Option Investor

Daily Newsletter, Saturday, 9/26/2009

Table of Contents

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

Market Wrap

The Pause That Refreshes

by Jim Brown

Click here to email Jim Brown

I am sure Coca Cola won't mind if I use their advertising slogan to describe the calm decline in the markets as they head into month end. This could be the pause that refreshes the bulls.

Market Statistics

The market slide extended to three days with a slightly negative close on Friday. Helping put the pressure on equities was a drop in the sales of existing homes to 5.1 million from 5.24 million. That is an annualized rate and this was a lagging report for August. This should not have surprised anyone because home sales always decline as the summer ends and kids go back to school. Home prices improved to only a -12.5% year over year decline and months of inventory also fell to 8.5 months and the lowest level since April 2007. The 12-month average of existing inventory is 9.7 months. Sales fell -2.7% for the month but the pace of sales is definitely in recovery mode with sales up +3.4% over the same period in 2008. Considering there will be nearly 2.5 million distressed sales in 2009 and another 2.0 million sales in 2010 the overall improvement in sales is encouraging.

Existing Home Sales

Counteracting the slight negativity of the home sales was a sharp boost in Consumer Sentiment. The first reading for September sentiment came in at 70.2. That jumped to 73.5 in the final revision for the month. This is the highest level since January 2008 and well over the 65.7 reading for August. Sentiment is definitely improving and the political dip in July/Aug has been erased. Both the expectations component and the current conditions components spiked to 73.5/73.4 from their 65.0/66.6 readings in August. As you can see in the chart below we are still a long way from the 2006 levels but well above the recession lows. This should be a long term positive for the stock market since it suggests consumers will begin to spend money as employment improves. Most are still trying to restructure their debts and replace lost credit lines. This is being helped by relatively low energy prices and low prices on retail goods.

Consumer Sentiment Chart

Durable goods orders fell -2.4% in August but this was just a correction to the +4.9% anomaly in July. This August drop should be ignored as just a correction of the July blip.

Durable Goods Chart

Next week is going to be a major week for economic reports. On Monday we get the last look at the Q2 GDP and it is expected to decline to -1.1% from the -1.01% in the last revision. This should not be a problem for the markets unless there is a major deviation from the expectations.

On Wednesday the Chicago ISM is expected to rise slightly to 51.1 from 50.0 and will be a preview of the national ISM due out on Thursday. The national ISM for September is expected to rise to 54.0 from 52.9 in August. Again, this should not be a significant market event unless the numbers are materially different than what is expected.

The big report for the week will be the Non-Farm Payrolls on Friday. The consensus is for a loss of -188,000 jobs and less than the -216,000 jobs lost in August. Morgan Stanley believes the losses will be under 150,0000. This time around I am not hearing any "out in left field" comments about a possible positive job growth number. I think most analysts have finally accepted the inevitable that the recovery may be jobless until early 2010. This could be a VERY volatile economic event. The Fed won't move off their "extended period" statement until we start adding jobs again. When we get a month of positive job growth the real worry over the Fed rate changes will begin. I seriously doubt it will be this month but everyone will be holding their breath until the numbers are announced.

Initial Jobless Claims fell by 21,000 to 530,000 last week. That was the third consecutive weekly drop. This compares to a peak of 674,000 in March. They need to decline to something in the range of 350,000 to be considered normal in a growing economy.

Initial Jobless Claims

Economic Calendar

On Wednesday the Fed made comments that were more optimistic than in prior statements and suggesting that the economy was moving out of the recession. They retained the comments about keeping rates under .25% for an extended period and also extended the time period over which they will buy Fannie and Freddie mortgage backed debt.

The statement changed from "economic activity is leveling out" to "economic activity has picked up following the severe downturn." Bernanke said the prior week that he believed the recession was likely over and this Fed statement agreed. However, they also left in the "economic growth is likely to remain weak for a time" but said current stimulus would eventually provide a "resumption of sustainable growth." They still believe inflation will "remain subdued for some time."

All the outward signs suggest the Fed will wait as long as possible before letting the punchbowl run dry. The markets breathed a sigh of relief and went on about the business of trading. On Friday Fed Governor Kevin Warsh spoke at a banking conference. His speech did not come from the same playbook as the Wednesday FOMC statement. Warsh warned that the Fed cannot wait too long before beginning to remove the monetary stimulus. Warsh also suggested the Fed needs to be as aggressive on the way up as they were on the way down. He warned that the risk of a policy mistake remained high.

