Option Investor
Newsletter

Daily Newsletter, Thursday, 9/3/2009

Table of Contents

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

Market Wrap

Sellers Halted After Four Days of Selling

by Keene Little

Click here to email Keene Little
Market Stats

The good news is that the market broke its string of daily losses but the bad news is that volume was very light today, about on par with last week's volume as it was topping. It's not what the bulls would like to see. The price pattern looks like a corrective bounce which is supported by the lower volume. Both pieces tell us to expect lower prices before we get a bigger bounce. The reaction to tomorrow's employment numbers should set the tone for the day.

I had indicated last week that the week's candlestick pattern was very similar to the one in early June before it let go to the downside and a decline into July. I refer to these patterns as fractals and I like to make note of them since they can often predict the next move. We traders often react to the same stimuli in the same way and those reaction of course are reflected in stock prices. Now the bigger question is what can we make of the move down and will it continue to follow the pattern of June-July-August. I'll review those possibilities in tonight's charts.

There were a lot of pieces to the puzzle that were coming together last week that had me looking for a high. One is the extremely high bullish sentiment that the rally from March has achieved. The 89% bullish sentiment as measured by the Daily Sentiment Index from trade-futures.com was higher than the 88% in October 2007. When everyone is bullish, the bets have been made and there are few buyers to propel the market higher. That's when the boat tips over.

Another sentiment indicator is the performance of the dogs. By that I mean the stocks of companies that are weaker relative to most other stocks. When those doggy stocks start rallying stronger than the broader averages you know bullish sentiment is getting frothy. These sentiment indicators are not timing tools but they provide very good warnings. Bloomberg recently reported on these weaker stocks and used NY University Professor Edward Altman's "Z-Score" method. He created this scoring tool back in 1968 to measure a company's likelihood to become insolvent based on earnings, assets and capital. He rates the stocks and then groups them according to their Altman-2 rating.

The chart of the Low Altman-2 stocks vs. the blue chips and High Altman-2 stocks is shown in the following chart:

Low Altman-2 vs. High Altman-2 stocks, Daily chart

You can clearly see the outperformance of the weaker stocks. This is reflective of excessive bullishness and complacency. It's also likely a result of short covering as the weaker stocks were probably shorted into a deeper hole than the rest of the market. Once those shorts have finished covering, the stocks become vulnerable to a stronger selloff (making them higher-beta stocks).

Another chart, courtesy agorafinancial.com, shows the outperformance of the much weaker financial stocks as compared to the stronger (although that's debatable) financials. Specifically, AIG, Freddie Mac and Fannie Mae have been on a tear lately and it's not difficult to understand that it's been mostly short covering.

Weak vs. Strong Financial Performance in the past 30 Days

The speculative buying in these weaker stocks as compared to practically no new buying in the stronger stocks speaks volumes about where the rally from March was heading. When that speculative buying and short covering is finished there's not much left to drive them higher. The move in the weaker financials had the smell of a blow-off move and it will be very interesting to see how they perform in the next 30 days if the market takes a "rest".

The weekly MACD on SPX has not crossed down yet but is threatening to do so and RSI is rolling over from overbought. This is occurring from the 38% retracement of the 2007-2009 decline and at the broken longer-term uptrend line from 1990-2002. A failed test of a broken trend line (kiss goodbye) could turn out to be a very bearish signal here and as shown in dark red, the next move could be to new annual lows before the year is out.

S&P 500, SPX, Weekly chart

Another possibility, shown in pink, is for the current pullback to find support at its uptrend line from March, currently near 972, followed by another rally leg into October (that would catch a few bears flat footed) before the market turns back down in earnest.

The 50-dma is coming up on 970 and is literally right on top of its uptrend line from March. Both should be near 972 by Monday/Tuesday. To say this will be an important support level, if tested, is a gross understatement. If SPX slices right through 970 without so much as a hiccup you'll want to get short and hang on.

