Option Investor
Newsletter

Daily Newsletter, Wednesday, 7/6/2011

Table of Contents

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

Market Wrap

Stock Market Continues to Rest

by Keene Little

Click here to email Keene Little
Market Stats

This morning started off in the hole after Moody's downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook, citing growing risks the country will require a second round of financing as it cannot meet its deficit reduction and debt stabilization targets. European financial leaders rushed in to say they would be there to support Portugal in the even they need further financial assistance (as they've done for Greece and as they'll need to do for several other countries). The image that came to mind this morning was of The Little Dutch Boy, a story that's more popular in the U.S. than the Netherlands. Picturing the financial heads sticking their fingers in the dike seems appropriate at the moment.

But not to be thwarted, the morning dip was another buying opportunity for the bulls and they lifted the market back up into positive territory. The S&P 500 struggled more than the others which was probably due to the heavier banking influence and the banks remained weak all day (and yesterday). A rally without the banks is causing some concern at the moment. They're the ones on the hook, even if it's through derivatives for insurance products, if the dike should spring more leaks than there are available fingers to plug them.

Many are concerned about the banks' exposure to the sovereign European debt even if banks haven't lent money directly. Most U.S. banks are not exposed in that way but many are exposed through derivatives such as CDS (insurance). This is all part of the bigger derivatives mess that still plague our financial system. Nothing has been done to correct the problem that got banks into trouble back in 2007-2008. In fact the derivatives time bomb is bigger than ever.

Just before Lehman Brothers was forced to declare bankruptcy Wall Street financial firms were carrying risky financial derivatives on their books with a massive value of an estimated $183 trillion (more than 13 times the size of the U.S. economy). It was an insane amount of risk on the books, most of which was unhedged (protected). But since that time, after all the panic that followed and the "fixes" that were put in place, the amount of derivative exposure is close to $250 trillion. Burn me once, shame on you, burn me twice, shame on me.

This morning was relatively quiet as far as economic reports go. We got the Mortgage Index, which dropped more than the prior week's negative number, and the Challenger Job Cuts, which points to an even weaker job market ahead. Planned job cuts increased near 12% in June (41,432) from May (37,135), with most of the cuts coming from government positions. The pace of job cuts is slowing but year over year, job cuts have increase +5.3% from June 2010.

This report in combination with ADP's employment report (which was moved from today to tomorrow) provides a decent employment picture. Once we have these two reports we'll be hearing all kinds of speculation about Friday's payrolls numbers. If the market is rallying into the end of the day tomorrow I'd be very concerned about holding long positions. If we see the market pulling back into the end of tomorrow, especially if it's a choppy pullback, then the bulls will have a fighting chance to see the rally continue. As always, holding a position overnight and into the payrolls reports, especially this time in front of opex, is a risky affair.

After the bell, at 10:00 AM, we got the ISM Services report which showed a small downtick to 53.3 from May's 54.6 (so "less good"). It was also a little less than the market's expectations for 54.0. The number has been above 50 for 23 consecutive months now, which indicates expansion but the slowing of expansion is obviously troubling. The New Orders Index decreased by 3.2% to 53.6% and The Employment Index increased 0.1% to 54%, which is the 10th consecutive month for growth in employment and at a slightly faster rate than in May. That was the good news in the report. Another piece of good news is that the Prices Index decreased 8.7% to 60%, indicating that prices increased at a slower rate in June when compared to May (but still increased, so "less bad"). The most common concern voiced by respondents is the volatility of prices, which makes it hard to forecast business results.

There was a small downside reaction to the ISM report but by 10:15 AM all the selling was done and the buyers drove the market back up to new or matching highs by mid day and then consolidated near the highs for the rest of the day. The price pattern remains bullish as long as price consolidates near the highs (although one concern is a common topping pattern that looks like consolidation).

