Option Investor

Daily Newsletter, Tuesday, 8/11/2009

Table of Contents

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

Market Wrap

Two In A Row Is Not A Trend

by Jim Brown

Click here to email Jim Brown

The markets closed down for the second day but despite the decline there is still no change in trend. The indexes only retreated to initial support and the profit taking was very orderly.

Market Stats Table

The big economic report for the morning was the Productivity and Costs for Q2. Nonfarm business productivity rose at an annualized rate of +6.4% in the second quarter. This compared to +0.3% in Q1. Unit labor costs fell -5.8%. Hours worked fell more sharply than output, which led to the gain in productivity. Earnings barely rose by +0.2%, which should lead to greater profitability. Obviously the high unemployment rate is providing cheap labor and raises are being eliminated and in some cases workers are being asked to take a cut in pay, forced vacations and rotating layoffs. Averaged hours worked has fallen to just over 33 hours per week. This is great for manufacturers as long as they can sell the products. Unfortunately all of these forced cutbacks are due to the lack of product sales.

I believe the spike in productivity, normally a positive event, is actually the opposite this time around. This is clearly a factor of lack of demand and the harsh remedies the manufacturers are forced to implement in order to survive. If you cut your workforce by 50% your productivity per employee would spike sharply but the number of items you could produce would also drop sharply. Today's number is not bullish despite the seemingly positive spin.

To further confuse the issue the BLS issued an alert late this afternoon saying the report had errors in it and it would be corrected as soon as possible. The errors were in the compensation per hours and labor costs and did not include the +6.4% headline number.

The Wholesale Trade report showed a -1.7% drop in the inventory to sales ratio. This exceeded expectations for a decline of -0.9%. Sales rose +0.4% but that was due to stronger oil prices. Sales also benefited from a sharp +4.8% gain in auto sales. The inventory to sales ratio fell slightly to 1.26 and that remains 16 basis points above the 1.10 level seen in June 2008. This compares to the 1.34 high seen in January 2009. The higher the number the longer it will take to deplete inventories. This is a seriously lagging report and is normally ignored. However, this will be substantially negative for Q2 GDP when we get the next revision. Analysts believe it could remove half a point from the headline number.

Wholesale Trade Inventory Chart - 3 years

Reports due out on Wednesday include Mortgage Applications, International Trade, Job Openings, NAR Metro Real Estate Prices, Oil & Gas Inventories, Treasury Budget and of course the FOMC announcement.

The FOMC meeting, which began today, will end on Wednesday with the rate announcement at 2:15 ET. There should be a lot more information in Wednesday's announcement than we saw after the June meeting. The Fed is being pressed from all sides for timing and methods the Fed will use to remove all the monetary stimulus from the market. The Fed's balance sheet has exploded with debt as they sought to eliminate some of the uneasiness in the market. Sometime in September the Fed will max out its $300 billion purchase of treasuries and other agency securities. They had purchased $243 billion through the March 18th meeting. The TALF program is expected to continue in an effort to free up bank funds for lending and to address the commercial mortgage problems. In June the Fed added $100 billion to the TALF specifically for commercial mortgage asset purchases.

The current Fed stimulus is at record levels. We have seen inflation explode in past cycles after much less stimulus was applied. The Fed has said that there is no inflation in the foreseeable future and should continue to say this in order to keep rates low until the last minute. If the Fed is still seeing no inflation then they will probably keep the "rates will remain low for a considerable period" phrase in their statement. This is what the market wants to hear.

However, we are coming to a point where the Fed is going to have to start telling investors how and when they plan to begin removing this record monetary stimulus. Once that dialog starts the market is not going to react well because it represents a shift in policy from easing to hiking even if the hikes are still months away. Because of the record levels of stimulus the pace of the retraction, once the real economic recovery begins, could be sharp and fast. This is the real fear for the markets. If the Fed said we are going to raise rates .25% every 60 days starting Jan 15th until rates hit 4% I think the market would be fine with that plan. Unfortunately that has almost zero chance of happening. The Fed may want to remove it that slow but once signs of inflation begin to appear the Fed will be forced to accelerate the process and that worries the market. Rapid removal produces maximum pain for the markets. Analysts are not expecting any rate moves until mid-2010 so ANY mention of rate move potential before then could turn ugly in the stock market.

