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Newsletter

Daily Newsletter, Thursday, 4/15/2010

Table of Contents

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

Market Wrap

Market Melt-up but the Tax Rally Might Be Done

by Keene Little

Click here to email Keene Little
Market Stats

The S&P emini futures, ES, started its strong rally from February at 1040. Today is April 15th. Wouldn't it be appropriate to have this rally, which would be dubbed the "tax rally", finish with today's high?

The stock market seems to know only one direction and since February, and in reality since March 2009, that direction has been up, up and away. With so many large funds using quantitative analysis and trading programs, we seem to be in a market that gets into a groove and it's hard to knock it out of the groove. That works both ways so when the market turns back down it could simply get into the southbound lane and not leave it for awhile.

It's opex week and therefore we have to wonder how much of this week's rally was opex related (exacerbated?). The move up is starting to take on that parabolic ending look to it. And the strong rally since February has stretched the overbought and over-bullish indicators to their breaking point. As I'll point out on the charts, I see a little more upside potential but I'm only talking about maybe another 100 points or so for the DOW and maybe 10-15 points for the S&P 500. If you're long the market and hoping to stretch it out for a few more points you might be able to be classified as a hog now (pigs get fat, hogs get slaughtered).

With the market so stretched you run the risk of a downside surprise and strong selling. You might have stops in place and thinking you're protected but do you know what kind of stop it is? If the market gaps down and jumps over your stop will it still be executed? Be sure you know you're protected. For example, use market orders for stops and not limit orders.

I want to start this evening's market review with a couple of charts to show why I think the market is stretched and why it's now in risky territory for the bulls. But as a warning to bears, just because it's risky for the bulls does not mean the bears get the green light to start piling into short positions. For those who traded through the late 1990s you know how long the market can continue to stretch the rubber band to the upside.

Starting with the bullish sentiment, the Daily Sentiment Index (DSI) by trade-futures.com shows we're at 92% bulls now. The last two times it was this high was September 2009 and May 2007. From the last high in September 2009 we had a market decline into October. With the rally much further along than it was in September there is a higher risk for a more severe decline than what we saw after last September's high. The DSI can go higher but clearly it's in nosebleed territory and we've now got sentiment that is the opposite of what we had at the March 2009 low.

The percentage of bullish advisors, as measured by Investors Intelligence Advisor's Survey (InvestorIntelligence.com), shows 51.1% and past times where this measure has exceeded 50% it has been near market highs. This past January it reached 53.4%. The percentage of bears is 18.9%, relatively close to the 25-year low of 15.9% in late December.

The CBOE equity/put call ratio is hitting lows not seen since January 2000, more than 10 years ago. The market is still below its October 2007 highs and for several indexes it's well below its 2000 highs and yet the amount of bullishness exceeds anything seen in the past 10 years. That's just simply amazing, and it's also fitting for a bear market rally. The ratio closed at 0.32 yesterday and 0.37 today, meaning there were three times as many calls being purchased than puts. Considering where we are in the rally that's some strong belief in it continuing. The crowd is wrong at the turns and I feel one coming.

CBOE Equity Put/Call Ratio, chart courtesy indexindicators.com

The green line is the 10-dma of the put/call ratio and as I've pointed out on the chart it has now dropped below the 2-standard deviation line at 0.51. At 0.45 it's the lowest reading for the 10-dma in the past three years. Yesterday's low reading of 0.32 comes after the average has dropped sharply since February and it could be a sign of capitulation. The same level of bullish enthusiasm can be seen in the ISEE chart which is showing a string of readings over 150 (they measure calls to puts and therefore anything over 100 shows more call buying to put buying). When readings get over 150 (it hit 165 on Wednesday and 185 today) it's a warning that the market is getting frothy. It's not a turn signal but instead a warning and I think the warning is getting serious now.

In addition to bullish sentiment and excessive call buying, another measure of sentiment is the amount of money invested in money market funds vs. stock funds. It's gone bullish to the extreme and from a contrarian perspective that's very bearish. The next chart below shows the Rydex money market assets and after a sharp spike up into the February stock market low it has experienced a complete reversal and money market assets are now lower than any time since February 2001.

