Editor's Note:

Good evening. The reaction to earnings reports from Apple and IBM in the after market has me very cautious with long positions as there is likely to be a broader market correction in the coming days. At the same time, I would use any dips as opportunities to take/protect profits on short positions and consider initiating new long positions. How far a correction goes is the magic question but I would target SPX 1,150 as the first stop. Staying nimble here is key and working both sides of the market could be lucrative.

Current Portfolio:


CALL Play Updates

Dresser-Rand Group - DRC - close 38.73 change +0.37 stop 36.15

Target(s): 39.00, 39.95, 41.40
Key Support/Resistance Areas: 42.00, 40.00, 39.15, 37.50, 36.30
Current Option Gain/Loss: +28%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
10/18: DRC is consolidating just under our first target of $39.00 (we have come within 2 to 15 cents in 3 of the past 4 sessions). We have a +28% gain and I suggest using any strength in the stock as an opportunity to take profits or tighten stops to protect them. As such, I am not recommending new positions at this time due to the broader market overbought conditions. James' comments below is a valid strategy, however, a breakout may not happen prior to a market correction. Readers may want to consider tighter stops at $37.40 or $36.90.

10/16 (James): There is really no change from my comments on Thursday. DRC is bouncing around the $38.00-39.00 level with short-term support at $38.00. The pattern is bullish with a trend of higher lows as the stock tries to breakout over $39.00. If DRC can breakout from this pattern I would expect shares to challenge their all-time highs in the $42-44 zone so readers may want to adjust their targets higher. However, cautious traders do not want to hold over the earnings report. I can't find a specific date but DRC is expected to report on the Oct. 27-30th time frame.

Current Position: Long November $40.00 CALL, entry was at $0.70

Entry on October 6, 2010
Earnings 10/28/2010 (unconfirmed)
Average Daily Volume: 570,000
Listed on October 5, 2010


First Solar Inc. - FSLR - close: 147.07 change: +2.51 stop: 135.95

Target(s): 145.00, 147.50, 149.75
Key Support/Resistance Areas: 137.50, 140.00, 145.00, 147.50, 150.00
Current Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see entry point below

Comments:
10/18: FSLR went in the opposite direction of our trigger to enter long positions. Let's remain patient and keep our trigger at $142.50.

10/16: Shares of FSLR have been marching higher after producing a huge (bullish) double bottom pattern with the lows in February and June. Now the stock has created a more bullish pattern of rally, consolidate, rally, consolidate. After two weeks of correcting traders are now buying the dip in FLSR near support in the $137-140 zone.

Aggressive traders could launch positions right now following Friday's bounce from $140. However, I suspect we'll see a better entry point on a minor dip this week. I'm suggesting we use a trigger at $142.50 to buy calls. If triggered we'll use a wide stop loss at $135.95 since FSLR can be so volatile (as an alternative more conservative traders could put their stop closer to $140). If triggered our first target is $145.00. Our second target is $147.50. Our final target is $149.75. More aggressive traders could aim for the $160 area. FYI: Investors should note that FSLR is due to report earnings on October 28th. Earnings reports can significantly raise our risk.

Suggested Position:

Trigger to buy calls @ $142.50.

BUY the November $150 calls.

Entry on October xxth at $ xx.xx
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on October 16th, 2010


Genco Shipping & Trading, LTD - GNK - close 16.48 change +0.03 stop 15.50

Target(s): 17.70, 18.05, 18.50
Key Support/Resistance Areas: 18.25, 17.75, 16.90, 15.75
Current Option Gain/Loss: -25.0%
Time Frame: 1 to 3 weeks
New Positions: Yes

Comments:
10/18: GNK gained 3 cents today and is consolidating in a fairly tight range near $16.50. Our comments below remain the same.

10/16 (James): There is no change from my Thursday comments on GNK. Traders bought the dip again for the second day in a row near GNK's 100-dma and short-term support near $16.20. If this stock can rally past the October highs it could see a significant short squeeze. I wouldn't be surprised to see a rally toward $20.00. The Baltic Dry Goods shipping index, a measure of shipping rates, has been improving recently, which should bolster GNK shares.

