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Newsletter

Daily Newsletter, Thursday, 6/23/2011

Table of Contents

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

Market Wrap

Games Politicians Play

by Jim Brown

Click here to email Jim Brown
The world saw a flurry of political moves on Thursday that may or may not mean anything weeks from now but for today they moved the markets strongly in both directions.

Market Statistics

After Bernanke's head scratching press conference yesterday where he basically said he didn't know exactly why the economy was growing so slowly and he confirmed the Fed had lowered expectations, the market did not need any more bad news. Unfortunately this was a day when bad news was about the only news available.

China's PMI for June declined to 50.1 and the lowest level since July 2010. That compares to 51.6 in May. The June reading is only 0.1 above falling into contraction territory and the news was a shot heard around the world.

Also this morning we learned that the Markit PMI for the Eurozone fell to an eighteen month low of 52.0 in June from 54.6 in May. The consensus estimates were for a decline to 53.8.

The U.S. growth expectations were cut by the Fed on Wednesday and Bernanke, the U.S. economic cheerleader, was fairly monotone and expressed confusion about the rest of 2011.

The combination of these three events sent the markets spiraling lower at the open with the Dow down -234 points on worries the global economy was headed back into recession.

A slight improvement in the Chicago Fed National Activity Index from -0.45 to -0.37 failed to give the market any comfort. Less bad news is still bad news.

Jobless Claims rose again to 429,000. Last week's reading of 414,000 was revised higher to 420,000. Our flurry of weeks well under 400,000 back in April is distant history today.

Jobless Claims

New home sales declined to an annualized rate of 319,000 in May from 323,000 in April. May should have shown an increase because it is right in the middle of the spring buying season. This is just one more report demonstrating the continued decline in the housing market due to unemployment and very stringent credit restrictions.

News the debt ceiling talks in Washington had collapsed also weighed on the market. The talks led by Biden collapsed because participants claimed there was no real interest on the part of the administration in cutting costs. The administration still claims there needs to be more new spending to help rebuild the economy. The head of the republican team said the talks would not resume until President Obama was personally involved. Worry the debt ceiling discussion was not occurring in good faith upset the markets.

If the bad global economics were not bad enough for the U.S. markets the president muddied the water even further by undertaking the highly political desperation move of announcing a release of 30 million barrels of oil from the Strategic Petroleum Reserve (SPR).

This is clearly a desperation move and one that was not needed in the USA. This is a joint move with the International Energy Agency (IEA) to release a total of 60 million barrels worldwide. The IEA claims the oil is required to replace the Libyan oil on the European and Asian markets. Before the civil war in Libya the country produced 1.6 million barrels of light sweet crude per day. (MBPD) That production is now below 200,000 bpd with some analysts claiming there is no oil flowing. With the war now over 120 days old that means a rough loss of about 168 million barrels.

With the IEA putting 60 million barrels on the market from strategic supplies held by the 28 member nations it is effectively putting 16 hours of supply in the market. The world consumes roughly 88.5 mbpd of oil. Releasing 60 million over the next month is a drop in the proverbial bucket.

President Obama joined the IEA by offering half of the 60 million total for obvious reasons. Taking any action that could be seen as potentially lowering fuel prices is always worth some votes in an election year.

Let me be perfectly blunt. There was absolutely NO reason to release oil from the U.S. SPR. There is NO oil shortage in the USA. In the Moody's chart below you can see the U.S. crude oil inventory level three weeks ago were at their THIRD HIGHEST level since 1980 at 374 million barrels. There is an oil glut in the USA. That is why WTI prices have been trading a better than a $20 discount to Brent. There was no reason to release oil from the SPR other than political reasons. Oil released from the SPR is not going to Europe. There is no real facility to ship oil from the SPR to Europe. It could be done but it would be time consuming and expensive with the lead-time to actually arrive in Europe or Asia at something close to 60 days. There may be a benefit from releasing it inside the U.S. so that cargos already contracted for U.S. deliveries could be diverted elsewhere but this would also have a limited benefit. Every cargo of oil heading to the U.S. has a specific API gravity and sulfur content and is headed for a specific refiner. To divert a cargo to Europe/Asia would require finding a refiner in that area that can refine that specific cargo. Granted there is some light crude that is considered generic but we import very little of that in the USA from waterborne sources. Most of the oil we import is sour crude and there is no appetite for that in Europe. The U.S. announcement was purely political. It will be interesting six months from now to know if any SPR oil was actually used.

