Shipping stocks went the way of the market capping a two day sell-off as traders were nervous holding positions ahead of a holiday weekend. The Baltic Dry Index, which measures dry bulk shipping rates, had hit record highs earlier in the week. The index trades on the London exchange and reached 11,783 before falling back to 11,465 on Friday.

That is nothing compared to the 50% plunge the BDI experienced from November to a low of 5,600 by the end of January. Despite the volatility the BDI is seen as a good indicator of future economic growth and productivity.

The sector is exciting to follow so here is another “Watch List” that I have created on stocks that usually move with the BDI. I believe the uptrend continues over the next few months as a number of factors come into play that will be positive for the bulk carriers. All five of these stocks have options and quotes are from Friday.

DryShips (DRYS, $90.05, down $2.08). The stock hit a low of $55 mid-March and doubled to $110 by May 16. In fact, the stock made a move from $90 to $110 back to $90 in the month of May already.

Eagle Bulk Shipping (EGLE, $32.30, up $0.26). One thing that struck me with this one was the action in the July 35 calls (QEKGG, $1.40, up $0.15). Eagle’s 52-week high is $36.24 which was hit on May 19.

Excel Maritime Carriers (EXM, $47.86, down $2.64). Fell 13 points or 20% for the week.

Navios Maritime Holding (NM, $12.89, down $0.19). In a weird twist, Navios was up 6% in after-hours Friday. There was no “big” news other than the company saying it would be reporting earnings this Thursday.

TBS International (TBSI, $45.92, down $1.57). The company did a 3.4 million share offering on Thursday at $51 per share that closes Wednesday. The timing looks bad, sure, but the demand was there.

Although these stocks are in a downtrend and I’m bullish longer-term, I wouldn’t rush to buy any of them just yet. Let the market open this morning and see if the fallout continues for another day or two. If we get lower opens for these stocks and or options, any entry points you may have can be lowered.

Rick Rouse
Rick@OptionsMentoring.com

It wasn’t a good week for the market as all three major indicies finished in the red. Before we get to the numbers, the biggest concern remains the FOG (food, oil and gas). We are beginning to see the impact of higher commodity prices spread to other areas that are causing many businesses to come up with ways of cutting back or passing it off to the consumer.

For instance, AMR Corp. (AMR, $6.32, down $0.24) is reducing its capacity 10+% and tacking on a $15 fee charge for your first checked bag on your next flight. Some police departments have stopped allowing their officers to take their patrol cars home because of the cost of gasoline. Speaking of which, have you noticed the big declines in the stock prices of Ford (F, $6.87, down $0.29) and General Motors (GM, $17.60, down $0.83)? GM hasn’t traded this low in 25 years. Wow. These are just a few examples to combat higher oil prices and it doesn’t stop there but you get the picture.

The Dow suffered the biggest decline falling 500 points, or 3.9%, to close at 12,479. The S&P 500 was next with a 3.5% drop, or 50 points and finished at 1,375. The Nasdaq, which had been strong up until late, suffered an 84 point drubbing, or 3.3%, to wind up at 2,444.

I keep mentioning the key resistance levels for the market (1,450 for the S&P 500, 2,600 for the Nasdaq and 13,500 for the Dow) and I might as well outline some support in case we are headed even lower. For the Dow, a break below 12,000 could lead to 11,750. If this level is broken look out below. The S&P 500 would need to fall to 1,325 then 1,275 for the bears to start coming out in force. The Nasdaq has lower level support at 2,375 followed by 2,275. A break below 2,200 could spell trouble.

It looks like that old adage “sell in May and go away”, which was missing earlier in the month, was back in vogue ahead of the long holiday weekend. I have mentioned the lack of catalysts to carry the market higher and although I’m not totally convinced we are setting up for a correction of some sorts it wouldn’t surprise me one bit if we get a small one.

Rick Rouse
Rick@OptionsMentoring.com

There are reports out that Belgian brewer InBev is interested in making a bid for Anheuser-Busch (BUD, $56.13, up $3.55). The offer could be in the range of $46-$50 billion. Of course, AB said it was their “policy to not confirm, deny or speculate on rumors of potential investments, acquisitions, mergers, new business partnerships or other transactions.”

The offer would supposedly be worth $65 a share, but InBev was “not about to push the button.” Shares of AB have traded to a high of $58 today as it is believed that InBev has been talking with JPMorgan and Santander about financing $50 billion.

A deal between InBev-Anheuser has been in the works as early as 2007 and nothing is imminent. However, now would be the best time to for InBev to buy AB as raw material costs continue higher and the fact that the euro is much stronger than the dollar right now.