It would be more comforting for the bulls if the rallies were seeing stronger volume than the declines instead of the other way around. Even last week's very strong rally was accompanied by lower volumes as the rally progressed. As the SPY chart below shows, volume since June 30th has dropped below its 10-dma. Price is the final arbiter and that's how we either make or lose money on our trades, but volume is the pressure behind the move and without more pressure it's going to be hard for the bulls to sustain this bullish move. The last two days have been consolidating the recent gains and therefore lower volume is expected but today's rally attempt off the gap down was on very low volume.

S&P 500 ETF, SPY, Daily chart

There's no arguing that last week's rally did wonders for the bulls. The charts turned bullish, or at least potentially so, and it's now for the bulls to lose. The SPX weekly chart below shows the 20-week MA (purple) and how effective it is in identifying the intermediate trend. SPX broke above it last week, currently located near 1317 (the same as the 50-dma), and as long as price remains above that level the bears are on defense. If the market can hold up over the next week, which should include a choppy pullback and then another push higher into next week, there's a good chance we'll see the May high at 1370.58 tested. There is a possible 5-wave count for the rally from July 2010 calling for a 5th wave up from the June 16th low and it would equal the 1st wave (the initial leg up from July 1 - Aug 9, 2010) at 1375.91, which is shown on the chart. Additional upside potential is to the top of a rising wedge near 1400 by the end of the month.

S&P 500, SPX, Weekly chart

The next two daily charts are both for SPX but show the difference between using the arithmetic price scale vs. the log price scale, which makes a big difference when viewing trend lines on longer-term time lines. Both charts show two uptrend lines from March 2009 -- the green one is through the July 2010 low and the blue one is through the August 2010 low.

The first chart below is using the arithmetic scale and shows the decline into the June low found support at its 200-dma and its uptrend line through the July 2010 low (green). The little double bottom in June led to the strong spike back up last week. Clearly the combination of the 200-dma and uptrend line is going to be very important for the bulls to defend on future tests.

S&P 500, SPX, Daily chart, arithmetic price scale

The next chart is the same one but with the log scale and it shows how price has been reacting around them. The blue uptrend line, which is now the bold one, is the one through the August 2010 low and it was broken in early June. Note that the green uptrend line through the July 2010 low was broken in May and the May 31st high was a back test of it, leaving a bearish kiss goodbye. So the immediate risk here is that we're seeing a back test of the blue uptrend line which will lead to a kiss goodbye and the next leg down of the decline. A break below 1315 and its 50-dma (which coincides with the 20-week MA) and the broken downtrend line from May 2nd, would be bearish. But until that happens, if we see a choppy corrective pullback (shown in green) that stays above 1320 it will point to another leg up for the rally. Upside potential for another rally leg is to at least 1375 with blow-off potential to 1400.

S&P 500, SPX, Daily chart, log price scale

Key Levels for SPX:
- bullish above 1345
- bearish below 1315

I've drawn a potential up-channel for the rally from June 16th for the bullish possibility for a move up to the 1375 area next week. The ideal wave pattern calls for another pop higher on Thursday, targeting the 1355-1358 area, followed by another choppy sideways/down consolidation to the bottom of the channel early next week and then another rally leg to finish it off. The bottom of this parallel channel is currently near the same important 1315 area, a break of which would signal the bears have wrestled control away from the bulls. Again, SPX remains bullish above 1320 and bearish below 1315.

S&P 500, SPX, 120-min chart

Similar to SPX, using the arithmetic price scale, the June 15th low for the DOW found support at the uptrend line from March 2009 through the July 2010 low and the June 23rd low) found support at the uptrend line through the August 2010 low. Now looking at the chart with the log scale shows upside potential to the uptrend line through the August 2010 low, currently near 12750 and near 13K by the end of the month. A drop back below 12300 is needed to negate the bullish price pattern.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,800
- bearish below 12,300