Moody's Historical Oil Inventories Chart

The IEA has been warning about releasing oil for weeks. The IEA is an organization with 28 member countries with about 1.5 billion barrels of oil in strategic reserves. The U.S. makes up about half at 727 million barrels in the SPR.

The IEA has recognized the shortage of oil in Europe and Asia for many months. They have begged OPEC to increase production but OPEC has refused. Many analysts including myself believe OPEC does not have the excess capacity they claim and therefore are unable to produce more oil even if they wanted to. Instead of admit this fact they simply claim the "market is well supplied" and continue pumping as much as they can but under the official smoke screen of a quota system that nobody honors.

The only countries that could increase production and have expressed the willingness to do so are Saudi Arabia, Kuwait and the UAE. They all said they would increase production by a total of 1.5 mbpd after the last OPEC meeting ended with a deadlock.

I believe the IEA move after those countries agreed to increase production was an act of desperation. Talk is cheap. Those countries have said they would increase production but it remains to be seen whether they actually can increase production.

This IEA action was supposedly taken after holding high-level talks with Saudi Arabia, the biggest OPEC producer and the one expected to increase production by 1.2 mbpd in July. Call it a conspiracy theory but the shortfall is only expected to be 1.5 mbpd over the next four months. If those three countries had agreed to increase production by that amount AND could actually do it then why is the IEA taking this monumental step to add 2.0 mbpd for the next 30 days? Did Saudi admit to the IEA they were not going to be able to follow through with their claims?

One obvious reason is that the oil shortage is in light sweet crude and Saudi does not have any of that variety. When Saudi said they were going to produce more oil they said it would be sour crude and they would sell it to Asia. Refineries in Asia can accept a broader range of crude because air pollution rules are not as strict.

Several months ago I coined a term for the coming shortage in light sweet crude. I call it Peak Sweet™ because that is going to be the first casualty of Peak Oil. There is currently an excess of heavy sour crude in the world and those reserves will last for many decades. The oil we are running out of is the light sweet crude that is in high demand in Europe because of very strict EPA air quality rules. Light sweet crude and heavy sour crude are about as compatible as diesel and gasoline. It you have a gasoline car and the service station only has diesel you are out of luck. Same with the heavy grades of oil. Your refinery must be built to process heavy sour crude in order to use it.

Going back to the act of desperation by the IEA the action suggests the situation is worse than what analysts have seen on the surface. That of course begs the question "how bad is it?" I have been predicting the arrival of peak oil in late 2012 to early 2013. Is this IEA action a sign we are closer than we think?

There is another possible reason for the group decision. Europe's PMI is crashing along with China and the USA. High fuel prices are a major problem. Was this a Hail Mary pass to try and shock oil prices lower and thereby push fuel prices lower? The timing is certainly suspect since the announcement came on the same day as the drastically lowered PMI numbers from Europe and China. Unfortunately the impact of the announcement is likely to be short lived. The announcement was high profile but remember they are only adding the equivalent of 16 hours of global consumption. What are they going to do for an encore? The market will likely digest this blip in prices very quickly but the long-term problem of insufficient production still exists.

Goldman said yesterday that Libya could probably rebuild as much as 585,000 bpd in production fairly quickly once Qaddafi is out of power and the safety of the foreign workers could be guaranteed. Unfortunately the remaining 1.0 mbpd could take until 2015 to recover according to the IEA. Facilities have been bombed and it will take a concentrated rebuilding process where replacement parts in some cases will have to be specially constructed overseas and shipped to Libya for installation. These are long lead-time orders that can take months or even years to engineer and manufacture. By the time Libyan crude is back in full production in 2015 the global demand for oil will have increased by 6.0 mbpd and production from existing fields will have declined by a minimum of 12.0 mbpd according to the IEA.

I believe this was a desperation act by the IEA because they know the voluntary increased production is not going to happen or be in the wrong grade of oil. The IEA could have made the announcement without the U.S. because the majority of the 28 countries in the IEA are in Europe and they have more than 700 million barrels in strategic storage. The U.S. participation is a sham because our oil is not going to Asia. The announcement played out well in an election cycle and I am sure we will hear about this weekly for the next 16 months.

As a result of the announcement the price of oil in the U.S. fell by -3% and Brent crude by -5%. Both contracts held on strong support although the surprise announcement did flush a lot of stops.

