Option Investor

Daily Newsletter, Wednesday, 7/13/2011

Table of Contents

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

Market Wrap

The Bernanke Bounce Fizzles

by Keene Little

Click here to email Keene Little
Market Stats

Late yesterday the market sold off and SPX closed marginally below its 50-dma, leaving a sell signal. This morning the market gapped back up, proving once again this market makes holding overnight positions riskier than normal. Since the beginning of June we've had five 90% volume days -- 4 to the downside and 1 to the upside. On May 31st SPX closed near 1345 and on June 1st it closed near 1315. Since then we've seen a low of 1258 and a high of 1356 and today it closed near 1318, essentially the June 1st low. If you're feeling a little whipsawed by this market and having trouble sticking with a trade, you're by no means alone.

Equity futures had rallied during the overnight session, giving us a gap-up open to start the day. It floundered for a bit and then shot higher on assurances from Bernanke that they "could" act, and that they might, maybe, possibly, will consider, if required, another round of quantitative easing (QE3). Traders rejoiced (or just shorts covered), the dollar tanked and the metals rocketed higher, along with other commodities, at the mere thought of more inflation caused by the Fed's actions. But considering the severe backlash against QE2 and the inflation it caused, there's no support (other than from Wall Street which is becoming less and less respected by Main Street) for another round of QE. Traders ignored Bernanke's statement that "the economy may also warrant less accommodation." The Fed "could" become more accommodative with untested methods (don't ask for details since they're not known) or they "could" raise rates when the time is right. The market has selective hearing right now and they went for door #3 (QE).

In the past two days there have been rumors (I wonder who starts these rumors) that the ECB (European Central Bank) is going to buy Italian bonds (buyer of last resort). They've already been buying massive quantities of Greek bonds to ensure they don't have a failed auction. So we've essentially got central banks around the world saying they'll buy all the government debt they can get their hands on and that we shouldn't worry, everything's under control, go back to sleep and enjoy what you were doing. Are traders really that naive? Apparently yes. And with the euro strengthening it has tanked the dollar. This will spark more inflation worries but at this point I think the Fed would welcome more inflation rather than worry about the collapse of the global banking system, which is what we're facing.

Jim alluded to this in last night's wrap -- the market has gotten so far away from caring about fundamentals that it's getting kind of silly. The selloff following this morning's Bernanke bounce alludes to this. The fact that Europe is in serious trouble, on the verge of taking down the global banking system (much worse than we experienced in 2008 following Lehman's collapse) and that earnings expectations are dismal, traders are more hung up on hopes for more drug money from the Fed to buy more stocks. Like a true drug addict the market is more preoccupied with its next fix than worrying about the surrounding danger. This is a classic example of a hope-filled rally that has absolutely no fundamental underpinnings. It can certainly continue longer than we think possible but it also makes the market incredibly dangerous because when that hope is dashed there is nothing underneath to support the market. Hence Bernanke's soothing words and promises of more drug money if the economy needs his help. No promises, just assurances.

The Fed is running very scared. They have no bullets left, only words. Bernanke's speech this morning was an obvious effort to jawbone the stock market higher. If you really listen to what he said, there was absolutely nothing new. More words about what they can "try" next. Bernanke told the House Financial Services Committee that the central bank is examining several "untested means to stimulate growth if conditions deteriorate", including another round of asset purchases (QE3). Bernanke said another option would be for the Fed to provide more "explicit guidance" to the pledge that rates will stay low for "an extended period."

This market is so hungry for QE3 it can taste it. We all know of course that it won't end well but short-term traders don't care. Bernanke is not giving us anything new and his ideas for "untested" methods should be worrying. He's ready to throw the kitchen sink into the mix, say a few prayers and hope for the best. As for renewed emphasis on his pledge for low rates for an "extended period" -- really?? Wow, I haven't heard that in a good week and a half and feel better already.

Some more inspiring comments from Bernanke: "The sense is that employers are becoming more willing to hire and I think we'll start seeing some stronger payroll reports and some lower unemployment rates pretty soon." Another feel-good statement. I understand our government and financial leaders need to stay positive and say good things but really, is that the best he can do? Pretty soon? Our sun is going to burn out pretty soon too. The Fed is clueless, always has been and always will be, and this is one big experiment to them. I confidently predict they're going to blow up the chemistry lab and they'll be gone before this is all over (less than 10 years).

