NEW DIRECTIONAL PUT PLAYS

Semiconductor HOLDRS Trust - SMH - close 28.56 change -0.11 stop 29.66

Company Description:
The Semiconductor HOLDRS Trust issues depositary receipts called Semiconductor HOLDRS, representing an undivided beneficial ownership in the United States-traded common stock of companies that develop, manufacture and market integrated circuitry and other products known as semiconductors, which allow for speed and functionality in components used in computers and other electronic devices. The Bank of New York is the trustee. The 20 issuers of underlying securities represented by a Semiconductor HOLDR, as of August 1, 2005, were Analog Devices, Inc., Altera Corporation, Applied Materials Inc, Advanced Micro Devices, Inc., Amkor Technology Inc, Atmel Corp, Broadcom Corp, Intel Corporation, KLA-Tencor Corporation, Linear Technology Corporation, LSI Logic Corporation, Micron Technology Inc., Maxim Integrated Products Inc, National Semiconductor Corporation, Novellus Systems Inc, SanDisk Corporation, Teradyne, Inc., Texas Instruments Incorporated, Vitesse Semiconductor Corp and Xilinx Inc.

Target(s): 27.50, 27.15
Key Support/Resistance Areas: 29.00, 28.20, 27.40, 27.00
Time Frame: 1 to 2 weeks

Why We Like It:
I'm sticking with ETF's for now to filter out some of the earnings noise. SMH finds itself at the top of a trading range between $26.00 and $29.00 for the past three months. Today's candle on the ETF is a dark cloud cover pattern which is considered a reversal signal. The candle opened above yesterday's high and then pierced half of the prior day's candle. This is considered an exhaustion gap and I believe SMH, along with the broader market, will retrace some of the recent gains. SMH has also formed a bearish wedge over the past couple of weeks and it should break to the downside for a price correction, especially considering the overbought conditions. We'll place an initial stop at $29.66 to give this some room and will adjust it once we are in the position.

Suggested Position: September $28.00 PUTS, current ask $1.07

Annotated chart:

Entry on July xx
Earnings: N/A (unconfirmed)
Average Daily Volume: 15 million
Listed on July 26, 2010