Option Investor

Daily Newsletter, Saturday, 6/27/2009

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

The Day The Music Died

by Jim Brown

Click here to email Jim Brown

Michael Jackson's unexpected passing on Thursday afternoon provided reporters with something to do as the pre-holiday week wound down to completion. Stock news was sparse but Jackson stories were everywhere.

Market Statistics

There were two economic reports on Friday and both were positive. The Consumer Sentiment report for June rose to 70.8 from 69.0 in May. The majority of the gains came from the present conditions component, which rose to 73.2 from 67.7. The headline number of 70.8 was the highest level since February of 2008. This is a material rebound and suggests the consumer is feeling much better about the economy than any time over the last year.

Consumer Sentiment Chart

One of the reasons the consumer sentiment number may have improved is the two-month spike in Personal Income. The report released on Friday showed personal income spiked +1.4% after a +0.5% the prior month. The savings rate rose to 6.9% due to stimulus payments to Social Security recipients. This is the highest savings rate in more than 16 years. As you can see from the chart below the change in income direction since March has been dramatic. Much of this has been a direct result of the stimulus payments but consumers don't care where the money comes from just as long as they can cash the check.

Personal Income Chart

Despite next week being a holiday shortened week there is a full schedule of economic reports. The two biggest ones are the ISM Manufacturing Index on Wednesday and the Non-Farm Payrolls on Thursday. The ISM Index rose to 42.8 for May and the highest level since September. Analysts are expecting the improvement to continue with a rise to 44. Anything under 50 is still a contraction but definitely an improvement from the 32.9 low in December.

ISM Chart

The Non-Farm Payrolls on Thursday are officially expected to show a loss of -375,000 jobs in June. This would actually be slightly more than the -345,000 lost in May. HOWEVER, there are whisper numbers as high as -225,000 and this could be setting up for a negative surprise if the losses are larger than expected. It is possible analysts are putting too much expectations on the automakers going back to building cars and putting a large number of unemployed workers back to work.

Non-Farm payroll Chart

The rest of the week is chock full of economics but they pale in comparison to the ISM and Jobs. There are three home price/sales reports and a couple regional activity reports. One report of note will be the IEA Mid-Term Outlook on Monday. The last monthly update showed an increase in the demand outlook. This report is a comprehensive look at the current global supply and demand trends for oil. If this report shows an improvement in demand expectations we could see oil prices move over $70.

Economic Calendar

One economic area not improving is the commercial property space. Moody's Commercial property price index fell -8.6% for April and the single largest one-month decline. This is down over 30% from peak in 2007. Real estate analysts claim the commercial real estate sector is showing accelerated deterioration. Over 50% of sales are classified as distressed sales although private equity acquisitions under $2.5 million are very strong. The commercial real estate sector is often referred to as the next shoe to drop in the economy. The economic downturn has created a flood of vacancies and those vacancies have created cash flow problems for building owners and driving quite a few into bankruptcy and foreclosure. The only thing that will correct this problem is a rebounding economy and growing space requirements for rebounding companies.

Late Friday Societe Generale upgraded their estimates for the recovery and said future records will show that the recession ended in Q2. SocGen said Q2 will show a drop in GDP of -1.5% only because the depth of the decline to -5.9% in Q1 was so dramatic. In Q3 they are expecting a positive +1.5% GDP and a continued rise from there. SocGen said recent economic indicators are now pointing to a better than expected recovery. Barclays agreed with the SocGen comments and boosted estimates even higher. Barclays raised GDP estimates by +0.5% in Q3 to 2.5% and to 3.5% in Q4. Barclays said the U.S. cash for clunkers program was going to boost auto production by as much as 50%.

The FOMC met last week and the closing statement was everything an investor could have wished for. To paraphrase, the pace of economic contractions is slowing, spending is stabilizing, inventory adjustments are nearing parity and the Fed expects a gradual resumption of sustainable economic growth. Most importantly the Fed added a statement saying inflation was expected to remain low for some time while keeping the "conditions are likely to warrant exceptionally low levels of Fed rates for an extended period" language. The Fed reiterated its plan to buy $1.25 trillion in mortgage-backed securities and $200 billion in agency debt by year-end. In addition they said they were going to buy $300 billion of Treasuries by autumn. Holy cow Batman that is a huge amount of money. The reason for those purchases is to keep mortgage rates artificially low for the rest of the year in an effort to aid in refinancing and keep foreclosures to a minimum.

