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. Some of our long positions have struggled as we have probably been a little early. 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 fell free to email with any questions.

Current Portfolio:

CALL Play Updates

Hewlett Packard Co - HPQ - close 45.85 change +0.16 stop 44.60

Target(s): 46.65, 47.50, 48.20, 48.60
Key Support Areas: 46.00, 45.11, 44.80
Key Resistance Areas: 46.75, 48.25, 48.70, 50.00
Current Gain/Loss: -47%
Time Frame: 1 to 2 weeks
New Positions: No

In last night's updates I mentioned the rule we use for opening gaps that are near or through stops (see MS below). We had to use this rule on HPQ which kept us in the stock. Maybe we can finally get some follow though to the upside in HPQ that we have been desperately seeking. I've listed 4 targets above readers can use as a guide to exit positions. 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. If we get follow though from this afternoon's move HPQ could make it here but the market must follow through. The 20-day day SMA corresponds well with our targets of $48.20 and $48.60.

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

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

Morgan Stanley - MS - close 26.11 change +0.36 stop 25.50

Target(s): 26.60, 27.25, 28.50
Key Support Areas: 26.40, 25.64
Key Resistance Areas: 27.25, 28.00
Current Gain/Loss: -30%
Time Frame: 1 to 2 weeks
New Positions: Yes, with a tight stop

MS really tested our will today but we remain in the position after implementing our gap rule. I've listed 3 targets above readers can use to exit positions. These are near resistance points and I suggest tightening stops as these levels approach. We must follow through in the overall market to have any shot at hitting these targets. I'll leave the gap rule for readers who may not have read last night's updates. 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.

Current Position: June $27.00 CALL, entry at $1.15

Entry on May 24
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 25 million
Listed on 5/19/10

Teva Pharmaceuticals - TEVA - close 56.40 change +0.72 stop 52.95

Target(s): 56.44 (hit), 57.40, 57.95
Key Support Areas: 54.25, 53.21
Key Resistance Areas: 56.44, 58.00
Current Gain/Loss: +52%
Time Frame: 1 to 2 weeks
New Positions: Yes, if there is a pullback

TEVA traded down to our trigger to buy calls at $54.80. We are now long June $55.00 CALLS at $1.70. Once the stock found its bottom near $54.50 the stock closed almost $2 higher and actually traded up to our first target $56.44. I've listed another target at $57.40 which just below the stock's 20-day SMA. This is probably a good place to exit and logical place for TEVA to at least pullback. My other comments from new play remain the same. TEVA has found an upward trend line dating back to October 2008 and a prior resistance level which should now act as support, both in the $54 to $55 price range. The market is oversold and I'm expecting a bounce from here. I've listed 2 possible entry points: the first is near today's lows at $54.80 and the second is near the low from 5/19 at $54.25. If TEVA can retrace some of today's gains it could be forming a bullish inverse head and shoulders pattern on its intraday charts. This may act as a catalyst for TEVA to move higher in the coming days. Our initial stop will be $52.95.

Current Position: June $55.00 CALL, entry at $1.70

Entry on May 25, 2010
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 3.7 million
Listed on 5/24/10

PUT Play Updates

IAC/Interactive Corp - IACI - close 22.61 change +0.45 stop 23.10

Target(s): 21.40, 20.50, 20.05
Key Support Areas: 22.40, 21.15
Key Resistance Areas: 22.90
Current Gain/Loss: -18%
Time Frame: Several Weeks
New Positions: Yes, with tight stop

I am very surprised in the price action of IACI the last couple of days, but we are still in the position. I suspect there was some short covering going on and if so, we need that to stop. This company has terrible fundamentals and I don't foresee a lot of new buyers stepping in at these levels. There is resistance overhead in a downtrend line and the 50-day SMA that I anticipate holding. I've listed a new target of $21.40 as a potential exit point.

Current Position: June $22.50 PUT, entry at $0.85

Entry on May 24
Earnings More than 2 months (unconfirmed)
Average Daily Volume: 1.4 million
Listed on May 22, 2010