Option Investor

Daily Newsletter, Monday, 04/28/2008

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Table of Contents

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

Market Wrap

Wilshire 5000 Tests Downward Trend

Stocks mirrored much of last week's trade on Monday, finishing mixed-to-higher, where the bulk of today's action was concentrated in a few select names.

As I return from a week in remote parts of Kansas, I'm getting caught up on some of the major technicals at this point, and after covering some of today's stock specific news and revelations, I'll be reviewing some of the major technicals that will be grabbing trader's attention into Wednesday's plethora of economic data.

Economic news released here in the U.S. was regional.

The Fed Bank of Chicago says its manufacturing index fells to a seasonally adjusted level of 107.6 in March, from an upwardly revised 108.4 in February, pressured by another sharp decline in auto production.

Tomorrow we'll get a look at consumer confidence for April. A Dow Jones Newswire survey has economists looking for a reading of 61.5 versus 64.5 in March.

I think that (61.5) might be a little low.

Today's economic news out of Germany showed the mood among German consumers improved markedly in April. Their consumer confidence indicator for May jumped to 5.9 (versus a forecast of 4.6) after a revised 4.8 points in April.

The Gfk consumer climate study noted that it was striking that the economic outlook indicator, income expectations and the propensity to buy readings all climbed significantly.

While not a double from Friday's close, it was a "double your pleasure, double your fun" day for traders and investors that held shares of Wrigley (NYSE:WWY) $76.91 +23.15% at his morning's open. The stock surged after candy maker Mars Inc. said it was buying the company with some financing help from Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) $128,460.00 +1.24% for an estimated $23 billion in cash. Berkshire will purchase a $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. Berkshire also offered $4.4 billion of subordinated debt to fund the deal.


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Wrigley executives said family owned Mars first began eyeing Wrigley in January and approached the company with their unsolicited bid in April. Since that time, the two sides have haggled to reach an $80-per share offer.

"A good time to buy a really great business is when you can do it," Warren Buffett said, adding that he understands Mars and Wrigley's balance sheets better than most of the major banks.

Credit market watchers noted that Mars' decision to turn to Warren Buffett to help fund the purchase shows a growing role that nontraditional sources of financing play in making deals, as the credit markets remain tight.

Shares of Ford Motor (NYSE:F) $8.21 +9.46% were atop today's list of most actives after billionaire investor Kirk Kerkorian said he has accumulated a 100 million-share stake in the auto maker and offered to buy 20 million more shares at $8.50 per share.

A couple of weeks ago I noted for several days that the stock was "suspiciously" showing up in the most actives. I'd look to book, or protect bullish gains here.

NASDAQ-100 (NDX.X) 1,923.26 +0.24% heavyweight Microsoft (NASDAQ: MSFT) $28.99 -2.81% fell for a second-straight session and weighed on the Software HOLDRs (SWH) $40.14 -1.01% after Citigroup's Mark Mahaney asserted that there is a 45% chance that the software giant may reach a deal with Yahoo! Inc. (NASDAQ: YHOO) $26.43 -1.38% at a higher price than $31.00/share and a 40% chance that Microsoft goes hostile at the current offer of $31.00 a share. Mr. Mahaney said he thought there was a 10% chance Microsoft walks; and a 5% chance they cut a deal at the current price.

While traders contemplate the MSFT/YHOO acquisition, shares of Sohu.com (NASDAQ:SOHU) $70.81 +14.50% surged to an all-time higher after the Chinese Internet firm reported upside earnings.

U.S. Market Watch - 04/28/08 Close

Again, a rather mixed session for the major averages and sector action was very mixed.

Dow component Verizon (NYSE:V) $27.79 +2.02% gained $0.75/share after the telephone company said it earned $1.64 billion, or $0.57 a share in its recently completed first quarter. The company said its wireless business continues to offset its weaker land-line business with total revenue rising 5.5% to $23.38 billion.

After today close, shares of Visa (NYSE:V) $75.63 +0.70% slid to $71.00 in the extended session after the credit card giant reported net income of $314 million, or $0.39 a share, in its first quarterly report as a public company.

Wilshire 5000 Index ($DWC) - Daily Intervals

One of the primary technicals I wanted to point out in tonight's Market Wrap is that the VERY BROAD Wilshire 5000 (DWC) is did test its longer-term downward trend in today's session, and this will likely be a tough level to eat through near-term.