10/14: Hmm... I am definitely seeing some mixed signals on GNK. The trend from late September is up with traders buying the dips, like they did today. However, on a very short-term basis, GNK has produced a bearish double top at $17.10. At the same time short-term support near $16.20 held up today. I do think GNK offers a lot of potential. The most recent data lists short interest in this stock at more than 18% of the very small float (27.7 million shares). That is a recipe for a short squeeze if GNK can show any strength. If the market pulls back again I would look for a potential entry point on a bounce from what should be support near $16.00 and its 50-dma.

Current Position: Long November $17.00 CALL, entry was at $0.80

Note: Readers who want to give this more time to work may want to consider buying the JAN 2011 $17.50 CALLS

Entry on October 12, 2010
Earnings 11/1/2010 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on October 11, 2010


Humana Inc. - HUM - close: 55.43 change: +0.59 stop: 49.75

Target(s): 54.95, 57.50, 60.00
Key Support/Resistance Areas: 50.00, 51.00, 53.50, 55.00
Current Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see entry point below

Comments:
10/18: Nothing has changed from the released play over the weekend. We will use a dip as a buying opportunity and keep the trigger at $52.50.

10/16: Check out the HMO healthcare index. Investor sentiment for the healthcare sector has changed. Fears about the healthcare reform seem to have faded and now the sector is breaking out to new three-year highs. HUM is helping lead the way. Shares have been very strong this past week with a rally toward the top of its bullish channel. We want to hop on board but wait for a better entry point.

I am suggesting readers use a trigger to buy calls at $52.50. More cautious traders could look for a dip closer $51.00 but I don't think we'll see HUM pullback that low. If we are triggered at $52.50 I'm suggesting a stop loss at $49.75. Our first target is $54.90. Our second target is $57.25. Our third, longer-term target is $59.00. Time frame is six to eight weeks. Technical traders will note that the P&F chart is bullish with a $66 target. FYI: HUM is due to report earnings on November 1st. We normally want to avoid holding over earnings but I would make an exception for HUM.

Suggested Position:

Trigger to buy calls at $52.50

BUY the November $55 calls - or - BUY the 2011 January $55 calls.

Entry on October xxth at $ xx.xx
Earnings Date 11/01/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on October 16th, 2010


Thompson Creek Metals - TC - close 11.58 change -0.03 stop 10.45

Target(s): 11.75, 12.40
Key Support/Resistance Areas: 12.60, 11.80, 11.00, 10.55
Current Gain/Loss: +11%
Time Frame: 1 to 3 weeks
New Positions: Yes, on pullbacks

Comments:
10/18: TC dritfed sideways in a fairly tight range on Monday. The stock closed near its highs and continues to look bullish, however, be aware of some possible profit taking in the comng days which I would use an opportunity to launch new positions. If TC breaks above last week's highs there is little resistance until the $12.50 area which is just above our final target. Tighter stops could be considered in the $10.80 area to limit downside risk.

10/16 (James): TC experienced some volatility on Friday morning but shares settled into a sideways churn heading into the weekend. A little pullback toward the $11.15-11.00 zone could offer a new bullish entry point to buy the dip. I'm optimistic that this stock could trade toward $12.75 before hitting any significant resistance. FYI: I can't find any data on an earnings date for this company. Cautious traders will want to avoid holding over earnings, which makes this somewhat more risky.

Current Position: Long November $11.00 CALL, entry was at $0.90

Entry on October 12
Earnings 10/4/2010 (unconfirmed)
Average Daily Volume: 1.7 million
Listed on October 9, 2010


PUT Play Updates

Alliant Techsystems - ATK - close 74.23 change +0.41 stop 76.25

Target(s): 72.25, 71.70, 70.50
Key Support/Resistance Areas: 76.00, 74.00, 72.00, 71.25, 70.00
Current Gain/Loss: -35%
Time Frame: 1 to 2 weeks
New Positions: Yes, with tight stops

Comments:
10/18: The bearish set-up in ATK remains in tact but the stock has stubbornly refused to break lower. I've raised the the second target to $71.70 which is my primary target and just above the 50-day SMA. I think we'll see some selling in this stock in the coming days which readers should use as an opportunity to exit positions or tighten stops. All of James comments below remain valid.

