Option Investor

Daily Newsletter, Saturday, 7/23/2011

Table of Contents

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

Market Wrap

Deal Or No Deal?

by Jim Brown

Click here to email Jim Brown

Big cap tech stocks broke out to high on Friday thanks to Google, Apple, Microsoft, Intel, Amazon and Baidu. All of those companies contributed between 1-5 points to the Nasdaq 100 Index ($NDX).

Market Statistics

The Nasdaq 100 may have been setting new highs but the Dow was trailing the broader market thanks to an earnings miss by Caterpillar. CAT was crushed for a $6.50 loss and was solely responsible for a decline of more than 50 Dow points. Without the CAT loss the Dow would have posted a minor gain.

Earnings remained the focal point because of a lack of material economic reports and the lack of a debt limit deal. The only economic report was the Mass Layoffs for June. The number of reported events declined slightly for the second month to 1,532 from 1,599. The number of workers impacted declined only slightly to 143,444 from 143,540.

This report was market neutral because it was a lagging report for June and there was almost no change. The manufacturing reports next week will be far more important.

The Regional and State Employment report, also for June, showed employment rose in 26 states and DC and declined in 24 states. The largest gains in employment came from Texas +32,000, California +28,800, Michigan +18,000 and Minnesota +13,200. The biggest declines came from Tennessee -16,900, Missouri -15,700, Virginia -14,600 and North Carolina -9,500.

Next week is regional report week with reports on economic conditions in Chicago, Texas, Richmond, Kansas and New York. The Fed Beige Book on Wednesday will also tell us how the economy is doing in each of the twelve Fed districts. In short this week plus the national ISM on the following Monday will tell us if the soft patch is over, improving or still holding the economy back.

Economic Calendar

The earnings for Q2 have been a very diverse collection of mixed results. There have been quite a few blowouts on earnings but also a few misses and quite a few guidance warnings. Caterpillar's earnings covered the entire gamut. CAT posted earnings of $1.72 compared to estimates of $1.75. The reason for the earnings miss was the impact to production in Japan after the earthquake and increasing costs. With backlogs at record levels and sales increasing sharply analysts had expected another earnings beat and a new hike in guidance. Unfortunately in the real world CAT was seeing the results of higher commodity prices, less than expected manufacturing output in Japan and some increased acquisition costs from buying Bucyrus for $8.8 billion.

Despite the miss Caterpillar still had a phenomenal quarter. Earnings rose +44% and sales rose +37%. They increased guidance from a midrange of $6.50 per share to $7.00 per share for the full year. They raised full year revenue guidance by +$2 billion to $55 billion. CAT said the slowdown in China had impacted growth but sales were still increasing. They were just increasing at a slightly slower rate. The CEO said CAT had record order backlogs and those backlogs were growing.

The drop on Friday was significantly overdone because the Caterpillar story is still alive and well. The stock had risen +54% over the last 12 months and the sell off was knee jerk profit taking on the earthquake related earnings miss. I believe CAT is a strong buy at these levels with risk to $100.

Caterpillar Chart

Just because the U.S. economy is stuck in the mud does not mean the rest of the world is waiting for us. The rest of the world is growing much faster than the USA and Caterpillar is seeing robust sales growth in these areas. Don't toss CAT into the trash bin because they have the capability of continuing to grow earnings for years to come. Once the USA growth catches up to the rest of the world their sales will explode.

Global GDP Rates

While on the subject of Caterpillar the CEO had some harsh words for lawmakers. He said he had been meeting with the leaders of his biggest customers in the USA and they reported U.S. businesses were rapidly shrinking purchases in an effort to stockpile cash because of events in Washington. He said there was "extreme uncertainty" in the U.S. business community over the country's future because of the high deficit and not the current artificial crisis of the debt ceiling. Those managers reported worry over future debt payments, taxes, regulation, healthcare costs, interest rates and inflation. Until that uncertainty begins to ease those customers are going to be buying less and hoarding more.

CEO Doug Oberhelman said, "Lack of clarity on a U.S. debt reduction plan, trade policy, regulation, much needed tax reform and the absence of a long-term plan to improve the countries deteriorating infrastructure does not create an environment that provides our customers with the confidence to invest."

