Editor's Note:

I am cautiously optimistic here. The stock market could be forming a bullish double bottom pattern. However, there are plenty of skeptics and some traders see today as nothing more than an oversold bounce in a bear market. My biggest concern is probably Friday. Ben Bernanke's comments could fuel the bounce or they could disappoint traders, which would send the market lower in a hurry.

We need to trade small to limit our risk.

FYI: Another stock that caught my eye as a potential bullish trade tonight is EW.

- James


NEW DIRECTIONAL CALL PLAYS

CR Bard Inc. - BCR - close: 89.84 change: +2.85

Stop Loss: 86.25
Target(s): 94.75, 98.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It's been a rough ride for BCR ever since the massive drop from almost $113 to $100 on its earnings report back in July. The correction hit an intraday low of $85.05 on August 9th. This past week has seen traders buying the dip in the $87.00-86.50 zone. If the market is forming a bullish double bottom then we want to take advantage of it with a stock that can move like BCR.

Readers may want to wait for a rally past round-number resistance at $90.00. I am suggesting small bullish positions now if both BCR and the S&P500 both open positive tomorrow. If triggered we'll use a stop below today's low at $86.25. Our targets are $94.75 and $98.25, just under the simple 200-dma.

buy calls if BCR and the S&P500 both open positive tomorrow

- Suggested (small) Positions -

buy the SEP $90 call (BCR1117I90) current ask $3.10

- or -

buy the OCT $95 call (BCR1122J95) current ask $2.45

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 1.25 million
Listed on August 23, 2011


Caterpillar Inc. - CAT - close: 82.98 change: +3.09

Stop Loss: 79.40
Target(s): 87.00, 94.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Worries over a slowing global economy and concerns over a new recession in the U.S. have helped push CAT from $110 to $80 over the past few weeks. Shares have managed to hold on to support near $80.00. If the stock market is forming a bullish double bottom pattern, then this could be an entry point to buy calls. I would keep position size small. There is no guarantee of a technical bottom in the market and Bernanke could disappoint traders on Friday, sending the market lower.

I am suggesting small bullish positions now but only if CAT and the S&P500 both open positive tomorrow morning. We'll use a stop loss at $79.40. Our first target is $87.00. Our second, more aggressive target is $94.50.

buy calls if CAT and the S&P500 both open positive tomorrow

- Suggested Positions -

buy the SEP $85 call (CAT1117I85) current ask $3.10

- or -

buy the OCT $90 call (CAT1122J90) current ask $2.93

Annotated Chart:

Weekly Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/24/11 (unconfirmed)
Average Daily Volume = 13.9 million
Listed on August 23, 2011