Editor's Note:

We are cautious on the market right now. The trend is clearly down but stocks are oversold and due for a bounce. When the bounce shows up it will probably be a sharp rally higher but will likely turn out to be a new entry point for bearish positions.

We would rather wait for the oversold bounce before loading up on new trades.


NEW DIRECTIONAL PUT PLAYS

L-3 Communications - LLL - close: 67.58 change: -0.30

Stop Loss: 68.75
Target(s): 62.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
LLL is essentially a defense contractor. The big spike higher in late April was a reaction to the company's bullish earnings news. They beat estimates on both the top and bottom line. Plus management raised guidance. Yet after the spike traders started selling and the stock has followed the market lower these last three weeks.

Now LLL is breaking down under its simple 200-dma and is in danger of breaking down under its March and April lows. The weekly chart shows a longer-term bearish trend of lower highs and lower lows.

I am suggesting a trigger to buy puts at $66.75 with a stop at $68.75. We will target $62.75. More aggressive traders could aim closer to the $60 area.

Trigger @ 66.75

- Suggested Positions -

buy the Jul $65 PUT (LLL1221S65) current ask $1.85

Annotated Chart:

Weekly Chart:

Entry on May xx at $ xx.xx
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 856 thousand
Listed on May 19, 2012