The former Fed Chairnam Alan Greenspan could not stand to see his replacement getting all the headlines. He promptly wrote an op-ed for the Financial Times contradicting the Fed statement. "Excess capacity is temporarily suppressing global prices but I see inflation as the greater future challenge. If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012. Earlier if markets anticipate a prolonged period of elevated money supply."

He also warned that government-spending commitments over the next decade were "staggering." "Current debt issuance projections will surely place America precariously close to a borrowing ceiling." Greenspan warned that continued public sales of government debt were unsustainable. The U.S. debt is expected to rise to 80% of GDP by 2019. This is an unheard of number for a developed country let alone the world's largest economy. The seeds of long-term economic destruction are being sown. Greenspan said, "The alternative of political allocation of resources has been tried before and it failed."

Greenspan needs to realize that second-guessing or contradicting the Fed in times of financial stress is not productive and erodes public confidence in the Fed's actions. This is especially bad after Bernanke was attacked by lawmakers and his credibility tarnished in the press. Greenspan's time has passed and almost all analysts believe that his cheap money policies from 2002-2005 were actually responsible for the real estate bubble that caused this crash. Greenspan is on record as suggesting consumers take out adjustable rate mortgages (ARMs) as home prices were exploding "in order to afford a more expensive house." He also is on record saying he did not see the housing bubble until the crash began. Greenspan needs to find a nice quite rocking chair somewhere and go to sleep. Hopefully somewhere without a phone or Internet access.

However, he is right about the excessive government spending. You may have noticed in Friday's news reports that the cost of the proposed government mandated health care reform plan is now up to $1.6 trillion.

Stock news was pretty scarce on Friday with more press time being devoted to economics or Michael Jackson than individual stocks. Micron (Nyse:MU) was one exception with an earnings loss of -36 cents per share in the last quarter. However, analysts were expecting a loss of -43 cents so that was an upside surprise. Micron still lost ground for the day and helped keep the semiconductor index in negative territory.

Apple (Nasdaq:AAPL) gained +2.58 after it was learned that iTunes was swamped with downloads for Michael Jackson songs. Seven of the top ten downloaded albums were MJ songs, the top five individual songs and 8 of the top ten music videos were MJ offerings. ITunes keeps about 33 cents of every song sale so this was a windfall for Apple.

Google said over 50 of their top 100 searches were for Michael Jackson links. Yahoo said the home page story of his death was the most clicked link ever. Amazon said the top 15 most requested songs on Amazon music were MJ. Amazon also said it completely sold out of all MJ CDS in the first 24 hours. Twitter said five of the top ten most requested searches related to MJ.

Akamai said visits to news sites including CNN and Reuters spiked to more than 4.2 million visitors per minute on Thursday evening. Had the news come a couple hours earlier when the east coast was at work that number could have doubled. When consumers are at home they go to the TV for news but while at work they go to the Internet. Keynote Systems, which monitors website traffic, said websites for TMZ, MSNBC, Yahoo and Google all crashed for several minutes under the initial load. Google got so many hits they thought the system was under attack. AT&T said there was a record 65,000 text messages per second on its network on Thursday afternoon.

Palm (Nasdaq:PALM) exploded with a 15% gain after reporting better than expected results after Thursday's close. The company still lost money for the quarter but the selling pace of the new Palm Pre smart phones prompted analysts to believe that Palm could be profitable by year-end. Palm lost -1.73 per share for the quarter. The Palm Pre uses the webOS operating system and Palm says the Pre is only the first in a whole new line of phones using that new OS. Consumer acceptance of the Palm Pre has been very strong.

Chart of Palm

Boeing (Nyse:BA) continued to dog the Dow with additional losses. The losses came after Qantas cancelled orders for 15 Boeing 787 Dreamliners and postponed delivery for four years of 15 more. Qantas had ordered a total of 65 Dreamliners. Qantas also postponed delivery of 12 Boeing 737-800s. With passenger traffic falling -9.3% in May according to the IATA the airlines are having trouble filling seats. So far the next largest buyer with 50 planes on order is All Nippon Airways and they are standing firm on their order. The continued delays are giving many firms the reasons they need to cancel or modify orders so the Qantas cancellation is probably the first of many. Qantas said it would save $3 billion with the cancellation. That is $3 billion right out of Boeings pocket. However, with seven years of backorders that just means somebody's delivery date just got moved higher up the ladder to fill those slots vacated by Qantas. Boeing's stock losses continue to be a drag on the Dow.