S&P 500, SPX, Daily chart

Assuming we'll test the 972 area (not a given since many will front run that level) it will be a good opportunity to play the long side and see what kind of bounce develops. As shown in pink and referred to on the weekly chart, we could see another rally leg into October (how high would be the next question since I see 1050 and 1121 as upside potential). The bearish side of me says we'll get the bounce and then crash lower through the 970 level.

But I'm tempering my bearishness based on a possible fractal pattern playing out. I had mentioned fractal patterns above when referring to the candlestick pattern last week and comparing it to the action in early June. If that fractal pattern follows through we'll see another 3-wave move sideways/down to the uptrend line, like it did into the July low, followed by another rally leg. Neither side can get complacent here.

Key Levels for SPX:
- cautiously bullish above 1030
- bearish below 970

We've got a parallel down-channel from last Friday's high to watch for now. If today's rally continues tomorrow we could see the top of the channel tested. It could coincide with a rally back up to 1009 which is the 50% retracement of the leg up from August 17th. Any higher than that would be a bullish heads up that we'll get at least a higher bounce that could be part of the 3-wave pullback to the uptrend line from March (like we saw in June-July). If that were to play out I would expect 1016 to hold as resistance. Anything higher than 1029 would suggest we're already heading for a new high.

S&P 500, SPX, 60-min chart

The DOW's uptrend line from March is lower relative to the line for SPX. The more likely support for the DOW, if SPX finds support around 972, will be the January high of 9088. It takes a break below 8900 to indicate a much deeper decline is in progress. If the market rallies from here to a new high I suspect it will be a marginal new high with a continuation of the bearish divergence.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 9550
- bearish below 8900

As with SPX, the 50-dma for NDX is sitting right on top of its uptrend line from March, both currently near 1561. That should be solid support if tested within the next couple of days. Back above 1648 would be a signal that we're probably going to get a new high. Whether it would make it up to the 62% retracement at 1773 or do a retest of the broken uptrend line from July can't be known but that's the first area I'd look for resistance.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- cautiously bullish above 1648
- bearish below 1560

It's the same story with the RUT as with the others. The 50-dma and uptrend line from March will coincide near 540 in the next couple of days and that will be critical support. If support holds we'll then have to watch how the rally develops to see if it has the makings of a new high.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish above 580
- bearish below 540

We could be nearing a reversal in the bond market as the 30-year yield drops closer to the level where it would have two equal legs down from its June high 3.983%). If that level is tested and holds we could see a reversal higher in yields that will take the 30-year to the 5% area or higher. A drop below 3.9% would likely mean a continuation lower which would obviously mean a rally in the bond market (which could coincide with selling in the stock market). There is the possibility that we'll see selling in both bonds and stocks as part of a selloff in all asset classes.

30-year Yield, TYX, Daily chart

Looking at the banking index, it was one of the first to break its uptrend line from March. BIX is now bouncing back up towards it, currently sitting near 123. Something to watch for tomorrow is the potential for BIX to rally slightly higher to 122.69 where it would achieve two equal legs up from yesterday's low. It would make for a good setup for a reversal back down (and a kiss goodbye against its broken uptrend line).

Banking index, BIX, Daily chart

The downside price projections for BIX that are shown on the chart are from the early August high and yesterday's low achieved two equal legs down at 118.49 (the low was 118.04). That makes it possible for the completion of an a-b-c correction from the August high and as shown in pink we could now see another rally leg develop that takes the BIX to at least a marginal new high. Above 135 would open the door to a move up to the 150 area. But a drop below 111 would be a break of the 50-dma, a Fib price projection and price-level support. The 200-dma near 104 would be the likely downside target before a bigger bounce.

The August high for the home builder index tagged the top of a parallel up-channel for price action since the November low. Considering the overlapping highs and lows within that bounce it looks more like a correction (big bear flag) than something more bullish. It's always possible we'll see a pullback and then another attempt at a new high but right now the pattern favors a downside resolution and a new low below last November's.

