falling like a rock. After hitting a peak on July 14th last year crude prices wandered sideways for three weeks as traders waited for the expected active hurricane season. Once into August prices held until August 8th and then fell $15 in an almost vertical drop. With net long positions in crude futures at historic highs there is an overwhelming bet on those hurricanes yet to show. Odds are very good that some event over the next three weeks will trigger that invisible sell signal and the entire herd will plunge over the cliff at a dead run. I still like oil long term but without a hurricane soon I will be unloading long positions and loading up on shorts for the normal end of summer decline.

Crude Oil Chart - Weekly

The Dow closed at 13907 and 432 off Tuesday's lows but only up 295 for the week. This was a very respectable rebound and very out of character with recent market movement. This leaves the Dow very overextended in the short term but still in a bullish trend. We could easily see some backtracking on Monday as profits are taken and shorts blown out on Thursday take another position. The Dow is so far above obvious support there is plenty of room to roam. Historically, according to a CNBC calculation, when the Dow moves to within 1% of a major milestone like 14000 it takes an average of 2.5 days before that milestone is reached. I believe that CNBC calculation is a load of crap since hitting 14000 would put the Dow within 1% of 15000 and assume another even bigger milestone would be hit two days later and on and on. That kind of napkin math may have worked at lower levels but at today's ranges it is worthless. Where we go from here is going to be directly related to the quality of earnings with an emphasis on earnings from techs and financials.

Dow Transport Chart - Daily

On the tech side of the ledger the Nasdaq added 5 points to its 50 point romp on Thursday. That produced two consecutive closes above 2700 and a milestone in its own right. The Nasdaq is also well above any easily definable support with the closest support level at 2647 and then again at 2600. It would take several bad days to retrace that far. The biggest hindrance will be the strong resistance on the semiconductor index (SOX) at 555 with the index currently at 530. That resistance dates back to Jan-2004 and Jan-2006 highs where it repulsed the rally in both years. Depending on the Intel news on Tuesday that could be a major stopping point for chips and for the Nasdaq.

S&P-500 Chart - Daily

The S&P-500 finally followed its other index brothers into new high territory intraday and posted a new closing high at 1552.26. The prior intraday high of 1552.87 hit on March 24th 2000 took over seven years to equal and sellers appeared on light volume when that level was touched on Friday. I think it was more of a psychological event than real resistance since that initial high was so long ago. The S&P has been lagging the Dow for months and the 45 point rebound this week was a sharp testimony to the second highest S&P futures short interest since 2004. It took a major short squeeze to finally clear the resistance points at 1535-1540 and it appears to be firmly anchored over 1550 today except for that selling in the futures after the close.

This is option expiration week and I just love to play expiring options in expiration week in an earnings cycle. I feel I have given you numerous optionable opportunities in the stocks I mentioned above and you can rest assured I will be playing most of them. Just remember when planning your earnings trades the biggest earnings moves are normally a reversal of the pre report trend. Basically unexpected earnings catch the majority of traders leaning the wrong way. Recent expirations have given a bullish bias to the market and I don't see any difference today. Put option open interest is very high and that normally provides a bullish expiration bias. Let's hope that trend continues.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
RAIL XLE
RATE  

New Long Plays

FreightCar America - RAIL - cls: 52.73 chg: +1.26 stop: 49.95

Company Description:
FreightCar America, Inc. manufactures railroad freight cars, with particular expertise in coal-carrying railcars. In addition to coal cars, FreightCar America designs and builds bulk commodity cars, flat cars, mill gondola cars, intermodal cars, coil steel cars and motor vehicle carriers. It is headquartered in Chicago, Illinois and has manufacturing facilities in Danville, Illinois, Roanoke, Virginia and Johnstown, Pennsylvania. (source: company press release or website)

Why We Like It:
The railroad stocks are on the rebound and the Dow Jones Transportation index is hitting new highs. We expect stocks to continue higher and that will give the railroads a chance to catch up to the rest of the transportation sector. Shares of RAIL turned in a strong performance last week. On July 11th the stock was upgraded to a "strong buy" and by Friday shares of RAIL were breaking out over resistance near $52.00 and its simple 200-dma. The P&F chart is still bearish but RAIL is on the verge of a new buy signal if it can trade over $53.00. We are suggesting long positions now although more patient traders may want to consider waiting for a dip back toward what should be support around $52.00. Our target is the $57.00-58.00 range. More aggressive traders may wan to aim closer to $60.00. This is somewhat aggressive because we don't have a lot of time. We plan to exit ahead of the July 26th earnings report.