He also downplayed the "extended period" portion of the FOMC statement and suggested the Fed should raise rates aggressively once they drop that language. Since Warsh voted for the FOMC statement on Wednesday his hawkish speech on Friday roiled the markets. We all know that it will be a rocky road when the Fed decides to start raising rates and the rapidity will be a key factor. Greenspan was widely criticized well after the fact for removing the post 9/11 stimulus too slowly and allowing the economy to overheat and produced the housing bubble. The table below shows the rate hike progression and the rate after the change. It took Greenspan two years to raise rates +4%. Warsh is suggesting the Fed not repeat that mistake and act aggressively once they start.

Fed Rate Table

The FDIC closed the 95th bank of the year on Friday. The Georgian Bank of Atlanta was closed and sold to First Citizens Bank and Trust. This was the 19th bank closed in Georgia in 2009. The FDIC said the cost to the insurance fund would be $892 million. The bank had $2 billion in assets and roughly $2 billion in deposits. I am sure the FDIC knows what bank will be the 100th to close this year but we will have to wait for the announcement over the coming weeks.

The current estimate for all of 2009 is 125-135 banks will be closed followed by another 100+ in 2010. The FDIC is under the gun and rapidly running out of money. They have various untapped lines of credit with the Fed and Treasury but up till now they have not needed to use them. There were rumors this week that the FDIC would borrow money from several major banks it insures. FDIC Chair Shelia Bair downplayed that scenario on Friday saying it was authorized in their charter to issue debt but not needed given their credit lines.

The government auctioned $112 billion in notes of various terms last week and half the debt was purchased by foreign central banks. U.S. primary dealers are buying less and less but so far the foreign banks have picked up the slack. Banks are reportedly buying the debt to mitigate losses in their dollar positions. This is voodoo economics to me but the bottom line is our fate in the hands of overseas debt buyers. If we make them mad with a sudden surge of dumb moves then they will have the hammer on us. Famous money manager Julian Robertson said last week we were facing Armageddon because of our massively growing debt. There are some that predict interest rates could go back to double digits over the next several years if something is not done promptly. I have lived through double-digit rates back in the 1970s and it was not pleasant. I had a 12% mortgage on my house and was happy to get it at the time. How would that affect your credit card rates today?

In stock news Research in Motion (RIMM) was crushed for a 17% loss (-$14.15) after reporting earnings that were less than investors expected. RIMM reported sales of $3.53 billion, a +37% increase, but analysts were expecting $3.62 billion. They predicted sales of $3.60-$3.85 billion in the current quarter and analysts were looking for $3.92 billion. This was the second consecutive quarter that RIMM missed revenue forecasts. RIMM added 3.8 million new subscribers during the quarter but the forecast range was 3.8-4.1 million. Everything was on the low end of expectations. Personally I think they are doing a great job competing against Apple and Palm but they are a victim of their own success. Analysts constantly bid up their expectations to the point where even a great quarter looks like a miss. With RIMM under the magic $70 price point I will be watching for signs of life to go long RIMM for a trade.

RIMM Chart

The weak existing home sales numbers on Friday sent homebuilders lower but they were already on the downward slide. The end of the summer selling season and the end of various homebuyer stimulus programs is pressuring the sector and the homebuilders by default. Builders were down strongly for the week. KB Homes (KBH) lost -17%, Hovnanian (HOV) lost -13%, DR Horton (DHI) -12% and Ryland (RYL) -12%.

PHLX Housing Index Chart

I thought last week must have been an early Halloween because of all the crazy people hogging the microphone at the UN. Muammar Gaddafi, spoke six times longer than his allotted time and his translator collapsed 20 min before the end of the speech because of the strain. Gaddafi rambled on about a single state solution to the Israel-Palestine problem and called it "Isratine." Gaddafi, the self proclaimed "king of kings" brought his tent from Libya and set it up on rented property owned by Donald Trump. Gaddafi was followed by Venezuelan socialist president Hugo Chavez who is normally very long winded in his own right. However, he praised Gaddafi, saying he was very loquacious and has said all there needs to be said.

Iran's president Mahmoud Ahmadinejad spoke in Iran before coming to the U.S. to speak at the UN. He spoke about the nations ability to punish aggressors with an air force flyby to punctuate his message. Unfortunately one of the planes in the flyby crashed and killed seven people on the ground. He repeated his claims the holocaust was a myth. He warned that Iran would cut off the hands of any aggressor. The UN speech did not come off any better.