Offsetting some of the CAT impact on the Dow was McDonalds (MCD). The burger seller roared off to a new high at $89 with a +$2 gain after reporting profits that increased +19%. A weaker consumer appears to be benefiting McDonalds as more people turn in for fast food rather than visiting a higher priced sit down restaurant. Also helping were the new coffee offerings along with smoothies and new breakfast items. Drink sales at the McCafe increased by +29%. McDonalds raised prices in March and May to keep pace with soaring commodity prices. The company said it was planning to offer some "premium burgers" in the U.S. in order to fend off competition from places like Five Guys. The U.S. same store sales rose only +4% while Europe sales rose +21% and Asia and Middle East rose +25%.

McDonald's Chart

General Electric (GE), another Dow component, reported earnings that rose +18% to $3.73 billion or 34-cents per share. That beat estimates by a penny but GE is never one to produce a blowout. Analysts watch GE earnings for a clue to the pace of the U.S. and global economy. GE reported industrial order backlogs rose +6.8% to record levels at $189 billion and that is a good sign for the future economy. Equipment orders rose +33%, service orders +16%, transportation +74% and infrastructure orders +24%. Revenue was $35.6 billion and well over estimates of $34.7 billion. CEO Immelt said GE would post double-digit earnings growth for the rest of the year and earnings would increase in 2012.

Overall the GE earnings were very positive. The earnings from GE Capital more than doubled and Immelt repeated his claim the worst was behind the troubled division. He said GE was making profitable loans again.

GE Chart

Oilfield services firm Schlumberger (SLB) posted earnings that rose +64% to 87-cents per share. That was a slight beat of two cents over estimates. Analysts were very positive on the sector and we saw Halliburton also post strong earnings on Monday. Schlumberger said sales rose +62% to $9.62 billion. The average number of rigs in operation worldwide rose +15% to 3,163 in Q2. Crude oil prices averaged $102.34 for the quarter compared to the $78.05 average in Q2-2010. SLB said drilling activity was very strong and there was a shortage developing in people and equipment. The company said the acceleration of onshore exploration and development will put considerable strain on the service industry to meet those activity levels. This will lead to an increase in pricing power by SLB, HAL and others.

This was a very strong quarter but remember the weather in Q2 in North America was very bad and hampered drilling activity. Also the activity in the Gulf has not returned to normal although several companies have been able to restart drilling activity. As Gulf activity increases so will earnings from the various service companies. Halliburton gets half its revenue from North America while it only accounts for one third of revenue for SLB. Schlumberger gets the majority of its revenue from overseas with Saudi Arabia a strong growth market for SLB today. Iraq is currently SLB's 7th strongest market out of their top 15 and it is expected to rise to third place in 2012.

Schlumberger Chart

The biggest winner for the day was Athena Health (ATHN) with a +17% spike after reporting earnings of 22-cents compared to estimates for 19-cents. On a net basis they reported 14-cents that was more than three times the 4-cents earned in the comparison quarter. Revenue rose +33% to $77.8 million compared to estimates of $74.9 million. Analysts were very pleased with the results but the shorts were not so happy.

Athena Health Chart

Next week is the busiest week of the Q2 earnings cycle and the sheer volume of earnings will over power everything but the debt ceiling crisis. Energy stocks will highlight the list next week with Exxon, Conoco, BP and Chevron leading the charge. Earnings should be very strong with the average price for crude over $100 in Q2. The downside to earnings will be any impact from rigs still on standby in the Gulf incurring daily rental payments while waiting for the administration to release permits. Otherwise energy earnings should be outstanding. I am sure the numbers posted by the majors will prompt renewed calls for higher taxes.

Amazon will report on Tuesday and that company can't seem to do anything wrong. They just lost a major competitor with the shutdown and liquidation of Borders this weekend.

Of all the reports this week I view the UPS earnings on Tuesday as the most relative. UPS has their finger on the day-to-day shipments of millions of packages. They can tell on a daily basis if the economy is slowing or recovering. Their earnings and guidance is critical.

