CALL Play Updates
Netflix, Inc. - NFLX - close 101.88 change -0.67 stop 100.80
Target(s): 106.25, 108.50, 111.35
Key Support/Resistance Areas: 114.00, 112.00, 108.50, 105.50, 103.00, 102.00,
Current Gain/Loss: -14%
Time Frame: 1 week
New Positions: Yes, with a tight stop
8/2: NFLX gapped higher at the open this morning and quickly sold off to fill the gap. This isn't the price action I was expecting on such a strong tape as traders quickly took profits from gains on Thursday and Friday. I believe the stock can still bounce from here as it closed above its intraday downtrend line and the downtrend line that started on 7/22. In addition, the stock has built quite a base in the $101 to $102 area where it is currently finding solid support. However, if the broader market can not break higher from here NFLX will likely hit our stop. I have tightened the targets and suggest readers be quick to close positions or tighten stops as these areas approach.
7/31: 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.
Current Position: Long September $105.00 CALL, entry was at $6.25.
Entry on August 2, 2010
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 3.5 million
Listed on 7/31/10
Oil Service HOLDRS - OIH - close 109.53 change +4.39 stop 107.90 *NEW*
Target(s): 108.50 (hit), 110.25, 111.20
Key Support/Resistance Areas: 110.50, 108.60, 107.00, 104.75, 102.80
Current Gain/Loss: +27%
Time Frame: 1 to 2 weeks
New Positions: No
8/2: OIH gapped higher this morning and broke through the $107.00 resistance level of the ascending triangle mentioned in the play release. The sector never looked back and OIH posted +4.18% gains on the day. Call positions were initiated at the open and have already gained +27%. Our target of $108.50 was hit and OIH came within 2 cents of our reaching our $110.30 target before closing about 80 cents below its high of the day. I've adjusted the $110.30 target down 5 cents and have also added $111.20 which is below the 100-day SMA. If OIH breaks over today's high of $110.28 I recommend readers tighten stops to protect against a reversal. There is nothing wrong with booking gains at current levels as well. I've adjusted the stop up to $107.90 to protect capital but a tighter stop could be placed at $108.45.
7/31: 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: Long September $110.00 CALL, entry was at 3.65
Entry on August 2, 2010
Earnings N/A (unconfirmed)
Average Daily Volume: 8 million
Listed on July 31, 2010
ProShares UltraShort 20 YR Treasury - TBT - close 36.74 change +0.89 stop 35.55 *NEW*
Target(s): 36.90, 37.50 (hit), 38.00, 39.25, 40.50
Key Support/Resistance Areas: 42.00, 41,00, 39.70, 38.25, 37.55, 34.65
Current Gain/Loss: -1.6%
Time Frame: Several Weeks
New Positions: Yes
8/2: It appears Friday's sell-off in TBT was short lived as I suspected. However, the price action in bonds and equities still seems somewhat disconnected. TBT looks like it is forming a higher low and has 20 more cents to go before closing the gap down on Friday. This will likely act as intraday resistance but I expect TBT to eventually break it and trade back up to our $37.50 target and possibly our more aggressive targets. I suggest readers begin to trail stops higher to see if we can catch a larger move. For now, I've moved the stop up to $35.55 which is below Friday's lows and the upward trend line on the daily chart.
7/31: The price action in bonds on Friday has me scratching my head in amazement. Bond yields tanked and bond prices surged (i.e. money was flowing into the bond market as traders were snatching up bonds at ridiculously low yields) which caused TBT to gap lower and close -2.98% on the day. This was an uncharacteristic huge move and is not normal. What's more interesting is that bonds never gave anything back throughout the day as equities surged higher on Friday morning after their gap lower. One of the two following scenarios has got to give here and the tone should be set in trading on Monday. Either money will flow out of stocks and into bonds creating a big sell off in equities (bad for TBT) or money will flow out of bonds and into equities creating a rally in equities (good for TBT). Medium to longer term I am bearish on equities but in the short term I think the latter is going to happen and we will see stocks rally, or at least hold up, with money flowing out of bonds. This will get our position in TBT moving back in the right direction. I really like new positions in TBT at these levels as well. Looking at a longer term weekly chart of bond prices (i.e. /ZN or TLT) one might think bonds have room to run to their fall 2008/spring 2009 highs. But this was the financial crises and money markets were failing and there is simply no crises like that right now. The other side of that argument is that maybe we are on the verge of a crises and we should listen to what the bond market is telling us. While I believe another crises is bound to happen I'm just not buying that argument quite yet. I believe there can be a sell-off in equities without a surge higher in bond prices or drop in yields. Nonetheless, we have to manage the trade and $36.90 is a level readers may want to consider exiting TBT. This would close the gap lower from today while also booking a winning trade. In the end, I think today's sell-off in TBT was an anomaly that will either be corrected early next week or we are on the verge of a bigger sell-off in equities. Unfortunately, today provided us very few clues as to what will happen. The above targets can be used as guide to tighten stops or simply take profits.