Rydex Money Market Fund Assets, chart courtesy mcoscillator.com

You can see in the chart how the masses dumped their stock positions and rotated into the money market funds right at the bottom in March 2009. It's been erratic but money has been leaving money market funds at an accelerating pace and now we see a spike down in money market assets as the stock market spikes up. If the masses are wrong at the turns then this chart could be telling us something.

Other than those who are still afraid of the stock market and placing their money in bond funds, it's the stock funds that have seen a huge spike up. The Rydex Nova stock fund is a 1.5x leveraged fund and has been the beneficiary of the bullish stock market sentiment. Again you can see money fleeing the fund in 2008, especially into the March 2009 low and now it's spiking higher into the current rally from February.

Rydex Nova Total Assets, chart courtesy mcoscillator.com

So the combination of those two charts above show how much people have become believers in the stock market rally. We have many converts who are buying into the rally, potentially at the top of the rally. It's evidence of how the masses jump on the trend at the end (which is what I believe the rally from February to be).

When you look at mutual fund managers the story is the same. They've taken their cash levels down to historic lows. From February 2009, when cash and cash equivalent levels were 5.7% of total assets, today they're below 3.5% and it's been the quickest decline since 1991. Fund managers are fully on board this rally. Cash on the sidelines? We keep hearing that phrase but I'll be dipped if anyone can tell me where it is.

The risk for funds with record-low cash levels is that it's like a bank not having enough reserves set aside for contingencies. If a fund were to experience a large number of redemptions they may forced to liquidate some of their positions to ensure they have adequate cash on hand. Their selling could exacerbate any selling that's already happening in the market. Selling begets more selling.

The other risk for the current rally is that it's happening on the backs of fewer and fewer stocks. I've shown in the recent past a chart comparing the NYSE new price highs to a pattern of declining highs in the advance-decline line. As the market makes new highs that a-d line continues to drop lower. That's not healthy.

If you look at the number of stocks above their 200-day moving averages you'll see the same picture. While the market makes new price highs there are fewer and fewer stocks participating in those new highs, as shown in the chart below. The number of stocks above their 200-dma has been declining since last September.

NYSE Percent of Stocks Above 200-dma

If you'll look at a similar chart of the number of stocks above their 50-dma's (not shown here), you'll see that it's approaching 90%. Previous market highs have occurred when this measure exceeds 85% so once again the rally is now on borrowed time.

I mentioned above the quant models that seem to have this market stuck in a rut and that's been apparent for a while now. Once the market gets going in a direction it appears most are trading the same way (in a momentum style of trading) and the normal ebb and flow of a market doesn't have a chance. It's why we typically see such small corrections. So when the market turns back down for a needed correction it could turn into a rout as the selling becomes intensified.

We're getting some very good earnings and economic reports and that has people feeling even more bullish. Many analysts are climbing over themselves to get to the microphones in front of the cameras to raise price projections and economic forecasts. This is very typical at market highs (and just the opposite at market bottoms). Economists, just like retail investors, are most wrong at the turns. Their projections are hindsight based and are always, and that's 100%, wrong at major turns. Market tops are made on good news and market bottoms are made on bad news. By the time we get the news most market participants have placed their bets (or capitulated out of their losing positions) which sets up the reversal.

There are still some fundamental problems our economy needs to work through. It will be part of the larger deleveraging process. Nothing has been fixed from 2007. The banks remain highly leveraged and our financial system is actually in worse shape and more vulnerable to a severe disconnect than they were in 2007. And if they start having to unwind bad trades and incur huge costs again, and again threaten the survivability of the financial system do you think Congress will be able to enact another bailout program? Not if their jobs depend on it. Other than the Fed/Treasury doing more unconstitutional things, bailing out the banks next time around is going to be incredibly difficult to do.

With an economy so dependent on the consumer it's going to be difficult overcoming a structural change to the credit picture. While retail sales are currently climbing, and that's a good thing for our economy, it could be nothing more than some pent up demand being released with the feel-good stock market rally. But housing is no better and in fact getting worse. Ironically, one thing that may be helping consumer spending is the fact that it's becoming less of a stigma to stop making payments on mortgages. In fact I've been hearing more and more people starting to feel like they just want to stick it to the banks and leave them with the house. More people may therefore have more disposable income.