Earnings Calendar

So far 143 S&P companies have reported earnings. 75% of those have beaten the street on earnings and 69% on revenue. That is much higher than the normal 66%. However, the number of companies guiding lower has also risen sharply. Of the 345 total companies that have reported 5.8% raised guidance and 6.1% lowered guidance. This produces a net negative guidance of -0.3%. That may not seem like much but it is the lowest guidance outlook since Q1-2009. Guidance after Q1 reporting was positive +3.5% and the eighth consecutive quarter of positive guidance upgrades. There are 180 S&P 500 companies reporting next week.

Net Guidance By Quarter

Current overall earnings estimates for the S&P 500 for Q2 have declined to growth of only +9.2% and well off the +15% from the beginning of the quarter and +12.7% just two weeks ago. This is astounding since 75% of companies have beaten estimates. Apparently the size of the beats has been lower than normal.

The new deal on Greece appears on the surface to have moved Greece out of the headlines for the near term. Most analysts believe the EU successfully kicked the can down the road for another 6-12 months but it will come back to haunt them. The deal requires quite a bit of accommodation (selective haircuts in either principal or duration) from the private sector. It remains to be seen if the private sector will cooperate. The new deal for dealing with future EU problems will eventually require the ECB to take on more than one trillion euros in new debt of a very long-term variety. That debt will have to be paid by the healthier Eurozone countries in a roundabout bailout of Greece and eventually Italy, Portugal, Ireland and probably Spain. Despite the apparent solution being reported in the press most analysts believe the Greek debt crisis will come back in an even stronger form. For now we should be happy the problem has at least been moved out of the headlines and should no longer be a drag on the U.S. markets.

The main force behind the market next week will still be the debt ceiling. It is deal or no deal time and lawmakers must act to avoid a financial Armageddon. That point seems to be lost on lawmakers because we are moving ever closer to a disaster that could cause untold harm to the U.S. economy. The risk is two fold. The first is the risk of ratings downgrades by the ratings agencies. That will push our interest rates higher and increase the amount of new debt we will have to sell to pay off the old debt. Just imagine if the interest rate on all your credit cards suddenly went up by 35%. The implied interest rate on a ten-year treasury today is less than three percent. If S&P and Moody's downgraded the credit rating that could rise to 4%, a +33% increase on all future debt. Since the U.S. has to sell another $2.5 trillion in debt by the end of 2012 that will equate to a lot of additional interest. Demand for the new debt could decrease once our credit is lowered and that could push interest rates up even higher.

The second risk is that of a default. While the odds of this happening are very slim the possibility is growing. We have never defaulted on an obligation in the history of the USA. A default would cause our credit rating to not be just lowered but slashed and our interest rates would rocket higher by several percent. We could actually be paying 100% more interest on our debt within weeks. For every 1% increase in interest it would cost taxpayers $150 billion a year in additional interest.

These events do not need to occur. This is a political battle not a real crisis. Since 1960 Congress has acted 78 separate times to permanently raise, extend or revise the debt limit. This has occurred under republican presidents and democratic presidents. The debt limit was just raised by $1.9 trillion in January 2010 and very few people even knew about it. The current war of words is political posturing for the next election.

The deficit is out of control and will eventually cause America serious grief but that is a longer-term issue not one that has to be solved next week. The debt is commonly referred to as $14.5 trillion. That is up from just over $5 trillion only a decade ago. That does not include the "unfunded liabilities" like Social Security, Medicare, Medicaid, etc. The total debt including the unfunded liabilities is more like $115 trillion. Either number is more than we can ever pay but that is not the problem today. How much is $1 trillion dollars?

On Thursday night I was hopeful the President and Speaker Boehner would announce a compromise on Monday. Secret discussions were being held daily. Late Friday they both announced the negotiations had ended. The parting was not amicable. The president held an immediate press conference to say he had demanded Boehner, McConnell, Reid and Pelosi return to the White House on Saturday at 11:AM with hard plans to discuss in an effort to work out a deal.

