Option Investor
Newsletter

Daily Newsletter, Thursday, 7/1/2010

Table of Contents

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

Market Wrap

Oversold Heading Into an Important Economic Number

by Keene Little

Click here to email Keene Little
Market Stats

The day was looking like it was going to be like the others of the past two weeks. The futures were down most of the overnight session, got lifted (magically) into the green into the pre-market hours, sold off again on the unemployment report, and then got lifted (magically again) to the flat line where the market opened. That was a lot of work done by "someone" to avoid another nasty start to the day. It held up for all of five minutes before selling off and the DOW dropped about 150 points before recovering about 110 points into the close. As you can see in the chart above, the volume was heavy and it was mostly selling. Even after a decent recovery today the numbers look weak. This market is due a bounce, no? The jobs report Friday morning will tell the tale.

Before diving into tonight's charts, I received a letter from Paul this past week that I wanted to use to make a few points since I'm sure Paul's points are shared by some and disagreed with by others. I always like to make sure we're all singing off the same sheet of music so that what I say makes some sense, even if you disagree with me. From Paul:

"As you and I both know, there should be an economic crash soon. Indeed, I would go so far as to say that there NEEDS to be one to 'wash out' the system and provide a solid foundation for a 'new' economy. If I had any influence in Congress, I would urge it to start to create laws that address a financial crash and deflation. [For example, as the money supply contracts, all loans would be reduced by the same percentage as the contraction in the money supply.]

However, Obama gave a pretty clear signal of how they are going to proceed at the G8/G20 meetings over the weekend. And, Bernanke's 'helicopters dropping dollars' speech is a good indication of how he plans to go. And, there are people calling for just such a 'solution' - see: Monster Money-Printing, by Ambrose Evans-Pritchard, for one example.

I think you might want to address this in one or more of your commentaries. While the charts and 'technicals' and the different 'waves' indicate a crash, there is the possibility of the near (apparent) opposite - high, or even hyper, inflation to 'paper over' the economic realities. The end result would be about the same - a dollar worth 10-cents (deflation) or it needing $10 to buy what used to cost $1.00 (high inflation). Because the indications are so strong that 'they' are about to turn on the money spigots - or Bernanke is getting his helicopters ready - I think it would be advisable to start to address that possibility (I'd say probability) and how that might alter how one handles their portfolio.

I'd be interested to read what you and the others might have to say about this."

Paul didn't add it so I will--all that money creation and the resulting hyperinflation is one of the primary reasons for buying gold.

I could spend pages on this subject alone but I'll try to keep my comments to a minimum to hopefully make my point and then move on to the charts. I would say this is probably the most common argument I hear as to why we shouldn't fight the Fed and why buying gold is the only real investment we should consider. While I completely agree with Paul that the Fed is probably going to pull out the stops and flood as much money into the monetary system as they can in order to avoid that dreaded 'D' word--deflation.

Deflation is actually good. While it hurts many people and businesses in the short term it's extremely beneficial to the long-term health of our economy. The government doesn't want deflation because it makes the debt huge after deflation has run its course. Inflation is what knocks down the value of debt.

So while on the subject of debt, I do disagree with the idea that peoples' debts should be devalued the same as deflation. The reason I disagree is based on the fairness doctrine. I've lived my life frugally without enjoying the benefits of more material holdings and a bigger house because I wasn't willing to take on debt. For others to have bought those things and then have their debt burden reduced is not fair. I know life's not fair but I'm tired of people who played without preparing for the future having to be bailed out by me. Call me selfish if you want, it won't bother me.

As for the Fed going hog wild with his money-printing machine and having to buy thousands of helicopters (to provide a stimulus program to the manufacturers, especially the unionized ones (ouch, OK, no more political comments) to use for dropping the money into the economy, the Fed is much smaller than the market. They've been on a massive QE (quantitative easing) program for a few years now and yet the money supply is shrinking for the first time since the 1960s I believe. Bank, commercial and consumer credit is dropping the most, and in some cases into negative territory, since the 1960s if not the 1930s. So my point is the Fed is powerless to stop the cycle we're in which is a deflationary one. We're in a depression but it hasn't been officially recognized as one yet. It will.

