Option Investor

Daily Newsletter, Tuesday, 8/17/2010

Table of Contents

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

Market Wrap

Surprise Data Boosts Stocks

by Jim Brown

Click here to email Jim Brown

Earnings and economics combined to create a serious short squeeze at the open but sellers came back at the close.

Market Stats Table

Earnings from major retailers including Home Depot and Wal-Mart combined with some surprising economics to send a few shorts running for cover at the open. The short squeeze did not last and the S&P failed exactly at the 1100 resistance level.

Starting with the economics the Producer Price Index rose +0.2% and inline with consensus estimates. This gain came after three months of consecutive declines totaling -0.9%. Core prices rose +0.3% and the largest increase since January. However, auto and truck prices accounted for the majority of the increase. Intermediate prices declined -0.4% amid falling prices for commodities and metals. This was a marginally bullish report simply because the string of declines was broken.

Industrial production for July rose +1.0% in July and that was twice the expected rate. Automobile output was the driving force behind the numbers. Manufacturing output was up a +4.9% on an annualized rate compared to +8.4% average for Q2. This was a positive report except for the capacity utilization level, which remains at a very low 72.2 percent. This is better than the 65.1% low last summer but well below the 30-year average at 78.3% and the 81% rate before the recession.

The feedback from the Industrial Production report suggests manufacturing growth will continue to slow but remain growth at a solid pace. It may take several years for this slow growth to support the economy and improve employment but it is far better than the economic alternative.

Industrial Production

In the housing sector New Residential Construction for July actually rose slightly to an annualized rate of 546,000 units from a downwardly revised 537,000 units in June. That was a +1.7% increase but there was some negativity in the report. Single family starts declined by -4.2% so the majority of that headline gain came from apartment houses and multi-family home construction. Completions plunged from 874,000 to 587,000 for a -32.8% drop in July. Single-family completions fell -28%.

While starts rose slightly the number of new permits declined by -1.2% for single family and -8% for multi-family homes. Total permits fell to 565,000 for a decline of -3.1%. This pace of permits will not offset the current inventory levels, which are at 40-year lows. This suggests once home buying begins again there will be a monster boom in building and potentially a shortage of available homes for a couple years. This will spike home prices. Analysts do not expect the housing sector to pickup until 2012 although there should be a temporary spike in the spring of 2011. The high unemployment rate is going to keep most buyers out of the market.

There are no material economic reports on the calendar for Wednesday.

Helping push the markets higher at the open were earnings reports from two Dow components. Home Depot (HD) reported earnings that beat the street by a penny at 72-cents. Revenue rose +2% to $19.41 billion but that was less than analysts were expecting at $19.59 billion. HD gained +4% on the news but I am unsure why. Earnings rose on cost cutting and revenue was less than expected despite a small incremental increase. HD also lowered its outlook for the rest of the year. High dollar sales were down -5% while tickets under $50 rose +2.4%. By all rights they should have tanked.

The positive metric was the +1.7% growth in same store sales. They also projected a continued gain in revenue for Q3 despite a drop in estimates from +3.5% to +2.6%. They raised their earnings estimates per share to $1.90 from $1.88. While that sounds like improved guidance they said it was because of share buybacks and fewer shares outstanding.

I think it was a better or "less worse" report than traders expected and that provided the short squeeze momentum. Expectations were already pretty low and shorts were probably thinking the stock would break down on an earnings miss. When they did not miss the shorts had to cover and that boosted the Dow.

Home Depot Chart

Wal-Mart, another Dow component, posted earnings of 97-cents that beat the street by a penny but revenue was light at $103.73 billion compared to estimates of $105.33 billion. The profit beat came on cost cuts and international growth. Same store sales fell -1.8%. Wal-Mart said steep price cuts did not boost sales as hoped. The company warned investors to expect a decline in sales of up to 2% in Q3. You would have expected the stock to tank but it gained +2% on the news.

