Option Investor
Newsletter

Daily Newsletter, Thursday, 5/24/2012

Table of Contents

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

Market Wrap

Markets Struggle With Data

by Thomas Hughes

Click here to email Thomas Hughes
Stocks traded in a tight range today as economic data, news from abroad, earnings and the developing 2012 outlook competed for dominance. Signs the global economy is slowing more than expected are in contrast to signs of economic life here at home.



Without a doubt the economy is still sluggish and on shaky ground but it is still growing and there are reasons to think we could see further strengthening by the end of the year. The jobless rate is trending lower and newly released unemployment data supports the trend. Initial claims for unemployment in the week ending May 18, 2012 dropped from an upwardly revised 372,000 to 370,000. The data from last week was revised upward by 2000 points, canceling out this weeks drop. On a week to week basis initial reported claims remain flat. The four week moving average of initial claims fell by 5,500 to a six week low 370,000. The four week moving average is currently inline with the initial claims number and could lead the number lower. Analysts had been expecting initial claims to rise by 1,000 to 373,000.



Continuing claims for unemployment, those people filing for a second week of unemployment benefits, fell by 29,000 claims to 3.26 million. This furthers the declining trend in continuing claims we have seen since the beginning of the year.


The total number of Americans on unemployment benefits also fell. The number lags initial claims by two weeks and is unrevised. Total claims declined by 105,004 to a new 2012 low. It is clear that fewer and fewer Americans are without jobs, the question that remains is “how many have actually found work”. The ADP private sector employment figures and the April jobs number both come out next week and will help to answer that question.


In other economic news US durable goods orders inched up, led by increased demand in automobiles. Durable goods orders increased by 0.2%, surprising economists who had been expecting a -0.4% drop. The increase April orders follows a -3.7 decline in March orders. In total, orders for US durable goods increased by a total of $215.5 billion. Excluding transportation orders fell in April by 0.6%. The data underscores the strengthening US automotive sector which has been experiencing growth since last year.

General Motors and Ford Motor Company traded mixed on the news. Shares of GM fell moderately while shares of Ford managed to make a gain in today's rocky trading.

GM, daily

Ford, daily

Headlines from Europe and Asia suggest that the global economy is weakening more than expected. Germany, who is the pillar of the European Union, suffered a decline in business confidence in April coincident with a sharp drop in manufacturing. The Markitt Flash PMI shows that German manufacturing is shrinking at an accelerated pace. The March manufacturing PMI number was 46.2, April declined to 45.0. Any reading below 50 shows contraction in the sector. The services portion of the PMI was 52.2, showing a modest increase in that sector but the composite figure of 49.6 shows that the German business spending is in decline. New and export orders for German goods are also in decline, primarily on weak domestic and Asian demand.

The pundits continue to speculate on whether or not Greece will exit the Eurozone. The failure of EU leaders to agree on bailout measures is leading to a further decline in the total EU economy. Their failure to act decisively and with one voice is one of the reasons why the crisis is spreading. Greek banks are expected to be re-capitalized soon and that should alleviate some of the stress in the near term.

The European markets closed higher today, rebounding from the recent weakness. The FTSE closed higher by 1.59%, followed by the CAC 40 with a 1.16% gain and the Xetra DAX with a 0.48% increase.

The HSBC China Flash PMI also declined in another sign the country is slowing more than anticipated. The May reading came in at 48.7, down from 49.3 in April and the sharpest decline in Chinese business this year. Analysts are expecting the Chinese government to intervene with some form of stimulus soon in order to help soften the economic decline.

Asian shares ended the day mixed. The slowing Chinese economy and growing concerns over Greece and the EU weighed on stocks. The Nikkei gained a modest 0.08% while the Hand Seng and China indexes lost about a half percent each.

Gold and Oil were both up today. Gold climbed about 1% on today's news and weakness in the dollar. Silver and copper were both strong as well. Silver gained about 2% and copper about 1%. The CBOE gold index crossed above the short term moving average yesterday and held its ground today.

Gold Index, daily

Crude oil climbed over 1% today. Iraq's issues over nuclear weapons has renewed fears of oil supply disruptions in the region. Fears of global slowdown tempered the outlook for demand and helped to moderate today's spike in price. Oil is still trading at an eight month low but prices at the pump have yet to reflect the full decline.

