Option Investor

Daily Newsletter, Monday, 6/25/2012

Table of Contents

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

Market Wrap

Weary, Wary and Leery

by Linda Piazza

Click here to email Linda Piazza
Market Internals


I admit my faults as a writer, especially when scrambling to meet deadlines on these articles. Unlike when writing fiction with more time to edit, I'm the queen of the looong sentence. I anthropomorphize the price action. I occasionally, ahem, mix up "it's" and "its," although I understand usage.

So, it's not with a sense of stern rectitude that I say that I'm bemused when writers mix up the words "weary," "wary," and "leery." They speak of being weary of a turn of events when I presume they mean "skeptical." Today, however, that mix of words seems just right. Any three of the terms could have been applied to the markets.

Market participants want a workable and trustworthy solution to the problems in Europe. They're leery of promises that never get fulfilled. They're wearied by the wait. They're wary of what might come next, with the European or any number of other global situations. Market participants want clarity.

This week dawned with many global geopolitical and economic situations remaining unsettled. Here in the U.S., those uncertainties included another important manufacturing report and a much-anticipated possible Supreme Court ruling on the Affordable Care Act. Market participants learned later in the day that the ruling would not be handed down until Thursday.

The most high-profile uncertainties included stalling talks ahead of a EU Summit later this week. Representatives of the Troika composed of the IMF, EU and ECB had been expected to visit Greece today. That visit was postponed when two key Greek officials were hospitalized this weekend.

News sources reported yesterday that Greece's new prime minister and incoming finance minister were both hospitalized and would miss the June 28-29 EU summit. Greece will be represented at the summit by the foreign minister and outgoing finance minister. As a result of those hospitalizations, Troika officials postponed today's previously planned visit to Athens.

Prime Minister Antonis Samaris had eye surgery Saturday, and incoming Finance Minister Rapanos was also hospitalized, reportedly before he could be sworn in. Today, we were to learn that the finance minister had resigned because of health issues.

As all market watchers are well aware by now, Greece seeks to renegotiate some of the conditions of its previously signed agreement with the Troika. While some politicians have hinted that it might be possible to tinker with time frames, other Troika officials, particularly Germany's, have stated that Greece must uphold the conditions already hammered out. News headlines profess Germany's impatience with continued importuning for more help and delayed implementation of required measures.

By noon in the U.S., rumors began circulating that Cyprus would ask for a bailout later today, a rumor that proved to be true. Cyprus thereby became the fifth eurozone country to ask for rescue funds. Cyprus' economy might be small, but some experts term its importance disproportionate to its size.

Cyprus' request followed Spain's formal request for up to 100 billion euros in rescue loans for its troubled banks. With all these events, hopes for conclusive steps at the upcoming summit diminished while the need for a workable solution increased. Yields on Spanish Government Generic 10-year bonds rose again, although remaining far off last week's 7+ levels. Those yields ended the day at 6.637, up 0.257 or 4.03 percent.

In addition, Syria warned against any retaliatory actions against Syria after what it deemed an act of self defense when it shot down a Turkish warplane. At least Egypt settled one geopolitical matter that had been causing uncertainty, even if the ramifications are not yet known. On Sunday, Islamist Mohammed Morsi was finally confirmed as Egypt's first freely elected president. The confirmation that he had won 51.7 percent of the votes came a week after voting ended. He may have procured a majority of the votes, but voter turnout was light, too, and exit polls had indicated dissatisfaction with or concern about both candidates.

The U.S.-educated Morsi resigned from the Muslim Brotherhood party after his confirmation and vowed that his government would be an inclusive one. He affirmed that he would honor international treaties.

In the interim from voting to confirmation, the military council stripped the new government of some powers. The council remains in control of the military, for example. They were on alert yesterday as celebrations broke out.

With those concerns and others weighing on the minds of market participants, Asian bourses slid. The Nikkei 225 dropped 0.72 percent; the Hang Seng, 0.51 percent; and the Straits Times 0.45 percent. European bourses turned sharply lower when they opened in the wee hours of the U.S. morning. The FTSE 100 was eventually to close lower by 1.05 percent; the DAX, by 1.86 percent; and the CAC 40, by 2.24 percent. I heard comments today that the DAX was slipping into negative territory for the year. The DAX ended 2011 at 5838.35, if I eyeballed the number correctly, and closed today at 6132.39, to that's not quite true.