10/16 (James): Shares of ATK continue to churn sideways under resistance near $75.00 and its descending 200-dma. I don't see any changes from my Thursday comments. Readers may want to wait for a move under $73.25 before launching new positions. FYI: ATK is due to report earnings on November 4th, before the opening bell. Wall Street expects a profit of $2.81 a share.

10/14 (James): The rally has stalled at significant resistance near $75.00, which just happens to include resistance at the 68.2% Fib retracement of the summer sell-off. This same level is now seeing additional resistance with the simple 200-dma overhead. ATK produced a failed rally on Oct. 1st and it appears the stock just did it again today with a miniature bearish engulfing candlestick pattern. Now usually these patterns need to see confirmation. Readers may want to wait for a move under $73.25 before launching new positions. I wouldn't be surprised to see ATK retest $70 over the next few weeks.

Current Position: Long November $70.00 PUT, entry was at $1.45

Entry on October 4, 2010
Earnings: 11/4/2010 (unconfirmed)
Average Daily Volume: 310,000
Listed on October 2, 2010


Fastenal Co. - FAST - close: 51.89 change: -0.21 stop: 54.25

Target(s): 50.75, 48.25, maybe lower
Key Support/Resistance Areas: 55.00, 52.00, 50.00, 48,00,
Current Gain/Loss: +0%
Time Frame: 3 to 4 weeks
New Positions: Yes

Comments:
10/18: We are now long puts in FAST per the weekend play release. If the broader market corrects our targets should be reached quickly. Be prepared to take profits or tighten stops to protect them. I like new positions at current levels.

10/16: Traders were disappointed with FAST's recent earnings report and guidance. Shares had soared from $45 to $55 in just a few weeks and the stock plunged on the earnings news (Oct. 12th). The bounce attempts this week were also sold sharply and FAST looks poised for a much deeper correction.

I am suggesting new bearish positions now at current levels. We'll use a stop loss at $54.25. Our first target is 50.75 near the simple 50-dma. Our second target is $48.25, but watch for potential support at the rising 200-dma. It is possible that FAST actually sinks lower since the larger pattern on the weekly chart is one of lower highs and lower lows.

Current Position: Long November $50.00 PUT, entry was at $1.00

Entry on October 18, 2010
Earnings Date 10/12/10
Average Daily Volume = 1.0 million
Listed on October 16, 2010


PNC Financial - PNC - close 51.32 change -0.43 stop 54.92

Target(s): 51.05 (hit), 50.35, 49.50, 48.75
Key Support/Resistance Areas: 54.50, 53.50, 50.50, 49.50, 48.75, 47.00
Current Gain/Loss: -50%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/18: After reaching our first target on Thursday and coming close to our second target on Friday, PNC had a snap back rally today and gained more than +3% as banks were the strongest perfroming sector. PNC remains below its 50-day SMA and primary downtrend line so the bearish case remians in tact. Launching new positions at these levels makes a lot of sense for a quick trade lower, but the broader market needs to correct along side PNC for it to be successful. Readers with current positions should use weakness to close positions. $50.35 and $49.50 are my primary targets.

10/16 (James): Financial stocks continue to under perform the rest of the market with the BKX and BIX banking indices both down more than -2.3%. Shares of PNC only lost -0.8% on Friday as the stock found some support at its late September low. Readers could look for a bounce back toward the $52.50 area as a new entry point to buy puts. The simple 50-dma is very clear overhead resistance. Keep in mind that PNC is due to report earnings on October 21st, before the market's opening bell. Analysts are looking for a profit of $1.36 a share. Normally, we prefer to avoid holding over an earnings report. FYI: The Point & Figure chart is bearish with a $48 target.

10/14 (James): Bingo! PNC has started to breakdown again. Financials were the market laggards today as investors worried about the state of foreclosures in this country. Shares of PNC lost -2.2% and broke down under a short-term bullish trend of higher lows. It looks like our first target was hit $51.05 this afternoon (the option was trading near $1.10 at the time). Personally I would aim for the August lows and beyond.

Current Position: Long November $48.00 PUT, entry was at $1.26

Entry on September 30, 2010
Earnings: 10/21/2010 (unconfirmed)
Average Daily Volume: 5 million
Listed on September 29, 2010