Option Investor

Daily Newsletter, Saturday, 09/12/2009

Table of Contents

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

Market Wrap

FedEx Delivers

by Jim Brown

Click here to email Jim Brown

Traders tried hard to stretch the positive streak to six gains in a row but came up a little short. We are nearly half way through September and markets are setting new highs. Bears are completely confused.

Market Statistics

The economic calendar for Friday was light with September Consumer Sentiment the only major report. The headline number rose nearly 5 points to 70.2 from 65.7 in August. Both internal components posted gains. The present conditions component rose to 71.8 from 66.6 and the expectations component rose to 69.2 from 65.0. This was a very strong improvement in consumer sentiment and suggests the fear that gripped consumers in July/Aug has passed.

Some analysts claim that fear was worries that the health care reform plan was going to strip consumers of their current insurance and reduce the amount of care available. That fear has subsided due to recent events on the political front. There was also fear the economy might dip again into a W recession and the accompanying additional loss of jobs. That fear has also passed as each economic report shows improvement and payroll reports are less dire. Of course the stock market is also a prime component to consumer sentiment. It is the ultimate indicator of economic health for the average consumer. In their mind if the Dow is up routinely then the economy must be getting better.

Continuing to weigh on sentiment are the low home prices, increasing foreclosure rates and the reductions in their available credit card debt. There is also the prospect of reduced raises and lower end of year bonuses. Consumers are forgiving or maybe I should say forgetting. As time passes and daily life continues they will eventually forget the prosperous times during the housing boom and will begin living in the present. Once the non-farm payroll reports go positive we should see a large jump in sentiment.

Consumer Sentiment Chart

Another Friday report was Import & Export prices, which came in at +2.0%, +0.4% if you exclude oil prices. This suggests deflation pressures are still in check. Wholesale Trade fell -1.4% for July after a -2.1% decline in June. Inventories continued to decline and that means the eventual replenishment cycle will be strong once it arrives.

The calendar for next week includes the PPI and CPI reports, which will give analysts a clue about current inflation pressures. Industrial production on Wednesday is expected to show another minor gain of +0.5%. The Philly Fed Survey on Thursday is the first of the monthly manufacturing reports for the September period. This is probably the most important report for the week. However, that assumes there is no sudden uptick in inflation pressures in the PPI/CPI.

Economic Calendar

Friday started with a lot of upgrades and improved guidance announcements. The biggest was FedEx (FDX), which reported earnings of 58-cents and well above the 30-45 cent range they predicted back in June. They also raised their guidance for the current quarter to 65-95 cents per share. FedEx said better than expected international priority volume, strict cost management and solid execution led to the unexpected gains. I suspect it was more of an "under promise, over deliver" event than a real uptick in volume. Back in the May/June timeframe there was still a lot of worry about the economy. We had not seen any real improvement and corporations were being overly cautious about their outlooks. FedEx said back then that the quarter was expected to be "extremely difficult" so they were definitely guiding lower. Their guidance upgrade on Friday suggests the global economy is picking up speed. This helped power gains in FDX of +4.68 and UPS +2.50.

FedEx Chart

Chip companies have been in rally mode with company after company upgrading guidance and saying orders were increasing. On Friday Jeffries upgraded ASM Lithography Systems (ASML) to a buy from hold on stronger orders. The good news continued with an upgrade to Intel (INTC) by Roth Capital to a buy from hold and an upgrade to buy on Marvell Technology (MRVL).

National Semi (NSM) beat the street with earnings of 13-cents vs estimates of 7-cents and issued stronger guidance and predicted sales would rise between 5% to 8% for the quarter and see gross margins back over 60%. This followed a similar boost in guidance by Texas Instruments (TXN) Wednesday night.

Despite all the good news the Semiconductor Index lost ground as traders took profits from a monster chip rally over the last week. The selling was muted with only a -4 point drop after a +30 point gain since the prior Thursday. This was not a sell off but just some light profit taking.