Like the DOW (but not SPX yet), NDX has broken above its May 31st high. It also closed a gap that was left behind on the gap down on May 16th, the last one to be closed since the May high. With that accomplished it's possible we'll now see it head back down. But it takes a drop below 2300 to negate the potential for just a pullback and then new high into the next week, with upside potential to at least test the May high.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2380
- bearish below 2300

The RUT achieved a Fib projection today at 843.52 (today's high was 845.81) for a possible completion of an a-b-c bounce (albeit a sharp one) off the June 16th low, where the 2nd leg of the bounce is 162% of the 1st leg. But like the others, it takes a drop back below its 50-dma, currently near 821, to negate the bullish potential for just a pullback before heading higher for a test of the May high.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 849
- bearish below 817

The 10-year yield, TNX, hit an important Fib level last Thursday and Friday. Near 3.206% is the 38% retracement of the October-February rally and a 38% retracement of the decline from April to the June 1st low. Following the June 1st low has been an a-b-c bounce correction (expanded flat) with last week's sharp rally fitting well as the completion of the a-b-c bounce. That interpretation calls for a continuation lower for TNX, down to the 2.5% area in the next couple of months. The bullish pattern calls for a continuation higher once the correction from last week's high is finished. So back above 3.206% would be bullish and a break below 2.92% would be bearish. I'm giving the nod to the bearish price path (bullish bonds) until proven otherwise. A bearish TNX would likely be bearish for the stock market as well so we'll continue to watch this carefully.

10-year Yield, TNX, Daily chart

The banks have been weak the past two days while the broader averages tried hard to hold up and even make marginal new highs. A rally without the banks is always suspect and this time is no different. But so far the banks have only pulled back and not done something more bearish. The BKX is a good representative and shows last week's rally broke back above its broken uptrend line from August-November (green), its downtrend line from April (at the same level), and its 50-dma, but the rally was stopped by its downtrend line from February where traders decided to take profits and/or reinitiate shorts. Yesterday it dropped back below its 50-dma (potentially bearish) and its uptrend line from August-November (also potentially bearish). So far its broken downtrend line from April is holding an a potentially bullish back test. So we've got some mixed signals at the moment but with a bearish tilt to the pattern. Another leg up should find resistance at its 200-dma near 50. A drop below today's low at 47.92 would be bearish.

KBW Bank index, BKX, Daily chart

The Transports are looking very bullish, now having pressed to a new high above the May high which is marginally above the 2007 high. The breakout to new all-time highs should have the bulls stampeding. But not so fast -- the pattern for the bounce off the 2009 low looks to be completing a rising wedge pattern with negative divergences at this year's highs supporting the bearish interpretation of the pattern. It might look bullish on the daily chart, and it could still press a little higher for a throw-over finish to the wedge pattern, but the wave count and rising wedge pattern on the weekly chart suggest an ending move here.

Transportation Index, TRAN, Weekly chart

The dollar left a bullish engulfing candlestick yesterday (an outside-up day following a gap down and lower low and then a higher high and close). It did this at its uptrend line from May 4th so today's climb back above its 50-dma at 74.67 was bullish confirmation that support is holding. It has left another higher low in place so the potential for an upside breakout is here (RSI holding its uptrend line supports the bullish view). But if the rally stalls near the top of a potential sideways triangle pattern, currently near 75.80, it could be the completion of the triangle pattern which calls for another selloff in the dollar, one that would likely take it down to the 71 area. Watch for a break above 76 to signal the all-clear signal to get long the dollar and hang on for what should be a strong ride to the upside. Otherwise a drop below 74 would be bearish, which in turn would support rallies in the stock and commodity markets.

U.S. Dollar contract, DX, Daily chart

Even with the dollar's rally this week it hasn't stopped the metals from rallying. Gold's rally off the July 1st low is now a 5-wave move and as such is ready for at least a pullback. But if the leg up from July 1st is the completion of an a-b-c bounce off the June 27th low (expanded flat correction with the July 1st low being a lower low) then gold is ready for a strong decline as the next move. A pullback that only corrects a portion of the rally from July 1st that is followed by another high above the current one would be a bullish move otherwise a sharp decline from here would signal the start of a stronger decline, one that could have gold down to 1420 in a couple of weeks.

