Option Investor
Newsletter

Daily Newsletter, Thursday, 6/2/2011

Table of Contents

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

Market Wrap

June Swoon?

by Jim Brown

Click here to email Jim Brown
The Dow and S&P hit two month lows on Thursday with the Dow down -100 at the lows after economic reports continued to paint a grim picture of the U.S. economy.

Market Statistics

Following yesterday's very negative ISM and ADP numbers the Factory Orders report today was just icing on the economic cake. Factory Orders declined -1.2% in April compared to a +3.8% gain in March. Durable goods orders declined -3.6% compared to a +4.6% gain in March. This was not good news because this is a lagging report for April and is now expected to show a substantial decline when May numbers are reported.

Chain Store Sales for May rose +5.4% but that was also well below the +8.5% in April. However, the headline number was inflated by a +1.7% rise in gasoline sales. Higher prices for gasoline equals higher sales. That means the real retail sales for May were actually more in the +3.7% range and less than half of April's rate. Higher gasoline prices did impact retail sales simply because that reduces the amount of money consumers have to spend on other things.

New Jobless Claims were basically flat at 422,000 compared to 428,000 in the prior week. With claims holding stubbornly above 400,000 it suggests the job market is not improving and could be on the verge of a new decline. However, only four states reported an increase in claims by more than 1,000. Those were California, Massachusetts, South Carolina and Wisconsin. We are still seeing impacts from the break in the supply chain from Japan and that is the major qualifier to any story on jobs.

Weekly Jobless Claims Chart

The Japan qualification is important when talking about expectations for Friday's Non-Farm Payrolls report. In April there were 244,000 jobs created and consensus expectations were for a gain of +185,000 for May. However, after the ADP report disappointed on Wednesday those estimates took a serious plunge. The table below shows all the revisions I could find. The average estimate declined by 57,250 jobs to average 117,000. However, I would be VERY surprised if it is not well under 100,000.

Jobs Estimate Revisions

The ADP report was expected to show a gain of 180,000 jobs but the number came in with only a gain of +38,000. That is a significant drop. The ADP survey is based on 24 million employees at firms where ADP processes their payroll. The BLS survey on Friday theoretically covers all 140 million U.S. workers. The two surveys frequently come up with different answers but the ADP number is still seen as a proxy for the NonFarm report.

The National Federation of Independent Business (NFIB) said a survey of 733 small businesses found the average number of net new jobs per company slipped to 0.01 per company in May. That is about as low as you can go without slipping into job losses. The number was 0.04 in April. According to this monthly NFIB survey there has been effectively ZERO job growth in the last two months. Companies in the south central states and New England reported a decrease in jobs.

The other report out on Friday is the ISM Nonmanufacturing Index commonly referred to as the ISM Services. The index was expected to improve to 54.0 after posting a 52.8 reading for April and a cycle high of $59.7 in February. However, the sharp decline in the ISM Manufacturing report on Thursday suggests the services version could actually go negative. That would be very bad for the market since the U.S. economy is now more services based than manufacturing based.

ISM Services Chart

The ISM Manufacturing report on Wednesday declined from 60.4 to 53.5 and very close to contraction territory. That stretches its decline over the last three months to -7.9 points. New orders and back orders both declined more than 10 points to just over 51.0. This was an ugly report that suggests rougher times ahead. This large of a drop in the ISM would indicate the estimates for GDP growth in Q2 are way too high and growth could be under +1.0%. Obviously the breakdown in the Japan supply chain is a major factor for the May report but that does not show up in the headlines. You have to have a grasp of global economics and the amount of components we receive from Japan for thousands of products to understand the impact to our manufacturing process. 99% of investors see the headline number and run for the exits. It may not be that bad but we won't know until next month.

