Option Investor

Daily Newsletter, Wednesday, 7/20/2011

Table of Contents

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

Market Wrap

The Market Rested As It Digested Tuesday's Big Gain

by Keene Little

Click here to email Keene Little
Market Stats

Following AAPL's blowout earnings after yesterday's close, equity futures took off to the upside for most of the overnight session and the day started with a gap up. But profit taking started immediately in AAPL and the gaps in the major averages were immediately closed. The market then traded sideways for the rest of the day, finishing essentially flat on the day. The techs, which started out the strongest in the morning, finished the weakest.

AAPL finished the day at 386.90, up +10.02 (+2.7%) but down from its opening high at 396.27 and its overnight high as 405, which tagged the top of its parallel up-channel from March 2009 and a level I had mentioned on the Market Monitor as a no-questions-asked shorting opportunity. It didn't make it up there during regular trading hours so there's still that possibility but the pattern for its rally can be considered complete now, which calls for a very large downside correction now (which goes completely against every single stock analyst out there).

This morning's economic reports were not market movers. The Existing Home Sales report was a disappointment following yesterday's strong new home construction and permits. Sales for June were 4.44M, down from May's 4.81M and less than the 4.93M that the market expected. This follows the +8.2% improvement in May and is concerning since there's been no follow through. Cancellations of contracts (many of which are due to an inability for the buyer to get a mortgage) jumped from 4% in May to 16% in June. This backs up the idea that much of the home activity is happening in rentals. The good news is that the median home price increased by +0.8% to $184,300.

It's time to beat up on Tim Geithner a little more (he makes it so easy) and discuss the banking system, especially since the global debt problems are rearing their ugly heads. Geithner wrote an article for the Wall Street Journal today, patting himself, the Obama administration and the Dodd-Frank bill (Wall Street Reform and Consumer Protection Act) while blasting Republicans for being uncooperative. For those who do not subscribe to the WSJ, if you'd like to read it, I found it at the UK's Morningstar at Stronger Banks.

Geithner asks and then answers his own question: "Where are we today, a year since the Wall Street Reform and Consumer Protection Act was signed into law? By almost any measure, the U.S. financial system is in much stronger shape, not just relative to the depth of the crisis but also relative to conditions that prevailed before it hit." I would say the market does not agree with his assessment as banking indexes have remained below their highs in April 2010 and the lower highs in February and May 2011, in spite of a continuing rally in the broader stock market.

Geithner goes on to say how much the government has made from its "investments" that were done to "put out the fires and avert disaster." He also believes the government will continue to make a profit on its other financial ventures such as GM (whose IPO price was 35 and is currently trading below 30). He firmly believes that by bailing out the banks the government was able to "prevent a second Great Depression." He acknowledges the fact that the financial crisis was caused by too much leverage and that the government's efforts have reduced this leverage, thereby making the financial system more secure. I'll come back to this point in a bit.

In the we-don't-want-to-rush-things department, three years following the financial crisis he states the SEC, CFTC (Commodity Futures Trading Commission) and banking regulators have "outlined" the major elements of reform. Three years to come up with an outline! He acknowledges the fact that the derivatives market, which he states is a $600T market, is in need of "oversight, transparency and greater stability." A $600T unregulated market needs some oversight. Wow, and he gets paid big bucks to make that assessment.

Back to the bit about leverage and the derivatives market. A big reason for the financial crisis, which went well beyond the failure of a couple of banks, was the entire credit market. Interbank liquidity dried up as banks distrusted one another, afraid of what was on the other banks' books, which were hidden from the rest of the world. The unregulated and non-transparent CDS (Credit Default Swaps) market at the time was about $50-60T which was an enormous risk to the system. The system was "fixed" through the Federal Reserve's rule change that allowed the banks to value their CDS and other derivatives at full value (mark-to-make-believe instead of mark-to-market).

Through the various bailout programs, including the multiple QE (Quantitative Easing) programs, the Fed has relieved those banks with the greatest derivative exposure (JPM, GS, BAC, C, etc.) by enabling them to shift the toxic debt to the U.S. balance sheet in exchange for pristine, newly created, dollars. This was done without any negative consequences to the heads of these banks, thereby proving to them that the risks taken were well worth it (especially to them personally). Do we think that bad behavior has therefore been stopped?