Gold continuous contract, GC, Daily chart

Silver continues to consolidate sideways since its early-May low. A sideways triangle is depicted on its chart, the top of which is currently near its 50-dma at 37.08. A rally above this level would be bullish (other than a head-fake break above it) but the wave count inside the triangle supports the idea that it's about done here, or slightly higher, and will be followed by another strong decline. For those who are trying to short silver, it's taken a great deal of patience waiting for that next leg down. A break below the July 1st low at 33.47 would indicate the decline is underway. Notice that MACD continues to hold below the zero line, which so far is a bearish signal.

Silver continuous contract, SI, Daily chart

Oil has made it back above 96 and if it can continue to rally above its 50-dma at 99.76 it would be a bullish move. So far the bounce off the June 27th low has retraced 62% of the June 9-27 decline, setting up the possibility for a reversal back down from here. MACD is back up to the zero line so a cross back down would be a sell signal. Bullishly, RSI has broken its downtrend line from April so the oscillators are presenting a mixed message currently. MACD above zero would help confirm a bullish move. Back below 96 would be a bearish heads up and below its July 1st low at 93.45 would be a strong indication the next leg down has started.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports start off with the ADP Employment Change, which was moved from today. This will of course give traders a first look at what Friday's payrolls numbers will look like. The market is obviously very concerned about employment since signs of slowing in the economy will result in the loss of more jobs, a likely recession and of course a stock market decline. Stronger employment reports will at least offer some temporary encouragement for the bulls to keep buying. The unemployment claims numbers are not expected to move much, which unfortunately is not a good sign. Friday's reports will be very important.

Economic reports, summary and Key Trading Levels

One more chart for tonight for a stock that probably nobody trades -- GE (boooring). But while we might not trade it, this is a stock that is still one of the best reflectors of our economy since it's involved in so many parts of it, from financial to manufacturing, high tech to low tech. The weekly chart shows GE broke its uptrend line from March 2009 in June and on Friday and Tuesday it retested the trend line before closing lower yesterday. It also stopped just shy of its 50-dma and achieved a Fib projection for an a-b-c bounce off the June 10th low (to the penny at 19.26, which GE is typically good at doing). Today it gapped down but closed up +.01. The picture for GE at the moment is bearish but would become bullish if it's able to rally above 19.64, the 38% retracement of the 2007-2009 decline and its 20-week MA. And if GE is bearish it's a reflection of our economy.

General Electric, GE, Weekly chart

The charts have me thinking coin toss at the moment. Last week's rally stomped all over the bears and put the bulls back on the board. The bullish pattern off the June lows looks good for a continuation higher for at least a test of the May highs, if not a little higher into opex and possibly the week beyond.

But the bulls can't let up on the gas pedal here. At most they can (and need to) allow for a consolidation (choppy correction) before pressing higher again. Any deeper pullback will spell trouble for the bulls because of the retest of broken major uptrend lines (leaving bearish kiss goodbyes against them). Using SPX as our proxy, it needs to stay above 1320 to stay bullish and a break below 1315 would spell trouble.

Today is Wednesday prior to opex week and I've noticed that "head-fake Thursday" may be switching over to head-fake Wednesday. In any case, a sharp move leading into the start of opex week is oftentimes not the move we see in opex. And if the strong rally we've had leads to selling into next week it could get very strong.

So the pullbacks will provide the clues for the next several days -- a sharp decline will look more bearish than just a choppy pullback. If we get some sharp impulsive declines, look to short bounces following them. But a corrective sideways/down kind of consolidation should lead to another leg higher. One caveat on that though -- we've seen many tops formed in the past that looked like consolidations that were getting ready for another run higher. Any breakdown from a bullish consolidation pattern, such as a bull flag, would likely be very bearish so trade accordingly.