ISM Manufacturing Chart

Crude oil prices declined -$2 to $98.50 intraday after the EIA inventory report showed an unexpected gain in oil inventories of +2.9 million barrels plus a rise of +2.6 million barrels of gasoline. Analysts were expecting a small decline as supplies move into the retail channel to accommodate the holiday weekend driving. Apparently the demand was lighter than expected although the EIA said gasoline demand rose to 9.431 million barrels for the week ended on May 27th. The demand for the prior week was 9.025 million barrels.

Inventory Snapshot

The increase in crude inventory to 373.8 million barrels pushed inventories to the highest level since April 2009 at 374.6 million. You have to go back to July of 1990 for a higher inventory number with the all time high of 391.9 million. There is NO shortage of oil in the USA. This should push gasoline prices lower. The blue area in the chart below is the 5-year average.

U.S. Oil Inventory

Historical Crude Oil Inventories

U.S. crude oil continues to hold over $100 because of the strength in Brent. Lower shipments out of the North Sea and the halt in Libyan production is putting a premium on Brent light crude supplies. As long as Brent remains supported the price of WTI will remain in the $100 range despite the near record inventory levels.

WTI Crude Chart

Brent Crude Chart

The dollar declined to a new four-week low intraday due to the negative economic numbers. This helped produce a rebound in commodities and pushed oil prices back into positive territory. Equities also rebounded when the dollar began to fall. Strange but true. Bad economics pushed the dollar lower but the falling dollar supported equities.

Dollar Index Chart

Helping to prompt the afternoon rebound was news that Greece was set to impose a deeper bout of austerity and speed up a privatization drive in return for a new international bailout in order to avoid a debt default. Greek Prim minister George Papandreou will present the plan to the euro zone finance ministers on Friday. Senior officials, meeting in Vienna have agreed in principle toa new three-year program to run until mid-2014. That would supersede the $159 billion rescue agreed to by Greece, the IMF and EU just a year ago. Greece owes 340 billion euros in debt and that is increasing each year due to continued budget deficits. Moody's cut their rating again this week to Caa1 and the same level as Cuba. Only one country has a lower rating and that is Ecuador, which defaulted on $3.2 billion in debt in 2009.

Also weighing on the markets was another warning from Moody's that a U.S. failure to resolve the debt ceiling soon would risk a debt downgrade. Moody's said the U.S. had only "weeks" to resolve the problem and warned a quick solution was vital. Moody's warned there is now "a very small but rising risk of a short-lived default" given the political impasse over how to resolve the U.S. financial problems. Republicans and quite a few democrats are now demanding significant spending cuts be tied to an increase of the debt ceiling over the current limit of $14.29 trillion. Like Greece we can't continue to run budget deficits in the trillions that have to be financed by selling even more debt. Lawmakers are expected to reach a compromise for a new ceiling in the $16 trillion range but that only succeeds in kicking the can down the road for another year before the subject will again surface after the 2012 elections.

Stock news was minimal today with 99% of the chatter covering economics, U.S. debt, jobs and the European debt crisis. We did learn that Groupon filed for a $750 million IPO to take advantage of the current IPO hysteria. The IPO will be made up of new shares and shares currently held by insiders but we don't know the quantities of each. Groupon raised $950 million in January from some private investors so there will still be some deep pockets holding stock after this IPO.

Of note in the filing Groupon said its revenue in Q1 was $644 million compared to revenue for all of 2010 of $713 million. However, the company reported a net loss of -$456 million in 2010 and -$147 million in Q1-2011. Groupon spent $179.9 million in the first quarter just getting new subscribers, which now total 83.1 million. They are operating in 175 North American markets and 43 countries. They currently have 7,100 employees and are hiring.

Groupon said in the filing they expect to increase operating expenses substantially in the foreseeable future as we continue to invest in increasing our subscriber base and the number and variety of deals we offer daily. There are more than 45 competitors to Groupon with Living Social, backed by Amazon, as the one most would recognize.

Underwriters will be Goldman Sachs and Morgan Stanley with no timeframe for the IPO. The symbol will be GRPN.

