NEW DIRECTIONAL PUT PLAYS

Eaton Corp - ETN - close 73.14 change +4.08 stop 74.90

Company Description:
Eaton Corporation (Eaton) is a diversified power management company. The Company is engaged in the manufacturing of electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use, and truck and automotive drive train and power train systems for performance, fuel economy and safety.

Target(s): 71.55, 70.80, 69.85
Key Support/Resistance Areas: 74.00, 71.50, 70.00, 68.50
Time Frame: 1 to 2 weeks

Why We Like It:
ETN reported earnings this morning that beat estimates and the stock closed +5.9% on the day with most of that coming in the form of a gap higher. The company also guided higher but the stock is still expensive trading around a 20 PE ratio. ETN has gained over +10% in just two days and has rallied right into a downtrend line from its April to June highs. I expect there to be a significant retracement and we could see ETN begin to close the gap higher from today. At a minimum we should see ETN turn back towards today's lows and its 50-day SMA. Our stop will be above today's highs at $74.90. NOTE: the September strikes were recently released so the open interest isn't as high as other months.

Suggested Position: September $70.00 PUTS, current ask $2.40 (try to enter no higher than $2.30)

Annotated chart:

Entry on July xx
Earnings: More than 2 months (unconfirmed)
Average Daily Volume: 1.7 million
Listed on July 21, 2010