The sharp decline in consumer credit tells us the credit contraction continues (which is showing up as a decrease in money supply, no matter how much the Fed tries to print). The home ATM is no longer available, credit continues to shrink and income levels are not increasing, especially with the continued high unemployment. The increase in retail spending is probably temporary. We'll likely see a continuation in the decline in the amount of credit being carried by the consumer.

Consumer Revolving Credit, 1969-2010

As I had mentioned earlier, I think the market has the potential to rally a little further into early next week but I also think the risk in chasing it higher increases daily. The upside potential vs. the downside risk, as to where to place your stop, simply doesn't fit most people's risk:reward requirements.

Starting with the SPX weekly chart, it's now approaching what could be very tough resistance. The big Fib number is the 62% retracement of the 2007-2009 decline, at 1228.74. Just below 1225 is its 200-week moving average, which is where price was rejected back in August 2008 after breaking below it in June 2008. This will be the first test since that August retest. It has already achieved a Fib price projection at 1208.25 that is based on the wave pattern for the rally from March 2009. And it has reached the top of its rising wedge pattern. If it makes it up to the 1229 area and then drops from there it would leave a little throw-over above the top of its wedge, a common finish.

S&P 500, SPX, Weekly chart

The daily chart shows the tight parallel up-channel for price action from February. RSI is very overbought and MACD is showing a negative divergence at the new high above the mid-March highs, which fits for the 5th wave of the rally from February. Once the rally from February has finished its 5-wave move, meaning it's now very close to finishing, we will get at a minimum a correction of the rally leg before proceeding higher again. The more immediately bearish scenario is that the current rally will finish the larger one from March 2009 and that we'll then start the long (could be quick) journey back down the hill. Below 1188 is needed to tell us the high is in place. In the meantime, the chart remains bullish (even if not tradable).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish up to 1229
- bearish below 1188

Zooming in on the narrow up-channel on the daily chart, the next chart shows a smaller wedge inside it. I'm depicting a small correction and then another push higher into early next week but it doesn't have to happen. This is a rally looking for an excuse to take profits. Keep an eye on uptrend lines since once they start breaking it's going to be your warning that the top is likely in.

S&P 500, SPX, 120-min chart

For the DOW I'm showing a horizontal line near 11140 which is where the crash leg in September 2008 really started. Anyone who was trapped in their positions and unable (unwilling) to sell could be looking at that level as their "thank you God" level where they'll get out and promise never to trade without stops again (it's why previous support often turns into resistance). However, what typically happens is people who were trapped by that crash leg down now feel that they were vindicated by hanging on through the "correction". They then decide to hang on longer and finally make the money that they knew they could make. This chart leaves little doubt in my mind that those who do not take advantage of this gift presented to them, to exit their positions, will be extremely sorry the next time. But that's what people do.

Dow Industrials, INDU, Weekly chart

The DOW tagged its 200-wma at 11134, and even closed slightly above it. The question here is whether there will be same reaction to it as there was back in August 2008. The DOW is also doing a little throw-over above its rising wedge pattern, and looks like it might try for a run up to its 62% retracement at 11246. But when this breaks down it's probably going to go quickly, especially if it drops below 10300.

With trend lines, the wave pattern and Tuesday's low near 10947, I think that's the level that the bulls need to defend in any pullback. A break below that level should indicate that at least a deeper pullback to correct the rally from February is in progress. Looking at the daily chart below, if the market is able to push a little higher then watch a Fib projection at 11217 where the 5th wave of the move up from February would equal 62% of the 1st wave.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 10246
- bearish below 10947

The Nasdaq has rallied strong over the past 9 days and has pushed up to its 78.6% retracement that's just shy of 2520. It's also in the process of pushing marginally above the top of a potential rising wedge pattern so any decline from here will leave a throw-over finish. Additional upside remains to the 2540-2550 area where it would not only test the May/June 2008 highs but it would also close the gap from June 6, 2008 when it gapped down following the close at the June 5th high.