Not only has the bad behavior not been stopped but it has become even worse. The derivative exposure is now measured in the hundreds of trillions of dollars. The Fed has relieved the banks of their burden and has now put the U.S.'s credit rating at risk and made the debt situation even worse. The Fed's balance sheet went from about $800B in Treasuries to about $2800B in Treasuries and toxic assets that are not worth that much. With only $51B in capital the Fed is now using a leverage ratio of 54:1. When Lehman Brothers collapsed they were using a leverage ratio of 30:1.

For Geithner to come out today and say the banking system is more secure and stronger today, thanks to the Fed (which is a private banking system made up of the same bailed out banks) and government actions is basically him showing the world that he has his head, um, in the sand.

The only reason why our Treasuries aren't already paying very high interest rates, considering the risk, is because most of the rest of the world is in worse shape than the U.S. As an investor do you want to invest in European bonds? European banks are one step away from disaster. How about in other countries that are doing better but have governments that are not exactly stable? China is now rapidly heading towards its own subprime crisis. Japan is more indebted than the U.S.

So the point of all this is that there are very few places to invest your money right now. Fear is returning about a slowing global economy and that won't be good for stocks and commodities. There's a reason why Soros and other large investors have 75% of their money in cash and I don't expect they'll be anxious to invest that money any time soon. There's a reason they're on the sidelines and that of course begs the question whether we should be doing the same.

Without sounding the scare alarm but at the same time offering what I think is a sound recommendation, I think it's important to have some cash at home, locked up in a secure place. If we do experience another financial crisis, one which has the potential to be far worse than the one in 2008, we could see bank holidays, market closures, civil unrest (see what's happening in Greece?) and disruptions in normal daily lives. Having some cash around could be useful in a time of emergency. Consider it as part of your normal emergency preparedness.

For your retirement accounts and the bulk of your invested money I would say it's a time of concern and a time to be in cash. For OIN readers, we are traders and there are always trading opportunities, both long and short. The beauty of being a trader is that we don't have to get hung up on the woes of the economy and how it's going to hurt the stock, bond or commodity markets. For our investments we worry but for trading we just want to ride the direction the market is heading, then exit and look for the next bus to ride. Where it goes we don't care; it just needs to offer a comfortable ride (a bus with air conditioning for those of you sweltering in the heat and a bus with heat for those of us still freezing in the NW). We determine where we get on and where we get off.

So with that, let's see where the next bus is headed and whether or not we want to ride it. Looking at the SPX weekly chart below and the bold green uptrend line from March 2009 through the July 2010 low (which is where it found support at the June low as well as at its 200-dma at the same level) it's obvious what the trend still is. As long as that uptrend line holds we remain in a bullish trend. The big question is where and when the up move will finish. I'm showing a couple of possibilities that I consider the most probable and the highest-probability (imo) being the one pointing lower from here (bold red arrow). Showing the various possibilities makes the chart a little messy but it's important to understand we're in a period of time when both sides can't make up their minds which way to go and consequently we're in a whippy and choppy period. If you've been trying to trade this market for the past six months I now I don't have to tell you that. For now, the uptrend line is currently near 1290 so that's a key level for the bulls to defend.

S&P 500, SPX, Weekly chart

The red dashed line points to an immediate move higher and the cross of the broken uptrend line from August 2010 and the trend line across the highs since April 2010, near 1415 in mid August, is the more immediate bullish upside potential. The other possibility is for another leg down to complete a large 4th wave sideways triangle pattern from February. That pattern points to another rally (dashed green) into September/October (perhaps finishing on the 4th year anniversary of the October 2007 high). A break below the 50-week MA at 1254 and the March low near 1249 would negate the triangle pattern. So below 1290 would be bearish but in reality the bears need to break SPX below 1250 to get something more serious to the downside.

