Option Investor
New Plays

Four new plays and a Watch List

HAVING TROUBLE PRINTING?
Printer friendly version

Play Editor's Note: Wednesday's market rally was pretty encouraging. Bears tried to take it down midday but stocks rebounded and closed near their highs for the session. We are still in a bear market but I suspect this rebound may have farther to run. I am cautiously adding new bullish candidates to the newsletter but we need to be defensive here. Keep your positions small. Don't try to trade everything but only the handful that you really like and can stay on top of. If the major market indices can't break out past last Friday's high then we need to be quick to raise stops or hit the eject button. A test of resistance and a minor pull back would be normal but if we don't set a new higher low it will spell trouble.

Note: I have listed three Chinese stocks tonight. I would not play all of them. Try to limit your risk to the Chinese market, which can be even more volatile than our own.

Here are a few stocks I'm watching:

TEF - If I had more time I would have added TEF to the play list. Use a stop under $58.00. My target would be the 100-dma.

MCD - This stock has broken out over technical resistance at its 100-dma and 200-dma. Shares still have round-number resistance at $60.00. This may be a bullish candidate to watch! Next level of resistance would be $65.00.

BDX - I came close to adding BDX as a call candidate tonight. Support near $62.00 has been holding up pretty well. There is some resistance near the 30-dma. A bullish target would be the $70.00 region or the 50-dma.

HBC - This stock has found support again at the $50.00 level. The financials can be tough to play due to the volatility in the sector but this might be an entry point. There is some resistance at $55.00 but the P&F chart is bullish with a $76 target.


NEW DIRECTIONAL CALL PLAYS

Alliant Tech. - ATK - close: 81.05 change: +2.00 stop: 77.99

Why We Like It:
We are increasing our exposure to the defense sector. We already have LMT on the newsletter and now we're adding ATK as a call candidate. The last couple of days have seen ATK find new support at its simple 10-dma. Short-term technical indicators have turned positive and we're seeing some bullish divergences between price and technicals. The Point & Figure chart is already bullish with a $95 target but the P&F chart also shows resistance at $82.00.

We are suggesting readers buy calls now with a stop loss at $77.99. More conservative traders may want to wait for a move over $82.00 first or use a tighter stop (maybe 78.50ish). Our target is the $86.50 mark.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 80.00 ATK-AP open interest= 758 current ask $6.20
BUY CALL JAN 85.00 ATK-AQ open interest=  72 current ask $3.70

Annotated Chart:
ATK

Picked on December 03 at $ 81.05
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       424 thousand 


China Mobile Ltd. - CHL - close: 47.85 change: +1.44 stop: 44.24

Why We Like It:
Shares of CHL are breaking out from their year-long bearish trend. It's taken a few days to digest the move but CHL finally looks ready to make a run higher. The Chinese market can be volatile so we're going to use a wide stop loss. More conservative traders will want to consider a tighter stop. We are suggesting readers buy call positions now or on a dip near $46.00. We have two targets. Our first target is $51.75 just under the 100-dma. Our secondary target is $57.00. FYI: The P&F chart is bullish with a $64 target but shows possible resistance near $54.

Note: I was unable to find an earnings date for CHL, which does raise our risk since we prefer to avoid holding over an earnings report.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 45.00 CHL-AI open interest=2692 current ask $6.30
BUY CALL JAN 50.00 CHL-AJ open interest=2710 current ask $3.50
BUY CALL JAN 55.00 CHL-AK open interest=2169 current ask $1.65

Annotated Chart:
CHL

Picked on December 03 at $ 47.85
Change since picked:      + 0.00
Earnings Date           00/00/08 (unconfirmed)
Average Daily Volume =       3.9 million  


FTSE/Xinhau China Index - FXI - close: 27.25 chg: +0.84 stop: 24.95

Why We Like It:
The FXI is a Chinese market ETF that appears on the verge of a breakout over resistance in the $27.50-28.00 zone. This security rallied right to its 50-dma on Wednesday. If the rally continues it could see some explosive moves higher. Most of the technicals have turned bullish although the P&F chart hasn't reversed higher yet. We're suggesting readers buy calls here or on a dip above the $25.50 level. There is the possibility that Chinese markets will rally tomorrow in response to today's strength in the U.S. markets and that could have the FXI gapping higher. We would not open positions if the FXI gaps open above $30.00. Our target is the $32.50-34.00 zone.

Suggested Options:
We are suggesting the January calls. Strikes are available at $1.00 increments.

BUY CALL JAN 28.00 FXI-AB open interest= 713 current ask $2.90
BUY CALL JAN 30.00 FXI-AD open interest=11220 current ask $2.10
BUY CALL JAN 32.00 FXI-AF open interest=1977 current ask $1.50

Annotated Chart:
FXI

Picked on December 03 at $ 27.25
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =      51.2 million  


PetroChina - PTR - close: 83.53 change: +1.93 stop: 78.85

Why We Like It:
PTR is part of the state-run oil and gas industry and shares have broken out from their bearish trend. The recent bounce back above the 50-dma and the $80.00 level is bullish. Short-term and long-term technicals have turned positive. The P&F chart is positive with a $102 target. This looks like a good spot to speculate on a rally back towards the $100 region. I saw speculate because the Chinese market can be so volatile. Keep your position size small. If we're lucky we'll see PTR dip back towards $80.00 and provide a better entry point to buy calls. Our first target is $89.95. Our second target is $97.50.

Suggested Options:
We are suggesting the January calls. Double check your option symbols. Normally a January 85 strike would be -AQ but the CBOE has -AY for PTR.

BUY CALL JAN 85.00 PTR-AY open interest=     current ask $0.00
BUY CALL JAN 90.00 PTR-AR open interest=     current ask $0.00
BUY CALL JAN 95.00 PTR-AS open interest=     current ask $0.00

Annotated Chart:
PTR

Picked on December 03 at $ 83.53
Change since picked:      + 0.00
Earnings Date           03/06/09 (unconfirmed)
Average Daily Volume =       1.0 million  


New Play Archives