On Friday President Obama, flanked by French President Sarkozy and British PM Gordon Brown, blasted Iran for running a secret nuclear program in addition to the one already in violation of UN resolutions. The secret nuclear plant being built is reportedly 100 miles from Tehran. It must not have been very secret in intelligence circles because scientists claim when completed it could produce enough enriched uranium to build a bomb a year. The sudden announcement stunned the G20 attendees and set the stage for a showdown with Iran later this year.

President Obama was set to begin engagement talks with Iran over the prior nuclear program later this year. A decision was expected before a December deadline for harsher UN sanctions. After the announcement Russian and Chinese officials were in rare agreement with the US, France and Britain that harsher steps may be necessary before year-end. Ahmadinejad immediately blasted Obama and demanded he take back the remarks saying the IAEA was in full knowledge of the secret site and Iran was in full compliance. The head of the IAEA disagreed. Personally I think it was perfect timing by Obama, Brown and Sarkozy and erased the stature increase Ahmadinejad got from speaking at the UN. This will be a very serious test for President Obama and the December deadline. Everyone knows Ahmadinejad is NOT going to negotiate openly and honestly and will attempt to delay and distract the talks as he has in the past. If the president allows him to succeed in avoiding any meaningful sanctions the president will lose face on the world stage.

Oil prices were especially volatile last week with a drop from $73.50 to $66. Crude futures expired on Tuesday and contributed to the volatility as well as an increase in inventories on Wednesday. The dollar index also rebounded sharply off a Wednesday low of 76.04 and a level not seen since August 13th 2008. The rebound in the dollar crushed the commodity stocks including oil prices. We are nearing the end of hurricane season without any major storms hitting the gulf and traders are closing their futures positions in favor of equities.

Natural gas futures hit $4 on Thr/Fri ahead of their expiration on Monday. This is a significant improvement over their $2.40 low on September 4th. The November contract is already trading near $5. The natural gas community is breathing a sigh of relief. Baker Hughes reported that 18 rigs went back to work with 7 in Oklahoma, 6 in LA, ND 2, CA, CO, NM and WY each gained one. Texas lost 6, Arkansas 2 and Alaska 2. This brings the total active rigs to 1017 with 710 exploring for natural gas.

The biggest natural gas ETF (UNG) with a market cap of $4 billion said it might have to shrink if the CFTC does not reach a decision on position limits soon. The CFTC has met twice to discuss the potential for position limits on passive index funds but no decision has been reached.

Jailed Texas Billionaire Sir Allen Stanford was in the hospital on Friday after being injured in a fight with another inmate. Reportedly the injuries are not life threatening and he will be moved to a private cell when he is returned to jail. Stanford is charged with bilking investors out of $7 billion, which he used to fund his previously lavish lifestyle. So Allen, how is that working for you now?

The Dow lost -155 points for the week or -1.6% but it is still on track to post a solid gain for the seventh consecutive month. It only has to remain above 9500 for three more days. The Dow has had a seven-month streak of gains only 15 times since 1928. On ten of those streaks it continued up for the eighth month. Overall this is the best quarter for the Dow since 1939. The +1223 point gain for the quarter so far is safe from all but the worst of declines over the next three days.

The markets have posted phenomenal gains since the March lows. The only thing fund managers have to do now is keep the markets from collapsing early next week and they can log some strong profits to advertise to their potential customers. This end of quarter window dressing was already underway according to some professional traders when commenting about the new highs on Wednesday. As a point of fact those fund managers don't even need to push the market higher. They only need to prop it up for three more days. Minor declines are ok and their quarterly returns will be locked in.

What happens after the quarter ends is a different story. As a fund manager who may be up 35% to 50% since March and only a few weeks away from locking in your yearly performance bonus the urge to be protective has got to be growing. Locking in returns after the quarter ends will probably be a serious trading strategy. They can do that with stop losses, protective puts, selling calls or just simply closing the positions. With the S&P at 1044 and 1100 an optimistic year-end target by most analysts there is little upside to risk and a lot of profit to protect.

The risk is missing out on the potential for a material rally over the five weeks. Most mutual fund year-ends are on Oct-31st. Is that really a risk? Do you really see a blowout rally in the cards over the next five weeks? I could easily see a decent rally in November but I am having trouble seeing fund managers chasing returns into late October. Instead they should be restructuring their portfolios. They have losers to sell and winners to sell to offset the losers. October is normally fund restructure month. If you were a fund manager today how would you restructure your fund? Don't forget this is a financial timing game as well. Funds need to reduce the bite from taxes.