U.S. Home Construction Index, DJUSHB, Daily chart

We've all been hearing about the next shoe to drop in the mortgage business (and all the collateralized and securitized "investments") is the commercial real estate market. It's already in deep trouble but we're not hearing much about it reported in the press. I suspect that will change soon, just as it did in the home mortgage market well after it was in serious trouble (and still is).

The NY Times had an article yesterday in which it discussed this troubled market. They reported 65% of commercial mortgages maturing over the next few years will probably not qualify for refinancing. The drop in property values, the loss of tenants (making rating agencies nervous and dropping ratings on the repackaged loans) and new stricter underwriting standards are all conspiring against current property owners who will need to renegotiate their loans. Many feel the wave of defaults, foreclosures and bankruptcies that are coming will easily surpass anything we saw in the early 1990s.

Building values have already dropped as much as 50% in many parts of the country and even more in Manhattan where prices were driven much higher by too much easy money. Because banks are no longer the holders of most of these loans there have been service providers set up to manage the loan payments. These "master servicers" are not authorized to renegotiate loans and mortgagees are finding it difficult to find someone to talk to about renewing their loans. When a loan gets into trouble and the payer falls behind, the loan handling is then transferred to a "special servicer". By then the loan is already in default and the payer is likely already headed for bankruptcy.

There are currently about 3,100 securitized loans (6.1% of the total), with a face value of about $49B, are in trouble and with a special servicer now. Many believe the number will climb to over $100B before the end of the year. But banks will bear the brunt of the problem as they hold about $1.3T in commercial mortgages (including apartment buildings) and another $536B in construction and development loans. About $393B worth of these mortgages are expected to mature by the end of the year.

There appears to be a conflict of interest between the owners of the securitized loans and the special servicers which are chosen by the investors who hold the riskiest loans. Often these servicers are part of the same company and just 6 companies control 85% of the business. Therefore the servicers, i.e., the holders of the loans, may not be anxious to take a loss and settle with the mortgagee. This creates a situation where more loans are not being repaid, are in default and it's just a matter of time before the losses must be recognized. This is one reason why many are thinking we're only in the first or second inning of the commercial real estate collapse and why banks have much more pain directly ahead. In other words, the rally in the banks may be a bit premature.

Look at the DJ Real Estate index ($DJR), it's mirroring the broader market except that it showed relative weakness in late August by not making a new high. If the late-January high and June highs near 142 hold we could still see another rally leg up (shown in pink). Otherwise a decline shown in dark red is the more likely path.

DJ Equity REIT Index, $DJR, Daily chart

If the market decline continues into next week we should see the Trannies head down to its uptrend line from March. After tagging its 50% retracement of the 2008-2009 decline the test of the uptrend line would coincide with the 38% retracement near 3444 and its 50-dma, currently near 3493. I think the 3450-3500 area is going to be strong support if reached. As shown in pink we could get another rally leg into October from there (why, I don't know but the pattern supports the idea that it could happen). A break below 3400 would clearly be bearish as it would be a break of all that support above 3400.

Transportation Index, TRAN, Daily chart

Whatever's going on in the metals this week (strong rally) can't be "blamed" on the US dollar sinking. The dollar continues to motor along sideways. But the pattern in the dollar over the past two weeks leads me to believe we haven't seen the low for the dollar yet so I see the possibility for a drop to a Fib projection at 77.12 to finish its decline from March. The bearish sentiment on the dollar is thick enough to cut with a knife so it's not far from seeing an upside breakout, which could happen at any time. However, until it's able to break out of its parallel down-channel, the top of which is currently near 79.60, it clearly remains bearish.

U.S. Dollar contract, DX, Daily chart

The metals have been on fire the past two days and gold has broken out of its sideways triangle pattern that it's been in since the April low. It clearly has some upside potential, if it can get past 1001. Normally a breakout of a sideways triangle is a very bullish move and there are lots of traders jumping on this move. The risk, if you're long gold, is that it could be a false breakout and false moves are often followed by swift moves in the opposite direction so be careful.

