Good evening. I've got one bullish set-up for you tonight along with two trading ideas below. Continue to stay nimble this week as the volatility is likely to continue. A healthy broader market correction is imminent and when it comes I would use the opportunity to consider launching new bullish positions with tighter stops. SPX 1,150 seems like the most logical target but 1,160 will have to be dealt with first by the bears. If 1,150 is broken then 1,130 should be very solid support. I would view breakouts higher as suspect. Please email me with any questions.
Long WEN (Wendy's/Arby's Group): This is a more speculative play trading just under $5 that has some potential. The company is a takeover candidate and Trian Partners (the top institutional holder at 17.86%) is usually the name mentioned as a potential buyer. Aside from a takeover target, WEN has broken out of resistance on heavy volume. Target a move to the $5.50 to $6.25 area.
Long SFD (Smithfield Foods) - Listed again from last week. The stock is on the verge of breaking higher and looks bullish. A stronger dollar should lead to lower commodity prices and will help stocks like SFD. Technically, the stock is consolidating above its 20-day and 50-day SMA in a bull flag. If the stock breaks out target a move up towards the $17.50 to $18.25 area, which is +6% to +10% higher than current levels.
NEW DIRECTIONAL CALL PLAYS
ATP Oil & Gas Corp - ATP - close 14.73 change -0.14 stop 13.75
Target(s): 17.00, 17.90, and possibly higher
Key Support/Resistance Areas: 18.00, 17.00, 16.25, 14.75, 14.10
Current Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes, see entry point below
ATP Oil & Gas Corporation (ATP) is engaged in the acquisition, development and production of oil and natural gas properties in the Gulf of Mexico and the United Kingdom and Dutch Sectors of the North Sea (the North Sea). As of December 31, 2009, the Company owned leasehold and other interests in 62 offshore blocks and 104 wells, including 19 sub sea wells, in the Gulf of Mexico. ATP operates 93 (89%) of these wells, including 95% of the sub sea wells. It also has interests in 11 blocks and three Company-operated sub sea wells in the North Sea. (source: company press release or website)
Why We Like It:
ATPG broke out of resistance from August on heavy volume on 10/11 & 10/12. Over the past week and a half the stock has drifted lower on light volume (a bullish sign) right into the prior resistance from August, which should now act as support. At the same time the stock has formed a bullish descending wedge pattern that could produce a powerful move higher if it breaks out. Also notice the converging 20-day and 200-day SMA's providing further support, along with an upward trend line from its August lows. Finally, there is a gap to fill down near $14.30 which also sets up a good bullish entry point. I suggest we launch bullish positions using a breakout (at $15.11) or gap fill (at $14.30). We'll keep a tight initial stop at $13.75 and it will be adjusted after our entry is triggered.
Trigger: $15.11 or $14.30
Suggested Position: Buy December $24.00 CALL, current ask $1.10
Entry on October xx
Earnings Date 11/4/2010 (unconfirmed)
Average Daily Volume: 2.7 million
Listed on October 23, 2010