Option Investor
Newsletter

Daily Newsletter, Saturday, 6/20/2009

Table of Contents

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

Market Wrap

The Witch Is Dead

by Jim Brown

Click here to email Jim Brown

Quadruple witching expired on Friday with hardly any volatility and very little movement in the indexes. It appears that all the major positions were closed when the markets tanked on Monday/Tuesday and that left traders standing on the sidelines as the quadruple witching passed uneventfully.

Market Statistics

Options expiration was the focus on Friday but it was like waiting for a bus that never showed up. Traders were waiting for the extreme volatility to appear but it never came. Volume was average for an expiration Friday and prices remained pinned to the most common strikes. There was not enough volume to overcome the market makers as they kept prices in a tight range so the most options would expire worthless. It was a typical summer Friday rather than a high volatility options expiration day. Note that Thursday's volume very low for the day before expiration. The additional volume on Friday was due more to the S&P rebalance then expiration. Of particular interest was the very low volume on Monday when the market tanked hard. It was not that selling was heavy but just one sided. There was no rush to the exits.

Internals Table

Friday was also a void in terms of meaningful economic reports with Regional Employment the only material release. This is a lagging report for May and it showed employment fell in 39 states. This was nothing new and the market ignored it.

Next week is going to be drastically different in terms of meaningful economic releases. Nothing happens on Monday but Tuesday starts a three-day surge. The Richmond Fed Survey has rebounded from -55 in December to +4 in May. This five-month rebound is expected to continue but the bears are circling in hopes of a failure of the economic rebound. The Richmond Fed region has rebounded stronger than the rest of the country and all eyes will be on the Tuesday report. The coverage is for June so it is a current look at the manufacturing conditions in the region. The Philly Fed Survey from last Wednesday is show for comparison. Green shoots?

May Richmond Fed Survey

Philly Fed Survey

Also on the schedule for Tuesday is the Existing Home Sales for May. This is slightly lagging but a continued improvement is expected. The consensus is for a minor rise to 4.81 million annualized units from 4.68 million in April.

Wednesday is the big day with the Fed meeting announcement at 2:15 and $27 billion in 7-year notes up for sale. The FOMC meeting is the major event for the week. Fear of the Fed kept investors on the sidelines all week with daily stock TV discussions questioning when they will begin to raise rates. There are quite a few analysts that believe the Fed will change its statement next week to set the stage for future rate hikes.

The current statement has this sentence: "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Once they take away the "extended period" language the investing public will begin to speculate on when they will actually change rates. Most analysts believe it is at least three meetings away. The first change, which many believe will be next week, is to remove the extended period language.

The second change at the August meeting would be to add language warning that the Fed's bias was moving towards tightening. The third change would be an actual rate hike that could come as quickly as the September 22nd meeting. If this process does not move as fast as described above the next and most likely date for a rate hike is the November 4th meeting. The Fed Funds Futures were pricing in a 50-point rate hike by January just over a week ago. Regardless of the future timetable the confusion over when the rate hike process will start has got analysts running in circles trying to out speculate each other and institutional investors may be holding off on further investment until after Wednesday's meeting.

The ideal scenario would be for the Fed to acknowledge the confusion but again say rates will stay low for an extended period. That would tell investors that the Fed is not ready to reverse their bias and the outlook is for continued cheap money for several more months.

There is another storm brewing on the horizon. Fed Chairman Bernanke, with economic degrees from Harvard and a doctorate in economics from MIT, was kept on the job by President Obama rather than add to the economic confusion during the president's transition into office. Rumors are growing that Bernanke is about to be replaced by Larry Summers. Summers is respected in the market place but not as much as uncle Ben. Bernanke's life focus has been the great depression and how to avoid a reoccurrence. His thesis was on this topic at MIT and he is acknowledged as an expert on the subject. He was a professor at Princeton and chairman of the economics dept. Do we really want to kick Bernanke out of the position before the current crisis has gone away? Do we want Summers moving into the position and then trying to prove he is worthy of respect by suddenly changing the Fed's direction? This is not an event anybody wants to see until well into 2010 but rumors are heating up. In economic circles Bernanke is recognized as one of the smartest economic guys on the planet and a leading expert on monetary theory. Let's hope he keeps his job until the economy is rolling smoothly again.