Goldman Sachs was also in the news for another reason. Goldman was subpoenaed by the Manhattan District Attorney's office for information on the firms activities ahead of the credit crisis. This subpoena is related to the Senate's investigations into Wall Street's role in failure of mortgage-backed investments. Michigan Senate Democrat Carl Levin released a 640-page report in April where Goldman was used as a case study for the cause of the credit crisis. The Department of Justice and the SEC are also investigating Goldman on the basis of that report. Shares have declined -16% since the report was released in April.

Goldman Chart

The market has returned to its downtrend despite the short covering rally on Tuesday. The S&P and Dow touched new two month lows and the outlook continues to be for more of the same. Historically June is the third worst performing month of the year for the S&P since 1957. The decline in not much at an average of less than one percent but it is persistent. The first week of June is normally the strongest with the last three weeks erasing any early month gains. September is the worst month with February in the number two spot.

This is the "why buy" season as the summer doldrums overtake the markets and volume declines sharply. However, volume this week has been very good. Tuesday's short squeeze traded 8.2 billion shares but was followed by 8.1 billion on Wednesday's decline. Today was only 7.1 billion because I suspect everyone already has their positions set while they wait for the nonfarm payroll report on Friday. That should be a market mover either because it will be worse than expected, which would be dramatic, or possible better than the horrible expectations changes I listed above. After Friday the summer volume drop will arrive and the indexes will be to smolder like a dud 4th of July firework. There will still be smoke but we will never know when it will die out completely or suddenly explode.

The S&P has broken below key support of the 100-day average and is very close to retesting 1300 or even 1295. If the payroll report is worse than expected I believe we will see the S&P setting up for a break of that support at 1295 and a retest of 1260 before summer is over. We have almost an entire month ahead of us before the next round of regional economics so investors will be left to chew on the hard facts from the last set that show the economy slowing dramatically.

S&P Chart

The Dow tested support at 12,200 this morning before rebounding to close on the 100-day at 12,244. The 12,200 level is going to be a crucial support test. A break there could target 11,600 very quickly if economic conditions continue to disappoint.

Dow Chart

The Nasdaq is neutral and closed with a slight gain today. It is well above critical support and not showing the same weakness as the Dow and S&P. It was helped by BIDU +6, SINA +6, PCLN +6 and NFLX +5. Apple and Google cooperated by closing in positive territory but with no major gains. It was enough for them to not be a major drag on the index.

Support on the Nasdaq is 2760 and 2750. Wednesday's -66 point decline pushed it into oversold so today's nearly breakeven performance was probably more of a pressure equalization than some statement on the health of techs in general.

The Russell also finished flat after a monster decline on Wednesday. No conclusion can be derived from the Russell chart today.

Nasdaq Chart

Russell Chart

In summary Friday will be all about the payroll report. The markets have priced in some severely negative expectations so anything that is not a substantial downgrade may be met with some short covering ahead of the weekend. Likewise if the number comes in much under 100,000 new jobs we could also see some further discounting of our future economic growth.

Lawmakers can't help because stimulus and spending are now four letter words. The Fed's monster $2.7 trillion stimulus program or QE1 and QE2 has apparently been a failure but they are the only force in the market that can pull another rabbit out of their hat in an attempt to rescue the sinking economy. The Fed has a very negative public image today so anything they do could be seen as a hail Mary pass. Several analysts have said a QE3 program could now produce a bear market because it will be seen as an act of desperation.

The jobs report is going to be a key indicator of the current economy. Keep your fingers crossed but expect and prepare for the worst.

Definitely, enter passively and exit aggressively.

Jim Brown

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New Plays

Buy Or Sell the Bounce

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's bearish reversal from Wednesday stalled as investors wait for the jobs report for May and the ISM Services report. A month ago the jobs report came in at +244,000 jobs. Tomorrow economists are expecting +165,000 jobs but many analysts have downgraded their estimates into the 100K-150K range. There is a chance that stocks could see a relief rally, even on a bad jobs number, merely because it could have been worse.