Gold continuous contract, GC, Daily chart

Today's rally in gold had it nearly achieving a price projection at 1000.80 where the move up from July would be two equal legs up. The dark red wave count calls it the completion of a corrective wave pattern from the April low and depicts a sharp thrust lower in a strong c-wave to follow. Today's rally may have been a throw-over finish to the ascending triangle (flat top from the June high and an ascending bottom). But a rally above 1001 raises the probability that we'll see a rally at least to 1034 if not 1133.

The weekly chart of gold shows the bullish sideways triangle with an upside resolution to a Fib projection at 1133. Only as the rally progresses will I get a better idea whether or not that remains a good upside target. In the meantime, as discussed above, stay aware of the possibility we'll see a fast reversal back down.

Gold continuous contract, GC, Weekly chart

Silver has also rallied hard all week and has made a slightly higher high than June's. It has now achieved two equal legs up from July (at 16.10) so like gold it may be ready for a reversal back down. For both metals the bullish sentiment is running very high and therefore, like the stock market, it's ripe for a reversal if what we're seeing is a blow-off top. But the bulls are running and if they can keep it up there is upside potential to the top of its parallel up-channel from November, currently up near 18.

Silver continuous contract, SI, Daily chart

While the metals are running higher we can't say the same about oil. In fact the pattern for oil's rally since July looks more like an ending pattern to the upside which suggests it's close to breaking down. It continues to hold onto its uptrend line from February but it better hurry up and rally otherwise the breakdown could be swift.

Oil continuous contract, CL, Daily chart

The employment numbers tomorrow morning has the potential to reverse this week's decline or send it lower still. The price pattern supports the idea that another leg down is coming as the 2-day consolidation comes to an end and the decline continues.

Economic reports, summary and Key Trading Levels

Today's ISM Services number was in line with expectations and somewhat disappointing since it didn't match Tuesday's ISM report that was above 50. But the number continues to be "less bad" and the trend in the past several months is in the right direction. Now all we need to see is the index break its downtrend line from 2005:

ISM Services Index, Monthly chart

This week's selling has all the makings of a top for the rally from March but no major damage has been done to the charts yet. By major damage I mean the uptrend lines from March are holding (except for the banking index, which could be our canary) and the 50-day moving averages are holding (including for the BIX). If both of those support levels are broken in the next couple of weeks (or sooner) we could have a stock market that's in much more trouble than most people care to admit.

I've shown in most of tonight's charts the possibility that we're only going to get a pullback that's less severe than the June-July correction before heading higher again. There is a potential fractal pattern of the May-July price action and what we could be seeing since the early-August high. If true then we'll see the March uptrend lines hold fast. A rally into October would catch a lot of bears asleep at the switch so don't be one of them--manage your trades carefully and don't get aggressive either way.

If the market breaks 50-dma and uptrend-line support you'll have time to play the downside for some good profits. In the meantime manage any short plays with a short-timers frame of mind and don't be bashful about taking profits. As I said, you'll have plenty of opportunities to join the bears later.

If you're long the market, or looking to get long, you'll obviously want to see those support levels hold. Use SPX 970 as your critical level--short below and maybe long above. If you try a long play from here or above 970 you too need to manage it very closely. A bounce off support followed by a new low below SPX 970 will very likely be accompanied by strong selling. You don't want to do end-of-day trading with a long position.

Tomorrow is the Friday before a holiday and of course Monday the U.S. markets are closed. Once we have the reaction to the employment numbers (if there is one) we may find the market goes dormant on us. Don't force trades and instead take the day off and make a 4-day weekend out of it.

I hope everyone has a very nice long weekend and good luck next week. I'll be back with you next Thursday.