Chart of Boeing

The Russell reconstitution is now history and it was actually relatively painless except for the initial drop on June 15th. Volume at Friday's close was very strong as index funds bought stocks being added to the indexes and sold those being deleted. One example was Eastman Kodak (Nyse:EK), which traded 33.9 million shares compared to its normal 5 million per day. Kodak was being kicked out of the Russell 1000 and added to the Russell 2000 because its market cap had fallen so sharply. That was good for Kodak because there are a lot more buyers of stocks being added to the R2K. Kodak gained +14% on Friday and most of that was in the closing minutes.

Kodak Chart

Russell said on Friday that the market cap of the R3K fell from $16.5 trillion to $10.6 trillion over the last 12-months. This is the first time since 1997 that the R3K market cap has been less than $11 trillion. Tech stocks regained the lead as the largest sector in the index. That had been financials and they fell back to the number two spot largely because of the monster market cap losses of the last year.

The last two days of June should maintain an upward bias for the Russell indexes since any index funds who procrastinated the rebalance will now be buying stocks that are already in the indexes rather than those going into the indexes as was the case on Friday. All those buys will be index positive and any late sellers of those stocks kicked out of the Russell will have no impact on the index values. The R3K is using the 200-day average as support.

Russell 3000 Chart (R1K + R2K)

If it is Friday is must mean the death of another bank. In this case four more banks were closed by regulators after the close on Friday. The Community Bank and the Neighborhood Community Bank both in Georgia were closed by regulators. That makes Georgia the leader in the failed bank race with 14 so far in 2009. These failures have been caused by the drastic drop in real estate values in the Atlanta area. In Minnesota, Horizon Bank of Pine City was closed. Also, Metro Pacific Bank of Irvine California was closed. So far in 2009 regulators have closed 44 banks. This compares to 25 in all of 2008. The FDIC has 302 banks on the problem bank watch list. RBC Capital is projecting a total of 1000 banks will be closed from 2009-2012.

For banks repaying the TARP the Treasury Dept laid out the details on Friday of how the warrant repurchase will happen. Banks that received TARP funds had to give the government warrants so the Treasury and the taxpayers could share in their recovery. If the Treasury and the individual banks cannot agree on a value of the warrants by the end of next week the Treasury will put them up for auction. The Treasury put the onus on the bank to determine the value but then has the option to ignore the banks valuation and go to auction. The banks have 15 days from when they repaid the TARP to submit a detailed valuation to the Treasury. The Treasury has 10 days to respond to the banks offer. If the Treasury objects to the price and they can't strike a compromise with the bank they each select an independent appraiser. If the appraisers can't agree a third appraiser is hired and a composite valuation of the three appraisers is used to establish a fair value. If the bank decides the price is too high and does not purchase the warrants then the government will auction them by soliciting quotes from 5-10 market participants.

The House passed the energy and climate bill late Friday by votes of 219 to 212. Virtually no republicans, only eight, voted for it and forty-four democrats voted against it. The cap and trade provisions are going to raise the energy costs for every person in America by $175 a year according to the Congressional Budget Office. Other estimates claim that the increased cost to a family will be over $3000 a year when you factor in the increased cost of everything they buy or use where prices were hiked to cover the increased energy costs. Make no mistake, every product that requires energy to make will go up in price. When the President was a candidate he once said that utility bills could rise 200% to 300% to cover the cost of his energy plan. I am guessing this does not qualify as a tax increase on people making less than $250,000. The bill has strong opposition in the Senate and is not expected to be debated in the Senate until late this fall.

On the topic of energy we saw the price of crude recover from the beating it took on expiration on Monday. After trading as low as $66.67 on the August contract we saw prices return to nearly $71 before news of a peace initiative in Nigeria tempered the gains. There was another big decline in crude inventories by -3.9 million barrels and the sixth decline in the last seven weeks. Refining capacity also rose sharply to 87.1% from 85.9%. Obviously demand is increasing or we would not see the improvement in the internals.

