Option Investor

Daily Newsletter, Thursday, 3/25/2010

Table of Contents

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

Market Wrap

Forest Gump Market

by Keene Little

Click here to email Keene Little
Market Stats

I've been attending a trading class all week (it's been a while since I've taken a class and it's been great--feels like I'm cleaning out a few cobwebs) and therefore I'm going to ask for a little forgiveness for tonight's market wrap. Instead of taking time to discuss some things that are affecting the market I want to focus on charts. This market is in its end run--the rally from February 5th has gone parabolic (uptrend lines have been getting steeper), the wave count is excellent now in showing we're into the final 5th wave, momentum is waning and we're headed for the end of the month/quarter. The rally is irrational and bullish sentiment has gone parabolic with price. This is a classic ending pattern so I just want to focus on the charts. We also had some potentially important reversal signals today. Let's dive right in.

But first, there's one sentiment chart I want to show. I saw this yesterday in one of the "The Daily Reckoning" newsletters. It shows the level of bullishness measured by the number of bullish options vs. bearish options. Regardless of the actual numbers, whether it's equities only, etc., the comparison to past periods is what caught my eye. We have a level of bullishness, especially after the rally from February, that is blowing away all previous highs, including the 2007 high. This will not end well for the bulls; that's about all I can say about this chart.

Options Speculation Index, chart courtesy agorafinancial.com

If the bulls can push the market up a little higher we could see SPX make it up to at least 1200 if not the 62% retracement of the 2007-2009 decline at 1229. The one thing I've been wondering over the past month, hearing Everyone is looking for this upside target, is whether or not the market will disappoint all those expectations. The market usually sets up the greatest disappointment possible. This is of course the psychology of the market at work--with so many expecting those highs, they've bought in expecting it. They're not in the frame of mind to sell because the upside targets have not been hit yet. But the market tends to run out of buyers in a case like this and then it usually takes a stronger decline before recognition sets in that the upside targets probably won't be achieved. Then the strong selling kicks in. So expect the possibility that 1200 will Not be reached.

S&P 500, SPX, Weekly chart

The trend line along the highs from October and January is close but will be around 1190 by the end of the month if the bulls can push a little higher over the next few trading days. But yesterday's candle was a bearish harami (candle body inside the previous one) and today's candlestick created a bearish engulfing pattern. These are reversal patterns and would be confirmed with a down day on Friday. However, the key level for the bears is a break back below support at 1150. This would be a break of Monday's low as well as the January high. That would be perceived by many as a breakout failure.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish above 1178
- bearish below 1150

Today SPX achieved a potentially important Gann level of 1178-1179. This is one square, or one circle around the Square of Nine chart, from the February 5th low of 1144.50. Users of this tool would say 1179 resonates off 1145 and today's high of 1180 satisfies that level. That merely warns of a possible reversal from here. I had posted towards the end of the day on the Market Monitor that the price pattern would look best with one more new high into the close or tomorrow morning, but that Wednesday's low near 1166 was an important level. Below that negates the bullish expectation for another leg up. Therefore, the selloff into the close could lead to a larger corrective pattern or ending pattern to the upside but the break of the uptrend lines and yesterday's low set off some sell alarms. A break below 1152 would have the fat lady singing.

S&P 500, SPX, 60-min chart

Using a parallel up-channel for the DOW's climb off its February 5th low shows price has been struggling with the mid line of the channel. Today's reversal might not be anything more than just a pullback within the move up from Monday so again Monday's low near 10695 is the key level for the bears to break. So far there's nothing particularly bearish about the DOW's daily chart, although one could easily call today's candle a bearish shooting star at resistance.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish to about 11000
- bearish below 10695

I've been watching the Nasdaq Composite for the past week because I like its pattern just a little bit better than the NDX and I'm thinking it could give us a slightly earlier warning signal. That might have happened today although I do see the potential for a little higher. The weekly chart shows it's doing battle with the downtrend line from 2000-2007 (log scale) and it will be important to see how the week finishes. If it's a down day on Friday and we see a shooting star for the weekly candle at that downtrend line, and after nearly tagging the top of its rising wedge pattern, I could be forgiven for having a bearish smile on my face.

Nasdaq Composite, COMPQ, Weekly chart

The reason I say the NAZ could press a little higher is because I see a Fib price projection just shy of 2452 where the 5th wave of the move up from February 5th would achieve 62% of the 1st wave. That projection crosses the trend line along the highs from September and January on March 31st. That could of course be pure coincidence that it falls on that date. But today's candle warns of a reversal (as did this afternoon's selloff) so caveat emptor from here.