Goldman Sachs was on an upgrade binge as well and upgraded Progressive (PGR) to a buy from sell. At the same time they cut Allstate (ALL) to a sell from neutral. Goldman said Progressive was best leveraged to the changing consumer trends while Allstate was at continued risk of market share losses in auto insurance. Also in the insurance sector Prudential (PRU) was upgraded by Morgan Stanley (MS) with a price target of $58.

AIG continues to get the most downgrades with a Wells Fargo analyst cutting them to an underperform saying recent trading gains have been a mystery. Wells says AIG has "virtually no tangible book value" which basically means the shares are worthless.

Colgate (CL) was upgraded by Goldman to a buy with an $85 price target. Goldman said earnings estimates were not pricing in new marketing and rising gross margins. Meanwhile Clorox (CLX) was downgraded to neutral by Goldman saying rising costs could limit upside potential.

Schlumberger (SLB) was upgraded by Goldman to a buy saying the company would benefit from the eventual increase in energy spending.

Goldman was upgraded by Citigroup saying the company should benefit from the growing strength in the capital markets and the improving deal pipeline. Citi gave Goldman a buy rating and raised the price target from $175 to $215.

Steel Dynamics (STLD) got a buy rating from Citi and a price target of $22 on rising business metrics. US Steel (X) also got a boost from Morgan Stanley on higher profits.

With analysts strongly in upgrade mode you would have thought the markets could have shaken off that bout of minor profit taking but it was not meant to be. I do expect that the current upgrade cycle will continue to provide market support on any pullback.

Motorola (MOT), remember them? They had one of the most successful cell phone models of all time in the Razor. That phone was left in the dustbin of history when the current generation of smart phones prompted a wave of upgrades to iPhones and various versions of the CrackBerry. Motorola announced another new phone on Friday called the Cliq. The phones claim to fame is auto aggregation of data from all of your social networking sites like Facebook, Twitter, MySpace, etc. It sounds to me like it will be marketed to the Hannah Montana crowd but analysts seem to like the announcement and MOT saw a +9% jump on various analyst upgrades. I doubt I will be ordering one.

I may order one of these instead. The U.S. has been forbidden to sell the high technology F-22 Raptor stealth fighter since 1998 because it was too good to allow anyone else to own it. A law was passed in 1998 to keep the technology from being shared with our allies. The F-22 program was in danger because the U.S. decided at the current 187-plane inventory level it did not need any more and it had terminated existing plans for a total of 750 planes. The Senate appropriations committee passed a new defense spending bill on Friday in 15 minutes with no dissenting votes and no debate. Must have been a lot of pork in that bill. The bill also killed a new search and rescue helicopter, a presidential chopper and a new missile defense interceptor. The committee now wants to allow sales of the F-22 to other countries to save 2000 jobs in America. I think that is a good idea. We can spend billions of dollars creating technology that is light years ahead of everyone else in order to protect ourselves. Then we sell it to everyone else and bring them up to our level. Then we have to spend additional years and billions to come up with some newer technology to defeat the technology we sold everyone else. Am I the only one that sees the flaw in this logic? We are in a highly expensive never ending weapons race with ourselves.

F-22 Raptor

Gold prices rose again to close just over $1005 and the level that has been strong resistance for the last 18 months. Gold is rising due to higher demand, lower sales from central banks and because of the falling dollar. As a dollar denominated commodity it has a direct dependence on the value of the U.S. dollar.

The dollar index fell again on Friday to close at 76.60 and a new 52-week low. The worries over the growing U.S. deficit and the amount of debt created to bail out the financial system is reducing the value of the dollar at a rapid rate. If you have any doubts at all on the price of gold being linked to the value of the dollar then look at the line chart below. That compares both in the same chart. Since the dollar is not likely to get well soon this suggests gold could finally break over that $1005 barrier.

Chart of Gold

Chart of the Dollar Index

Comparison Chart Gold & Dollar

Oil and natural gas were extremely volatile last week. Gas prices traded as low as $2.41 on the 4th and a level not seen since 2001. This prompted a lot of technical trading and some buying in the futures. Since most companies can't produce it for less than $2.40 a sustained price at that level would cause production halts in thousands of wells where the production was not protected by hedges.