If you feel like you've been run over by a truck and then watched the truck back up and run over you again, welcome to trading both sides of this market if you've tried to hold your trade just a day too long (since each reversal starts with a big gap). Since mid February the S&P has swung from a high of 1370 to a low of 1249, rallying twice and declining twice in the past 5 months, with today's closing price very near the February 7th closing price of 1319. Both sides have seen the market go nowhere in the past 5 months but with big swings to make sure neither side has been able to hold their trade.

And we're seeing more 90% days than we ever experienced in the first part of the last decade. Many attribute this to the plethora of HFT desks, which are essentially momentum traders, as they jump on a direction and just drive it as fast and far as it will go before it reverses and then they'll drive in that direction until it runs out of momentum. Fundamental analysis has gone out the window and one could say the same thing about technical analysis. Just jump on a move and ride it 'til it quits. Of course if you had done that this morning your ride would have been short-lived.

The Fed has been trying to keep the stock market up with more than words. They of course just finished their latest QE2 program and Bernanke was very proud of himself when he stated that the Russell 2000 small-cap index had rallied so strong, indicating a willingness of market participants to take on risk. The QE2 program ended in June but it went out with a bang. As reported by Phoenix Capital Research and Bill King in his "King Report", the Fed flooded the financial system during the week of June 27th with $76B. To put this in perspective, that was the largest increase since late September 2008, right after Lehman Brothers collapsed. This was of course also timed when people were worried about the collapse of Greek debt, especially if their austerity budget didn't pass. That flood of money seems to have gone straight to the stock market -- an intravenous drug hit the likes of which we haven't seen since September 2008. So if you're wondering where the heck that rally came from, wonder no more.

When you look at the growth in the monetary base, as the chart from the St. Louis Fed shows below, the huge spike up in 2011 has me wondering why our market isn't even higher than it is. All those up and down swings and we're at the same level as early February. Where would the market be without all the Fed-created money? Unless the Fed figures out a way to keep pumping in that kind of massive amount of money, that little tip-over in the monetary base could get worse and a liquidity drain from the market is the last thing it needs.

Adjusted Monetary Base, chart courtesy St. Louis Fed

One thing that's been hitting the market since the May high are a lot of 90% down days, which again should have the market a lot lower. If not for the Fed-inspired rally in the week of June 27th, it probably would be. Some think the large increase in the number of 90% down days has something to do with the elimination of the up-tick rule back in 2004 but whatever the reason, it usually marks the kickoff to a stronger decline or the completion of the decline (a capitulation selloff). The chart below was done by Tom McClellan and shows the 90% down days since the May high (20 of them) and how they line up to the start of a stronger decline vs. the end of one. The last one, on Monday the 11th, was likely the kickoff to a stronger decline, especially since we were coming out of overbought and oscillators were already rolling over.

Timing of 10:1 Down Days with Declines, chart courtesy mcocillator.com

An upside projection to SPX 1375.91 is still good unless it first drops below 1298. Even higher potential exists to the top of its rising wedge pattern from 2009/2010, near 1400. As the weekly chart below shows, price is trying to hold above the 20-week MA at 1317.72 (hmm, coincidentally, that's where it closed today, thanks to a quick end-of-day bounce into the close). As you can see, the 20-wma does a good job at identifying the intermediate trend. A break below 1298 would be a strong indication that the bounce to last week's high is finished and the new downtrend will continue. Note the bearish spinning top doji in place followed by the red candle this week.