A rally on Friday morning may not be a great entry point for bullish positions. A lot of analysts are turning increasingly bearish on the month of June. A few market pundits are suggesting traders sell into strength and use rallies as a new entry point for shorts (puts).

Tomorrow could be volatile as markets react to new data. I am not adding any new candidates tonight.

- James


In Play Updates and Reviews

Homebuilders Sink Again

by James Brown

Click here to email James Brown

Editor's Note:
The homebuilders declined for the second day in a row and our bullish trade in this space has been closed. Overall the market still looks weak but traders were probably waiting to see the May jobs numbers due out Friday morning.

-James

Current Portfolio:


BULLISH Play Updates

Cheesecake Factory Inc. - CAKE - close: 30.56 change: -0.19

Stop Loss: 28.95
Target(s): 33.95, 37.00
Current Gain/Loss: - 3.0%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/02 update: CAKE is getting closer to our next entry point near the $30.00 level. Wait for a dip or a bounce from the $30 area before considering new positions.

Earlier Comments:
Keep in mind that CAKE doesn't move very fast (at least not normally) so we'll need some patience for this trade to work. FYI: The Point & Figure chart for CAKE is bullish with a $59 target.

Current Position: Long CAKE stock @ $31.53

- or -

Long the July $33 call (CAKE1116G33) Entry @ $0.75

Entry on May 20 at $31.53
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume: 1.0 million
Listed on May 19th, 2011


Capital One Financial - COF - close: 52.52 change: -0.23

Stop Loss: 51.75
Target(s): 57.00, 59.50
Current Gain/Loss: - 1.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
06/02 update: There is little change from my prior comments. If we don't see COF bounce soon we may want to abandon ship. The stock seems to be forming a bearish head-and-shoulders pattern with the neckline near the $52 level. I am not suggesting new positions at this time.

Current Position: Long COF stock @ $53.07

- or -

Long the June $55 calls (COF1118F55) Entry @ $0.96

05/17 New stop loss @ 51.75

Entry on May 5 at $53.07
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume: 3.7 million
Listed on May 4th, 2011


Corn Products Intl. - CPO - close: 56.00 change: -0.02

Stop Loss: 53.60
Target(s): 59.90
Current Gain/Loss: - 0.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: CPO dipped to $55.36 and bounced. If the market didn't look so vulnerable here I would be tempted to launch new positions on CPO's rebound today. Instead I would wait and see if shares trade closer to $55 or its 40-dma near $54.00 before we consider new bullish positions.

Current Position: Long CPO stock @ 56.28

- or -

Long June $55 call (CPO1118F55) Entry @ $2.10

Entry on May 27 at $56.28
Earnings Date 07/25/11 (unconfirmed)
Average Daily Volume: 688 thousand
Listed on May 26th, 2011


Dr. Pepper Snapple Group - DPS - close: 40.76 change: -0.18

Stop Loss: 37.90
Target(s): 44.90
Current Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Comments:
06/02 update: Slow and steady DPS continues to correct lower. There is no change from my prior comments. Our plan is to launch bullish positions on a dip at $40.25. If triggered we'll use a stop loss at $37.90. Our target is $44.90.

buy-the-dip Trigger @ $40.25

Suggested Position: buy DPS stock @ $40.25

- or -

Buy the August $45 call (DPS1120H45) current ask $0.80

Entry on May x at $xx.xx
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 2.1 million
Listed on May 14th, 2011


Ecolab Inc. - ECL - close: 54.33 change: +0.05

Stop Loss: 50.95
Target(s): 57.00, 59.90
Current Gain/Loss: + 1.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: ECL is holding up reasonably well. I would still expect a dip toward $53.00. Wait for the dip or a bounce near this level before initiating new positions.