Bernanke's problem now is the rising mortgage rates. If he continues to support the equity market with a free money program then mortgage rates are going to climb back towards 7%. If he puts the screws to the equity market and forces mortgage rates back down to 4% then the equity markets are going to tank. It is impossible for the Fed to provide support to the bond market and equity market at the same time. Add in the inflation problem created by free money and the Fed has a big challenge ahead and I hope the president is not going to try and change drivers in the middle of the race.

Next up on Wednesday is the $27 billion auction of seven-year notes. Every auction of late has been a bump in the road as investors wait to see if there will be enough bidders to take down the full amount and at what price. The 10-year and 30-year notes are more critical but there are none this week. There are $104 billion of treasuries up for auction with $40 billion two-year, $37B five-year and $27B seven-year. Sure hope there are still buyers overseas who want our debt or this recovery will come to an immediate halt.

If we can somehow dodge the economic guillotine on Wednesday the Thursday economics will be anticlimactic. The next revision of the Q1 GDP is still expected to show -5.7% growth. No news there. The Kansas City Fed Manufacturing Survey is expected to move into positive territory after nine months in the red. The Kansas survey is not seen to be as critical as the Richmond survey on Tuesday. The low in the Kansas numbers came in January at -25 and that had recovered to -3 in May.

Friday rounds out the week with Consumer Sentiment and Personal Income. If we dodged the bigger bullets on Wed/Thr the Friday reports will be ignored.

Economic Calendar

Actual market news next week will be controlled by the pace of earnings warnings. If we are going to see an uptick in warnings the last week of the month is where they should appear. The first Dow component to report Q2 earnings will be Alcoa on July 7th. That is only two weeks from now and there is a lot of water to go under the bridge in terms of earnings guidance before Alcoa starts the earnings cycle.

We have seen some late cycle companies reporting earnings over the last couple weeks and a large majority reported weaker guidance and weaker consumer sales. We are definitely not out of the woods yet and any further warnings should give us a view of what to expect in Q2 earnings. Thomson Financial S&P-500 earnings estimates for Q2 2009 have improved to a drop of -34.4% from Q2-2008. Earnings for the entire S&P 500 are now expected to be $14.31 compared to $26.73 in Q2-2008. Most of the improvement is due to one stock. GM was dropped from the S&P and the elimination of their monster loss took the consumer discretionary sector of the S&P from expectations of a -40.3% loss to a gain of +36.64%. Still that was not enough to rescue the total S&P from a -34% decline. Also helping was the financial sector estimates with a +309% (not a typo) increase in earnings for Q2. If you have a 70% swing in consumer discretionary and a +309% gain in financials and the S&P earnings are still down -34% that tells you how bad the rest of the sectors are performing.

Health care stocks rallied on Friday because it appears the President's $1 trillion dollar healthcare reform program may not happen in 2009. The number commonly quoted is 46.5 million Americans are uncovered by health insurance. Of that number 5.6 million are illegal aliens. 12 million are already covered or are eligible for the SCHIP program for children. 20.1 million make more than twice the poverty level in wages and choose not to buy health insurance. That leaves only 8.8 million truly uncovered and adding them for $1 trillion is considered too costly by most lawmakers. This has caused the stocks of many healthcare companies to rally on expectations that the reform will become bogged down in the process until next year and by them President Obama may not have enough political capital left to get it passed before the 2010 elections.

China's $200 billion sovereign wealth fund China Investment Corp said it was going to invest $500 million in hedge funds run by Blackrock Group. This is the first deposit in what CIC said would be a $1.6 billion investment in the Blackrock funds and $6 billion in U.S. hedge funds in general. This is a 180-degree about face after CIC Chairman Lou Jiwei said in December he did not dare invest in financial institutions after losing money in Blackstone and Morgan Stanley. CIC invested an additional $1.2 billion in shares of Morgan Stanley earlier this month so that concern over the financial sector has evaporated. Analysts feel that the $6 billion commitment by CIC in the U.S. markets is a strong endorsement and confirmation the worst is behind us.