Despite the weak quarter the company raised full year profit estimates by a nickel to an average of $4 per share from prior median predictions of $3.95 per share. International sales rose +11% because of strength in Mexico, Brazil and China. Analysts said Wal-Mart has been hurt in the U.S. because of the high unemployment in their core customer base. Those without jobs have moved down to the dollar stores while those with jobs have moved up to more fashionable merchandise in stores like Target. Wal-Mart removed hundreds of items from its stores over the last two years in an effort to streamline their offerings. In retrospect that appears to have left a void for shoppers with a little extra cash to spend and they are spending it at Target. Target will release earnings on Wednesday morning.

I also believe Wal-Mart rallied on the "less bad" earnings rather than excitement that they beat the street by a penny on cost cutting.

Wal-Mart Chart

TJ Max (TJX) reported higher profits in Q2 on a +6.8% rise in sales. Same store sales rose +3%. However, TJX said sales in the second half of the year to be flat to down by -1%. They revised Q3 estimates to a range of 86-91 cents and analysts were expecting 89-cents. Same store sales are expected to be flat to +2% in Q3. It was another lackluster retail earnings report but the stock gained +2% at the open.

Forty-five days after the end of the quarter we get to see the SEC 13F filings that show what various large investors and hedge funds bought and sold last quarter. The biggest move appears to be into gold. Nearly every major hedge fund increased its investments into gold and gold miners.

George Soros still has 13% of his assets in gold. He owns 5.4 million shares of the GLD ETF even after selling 341,250 shares in Q2. He also owns small positions in the GDX and GDXJ. He did sell 5.8 million shares of NovaGold (NG).

John Paulson is the largest single holder of the GLD at 31.5 million shares. He also owns major positions in seven mining and producing stocks. Paulson also started a separate gold hedge fund in which he invested $250 million in stocks and physical gold. He is betting serious money that gold prices are going higher. Just his investment in the GLD is worth $3.78 billion.

Major banks and investment companies including MS, GS, BAC, JPM and many others also increased their investments in the gold ETFs and the gold miners over the quarter. Apparently nearly all the major players are expecting gold to continue higher.

The GLD ETF is now the sixth largest holder of gold worldwide. The gold trust owns 41,622,808 ounces of gold worth $51 billion as of today's close. Some people don't realize that the tax rate on GLD shares is higher than normal equities. Because the government considers gold a collectible the capital gains rate on shares held for more than 12 months is 28%. What you don't know can and sometimes will bite you.

Chart of GLD - Weekly

The biggest news this morning was an unsolicited bid for Potash Corp (POT) of $130 per share by BHP Billiton. This has been rumored in the market for sometime but it was still a surprise today. POT closed at $111 on Monday and shares shot up to close at $143 today, a +28% gain, when it rejected the BHP deal as grossly undervalued.

Potash immediately adopted a shareholder rights plan that would ensure the company has sufficient time in the event of another formal offer to explore and develop alternatives to maximize and enhance shareholder value. The Potash board also approved the issuance of one "rights share" for each outstanding share of the company's common stock on August 16th. Should anyone acquire more than 20% of POT shares the rights shares would become active upon board approval and allow the holder to purchase a common share of POT stock at a substantial discount to the then current price. The board would determine when or if the rights shares became active. This plan allows a "permitted purchase" by anyone with board and shareholder approval but functions as a poison pill should anyone attempt a hostile takeover.

Since Potash was so quick to call the bid "grossly inadequate" and implement the shareholder rights plan I suspect there will not be a quick deal. Several analysts believe BHP will eventually acquire a fertilizer company but it won't be POT unless they bump their offer significantly. POT has traded as high as $240 in the last three years so there is a lot of share price memory by shareholders. They are not likely to accept a low offer any time soon.

