Option Investor
Newsletter

Daily Newsletter, Tuesday, 6/7/2011

Table of Contents

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

Market Wrap

Bear Feast

by Jim Brown

Click here to email Jim Brown
The bulls ventured out of the barn this morning with a +88 point gain in the Dow by 2:PM but their time in the sun was short lived as the bears charged in at the close for a -19 point loss and -107 points off the high.

Market Statistics

Despite the swan dive at the close the internals were actually positive as you can see in the graphic above. The NYSE Composite Index and the Russell actually closed with a gain. The big problem facing the market was the Ben Bernanke speech late in the afternoon.

Bernanke sounded more nervous about employment than inflation and the Fed head did not inspire confidence among investors. He reiterated the Fed would not raise rates until job creation strengthened for a "sustained" period.

Investors had wanted Bernanke to specifically address the end of QE2 and possibly some indications of what the Fed would do once QE2 ends. Will there be a QE Light in the form of continued runoff purchases?

Bernanke disappointed investors by not providing any hint of future stimulus plans. He also said economic growth had been "somewhat slower" than expected but gave no indications of any plan to correct that situation. He blamed higher fuel prices and the break in the supply chain after the Japan earthquake as the reason for the recent drop in economic activity.

"Overall the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers." He also said he would not consider the recovery to be well established "until we see a sustained period of stronger job creation." That is the key indicator the Fed will not raise rates any time soon. He emphasized that with the much used phrase saying the Fed would continue to keep rates low for "an extended period."

He fired back at the inflation hawks that have been blaming the Fed for the inflation in food and energy. He said consumer inflation has risen +3.5% for the six months ending in April but that was caused mostly by higher oil prices, which have been creeping down in recent weeks. Excluding food and energy inflation remains well below Fed targets.

Bernanke is still toeing the party line that growth will pickup in the second half of the year to something in the +3% range. However, he said he was concerned the economy was still producing at levels well below its potential.

He call on lawmakers to address the deficit on a long term basis but cautioned against making any drastic cuts in the short term that could derail the recovery. "Sharp cuts could be self-defeating. Consequently, the appropriate response is to move quickly to enact a credible long-term plan for fiscal consolidation."

Dallas Fed President Richard Fisher, said this morning he was personally pleased to see the end of QE2 this month and he could not envision a scenario where the Fed would add further liquidity to the system in the coming months. He said the economic gas tank is full. Now we just need somebody to step on the gas and that is not the Feds job. He was pretty specific the QE2 program would end in June saying everyone on the FOMC agreed with that date.

Basically Bernanke and Fisher slammed the door on investor hopes for another stimulus program of some sort that would keep equities moving higher. They said the Fed has done its job and now it was up to businesses to quit cowering in the closet and get back to work. That was not exactly what investors wanted to hear and there was a mad dash for the exits. If the market had been open another 30 minutes we could have been down triple digits.

In the economic reports today the Job Openings, Labor Turnover Survey (JOLTS) showed that job openings fell -2.3%. This was for the April/May period and showed that job openings had fallen from 3.12 million in March to 2.97 million in April. The number of unemployed workers per available job has fallen from 7 at the height of the recession to 4.5 per opening but it was as low as 1.5 per opening prior to the recession. The monthly pace of hiring has fallen -27% from the pre-recession rate.

Moody's Job Openings Chart

The only other reports were weekly Chain Store Sales, flat at +0.4% and Consumer Credit for April also flat at $6.2 billion.

Reports due out the rest of the week will be led by the Fed Beige Book on Wednesday. This should tell us if regional conditions in the 12 Fed regions are improving or declining. The rest of the reports for the week are not normally market movers.

Economic Calendar

OPEC will meet officially on Wednesday but rumors are rampant that they will be raising their stated quotas by 1.0 to 1.5 million barrels per day. Since they are already producing more than that over their official quotas it will be strictly political theater designed to show the world they feel our pain of high fuel prices.

An OPEC ministerial sub-committee met on Tuesday and recommended a hike of up to 1.5 mbpd according to two sources in Vienna. Saudi Arabia, Kuwait and the UAE are also lobbying for an increase of 1.5 mbpd. Iraq, Iran and Venezuela are against any production hikes.

The sudden decline in the U.S. economy appears to have worried some OPEC members that the high fuel prices could knock us back into a recession. Obviously simply legitimizing their current over quota production will not solve any supply issues but it could convince the uneducated public that OPEC is trying to help.

The price of crude did not react as you would have expected to the rumors of higher quotas. Crude prices rebounded from the morning low of $97.75 to $99.25 and apparently moving back to the $100 level where it as spent the last four weeks. The problem is that traders KNOW the potential quota raise at +1.5 mbpd is a political ploy and will have no actual impact on production. With demand expected to increase as the year progresses the price will rise.

