Editor's Note:

I am adding a couple of bearish candidates tonight. However, readers will want to keep an eye on the GDP report. If the GDP report comes in positive Friday morning the news could really add fuel to the rally's fire. More conservative traders will want to strongly consider aborting either of these new bearish plays if the GDP number is too strong.


NEW DIRECTIONAL PUT PLAYS

Biotech Ishares - IBB - close: 79.44 change: -0.30 stop: 80.75

Why We Like It:
The rally in the NASDAQ is hitting significant resistance. Biotech stocks, which have been a big winner in the recent rally, are extremely overbought and now the sector index is nearing significant resistance as well. Check the BTK biotech chart below. Would you buy that or sell that? I'm suggesting we take advantage of any profit taking in the biotech sector by buying puts on the IBB biotech ETF. We'll use a relatively tight stop above today's high. However, be aware that a strong GDP report tomorrow could push stocks even more overbought. Our target on the IBB is $75.50.

Suggested Options:
I'm suggesting the August puts. This should be a fast trade.

BUY PUT AUG 80.00 IBB-TP open interest= 666 current ask $1.90
BUY PUT AUG 75.00 IBB-TO open interest=2515 current ask .45

Annotated Chart of the BTK biotech index:

Annotated Chart of the IBB biotech ishares:

Picked on     July 30 at $ 79.44
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =       892 thousand 
Listed on  July 30, 2009         


QQQ ProShares - QLD - close: 44.89 change: +0.51 stop: 46.55

Why We Like It:
The QLD is the double-long ETF on the NASDAQ-100 index (NDX). When stocks reverse the QLD is going to fall twice as fast. You can see below that the NASDAQ composite has rallied to and stalled near its long-term trendline of resistance. The NDX has produced a similar move to resistance. If this is a top then today's action offers a great opportunity to launch bearish positions. I probably feels like stepping in front of a moving train but this is a logical place for the market to see a short-term reversal. The wild card is the GDP report tomorrow morning. We'll try and limit our risk with a relatively tight stop loss at $46.55, just a little above today's high. Our target is $40.50.

Suggested Options:
I am suggesting the August puts. Strikes are available at $1.00 increments.

BUY PUT AUG 45.00 QLH-TS open interest= 441 current ask $2.20
BUY PUT AUG 42.00 QLH-TP open interest=1373 current ask $1.05
BUY PUT AUG 40.00 QLH-TN open interest=1675 current ask .60

Annotated Chart of the NASDAQ Composite:

Annotated Chart of the QLD:

Picked on     July 30 at $ 44.89 
Change since picked:      + 0.00
Earnings Date           00/00/00 
Average Daily Volume =      13.5 million  
Listed on  July 30, 2009