Sir Allen Stanford won't be making any new investments any time soon. Federal prosecutors filed criminal charges on him and several others in the firm for taking part in a $7 billion ponzi scheme. Stanford turned himself over to the FBI and will remain confined as a flight risk until over $1 billion in missing money that was under his control is found. If convicted Stanford could face up to 250 years in prison. Sure hope he enjoyed spending that money while he was riding high.

Three more banks failed and were closed on Friday bringing the total to 40 for 2009. Southern Community in Fayetteville GA, Cooperative Bank in Wilmington NC and First National Bank of Anthony KS were closed. $1.47 billion in combined assets were sold to other banks that took over the deposits of the failed institutions. The FDIC said the cost to the fund would be $363 million. The FDIC has closed more banks so far in 2009 than any year since 1993 and there is still half a year to go. RBC Capital estimated over 1,000 banks could be closed in the next three years. The FDIC reported 305 banks as problem banks at the end of Q1. That is a 24% increase since Q4 and also a high since 1993. The FDIC fund has fallen to $13 billion and the lowest level since 1993. Obviously the early 1990s was a challenge for the financial community and one the FDIC would like to prevent in 2009-2010. The FDIC insures 8,246 banks with $13.5 trillion in assets.

As if the markets don't have enough to worry about the axis of evil is heating up this weekend. Iran's contested election results are producing some serious problems and they won't go away. It appears evident to everyone now that the election results were really rigged and the supreme leader Ali Khamenei has given up trying to pacify the people. He is now threatening them if they continue to protest. Analysts expect this to produce a showdown on Saturday that could be similar to China's Tiananmen Square massacre where more than 2600 people were killed. The Sea of Green protest march, which was planned for Saturday at 4:PM was expected to be the biggest yet. Riot police reportedly tried to breakup the protests but news out of Iran on Saturday afternoon is very sparse. Outside communications on Twitter, Facebook, YouTube, cell phones etc are being turned off and reporters have been asked to leave the country. Sporadic communications from hospitals report dozens to hundreds of gunshot wounds. Bodies were seized by the army and loaded on army trucks and taken away so there would be no evidence.

Secondly North Korea is reportedly going to launch a missile towards Hawaii on July 4th. They tried this once before several years ago but the missile aborted several second after takeoff. The U.S. military has activated a missile defense screen around Hawaii for next weekend and a launch is sure to escalate the current hostility towards North Korea. They are not trying to hit Hawaii but simply prove they can if they want to. If events transpire as expected there is sure to be an international incident and the North Korean reaction to that incident will not be rational. The UN is also tracking a NK ship suspected of carrying weapons for delivery to another country in violation of the recent UN weapons ban on North Korea.

Since NK is a flea compared to the U.S. the markets will probably show only a token response to any showdown. Iran is a different problem. If their army escalates the shooting of their own people the markets could react negatively on Monday since Iran is a much bigger problem.

Oil prices crashed after 12:00 on Friday. At noon the futures were trading just a couple cents under $72 when the selling began. For the rest of the day it was seller panic and crude traded as low as $68.90 before closing at $69.92. The problem for crude prices is the expiration of July futures on Monday afternoon. The expiration of futures forces the leveraged ETFs to roll contracts forward to the next expiration period. The USO ETF controls over 20% of the open interest in crude futures. When they roll out of contracts it always causes a blip. The DXO only holds July contracts so they have to roll all their positions before the June 22 expiration. Obviously managers of these ETFs are not going to wait until 12:30 on Monday to launch a sell program. I firmly believe Friday's selling was due to crude expiration pressures and not external events. The drop in crude carried over into gasoline as well.