Current Position: Long ECL stock @ 53.35

- or -

Long July $55 call (ECL1116G55) Entry @ $0.60

Entry on May 26 at $53.35
Earnings Date 07/26/11 (unconfirmed)
Average Daily Volume: 1.5 million
Listed on May 18th, 2011


EMC Corp. - EMC - close: 28.36 change: +0.30

Stop Loss: 26.90
Target(s): 29.95, 32.25
Current Gain/Loss: + 2.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: EMC outperformed the NASDAQ with a +1.0% gain. Traders bought the dip near $28.00. I am still not suggesting new positions. EMC currently has resistance near $28.70.

Current Position: Long EMC stock @ $27.55

- or -

Long the June $27.00 calls (EMC1118F27) Entry @ $1.35

Second Option Position (listed 05/12/11)

Long the June $29.00 calls (EMC1118F29) Entry @ $0.45

06/01 new stop loss @ 26.90
05/12 New entry point. Added second option position.

Entry on May 3 at $27.55
Earnings Date 04/20/11
Average Daily Volume: 21.4 million
Listed on April 27th, 2011


Electronic Arts Inc. - ERTS - close: 24.24 change: -0.19

Stop Loss: 23.25
Target(s): 26.25, 28.00
Current Gain/Loss: - 0.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: ERTS gave up -0.75% on Thursday. I don't see any changes from my prior comments. Look for a dip or a bounce near $24.00 before considering new bullish positions.

I am suggesting that we keep our position size small to limit our risk. We'll start with a stop loss at $23.25. Our targets are $26.25 and $27.00.

- Small Positions -

Current Position: Long ERTS stock @ $24.44

- or -

Long July $25 call (ERTS1116G25) Entry @ $0.90

Entry on June 1 at $24.44
Earnings Date 08/02/11 (unconfirmed)
Average Daily Volume: 5.8 million
Listed on May 31st, 2011


Expedia Inc. - EXPE - close: 27.92 change: +0.12

Stop Loss: 26.70
Target(s): 27.75, 29.75
Current Gain/Loss: + 8.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: EXPE continues to churn sideways under resistance near $28.00. There is no change from my prior comments. Readers are strongly encouraged to consider taking profits right here and exiting early. I am not suggesting new positions at this time.

Current Position: Long EXPE stock @ 25.85

- or -

Long the June $25 call (EXPE1118F25) Entry @ $1.20

- or -

Long the July $27 call(EXPE1116G27) Entry @ $0.95

06/01 new stop loss @ 26.70
05/31 new stop loss @ 26.25
05/21 New stop loss @ 25.40
05/20 1st Target Hit @ 27.75 (+7.3%), June $25 call @ $2.70 (+125%), July $27 call @ $1.40 (+47.3%)

Entry on May 18 at $25.85
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 5.5 million
Listed on May 17th, 2011


Jabil Circuit Inc. - JBL - close: 20.78 change: +0.29

Stop Loss: 19.90
Target(s): 22.95, 24.75
Current Gain/Loss: - 3.0%
Time Frame: until June 21st, 2011
New Positions: see below

Comments:
06/02 update: JBL managed a bounce from its six-week trendline of higher lows. I remain cautious here and I'm not suggesting new positions at this time.

We only have a few weeks for this trade to work as JBL reports earnings on June 21st and we don't want to hold over the announcement.

- Use Small Positions -

Current Position: Long JBL stock @ $21.44

- or -

Long July $22 call (JBL1116G22) Entry @ $1.05

Entry on May 31 at $21.44
Earnings Date 06/21/11 (confirmed)
Average Daily Volume: 3.6 million
Listed on May 28th, 2011


Kansas City Southern - KSU - close: 58.03 change: +1.66

Stop Loss: 54.70
Target(s): 59.75, 62.50
Current Gain/Loss: + 2.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: Yesterday railroad stocks were big underperformers. Today they were outperforming the major indices. KSU added +2.9%. Yet in spite of this move today's gain has produced an "inside day", which is a sign of indecision. I would wait to see how stocks react to the jobs data tomorrow before considering new positions in KSU. Our upside targets are $59.75 and $62.50.