The world is rapidly approaching seven billion people in 2012 and we all need to eat. According to estimates the world will reach eight million by 2024. That extra billion people will require every acre of farmland to produce at its highest capacity and that means heavily fertilized. The excess inventory of potash deposits from the 1980s and 1990s has been used up and there is nothing but higher prices ahead and that is why global materials producer BHP is so hot to acquire a producer with deposits. BHP is a big supplier of commodities to Asia and Asia is going to be consuming fertilizer faster than Americans eat French fries.

There is a new stimulus program coming to a mortgage near you. It has been rumored for weeks but Pimco's Bill Gross was in Washington pushing it hard today. The government held a meeting of VIPs over what to do with Fannie and Freddie. There is a big push to just nationalize the mortgage business since few public banks are doing mortgages outside of Fannie and Freddie. The banks originate the mortgages but then sell them to Fannie and Freddie. If they were completely nationalized from their quasi government owned state today then the government could do deals to keep rates low and keep Americans buying houses. There is also an opposite push to break them up into 10 new companies and privatize them completely. I doubt there will be a decision on this in the near future because the economy depends on them remaining open for business.

The new stimulus program would involve converting ALL existing NON DELIQUENT loans to 30-year fixed rate loans at 4%. Up until now only the delinquent borrowers have been given deals like principle reductions and bargain interest rates to keep them out of foreclosure. Now there is a push to reward non-delinquent borrowers as well. Since Fannie and Freddie already own or guarantee 90% of the existing mortgages in the U.S. they already have the debt on their books. Rewriting the loans would not increase their debt but extend it at lower payments. This would prevent future foreclosures since the payments could drop by as much as a third. The average interest rate on a current loan today is around 6.75%. Dropping it to 4% would be a major cut in house payments.

When asked about the borrowers with loans at private banks like BAC, JPM, etc, Gross said basically, life is not fair. Those with loans at Fannie and Freddie get a bargain and those with loans elsewhere get nothing. It is the luck of the draw. Gross is pushing this plan because it would provide quick and easy cash to homeowners through the 30% drop in their house payments. This would immediately pump a substantial amount of money into the economy every month and speed the recovery.

Gross did not say it but it would also guarantee a reelection of the democratic administration. If mortgage payments on $5.5 trillion in mortgages were suddenly cut by 30% there would be some seriously grateful voters. Since Fannie and Freddie don't do many jumbo loans it means the beneficiaries of the plan would most likely be the working class rather than business owners and investors. This is far from a done deal but the chatter is heating up quickly. You can bet if the administration decides to take this drastic step they are going to want to announce it before the November elections.

JP Morgan said investors are buying treasuries at a rate that they have not seen in years. In a recent survey 27% of investors now own treasuries compared to 17% in 2009. It is not just treasuries but corporate bonds as well. Last week was the highest issuance for corporate bonds in history. This year is shaping up as the largest year on record. We are currently only $54 billion away from exceeding the entire year of 2006 and the highest level in recent history. With four months to go in 2010 we are definitely going to break the record. The extremely low interest rates are prompting corporations to sell paper even when they don't need the money. For instance two companies with massive cash hoards, Cisco and Apple both sold debt recently. Bond funds have seen record inflows of cash totaling $186 billion year to date.

General Motors had been expected to file for its IPO on Monday but the filing was delayed until today. When it did not happen this morning they said "after the close." It is well after the close and the IPO was a no show again today. GM claims it has completed the paperwork and satisfied the SEC with its timing but is now waiting on final board approval. They are expected to try and raise between $15 and $20 billion. A group of ten banks that provided a $5 billion credit line have agreed to serve as underwriters for the IPO. The U.S. government owns 61% of GM and the "Government Motors" nickname has stuck with them like a scarlet A on GM's forehead. Did I mention the IPO was being rushed to make sure it happens before election day and provide another campaign plank?

There are two major earnings reports due out on Thursday. Those would be Hewlett Packard and Dell. Both have preannounced so there is little in the way of excitement but the HPQ earnings call could provide some fireworks surrounding the resignation of Hurd.