Whether a deal is consumed or not there has been considerable action in the June call options. The June 55 calls (BUDFK, $3.10, up $1.95) are up 170% as 45,000 contracts have traded. The 55’s have traded as high as $4.50. The June 60 calls (BUDFL, $1.20, up $0.84) are up 233% and hit a high of $1.90 earlier in the session. Over 70,000 contracts have traded so far today.

Be careful jumping into the action as the options are trading at a premium right now.

Rick Rouse
Rick@OptionsMentoring.com

Most option traders have a watch list which is simply a list of stocks they track for daily stock movement or alerts. Watch lists will help you keep track of stocks that may be undervalued or overvalued or show extreme volatility. They can even help you generate charts to show a general trend so that you can predict when may be the best time to purchase or sell an option.

If you are just starting a watch list it is usually pretty tough to keep track of too many stocks so keep it simple at first. Maybe start with five companies and gradually work your way up to 10 and 20 once you get better at digesting the information faster and thoroughly. If you have active positions and and are watching a few others it becomes pretty easy with the help of a few simple software tools and utilities.

It’s also best to track sectors that you are familiar with and ones that you understand. For instance, you could create a “Chip Sector List” or an “Restaurant Sector List”. After you have added five stocks to each sector you’ll eventually know 10 stocks that trade within that sector. When you work your way up to five or six sectors, next thing you know you’ve got 50 or 60 stocks under your belt.

It takes time to get acclimated with so many stocks but after time you will know the ticker symbol, where the stock is currently trading and what upcoming events will move the stock. Having this arsenal will increase your odds of success and make you more aware of what sectors or stocks to avoid.

Having said all that, I created a “Mining Sector List” for myself today. I’ve added four so far:

BHP Billiton (BHP, $91.91, up $3.03). The stock set a 52-week high earlier in the week ($95.61) and is in a strong uptrend. The 400-point drop in the Dow over the last few days knocked BHP from $95 to $88. Bullish options traders are active in the June 95 calls (BHPFS, $3.80, up $1.20 or 45%) and the June 100 calls (BHPFD, $2.45, up $0.89 or 57%).

Rio Tinto PLC (RTP, $521.57, up $12.29). Also set a new high this week of $558.65.

Alcoa (AA, $41.08, down $0.62). This stock set a 52-week LOW of $27 in late January and has had a solid month of May rising from $35 to $44.77 on Monday. Tons of action in the June 40 calls (AAFH, $2.72, down $0.43) and the June 42.50 calls (AAFV, $1.62, down $0.20) is taking place today.

Freeport-McMoRan (FCX, $117.35, down $3.23). Strong suits are copper and gold. Set a 52-week high of $127.24 YESTERDAY and is down $10 since the Fed Minutes came out less than 24 hours ago. The June 125 calls (FCXFV, $3.50, down $1.58) have fallen from $6.45 in the same time frame.

I see some good opportunities from this group…

Rick Rouse
Rick@OptionsMentoring.com

Interesting tid-bits from the market that may or may not affect your portfolio:

Fannie Mae’s (FNM, $27.77, up $0.03) CEO predicted the housing market is only halfway through its crisis and home prices could plummet another 25% before it is all said and done. Does this mean Fannie’s stock will fall another 25% before it reaches its low? The stock had a 52-week high of $70. Good luck to the “buy-and-hold” investors who bought Fannie at its peak…

Have you noticed the action in gold over the past week as oil continues to rise? The yellow metal has gained 7% and is back above $900 an “O”. As oil continues higher gold could make another run at $1,000 an ounce. Gold hit a high of $924 yesterday.

Looks like Texas Roadhouse (TXRH, $10.84, down $0.13) is “thinking outside the box.” The company started purchasing 25% of its beef supply through futures. It’s done on a weekly basis and although its a practice that has already been implemented at other higher-end steak chains it has allowed Big Tex to save up to a buck a pound on beef at times. Other times there is little or no difference but it goes to show that restaurants are coming up with creative ways to save money as margins get squeezed due to the higher food costs.

Carl Icahn says he doesn’t use a computer yet his investment in Yahoo (YHOO, $27.00, down $0.48) has netted him a cool $120 million in about three weeks. He owns nearly 60 million shares at an average price of $25. He was up $150 million but today’s fifty cent drop is costing him $30 million. Talk about a modern-day Robin Hood. If he can get Yahoo to $30 he’ll bank $300 million. On the flip side of that, did you see the video of Microsoft’s (MSFT, $28.79, up $0.03) CEO, Steve Ballmer, getting egged? I don’t know which was more painful to watch, the dude that was throwing the eggs or the CEO with the lame ducks. Yeap, it’s on YouTube, click here to view.

