Editor's Note:

The market's failure to hold its early morning gains on the debt deal news was a shock for a lot of investors. I know that a lot of traders have exited the market as they wait to see what happens next. That's not a bad plan. There may be a debt deal but it hasn't been voted on in congress yet, nor has it passed.

The S&P 500 saw an intraday violation under its simple 200-dma but it bounced at the exponential 200-dma. This is also a test of its long-term trendline of higher lows. Essentially the market is at support. You have to ask yourself, will you buy the dip to support expecting a bounce? Or do you adjust your strategy and expect a breakdown? While there is plenty of negative economic news lately I am going to argue that support remains support until its broken. Thus we are adding a new bullish trade tonight.

FYI: While looking for candidates tonight I noticed that the tobacco stocks BTI and PM were showing relative strength. BTI looks like a better trade but the option spreads are a little too wide. I also noticed that the TMF ETF was in rally mode. The TMF is the triple-leveraged (3x) bond ETF focused on long-term U.S. treasuries and it does have options.

- James


NEW DIRECTIONAL CALL PLAYS

Energizer Holdings Inc. - ENR - close: 81.50 change: +0.86

Stop Loss: 79.25
Target(s): 84.85, 88.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ENR reported earnings last week that were well above analysts' estimates. The earnings news pushed the stock past resistance a $80 and ENR hit new two-year highs. In spite of the market's recent weakness ENR has managed to hold near new support at the $80.00 level. The stock was showing relative strength today.

I am suggesting we buy calls on ENR now but we only want to launch positions if both ENR and the S&P 500 open in positive territory tomorrow. Even then we still want to keep our position size small to limit our risk. I'm suggesting a stop loss at $79.25. Our targets are $84.85 and $88.50. If you're buying August calls I'd exit at the $84.85 target. Remember, August options expire in less than three weeks.

Buy calls if both ENR & S&P 500 open in positive territory tomorrow

- Suggested Positions -

buy the AUG $85 call (ENR1120H85) current ask $0.70

- or -

buy the SEP $85 call (ENR1117I85) current ask $1.60

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 717 thousand
Listed on August 1, 2011