Facebook is still making more headlines than anything else in the financial news. The problems with the NASDAQ's handling of the IPO as well as irregularities with the pricing of the IPO are coming under intense scrutiny. CNBC reported that the Nasdaq is making some effort to curb the fall-out from the so-called disaster. There is growing speculation that Facebook will switch listing to the NYSE but I don't know what that would do for them now that the stock is trading actively. Facebook was one of the most active stocks on the Nasdaq today and volatility seems to be calming in the stock. Share price is settling around $32 while Nasdaq executives and regulators work the issue out. Any new developments could send stock price either way.

Facebook, One week chart

Earnings season is mostly over but there are still a few big names reporting today. HJ Heinz Company reported lower quarterly earnings today. The company's profits were hurt by one time charges related to the productivity improvements enacted by Heinz. Discounting the charges, the food distributor's earnings in the period increased significantly and beat the consensus estimate. The company stated its outlook for the rest of the year in the release and shares took a dive in pre-market trading. The outlook for the following quarter fell short of expectations. Shares of the stock found support at $53 and managed to trade up from there on higher than average volume.

HJ Heinz Company

Hewlett Packard and CEO Meg Whitman were in the spotlight today after the company released its earnings. The company beat expectations for revenue and profit. Total profits in the quarter totaled $1.6 billion or $0.98 per share. The consensus estimate was $0.91 per share. The company also announced a major round of layoffs as part of a restructuring plan that is intended to position the company for growth in 2013. In an interview today Ms. Whitman said that Hewlett Packard was “concerned” about Europe and its affect on business in 2012. The stock jumped in early trading gapping open nicely this morning. However, the bears were out and the stock sold off during the day but managed to maintain a gain over yesterday's close.

Hewlett Packard, daily

Costco is another company that reported today. The discount retailer posted an increase in net sales and profits in the quarter. The company's net income climbed 19% in the quarter on lower asset costs and increased member revenue. The company earned $0.88 per share, up from last years $0.73. The stock jumped today but met resistance at the short term moving average.

Costco, daily

Flowers foods bloomed today to the delight of investors. The stock gained over 7% today, crossing over the short term moving average on more than double the average daily volume. The move was sparked by a surprise increase in the company's business, evidenced by the rise in quarterly revenue. The income was hurt though by the rising costs of ingredients and energy. Earnings were only down 2 cents from last year, a decline easily overcome by increasing business and lower fuel costs.

Flowers Foods, daily

Tiffany and Co made a new low today after its earnings statement hit the street. The luxury retailer reported that earnings in the quarter rose slightly over last year and that the outlook for 2012 was weakening due to rapid deceleration. Shares of the stock lost about 7% today on heavy volume.

Tiffany and Co, daily

Patriot Coal received some downgrades today as the result of a negative credit rating adjustment by Standard & Poors. The company's credit rating was reduced to CCC based on a negative outlook and a perceived ability to meet near term debt obligations. The stock has been in a downward trend and is trading near recent lows. Deutsch Bank downgraded the stock to hold from buy.

Patriot Coal, daily

Bank Of America remains one of the most active stocks on the market with around 200 million shares traded daily. The stock has been under heavy pressure the last two months but bearish momentum seems to be running out. The stock gapped open with the general market but sold off during the day.

Bank of America, daily

The large cap financial sector is in decline. The global economic outlook and exposure to the European banking system have put the big banks at risk. The financial sector Spider (XLF) is in a near term bear market. The stock has made a new lower low and is now forming a potential bear flag. Momentum is bearish and consistent with a further decline.

Financial Sector Spider, daily

NetApp's shares hit a new low today. The data-storage company expects quarterly earnings to be weak due to seasonal slowness and the global economy. The company's estimates fell short of the consensus and sent shares tumbling in after hours trading yesterday. Today, the stock opened about 13% lower than yesterday's close and traded on high volume. The company has over $10 per share of cash on hand and is a potential take over target.

NetApp, daily

The Dow hovered around neutral today, trading in a tight range around 12,500 and the 200 day moving average. The index traded in negative territory for much of the day but a late afternoon rally put the Dow up by 0.27%. Despite the small gain the index is in a near term down-trend and is possibly forming a bear flag. The long term momentum is bearish and gaining strength. In the near-term, bearish momentum is subsiding but the last two peaks are consistent with a continuation of the current downward trend. The markets are very sensitive to news and economic data and some highly anticipated information is due out soon. The next few days to a week will be very important for how the Dow trades over the summer and into the fall.