It seems the latest craze with thieves is stealing grease. Did you know that cooking oil or grease from restaurants could be transformed into fuel (transesterification) by removing the glycerine and adding methanol? Or something like that. I had heard of the process but never would have imagined people stealing grease from the local Hooters. After doing some research, apparently batches of this stuff is worth thousands of dollars depending on volume. Oh yeah, bio-diesel, can also be made from animal fat. “Cow tipping” could become extent as “cow stealing” gains in popularity.

I saved the best for last:

After hitting a high of $170-something in October, Wynn Resorts (WYNN, $104.35, down $0.73) has hit a losing streak so to speak. The stock has rebounded from its $90 lows but the casino business has cooled in recent months as consumers cutback on their leisurely activities due to a higher everything world.

To add insult to injury, Wynn could be subtracting $400,000 from its books. Evidently, legendary basketball player Charles Barkley hasn’t settled his $400,000 gambling debt. Although Sir Charles has said he has paid the bet and is done with gambling, the Wynn Las Vegas resort is saying he hasn’t settled up. One way or another, Wynn will get their money but it could go to court. Looks like Charles better call his “Fave 5″ to see if he can get a $100,000 mark from each of them too…

Rick Rouse
Rick@OptionsMentoring.com

I’ve covered Citigroup (C, $21.47, down $0.64) in the past like grass on dirt but lost interest in the stock and any trading opportunities in it after its fall from $55 to $20. The ride on the way down was thrilling to write about and when Citigroup fell below $20, I figured there was not much further it could fall.

While this has been true, it has been interesting to watch how Citigroup now trades. If you’ll notice, the stock seems to trade 20% higher or lower every two weeks or so. The stock spent the earlier part of the year bouncing between $25-$30 and now seems locked on trading between $18-$20 to $25 a share here lately.

And it all has to do with the hype and the way the market spins things. One week “Citi’s recovering nicely” and that “Financial stocks are cheap.” Next week it’s “Financial stocks aren’t out of the woods yet” type quotes.

This is why it can sometimes be difficult to call a stock’s direction with so much debate going on about the stock or sector but it is good for price action. However, there are safer and better ways to take advantage of situations like this by using more advanced options like credit or debit spreads and even iron condors to limit your risk instead of buying calls or puts straight-up. These strategies don’t provide as much bang for the buck but they do limit your losses in case the trade goes against you.

Rick Rouse
Rick@OptionsMentoring.com

The Dow is working its way towards another triple-digit loss today ahead of the “all-important” Fed Minutes due out at 2PM. Currently, the Dow is down 84 points to 12,744. Oil has passed $131 a barrel for the first time, no surprise there, and also seems to be weighing on the market. The Nasdaq and S&P 500 are also trading lower but are holding up better than the Dow.

The Federal Reserve will release its minutes from its April 29-30 meeting later today which should provide more clues into whether or not they think rising energy prices are a serious threat to the economy. Rising food, energy, and gas prices will continue to dominate the news until something is figured out.

In earnings news, Intuit (INTU, $28.95, up $1.74) and Hewlett-Packard (HPQ, $45.52, down $0.94) reported earnings yesterday and the stocks are going in different directions despite both companies announcing good earnings.

Intuit said earnings were 20% higher for the quarter and will buy-back $600 million of its shares. A couple of analysts were out this morning changing their ratings for the stock. One analyst downgraded the stock from “Buy” to “Hold” and lowered his price target while another maintained an “Outperform” rating for Intuit as the company exceeded his forecast. With tax season over for most of us and it is usually the company’s biggest quarter, watching Intuit’s stock price will be like watching paint dry as it seems to languish in the summer months.

HP grew profits by 16% for the quarter and revenue was ahead of what Wall Street had forecast. However, analysts are worried about HP’s growth and the company’s recent acquisition of Electronic Data Systems (EDS, $24.33, up $0.03). One analyst kept a price target of $60 a share for HP but it wasn’t enough to keep the stock from trading lower.

As you can see, both companies reported great earnings but this is exactly why it is so risky to play options around an earnings announcement. One stock is up while the other is down despite both of them beating the Street. This reminds me of an old market saying… “the market can remain irrational longer than you can stay solvent.”