Would you sell losers and throw more money at the winners? What if other funds were taking profits from those same winners? Chasing winners in October does not work for me. I doubt it will work for many people. I expect profit taking to be the name of the game in October.

Once we are past option expiration week in October I expect the market trend to turn higher. That does not mean we are going to have a correction over the next three weeks. That could happen if stops start getting hit but there are no signs today. More than likely we will see a range bound market with a slight downward tilt. I think the bloom is fading from the market and normal reality is about to appear.

That reality is a rebounding economy but not a vibrant economy. Earnings will improve in Q3 simply because it would be nearly impossible for them to be lower than Q3-2008. Employment in Q4 will be less bad. The outlook for 2010 will start improving dramatically as Q3 earnings guidance is released and that will energize buyers in Nov/Dec. Then we get to go through the year-end cycle again for those funds and private investors with a calendar year-end. January could see some strong volatility before improving earnings in 2010 sends us much higher.

What does that mean for next week? I think the final three days of September are a toss up. It simply depends on how active fund managers are going to be in holding up the market for quarter end. Starting on Thursday we could see a new round of weakness begin. The ISM report will cause a minor blip as will the Non-Farm Payrolls on Friday. However, I believe the main market motivation will be portfolio restructuring for the October year-end. I don't see that as pushing the markets higher. I could be completely off base and I will have plenty of egg on my face if we start making new highs. Been there, done that more than once. You can't write a market wrap 125 times a year and not have the market do the exact opposite once in a while.

I am not trying to predict the daily direction of the market over the next couple weeks but simply give readers an idea of the forces at work. For every analyst claiming there is a 10% correction in our future there are more analysts claiming a 2-4% decline is all we are going to get. I heard one person last week claiming that every 2-4% decline since March had been a vaccination against the market version of the swine flu. Every little setback had been cured with an aspirin and investors bought the dip and took the market back to new highs. Eventually that scenario is going to fail and October is the prime time for that to happen. I am leery after that perfect bull trap on Wednesday.

I warned a couple weeks ago to watch for a bull trap. I defined it as an intraday volume spike to new highs followed by a sharp drop below the prior days lows. On Wednesday the S&P opened at 1072, spiked to a new high at 1080 and then fell to close at 1060. The prior day's low was 1066. That began three days of declines. Wednesday and Thursday were decent volume of around 10.5 billion shares but Friday dropped off to only 8.5 billion. No surprise there despite declining volume 2:1 over advancing.

Another internal metric indicating caution was the new 52-week highs. They topped out at 638 on Sept-16th and despite a couple spikes over 500 since then they have declined to only 210 on Friday. That was the lowest level since before Labor Day. The leaders are no longer leading. The generals are being sold rather than chased.

The Dow only lost -155 points for the week but it closed -247 points off its high of 9917. That spike over 9900 was sold faster than cold beer at the Indy 500. Initial Dow support is now 9640 but it gets rather cloudy under that level. Every century mark has some support attached with 9300, 9100 and 9000 the critical levels. A 10% correction off the high close of 9841 is 8856. I doubt anyone is seriously considering that number as a possible target. You may get some analysts that are expecting a serious sell off but few would mention a target under 9300. Unfortunately the market is no respecter of persons and it exists to confound the most analysts possible at any point in time.

Dow Chart

The S&P rallied to touch 1080 on Wednesday but like the Dow and 9900 the sellers were waiting in droves to take profits. Initial support at 1060 was quickly broken and Friday's intraday low of 1041 came very close to the next support level at 1035. A break under 1035 targets 990-995 and 978. A break below 978 could get ugly very quickly. The round number support at 1000 is likely to attract attention despite being only a number and not really a support level. If the S&P drops under 1035, I suspect we will see it range bound for sometime.

SPX Chart

The Nasdaq slammed into overhead resistance at 2160 that dates back to March and July of 2008. This resistance (red line) has been a target for several weeks and that target was reached on Wednesday after two days of stalling at 2150. The next support level should be 2063 and the 50% retracement level of the March lows. However, it barely paid attention to that level on the move up. That is followed by downside support at 2050 and 2010. However, once below 2050 the Nasdaq could be in trouble. The Nasdaq spent over a month in a range between 1950-2015 and that range could be a magnet for an October low. Tech stocks saw limited selling on Friday but the Nasdaq was crushed by the -$14 drop in RIMM to push it below 2100. I would like to be positive about the Nasdaq hopes but the big cap techs are not leading. Without the big caps the Nasdaq is lost.

