The ECB failed to impress and the markets reacted accordingly.

Editor's Note:

The head of the ECB, Mario Draghi, is no longer super. Instead of doing "whatever is necessary" he did nothing and the market sold off hard at the open in response.

Many individual stocks failed to decline significantly but those stocks related to commodities were crushed. Some energy stocks were sold hard as the rising dollar pushed crude prices lower. A report from the EIA showed an unexpectedly large gain in natural gas supplies and that knocked gas futures to a -8% decline. This depressed some energy stocks with a nat gas component even further. Fortunately Hess is not a big gas producer so the decline in Hess was minor.

The Russell ETF declined at the open to initial support and then rebounded slightly. If we see another decline like today we should see that support level broken.

The market rebounded about 50% from its opening lows on expectations of either a strong Nonfarm Payroll report on Friday OR a bad report that might cause the Fed to act. Another report in the 75,000 to 100,000 range would be seen as neutral and leave the market confused about direction.

We are still hostage to the headlines for at least one more day.

I updated the stop loss on IWM and highlighted the new stops in yellow in the portfolio graphic.

Current Portfolio:


CALL Play Updates

Health Care REIT - HCN - close: 62.18 change: +0.27

Stop Loss: 61.20
Target(s): 64.75
Time Frame: exit prior to the Aug 6th earnings
New Positions: see below

Comments:
08/02/12 update: HCN actually rallied today in a very negative market. If we had a couple more days to wait I feel we would see a higher move. However, earnings are Monday so we need to close the play at the open on Friday.

FYI: The Point & Figure chart for HCN is bullish with a $70 target.

- Suggested Positions -

Long Aug $60 call (HCN1218H60) entry $1.55

Entry on July 24 at $61.15
Earnings Date 08/06/12 (confirmed)
Average Daily Volume = 1.5 million
Listed on July 23, 2012


Hess Corp. - HES - close: 46.52 change: -1.28

Stop Loss: 45.35
Target(s): 49.85
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
08/02/12 update: Hess dropped with oil prices and the big drop in the broader market on the ECB disappointment. We need to see a move over 48.50 to trigger new buying.

- Suggested Positions -

Long AUG $47.50 call (HES1218H47.5) Entry $1.05

- or -

Long SEP $47.50 call (HES1222I47.5) Entry $2.02

07/26/12 triggered on gap open higher at $46.65

Entry on July 26 at $46.65
Earnings Date 07/25/12
Average Daily Volume = 4.3 million
Listed on July 25, 2012


Mosaic - MOS - close: 57.97 change: -.14

Stop Loss: 57.50 (Unopened)
Target(s): 67.00
Time Frame: 4-6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Mosaic is a fertilizer stock and its products are in high demand in normal growing seasons. This year we are experiencing a major drought that could impact crop yields dramatically and farmers are already plowing under corn fields and soybeans.

According to Citibank analyst PJ Juvekar the last two times in recent history when we had severe droughts (1983, 1988) the demand for fertilizer actually rose by +8% for phosphate and +2% for potash. Not being a farmer I can't tell you why but those are the facts.

Juvekar said Citi now prefers Mosaic to Potash (POT) over the next 12 months and sees a near term target of $66. MOS closed at $58 on Wednesday. The company has $3.8 billion in cash that could be used for share buybacks.

I have been watching MOS for a breakout to play it in another publication. There is strong resistance at $59.75 but I believe a positive market such as we might see from new ECB action will send buyers into Mosaic stock.

Shares have not declined since their earnings in mid July. Despite the bad market last week they held their gains. This underlying bullishness suggests a positive market could break through that resistance.

All the reasoning I have given above supports a longer term play than is normally suggested in these pages. However, I believe investors are looking at longer term fundamentals as they shop for stocks that can rebound in the next market move higher. Secondly I believe they will see the underlying strength in Mosaic as a position of safety in an unstable market. Mosaic just declared a 25 cent dividend and that attracts longer term buyers.

Trigger: Enter only with an MOS trade at $60.25

- Suggested Positions -

Position: Long Sept $62.50 Call (MOS1222I62.5), currently $1.62

Entry on UNOPENED xx at $ xx.xx
Average Daily Volume = 3.0 million
Listed on Aug 1, 2012


PUT Play Updates

United Rentals, Inc. - URI - close: 28.07 change: +1.29

Stop Loss: 30.55
Target(s): 23.00
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description
Comments:
08/02/12 update: After a big decline of -1.13 yesterday URI saw a minor bounce even in a down market. Not a good sign. I still believe the market is going lower so we will keep the position open even though it showed relative strength today.

FYI: The Point & Figure chart for URI is bearish with a long-term $17 target.

Trigger: None

Positions

Long Sep $26 PUT (URI1222U26) @ $1.25

Entry on July 30 at $ 29.70
Earnings Date 07/17/12
Average Daily Volume = 4.4 million
Listed on July 26, 2012


iShares Russell 2000 ETF - IWM - close: 76.77 change: -0.28

Stop Loss: 78.50 (new)
Target(s): 75.75
Time Frame: 2-4 weeks
New Positions: Yes, see below

Company Description
Comments:
08/02/12 update: Surprising strength in the Russell at -2.54 on the day. The Russell had been leading the market lower and the morning dip in the IWM hit support at the July 24th low at 76.22. Evidently this support was enough to halt the decline on a temporary basis. I lowered the stop loss again to $78.50.

The target is a decline to the June support at $75.

Trigger: IWM at $78.85, hit at 11:40 AM on July 39th

Positions

Long Oct $78 PUT (IWM1220V78) @ $3.26, Stop $81.25 on IWM

Entry on July 30 at $ 78.85
Average Daily Volume = 60.0 million
Listed on July 28, 2012


Akamai Technologies - AKAM - close: 34.67 change: -.44

Stop Loss: 36.75
Target(s): 32.00
Time Frame: 2-4 weeks
New Positions: Yes, see below

Company Description
Comments:
08/02/12 update: The weak market finally weighed on AKAM and the stock declined to trigger our put play. Initial support at $34.25 is the next hurdle and a break there could see a sharp decline as traders take profits on the prior week's gains.

Why We Like It:
Akamai reported earnings of 43 cents last week that beat the street and raised guidance. The stock soared +25% on the news. That was on Thursday. Friday's market short squeeze failed to add any material gains to that spike BUT Monday's lackluster market also failed to produce a material decline in AKAM.

After a 25% spike well above the consolidation range of the last three months you would expect the spike to fade and profit taking appear. The raised guidance is probably what is holding shares up. However, if the Nasdaq begins to roll over on less than expected help from the ECB/Fed then profit taking could begin with a vengeance.

This is a high risk play. If we do get a dip to trigger our put entry and the market turns around the dip in AKAM could be seen as a buying opportunity.

I am looking for AKAM to retrace about half of its gains from last week if profit taking appears.

I am recommending we buy the Sept $34 put in anticipation of a possible decline to the June support at $32.

Trigger: Enter at $34.85 hit on 8/2 at the open.

- Suggested Positions -

Position: Long Sept $34 PUT (AKAM1222U34) @ $1.53

Entry on Aug 2nd at $ 34.85
Average Daily Volume = 3.0 million
Listed on July 30, 2012