OPEC is currently pumping around 29.0 million barrels per day. OPEC and the IEA both believe demand for OPEC oil will rise to 29.9 mbpd over the summer. If they don't increase production that will require refiners to dip into existing supplies and inventories will shrink and prices will rise. OPEC's official quota is currently 24.9 mbpd not counting Iraq, which does not have a quota. Subtracting Iraq's 2.7 mbpd of production that means the rest of OPEC is producing 27.3 mbpd or 1.4 mbpd over their actual quotas. OPEC's average price for a barrel of oil in April was $118.09 compared to the $82.33 they received the prior April. Given the windfall profits they are currently receiving by keeping supplies tight there is little or no chance they will voluntarily produce more oil so they can sell it cheaper.

All of the major brokers reiterated their price targets in the $120-$130 range for Brent for later this year.

Crude Oil Chart

In stock news Talbots (TLB) was crushed after the retailer warned of an ugly quarter ahead. The company said Q2 sales and margins would be significantly below 2010 levels. Shares of Talbots fell -40% on more than ten times the average volume. Talbots said it would close 110 stores with 83 in the current fiscal year. They currently have 568 stores in North America. Analysts raced to post downgrades and beat each other to the lowest target price on the stock. Ten of the 17 analysts covering the stock have a hold rating or worst on the stock with serious doubts they will be able to turn the ship around. This is their fifth consecutive quarter of declining sales.

Talbots Chart

Pep Boys (PBY) an automotive service chain, reported earnings of 23-cents compared to analyst estimates of 30-cents. The chain blamed it on bad weather early in the quarter and the rising cost of fuel. Constant rain during the quarter reduced sales of things like car wax and "appearance" products. They claimed the higher fuel prices were forcing consumers to delay maintenance items and hold off on discretionary purchases. Pep Boys operates more than 700 stores with 7,000 service bays. Shares of PBY dropped -17% on the news.

Pep Boys Chart

Apple shares declined to two week low and $20 off its $352 high from last week after the Developer Conference on Monday. While the conference was seen as extremely positive for Apple there were some problems. On the product side there was nothing announced that was not already known. That means a sell the news event because there was no new news to keep the rally going.

Also pressuring Apple shares was Steve Jobs health. He appeared frail and weak and as the savior of Apple and its guiding light any decline in his health is a challenge for the Apple faithful. Pictures and videos continue to surface on the web of him making routine visits to health clinics. His bones were clearly visible underneath his customary black T-shirt so it was easy to see his overall health had declined. This is weighing on the stock. Also several analysts expressed disappointment there was no announcement of a new iPhone that is expected to be available later this summer. Clearly Apple wanted to focus the media on the iCloud product and they will have a separate iPhone announcement later. Never let an opportunity to generate a press buzz go to waste.

Apple Chart

Temple Inland (TIN) benefited from a hostile offer by International Paper for $30.60 after the stock closed at $21 on Monday. This was a 42% premium for the shares. Obviously the shares rallied to just under $30 on Tuesday to give shareholders a pleasant surprise. One trader was probably not as surprised as everyone else but he will be getting a surprise visit from the SEC soon. On May 25th someone launched a 6,700 contract call spread using the January 2012 $25/$30 strikes. The net premium was $1.10 and cost roughly $700,000 to initiate with TIN selling for $22.81 and moving lower when the trade was established. Since open interest in these strikes was in the range of 40 contracts at the time the sudden appearance of a 6,700 contract position only a week or so before the hostile bid is likely to draw the attention of the SEC. The trader has a paper profit today of roughly $1.5 million.

Temple Inland Options

Temple Chart

Despite the morning short squeeze and the afternoon crash the volume was very light at 6.5 billion shares and internals were positive. The advancers of 3,700 outnumbered the declines of 2,648 by a decent margin. However, new lows at 183 outnumbered new highs at 55. With the Bernanke speech not until 15 min before the market close there was little time to react to the worries expressed in his comments.

The Dow and S&P closed at new two month lows and recent support levels, regained intraday were broken again by the close. This is a not a good sign. With the market oversold after four consecutive days of declines and five weeks of losses I did expect a temporary rebound of sorts. However, I did not expect it to hold those gains. I also did not expect it to erase a +88 point gain in only a few minutes.

The continued negative economics and a Fed chairman who has apparently gone from cheerleading the economy to apologizing for its unexpected decline is not a recipe for market gains. We already know June is the third worst month of the year since 1957 so weakness is expected. How much weakness is the $64 question.