Nasdaq Chart

The Semiconductor Index is commonly referred to as the head of the snake or the leading indicator for the Nasdaq index. The SOX has declined to support at 320 and is valiantly trying to hold that level. Dragging the SOX down is Intel, which is resting on support at 19.25. If Intel fails the SOX will fail and the Nasdaq will follow.

Semiconductor Chart

The Dow transports came very close to resistance at 4065 with a touch of 4055 on the 17th. With that failed attempt the index started a decline that has taken it back to initial support at 3800. If the transports are declining the odds are good the Dow Industrials are not going to be rising. Next support on the transports is 3575.

Dow Transports Chart

If I had to net out everything I said above into a concise statement of market direction I would say the odds are good for a pullback over the next couple weeks. We could return to the range we saw in August and use that as a launching pad for an end of October rally.

I want to thank Todd and Linda for filling in for me last week. I was out of town all week dealing with a family medical emergency. Thanks to both for doing a great job.

Jim Brown

New Plays

Financials, Oil, and Drugs

by James Brown

Click here to email James Brown

Editor's Note:

I wanted to list a few more stocks I'm watching this week.

APH - Watch for support near $35.00.

ACGY - A dip back toward the $11.25 zone might be an entry point.

AVY - Shares might find support in the $32-30 zone.

CTL - This stock is showing relative strength. A breakout over the June high might be an entry point.

MCD - I'm watching for a move over the $58-59 zone as a potential bullish entry point.

USB - This banking stock is nearing its trendline of higher lows. Another bounce from $21.00 may be an entry point.


Cullen Frost Bankers - CFR - close: 50.42 change: +0.83 stop: 48.90

Why We Like It:
This regional bank stock appears to be breaking out higher from a week-long consolidation. There is clearly defined (short-term) support at $49.00. I'm suggesting bullish positions now. Our first target is $53.00.

Annotated chart:

Entry on September 26 at $50.42 
Change since picked:     + 0.00   			
Earnings Date          10/21/09 (unconfirmed)    
Average Daily Volume:       419 thousand
Listed on September 26, 2009    

Pioneer Natural Res. - PXD - cls: 34.62 change: -0.82 stop: 28.95

Why We Like It:
This is another oil stock. Big picture the stock looks very bullish but short-term shares are overbought and about to correct lower. I'm suggesting readers buy PXD on a dip at $30.50. If triggered our first target is $34.50. Our second target is $38.50. The Point & Figure chart is bullish with a $50 target.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 30.50
Change since picked:     + 0.00   			
Earnings Date          11/04/09 (unconfirmed)    
Average Daily Volume:       2.1 million 
Listed on September 26, 2009    


Eli Lilly & Co - LLY - close: 32.68 change: +0.28 stop: 33.15

Why We Like It:
LLY is a slow moving stock but the trend is clearly turning bearish. Shares are drifting lower under a pattern of lower highs against support at $32.00. I'm suggesting a trigger to open bearish positions at $31.85. If triggered our first target is $30.05. Our second target is $28.25 but that's being overly optimistic. We only have about three weeks before LLY reports earnings and we don't want to hold over the announcement.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER 31.85
Change since picked:     + 0.00   			
Earnings Date          10/20/09 (unconfirmed)    
Average Daily Volume:       6.6 million 
Listed on September 26, 2009    

In Play Updates and Reviews

Only One

by James Brown

Click here to email James Brown

We've only had one bullish candidate triggered on the market's recent pull back. We still have several ready to go if the dip continues. Please note our handful of new stops.

BULLISH Play Updates

Airgas Inc. - ARG - close: 47.40 change: -0.62 stop: 44.75

Our play on ARG is open. The stock has pulled back to what should be new resistance near $47.00 and hit our trigger at $47.25. If you're feeling cautious then wait for signs of a bounce first.

Our first target is $52.45. Our second target is $54.85. More aggressive traders could aim higher. The Point & Figure chart is bullish and predicting a $74 target.

Annotated chart:

Entry on September 25 at $47.25
Change since picked:     + 0.15   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:       1.5 million 
Listed on September 19, 2009    

BE Aerospace - BEAV - close: 19.06 change: -0.51 stop: 17.90

BEAV has found support near $19.00 on Friday. If the correction continues I would expect a dip toward $18.25. Wait for signs of a bounce before considering new bullish positions. I would offer one note of caution. The action last week looks like a bearish reversal on the weekly chart. Readers may want to scale back their position size to limit your risk. Our first target is $22.25.