Crude Oil Chart

Gasoline Futures Chart

Late Friday the Wall Street Journal reported that Steve Jobs had a liver transplant earlier this spring and was recovering from the operation. The WSJ said Jobs is still expected to return to work by month end. The transplant occurred in late March or early April and was not disclosed by the Apple board. (Nasdaq:AAPL)

I heard two reports on Friday about option open interest falling sharply after Monday. I believe this was a result of stops getting hit when the Russell deleted stock list was pounded by the funds and shorts on Monday morning. The sharp drop in open interest early in the week produced a calm close for the week.

The S&P rebalance was completed at the close on Friday so that is no longer a factor in the market. The Russell rebalance is alive and well but most positions gaming the rebalance should already be in place. The next time we are likely to see an impact from the Russell rebalance is from next Friday afternoon through month end.

We should also see the normal quarter end window dressing the last three days of the month and that should help buoy the markets until then. Funds that did invest in equities over the last three months will want to keep those positions in the green at least until month end.

All the indexes with the with the exception of the Dow are holding over their 200-day averages. I view this as bullish support. However, the market is more than likely going to trade on news next week rather than technicals. Nearly every technician in the press and on stock TV appears to be turning bearish. This is a bullish event for contrarians. When everyone was bullish over the last six weeks the market struggled to move higher. Now that the bulls are throwing in the towel and turning bearish I believe the markets have a chance of moving higher.

In Robert's Contrarian update on Thursday he showed that all three indicators, the VIX, put-call ratios and the Investors Intelligence numbers had all turned negative for sentiment. This is rare that all three indicators are showing the same signal. It also suggests even more so that we should apply contrarian logic to the signals.

When I look at the Dow chart I see two major down days in Mon/Tue (Russell shorting) but I also see three tests of support at 8500 and all three held. This could just be a plateau before the next leg down or it could be the pause that refreshes the bulls. There were a tremendous number of extraneous events last week that pressured the market and the bears could only force a -3% drop. That is pocket change compared to the three-month rally.

However, if this is just a staging point while we await the Fed decision then we could be vulnerable to something in the 8200-8300 range. I personally don't think it will happen without some further external pressure like negative Fed language, earnings warnings, international incident, etc. I continue to favor buying the dip from 8800 but at the same time realizing that dip could continue to 8200.

However, fund managers don't make money in a declining market. In order to draw cash in from the sidelines the market needs to maintain a positive trend. Managers have been waiting for a decent pullback to buy and this is it. Now, as it usually happens, they are probably second guessing themselves and wondering if they can buy it a little lower. The greed gene is potentially fatal. It kept them from getting in the first time when the markets rebounded in March. "Surely it will come back and I can buy it cheaper." Instead of biting the bullet a week into the rally many managers remained under invested while the markets rallied +35%. The $64 question is will they make the same mistake twice? If you just look at the Dow chart it is saying sell but this is not the first time the indicators have pointed down in this rally and then failed to follow through on their indications.

Dow Chart

The S&P-500 rebounded off the support of the 200-day average for the last three days and stubbornly refused to give up its prior gains. A -2.6% retracement, -25 points, was nothing compared to the +280 points gained in the rally. Even with the expiration pressures the S&P did not even come close to the 900 level and appeared pinned to 920 by the market makers. With expiration and rebalance pressures behind us the S&P will be free to mount another attack on the 950 level.

The last three days showed progressively higher highs/lows after the Mon/Tue beating. Like the Dow the RSI and MACD are suggesting sell but there are minor reversal indications showing as well. I don't want to be using a magnifying glass to search out a positive turn on the indicators so holding above the 200-day is where I will hang my hope. If that support fails I believe we could see a continued decline to as low as 880 if news events control our fate.

S&P Chart

The Nasdaq remains much more bullish than the other indexes. It is well over the 200-day average and continues to respect the 30-day average as support. The dip last week bounced exactly on support at a hair under 1800 and while it is not enough to proclaim a rebound it was still a bounce. The Apple trend is turning positive again and the $4 decline in RIMM on Friday could not keep the Nasdaq from posting a 20-point gain. Even Google appears to be trying to build a consolidation base. Bing has not harmed its support at the 30-day average. If a real correction appeared the Nasdaq has risk to 1675 but it would take a real bout of selling and some seriously negative news to hit that support.