Nasdaq, COMPQ, Weekly chart

Slightly below the 2540-2550 level on the weekly chart is a price projection at 2535 where the 5th wave in the rally from February would equal the 1st wave. So while there's a little upside potential I believe the rally is within days of topping, if it didn't top today. RSI is at the highest level it's been in more than 10 years (so very overbought) and MACD is showing negative divergence at the new high. It's just a matter of time now...

Nasdaq, COMPQ, Daily chart

Key Levels for COMPQ:
- cautiously bullish up to 2550
- bearish below 2445

As with the others, I see a little more upside potential for the RUT if the market can squeeze out at least one more push. We might see a 1 to 2-day pullback before that push but as long as it stays above 700 we could see the RUT push up to the 731-735 area. The 5th wave of the rally from February would equal the 1st wave at 730.81 and the 2nd leg of the move up from November (an A-B-C move) would achieve 162% of the 1st leg up at 735.56. That's also where it would reach the trend line along the two highs since November. An initial bearish heads up would be a break of its uptrend line from February, currently near 708.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish up to 735
- bearish below 700

The banks were on fire yesterday after JPM blew away their earnings. As a side note, I find it difficult to understand why their earnings should carry such importance. A blind monkey could make money trading their bond desk, which is where they made all their money. Give me free money from the Fed, let me leverage it 30:1 and buy U.S. Treasuries returning 3.5% and I'll bet I can double my money as well. And for that they'll get paid hundreds of millions in bonuses. Give me a break. But I digress.

The BIX shot up to potential Fib resistance near 161 and the top of its parallel up-channel from February. The 5th wave of the rally from February is 162% of the 1st wave at 160.64 and two equal legs for the move up from July is at 161.79. Today's high was 162.27. If it can push a little higher it could reach the top of its parallel up-channel from July, currently near 164.50. But this index is backing up what I see across the board--it's very close to being finished, if it didn't finish today.

S&P Bank index, BIX, Daily chart

To keep things in perspective with the banks, I like to keep an eye on the weekly charts. Using the S&P banking index this time, it has rallied up to the 38% retracement of the 2007-2009 decline. Wow, the big rally in the past year has only retraced 38% of its decline. Wow, I feel so much better about this rally already. OK, I'm being a little facetious but you get my point. On top of that, the "rally" is a rising wedge pattern and is bearish. Once it completes it should be completely retraced. The banks are still in horrible shape, no matter how much money they can make buying Treasuries with free money, and the chart supports that.

KBW Bank index, BKX, Weekly chart

After breaking down from its rising wedge pattern the home builders index bounced back up to its broken uptrend line and started back down today. So far it looks like a bearish kiss goodbye.

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

The transports have been rallying like there's no tomorrow. But the TRAN ran right up to a Fib projection near 4743 for a potential high. At the same location is the top of its parallel up-channel from February. Unless the Trannies have a lot more oomph behind this rally, this is where it should reverse back down. If it continues out the top of the channel and gets much above 4800 is could make a run for it up to 5300.

Transportation Index, TRAN, Daily chart

There's hasn't been enough of a change to the U.S. dollar's pattern to help figure out whether it's going to continue on up or first pull back in a larger correction. As long as it holds above $80 it could continue higher to an upside target near $84 before it starts a larger pullback correction of the rally from November. Otherwise a drop below $80 will mean the larger (1-2 month) correction is already in play.

The metals are also flirting with a pattern that supports at least another high before starting its next leg down as part of a larger downside pattern from December. The upside target for gold is 1186-1188 and then I'd be looking for the start of the next decline. Or it could start down now. Below 1115 would suggest the decline has already started. The downside target will initially be $1000.

If the stock market starts back down and gold turns down then there should be little hope for the gold miners, which have a pattern very similar to gold's. If it pops back up for a minor new high it could see $50 but there's a good possibility the bounce is already finished and it's starting back down now. I had recommended a short play on this earlier in the week on the Market Monitor. The downside target will initially be near $33 (for two equal legs down from December).

Gold Miners, GDX, Weekly chart

Oil is struggling to hold the $85 level but it still maintains the possibility for a push up towards $90. Many are calling for oil over $100 but I'm calling for it to be below first be below $30 in the next year or two. Only time will tell.

