Editor's Note:

Good evening. Last week was extremely volatile which forced us to close most positions in our portfolio due to targets and stops being hit. The volatility is making things extremely difficult to manage and also making our time in the trades quicker than we anticipated. But the volatility also brings opportunity with it. Our winners gained much more than our losers last week. We are now biased more to the long side, at least early this week, as I am anticipating a relief rally in the markets. I am in the camp that we will be in a trading range for several weeks if not months and that we are currently near the bottom of that range. In the S&P 500 I think 1,050 to 1,115 or slightly higher is the shorter term range to focus on. Please feel free to email me with any questions.

Current Portfolio:

CALL Play Updates

EMC Corp. - EMC - close 17.96 change +0.28 stop 16.95

Target(s): 18.20, 20-day SMA, 18.70
Key Support Areas: 17.65, 17.55, 17.45, 17.10
Key Resistance Areas: 17.80, 18.00, 18.50, 18.85
Current Gain/Loss: +8%
Time Frame: 1 to 2 weeks
New Positions: Yes, on weakness with a tight stop

EMC gapped down with the rest of the market on Friday but immediately rebounded and closed near its highs of the day, +1.58% higher. The stock is now battling its long term pivot level dating back to June of 2007 at $18.00. EMC is finding support on a trend line that began with the 9/3/09 lows to 2/5/10 lows, and finally the flash crash lows on 5/6/10. But the stock still faces overhead congestion like many others. If EMC can get over $18.00 we should hit our first target at $18.20. Our more aggressive second target has been lowered to $18.70 which is just below the stock's 50-day and 20-day SMA's. I've also listed the 20-day SMA as a target and urge readers to exit positions if the stock trades anywhere near this level. If EMC trades to $18.20 our options should be worth about 83 cents which is a +27% gain. I suggest taking profits or tightening stops at this level to protect capital and protect against a reversal. EMC could trade up to its 50-day SMA if the bounce in the overall market can continue this week. With the extreme up and down volatility and oversold conditions we could easily see a continued short covering rally creating a sharp move higher and if that happens I suggest taking profits.

Current Position: June $18.00 CALL, entry at $0.65.

Annotated Chart:

Entry on May 20, 2010
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 25 million
Listed on 5/19/10

Hewlett Packard Co - HPQ - close 46.58 change +0.63 stop 44.60

Target(s): 48.20, 48.60, 49.70
Key Support Areas: 46.00, 45.11, 44.80
Key Resistance Areas: 46.75, 48.25, 48.70, 50.00
Current Gain/Loss: -7%
Time Frame: Several weeks
New Positions: Yes, on weakness with a tight stop

I'm expecting follow through to the upside in HPQ after Friday's price action. But we are not trying to hit a home run here. I want to book a profit when the opportunity presents itself. Our targets listed above are logical exit points. I am also keeping an eye on the declining 20-day SMA. HPQ has not touched this SMA since 4/27 and it is overdue to get there. It appears this is going to correspond nicely with our targets or $48.20 and $48.60. If HPQ can continue the bounce to these levels our options should be worth north of $2.00 which would represent a +40% to +50% gain. I will gladly take profits at those levels. HPQ closed right at a key level for the stock near $46.60. If it can breakout above this level we should be on way to reaching our target. There is support below at $46.00. HPQ is a quality company and that has great fundamentals and is trading at 11 times forward earnings estimates. I'm viewing the recent pullback as opportunity to enter a quality name that may catch a bid as investors flee from more speculative names.

Current Position: JUNE $47.50 CALL, entry was at $1.47

Annotated Chart:

Entry on May 19, 2010
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 16 million
Listed on May 18, 2010

PUT Play Updates