WTI Crude chart

Brent Crude Chart

Another problem weighing on crude prices was the sharp rise in the dollar. When the Fed confirmed the end of QE2 and did not suggest there is another stimulus program on the horizon the dollar immediately began to get stronger.

Stories out of Greece suggested they would not be able to get the next chapter in their austerity program passed by Parliament and the Euro began to crash. With the dollar spiking the price of oil was already crashing long before the IEA announcement. Note the almost perfect inverse relationship in the chart below. The sharp dollar drop about 2:30 this afternoon was the news the EU, IMF and Greece had agreed on a new five-year plan.

Dollar & WTI Comparison Chart

The news the IMF, EU and Greece had agreed on a new five year austerity plan helped boost the equity markets off their lows. A team of EU-IMF inspectors apparently consented to a new five-year plan after Greece committed to another round of tax increases and spending cuts. The final details are expected to be worked out on Friday. Reportedly it will require an additional 28 billion euros to be cut from the budget over five years. The minimum threshold for income taxes would drop to 8,000 euros a year. There would be an additional tax on heating oil and level a "solidarity" tax on income between 1% and 5%. The new measures will cut worker incomes by roughly 4% on top of the 10-15% cut in salaries and pensions over the last year. The current austerity program has already plunged the country into the deepest recession in 37 years.

Announcing a deal is just one more sound bite in the daily news. The final deal still needs to be voted in on June 28th by the full parliament of 300 seats. The ruling party only has 155 seats and some of their members have already said they would not vote for the program. Citizens are revolting. Unions have already called nationwide strikes for Tuesday and Wednesday. This story is far from over especially if the Parliament does not approve the deal.

After the bell Oracle reported earnings of 75-cents compared to estimates of 71-cents. Revenue rose +13% and net income rose +36%. It would appear on the surface that everything was rosy. Unfortunately it was not. Revenue in the hardware division was flat. Service contract sales rose slightly and made up for a -6% decline in hardware sales. The company guided analysts to 45-48 cents for the current quarter. That was inline with analyst expectations but not enough to support the stock. Shares fell -$2 after the close.

Oracle Chart

Micron (MU) reported earnings that missed estimates and the stock was sold hard for a -13% decline in after hours. Revenue fell -7% to $2.14 billion. Micron earned 7-cents compared with 92-cents in the same quarter last year. Analysts were expecting 18-cents. Micron said there were no supply disruptions as a result of Japan. Micron said PC sales were declining with sales going to tablets instead. However, corporate demand for PC, servers and networking products remains fairly strong.

Micron Chart

The Dow started the day off with a -234 point decline to 11,875 but the Greece news helped power it back over 12,000 by the close. The S&P dipped to 1262 and long term uptrend support but the index closed 20 points higher at 1283. The dip to support and the rapid rebound at the close suggests this may be a buying opportunity.

Low oil prices even if artificial and temporary are positive for growth. With the FOMC meeting and Bernanke's press conference now behind us the end of quarter window dressing can begin. The earnings problems from Micron and Oracle did not dent the futures after the close. Assuming the GDP revision on Friday is not triple ugly we should be able to move the market to the upside until Greece stinks up the place again. I am not even sure that will keep the window dressers at bay but the vote is scheduled for Tuesday. Remember, Greece has no choice. They can talk tough and that talk may roil the market but if the vote does not pass they don't get the money and a default is imminent.

We had the same Greek problem earlier in the week and the markets managed to rebound so I am optimistic they will rise again next week.

The S&P needs to more over 1300 to confirm a bullish breakout and today's low at 1262 is now the critical inflection point that would turn everyone bearish if broken.

S&P Chart

The nearly 200-point rebound from the lows to close over 12,000 was very bullish for sentiment. It would have been better if it had returned to positive territory like the Nasdaq but we can't complain. Chevron and Exxon joined Coke as the top three losers in the Dow. With oil down so strongly the energy components in the Dow simply made it too difficult for completely recover.

Key resistance remains 12,200 and critical support is now 11,900.

Dow Chart

The Nasdaq moved like it was possessed today with a monster decline at the open to 2627 and an even stronger rebound to close a 2686. That was a 60-point sprint to close with a very respectable 17-point gain. Apple was again the big gainer at +8.62 but Google lost -$7 to offset most of Apple's gain. Netflix +7 and PriceLine +9 were a significant source of help for Apple.