Oil continuous contract, CL, Weekly chart

The three economic reports tomorrow morning have the ability to move the market, but probably only if they're bad. The market has priced in perfection at this point so anything less than that would set up a disappointing reaction. There are a lot of fund managers just waiting for an excuse to hit the sell button and protect profits.

Economic reports, summary and Key Trading Levels

I am anticipating some disappointing news from the building permits and starts soon, if not tomorrow. It will be part of what I believe will be the reversal of the psychology of the market (part of the slippery slope of hope that bear market rallies are famous for). The chart below graphically shows how difficult it's been for the builders for the past four years.

Housing Starts and Building Permits, 1994-2010

The improvement in both starts and permits from last year's lows could hardly be called exciting. If this were a chart of a stock would you be interested in buying it or selling that little bear flag? Enough said.

Google (GOOG) reported after the bell and it looks like traders aren't quite as happy with GOOG's earnings as they were for INTC's, JPM's and UPS's. They reported Q1 earnings, after excluding special items, of $6.76/share on net revenue of $5.06B. They beat last year's numbers and came in better than expectations of $6.60/share on $4.95B. Their reward for doing such a good job was more than a $30 haircut from their closing price near $595. They're trading off the after-hours low of 563.50 and looks like it might settle near 567. Now there's the sell-the-news reaction I've been expecting to see this time around.

Summarizing tonight's charts, I think we're either now at or very close to the end of the rally from February. I like the 5-wave move up and since we're into the 5th wave it suggests the bulls now need to be very cautious. After a 5-wave move completes there will be a correction of it. Considering how overbought the market is, and especially with it coming at the end of the rally from March 2009, there's a very good chance we're looking at the final stage of the year-long rally. That would mean the next correction will be more than just a correction of the rally from February.

Looking out a couple of months, it remains possible that we'll get just a pullback correction of the rally from February and then another leg up into May/June. It might even be a pullback and then retest of the current highs. That's pretty typical. So if you want to play the downside I'd suggest keeping a tight leash on it on the way down. Bear markets are hard to trade because they become very whippy. The high VIX usually means high volatility in price action. So taking profits often, especially for the 1st leg down, would make a lot of sense.

While it's possible we'll see just a pullback and then another leg up into May/June I think the chances are equally as good for a more significant decline. Hoping for a retest of the high after a pullback, as a way to get out of your longer-term bullish positions, may turn out to be a disappointment. Remember the market usually ends up disappointing the majority of the people and right now, with the high level of bullishness in this market, there may be little to support the market on the way down, especially if the quants are in control of the trading programs.

This market has surprised me with its persistent strength, especially in the face of deteriorating market breadth and low volume. Short interest in the market is now very low so it's not short covering. It would appear the bears have simply walked off to the sidelines and waiting their turn to feed. In the meantime, people have been emptying their money market accounts and fund managers are spending their small cash reserves to put it to work in the stock market. The move up is achieving that blow-off look to it and it appears to have done its job in sucking in the remaining holdouts. It seems everyone is in.

But with the underlying weakness to the rally, not to mention a lack of fundamentals (credit contraction, housing market, high unemployment, etc.), I believe the rally is now on borrowed time. It may be early to short but I think it's too late to go long.

Friday could be a snoozer if we get the typical opex Friday. If we're due a small correction before the last high into early next week then it will be another reason for Snoozeville tomorrow. Don't press your bets on a quiet trading day. Take time off or catch up on some research reading while you watch. There's plenty to do besides trade. Good luck and I'll be back with you next Thursday.

Key Levels for SPX:
- cautiously bullish up to 1229
- bearish below 1188

Key Levels for DOW:
- cautiously bullish above 10246
- bearish below 10947

Key Levels for COMPQ:
- cautiously bullish up to 2550
- bearish below 2445

Key Levels for RUT:
- cautiously bullish up to 735
- bearish below 700

Keene H. Little, CMT


New Plays

New Positions After Expiry

by Scott Hawes

Click here to email Scott Hawes

Editor's Note: I think it is better to wait and see how April options expiry ends up tomorrow prior to initiating new plays. We will be light on new plays for the next couple of days to get a better sense of market direction and to see how the market reacts to some key earnings reports. I will initiate a new plays this weekend and begin to ramp up the portfolio next week. Here is a trading idea that I think is setting up well:

NBR - reversal candlestick and appears ready to break downtrend line.