There is also a tropical storm watch for an area just south and west of Cuba and forecasters claim there is a 50% chance of it turning into a cyclone once it enters the Gulf of Mexico. This is a weak system but they tend to escalate quickly once they hit the warm gulf waters. Since this one has materialized quickly and has not been brewing for a week there have been minimal preparations for it to hit the oil patch. You can bet that there will be some frantic movement in the patch this weekend since this is the first storm of the season and rigs will want to get their house in order regardless of what this storm does. This is the wake up call for the 2009 hurricane season.

Gulf Storm Watch

We are only a week away from the start of earnings with Alcoa on July 7th. So far there have been a very few earnings warnings. However, it would not be the first time that companies waited until a low volume holiday week to preannounce their earnings miss in hopes much of the trading public would be at the beach rather than at their computer. This will be something to watch for next week.

JP Morgan (Nyse:JPM) made the news on Friday with the prediction the S&P could fall to 830 between now and September. JPM said the virtually uninterrupted rise in the markets since March increased the chance of a market correction. After September Morgan thinks the S&P will see a strong rally to 950-1000 by year-end. Morgan said any correction should be seen as an opportunity to build positions in cyclicals rather than a window to increase defensive positions. Morgan upgraded U.S. industrials and materials to overweight. "Visibility and earnings recovery will not happen until later in this recovery" according to Morgan. They see 4-6 quarters of global above trend growth starting sometime in 2010.

The S&P closed on Friday right back at that magic 920 level that has alternately been resistance and support since early May. This is well above the 200-day average at 895 but is setting up for what may be a head and shoulders formation.

SPX Chart

I personally would like to think that we are going to see some earnings improvement in Q2 due in part to the lack of any significant earnings warnings. If we saw earnings improving like we are seeing in the economic indicators then the bears would not have a chance. The S&P has significant resistance at 950 and we are heading into the summer doldrums. However, this is also quarter end and we could still see some window dressing before Wednesday. If we can't move over 950 on this effort I think we will definitely see a retest of 880 and possible 850 but like Morgan said, I believe it will be a long term buying opportunity.

The Dow has been handicapped for the last two weeks by the drop in Boeing and some weakness in the financials. The tech components could not overcome the dogs of the Dow trying to bury the index like a new bone. Support at 8300 was tested twice and held firm both times. Unlike the S&P, which is resting on the 200-day as support the Dow is stuck under the 200-day as resistance. The Dow has a better opportunity to form a head and shoulders than the S&P because of its thinner 30-stock structure. All it would take would be sellers in 2-3 issues on a retest of 8600 to push it off the cliff again.

Dow Chart

The Nasdaq has been the leading index and despite Monday's tank job it closed the week with a gain and at the highs. Two week's of support at 1800 was broken on Monday and we saw a retest of 1750 on Tuesday. Positive news about smart phones, semiconductors and biotechs helped to erase the losses. The support at the 30-day average was solid and from the velocity of some of the gains it appears there was some fund manager support. I must caution you that the Russell rebalance could be the reason. Remember I mentioned that tech stocks had taken over from financials as the biggest component of the Russell. As such those new tech stock candidates for inclusion into the Russell could have helped power the Nasdaq the last couple days. Starting on Monday they can help power the Russell as well. Should weakness appear I would remain cautious under 1800 even though we saw 1750 hold last week. Let's decide now that 1800 is our bullish line in the sand and go flat on another break. A move higher over 1865 and prior resistance will quickly run into strong resistance at 1900. I would love to see that test but I am not counting on it succeeding.

Nasdaq Chart

In summary I think we could see a bullish bias on Monday and Tuesday but weakness possibly starting on Wednesday. Remember the ISM is on Wednesday and Non-Farm Payrolls on Thursday. Friday the market is closed. We will be into a new month with highly questionable earnings starting on the 7th. It would be the perfect setup for a few disappointments to poison the sentiment and send us back to support. It would also be the perfect setup for a few earnings surprises to shock the shorts and push us over SPX 950. With volume declining every day next week the volatility in a thin market could be huge if there are any big news events. Conversely if the economics are right inline then boredom could appear just as easily.