Dow, daily

Dow, weekly

The S&P 500 is in the same shape as the Dow. The index traded in a tight range today, eking out late afternoon gains but closing off of the day's high's. The broader index is trending down and forming a potential bear flag.

S&P 500, daily

The VIX is trending higher as global worries weigh on stocks. The volatility indexes short term moving average has moved over the $20 resistance level.

The VIX, daily

The Nasdaq has had a rough week during the Facebook fiasco. The tech heavy index has made a steeper decline than the other two major indexes but is trending basically in tandem with them. The Nasdaq was not able to rally into the close and lost a little on the day. The index is sitting just above the 200 day moving average with bearish technical indicators.

Nasdaq, daily

The market has been struggling with the dichotomy of a possibly strengthening domestic economy and a weakening global economy. Signs at home point to declining joblessness, which, added to lower energy costs, are expected help spur the economy. However, the business outlook for the second and third quarters of calendar 2012 stated by some of the larger corporations do not concur. Sales figures and estimates have been guided lower, today's cautions from Hewlett Packard are only the most recent.

The ADP figures on private sector payrolls is out next week, followed by the April jobs data. The ADP report is expected to increase to 165 thousand from last months 119 thousand and supports the trend in declining joblessness. First quarter GDP revisions are also due out next week. The expectations are for first quarter GDP to revise down to 1.9% from the earlier estimates just over 2%. The effects from the drop in unemployment and decline in oil prices will be seen in the second quarter GDP data.

Tomorrow look out for consumer sentiment and news from Europe and Asia.

Thomas Hughes


New Plays

Fertilizer, Networking, & Resorts

by James Brown

Click here to email James Brown

Editor's Note:

While looking for trading candidates tonight I noticed that Sturm Ruger (RGR) appears to be finding support at its exponential 200-dma. Traders could use a rally past $41.50 or $42.00 as a bullish entry point although I would consider buying a bounce in RGR a higher-risk trade. The stock is definitely oversold and due for a bounce. The $45.00 and $46.75 levels could be overhead resistance.


NEW BULLISH Plays

Potash Corp. - POT - close: 40.20 change: +0.93

Stop Loss: 38.90
Target(s): the 50-dma (currently 43.20)
Current Gain/Loss: unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
POT manufacturers the materials used in fertilizers. The stock has found support in the $39.00-38.50 zone near its December 2011 lows. Now shares are bouncing back above round-number resistance at $40.00.

POT can be a volatile stock so I am suggesting we keep our position size small. The high today was $40.22. Let's use a trigger at $40.30 to open small bullish positions. We'll stop loss at $38.90. There is potential resistance near $42.00 but we're aiming for the 50-dma (currently at $43.20).

Trigger @ 40.30 (small positions)

Suggested Position: buy POT stock @ (trigger)

- or -

buy the JUN $40 call (POT1216F40) current ask $1.46

Annotated chart:

Entry on May xx at $ xx.xx
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 5.4 million
Listed on May 24, 2011


NEW BEARISH Plays

Netgear Inc. - NTGR - close: 30.48 change: -1.87

Stop Loss: 31.55
Target(s): 26.00
Current Gain/Loss: unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
NTGR makes networking equipment. Shares have broken down to multi-month lows this month. Today saw NTGR's oversold bounce reverse sharply lower. Now the stock is poised to break key support near $30.00.

I am suggesting a trigger to open bearish positions at $29.75 with a stop at $31.55. Our multi-week target is $26.00.
FYI: The Point & Figure chart for NTGR is bearish with a $25.00 target.

Trigger @ 29.75

Suggested Position: short NTGR stock @ (trigger)

- or -

buy the Jun $30 PUT (NTGR1216R30) current ask $1.45

Annotated chart:

Entry on May xx at $ xx.xx
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 549 thousand
Listed on May 24, 2011


Marriott Vacations Worldwide - VAC - close: 28.05 change: -0.70

Stop Loss: 30.05
Target(s): 25.25
Current Gain/Loss: + 0.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
VAC reported better than expected earnings back in early May. Yet it wasn't until Goldman Sachs upgraded the stock on May 10th that the rally picked up speed. VAC surged to the $33 level before collapsing in what appears to be profit taking. Now that profit taking has pushed the stock through what should have been support near $30 and a cloud of moving averages. Today's drop confirms the close under its 50-dma.