Nasdaq Chart

The Russell 2000 is not confirming anything but it did hold at support at 500. Until the rebalance is over on July 1st we can't rely on the Russell indexes for any market direction.

The transports have declined from their 3400 resistance from the prior week to rest at 3200. Rail car traffic is apparently improving in June after 22 months of declines. The rails need to hold up because the truckers are heading to the bottom of the barrel. The combination of higher fuel costs and continued slower retail sales is a problem. Container traffic is down -22% from the same period in 2008 but rose +2% in April. If there are green shoots in the shipping sector they are very fragile. If the transports start to move higher over 3200 then equities should follow.

Dow Transports Chart

The Wilshire 5000 Total Market Index set a new 8-month high in early June and only gave back a small portion of its gains. The Dow has been unable to move over 9000, which would be the equivalent level. The Dow is handicapped by the individual stocks in the 30 stock index and we saw two of them kicked out last month. The Wilshire is more representative of the overall market health. Over the last six weeks we saw two consolidation periods and last week's decline was minimal. Strong resistance at 9750 would be the key to knowing when the next market move higher had traction. This index eliminates single stock impact like Google, RIMM or IBM. This is the market. If it moves over 9750 it is a confirmed rally but 10,000 will be the next challenge.

Wilshire 5000 Total Market Index Chart

I would continue to buy the dip but be aware that there may be a larger dip in our future. Summer is typically weak for the markets and Q2 earnings may not be exciting. The biggest event next week is the FOMC announcement on Wednesday so be prepared.

Jim Brown


New Plays

Water Heaters, Medical Supplies and Healthcare

by James Brown

Click here to email James Brown


NEW BULLISH Plays

A.O.Smith Corp. - AOS - close: 31.87 change: -0.07 stop: 29.90

Why We Like It:
Shares of AOS have been consolidating under resistance in the $32.50-33.00 zone for months. The bullish trend of higher lows is forecasting a breakout higher. The Point & Figure chart is already bullish and points to a $45 target. The MACD has turned bullish. I'm suggesting a trigger to buy AOS at $32.60. More conservative traders may want to wait for a move $33.00. I am listing an alternative trigger to buy AOS on a dip in the $30.25-30.00 zone. If triggered at either our first target is $34.95. Our second target is $37.00.

Annotated chart:

Entry on      June xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          07/16/09 (unconfirmed)    
Average Daily Volume:       195 thousand
Listed on  June 20, 2009    


PerkinElmer Inc. - PKI - close: 17.99 change: +0.04 stop: 16.45

Why We Like It:
PKI is part of the medical instruments and supplies industry. The stock exploded higher in late April/early May on a better than expected earnings report. Since then it has been consolidating sideways in the $17-16 zone. This past week saw shares breakout again. I'm suggesting readers buy PKI on a dip in the $17.15-17.00 zone. We're setting our stop at $16.45. Our first target is $19.45.

Annotated chart:

Entry on      June xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          07/23/09 (unconfirmed)    
Average Daily Volume:       1.1 million 
Listed on  June 20, 2009    


Wellpoint Inc. - WLP - close: 50.93 change: +0.19 stop: 47.25

Why We Like It:
The health insurance stocks have been on the rise as the battle for healthcare heats up in Washington. WLP has broken out from a multi-week trading range. Aggressive traders may want to buy Friday's bounce from $50.00. I'm suggesting readers buy a dip at $49.25. The $49.00 level was resistance so it should be support. If triggered at $49.25 our first target is $54.00. Our second target is $57.40.

