Good Evening. Does this market have your head spinning yet? Mine sure is after the head fakes we have seen over the past several days. In any event, ETN was opened and closed in a matter of minutes this morning and our positions in QQQQ and WYNN were also stopped out at the open. I suggest treading lightly until we know whether this market is truly heading higher or it is setting up for another fall. I like our short play set-up in COST and our new long play set-up in UYM, should we get filled. Small postion size in suggested. Please email me with any questions.
PUT Play Updates
Costco Wholesale - COST - close 54.90 change +1.29 stop 57.25
Target(s): 54.35, 53.80, 53.00, 52.25
Key Support/Resistance Areas: 56.80, 55.60, 54.25, 53.40, 51.50
Time Frame: 1 week
7/22: COST could not even get above yesterday's highs when the market was spring boarding higher. this stock appears is a relative underperformer and I like it short if we get filled at $55.50. If nothing else a quick turn around from this resistance area can turn into a quick profit. I've added $54.35 as an immediate target. If we get triggered and hit this target, options positions should easily gain 20% to 30%. If we get a meaningful pullback COST should be one of the first stocks to let go.
7/21: COST tanked -2.69% today has already hit our first target. It's probably wishful thinking that the stock will rally up to our target of $55.80, but if we are patient we might get one of those rally days so I suggest we see how the rest of the week plays out. I will lower the trigger to $55.50 which is near the 20-day SMA and $55.60 resistance area which is where I expect COST to hit a brick wall.
7/20: COST has broken through key support/resistance areas at $56.80 and $55.60 and is below all of its major moving averages which are declining. The stock is rallying to test these areas from below and I suggest readers using a trigger of $55.80 to enter short positions on any further strength COST exhibits in the coming days. This area is near the most recent downtrend line. We'll use a tight stop at $57.25 which is just above the 50-day and 20-day SMA's, the recent downtrend line, and the congestion area overhead. COST has a large gap to be filled down near the $52 level which is near our most aggressive target and could happen if weakness reappears in the broader market. NOTE: September options were just recently released so the open interest is less than other months.
Suggested Position: September $55.00 PUTS, current ask $1.86, estimated ask at entry $1.50
Entry on July xx
Earnings 10/7/10 (unconfirmed)
Average Daily Volume: 3.76 million
Listed on July 20, 2010
CLOSED BEARISH PLAYS
Eaton Corp - ETN - close 74.75 change +1.61 stop 74.90
Target(s): 71.55, 70.80, 69.85
Key Support/Resistance Areas: 74.00, 71.50, 70.00, 68.50
Final Gain/Loss: 0%
Time Frame: 1 to 2 weeks
New Positions: Closed
7/22: ETN gapped up near our stop loss and then ran right through it within the first few minutes of trading. The only trades I can find that went off in the time frame of our stop was hit were at $1.65 so that is price I have used for the entry and exit. I'm not concerned so much about that though. I would rather explain how I would have handled the opening gap and placed a short trade on ETN. First, in this volatile environment it's impossible to tell where a stock will open and find resistance which makes it very difficult to pinpoint entries/exits in an end of day newsletter. One thing is certain and that is we must have relatively tight stops (i.e. not like DE & SBUX) to prevent the market from running away from us. In this case, had you been following the stock this morning prior to shorting it you would have never taken the position until the initial onslaught of momentum faded, which it clearly did at about 10:00 AM. Only then should a short have been initiated with a stop above the highs. If you were able to do that you have a gain of more than +25% as of the close today plus you have better reference points to place protective stops. The bottom line is ETN has gained nearly +13% in three trading sessions and it is an expensive stock. I like the short play even more now. The stock now has two gaps to fill below and if there is any weakness they should get filled relatively quick. If readers have positions I think you will have a chance to take profits soon. I would stick with the trade and trail your stop down as ETN fades. One exit strategy is to place a good til cancelled (GTC) order on the option price, at say $2.10 or $2.20. I would be surprised if you don't get filled in the coming days, maybe even tomorrow.
7/21: ETN reported earnings this morning that beat estimates and the stock closed +5.9% on the day with most of that coming in the form of a gap higher. The company also guided higher but the stock is still expensive trading around a 20 PE ratio. ETN has gained over +10% in just two days and has rallied right into a downtrend line from its April to June highs. I expect there to be a significant retracement and we could see ETN begin to close the gap higher from today. At a minimum we should see ETN turn back towards today's lows and its 50-day SMA. Our stop will be above today's highs at $74.90. NOTE: the September strikes were recently released so the open interest isn't as high as other months.