Current Position: Long KSU stock @ $56.39

- or -

Long the June $60 call (KSU1118F60) Entry @ $0.53

06/01 New stop loss @ 54.70

Entry on May 19 at $56.39
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume: 1.0 million
Listed on May 18th, 2011


Rosetta Resources - ROSE - close: $47.08 change: +0.64

Stop Loss: 43.90
Target(s): 54.00
Current Gain/Loss: - 0.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: ROSE dipped to its 50-dma and bounced. I remain very cautious following Wednesday's bearish engulfing candlestick. Let's wait and see how stocks react to the jobs data tomorrow before considering new positions. More conservative traders might want to up their stops closer to the $45 area.

-Small Bullish Positions-

Current Position: Long ROSE stock @ $47.35

- or -

Long July $50 call (ROSE1116G50) Entry @ $1.95

Entry on May 26 at $47.35
Earnings Date 08/08/11 (unconfirmed)
Average Daily Volume: 967 thousand
Listed on May 25th, 2011


Riverbed Technology, Inc. - RVBD - close: 37.94 change: +0.69

Stop Loss: 34.95
Target(s): 39.90, 43.00
Current Gain/Loss: + 1.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: RVBD saw a sharp rally this morning and hit a new two-month high. Unfortunately the rally failed under the $40.00 level. More conservative traders may want to consider a stop loss closer to the $36 level instead. I am not suggesting new positions at this time.

Current Position: Long RVBD stock @ $37.25

- or -

Long the June $40 call (RVBD1118F40) Entry @ $1.15

Entry on May 12 at $37.25
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume: 5.1 million
Listed on May 11th, 2011


DENTSPLY Intl. - XRAY - close: 38.37 change: -0.04

Stop Loss: 37.30
Target(s): 42.00, 44.50
Current Gain/Loss: - 1.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: We have been expecting a dip toward the $38.00 level and XRAY finally got there today. Aggressive traders may want to buy this late afternoon bounce. I would rather wait and see how XRAY performers after Friday and the market's reaction to the jobs data.

NOTE: Readers may want to avoid the options. XRAY doesn't have a lot of option volume and the spreads are wide, which puts traders at a disadvantage.

Current Position: Long XRAY stock @ 39.00

- or -

Long the June $40 call (XRAY1118F40) Entry @ 0.60

Entry on May 12 at $39.00
Earnings Date 07/25/11 (unconfirmed)
Average Daily Volume: 904 thousand
Listed on May 7th, 2011


BEARISH Play Updates

Aon Corp. - AON - close: 51.56 change: +0.09

Stop Loss: 52.75
Target(s): 46.50
Current Gain/Loss: + 0.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: AON is still consolidating sideways. I would wait to see how the market reacts to the economic data on Friday before launching new positions.

Earlier Comments:
Our target is the $46.50 level. I would expect some support near $50.00 and the 100-dma so don't be surprised to see an initial bounce near this area. NOTE: The option spreads on AON are a little wide. Conservative traders may not want to play the options.

(small positions only)

Current Position: short AON stock @ 51.61

- or -

Long the June $50 PUT (AON1118R50) entry @ $0.45

05/31 New stop loss @ 52.75
05/23 gap down entry @ 51.61

Entry on May 23 at $51.61
Earnings Date 07/29/11 (unconfirmed)
Average Daily Volume: 1.7 million
Listed on May 21st, 2011


Ford Motor Co. - F - close: 14.18 change: -0.05

Stop Loss: 15.15
Target(s): 13.25
Current Gain/Loss: + 1.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: Ford sank to new two-month lows on Thursday. Shares look headed for their March lows. Currently our target is $13.25. Do not be surprised if Ford produces a short-term bounce near its March lows near $13.75. I would keep our position size small to limit our risk.