Annotated chart:

Entry on      June xx at $xx.xx <-- see TRIGGER  
Change since picked:     + 0.00   			
Earnings Date          07/29/09 (unconfirmed)    
Average Daily Volume:       4.4 million 
Listed on  June 20, 2009    



In Play Updates and Reviews

It's Earnings Warning Season

by James Brown

Click here to email James Brown


BULLISH Play Updates

Bank of America - BAC - close: 13.22 change: +0.32 stop: 11.85 *new*

Banking stocks continued to bounce on Friday and BAC helped lead the charge with a 2.4% gain. Last week's rebound from broken resistance and new support near $12.00 is certainly bullish but BAC has pretty heavy overhead resistance at its 200-dma and the $15.00 level. I would still consider new bullish positions on dips or bounces in the $12.25-12.00 zone. I'm upping our stop loss to $11.85.

The plan is to sell at least half to 75% of our position at $14.20 but we need to lower this to $14.00 because the 200-dma is falling so quickly. We want to take profits before BAC hits technical resistance at its 200-dma or at its May highs near $15.00. We'll plan on exiting completely at $16.45.

Annotated chart:

Entry on      June 04 at $12.24 /gap higher entry
                              /listed at $11.87
Change since picked:     + 0.98   			
Earnings Date          07/20/09 (unconfirmed)    
Average Daily Volume:       537 million 
Listed on   May 19, 2009    


Dell Inc. - DELL - close: 13.29 change: +0.68 stop: 11.70 *new*

It was a volatile option expiration Friday for DELL. Shares shot higher at the open and closed near its highs for a 5.3% gain. Volume was strong at almost 49 million shares. I am raising our stop loss to $11.70. Our first target is $14.90.

Annotated chart:

Entry on      June 09 at $12.55 
Change since picked:     + 0.74   			
Earnings Date          08/27/09 (unconfirmed)    
Average Daily Volume:        29 million 
Listed on  June 06, 2009    


3x Energy Bear ETF- ERY - close: 21.20 change: +0.42 stop: 15.99

I really want to remind readers that if you are trading ERY you have to be ready for some volatility. The short-term trend in the oil and oil service stocks is down. However, both of these indices are short-term oversold, falling hard last week. If they produce an oversold bounce then the ERY will contract lower. At this time it might be a better strategy to wait for a dip near $19.00 before launching new ERY positions.

This is a VERY volatile triple-leveraged ETF that moves higher as oil stocks move lower. The ERY moves based on the Russell 1000 Energy index. Our first target is $24.00. Our second target is $27.50. This is a very aggressive trade. I'm suggesting readers trade smaller than normal position sizes. More conservative traders may want to use a stop loss near $18.00.

Annotated chart:

Entry on      June 16 at $20.10 /gap higher entry
                              /originally listed t $19.68
Change since picked:     + 1.10   			
Earnings Date          00/00/00 
Average Daily Volume:       2.7 million 
Listed on  June 16, 2009    


Flextronics - FLEX - close: 4.35 change: +0.11 stop: 3.95 *new*

So far so good. The bounce in FLEX last week is a new entry point to buy the stock. I'm raising our stop loss to $3.95. If you're patient we might see another dip near $4.20 as an entry point. Our first target for FLEX is $5.50.

Annotated chart:

Entry on      June 10 at $ 4.35 
Change since picked:     + 0.00   			
Earnings Date          07/29/09 (unconfirmed)    
Average Daily Volume:       7.9 million 
Listed on  June 09, 2009    


JDS Uniphase - JDSU - close: 5.87 change: -0.09 stop: 5.45

JDSU ran into a little profit taking on Friday. Shares have been struggling with the $6.00 level lately. Readers might want to wait for a dip near $5.50 before considering new bullish positions.

Our first target to take profits is $6.40. Our second target is $7.40. My time frame is six to eight weeks. FYI: The Point & Figure chart is bullish with a $10.00 target.

Annotated chart:

Entry on      June 01 at $ 5.65 *triggered       
Change since picked:     + 0.22   			
Earnings Date          08/20/09 (unconfirmed)    
Average Daily Volume:       3.6 million 
Listed on   May 30, 2009    


McDermott Intl. - MDR - close: 20.54 change: +0.34 stop: 19.35

MDR is still trying to bounce form the $20.00 level. After the recent correction shares still look short-term oversold. We have a tight stop under last week's low so I'm still suggesting new bullish positions here or on a dip near $20.00. More aggressive traders may want to use a wider stop. Our first target is $23.90.