In this statement the Fed will hopefully acknowledge the improvement in the economy and in the labor markets. They should also increase their estimates for growth in Q3 and Q4. In order to provide balance they should also continue to warn that downside risks remain. The Fed has nearly 70 years of U.S. economic history starting with the mistakes made in 1937 and we know Bernanke is a student of the Great Depression and the wrong moves taken by Japan in 1997 and 2000. There are plenty of examples of the wrong moves so hopefully he will be ready with a game plan to avoid any economic and market disruption. Investors want to know what those moves will be but not necessarily see them put into operation.

The Fed may talk about the current problem in the commercial real estate mortgage area. Those problems are deflationary and will give the Fed more than enough reason to withdraw stimulus over a very long period. Bernanke is up for reappointment in 2010 and if he wants the job to continue he has to deal with the political risk of taking steps contrary to what the administration would like to see.

The Fed will likely temper its outlook for Q3/Q4 growth by discussing the lack of consumer demand. With home prices still declining and mortgage rates rising the Fed may have to continue to keep rates artificially low through its various stimulus programs to offset that drag on consumer demand. Until consumers can again see and access equity in their homes the demand for big ticket consumer products will remain low.

Obviously the Fed statement on Wednesday afternoon is going to be critical for the stock market. The Fed has a minefield of issues it will have to address in the statement and any one of them could explode in their face and take the markets down sharply if not handled correctly. It will be a serious stumbling point for the market since nearly all the points to be discussed include removing some form of incentive for the markets. It is like a doctor addressing an irate patient holding a loaded gun and trying to tactfully tell him he has cancer and possibly only a few weeks to live unless every painful treatment the doctor suggests is concluded carefully, correctly and completely. Let's hope the Fed's prognosis for the economy is delivered in Bernanke's best beside manner on Wednesday.

Oil prices fell again today to trade at $68.71 after OPEC said the lack of demand due to the global recession would cause demand for OPEC crude to decline by 480,000 bpd in 2010 to 27.97 million bpd. This was a decrease of -100,000 in the decline from their prior estimate for a decline of -380,000 bpd. OPEC said prices would decline further unless there were some signs of increased demand soon. OPEC said if the current market expectations for an economic recovery did not come to pass the current price levels would come under pressure.

Separately the US Energy Information Agency (EIA) cut its 2009 demand forecast. The EIA now expects 2009 demand to decline by -1.71 mbpd compared to their prior estimate for a drop of -1.16 mbpd. Meanwhile China's imports increased by 42% in July to 4.62 mbpd.

The decline to close at $69.50 was actually muted given the double estimate declines. The reason for the muted response was the appearance of three tropical disturbances. Two of them are headed into hurricane alley but there is less than a 30% chance today that they will turn into a named storm. The third storm, currently called Two, has already developed and is heading towards the U.S. but is currently on track to head up the East Coast rather than into the gulf. Just the appearance of these three storms was enough to keep oil prices from falling farther from the two downgrades.

Storm Chart

Storm Track Chart

The CEO of XTO Energy was interviewed at the Enercom Energy Conference here in Denver today. He said the majority of his oil production was hedged at $96 and about 40% of gas production at $9. That was old news since XTO is normally a strong hedger. The news that caught my attention was his expectations for natural gas to double sometime next year. According to Simmons there were 1500 rigs drilling for gas in 2007 in the U.S. and less than 700 in 2009. He said that explosion of drilling increased U.S. gas production by only 14%. The majority of that new production came from the four shale gas plays, which are quick decline wells. He said production has declined -3% from the 2008 peak and could be down by -10% this winter. By next year he expects production shortages to push gas prices back into the $7 to $9 range. He is not the only one with this mindset. Baker Hughes has reported more than 100 rigs have gone back to work in the U.S. over the last five weeks. I glanced at Chesapeake (CHK) and it is very close to a breakout over $25.