There was a rebound to $3 by Wednesday before another sell off began. Something hit the market early Thursday that caused a massive amount of short covering and a +16% rally in gas prices to just over $3.40. That is a +41% spike from low to high in one week. Nobody knows for sure what happened but the spike in the futures was dramatic. The drop again on Friday was almost as dramatic with the close at $2.96. The dramatic part of Friday's drop was the 198,021 contracts traded on a down day. That is nearly twice the daily average and nearly twice the volume of Thursday's spike.

I suspect this is all related to the CFTC's efforts to curb the position sizes of the energy ETFs. The natural gas ETF (UNG) ceased issuing new shares on August 12th because of pending changes in regulatory requirements. They have permission to issue as much as 1 billion new shares but fears over CFTC position limits kept them on the sidelines. The fund has been trading at a premium to its net asset value, sometimes as much as 20%, since the announcement. Short sellers have been pounding the nat gas futures in anticipation of a position limit requirement that would force the UNG to divest itself of a large number of contracts.

Rumors started surfacing this week that the CFTC was moving away from position limits in their discussions. This caused some short sellers to exit the trade and gas prices rose slightly early in the week. On Thursday it was rumored that the UNG was going to start issuing shares again. I believe the sharp spike in the gas futures was shorts running for cover since a new share issuance would mean the position limit scare was over. It appears the rumors were true because on Friday the UNG announced it was going to start issuing new shares again under "limited circumstances" on Sept 28th. It would appear the crisis was over EXCEPT that the statement said they may condition the sale of new shares of the funds ability to hedge its position in the futures markets and they put off the date to Sept 28th. That means the fund is still not clear of the position limit problem and they may be trying to put pressure on the CFTC to make a decision by Sept 28th. The fund said they would attempt to hedge their position with alternative instruments like swaps. Shorts immediately piled into the futures again thinking the position limit trade was back on again.

People email me on the energy ETFs nearly every day. What ETF should I buy? First, I can't answer that in an email because of SEC rules governing individual advice. Second, I would be skeptical of any energy ETFs until the CFTC issues a final determination. Third, I believe the leveraged ETFs are dead. Since it takes a $1.0 billion futures position to produce a 2x leverage for a $500 million ETF it no longer makes sense for fund managers to fight the CFTC for a product that has a higher risk. Lastly the leveraged ETFs have been proven to have a high beta on a 2-3 day positions but a very low beta over long term holds.

Every single leveraged commodity ETF performed worse overall than a 1x1 ETF over the last 12 months. The options, swaps and futures positions necessary to replicate a 2x or 3x multiplier of the underlying positions produces a drag on the ETF over time. Options expire, premium decays and markets don't move in a straight line. Today I am not recommending ANY energy ETF based on the actual commodity. I would try to get exposure to the price of oil/gas by investing in a sector ETF like the XLE, VDE, IYE, IGE, XES, XOP or IXC. If you check the charts of those 1:1 ETFs and compare them with a chart of DIG you will see that the double leveraged DIG has performed worse than any of the other ETFs.

A better way to play the specific price of oil and gas today is with the individual stocks. With nat gas so badly beaten up the shares of a gas stock like CHK or APA have far more upside when the tide does turn. I reported last week that the rig count was rising and mostly in gas rigs. Analysts claim there will be an 8% to 12% shortage of gas in 2012 so drilling activity needs to pickup fast to capture the coming rise in prices. Those prices will not likely rise any time soon since the gas in storage is going to break a record sometime in the next 8 weeks. The chart below shows the yearly storage cycles and the peaks are at the end of each October. We are nearly at the prior peak and 2007 record high and it is still early September. It is tough to justify a rise in gas prices until after the peak passes and we get into the winter consumption season.

