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New Trades - 12/29/08 -



NEW BEARISH Plays

symbol: CMI -( Cummins Inc. )-

closing price: 24.27, today's change: -0.85, stop loss: 26.05

Picked on December 29 at $24.27
Change since picked:     + 0.00 
Average Daily Volume:       3.6 million        			
Earnings Date          01/30/09 (unconfirmed)    

The action in CMI has taken a turn for the worse. The stock has failed multiple times at overhead resistance at the simple 50-dma. Now CMI has broken its bullish trend of higher lows. The MACD on the daily chart has produced a new sell signal. The next move should be lower although I will point out that the P&F chart is still bullish following the oversold rebound from late November.

I am suggesting readers open bearish positions now. If not here than look for a failed rally near $25.00. If you want to see more momentum then more conservative traders will want to wait for a drop under $23.40 before initiating positions. We'll start with a stop loss at $26.05. Our first target is $20.50. Our second target is $18.50. The November low was $17.70.

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symbol: DIA -( DIAMONDS )-

closing price: 84.91, today's change: -0.16, stop loss: 86.05

Picked on December 29 at $84.91
Change since picked:     + 0.00 
Average Daily Volume:        27 million        			
Earnings Date          00/00/00 n/a

The Dow Jones Industrial Average tested short-term support at 8360 today. The index managed a bounce but I think it's temporary. Technical indicators like the daily chart's MACD and RSI have turned bearish. The index has broken the bullish trend of higher lows. There is a good chance that the DJIA will retest the 8000 level and possibly lower.

I am suggesting readers short the DIA here at $84.91. There is short-term support at $83.50 so more conservative traders may want to wait for a decline under $83.50 as a potential entry point. While I expect the DJIA and the DIA to break support at the 8000/80.00 level we should expect it to bounce first.

Our first target to take profits will be $80.25. Our second target is $76.00. The intraday low in November was $74.50 on the DIA.

Alternative Strategy: Instead of trading the DIA, readers could short the DDM instead. The DDM is the double-long (2x) ETF on the DJIA. Or instead of shorting the DDM you could buy the double-short (2x) ETF symbol: DXD.

Option Strategy: Instead of shorting the DIA consider buying puts. Put options go up in value as the underlying security goes down. Some traders like a higher delta in their options to get a more dollar-for-dollar move so I would use the January $90 puts (symbol: DAV-ML) currently going for $5.85. An at-the-money option would be the January $85 put (symbol: DAV-MG) at $2.81. Or you could buy an out-of-the-money option like the January $80 put (symbol: DIJ-MB) at $1.23. The exit strategy is the same. Take profits in your option when the DIA hits our target(s). Close your option position if the DIA hits our stop loss. Readers should note that January options expire in less than four weeks. You may want to use February puts.

Before trading options readers should familiarize themselves with the risks associated with options by reading this pamphlet produced by the Options Clearing Corp. here.

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symbol: IWM -( iShares Russell 2000 )-

closing price: 46.82, today's change: -0.73, stop loss: 48.05

Picked on December xx at $xx.xx <-- see Trigger
Change since picked:     + 0.00 
Average Daily Volume:        81 million        			
Earnings Date          00/00/00 n/a

The IWM is the iShares ETF for the Russell 2000 smallcap index. There used to be an historical trend for small caps to out perform the broader market during the first couple of weeks of January. It became known as the "January effect". As more and more traders started front running this seasonal trend the January effect started taking place in December. I think this year the January effect has either already happened or failed to show up. The small caps were the most resilient during the market's oversold bounce from its lows. Unfortunately, today saw the Russell 2000 index breakdown under its trend of higher lows.

The index did recover during the late afternoon bounce but the intermediate up trend looks broken or will be soon. I am suggesting that readers short the IWM with a trigger to open positions at $45.80, which would be a new two-week low. If triggered our first target to exit and take profits is $41.00. More aggressive traders may want to aim for the November lows near $37.50.

Option Strategy: You can try to leverage the move in the IWM by using options. Keep the same trigger to open positions. If you want an in-the-money option then use the January $50 put (symbol: IWM-MX) currently trading at $4.05. Want an at-the-money then use the January 45 put (IWM-MS) at $1.42. Prefer an out-of-money then use the January 40.00 (IWM-MN) at $0.36. Readers should note that January options expire in less than four weeks. You may want to use February puts.

Before trading options readers should familiarize themselves with the risks associated with options by reading this pamphlet produced by the Options Clearing Corp. here.

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symbol: WYNN -( Wynn Resorts )-

closing price: 41.90, today's change: -0.90, stop loss: 43.01

Picked on December xx at $xx.xx <-- see Trigger
Change since picked:     + 0.00 
Average Daily Volume:       1.5 million        			
Earnings Date          02/12/09 (unconfirmed)    

The casino stocks have been hammered lower as investors worry how the global recession will affect business. They have a right to be worried and I suspect that these stocks will retest their lows if not breakdown to new ones. WYNN is a volatile stock but if we can catch a move it should really pay off. Shares produced a failed rally and bearish reversal under $50.00 several days ago. It's taken a few days but WYNN has finally broken the bullish trend of higher lows. Technical indicators are rolling over. Today's bounce from $40.00 may be a tempting entry point for the bulls but I think it will roll over.

If we see a failed rally near $45.00 will take it but until then our official entry point will be a breakdown under $40.00 with a trigger at $39.85. If triggered at $39.85 our first target to take profits is $35.50. We're also listing a secondary target at $32.00.

Option Strategy: Instead of shorting WYNN you could buy put options. If triggered at $39.85 then an "in-the-money" option would be the January 45 put (symbol: UWY-MI) currently trading at $5.60. An at-the-money option will be the January $40 put (UWY-MH) currently $2.75. An out-of-the-money option will be the January $35 put (UWY-MG) currently $1.20. Readers should note that January options expire in less than four weeks. You may want to use February puts.

Before trading options readers should familiarize themselves with the risks associated with options by reading this pamphlet produced by the Options Clearing Corp. here.

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