Looking at the daily chart below, on Monday SPX quickly dropped below its broken downtrend line from May 2nd but just as quickly it recovered back above it and closed marginally above it. On Tuesday it took off to the upside, leaving a bullish kiss goodbye on the successful back test. MACD is turning up from the zero line, a bullish signal. Today's candle is a small spinning top doji and is either indecision (consolidation) before pressing higher or it's a reversal in the making. I think the market will turn back down tomorrow and then the question is whether we'll get just a pullback before pressing higher again or if SPX will break below 1295. Dropping below 1310 would start to have me leaning more bearish. The more bearish scenario calls for a selloff below the June low as we head into August. But there will be plenty of support levels to turn it around, including the uptrend lines from March 2009 through both the July and August 2010 lows (currently near 1287 and 1267, resp.) and the 200-dma near 1280. Two equal legs down from July 7th targets 1270.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1333
- bearish below 1295 and more bearish below 1270

There is the possibility for a continuation higher, even after a small pullback/consolidation, into early August. Perhaps the settlement of the debt ceiling issue or a field goal in Europe (instead of just kicking the can a little further down the road on the way towards solving the sovereign debt crises) will spark the big rally. The European finance heads meet tomorrow to figure out how to handle Greece and what they come with, or not, could spark a big move in the European markets and then ours. For a bullish move, I'm showing the projection for two equal legs up to 1394 and the trend line along the highs from February is near 1406 in early August. A continuation above 1333 opens the door to a higher rally.

The 60-min chart below is not much help in determining where we are in the price pattern so we'll just need to let price play out a little longer so that we get some more clues. The most immediate risk is for the stock market to drop lower right from here and a break below 1295 would trigger that scenario (and then watch for possible support near 1287, 1280, 1270 and 1250). If we get a pullback that finds support at or above 1310 then another leg up for the bounce off Monday's low to an upside target at 1348 would be a likely scenario. Above 1350 is the move that would point to 1400. In between 1295 and 1333 is a potential chop zone.

S&P 500, SPX, 120-min chart

Sticking with SPX for one more chart, there is a similar pattern playing out this year as we saw in 2007 and it bears watching since a break back below the downtrend line from May, confirmed with a break below 1295, could be a critical move. The top chart below shows the 2007 top, which was a H&S topping pattern, the neckline of which was an uptrend line from a previous high in May 2006 through the first significant pullback March 2007 low. An initial downtrend line from the head, the October high, was penetrated on the bounce in December which turned out to be a head-fake break and the market proceeded to sell off sharply from there.

SPX daily chart, 2007 top vs. 2011 top

Comparing the 2007 topping pattern with what's happening in 2011 shows a potential fractal pattern playing out. The neckline of the H&S top is the uptrend line from the previous high in April 2010 through the first significant pullback in March 2011. A downtrend line from the head (May high) has been penetrated (this time to much larger degree but we also know the Fed injected $76B to "help" the rally). So far the downtrend line has been retested and acted as support so it remains bullish above it. But if SPX drops back below the line (again, below 1295 would confirm the break) it could usher in the same kind of selling as we saw in December 2007/January 2008.

It's the same picture for the DOW. It found support on Monday at its 50-dma and is stronger than SPX in that regard. There is upside potential to the broken uptrend line from March 2009 through the August 2010 low which crosses a price projection at 12968 at the end of the month. The trend line stopped the rally to the July 7th high so we know its resistance. The price projection is where the 5th wave of the rally from July 2010 would equal the 1st wave. A break back below its 50-dma at 12342 and then Monday's low near 12296 would be bearish for a move down to at least its 200-dma near 11927.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,660
- bearish below 12,296

NDX is once again testing its highs made in February, April, May and July. The current test is showing a bearish divergence against its July 7th high. I see a little more upside potential to the trend line along the highs from February, near 2435, but its pattern supports the idea that the market is very close to topping out. Back below 2355 would suggest we may have seen the final high.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish to 2435
- bearish below 2355

INTC and YHOO reported earnings after the bell and both sold off, taking futures down with them. Beyond that does it matter what they reported? Only the reaction matters and it was not good. Each is down in the after-hours session and how that translates to tomorrow's trading can only be guessed but so far it doesn't look bullish.