The meeting occurred with full attendance by the press with camera flashes blazing. After 10-15 minutes of posturing for the cameras the meeting began and then ended at 11:58. Being generous there was roughly 45 minutes of conversation on ways to avoid a national default, avoid a downgrade of our credit rating and come together in a bipartisan agreement. Considering the weeks of conversations before this I view the meeting as nothing more than a photo opportunity to show leaders hard at work on a Saturday. Post meeting comments from Boehner, Reid and McConnell claimed they were working through the weekend in an effort to reach a compromise by Monday. Late Saturday Boehner told House republicans he would have a draft framework prepared by 4:PM on Sunday. Treasury Secretary Geithner, also at the Saturday meeting, reminded the participants a deal needed to be concluded at least in principal before the Asian markets opened on Sunday night.

I wish I could say I was confident they will work out a deal by Monday but after reading dozens of articles my confidence is fading. They may work out a deal to extend the debt limit but I have no confidence it will have enough credible changes to avoid a credit downgrade. S&P and Moody's have said they will likely downgrade the U.S. debt even if the limit is raised if there is no credible plan to cut spending. The chances for a credible plan are shrinking hour by hour.

The most likely outcome for next week is a band-aid to postpone the crisis and kick the can down the road. Basically we become Greece with an ever-increasing pile of debt and no real way to pay it off only there is nobody to bail us out.

Unless some "grand bargain" is struck over the weekend the debt news is likely to weigh heavily on the markets on Monday. The view that lawmakers would never allow the U.S. to default is rapidly fading and being replaced by a dumbfounded stare of disbelief.

One final point. I read in one of the debt deal articles that as part of any deal lawmakers were going to claim $1 trillion in spending cuts over the next decade because the wars in Iraq and Afghanistan were ending. For me this is another stupid lawmaker trick. We already know the wars are ending and the president has announced a timetable for withdrawal. To announce a "new" deal with a trillion dollars in savings for something that has already been planned and in the system for two years is nothing more than an accounting trick to claim a "grand bargain" of larger proportions. Do they think S&P and Moody's are too stupid to see through this smoke and mirrors?

The markets finished better than I had expected on Friday. The opening dip was erased and were it not for Caterpillar it would have been a positive day all around. Unfortunately, the S&P could not punch through the resistance from Thursday at 1,345. However, it was a summer Friday with very low volume of only 5.7 billion shares compared to 8.1 billion on Thursday. There was no conviction on either side as investors held their breath waiting for a debt limit resolution.

The S&P stall at 1345 was not surprising given the shock to the Dow from the Caterpillar decline. Without the Dow posting a gain the S&P was unable to find any traction. Surprisingly the Nasdaq was able to post a decent gain of +25 points without the Dow and S&P going along for the ride. Big gainers were Apple +6, Google +11, SNDK +3.93, ATHN +8.51, CPHD +8.83, VRUS +6.22 and APKT +5.37.

The 1345 level on the S&P is the resistance high from February. That high has been bested more than once since then but it keeps returning to cause problems. Real resistance is from 1350-1365 and the highs from May.

Rather than try to attach too much technical significance to Friday's market action I believe everyone understands the market is in a wait and see mode until the debt limit is resolved. When it is solved the market will rally but the strength of the rally will depend on the eventual solution and the likelihood of a rating downgrade.

This means anything is possible next week but the most likely scenario is some ugly work around on the debt and a minor market rally. If that rally succeeds in breaking out to new highs then an entirely new version of bullish sentiment will take hold.

The bad news bulls are waiting for an answer so they can discount the news and rally on. As long as the solution is palatable they will likely ignore the news and move on. A week from now everyone will look back and wonder what all the worry was about. At least I hope that is what we are doing a week from now.

S&P support is 1325 and resistance 1345-1365. Every point we move higher will be a battle without some market moving news.

S&P Chart

The Dow stalled at 12700 once again but the lack of forward motion was due entirely to the Caterpillar loss of -51 Dow points. I won't rehash those comments but suffice to say without the CAT loss the Dow would have been positive.

The 12700 level has been solid on both attempts in July and 12800 is very strong resistance as a three year high. With the high profile Dow stocks already reported there will be less upward pressure from earnings anticipation. IBM closed at the exact same level on Friday as it did on Tuesday. Their forward motion has ended.