Current Position: Long September $37.00 CALL, entry was at $1.23
Entry on July 26, 2010
Earnings N/A (unconfirmed)
Average Daily Volume: 3.8 million
Listed on July 24, 2010
CLOSED BULLISH PLAYS
Human Genome Sciences - HGSI - close 26.33 change +0.39 stop 24.35
Target(s): 25.95 (hit), 26.50 (hit), 27.00, 27.50
Key Support/Resistance Areas: 28.00, 27.10, 26.60, 24.70, 24.25
Current Gain/Loss: +29.12%
Time Frame: 1 to 2 weeks
New Positions: Yes
8/1: HGSI gapped higher at the open and immediately surged up to our 2nd target of $26.50. We are flat the position for a +29.12% gain. The stock traded in a tight range between $26.50 and $26.70 most of the morning which created a perfect reference point to trail stops up to protect profits. For readers who may still have positions I suggest tightening the stop to protect profits. $25.75 is just below a prior intraday resistance level and is below today's gap higher. This should give you enough room to endure a pullback and still protect capital. But I still suggest being quick to take profits if HGSI moves higher from here.
7/30: HGSI printed a bullish engulfing candlestick and gained +3.1% in Friday's session. Our position is now back in positive territory. Our $25.95 lowered target that was added on Thursday for readers who wanted to protect capital was hit on Friday. This level is where HGSI found resistance on Thursday so there could be some give back before the stock makes another attempt to break through it. If there is immediate follow through early next week we should be on the fast path to hitting our targets of $26.50 and possibly $27.50. I suggest taking profits at one of these levels, or at least tighten stops to protect profits. If there is follow though I would also suggest quickly tightening the stop to either $24.70 or $25.25. For now, I have moved it up to $24.35 and plan to tighten it further on any strength.
Closed Position: Long September $26.00 CALL at $2.35, entry was at $1.82
Entry on July 27, 2010
Earnings Date 10/25/10 (unconfirmed)
Average Daily Volume: 4.2 million
Listed on 7/24/10
ProShares Ultra Basic Materials - UYM - close 32.44 change +1.83 stop 27.20
Target(s): 30.35, 31.20
Key Support/Resistance Areas: 31.30, 30.50, 29.00, 28.00, 27.25
Time Frame: DROPPED
8/2: I do not suggest chasing UYM at these levels. The ETF never let us in so we have dropped the play. The basic materials sector is gaining some serious momentum but we could not filled at our entry and have missed the move. For readers still interested in playing this sector I would look for UYM to fill its gap higher today prior to moving too much higher. A long entry near $30.75 is a logical area for UYM to pullback to but the conditions will need to be evaluated as that is happening.
7/31: My comments about a potential double bottom pattern in UYM worked perfectly today. It took a lot of guts to step in and buy anything Friday morning but if you bought UYM you were handsomely rewarded. UYM remains in a bull flag and every time there is weakness in the ETF buyer step in. We've come within 40 cents of our trigger to enter long positions but UYM just won't let us in. UYM will eventually trade to its rising 20-day SMA which should be near our $29.00 entry this week. As such, I'm going keep this play open for a few more days to see if we can get filled and take advantage of the momentum building in the basic materials sector.
7/30: UYM is not letting us in. The ETF hit a low of $29.50 today and bounced hard. This could also be considered as an entry which may set-up a double bottom pattern on another pullback. I'll reevaluate the play this weekend and come up with a game plan.
Suggested Position: September $30.00 CALL, current ask $2.95, estimated ask at entry $2.15
Entry on July xx (DROPPED)
Earnings Date N/A (unconfirmed)
Average Daily Volume: 1.9 million
Listed on 7/22/10