Oil prices rallied throughout the week only to collapse on Friday for no specific reason. OPEC kept the production at current levels when they met this week but nobody expected them to make any changes. The IEA raised their estimates of global demand by 500,000 bpd for 2009 and 2010 but those numbers change monthly so that should not have been a factor. Hurricane Fred did weaken but it is so far away and the track so erratic that nobody is really trading on Fred yet. Nobody knows why oil prices dropped on Friday but I believe the long-term trend is still up. Support at $68 should hold but you never know what forces will show up on any trading day to push the price around. Resistance remains at $75.

Crude Oil Chart

Three more banks bit the dust on Friday. Regulators closed the Chicago based Corus Bank with $7 billion in assets. In Minnesota the Brickwell Community Bank was closed and the Venture Bank of Lacy Washington was closed. Venture had 18 branches. The FDIC said the three closings would cost the FDIC fund $2 billion. This brings the total to 92 banks closed in 2009.

You can't tell me the market makers don't have control over the market. On Sept 10th, 2001 the Dow closed at 9605.51. On Friday, the 8th anniversary of 9/11 the Dow closed at 9605.41. The Dow traded all over the map on Friday with an opening high of 9649 and afternoon low of 9571. The market makers had to drag it back from that low to close it at 9605. Volume was low and internals about dead even between advancers and decliners so it was probably an easier task than one might think. CNBC hyped that 9605 9/10/01 close all day and then acted surprised when the market makers matched it on 9/11/09.

The minor 22-point loss for the Dow on Friday was not material. Given the +165 point rebound for the week this was just a short breather for the markets. The Dow is the only major index that has not broken over current resistance. That level is 9625 on the Dow and dates back to last November. The Dow traded over that level intraday but profit taking brought it back neutral territory. I view this as bullish.

There is a real conflict in progress under the surface of this market. Every major analyst is still expecting a pullback or even a serious correction. TrimTabs said last week that insider selling was at the highest level since May 2008. For every insider buying there were 30.6 insiders selling their stock. This suggests that the economic rebound is going to fail if that many insiders are seeing problems in the future. At least that is the TrimTabs take on the data. There is another view. I believe those insiders need cash and those shares are the only asset they have left. Home values are underwater and credit lines are being cut off and bonuses slashed. Even if they knew the stocks were going to double over the next year many of those insiders would still have to sell to pay the bills.

This makes the continued rally last week even more important. The market is moving higher despite the constant caution by analysts that the market is going to correct. This forces those who have moved to cash to rethink their position and to come back into the market and push prices higher. Eventually we will get a correction but funds are aggressively buying the dips and brokerage analysts are upgrading expectations for any stock with a pulse. It is a classic denial rally.

If we do see a pullback the initial support on the Dow is 9500 followed by 9300. Once over resistance at 9625 the next material resistance is 10,318 with a pause at 10,000 for psychological reevaluation. I know that sure sounds like wishful thinking but that is what the charts are showing.

Dow Chart - Weekly

The S&P closed down a little over a point at 1042 and clearly in breakout mode. Resistance from last week at 1035 was broken and the last October high at 1044 is the last thread of resistance before the S&P is in blue-sky mode. The S&P may have finished negative on Friday but it held on to the +50 point gain since the prior week's lows. It was Friday after a big run. We could have easily given back 10-20 points but we didn't. This is bullish and a breakout here should draw some cash back into the market next week. Support is 1020-1030 followed way below at 995.

SPX Chart

The Nasdaq has been a reason for worry until last week. The Nasdaq has broken out over the 50% retracement level at 2063 and broken out of its month long trading range. The chip stocks led the charge higher but there was plenty of help from the other sectors. Support should be 2040 on any serious profit taking. Resistance at 2160 should be the next target.

Nasdaq Chart

The good news from FedEx helped power the Dow Transports well over current resistance and the next target should be 4220. A breakout by the transports is a confirmation to a Dow rally.

Dow Transport Chart

Russell Chart

Notable from last week was the flat line in the financial stocks. They have been the backbone of the market for weeks and they quit going higher on August 24th. The rebound out of last week's dip was lackluster compared to the rest of the market. This is a critical point suggesting the market support is broadening out and that is a bullish sign. Techs and industrials are taking the lead while financials are taking a breather. Eventually they will return once Meredith Whitney quits beating up on them in print.

