Option Investor

Daily Newsletter, Wednesday, 9/1/2010

Table of Contents

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

Market Wrap

Stocks Surge on ISM and China PMI News

by James Brown

Click here to email James Brown

Market Stats

Better than expected manufacturing data from the Chinese PMI released last night and the ISM report this morning sparked a short-covering rally in stocks. The U.S. market surged from oversold levels to the best gain in months following the worst August in nine years, which saw the S&P 500 lose -4.7%. The better than expected reports overshadowed a drop in construction spending and dismal August car sales. Meanwhile tech giant Apple (AAPL) made headlines with several improvements on some of the company's the best selling items.

Asian markets were mixed. The big event overseas was the Chinese PMI data coming in stronger than expected. Economists were looking for the August purchasing managers' index to rise from 51.2 in July to 51.5. The manufacturing index rose to 51.7, but this may have been influenced by seasonal changes as factories gear up again following mid-summer maintenance. Australia had a positive influence on the Asian markets today. Sydney's Bureau of Statistics said Q2 GDP growth was fueled by better than expected consumer spending. The country saw GDP grow +1.2%, better than the +0.9% estimate. Meanwhile Japan's NIKKEI index rallied +1.1% thanks to a bounce in the dollar against the yen. The NIKKEI dipped under the 8800 level this morning, hitting a 16-month low before bouncing back into positive territory. The Chinese Shanghai lost -0.6%. The Hong Kong Hang Seng gained +0.43%.

In Europe the various stock markets completely ignored news that Germany's retail sales slipped for the second month in a row. July's retail sales dropped -0.3% when analysts were expecting +0.5% gain. The stronger manufacturing data from China and U.S. fueled big gains across the region. England's market saw an extra boost from M&A talk. The English FTSE rallied +2.8%. The German DAX gained +2.68%. The French CAC-40 soared +3.8%.

The manufacturing data this morning temporarily relieved fears that the global economy was slowing down too fast. Now add in a weak U.S. dollar and it was a strong day for commodities. Copper is a key element in manufacturing and copper prices rallied +3.15%. Crude oil futures, after a -9% drop in August, soared +2.9% on Wednesday, ignoring the bearish inventory data this morning. The EIA reported that inventories rose +3.4 million barrels, which is above the +1.9 million estimate. Some of the agriculture commodities performed well with coffee prices up +2.1%, sugar up +3.75%, and wheat rising +3.3%. Gold futures edged lower with a -$3.40 decline to $1,246.90/oz.

The stock market rally sucked money out of the bond market and yields rallied as a result. The 10-year U.S. bond yield climbed from 2.47% yesterday to 2.58% today. Speaking of the bond market a Bank of America analyst expects that yields will drop to an all-time low of 2% in less than a year. The Federal Reserve's decision to start buying treasuries again will lift the bond market and drag yields to new lows.

Naturally the major headline today was the ISM data. Economists were expecting the national ISM to show a drop from 55.5 in July to 52.8. Yet the Institute for Supply Management reported that their manufacturing activity index rose to 56.3 in August. Readings over 50.0 indicate growth and expansion and August was the 13th month in a row this report has been positive. There is some hope that stronger data from the manufacturing sector will translate into a positive influence on the jobs market. However, readers should keep in mind that the manufacturing sector is only 11% of the U.S. economy.

The better than expected ISM data overshadowed news on construction spending, mortgage applications, and auto sales. The Commerce Department said construction spending fell -1.0% in July to the lowest level in ten years. June's previously estimated gain was revised lower to a -0.8% drop. On a more positive note the Mortgage Bankers Association said their mortgage applications index rose +2.7% last week. Both refinance applications and new purchases improved and together they marked the fifth weekly rise in a row for applications thanks to record-low mortgage rates. The average interest rate on a 30-year fixed mortgage is 4.43%.