CHK Chart

After the bell today Applied Materials (AMAT) reported a loss of 2-cents that was much better than the analyst consensus for a loss of 8-cents. For the current quarter AMAT expects to breakeven or even make a small profit of 4-cents thanks to rising orders and deep cost cuts. Revenue was $1.13 billion compared to analyst estimates for $955 million. AMAT shares gained slightly in after hours trading.

AMAT was seeing some weakness in its solar orders and research firm iSupply said on Monday that nearly half of all solar panels manufactured in 2009 may not be sold until 2012. This glut is due in part to a decision by Spain to cut subsidies. AMAT said in early Q2 that full year revenue from solar installations could fall -40% from the year ago period of $18 billion.

The record $37 billion sale of three-year notes went off without a hitch today and saw the largest demand ever from indirect bidders at 2.89. This compares to the average demand of 2.52 over the last seven auctions. Indirect bidders include foreign central banks and their appetite for U.S. debt appears unabated. Indirect bidders bought 62.5% of today's notes and 54% in July and 48% in the prior auction. Average over the last seven auctions was 40.96%. Foreign banks like the three-year note as the best compromise between term and yield while being able to escape early if conditions change. $23 billion of ten-year notes will be auctioned on Wednesday. These could see a little lighter bidding as we have seen in other recent longer-term auctions. The equity markets rallied off the afternoon lows once the auction outcome was announced. Equities are running scared that an auction will eventually fail.

GM announced the mileage estimates for the new Chevrolet Volt. GM rocked the press with a 230 mpg claim for the mainly battery powered car in the city. The car's fans and detractors were all over news arguing the claims. The detractors claim that mileage is only valid if the user travels less than 40 miles per day. That is the threshold where the gasoline engine kicks in to charge the battery once the trip exceeds the 40-mile initial battery life. Essentially if you drive less than 40-miles per day and plug it in every night the gasoline engine never runs or runs only slightly. Over a week of commuting less than 40-miles per day with a minor trip increase for shopping, GM says you will get 230 mpg.

This is totally bogus since the cost to plug it in every night should be considered somewhere in the equation. Secondly, if you simply get in the car and drive the total range is only 300 miles before you have to stop and charge. That poses a question of how good the gasoline engine is to recharge the battery. Evidently it will not keep it charged while under use and may function as more of a battery booster during normal use and should not be relied upon for power on its own. Tack on a $40,000 price tag for a car that would take four full charges to go from Denver to Las Vegas and you have to wonder who is going to buy them and in what quantity. Obviously anybody who has to park on the street is going to have a charging problem so this appears targeted to those living in the suburbs with driveways and garages. Unfortunately those are the ones who have the farthest to drive. Time will tell.

Bernie Madoff's CFO, Frank DiPascali, pleaded guilty today to ten counts of various charges that will garner him 125 years in jail. However, in a deal with authorities he will tell all he knows in an effort to get a lighter sentence. He began working for Madoff when he was 18 and he is 52 now. The key to his comments in court today was his implication of others in the scheme. He said that from the early 1990s he had helped Madoff "and others" carry out the fraud. He said he recorded fictitious trades and under the direction of Madoff lied to the SEC. He said he helped Madoff avoid detection of the scheme by designing, developing and overseeing a wide array of fictitious books and records to conceal the scam.

He admitted producing fictitious trade records to match returns requested by various feeder funds. Reportedly these funds knew about the scam to some extent but as long as Madoff could produce the paper returns they could show their investors they looked the other way. The FBI is investigating more than ten others for their role in the scam. Sentencing of DiPascali is not until next May in order to allow authorities to extract every ounce of knowledge from him before the judge issues the sentence. In theory the judge will respect a plea of clemency for a light sentence in exchange for the years worth of incriminating evidence. Prosecutors are also asking for $170 billion in restitution from DiPascali. Since I doubt he has $1 billion, much less $170B, so that appears to be dramatic overkill by prosecutors.