S&P 500, SPX, Weekly chart

After breaking its downtrend line from May (on July 1st, the final day of the week the Fed went to town with $76B to spend on the market), it came back down yesterday to test it. It's also testing its 50-dma at 1314.57. Today's low was 1314.45 -- do you think someone with more money than you and I is watching these important MAs to ensure SPX closes above them? I see the potential for another rally leg tomorrow to create an a-b-c bounce off Tuesday's low before heading lower. There is also the potential that today's bounce finished the correction, which calls for an immediate selloff tomorrow. It now takes a rally back above 1345 before the pattern turns bullish.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1345
- bearish below 1298

The 60-min chart below shows my expectation for another leg up to the 1334 area to complete an a-b-c bounce correction, testing the bottom of a parallel up-channel from last June in the process. While I show upside potential to 1376-1380 on the daily and weekly charts, the price pattern for the smaller time frame points only to a retest of last week's high near 1356. A rally above 1340 would suggest a move to 1356, potentially higher if more "good" news comes from Bernanke. A drop below 1308 would confirm the bounce is over and a stronger decline should develop next.

S&P 500, SPX, 60-min chart

As I'll show with all the major indexes, the patterns are the same. Another leg up for the DOW would target just shy of 12650 and anything higher would point to a move up to a price projection at 12968 by the end of the month. Below 12350 and we should see stronger selling.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,650
- bearish below 12,350

Another bounce for NDX will have it testing its broken uptrend line from March 2009 through its August 2010 low (log scale). I see higher potential to about 2475 whereas a break below 2330 should usher in stronger selling.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2380
- bearish below 2330

If the RUT is able to get above 850 I see upside potential to the May high for what would likely be a double top. A break below 817 would be bearish. In between we could see some choppiness, especially this week.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 850
- bearish below 817

I've been looking for support for TNX, the 10-year yield, near 2.88%. This is where there is trendline support (broken downtrend line from April and uptrend line from October 2010) and the 62% retracement of the October-February rally, which supported the decline into the June 24th low. The price pattern calls for a bounce/consolidation before heading a little lower, as depicted on its chart. As indicated we should see TNX bounce around a bit into early August before heading much lower. Today's rally in the stock market was initially supported by a rally in TNX (selling in bonds) but then declined sharply in the afternoon, closing below yesterday's low. That was a strong clue the stock market rally was not going to hold. TNX needs to get back above 3.08% before I turn bullish on it (bearish on bonds).

10-year Yield, TNX, Daily chart

The banks at least supported this morning's rally attempt (relief that the ECB was going to buy Italian bonds, or so the rumor went) but they then gave most of the rally back. BKX tapped its downtrend line from April, which was briefly broken on July 1st (again, thanks to Bernanke's $76B spending spree) but dropped back below it again on Monday, and gave it a bearish kiss goodbye. Without the Fed's money the banks are apparently still in trouble. If they do get another leg up then there's upside potential to 48.70 to test its downtrend line from February and its 50-dma a little lower. Following the 3-wave bounce off the June low, failing at resistance, there's nothing bullish about this chart.

KBW Bank index, BKX, Daily chart

Following the TRAN's strong end-of-month rally (was the Fed trying to get a DOW buy signal (DOW Theory) by concentrating some of their buying power on the Transports?) it has dropped back down sharply and broken back below its August-March uptrend line. It was tested to but didn't hold. I'm showing a guess for what might play out in the next few days -- a drop to its 50-dma at 5345, a bounce back up to the broken uptrend line and then a stronger selloff. Below 5340 would be more immediately bearish.

Transportation Index, TRAN, Daily chart

Yesterday the dollar left a bearish shooting star following a break of the May 23rd high, leaving a failed break and a potential reversal candlestick. Today's big red candle confirms the reversal and puts the dollar in a bearish pattern. The only way to break the bearish pattern is for a rally back above Tuesday's high at 76.72. There are some things I don't like about the bearish pattern but clearly this week's reversal looks bearish and suggests the price consolidation since the May 4th low might be a bearish continuation pattern (in an ascending triangle). The dollar bears need to prove it by breaking below 74.40 which would open the door for a decline to the March 2008 low at 70.70. In the meantime it remains just as possible for the dollar bulls to step back in at potential support as the dollar back tests its broken downtrend line from June 2010 and creates another higher low. We'll have wait to see who's going to win this battle, which will have significant consequences for the other markets.

