Editor's Note:

Good evening. As I suspected in yesterday's updates we were forced to use our gap rule again today. It worked perfectly on Friday and also today as the none of the first 15 minute bars were taken out and the stocks rallied to close their gaps. All things considered, our positions have performed well. Current positions in our model portfolio have gained a combined +8% as of today's close. GE is the laggard but we're still alive. I have offered multiple targets and support/resistance areas to help guide you when exiting positions.

I remain in the camp that we will most likely consolidate at these levels for several weeks until a larger move to the downside comes later. However, I also believe that a geopolitical event could be a catalyst for a larger move down sooner rather than later. Picking a range has been tough but 1,040 to 1,100 on the S&P 500 seems logical. The problem is that we moved from 1,040 to 1,075 today. These extreme price swings are creating difficult conditions to manage swing trades. Using proper position size and having access to trade intraday makes a big difference. Lastly, taking profits when you can is a must. Please email with any questions.

Current Portfolio:

BULLISH Play Updates

Dr. Pepper Snapple Group - DPS - close 37.11 change +0.28 stop 35.95

Target(s): 36.80 (hit), 37.00 (hit), 37.50, 37.95
Key Support Areas: 35.75, 34.40, 32.70
Key Resistance Areas: 36.93, 37.15
Current Gain/Loss: +4.23%
Time Frame: 1 to 2 weeks
New Positions: No

We were forced to use the gap rule on DPS today just like GE. DPS never took out the first 15-minute low and it was off to the races. The stock is currently above our first and second target and we have gained +4.23%. Considering the turnaround this afternoon I think it is prudent to see if we can squeeze more out of this trade tomorrow, but I don't want too get too greedy. I am going to keep our stop at $35.95 and also provide a new target at $37.50, which is just below the highs from May 20th. The stock also still has good support with its 20-day and 50-day SMA's below.

Current Position: Long DPS stock at $35.50

Entry on: May 21
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 1.9 million
Listed on: May 8, 2010

General Electric - GE - close 15.94 change -0.06 stop 15.94

Target(s): 16.25, 17.00, 17.45, 18.25
Key Support Areas: 16.00
Key Resistance Areas: 16.25, 16.80, 17.20, 17.80, 18.00
Current Gain/Loss: -5.82% Time Frame: Several weeks
New Positions: No

Our gap rule worked perfectly with GE again today and kept us living another day in the stock. We'll see if there is any follow through to this afternoon's strength in the market, or will it be a dud similar to the Friday/Monday craziness. As I write this the ES futures are +11 points higher so it appears we may even gap higher tomorrow. Regardless of how we open, we will use the same rule to manage exiting the position. When there is an opening gap up or down through, or very close to stops/targets I have a rule for exiting positions. For long positions here is my rule of thumb: If a stock gaps down below the stop that has been established, wait for the first 15 minutes of trading before doing anything. Then place a new protective stop just under the low of that first 15 minutes of trading. Reverse the entire scenario for shorts. The reason I do this is because I want to measure the real strength or weakness in the stock. I don’t want a Good Til Cancelled (GTC) stop to be unnecessarily triggered at the open because often times stocks gap and reverse immediately, which keeps us in the position and looking for a better exit. In GE’s case this worked perfectly today and on Friday and kept us in the position. The targets listed above are areas to consider exiting or tightening stops.

Current Position: Long GE Stock at $17.00.

Entry on May 19, 2010
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 88 million
Listed on 5/18/10, 2010

Kinross Gold Corp - KGC - close 16.96 change +0.32 stop 16.06

Target(s): 17.25, 17.75
Key Support Areas: 16.25
Key Resistance Areas: 17.25, 17.95
Current Gain/Loss: +3.41% Time Frame: 1 to 2 weeks
New Positions: Yes, if there is a pullback

KGC traded down to our trigger to enter long positions at $16.40 so we are now long the stock. My technical comments have not changed from the trade set-up. KGC has been trading in a sideways channel between $16.25 and $19.25 for over 3 months. The stock is near the bottom of that channel and I believe the stock is ready to move higher in the coming days along with other gold miners. KGC is also testing the backside of its broken downtrend line from December. I believe KGC should easily trade up to its 50-day SMA which is also above our target of $17.75. I suggest readers initiate long positions if the stock trades down near $16.40. Our stop is below the recent channel at $16.05. This sets up more than a 3:1 risk/reward trade: we are risking $0.35 to make $1.35. Gold stocks tend to be volatile so please use proper position size to limit risk.

Current Position: Long KGC stock at $16.40

Option Traders:
Suggested Position: Buy JUNE $16.00 CALL

Entry on May 25, 2010
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 7.2 million
Listed on 5/22/10, 2010

MetroPCS Communications - PCS - close 8.44 change +0.00 stop 7.80

Target(s): 9.00, 9.25
Key Support Areas: 8.18, 8.05, 7.85
Key Resistance Areas: 8.62, 8.90
Current Gain/Loss: N/A Time Frame: 1 to 2 weeks
New Positions: Waiting to be triggered

PCS hit our trigger to enter long positions at $8.20. My technical comments from the trade set-up have not changed. PCS has shown relative strength while the overall market has declined in recent weeks. There was major volatility during the flash crash in this stock which appears to have shaken out the weak hands. The stock has responded nicely since and bounced off of its 20-day SMA on Friday. I'm playing for a bounce in PCS along with the overall market and I suggest readers initiate long positions if PCS retests its lows from Friday near $8.20. If the market bounces from here I think PCS is poised to retest its recent highs, which are near our targets of $9.00 and $9.25. We'll use tight a stop at $7.80, which is below a gap fill from 5/10 to 5/11. I also like the 2:1 risk/reward set-up of this trade: we are risking 40 cents to make 80 cents, and possibly $1.05.

Current Position: Long PCS stock at $8.20

Entry on May 25
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 9.6 million
Listed on 5/22/10, 2010

BEARISH Play Updates

Royal Caribbean - RCL - close 27.74 change -0.17 stop 31.50

Target(s): 27.80
Key Support Areas: 27.38, 25.00
Key Resistance Areas: 28.00, 28.85, 29.80
Current Gain/Loss: +3.68%
Time Frame: 1 or 2 days
New Positions: Yes, with a tight stop

RCL traded down to its 200-day SMA today and bounced nicely today. Although the stock closed only -0.61% on the day, it closed +6.2% off of its lows. I'm sure short covering had something to do with this but how things can change so drastically in a matter of hours is beyond me, so we must deal with the circumstances. I suggest readers be cautious and prevent this trade from turning into a loser. My fear at this point is that RCL may rally all the way up to fill the gap down between 5/19 and 5/20. I suggest we place a tight stop at $28.45 and just get out of the way for a small profit if this is hit. I also want to list a lower target at $27.80 which is just above today's close.

Current Position: Short RCL stock at $28.80

Option Traders:
Suggested Position: Buy JUNE $28.00 PUT

Entry on May 24
Earnings More than 2 months (unconfirmed)
Average Daily Volume: 4.5 million
Listed on May 22, 2010