Annotated chart:

Entry on      June 17 at $20.12 
Change since picked:     + 0.42   			
Earnings Date          08/11/09 (unconfirmed)    
Average Daily Volume:       3.9 million 
Listed on  June 17, 2009    


Southern Copper - PCU - close: 21.34 change: -0.10 stop: 19.85

The sell-off in copper futures has stalled near but not yet at its bullish trend of higher lows. So the correction may not yet be over. Still it's close enough that I would buy PCU right here. If you're patient the stock might pull back closer to the $20.00 level. Our first target is $24.45. Our second target is $26.75 but we may not have time. The plan is to exit before the late July earnings report.

Annotated chart:

Entry on      June 17 at $21.25 *triggered     
Change since picked:     + 0.09   			
Earnings Date          07/20/09 (unconfirmed)    
Average Daily Volume:       4.1 million 
Listed on  June 01, 2009    


Pharma Prod. Dev. - PPDI - close: 23.20 chg: +0.15 stop: 21.75

PPDI continued to rally but the rally was so strong Friday morning shares gapped open higher. We've adjusted our entry point for the open at $23.38. I don't see any changes from my Thursday night comments. The stock is breaking out from a three-day consolidation and past technical resistance at the 100-dma. If you don't want to chase it here then look for a dip back toward the rising 10-dma near $22.00. Our first target is $25.90 (or its 200-dma). FYI: The Point & Figure chart is bullish with a $31.00 target.

Annotated chart:

Entry on      June 18 at $23.38 /gap higher entry
                              /originally listed at $23.05
Change since picked:     - 0.18   			
Earnings Date          07/21/09 (unconfirmed)    
Average Daily Volume:       1.5 million 
Listed on  June 18, 2009    


RTI Intl. Metals - RTI - close: 19.30 change: -0.64 stop: 17.99

Our aggressive, higher-risk trade on RTI displayed some volatility on Friday. The stock gapped open at $20.35 but quickly reversed. The move looks like a failed rally near its 10-dma, which is short-term bearish. I am suggesting readers look for a dip near $18.50-18.00 as our next entry point to buy RTI.

There is resistance near $22.50. I'm listing our first target to take profits at $22.40. Our second target is $24.75. FYI: The P&F chart is bullish with a $25 target. I want to reiterate that this is an aggressive, higher-risk trade.

Annotated chart:

Entry on      June 18 at $20.35 /gap higher entry
                              /originally listed at $19.94
Change since picked:     - 1.05   			
Earnings Date          07/28/09 (unconfirmed)    
Average Daily Volume:       913 thousand
Listed on  June 18, 2009    


Urban Outfitters - URBN - close: 21.55 chg: +0.73 stop: 19.95

URBN is showing some relative strength with a 3.5% gain on Friday. The stock continues to rebound off last week's test of support near $20.00. The move looks like a new entry point to buy the stock if you were waiting for some confirmation of the bounce. Our first target is $23.45. Our second target is $25.75.

Annotated chart:

Entry on      June 04 at $21.10 *triggered       
Change since picked:     - 0.28   			
Earnings Date          08/13/09 (unconfirmed)    
Average Daily Volume:       4.8 million 
Listed on  June 01, 2009    


BEARISH Play Updates

DuPont - DD - close: 24.97 change: -0.20 stop: 27.65

Shares of DD have been pinned to the $25.00 level these last few days as investors wait for option expiration. Now that expiration is over shares will be free to move again. Currently DD is testing technical support at its 100-dma so I would expect a bounce but a failed rally under $27.00 can be used as a new bearish entry point. Our first target $22.25. Our second target is $20.25.

