Option Investor
New Plays

What if the rally doesn't slow down?

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Play Editor's Note:

I do not want to confuse any readers with today's addition of four new call plays. The major market indices are short-term overbought. I think the smarter play would be to wait for a dip, larger than what we got on Monday. Many of the call play candidates in our newsletter have triggers to buy calls on a pull back. However, we have to consider the possibility that this rally doesn't do what we think it "should" do.

Yesterday provided an almost perfect failed rally pattern. Yet there was no follow through today. This kind of strength can be dangerous for the bears and fuel short squeeze after short squeeze. Keep in mind that this is still a bear-market rally and should be considered nothing more. One of my biggest concerns is the fading volume on this rally, which is normally a bearish sign.

I am adding new candidates tonight and readers should consider them to be aggressive, higher-risk trades. Pick your entry and stop loss carefully!

Two more stocks that look like aggressive bullish candidates are SLB and SPW. I'd be tempted to buy calls on SPW right now with a stop under today's low and a $54.50 target. For SLB I'd rather buy a dip at $40.75 with a stop at $39.75 and a $44.75 target with maybe a second target at $47.40.


NEW DIRECTIONAL CALL PLAYS

Alexandria Real Est. - ARE - close: 40.31 change: +2.36 stop: 36.24

Why We Like It:
ARE has produced what appears to be a huge bullish double-bottom pattern with the lows in December and March. The oversold bounce paused this week but traders are buying the dip. If the market is going to continue higher then ARE could be a real out performer. I'm suggesting bullish positions now with a stop loss under today's low. Our first target is $44.90. We will tentatively set a secondary target at $49.00 but I strongly suggest readers exit most of their positions at $44.90. The REIT stocks tend to move fast. My time frame on the first target is less than two weeks.

Please read my editor's note at the top of the new plays section.

Suggested Options:
I'm suggesting the April calls. It is always up to the individual trader to decide which month and which strike price best suits your trading style and risk profile.

BUY CALL APR 40.00 ARE-DH open interest= 43  current ask $3.70
BUY CALL APR 45.00 ARE-DI open interest=190  current ask $1.80

Annotated Chart:
ARE

Picked on    March 17 at $ 40.31
Change since picked:      + 0.00
Earnings Date           05/07/09 (unconfirmed)
Average Daily Volume =       1.5 million  
Listed on March 17, 2009         


Caterpillar - CAT - close: 26.83 chg: +0.41 stop: 25.20

Why We Like It:
CAT was crushed from $47 in early January to $22.00 in early March. the oversold bounce has been slow but shares appear to be somewhat resistant to profit taking the last few days. I think the bounce has a lot further to go. The P&F chart has actually turned bullish and is forecasting a $36 target.

I'm suggesting bullish positions now with a stop loss at $25.20. Our first target is $29.90. Our second target is $32.25. My time frame on the first target is less than two weeks.

Please read my editor's note at the top of the new plays section.

Suggested Options:
I am suggesting the April calls. Strikes are available at $1.00 increments.

BUY CALL APR 26.00 CXJ-DU open interest=5207 current ask $2.49
BUY CALL APR 28.00 CXJ-DT open interest=5588 current ask $1.45
BUY CALL APR 30.00 CXJ-DD open interest=10003 current ask $0.75

Annotated Chart:
CAT

Picked on    March 17 at $ 26.83
Change since picked:      + 0.00
Earnings Date           04/21/09 (unconfirmed)
Average Daily Volume =        19 million  
Listed on March 17, 2009         


Flowserve - FLS - close: 55.38 change: +3.15 stop: 50.90

Why We Like It:
It certainly looks like FLS has turned the corner. The dip under support near $45.00 a week ago was a bear trap. Now shares have broken through several layers of resistance. Today's bounce from the simple 50-dma as impressive. I don't like to chase a 6% move so I'm suggesting readers buy calls on a dip at $53.50. We'll use a stop loss near today's low. Our first target is $57.85. Our second target is $62.00. My time frame on the first target is less than three weeks.

Please read my editor's note at the top of the new plays section.

Suggested Options:
I am suggesting the April calls.

BUY CALL APR 50.00 FGV-DJ open interest=2404 current ask $7.60
BUY CALL APR 55.00 FGV-DK open interest=1368 current ask $4.60
BUY CALL APR 60.00 FGV-DL open interest=2281 current ask $2.50

Annotated Chart:
FLS

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/28/09 (unconfirmed)
Average Daily Volume =       1.5 million  
Listed on March 17, 2009         


Mosaic - MOS - close: 42.26 change: +0.91 stop: 39.90

Why We Like It:
MOS popped to new relative highs a few days ago and it has spent the last week consolidating those gains. Now shares have pulled back toward support near $40 and its rising moving averages. This looks like a good spot to hop on board. I'm suggesting call positions now with a stop loss at $39.90. Our first target is $45.90. Our second target is $49.90. My time frame on the first target is just a few days.

Please read my editor's note at the top of the new plays section.

Suggested Options:
I am suggesting the April calls.

BUY CALL APR 40.00 MOS-DH open interest=2433 current ask $5.80
BUY CALL APR 45.00 MOS-DI open interest=4634 current ask $3.30
BUY CALL APR 50.00 MOS-DJ open interest=7463 current ask $1.70

Annotated Chart:
MOS

Picked on    March 17 at $ 42.26
Change since picked:      + 0.00
Earnings Date           04/07/09 (unconfirmed)
Average Daily Volume =      10.8 million  
Listed on March 17, 2009         


New Play Archives