The bear market will run its course and the only question is how fast. The Fed's monetization program could slow the process down but they won't prevent it. For one thing, their efforts are dependent on people taking on more debt. First off, the banks are going to become very fearful again of lending. It's happening in Europe and will be washing up on our shores. Second, businesses and people aren't going to be enticed by low interest rates to borrow more if they're afraid they can't pay it back. So that takes away the power from the Fed to increase the money supply. In "ordinary" recessions the Fed can stimulate demand with lower interest rates but in a depression (which they'll call a double-dip recession for a while longer) they can't fight the feeling (of people being more afraid of debt than not keeping up with the Jones').

One last point about deflation and what it means to our purchasing power. Contrary to popular opinion, deflation is good for consumers. A dollar today that deflates 50% in a year means the goods you want to buy costs half of what it did. It's not the dollar that deflates but instead it's the asset that deflates. That's why it's very important to get out of debt and go to cash. The dollar deflates in an inflationary environment (it takes more dollars to buy the same item) and inflates in a deflationary environment (it takes fewer dollars to buy the same item). So those who are preaching to buy gold because of the hyperinflationary times that are coming, I don't argue with their logic but I do argue with their timing. We need to get through deflation first, which will deflate all asset classes (see how everything sold off together again today?). When banks start failing en masse and the Fed has increased their balance sheet from $1.25T to $5T (currently being considered) and then to $10T then it will be time to hunker down and buy gold and bury it in the back yard. But cash is king right now--sell assets and go to cash.

The other nice thing about going to cash right now is that you'll then have some to trade with. And we're here to trade, n'est pas? So let's see what there is to trade. So many choices, so little time. I believe we're on the cusp of a big move in the markets and will therefore review a few more weekly charts for some of the indexes than I normally do, instead of the daily charts, because it's important to keep the big picture in mind. Sometimes a projected move on a daily chart looks so horrendous (when talking about a move down) but when viewed on a weekly chart it looks like it fits better. It's still a big move but we have to keep it in context with the longer-term moves.

So we'll start with the usual weekly chart of SPX to see where it's pointing. This week the important level that broke was 1040. If it closes on a weekly basis below 1040 it will be that much more important of a break. So the bulls know what they need to do on Friday. The H&S top that has been created this year has its neckline near 1040. The price projection out of the pattern is down to 860, which is very close to the July 2009 low near 870.

S&P 500, SPX, Weekly chart

On the above chart I've also added a Fib projection for the next leg down, based on the size of the 1st leg down into the May 25th low. A 162% projection is at 845 and the 262% projection is at 669. I'm not saying either will be reached but the first one is likely and the lower one would likely be achieved if we get a market crash. As depicted on the chart, once a 5-wave move down completes, which I'm projecting down to about 750 by September, we'll be set up for a big bounce. I'm showing the bounce into October on the SPX chart but on some other charts I've extended the time line a little for the decline into October and the bounce into January 2011, which fits the midterm election cycle a little better. However, a strong and fast decline might look more like the SPX chart below.

The daily chart below shows the break of the 1040 level which has been support in May and June. If it acts as resistance on a retest, short it. If we get a bounce back above 1040 we could see it head for the 1070 area by next week. Anything above 1075 would call into question the bearish wave count (or make it much more bearish but I'd have to see what shape the bounce takes). Note the coming Death Cross with the 50-dma about to cross down through the 200-dma, a signal used by many fund managers for their longer-term decisions.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish above 1075
- bearish below 1048

The decline from Monday, June 21st has largely stayed inside a parallel down-channel with a brief poke below it this morning. Had it closed below the bottom of the channel it would have been a stronger sell signal, which will be true on Friday if we get a selloff below 1000. The pink price path is for a bigger bounce that corrects the leg down from June 21st and I'm showing a typical Fib price retracement (a little less than 50%) and time projection (62% of the decline) for it. That would have SPX back up to about 1070 by next Thursday. A rally above 1048 would suggest that's what we're going to see. The end result is the same--a very strong selloff this month--but it changes the timeline a little.