While there are few traders/investor that will actually trade any product this BROAD, this index will be utilized by technicians as a further indication of PRICE strength and weakness..

Be VERY selective in "new bull" entries, instead looking for pullback points like 13,750.

SSPY and IWM Montage - Daily Intervals

I need to wrap things up to meet our new 08:00 PM EDT deadline, but the also "broader" indices using the S&P Depository Receipts (SPY) and Shares Russell 2000 (IWM) would have the IWM working its way above downward trend, but volume isn't all that heavy, and for bullishness, I'd really like to see more volume than we've had. The SPY, a "broad" index with more LARGE CAP names, and heavily weighted in the FINANCIAL arena lags.

Need those financials to really start participating more..

New Plays

Most Recent Plays

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New Plays
Long Plays
Short Plays
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New Long Plays

None today.

New Short Plays

None today.

Play Updates

Updates On Latest Picks

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Long Play Updates

Credicorp - BAP - close: 80.20 change: +0.35 stop: 78.45

BAP shot higher Monday morning with a quick rally to $81.93 and then slowly giving it all back. Our suggested trigger to buy the stock was at $80.51 so the play is now open. Look for a bounce at $80.00 or $79.50 as your next entry point. We do not have a lot of time. BAP is due to report earnings on May 7th and we do not want to hold over the report. Our short-term target is the $84.75-85.00 range. We do think that down the road BAP will trade much higher and we'll probably revisit it after we see the earnings reaction. The Point & Figure chart points to a $95 target.

Picked on April 28 at $80.51 *triggered
Change since picked: - 0.31
Earnings Date 05/07/08 (confirmed)
Average Daily Volume: 327 thousand


Buckle - BKE - close: 49.06 chg: -0.08 stop: 46.75

BKE, like most of the market, oscillated sideways on Monday. Traders bought the dip again this time at $47.84. If you are feeling cautious then wait for a new high over potential round-number resistance at $50.00. Our target is the $54.50-55.00 zone. The Point & Figure chart is bullish with a $65 target. We do not want to hold over the late May earnings report.

Picked on April 23 at $48.80
Change since picked: + 0.26
Earnings Date 05/22/08 (unconfirmed)
Average Daily Volume: 506 thousand


Citigroup - C - close: 26.81 change: +0.21 stop: 23.90

Citigroup out performed most of its peers in the banking sector with a 0.78% gain. However, the stock is starting to look a little toppy in the short-term charts. Don't be surprised to see a dip in the $26.00 region. We have two targets. Our first target is the $27.50-28.00 zone. Our second, more aggressive target is the $29.70-30.00 range.

Picked on April 21 at $24.50 *triggered
Change since picked: + 2.31
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume: 104 million


CPFL Energia - CPL - close: 70.71 change: -0.93 stop: 69.24

No deal! Most quote providers are going to list the intraday high for CPL as $72.84. This was a bad tick. They're also going to list it as the opening trade. Yet a quick glance at any intraday chart will show you that CPL did not trade over resistance at $72.00. I went through the entire day's data of time and sales and did not see any trades over $72.00. There were a couple at $71.99 but CPL did not break $72.00. We are suggesting a trigger to buy CPL at $72.15 so we're still on the sidelines. The stock's Point & Figure chart is very bullish with a $100 price target. Earnings are coming up in a couple of weeks and CPL might see a little pre-earnings rally. We don't want to hold over the announcement but that might be tricky since we can't find a solid earnings date yet. Our short-term target is the $78.00-80.00 range.

Picked on April xx at $xx.xx
Change since picked: - 0.00
Earnings Date 05/08/08 (unconfirmed)
Average Daily Volume: 228 thousand


Citi Trends - CTRN - close: 21.19 change: +0.25 stop: 18.95

We're still on the sidelines with CTRN. The stock dipped to $20.28 and bounced. The stock looks a little bit overdone so we're suggesting readers buy a dip in the $20.10-19.50 zone. If triggered we will have two targets. Our first target is the $22.40-22.50 range. Our second target is the $24.00-25.00 range. We do not want to hold over the late May earnings report (still unconfirmed date). The P&F chart is bullish with a $29.00 target.

