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Temporarily Exhausted

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Play Editor's Note: Friday's rebound in the markets was impressive. Yet it was just another bear market rally fueled by short covering compounded by option expiration. We were way overdue for a bounce and the rebound might actually last a few days. It does have the potential to be a short-term trade-worthy bottom. Unfortunately, one day is not much to build on. The technical damage to the major averages last week was extremely bearish.

We are adding new bullish positions but I consider all of them to be very aggressive, higher-risk trades. I think we've found a few stocks were some of the indicators are suggesting that the selling has, if only temporarily, exhausted itself and that the risks for opening new bearish positions outweigh the risks for betting on a bounce. Readers should continue to trade defensively and use smaller position sizes to limit their risk.

FYI: A few more stocks for your watch list are:
ESRX - Delivered a huge bounce on Friday. I wouldn't be surprised to see it rally back toward resistance in the $58-59 zone.
FAST - Has managed to hold support near $32.00 for weeks now and did not violate that level on Thursday last week. Might be able to run towards $40.00.
IBM - This tech giant bounced from the $70 region. This might be a bullish candidate. I would target a move into the $80-85 zone.
XOM - Volume was pretty strong on Friday's huge rally in XOM. The 100-dma has been resistance the last few days. A breakout at the 100-dma or the $78.00 level might be a bullish entry point.


NEW DIRECTIONAL CALL PLAYS
Axsys Tech. - AXYS - close: 61.83 change: +2.66 stop: 56.95

Why We Like It:
Almost all the short-term technicals have turned bullish for AXYS and the longer-term technicals are definitely improving. You'll notice that AXYS posted a gain on Thursday instead of sinking like most of the market. Plus, you might notice the huge volume. Volume was more than 600 times the norm on Friday. Both events might be due to the news that AXYS has replaced ManTech Intl. in the S&P smallcap 600 index.

Overall the move is bullish and shares look like they could rally towards resistance at the $70.00 level. We are suggesting new bullish positions now or on a dip back toward $60.00. The market remains volatile so we're going to keep a wide stop loss for now. More conservative traders will want to consider a tighter stop loss. Our exit target is $69.50.

Suggested Options:
We are suggesting the December call options for AXYS. However, there appear to be some quote or pricing errors currently and we'll fill in the ask on Monday morning.

BUY CALL DEC 60.00 QHU-LL open interest= 16  current ask $0.00
BUY CALL DEC 65.00 QHU-LM open interest= 62  current ask $0.00
BUY CALL DEC 70.00 QHU-LN open interest= 14  current ask $0.00

Annotated Chart:
AXYS

Picked on November 22 at $ 61.83
Change since picked:      + 0.00
Earnings Date           02/19/09 (unconfirmed)
Average Daily Volume =       195 thousand 


Ball Corp. - BLL - close: 30.18 change: +1.27 stop: 27.99

Why We Like It:
BLL just completed its third test of support in the $28.00-27.50 zone. If BLL can bounce from here it would be a higher low and might suggest the selling pressure in exhausted. If the market is going to rebound further then we could easily see BLL make a run at the $35.00 region or its simple 50-dma, which has been resistance in the past. We're suggesting bullish positions now with a target at $34.00-34.50.

Note: This is just a trade. The long-term trend looks seriously damaged when BLL broke major support at $35.00. Expect that region to be resistance.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 30.00 BLL-LF open interest= 10  current ask $2.80
BUY CALL DEC 35.00 BLL-LG open interest=581  current ask $0.85

Annotated Chart:
BLL

Picked on November 22 at $ 30.18
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       1.3 million  


Entergy Corp. - ETR - close: 85.76 change: +8.77 stop: 79.65

Why We Like It:
ETR is an electric utility company who's share price has been consolidating sideways for almost two months. Friday's rally is a bullish breakout out of that consolidation pattern and past technical resistance at its 50-dma. The move helped produce a new bullish P&F chart forecast of $104.00. Volume on Friday's breakout was very strong and the close over short-term resistance at $84.00 is another victory for the bulls.

