Good evening. I didn't get the answers I was looking for on Friday as trading was extremely volatile and there was a big disconnect between stocks and bonds (see my comments in the TBT play update). The economic data had a lot of noise which I think confused traders, me included. However, we should find out on Monday as the tone will be set early in the week so staying nimble is a must. For now I am reluctantly bullish because the bulls are still in control and until that changes we have to respect it. I do believe it could change very quick and this market has a knack for reversing trends on a dime. I have presented two new long plays with very tight stops and targets that are achievable. I like the set-ups of these trades but I am not married to them and suggest readers honor the stops and get out of the way if things turn south. Trade smart and keep your position size small. Please email me with any questions.
NEW DIRECTIONAL CALL PLAYS
Netflix, Inc. - NFLX - close 102.55 change +4.53 stop 100.80
Netflix, Inc. provides online movie rental subscription services in the United States. The company offers its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD). Its members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs. As of December 31, 2009, Netflix served approximately 12 million subscribers. It also partners with consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members' TVs from Netflix. The company was founded in 1997 and is headquartered in Los Gatos, California.
Target(s): 106.25, 108.50, 111.35
Key Support/Resistance Areas: 114.00, 112.00, 108.50, 105.50, 103.00, 102.00,
Time Frame: 1 week
Why We Like It:
NFLX got hammered and has lost more than -15% since the company reported earnings on 7/21. The stock bottomed on Thursday and has bounced nicely. On the intraday charts NFLX has broken out of its recent downtrend line and is forming a bull flag in the $102.00 area which is a key support/resistance level over the past week. If NFLX can break higher I believe the stock should trade up towards $108.50 which is our second target. If the broader market is strong the stock could head up towards its 20-day and 50-day SMA's which are above our most aggressive target of $111.35. I have also listed an immediate target of $106.35 which was a prior support level in early July. The stock may find some resistance at this level so this is good area to tighten stops. I suggest we initiate long positions if the stock trades to $103.35 which is above Friday's highs. Aggressive traders may consider initiating long positions on weakness. We'll use a tight stop at $100.80 which is below the bull flag. If we are wrong I suggest we get out of the trade quick. NOTE: I consider this trade aggressive and it could be quick so I suggest readers use small position size and be ready to take profits when presented with the opportunity.
Suggested Position: Buy September $105.00 CALL if NFLX trades up to $103.35, current ask $5.85, estimated ask at entry $6.15
Entry on August xx
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 3.5 million
Listed on 7/31/10
Oil Service HOLDRS - OIH - close 105.14 change -0.17 stop 102.35
Oil Service HOLDRS Trust issues depositary receipts called Oil Service HOLDRS, representing an undivided beneficial ownership in the common stock of a group of specified companies that, among other things, provide drilling, well-site management, and related products and services for the oil service industry. The Bank of New York is the trustee. The Trust will terminate on December 31, 2041, or earlier if a termination event occurs.
Target(s): 108.50, 110.30
Key Support/Resistance Areas: 110.50, 108.60, 107.00, 104.75, 102.80
Time Frame: 1 to 2 weeks
Why We Like It:
I'm sticking with an ETF here to eliminate some of the earnings noise and mitigate risk in individual names. Oil service stocks have been beaten down and are now showing signs of life. OIH is forming an ascending triangle on its daily chart and has made a series of higher lows since it bottomed on 6/1. The ETF is above its 20-day and 50-day SMA's which is providing further support. I'm comfortable with positions at current levels with tight a stop of $102.30 which is below the low from 7/23. We will either be right or right out of this trade. We are playing for a breakout above $107.00 into the $108.50 to $110.00 area which is near our two targets. $108.50 was a prior support level in the fall of 2009 so OIH could see some resistance there. As OIH approaches our targets I suggest readers be quick to take profits or tighten stops.
Suggested Position: Buy September $110.00 CALL, current ask $2.86
Entry on August xx
Earnings N/A (unconfirmed)
Average Daily Volume: 8 million
Listed on July 31, 2010