In market action the opening short squeeze powered the S&P to exactly 1100 and prior resistance. This is where the squeeze finally ran out of traction and sellers began piling on again. The market was due for a rebound. It was severely oversold and Monday's opening dip to 1070 completed a -60 point drop since August 9th. The spring was coiled too tight to press any lower without a release of energy.

I would not read too much into this rebound unless it continues tomorrow and moves over the 1100 level. That would change the character of the rebound from a short squeeze that lost traction to a squeeze that triggered some hope. Getting over 1100 is not the answer to all questions but it is the first step in drawing the bulls back into the market. Support is now 1075-1080.

This is an option expiration week and SPX 1100 would be an ideal place for the market makers to pin the index for expiration. As such it has some magnetic properties this week.

S&P-500 Chart

The Dow rallied on the earnings from Dow components Wal-Mart and Home Depot even though those earnings were less than exciting. They were simply "less bad" than expected. The slightly better than expected economic news helped power DD, JNJ, CAT, MCD and BA to gains of more than a buck and keep the Dow moving higher early in the morning.

The rebound did not make it to the resistance at 10500 from the 100-day average and the rally gave back -80 points before the close. That left a +104 point gain after five days of declines. I would have expected more if the buying were genuine. Support is now 10250-10300 and resistance remains 10500.

Dow Chart

The Nasdaq rebounded exactly to resistance at 2225 and failed. The rebound came on short covering and gains in Google and Apple and both rolled over in the afternoon. Every Nasdaq component chart I saw showed the exact same pattern. It was clearly index and ETF sellers covering their shorts and new sellers coming back at the close.

The Semiconductor stocks rallied +1% but failed to show the same strength as the Nasdaq. This suggests they will continue leading the Nasdaq lower in the days to come. Resistance on the Nasdaq is 2225 and support 2175.

Nasdaq Chart

In summary I believe this was an oversold short squeeze and there is nothing to continue to power stocks higher. However, this is option expiration week and pushing the S&P back to 1100 may allow the most options to expire worthless.

Volume was slightly better at 6.8 billion shares but most of that increase was probable stop losses being hit on the short positions. The key this week will be Wednesday's market action. If the S&P can move over 1100 then I would have more confidence but until that happens nothing has changed in the market from last week. One day does not make a trend. Why buy?

Jim Brown

New Plays

Unusual Option Activity

by Scott Hawes

Click here to email Scott Hawes
Editor's Note:
Good evening. I do not have new plays to release tonight but will be back with one or two tomorrow. One stock I am considering a long position in is Hologic, Inc (HOLX). The stock has retraced some of its recent gains and is bouncing on its 20-day and 50-day SMA's. It could run another 5% to 10% higher from current levels. There was also unusual option activity in the September 15/16 strike prices.

Our model portfolio performed extremely well today, especially IPI which was closed for a +11% gain and OII which gained +4.7% today. If the market continues bouncing in the coming days I would be looking to book some profits and/or tighten stops on long positions. Selling a portion of your positions and tightening stops to protect against a reversal in the market is a good strategy. Please email me with any questions/comments.

In Play Updates and Reviews

Big Winner Closed

by Scott Hawes

Click here to email Scott Hawes
Current Portfolio:

BULLISH Play Updates

Athenahealth, Inc. - ATHN - close 31.13 change +1.67 stop 26.90 *NEW*

Target(s): 31.50 (hit), 32.95, 34.00
Key Support/Resistance Areas: 34.25, 31.75, 30.00, 28.25, 25.75
Current Gain/Loss: +2.91%
Time Frame: 1 to 2 weeks
New Positions: Yes, preferably on weakness

8/17: ATHN tacked on more gains after yesterday's breakout. Our first target of $31.50 has been hit and I've added a 2nd target of $32.95. I'm going to raise the stop to $26.90 which is below all of the upward trend lines and the 20-day SMA. My comments from below remain valid.