Nasdaq Composite, COMPQ, Daily chart

Key Levels for Nasdaq Composite:
- cautiously bullish above 2452
- bearish below 2358

The semiconductors were strong earlier in the week and the daily chart shows price poked above the top of is rising wedge pattern. The SOX has refused to sell off more than two days since February 19th and today was the 2nd down day. If Friday is down we would have a change in character. A break below Monday's low of 352.67 would be bearish and below 348 would confirm the high is in place.

Semiconductor index, SOX, Daily chart

The RUT needs to hold today's low otherwise it will break its uptrend line from February 5th. Confirmation of a high in place would be a break below Monday's low (a common theme across the board).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish to 700
- bearish below 667

The bonds are making a move and are close to giving us a very important signal (for what the Fed could be forced to do). The Fed has been hell bent on providing as much liquidity as it stuffs money into the money channel. I say "stuff" because it can't stimulate demand so it's pushing on a string by pushing money into the system in hopes that at least some of it will help the economy grow. Much of the money, through purchases of home mortgages and other toxic assets from the major banks, has made it into the markets and we've seen the result in a stock market rally that has no fundamental (domestic or global) basis whatsoever. But the bond market will tell the Fed when enough is enough, not the other way around. And the bond market may be speaking.

TLT, the 20+year Treasury ETF, held support at its February low today and could turn back up and stay inside its consolidation pattern that it's been in since January's low. It takes a rally above its January high near 92.40 to turn the pattern bullish. In the meantime it looks bearish and I expect to see support near 88.50 broken. The downside projection for the bearish pattern, in what could be a fast move, is down to about 80.

20+ Year Treasury ETF, TLT, Daily chart

If bond prices drop then yields will climb. The 30-year Treasury pattern is bullish, especially if it breaks above 4.85%, and it's close. The monthly chart below shows a potential inverse H&S bottom pattern from the end of 2007. The wave count for the move up is very bullish and is looking for at least an equal move up as the one from the 2008 low. That projects to at least 7.1%. Does anyone really think the Fed would be able to hold rates down for an "extended" period if the bond market does that? Let me answer that question--no! The bond market moves the Fed, not the other way around. And if rates jump significantly like that, and the Fed is forced to raise their rates, I'd say there's a good chance the stock market is not going to be happy about it.

30-year Treasury, TXY, Monthly chart

Now that Congress has finished with the healthcare bill they're turning their attention to China and what a mean and unfair country they are. Our economically illiterate Congress is apparently also ignorant of history and is getting more and more protectionist as this bear market continues. They and a Nobel-laureate economist (Paul Krugman) continue to threaten China with 25% tariffs and an insistence that they un-peg themselves from the US dollar and revalue their currency. We, one of the biggest debtor nations, have the audacity to tell China what to do? Our Congress needs to be fired, every one of them (except for Ron Paul). Clean house. And take Paul Krugman with them. :-)

If China gets worried about our financial health and the continued spending profligacy of our Congress, and the financial mishandling of the country, and throws in protectionism on top of that, China will simply stop purchasing our Treasuries and start selling instead. Could that hurt them in the process? Yes, but they might make the decision that it's better to get past being threatened by us. And that would add to the downward pressure in bonds and upward pressure in yields. If our monstrous debt becomes more expensive to service you can bet our economy will take a major hit. The Greater Depression will be an expectation instead of a possibility. If Chuck Schumer is your Senator I suggest you email him and tell him to take a sabbatical.

The positive spin on the news about helping Greece (and in turn Portugal and the other nations in line for some bailout help) gave our banks a boost today. But wow, talk about a reversal signal!! Take a look at the bearish shooting star (really an even more bearish gravestone doji) at resistance on the BIX chart. After doing a throw-over above the trend line along the highs from May-October 2009 and then tagging the top of its parallel up-channel for price action since February's low, the rally was completely given up and the BIX closed near its opening price. The reason this candlestick is bearish is because it destroys the bulls' confidence. Confirmation is still needed with a red candle on Friday but as of today's close, this is a strong reversal signal in progress. The wave count looks very good for a completion of the rally. I show the key level to the downside as a break below 139 but below Monday's low near 145 would tell me a top is in place.