U.S. Dollar contract, DX, Daily chart

The strong drop in the dollar from yesterday's high has been bullish for commodities. The metals broke through resistance and silver broke above the top of what appeared to be a sideways triangle pattern since its May low. That opens up the door to 40 where the bounce off the May low will have two equal legs up and where it will run into the trend line across its highs from 2006-2008, which it broke above in April and then dropped back below in May. If silver to collapse back down from here and drop below 37 it would leave a throw-over finish to its triangle pattern and call for strong selling from there.

Silver continuous contract, SI, Daily chart

Gold pushed to a new all-time high, opening the door for a move up to 1625 if it's to test a trend line across the highs from May 2008 and May 2011. But currently gold has run into the trend line along the highs from December 2009 and December 2010 (is it purely coincidental that these highs are in the same months?). It's also very close to its broken uptrend line from January-March, near 1592. Above 1600 could see a move to 1625, a move which could at least negate the current bearish divergence at the new high. But gold should be in its final thrust before turning back down. That could change if the dollar is about to tank further.

Gold continuous contract, GC, Daily chart

The dollar's decline has also been supportive of another leg up for oil although it remains stuck below its 50-dma (it poked above it today but was unable to hold it). As noted on the chart, price has been ping-ponging between its 50-dma and 200-dma since last June. If it breaks above today's high I see upside potential to 103.28 for two equal legs up for its bounce off the June low (potentially higher but that's the upside target I'd watch for). If it breaks below 93.50 I think we'll be looking for a stronger decline.

Oil continuous contract, CL, Daily chart

All eyes and ears are focused on what central banks are doing and what the credit worthiness of countries is. This morning's economic reports were gnats on an elephant's hide. Tomorrow's reports could be a little more influential, especially the retail sales and PPI numbers but this market has an attention span of a child. Friday's reports might also have some influence, especially if the Empire Manufacturing index improves to zero ("less bad") as expected. If inflation numbers are up, it will take away the incentive for the Fed to spike any more punch for a while and that could get the market to whining. Low inflation numbers and bad manufacturing numbers could spark more rumors about the Fed and their QE3 program (so bad number could be good in this crazy market).

Economic reports, summary and Key Trading Levels

Last week's final chart was a weekly chart of GE, showing how it had rallied back up to its broken uptrend line from March 2009, which was a bearish setup for a kiss goodbye. Sure enough, this week's decline leaves it looking like a bearish reversal off the back test. As goes GE, so goes the economy?

So for this week I'll look at a big tech company -- IBM. It has been rallying like a small high-tech company and looks strong, pushing to new all-time highs again last week. But the new high came very close to tagging the top of its parallel up-channel from 2008, is overbought on the week and daily and is showing bearish divergence on the weekly. If it's able to push marginally higher into next week, which I see as a possibility, there's a price projection that crosses the top of the channel near 180. But I think holders of IBM, looking for more, are pressing their bets. This is looking like a short play setting up.

International Business Machines, IBM, Weekly chart

Equity futures dropped in after-hours (ES dropped as much as -10) but have recovered some (ES currently -5 at 7:30 PM). Apparently Moody's is threatening to downgrade U.S. debt this time. And this comes as a surprise to who? There's plenty of time before tomorrow morning's open and it's anyone's guess how it will open. The overseas markets are moving to news more than anything else right now and that affects U.S. futures in the overnight session. If you're not a day trader, going home flat each day, this has been one tough market to trade. My preferred style is swing and position trading and I can tell you I'm feeling battered.

Keep your trades short term and reduce your trading size while this whippy market plays out. Bear markets, which I believe we've reentered (or at most have one more last-gasp attempt at a new high), or very difficult to trade, especially now that the Fed and governments are determined to use all their resources to prop it up and shorts are getting flamed at every turn.

The market feels heavy, especially when the Fed is not either injecting massive amounts of money or trying to jawbone it higher, and I believe least resistance is down. Expect downside surprises to hit and last. Upside surprises will likely be short-lived, such as this morning's rally. Until we see a break above the key levels identified on tonight's charts I'd look at bounces as shorting opportunities rather than declines as buying opportunities. There's always the possibility for another week like the week of June 27th but that's not what I'm reading from the charts and that's all I've got to go by.

Trade carefully and conservatively and good luck through the rest of opex (which might even get very quiet from here). I'll be back with you next Wednesday.