Banks continued their decline today after noted bank analyst Dick Bove said bank stocks were running on fumes and recommending selling. Bove said the rally had been on a change in investor psychology and not a change in the profit potential. He now believes that bank earnings will not improve in Q3 or even in Q4 and many will continue to show losses. Bove believes that the bank sector will come back and be a very good place to invest but only if you have 3-5 years before you need the money. For those with a shorter time horizon he is recommending taking profits now.

Goldman Sachs (GS) is down more than $12 from last week's $171 high but they are not alone. The entire sector has been bleeding red ink since last Thursday's opening spike. The worry over commercial real estate mortgages is starting to overcome the optimism we saw over the prior week.

Chart of XLF

My comments in the weekend newsletter concerned the weakening market internals and the strong converging resistance. So far this week the selling has been muted and on light volume. Only 8.6 billion shares were traded on Monday and only a few million more today. This is a far cry from the 11+ billion on each of the last three days of last week.

With volume light and financials giving back less than 10% of their prior three weeks of gains this is not a correction, at least not yet. This is a simple buyer boycott and some light profit taking. I welcome it and hope it continues but historically the market rallies into the Fed announcement as shorts cover. After the announcement the volatility increases and the day after is typically down even when there was good news.

I don't believe the market action so far this week has told us anything. The Dow has declined to just over initial support at 9200 and has shown no indications of testing that support. The majority of the Dow's losses today came from TRV -1.49, JPM -1.45, CVX -1.29 and IBM -0.91. The IBM 91-cent decline on a $118 stock should give you some idea of how lackluster the selling was. It was nearly all driven by the financials and some weakness in oil.

Obviously this can change at a moments notice with the wrong Fed statement or even a lack of excitement at a lukewarm statement. The internals were 3:1 negative but new 52-week lows at 8 were at the lowest level since June 18th. I can't say it much clearer other than so far this is just a pause. I would love to see some fear come back into the market and a Dow drop to support at 9000 so we can see how much conviction the bears have. That would be a -400 point drop from Friday's high and about a 4% move. Definitely not even a decent bout of profit taking but a retracement that is really needed. Just look at the monster bounce from early July in the chart below and you can see how seriously overextended we are. A dip back to 9000 or even 8800 would just be a decent bout of profit taking and not a material event.

Dow Chart

The S&P could not hold over the 1000 level but it remains in striking distance. The 20-point decline from the Friday high is barely a decent pause when you consider the +140 point rally from the July lows. The S&P could easily retest 970-980 and not cause any material damage to market sentiment. Most traders are hoping for a continued decline for another entry point.

S&P-500 Chart

Google, Microsoft, Intel, RIMM, Apple and even QCOM all finished lower today. Qualcomm was upgraded after a court rejected a class action lawsuit and news broke about more orders from a new Intel product. Even the double dose of good news could not keep QCOM positive or the Nasdaq from losing more than 1%. Still a quick glance at the internals on the Nasdaq showed that decliners were barely twice the number of advancers. The leaders may have taken a hit for the team but the troops were still moving forward to some extent. The Nasdaq rallied nearly 300 points from the July lows and has not even returned to initial support at 1950. As with the other indexes this was just a buyer boycott rather than the beginning of a summer smackdown. Support at 1950 is key. If we do break that level I would expect the decline to extend for several more days. Until then I see 1950 as a buying opportunity until proven wrong.

Nasdaq Chart

I am not going to bore you with a recap of everything above. I simply view this decline as a buying opportunity and hope we get at least one more day before the buyers return. The FOMC announcement at 2:15 is guaranteed to be a volatility event and lacking any noteworthy change in the FOMC announcement we could be looking at another down day on Thursday. I would love to see support tested on Thursday and a rebound into Friday as shorts cover into the weekend. We are rapidly running out of summer and volume should pickup for real after Labor Day. Until then traders are probably going to be trying to pack in a few more days of sunshine instead of trading as we head into the holiday.

