Editor's Note:

It looks like the stock market has finally found a top with Friday's bearish reversal. Volume was very strong on the sell-off, which is bearish. This move does need to see some follow through to confirm it but if the correction has begun it could be sharp and fast!

In addition to tonight's new candidates here's a list of stocks on my watch list. Be sure to check for upcoming earnings before initiating any trades. I still don't want to hold over a report. My list of potential bearish plays: PCAR, NTAP, MA, OXY, V, MTD, MD, and AAP

Instead of stocks you could try and capture this pull back in the market with options on ultra-ETFs that move twice as fast. Of course that probably doubles the risk on these trades! For example, you could buy calls on the QID (NASDAQ-100 ultra-short), DXD (DJIA ultra-short), SDS (S&P 500 ultra-short), or the TWM (Russell 2000 ultra-short). You could buy puts on the QLD (NASDAQ-100 ultra-long), DDM (DJIA ultra-long), SSO (S&P 500 ultra-long), and UWM (Russell 2000 ultra-long).

- James


NEW DIRECTIONAL PUT PLAYS

BorgWarner Inc. - BWA - close: 67.63 change: -2.92

Stop Loss: 71.25
Target(s): 63.50, 60.25
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
BWA was a HUGE winner for the bulls last year. Now the rally appears to have run out of fuel. Shares were already starting to consolidate lower prior to Friday's decline. When the market rally starts to correct this stock could see an accelerated move down as traders rush to lock in profits.

I am suggesting bearish put positions now. More conservative traders could wait for a drop under $67 instead. Thursday's high was near $71.00 so we'll set our stop at $71.25. Our targets are $63.50 and $60.25. I'd probably start looking at potential bullish positions in the $60-55 zone. FYI: The Point & Figure chart for BWA has turned bearish.

Use small positions to limit our risk.

- Suggested Positions (small positions) -

Buy the Feb. $65 PUTs (BWA1119N65) current ask $1.50

- or -

Buy the Mar. $65 PUTs (BWA1119O65) current ask $2.40

Annotated Chart:

Entry on January 31st at $ xx.xx
Earnings Date 02/10/11 (confirmed)
Average Daily Volume = 2.0 million
Listed on January 29th, 2010


Citrix Systems - CTXS - close: 63.76 change: -1.07

Stop Loss: 67.65
Target(s): 60.10, 58.00
Current Option Gain/Loss: + 0.0%
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CTXS recently reported better than expected earnings but the post-earnings rally failed at old support near $67.50 and its 50-dma. The stock has broken down and if the earnings news can't lift it then shares look doomed to correct lower. There is potential support at $60.00 and at the 200-dma. I am suggesting put positions now. My biggest challenge with this play is the stop loss since CTXS has been so volatile in the last week. We'll start the play with a wide (aggressive, higher-risk) stop loss at $67.75. Readers might want to buy half their position now and if we see another failed rally near $66 then we can buy our second half. Our targets are $60.10 and $58.00.

- Suggested Positions (small positions) -

Buy the Feb. $60 PUTs (CTXS1119N60) current ask $0.90

- or -

Buy the Mar. $60 PUTs (CTXS1119O60) current ask $2.00

Annotated Chart:

Entry on January 31st at $ xx.xx
Earnings Date 01/26/11
Average Daily Volume = 3.2 million
Listed on January 29th, 2010