Add to these concerns the impact of Debby on oil and natural gas production in the Gulf. The latest estimates I saw said that 44 percent of oil production and 35 percent of natural gas production in the Gulf had been shut by this afternoon.

Monday's Developments

Today's slot of economic releases began with May's Chicago Fed National Activity Index, released at 8:30 AM. The Chicago Fed explains this index as a "coincident" indicator or a complement to GDP or domestic growth numbers.

April's index had measured 0.11 but was revised lower to 0.08. The shocking news was found in the May number, dropping to a strongly negative -0.45. That number dropped the three-month average to -0.34. That three-month average measured its lowest value since June 2011, the Chicago Fed said. This CFNAI index weights 85 existing monthly indicators. The benchmark average number is zero.

The Chicago Fed says that three of the four categories it uses to compute the index deteriorated. One component, the diffusion index, measured its first negative number since June 2011. Production-related indicators and consumption and housing categories made negative contributions to May's report, the Chicago Fed revealed.

At 10:00 AM ET, the Census Bureau and Department of Housing and Urban Development jointly reported a bright note in that weary, wary and leery hymn the markets were singing today. Annualized new single-family home sales climbed to 369K, well above the expected 347-354K. We have been hearing anecdotal and some governmental information that fewer distressed homes were coming onto the markets and inventory in desirable homes was also lower in some markets.

According to the Census Bureau, this uptick constituted a 7.6-percent increase above April's revised 343K. This increase represented a 19.8-percent rise above the year-ago estimate of 308K. Current supply at current sales rates is now 4.7 months, down from the prior 5.0.

Tempering the good news, the median sales price dropped. Also, despite the increase in sales, representing a two-year high, sales of new homes still remain below what was pegged as the "normal level" by some articles. We could argue, couldn't we, that sales in the period leading up to the housing downturn were not "normal levels," rendering the comparisons with prior normal levels somewhat problematic.

Homebuilders rebounded after the release, although the generalized market conditions were to drag them lower again and keep them churning. The $DJUSHB, the Dow Jones U.S. Homebuilders Index, ended the day down almost 1 percent.

At 10:30 AM ET, the Dallas Fed's Manufacturing Survey for June concluded the day's scheduled releases. The last report by the Dallas Fed had pointed to negative forward momentum, but the newest release was above consensus.

Dallas FED MFG Survey:

We've all been waiting for the Supreme Court's decision on the Affordable Care act, but instead news came that the high court would announce its decision Thursday. The Supreme Court instead affirmed corporations' right to political spending and also struck down parts of Arizona's immigration law. Campaign finance laws, related to the Montana case involving corporations' right to political spending, and immigration law are political hot-potato topics. For that reason, I want to stick with facts and not venture into discussion. One aspect struck down in the Arizona case was the one making it a criminal offense for an illegal immigrant seek work or work in Arizona. Others involved the authorization of arrests without warrants and requiring immigrants to register with the federal government.

Story stocks included Research in Motion (RIMM, 9.10, -0.75 or 7.66 percent). The company said it was considering splitting the handset manufacturing division off from its messaging network. In addition, Morgan Stanley downgraded the stock to an underweight rating. That's a little late, don't you think?

Other story stocks included Watson Pharmaceuticals (WPI, 71.72, +0.70 or 0.99 percent)and Shire (SHP.L). A generic form of Shire's ADHD drug Adderall XR received approval from U.S. regulators. Watson is buying Actavis, which manufactures the generic form receiving approval.

Pfizer (PFE, 22.48, -0.25 or 1.10 percent) and Bristol-Myers Squibb Co (BMY, 34.13, -1.23 or 3.48 percent) received disappointing news from U.S. regulators. Their blood clot preventer did not win approval. In general, healthcare-related stocks were lower as market awaited the Supreme Court ruling on the Affordable Care Act.

