SPN at Resistance

I keep coming back to Superior Energy Services, Inc (SPN). Back in February, I was watching for a bearish move after a head and shoulders pattern. That pattern failed to confirm and the stock price climbed up to the previous highs. The other strategy that I outlined was a $30 straddle over earnings. That play did unfold nicely and the stock ran up to $34 before the March expiration. If you remember the straddle cost $2.30 and with the stock at $34, there was a $1.70 profit for a cool 74% return. Not bad for 4 weeks in the market.

You can see that SPN is now at it's previous highs around $35. This has been a strong area of resistance since hitting this area back in May '06. The $35.50-$36 area has been hit 5 separate times and has failed to break this level.

The current technicals are all in the over bought zones which tells me that the stock has run out of momentum to break through this resistance. I am also seeing a bearish engulfing candlestick pattern that could very easy mark the end of the current uptrend.

Like a broken record, I am again looking for SPN to drop in price. I am going to target $29 as an area of support that the stock could drop to over the next few months. The June $35 put options are selling for a fair price at $1.90 and a drop to $29 would give the $35 put a minimum value of $6.00 (215% return) depending on the time left before expiration.

With the $35 put being in the money, I will place a 25% trailing stop on the trade.