Key Levels for SPX:
- cautiously bullish above 1030
- bearish below 970

Key Levels for DOW:
- cautiously bullish above 9550
- bearish below 8900

Key Levels for NDX:
- cautiously bullish above 1648
- bearish below 1560

Key Levels for RUT:
- cautiously bullish above 580
- bearish below 540

Keene H. Little, CMT


New Plays

Leadership In the Financials

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Citigroup - C - close: 4.77 change: +0.21 stop: 4.29

Why We Like It:
The financials look ready to rally again if the non-farm payrolls data comes in decent. If the jobs data is sour then this sector may lead the market lower. Thus C is an aggressive trade because shares are sure to be volatile tomorrow. If C gaps open above $5.10 or gaps open below $4.30 I would abort this play. Due to the volatility I'm suggesting very small position sizes.

Our first target to take profits is at $5.40. Our second target to exit is $5.95.

Annotated chart:

Entry on September 03 at $ 4.77 (?)
Change since picked:     + 0.00   			
Earnings Date          10/16/09 (unconfirmed)    
Average Daily Volume:       1.0 billion    
Listed on September 03, 2009    


Ultra(Long) Financials - UYG - close: 5.29 change: +0.22 stop: 4.90

Why We Like It:
If you don't want the risk of a single-company trade like Citigroup but like the idea of a fast-moving stock if the jobs data comes in better than expected then consider the UYG. This is the double-long ETF on the Dow Jones U.S. Financials index. I am suggesting readers open very small positions on today's bounce. However, if the ETF gaps open under $5.00 or the jobs data comes in much worse than expected I would abort the play. Our first target to take profits is at $6.00. Our second target is $6.50.

This can be a very volatile security. It's not for the faint of heart.

Annotated chart:

Entry on September 03 at $ 5.29 
Change since picked:     + 0.00   			
Earnings Date          00/00/00 
Average Daily Volume:      47.8 million 
Listed on September 03, 2009    



In Play Updates and Reviews

Could Be An Entry Point

by James Brown

Click here to email James Brown

The intraday rebound Thursday could be an entry point but we'll have to wait on reaction to the non-farm payrolls data.


BULLISH Play Updates

China Mobile Ltd. - CHL - close: 48.63 chg: +0.43 stop: 47.90

CHL is still trying to bounce from the $48.00 level. I am still suggesting new bullish positions here. However, if the jobs report is negative the stock could gap open lower under our stop and close the play. Our first target is $54.00. Our second target is $58.00. Our time frame is several weeks.

Entry on    August 31 at $48.73 /gap down entry point
Change since picked:     - 0.10   			
Earnings Date          00/00/?? (unconfirmed)    
Average Daily Volume:       2.3 million 
Listed on  August 29, 2009    


Capstone Turbine - CPST - close: 1.33 change: -0.02 stop: 0.94

CPST is still sliding sideways. Currently our plan is to buy the stock on a dip at $1.05.

CPST's P&F chart is bullish with a $2.88 target. I'm setting our first target to take profits at $1.50. We'll tentatively set a second target at $1.85. Remember, just because the stock is "cheap" don't go overboard.

Entry on    August xx at $xx.xx <-- TRIGGER @ 1.05
Change since picked:     + 0.00   			
Earnings Date          11/09/09 (unconfirmed)    
Average Daily Volume:       4.8 million 
Listed on  August 29, 2009    


Ford Motor Co. - F - close: 7.48 change: +0.45 stop: 7.39

The bounce in Ford from the $7 level and its 50-dma looks good but shares have short-term resistance at $7.50 and $7.75-7.80. We have two different entry points.

We have a breakout trigger to buy F at $7.85 with a stop at $7.39.

We have a buy the dip trigger at $6.50 with a stop at $5.99. We want to trade small positions no matter what trigger F hits.

If triggered at $7.85 our first target is just under the old highs at $8.80. Our second target is $9.40.