Key Levels for SPX:
- bullish above 1345
- bearish below 1298

Key Levels for DOW:
- bullish above 12,650
- bearish below 12,350

Key Levels for NDX:
- bullish above 2380
- bearish below 2330

Key Levels for RUT:
- bullish above 850
- bearish below 817

Keene H. Little, CMT

New Plays

Industrial Metals

by James Brown

Click here to email James Brown


Globe Specialty Metals, Inc. - GSM - close: 24.90 change: +1.30

Stop Loss: 23.40
Target(s): 27.25, 29.50
Current Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Economic data that China's GDP came in at +9.5% from a year ago helped ignite the rally for commodity-related trades. A weak dollar threw fuel on the fire. If China has successfully engineered a soft landing for its economy then the country's demand for industrial metals and commodities could start to ramp up again.

Shares of GSM had been consolidating sideways near resistance at $24.00. The rally this morning produced a surge to $25.67. Even with the pull back off its intraday highs GSM still closed up +5.5%.

Now I almost always avoid chasing a move like this. A +5% move in one day is a bit much. However, the combination of China's news and a breakout to new highs is too tempting. Nimble traders could wait and try and launch positions on a dip near $24.00 or a dip near the simple 10-dma. I am suggesting we go ahead and buy this stock now. However, we do NOT want to launch positions if the S&P 500 opens in the red tomorrow.

We should consider this an aggressive, higher-risk trade so let's keep our position size small to limit risk. We can always add to positions down the road. FYI: The Point & Figure chart for GSM is bullish with a $28.50 target.

- Open SMALL positions -

Suggested Position: buy GMS stock @ current levels

- or -

buy the AUG $25 call (GSM1120H25) current ask $1.50

Annotated chart:

Entry on July 14 at $ xx.xx if S&P 500 is positive
Earnings Date 09/15/11 (unconfirmed)
Average Daily Volume = 874 thousand
Listed on July 13, 2011

In Play Updates and Reviews

Energy & Commodities Rise

by James Brown

Click here to email James Brown

Editor's Note:
Energy stocks and commodity-related names performed well thanks to strong economic data out of China and a weak dollar.

The afternoon sell-off in stocks is worrisome. Tomorrow's market action will probably be determined by investor interpretation of JPM's earnings report Thursday morning.


Current Portfolio:

BULLISH Play Updates

Alexion Pharma - ALXN - close: 51.25 change: +0.84

Stop Loss: 47.75
Target(s): 52.25
Current Gain/Loss: unopened
Time Frame: up to its earnings report
New Positions: Yes, see trigger

07/13 update: ALXN continues to show relative strength and shares posted a +1.6% gain. Yet I suspect ALXN just ran out of gas. The rally surged toward resistance at its April highs only to reverse. We will keep our buy the dip entry point at $49.00. More conservative traders could wait for a dip closer to $48.00. We don't have much time. Earnings are expected on July 21st and we do not want to hold over the announcement. FYI: The Point & Figure chart for ALXN is bullish with a $63 target.

Trigger @ $49.00

Suggested Position: buy ALXN @ $49.00

- or -

buy the AUG $50 call (ALXN1120H50)

Entry on July xx at $ xx.xx
Earnings Date 07/21/11 (confirmed)
Average Daily Volume = 1.1 million
Listed on July 11, 2011

American Express Co. - AXP - close: 51.95 change: -0.45

Stop Loss: 49.85
Target(s): 54.95
Current Gain/Loss: unopened
Time Frame: up to its earnings report
New Positions: Yes, see trigger

07/13 update: AXP under performed today. Shares bounced around the $52-53 zone before eventually breaking down under the $52 level. The low today was $51.88. This under performance is somewhat concerning. I am lowering our buy-the-dip entry point to $51.00 and our stop to $49.85.

Remember we only have a few days for AXP to dip to our entry point and then bounce before earnings.