Fortunately Dow components Chevron and Exxon report next week and earnings should be outstanding. Unfortunately they don't report until Thursday and Friday so the early week moves will have to be on 3M and UPS. This is not going to be a technical or fundamental week but a news reactive week so be prepared.

Dow Chart

The Nasdaq was bullish on Friday despite the lackluster performance by the Dow and S&P. This is entirely out of character for the Nasdaq and clearly a bullish sign. This is not normally a good season for tech stocks so a breakout would be very bullish. Support is 2800 and new high resistance is 2872. Netflix is the next big tech stock to report on Monday followed by AMZN and JNPR on Tuesday.

Nasdaq Composite Chart

Nasdaq 100 ($NDX) Chart

In summary I believe a deal of some sort will appear. Market reaction and ratings results will depend on the grand scale of the deal. Our market will not be trading on fundamentals, but purely news focused. Since the downside potential is so significant I can't conceive we will get to August 2nd without a resolution. For that reason I am still mildly bullish. Once the debt ceiling war ends the markets should rally.

Please click like, thank you!

Jim Brown

Send Jim an email

"Bull markets are born in despair, grow in skepticism, mature in optimism and die in euphoria."
John Templeton

New Plays

Solar & Oil

by James Brown

Click here to email James Brown

Editor's Note:

It's going to be an interesting week with a flood of earnings and the debt ceiling tussle. Cautious traders may want to step back and not trade or at least scale back and trade very small. Headlines concerning the debt ceiling talks could roil the markets up or down on a daily basis. On top of that earnings will produce waves of headlines and plenty of volatility for individual stocks.

We're adding some bullish candidates but enter cautiously!

- James


China Sunergy Co. Ltd. - CSUN - close: 1.64 change: +0.08

Stop Loss: 1.48
Target(s): 2.00, 2.25
Current Gain/Loss: unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
If you have been following the solar energy stocks then you already know that most of them had a terrible quarter. Shares of solar energy ETFs like TAN and KWT are stuck in a bearish trend of lower highs and lower lows. What is interesting is that both seem like they may have found a bottom near their 2010 lows. One stock that has seen an accelerated decline lower is CSUN. Yet shares found support at $1.50 last month and traders bought the dip at $1.50 again this past week. We could be witnessing a bullish double bottom.

I am suggesting we do some bottom fishing here and buy CSUN now with a stop loss at $1.48. We should consider this an aggressive, higher-risk trade given the trend lower so trade small. Our first target is $2.00. I would expect some resistance at the 50-dma. Our final target is $2.25 but we do not want to hold over the earnings report in mid August.

Suggested Position: buy CSUN stock @ current levels

Annotated chart:

Entry on July 25 at $ xx.xx
Earnings Date 08/15/11 (unconfirmed)
Average Daily Volume = 325 thousand
Listed on July 23, 2011

Sandridge Energy, Inc. - SD - close: 12.11 change: +0.84

Stop Loss: 11.20
Target(s): 13.20, 13.90
Current Gain/Loss: + 0.0%
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SD is an oil and natural gas company. Shares have been consolidating sideways for weeks. It would have been nice to catch the bounce near $11.00 last week. Shares have broken out through the trendline of lower highs. Now the short covering (squeeze?) has pushed SD right to resistance at its late May high. Normally I would expect a pull back at this resistance and hope to launch bullish positions on a dip in the $11.70-11.50 area. The $11.50 level should be short-term support. However, the most recent data listed short interest at almost 10% of SD's 346 million-share float. That means this rally could keep going.

I am suggesting bullish positions now. If we're lucky, SD will produce a dip on Monday morning that we can buy. I'll plan on adding some calls to this trade if we do see a dip or a bounce in the $11.75-11.50 area. Please note that we do not want to hold over the August 4th earnings report so we don't have much time. FYI: The Point & Figure chart for SD is bullish with a long-term target at $31.

Suggested Position: buy SD stock @ current levels

- or -

We will look at buying calls on a dip near $11.60ish.