Reportedly, a judge has settled or concluded GOOG's Motorola Mobility and AAPL patent dispute. However, I could find no confirmation of that headline.

. After the market closed and just as this article went to press, Apollo Group Inc. (APOL, 32.47, -1.08 or 3.22 percent) reported earnings. After-hours traders liked the results, sending the stock up 3.03 from its closing value as this report was prepared. The company reported in its "Unaudited Third Quarter of Fiscal year 2012 Results of Operations" that it had net revenue of $1,130.8 million, net income attributed to Apollo of $134.0 million, EPS attributable to Apollo of $1.13 per share or $1.20 per share after items.

Another late-day development included Microsoft's (MSFT, 29.86, - 0.84 or 2.72 percent) announcement that it would buy Yammer for $1.2 billion in cash. MSFT can now offer its corporate customer a service akin to Facebook, a Reuters article concluded. MSFT did not see much immediate reaction after the announcement and before this article went to press.

Let's look at charts.


The SPX broke higher out of its descending regression channel and above important Keltner channel resistance, too. However, it did not sustain that breakout. When we see a breakout greeted with increasing volatility, we of course should be skeptical of its sustainability and validity, especially when it occurs on light volume.

For now, however, the SPX has done nothing more than retreat back to the top of that former descending channel. Despite the fact that the retreat looks more like someone slammed a bat against the back of the bulls' knees and knocked them on their rumps, we have to allow for the possibility that this is nothing more than a retest. One chart development leads some credence to that outlook.

Annotated Daily Chart of the SPX:

The SPX churns back and forth across its daily 9-ema on daily closes. This action differs from the time it spent climbing the 9-ema on daily closes on the far left-hand side of this chart or declining under it on daily closes in much of May. Those times when price was either supported by or knocked back by the 9-ema illuminated trending markets. That's not what we see now when we look at price action with relationship to the 9-ema. That failure to trade in concert with that moving average is not a failure of the 9-ema (or 10-sma or -ema, if you prefer) to prove predictive or illustrative. This action warns that the SPX churns without a clear direction as yet. Therefore, we should be leery of assigning any one interpretation to the chart.

It's possible to draw a new rising price channel containing the action from late May through June. I'm a little worried about this interpretation, but I've included the tentative new channel on the chart. I would feel more comfortable with it and less wary if the decline back through that new channel had been a little more leisurely and a little less precipitous.

For this channel to prove valid, daily closes cannot drop much further than today's low. Price should bounce from the confluence of support tested today. Such channels exist on other indices' charts, too. Price action the rest of the week may clarify whether such channels are valid or sustainable.

For now, churn between the 1330-1335 zone and today's low will remain noise. A push back to the 6/19 high might give the tentative new rising channel more validity.

Until we see some sort of predictive formation set up, we don't have a clear idea of which way the SPX is more likely to break: above the 6/19 high or below today's low. In normal market conditions, an immediate increase in volatility after an upside breakout would certainly lend more credence to the bearish case. In these news-driven markets, it's dangerous to believe too strongly in any predictions or typical chart behaviors. If the SPX does break to the downside, breaking much below 1300 on daily closes, the Keltner setup suggests it has a downside possibility near 1279-1282 or perhaps even a retest of the June low. If the SPX falls below that June low, especially on daily closes, the 1225-1240 zone looks like a next downside possibility.

If the SPX can sustain an upside breakout above the 1330-1335 zone for more than an hour or two at the open or on a daily close, a retest of the 6/19 high might be a possibility. I would guard bullish profits at both these mentioned zones. If the SPX should sustain breakouts of more than an hour or two or at a daily close above the 6/19 high, Keltner channels again suggest a potential upside of 1390. However, bulls would be wise to be protective of profits at the top of that tentative new price channel, wherever that top might be located when tested.

Because the Dow's automatically drawn regression channel had looked different than that on other indices and the Dow's performance in relationship to the channel had also appeared odd, I tried again, scrolling the automatic drawing tool over the Dow's action from May through June. I didn't feel up to calculating the regression channel myself although that might have been an interesting challenge in the past. The redrawn channel displays more concordance with that seen on other charts and the Dow's own price action. In addition, I've also added the tentative new rising price channel, although we shouldn't hold too much faith in that new channel.