Entry on    August xx at $xx.xx <-- TRIGGER @ 7.85 or $6.50
Change since picked:     + 0.00   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:        90 million 
Listed on  August 27, 2009    


IDEX Corp. - IEX - close: 27.31 change: +0.90 stop: 25.40

It was a nice day for IEX with the stock out performing thanks to a 3.4% rally. Shares are now challenging the trend of lower highs. A breakout from here could portend the next leg higher. Our first target is $29.85. My time frame is six to eight weeks.

Entry on    August 17 at $26.10 *triggered         
Change since picked:     + 1.21   			
Earnings Date          07/20/09 (confirmed)    
Average Daily Volume:       570 thousand
Listed on  July 25, 2009    


J.P.Morgan Chase - JPM - close: 42.11 change: +1.25 stop: 39.90

Banks did well as investors bought the dip. If the employment numbers come in strong tomorrow the financials could rally soar. Our plan was to use smaller position sizes (1/2 to 1/4 our normal size). Our target is $47.40. My time frame is about six weeks.

Entry on    August 21 at $43.50 *triggered (1/2 to 1/4 normal size)
Change since picked:     - 1.39   			
Earnings Date          07/16/09 (confirmed)    
Average Daily Volume:        55 million 
Listed on  July 18, 2009    


Microsoft - MSFT - close: 24.11 change: +0.25 stop: 22.75

MSFT is trying to hold the $24.00 region and its rising 50-dma. If the jobs numbers is interpreted as positive tomorrow we can buy the bounce in MSFT instead of waiting for a dip near $23.00. MSFT moves slowly so there's no big rush to jump in. Currently our target is $27.75.

Entry on      July 27 at $23.00
Change since picked:     + 1.11   			
Earnings Date          07/23/09 (confirmed)    
Average Daily Volume:        58 million 
Listed on  July 23, 2009    


Playboy Ent. - PLA - close: 2.55 change: -0.02 stop: 2.45

Bingo! PLA provided a much better entry point with a dip toward support near $2.50 today. I would buy this late afternoon bounce to $2.55.

Our first target to take profits is at $3.30. Our second target is $3.95. FYI: The Point & Figure chart is bullish with a $7.50 target.

Entry on September 01 at $ 2.65
Change since picked:     - 0.10   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       370 thousand
Listed on  August 29, 2009    


Raytheon Co. - RTN - close: 45.88 change: -0.40 stop: 46.40

Uh-oh. RTN is still under performing. The stock broke short-term support near $46.00 and its 50-dma. The only positive today was the bounce from its 100-dma and 200-dma.

Currently the plan is to buy a breakout. Our trigger to buy the stock is at $48.65. We'll use a stop loss under the recent low. If triggered our first target is $52.50. Our second target is $54.85.

FYI: If RTN breaks down under $45.00 we may want to consider bearish trades.

Entry on    August xx at $xx.xx <-- TRIGGER 48.65
Change since picked:     + 0.00   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:       2.7 million 
Listed on  August 22, 2009    


Ship Finance Intl. - SFL - close: 12.02 change: +0.16 stop: 11.70

SFL is trying to bounce and managed a 1.3% gain. If the investors buy the jobs number tomorrow then we can buy this pull back in SFL. Our first target is $14.80. Our second target is $17.00. Our time frame is several weeks.

Entry on    August 27 at $12.80 *triggered
Change since picked:     - 0.78   			
Earnings Date          11/27/09 (unconfirmed)    
Average Daily Volume:       499 thousand
Listed on  August 25, 2009    


TEVA Pharmaceuticals - TEVA - close: 50.39 change: -0.14 stop: 48.95

TEVA is still slipping toward the $50.00 level. Shares hit $50.14 this afternoon. There was not much of an afternoon rebound. Readers may want to wait for a new bounce over $51.00 to launch positions. Our first target is $54.75. Our second target is $59.50. Our time frame is eight to ten weeks.

Entry on    August 17 at $50.50 *triggered                
Change since picked:     - 0.11   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       5.3 million 
Listed on  August 05, 2009    


BEARISH Play Updates

Akamai Tech. - AKAM - close: 17.31 chg: +0.19 stop: 18.60

AKAM is trying to recover. If the market rallies on a good jobs number I would expect AKAM to retest the $18.00-18.50 zone in a hurry. I am not suggesting new positions at this time. Our first target is $16.25. More aggressive traders may want to aim lower.

Entry on    August 11 at $18.44 
Change since picked:     - 1.32   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:      10.4 million 
Listed on  August 11, 2009    


Electronic Arts - ERTS - close: 18.09 change: -0.12 stop: 19.55

ERTS spiked higher this morning probably due to better than expected same-store sales numbers for many retailers this morning. The strength in ERTS quickly faded and the trend is still down. Our first target to take profits is at $17.05. Our second and final target is at $16.15. FYI: The P&F chart is currently bearish with a $14 target.

Entry on    August 29 at $18.31 /gap down entry
                              /originally listed at $18.76
Change since picked:     - 0.22   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       9.3 million 
Listed on  August 29, 2009    


Goodrich Petrol. - GDP - close: 21.48 change: +0.05 stop: 25.26

The bounce attempt in GDP was pretty small. However, if the market rallies on better economic data Friday morning we can expect GDP to participate. Look for a failed rally near $24.00 as a potential entry point. The Point & Figure chart is bearish with a $10 target. I'm setting our first target at $20.25. Our second target is $18.50.

Warning - Readers need to be aware that I'm not the only one that thinks GDP is going lower. The most recent data listed short interest at more than 25% of the 24 million share float. That's a lot of interest and a small float, which equals high-risk! Instead of trying to short GDP you might want to consider put options, which have limited risk.

Entry on September 01 at $22.44 
Change since picked:     - 0.96   			
Earnings Date          11/04/09 (unconfirmed)    
Average Daily Volume:       524 thousand
Listed on September 01, 2009    


Northwest Pipe Co. - NWPX - close: 32.08 change: +1.30 stop: 33.55

After an eight-day decline it wasn't surprising to see an oversold bounce in NWPX. Watch for this rebound to fail and roll over in the $33.00-33.50 zone. We can use a move near $33.00 as a new entry point for bearish positions. More aggressive traders may want to put their stop loss above $34.00 and its 200-dma. Our first target is $28.00. Our second target is $25.50. The P&F chart is bearish with a $25 target. FYI: Instead of trying to short NWPX readers may want to consider buying put options, which have limited risk.

Entry on September 01 at $31.42 /gap down entry
                             /originally listed at $31.73
Change since picked:     + 0.66   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:        57 thousand
Listed on September 01, 2009    


CLOSED BULLISH PLAYS

Costco - COST - close: 54.99 change: +4.34 stop loss: 47.90

It looks like we were one day too late on COST. We added the stock last night. This morning several major retailers reported their August same-store sales numbers. Analysts were expecting COST to see a -5.7% drop in same-store sales. The company surprised with a -2.0% drop. The news had COST gapping open at $54.22 this morning and closing with a 8.5% gain. That's too much too fast. I'm suggesting an early exit and we'll reconsider new bullish positions on a dip back toward the $52-50 zone. Our first bullish target was the $54.90 mark.

chart:

Entry on September 02 at $54.22 /gap open entry
                               /originally listed at $50.65
Change since picked:     + 0.77 <-- early exit (+1.4%)
Earnings Date          10/07/09 (unconfirmed)    
Average Daily Volume:       4.0 million 
Listed on September 02, 2009    


Superior Energy - SPN - close: 18.12 change: +0.48 stop: 17.59

Our stop loss may have been a little too tight on SPN. The stock dipped to $17.56 and then rallied closing with a 2.7% gain. Readers may want to go ahead and buy this bounce if the jobs report comes in strong on Friday.

chart:

*New entry point*
Entry on    August 27 at $18.42 *new entry       
Change since picked:     - 0.83<-- stopped @ 17.59 (-4.5%)
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       927 thousand
Listed on  August 24, 2009