8/16: ATHN had a huge day closing +5.67% on the day. The stock was having a fabulous day and this afternoon the company received an upgrade which helped add to the gains. Our lower target to enter positions was missed by 37 cents so positions were entered on strength at $30.25. ATHN is finding a little resistance at $31.50 which is just below the July 2009 lows. There could be a pullback here which will provide a second chance entry point. If we break above today's highs ATHN has some clear air up towards our more aggressive targets. I've added $32.95 (adjusted on 8/17) as our second target.

8/14: ATHN is in the business of automating health care records and billing. I like ATHN as a long defensive play that should thrive as healthcare regulation takes form. Technically ATHN had a huge gap down after they missed earnings estimates in late April. Since then the stock has formed a nice cup and handle pattern which signals the "changing of the guard" from sellers to buyers. The company reported earnings in late July that beat estimates and the stock is now gaining momentum. On Friday, ATHN closed right on a downward trend line from January but I think it is only a matter of time before this is broken, which is typical of a cup and handle formation. Ideally, I suggest traders initiate long positions on any weakness, but a break out is another strategy. Let's use $28.50 as a trigger on weakness and $30.25 as a trigger on strength. ATHN has a big gap to fill all the way up near $34.00 which is our most aggressive target. Our near term target is $31.50. Our initial stop is $25.50 which is below its upward trend line and the rising 20-day SMA.

Current Position: Long ATHN stock, entry was at $30.25

Options Traders: Long September $31.00 CALL

Entry on August 16, 2010
Earnings 10/28/2010 (unconfirmed)
Average Daily Volume: 767,000
Listed on August 14, 2010

Newmont Mining Corp - NEM - close 58.38 change +0.67 stop 52.20

Target(s): 59.30, 60.50, 61.50
Key Support/Resistance Areas: 62.00, 59.50, 58.16, 55.00, 54.30, 52.30
Current Gain/Loss: +2.87%
Time Frame: Several weeks
New Positions: No

8/17: NEM closed just above its 50-day SMA and is about $1 away from 1st target. A trip up to this level could happen fast and I suggest readers be quick to protect profits or simply exit positions if this level is reached. My comments from below remain valid.

8/16: NEM gained +1.75% and is consolidating above its 100-day SMA and below its 50-day SMA's. We need a break above Thursday's high and the 50-day SMA to get NEM moving towards our targets. I am expecting strength in the broader market which should help our cause.

8/14: We are in NEM at $56.75 per last night's updates. The stock is consolidating below its 50-day SMA and any broader market strength or strength in gold should catapult NEM up towards our targets.

Current Position: Long NEM stock, entry was at $56.75

Entry on August 13, 2010
Earnings 11/3/2010 (unconfirmed)
Average Daily Volume: 7.7 million
Listed on August 10, 2010

Oceaneering International - OII - close 51.98 change +2.33 stop 46.60

Target(s): 53.00, 54.40, 57.00
Key Support/Resistance Areas: 57.50, 54.50, 53.40, 49.00
Current Gain/Loss: +5.65%
Time Frame: 1 to 2 weeks
New Positions: Yes, preferably on weakness

Why We Like It:
8/17: OII surged +4.69% higher today and we have gained +5.65% in the position. The stock is approaching our first target of $53.00 which is also just below the 100-day SMA and recent swing high. This is an area to consider taking profits, or at least protecting them.

8/16: Long positions in OII were initiated at the open at $49.20. The stock finished the day strong closing +0.34% higher. We need OII to break above its 20-day SMA at $50.19 and the stock should re-test its recent swing high just above our first target of $53.00.