Banking index, BIX, Daily chart

I've been watching the pattern for the home builders for the past few months but haven't been quite sure what it was up to. It became clearer this month and now it's crystal clear to me. As shown on its chart, the wave count and pattern fits very well as a corrective bounce off the December low to finish a rising wedge pattern. The setup is for a strong reversal back down and below the December low. Today's candle looks like a classic finish to this pattern with a throw-over above the top of the wedge and a bearish shooting star candlestick. This one has SELL written all over it.

U.S. Home Construction Index, DJUSHB, Daily chart

The Transports were the real driver behind the February-March rally. There was hardly a pullback in the whole rally. But once it hit the top of its parallel up-channel for price action from November, and just shy of its price projection for two equal legs up (4461.14), it broke its uptrend line from February 5th and certainly appears to be rolling over. Like just about all daily charts at this point, the RSI has also broken its uptrend line (good confirmation) and the drop back below 70 is a sell signal.

Transportation Index, TRAN, Daily chart

The US dollar's bull flag that formed since the February high has had strong bullish follow through to the rally into the flag pattern. The wave count shows an expectation for the completion of a 5-wave move soon, possibly near 84 by the first week of April, and then the start of a multi-week pullback to correct the leg up from November.

US Dollar, DXY, Daily chart

Gold has been a little baffling lately only because it hasn't been reacting as I would expect with the dollar's movement. If the dollar is close to finishing its leg up from November and starts a multi-week pullback that could be bullish for gold. But since it hasn't been reacting around the dollar's moves as I would have expected I can't feel confident that it will rally if the dollar pulls back. So we'll trade each chart individually.

I'm showing an uptrend line from February 5th off this week's low but that's clearly very preliminary. I just wanted to show a parallel up-channel for a possible bounce into April for two equal legs up from February (to about 1180). A rally above 1134 is needed to put that possibility as the preferred wave count. Otherwise a continuation lower is expected and the first downside target is the 200-dma near 1047 (and then lower).

Gold continuous contract, GC, Daily chart

Oil has also been holding up even though the dollar has rallied strongly this week. It might be consolidating before heading higher again, but so far I'm interpreting the price pattern as bearish and therefore have an expectation for oil to break down. Below 77 would confirm the bearish pattern.

Oil continuous contract, CL, Daily chart

The market has its own agenda now and is not paying any attention to the outside world, including economic reports. Tomorrow morning should be no different.

Economic reports, summary and Key Trading Levels

A relatively quick perusal through many charts after the close had me suddenly leaning more bearish than I had been for most of the day. I was sure the market is going to hold up at least until Monday when selling of positions would not be reflected in end-of-quarter statements (3-day settlement). Plus the wave pattern would have looked ideal with at least another push higher on Friday. But the selloff into today's close "ruined" it. Now I'm seeing some pretty significant warning signs. Whether it's candle patterns, throw-over finishes or trend-line breaks, I'm getting a bearish feeling about this market. Bearish proof will be a down day on Friday in which case I'd consider taking some put options home with you. Certainly lighten up any long exposure you might have.

I came across something that Todd Harrison at Minyanville wrote on Wednesday that I thought was a very good synopsis of what our market must eventually deal with. It's clearly in denial at the moment or there's simply too much money coming in from the Fed through the banks. If the Fed is serious about easing its QE (quantitative easing) program by the end of this month, the current rally could literally be the last hurrah. It has that blow-off look to it. And if it's a blow-off top, as it appears to me, the downside will be swift and deep and painful for those who have bought into the rally and don't know how to use stops. At any rate, I thought I'd pass along Todd Harrison's thoughts:

"There's no denying the bulls have captured the year-over-year crown. While you can agree or disagree with the synthetic catalysts, price is the ultimate arbiter of variant financial views. The market is never wrong; we should never let an opinion get in the way of making money.

"As investors key on corporate credit, there is a litany of causal risks waiting in the wings. With a conscience nod these could conceivably create building blocks in a wall of worry, I humbly submit ten reasons why we're witnessing a cyclical bull market in the context of a prolonged and painful secular bear stretch:

"1. Questions remain on a Greek aid package in front of €20 billion in debt that comes due in April and May. This dynamic is not bound by borders; should an accord be reached, as expected, the approach will be tested when the next 'lifeguard' begins to drown.

"2. New health care legislation could add hundreds of billions of dollars to already yawning budget deficits. That chasm can only close through upward taxation or austerity initiatives; neither is pro-growth and both drain consumption. This, of course, comes at a time when the 'interconnectedness' of governments and markets has never been higher.

"3. State budgets are cracking and a recent report from the Pew Center estimates unfunded pension liabilities are an eye-popping $452 billion. While I expect a Federal bailout package, as discussed in January, it's akin to moving money from one pocket to the other.