Annotated chart:

Entry on      June 16 at $25.20 
Change since picked:     - 0.23   			
Earnings Date          07/21/09 (unconfirmed)    
Average Daily Volume:       9.1 million 
Listed on  June 16, 2009    


Gamestop - GME - close: 22.95 change: +0.15 stop: 26.26

GME produced a minor oversold bounce but it failed several times near $23.20. The MACD has produced a new sell signal. The trend is still lower but I'm not suggesting new positions at this time. More conservative traders may want to lower their stops toward $25.50 or $25.00.

GME does have some support at $22.00. I would go ahead and take some money off the table at $22.05 but I expect this stock to trade much lower. Our second target is $20.25. I'm setting a third target at $18.15.

Annotated chart:

Entry on      June 02 at $24.32 
Change since picked:     - 1.37   			
Earnings Date          08/20/09 (unconfirmed)    
Average Daily Volume:       6.3 million 
Listed on  June 02, 2009    


iShares Materials - MXI - close: 47.10 change: +0.75 stop: 50.55

After the sharp correction in the MXI last week a little oversold bounce isn't a surprise. The bounce probably isn't over yet. Readers can look for a bounce or a failed rally near $48.00 or its simple 10-dma as a new entry point for bearish positions. Our first target is $44.00. Our second target is $41.00.

Annotated chart:

Entry on      June 16 at $47.55 
Change since picked:     - 0.45   			
Earnings Date          00/00/00 
Average Daily Volume:       170 thousand
Listed on  June 16, 2009    


Pulte Homes - PHM - close: 8.78 change: +0.21 stop: 9.75 *new*

PHM spent most of last week churning sideways between $8.50 and $9.00. I'm lowering our stop loss to $9.75. More conservative traders may want to adjust theirs toward $9.50. I'm not suggesting new positions at this time.

Our target to exit is $7.25. More conservative traders may want to exit at $7.80 instead.

Annotated chart:

Entry on       May 20 at $ 9.38 /gap down entry
                              /originally listed at $9.52
Change since picked:     - 0.60   			
Earnings Date          07/23/09 (unconfirmed)    
Average Daily Volume:        11 million 
Listed on   May 20, 2009    


Homebuilders ETF - XHB - close: 11.58 change: +0.15 stop: 12.85

The XHB looks a little short-term oversold so we can probably expect a bounce back toward $12.00 or its 30-dma before it rolls over again. Wait for that failed rally before considering new positions.

Our target is $10.10. I am tempted to set a longer-term target in the $9.00-8.00 region.

Annotated chart:

Entry on       May 23 at $11.96 
Change since picked:     - 0.38   			
Earnings Date          00/00/00 
Average Daily Volume:        10 million 
Listed on   May 23, 2009    


CLOSED BULLISH PLAYS

Dollar Tree Inc. - DLTR - close: 42.17 chg: +0.44 stop: 42.95

DLTR has been under performing and following the rest of the retail sector lower these past three weeks. Shares are currently consolidating near their 100-dma. Aggressive traders may want to consider positions here with a tight stop. I'm dropping DLTR as a bullish candidate. Our plan was to buy a breakout over $45.00 but it could be a while before that happens.

chart:

*New Entry Point - trigger 45.15*
Entry on      June xx at $xx.xx <--trigger 45.15
Change since picked:     + 0.00               *never opened*
Earnings Date          08/27/09 (unconfirmed)    
Average Daily Volume:       1.8 million 
Listed on  June 02, 2009 


Sasol Ltd - SSL - close: 34.18 change: -2.00 stop: 35.95

Ouch! It was an ugly day for SSL but I'm surprised it wasn't worse. The company came out and warned that fiscal year 2009 would be 40 to 50% worse than 2008. The stock gapped open lower at $34.55, which was under our stop loss at $35.95. Our play ended immediately. The stock sank to technical support at its 50-dma and exponential 200-dma for a 5.5% loss. Considering a -50% forecast for earnings I'm surprised the sell-off wasn't worse.

chart:

Entry on      June 10 at $38.67 
Change since picked:     - 4.12 /gap down exit @ 34.55 (-10.6%)
                          /gapped under our stop loss 
Earnings Date          09/14/09 (unconfirmed)    
Average Daily Volume:       526 thousand
Listed on  June 10, 2009