S&P 500, SPX, 60-min chart

The DOW also broke its H&S neckline today but bounced back to close just below it. Yesterday it found it as support so clearly the 9750 area is important. Another drop down on Friday would clearly be bearish whereas a stronger bounce into next week could target gap closure from Monday at 10138. Its H&S price objective matches up with the 162% projection for the 2nd leg down (wave (iii)) near 8250. That would also have it dropping down to almost the July 2009 low at 8087. As with SPX, the 50-dma is days from crossing below the 200-dma.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 10140
- bearish below 9750

NDX also broke its H&S neckline near 1770 and closed well below it. If that level acts as resistance now, short it. Its price objective of 1450 is right on top of the Fib projection for wave (iii) to achieve 162% of wave (i).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- cautiously bullish above 1836
- bearish below 1770

They say there's no such thing as a triple bottom. So what does that make a quadruple bottom? A break waiting to happen. Support near 326 was broken intraday but it's just a matter of time before it breaks and then we can expect a sharp move down to 300 and then potentially down to 250.

Semiconductor index, SOX, Daily chart

The RUT has a much less defined H&S top formation but it has a longer-term broken downtrend line from October 2007 that is providing support at the moment. Between that line and the 38% retracement of the 2009-2010 rally near 592 there was a good bounce off today's low. So a break below 590 is needed by the bears and then a sharp move down to the 500 area this coming month should play out.

Russell-2000, RUT, Weekly chart

The bounce off support today left a bullish hammer candlestick on the daily chart so any follow through to the upside on Friday could see a bounce at least up to its 200-dma near 638 and we could see the 20-ema down to the same level by tomorrow. That would be a decent bounce back up and likely tough resistance.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish above 624
- bearish below 612

Using a parallel down-channel for the initial move down from June 21st, price fell out the bottom of it this morning, which was a sell signal. But it looks like the RUT wasn't quite ready to go for a dive with the sharks and jumped back up into the boat. Staying inside the channel is important for the bulls to accomplish, so they need to keep the RUT above 600. The bears need to see it sell off again and any drop back below Thursday's low near 590 would be another sell signal.

Russell-2000, RUT, 60-min chart

The 30-year yield made an important statement this week by dropping below its October 2009 low at 3.89%. This should be an indication that yields will continue to drop (buying in bonds) and the stock market will likely continue to stay in synch with bond yields. A flight to safety into Treasuries has already begun, which is a strong statement about investors' desire to get out of perceived riskier investments, including stocks.

30-year Yield, TYX, Weekly chart

The pattern for the banks favors one more minor new low to finish the leg down from June 21st and then a bounce back up to its downtrend line from May, perhaps up to about 130 next week. From there the banks should sell off hard into the end of July. This pattern may play out in the broader market as well--maybe a bad reaction to the jobs reports but then a rally next week.

Banking index, BIX, Daily chart

I haven't reviewed the home builders index in a while and there's not much to report yet. After today's very disappointing pending home sales number (down -30% in May) there's going to be even more pressure on the builders. The breakdown from the rising wedge pattern for the 2008-2010 rally has begun and should completely retrace the bounce (not in a straight line of course) faster than it took for the bounce.

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

I like to watch lumber prices for some clues about the construction industry and in particular the housing industry. Most of the pundits in the media tended to favor the bright side of the numbers and while I too am an optimist I find that being too optimistic in the market is the surest way to the poor house. So when I saw the a-b-c bounce pattern with a rising wedge developing for the c-wave I felt confident in calling for a top in April. The top in lumber was a classic throw-over above the wedge and a cliff dive from that point. It was clearly a faster retracement of the wedge than the time it took to build it. The A-B-C bounce is over and new lows will be next. But first it looks due for a bounce as it found support at its broken downtrend line from August 2004 and its uptrend line from January 2009. A strong drop in lumber prices is clearly stating a lack of demand for the product.

Lumber contract, LB, Weekly chart

I had mentioned at the beginning of tonight's report, in answering Paul's question/comments, that all asset classes will sell off. Commodities and stocks will likely be pretty much in lock step with each other. The next chart shows the commodity related equity index and you can see it looks virtually like the broader equity market. This week it has broken support at its 200-dma (not labeled, brown) and the 50% retracement of the 2008 decline. Only slightly lower, near 664, is its 38% retracement of the 2008-2010 rally but I expect to see the same strong decline this month as for the broader averages.

Commodity Related Equity index, CRX, Weekly chart

Before we get to our two other favorite commodities, gold and oil, I wanted to look at the U.S. dollar because it too made a big move today. The dollar dropped about 1.55 (-1.8%) but more importantly it broke an important support level near 85.50 where it found support in May and June. It could even be classified as a H&S neckline break today. It's clearly in a larger pullback to correct the November-June rally, something I've been pointing to for the last couple of weeks. As the weekly chart shows, a pullback/consolidation into October and down to about 82 would be a typical correction

U.S. Dollar contract, DX, Weekly chart

If the dollar dropped hard today, along with a scary breakdown occurring in the stock market, one would think that investors would be flocking towards gold. One would be wrong in that assumption today as gold had its worst day since the start of the 5th wave from February 2010. It looks like a kickoff to the downside.