BKX Chart

We need to watch out for a bull trap next week. That is defined as a spike to a new high in the morning and a collapse at the close to below the prior day's low.

I would continue to buy the dip until proven wrong. A market in breakout mode contrary to normal historical cycles could go a long way. This may really turn into a September to remember.

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Jim Brown

New Plays

Aerospace & Oil Services

by James Brown

Click here to email James Brown


BE Aerospace - BEAV - close: 19.19 change: +0.39 stop: 17.45

Why We Like It:
This aircraft stock has broken out to new 2009 highs. Most of the technical indicators are positive but it's worth noting that BEAV has been developing a bearish megaphone shaped pattern over the last five weeks. Therefore I'm suggesting smaller position sizes about 1/2 to 1/4 your normal trade. We'll use a stop at $17.45. Our first target is $22.25.

Annotated chart:

Entry on September 12 at $19.19 
Change since picked:     + 0.00   			
Earnings Date          10/27/09 (unconfirmed)    
Average Daily Volume:       834 thousand
Listed on September 12, 2009    

Hornbeck Offshore - HOS - close: 24.62 change: -0.32 stop: 21.75

Why We Like It:
HOS is an oil service sector stock that has been under performing the market for most of the summer but shares have begun to turnaround. The short-term rally looks tired. We want to buy HOS on a dip at $23.25. If triggered our first target is $26.45.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 23.25
Change since picked:     + 0.00   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       344 thousand
Listed on September 12, 2009    

Pride Intl. Inc. - PDE - close: 29.93 change: +1.18 stop: 26.40

Why We Like It:
PDE is another oil services stock except this one has been out performing the sector. The stock's rally is testing round-number resistance at $30.00 and odds are good it could see a pull back soon. I'm suggesting we buy it at $27.65. We'll use a stop loss at $26.40. Our first target is $30.45. Our second target is $33.45. We'll plan to exit ahead of the late October earnings report.

Annotated chart:

Entry on September xx at $xx.xx <-- see TRIGGER @ 27.65
Change since picked:     + 0.00   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:           thousand
Listed on September 12, 2009    

In Play Updates and Reviews

Pruning The Unopened Plays

by James Brown

Click here to email James Brown

BULLISH Play Updates

Agrium Inc. - AGU - close: 50.21 change: -0.07 stop: 47.40

The market's sideways action on Friday left AGU drifting along the $50.00 level. We can still use this dip as an entry point to buy the stock. If you think the market will see a slightly deeper pull back this week then look for AGU to retest the $48.00 level and buy it there. 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 08 at $50.65 /gap higher entry  
Change since picked:     - 0.37   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       1.9 million 
Listed on September 05, 2009    

Citigroup - C - close: 4.61 change: -0.14 stop: 4.29

The banking indices are struggling with short-term resistance and shares of C continue to look like the next move will be lower. C has already bounced once near its 38.2% Fibonacci retracement of the July-August rally. Another test raises the risk of a breakdown. More conservative traders may want to seriously consider an early exit right here. You can re-enter when Citigroup breaks the short-term trend of lower highs (a move over $4.80 should suffice). I'm not suggesting new bullish positions at current levels.

You need to be sure you're comfortable with how much volatility you're willing to stomach here. More aggressive traders might want to adjust their stops down to $4.19-4.15.

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:     - 0.26   			
Earnings Date          10/16/09 (unconfirmed)    
Average Daily Volume:       1.0 billion    
Listed on September 03, 2009    

China Mobile Ltd. - CHL - close: 50.75 chg: -0.02 stop: 47.90

I was a little surprised that CHL didn't perform better on Friday given the strength in Chinese markets. Shares have continued to trade sideways. I would still consider bullish positions in the $50-49 region but more conservative traders may want to wait for bounces to enter the stock. 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:     + 2.80   			
Earnings Date          00/00/?? (unconfirmed)    
Average Daily Volume:       2.3 million 
Listed on  August 29, 2009    

Carpenter Tech. - CRS - close: 23.59 change: -0.04 stop: 19.75

CRS rallied to a new ten-week high at $24.15 and reversed. The move looks like a very short-term top/reversal. I would expect a dip back toward the $22.00-21.00 zone. Wait for the dip or a bounce from those levels before initiating new positions. Our first target is $24.90. More aggressive traders may want to aim higher. FYI: The Point & Figure chart is bullish with a $36 target.