Trigger @ 51.00

Suggested Position: buy AXP stock @ 51.00

- or -

buy the Aug. $52.50 call (AXP1120H52.5)

07/13 AXP is underperforming. New trigger @ 51.00, stop @ 49.85
07/12 new trigger @ 51.75
07/11 new stop loss @ 50.90

Entry on July x at $xx.xx
Earnings Date 07/20/11 (unconfirmed)
Average Daily Volume: 7.0 million
Listed on July 2, 2011

Cheesecake Factory Inc. - CAKE - close: 33.42 change: +0.69

Stop Loss: 31.90
Target(s): 33.60, 37.00
Current Gain/Loss: + 5.9%
Time Frame: 8 to 10 weeks
New Positions: see below

07/13 update: Shares of CAKE displayed relative strength with a +2.1% gain. The stock did not see the same afternoon sell-off so common in the market today. I am still not suggesting new positions. We do not want to hold over the July 20th earnings report.

Current Position: Long CAKE stock @ $31.53

- or -

July $33 call (CAKE1116G33) Entry @ $0.75, exit 0.80 (+6.6%)

07/09 new stop loss @ 31.90
07/07 Target hit @ 33.60. CAKE +6.5%, option @ $0.80 (+6.6%)
07/05 adjusted 1st target to $33.60
07/02 new stop loss @ 30.75
06/30 consider the opportunity cost of staying in CAKE. maybe you should exit early
06/28 New stop loss @ 29.65
06/09 CAKE is bouncing from the 200-dma as expected.
06/04 More conservative traders may want to exit early. We are expecting a drop to the 200-dma.

Entry on May 20 at $31.53
Earnings Date 07/20/11 (confirmed)
Average Daily Volume: 1.0 million
Listed on May 19th, 2011

Dr. Pepper Snapple - DPS - close: 41.47 change: +0.01

Stop Loss: 39.90
Target(s): 46.00
Current Gain/Loss: - 0.6%
Time Frame: 6 to 8 weeks
New Positions: see below

07/13 update: It turned out to be a quiet day for DPS. The stock did not see as much volatility as the rest of the market. I will note that the MACD indicator on the daily chart has turned bearish. I'd look for a dip near $41.00 as our next entry point. Normally I would avoid holding over earnings but I am tempted to hold over DPS' late July earnings report. Our multi-week target is $46.00.

Current Position: Long DPS stock @ $41.71

- or -

Long Aug. $45 call (DPS1120H45) Entry @ $0.30

Entry on July 11 at $41.71
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume: 1.8 million
Listed on June 30, 2011

Ecolab Inc. - ECL - close: 56.08 change: +0.28

Stop Loss: 53.90
Target(s): --.--, 59.90
Current Gain/Loss: + 5.1%
Time Frame: 6 to 8 weeks
New Positions: see below

07/13 update: The early morning rally in ECL began to fade pretty quickly. I do not see any changes from my prior comments. I would still expect a dip toward support near $55 and possibly $54.

Current Position: Long ECL stock @ 53.35

- or -

July $55 call (ECL1116G55) Entry @ $0.60, exit $1.45 (+141.6%)

07/09 new stop loss @ 53.90
07/08 planned exit. July $55 call @ $1.45 (+141.6%)
07/07 Plan on exiting our July calls tomorrow at the close
07/02 Sell half. ECL @ 56.76 (+6.3%), Option @ $1.75 (+191.6%)
06/30 new stop loss @ 53.45
06/18 new stop loss @ 52.45
06/04 new stop loss @ 51.90

Entry on May 26 at $53.35
Earnings Date 07/26/11 (unconfirmed)
Average Daily Volume: 1.5 million
Listed on May 18th, 2011

Kaiser Aluminum - KALU - close: 54.83 change: +1.72

Stop Loss: 51.90
Target(s): 59.75
Current Gain/Loss: + 2.3%
Time Frame: 3 to 5 weeks
New Positions: see below

07/13 update: Resources and commodity-related names were showing relative strength. Strong economic data out of China and weakness in the dollar both played a part in this rally. Shares of KALU outperformed with a +3.2% gain.

Earlier Comments:
Our target is the $59.75 mark since the $60 level looks like resistance. Investors could certainly aim higher. KALU has a high amount of short interest and the stock could experience a short squeeze. We do not want to hold over the early August earnings report but the date is not yet confirmed. FYI: Investors should note that the most recent data listed short interest at 9.9% of the very small 18.5 million share float.

