Editor's Note:

Good evening traders. The markets surged higher on Friday reaching new 52-week highs across the board. I believe we will see a longer term meaningful correction soon, but that could be one or three or five months away, etc. Who really knows? I thought we would get at least some sort of multi-week pullback this month but that has obviously not panned out. So we have to deal with the circumstances in front of us. The catalyst may not have been Goldman Sachs like it was shaping up to be. I will be looking for the markets to sell off on good news which I think will provide us some good clues about the direction of prices. They have already started doing this on some of the earnings reports last week. I expect the markets to continue their volatility this week as the bulls and bears continue the battle. I wrote about a bearish shorter term megaphone pattern forming on the S&P 500 intraday charts in Thursday's Intraday Market Update (archived on the Website). I will be using this as a guide for price action this week. Good luck trading to all of you, and remember to be nimble with position management.

Current Portfolio:


CALL Play Updates

Hanson Natural Corp. - HANS - close 43.08 change +1.76 stop 39.25

Wow! Our trigger was almost hit on Thursday (it traded down to $40.82) which would have been beautiful because the stock closed +4.26% higher on Friday. When I released this play I thought about setting the trigger at $41.05 and in hindsight that was probably an error on my part. With that being said, this stock looks very bullish to me. My only concern is a broader market pullback, but that doesn't seem to be happening either. So I ponder whether or not this trade can still work, and I think it can. Here is what I want to do. If HANS retraces about half of Friday's gain to $42.30 I suggest readers initiate call positions as outlined below. From a technical standpoint HANS almost touched its upward trend line and a recent support/resistance level at about $40.75 before bouncing hard. In addition, the stock is forming a longer term ascending triangle and is currently in the middle of an upward channel that has been intact since mid 2009 (see weekly chart below). I believe the stock is poised to breakout higher or at least trade to $43.75 which is our first target. Our second target is $44.95. The company reports earnings on May 6 so we will be out of this trade prior to the report. Although there was unusual call buying late last week so traders may be expecting a good earnings report, but this is just speculation. Let's use a stop of $39.25. Our time frame is 1 to 2 weeks.

Trigger to buy calls if HANS trades to $42.30

Suggested Position: Buy MAY $43.00 CALL, current ask $1.85, estimated ask at entry $1.40

Annotated Weekly Chart:

Entry on April xx at $ xx.xx
Earnings Date 5/06/10
Average Daily Volume = 854,000
Listed on April 21, 2010


PUT Play Updates

Bard (CR), Inc – BCR – close 85.94 change +0.52 stop 90.10 *NEW*

We got a gift today when BCR gapped open higher which allowed us to initiate puts at a bargain price. I used the same strategy I mentioned in Tuesday's updates (April 20). The same strategy can be used when entering or exiting positions. BCR traded in wild fashion during the first 15 minutes of trading (b/w $86 and $90 representing a 5% range). Once the price action settled down it was clear to me that momentum was waning so we initiated our put position at about 10:15 AM EDT when the 15-minute candlestick broke below the prior bar. We are now long puts at $1.45. I continue to believe healthcare related companies will struggle and be volatile as more details surface about the healthcare reform bill. This also means that we could get stopped out of the position on any good news that surfaces as well. From a technical standpoint, BCR is forming a bearish wedge pattern on its daily chart and looks vulnerable. The stock is oscillating above and below its 20-day SMA and is also approaching a congestion zone from late 2007 through early 2009 that I believe will hold. I initially thought this trade was going to last about 2 weeks but I am now looking for a quick exit and suggest readers take profits when they have the chance. Our initial target was $83.05 but a more conservative target would be $84.60, which is just above Thursday's low. If BCR trades down to $84.60 our $1.45 puts should be worth about $2.45 (the delta is .43), which would be about a +70% gain. I will gladly take profits at this level. I want to place a wide stop on the position at $90.10 (above Friday's high) due to its recent volatility, and will adjut it in the coming days unless our target is achieved.

Current Position: JUNE $85.00 PUT, entry at $1.45

Annotated Chart:

Entry on April xxth at $ xx.xx
Earnings Date Greater than 1 month
Average Daily Volume = 1.5 million
Listed on April 22


SPDR S&P 500 Index - SPY - close: 121.81 change: +0.79 stop: 123.05

SPY surged higher late Friday afternoon and our position is struggling. It spent most of the week battling the backside of its broken trend line from February 5. I expect the volatility to continue this week and at some point SPY should have a significant intraday correction before getting bought. When that happens I will be looking to exit the position. I have two targets: the first is $120.05 which is just above the lows on Wednesday and Thursday, and the second is just above SPY's 20-day SMA (currently at $119.31), which SPY bounced off of twice last week. I will tighten stops if these levels are reached with the assumption that I will be taken out. If SPY trades down to $120.00 our put should be worth about $1.60 and at 119.35 it should be worth about $1.80. If volatility surges it could be worth more. Our stop remains 123.05 which is just above SPY's 200-week SMA. Our time frame is 1 to 5 days.

Current Position: SPY PUT MAY $119.00, entry at $2.05

Annotated Chart:

Entry on April 13th at $ 2.05
Earnings Date Not Applicable
Average Daily Volume = 164 million
Listed on April 12th, 2010


CLOSED BULLISH PLAYS

Diana Shipping Inc - DSX - close 15.45 change +0.20 stop 14.32

It is a thing of beauty when your position reaches your target, you take profits, and then the position reverses. Although it is just as painful when the opposite happens, when you get taken out by a stop and the position proceeds to turn into a winner. In any event, DSX hit our $15.65 target today. The stock traded up to $15.73 before retreating and closing the day at $15.45. Our $0.60 calls were sold for $0.95 and we are happy to take our +58% gain, thank you very much Mr. Market. For readers who may still have positions I think DSX has a good chance of reaching $16.00 which is below its YTD highs. But if the market corrects DSX may not be able to muster a rally up to these levels, at least in the short term prior to your options starting to suffer from time decay. DSX also reports earnings on May 6.

Closed Position: MAY $15 CALL @ $0.95, entry was at $0.60

Annotated Chart:

Entry on April 21, at $ 0.60
Earnings Date 5/6/2010 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on April 20th, 2010


Goodyear Tire & Rubber Co. – GT – close 14.58 change +0.09 stop 13.50

This is another great example of sticking to the trade set-up and it worked nicely. At about 2:30 EDT today GT started surging and our target was hit at $14.75. Our $1.90 calls were worth $2.45 and we realized a healthy +29% profit. Our more aggressive target of $15.90 may be achievable but remember GT has earnings on April 28 so I would be leery of holding the position over earnings. Sometimes that works and many times it doesn't. I am happy to take profits here and move on to the next trade.

Closed Position: MAY $12.50 CALL @ $2.45, entry was $1.90

Annotated Chart:

Entry on April 20th at $ 1.90
Earnings Date 4/28/10
Average Daily Volume = 4.3 million
Listed on April 19th, 2010