Jim Brown

Michael Joseph Jackson Trivia

Born in Gary Indiana in 1958

Survived by:
Prince Michael Jackson Jr (12) 2/13/97 (Godmother Elizabeth Taylor)
Paris Michael Katherine Jackson (11) 4/3/98 (Godfather MaCaulay Culkin)
Prince Michael Jackson II (7) (?/?/2001) (Godfather MaCaulay Culkin)

Debbie Rowe (9/15/96-10/8/99) Divorced for $8 million
Lisa Marie Presley (5/26/94-1/18/96) Divorced
Once dated Brooke Shields
First girlfriend was Tatum O'Neal

Tied with Carlos Santana & Nora Jones with most Grammys in one year (8)

Thriller sold 51 million copies
Dangerous sold 21 million copies
Bad sold 20 million copies
Off The Wall sold 20 million copies
Invincible sold 8 million copies
Michael Jackson: Number Ones sold 6 million copies
HIStory, PP&F, Book 1 sold 16 million copies
Sold 170 million albums total, 300 million records

Was once a Jehovah's Witness

Once owned the Beatles music catalog. Sold 50% to Sony to pay bills.
Fortress Investment Group foreclosed on his remaining 50% interest in 2005
Fortress also seized his entire MiJac Music Publishing Company

Inducted into R&R Hall of Fame 2001 as solo artist
Inducted into R&R Hall of Fame 1997 as group, Jackson 5
Has two stars on the Hollywood Walk of Fame

January 2003 Superbowl performance had largest viewing audience ever

State of CA closed 2700 acre Neverland Ranch for unpaid bills and no insurance. MaCaulay Culkin co designed the amusement park there.

Co-wrote "We are the world" with Lionel Richie

Godfather of Nicole Richie

Famous quotes:

"I don't like pop music."

"I will always be Peter Pan in my heart."

New Option Plays

Farm Products and Auto Parts

by James Brown

Click here to email James Brown


Bunge Limited - BG - close: 61.84 change: +0.82 stop: 58.49

Why We Like It:
BG operates three business: food, fertilizer and its agribusiness, which sells commodities. If the global economy is truly improving then BG's up trend should continue. Traders bought the dip at its rising 50-dma last week. Short-term the stock has resistance in the $62.25-62.50 zone. I'm suggesting readers buy calls at $62.55. If triggered our first target is $67.45. Our second target is $69.95. More aggressive traders may want to aim for the $74-75 zone but we plan to exit ahead of the late July earnings report.

Suggested Options:
July calls have more open interest but earnings are July 23rd (unconfirmed). I'm suggesting the August calls.

BUY CALL AUG 60.00 BGW-HL open interest= 184 current ask $5.60
BUY CALL AUG 65.00 BGW-HM open interest= 595 current ask $3.20

Annotated Chart:

Picked on     June xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       1.7 million  
Listed on  June 27, 2009         


AutoZone Inc. - AZO - close: 149.85 change: -2.24 stop: 152.25

Why We Like It:
AZO has been slowly withering lower for weeks. The trend of lower highs is starting to accelerate. Last week the bounce on Thursday failed at $152.00. This looks like a lower-risk entry point to buy puts with a tight stop. Our target is $141.00. The Point & Figure chart is forecasting a $134 target.

Suggested Options:
I am suggesting the July puts since stocks fall faster than they climb. Readers may want to consider August puts.

BUY PUT JUL 150 AZO-SJ open interest=1292 current ask $4.20
BUY PUT JUL 145 AZO-SI open interest=1800 current ask $2.20
BUY PUT JUL 140 AZO-SH open interest=1238 current ask $1.05

Annotated Chart:

Picked on     June 27 at $149.85
Change since picked:      + 0.00
Earnings Date           09/22/09 (unconfirmed)
Average Daily Volume =       1.1 million  
Listed on  June 27, 2009         

In Play Updates and Reviews

Five New Stops

by James Brown

Click here to email James Brown

CALL Play Updates

Alcon Inc. - ACL - close: 116.44 change: +0.72 stop: 109.90

It was a rocky session for ACL. The stock plunged to $113.27 Friday morning only to rally toward $119.00 midday. Shares then began to drift lower and then suddenly doped back to dropped toward $116 on news that an FDA committee had rejected a dry-eye drug by River Plate Biotechnology, which would have been marketed by ACL. I would expect another dip toward $115.00 and readers can open bullish call positions there. Our first target is $119.90. Our second target is $124.50.

Suggested Options:
I am suggesting the July or August calls. We plan to exit ahead of the late July earnings report. July options expire after July 17th.