Auto sales were not so encouraging. Nervous consumers are not buying new cars with unemployment hovering near 10%. August is normally a strong month for auto sales but this year sales vanished marking the worst August in almost 30 years. Month to month sales were bad but year over year they were terrible since summer 2009 was driven by the government's "cash for clunkers" rebate program. General Motors said August sales dropped -7% from July but -25% from a year ago. Ford (F) said sales dropped -5% from July and -11% from August 2009. Toyota saw a -12% drop from July and -34% from a year ago. Nissan's sales dropped -7% from July and -27% from August 2009. Honda Motor Co. said August sales slowed -3% but fell -33% from a year ago.

It must have been too warm in San Francisco today. Steve Jobs ditched his trademark black mock turtleneck while presenting the latest round of gadgets from Apple Inc. (AAPL). The company unveiled improvements for their Apple TV system, iPod touch, iPod nano, and iPod shuffle. The newest iPod touch will have a camera and video-chat features similar to the iPhone. The latest iPod nano will have a touch screen. The new Apple TV system is smaller and cheaper (at $99) and lets consumers download movies and high-definition TV shows from the Internet. Most of the buzz centered on the Apple TV system, which will allow users to download TV shows for 99 cents and movies the same day they hit rental stores for $4.99. Netflix subscribers will also be able to download movies to their TVs via the new Apple system. Shares of AAPL ended the day up +2.9% at $250 a share. NFLX soared +7.4% to $135 a share.

One of the best performers today was Burger King (BKC). The stock spiked higher and settled with a +14.6% gain near $18.85 a share following news the company was in talks to go private with 3G Capital. The 56-year old company went public back in May 2006 at $17 and the last couple of years have been rough for shareholders. The stock has been consistently underperforming its rival McDonald's (MCD) the last few months.

Technically the market is bouncing from oversold conditions near significant support levels. The rally today could have been exacerbated by beginning of the month inflows to mutual funds. We could easily see this bounce continue for a few more days but that depends on how the market chooses to interpret the jobs data this Friday. The S&P 500 has been bouncing from support near the 1040 level and after failing to breakdown over the past few days traders decided to cover on the stronger manufacturing news. What worries me is the lack of volume behind this move but that doesn't mean the rally can't continue.

Currently the S&P 500 index is testing resistance near 1080 and its simple 50-dma. Should the rally continue we can expect resistance at 1100 and then in the 1130 region (early August highs). There is also potential technical resistance with the 100-dma near 1108 and the 200-dma near 1115. If you're feeling optimistic then the S&P 500 could still be working on an inverse (bullish version) head-and-shoulders pattern. A strong close over the 1130 level would suggest a bullish target of 1,240 but I suspect the 1220 level remains very significant resistance. Let's pretend for a moment that the jobs number disappoints and stocks reverse lower again. The S&P will probably break support near 1040 but the 1010-1000 zone could be decent support. A drop under 1,000 could portend a longer decline toward the 950 area.

Chart of the S&P 500 index:

2nd Chart of the S&P 500 index:

The NASDAQ Composite delivered a very strong move with a gap open higher and a +2.9% gain. The tech-heavy index has broken out of the 2100-2150 trading range. It certainly looks like the NASDAQ is poised to rally further but watch for resistance near 2200, 2250, and the 2300 area. The index could also see trouble at the 50-dma and 200-dma. Broken resistance near 2150 should offer some short-term support.

Chart of the NASDAQ index:

Aggressive traders may want to pay more attention to the small cap Russell 2000 index. Not only did the $RUT outperform its large-cap peers with a +3.8% gain today but the $RUT appears to be building on a bullish double bottom pattern. The 50-dma might offer some resistance but I wouldn't be surprised to see this rally hit the 640 area.

Chart of the Russell 2000 index:

I would also keep an eye on the Dow Jones Transportation index, which just rallied past resistance near its 50 and 200-dma. Broken resistance near 4200 should offer some short-term support for the transports. Keep an eye on the SOX semiconductor index. The trend is down but the semiconductors are very oversold and poised for a rebound. Look for resistance in the 325-330 zone. I would also keep an eye on the banking indices. These were poor performers in August with both the BIX and BKX sinking to new relative lows. On a very short-term basis this group looks ready to bounce further but I would expect the rebound to run out of steam.