Picked on July 15 at $52.73
Change since picked: + 0.00
Earnings Date 07/26/07 (confirmed)
Average Daily Volume: 381 thousand

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Bankrate - RATE - cls: 51.96 chg: +1.87 stop: 48.99

Company Description:
Bankrate, Inc. owns and operates Bankrate.com, a leading Internet consumer banking marketplace. Bankrate.com is a destination site of personal finance channels, including banking, investing, taxes, debt management and college finance. Bankrate is the leading aggregator of more than 300 financial products, including mortgages, credit cards, new and used auto loans, money market accounts and CDs, checking and ATM fees, home equity loans and online banking fees. (source: company press release or website)

Why We Like It:
Shares of RATE hit new all-time highs on Friday after some positive analyst comments fueled a breakout from its four-week trading range. Volume came in strong on the rally and we see the breakout over $50.00 as a new entry point to buy the stock. Readers can choose to go long the stock now or hope for a dip back towards $50.00, which as broken resistance should be new support. We have a little less than three weeks before RATE reports earnings. Our short-term target is the $54.90-55.00 range. More aggressive traders may want to aim higher.

Picked on July 15 at $51.96
Change since picked: + 0.00
Earnings Date 08/02/07 (confirmed)
Average Daily Volume: 331 thousand
 

New Short Plays

Energy Sector SPDR - XLE - cls: 73.95 chg: +0.72 stop: 75.01

Company Description:
The XLE is an exchanged traded fund (ETF) focused on the oil, gas and oil services sector.

Why We Like It:
Crude oil has a pattern of crashing in early August. The oil companies finally build up enough inventory to get us past the rest of the summer driving season and the price of crude sees a significant correction. We are suggesting that investors can take advantage of this pattern by shorting the XLE. However, we are early! August is about three weeks away and the top tends to show up in the first couple of weeks of August. Two things can de-rail this pattern. Any serious rise in geo-political tensions, namely Iran, could keep crude oil high. The more likely scenario would be any news of a hurricane aimed toward the Gulf of Mexico. Currently there haven't been any storms and we're nearing the height of hurricane season that peaks around September 10th. As long as the weather cooperates we're expecting another correction in crude, which will pull the energy stocks lower, at least for a few weeks. Right now we're suggesting a trigger to short the XLE at $69.75. We honestly don't expect to be triggered until early August so we'll make adjustments to our entry point and stop loss as necessary.

Picked on July xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume: 19.1 million
 

Play Updates

Updates On Latest Picks

Long Play Updates

Apria Healthcare - AHG - cls: 31.40 chg: +0.09 stop: 28.99

AHG is still inching higher and continues to look bullish here above $30.00 and its 10-dma. We suspect that AHG might dip again toward $31.00 or the 10-dma, which is where we'd look for a new bullish entry point. More conservative traders may be tempted to raise their stop loss toward $30.00. Our target is the $33.95-34.00 range. We do not want to hold over the late July earnings report in about three weeks.

Picked on July 08 at $31.12
Change since picked: + 0.28
Earnings Date 07/26/07 (unconfirmed)
Average Daily Volume: 700 thousand

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China Netcom - CN - cls: 56.11 change: -0.01 stop: 53.89

We do not see any changes from our new play description from Thursday night so we're reposting it here:

The Chinese market is still red hot and the ADR shares of CN look like they have finished their consolidation. Traders have bought the dip twice near support around $54.00. Thursday's rally pushed CN past technical resistance at its 10-dma. We are suggesting long positions now with CN above $55.00. Our stop is just under Wednesday's low. Our first target is the $59.75-60.00 range. Our second target is the $62.00-62.50 zone. The Point & Figure chart is very bullish with a $ 73 target.

Picked on July 12 at $56.12
Change since picked: - 0.01
Earnings Date 08/20/07 (unconfirmed)
Average Daily Volume: 103 thousand

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Columbia Sportswear - COLM - cls: 69.67 chg: +0.05 stop: 66.99*new*

COLM managed to bounce from support near $67 and its rising 50-dma on Wednesday but the stock is still struggling to break through resistance at $70.00. We have less than two weeks before COLM is due to report earnings. Traders could use another dip in the $67.50-68.00 zone as a new entry point or wait for a new relative high over $70.10. We are raising our stop loss to $66.99. Our target is the $73.50-75.00 range. The P&F chart is very bullish with an $89 target.

Picked on June 17 at $68.54
Change since picked: + 1.13
Earnings Date 07/26/07 (confirmed)
Average Daily Volume: 219 thousand

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GulfMark - GMRK - cls: 57.04 change: +1.08 stop: 52.45*new*

Crude oil climbed to new multi-month highs on Friday and energy stocks followed. Shares of GMRK rose 1.9% to a new all-time high. We remain bullish on the stock but would not suggest new positions at this level. If you're looking for a new entry point wait for a dip into the $55.50-55.00 zone. We are adjusting our stop loss to $52.45. Our target is the $59.50-60.00 range. We don't want to hold over the late July earnings report.