Small Positions!

Current Position: Short F stock @ $14.40

- or -

Long July $15 PUT (F1116S15) Entry @ $0.90

Entry on May 25 at $14.40
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume: 57 million
Listed on May 24th, 2011


Honeywell Intl. - HON - close: 57.95 change: +0.42

Stop Loss: 60.15
Target(s): 54.00 & 200-dma
Current Gain/Loss: - 0.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: HON did not see very much follow through on yesterday's sell-off. Shares just sat there and hovered near their 100-dma. I would keep an eye on the $59.00 and $60.00 levels. If HON bounces tomorrow we can use a failed rally at these levels as a potential entry point.

Earlier Comments:
We do want to keep our position size small to limit our risk. Our targets are $54.00 and the simple 200-dma.

- Small Positions -

Current Position: short HON stock @ 57.65

- or -

Long July $55 PUT (HON1116S55) Entry @ $0.75

Entry on June 2 at $57.65
Earnings Date 07/22/11 (unconfirmed)
Average Daily Volume: 4.1 million
Listed on June 1st, 2011


H&R Block - HRB - close: 16.15 change: -0.08

Stop Loss: 16.55
Target(s): 14.10
Current Gain/Loss: unopened
Time Frame: until June 23rd, 2011
New Positions: Yes, see trigger

Comments:
06/02 update: HRB is still drifting sideways. There is no change from my prior comments. We are waiting for a breakdown to launch positions but if HRB doesn't show some weakness soon we'll drop it.

I am suggesting a trigger to open bearish positions at $15.60, which is under last week's low. More conservative traders may want to wait for a breakdown under the rising 100-dma, which could act as possible support. If we are triggered at $15.60 our target is $14.15 near the 200-dma.

Trigger @ 15.60

Suggested Position: Short HRB stock @ $15.60

- or -

buy the July $15.00 PUT (HRB1116S15) current ask $0.65

Entry on May x at $xx.xx
Earnings Date 06/23/11 (confirmed)
Average Daily Volume: 5.8 million
Listed on May 28th, 2011


St. Jude Medical - STJ - close: 48.95 change: -0.82

Stop Loss: 52.26
Target(s): 47.00
Current Gain/Loss: + 4.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/02 update: The sell-off in STJ continues and shares are now testing technical support at their 100-dma. Do not be surprised to see a bounce from this level but the $51 area should be overhead resistance. I am not suggesting new positions at this time. We'll wait and see how STJ reacts to Friday's market headlines.

Earlier Comments:
We wanted to keep our position size small (about half or less than a normal trade) to limit our risk.

(Small Positions)

Current Position: Short STJ stock @ 51.00

- or -

Long the June $50 PUT (SJT1118R50) Entry @ $1.00

05/23 New stop loss @ 52.26

Entry on May 20 at $51.00
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume: 2.6 million
Listed on May 16th, 2011


CLOSED BULLISH PLAYS

Lennar Corp. - LEN - close: 18.18 change: -0.37

Stop Loss: 18.15
Target(s): 21.00
Current Gain/Loss: - 3.9%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
06/02 update: Our aggressive trade on LEN has been stopped out. The sell-off continued and shares hit our stop loss at $18.15. The breakout past resistance last week now looks like a bull trap pattern.

Earlier Comments:
The plan was to keep our position size small to limit our risk.

- Small Positions -

closed Position: Long LEN stock @ $18.90, Exit 18.15 (-3.9%)

- or -

July $20 call (LEN1116G20) entry @ $0.39, exit $0.25 (-35.8%)

06/02 Stopped out @ 18.15

chart:

Entry on June 1 at $18.90
Earnings Date 06/23/11 (unconfirmed)
Average Daily Volume: 3.4 million
Listed on May 31st, 2011