Annotated chart:

Entry on September 12 at $19.19 
Change since picked:     - 0.13   			
Earnings Date          10/27/09 (unconfirmed)    
Average Daily Volume:       834 thousand
Listed on September 12, 2009    

China Mobile Ltd. - CHL - close: 50.10 chg: -0.29 stop: 47.90

The long-term trend for CHL is still up with the pattern of higher lows dating back to October 2008. Yet short-term most of the daily technical indicators are starting to roll over into a bearish posture. The stock has essentially traded sideways the last two and a half weeks. Readers may want to raise their stops but the only clear support is the $48.00 level from early September. I hesitate to launch new positions at this time.

Our first target is $54.00. Our second target is $58.00. Our time frame is several weeks. FYI: The P&F chart is still bullish with an $83 target.

Annotated chart:

Entry on    August 31 at $48.73 /gap down entry point
Change since picked:     + 1.37  			
Earnings Date          00/00/?? (unconfirmed)    
Average Daily Volume:       2.3 million 
Listed on  August 29, 2009    

Carpenter Tech. - CRS - close: 23.91 change: -0.58 stop: 21.45

I am repeating my earlier comments. More conservative traders will want to consider an early exit right now. I'm still expecting a dip back toward $22.50-22.00. The action over the last two weeks could be interpreted as a bearish double top pattern.

CRS has already hit our first target. Our secondary target is $27.40.

Annotated chart:

Entry on September 05 at $21.45 /gap higher entry
                             /originally listed at $20.92
Change since picked:     + 2.46
                             /1st target hit @ 24.90 (+16.0%)
Earnings Date          10/28/09 (unconfirmed)    
Average Daily Volume:       536 thousand
Listed on September 05, 2009    

Darden Restaurants - DRI - close: 35.60 chg: +0.16 stop: 34.49 *new*

DRI displayed a little bit of relative strength on Friday as shares continue to bounce from a test of support near $35.00. We have two days left. DRI reports earnings on Sept. 29th after the closing bell. We will plan to exit on Tuesday at the close unless we're stopped out first (or it hits our target). Please note our new stop at $34.49, which is a little under last week's low. I'm adjusting our target down to $38.00 should DRI surprise us and rally.

Annotated chart:

Entry on September 05 at $34.82 
                              /originally listed at $34.41
Change since picked:     + 0.78   			
Earnings Date          09/29/09 (confirmed)    
Average Daily Volume:       2.6 million 
Listed on September 05, 2009    

E M C Corp. - EMC - close: 17.16 change: +0.06 stop: 15.24

EMC is finally starting to correct. More aggressive traders might want to up their trigger towards $16.00. I'm keeping our entry point at $15.75 for now. Our target to exit is $18.00. We'll plan to exit ahead of the late October earnings report.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 15.75
Change since picked:     + 0.00   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:      19.6 million 
Listed on September 09, 2009    

Foster Wheeler - FWLT - close: 31.14 change: -1.09 stop: 29.95 *new*

We need to adjust our entry. FWLT fell to $30.80 on Friday. Our suggested entry point was $30.75. Close but not close enough. I'm suggesting readers buy FWLT now at $31.14. We'll up our stop loss to $29.95. More cautious traders may want to wait for a bounce first.

Our first target is $34.75. Our second target is $37.50. FYI: The P&F chart is very bullish with a target north of $50.

Annotated chart:

Picked on September 26 at $ 31.14 *adjusted entry point
Change since picked:       + 0.00
Earnings Date            11/04/09 (unconfirmed)
Average Daily Volume =        2.9 million  
Listed on September 24, 2009         

General Electric - GE - close: 16.37 change: -0.21 stop: 14.75

GE is holding up reasonably well. The last two weeks appear to have built a bearish double top pattern. I would still expect a pull back toward the $15.00 region, which should be stronger support now bolstered by its exponential 200-dma. Readers may want to consider new bullish positions on another bounce near $15.00.

GE has already hit our first target. We're currently aiming for $18.50. I do consider this an aggressive trade so we want to keep our positions small.

Annotated chart:

Entry on September 14 at $15.49 /gap higher entry
                             /originally listed at $15.35
Change since picked:     + 0.88
                            /1st target hit @ 17.25 (+11.3%)
Earnings Date          10/16/09 (confirmed)    
Average Daily Volume:        83 million 
Listed on September 14, 2009    

Starwood Hotels - HOT - close: 31.48 change: -0.61 stop: 28.95

HOT lost another 1.9% on Friday but didn't hit our trigger at $31.00. I suspect the stock will do so this week. More conservative traders may want to use a trigger to buy the stock closer to the $30.00 level.