Jim Brown

New Option Plays

Transports, Tech, Oil and Coffee

by James Brown

Click here to email James Brown


C.H.Robinson - CHRW - close: 54.66 change: +0.29 stop: 52.75

Why We Like It:
Some of the transports have been ignoring recent weakness in the market. CHRW is one of them and the stock appears to be coiling for a bullish breakout over resistance near $55.00. I am suggesting a trigger to buy calls at $55.35. If triggered our target is $59.50. I believe our biggest risk is an intraday spike over resistance that fails. If CHRW breaks out and then fails to close over $55.00 I would probably abandon ship early. Currently the Point & Figure chart is bullish with a $69.00 target.

Suggested Options:
I am suggesting the September calls.

BUY CALL SEP 55.00 CJQ-IK open interest= 956 current ask $1.95
BUY CALL SEP 60.00 CJQ-IL open interest=1304 current ask .40

Annotated Chart:

Picked on   August xx at $ xx.xx <-- TRIGGER 55.35
Change since picked:      + 0.00
Earnings Date           10/20/09 (unconfirmed)
Average Daily Volume =       1.7 million  
Listed on August 11, 2009         


Editor's Note on Put ideas:

The banking stocks are correcting and I looked at BAP as a potential put candidate. The stock doesn't trade with much volume and option volume is even worse. I decided to pass but more aggressive traders may want to give it a look. I'd target a dip toward the June highs near $63.00-62.00.

New Plays

Apple Inc. - AAPL - close: 162.83 change: -1.89 stop: 167.51

Why We Like It:
I believe that AAPL is going to be one of the first stocks investors buy when the correction slows down. We'll be first in line to buy calls if AAPL does see a deep enough pull back. In the meantime I want to try and capture the correction. The stock is very overbought and the nearest support looks like it could be the $150-147 zone. I am suggesting put options now with a stop loss at $167.51. Our first target to take profits is at $156.00. Our second and final target to take profits is at $151.50. If AAPL near $150 we'll start looking at buying calls.

Suggested Options:
I'm suggesting the September puts.

BUY PUT SEP 160 APV-UL open interest=13777 current ask $4.90
BUY PUT SEP 155 APV-UK open interest= 4946 current ask $3.15
BUY PUT SEP 150 APV-UJ open interest=19480 current ask $1.96

Annotated Chart:

Picked on   August 11 at $162.83
Change since picked:      + 0.00
Earnings Date           10/21/09 (unconfirmed)
Average Daily Volume =      17.1 million  
Listed on August 11, 2009         

Chevron Corp. - CVX - close: 67.94 change: -1.29 stop: 70.60

Why We Like It:
The rally in CVX is failing near the $70.00 level. Shares also have technical resistance at their exponential 200-dma. Today's decline looks like a new entry point to buy puts. We'll use a stop above the recent high. Our first target is $64.15. Our second target is $61.50.

Suggested Options:
I am suggesting the September puts.

BUY PUT SEP 70.00 CVX-UN open interest= 7774 current ask $4.00
BUY PUT SEP 65.00 CVX-UM open interest=14195 current ask $1.55

Annotated Chart:

Picked on   August 11 at $ 67.94
Change since picked:      + 0.00
Earnings Date           10/29/09 (unconfirmed)
Average Daily Volume =      10.7 million  
Listed on August 11, 2009         

Green Mtn Coffee - GMCR - close: 65.84 chg: -2.14 stop: 72.05

Why We Like It:
This one is for the really aggressive traders out there. GMCR has been killing the shorts for months. The short interest in this stock was almost 40% of the float. We don't know how many shorts are left but upward momentum is really topping out. The stock has failed three times near $72.00 and now the MACD has developed both a new sell signal and a bearish divergence with the price. This is a very aggressive bet that GMCR finally corrects. I suggest very small position sizes. We're going to use a very wide stop loss. Our first target to take some money off the table is $60.50. Our second target to exit completely is $55.50.

Suggested Options:
Use the September puts but use very small positions.