Looking ahead we have the pending home sales, Kansas Fed manufacturing survey, retail same-store sales figures and the weekly initial jobless claims data all coming out tomorrow (Thursday). The pending home sales data will likely be bad and the retail data could disappoint since early reports on back to school shopping were not very encouraging. The Kansas Fed could go either way. Sadly the jobless numbers have been getting worse as the four-week moving average starts to march closer toward 500,000 new jobless a week. Today's ADP employment report was another disturbing look at the job market. ADP only counts job growth at private companies and their August employment report was a disappointment with -10,000 jobs instead of the +15,000 analysts were expecting. Together, the rising trend in weekly jobless claims and the ADP number today does not bode well for Friday's non-farm payroll number. Economists are expecting the jobs data to show a drop of -120,000 jobs in August but that number will be tainted by the last round of terminations for temporary census workers. The real number to watch is the private sector employment. Wall Street expects a drop of private sector jobs from +71,000 in July to +41,000 in August. Anything worse than that could spell serious trouble for the stock market.

Short-term traders can try and take advantage of the market's swings, especially when the indices are trading so closely off obvious support and resistance levels. However, I am suggesting readers stay cautious. Bank of America's New York office came out with some discouraging figures on U.S. growth. The firm now expects U.S. GDP growth for the rest of 2010 to fall toward +1.65% and they're projecting 2011 growth to decline to +1.8%. I suspect we will see more and more analysts lowering their growth expectations for the U.S. soon. The stock market could choose to interpret today's numbers in two ways. You could argue that +1.6% is a whole lot better than a double-dip recession and investors could focus on the fact we're still growing, albeit slowly. Or there is the risk that investors choose to react negatively to growth estimate downgrades and argue that stocks may be priced too high for these lowered expectations.

Lastly, readers on the east coast better grab their rain jackets. Category four Hurricane Earl, the biggest storm in U.S. waters this year, is not expected to make landfall on U.S. soil but it will pass close enough that residents from South Carolina to Massachusetts will feel the storm's influence. The weather service has already recorded 50 foot waves out in the Atlantic and there is a chance that the storm path veers closer to the coast than expected. If Hurricane Earl misses us it will soon be followed up by Tropical Storm Fiona.


New Option Plays

Back With Large Cap Tech

by Scott Hawes

Click here to email Scott Hawes


Int'l Business Machines - IBM - close 125.77 change +2.64 stop 121.90

Company Description:
International Business Machines Corporation (IBM) is an information technology (IT) company. The Company operates under five segments: Global Technology Services segment (GTS); Global Business Services segment (GBS); Software segment; System and Technology segment, and Global Financing segment.

Target(s): 127.75, 129.90
Key Support/Resistance Areas: 132.00, 128.00, 127,00, 123.00
Time Frame: 1 to 2 weeks

Why We Like It:
We closed a short winner in IBM a couple of weeks ago and we are now back with a long play. I suggest readers take advantage of the 9 point wide channel the stock has traded within over the past 4 to 5 months. Today's reversal in the broader market was either a huge head fake or the start of a bigger rally. I think we go higher before breaking the recent lows. Let's use a trigger of $125.25 to initiate long positions and target a $2.50 to $4.50 move higher over the next one to two weeks. If triggered and our two targets are reached the profit projection is +45% and +75%, respectively. Our stop is below the recent swing low at $121.90.

Suggested Position: Buy October $130.00 CALL, current ask $1.70, estimated ask at entry $1.55

Annotated daily chart:

Entry on September xx
Earnings 10/18/2010 (unconfirmed)
Average Daily Volume: 5.5 million
Listed on August 28, 2010

In Play Updates and Reviews

Stocks Soar

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:
Good evening. Our short positions took a beating today. I have narrowed targets on shorts and suggest readers begin to look for exits on weakness or tighten stops to protect capital. Please email me with any questions.