I am suggesting small bearish positions at the open tomorrow with a stop loss at $30.05. Our target is $25.25.

(small positions)

Suggested Position: short VAC stock @ (the open)

Annotated chart:

Entry on May xx at $ xx.xx
Earnings Date 08/02/12 (unconfirmed)
Average Daily Volume = 495 thousand
Listed on May 24, 2011



In Play Updates and Reviews

A Relatively Quiet Thursday

by James Brown

Click here to email James Brown

Editor's Note:
The market's major indices chopped sideways but the market's were not that volatile. Some of our bearish candidates failed to see any follow through on yesterday's bounce.

We did close our PSSI trade as planned. The new EBIX trade was triggered.

Current Portfolio:


BULLISH Play Updates

Market Leader, Inc. - LEDR - close: 4.51 change: +0.04

Stop Loss: 3.95
Target(s): 6.00
Current Gain/Loss: + 3.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/24 update: LEDR saw some volatility today with an intraday spike down to $4.20 near its 10-dma before quickly bouncing back. The $4.20 area remains a good spot to look for a new bullish entry point.

Earlier Comments:
We'll try and limit our risk by keeping our position size small. FYI: The Point & Figure chart for LEDR is bullish with a $6.75 target. Remember, small positions. Don't go overboard just because the share price is low. I would consider this a higher-risk trade.

Current Position: Long LEDR stock @ $4.35

05/23/12 new stop loss @ 3.95
05/21/12 triggered at $4.35

Entry on May 21 at $4.35
Earnings Date 05/01/12
Average Daily Volume = 77 thousand
Listed on May 19, 2011


AT&T, Inc. - T - close: 33.64 change: +0.28

Stop Loss: 32.90
Target(s): 36.00
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
05/24 update: Shares of T displayed some strength with a +0.8% gain and a new close back above its 10-dma.

I am suggesting a trigger at $34.05 to launch bullish positions. We'll use a stop at $32.90. FYI: The Point & Figure chart for T is bullish with a long-term $54.50 target.

Trigger @ 34.05

Suggested Position: buy T stock @ (trigger)

- or -

buy the Jun $33 call (T1216F33)

Entry on May xx at $ xx.xx
Earnings Date 07/19/12 (unconfirmed)
Average Daily Volume = 28 million
Listed on May 19, 2011


EXCO Resources - XCO - close: 7.95 change: +0.05

Stop Loss: 7.45
Target(s): 9.25
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Comments:
05/24 update: Thursday was a quiet session for XCO with shares churning sideways in a very narrow range under resistance at the $8.00 level. You could view this as the stock coiling, like a spring, for a breakout higher.

If XCO can breakout it could see a short squeeze. The most recent data listed short interest at 27% of the 135 million-share float.

I am suggesting a trigger to open bullish positions at $8.05. We'll use a stop loss at $7.45. Our target is $9.25.

Trigger @ $8.05

Suggested Position: buy XCO stock @ (trigger)

- or -

buy the JUN $8.00 call (XCO1216F8)

Entry on May xx at $ xx.xx
Earnings Date 07/31/12 (unconfirmed)
Average Daily Volume = 7.0 million
Listed on May 22, 2011


BEARISH Play Updates

Acme Packet, Inc. - APKT - close: 22.96 change: -1.31

Stop Loss: 25.05
Target(s): 20.50
Current Gain/Loss: + 5.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/24 update: Good news! There was no follow through on yesterday's big bounce in APKT. As a matter of fact the stock reversed sharply lower and today's -5.39% plunge erased yesterday's gains.

Earlier Comments:
We also want to keep our position size small because the most recent data listed short interest at 17% of the 58.2 million-share float, which does raise the risk of a short squeeze. FYI: The Point & Figure chart for APKT is bearish with a $13.00 target.