If triggered our first target is $34.75. Our second target is $37.50. FYI: the Point & Figure chart is bullish with a $53 target. Plus HOT has above average short interest (more than 15% of the float) that can keep the rally going as bears cover their positions.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 31.00
Change since picked:     + 0.00   			
Earnings Date          10/27/09 (unconfirmed)    
Average Daily Volume:       3.4 million 
Listed on September 19, 2009    

IDEX Corp. - IEX - close: 27.30 change: -0.26 stop: 26.75

I've been suggesting more cautious traders exit early the last few days, especially now that IEX has broken under the $28.00 level. Now shares have closed under the 50-dma. I'm starting to think the $26.00 level with its 100-dma and exponential 200-dma is going to act like a magnet.

I will repeat that readers may want to exit early. I'm not suggesting new positions at this time. I will adjust our first target down from $29.85 to $29.65. Our second target is $32.00. The P&F chart is forecasting a $39 target.

Annotated chart:

Entry on    August 17 at $26.10 *triggered         
Change since picked:     + 1.20   			
Earnings Date          07/19/09 (confirmed)    
Average Daily Volume:       570 thousand
Listed on  July 25, 2009    

J.P.Morgan Chase - JPM - close: 43.65 change: -0.72 stop: 41.90

After hitting new 2009 highs two weeks ago the major banking sector indices have stalled. JPM managed to hit new highs just last Tuesday but shares quickly reversed. The MACD indicator has produced a bearish divergence with price on the daily chart. I would wait for a bounce back above $44.25 before considering new positions. More conservative traders may want to ratchet up their stop toward the $42.50 level.

Our first target is $47.40. Our second target is $49.80. The plan was to use small position sizes (1/2 to 1/4 normal size). We'll exit ahead of October earnings if JPM last that long.

Annotated chart:

Entry on    August 21 at $43.50 *triggered (1/2 to 1/4 normal size)
Change since picked:     + 0.15   			
Earnings Date          10/14/09 (confirmed)    
Average Daily Volume:        55 million 
Listed on  July 18, 2009    

Kirby Corp. - KEX - close: 36.31 change: -0.50 stop: 35.85

We've been expecting the dip toward $36.00. Now shares are testing technical support at their 50-dma. Wait for a bounce before considering new bullish positions and only use small positions. Our first target to take profits is at $39.95. Our second and final target is $42.40. FYI: The P&F chart is bullish with a $57 target.

Annotated chart:

Entry on September 08 at $37.70 /triggered/gap higher entry
Change since picked:     - 1.39   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       310 thousand
Listed on September 05, 2009    

Koppers Holdings - KOP - close: 30.70 change: -0.20 stop: 27.90 *new*

KOP just marked its sixth down day in a row. The profit taking has been rather orderly with volume light on the pull back. The plan is to buy KOP at $30.10 but I will repeat that the $29.00 level should be stronger support and readers may want to wait for a dip closer to $29.00. I'm adjusting the stop loss to $27.90.

Our first target is $34.50. Our second target is $37.50 but it could take several weeks to get there. FYI: The P&F chart has a new triple-top breakout buy signal.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 30.10
Change since picked:     + 0.00   			
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       159 thousand
Listed on September 16, 2009    

Microsoft - MSFT - close: 25.55 change: -0.39 stop: 23.45 *new*

MSFT climbed to new 2009 highs last week. Shares now look a little bit overbought with a three-week rally under its belt. The $24.50-24.00 level should offer some short-term support. I am adjusting our stop loss to $23.45. I'm not suggesting new bullish positions at this time. Our target is $27.75.

Annotated chart:

Entry on      July 27 at $23.00
Change since picked:     + 2.55   			
Earnings Date          07/23/09 (confirmed)    
Average Daily Volume:        58 million 
Listed on  July 23, 2009    

NII Holdings - NIHD - close: 29.74 change: -0.02 stop: 24.90

The two-cent decline in NIHD on Friday seems like relative strength given the market's decline. I still expect a correction and we'll wait for the pull back. I'm suggesting a trigger at $26.75 with a stop loss at $24.90. If triggered our first target is $31.00. FYI: The P&F chart is very bullish with a $57 target.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 26.75
Change since picked:     + 0.00   			
Earnings Date          10/22/09 (unconfirmed)    
Average Daily Volume:       3.4 million 
Listed on September 23, 2009    

Pride Intl. Inc. - PDE - close: 29.34 change: -0.16 stop: 26.40

Oil and oil service stocks still look vulnerable. We're keeping our trigger to buy a dip at $27.65.