Picked on April xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/22/08 (unconfirmed)
Average Daily Volume: 327 thousand


Gerdau S.A. - GGB - close: 37.79 chg: +0.66 stop: 35.45

Steel-related stocks were strong today. GGB rallied with the group adding 1.7%. We remain somewhat concerned over the bearish MACD indicator. More conservative traders may want to raise their stop loss toward $36.50ish. We're not suggesting new plays at this time. Our first target is the $39.75-40.00 zone. Our second, more aggressive target is the $42.00 mark. The P&F chart is bullish with a $57 target. We do not want to hold over the early May earnings report (unconfirmed).

Picked on April 10 at $36.84
Change since picked: + 0.95
Earnings Date 05/03/08 (unconfirmed)
Average Daily Volume: 3.1 million


iShares Telecom - IYZ - close: 25.03 chg: +0.14 stop: 23.49

IYZ almost hit our target today. The stock opened at $25.00 and spiked to $25.76 before giving back most of its gains. Our initial target has been the $25.85-26.00 zone. We're not suggesting new positions at this time. Our second target is the $27.85-28.00 zone. This is not a very fast moving equity and it could take weeks to hit our second target.

Picked on March 25 at $23.50 *triggered
Change since picked: + 1.53
Earnings Date 00/00/00
Average Daily Volume: 429 thousand


Lamar Advertising - LAMR - cls: 39.50 chg: +1.49 stop: 36.74 *new*

Target achieved. LAMR out performed the markets on Monday with a 3.9% gain. Shares hit an intraday high of $40.04. Our first target was the $39.90-40.00 zone. We're not suggesting new positions at this time and readers should not be surprised to see a correction back toward $38.50. We are raising the stop loss to $36.74. Our second, more aggressive target is the $42.50-45.00 zone. We do not want to hold over the May 7th earnings report. FYI: The Point & Figure chart is bullish with a $48 target.

Picked on April 23 at $37.47 *1st target hit
Change since picked: + 2.03
Earnings Date 05/07/08 (confirmed)
Average Daily Volume: 2.0 million


Lowe's Cos. - LOW - close: 25.64 change: -0.38 stop: 24.24

LOW ran into a little bit of profit taking after Friday's pop higher. That's okay with us. We would prefer to buy a dip and shares hit $25.47 this morning. Our four-week target is the $27.90-28.00 range. We do not want to hold over the late May earnings report. The P&F chart is bullish with a $39 target but LOW is facing immediate resistance on its Point & Figure chart.

Picked on April 27 at $26.02
Change since picked: - 0.38
Earnings Date 05/21/08 (unconfirmed)
Average Daily Volume: 12.7 million


PowerShares India - PIN - close: 26.41 chg: -0.30 stop: 25.74

Stocks rarely move in a straight line and the PIN pulled back on Monday giving back most of Friday's gains. This could be used as an entry point but we suggest a little patience. Look for a pull back closer to $26.00 and use that as an entry point to initiate bullish positions. We're trying to keep our stop loss tight at $25.74, under the recent dip. Our target is the $27.85-28.00 zone.

Picked on April 24 at $26.39
Change since picked: + 0.02
Earnings Date 00/00/00
Average Daily Volume: 97 thousand


S&P SPDR Homebuilders - XHB - cls: 23.17 chg: +0.26 stop: 21.45

Homebuilding stocks were generally higher on Monday. The DJUSHB index added 1.6%. The HGX also posted a gain. The XHB added 1.1% and closed above its exponential 200-dma. The MACD on the daily chart is nearing a new buy signal. We have two targets. Our first target is the $24.40-25.00 range. The $25.00 level will probably be resistance. Our second, much more aggressive target is the $27.00-27.50 range. The Point & Figure chart is very bullish with a $35.00 target.

Picked on April 24 at $22.67
Change since picked: + 0.50
Earnings Date 00/00/00
Average Daily Volume: 7.9 million

Short Play Updates


Closed Long Plays

Teleflex Inc. - TFX - close: 52.94 chg: +0.83 stop: 50.90

Our time with TFX is up. It was our plan to exit at Monday's close to avoid tomorrow's earnings report. The market expects a profit of 81 cents a share.

Picked on April 16 at $51.05 *triggered
Change since picked: + 1.89
Earnings Date 04/29/08 (confirmed)
Average Daily Volume: 319 thousand

Closed Short Plays


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


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