Two Friday's in a row have produced major short squeezes on headlines out of Europe.

Editor's Note:

The short squeeze began at 2:AM Friday morning when the European markets rallied on comments from some German officials that appeared to support bond buying by the ECB. S&P futures were up +13 before the stronger numbers in the payroll report were released. This was a double whammy for shorts and the Dow spiked +250 points intraday.

The IWM put play that was looking so good on Thursday night with the Russell 2000 about to break to five week lows, was stopped out on the spike. In retrospect I had the stop loss to close at 78.50 but because it was close we only lost a few cents on the exit. The IWM spiked +3 points from the Thursday low.

I reinstated that IWM play for Monday.

The URI put play was also stopped. Basically anything that was heavily shorted saw a giant squeeze. There was no news on the stock.

The Mosaic trade remains unopened and although shares spiked higher from the Thursday decline they closed well off the highs. If there is no improvement in the outlook on Monday I will drop Mosaic as a potential trade.

The HCN play was closed at the open as planned ahead of earnings. That happened to be the high of the day so that worked out well.

Akamai rebounded slightly but came to a dead stop at prior resistance so I think our chances improved on that position.

The economic calendar is very slim this week so we will be hostage to the European headlines for at least one more week.

Current Portfolio:


CALL Play Updates

Hess Corp. - HES - close: 47.71 change: +1.19

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

08/04/12 update:
Hess rallied on the $4 short squeeze in oil. Nice gain but we still 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

HESS Chart

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

Update 8/04/12
The Mosaic trade remains unopened and although shares spiked higher from the Thursday decline they closed well off the highs. If there is no improvement in the outlook on Monday I will drop Mosaic as a potential trade.

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
MOS Chart

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


Dollar Tree - DLTR - close: 50.63 change: +.62

Stop Loss: 49.50
Target(s): 54.50
Time Frame: 3-4 weeks
New Positions: Yes, see below

Company Description

Update 8/04/12
DLTR gapped open to $51.42 at the open. Our entry trigger was $51.25 so the gap triggered the entry into the play with the option at $1.90. Now we need to see some follow through on the short squeeze.

Why We Like It:
Dollar Tree is a dollar store. In these times of economic stress and high unemployment consumers are always looking for a way to stretch their dollars. Shopping at a store like Dollar Tree is a great way to save with items priced 35% to 50% below normal retail in a regular store.

Dollar Tree has a profit margin of 7.39% overall compared to Wal-Mart at 3.68%, Target at 4.68% and Costco at 1.73%. The downside is that Dollar Tree does not have all products all the time. Consumers have learned to live with that limitation.

We saw consumer sentiment decline in July to the lows of the year and the risk of recession rose to the highs for the year. This makes the dollar stores even more attractive.

With the market in turmoil and no solid trend institutions will be looking for solid, under loved, companies for their investable cash. Dollar Tree has 45% institutional ownership with only a 2.74% float.

DLTR has limited exposure to Europe or to currency conversion issues currently impacting international companies. They recently split the stock 2:1 on June 26th and companies that split normally regain the prior price ($110) within 12 months. That rebound has not yet appeared.

The 100-day average has been strong support since early 2011.

Trigger: $51.25 hit on August 3rd.

- Suggested Positions -

Position: Long Sept $52.50 Call (DLTR1222I52.5) @ $1.90
DLTR Chart

Entry on Aug 3rd at $ 51.42 (gap open)
Average Daily Volume = 1.5 million
Listed on Aug 2, 2012


PUT Play Updates

Akamai Technologies - AKAM - close: 35.47 change: +.79

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

Company Description

08/04/12 update:
The short squeeze in the market caused a decent bounce in AKAM but it could not clear existing resistance. That solid stop at $35.60 is a good indication the stock is going lower. With the +250 Dow intraday and +68 Nasdaq AKAM only managed a +79 cent bounce. That should discourage any weak holders and cause them to sell.

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

- Suggested Positions -

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

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


CLOSED BULLISH PLAYS

Health Care REIT - HCN - close: 61.20 change: -0.98

08/04/12 update:
HCN was closed at the open on Friday as planned ahead of earnings on Monday. The stock opened at $62.10 before declining 98 cents to close at $61.20.

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

- Suggested Positions -

Long Aug $60 call (HCN1218H60) entry $1.55, bid at $1.90 @ open.

HCN Chart

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


CLOSED BEARISH PLAYS

United Rentals, Inc. - URI - close: 30.22 change: +2.16

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

Company Description

08/04/12 update:
The short squeeze bit us on URI. The stock gapped up to $30.68 and hit our stop at $30.55 to end the play. There was no news. It was purely a market short squeeze.

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, exit 0.85, -0.40 loss.
URI Chart

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: 78.61 change: +1.83

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

Company Description

08/04/12 update:
The play was going so well until the short squeeze spiked the IWM to $79 on the payroll numbers and European rally. We were stopped at $78.50. Fortunately because I was aggressively lowering the stop we only lost 13 cents on the option.

I am going to reinitiate the play for Monday.

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, exit $3.13, -0.13 loss.
IWM Chart

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