In Play Updates and Reviews

SRS Came Through For Us Today

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:

Good evening traders. Google's earnings didn't impress anyone today after the bell and the stock is under pressure. We'll see if this drags the NASDAQ down tomorrow and helps our short QQQQ trade. SRS also followed through nicely, albeit I was confused this morning on the heels of a 1:5 reverse stock split which is explained in the play update.

Over the past year there have been fairly decent sell-offs after options expiry on more than one occasion. I'm not saying this will happen again but I believe the conditions are ripe. If we get a rally tomorrow I would seriously consider selling positions into strength to preserve capital and lock in any profits.

Current Portfolio:


BULLISH Play Updates

AU Optronics - AUO - close: 11.38 change: -0.12 stop: 10.90

AUO is playing moving average ping pong between its 20-day, 50-day, and 100-day SMA's. The stock is coiling and needs to get above a resistance area at $11.60 which I think would get the stock moving toward the $12.00 area fast. I am still cautious of a broader market sell-off and suggest conservative traders tighten stops. Officially we are keeping our stop at $10.90 but a logical higher stop could be placed at $11.10 which is just below AUO's 50-day SMA and recent support. This is about 2% higher than our official stop. Aggressive traders may still consider positions as I believe there is a lot of support with the SMA's and support just below. Note: I consider this an aggressive trade and recommend small position size to limit risk.

Current Position: AUO stock @ 11.77

Entry on April 05 at $11.77
Earnings Date 04/22/10 (unconfirmed)
Average Daily Volume: 2.5 million
Listed on April 3rd, 2010


BorgWarner Inc. - BWA - close: 39.04 change: +0.15 stop: 37.95

BWA is exhibiting bullish action (shocker) but I don't know if it will trade above our trigger before retreating. Our comments remain the same as we wait to get triggered. The stock continues to melt-up and looks bullish; however, I am viewing this trade as an aggressive trade at this point. If the overall market rallies it should work just fine, however, I don't want the stock to trigger our entry and then reverse. Officially our trigger to open positions is at $40.25. If triggered our target is $44.75. I am moving our stop loss up to $37.95 to limit our risk in the trade if we get triggered. Aggressive traders may consider opening positions if BWA stays above $38.40 but I would view this as a quick trade with a tight stop. The Point & Figure chart looks very bullish and is forecasting a long-term $55 target.

Trigger to open bullish positions $40.25

Suggested Position: BWA stock @ 40.25 (unopened)

Option Traders:
Suggested Position: Buy CALL May $40.00 (BWA 10E40.00) current ask $1.10

Entry on April xx at $xx.xx
Earnings Date 04/29/10 (unconfirmed)
Average Daily Volume: 1.8 million
Listed on April 3rd, 2010


Cash America - CSH - close: 41.68 change: +0.40 stop: 40.59 *NEW*

CSH closed higher +0.97% today and is experiencing overhead trend line resistance. There is support that came in today at the $40.80. I would like to move our stop up to $40.59 to limit risk in this trade in case the market sells-off tomorrow. CSH made new highs today and surpassed $41.50. I suggest conservative traders tighten stops or sell into strength to lock in any gains. We need to see CSH follow through or we will be looking exit our position if our new stop is hit. I am not suggesting new positions at this time. Our target on CSH is $42.90.

Current Position: CSH stock at $41.05

Entry on April 06 at $41.05
Earnings Date 04/22/10 (unconfirmed)
Average Daily Volume: 263 thousand
Listed on April 5th, 2010


MAXIMUS Inc. - MMS - close: 64.15 change: +0.71 stop: 59.75

MMS surged higher again today closing +1.12%. This is another new all time high for MMS so I urge readers to be careful. We are up +3% in the trade right now. Our target on MMS of $64.75 was almost hit today as the stock reached a high of $64.53 before backing off. As such, I am recommending we exit this position at the open tomorrow and take our profits. The rally is a little long in the tooth and getting greedy here is not the right thing to do. Aggressive traders could stay in the position with a tight stop at $63.60. I want to remind traders that this is a somewhat aggressive trade since we normally do not trade stocks with average volume under 250K a day.