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

Key Levels for SPX:
- bullish above 1345
- bearish below 1315

Key Levels for DOW:
- bullish above 12,800
- bearish below 12,300

Key Levels for NDX:
- bullish above 2380
- bearish below 2300

Key Levels for RUT:
- bullish above 849
- bearish below 817

Keene H. Little, CMT

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New Plays

Molecular Diagnostics

by James Brown

Click here to email James Brown

Editor's Note:

A few additional candidates you may want to put on your watch list. I'd wait for a dip on these:

GGG, AVGO, NGLS, NEOG, and POL

- James


NEW BULLISH Plays

Cepheid - CPHD - close: 35.11 change: -0.39

Stop Loss: 31.85
Target(s): 33.00
Current Gain/Loss: unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
CPHD is a diagnostics company with a very bullish stock. Shares have been consistently climbing higher for months. This morning Goldman Sachs actually downgraded the stock to a neutral but CPHD rebounded off its lows near short-term support at the 10-dma.

CPHD has not closed under technical support at its 50-dma in several months. It has been a consistent entry point for the bulls. I am suggesting we launch bullish positions on a dip at $33.00. More conservative traders could wait for an actual dip to the simple 50-dma instead. If we are triggered at $33.00 we'll use a stop at $31.85. Our target is $36.00. Aggressive traders could certainly aim higher but we don't want to hold over earnings in late July (date is unconfirmed).

NOTE: Readers may want to avoid the call options. The spreads are wide. Currently the spread on the Aug. $35 call is 65 cents with a $2.05 ask. We'd immediately be down -30%.

Trigger @ 33.00

Suggested Position: buy CPHD stock @ $33.00

- or -

buy the AUG $35 call (CPHD1120H35)

Annotated chart:

Entry on July xx at $ xx.xx
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 484 thousand
Listed on July 6, 2011


In Play Updates and Reviews

Lack of Profit Taking

by James Brown

Click here to email James Brown

Editor's Note:
The fact that stocks are not seeing any profit taking following last week's gains is a bullish signal. That doesn't mean the market won't see profit taking but thus far no one is in a selling mood. Traders are probably waiting for the jobs data on Friday morning.

-James

Current Portfolio:


BULLISH Play Updates

AMBEV - ABV - close: 34.47 change: -0.02

Stop Loss: 31.25
Target(s): 35.75, 37.75
Current Gain/Loss: unopened
Time Frame: 6 to 9 weeks
New Positions: Yes, see trigger

Comments:
07/06 update: ABV spent the day hovering near its highs. I don't see any changes from my Tuesday night comments. I am suggesting bullish positions on a dip at $33.25. If triggered we'll use a stop loss at $31.25. Our multi-week upside targets are $35.75 and $37.75 (given enough time). My biggest concern is that I can't find an earnings report date for this Brazilian company. If they report earnings and miss or disappoint while we're long the stock it could be very painful.

Trigger @ $31.25

Suggested Position: buy ABV stock @ $31.25

- or -

buy the Aug. $34 call (ABV1120H34)

Entry on July x at $xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume: 6.3 million
Listed on July 5, 2011


American Express Co. - AXP - close: 52.76 change: +0.43

Stop Loss: 49.25
Target(s): 54.75
Current Gain/Loss: unopened
Time Frame: up to its earnings report
New Positions: Yes, see trigger

Comments:
07/06 update: AXP was bucking the trend in financials today. The banking indices and the XLF ETF all closed lower. Yet AXP posted a +0.8% gain after rebounding from its morning lows near $51.80.

There is no change from my weekend comments. On a short-term basis the stock is overbought. I am suggesting we launch bullish positions on a dip at $51.00. More conservative traders could wait for a dip closer to $50.00 instead. I'm setting our target at $54.90 but that might be a little optimistic since we do not want to hold over the July 20th earnings report.