Annotated chart:

Entry on July 25 at $ xx.xx
Earnings Date 08/04/11 (unconfirmed)
Average Daily Volume = 12.1 million
Listed on July 23, 2011

In Play Updates and Reviews

Consider Taking Profits Now

by James Brown

Click here to email James Brown

Editor's Note:
This could be a rocky week for stocks if we don't see a debt ceiling deal. Readers may want to take profits early in our CROX, KALU, M, and WNR trades.

I want to remind you that more than one of our candidates are due to report earnings this week. We do not want to hold over the announcement. Prepare to exit soon.


Current Portfolio:

BULLISH Play Updates

CROCS Inc. - CROX - close: 28.24 change: +1.32

Stop Loss: 26.45
Target(s): 29.90, 31.75
Current Gain/Loss: + 3.4%
Time Frame: up to its earnings report
New Positions: see below

07/23 update: Wow! What a difference a day can make. Or should I saw what a difference an upgrade can make! CROX was upgraded on Friday morning and shares rallied to a new multi-year high by Friday afternoon at $28.55. CROX settled with a +4.9% gain. I need to warn you that our time frame has changed. Instead of earnings in August the earnings report is now expected on July 27th. This gives us just three days left since we plan to exit ahead of the earnings announcement. I am raising our stop loss to $26.45.

Earlier Comments:
There is a chance CROX could see a lot more short covering with shares nearing new multi-year highs. The most recent data listed short interest at 12.6% of the 83.9 million-share float. FYI: The Point & Figure chart for CROX is bullish with a $52.50 target.

Suggested Position: Long CROX stock @ $27.31

- or -

Long AUG $28 call (CROX1120H28) Entry @ $1.15

07/23 new stop loss @ 26.45.
07/23 Prepare to exit prior to earnings on July 27th.


Entry on July 20 at $27.31
Earnings Date 07/27/11 (confirmed)
Average Daily Volume = 2.1 million
Listed on July 19, 2011

Globe Specialty Metals, Inc. - GSM - close: 24.85 change: +0.19

Stop Loss: 23.80
Target(s): 27.25, 29.50
Current Gain/Loss: - 1.3%
Time Frame: 6 to 8 weeks
New Positions: see below

07/23 update: Unfortunately nothing has changed for us with GSM. The stock has spent the last four days inside the $24.30-25.00 range. I would buy the stock or calls on a breakout past $25.00. More conservative traders may want to raise their stop loss toward the $24.25 area. The plan was to keep our positions small to limit our risk.

Earlier Comments:
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.

- SMALL positions -

Current Position: Long GMS stock @ $25.18

- or -

Long AUG $25 call (GSM1120H25) Entry @ $1.60

07/20 New stop loss @ 23.80


Entry on July 14 at $25.18
Earnings Date 09/15/11 (unconfirmed)
Average Daily Volume = 874 thousand
Listed on July 13, 2011

Kaiser Aluminum - KALU - close: 56.00 change: -0.30

Stop Loss: 53.75
Target(s): 59.75
Current Gain/Loss: + 4.5%
Time Frame: 3 to 5 weeks
New Positions: see below

07/23 update: KALU tagged a new two-year high on an intraday basis. The stock pared its gains by the closing bell. We only have three days left. Earnings are due on July 27th after the closing bell. We'll plan on exiting that day at the close to avoid holding over the announcement. given our time frame I am raising our stop loss up to $53.75.

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. 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

07/23 new stop loss @ 53.75
07/23 Prepare to exit on July 27 at the close
07/20 New stop loss @ 52.49


Entry on July 11 at $53.56
Earnings Date 07/27/11 (confirmed)
Average Daily Volume = 183 thousand
Listed on July 9, 2011

Kennametal Inc. - KMT - close: 44.40 change: -0.59

Stop Loss: 43.15
Target(s): 49.00
Current Gain/Loss: + 0.6%
Time Frame: up to its earnings report 7/28
New Positions: see below

07/23 update: KMT dipped again on Friday. I suspect shares might try and fill the gap from Tuesday morning. That means a dip back toward $43.65. The big picture is still bullish but we're running out of time. We only have three days left. Right now we plan to exit on July 27th at the closing bell to avoid holding over earnings on July 28th. However, I am raising our stop loss to $43.15 to reduce our risk.