"4. Social mood is tenuous at best and deteriorating at worst. As The Great Divide continues to evolve -- Red States vs. Blue States, Main Street vs. Wall Street, Have's vs. Have Not's -- societal acrimony has evolved into social unrest in some parts of the world, and economic hardship is pointing an unfortunate needle towards geopolitical conflict.

"5. Complacency abounds, as measured by traditional volatility measures such as the VXO. While we've witnessed prolonged periods of subdued volatility (2004-2006) and healthy debates rage regarding the indicative validity of this measure, risk premiums are at levels last seen in June 2008 -- a few short months before the financial crisis arrived.

"6. From Google (GOOG)-China to USA-Toyota (TM) to EU-Greece, the seeds of protectionism continue to sow. That posturing is on the opposite end of 'globalization' on the prosperity spectrum.

"7. While the 'stated' unemployment rate hovers just below 10%, almost one-in-five Americans is underemployed; that means they're not working, stopped looking, working below their abilities or working part-time because they can't find full-time employment.

"8. From an economic perspective, interest rates have one way to go, price-to-earnings multiples never troughed, and debt-to-GDP ratios will approach or exceed 100% in all G7 countries by 2014, with the exception of Germany and Canada, according to John Lipsky at the IMF.

"9. The Congressional Oversight Panel warns that commercial real estate losses at banks alone could reach $300 billion starting in 2011. Almost half of those loans are concentrated at smaller institutions with total assets under $10 billion, and those are the same banks that account for almost half of all small business loans.

"10. It's easy to forget about the housing crisis; in terms of 'what matters now,' this concern almost feels passe. We must remember that massive amounts of residential mortgage backed securities are mis-marked at best and toxic at worst, sitting on the balance sheets of private and public institutions and by extension in bank accounts across America. This is in addition to the manifestation of under-water mortgages (negative equity) and foreclosure trends throughout the land.

In my mind that's an excellent synopsis of what ails us and just as the market ignored the start of the housing problem in 2007 it is ignoring the even greater commercial real estate problem and the even greater sovereign debt problem of countries, including our own, and more locally, our states. Higher taxes and lower services, and social acrimony that goes along with those, will only exacerbate the bearish mood that will revisit the markets. It's time to batten down the hatches and prepare for the hurricane to whip us from the opposite direction as we finish our travels through the eye of it.

Good luck during the coming week and be especially watchful for a fast and strong reversal back down now. I'll be back with you next Thursday.

Key Levels for SPX:
- cautiously bullish above 1178
- bearish below 1150

Key Levels for DOW:
- cautiously bullish to about 11000
- bearish below 10695

Key Levels for Nasdaq Composite:
- cautiously bullish above 2452
- bearish below 2358

Key Levels for RUT:
- cautiously bullish to 700
- bearish below 667

Keene H. Little, CMT

New Option Plays


by James Brown

Click here to email James Brown

Editor's Note:

I am urging traders to be cautious here. The markets are reacting to news from Europe. This is obviously a very fluid situation. This morning stocks were hitting new 52-week highs on expectations the EU members had come to some sort of aid package for Greece. Yet just a few hours later stocks are reversing on comments from EU Central Bank President Trichet.

The U.S. markets are very overbought without any significant correction or consolidation off their February lows. Traders are going to be nervous about protecting their profits. At the same time we still have four more days left for fund managers to try and chase performance before the first quarter ends.

I am not suggesting new candidates at the moment. It's time to watch and see if there is any follow through on today's bearish reversal pattern in the market indices and so many widely traded stocks.

In Play Updates and Reviews

Uh-oh! Potential Reversal

by James Brown

Click here to email James Brown

Editor's Note:

Warning! The major U.S. indices and several high-profile names have all produced a bearish reversal on Thursday. Stocks initially rallied this morning on a potential solution to Greece's debt problems. Unfortunately negative comments from EU Central Bank President Jean-Claude Trichet sent the market lower. Germany and France had come to an agreement that any aid to Greece would be led by the IMF and Trichet believes that is a bad idea. Technically the action in the markets today is very bearish but it needs to see follow through. Unfortunately once momentum reverses the sell-off could be very sharp following such a big upward rally in the markets.