If triggered our first target is $30.45. Our second target is $33.45. We'll plan to exit ahead of the late October earnings report.

Annotated chart:

Entry on September xx at $xx.xx <-- see TRIGGER @ 27.65
Change since picked:     + 0.00   			
Earnings Date          10/29/09 (unconfirmed)    
Average Daily Volume:       3.7 million 
Listed on September 12, 2009    

Playboy Ent. - PLA - close: 2.85 change: -0.05 stop: 2.59

PLA gave up another 1.7% but some of the short-term technicals are suggesting the next move will be a bounce. Readers could buy a bounce from here but consider adjusting your stop loss higher!

Our second target remains the $3.95 level. FYI: The Point & Figure chart is bullish with a long-term $7.50 target.

Annotated chart:

Entry on September 01 at $ 2.65
Change since picked:     + 0.18 
                            /take profits 09/16/09 (+17.7%)
Earnings Date          11/05/09 (unconfirmed)    
Average Daily Volume:       370 thousand
Listed on  August 29, 2009    

Rockwell Automation - ROK - close: 42.24 change: -0.50 stop: 39.95

We got the pull back to $42.00 as expected. This looks like an entry point but with the major indices still sliding readers may want to wait for a bounce first. More cautious traders will want to consider a tighter stop loss. Our first target is the $49.00 mark. Our time frame is several weeks. FYI: The Point & Figure chart is bullish with a $61 target.

Annotated chart:

Entry on September 10 at $43.71 /gap higher entry
                           /originally listed at $43.15
Change since picked:     - 1.47   			
Earnings Date          11/10/09 (unconfirmed)    
Average Daily Volume:       1.4 million 
Listed on September 10, 2009    

Schlumberger - SLB - close: 59.48 change: +0.32 stop: 56.95

SLB managed a 0.5% bounce on Friday but I would still expect a dip closer to $58.00 before shares move much higher. The stock has already hit our first target. Our second target is $67.50.

Annotated chart:

Entry on September 05 at $56.93 /gap higher entry
                             /originally listed at $55.87
Change since picked:     + 2.55
                             /1st target hit @ 62.50 (+9.7%)
Earnings Date          10/23/09 (unconfirmed)    
Average Daily Volume:       8.7 million 
Listed on September 05, 2009    

Market Vectors: Steel - SLX - close: 52.17 change: -0.49 stop: 47.49

The SLX is getting closer. Our trigger to buy this ETF is at $50.25. We'll use a stop loss at $47.49 just in case it tries to fill the gap from September 8th. If triggered our first target is $54.75. Our second target is $59.50. Our time frame is several weeks.

Annotated chart:

Entry on September xx at $xx.xx <-- TRIGGER @ 50.25
Change since picked:     + 0.00   			
Earnings Date          00/00/00 
Average Daily Volume:       309 thousand
Listed on September 19, 2009    

TEVA Pharmaceuticals - TEVA - close: 50.97 change: +0.22 stop: 49.75

Use caution! I have to warn readers that the action on Friday looks like a new lower high. If you step back TEVA has been trading sideways in the 50.00-53.00 zone for weeks. Yet short-term the pattern of lower highs suggests the next move will be a breakdown lower.

Readers may want to start scaling out of positions now to 1/2 or 1/4 your normal size. We can start adding more back in on a breakout over $53.00. Our first target is $54.75. Our second target is $59.50. Our original time frame was eight to ten weeks.

Annotated chart:

Entry on    August 17 at $50.50 *triggered                
Change since picked:     + 0.47   			
Earnings Date          11/03/09 (unconfirmed)    
Average Daily Volume:       5.3 million 
Listed on  August 05, 2009    

Ultra(Long) Financials - UYG - close: 5.67 change: -0.09 stop: 5.40

This is it. UYG is testing the $5.60-5.50 zone. Look for a bounce from here as a new entry point. UYG has already hit our first target. Our second target is $7.00.

This can be a very volatile security. It's not for the faint of heart.

Annotated chart:

Entry on September 03 at $ 5.29 
Change since picked:     + 0.38
                             /1st target hit @ 6.00 (+13.4%)
Earnings Date          00/00/00 
Average Daily Volume:      47.8 million 
Listed on September 03, 2009    

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