Annotated Daily Chart of the Dow:

The Dow also broke out of its descending regression channel, and in fact broke above what should have been significant resistance. It didn't stay there long, however.

As was true on the SPX, the immediate increase in volatility after that breakout signals some concern. We don't see trending behavior on the Dow when we compare its price action to the 9-ema. Nor do we see any formation that will guide us to believe one thing is more likely to happen than another on the Dow's chart, although the new rising price channel certainly provides some slight hope for bulls. Consider anything between 12600-12650 and today's low as noise, and wait for clarification before making directional bets on anything other than lottery money or for very short time frames.

A climb back to the 6/19 high and even the top of the new rising price channel before any retreat does give more credence to that new rising channel. However, if one has a less bullish outlook, the price action lends credence to the possibility that any movement between the 6/19 high and today's low are just noise. There is no more clarity on these charts than elsewhere in the markets.

Sustained breakdowns below about 12360-12395 suggest a downside target of 12200 and perhaps even a retest of the June low. A piercing of the June low that isn't reversed within a couple of hours might suggest a downside target near 11700-11775.

If the Dow rises, bulls should protect bullish profits at about 12600-12680, being prepared for rollover potential, and again at the 6/19 high and then the top of that new rising price channel. A breakout above that 6/19 high that isn't reversed within a few minutes might set up an eventual target near 13100.

The NDX's chart looks much like those of the SPX and Dow, complete with increased volatility after a channel breakout and a potential but not yet trustworthy new rising price channel.

Annotated Daily Chart of the NDX:

Movement between today's low and about 2590 are just noise. A breakout above or below either that isn't quickly reversed sets up the potential new targets marked on the charts. Protect bullish profits from 2560-2590 and again from the 6/19 high to the top of that tentative new channel. Any move below 2500 that isn't quickly reversed sets up a potential for a drop to retest the June low. The next potential target below that is marked, too.

The RUT's chart looks like the others' charts, complete with a failed breakout attempt and a tentative new rising regression channel.

Annotated Daily Chart of the RUT:

As with the other indices, the failure to find consistent daily support or resistance on the 9-ema affirms that there's no established trend on the RUT. We have congestion or churn, backed up by the spider web of trendlines and moving averages in which it's caught. When this happens, a strong catalyst is usually needed to break prices out of that congestion zone. Anything between today's low and about 781 looks like noise on the RUT. Directional trades in that zone should perhaps be short and sweet, played with lottery money that can be lost if the wrong entity makes the wrong announcement for your trade.

The RUT did not fall to the bottom of its tentative new regression channel, but it did fall back to the top of its former, more trustworthy descending channel. Prices have been driven down to test whether former resistance is now support. That's what we'll find out over the next few days when we see if prices gap down and drive lower or steady and climb higher.

Choosing clear breakout levels or next potential upside or downside targets in the case of a breakout for the RUT proved problematic. If the churning has a good point, it's that the churn established potential support or resistance in rather close increments for the RUT. All are marked on the chart, so we see a chart spotted with ovals marking potential support or resistance levels.

Breakouts above 781 that aren't reversed within a couple of hours or on a daily close set up the potential for a climb toward 788-794, for example. A breakdown below today's low that isn't reversed within a couple of hours at the open or that drifts down to close below that level targets 747-751. A breakdown below that targets 735 or perhaps even the June low. And so it goes.

Tomorrow's Economic and Earnings Releases

In addition to these economic releases, HRB and LDK report earnings tomorrow.

What about Tomorrow?

When I examine daily charts, I see a rejection of the upside breakout. However, I see such a tangle of potential support and resistance levels that it's entirely possible that without a catalyst we could see several days of churning behavior ahead of the end of the quarter and the European summit. Of course, we know that European news bites, Syrian and Iranian developments and our own Supreme Court's decision could each provide a catalyst. As a non-directional trader, I'd like to see that congestion continue, but I think it might come with heightening implied volatilities rather than declining ones as market participants grow weary, wary and leery.