Annotated chart:

Entry on September 05 at $21.45 /gap higher entry
                             /originally listed at $20.92
Change since picked:     + 2.14   			
Earnings Date          10/28/09 (unconfirmed)    
Average Daily Volume:       536 thousand
Listed on September 05, 2009    

Changyou.com Ltd - CYOU - close: 40.54 change: -1.15 stop: 38.80

CYOU failed to see any follow through on Thursday's bounce from support near $40.00. I was somewhat surprised to see CYOU's relative weakness given the strength in the Chinese markets on Friday. The stock should have support at $40.00 and another level of short-term support at $39.00 but more conservative traders may want to limit their risk with a tighter stop loss than our $38.80. Wait for a bounce to open positions. Our first target is $45.75.

Annotated chart:

Entry on September 10 at $41.69 
Change since picked:     - 1.15   			
Earnings Date          10/26/09 (unconfirmed)    
Average Daily Volume:       408 thousand
Listed on September 10, 2009    

Darden Restaurants - DRI - close: 34.55 chg: -0.15 stop: 32.45

DRI is still struggling with resistance at the $35.00 level but the short-term trend is still up. I would still consider new bullish positions here or on dips in the $34-33 zone. More cautious traders might want to up their stop closer to $33.00. Our first target is the $39.40 mark.

Annotated chart:

Entry on September 05 at $34.82 
                              /originally listed at $34.41
Change since picked:     - 0.27   			
Earnings Date          09/29/09 (unconfirmed)    
Average Daily Volume:       2.6 million 
Listed on September 05, 2009    

E M C Corp. - EMC - close: 16.90 change: -0.09 stop: 15.24

EMC closed a strong week near its yearly highs. We want to jump on board but only on a pull back. Currently the plan is to buy EMC on a dip at $15.75. We'll use a stop loss under the September low. Our target to exit is $18.00. We'll plan to exit ahead of the late October earnings report.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 15.75
Change since picked:     + 0.00   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:      19.6 million 
Listed on September 09, 2009    

IDEX Corp. - IEX - close: 29.12 change: -0.02 stop: 25.75

IEX is holding up pretty well. Shares look a little overbought and a dip would be healthy. Readers can look for a new entry point if IEX bounces in the $27-28 region. More conservative traders may want to take profits right now. I would sell most of our position at $29.85. We do have a second target at $32.00. The P&F chart is forecasting a $39 target.

Annotated chart:

Entry on    August 17 at $26.10 *triggered         
Change since picked:     + 3.12   			
Earnings Date          07/20/09 (confirmed)    
Average Daily Volume:       570 thousand
Listed on  July 25, 2009    

J.P.Morgan Chase - JPM - close: 42.50 change: -0.52 stop: 39.90

The rally in JPM is losing momentum. If the stock rolls over from here it will start to look like a bearish head-and-shoulders pattern. I'm not suggesting new bullish positions at this time. More conservative traders may want to raise their stop or just exit early and wait for more clarity.

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:     - 1.00   			
Earnings Date          07/16/09 (confirmed)    
Average Daily Volume:        55 million 
Listed on  July 18, 2009    

Kirby Corp. - KEX - close: 38.68 change: -0.13 stop: 35.25

The rally in KEX has stalled a bit near its August highs around $39. Odds are pretty good that KEX will see a dip and I'd open new positions on a pullback into the $37.50-37.00 zone. Our first target to take profits is at $39.95. Our second and final target is $42.40. FYI: The P&F chart is bullish with a $57 target.