Trigger @ 51.00

Suggested Position: buy AXP stock @ 51.00

- or -

buy the Aug. $50 call (AXP1120H50)

Entry on July x at $xx.xx
Earnings Date 07/20/11 (unconfirmed)
Average Daily Volume: 7.0 million
Listed on July 2, 2011


Cheesecake Factory Inc. - CAKE - close: 33.16 change: -0.18

Stop Loss: 30.75
Target(s): 33.60, 37.00
Current Gain/Loss: + 5.1%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
07/06 update: CAKE slipped -0.5% after churning sideways all day. There is no change from my prior comments. More conservative traders may want to exit the July calls immediately. I am not suggesting new bullish positions at this time. Currently our first target to take profits and exit the calls is at $33.60. The high today was only $33.40.

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

07/05 adjusted 1st target to $33.60
07/02 new stop loss @ 30.75
06/30 consider the opportunity cost of staying in CAKE. maybe you should exit early
06/28 New stop loss @ 29.65
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


Dr. Pepper Snapple - DPS - close: 42.81 change: +0.07

Stop Loss: 39.40
Target(s): 46.00
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
07/06 update: DPS saw its rally stall a bit today but shares still eked out a gain. Currently our plan is to buy a dip near support at $41.25. More aggressive traders may want to start inching up their trigger point to launch positions. Normally I would avoid holding over earnings but I am tempted to hold over DPS' late July earnings report. Our multi-week target is $46.00.

Trigger @ $41.25

Suggested Position: buy DPS stock @ $41.25

- or -

buy the Aug. $40 call (DPS1120H40)

Entry on July x at $xx.xx
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 1.8 million
Listed on June 30, 2011


Ecolab Inc. - ECL - close: 56.62 change: +0.23

Stop Loss: 53.45
Target(s): 57.00, 59.90
Current Gain/Loss: + 6.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
07/06 update: ECL continues to churn sideways inside the $56-57 zone. There is no change from my prior comments. Cautious traders may want to exit the July calls immediately to lock in a gain.

If ECL pulls back the stock should find some support near the $55.00 area. I am not suggesting new positions at current levels.

Current Position: Long ECL stock @ 53.35

- or -

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

07/02 Sell half. ECL @ 56.76 (+6.3%), Option @ $1.75 (+191.6%)
06/30 new stop loss @ 53.45
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


Interpublic Group - IPG - close: 12.59 change: -0.16

Stop Loss: 11.49
Target(s): 13.20
Current Gain/Loss: + 3.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
07/06 update: IPG was overbought and due for some profit taking. Shares lost -1.25% today. Don't be fooled by the afternoon rebound off its intraday low. I would expect a deeper correction. I am not suggesting new positions at this time. More conservative traders may want to use a stop closer to $12.00 instead.

Our plan was to keep our position size small. Our first target is $13.20 near the 2011 highs. FYI: We do not want to hold over the late July earnings report.

- small positions -

Current Position: Long IPG stock @ $12.17

- or -

Long Aug $12.00 call (IPG1120H12) Entry @ $0.85

07/02 new stop loss @ 11.49

Entry on June 29 at $12.17
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 7.5 million
Listed on June 28, 2011


Macy's Inc. - M - close: 28.87 change: -0.73

Stop Loss: 27.90
Target(s): 29.90, 32.25
Current Gain/Loss: + 2.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
07/06 update: After yesterday's failed rally at resistance near $30.00 shares of Macy's are accelerating lower. This is not a surprise and I cautioned readers to expect a pull back. Tomorrow could be interesting as several retailers will share their June same-store sales numbers. Positive results could naturally boost the retail stocks while a disappointment could spark additional profit taking.

Our final target remains $32.25 but cautious traders may want to exit our July calls completely right here.

I am not suggesting new positions at this time. Our plan was to keep positions small to limit our risk.