Picked on July 09 at $54.55
Change since picked: + 2.49
Earnings Date 07/26/07 (unconfirmed)
Average Daily Volume: 284 thousand

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Intl. Flavors - IFF - cls: 53.93 change: +0.04 stop: 51.45

Friday witnessed almost no change in shares of IFF. We don't see any change from our previous comments so we're reposting them here:

IFF just broke out from a two and a half month sideways consolidation pattern above the $50.00 level. Technicals are positive and the rally past resistance near $53.00 looks like a new entry point to buy the stock. We're suggesting long positions now. Our target is the $57.50-60.00 range. The P&F chart is bullish with an $83 target.

Picked on July 12 at $53.89
Change since picked: + 0.04
Earnings Date 08/07/07 (confirmed)
Average Daily Volume: 534 thousand

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Noble Energy - NBL - cls: 65.49 chg: -0.12 stop: 63.90

Trading in NBL on Friday was not very enthusiastic. Shares hit a new high and then reversed course all on below average volume. We were suggesting a trigger to buy the stock at $66.01. The intraday high was $66.12 so the play is now open. The rally past $66.00 has produced a new triple-top breakout buy signal on the Point & Figure chart with a $79 target. We are only aiming for the $69.90-70.00 range. Readers can choose to go long NBL now but we would wait. Wait for a dip to $65.00 or maybe the $64.00 level or if you prefer wait for a new relative high over $66.12 as your entry point.

Picked on July 13 at $66.01
Change since picked: - 0.52
Earnings Date 08/01/07 (unconfirmed)
Average Daily Volume: 1.2 million

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Royal Gold - RGLD - cls: 26.61 change: -0.03 stop: 23.99

RGLD came close to hitting our target. Shares spiked to $27.31 Friday morning. Unfortunately, the stock reversed and gave it all back to close in the red. The move looks like a short-term bearish reversal (failed rally) pattern. At this time we'd expect a dip back toward $26.00 and maybe lower. We're not suggesting new positions at the moment but keep an eye open for a bounce near the rising 10-dma. Our target is the $27.90-28.00 range. More aggressive traders may want to aim higher. FYI: The P&F chart is still very bearish.

Picked on July 08 at $25.75
Change since picked: + 0.86
Earnings Date 08/16/07 (unconfirmed)
Average Daily Volume: 462 thousand

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Systemax Inc. - SYX - cls: 21.49 change: -0.63 stop: 19.99

SYX's lack of follow through on Thursday's rally and bullish breakout is a warning sign for the bulls. The stock lost 2.8% and closed just above its rising 10-dma. Nimble traders may want to try and buy a bounce near $21.00. We are now suggesting that readers wait for a new move over $22.00 before initiating positions. Our first target is the $24.90-25.00 range. Beware potential resistance at the $24.00 level. We do have an aggressive (wide) stop loss and more conservative traders may want to tighten their stops. We can't find any future earnings reporting date for SYX but the company has a history of reporting in August.

Picked on July 12 at $22.01
Change since picked: - 0.63
Earnings Date 08/01/07 (unconfirmed)
Average Daily Volume: 479 thousand

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Verasun Energy - VSE - cls: 15.04 chg: -0.62 stop: 13.95

That's not a typo. VSE fell 62 cents two days in a row. Friday's 3.9% drop was powered by one analyst firm voicing their opinion that ethanol stocks might be at a short-term top and removing VSE from their recommended list. We warned readers to expect a pull back toward the $15.00 region. The question now is where will VSE bounce? A bounce from here or near $14.50 could be used as a new entry point to buy VSE but we would definitely wait for signs of a rebound before jumping in. Our target is the $17.75-18.00 range, just under the simple 200-dma. We'll be watching the 100-dma as potential resistance.

Picked on June 29 at $14.21
Change since picked: + 0.83
Earnings Date 08/07/07 (unconfirmed)
Average Daily Volume: 878 thousand
 

Short Play Updates

Empresa Natl. Elec. - EOC - cls: 45.95 chg: +0.06 stop: 50.05

EOC still looks bearish but we're expecting a short-term oversold bounce soon. Watch for a failed rally in the $47.00-47.50 zone as a new entry point for shorts. Readers may want to consider tightening their stops. The $45.00 level and the rising 100-dma could be support. Our target is the $43.00-42.50 range. We do not want to hold over the late July earnings report.

Picked on July 08 at $47.50
Change since picked: - 1.55
Earnings Date 07/25/07 (unconfirmed)
Average Daily Volume: 141 thousand
 

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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