Current Portfolio:

CALL Play Updates

Cameron International - CAM - close 38.29 change +1.51 stop 37.50 *NEW*

Target(s): 37.85 (hit), 38.40 (hit), 38.95, 39.35
Key Support/Resistance Areas: 45.00, 42.50, 41.00, 38.75, 36.00
Current Gain/Loss: -45%
Time Frame: Several weeks
New Positions: Yes, with later month options

9/1: The whipsaws continue. Another target was hit in CAM today but this time there could be follow through so I am content giving this a little room to work. I think it is prudent to close positions this week regardless of what happens to prevent further time decay. I've adjusted the targets with $39.35 as the final target underneath the 200-day SMA.

8/31: CAM has made a series of higher lows since 8/25 but the broader market weakness has held the stock back. I suggest using the above targets to exit positions or tighten stops on any strength and cut our losses on this trade. Our $37.85 target was hit on Friday and was probably the right time to exit.

8/28: CAM gained nearly +5% and closed right on its 20 and 100-day SMA's. I've been saying use strength in the stock to close positions and Friday presented opportunities to do so. Considering the bullish reversal I think we may be able to get more out of the position so I am willing to give this a few more days. The stock closed above a recent down trend line and if the broader market continues higher this week we should be able to get a better exit. Ultimately, I'm looking for CAM to make a move up towards its 200-day SMA but with September options I still suggest selling into any further strength. There will probably be a retracement of some of the gains from Friday but I think the dips will be bought. Readers may want to consider a new entry on a pullback to the $37.00 area with October or November options.

Current Position: Long September $40.00 CALL, entry was $0.95 (.60)

Entry on August 16, 2010
Earnings Date 11/3/2010 (unconfirmed)
Average Daily Volume: 4.6 million
Listed on August 14, 2010

FMC Technologies, Inc - FTI - close 64.79 change +2.94 stop 58.80

Target(s): 65.25 (hit), 66.25, 67.00, 68.75
Key Support/Resistance Areas: 69.00, 65.50, 62.40, 59.00
Current Gain/Loss: +23%
Time Frame: Several weeks
New Positions: Yes, with a tight stop

9/1: We now have a +23% gain in FTI and are back on track with options expiring in October. $65.25 has been reached once and I suggest not letting the stock reverse on us again. I've added a target a of $66.25 which will fill a long standing gap from 5/5.

8/31: The bullish case remains in FTI as it is maintaining an upward trend line from mid-July. The stock now needs to break out above its 20-day SMA and we should hit our targets. All of the above targets remain valid.

8/28: FTI has a lot of support below and I am looking for the stock to head back up towards our targets. There is resistance in the $65.50 area which is above our $65.25 target that was reached on 8/17. If we get above this level we will have a nice winner, but readers should still consider taking profits or tightening stops to protect them at this target.

Current Position: Long October $70.00 CALL, entry was at $1.10

Entry on August 16, 2010
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 1.5 million
Listed on August 14, 2010

NVIDIA Corp. - NVDA - close 9.40 change +0.08 stop 9.38

Target(s): 10.99, 11.39, 11.80
Key Support/Resistance Areas: 11.85, 11.45, 11.00, 10.25, 9.45
Time Frame: 1 to 2 weeks

9/1: More nimble traders may want to consider bullish positions in NVDA now as the stock is almost 9% below our plan to buy it on a breakout. Officially we will wait for the breakout but if that doesn't happen in soon the play will most likely be dropped.

8/28: NVDA has been absolutely obliterated after lowering guidance earlier this year. On 8/12 the company missed earning estimates but the stock has been bought ever since. NVDA is now forming an ascending triangle on its daily and intraday charts and looks ready to break out higher. After the broader market reversal on Friday I believe we may be in for a mini rally and this should catapult NVDA up towards our targets. The plan is to buy calls if NVDA trades to $10.30 which is above the 8/23 high and its 50-day SMA. Our targets are +6.5%, +10.5% and +14.5% higher. Our stop is below the stock's recent swing low and the 20-day SMA which is starting to turn higher.