8/14: With the recent oil leak in the Gulf of Mexico the oil services industry is being turned upside down with regulations and drilling moratoriums. I think OII will benefit because the new rules in the gulf point to more underwater robotic contracts. And it just so happens that OII recently raised their guidance because of it. This past week's dip has come right into an upward trend line and a prior resistance level which should now act as support. This is a buying opportunity in OII. I suggest readers enter long positions now. Our stop is $46.60 which is below OII's recent swing low and its rising 50-day SMA. We have three realistic near term targets that will produce a winning nice trade if they are reached.

Current Position: Long OII stock, entry was at $49.20

Options Traders: Long September $50.00 CALL

Entry on August 16, 2010
Earnings 10/28/10 (unconfirmed)
Average Daily Volume: 807,000
Listed on August 14, 2010

BEARISH Play Updates

Chesapeake Energy - CHK - close 21.32 change +0.39 stop 22.85

Target(s): 19.70, 18.80, 18.05
Key Support/Resistance Areas: 22.50, 21.60, 20.30, 19.65, 18.75, 18.00
Current Gain/Loss: -2.45% Time Frame: 1 to 2 weeks
New Positions: Yes

8/17: CHK rallied higher with the market today and closed an unfilled gap from 8/12. The remains below its moving averages and trend lines which should keep bounces in check. I suggest exhibiting patience with this trade while the broader market completes this bounce.

8/16: We are short CHK as of the open at $20.81. CHK looks vulnerable but the stock could bounce with the market so we may need to exhibit some patience. CHK has trend lines, moving averages, and resistance levels overhead to keep bounces in check. My comments from below have not changed.

8/14: CHK is a good company but it is facing significant headwinds. There is increasing pressure to ban drilling in the Marcellus shale. Pennsylvania is considering a year long moratorium so they can study fracturing problems and its impact on drinking water. If the process is halted in the Marcellus shale then it will probably be halted in the Haynesville and Barnett shale plays, which are the primary assets of CHK. Technically, CHK looks like it is about ready to lose it. The stock is trading in a wide downward channel and on Friday it closed below an upward trend line. It would be nice to short CHK on a bounce but I'm not sure it will happen. I suggest we initiate short positions now. Our most aggressive target right now is to test the July 2009 lows near $18.05. Our stop is $22.85 which is above the recent swing high and several moving averages.

Current Position: Short CHK stock, entry was at $20.81

Options Traders: Long October $20.00 PUTS

Entry on August 16, 2010
Earnings: 11/2/2010 (unconfirmed)
Average Daily Volume: 10 million
Listed on August 14, 2010

Con-way Inc. - CNW - close: 27.54 change: +0.82 stop: 34.05

Target(s): 28.75, 28.25, 25.50
Key Support/Resistance Areas: 25.00, 28.00, 32.00
Current Gain/Loss: N/A
Time Frame: Several Weeks
New Positions: Yes, trigger 29.20

8/17: CNW gained +3% today but the stock finished the day near its lows. Let's move the trigger down $29.20 to enter short positions. I'll adjust the stop once we are in the trade.

8/16: CNW can't seem to catch a bid. I suggest we remain patient here and see if CNW bounces with the market up to our trigger to enter short positions at $29.80. My comments from below have not changed.

8/14: The sellers are obviously overwhelming the buyers in CNW and the stock has run away from us, closing -4.30% on Friday. I do not suggest chasing it down here. I am going to leave this play open and see if CNW manages to bounce back up to fill some of these recent gaps. I'm going to lower the trigger to $29.80. If anyone caught it short it has been a good play, but unfortunately our trigger wasn't hit.

Suggested Position: Short CNW stock if it trades to $29.80

Entry on August xx
Earnings Date 11/03/10 (unconfirmed)
Average Daily Volume: 1.0 million
Listed on August 7, 2010

SPDR Retail ETF - XRT - close 36.97 change +0.09 stop 39.28

Target(s): 36.00, 35.25, 34.65
Key Support/Resistance Areas: 39.00, 38.00, 37.60, 36.50, 35.80, 35.00
Current Gain/Loss: +0.21%
Time Frame: 1 to 2 weeks
New Positions: Yes

8/17: We are short XRT as of the open today at $37.52. Retailers caught a bid today when Wal-Mart and Home Depot beat earnings estimates, while others posted mixed results. However, WMT and HD narrowed their guidance and I believe the bounce in XRT will be short lived and is a good short at these levels. If the broader market remains strong we may need to be patient, but when the bounce is over XRT should quickly head towards our targets.