(small positions)

Current Position: short APKT stock @ $24.18

- or -

Long Jun $25 PUT (APKT1216R25) Entry $1.90

05/19/12 new stop loss @ 25.05, adjust exit target to $20.50
05/17/12 new stop loss @ 25.55

Entry on May 14 at $24.18
Earnings Date 07/19/12 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on May 12, 2011


American Railcar Ind. - ARII - close: 22.01 change: -0.28

Stop Loss: 23.55
Target(s): 20.05 or 18.55
Current Gain/Loss: + 1.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/24 update: ARII also erased yesterday's gains but the stock is still poised to bounce toward technical resistance at its 200-dma. A failure near the 200-dma can be used as a new entry point.

Earlier Comments:
We have two targets. Our conservative target is $20.05. Our aggressive target is $18.55. FYI: The Point & Figure chart for ARII is bearish with a long-term $14.00 target.

Suggested Position: short ARII stock @ $22.23

05/17/12 new stop loss @ 23.55

Entry on May 16 at $22.23
Earnings Date 07/25/12 (unconfirmed)
Average Daily Volume = 108 thousand
Listed on May 15, 2011


Companhia Brasileira de Distribuicao - CBD - cls: 38.79 chg: +0.19

Stop Loss: 40.55
Target(s): 35.25
Current Gain/Loss: + 2.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/24 update: After yesterday's big drop CBD produced a bit of a bounce today. Readers can look for a bounce or a failed rally near $40 as a new bearish entry point.

Earlier Comments:
We'll try and limit our risk by using small positions

(small positions)

Current Position: short CBD stock @ $39.59

05/23/12 new stop loss @ 40.55
05/23/12 traded opened on gap down at $39.59, below our trigger 39.70

Entry on May 23 at $39.59 (gap down)
Earnings Date 05/23/12 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on May 22, 2011


DeVry Inc. - DV - close: 27.90 change: -0.33

Stop Loss: 30.35
Target(s): 26.75
Current Gain/Loss: + 5.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/24 update: The oversold bounce in DV is already fading. Shares lost -1.1% today. More conservative traders may want to go ahead and start taking profits now, especially if you're holding the June $30 puts. I am not suggesting new positions at this time.

Please note that I am adjusting our exit target to $26.75.

FYI: The Point & Figure chart for DV is bearish with a $19.00 target.

current Position: short DV stock @ $29.62

- or -

Long Jun $30 PUT (DV1216R30) Entry $1.35

05/24/12 adjusting exit target to $26.75
05/17/12 new stop loss @ 30.35

Entry on May 14 at $29.62
Earnings Date 08/09/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on May 12, 2011


Ebix, Inc. - EBIX - close: 17.97 change: -0.23

Stop Loss: 19.05
Target(s): 16.05
Current Gain/Loss: - 0.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/24 update: We did not have to wait very long for EBIX to break support at $18.00 and hit our trigger at $17.90. Shares fell to $17.52 intraday before trimming its losses. I would still consider new bearish positions at current levels.

Our first target is $16.15. We want to keep our position size small to limit our risk because EBIX could see a short squeeze. The most recent data listed short interest at 29% of the small 34.6 million share float. Readers may want to use put options to limit risk instead of shorting the stock.
FYI: The Point & Figure chart for EBIX is bearish with a $12.00 target.

Current Position: short EBIX stock @ $17.90

- or -

Long JUN $18 PUT (EBIX1216R18) Entry $0.90

05/24/12 triggered @ 17.90

Entry on May 23 at $17.90
Earnings Date 08/07/12 (unconfirmed)
Average Daily Volume = 386 thousand
Listed on May 23, 2011


Fusion-io, Inc. - FIO - close: 20.56 change: +0.17

Stop Loss: 22.05
Target(s): 17.00
Current Gain/Loss: - 2.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/24 update: FIO is not cooperating. The early morning rally did fade and shares trimmed their gains to just +0.8% but the stock looks poised to bounce again. Shares are sitting about four cents under their 10-dma at $20.60. Cautious traders may want to abandon ship early and exit now. I am not suggesting new positions at this time.

Earlier Comments:
This is a higher-risk, aggressive trade. We want to keep our position size small because there has been some M&A rumors with FIO as a takeover target. Traders may want to limit their risk by using put options. FYI: The Point & Figure chart for FIO is bearish with a $16.00 target.