Annotated chart:

Entry on September 08 at $37.70 /triggered/gap higher entry
Change since picked:     + 0.98   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       310 thousand
Listed on September 05, 2009    

Altria Group Inc. - MO - close: 18.14 change: -0.05 stop: 17.90

MO gapped down on Friday thanks to its quarterly cash dividend. The next dividend payment is October 8th, 2009. Shares are testing previous resistance and what should be support at $18.00. We can use the pull back as a new entry point to buy the stock. 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:     - 0.36   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:      15.5 million 
Listed on September 05, 2009    

Microsoft - MSFT - close: 24.86 change: -0.14 stop: 22.95

MSFT's rebound is losing steam. I'd look for another pull back toward $24.00 and its 50-dma. Currently our target is $27.75.

Annotated chart:

Entry on      July 27 at $23.00
Change since picked:     + 1.86   			
Earnings Date          07/23/09 (confirmed)    
Average Daily Volume:        58 million 
Listed on  July 23, 2009    

Playboy Ent. - PLA - close: 3.11 change: +0.25 stop: 2.45

The rally (or short covering) in PLA is picking up speed. Shares soared 8.7% on Friday with strong volume to breakout over resistance at $3.00. The high was $3.18. The stock is already up 17% from our entry point and you're looking even strong if you bought the dip near $2.50. Given the sharp two-day rise we should expect a little profit taking soon.

More conservative traders may want to take some money off the table now with PLA hitting a potential trendline of resistance. Our plan is to take profits at our first target of $3.30. Our second target is $3.95. FYI: The Point & Figure chart is bullish with a long-term $7.50 target.

Annotated chart:

Entry on September 01 at $ 2.65
Change since picked:     + 0.46   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       370 thousand
Listed on  August 29, 2009    

Rockwell Automation - ROK - close: 43.50 change: +0.35 stop: 39.95

Ouch! ROK gapped open higher at $43.71 so our entry point could have been better. Shares filled the gap and started to drift higher again. I would consider new bullish positions anywhere in the $44.00-42.00 zone. Our first target is the $49.00 mark. Our time frame is several weeks. FYI: The Point & Figure chart is bullish with a $61 target.

Annotated chart:

Entry on September 10 at $43.71 /gap higher entry
                           /originally listed at $43.15
Change since picked:     - 0.21   			
Earnings Date          11/10/09 (unconfirmed)    
Average Daily Volume:       1.4 million 
Listed on September 10, 2009    

Schlumberger - SLB - close: 60.39 change: +1.96 stop: 54.95 *new*

SLB shows some relative strength on Friday after Goldman Sachs upgrades the stock from a "neutral" to a "buy". Shares of SLB gapped open higher at $59.81 and hit $61.77 before paring its gains. Don't be surprised if SLB fills the gap with a dip back toward $58.00 soon. I am raising our stop loss to $54.95. More conservative traders may want a stop closer to $56.00 instead. Our first target is $62.50. Our second target is $67.50. FYI: The P&F chart is bullish with a $73 target.

Annotated chart:

Entry on September 05 at $56.93 /gap higher entry
                             /originally listed at $55.87
Change since picked:     + 3.46   			
Earnings Date          10/23/09 (unconfirmed)    
Average Daily Volume:       8.7 million 
Listed on September 05, 2009    

TEVA Pharmaceuticals - TEVA - close: 52.70 change: +0.02 stop: 49.75

The bounce this last week looks like it's running out of steam under short-term resistance at $53.00. Look for a dip toward the $51.50-51.00 zone as a new bullish entry point. 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:     + 2.20   			
Earnings Date          11/03/09 (unconfirmed)    
Average Daily Volume:       5.3 million 
Listed on  August 05, 2009    

Ultra(Long) Financials - UYG - close: 5.61 change: -0.07 stop: 4.90

The rally in financials looks like it might be stalling. Unfortunately for the bulls if the rally does stall here it will start to look like a bearish head-and-shoulders pattern. More conservative traders may want to up their stop loss to breakeven at $5.29. I'm not suggesting new bullish positions at this time.