In recent weeks I've been pointing out the fractal pattern playing out on the daily and weekly charts of gold, both pointing to the end of the 5th waves at two different degrees, which will end the leg up from October 2008 and more significantly the 5th waves are ending the rally from 1999. The correction of that rally will take gold much lower than most people think, especially all the gold bulls who want me to buy now before it triples and quadruples in price. On the daily chart today's sharp break lower says the final 5th wave, which is the move up from May 21st, completed. That in turn completes the next series of degrees of 5th waves including the one from October 2008. Therefore today's breakdown in gold is a significant sell signal. The next big move this year and into next will be for gold to head down to at least the $700 area.

Gold continuous contract, GC, Weekly chart

With the dollar breaking support and dropping hard you would again have thought that oil would have seen a decent bounce today. You would again have been wrong as oil had one of its worst days since May as well. Oil should retrace its rising wedge pattern quickly, so back down to 69.50 potentially before next week finishes. While it may get a bounce off that level we should see oil head fairly quickly below its May low at 64.24. The wave count calls for a strong selloff in a 3rd wave, a move that should drop it below 50 before it gets much of a bounce and then proceeds lower still.

Oil continuous contract, CL, Daily chart

A slowing economy will create less demand for oil and that of course is having an impact on its price. What's interesting about the demand for oil, as measured by oil imports and domestic production, is that demand has been dropping since the peak in 2005. Either we've been getting more and more efficient about our energy use (the cash-for-clunkers program must have worked wonders) or the economy has been struggling for a while and all the numbers about economic improvement has been smoke and mirrors. Clearly less driving by those who are no longer working at companies contributes to less demand.

Oil Imports, 1982-2010, chart courtesy McClellan Financial Publications

The above chart also refutes those who keep declaring that "more and more oil" is being imported from overseas. Checking the facts before opening their mouths is not something they feel compelled to do.

Now we look at gasoline consumption per capita. This is another chart, along with the demand for oil, that should have told us there's a disconnect between the rally in oil's price and the declining demand. Sometimes fundamentals do matter. There's been a sharp decline, on a relative basis, from the peaks in 2000, 2002, and 2005. The very sharp rise in the price of oil into 2008 was a screaming short play (trouble was it had gone parabolic and those can be dangerous to play the other side). But in hindsight you can see out of touch with reality the run-up in oil prices was. And the bounce off the 2009 low, without the demand for it, was another short play opportunity.

Per Capita Gasoline Consumption, 1984-2010, chart courtesy McClellan Financial Publications

So while the charts like lumber prices and oil demand and gasoline consumption don't necessarily make for good timing tools for the market it does help you filter what you're hearing from the "experts" about the economy and stock market and help keep your investment ideas in check. When you hear the housing market is doing great, go check lumber prices. When you hear the economy is picking up and businesses are growing again, go check oil demand. You have to do your own sleuthing in order to make better long-term investment decisions. I know I cry wolf a lot to some people but there's a reason I don't trust most pundits when they tell me to buy and why I don't believe we've been in a new bull market. People mislead (I won't say lie) but charts tell the truth.

Tomorrow's job reports could be a game changer so we'll have to see how the market reacts to whatever the number is. If a bad number had been priced into the market these past two weeks then a "less bad" number could spark a relief rally. At this point I'd say it's going to have to be a very disappointing number to get the market to sell off even further. As always, around an important event like this, let the dust settle for the first hour before picking a trading direction.

Economic reports, summary and Key Trading Levels

In summary, the market continues to sit on the edge of the cliff after carefully climbing down part of it. It's looking over the steepest part and sitting back wondering how to proceed. I could argue forcefully for a bounce into next week or for a strong selloff from here, as the market's oversold conditions become even more oversold. Speaking of which, in a series of 3rd waves to the downside, which is the current setup if the count is correct, ignore your usual indications of an oversold market, including put/call ratio, Bollinger Bands (and other standard deviation tools), oscillators, etc. The market will get more oversold than we've seen in a long time. Ignore the signals and don't take the bait to buy the bottom. I think July is going to be hard down and any effort to buy the dips should be by experienced traders doing day trades only.