Annotated Chart:

Picked on     June 25 at $115.25 *triggered    
Change since picked:      + 1.19
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       688 thousand 
Listed on  June 24, 2009         

Apollo Group - APOL - close: 68.50 change: +1.18 stop: 63.85 *new*

Monday is our last day for the APOL call play. The company reports earnings after the bell on Monday and Wall Street is looking for a profit of $1.12 a share. Friday's action was bullish with a new relative high and a close over the simple 100-dma. Unfortunately APOL still has overhead resistance at the 200-dma. I am raising our stop loss to $63.85, just under Thursday's low. More conservative traders may want to raise their stops to breakeven at $66.10. We will exit completely if given the chance at $69.95.

Suggested Options:
No new positions.

Annotated Chart:

Picked on     June 17 at $ 66.10 *triggered  
Change since picked:      + 1.22
Earnings Date           06/29/09 (confirmed)
Average Daily Volume =       3.4 million  
Listed on  June 08, 2009         

Becton Dickinson - BDX - close: 70.94 change: +0.03 stop: 67.75

Friday was a very quiet day for BDX. The stock churned sideways in a narrow range. I remain bullish on the stock with the breakout over $70.00 but readers might want to wait for another dip back to $70.00 as an entry point.

Our first target to take profits is $74.90. Our second target is $79.00. Currently the Point & Figure chart is bullish and forecasts an $86 target. We don't want to hold over the late July earnings report. Note: I'll admit that our second target at $79 is a little aggressive considering our time frame. Be sure to take some money off the table at $74.90.

Suggested Options:
I am suggesting the July or August calls.

Annotated Chart:

Picked on     June 25 at $ 70.51 *triggered     
Change since picked:      + 0.43
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       1.8 million  
Listed on  June 18, 2009         

Covance Inc. - CVD - close: 48.86 change: +0.64 stop: 45.49

CVD is a new play from our Thursday night newsletter. The stock gained 1.3% on Friday and is testing technical resistance at its exponential 200-dma. I'm suggesting call positions now or on dips near $46.00. Our first target is $52.40. Our second target is $57.00 but we may run out of time.

Suggested Options:
CVD has earnings in late July. I'm suggesting the August calls but we'll plan to exit before the earnings report.

BUY CALL AUG 45.00 CVD-HI open interest= 833 current ask $5.60
BUY CALL AUG 50.00 CVD-HJ open interest= 571 current ask $2.45
BUY CALL AUG 55.00 CVD-HK open interest= 205 current ask .90

Annotated Chart:

Picked on     June 25 at $ 48.22
Change since picked:      + 0.64
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =       654 thousand
Listed on  June 25, 2009         

Deckers Outdoor - DECK - close: 73.90 change: +2.00 stop: 67.75 *new*

The window dressing in DECK was strong enough to shrug off a lackluster market and break out past its earlier June high. DECK gained 2.7%. If you're looking for a new entry point you may want to wait for a dip. Broken resistance near $70.00 should become new support. I am adjusting our stop loss to $67.75. Our first target is $78.50. Our second target is $82.50 but traders need to take some profits at our first target! $82.50 is more aggressive.

Suggested Options:
I am suggesting the August calls. I prefer the $70, 75 and $80 strikes. We'll plan to exit before DECK's earnings report.

Annotated Chart:

Picked on     June 25 at $ 71.90
Change since picked:      + 2.00
Earnings Date           08/06/09 (unconfirmed)
Average Daily Volume =       630 thousand 
Listed on  June 25, 2009         

Quest Diagnostic - DGX - close: 55.25 chg: -0.64 stop: 51.95

DGX encountered a little bit of profit taking heading into the weekend. If you're looking for a new entry point I would wait for a dip near $54.00. Our first target to take profits is $58.25. We'll set our second target at $59.90. More aggressive traders may want to aim higher. The Point & Figure chart has a new triple-top breakout buy signal with a $75 target. We do not want to hold over the late July earnings report.

Suggested Options:
I am suggesting the July or August calls if DGX dips near $54.00.

Annotated Chart:

Picked on     June 24 at $ 54.28
Change since picked:      + 0.97
Earnings Date           07/22/09 (unconfirmed)
Average Daily Volume =       1.1 million  
Listed on  June 24, 2009         

Express Scripts - ESRX - close: 67.79 change: -0.81 stop: 63.75

ESRX also encountered a little bit of profit taking heading into the weekend. Readers looking for new bullish entry points can watch for a dip near $65.00. Broken resistance near $65 should be new support. Our first target is $69.90. Our second target is $74.75.