The S&P broke support at 1295 on Monday and then rebounded to find that prior support at 1295 had turned into resistance. On Friday the S&P rallied twice to that 1295 level only to be rebuffed with the afternoon decline rather sharp. The S&P has not closed below 1285 since March 18th and that is exactly where it closed today. This is the last line in the sand before heading for a retest of strong support at 1250. Futures are negative tonight and without a sudden improvement in the Fed Beige Book on Wednesday the odds are good we will see that 1250 level.

The bad news bulls have overdosed on bad news and are nowhere to be seen. The current soft patch in the market is pricing in the end of QE2, the break in the supply chain from Japan, European debt crisis, Middle East uprisings and Northern Africa conflicts plus the sharply slowing economy. If ever there was an opportunity to go against the grain and buy bad news this would be it but I suspect you would lose a few fingers trying to catch this falling knife. Investors need a little less uncertainty in their diet before they are willing to speculate on the future.

S&P-500 Chart

The Dow closed under its support low from April at 12,093 and only round number support at 12,000 is between the Dow and a real support test at 11,600. The correction appears to be gaining speed with the triple digit drop from the afternoon highs. There is nothing in the headlines at present to cheer up investors with earnings misses and earnings warnings adding to the negative economics. Resistance is not 12,175 and initial support 12,000.

Dow Chart

The Nasdaq closed at its lows at 2701. This is a new two-month low and clearly a breakdown in sentiment. Apple of course led the decline with a -$6 loss. Nasdaq 2675 would be the next pause point if 2700 breaks. The obvious target is still 2620 and the 200-day average.

Nasdaq Chart

The Russell has fallen -6% since May 31st high at 848. The Russell remains in its downtrend channel but only barely. The small gain today was due to a rebound in the energy sector and some positive gains in chip stocks. If the Dow and S&P continue their losing ways the Russell will be forced to tag along for the ride. The 200-day average on the Russell at 765 would be exactly a 10% correction. The odds remain good we will see that support test.

Russell Chart

The market has a solid cover of dark storm clouds and the only ray of sunlight the rest of this week might be from the Fed Beige Book on Wednesday afternoon. If the twelve Fed regions saw activity improving then there is hope for the markets. However, if they also show a decline in economic activity we could be in for a major blow.

How much bad news can a market withstand? I think we are reaching our limit. The end result will of course be an eventual rebound once all the news is stale and priced into the market but I doubt it will happen in June. Volume is slowing and we could trade under six billion shares on Friday. We are in the summer doldrums and investors have no reason to buy stocks. Until a reason appears the market action will be lackluster.

Definitely, enter passively and exit aggressively.

Jim Brown

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New Plays

Bear-Flag Pattern

by James Brown

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Editor's Note:

The market is trending lower but there are a few pockets of strength. Here's a list of bullish and bearish candidates that caught my eye.

DTV - the close under $48 and its 50-dma looks like a new entry point for bearish positions. Or you could wait for a bounce/failed rally in the $48.50-49.00 zone.

EXPD - the stock is breaking down but I would wait for a bounce or failed rally near $50 or its 200-dma before considering new bearish positions.

ETN - The breakdown under $49 and its 200-dma looks like a new entry point for bearish positions.

JCI - JCI has a similar pattern with a breakdown under technical support at the 200-dma.

SLE - The recent bounce has failed near $19.00. This could be a bearish entry point. A potential target could be the 17.25-17.00 area.

DNR - Wait for a breakdown under its 200-dma before considering bearish positions.

TXT - The oversold bounce failed at prior resistance near $22.00.

ZION - Financial stocks have been sinking to new lows and ZION just broke multiple layers of support.

LNC - Traders may want to wait for a bounce or failed rally near resistance at $28.00 or its 200-dma before considering bearish positions.

FTI - Wait for a breakdown under its 200-dma before considering bearish positions.

CVC - This cable TV stock was showing relative strength most of the session. I'd wait to see if shares bounce from their 100-dma before considering bullish positions.

NANO - Shares of NANO were showing relative strength today. The stock is bouncing from its 200-dma and NANO has not broken its long-term trend of higher lows. I was very tempted to buy the stock now. Unfortunately shares might gap open higher tomorrow. After the closing bell S&P announced they were adding NANO to the small cap 600 index. I would definitely keep NANO on your watch list for a possible bullish trade.