If we get a bigger bounce that exceeds the key levels to the upside that I've identified on the charts then don't press any more bearish bets until the pattern clears up. I suspect by this time next week we'll have a very good idea as to whether we're into the bigger bounce or instead we're dropping significantly lower. Trading around the holiday weekend is always a bit tricky so don't press any bets tomorrow unless it's with lottery money.

We're in a period that traders live for--a fast-moving market with some very large swings. Take advantage of the opportunity to try the short side if you haven't done it before. Play with a very small amount and try to catch bounces rather than breakdowns. If we get a bounce and it rolls over from resistance, short it and keep your stop tight. If stopped out then try it again at the next resistance level if you see the market rolling over. When the market breaks down and you have a short position that's making money, it will wipe away your losses and then some. It's a scary time to trade but it's a lucrative time. Just keep your risk:reward in check.

Good luck and I'll be back with you next Thursday.

Key Levels for SPX:
- cautiously bullish above 1075
- bearish below 1048

Key Levels for DOW:
- cautiously bullish above 10140
- bearish below 9750

Key Levels for NDX:
- cautiously bullish above 1836
- bearish below 1770

Key Levels for RUT:
- cautiously bullish above 624
- bearish below 612

Keene H. Little, CMT


New Plays

Short Candidate

by Scott Hawes

Click here to email Scott Hawes

Lululemon Athletica Inc. - LULU - close 37.80 change +0.58 stop 48.10

Company Description:
lululemon athletica inc. is a designer and retailer of technical athletic apparel primarily in North America. Its yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a line of apparel and accessories, including fitness pants, shorts, tops and jackets designed for athletic pursuits, such as yoga, running and general fitness. As of January 31, 2010, its branded apparel was principally sold through 124 stores that are primarily located in Canada and the United States. As of January 31, 2010, its retail footprint included 45 stores in Canada, 70 stores in the United States and nine franchise stores in Australia.

Target(s): 35.25, 34.05, 33.00
Key Support/Resistance Areas: 42.25, 39.75, 37.00, 35.16, 32.75
Time Frame: 1 week

Why We Like It:
LULU has been whipsawing in a wide $10 range for the past 3 months and I think it is ready to let go to the downside. When it happens it should let go fast. LULU is maintaining one last trend line from its 7/09 lows to its 2/10 lows. But I'm not too concerned about this trend line holding with today's market environment. The retail sector is weak and LULU trades at a high P/E. The stock is below its declining 20-day and 50-day SMA's and there is a lot of congestion to keep any bounces under control. I suggest initiating short positions into strength. $39.25 provides an ideal entry point which we will use a trigger to enter short positions. I will also add that more conservative traders could wait until LULU tests its 50-day SMA from below which also corresponds with the back side of its most recent trend line that was broken this week. This is about the $40.00 are (see oval on chart) but I want to give us the best chance to get filled on the trade which is why I chose $39.25 as our official entry point. $39.25 is just below the highs of the past two days. We'll place an initial wide stop at $43.10 to account for volatility and will adjust it once we are in the position.

Suggested Position: Short LULU stock if it trades to $39.25

Option Traders: Buy August $35.00 PUTS, current ask $2.55, estimated ask at entry 2.00

Annotated Weekly Chart:

Entry on July xx
Earnings 9/9/2010 (unconfirmed)
Average Daily Volume: 1.89 million
Listed on July 1, 2010


In Play Updates and Reviews

Winner Outweighs Loser

by Scott Hawes

Click here to email Scott Hawes

Editor's Note: Good Evening. Thursday was a difficult trading day. We got picked off on our long NYX play only to see it reverse. However, we did close EBAY for a +5.77% gain which outweighed the loss on NYX. LOPE was closed at the open for small loss. The market seemed on the verge of collapse again before sellers disappeared and buyers showed up. I have been calling for a relief rally for several days and have been dead wrong. We will get it and if tomorrow's non-farm payrolls report is already priced into the market it could create a "buy the news" event. There is no way to predict what will happen until 8:30 AM tomorrow so initiating new plays without being able to manage them intraday is not advised. We have one new short position waiting to be triggered in the retail sector. Please email me with any questions.