But then INTC said some good things in their 5:30 PM conference call (forecasting sales to exceed expectations) and equity futures took off to the north side, especially the blue chips. But INTC itself barely moved. ES (S&P 500 emini) was down about -6 points in after hours and then rallied almost 10 points to +4 following the low at 6:00 PM. NQ (NDX emini) was not nearly as strong in its bounce off the after-hours low. It could be someone's playing games with ES and YM (DOW emini) -- I know, that's hard to believe. Where futures will be in the morning is anyone's guess.

The RUT found support at both its broken downtrend line from May and its 50-dma, making Monday's low near 812 important for the bulls to defend. The short-term pattern looks ready for a little more pullback than we saw today and then possibly another leg up for its bounce, with an upside target near 846. Above that would turn it more bullish for an expected run up to new highs.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 846
- bearish below 811

As mentioned last week, I expected TNX to consolidate near support at 2.88% before breaking a little lower. That expectation has not changed and a drop down to about 2.8% still looks good. That should be followed by a bigger bounce to correct the decline from July 1st. Depending on how the bounce progresses into August (assuming we'll get it) I'm hoping to get some clues as to whether we'll see a new rally leg or just a correction before heading lower again. Expect some choppiness in the bond market for the next couple of weeks if I've got the pattern correct.

10-year Yield, TNX, Daily chart

The banks have been strong the past two days and relatively stronger today than the broader market. They were also more oversold and due a bounce. Whether or not the bounce can develop some legs is the question. BKX tagged its downtrend line from April, which it broke above on July 1st and then dropped back below on July 11th. It became resistance again on the 13th and today. A break above today's high should target the 50-dma at 48.05 and its downtrend line from February, near 48.30. Above 48.70 would be a bullish move but in the meantime the pattern remains bearish, and firmly in a down-channel.

KBW Bank index, BKX, Daily chart

Monday's low in the Transports tagged the 62% retracement of the June-July rally so it's possible that's all the pullback we'll see. But the pattern looks more bearish than that and I'm projecting a further decline to its uptrend line from March 2009 through the August 2010 low, near 5200, before we see a bigger bounce. How it does here around its 50-dma will tell us whether a bigger bounce is going to come sooner rather than later.

Transportation Index, TRAN, Daily chart

The dollar remains stuck and for the time being most of the market is ignoring it. There is a bearish sideways triangle pattern that continues to point to a breakdown in the dollar, and soon. A drop below 74.70 would put that expectation at the top of the list of possibilities. The bullish possibility demands a rally from right here and it must happen now. We should know soon.

U.S. Dollar contract, DX, Daily chart

Gold's bounce pattern since the early May low continues to look like it's in the middle of a larger pullback correction, even though it has made a new high above its May high. I've labeled the bounce an a-b-c correction with the sharp rally from July 1st the c-wave, which fits as the completion of the correction. A correction, if it exceeds above the previous high (the May 2nd high in this case) will oftentimes find the 127% extension of the previous decline (early May) to be a reversal level and so far that's what we have at 1608.85 (yesterday's overnight high was 1610.70). It also looks like a back test of its broken uptrend line from January. If the gold bulls are not quite finished I see upside potential to the trend line along the highs from March 2008 near 1635. Otherwise we should see gold start another decline, one that should take it below its May 5th low at 1462.50.

Gold continuous contract, GC, Daily chart

Silver also may have completed an a-b-c correction of its early May decline. Monday's rally might have created a throw-over finish above a price projection at 39.92 and the top of its flag pattern from the May low, which coincides with the longer-term trend line along the highs from 2006-2008. Yesterday's candle created a bearish engulfing candlestick, normally a good reversal signal at resistance. But today's strong bounce back up calls the reversal into question and we'll need another day to see what silver is up to. A rally above 41 would target an upside target zone at 43-44. If the a-b-c correction is finished we should see a strong decline kick off from here.

