Add ESI Calls

Playing a Continuation Move

By Bryan Bottarelli
Tuesday, August 25, 2009 11:30 AM EDT
Tue, 25 Aug 2009 15:30:00 GMT

PLAY: Buy the ESI September 110 Calls (ESI IB) at or under $3.40, good for the day. Place a protective stop limit at $2.10 and a sniper sell at $6.00.

Dear Bottarelli Research Member,

First and foremost, congratulations on this morning’s WHR winner. As it turned out, we timed both the entry and the exit points right on the money. In today’s skittish market, we must operate delicately, as it feels like we’re constantly walking through a live minefield. Our WHR trade accomplished this perfectly. Nice trading!

As I’ve said before, I personally think WHR is a stock that’s grossly over-bought. The recent upside euphoria came on speculation that the government-sponsored “Cash for Clunkers” program would soon get extended to refrigerators, washers, and dryers. As it stands, I now feel that this news has been fully priced into WHR shares. Going forward, we could very well play this one to the downside. Stay tuned!

In terms of today’s new trades, I’d like to get positioned to ride further upside in secondary education firm ITT Educational Services (ESI – NYSE). Earlier this morning, fellow competitor Corinthian Colleges (COCO – NASDAQ) jumped 12% after reporting earnings of $68.8 million ($0.79 per share) compared with $21.3 million ($0.25 per share) one year ago. In this market, that’s quite an improvement.

ESI

What’s more, COCO also said that they expect new student enrollments to fuel sales and profits in fiscal 2010 as unemployment continues to rise. In short, this sets up a very positive stage for ESI going into their earnings report on October 31st. From a chart perspective, we should continue to see upside momentum, so let’s get positioned to ride this ESI strength using September calls.

PLAY: Buy the ESI September 110 Calls (ESI IB) at or under $3.40, good for the day. Place a protective stop limit at $2.10 and a sniper sell at $6.00.

At the same time, we could also have a strong downside opportunity on our old favorite day-trading vehicle, Green Mountain Coffee Roasters (GMCR – NASDAQ). As you know, we’ve done well playing GMCR in the past, and the time is getting close to saddle up the horse once again. As you can see below, the stock has recently popped up, but it’s now hitting its head on serious resistance at the 50-day moving average. If I sense a failure, we’ll jump into puts. For now, wait for the signal.

GMGR

At the same time, let’s also watch Sears Holdings (SHLD – NASDAQ). As you probably know, I’ve called Sears the “worst retailer in America” for the last two years. When you’re competing against the likes of Wal-Mart, Costco, and Target, there’s simply no margin for error. And when it comes to Sears, they’re a dinosaur of a company dying a slow, painful death.

SHLD

Recently, poor earnings dropped the stock 11% in a day, which sparked a Barron’s cover story warning that shares could fall another 50% from current levels. Why anyone would commit new money to SHLD at this point is beyond me. Similar to GMCR, shares of SHLD have also dipped below the 50-day moving average and recovered, but are now facing new resistance at this level. Get ready for puts when the timing is right!

As always, you’ll be the first to know when it’s time to act on any new plays.

Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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