(small positions)

Suggested Position: short FIO stock @ $20.09

- or -

Long Jun $17.50 PUT (FIO1216R17.5) Entry $0.85

Entry on May 18 at $20.09
Earnings Date 08/02/12 (unconfirmed)
Average Daily Volume = 4.1 million
Listed on May 17, 2011


Foster Wheeler AG - FWLT - close: 18.98 change: +0.42

Stop Loss: 20.35
Target(s): 17.25
Current Gain/Loss: + 2.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/24 update: FWLT produced another oversold bounce with a +2.2% gain. Yet shares remain under short-term technical resistance at their 10-dma. More conservative traders may want to inch down their stops. I am not suggesting new positions at this time.

current Position: short FWLT stock @ $19.53

- or -

Long Jun $20 PUT (FWLT1216R20) Entry $1.40

05/22/12 new stop loss @ 20.35

Entry on May 17 at $19.53
Earnings Date 08/02/12 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on May 16, 2011


General Motors - GM - close: 22.04 change: -0.09

Stop Loss: 22.65
Target(s): 19.25
Current Gain/Loss: - 2.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/24 update: It was a quiet day for shares of GM, which didn't provide any clues if the stock would continue to bounce or roll over. A failure near the descending 20-dma could be used as a new bearish entry point.

current Position: short GM stock @ $21.57

- or -

Long Jun $20 PUT (GM1216R20) Entry $0.39

05/19/12 new stop loss @ 22.65
05/15/12 after the closing bell it is discovered in a 13F filing that Berkshire Hathaway has initiated a position in GM.
Shares of GM are trading higher after hours.

Entry on May 15 at $21.57
Earnings Date 08/02/12 (unconfirmed)
Average Daily Volume = 10.5 million
Listed on May 14, 2011


Hospira Inc. - HSP - close: 31.98 change: +0.05

Stop Loss: 33.55
Target(s): 30.25
Current Gain/Loss: + 2.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/24 update: The sideways trading in HSP today did not offer any clues. The current trend is down. The $33 level should be overhead resistance. I am not suggesting new positions at this time.

FYI: Readers should note that HSP does have above average short interest. The most recent data listed short interest at 7.8% of the 165 million share float.

current Position: short HSP stock @ $32.95

- or -

Long Jun $30 PUT (HSP1216R30) Entry $0.35

05/23/12 new stop loss @ 33.55
05/14/12 opened on the gap down at $32.95, trigger was 33.20

Entry on May 14 at $32.95
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on May 9, 2011


Sohu.com - SOHU - close: 44.40 change: -0.44

Stop Loss: 45.55
Target(s): 40.50
Current Gain/Loss: + 1.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/24 update: Once again there was no follow through on SOHU's big bounce. I still consider our trade to be in danger here. A breakout past resistance near $45.00 probably leads to SOHU hitting our stop loss at $45.55 shortly thereafter. I am not suggesting new positions at this time.

Earlier Comments:
I do consider this a more aggressive, higher-risk trade. We want to keep our position small because the most recent data listed short interest at almost 34% of the small 29.75 million-share float. Our target is $40.25.
FYI: The Point & Figure chart for SOHU is bearish with a $35.00 target.

current Position: short SOHU stock @ $44.90

- or -

Long Jun $42.50 PUT (SOHU1216R42.5) Entry $1.95

05/19/12 new stop loss @ 45.55, adjust exit to $40.50
05/17/12 new stop loss @ 46.25
05/14/12 triggered @ 44.90

Entry on May 14 at $44.90
Earnings Date 07/30/12 (unconfirmed)
Average Daily Volume = 915 thousand
Listed on May 10, 2011


CLOSED BULLISH PLAYS

PSS World Medical - PSSI - close: 19.58 change: +0.58

Stop Loss: 18.60
Target(s): 21.50
Current Gain/Loss: - 2.1%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
05/24 update: It's tough to keep our emotions out of a trade when a stock moves against you. In this case PSSI had been underperforming and last night we decided to exit early this morning at the open to cut our losses. PSSI opened at $18.94 and churned sideways for a while before surging higher midday to a +3.0% gain. I don't see any specific news to account for the rally that began around 1:00 o'clock this afternoon.

(small positions)

closed Position: Long PSSI stock @ $19.35 exit $18.94 (-2.1%)

- or -

Jun $20 call (PSSI1216F20) Entry $0.50 exit $0.25 (-50.0%)

05/24/12 scheduled exit at the open
05/23/12 prepare to exit tomorrow at the open to cut our losses

chart:

Entry on May 23 at $19.35
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 928 thousand
Listed on May 21, 2011