Rick Rouse
Rick@OptionsMentoring.com

We are an hour into today’s session and the market is trading lower after an analyst’s comments on the dreary outlook for the Financial sector. The Dow is tumbling 175 points, or 1.4%, and the Nasdaq is down 25 points, or 1%, on the news and the fact that oil is up again today and approaching the $130 level. Yikes…

As you would expect, some financial stocks are taking it on the chin:

Citigroup (C, $22.45, down $0.54)
Wells Fargo (WFC, $28.06, down $0.42)
Wachovia (WB, $26.88, down $0.48)

In other news, let’s look at the report card for some of the companies that have announced earnings today.

AutoZone (AZO, $129.80, up $2.00). The company reported a rise in profits and the stock is up on the news.

Hewlett-Packard (HPQ, $46.29, down $0.42). The stock is lower ahead of earnings. HP reports after the bell.

Home Depot (HD, $27.61, down $1.26). No surprise here as HD’s profits dropped a whopping 65%. The economy and the housing slump have really put the one-two punch on this former Wall Street darling.

Intuit (INTU, $27.37, down $0.03). The stock was slightly in the green when I started this blog and has now turned slightly lower. Intuit has beaten Wall Street’s expectations for three straight years or 12 consecutive quarters. There has been some action this morning in the June 30 calls (IQUFF, $0.38, down $0.02) which would represent a 10% gain in the stock if the 30 strike price is hit.

Target (TGT, $55.00, up $0.08). Target sales were up 5% but reported an 8% drop in profits.

Rick Rouse
Rick@OptionsMentoring.com

It’s been a couple of months since I have mentioned Imax (IMAX, $7.38, down $0.11) so I thought I’d give a quick update for those who may have read the piece in our article section of OptionsMentoring.com. At the time, I was “publicly” debating if the stock was a better buy than a longer-term option.

The company reported earnings last week and it wasn’t pretty. Imax showed a net loss of $0.25/ share as revenue fell 12% to $23.5 million for the quarter. The Street was expecting a much smaller loss to the tune of $0.14/ share. Needless to say, I don’t think they saw that one coming. However, the stock has traded higher based on Imax’s future prospects.

I told you how Imax was going digital this summer and the company recently scored a couple of financing deals to help with the roll-out. Although Imax posted a dismal quarter it’s clear investors are looking at the big picture (no pun intended).

Imax was trading for $6.50 when I shared my thoughts and it closed yesterday nearly a buck higher. Quick math gives us about a 15% return if the stock would have been purchased. The September 7.50 calls (IMQIU, $1.05, unchanged) were going for 75 cents so they have risen 33%.

The stock broke through its 20 and 50-day moving averages before the company announced earnings and has held steady since. This is a pretty bullish sign. It’s still too early to tell if either of the aforementioned plays will continue higher from here on out but from the looks of things Imax could be sitting at new 52-week highs by the time summer gets here.

(To read the original write-up on Imax click here).

Rick Rouse
Rick@OptionsMentoring.com

There were a couple of stocks which made huge moves yesterday after some positive comments on wind power plays. MasTec (MTZ, $11.27, up $1.20) has been around for over 75 years and recently announced killer earnings. The stock was at $8 after the announcement and added another 12% yesterday.

I’m going to talk about Broadwind Energy (BWEN.OB, $22.70, up $2.22) in a minute but a want to dig a little deeper on MasTec. We all know that when stocks are mentioned in a positive breath on television they sometimes get a good pop to the upside as everybody is rushing out to buy the stock.

However, the real money was being waged in the option trenches. Take a look at how MasTec’s call options fperformed:

June 10 call (MTZFB, $1.65, up $1.15). Up 230%
July 10 call (MTZGB, $1.75, up $0.85). Up 95%
Jan 12.50 2009 call (MTZAV, $1.65, up $0.40). Up 32%

Not bad for a days work huh? The other thing we know is that normally after a “pop” like yesterday’s there is a chance the stock retreats after the euphoria wears off. But sometimes these “undiscovered gems” (if that’s what you want to call them) can turn out to be one of those “I knew I should have bought that thing at $8!” type deals.

Wind power is gaining popularity and it’s only a matter of time before the “wind revolution” takes hold. The other stock I had mentioned, Broadwind Energy, was up 11% yesterday. However, Broadwind is an “over-the-counter” (OTC) stock meaning it doesn’t trade on the major exchanges. Instead, the stock trades through a dealer network as opposed to an exchange.

OTC stocks can be risky because there are a ton of penny stocks that trade OTC. Broadwind may not fit your typical profile of a penny stock and the company could go on to bigger and better things as well. Or not. That’s for your own due diligence to decide.

I am saying that the reason why these stocks had such a good day was because of their future prospects and the positive comments. And its better to do your research than following the crowd especially when it comes to your options.

Rick Rouse
Rick@OptionsMentoring.com