Silver continuous contract, SI, Daily chart

Oil has been consolidating between 95 and 99 for 9 trading days now and there's no evidence yet of when it will break out. At the moment there's some bullish potential for oil to get another leg up to match the one off the June 27th low. If a sideways triangle is playing out from the July 7th high it should finish with another small pullback, perhaps to the support line near 96, to be followed by another rally. Two equal legs up from June 27th projects to 105.85 and is shown on the chart below. That would also be close to a 62% retracement of the May-June decline and set up a reversal for another leg down (to perhaps equal the May-June decline). The risk that I see is for oil to start the next leg of its decline at any time.

Oil has been consolidating sideways since its July 7th high and currently looks like a bullish ascending triangle might be playing out. One more pullback inside the triangle, perhaps down to the 96 area one more time could set up the next rally leg. If it gets above 99.42 and stays above then the next rally leg will likely have already started. The upside projection, for two equal legs up from June 27th, would target the 106 area, also the 62% retracement of the May-June decline. Notice some similarities between oil and the stock market. If oil rallies I suspect the stock market will be also, and vice versa. A drop back below 93.50 would suggest the consolidation is over and another leg down is in progress.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports should not be big market movers unless there are any big surprises. We could see unemployment claims drop below 400K and that would be at least somewhat bullish and then the Philly Fed index and LEI reports at 10:00 AM are not expected to show any big changes.

Economic reports, summary and Key Trading Levels

For our chart of the week I had trouble picking one since I'm getting potential topping signals from more than a few. But I picked AMZN because of its strength this year and its clear pattern. It has been in a nice parallel up-channel from November 2008 and for the past three weeks has been banging its head at the top of the channel and has achieved a price projection at 217.24 for two equal legs up from the November 2008 low. Bearish divergences are present on the weekly and daily charts. This is as good a spot as any for a top to AMZN's rally and is a good time to try shorting the stock, which is obviously risky so use proper risk management.

Amazon.com, AMZN, Weekly chart

Tomorrow the European heads of finance will be meeting to discuss how to solve all the sovereign debt issues. They'll also be tackling the issue about Greece's refusal to do more. Greece has pulled the nuclear card by threatening to leave the EU and go back to their drachma if they don't get the loans they need. In other words, they're willing to watch the EU blow up as they head off on their own, defaulting on all their loans and starting over (which they have experience doing). This would of course start the dominoes falling and the other indebted countries (PIIGS) could follow right behind. You want to see the credit market freeze up like we haven't seen before? This would do it. So remain aware of this risk and be careful -- depending on the decision we could see the market tank on fear or rally on relief.

The ISEE call/put reading finished the day at 202, twice the average reading, indicating a lot of bullish enthusiasm and a high expectation for a continuation of the rally. From a contrarian perspective that's a bearish sign but at this point it's simply a caution flag on the field. August SPX puts below the current price far outnumber the calls above us so that creates some upward pressure for the market. Mixed signals in a choppy market. Need I say more?

Good luck and I'll be back with you next Wednesday (from my eastern Canadian trading office).

Key Levels for SPX:
- bullish above 1333
- bearish below 1295 and more bearish below 1270

Key Levels for DOW:
- bullish above 12,660
- bearish below 12,296

Key Levels for NDX:
- bullish to 2435
- bearish below 2355

Key Levels for RUT:
- bullish above 846
- bearish below 811

Keene H. Little, CMT

New Option Plays

No Follow Through

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market was mired in indecision today. Lack of follow through on yesterday's big rally was disappointing. Earnings results are generally much better than expected but investors are focused on the debt ceiling talks in Washington and the debt bailout talks in Europe.

I am not adding any new plays tonight.

Here's a list of stocks on my radar screen:


Some of my favorites are:

V - Visa has been hovering near its 52-week highs for three weeks. A breakout past $90.00 could be a bullish entry point.

MCD - McDonald's has been consolidating sideways for three weeks near all-time highs. Shares look poised to rally. Earnings are on July 22nd. I would hesitate to launch positions in front of earnings. However, traders could try a neutral strategy like an options straddle or an options strangle (maybe buying the August $87.50 call and $82.50 puts) and look for some post earnings volatility.

ESS - Actually a large number of the REIT stocks continue to trade well and are flirting with 52-week highs.