- Small Positions -

Current Position: Long KALU @ $53.56

- or -

Long AUG $55 call (KALU1120H55) Entry @ $1.30

Entry on July 11 at $53.56
Earnings Date 08/01/11 (unconfirmed)
Average Daily Volume = 183 thousand
Listed on July 9, 2011

KLA-Tencor - KLAC - close: 41.31 change: -0.98

Stop Loss: 39.95
Target(s): 45.75
Current Gain/Loss: - 2.0%
Time Frame: 6 to 8 weeks
New Positions: see below

07/13 update: Semiconductor stocks are still struggling. The bounce in the SOX index failed at the 400 level and the SOX closed in the red. Meanwhile KLAC outperformed its peers and closed back above technical resistance at its 50-dma and the 200-dma. I remain cautious here.

We do not want to hold over the late July earnings report.

Current Position: Long KLAC @ $42.49

- or -

Long AUG $45 call (KLAC1120H45) Entry @ $1.20

Entry on July 11 at $42.49
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume = 2.4 million
Listed on July 9, 2011

Macy's Inc. - M - close: 29.82 change: +0.16

Stop Loss: 28.49
Target(s): 29.90, 32.25
Current Gain/Loss: + 5.3%
2nd Position Gain/Loss: - 0.1% Time Frame: 6 to 8 weeks
New Positions: see below

07/13 update: Macy's is still holding up pretty well in spite of the market's weakness. I remain cautious on launching new positions though.

At the moment our final target is $32.25 but we might consider adjusting this target higher.

Earlier Comments:
Our plan was to keep positions small to limit our risk.

- small positions -

Current Position: Long M stock @ $28.30

- or -

Long Aug. $30 call (M1120H30) Entry @ $0.85

- 2nd Position, entry 7/11/11 -

suggested position: Long M stock @ $29.86

Long Aug. $32 call (M1120H32) Entry @ $0.63

07/09 new stop loss @ 28.49
07/09 Add 2nd position, buy stock/calls now
07/08 Planned exit. July $29 call @ $1.50 (+167.8%)
07/07 plan on exiting July calls tomorrow at the close
07/02 new stop loss @ 27.90
07/01 1st Target Hit @ 29.90 (+5.6%), options @ +107.1% (July) & +52.9% (Aug)

Entry on June 28 at $28.30
Earnings Date 08/10/11 (unconfirmed)
Average Daily Volume: 8.6 million
Listed on June 27, 2011

UnitedHealth Group Inc. - UNH - close: 51.73 change: +0.32

Stop Loss: 49.85
Target(s): 54.75
Current Gain/Loss: + 0.9%
Time Frame: 3 to 4 weeks
New Positions: see below

07/13 update: The action in UNH looks like a mirror for the markets. I am still expecting a dip toward $50.00. Keep in mind that we don't have a lot of time left. We do not want to hold over the July 19th earnings report.

- small positions -

Suggested Position: Long UNH stock @ $51.25

- or -

Long July $50 call (UNH1116G50) Entry @ $2.07

07/02 new stop loss @ 49.85

Entry on June 24 at $51.25
Earnings Date 07/19/11 (confirmed)
Average Daily Volume: 7.9 million
Listed on June 23, 2011

Western Refining Inc. - WNR - close: 19.83 change: +0.29

Stop Loss: 18.45
Target(s): 24.00, 27.50
Current Gain/Loss: + 1.6%
Time Frame: 6 to 8 weeks
New Positions: see below

07/13 update: Energy and commodity names were strong today. WNR briefly traded above $20 again. Shares eventually settled with a +1.4% gain. If you are looking for a new entry point consider waiting for a dip near the simple 10-dma. Aggressive traders may want to put their stop under support near the $18.00 level instead.

FYI: The Point & Figure chart for WNR is bullish with a $28.50 target. Plus, the most recent data listed short interest at 38% of the 54.2 million-share float.

Current Position: Long WNR stock @ 19.50

- or -

Long AUG. $22 call (WNR1120H22) Entry @ $0.65

Entry on July 11 at $19.50
Earnings Date 08/04/11 (unconfirmed)
Average Daily Volume = 4.0 million
Listed on July 9, 2011