NEW DIRECTIONAL PUT PLAYS

Powershares QQQQ Trust - QQQQ - close 48.62 change +0.90 stop 49.60

Company Description:
PowerShares QQQ Trust, Series 1 (the Trust) is a unit investment trust that issues securities called PowerShares QQQ Index Tracking Stock. The Trust holds all of the component securities of the Nasdaq-100 Index (the Index). The Investment objective of the Trust is to provide investment results that generally correspond to the price and yield performance of the Nasdaq-100 Index. Invesco PowerShares Capital Management, LLC is the Sponsor of the Trust and The Bank of New York Mellon is the Trustee. (source: company press release or website)

Target(s): 46.80
Key Support Areas: 47.20
Key Resistance Areas: 49.00, 49.30
Time Frame: 1 to 2 weeks

Why We Like It:
The snap back rally from last week's plunge has been nothing short of incredible. But I believe it is time for a snap back down and I suggest readers take advantage of it by initiating PUT positions in QQQQ. The ETF is approaching the 20-day SMA from below and has also retraced over 61.8% of the decline from the April 26 highs of $50.65 to the May 7 low of $44.28. I threw out the long bottom wick from Thursday's plunge because it may or may not have been "real." In any event, anyone who has held positions throughout the past couple of weeks has to be thinking about selling positions now that the retracement back up has come so far. And if they were stopped out they are probably hesitant to jump right back in. In addition, QQQQ is approaching a a secondary and primary downward trend line and volatility has been sucked out of the option premium over the last several days. An increase in volatility will be good for our option premium. Volume has been lighter than normal on this impressive rally which is also a bearish signal. I believe now is a good time to initiate PUT positions at current levels or a failed rally into the $49 area just overhead. This also gives us a good reference point to place a stop at $49.60 which is above the downtrend line and the 20-day SMA. I will be surprised if QQQQ can break through this congestion but if it does we should have a relatively small loss. The trade also set up a good 2:1 risk reward ratio. We are risking $1.00 to make $2. Our stop is $49.60.

Suggested Position: JUNE $48.00 PUT, current ask $1.27

Annotated chart:

Entry on May xx
Earnings N/A
Average Daily Volume: 100 million
Listed on May 12, 2010