- James


NEW BEARISH Plays

Marriott Intl. Inc. - MAR - close: 35.54 change: -0.64

Stop Loss: 37.55
Target(s): 30.50
Current Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Investors are growing more and more worried about a slow down in the economy and we're seeing that sentiment in new weakness for MAR. Shares just broke support at its 50-dma. Plus the stock is breaking down from what appears to be a bear-flag pattern. I am suggesting bearish positions now and we'll start with a stop loss at $37.55. The April lows near $33.50 might offer some support but we're aiming for the $30.00 area. I'll set our exit target at $30.50. FYI: The Point & Figure chart for MAR is bearish with a $25 target.

Suggested Position: Short MAR stock @ current levels

- or -

buy the July $33 PUT (MAR1116S33) current ask $0.60

Annotated chart:

Entry on June 8 at $xx.xx
Earnings Date 07/13/11 (unconfirmed)
Average Daily Volume: 3.7 million
Listed on June 7th, 2011


In Play Updates and Reviews

No Conviction

by James Brown

Click here to email James Brown

Editor's Note:
There was no conviction behind the bounce this morning and stocks rolled over late in the session. Our ERTS trade has been stopped out. I am suggesting we exit our EXPE June calls now.

-James

Current Portfolio:


BULLISH Play Updates

Cheesecake Factory Inc. - CAKE - close: 29.63 change: +0.01

Stop Loss: 28.95
Target(s): 33.95, 37.00
Current Gain/Loss: - 6.0%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/07 update: There is no change from my prior comments on CAKE. The early morning bounce failed at short-term resistance. I'm still expecting a dip to the 200-dma. Wait for a bounce 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

06/04 More conservative traders may want to exit early. We are expecting a drop to the 200-dma.

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


Dr. Pepper Snapple Group - DPS - close: 40.17 change: +0.10

Stop Loss: 38.95
Target(s): 44.90
Current Gain/Loss: - 0.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/07 update: DPS produced a minor bounce this morning but spent most of the day sliding sideways in a very narrow range. There is no change from my prior comments.

Earlier Comments:
You could argue the stock is short-term oversold after a two-week drop and with the stock at support near $40.00 this could be used as a new bullish entry point. However, I'm concerned with the weakness in the market's major averages. Readers may want to wait for the market to find a bottom or wait for DPS to bounce back above its simple 10-dma before initiating new positions. We have a stop at $38.95. More conservative traders may want to use a stop closer to $40 instead.

Current Position: Long DPS stock @ $40.25

- or -

Long Aug $45 call (DPS1120H45) Entry @ $0.30

06/04 new stop loss @ 38.95

Entry on June 3 at $40.25
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 2.1 million
Listed on May 14th, 2011


Ecolab Inc. - ECL - close: 54.10 change: +0.22

Stop Loss: 51.90
Target(s): 57.00, 59.90
Current Gain/Loss: + 1.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: ECL spent Tuesday's session drifting sideways near $54.00 and its 10-dma. There is no change from my earlier comments. I would expect ECL to correct toward support near $53.00. No new positions at this time.

Current Position: Long ECL stock @ 53.35

- or -

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

06/04 new stop loss @ 51.90

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


Expedia Inc. - EXPE - close: 26.93 change: -0.70

Stop Loss: 26.70
Target(s): 27.75, 29.75
Current Gain/Loss: + 4.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: Bullish analyst comments on EXPE this morning helped the stock gap open higher. Unfortunately the rally failed and shares quickly sold off. EXPE closed on its low for the session and that doesn't bode well for tomorrow. As a matter of fact it would not take much for EXPE to hit our stop loss at $26.70.

I am suggesting we close our June $25 calls immediately. More conservative traders may want to exit all of their bullish position snow. I am not suggesting new positions at this time.

Current Position: Long EXPE stock @ 25.85

- or -

June $25 call (EXPE1118F25) Entry @ $1.20, exit 1.85 (+54.1%)

- or -

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

06/07 Exit our June $25 calls. bid @ $1.85 (+54.1%)
06/04 consider an early exit, especially if you have the June calls. Currently the bid on the June $25 call is $2.45 (+104%).
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


Kansas City Southern - KSU - close: 55.44 change: -0.39

Stop Loss: 54.70
Target(s): 59.75, 62.50
Current Gain/Loss: - 1.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: KSU underperformed its peers in the railroad industry with a -0.6% loss. I'm not surprised. We've been looking for a drop toward $55.00 and its 50-dma. I am not suggesting new positions at this time.

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: $45.52 change: +0.45

Stop Loss: 44.75
Target(s): 54.00
Current Gain/Loss: - 3.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: Oil prices have not been reacting to weakness in the U.S. dollar and some analyst believe that might be bearish for oil. If oil does retreat it could have a bearish impact on oil stocks. Currently ROSE doesn't look too healthy and if there is any follow through lower for the major indices tomorrow we will likely get stopped out at $44.75. I am not suggesting new positions at this time.

