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.

Bearish Stock Watchlist

I am adding Novellus Systems (NVLS) to my watch list for a possible bearish trade. The stock has now made a lower high after bouncing off the 30d MA. I see resistance at $32 confirmed by the doji candlestick. There is support around 29.75-30 and at 26.50-27. I like the March 30 put @ .75 with a target of $3.00 (300% gain). My only concern is that the March expiration is just 5 weeks away. The June 30 puts @ 1.75 would return 200% at the target.

I am also looking at Superior Energy Services (SPN) for a bearish trade. The stock is flashing 3 bearish crossovers (Stochastics, MACD, and 30d MA) but is sitting squarely on a line of support. I will be watching for a break through support @ 29 with a target of $24. I like the March $30 put @ 1.40 with a target of $6.00 (330%). Again, I worry about the March expiration and would have to push out to June 30 put @ $2.35 with a return of 155%.

What do you think? Add your comments and lets discuss these trades and other possible strategies. Maybe a March 32.50/30 bear put spread on NVLS at $1.40 for 78% as long at NVLS drops below $30.