The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Monday, September 18, 2006
Email – #183
There is no action to take in this alert.
Chaparral Steel (Nasdaq: CHAP) reports earnings tomorrow, and as you probably know, the stock is trading near a 52-week high. But, relief could come very quickly. Steel prices are falling in the U.S. and around the world… and while I expect Chaparral to report blowout numbers, I also expect them to unveil some cautionary language for the upcoming two quarters…
If the company guides lower, the stock will take a massive hit.
The present stop loss is at $39.25. I am moving the stop up 25 cents to $39.50. Exit your position if the stock CLOSES above $39.50.
Looking at the broader market, there’s one event today that I think is missing from the headlines. The 10-year Treasury yield (TNX) is currently trading at 4.830%, up 0.32. This is a fairly large move the yield, which is now also trying to break above descending resistance of the near-term down trend. There are two conflicting implications from today’s move, which we need to be aware of.
1. Today’s move in the yield creates additional danger that the major indices could be topping out. I am watching very closely, and will alert you if the markets look like they are turning over.
2. Though the move in the 10-year yield looks a bit scary, it could have a silver lining. The 3-month yield (IRX) is trading down in today’s session at 4.800, -0.15. With today’s jump in the 10-year and decline in the 3-month, the yield curve is no longer inverted, something bulls may find quite tasty.
I will keep you posted as this situation shakes out.
Exit is everything,
Mark Whistler
Current Portfolio:
Stock or Option: Chapparal Steel (Nasdaq: CHAP)
Current Price: $38.71
Comments: Sell SHORT. Move buy stop up to $39.50
Stock or Option: Chapparal Oct 2006 $27.50 puts (ZHQ-VY)
Current Price: $0.10
Comments: Buy puts and use a 50% trailing stop.
Stock or Option: Chapparal Jan 2006 $27.50 puts (ZHQ-MY)
Current Price: $0.70
Comments: Buy puts and use a 35% trailing stop.
Stock or Option: eTrade (NYSE:ET)
Current Price: $24.40
Comments: Buy. Sell stop is at $21.75
Stock or Option: eTrade Oct 2006 $25 calls (ET-JE)
Current Price: $0.65
Comments: Buy calls. Sell stop is at if ET closes below $21.75.
Stock or Option: TXU Corp (NYSE:TXU)
Current Price: $61.25
Comments: Sell SHORT. Buy stop is above $67.50
Stock or Option: TXU Corp Jan 2007 $55 puts (TXF-MK)
Current Price: $1.31
Comments: Buy puts. Sell puts if TXU closes above $67.50.