Suggested Options:
If ESRX provides a new entry point near $65 I would buy the August calls. Just remember that we'll exit ahead of the late July earnings report. My preference would be the $65 or $70 strikes.

Annotated Chart:

Picked on     June 22 at $ 65.25
Change since picked:      + 2.54
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =       3.7 million  
Listed on  June 18, 2009         

Euro Currency ETF - FXE - close: 140.71 chg: +0.80 stop: 137.90

The U.S. dollar is beginning to roll over again, which is good news for any euro bulls. The euro is breaking out from a three-week consolidation. Readers can open new call positions near $140.00. Our first target is $144.50. Our second target is $148.50. The P&F chart is bullish with a $168 target.

Suggested Options:
I am suggesting the August calls. Strikes are available at $1.00 increments.

Annotated Chart:

Picked on     June 23 at $140.76
Change since picked:      - 0.85
Earnings Date           00/00/00
Average Daily Volume =       461 thousand    
Listed on  June 23, 2009         

Millicom Intl. - MICC - close: 56.64 change: +0.27 stop: 53.45

MICC is up four days in a row and volume has been evaporating during the bounce. That's potentially bad news. Readers may want to take a step back and wait for a dip near $55.00 before considering new bullish positions. Or use my earlier suggestion and wait for a breakout over $57.00. Our first target is $59.95. Our second target is $64.50. We only have about three weeks before MICC's earnings so we may not reach the second target.

Suggested Options:
I'm suggesting the July or August calls. July strikes expire in a little more than three weeks.

BUY CALL JUL 55.00 CQD-GK open interest= 299 current ask $3.60
BUY CALL JUL 60.00 CQD-GL open interest= 625 current ask $1.30

BUY CALL AUG 55.00 CQD-HK open interest=  63 current ask $6.10
BUY CALL AUG 60.00 CQD-HL open interest= 118 current ask $3.70

Annotated Chart:

Picked on     June 25 at $ 56.37
Change since picked:      + 0.27
Earnings Date           07/21/09 (unconfirmed)
Average Daily Volume =       1.0 million  
Listed on  June 25, 2009         

Murphy Oil - MUR - close: 53.85 change: -0.52 stop: 49.90

Target achieved. Crude oil futures sold off on Friday thanks to news that violence in Nigeria may subside as the government negotiates an amnesty deal for the rebel leader. MUR traded sideways but saw a huge volume surge on the close possibly due to the Russell index rebalancing. I'm not suggesting new positions at this time. MUR looks ready for a dip. MUR hit $54.76 on Friday and our first target was $54.50. We have a second target at $58.00.

Suggested Options:
I'm not suggesting new positions at this time.

Annotated Chart:

Picked on     June 23 at $ 51.51
Change since picked:      + 2.34
                               /1st target hit @ 54.50 (+5.8%)
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =       1.9 million  
Listed on  June 23, 2009         

Teva Pharma. - TEVA - close: 48.60 change: +0.53 stop: 45.95 *new*

So far so good. TEVA gave us the entry point we were looking for near $46.00 and it's bouncing right on schedule. I'm not suggesting new positions at this time. Please note our new stop at $45.95. Our exit target is $49.85. My time frame is very late July. If you are willing to hold past the earnings report more aggressive traders may want to aim higher. We will plan to exit before the earnings announcement.

Suggested Options:
No new positions at this time.

Annotated Chart:

Picked on     June 03 at $ 46.49
Change since picked:      + 2.11 
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =       5.0 million  
Listed on  June 03, 2009         

PUT Play Updates

L-3 Comm. - LLL - close: 69.05 change: -0.47 stop: 73.55 *new*

The defense sector began an oversold bounce on Thursday but it stalled on Friday. The rebound in LLL rolled over under $70.00. While this relative weakness is encouraging I would still expect an oversold bounce. A failed rally in the $72-73 zone could work as a new entry point. I'm lowering the stop loss to $73.55. Our first target is $66.00. Our second target is $61.00.

Suggested Options:
I would use the July or August puts if LLL provided a new entry point.