UA - This stock hit new all-time highs yesterday on above average volume. A dip or bounce near $80 might be an entry point. My concern is earnings are coming up on July 26th.

PVH - A dip back into the $72-70 zone might be a new bullish entry point. Earnings aren't due until September.

HFC - The newly combined Holly Corp. and Frontier is a big midcontinent oil refiner that benefits from the huge spreads between WTI oil and Brent oil prices. Another dip and bounce in the $72-70 zone might be an entry point.

- James

In Play Updates and Reviews

Stocks Are In Wait Mode

by James Brown

Click here to email James Brown

Editor's Note:

The stock market churned sideways while investors waited on a deal for the debt ceiling talks and word from the latest EU bailout meetings.

The market's major indices did not move much but some of our trading candidates sure did. DMND and TDC both saw sharp declines but failed to break support. Our HP play is open but our SBUX did not get filled.


Current Portfolio:

CALL Play Updates

Agrium Inc. - AGU - close: 90.71 change: +0.38

Stop Loss: 86.90
Target(s): 94.00, 98.00
Current Option Gain/Loss: +22.2% & +27.6%
Time Frame: 4 to 5 weeks
New Positions: see below

07/20 update: AGU swooned a little bit this morning but traders bought the dip at $89.75. Volume was very light. I remain bullish on the stock with shares above resistance at $90.00.

- Suggested Positions -

Long AUG $90 call (AGU1120H90) Entry @ $2.70

- or -

Long AUG $95 call (AGU1120H95) Entry @ $0.94

07/19 Breakout past $90.00 is a new entry point.
07/19 new stop @ 86.90

Entry on July 11 at $88.54
Earnings Date 08/03/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on July 9, 2011

Diamond Foods Inc. - DMND - close: 74.60 change: -1.91

Stop Loss: 73.60
Target(s): 79.50
Current Option Gain/Loss: -26.6%
Time Frame: 3 to 4 weeks
New Positions: see below

07/20 update: Ouch! What happened to DMND today? The stock spiked higher and then immediately reversed lower to eventually settle with a -2.49% loss. I could not find any company specific news to account for this weakness. My first thought is a competitor may have reported negative earnings but I couldn't find any headlines suggesting that may have happened. Shares of DMND still held at technical support at the 30-dma. The relative weakness makes me concerned but we can still buy calls on a bounce here. FYI: The Point & Figure chart for DMND is bullish with a $90 target.

- Suggested (small) Positions -

Long AUG $75 call (DMND1120H75) Entry @ $2.25

07/19 new stop loss @ 73.60
07/15 triggered at $74.25
07/14 Adjusted entry point to $74.25 and stop to $72.75

Entry on July 15 at $74.25
Earnings Date 10/05/11 (unconfirmed)
Average Daily Volume = 237 thousand
Listed on July 11, 2011

Helmerich & Payne Inc. - HP - close: 71.19 change: -0.11

Stop Loss: 67.75
Target(s): 76.50
Current Option Gain/Loss: - 4.0%
Time Frame: 3 to 4 weeks
New Positions: see below

07/20 update: Our new trade in HP has been opened with both the stock and the S&P 500 opening higher today. HP did not see much follow through on yesterday's breakout but shares remain above prior resistance at $70.00. I would still consider new positions here. Nimble traders might want to try and buy a dip near the $70.00 level instead. Our target is $76.50. We do not want to hold over the July 29th earnings report. FYI: The Point & Figure chart for HP is bullish with a $90 target.

- Suggested Positions -

Long AUG $75 call (HP1120H75) Entry @ $1.25

Entry on July 20 at $71.49
Earnings Date 07/29/11 (confirmed)
Average Daily Volume = 1.3 million
Listed on July 19, 2011

Joy Global - JOYG - close: 97.09 change: -1.43

Stop Loss: 89.00
Target(s): 102.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see trigger

07/20 update: Hmm... JOYG did produce a dip to $96.00 as I expected. Unfortunately the action today looks like a bearish engulfing candlestick pattern. I'm less inclined to buy this dip. We remain in search of the right entry point here. Our current entry point at $91.00 is too low. Let's wait and see if JOYG confirms the bearish reversal today or bounces.