BUY PUT SEP 65.00 QGM-UM open interest=2417 current ask $4.70
BUY PUT SEP 60.00 QGM-UL open interest=1880 current ask $2.70

Annotated Chart:

Picked on   August 11 at $ 65.84
Change since picked:      + 0.00
Earnings Date           11/12/09 (unconfirmed)
Average Daily Volume =       1.8 million  
Listed on August 11, 2009         

In Play Updates and Reviews

A Trio of Stops

by James Brown

Click here to email James Brown

CALL Play Updates

Fluor Corp. - FLR - close: 53.96 change: -3.53 stop: 49.45

FLR suffered a sharp, post-earnings sell-off that pushed shares through support at $55.00. Volume was heavy on the decline. I suspect FLR might over correct so I'm moving our trigger to buy calls back down to $51.00, which is closer to the rising trendline of higher lows. If triggered at $51.00 our first target is $54.80. Our second target is $59.00. This could take several weeks.

I suggest readers use the September or October calls.

Picked on     July xx at $ xx.xx <-- TRIGGER @ 51.00
Change since picked:      + 0.00
Earnings Date           08/10/09 (confirmed)
Average Daily Volume =       2.4 million  
Listed on  July 25, 2009         

Euro Currency ETF - FXE - close: 141.42 chg: +0.09 stop: 139.95

The oversold bounce in the dollar might be running out of steam. The FXE produced a very mild rebound off the $141.00 level and its 50-dma. I am not suggesting new bullish positions at this time.

Our first target is $144.50. Our second target is $148.50. The P&F chart is bullish with a $168 target.

Picked on     June 23 at $140.76
Change since picked:      + 0.66
Earnings Date           00/00/00
Average Daily Volume =       461 thousand    
Listed on  June 23, 2009         

Gold Miner ETF - GDX - close: 38.43 change: -0.67 stop: 36.90

I have been growing more concerned about the action in the GDX. Gold is not showing any strength and there was no follow through higher when the GDX broke through its inverse H&S pattern. More conservative traders may want to exit early or maybe raise their stop loss toward the $37.50 level. I am not suggesting new positions at this time. GDX has already exceeded our first target. Our second target is $44.00.

Picked on     July 13 at $ 36.49 /gap higher entry
                               /originally listed at $35.93
Change since picked:      + 1.94
            gap higher exit   /1st target hit @ 39.95 (+9.4%)
Earnings Date           00/00/00
Average Daily Volume =       6.8 million  
Listed on  July 13, 2009         

IDEXX Labs - IDXX - close: 50.38 change: -0.57 stop: varies

IDXX is not moving much. There is no follow through on the rally but neither is there any profit taking. I still think that if the market's pull back starts to pick up steam IDXX will correct. Currently we have two strategies for IDXX.

Aggressive strategy: Entry point at $51.10. Stop loss at $48.99. Our first target is $54.85. We do not want to open new aggressive positions at this time. I suggested very small positions sizes (about 1/4 of your normal trading size).

Original plan is to buy calls at $47.50 with a stop at $44.95. If triggered at $47.50 our first target is $52.00. Our second target is $54.90. Our time frame is six to eight weeks once triggered.

FYI: The Point & Figure chart is bullish with a $77 target.

*Aggressive Strategy*
Entry on    August 05 at $ 51.10 *stop loss @ 48.99   
Change since picked:      - 0.72

*Original Strategy*
Picked on     July xx at $ xx.xx <-- TRIGGERs @ 47.50 
Change since picked:      + 0.00
Earnings Date           07/24/09 (confirmed)
Average Daily Volume =       383 thousand 
Listed on  July 25, 2009         

J.C.Penney - JCP - close: 32.99 change: -0.22 stop: 30.95 *new*

We have two days left for this JCP play. The company reports earnings on August 14th before the opening bell. That means we'll plan to exit on Thursday at the closing bell. While the $30.00 mark is clear support I'm upping our stop loss to $30.95, which is still under the rising 10-dma. I am not suggesting new bullish positions at this time. JCP has exceeded our first target. Our second and final target to exit is $34.90. This was an aggressive trade using half our normal position size.

