ITT Educational Servc - ESI - cls: 72.35 chg: +3.62 stop: 75.05
The rate cut news inflated some hope that money might start flowing again. This should help students get loans to pay for ESI's tuition. However, the market was extremely volatile today and ESI failed to breakout over the $75.00 level or its 200-dma. We are not suggesting new positions at this time. The market is so oversold it is rife for a relief rally. ESI has already hit our target at $67.50. Our secondary target is $61.00 but that might be overly aggressive on a short-term time frame.
Picked on October 06 at $ 73.30 *triggered/gap down
Hasbro Inc. - HAS - close: 31.80 change: +1.29 stop: 33.85
An early morning analyst upgrade to a "buy" with a $43 target helped HAS out perform on Wednesday. Shares rallied to their simple 10-dma near $33.50 before trimming its gains. Volume was pretty strong on the bounce but the failed rally pattern remains a negative. We warned readers to expect a bounce from the $30.00 level, which is what we got today. Our target is the $27.65 mark. More aggressive traders may want to aim lower but we don't want to hold over the late October earnings report. FYI: The P&F chart is bearish with a $24 target.
Picked on October 06 at $ 32.25 *triggered 10/06/08
Volatility Index - VIX - cls: 57.53 chg: + 3.85 stop: n/a
So what should we do about the VIX? I know it looks like I've been completely wrong on this play. No one could have foreseen the magnitude of the move lower in stocks or at least how fast the move has occurred. In our original play description on September 16th about the VIX I warned readers that these were crazy times in the market and that the VIX could spike to new highs before reversing. Well now the VIX is at new highs. Investor fears over a global recession, even a depression, and a collapse of the financial system have sent demand for "protection" through the option markets through the roof. Average volume in the options market is about 14 million trades a day. On Monday there were 25 million options traded. On Tuesday 17 million traded.
The great thing about our play here with the VIX is that this is not a stock. It can't keep climbing. On a stock the sky is the limit. The VIX caps out at 100%. Readings over 50% are extremely rare. In a normal market people start thinking short-term bottom when the VIX hits 30. If you forced me to make a trade today I would be buying the November or December puts on the VIX. This is an instrument that always reverts to its "normal" range of trading. I'll offer one caveat that I've mentioned before. The elevated readings in the VIX could be influenced by this short-ban on several hundred financial stocks. Being unable to short certain stocks could push up demand for put options on those stocks instead and therefore we have an artificial level of demand. That short ban is due to expire tonight at midnight.
Unfortunately, we do have sort of a catch 22 with options on the VIX. As the VIX moves higher option premiums expand. Right now options on the VIX are very inflated. When the VIX reverses the option premiums will see some deflation as the air in the fear balloon escapes. The November 35 puts (VIX-WI) are trading at $4.50. The December 35 puts (VIX-XI) are trading at 6.80. I would have two targets. Take some money off the table at 40.00 and then again at 35.00.
Our September 16th put position (suggested entry at 30.30) has a 25.50 target. The September 29th position (suggested entry at 46.72) has two targets at 36.00 and 31.00.
Picked on September 16 at = 30.30 first position
Sears Holding - SHLD - cls: 76.23 chg: -2.56 stop: 89.05
Target exceeded. Retail stocks continued to under perform. SHLD dipped to $75.00 late in the day after failing at $80 early in the session. Our secondary target was the $76.00 level. More aggressive traders may want to aim for the July lows but keep in mind we're concerned the market is nearing a short-term bottom and could see a widespread relief rally soon.
Picked on October 01 at $ 89.04 /1st target hit 81.00