We're suggesting bullish positions right here but more conservative traders may want to wait for a dip back towards $84.00 again. We're going to try and limit our risk with a stop loss under the late Friday afternoon low at $79.65. We're setting two targets. Our first target to take profits is $92.50. Our secondary target is $97.50. Keep a wary eye on possible resistance at the 100-dma and exponential 200-dma overhead.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 85.00 ETR-LQ open interest= 387 current ask $7.30
BUY CALL DEC 90.00 ETR-LR open interest=1224 current ask $4.90
BUY CALL DEC 95.00 ETR-LS open interest= 768 current ask $3.30

Annotated Chart:
ETR

Picked on November 22 at $ 85.76
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       2.3 million  


Fluor Corp. - FLR - close: 31.90 change: +2.34 stop: 28.49

Why We Like It:
This is a very aggressive play as we're trying to call a short-term bottom in FLR. The stock bounced near its October lows on Friday and short covering carried it to a 7.9% gain. The trend is still very bearish but it FLR can bounce from here it would be a bullish double bottom pattern. If you don't want to chase it at $31.90 then consider waiting for a dip back towards $30.00. There has been some talk that construction companies like FLR might do well if the Obama presidency includes some infrastructure deals but I think it's a little early to start making bets on that.

We are listing two targets. Our first target is $35.50. Our second target is $39.50. FYI: The P&F chart is still bearish with a $22 target.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 30.00 FEM-LF open interest= 298 current ask $5.00
BUY CALL DEC 35.00 FEM-LG open interest= 554 current ask $2.55
BUY CALL DEC 40.00 FEM-LH open interest=2106 current ask $1.25

Annotated Chart:
FLR

Picked on November 22 at $ 31.90
Change since picked:      + 0.00
Earnings Date           02/26/09 (unconfirmed)
Average Daily Volume =       5.7 million  


Research In Motion - RIMM - close: 44.80 change: +3.28 stop: 41.25

Why We Like It:
RIMM has received a lot of positive press about its latest product launches. Investors might respond to some of the positive press if the stock market can stop falling for a few days. Looking back the stock was just crushed back in September after its last earnings report. Now in the past few weeks RIMM has been trying to build a base at long-term support near $40.00. The mid-November dip in the 38.50-40.00 zone really looks like a possible bottom here and last week's low can be considered a higher low. Some of the short-term momentum indicators are also suggesting RIMM's next move may be higher.

If the market is going to rebound from here then I expect RIMM to out perform. We're suggesting calls with a stop loss under Friday's low. We have two targets. Our first target is $48.00, which should line up with the trend of lower highs (see chart). You'll want to take some money off the table there. Our second target is much more aggressive as we're aiming for the $54.50 mark under the early November peak. Note: We do not want to hold over the mid December earnings report.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 45.00 RFY-LI open interest=5160 current ask $6.00
BUY CALL DEC 50.00 RFY-LJ open interest=7224 current ask $4.00

Annotated Chart:
RIMM

Picked on November 22 at $ 44.80
Change since picked:      + 0.00
Earnings Date           12/18/08 (confirmed)
Average Daily Volume =      35.6 million  


Sears Holding - SHLD - close: 30.44 change: +0.37 stop: 26.75

Why We Like It:
All right, let me stop you before you send me any hate mail for adding SHLD as a bullish play. I fully realize that we are still moving deeper into the recession and that consumer spending is probably going to get a lot worse before it gets better. Unemployment is still rising. Many believe that this will be the worst Christmas shopping season in over 20 years. So why buy calls on SHLD? You might be able to argue that the drop from $108 to $27 in the last ten weeks has already priced in the economic slowdown.

I would like to point out that when the S&P 500 was crashing lower on Wednesday and Thursday last week shares of SHLD were calmly trading sideways in the $27-30 zone. SHLD has found support near $27.00 for almost four days in a row. Volume has been above average those same four days. This really looks a possible short-term bottom for SHLD. Of course it's entirely possible that this is just a speed bump on the way down. Bears have stopped just long enough to fill up the gas tank again. That may be true. SHLD reports earnings in early December and their results could push the stock to new lows. We do not want to hold over that announcement. That's probably the worst part about this play is that we only have five trading days for it to work.

We're suggesting readers buy calls now with a wide (a.k.a. aggressive, high-risk) stop loss at $26.75. We have two targets. Our first target is $34.90. Our second target is $39.50.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 30.00 KTQ-LF open interest= 551 current ask $6.20
BUY CALL DEC 35.00 KTQ-LH open interest=1947 current ask $4.10

Annotated Chart:
SHLD

Picked on November 22 at $ 30.44
Change since picked:      + 0.00
Earnings Date           12/02/08 (confirmed)
Average Daily Volume =       2.2 million  


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