Suggested Position: Buy October $10.00 CALL, current ask $0.74

Entry on August xx
Earnings 11/4/2010 (unconfirmed)
Average Daily Volume: 23.5 million
Listed on August 28, 2010

Panera Bread Co. - PNRA - close: 82.95 change: +3.01 stop: 76.90

Target(s): 82.95 (hit), 84.50
Key Support/Resistance Areas: 73.00, 76.00, 80.00, 85.00, 88.50
Current Gain/Loss: +53%
Time Frame: 1 to 2 weeks
New Positions: Yes, preferably on a pullback

9/1: PNRA closed +3.7% higher today and our gain in the position is currently +53%. Readers may want to consider taking some profits off of the table while a portion of the position open to see if hit our final target of $84.50. Our first target was reached today.

8/31: PNRA is performing very well during the recent broader market weakness. The stock is on the verge of breaking its primary downtrend line and is above all of its major moving averages. If the broader market gains strength PNRA should easily head up towards our targets.

8/28: Considering the broader market reversal on Friday I doubt we will get triggered in PNRA at $74.75. But with the broader market behind it PNRA looks on the verge of breaking out. The stock closed right on a downtrend line from its April highs and if it breaks through I believe buyers will step in. Further, the stock is forming an ascending triangle and is above all of its moving averages. If PNRA breaks out with the broader market behind it the stock should see $83.00 relatively quick. Let's use $80.65 as our trigger to buy October calls with targets at $82.95 and $84.50. Our stop will be $76.90.

Current Position: Long October $80.00 CALL, entry was at $3.30

Entry on August 30, 2010
Earnings Date 10/27/10
Average Daily Volume 562,000
Listed on August 21, 2010

Rackspace Hosting, Inc - RAX - close 20.12 change +0.43 stop 17.95

Target(s): 20.75(hit), 21.30, 23.00
Key Support/Resistance Areas: 23.50, 21.40, 20.00, 19.00, 18.00
Current Gain/Loss: +0.00%
Time Frame: 3 to 5 weeks
New Positions: Yes, preferably on a pullback

9/1: We are looking good here as RAX is above the key $20.00 support level and the ascending triangle that has been forming since June. Now we need follow through. If RAX spikes back up to our first target protect profits or consider taking a portion of your position off of the table.

8/31: RAX experienced a set-back today when Benchmark Co. cut its rating to hold from buy. The firm reiterated their price target of $22. RAX closed at $19.69 and if it goes to $22.00 we will be happy campers. Once this selling subsides RAX should turn back up. The stock is maintaining its primary upward trend line and is still above all of its major moving averages. For options traders we have December strikes so time is on our side for now. Readers may want to consider this pullback as an entry point.

8/28: Wow! RAX surged nearly +8% higher on Friday and is approaching our 2nd target. I think this stock has the potential of reaching its 52-week highs near our final target of $23.00. RAX is also being talked about as a potential takeover target in the cloud computing space which is why I have suggested the December options, i.e. to give this time to work. Readers may want to consider taking some profits off of the table and keeping the remainder of your position open to see if RAX rewards us.

Current Position: Buy December $21.00 CALL, entry was at $1.40

Entry on August 25, 2010
Earnings 11/9/2010 (unconfirmed)
Average Daily Volume: 1.75 million
Listed on August 25, 2010

PUT Play Updates

Abercrombie & Fitch - ANF - close 36.58 change +1.98 stop 38.40

Target(s): 35.55, 34.35, 33.25, 31.50
Key Support/Resistance Areas: 38.20, 37.25, 32.75, 34.00, 30.50
Current Gain/Loss: -30%
Time Frame: Several weeks
New Positions: Only with tight stops

9/1: ANF rallied right up to its 20-day SMA but closed below it. There is a primary downtrend line and the 200-day SMA just above current levels which should provide resistance. I've added two lowered targets that I suggest readers use to consider exiting positions or tightening stops to protect capital.

8/31: ANF hasn't seen a close this low since 7/21 and is below all of its moving averages. We need the stock to break below $34 and our targets should get hit.

8/28: ANF is hanging on to its 50-day SMA and the broader market looks ready for a bounce. We may need to exhibit some patience with this play to see how far the bounce goes. There is lot of overhead resistance to keep things in check. A bounce up into the 200-day SMA and primary downtrend line could be a great entry point with a tight stop.