The Semiconductor Index (SOX) also rebounded for a 6-point gain for the day. The bear market in tech stocks appears to be over. The Nasdaq needs to move over 2700 for bullish conformation but after today I would not be surprised if it happens on Friday.

Nasdaq Chart

The Russell 2000 also regained positive territory as it heads into its normal June restructuring on Friday. Each year the Russell is reconstituted on the last Friday in June. The managers sort the available universe of stocks and the top 1000 by market cap are put into the Russell 1000 and the next 2000 stocks are grouped into the Russell 2000. This should increase the volume on Friday but it rarely pushes the index around. Individual stocks moving up or down the ladder can see some decent moves but that was over a couple weeks ago when the list of changes was released.

A move over the 810 level by the Russell would push it over the top line in the downtrend channel and could attract some additional buyers.

Russell Chart

I think everything is working out perfectly for an end of quarter bounce as I discussed last week. Now that Bernanke and company is out of the way the only immediate problem would be a new revelation from the Greece saga. I am pretty sure traders are getting bored with the Greek news and will eventually ignore it altogether until they finally default.

I am looking for a potential rally into the end of June but I would use small positions a be very nimble in exiting should a news event change the tone of the market. Historically after the first week of July we could see another dip but we will cross that bridge when we get there.

Definitely, enter passively and exit aggressively.

Jim Brown

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New Plays

Healthcare Strength

by James Brown

Click here to email James Brown


NEW BULLISH Plays

UnitedHealth Group Inc. - UNH - close: 51.15 change: -0.63

Stop Loss: 49.75
Target(s): 54.75
Current Gain/Loss: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Healthcare stocks have been some of the best performers in recent weeks. We want to take advantage of the market's weakness today to hop on board UNH, which has one of the strongest up trend. Shares dipped toward psychological support at $50.00 and bounced. I am suggesting small bullish positions now with a stop loss at $49.75. More aggressive traders may want to widen their stop and place it under the 50-dma instead. Our target is $54.75. I would be tempted to aim higher but we do not want to hold over the July 19th earnings report.

- small positions -

Suggested Position: buy UNH stock @ current levels

- or -

buy the July $50 call (UNH1116G50) current ask $2.07

Annotated chart:

Entry on June 24 at $xx.xx
Earnings Date 07/19/11 (confirmed)
Average Daily Volume: 7.9 million
Listed on June 23, 2011



In Play Updates and Reviews

St. Jude Medical Exceeds Our Target

by James Brown

Click here to email James Brown

Editor's Note:
The market experienced a very widespread decline this morning but stocks managed an intraday bounce.

STJ gapped open lower under our first target. Meanwhile I'm suggesting an early exit from our AOS trade. Our DPS trade has been stopped out.

-James

Current Portfolio:


BULLISH Play Updates

Cheesecake Factory Inc. - CAKE - close: 30.92 change: +0.75

Stop Loss: 28.95
Target(s): 33.95, 37.00
Current Gain/Loss: - 1.9%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/23 update: Is our patience in CAKE going to pay off? The plunge in oil prices today fueled hope that the consumer will have additional money for discretionary items instead of pouring it in their gas tank. Shares of CAKE dipped toward technical support near their 200-dma again and then surged higher to post a +2.4% gain. The move today is also a bullish breakout over several key moving averages for CAKE.

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

06/09 CAKE is bouncing from the 200-dma as expected.
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


Ecolab Inc. - ECL - close: 54.52 change: -0.02

Stop Loss: 52.45
Target(s): 57.00, 59.90
Current Gain/Loss: + 2.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: ECL dipped to a new three-week low this morning and bounced. Shares actually managed to close virtually unchanged on the session. Aggressive traders might want to consider new positions at this time.

Current Position: Long ECL stock @ 53.35

- or -

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

06/18 new stop loss @ 52.45
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


Nanometrics Inc. - NANO - close: 16.82 change: +0.04

Stop Loss: 15.85
Target(s): 19.25, 22.00
Current Gain/Loss: - 0.0%
Time Frame: 6 to 8 weeks or more
New Positions: see below

Comments:
06/23 update: It's been almost two weeks and we're right back where we started with NANO at $16.82. Since that time NANO has retested support near $16.00 and the 50-dma. Aggressive traders may want to buy this bounce.