FYI: JOYG's rival, FCX, is due to report earnings on Thursday morning. The results from FCX could have a significant impact on JOYG.

Trigger @ $91.00 (Small Positions)

- Suggested Positions - Buy the Aug $95 call (JOYG1120H95)

07/18 New trigger @ 91.00. Stop @ 89.00. Still thinking Aggressive traders may want to buy calls now with a stop in the $93.50 area
07/16 Aggressive traders may want to buy calls now instead
07/14 Adjusted strategy. New trigger @ 92.00, stop @ 89.75
07/11 relist this play with a trigger at $93.00 and stop @ 91.40

07/11 JOYG hit our trigger at $96.00 (actually $95.97) and then hit our stop at $94.75. The option opened at $2.32 (ask) and we were stopped out at $2.20 (bid) for a loss of -5.1% We were fortune this loss was not larger!

07/09 Adjusted trigger to $96.00, stop to $94.75, target to $102.00, and option strike to Aug. $100 call.

Entry on June xx at $ xx.xx
Earnings Date 08/31/11 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on June 30, 2011

Mead Johnson Nutrition Co. - MJN - close: 68.95 change: -0.89

Stop Loss: 67.99
Target(s): 74.75
Current Option Gain/Loss: Unopened
Time Frame: up to July 27th.
New Positions: Yes, see below

07/20 update: MJN produced a failed rally at resistance near $70.00 this morning. Shares retreated back tot he middle of its trading range near $69. Chart readers might notice that the MACD on the daily chart is nearing a new sell signal and producing a lower high. Yet I would still buy calls on a breakout above resistance. I'm suggesting a trigger at $70.25.

If triggered we'll start with a stop loss at $67.99 and a target at $74.75. More conservative traders may want to consider a stop closer to $69 instead. We do not want to hold over the July 28th earnings report. FYI: The Point & Figure chart for MJN is bullish with a $95 target.

Trigger @ 70.25

- Suggested Positions -

buy the AUG $70 call (MJN1120H70) current ask $1.81

Entry on July xx at $ xx.xx
Earnings Date 07/28/11 (confirmed)
Average Daily Volume = 1.1 million
Listed on July 19, 2011

Nu Skin Enterprises - NUS - close: 40.08 change: -0.37

Stop Loss: 38.40
Target(s): 44.00
Current Option Gain/Loss: - 9.5%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

07/20 update: Our NUS trade has been opened. Both the stock and the S&P 500 opened higher. Unfortunately, NUS' spike higher this morning quickly faded. Shares lost -0.9% and ended the day hovering near round-number support/resistance at $40.00. Nimble traders may want to look for a dip or a bounce near the rising 10-dma before initiating new positions.

Earlier Comments:
Our target is the $44.00 mark but we will plan to exit ahead of the early August earnings report. FYI: The Point & Figure chart for NUS is bullish with a $62 target. Investors should note that the most recent data did list short interest at 14.4% of the 53.4 million-share float. That does provide some fuel for a short squeeze.

- Suggested Positions -

Long AUG $40 call (NUS1120H40) Entry @ $2.10
07/20 Entered at $40.80
07/19 buy calls tomorrow if NUS and S&P 500 are both up at the open.
07/19 new stop loss @ 38.40
07/18 Our play has not been opened yet. We're going to wait 24 hours and reconsider.

Entry on July 20 at $40.80
Earnings Date 08/02/11 (confirmed)
Average Daily Volume = 700 thousand
Listed on July 16, 2011

Potash Corp. - POT - close: 60.69 change: +0.18

Stop Loss: 56.70
Target(s): 63.75, 68.00
Current Option Gain/Loss: + 8.7%
Time Frame: exit prior to July 28th
New Positions: see below

07/20 update: POT spent the day churning sideways in a narrow range. I don't see any changes from my prior comments. Readers may want to wait for shares to fill the gap and dip toward $59.00 before initiating new bullish positions. More conservative traders may want a stop loss closer to $57.85.