When indices move sharply, 60-minute charts may help filter out the noise seen in shorter-term intraday charts, so I'll be showing those rather than the often-shown 30-minute charts.

The SPX's behavior wasn't as clean when seen on the 60-minute as it often is. The SPX, Dow, and OEX's behaviors used to be the most congruent to this particular Keltner setup. Today, the SPX fell well below potential Keltner support on the 60-minute chart. By the close, prices had climbed laboriously back to the channel line that should have been support, questioning whether it would now be resistance on 60-minute closes.

Annotated 60-Minute Chart of the SPX:

This chart suggests that a gap or zoom up above 1316-1318 that holds through the first hour would set up a potential climb into the 1324-1326 or even 1326-1332 zones, where bulls would do well to guard against rollover potential. Sixty-minute closes above that potential resistance zone set up the possibility of an upside target near 1347-1350. The mid-sized channel's upper boundary would probably get pushed a bit higher in any climb. I would, however, be watchful of any rollover from last Friday's high that got pushed below Thursday's low.

This chart suggests that a decline below today's low that isn't reversed within an hour or so sets up the potential for a tumble down toward 1290. The lower channel line would probably get pushed lower by such a sharp decline.

The same sort of setup is visible on the Dow's chart.

Annotated 60-Minute Chart of the Dow:

The Dow broke through what had looked like potential support on 60-minute closes and spent the rest of the day climbing back toward that potential support, now converted to potential resistance. Sixty-minute closes above 12520 tomorrow morning set up the potential for a climb toward 12600-12640, where resistance might lie. Bulls should also be watchful for rollover potential as the Dow approaches last Thursday's low.

The chart suggests that consistent 60-minute closes above about 12635 set up the potential for a climb toward 12760, although last Friday's high should of course be rated potential resistance since other market participants will be watching it.

If the Dow rolls over and sustains 60-minute closes below about 12450, the potential for a decline to historical support near 12400 or Keltner support near 12290-12300 exist.

As with the other indices, the NDX overran potential Keltner support. The NDX didn't so much rise toward a retest as it did trade sideways while that potential support/resistance level drifted lower toward it. That wasn't a sign of strength, obviously, but we can glance across to the left of that chart and see that the NDX has many times churned around for a number of hours in this same zone, eventually zooming up out of it. We can't rule out that possibility this time, either.

Annotated 60-Minute Chart of the NDX:

If the NDX should scramble above and stay above the 2542-2545 level on 60-minute closes, it sets a potential upside target that extends from 2560-2570. That's a rather wide band now, but it's likely to narrow tomorrow. Watching the 45-ema might give traders an idea which way it will narrow, toward the upper or lower end of the band. In any case, before the NDX could approach that potential next target, it would of course encounter last Thursday's low, a level that market participants will be watching as potential resistance.

If the NDX rolls lower tomorrow morning and produces 60-minute closes beneath about 2525, it sets a potential downside target near 2495. Bearish traders should of course be aware of historical support near 2520 and again, lighter, at 2510.

Unlike some of the other indices, the RUT held fairly well to its Keltner support on 60-minute closes.

Annotated 60-Minute Chart of the Russell 2000:

If the RUT should bounce, bullish traders want to see it push above its (red) 9-ema on 60-minute closes and hold above it long enough to flatten that -ema and then turn it higher. The RUT will soon encounter a potential resistance band, however, now extending from about 768-770. That band should be watched for rollover potential, but consistent 60-minute closes above it would set up a potential target near 779-780. Of course, last Friday's high should be watched for rollover potential since other market participants will be watching it, too.

If the RUT instead produces consistent 60-minute closes beneath about 759, it sets up a potential downside target near 742-743, although support in the 750-755 zone should be watched for bounce potential, too.