Earlier Comments:
I do consider this a somewhat aggressive, higher-risk trade. More than one of KMT's technical indicators on the daily chart are at or nearing a bearish signal.

Current Position: Long KMT stock @ $44.13

07/23 new stop loss @ 43.15
07/23 prepare to exit on July 27th at the close


Entry on July 19 at $44.13
Earnings Date 07/28/11 (confirmed)
Average Daily Volume = 826 thousand
Listed on July 18, 2011

Macy's Inc. - M - close: 30.50 change: +0.56

Stop Loss: 29.25
Target(s): 29.90, 32.25
Current Gain/Loss: + 7.7%
2nd Position Gain/Loss: + 2.1% Time Frame: 6 to 8 weeks
New Positions: see below

07/23 update: Friday turned out to be a bullish day for Macy's. Traders bought the dip near $30.00 and shares rallied toward their early July highs. I am raising our stop loss to $29.25. If we see some follow through on Friday's rally I would be tempted to open small bullish positions. 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

07/23 new stop loss @ 29.25
07/16 new stop loss @ 28.90
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

Vanguard Natural Resources - VNR - cls: 30.61 chg: +0.30

Stop Loss: 28.99
Target(s): 33.25
Current Gain/Loss: - 0.0%
Time Frame: 3 to 4 weeks
New Positions: see below

07/23 update: We are back to breakeven on VNR. Shares just spent a week consolidating sideways above support at $30.00 and its 100-dma. If the market cooperates VNR should be rested and ready for another leg higher. More conservative traders may want to use a higher stop loss!

Nimble traders could try and buy dips near $30.00. If you prefer to see more strength then wait for a breakout past $31.00.

Current Position: Long VNR stock @ $30.61

- or -

Long AUG $30 call (VNR1120H30) Entry @ $1.20

07/19 Play is opened @ 30.61
07/18 The requirements to launch positions was not met. Try again. Both VNR and the S&P 500 need to open higher tomorrow.


Entry on July 19 at $30.61
Earnings Date 08/04/11 (unconfirmed)
Average Daily Volume = 193 thousand
Listed on July 16, 2011

Western Refining Inc. - WNR - close: 20.80 change: -0.33

Stop Loss: 19.75
Target(s): 22.00, 24.50
Current Gain/Loss: + 6.6%
Time Frame: 6 to 8 weeks
New Positions: see below

07/23 update: WNR is starting to see some profit taking after almost a week of churning sideways near $21.00. I have been warning readers to expect a dip toward the 10-dma or the $20.00 level. Cautious traders may just want to take profits now.

Earlier Comments:
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. That's plenty of fuel for a short squeeze.

Current Position: Long WNR stock @ 19.50

- or -

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

07/21 new stop loss @ 19.75
07/20 expect a dip toward the $20.35 area.
07/19 New stop loss @ 18.90. New targets @ 22.00 and $24.50


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

BEARISH Play Updates

OptionsXpress Holdings - OXPS - close: 15.64 change: -0.16

Stop Loss: 16.05
Target(s): 14.05, 13.65
Current Gain/Loss: - 2.6%
Time Frame: about 2 weeks
New Positions: see below

07/23 update: OXPS did see its rebound fail at resistance near $16.00. Technically this could be used as a new bearish entry point. I have to warn you that we only have two days left. We need to exit on Tuesday at the closing bell to avoid holding over earnings Wednesday morning. Aggressive traders might want to consider holding over the report since many believe trading volumes for the industry have been down this past quarter.

Current Position: short OXPS stock @ $15.24

- or -

Long AUG $15 PUT (OXPS1120T15) Entry @ $0.45

07/23 Prepare to exit on Tuesday at the close
07/21 OXPS is testing resistance at $16.00.
07/20 Failure at the 200-dma is a new bearish entry point.


Entry on July 18 at $15.24
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume = 696 thousand
Listed on July 16, 2011