Current Position: Long October $34.00 PUT, entry was at $2.10

Entry on August 25, 2010
Earnings: 11/11/10 (unconfirmed)
Average Daily Volume: 3.5 million
Listed on August 24, 2010

Apple, Inc - AAPL - close 243.10 change +0.60 stop 256.50

Target(s): 246.50, 244.00, 240.00 (hit), 237.50
Key Support/Resistance Areas: 266, 258, 256, 246, 240, 231, 235
Current Gain/Loss: -50%
Time Frame: Several weeks
New Positions: Only with tight stops

9/1: AAPL historically sells off in the ensuing days after their conference but the strong broader market reversal today has e very concerned. Readers should consider exiting positions to preserve capital. I've added 2 near term targets that are support areas and I suggest tightening stops or exiting positions as they approach.

8/31: AAPL has not been able to make it above the $246 level since breaking through it last week. The stock has been a strong performer the last couple of days, probably because of the hype surrounding a "music-themed" press conference tomorrow that Apple is hosting. Rumors have it that the company will announce a new iPod Touch and new iPod Nano at the event. Although there are no confirmed reports of any new products, Apple has repeatedly introduced new iPod models at their September press conference. This could produce a pop in the stock so readers may want to exit positions ahead of the conference. However, if the conference fails to impress the stock could experience a set-back. The targets above should be considered as exit points and readers may want to consider tighter stops in the $249 to $252 area. The 20-day SMA is $250.27 which should keep bounces in check but we are going to need to see broader market weakness for AAPL to reach our targets.

8/28: AAPL underperformed again Friday gaining a meager +0.56% compared to broader market gains of +1.6% across the board. However, the market appears ready for a bounce so readers should consider keeping a tight leash on this trade. I am adding a target of $237.50 which is a $4 dip from current levels. This is support on the intraday charts and is the area readers should take profits or tighten stops to protect them. I still believe AAPL has a date with destiny at its 200-day SMA but I would rather not sit through bounce. If the broader market breaks down first though AAPL should easily hit our $233 target.

Current Position: Long October $230.00 PUT, entry was at $6.90

Entry on August xx
Earnings: 10/21/10 (unconfirmed)
Average Daily Volume: 23 million
Listed on August 14, 2010

Limited Brands Inc - LTD - close 24.27 change +0.67 stop 25.40 *NEW*

Target(s): 23.90, 23.60, 22.70, 22.05
Key Support/Resistance Areas: 25.40, 23.85, 22.60, 22.00
Current Gain/Loss: -10%
Time Frame: 1 to 2 weeks
New Positions: Only with tight stops

9/1: I've added a $23.90 as a target and suggest readers begin to look for an exit in LTD. The stop has been lowered to $25.40.

8/31: We are long October $24 puts as of today's open at $1.40. LTD ultimately lost -2.24% today and looks headed to our first target of $23.30. I suggest readers be prepared to take profits in this position on any further weakness, or tighten stops protect them. The 200-day SMA is just above $23.00 and LTD could bounce from there. My comments from the play release below remain valid.

8/30: We are sticking with a consumer name in the retail space. Retailers are weak and LTD looks ready for a drop if the broader market cooperates. Technically LTD looks like it wants to retest its recent swing lows. There was also a big buyer of the September $25 puts with over 2,200 contracts purchased and I like the volume flow. I suggest we initiate short positions now or on any strength in the stock. $24.50 is just below the 50-day SMA which can be used to time an entry. Our stop is $25.65. Our first target is $23.30 which is about -5% lower from current levels. NOTE: The October strikes were just recently released for trading so the open interest isn't as high as surrounding months.

Current Position: Long October $24.00 PUT, entry was at $1.40

Entry on August 31, 2010
Earnings: 11/17/10 (unconfirmed)
Average Daily Volume: 4.4 million
Listed on August 30, 2010

NUCOR Corp. - NUE - close 37.96 change +1.18 stop 40.55

Target(s): 37.40, 37.05, 36.05 (hit), 35.25, 31.90
Key Support/Resistance Areas: 43.00, 40.30, 37.00, 35.00
Option Current Gain/Loss: -30%
Time Frame: 4 to 6 weeks
New Positions: Only with tight stops

9/1: I've added a $37.40 as a target and suggest readers begin to look for an exit in NUE. The stock's 20-day, 50-day, and downtrend line are all just overhead which should provide a pullback and exit point, even it is a loss.

