CALL Play Updates
Petroleo Brasileiro - PBR - close 34.92 change -0.67 stop 33.70
Target(s): 37.40, 38.65
Key Support/Resistance Areas: 39.00, 37.50, 36.60, 34.00
Current Gain/Loss: -12%
Time Frame: 1 to 2 weeks
New Positions: Yes
9/25: PBR gapped lower on Friday which improved our entry price into the position. All reports indicate the secondary offering was a success and was priced near the market. We are looking for the short interest to unwind which should cause a quick pop in the stock. Our stop is in place if we are wrong.
9/23: PBR announced a secondary offering announced on 9/2 and it has reportedly grown into the largest ever offering in the capital markets at $80 billion. Short interest has grown in the stock ahead of the offering as traders think there will not be enough demand to buy the securities. However, reports continue to trickle in that indicate institutional demand is alive and well and the offering is more than 2x oversubscribed. This could create a short squeeze in the stock and I suggest we buy calls at current levels to take advantage of it. Conservative traders may want to wait for a breakout above today's high of $36.60 which will also break the primary downtrend line. Our stop will be below the recent swing low and the upward trend line that began on 8/25.
Suggested Position: Long November $37.00 CALL, entry was at $1.25
Entry on September XX
Earnings 11/11/2010 (unconfirmed)
Average Daily Volume: 13 million
Listed on September 23, 2010
Transocean Ltd - RIG - close 50.06 change +0.59 stop 53.40
Target(s): 62.95, 64.50, 66.50
Key Support/Resistance Areas: 55.50, 58.25, 63.90, 64.90
Current Gain/Loss: -30%
Time Frame: 2 to 4 weeks
New Positions: Yes
9/23 & 9/25: Still not much movement in RIG and it is still consolidating on lighter volume. The main reason this position is negative right now is due to a bad entry at the open last Monday when the stock gapped higher. Now we need a breakout which is going to be tough if the broader market continues lower, but so far RIG has held its own. If things pick back up I expect RIG to do well and I view pullbacks as possible buying opportunities.
9/22: Nothing has changed and volume continues to be light as RIG is consolidating. Today the stock printed a bottoming tail hammer but I am still concerned of a broader market pullback. My comments below remain the same.
9/21 RIG broke out to a new a high today but it was quickly sold into. I continue to like the volume patterns in this stock and today's volume on the pullback was on the one of the lightest days since RIG broke higher on 9/10. However, it appears the broader may get a pullback here so we may need to exhibit some patience. New positions can be considered at current levels or on a pullback to $58.35 where there is solid support.
Current Position: Long November $65.00 CALL, entry was at $2.25
Entry on September 13, 2010
Earnings 11/3/10 (unconfirmed)
Average Daily Volume: 8 million
Listed on September 11, 2010
iPath S&P 500 VIX ST Futures - VXX - close 16.63 change -0.99 stop 16.23
Target(s): 18.45, 19.25, 20.40
Key Support/Resistance Areas: 17.50, 19.75, 20.60
Current Gain/Loss: -8%
Time Frame: 1 to 2 weeks
New positions: Yes, preferably on pullbacks
NOTE: I view this as an aggressive trade so small position size is recommended. Long VXX is a bearish play on equities, however, it is listed as long play because we are long the underlying instrument.
9/25: VXX collapsed nearly $1 as the market ripped higher on Friday. Our +24% gain is now a -8% loss. I suggest readers use caution with this position. If the market breaks out higher this week we need to get out the way. Then we can consider possibly entering at a lower price. Let's implement a stop at $16.23 and move on if we are taken out.
9/23: VXX is in an uptrend on its intraday charts and I'm expecting more to come. Readers may want to consider $18.10 as a possible exit target which could come as quick as tomorrow. This price should give you another +20% to our current gain of +24%. My primary targets are $18.45 (a gap fill) and $19.25 which I think we will see in the coming days. If the market sells off hard our final target of $20.40 could get hit fast. I'm sticking with no stop for now.
9/22: We are long VXX at the open today. I am looking for a spike higher in the coming days which means we need to experience some broader market weakness. My comments from the play release are below.
Current Position: Long November $18.00 CALL, entry was at $1.25
Entry on September 22, 2010
Earnings N/A (unconfirmed)
Average Daily Volume: 21 million
Listed on September 21, 2010
PUT Play Updates
Archer Daniels Midland - ADM - close 32.27 change -0.38 stop 32.95
Target(s): 32.20, 31.25, 30.85
Key Support/Resistance Areas: 33.50, 31.00, 29.80
Current Gain/Loss: -5%
Time Frame: 1 to 2 weeks
New Positions: Yes
9/25: ADM lost more than -2% of Friday when the broader market gained +2%. I could not find any specific news that would have caused the sell-off in the stock. Nonetheless, it was good for our puts. ADM is finding support at its 20-day SMA and if the broader market breaks out next week ADM could quickly erase Friday's losses. However, if the broader market retraces some of Friday's gains ADM should quickly head to towards our more aggressive targets. I want to tighten the stop down to $32.95. This is an intraday resistance level and just above Thursday's and Wednesday's closing prices.