-Small Bullish Positions-

Current Position: Long ROSE stock @ $47.35

- or -

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

06/04 new stop loss @ 44.75

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


BEARISH Play Updates

Aon Corp. - AON - close: 51.63 change: +0.14

Stop Loss: 52.75
Target(s): 46.50
Current Gain/Loss: - 0.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: It was a volatile day for AON. The stock broke through resistance near $52.00 but the rally failed at resistance near $52.50 and its 50-dma. This move actually looks like a new bearish entry point. We'll keep our stop loss at $52.75 but more conservative traders may want to inch their stop toward today's high (near $52.50). An alternative entry point would be to wait for a breakdown under short-term support near $51.00 and the 100-dma.

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


AO Smith Corp. - AOS - close: 39.70 change: -0.10

Stop Loss: 42.05
Target(s): 36.00, 33.00
Current Gain/Loss: + 0.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: AOS tried to rally but couldn't get past resistance near $40.00 and its 200-dma. I would consider new positions at current levels. Our targets are $36.00 and $33.00.

FYI: The Point & Figure chart for AOS is bearish with a $33 target. Traders should also note that the most recent data listed short interest at 5% of the relatively small 38.2 million share float. That does raise the risk for a possible short squeeze and explains the volatile rallies in this stock.

NOTE: AOS does have options but the spreads appear too wide for us to trade them.

Current Position: short AOS stock @ $39.92

Entry on June 6 at $39.92
Earnings Date 07/20/11 (unconfirmed)
Average Daily Volume: 312 thousand
Listed on June 4th, 2011


Ford Motor Co. - F - close: 13.95 change: +0.04

Stop Loss: 15.15
Target(s): 13.25
Current Gain/Loss: + 3.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: The early morning rally in Ford failed and shares spent the day churning near $14.00. The trend is down but I'm not suggesting new positions at current levels. Currently our target is $13.25. 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: 56.85 change: -0.60

Stop Loss: 60.15
Target(s): 54.00 & 200-dma
Current Gain/Loss: + 1.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: The action on HON was bearish today. Shares failed at resistance near $58 and its 100-dma and closed near its lows for the session.

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


St. Jude Medical - STJ - close: 48.80 change: +0.76

Stop Loss: 51.05
Target(s): 47.00, 45.75
Current Gain/Loss: + 4.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: Right on cue STJ produced an oversold bounce. The rebound stalled at short-term resistance near its 10-dma but that doesn't mean the bounce is over yet. We might see another entry point for bearish positions on a failed rally near $50 soon. I am not suggesting new positions at this time.

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

06/04 New stop loss @ 51.05, added second target at $45.75
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


Target Corp. - TGT - close: 47.06 change: -0.30

Stop Loss: 50.15
Target(s): 45.15
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
06/07 update: Hmm... I'm starting to wonder if today was the entry point we were waiting for. Our plan is to launch bearish positions on an oversold bounce at $48.50. TGT did bounce today but it failed at $48.00 and quickly reversed. Aggressive traders may want to consider launching positions now. The newsletter will stick to our original plan and wait for a bounce at $48.50. If triggered we'll use a stop loss at $50.15. Our first target is $45.15. FYI: The Point & Figure chart for TGT is bearish with a $43 target.

Trigger @ 48.50

Suggested Position: short TGT stock @ 48.50

- or -

buy the July $47 PUT (TGT1116S47) current ask $1.24

Entry on June x at $xx.xx
Earnings Date 08/18/11 (unconfirmed)
Average Daily Volume: 7.1 million
Listed on June 4th, 2011


CLOSED BULLISH PLAYS

Electronic Arts Inc. - ERTS - close: 23.35 change: -0.45

Stop Loss: 23.45
Target(s): 26.25, 28.00
Current Gain/Loss: - 4.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/07 update: Our aggressive trade on ERTS has been stopped out. We recently raised our stop loss over concerns with ERTS' recent pull back. The correction accelerated lower this morning with a spike down to $23.08. Our stop loss was hit at $23.45 closing this trade. I would keep ERTS on your watch list. A bounce from $22 and/or its 50-dma might be a new bullish entry point.

Earlier Comments:
I am suggesting that we keep our position size small to limit our risk.

- Small Positions -

closed Position: Long ERTS stock @ $24.44, exit 23.45 (-4.0%)

- or -

July $25 call (ERTS1116G25) Entry @ $0.90, exit $0.42 (-53.3%)

06/07 stopped out @ $23.45 (-4.0%), Option @ -53.3%
06/04 New stop @ 23.45

chart:

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