8/16: The retail sector is facing many headwinds from a weak consumer and many analysts are already pointing to a dismal back to school season. In addition, retailers are going to have offer deeper discounts than they are currently just to get consumers into stores to buy things. This will negatively affect earnings and if retailers begin to warn investors by lowering guidance XRT will suffer. I've chosen the ETF as opposed to individual names to filter out some of the earnings noise being reported this week by many major retailers. I do expect a bounce in the overall market in the coming days and suggest readers initiate short positions on any strength. We'll use $37.35 as a trigger to enter short positions in XRT. Our stop will be $39.28 which is above two downtrend lines and the 20, 50, and 200-day SMA's. If triggered, our first two targets are -3.5% and -5.5% away, respectively.

Current Position: Short XRT stock, entry was at $37.52

Options Traders: Long September $36.00 PUTS

Entry on August 17, 2010
Earnings: 11/2/2010 (unconfirmed)
Average Daily Volume: 12 million
Listed on August 16, 2010


Intrepid Potash - IPI - close 25.30 change +1.34 stop 22.25

Target(s): 25.35 (hit), 26.30 (hit), 27.20
Key Support/Resistance Areas: 27.40, 26.50, 24.45, 22.65
Final Gain/Loss: +11.02%
Time Frame: 1 to 2 weeks
New Positions: Closed

8/17: IPI gapped higher near our second target of $26.30 so we are flat the position for a +11% gain. The fertilizer names (particularly potash producers) caught a bid after BHP Billiton offered to buy Potash Corp (POT). The news caused other potash companies to surge on the news as well. We caught a break on the gap higher but this was one of the very reasons we were in the trade, i.e. the agriculture market heating up and gaining momentum. When you get a gap like this I suggest fiercely protecting profits or simply exit to book gains. We ay look to re-enter this trade on any further pullbacks.

8/16: IPI gained +1.74% today and closed above its 20-day SMA. We need the stock to break above $24.45 which Thursday's high and 100-day SMA. This should get things moving towards our targets and produce a winning a trade.

8/14: We caught a break with IPI as it gapped lower on Friday enabling us to get a good fill. The stock traded within yesterday's range so there is not much to report. I'm looking for this stock to bounce this week and suggest tightening stops on the way up to protect profits.

8/12: The agriculture market is heating up, literally. Heat waves and fires are causing a shortage of agriculture commodities and it is causing prices to spike. Farmers want and need to grow more crops and they need fertilizers to do it. So we are back with a play in IPI which was a dropped play a few weeks ago because we did not get triggered. Technically IPI has retraced about 50% of the +35% spike off of its 52 week low that was printed on 7/1. Today the stock bounced hard just above its 50-day SMA, gaining +4% and printing a bullish engulfing candlestick in the process. This appears to be the higher low that will lead to new highs. I suggest we use one of two triggers to enter positions which should happen tomorrow. If IPI trades to $24.42 (above today's high) or on any weakness to $23.90. The stock is up 23 cents in the after hours so we may get filled at the higher price. Regardless, the momentum is building and I think IPI will re-test its recent highs or print new highs. I've offered a near term target for readers looking for a quicker exit but I'm ultimately looking for the stock to head up to $26 to $27.

Closed Position: Long IPI stock at $26.30, entry was at $23.69

Annotated chart:

Entry on August 13, 2010
Earnings 11/4/2010 (unconfirmed)
Average Daily Volume: 937,000
Listed on August 12, 2010