Picked on   August 03 at $ 31.05 *triggered /gap higher entry
Change since picked:      + 1.94
                               /1st target hit @ 32.75 (+5.4%)
Earnings Date           08/14/09 (confirmed)
Average Daily Volume =       5.5 million  
Listed on August 01, 2009         

Legg Mason - LM - close: 26.80 change: -1.04 stop: 23.99

The financial sector was one of the worst performers today thanks to Richard Bove, an influential analyst. He basically said investors should sell the banking stocks as earnings will not improve for the rest of the year. This helped push the banking indices to 4%-5% declines. Shares of LM fell in their wake and lost 3.7%. I'm sticking with our plan to buy a dip. Our trigger is $25.55. If triggered our first target is $29.75. Our second target is $33.40. My time frame is six to eight weeks. FYI: The P&F chart is bullish with a $39 target.

Picked on     July xx at $ xx.xx <-- TRIGGER 25.55
Change since picked:      + 0.00
Earnings Date           07/20/09 (confirmed)
Average Daily Volume =       3.4 million  
Listed on  July 25, 2009         

Lorillard Inc. - LO - close: 73.97 change: +0.48 stop: 69.45

LO displayed some relative strength with a rally toward resistance near $75.00 but shares trimmed their gains by the close. We are still waiting for a dip near $70.00 with a trigger to buy calls at $70.50. Our first target is $74.50. Our second target is $77.00. The Point & Figure chart is bullish with a $92.00 target.

Picked on   August xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           07/27/09 (confirmed)
Average Daily Volume =       1.5 million  
Listed on August 01, 2009         

Polaris - PII - close: 37.98 change: -0.93 stop: 31.95

The rally in PII is starting to falter. Nimble and aggressive traders could try bearish positions in an attempt to scalp a few points on the way down. We're waiting for a correction. The plan is to buy calls at $34.15. Our first target is $37.50. Our second target is $39.90. FYI: The Point & Figure chart is bullish with a $43.50 target.

Note: More aggressive traders could buy puts right here with a stop loss just above $40.00 and exit in the $35 region.

Picked on     July xx at $ xx.xx <-- TRIGGER @ 34.15
Change since picked:      + 0.00
Earnings Date           07/16/09 (confirmed)
Average Daily Volume =       436 thousand 
Listed on  July 18, 2009         

PUT Play Updates

Genzyme - GENZ - close: 49.36 change: -1.18 stop: 52.55

There was no follow through on GENZ's pop yesterday. The stock's bounce failed at its 10-dma. Even a BTK biotech index that closed in positive territory was not enough to help the rebound in GENZ. Readers can use the recent action as a new entry point to buy puts.

In the press release yesterday GENZ issued a lot of bad news about charges the company will have to take, starting from scratch on some of their drugs in the Boston plant, and that the company would earn less money than expected. This removed some uncertainty about the company's situation, which probably sparked the bounce. Unfortunately for shareholders the trend is still down. Our first target to take profits is $45.25. Our second target is $41.00. The P&F chart is bearish with a $40 target.

Picked on   August 03 at $ 49.90 *triggered         
Change since picked:      - 0.54
Earnings Date           10/22/09 (unconfirmed)
Average Daily Volume =       3.9 million  
Listed on August 01, 2009         

Biotech Ishares - IBB - close: 76.50 change: -0.33 stop: 80.75

The BTK biotech index managed to eke out a gain but the IBB saw its intraday bounce fade. I am not suggesting new bearish positions at this time. Currently our exit target is $75.10. More aggressive traders may want to aim for the $74-73 area.

Picked on     July 30 at $ 79.44
Change since picked:      - 2.85
Earnings Date           00/00/00
Average Daily Volume =       892 thousand 
Listed on  July 30, 2009         

Intl.Business Machines - IBM - cls: 117.79 change: -0.91 stop: 120.10*new*

IBM is slowly drifting lower. It's not too late to buy puts although I would prefer to open positions in the $118.00-120.00 zone. I am adjusting our stop loss to $120.10. Our first target to take profits is at $113.75, which is just above the top of the gap from mid July. Our second and final target is $111.25, which is near the bottom of the gap.

FYI: If IBM does fill the gap it may turn into a bullish candidate.