Current Portfolio:


CLOSED BULLISH PLAYS

NYSE Euronext - NYX - close 27.57 change -0.06 stop 26.69

Target(s): 28.40, 29.35, 29.80
Key Support/Resistance Areas: 30.50, 29.40, 27.50, 26.80
Final Gain/Loss: -21.95%
Time Frame: 1 week
New Positions: Closed

Comments:
7/1: Ouch! This is a tough loss to take. That about sums it up. NYX broke down this morning and traded right down to our stop before immediately reversing, regaining all of the early losses very quickly. The stock collapsed at 10:00 AM and was back to its opening price by 12:30 PM. I've provided a 30-minute chart below to illustrate. I placed the stop below all of NYX's closing prices since February which I honestly though would be enough if the stock was weak today. However, there was a wick below our stop on June 8 but I threw it out which proved to be the wrong choice. When I saw this happening I could not believe my eyes. The market has a way of humbling traders and this time it was brutal for me. For readers who still have positions, I'm still a believer in this trade. I suggest sticking with the set-up and trailing stops up if NYX starts moving higher. For those interested, I've shared a stop rule below that I sometimes enforce on my swing trades.

For traders that can trade intraday, I have a stop rule that I sometimes use if my swing trades are moving against me and are nearing stops. First, I typically use 15 or 30 minute candlestick charts for monitoring swing trades and I do not use GTC stops. Rather I place new stops everyday and change them frequently on open positions. If my position is nearing a stop I want to see the candlestick close below my stop. If it does, then I reconsider the circumstances and place a new stop below that candlestick or just exit the position if it is moving too fast. Often times this saves me from getting stopped out and looking for a better exit. The volatility in this market environment is extremely tough to deal with, especially if you can not make these decisions intraday.

6/30: NYX Broke out of a steep downtrend line, rallied to test its 50-day SMA and has now to a key support level near $27.50. The stock has upward trend line from the its 2/5 lows to its 6/8 lows. This has outperformed the overall market by a mile. NYX should also benefit from the FinReg bill and I suggest we play this stock for a bounce. Our stop is below the trend line and our targets are fairy tight and achievable. $29.35 is +6% from current levels.

Closed Position: Long NYX stock at $26.69, entry was at $27.62

Annotated 30-minute Chart:

Entry on July xx
Earnings Date 8/3/10 (unconfirmed)
Average Daily Volume: 3 million
Listed on 6/30/10


CLOSED BEARISH PLAYS

eBay, Inc - EBAY - close 19.64 change -0.03 stop 20.80 *NEW*

Target(s): 19.10 (hit), 18.40, 17.75
Key Support/Resistance Areas: 22.90, 21.50, 20.43, 20.30, 18.90, 18.39
Final Gain/Loss: +5.77%
Time Frame: 1 to 2 weeks
New Positions: Closed

Comments:
7/1: We are flat EBAY at $19.10 per my comments from last night. Our gain is +5.77%. I am expecting a broader market rally from here and taking profits on the weakness was the right thing to do. I believe EBAY can be shorted on bounces but how far the stock can rally from current levels is an unknown at this point. There is strong resistance up in the $20.50 to $21.50 area so you may be seeing this trade again.

6/30: It appears EBAY is headed to our first target but we may have to endure a bounce if the broader market gives us a relief rally. I want to tighten the stop to $20.80 which would be above the gap fill from 6/28 to 6/29. I doubt EBAY will trade up to this level but if it does it means the stock is strong and will limit our losses. EBAY has declined -5% since Monday's close so if the stock trades down to our $19.10 target prior to bouncing I suggest being quick to take profits.

6/29: EBAY traded below our trigger to enter short positions at $20.27 so we are short the stock. Our position is currently up almost +3%. Other than the 100-day SMA, I do not see support for EBAY until $18.90, but the stock should trend with the overall market, or possibly on news. Since conditions are oversold we may experience a bounce in EBAY. I've adjusted our first target to $19.10 which is above the next support level. If EBAY trades down there prior to bouncing I would take profits on this trade. If it bounces first and then goes lower we may be able to get more downside.

Closed Position: Short EBAY stock at 19.10, entry was at $20.27

Annotated Weekly Chart:

Entry on June 29, 2010
Earnings 7/21/2010 (unconfirmed)
Average Daily Volume: 19.8 million
Listed on June 28, 2010