Earlier Comments:
Our first target is $63.75. Our second, more aggressive target is $68.00. Keep in mind that we have less than two weeks. POT is due to report earnings on July 28th. We do not want to hold over the announcement. Thus the $68 target will probably not get hit. FYI: The Point & Figure chart for POT is bullish with a $76 target.

- Suggested Positions -

Long AUG $60 call (POT1120H60) entry @ $2.40
07/19 Play is opened. POT gapped open at $59.98
07/18 We are still unopened. Try again. Both POT and S&P 500 need to open higher on July 19th to buy calls.
07/18 new stop @ 56.70

Entry on July 19 at $59.98
Earnings Date 07/28/11 (confirmed)
Average Daily Volume = 7.4 million
Listed on July 16, 2011

Starbucks Corp. - SBUX - close: 39.83 change: -0.49

Stop Loss: 38.85
Target(s): 44.00
Current Option Gain/Loss: unopened
Time Frame: up to its earnings report in late July
New Positions: Yes, see below

07/20 update: I am surprised. Our trade on SBUX is still not open. The S&P 500 opened higher but SBUX actually opened lower this morning. The managed a bounce off short-term technical support at its 20-dma. SBUX eventually closed with a -1.2% decline. If we see SBUX close over $40.00 again we'll try again. However, we're running out of time. We do not want to hold over the July 28th earnings report.

- Suggested (Small) Positions -

buy the AUG $40.00 call (SBUX1120H40)

07/20 Trade was not opened. Wait for a close over $40.00
07/19 buy calls tomorrow if both SBUX and S&P 500 open positive
07/19 new stop loss @ 38.85
07/12 adjust trigger to $38.50
07/11 Our first attempt at a call play on SBUX did not pan out. Shares opened lower at $39.98 and then hit our relatively tight stop loss at $39.45. The option opened at $1.49 (ask) and we were stopped out at $1.22 (bid)for an -18% loss.
We are reloading this trade with a buy-the-dip trigger at $38.75.

Entry on July xx at $ xx.xx
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume = 6.8 million
Listed on July 9, 2011

Teradata Corp. - TDC - close: 57.41 change: -1.90

Stop Loss: 55.40
Target(s): 62.00
Current Option Gain/Loss: -25.8%
Time Frame: 2 to 3 weeks
New Positions: see below

07/20 update: It was an ugly day for TDC. Shares reversed hard this morning and closed down -3.2%. A potential catalyst for this relative weakness was a bearish article by Morningstar this morning discussing growing competition for TDC's business. The sell-off today is worrisome but TDC has not broken support yet. Readers could wait for another bounce from its 50-dma (near $56.40) to launch positions. FYI: The Point & Figure chart for TDC is bullish with a $79 target.

- Suggested Positions -

Long AUG $60 call (TDC1120H60) Entry @ $1.55

07/19 new stop @ 55.40
07/19 Trade is open. TDC gaps up at $57.69.

Entry on July 19 at $57.69
Earnings Date 08/04/11 (confirmed)
Average Daily Volume = 1.5 million
Listed on July 18, 2011

PUT Play Updates

FactSet Research - FDS - close: 95.02 change: -1.28

Stop Loss: 100.25
Target(s): 90.50, 86.00
Current Option Gain/Loss: -32.8% & -29.1%
Time Frame: 4 to 6 weeks
New Positions: see below

07/20 update: There was no follow through higher on yesterday's oversold bounce. That's good news for the bears. Although I would have rather seen a failed rally near resistance at $98 or the 200-dma. I'm not suggesting new positions at the moment.

Earlier Comments:
Our targets are $90.50 and $86.00 but the $90.00 level is support and FDS will probably see a bounce from this level. The Point & Figure chart for FDS is bearish with a $64 target.

- Suggested (SMALL) Positions -

Long AUG $95 PUT (FDS1120T95) Entry @ $3.50

- or -

Long SEP $90 PUT (FDS1117U90) Entry @ $2.40

Entry on July 18 at $94.48
Earnings Date 09/21/11 (unconfirmed)
Average Daily Volume = 363 thousand
Listed on July 16, 2011