Monday, March 1, 2010

Short MON

Trade: Long MON April 2010 $75 Puts - 2 contracts at $5.80 each

Set-up:  25-Feb-10 set up on Daily chart on both 20D Accel bands and 30D $R.
Confirmation on both Accel band and %R on 2/26/10.

Conditions: Efficiency Ratio, Stochastics, MACD, and ADX/DMI are all very bearish.

Re-Entry: on %R retest

Exit strategy: if %R retest is violated.

Target for profit taking: if MON closes at or below 66.11 take 50% of position off.
This is 78.6% Fib extension from 1/6 peak to 2/5 low to 2/22 peak. Also 52 week low resistance level.

Stop loss: close above $73.30 (set-up bar's high).

Time Frame: Prepared for 1 month+  holding period.

Where found: IBD Stocks on the move Sunday 2/28/10.


Found this and decided to open a 10% position based on the strong technicals on various timeframes. The fears on this one are that it is close to a 52 week low and the fundamentals on the company are not bad. In fact they aren't terrible at all. The weekly chart shows a trading range, and I am entering near the bottom of that range. So the downside may be limited on this short. The vix is under 20 and the market is failing to follow through on a rally attempt that started on 2/5/10. Today however, it is finding a lot of buying (its Monday and this is a pattern that appears to be a mutual fund phenomenon of late - They call this Mutual fund Monday).

In any case, my current folio is Long, DIN, RVBD, NFLX, and UUP. I am short WCG, and FLIR. I wanted more short exposure since the rally attempt is getting long in the tooth and the VIX is low. So that is why I picked up MON. The major risk is that value guys come in a pick it up at these levels and some upgrades ensue. The headlines for MON are negative, Round-up (their key product) seems to have more and more resistant strains of weeds, and the CFO recently re-iterated guidance for 2010 EPS that were low compared to the street (3.10-3.30 range vs. 3.29 expectations). This may have exasperated the selling.