NEW DIRECTIONAL PUT PLAYS

Caterpillar - CAT - close: 56.66 change: -1.37 stop: 59.01

Why We Like It:
Investors are once again starting to wonder about the health of the global economy and CAT could be a real under performer if this concern turns into fear. The stock did a huge amount of damage to its chart in January with the false breakout, reversal and sell-off. Now the oversold bounce is stalling. I do consider this an aggressive trade since CAT might have some support in the $56-55 zone but I suspect shares will retreat even further.

I'm suggesting put positions now. We'll use a tight stop above yesterday's high. Our target to exit is $51.00. Please note that the $54.00 level might offer some support.

Suggested Options:
This should be a quick trade with a one to two week time frame. I'm suggesting the March $55 puts.

BUY PUT MAR 55.00 (CAT1020O55) open interest=17,418 current ask $1.25

Annotated Chart:

Entry  on  February 23 at $ 56.66 
Change since picked:       + 0.00
Earnings Date            04/21/10 (unconfirmed)
Average Daily Volume =         12 million  
Listed on  February 23, 2010         


Australian Dollar ETF - FXA - close: 89.01 change: -1.16 stop: 90.60

Why We Like It:
The Federal Reserve has hinted that it's ready to raise rates when needed and they have already begun to "normalize" the system from its state of emergency. This should be good news for the dollar. Don't get me wrong. We're not expecting the Fed to raise rates for a quite a while but the dollar appears to be on a bullish path and that's going to weigh on commodities and currencies like the Australian dollar.

One way to play the Australian dollar is the FAX currencyshares ETF. Looking at the chart you can see that the FXA has topped out around the $93-94 level and now we're starting to see a pattern of lower highs and lower lows. This past week saw the FXA struggle with resistance near $90.50. I am suggesting we open bearish positions now. Two or three months from now this ETF could be a lot lower. There is potential support at the 200-dma near $86.00 but I'm setting our first target at $83.00. Our second target at $80.00.

Suggested Options:
I do consider this an aggressive trade for several reasons. First, there isn't a lot of volume on the FXA. Second, there is even less volume in some of the options. Third, the spreads are a little bit wide. Keep your positions small to limit risk! I'm suggesting the April $85 puts or the June $85 puts.

BUY PUT APR 85.00 (FGA1017P85) open interest= 0 current ask $0.80
-or-
BUY PUT JUN 85.00 (FGA1019R85) open interest= 67 current ask $1.90

Annotated Chart:

Entry  on  February 23 at $ 89.01 
Change since picked:       + 0.00
Earnings Date            --/--/--
Average Daily Volume =        200 thousand 
Listed on  February 23, 2010         


Walter Energy - WLT - close: 77.33 change: -2.87 stop: 81.25

Why We Like It:
It looks like the rally in coal stocks has run out of steam. Shares of WLT have been struggling with resistance near $81.00 the last few days. The stock is definitely short-term overbought. I am suggesting short-term bearish positions now. Our target is $72.00. More aggressive traders could aim lower. Keep in mind that WLT can be a volatile stock. I would keep positions small to limit your risk.

Suggested Options:
This should be a short-term trade. I'm suggesting the March $75 puts.

BUY PUT MAR 75.00 (WLT1020O75)interest=2326 current ask $2.95

Annotated Chart:

Entry  on  February 23 at $ 77.33 
Change since picked:       + 0.00
Earnings Date            04/29/10 (unconfirmed)
Average Daily Volume =        2.8 million  
Listed on  February 23, 2010