FYI: NANO does have options but the spreads are so wide I wouldn't trade them.

Current Position: Long NANO stock @ $16.82

Entry on June 13 at $16.82
Earnings Date 08/04/11 (unconfirmed)
Average Daily Volume: 467 thousand
Listed on June 11th, 2011


BEARISH Play Updates

Aon Corp. - AON - close: 49.27 change: -0.29

Stop Loss: 52.05
Target(s): 47.00
Current Gain/Loss: + 4.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: AON slipped to new relative lows this morning under the $49.00 level. Don't be surprised to see another oversold bounce back toward the $50 area. I am not suggesting new positions at this time.

(small positions only)

Current Position: short AON stock @ 51.61

06/18 adjusted exit target to $47.00
06/16 planned exit, June $50 put @ +11.1%
06/16 new stop loss @ 52.05
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


Allegheny Technologies - ATI - close: 60.76 change: +0.85

Stop Loss: 62.05
Target(s): 52.75, 50.50
Current Gain/Loss: unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see trigger

Comments:
06/23 update: ATI dipped toward short-term support near $58.00 and bounced back into positive territory. This doesn't bode well for the bears. We may end up removing ATI as a candidate soon. Currently our plan is to launch bearish positions at $57.40. We do not want to hold over the late July earnings report.

Trigger @ $57.40

Suggested Position: Short ATI stock @ $57.40

- or -

buy the July $55 PUT (ATI1116S55) current ask $1.60

06/22 FYI: ATI did produce an alternative entry point with a failed rally near $62.00. Aggressive traders may want to launch positions now. The newsletter will keep our trigger at $57.40.

Entry on June x at $xx.xx
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume: 1.9 million
Listed on June 18th, 2011


Eaton Corp. - ETN - close: 48.85 change: +0.47

Stop Loss: 50.75
Target(s): 42.50
Current Gain/Loss: - 2.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/23 update: We are not off to a very good start with ETN. Shares gapped open lower at $47.62 (our new entry price) and then immediately bounced near its 10-dma. The stock rallied to a +0.9% gain and closed back above its exponential 200-dma. ETN should still have resistance near $49.00, near its simple 200-dma and near $50.00 but I am not suggesting new positions at this time. I repeat, no new positions. We'll wait for ETN to fail at overhead resistance first before considering new positions here.

Current Position: short ETN stock @ $47.62

- or -

Long July $47.50 PUT (ETN1116S47.5) Entry @ $1.40

- or -

Long Aug. $45 PUT (ETN1120T45) Entry @ $1.50

Entry on June 23 at $47.62
Earnings Date 07/20/11 (unconfirmed)
Average Daily Volume: 3.8 million
Listed on June 22, 2011


Ford Motor Co. - F - close: 13.47 change: +0.11

Stop Loss: 13.85
Target(s): final target @ 12.55
Current Gain/Loss: + 6.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: Be careful here. Ford has rallied off its morning lows and now the stock looks poised to breakout past resistance at $13.50. Once again I am suggesting readers take profits now and exit early. I am not suggesting new positions at this time.

The plan was to 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

06/16 new stop loss @ 13.85
06/13 New stop loss @ 14.26. Final target at $12.55
06/13 Take Profits Now! Ford @ 13.14 (+8.75%), Option @ $1.89 (+110%)
06/11 new targets at $12.75 and TBD.
06/11 new stop loss @ 14.55
06/08 new stop loss @ 15.01

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: 56.50 change: -0.51

Stop Loss: 59.05
Target(s): 54.00
Current Gain/Loss: + 1.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: HON spiked down toward the lower end of its recent trading range but managed almost a $1.00 bounce off its lows. I am not suggesting new positions. More conservative traders may want to lower their stops near the $58.00 level.

Earlier Comments:
We do want to keep our position size small to limit our risk.

- Small Positions -

Current Position: short HON stock @ 57.65

- or -

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

06/18 new stop @ 59.05

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


Kohl's Corp. - KSS - close: 50.90 change: +0.08

Stop Loss: 51.75
Target(s): 47.50, 45.25
Current Gain/Loss: - 2.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: Retail names rallied since lower oil and thus fuel prices should be bullish for the consumer. Yet KSS failed to make it past yesterday's highs. Lack of follow through on yesterday's failed rally makes me hesitant to launch new positions.

The plan was to keep our position size small to limit our risk. FYI: The Point & Figure chart for KSS is bearish with a $43 target.