Annotated Chart:

Picked on     June 16 at $ 71.75
Change since picked:      - 2.70
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       976 thousand  
Listed on  June 16, 2009         

MDC Holdings - MDC - close: 30.56 change: -0.31 stop: 31.05

Honestly I'm surprised that MDC did not stop us our on Friday. The stock had rallied right to resistance at $31.00 and then stalled. On a short-term basis is does look like shares have turned more bullish. The fact that the homebuilders couldn't follow through on their bounce/rally last week is a good sign for the bears. I'm not suggesting new positions and still think more conservative traders may want to exit early. Our first target is $27.75. Our second target is $25.15.

Suggested Options:
I am not suggesting new positions in MDC at this time.

Annotated Chart:

Picked on      May 20 at $ 32.31 /gap down entry
                               /originally listed at $32.87
Change since picked:      - 1.75
Earnings Date           07/30/09 (unconfirmed)
Average Daily Volume =       1.1 million  
Listed on   May 20, 2009         

POSCO - PKX - close: 82.26 change: -0.08 stop: 84.05

The bounce in commodity and material-related stocks stalled on Friday. PKX hovered around the $82.00 level and volume was very light. I am suggesting that readers wait for a new drop under $80.00 as our next bearish entry point to buy puts. More conservative traders may want to tighten their stops toward $83.00. Our target is the $71.00-70.00 range.

Suggested Options:
If PKX provides a new entry point under $80.00 I would buy the July puts. This should be a short-term two-week trade (or less). The July 9th earnings date is unconfirmed. PKX may report later in the month.

Annotated Chart:

Picked on     June 22 at $ 78.35
Change since picked:      + 3.91
Earnings Date           07/09/09 (unconfirmed)
Average Daily Volume =       541 thousand 
Listed on  June 22, 2009         

Symantec - SYMC - close: 15.91 change: +0.07 stop: 16.10

Tech stocks have been the relative strength leaders in this market and yet the rally in SYMC stalled at the $16.00 level. Shares are right underneath resistance at $16.00 and its 50-dma. A failure here can be used as a new entry point but readers may want to wait for a dip under $15.50 before launching positions. Our first exit target is $14.10.

Suggested Options:
Wait for a new decline under $15.50. I would use the July or August puts.

Annotated Chart:

Picked on     June 16 at $ 15.73
Change since picked:      + 0.18
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =      16.8 million  
Listed on  June 16, 2009         

United Parcel Serv. - UPS - close: 49.86 change: +0.49 stop: 52.05 *new*

Our bearish put play on UPS is now open. The stock finally bounced back toward round-number resistance at $50.00. We had a trigger to buy puts at $49.50. Currently our stop loss is at $52.05. I would still open new positions now or you could wait for a failed rally near the descending 200-dma (technical resistance) near $51.50.

Our first target to take profits is $45.50. We do not want to hold over the late July earnings report.

Suggested Options:
I am suggesting the July or August puts. Keep in mind we plan to exit ahead of the July earnings report.

BUY PUT JUL 50.00 UPS-SJ open interest=14511 current ask $1.55
BUY PUT JUL 45.00 UPS-SI open interest=51830 current ask .25

BUY PUT AUG 50.00 UPS-TJ open interest= 1122 current ask $2.90
BUY PUT AUG 45.00 UPS-TI open interest= 1116 current ask $1.05

Annotated Chart:

Picked on     June 26 at $ 49.50 *triggered     
Change since picked:      + 0.36
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       5.2 million  
Listed on  June 17, 2009         

Wynn Resorts - WYNN - close: 36.72 change: -0.44 stop: 37.65

The oversold bounce in WYNN stalled right where it was supposed to under resistance in the $37.50 region. I'm still a little concerned by the bullish reversal pattern formed last week but the overall trend is still down for WYNN. Technical indicators are mixed for WYNN but shares did under perform the DJUSCA gambling index. I would consider new put positions here although readers may want to wait for a new decline under $35.00 to open positions. Our first target is $30.25. Our second target is $26.00.

Suggested Options:
I am suggesting the July or August puts. My preference is for the $35 or $30 strikes.

Annotated Chart:

Picked on     June 22 at $ 34.28
Change since picked:      + 2.44
Earnings Date           07/30/09 (unconfirmed)
Average Daily Volume =       3.4 million  
Listed on  June 22, 2009