Suggested Position: September $70.00 PUTS at $1.65, entry was at $1.65
Entry on July 22, 2010
Earnings: More than 2 months (unconfirmed)
Average Daily Volume: 1.7 million
Listed on July 21, 2010
PowerShares QQQQ Trust - QQQQ - close 45.77 change -1.13 stop 45.10
Target(s): $45.05 (hit), 44.60 (hit), 44.40 (hit 7/17, 7/20), 44.15, 43.90
Key Support/Resistance Areas: 46.77, 45.25, 44.46, 43.50, 42.50, 41.00
Final Gain/Loss: -41.62%
Time Frame: 1 week
New Positions: Closed
7/22: Well, you certainly have to pick your spots very carefully in this environment and obviously our spot to exit this position was at the close yesterday. QQQQ proceeded to gap open above our stop so we were taken out at the open. We are flat the position for a loss and finding better opportunities. The ETF backed off of its primary downtrend line today while the other major indexes (except RUT) closed above their trend lines. But with the huge reversal it appears this may be taken out. Price will soon tell us and it will be interesting to see how this plays out.
7/21: QQQQ gapped higher and essentially sold off the remainder of the day. The stock hit our first target of $45.05 and drifted higher to the $45.40 area which is where the real selling began. For intraday traders I've provided an intraday chart to illustrate where protective stops could have been placed to protect against a reversal and to get the most of the price action that was happening (see red lines on the chart). The initial stop could have been placed near the $45.50 level which was above the initial swing high (see small oval). QQQQ then proceeded to sell off hard hitting our targets of $44.85 and then finally $44.60 at the end of the day. Once these targets were hit the stops could have been moved down to the $45.10 area which was above prior intraday support areas of the past few days (which should now act as resistance). This is the ideal way to deal with the current volatility upon us. So now we are ready to lower the stop to $45.10 going into tomorrow. $44.10 is still a valid target just above the 20-day SMA that has been previously hit. This is the area where I suggest tightening stops to see if we can get even more out of the position. If things continue to the downside the immediate next targets are $44.15 and $43.90 with the most aggressive target at $43.40. I know managing a trade like this is difficult for traders who do not trade intraday. A possible solution would be to initiate a trailing stop which will protect you from a hard reversal back to the upside. In this case the trailing stop would be about 45 cents. My goal is to exit this positions this week.
Current Position: August $45.00 PUTS at $1.08, entry was at $1.85
Entry on July 8, 2010
Earnings N/A (unconfirmed)
Average Daily Volume: 100 million
Listed on July 7, 2010
Wynn Resorts - WYNN - close 85.48 change +3.52 stop 85.10 *NEW*
Target(s): 81.55, 80.50, 79.50
Key Support/Resistance Areas: 85.00, 84.00, 76.50, 72.00
Current Gain/Loss: -54.2%
Time Frame: 1 week
New Positions: Closed
7/22: After coming within 2 cents of our target yesterday WYNN reversed with the entire market and stopped us out within the first 45 minutes of trading this morning. There were some opportunities to take profits on this trade earlier in the week but my targets were simply not quite right which in the end caused the loss. For readers who may still have positions I would close positions or tighten stops on weakness. I see intraday support at $84.50, $83.80, $82.50 and the above the above targets. At the end of the WYNN will eventually touch its 200-day SMA but its just not ready yet.
7/21: WYNN came within 2 cents of hitting our revised first target this afternoon so I have raised this 5 cents. The stock prices of WYNN are coiling and it is due for a trip lower. When that happens I suggest readers use the above targets to tighten stops to see how much more we can get out the position. I think WYNN's early strength was more about a prior unfilled gap than true strength. I think we will see $80.50 and probably $79.50 prior to going much higher. I'm going to lower the stop to $85.10 which is above today's high. If WYNN trades up to this level its probably headed towards $88.00 but I like it go lower first.
7/20: Once again WYNN was down -$2 at the open and pulled a complete reversal. Conservative traders may want to consider exiting this position and preserving capital as we have already lost -$1.50 in the option premium. After WYNN broke below key support levels and its 20-day, 50-day and 100-day SMA's the stock has catapulted higher with the broader market. It's time to salvage what we can so I have listed 4 targets above and I suggest readers begin too tighten stops or exit positions at these levels.
NOTE: I view this trade as being aggressive and potentially quick.
Current Position: August $75.00 PUTS at $1.60, entry was at $3.50
Entry on July xx
Earnings 7/29/10 (unconfirmed)
Average Daily Volume: 2.92 million
Listed on July 17, 2010