- small positions -

Current Position: Long M stock @ $28.30

- or -

(short-term)
Long July $29 call (M1116G29) Entry @ $0.56

- or -

(a bit longer-term)
Long Aug. $30 call (M1120H30) Entry @ $0.85

07/02 new stop loss @ 27.90
07/01 1st Target Hit @ 29.90 (+5.6%), options @ +107.1% (July) & +52.9% (Aug)

Entry on June 28 at $28.30
Earnings Date 08/10/11 (unconfirmed)
Average Daily Volume: 8.6 million
Listed on June 27, 2011


Marsh & McLennan Companies - MMC - close: 31.32 change: -0.16

Stop Loss: 29.75
Target(s): 34.00
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
07/06 update: MMC is still consolidating sideways. I am adjusting our buy-the-dip trigger fro $31.00 down to $30.65. If triggered we'll use a stop at $29.75. Our target is $34.00 but that might be a little optimistic. MMC does not move super fast. We do not want to hold over the early August earnings report.

Trigger @ 30.65

Suggested Position: buy MMC stock @ 31.00

- or -

buy the Aug. $31 call (MMC1120H31)

Entry on July x at $xx.xx
Earnings Date 08/03/11 (unconfirmed)
Average Daily Volume: 3.4 million
Listed on July 2, 2011


Nanometrics Inc. - NANO - close: 19.77 change: +0.03

Stop Loss: 17.65
Target(s): 19.25, 22.00
Current Gain/Loss: +17.5%
Time Frame: 6 to 8 weeks or more
New Positions: see below

Comments:
07/06 update: NANO is still holding up pretty well. Shares actually managed a gain today. There is no change from my prior comments.

If the market does see some profit taking this stock could easily fall toward $18.00 or lower. Cautious traders may want to exit completely right here since the $20.00 level is resistance. Our final target remains $22.00.

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

Current Position: Long NANO stock @ $16.82

07/05 new stop loss @ 17.65
07/02 new stop loss @ 17.45. Consider an early exit right here @ $20.00
06/30 new stop loss @ 16.90
06/28 First Target hit @ 19.25 (+14.4%)
06/28 New stop loss @ 16.49

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


UnitedHealth Group Inc. - UNH - close: 53.13 change: +0.28

Stop Loss: 49.85
Target(s): 54.75
Current Gain/Loss: + 3.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
07/06 update: UNH spent the day sliding sideways and just happened to end on an up note. There is no change from my weekend comments. I would wait for a dip into the $51.00-50.00 area before launching new positions.

We do not want to hold over the July 19th earnings report.

- small positions -

Suggested Position: Long UNH stock @ $51.25

- or -

Long July $50 call (UNH1116G50) Entry @ $2.07

07/02 new stop loss @ 49.85

Entry on June 24 at $51.25
Earnings Date 07/19/11 (confirmed)
Average Daily Volume: 7.9 million
Listed on June 23, 2011


BEARISH Play Updates

Aon Corp. - AON - close: 51.48 change: -0.03

Stop Loss: 52.05
Target(s): 47.00
Current Gain/Loss: + 0.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
07/06 update: Traders bought the dip at $51.00 this morning. We remain in danger here. Another surge higher in the stock market and AON might trade over resistance near $52.00. At the moment AON is hovering under its 100-dma. I am not suggesting new positions at this time.

(small positions only)

Current Position: short AON stock @ 51.61

07/02 Readers may want to exit early with AON @ 51.75
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


St. Jude Medical - STJ - close: 47.89 change: +0.15

Stop Loss: 50.05
Target(s): 47.00, 45.25
Current Gain/Loss: + 6.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
07/06 update: There was no follow through on yesterday's reversal lower, which is disappointing. Yet STJ still has a bearish trend of lower highs. Cautious traders may want to lower their stops closer to $49.00 instead. I'm 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

07/01 STJ has filled the gap just as expected
06/25 Adjusted final target to $45.25
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

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