Watch List, Saturday, 04/25/2009 by James Brown Click here to email James

HAVING TROUBLE PRINTING?

New Watch List Entries

DRYS - DryShips, Inc.

KBH - KB Home

Active Watch List Candidates

CRS - Carpenter Technology

DO - Diamond Offshore

IRF - International Rectifier Corp.

Dropped Watch List Entries

I am dropping RS from our active watch list and moving it to my personal watch list. The post-earnings sell-off was sharp but the stock remains very overbought. I would prefer to see a dip closer to $30.00 or better yet the $27.50 region.

ERTS and PCU both graduated to the play list last week.

New Watch List Candidates:

DRYS $6.80 +0.02 - DryShips, Inc.

DRYS soared higher on April 17th following a big upgrade for the stock. Since then shares have consolidated sideways. It looks like DRYS may have gotten a little ahead of itself. Eventually, when the global economy turns around, the shipping stocks could be big winners, until then I believe we can be patient and pick our entry points.

I am suggesting readers look for a dip back to the $5.50-5.00 zone. If DRYS hits $5.50 traders can choose to either buy the stock or go for the LEAPS. I am suggesting the 2010 January $10 LEAPS. My target is the $14.00-15.00 zone. We'll use a stop loss at $3.95.

Company Info:
DryShips Inc. is a global shipping transportation company specialising in the transportation of drybulk cargoes. (source: company press release or website)

Buy-the-Dip trigger: $5.50

BUY the 2010 January $10.00 calls (symbol:KOO-AY)

Chart of DRYS:

KBH $18.38 +0.99 - KB Home

After a three-year slide it looks like the homebuilders may have actually found a bottom. The real estate market is far from healthy but it does seem like the rate of decay is slowing and in some areas of the company it has stopped going down. The homebuilders have been soaring on a bounce in new home sales and historic all-time low mortgage rates.

KBH might be a good way to play the sector's strength but we want to wait for our entry point. This stock has produced a bullish double bottom and powered through several layers of resistance including the $15.00 level and its 200-dma. The Point & Figure chart is bullish with a $31.00 target.

I am suggesting that readers buy LEAPS on a dip into the $15.50-15.00 zone. We'll use a stop loss at $12.85. If triggered our target is the $24.00 to $29.00 zone.

Company Info:
KB Home, one of the nation's leading homebuilders, has delivered hundreds of thousands of quality homes for families since its founding in 1957. (source: company press release or website)

Buy-the-Dip trigger: $15.50

BUY the 2010 January $25.00 calls (symbol:YAB-AE)

Chart of KBH:

Active Watch List Candidates:

CRS $19.32 +1.08 -- Carpenter Technology

This could be the week we finally get an entry point. CRS is due to report earnings on April 28th. After a sharp multi-week run the stock could see some post-earnings profit taking.

We are adjusting our entry point to buy LEAPS to the $16.20-15.00 zone. Our new stop loss is $14.20. If triggered we have two targets. Our first target to take profits is $23.75. Our second target to take profits and exit is $28.50.

We now have December options to choose from.

Buy the dip trigger: $16.20-15.00 zone

BUY DECEMBER 2009 $20 CALL (CRS-LD)
-or-
BUY DECEMBER 2009 $25 CALL (CRS-LE)

Chart of CRS:

DO $76.19 +2.15 -- Diamond Offshore

Did we miss the entry point on Tuesday, April 21st with DO's dip toward $67.50? It's possible. The oil service stocks have been very strong. DO is breaking out from a multi-month base. Even if we missed the entry last week the stock has resistance near $80.00 and its 200-dma. Shares will probably pull back again.

I am adjusting our entry point to buy LEAPS for a pull back into the $68.00-65.00 zone. We'll raise our stop loss to $63.75. The upside target is the $90-100 range.

Buy The Dip trigger: $68.00-65.00 zone

BUY JANUARY 2010 $90 CALL (WFJ-AR)

Chart of DO:

IRF $16.13 +0.64 - International Rectifier Corp.

IRF came close but it has not yet hit our entry point to buy LEAPS. The stock has been showing relative strength with traders buying dips on the north side of its 200-dma. While more aggressive traders may want to jump in now I would be cautious with the SOX semiconductor index still stuck under resistance.

I am actually going to edit our entry point lower. Instead of launching positions at $15.00 I'm suggesting traders buy LEAPS on a dip into the $14.75-14.00 zone. We'll use a stop loss at $12.90. Our target is $24.00.

Buy-the-dip trigger: $14.75

BUY the JANUARY 2010 LEAPS $20.00 CALLS symbol: YFB-AD

Chart of IRF: