Option Investor
Newsletter

Daily Newsletter, Saturday, 9/5/2009

Table of Contents

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

Market Wrap

Highest Unemployment In 26 Years

by Jim Brown

Click here to email Jim Brown

The markets shook off the unemployment news and posted a strong rebound but despite two days of decent gains they still finished the week in the red.

Market Statistics

The Non-Farm Payrolls for August showed a loss of 216,000 jobs and slightly better than the -225,000 consensus estimate. The two prior months were revised lower to show a loss of an additional 49,000 jobs. All sectors lost jobs expect for education/healthcare, which added 52,000 jobs and the biggest gain since November. The job losses for August by sector were construction -65K, goods-producing -136K, manufacturing -63K, service-providing -80K and retail -10K.

The big headline was the jump in the unemployment rate to 9.7%, up from 9.4% in July. That is the highest unemployment rate since 1983. Five million workers have been unemployed for more than six-months and 2.4 million have been out of work for more than a year. You can bet that lawmakers will be pushed to provide another extension of unemployment benefits since so many workers are seeing their benefits expire. A record number of men over 45 have lost their jobs and most will require retraining before they can get a job in a new industry. This suggests there will be a drag on the economy for quite a while before the unemployment rate returns to a normal 4.5%.

With unemployment at a 26 year high the employers will benefit from continued lower costs for wages. This will increase profits but reduce spendable income at the wage earner level to purchase those goods. However, the recent ISM reports showed significant increases in orders and production activity and that suggests the hiring patterns should improve soon. Moody's does not expect to see job gains until the second half of 2010. Most economists are not that pessimistic and expect gains as soon as November in some cases or early in the first quarter.

Non-Farm Payroll Chart

The economic calendar for next week is very light with almost nothing of importance in the normal reports. The Fed Beige Book is the only event that may be of interest to the market. Everything else is either a weekly report where surprises are negligible or a lagging report for July. That makes the Treasury auctions for $128 billion in bills, notes and bonds a likely focal point. The auctions will occur on Tue/Wed/Thr but I don't have the breakdown by day.

For the entire week there will be $38 billion in three-year notes, $20 billion in ten-year notes, $12B in thirty-year bonds, $29B in 13-week bills and $29B in 26-week bills. Almost every auction week we are seeing a new record in supply and I can't believe the rates have not moved higher yet. Talk of a double dip recession is growing and that is keeping auction interest high and yields low.

Economic Calendar

It was a low news, low volume Friday. As the last week of summer I was surprised the volume was so high early in the week. Stock news on Friday centered on some happenings in the chip sector and rumors about the Apple event on Sept 9th.

SanDisk (Nasdaq:SNDK) gained ground after Samsung formerly announced it was walking away from a long running attempt to buy SNDK. The company was crushed earlier in the week as rumors of the impending announcement weighed on the stock. When the announcement came it was almost an afterthought and traders expecting a bigger drop became disappointed and covered their shorts.

Rambus (Nasdaq:RMBS) stock price jumped on rumors Samsung was going to switch from the SanDisk play to an offer for Rambus. RMBS stock spiked +11% even after various analysts immediately said it would not happen because Rambus did not fit the Samsung business model. Samsung later responded to the rumor and said it had no interest. Samsung and Rambus have been fighting over patents for years. If Rambus and Samsung did get together it would create antitrust concerns because Samsung is the leader in DRAM chips and Rambus holds many of the patents.

Apple Inc (Nasdaq:AAPL) will hold its media extravaganza on September 9th and this is normally where new products are announced. Apple stock normally demonstrates high volatility around the event and this year should be no exception. The Apple faithful are hoping Steve Jobs will return as the product pitchman and to demonstrate he has conquered the medical problems he had last year. Jobs has not appeared at an Apple event since October 2008. A new iPod line is expected to be announced, possibly with a camera function. There has been a lot of hype over the possibility of a Mac tablet PC but analysts say no. It is always interesting to see what Steve Jobs pulls out of the Apple hat but they are faced now with trying to invent something to outdo the iPod and iPhone and that is going to be a tough job to accomplish. How many truly revolutionary products can one company produce in a handful of years? Expect volatility and a possibly lackluster event.

If there is nothing revolutionary in the announcement AAPL could retest support at $160. Apple is up more than 100% since March and eventually fund managers are going to have to take some profits so they can earn their bonuses. Taking profits in a company like Apple can offset declines and tax losses in other stocks they are holding. As we get closer to the year-end for funds I would be concerned that Apple will be the offset to tax loss selling. It will not mean that investors have fallen out of love for Apple but are simply selling Apple to offset losses elsewhere. Once the wash period is over you can bet they will be right back again as buyers.

Apple Chart

Biogen Idec (Nasdaq:BIIB) said on Friday it has offered $14.50 per share for Facet Biotech (Nasdaq:FACT). Within minutes it criticized the company for entering an agreement with Trubion in late August. Apparently Biogen told Facet in August it wanted to buy the company for $15 per share. When Facet did a drug deal with Trubion a week later it included payments to Trubion of up to $176 million. Biogen said that reduced the value of Facet. Facet shares fell -18% after the deal with Trubion was announced. Evidently Biogen still feels there is value there and Facet shareholders were treated to a +74% spike in Facet shares on Friday. Given the bad blood brewing between companies I would take the money and run before the deal changes again.

Facet Chart - Daily

Chip equipment maker Novellus (Nasdaq:NVLS) raised its guidance on Friday for the current quarter and the rest of the year. The new guidance for Q4 was up to a 35% improvement from prior guidance. Novellus expects to make a profit of 10-20 cents per share in Q4 and up from an estimated loss of 0-9 cents in Q3. The guidance upgrade was responsible for a 3% jump in the stock price.

Tower Semiconductor (Nasdaq:TSEM) also raised guidance for the third quarter. This was unexpected since they just issued guidance on August 12th. The new guidance midpoint is +30% over that August guidance. The CEO said they were seeing increased customer demand across all segments and the expected Q3 revenue would be the highest in the company's history. Since TSEM trades under a buck it makes me wonder if the guidance upgrade so soon after the Aug-12th guidance is not a little fishy.

Baker Hughes (Nyse:BHI) reported that the U.S. rig count rose by another ten rigs last week to 1,009. Of those 701 were drilling for natural gas, 295 for oil and 13 were listed as miscellaneous. A year ago the rig count was 2,013. This marks about 10th week that rigs counts have risen with the majority of the new rigs drilling for gas.

Baker Hughes also announced it was buying BJ Services (Nyse:BJS) for $5.5 billion. I bet that hurts. BJ Services is a previous spin off from Baker Hughes. Guess they were wrong about not needing that asset. Actually, since the spin off BJS has become a specialist in pressure pumping. BHI only does 1% of its revenue in pressure pumping and that will climb to 20% once the acquisition is complete. That allows BHI to better compete with the two giants in the sector, HAL and SLB. It also allows BHI to handle all phases of the service contract and drillers won't have to contract to multiple companies for a service complete package. The acquisition is expected to produce $75 million in cost savings in 2010 and $150 million in 2011 and will add to BHI earnings in 2011. Using the industry multiple for a PE of 12 for that sector the combined companies should be worth about $57 in 2011. That is significantly above the $35.60 close for BHI on Friday. Industry analysts were saying last week that this acquisition could kick off a wave of merger mania in the oil patch. The drop in oil and gas prices is only temporary but it has pushed many companies to multiyear low valuations.

Baker Hughes Chart

(Nyse:BP) announced earlier in the week a "giant" oil discovery in the Gulf of Mexico. Nobody know how "giant" it is because it will take years to prove the discovery with other exploratory wells. The discovery is named Tiber and it is being compared to a previous 3 billion barrel find called Kaskida. It will also take years to produce any oil from this new find. The well was drilled to 35,055 feet in 4,800 feet of water by a Transocean rig. No infrastructure exists in this area and running pipelines would be a challenge. No well has ever been commercially produced from this depth but technology is improving every day. If they can overcome the technology hurdles they could begin production around 2015 but I would not bet on any material flows until later in the decade.

Chevron (Nyse:CVX) has been experiencing serious technological problems at its Knotty Head discovery also in the deep water gulf (34,189 feet total depth) and from the same lower tertiary sands. Chevron suspended activity at the well in 2008 citing technological problems. It is unclear when they will resume and a spokesman for Chevron has repeatedly declined comment. Finding oil at these depths makes big headlines but until they figure out how to produce it the wells remain just a $250 million hole in the ground. Once peak oil arrives and crude prices go back over $150 you can bet that the technological hurdles will be solved. The amount of money they are willing to invest at $68 oil is far less than they will be willing to pay when oil moves over $150.

BP Chart

Natural gas prices rallied +8% on Friday but it was only a technical short covering bounce after falling to a multiyear low at $2.40 overnight. NatGas continued to fall earlier in the week after storage levels hit a 15-year high for early September. The U.S. does not have enough pumping capacity and pipeline capacity to cover peak winter demand cycles. To resolve this gas is produced year round and pumped into storage caverns for easy access when winter demand hits. The reported capacity of the various storage locations is a combined 4.234 trillion cubic feet. However, the highest amount ever recorded for this storage is 3.545 TCF so we really don't know what the actual capacity is. The EIA just released a study claiming that non-coincident peak storage for each location suggests they can handle 3.889 TCF but it is just an estimate. It also does not mean we can ever reach that level because regional storage may fill up in one region while others still have room. The way the pipeline system is built available production in one area may not have access to storage in another.

The peak storage usually occurs at the end of October and then it is a race for producers and storage managers to keep as much gas flowing in as possible while larger amounts are being sucked out to provide heating. To put this in perspective let's assume that current production is 200 BCF per week and assume that winter consumption is 400 BCF per week. That weekly 200BCF shortfall must come from storage.

Why is this important for gas prices? The amount of gas in storage as of last week equaled the peak October levels in all but 4 of the last 15 years. That number is 3.332 TCF. With two months of production to go before the consumption season begins in November that means only 213 BCF can be added to storage before hitting all time highs and beginning to test the limits of that storage capacity. With current weekly injections of around 65 BCF that is less than four weeks before new highs are reached. It also means that once capacity is reached the pipelines could shutdown and producers would have nowhere to send their gas for a month or more. Even if pipelines don't shutdown the rising pressure would mean marginal producers could not inject into the pipelines for lack of input pressure.

Basically storage will reach record levels in about four weeks and that will put further pressure on producers to either curtail production or physically be unable to put gas into the pipeline system. This means earnings for producers who are not hedged could implode as gas prices continue to decline. Ironically analysts are predicting a 7-12% shortage of natural gas in 2011 due to the collapse of drilling activity over the last 18 months. This is why the rig counts have suddenly rebounded over the last ten weeks.

OPEC meets again on September 9th but other than a media circus nothing material is expected to change. With prices hovering near $70 for crude there is going to be another call for restraint and to respect the production limits already in place. OPEC can't win with a production change at this meeting. If they try to cut production they will be blamed for raising global prices. If they relax the quotas prices will fall and they will be cutting their own cash flow. At the same time Russia produced a record high of nearly 10 mbpd in August. Russia is benefiting from the production cuts inside OPEC but is not subject to any OPEC rules. Russia would love for OPEC to cut another 5 mbpd because that would make Russian oil more valuable. I am surprised Russia has not funded a secret terrorist attack on some OPEC fields to drive up prices. As long as prices remain near $70 the OPEC meeting this week will be meaningless.

Despite the holiday weekend the FDIC was still in operation but three more banks were not. The First Bank of Kansas City, Sioux City based Vantus Bank and Illinois based InBank were all closed on Friday. This brings the 2009 total to 87. They were all small banks and the cost to the FDIC fund was around $240 million.

The 8-year anniversary of 9/11 is next Friday. To my knowledge there have not been any increases in the threat level. I got an email on Friday reminding me that steel from the twin towers was melted down and fabricated into the bow of the USS New York. This is a new ship that will be in New York harbor on Nov 1st and commissioned into the US Navy on Nov 9th. The ship is an amphibious transport dock ship for transporting men and equipment anywhere in the world. Governor Pataki requested the Navy revive the name USS New York in honor of the 9/11 victims. Currently state names are reserved for submarines. However, Secretary of the Navy Gordon England approved the request on August 28th, 2002. Interestingly a prior ship to carry the name New York (battleship) had its keel laid on 9/11 1911. Click here for info on USS New York

USS New York LPD 21

After this weekend vacations are over. Institutional traders will come back from the long weekend and start making decisions for year-end. They will decide which losers to drop and which winners to sell to offset those losses. The activity won't take place on Tuesday but it will begin next week and plans put into motion. It could take 30-45 days before we see the results but normally by the middle of October the trades have been made and funds are preparing their portfolios and their profit and loss statements for their October 31st year-end. Stocks held on Oct 31st and returns for the last 12 months are what you see in the annual reports for mutual funds.

This normally coincides with the market weakness in September and the October market bottoms. This year could be materially different. The rebound from the bear market bottom in March has produced 50% gains. However, funds only got those gains from stocks purchased at the bottom. Any stocks they were holding as the implosion began last October they were probably still holding in March. Mutual funds don't go to all cash just because the market is imploding. They are primarily buy and hold funds. Many of those stocks they were holding have rebounded strongly but many others may not have recovered their losses. How each fund will restructure their portfolios is a big question. If they still have some big losers they may have to sell some big winners to compensate.

Complicating this question is the Q3 earnings cycle. Companies are upgrading guidance daily and it appears Q3 earnings could be very strong given the weak comparisons of the Q3-2008 quarter. Are funds going to hold all these stocks with great expectations until after the earnings cycle and then restructure. I would say that possibility is very strong. That means they have to hold the stocks until the third week of October to get the most benefit of the earnings run then pull the plug and reload before month end. This is definitely going to be a stressful period for funds, especially those that have the most leeway in their decisions.

When they come back to work on Tuesday they will be looking at a market that refuses to die. The vast majority of market analysts continue to predict a correction but that correction never comes. We had a great opportunity last week with the decline in the S&P from its closing high of 1031 the prior Friday to 991 on Wednesday. After that 4% slide the markets languished for two days at the flat line as if waiting for the bears to launch their next attack. Sellers never showed and those who were short got tired of waiting and covered their positions in the last hour on Thursday. They had a genuine fear of what might be in the jobs report and decided it was better to go into the report flat rather than hold non performing shorts.

If you read my Tuesday night commentary you know I thought the big decline on Tuesday morning was due to a sell program. Since there was no follow through over the next couple days I am even more convinced that somebody needed to raise cash in a hurry and dumped on the market. I am afraid that funds that do have profitable positions could be trailing stops higher in order to lock in profits and bonuses. If we start to get a few more sell programs like we saw last week those stops will start to kick in.

For next week the S&P is only about 15 points from its 1031 closing high for August and the potential for a breakout still exists. However, the potential for another failed rally and a lower high also exists. September is normally volatile and I expect this one to be even more volatile because of all the conflicting cross currents in the market and the much harder than normal decisions made at the fund level. It is not impossible to have a positive September but the cloud of the past 80 years of history is working against us.

For now the trend is still with us and dip buyers showed up exactly where you would have expected them at 990. Actually I was looking for a retest of 980 but 990 also works on the chart. That gives us a clear exit point for longs if that 990 level breaks next week. Resistance is 1035-1040 and another failure there could be the start of a change in the trend. Once it appears the market has quit moving higher the incentive increases for funds to make changes in order to lock in profits and bonuses.

S&P-500 Chart - 120 Min

S&P-500 Chart - Daily

The Dow chart is identical to the S&P with long-term resistance at 9625. The close on Friday was slightly over the 9422 retracement level but that is still in play. I am concerned that a lack of any bullish follow through on Tuesday could start to form another head and shoulders pattern with the 9422 Fib retracement level as the shoulders. The gains in the Dow stocks were pretty broad based on Friday with no real exceptions. This was a good sign that one or two stocks were not supplying 50% of the gains.

Dow Table

Dow Chart - Daily

Dow Chart - 120 min

The Nasdaq performed as expected last week. Support at 1950 held and resistance at 2015 stalled the Friday afternoon rally. The Nasdaq still scares me because it has been so erratic within its current ranges. With chip stocks upgrading guidance almost daily you would expect the Nasdaq to start showing a trend higher. Unfortunately the only real trend is sideways. 2063 remains the 50% retracement of the bear market losses and should be solid resistance. On August 28th the spike stalled at 2059. I believe the tech stocks are telling us there is a lot of confusion under the surface. Until a trend develops I will remain wary.

Nasdaq Chart - 120 min

The Dow Transports are nearing their closing high for the year at 3774 and a move/close over that level would be very bullish. The transports and the biotech index were the only indexes to post a gain last week. The biotechs were up on merger activity spiking prices. The transports were up on expectations for an economic rebound. The transports typically precede economic growth by 3-6 months. A move/close over 3774 would be a new Dow theory signal suggesting the markets are going higher.

Dow Transports chart

The markets are always volatile at tops and bottoms. Economics are always conflicting and confusing at turning points. Since we are not at a market bottom and economics seem to be getting clearer I would like to believe that market fundamentals are improving. Earnings guidance is improving. Volume is improving. Manufacturing is improving. We are losing jobs at a slower rate. Housing is improving. It all sounds good on the surface.

Unfortunately it is the double dip bears making those points to suggest the economy is about to roll over into a second recessionary dip. They believe everything above is just a knee jerk reaction to the severely oversold conditions of the spring. They point to numerous past examples where a bear market rally off the recession lows produced improved sentiment only to see the entire house of cards collapse again. They believe shrinking consumer credit and the impending commercial real estate loan disaster will take us down again.

I prefer to leave the economics discussions to those more qualified than myself. I believe as long as corporate earnings are increasing and the financial system is not collapsing then the markets will survive and we can avoid the dreaded second dip. But, I also believe that inflation will bring back the 15% decline in value on my house. I don't know whether to root for inflation or be scared of it. (just kidding) I know it won't help for my house to go up 15% in value if my dollars go down 25% in value but that is not the issue today.

September and the markets is the burning question today. I am hoping for the market to win and for September to lose but that may only mean that October will be even worse. If funds holds their breath and their longs into Q3 earnings then I am really loading up on puts for the end of October. We got out of August with a gain when it is historically a losing month. If we are lucky enough to do that again in September I would take my chips off the table for October. I believe the market action next week will weigh heavily on the decision process for thousands of funds and for our sake I hope the direction is higher. I believe next week is the weather vane for September. Whichever way the week ends is probably the direction the month will end.

Jim Brown


New Plays

Six New Plays!

by James Brown

Click here to email James Brown
Editor's Note:

Just a quick note to add a few more trading ideas. Check out CBRL, RCI, HAL, GT, MDR, and JEC (again).


NEW BULLISH Plays

Agrium Inc. - AGU - close: 49.61 change: +1.29 stop: 47.40

Why We Like It:
Many of the chemical-fertilizer names have been gaining strength this past week. Some are starting to break out. AGU is poised to push through resistance at $50.00. I'm suggesting a trigger to buy AGU at $50.25. If triggered our first target is $54.75. Our second target is $59.75. Currently the Point & Figure chart is bullish with a $59 target.

FYI: Agrium (AGU) is trying to buy rival firm CF Industries (CF) but CF keeps rejecting the offer calling it too low. At the same time CF is trying to buy Terra Industries (TRA) and TRA keeps rejecting the offer calling it too low. Eventually one of these companies is going to give up or they're finally going to make a big enough offer or somebody else might step in and start bidding. There is a risk that someone bids too much and the market could think they overpaid, which might push the stock lower. This M&A dance has been going on for months and it will probably continue for months so I'm not expecting it to have much short-term impact on the stock.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 50.25
Change since picked:     + 0.00   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       1.9 million 
Listed on September 05, 2009    


Carpenter Tech. - CRS - close: 20.92 change: +0.38 stop: 19.75

Why We Like It:
CRS is a metal producer. The stock has been bouncing around resistance at 21.00 and support at 20.00. I'm suggesting readers buy the bounce from $20.00. More conservative traders can wait for a breakout over $21.00. We'll use a relatively tight stop at $19.75. Our first target is $24.90. More aggressive traders may want to aim higher.

Annotated chart:

Entry on September 05 at $20.92 
Change since picked:     + 0.00   			
Earnings Date          10/28/09 (unconfirmed)    
Average Daily Volume:       536 thousand
Listed on September 05, 2009    


Darden Restaurants - DRI - close: 34.41 chg: +0.74 stop: 32.45

Why We Like It:
The restaurant stocks have been rising even though consumer spending remains weak. Shares of DRI just rallied past short-term resistance at $34.00 and its 100-dma. I'm suggesting readers buy the move. More conservative traders can wait for a move over $35.00. Our first target is the $39.40 mark.

FYI: DRI is not a fast moving stock. Getting to $39.40 could take several weeks. Another restaurant stock that's on the move is CBRL. Readers may want to check it out.

Annotated chart:

Entry on September 05 at $34.41 
Change since picked:     + 0.00   			
Earnings Date          09/29/09 (unconfirmed)    
Average Daily Volume:       2.6 million 
Listed on September 05, 2009    


Kirby Corp. - KEX - close: 37.09 change: +0.90 stop: 35.25

Why We Like It:
This shipping stock has a strong pattern of higher lows and looks ready to breakout over resistance at $37.50. I'm suggesting a trigger to buy KEX at $37.60. We'll use a stop loss at $35.25. We'll take some money off the table at $39.95 and exit completely at $42.40. FYI: The P&F chart is bullish with a $57 target.

FYI: Standard & Poor's moving ARG from the midcap 400 index to the S&P 500 index. It's moving KEX from the small cap 600 to the midcap 400 to replace ARG. This move is supposed to take place after the close of trading on Tuesday, September 8th.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 37.60
Change since picked:     + 0.00   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       310 thousand
Listed on September 05, 2009    


Altria Group Inc. - MO - close: 18.50 change: +0.29 stop: 17.90

Why We Like It:
After two weeks of consolidating sideways above $18.00 MO is finally starting to move again. While MO tends to move kind of slowly the trend is up and its recent consolidation gives us a clearly level of support to gauge our risk. I'm suggesting bullish positions now with a stop at $17.90. Our first target is $19.90. The P&F chart is bullish with a $23.00 target. Our time frame is several weeks. Make sure you have the patience for this one before jumping in.

Annotated chart:

Entry on September 05 at $18.50 
Change since picked:     + 0.00   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:      15.5 million 
Listed on September 05, 2009    


Schlumberger - SLB - close: 55.87 change: +1.45 stop: 53.85

Why We Like It:
I'm adding more exposure to the oil services sector. SLB is a big cap name in the group and is bouncing from another test of technical support at its 100-dma. I'm suggesting bullish positions now with a tight stop under last week's low. Our first target to take profits is at $59.95. Our second target is $63.50. FYI: The P&F chart is bullish with a $73 target.

Annotated chart:

Entry on September 05 at $55.87 
Change since picked:     + 0.00   			
Earnings Date          10/23/09 (unconfirmed)    
Average Daily Volume:       8.7 million 
Listed on September 05, 2009    



In Play Updates and Reviews

Buying The Bounce

by James Brown

Click here to email James Brown

The widespread rally on Friday produced a wave of bounces that look like a new entry point. We have four new stop losses.


BULLISH Play Updates

Citigroup - C - close: 4.85 change: +0.08 stop: 4.29

Citigroup gapped open like we expected it to. Shares opened at $4.87 and then spent the session trading sideways. Volume was relatively light. I am suggesting bullish positions now but a better entry point would be a dip near $4.60. 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 $ 4.87 /gap higher entry
                             /listed at $4.77
Change since picked:     - 0.02   			
Earnings Date          10/16/09 (unconfirmed)    
Average Daily Volume:       1.0 billion    
Listed on September 03, 2009    


China Mobile Ltd. - CHL - close: 50.22 chg: +1.59 stop: 47.90

CHL finally delivered the bounce we've been looking for. Strength in the Chinese markets were a big help. Shares of CHL gained 3.2% and closed over potential resistance at the 100-dma and the $50.00 mark. I would still consider new positions in the $49.00 area. Our first target is $54.00. Our second target is $58.00. Our time frame is several weeks.

Annotated chart:

Entry on    August 31 at $48.73 /gap down entry point
Change since picked:     + 1.49   			
Earnings Date          00/00/?? (unconfirmed)    
Average Daily Volume:       2.3 million 
Listed on  August 29, 2009    


Capstone Turbine - CPST - close: 1.33 change: -0.00 stop: 0.98

CPST continues to hold on to its gains although shares failed to truly rally with the market on Friday. The stock dipped to its 10-dma and then closed with a fractional loss of less than one cent. I am upping our trigger to buy the dip from $1.05 to $1.15 and I'm raising the stop loss to .98. This remains a very aggressive play.

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.

Annotated chart:

Entry on    August xx at $xx.xx <-- TRIGGER @ 1.15
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: 7.43 change: -0.05 stop: 7.39

Hmmm... I find it interesting that shares of Ford really didn't participate in the rally on Friday. The stock struggled with resistance near $7.50. Nimble traders might consider buying another dip near $7.00 and its 50-dma with a tight stop. I'm suggesting we stay with the two strategies already listed.

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.

Annotated chart:

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: 27.66 change: +0.35 stop: 25.75 *new*

The bounce in IEX continues and the stock has now broken the short-term trendline of resistance. The MACD on the daily chart looks like it's about to turn bullish again. Last week's low was $25.81. I'm raising our stop to $25.75. Our first target is $29.85. My time frame is six to eight weeks.

Annotated chart:

Entry on    August 17 at $26.10 *triggered         
Change since picked:     + 1.56   			
Earnings Date          07/20/09 (confirmed)    
Average Daily Volume:       570 thousand
Listed on  July 25, 2009    


J.P.Morgan Chase - JPM - close: 42.34 change: +0.23 stop: 39.90

If you want to get nitpicky JPM is nearing possible short-term resistance and a failure here would definitely look bearish. However, I strongly suspect that the big banks will be on everyone's buy list when the market returns to normal volume this week. 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.

Annotated chart:

Entry on    August 21 at $43.50 *triggered (1/2 to 1/4 normal size)
Change since picked:     - 1.16   			
Earnings Date          07/16/09 (confirmed)    
Average Daily Volume:        55 million 
Listed on  July 18, 2009    


Microsoft - MSFT - close: 24.62 change: +0.51 stop: 22.95 *new*

MSFT displayed some relative strength on Friday with a 2.1% gain. Investors were buying the bounce from short-term support near $24.00 and its 50-dma. I'm suggesting readers buy the bounce but if you do consider using a stop loss near $23.75. I'm inching our stop up to $22.95. MSFT moves slowly so there's no big rush to jump in. Currently our target is $27.75.

Annotated chart:

Entry on      July 27 at $23.00
Change since picked:     + 1.62   			
Earnings Date          07/23/09 (confirmed)    
Average Daily Volume:        58 million 
Listed on  July 23, 2009    


Playboy Ent. - PLA - close: 2.67 change: +0.12 stop: 2.45

PLA is bouncing like we thought it would. I would use Friday's rebound as another entry point to launch positions.

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.

Annotated chart:

Entry on September 01 at $ 2.65
Change since picked:     + 0.02   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       370 thousand
Listed on  August 29, 2009    


Raytheon Co. - RTN - close: 46.56 change: +0.68 stop: 46.40

RTN has delivered a decent bounce off its Thursday lows but shares stalled near the exponential 200-dma on Friday. On a very short-term basis RTN almost looks bearish and a failed rally here might forecast a new leg lower. Just keep an eye on technical support with the simple 100 and 200-dma near $45.50 before you consider bearish trades.

Given our bullish market bias the plan is to buy RTN on a breakout above resistance. 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.

Annotated chart:

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: 12.39 change: +0.37 stop: 11.70

Shares of SFL are bouncing from a test of support at its 50-dma. I'm suggesting readers use this rebound as a new bullish entry points. Our first target is $14.80. Our second target is $17.00. Our time frame is several weeks. FYI: The Point & Figure chart is bullish with a $28 target.

Annotated chart:

Entry on    August 27 at $12.80 *triggered
Change since picked:     - 0.41   			
Earnings Date          11/27/09 (unconfirmed)    
Average Daily Volume:       499 thousand
Listed on  August 25, 2009    


TEVA Pharmaceuticals - TEVA - close: 51.16 change: +0.77 stop: 48.95

Bingo! We wanted to see a new rise over $51.00 and we got it. Readers can use this move as a new entry point to buy the stock. Our first target is $54.75. Our second target is $59.50. Our time frame is eight to ten weeks.

Annotated chart:

Entry on    August 17 at $50.50 *triggered                
Change since picked:     + 0.66   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       5.3 million 
Listed on  August 05, 2009    


Ultra(Long) Financials - UYG - close: 5.35 change: +0.06 stop: 4.90

UYG is our aggressive short-term bet that investors will still buy the financials if the jobs report wasn't too bad. The 1.1% gain on Friday was a little under whelming but I expect the bounce to continue. I would still buy this ETF here but more conservative traders may want to wait for a rise past the $5.50 level, which could be short-term resistance.

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:     + 0.06   			
Earnings Date          00/00/00 
Average Daily Volume:      47.8 million 
Listed on September 03, 2009    


BEARISH Play Updates

Akamai Tech. - AKAM - close: 17.47 chg: +0.16 stop: 18.60

AKAM has managed to stretch its oversold bounce to three days in a row. The stock should start to run into resistance in the 17.70-18.00-18.50 region. While the overall trend is still bearish if the market starts to take off we can expect AKAM to follow it higher. I am not suggesting new positions at this time. Our first target is $16.25. More aggressive traders may want to aim lower.

Annotated chart:

Entry on    August 11 at $18.44 
Change since picked:     - 1.16   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:      10.4 million 
Listed on  August 11, 2009    


Electronic Arts - ERTS - close: 18.51 change: +0.42 stop: 19.55

ERTS has bounced toward short-term resistance near $18.50 and its 10-dma. The rebound may not be over yet. Look for the rally to fail here at $18.50 or near $19.00 and use it as a new entry point for bearish positions. 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.

Annotated chart:

Entry on    August 29 at $18.31 /gap down entry
                              /originally listed at $18.76
Change since picked:     + 0.20   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       9.3 million 
Listed on  August 29, 2009    


Goodrich Petrol. - GDP - close: 21.52 change: +0.04 stop: 24.25 *new*

GDP traded down near its July lows and bounced. I suspect the bounce isn't over yet but I'm surprised GDP didn't see a bigger bounce on Friday. I'm adjusting my comments from Thursday. We can look for a failed rally near $23.00 or $24.00 as a new entry point. I'm adjusting our stop loss down to $24.25.

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.

Annotated chart:

Entry on September 01 at $22.44 
Change since picked:     - 0.92   			
Earnings Date          11/04/09 (unconfirmed)    
Average Daily Volume:       524 thousand
Listed on September 01, 2009    


Northwest Pipe Co. - NWPX - close: 32.13 change: +0.05 stop: 34.10 *new*

The oversold bounce in NWPX continued on Friday. Shares should have resistance near $33.00 and again at $34.00. I think our stop at $33.55 is a little tight and I'm adjusting it to $34.10. Wait for the failed rally under the $33 or $34 level before initiating new bearish positions. 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.

Annotated chart:

Entry on September 01 at $31.42 /gap down entry
                             /originally listed at $31.73
Change since picked:     + 0.71   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:        57 thousand
Listed on September 01, 2009