- Small Positions-

Current Position: short KSS stock @ $49.80

- or -

Long July $47.50 put (KSS1116S47.5) Entry @ $0.75

Entry on June 13 at $49.80
Earnings Date 08/11/11 (unconfirmed)
Average Daily Volume: 4.1 million
Listed on June 11th, 2011


Marriott Intl. Inc. - MAR - close: 34.24 change: -0.13

Stop Loss: 36.05
Target(s): 33.65, and 30.50
Current Gain/Loss: + 3.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
06/23 update: MAR gapped down this morning but shares recouped most of their losses. I am still expecting an oversold bounce. The stock should see resistance in the $35-36 area.

Current Position: Short MAR stock @ $35.39

- or -

Long July $33 PUT (MAR1116S33) Entry @ $0.60

06/21 readers may want to exit July options now
06/18 new stop loss @ 36.05
06/13 1st Target Hit @ $33.65 (+4.9%), Option @ 0.90 (+50%)
06/13 New stop loss @ 36.55
06/11 Adjusted exit targets to $33.65 and 30.50

Entry on June 8 at $35.39
Earnings Date 07/13/11 (unconfirmed)
Average Daily Volume: 3.7 million
Listed on June 7th, 2011


Charles Schwab - SCHW - close: 16.03 change: -0.05

Stop Loss: 17.55
Target(s): 15.25
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see trigger

Comments:
06/23 update: SCHW briefly traded to a new relative low under the bottom of its recent trading range. Shares almost made it back into positive territory with the afternoon bounce. I will most likely remove SCHW as a trade since shares are unlikely to hit our entry point any time soon.

Trigger @ 16.85

Suggested Position: short SCHW stock @ $16.85

- or -

Buy the July $17.00 PUT (SCHW1116S17)

Entry on June x at $xx.xx
Earnings Date 07/18/11 (unconfirmed)
Average Daily Volume: 10.2 million
Listed on June 13th, 2011


St. Jude Medical - STJ - close: 47.40 change: -1.27

Stop Loss: 50.05
Target(s): 47.00, 45.75
Current Gain/Loss: + 7.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: Target exceeded. STJ was downgraded this morning. Combine that with a down market and the stock gapped open lower at $46.50. This was under our first target at $47.00. The stock bounced at $46.20 and pared its losses to just -2.6%. I would expect STJ to try and fill the gap.

I am not suggesting new positions at this time. We will lower our stop to $50.05. Our second target remains $45.75.

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

06/23 1st target exceeded. Gap down at $46.50 (+8.8%)
06/23 new stop loss @ 50.05
06/16 exit June $50 put @ $1.95 (+95%)
06/15 prepare to exit our June $50 puts on Thursday at the close
06/04 New stop loss @ 51.05, added second target at $45.75
05/23 New stop loss @ 52.26

chart:

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

Dr. Pepper Snapple Group - DPS - close: 40.04 change: -0.40

Stop Loss: 39.65
Target(s): 44.90
Current Gain/Loss: - 1.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/23 update: The market's morning weakness was too much for DPS. The stock gapped open lower at $40.06 and then plunged to a new relative low at $39.55. Our stop loss was hit at $39.65 closing this trade.

closed Position: Long DPS stock @ $40.25, exit 39.65 (-1.49%)

- or -

Aug $45 call (DPS1120H45) Entry @ $0.30, exit 0.10 (-66.6%)

06/23 stopped out @ 39.65
06/21 new stop loss @ 39.65
06/14 new stop loss @ 39.40
06/04 new stop loss @ 38.95

chart:

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


CLOSED BEARISH PLAYS

AO Smith Corp. - AOS - close: 41.10 change: +0.33

Stop Loss: 42.05
Target(s): 36.00, 33.00
Current Gain/Loss: - 2.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/23 update: I am throwing in the towel on our AOS play. The stock spiked down to $39.69, which was under support at $40 and the 200-dma. Yet AOS immediately bounced back and rallied into positive territory. The only good thing for the bears is that AOS' bounce stalled at the 50-dma.

On the weekly chart AOS has very clearly broken support and its long-term up trend but short-term this stock is poised to rally. I am suggesting an early exit now.

Closed Position: short AOS stock @ $39.92, exit 41.10 (-2.9%)

06/23 exit early. AOS @ 41.10 (-2.9%)

chart:

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