Current Portfolio:

CALL Play Updates

Apple Inc - AAPL close: 226.65 change: -2.72 stop: 222.49

Warning! AAPL and several high-profile names in the market produced a bearish reversal today. Normally these bearish engulfing reversal candlestick patterns need to see confirmation first. My concern is that by the time AAPL does confirm this reversal we will have already been stopped out. More cautious traders might want to raise their stops toward the $225 level, which is where I would expect AAPL to find its first level of support. I am not suggesting new positions at this time.

Our first target is $234.90. Our second target is $239.75. More aggressive traders may want to keep their stop loss under support at the $220 level. FYI: I'm still concerned that stocks are overbought. I would keep your position size small.

Current Position: BUY CALL APRIL $230 (AAPL 10D230.00) current ask $5.25

Entry on March 23rd at $228.00
Earnings Date 04/21/10
Average Daily Volume = 18.6 million
Listed on March 22nd, 2010

Cash America - CSH - close: 39.78 change: +0.47 stop: 36.75

There has been no follow through on CSH's recent downturn. Shares are bouncing near the rising 30-dma. At the moment I am still expecting a dip toward the rising 50-dma near $38.00. There is no change from my prior comments. We have two different entry points spelled out. Be aware that the breakout entry point is more aggressive and higher risk.

Our first is the buy-the-dip strategy with a trigger to buy calls at $38.25. If CSH hits $38.25 we want to buy the April $40 calls and we'll use a stop loss at $36.75. Our first target is $41.00. Our second target is $44.00.

We also have a breakout trigger to buy calls on CSH if shares hit $41.20. This is a much more aggressive entry point so we want to keep positions small. If CSH hits our trigger at $41.20 we'll use a stop loss at $39.40. Our target is $44.25. We want to buy the April $45 calls. They are cheap so don't go overboard. Remember, small positions! This way if CSH reverses on us we will limit our risk.

Buy-the-Dip: Use a trigger at $38.25 to buy calls.

Suggested Position: BUY CALL APRIL $40 (CSH 10D40.00) current ask $1.55

Buy-the-Breakout: Use a trigger at $41.20 to buy calls.

Suggested Position: BUY CALL APRIL $45 (CSH 10D45.00) current ask $0.15

Entry on March xxth at $ xx.xx
Earnings Date 04/22/10
Average Daily Volume = 272 thousand
Listed on March 13th, 2010

Cognizant Technology - CTSH - close: 51.46 change: -0.46 stop: 49.95 *new*

The major U.S. indices hit new 52-week highs this morning. Shares of CTSH did not and that could be a clue that the rally is getting tired. Shares underperformed with a 0.88% decline. I am inching our stop loss a little higher to $49.95. The MACD on the daily chart has finally turned bearish. More conservative traders may want to exit early. I am not suggesting new bullish positions at this time. Our initial target is $54.75.

Current Position: CALL APRIL $55 (CTSH 10D55.00) @ 0.40

Entry on March 11th at $ 50.54
Earnings Date 05/04/10
Average Daily Volume = 4.05 million
Listed on March 10th, 2010

Express Scripts - ESRX - close: 100.58 change: -0.25 stop: 98.90 *new*

Traders did indeed buy the dip at $100. The stock slipped to $100.11 this morning before bouncing. Unfortunately the bounce didn't make much progress. I am adjusting our stop loss higher to $98.90. I would wait for a bounce before considering new positions. I do consider this an aggressive trade since ESRX is so over extended but it can always grow more overbought. Our first target is $104.90. Our second target is $107.45. More aggressive traders could aim higher. Our time frame is just a couple of weeks.

Current Position: BUY CALL APRIL $105 (ESRX 10D105.00) at $1.10

Entry on March 24th at $101.99
Earnings Date 04/29/10
Average Daily Volume = 2.51 million
Listed on March 23rd, 2010

Coca-Cola - KO - close: 54.80 change: +0.18 stop: 52.95

KO managed to outperform the DJIA with a 0.3% gain. Shares did trim their intraday gains and I suspect the stock will retest the $54.50-54.25 zone again. Wait for a bounce before considering new bullish positions. The stock doesn't move super fast but I envision a rally toward the December highs over the next few weeks. Our target to exit is $59.00.

Current Position: BUY CALL May $55.00 (KO 10E55.00) at $1.62

Entry on March 24th at $ 55.22
Earnings Date 04/21/10
Average Daily Volume = 14.6 million
Listed on March 23rd, 2010

L-3 Communications - LLL - close: 92.96 change: -0.56 stop: 91.25

LLL was not immune to the market's afternoon profit taking. The stock's inability to hit a new 52-week high this morning is a warning sign. More conservative traders may want to abandon ship. I am expecting a dip toward $92.00. Wait for a bounce before considering new bullish positions. Our first target is $97.00. Our final target is $99.75.

