IBM

IBM plunged more than $5 yesterday after springing a nasty trap on bulls on the opening bar. It worked out perfectly for us, though, because we were able to short two August 170 puts for 1.15 -- slightly less than we paid a while back for two August 175 puts when the stock was trading near its all-time high, 185.63.  The net result is a bearish position that can make us as much as $1000 if we are right but cost us no more than $10 if we are wrong.  In effect, we are getting 100-to-1 odds against the stock's sinking to $170 or lower by August 19.  The cherry on top is that we stand to make $200 per point at expiration for each point IBM is trading below $175 -- just 2.8% below current levels.  This is the only way to play put options, as far as I'm concerned, since no retail customer I have met in nearly 40 years of option trading has made amy real money buying puts.  Better to leg into positions that have almost no-risk and plenty of upside. Now we can forget about it and relax. In the meantime, I will continue to look for trades that even novices can do that have the potential to pay for the cost of an annual subscription to Rick's Picks. Want to learn how to do this trick yourself? Click here for a free trial subscription to Rick's Picks.

We hold two August 175 puts acquired for 1.20 near the so-far top of one of the most manic rallies in this stock's illustrious history.  This is a speculative play, akin to yelling "Stop!" as a speeding freight train bears down on us. That said, the pattern that produced the target we've shorted is sufficiently compelling to suggest we're aboard near 'a' top if not 'the' top.  Do nothing further for now but stay tuned, since we'll want to short some puts of a lower strike against the ones we own if the stock corrects sharply. Please note  as well that 187.55 is possible before the stock turns lower. That is the 'D' target of a pattern less significant than the one yielding the original one at 183.35 (see chart), and its attainment would represent a minor-trend extension of a major trend as sometimes occurs. _____ UPDATE (12:12 p.m. EDT): With IBM getting butchered today off the bull-trap high  it achieved Sunday night on word of a budget "deal," I'll recommend shorting an August 170 put at-the-market for each August 175 put you hold. This will give us a $5 vertical put spread for nothing, or close to it.

If a millennial tide of Fed funny-money can push the broad stock averages higher no matter what the economic climate, just imagine what it can do for the shares of companies with strong earnings growth in these recessionary times. In particular, Google, IBM and Apple have soared in recent days on stellar Q2 reports and giddy rumors. Yesterday it was Big Blue that took flight, gapping up five percent on news of exceptional top-line growth.  Even better for investors was that the company expects this growth to continue for at least the rest of 2011 in all of its lines: hardware, software and business services. We wrote here a long while back that IBM bonds were probably a safer and better bet than U.S. Treasurys, and we still think this is so. There were a few other blue chip companies on our short list that one could imagine will do pretty well even if economic activity in the U.S. sinks to depressionary levels. Johnson & Johnson, Disney, Caterpillar, 3M and Safeway come to mind, as well as Apple, which, despite its pricey merchandise, stands to rake in tens of billions of dollars over the years from nickel-and-dime sales of iTunes to an imponderably large number of music lovers. Google’s explosive short-squeeze came earlier in the week, when the stock gapped from 529 to 598 overnight – that’s nearly 14%! -- on the sensational earnings report that nearly everyone must have expected. Apple’s numbers were to have been reported after the close on Tuesday, but the stock seemed uncharacteristically subdued ahead of the announcement. This is probably because AAPL, even more than GOOG or IBM, has spent the last few weeks discounting the best news anyone could imagine.  Apple shares that traded as low as 310 on June 20 have since

Although our bullish outlook for stocks remains unchanged, the 900-point Dow rally we projected in late May hasn’t been the quite romp we were expecting. In fact, springtime’s tiresome ups and downs appear to be continuing into summer, and it now seems possible this behavior could persist well into August.  If so, the risk of financial loss will be lower in the coming weeks than the risk of being bored half to death. Yesterday’s price action underscored the stock market’s reluctance to do much of anything, even when conditions seem right.  Such as Sunday night.  For a rare change, it looked like the slimeballs who control stocks in the off-hours were on the ropes. Usually, they take shares down as far as possible Sunday evening in order to exhaust sellers just ahead of Monday’s opening. This allows Them to short-squeeze stocks ahead of the bell, catalyzed by virtually any crumb of news that could be construed as even remotely positive. This time, however, with index futures getting pounded overnight, the familiar stage-managed rebound was nowhere in sight.  Stocks in fact continued their fall for the first few hours of Monday’s session, with the Dow down by almost 200 points at the lows.  Then, just when it looked as though DaBoyz might get trampled, shares suddenly reversed and headed north, recouping half the day’s losses by the final bell. So how might the markets continue to bore us in the weeks ahead? For starters, we expect yesterday’s weakness to resume, bringing the September E-Mini S&P down to at least 1280.50 today or tomorrow.  With the futures trading for around 1301.00 as of this moment, the implied 20-point drop would spell a relapse of about 160 points for the Dow Industrials.  We’d be cautious buyers at that level, using the Hidden Pivot

Careful here! If you've been long IBM based on the very bullish forecast I disseminated a few weeks ago during an impromptu online session, the stock is closing rapidly on a 183.35 target.  Traders can get short there by buying two August 175 puts, no stop. ______ UPDATE (2:58 p.m. EDT):  We bought the puts for 1.20 when IBM gapped nearly six percent higher this morning on stellar Q2 earnings. The intraday high has exceeded our target by 1.34, but we'll stick with the position anyway because the pattern and target are so compelling.  And yes, I had expected the stock to top within pennies of the target, so there is more risk here than originally intended.

IBM looks like the same kind of sleaze-trap as Apple, what with yesterday's $7 gap-down opening followed by a $3.63 rally to close on the intraday high.  This brazenly manipulated selloff did no damage whatsoever to the daily chart, and even on the "60" it lacked the guts to take out a look-to-the-left low at  122.17 from July 6.

It's been a coon's age since IBM created a bearish impulse leg on the daily chart, but it would happen today if the stock touches 105.10.

A Hidden Pivot resistance at _____ is equivalent to the rally target I've identified in Apple, and the same caveats apply if you should decide to short this stock. If Big Blue gets by that number, look for a follow-through