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:     + 0.32   			
Earnings Date          00/00/00 
Average Daily Volume:      47.8 million 
Listed on September 03, 2009    

BEARISH Play Updates

Electronic Arts - ERTS - close: 18.18 change: +0.13 stop: 19.55

ERTS should have been weaker and investors need to be cautious here. Video games sales have fallen for the sixth month in a row, which is shocking for some who thought that video games were mostly recession proof. They certainly offer the biggest bang for your entertainment buck. ERTS recently released their 10th version of the Madden NFL franchise. It was the biggest selling game last month with 1.9 million units sold yet this was below expectations.

Fundamentals seem to be bearish for ERTS but the stock bounced from its early September lows on Friday. If shares rally past $19.00 it will look like a bullish double bottom pattern. I'm not suggesting new bearish positions at this time. Wait for the next failed rally. Our first target to take profits is at $17.05. Our second and final target is at $16.15. The P&F chart is currently bearish with a $14 target.

FYI: I have heard ERTS' name used as a takeover candidate recently following the DIS-MVL news. It didn't seem like a serious threat but more of a what-if scenario with a big media company buying ERTS. If someone does makes a bid for ERTS our stop loss may not help much. An alternative to short ERTS stock would be buying put options, which have limited risk.

Annotated chart:

Entry on    August 29 at $18.31 /gap down entry
                              /originally listed at $18.76
Change since picked:     - 0.13   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       9.3 million 
Listed on  August 29, 2009    


Cracker Barrel - CBRL - close: 31.53 chg: -0.05 stop: 27.90

CBRL is holding up relatively well. Unfortunately we're running out of time. The company is due to report earnings on September 15th. I'm dropping CBRL as a bullish candidate until after they report. Then we'll re-evaluate. Our original plan was to buy the stock on a dip near $30.00.


Entry on September xx at $xx.xx <-- TRIGGER @ 30.15 *never opened*
Change since picked:     + 0.00   			
Earnings Date          09/15/09 (confirmed)    
Average Daily Volume:       348 thousand
Listed on September 08, 2009    

Capstone Turbine - CPST - close: 1.44 change: -0.02 stop: 0.98

CPST dipped toward previous resistance and now short-term support at $1.40. Aggressive traders might want to consider bullish positions. This is a volatile stock and I would prefer to buy it lower. The plan was to buy a dip at $1.15, which hasn't happened yet.

At this time I'm dropping CPST as a candidate but I'd keep it on your watch list for an entry point down the road. The $1.50-1.70 zone looks like resistance.


Entry on    August xx at $xx.xx <-- TRIGGER @ 1.15 *never opened*
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: 7.33 change: -0.11 stop: 7.39

Ford is not participating in the market's rally. The relative weakness is worrisome. I'm dropping the stock as a bullish candidate for now. However, I'd keep F on your watch list for a bullish breakout of a bounce from the $6.50 zone. Our bullish play was never opened.


Entry on    August xx at $xx.xx <-- TRIGGER @ 7.85 or $6.50
Change since picked:     + 0.00   			*never opened*
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:        90 million 
Listed on  August 27, 2009    

Raytheon Co. - RTN - close: 46.56 change: +0.34 stop: 46.40

RTN managed a meager bounce on Friday but the short-term trend is still down. I'm removing the stock as a bullish candidate. I'd keep an eye on RTN for a breakdown under $45.00 or a breakout over $48.50.


Entry on    August xx at $xx.xx <-- TRIGGER 48.65
Change since picked:     + 0.00   			*never opened*
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:       2.7 million 
Listed on  August 22, 2009    

Ship Finance Intl. - SFL - close: 12.03 change: -0.06 stop: 11.70

SFL is still clinging to technical support at its 50-dma but shares look like they're about to breakdown. I'm suggesting an early exit now to cut our losses.


Entry on    August 27 at $12.80 *triggered
Change since picked:     - 0.77 <-- early exit @ 12.03 (-6.0%)
Earnings Date          11/27/09 (unconfirmed)    
Average Daily Volume:       499 thousand
Listed on  August 25, 2009    


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