What do I think? When I studied the daily charts, I saw a lot of potential for the index prices to be trapped in a weave of potential support and resistance levels for a few days. Without clarity to the global situation, that tangle of potential support and/or resistance, and the last few days of the quarter, market participants could be too weary, wary and leery to make big moves. I can draw a new rising price channel climbing up out of the former descending price channels, and so can other market participants. However, I can also see that the so-called confirmation of inverse or reverse head-and-shoulders formations on the daily charts failed to hold, and so can other market participants. In that background, and without a catalyst, I could see congestion and maybe congestion in a narrowing zone as we awaited some kind of catalyst.

However, the 60-minute charts show me a real danger: drops much below today's lows that aren't quickly reversed, perhaps due to some catalyst, set up some much lower potential downside targets, while any climb quickly faces some thorny potential resistance levels. That left me a little less sanguine about the congestion possibility. We just have to see what the market produces and with Asia and European developments going on while we sleep, it's impossible to predict which direction or amplitude we'll see in futures tomorrow morning.

New Option Plays

More Industrial Weakness

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate, consider these stocks as possible trading ideas and watch list candidates. Many of these need to see a break past key support or resistance:

(bullish ideas) BUD, MJN, COG, MOS


Joy Global, Inc. - JOY - close: 52.11 change: -2.12

Stop Loss: 55.05
Target(s): 47.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
JOY is a mining equipment maker. Growing concerns over a global slowdown are putting pressure on industrial names. JOY is in a bearish trend of lower highs and lower lows. The last few days the stock has been hinting at a breakdown from its three-week sideways consolidation within the larger bearish pattern. Well today just confirmed the breakdown.

I am suggesting bearish put positions at the open tomorrow. We'll start with a stop loss at $55.05. We do want to keep our position size small because JOY can be a volatile stock at times. It is possible that the $50.00 level could act as round-number, psychological support but we are aiming for a drop to $47.50.

- Suggested *SMALL* Positions -

buy the Jul $50 PUT (JOY1221S50) current ask $1.62

Annotated Chart:

Entry on June xx at $ xx.xx
Earnings Date 08/29/12 (unconfirmed)
Average Daily Volume = 2.6 million
Listed on June 25, 2012

In Play Updates and Reviews

Stocks Stumble Into Last Week of June

by James Brown

Click here to email James Brown

Editor's Note:

Investors remain cautious and stocks slipped early on today.

CTXS hit our stop loss. CMI was triggered.

Current Portfolio:

CALL Play Updates

iShares Biotech - IBB - close: 126.91 change: -1.94

Stop Loss: 124.90
Target(s): 134.85
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

06/25/12 update: There was no follow through on Friday's relative strength. The IBB gapped down and lost -1.5% by the closing bell. This ETF remains inside its $126-129 trading range.

I am suggesting a trigger to buy calls at $129.25. We'll use a stop loss at $124.90. Our multi-week target is $134.85. More aggressive traders could aim higher.

Note: Readers may want to keep their position size small (see chart).

Trigger @ 129.25

- Suggested Positions -

buy the Jul $130 call (IBB1221G130)

- or -

buy the Sep $135 call (IBB1222I135)

Entry on June xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 576 thousand
Listed on June 23, 2012

U.S. Oil ETF - USO - close: 29.80 change: -0.30

Stop Loss: 28.49
Target(s): 33.00
Current Option Gain/Loss: Jul$30c: + 1.0% & Aug30c: + 6.6%
Time Frame: 3 to 6 weeks
New Positions: see below

06/25/12 update: Iran is getting desperate as the July 1st oil embargo gets closer. The country was threatening to close the Straits of Hormuz, which would be disastrous for the world oil market and disastrous for Iran as the U.S. would not allow the straits to be closed for long. With this situation heating up in the Mideast I am surprised that oil was down today. The USO gapped open lower at $29.68 but pared its losses after hitting $29.30.

Earlier Comments:
Make no mistake, this is an aggressive trade since we're trying to call a short-term bottom in oil prices here. The commodity could definitely see some strength as we get closer to the EU oil embargo against Iran, which is scheduled to start on July 1st.