8/31: After hitting our target of $36.05 on 8/25 NUE has traded within a $1 range between $36.40 and $37.40. NUE is forming a bear flag and should break lower but the stock and broader market are simply not cooperating. Our stop is above the 20 and 50-day SMA's and a downtrend line. Readers should consider closing positions on any further weakness to protect profits or use a tighter stop to protect capital if there is a more meaningful bounce.

8/28: It looks like NUE could be headed higher before resuming its downtrend. The chart looks terrible but the stock is oversold and it needs to work off some of the oversold conditions. Our stop is above 20 and 50-day SMA's and a downtrend line. Any move into this area could create a good short entry with a tight stop.

Current Position: Long October $35.00 PUT, entry was at $0.96

Entry on August 20, 2010
Earnings Date 10/21/10
Average Daily Volume 2.9 million
Listed on August 19, 2010

Occidental Petrol. - OXY - close: 76.86 change: +3.78 stop: 78.51

Target(s): 75.80, 74.50, 72.25, 71.60, 70.25
Key Support/Resistance Areas: 75-74.00, 70.00, 65.00
Current Gain/Loss: -36%
Time Frame: Several Weeks
New Positions: Yes, on strength

9/1: OXY ripped +5% higher today and closed right on a downtrend line, while the 50-day SMA is just overhead. If the stock breaks through these areas we need to honor our stops and step aside. However, I would be looking for a pullback to exit the position. I have provided two logical near term targets above.

8/31: OXY continued its slide today and has almost retraced all of the gains from Friday. We have small gains in the trade and suggest readers use weakness to consider closing positions. $72.25, $71.60, and $70.25 are the immediate targets. $72.25 is near last week's lows which is where OXY found support. $71.60 is just above the 52-week low at $71.44.

8/28: The rally in OXY on Friday may have been short covering, but regardless we are caught in the middle of it. It would be nice to see the stock turn lower at its 20-day SMA which is just overhead. If it does there is a good chance we will see a retest of last week's lows so I have added $72.25 as a near term target. OXY's chart looks weak but the broader market may have put in a short term bottom and OXY could bounce along with it. Readers need to decide whether or not $72.25 is good area to consider closing positions or tightening stops if OXY gets there. Otherwise a tighter stop could be considered above last week's highs at $76.75.

Current Position: Long OXY November $70.00 PUT, entry was at $3.45

Entry on August 25, 2010
Earnings Date 10/21/10 (unconfirmed)
Average Daily Volume 4.4 million
Listed on August 7th, 2010

United Technologies - UTX - close 67.37 change +2.26 stop 69.11

Target(s): 66.50, 65.05, 64.00, 63.25
Key Support/Resistance Areas: To follow
Current Gain/Loss: -7% Time Frame: 1 to 2 weeks
New Positions: Yes

9/1: We got filled at the higher trigger in UTX so we are now long October $65 puts for $1.60. Considering the turnaround in equities today I suggest readers use caution in this position. I've narrowed the targets to account for the higher fill and suggest readers consider taking profits or tightening stops to protect them at these levels.

8/31: A strengthening US dollar is bad for multinational companies who derive income from abroad. After a sell-off in the dollar over the past couple of months it looks poised to break out higher and UTX looks poised to break down lower. The plan is to short UTX if it breaks down to $64.50 but I would also suggest shorting UTX if it trades up to close the gap from 8/24 at $67.00. If we get filled at the higher price our stop will be $69.11. If we get filled at the lower price our stop will $67.61.

Current Position: Long October $65.00 PUT, entry was at $1.60

Entry on September 1, 2010
Earnings: 10/20/10 (unconfirmed)
Average Daily Volume: 4.4 million
Listed on August 31, 2010