We chose the $100 calls to keep our capital investment very small. Keep your position size limited.

Current Position: BUY CALL APRIL 100.00 (LLL 10D100.00) @ $0.30

Entry on March 18th at $ 93.88
Earnings Date 04/22/10
Average Daily Volume = 908 thousand
Listed on March 17th, 2010

NII Holdings Inc. - NIHD - close: 41.06 change: -0.19 stop: 39.60 *new*

Nothing has changed with NIHD. Shares are starting to fade from their recent highs. Technical indicators are starting to roll over from overbought levels and the MACD on the daily chart has turned bearish. We should acknowledge these as warning signs that momentum is waning. The March 22nd low was $39.66. I am adjusting our stop loss to $39.60. Wait for a bounce from $40 before considering new positions. Our first target is the $44.00 level.

Current Position: BUY CALL APRIL $40 (NIHD 10D40.00) @ $1.85

Entry on March 11th at $ 40.10
Earnings Date 04/22/10
Average Daily Volume = 2.68 million
Listed on March 10th, 2010

Priceline.com - PCLN - close: 255.03 change: +11.23 stop: 239.85 *new*

Our bullish play on PCLN is now open. Shares gapped open at $246.60 and rallied to $262.67 this afternoon before paring its gains. I couldn't find any specific news behind the rally. Our entry point to buy calls was at $246.50 so the play was triggered at the open. I am concerned that the market looks fragile and tired here so I'm raising our stop loss to $239.85. This is a very aggressive trade. We need to keep our positions small. Our target is $275.00. Our time frame is about four weeks.

FYI: The option opened at $2.15 (entry point) and spiked to $9.53 intraday. The April $260 call settled at $6.60. Readers may want to consider taking profits with the option up 200%.

Triggered when PCLN gapped open this morning at $246.60

Current Position: BUY CALL APRIL $260 (PCLN 10D260.00) @ 2.15


Entry on March 25th at $246.60
Earnings Date 05/11/10
Average Daily Volume = 793 thousand
Listed on March 23rd, 2010

Panera Bread Co. - PNRA - close: 77.29 change: -1.55 stop: 74.75

Warning! After more than a week of failing to breakout past $80 shares of PNRA are correcting. Today's move looks like a short-term breakdown and I expect a dip toward support near $75.00. More conservative traders will want to seriously consider an early exit right here!

I am not suggesting new positions at this time. This was an aggressive trade given our entry point. Our first target is $82.45. FYI: It is worth noting that PNRA could announce a stock split one of these days. The last time shares split was in the $75-80 zone back in June 2002.

Current Position: CALL APR 80.00 (PNRA 10D80.00) @ $1.35

Entry on March 11th at $ 77.18
Earnings Date 04/28/10
Average Daily Volume = 519 thousand
Listed on March 9th, 2010

PartnerRe Ltd. - PRE - close: 80.01 change: +0.43 stop: 77.75

PRE continues to show relative strength and the stock posted a +0.5% gain on Thursday. There is no change from my prior comments. More aggressive traders may want to jump in early and buy calls right here! I am suggesting we stick to our original plan.

That plan is to buy calls if PRE hits our trigger at $80.55. If triggered we'll use a stop loss at $77.75 (under Friday's low). Our first target is $84.75. Our second, longer-term target is $89.00. There is potential resistance near the October 2009 highs so don't be surprised to see some congestion there.

Trigger to buy calls at $80.55

Suggested Position: BUY CALL APRIL $80.00 (PRE 10D80.00) current ask $1.05

Entry on March xxth at $ xx.xx
Earnings Date 04/27/10
Average Daily Volume = 989 thousand
Listed on March 20th, 2010

Wynn Resorts - WYNN - close: 74.41 change: -1.40 stop: 69.29

Perfect! WYNN is beginning to correct. I expect shares to find support near the $70 level. Right now our plan is to buy calls if shares hit $71.50. If triggered we'll use a stop loss at $69.29. Our first target is $76.50. Our second target is $79.90. Longer-term traders could aim a lot higher.

Trigger to buy calls at $71.50

Suggested Position: BUY CALL APRIL $75 (WYNN 10D75.00) current ask $3.40

Entry on March xxth at $ xx.xx
Earnings Date 05/05/10
Average Daily Volume = 2.7 million
Listed on March 24th, 2010

PUT Play Updates

*Currently we do not have any put play updates*