- Suggested Positions -

Long Jul $30 call (USO1221G30) Entry $0.94

- or -

Long Aug $30 call (USO1218H30) Entry $1.36

Entry on June 22 at $29.57
Earnings Date --/--/--
Average Daily Volume = 8.6 million
Listed on June 21, 2012

Whole Foods Market, Inc. - WFM - close: 95.56 change: -0.71

Stop Loss: 93.25
Target(s): 95.00 & 98.50
Current Option Gain/Loss: Jul $92.50c: +30.3% & Aug $95c: +12.5%
Time Frame: 3 to 6 weeks
New Positions: see below

06/25/12 update: WFM bounced off of short-term support near $94.00 midday. Unfortunately today's session looks like another "inside day" so traders remain indecisive here. Last's Thursday's bearish reversal pattern still looms over WFM. I am not suggesting new positions at this time. Readers will want to seriously consider taking profits right now!

- Suggested Positions -

Long Jul $92.50 call (WFM1221G92.5) Entry $3.30

- or -

Long Aug $95 call (WFM1218H95) Entry $4.40

06/23/12 Readers will want to seriously consider taking profits and exiting right now
06/18/12 new stop loss @ 93.25
06/15/12 first target hit at $95.00, options values at:
Jul $92.50 call @ $4.50 (+36.3%)
Aug $95.00 call @ $5.05 (+14.7%)
06/15/12 triggered at $92.05

Entry on June 15 at $92.05
Earnings Date 07/25/12 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on June 12, 2012

PUT Play Updates

Cummins Inc. - CMI - close: 89.82 change: -0.57

Stop Loss: 92.55
Target(s): 82.50
Current Option Gain/Loss: -19.6%
Time Frame: 3 to 4 weeks
New Positions: see below

06/25/12 update: Our new trade on CMI is open. Shares actually gapped open lower a $89.06. That was under our proposed trigger at $89.35. The stock bounced and spent the rest of the day churning sideways near $90.00.

Readers may want to wait for a new relative low under $88.93 (today's low) before initiating new positions. FYI: The Point & Figure chart for CMI is bearish with an $82 target.

- Suggested Positions -

Long Jul $87.50 PUT (CMI1221S87.5) Entry $2.80

06/25/12 triggered on the gap down at $89.06 (trigger was 89.35)

Entry on June 25 at $89.06
Earnings Date 07/31/12 (unconfirmed)
Average Daily Volume = 2.8 million
Listed on June 23, 2012

Deckers Outdoor Corp. - DECK - close: 44.36 change: -0.64

Stop Loss: 50.05
Target(s): 42.00
Current Option Gain/Loss: Jul45p: +77.7% & Aug45P: +34.4%
Time Frame: 3 to 6 weeks
New Positions: see below

06/25/12 update: DECK tagged another new low today with an intraday dip to $43.51. Readers may want to take profits now. I'm not suggesting new positions at this time.

Earlier Comments:
This is an aggressive trade because so many investors are already short this stock. The most recent data listed short interest at 26% of the small 36.7 million share float. That does raise the risk of a short squeeze, although DECK hasn't seen a squeeze in a while. FYI: The Point & Figure chart for DECK is bearish with a $34 target.

- Suggested (SMALL) Positions -

Long Jul $45 PUT (DECK1221S45) Entry $1.35

- or -

Long Aug $45 PUT (DECK1218T45) Entry $2.90

06/25/12 readers may want to take profits early now.

Entry on June 21 at $47.31
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 1.45 million
Listed on June 20, 2012


Citrix Systems - CTXS - close: 78.23 change: -1.91

Stop Loss: 77.75
Target(s): 86.50
Current Option Gain/Loss: -69.1%
Time Frame: 3 to 4 weeks
New Positions: see below

06/25/12 update: The market's declined again and CTXS reversed Friday's bounce. The stock saw an intraday dip toward its 30-dma and hit our stop loss at $77.75.

- Suggested Positions -

Jul $82.50 call (CTXS1221G82.5) Entry $3.40 exit $1.05 (-69.1%)

06/25/12 stopped out at $77.75
06/19/12 trade opened on gap higher at $81.40


Entry on June 19 at $81.40
Earnings Date 07/25/12 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on June 18, 2012