9/23: We got a little reprieve in ADM today as the stock lost -1.14%. We need the stock to break below today's low to get things moving in our direction, which will also break an intraday trend line. I suggest readers remain cautious on the position and my comments from below remain valid.
Current Position: Long October $32.00 PUT, entry was at $0.82
Entry on September 20, 2010
Earnings: 11/2/2010 (unconfirmed)
Average Daily Volume: 6 million
Listed on September 18, 2010
Charles Schwab - SCHW - close 13.97 change +0.50 stop 14.42
Target(s): 13.10, 12.85, 12.55
Key Support/Resistance Areas: 14.10, 13.35, 13.05, 12.65
Current Gain: -30%
Time Frame: 1 to 3 weeks
New Positions: Yes
9/25: SCHW reversed right back up to its resistance level where the stock has struggled all month. It is a tough call to say where SCHW heads from here. I still think the stock heads lower but I could see the stock trading up to its 50-day SMA first. Our stop is 13 cents above the 50.
9/23: The gap down this morning triggered our entry into SCWH at 50 cents instead of 45 cents. In hindsight, my instructions should have been enter at 45 cents. Nonetheless, SCHW looks vulnerable but we have to get below $13.36 before the stock will head towards its lows. My comments from below remain valid.
9/22: We are going with a cheapie in the financial services sector tonight, which looks terrible across all industries, from banks, to lenders, to broker dealers. A study released today said that the 85% of Americans do not trust the financial markets and have therefore reconsidered their investment activities. Retail trading volumes are way down which will hurt firms like Chuck (SCHW). Technically, the stock has run right up into prior support (now resistance) from July and has turned lower. The stock has also been making lower highs and lower lows and I see no reason for this pattern to stop if the broader market cooperates. It would be nice to see some retracement of today's losses but a breakdown is also a good set-up. I suggest readers initiate short positions with one of two triggers. If SCHW trades up to $13.70 or down to $13.55. If triggered at $13.70 we are playing for an 85 cent pullback which is our 2nd target and a gap fill. If this target is reached the estimated gain on the position is +60%. If we are wrong we won't get hurt too bad as the option is cheap.
NOTE: November strikes were just recently released in SCHW so the open interest not as great as other months. The spreads are reasonable and I am not worried about liquidity as trading will begin to pick up.
Current Position: Long November $13.00 PUT, entry was at $0.50
Entry on September 23, 2010
Earnings: 10/14/2010 (unconfirmed)
Average Daily Volume: 11 million
Listed on September 22, 2010
CLOSED BEARISH PLAYS
SPDR S&P 500 ETF - SPY - close 114.82 change +2.32 stop 114.10 *NEW*
Target(s): 112.10, 111.50, 110.75
Key Support/Resistance Areas: 115.00, 113.00, 110.60, 50-day, 20-day
Final Gain/Loss: -50.6%
Time Frame: 1 week
New Positions: Closed
9/25: So much for continued weakness as I indicated in Thursday's comments. Decent economic data on Friday in the pre-market caused the markets to gap higher and created a good old fashion short squeeze. The entire move of the day was essentially done in the first hour of trading. Our stop was hit in the first 10 minutes so we were able to get out early and keep the loss under control. The close on Friday provided no clues as to where the broader market heads from here but I would not want to be short if it breaks higher. So it's a conundrum in that holding long positions will become more and more stressful trying to squeeze out additional gains, while holding shorts could be detrimental to your account. Staying nimble is the name of the game in this type of market.
9/23: On Tuesday SPY printed a red candle high which has been confirmed with a red candle yesterday and another new low today. This is a fairly strong reversal pattern that doesn't happen often. It has happened 4 or 5 times over the past year and the smallest drop in the S&P was about -40 points from the red candle high closing price, with the largest being -170 points, i.e. the flash crash. A -40 point drop from Tuesday's close puts the S&P 500 at 1,100 which is near our final target of $110.75 (raised 10 cents to account for the rising 20-day SMA). As such, I'm looking for more downside but it could come fast. The 1,100 level has support which is logical spot for the dip to be bought so be prepared to either take profits or tighten stops to protect them as targets approach. We are nearing breakeven on the trade and our first target was almost hit today. My best guess is SPY will bounce after reaching this target tomorrow because it is near the 200-day SMA and a prior resistance level. But the bounce should be short lived and I'm looking for SPY to eventually trade down toward our final target. In case this analysis is wrong, let's move the stop down to $114.10.
Closed Position: Long October $109.00 PUT at $0.77, entry was at $1.56
Entry on September 14, 2010
Earnings: N/A (unconfirmed)
Average Daily Volume: 198 million
Listed on September 13, 2010