Picked on   August 08 at $118.17 /gap down entry
                               /originally listed at $119.33
Change since picked:      - 0.38
Earnings Date           10/08/09 (unconfirmed)
Average Daily Volume =       7.9 million  
Listed on August 08, 2009         

Intercontintental Exchange - ICE - cls: 90.30 change: -3.38 stop: 98.25

Today looks like another failed rally for ICE, this time at the 30-dma. It's also edging closer to breakdown under round-number support at $90.00. Our plan is to buy the second half of our position when ICE hits $89.85. ICE can be a very volatile stock so we should consider this an aggressive trade. Our target to exit is $83.75. More aggressive traders can aim lower.

Picked on   August 08 at $ 93.60 Buy Half Now   
Change since picked:      - 3.30

Picked on   August xx at $ xx.xx <-- TRIGGER @ 89.85 for 2nd half
Change since picked:      + 0.00

Earnings Date           10/29/09 (unconfirmed)
Average Daily Volume =       2.1 million  
Listed on August 08, 2009         

Marvel Entertainment - MVL - close: 38.43 change: -0.24 stop: 40.01

MVL is drifting lower and inching closer to a breakdown under support near $38.00. I am suggesting a trigger to buy puts at $37.90. If triggered our target is $34.10 as the $34.00 level could be support. I'm listing a stop loss at $40.01 but more conservative traders might be able to use a tighter stop at $39.55 or just above $39.00. Nimble traders may want to try and launch put positions on a failed rally in the $39.50-40.00 zone.

Picked on   August xx at $ xx.xx <-- TRIGGER @ 37.90
Change since picked:      + 0.00
Earnings Date           11/04/09 (unconfirmed)
Average Daily Volume =       710 thousand 
Listed on August 10, 2009         

QQQ ProShares - QLD - close: 44.20 change: -0.81 stop: 46.10 *new*

It's taken several days but the QLD has finally turned negative for us. Shares are starting to breakdown from their trading range. I am lowering the stop loss down to 46.10. Our target is $40.50.

Picked on     July 30 at $ 44.89 
Change since picked:      - 0.69
Earnings Date           00/00/00 
Average Daily Volume =      13.5 million  
Listed on  July 30, 2009         

Shanda Interactive - SNDA - close: 49.39 chg: -0.57 stop: 51.25

The Chinese stock market has continued to show strength so SNDA is getting a little help at home. However, the stock appears to have produced a new failed rally today. I would use this as a new entry point to buy puts.

An alternative entry point would be to wait for a new decline under $48.00 to launch bearish positions.

SNDA is a volatile stock so readers may want to use smaller position sizes. Shares should see support near $45.00 and again at $40.00. I am targeting a drop into the $41.50-40.00 zone.

Picked on   August 08 at $ 48.10 /gap higher entry
                               /originally listed at $47.83
Change since picked:      + 1.29
Earnings Date           09/01/09 (unconfirmed)
Average Daily Volume =       1.5 million  
Listed on August 08, 2009         

Wynn Resorts - WYNN - close: 55.44 change: -0.95 stop: 60.26

So far so good. The rally appears to have failed twice now under the $60.00 level. It's probably not too late to consider buying puts.

Due to the high-risk nature of the trade I am suggesting very small position sizes at least 1/2 to 1/4 your normal trade. Our first target is $51.00. Our second target is $48.00.

Picked on   August 05 at $ 56.57
Change since picked:      - 1.13
Earnings Date           10/29/09 (unconfirmed)
Average Daily Volume =       4.7 million  
Listed on August 05, 2009         

Strangle & Spread Play Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

McDonald's - MCD - close: 56.02 change: -0.25 stop: n/a

There was no follow through on MCD's Monday morning pop. I suspect it may have been a one-day move. I am not suggesting new strangle positions at this time.

I suggested the August $60 calls (MCD-HL) and the August $55 puts (MCD-TK). Our estimated cost is $1.25 (0.70 + 0.55). We want to sell if either option hits $2.50 or higher.

Picked on     July 18 at $ 57.84
Change since picked:      - 1.92
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       7.8 million  
Listed on  July 18, 2009