Current Position: MMS stock at $62.25

Entry on April 9 at $62.25
Earnings Date 05/06/10 (unconfirmed)
Average Daily Volume: 83 thousand
Listed on March 31st, 2010


Medicis Pharmaceutical Corp. – MRX – close: $25.60 change +0.16 stop: $23.45

MRX peaked its head above its 20-day SMA before retreating, but still managed to gain +0.63%. The stock has support at the $24.75 level for the past couple of weeks, which is also just above prior resistance from October 2009. The stock's 50-day and 100-day SMA's are just below current levels and there is also upward trend line support. Our first target is $26.50 and our second target is $27.75, which is just below its 52-week high. Our stop is $23.45 which is near a prior resistance level and also below the aforementioned SMA's. We will probably be looking to move this stop next week as the 50-day SMA continues to rise.

Current Position: MRX stock @ $25.00

Entry on April 14 at $25.00
Earnings Date 5/06/2010 (unconfirmed)
Average Daily Volume: 1.0 million
Listed on April 13th, 2010


Patterson Companies - PDCO - close: 31.81 change: -0.01 stop: 29.95

PDCO found support today right at our entry price of $31.50 and closed $0.31 higher. If PDCO happens to surge tomorrow traders may want to consider exiting for a quick gain. Otherwise, our stop remains at $29.95 which is below PDCO's 50-day SMA as well below a prior support and resistance level from early March and late February, respectively. Our target is $34.50.

Current Position: PDCO stock at $31.50

Entry on April 14th at $31.50
Earnings Date 05/17/10 (unconfirmed)
Average Daily Volume: 975 thousand
Listed on April 6th, 2010


Powershares UltraShort Real Estate - SRS - close: 27.99 change: +1.34 stop: 26.50 *NEW*

I couldn't figure out what was going on when I looked at my SRS position this morning. I quickly realized that ProShares initiated a 1:5 reverse split and then it started to make sense. However, my charting system did not reflect the split and it was difficult to make sense of what was going on. Here are the results. SRS closed yesterday at $5.33 and at the start of today for every 5 shares you owned at $5.33 you now had one at $26.65 (or $5.33 x 5). The value of your shares did not change. That is until the real estate stocks started tanking which enable our SRS position to tack on almost a +5% gain. I will provide a new chart this weekend. But for now our first target is $28.90 which is just below SRS's 20-day SMA. Our second target is $30.20 which near the late March highs. Our stop is $26.50 which will ensure us of a small winning trade if SRS reverses. If a broader market correction gets going this play has a lot of potential but must be managed properly to protect profits. Aggressive traders can consider initiating new positions on any pullback with a tight stop in place.

I want to remind readers that I consider this a very aggressive trade so please use smaller position size to limit risk. *NOTE: Although this is listed as a long position in our portfolio, this is a bearish position on real estate stocks. We are long and bullish on SRS.*

Current Position: Long SRS @ $26.25

Entry on April 14th, 2010
Earnings Date Not Applicable
Average Daily Volume: 11.0 million
Listed on April 8, 2010


BEARISH Play Updates

Powershares QQQQ Trust - QQQQ - close: 50.13 change: +0.22 stop: 50.95

QQQQ surged higher again today but Google earnings after the bell didn't impress anyone and the stock is under pressure. This should help our short QQQQ position tomorrow. I am sticking to the set-up but we need QQQQ to trade back below $49.50 to get things rolling in our direction. QQQQ moving averages will also provide support if it sells off. Our target remains $47.00 which is just above the lows from March 15. Our stop is $50.95. Traders that have not entered positions could do so now and be rewarded nicely if the trade works.

Current Position: Short QQQQ at $49.05, Stop Loss $50.95

Option Traders:
Suggested Position: Buy PUT May $49.00, Ask at entry, $1.00

Entry on April 12th, 2010
Earnings Date Not Applicable
Average Daily Volume: 49.4 million
Listed on April 10, 2010