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Daily Newsletter, Monday, 8/20/2012

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Crack the Whip

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

U.S. bourses pulled back this morning, then bounced off their lows. The pullbacks proved minor and, so far, in keeping with the "small range day follows big range day" pattern that we sometimes see. Their performance offers a caution that indecision showed up, but they offer nothing more than that as yet.

Monday's Developments

Those of you who were children up through the 70's may remember a childhood game called "Crack the Whip." Children joined hands and the leaders took off, zigzagging and tugging the other children behind them. Those at the end of the line had better be fleet and sure footed, as they were on the end of the whip being cracked. Sometimes they really were cracked: my broken collar bone testified to that, I'm sure other children were injured more severely. That's probably the reason that you don't see that childhood game played in schoolyards any longer.

We're being forced to play that game, like it or not. All summer, global finance ministers, politicians, economists, analysts and news commentators have been playing a game of crack the whip with global bourses. Just when bourses will be headed one way, they'll make an announcement that will whip them the other direction. We've been handed a break the last couple of weeks, but the traditional holiday month in Europe is drawing to a close and important meetings are scheduled beginning on August 23.

Over the next couple of weeks, the U.S. may figure as one of the leaders cracking the whip, too, as the Jackson Hole Economic Symposium 2012 approaches. The symposium takes place from Thursday, August 30 through Saturday, September 1. FOMC Chairman Ben Bernanke is scheduled to speak on Friday, August 31 at 10:00 AM and ECB President Mario Draghi is scheduled to speak the next morning, also at 10:00 AM.

Today, news flicked the whip again, testing the markets with a minor zigzag. The first small flick of the whip came overnight. In our good-news-is-bad-news economic world, Asian bourses turned in mixed performances on news that China's housing market may be strengthening. That means that China is less likely to ease further, many market participants concluded.

Probably before China's results were released, the Nikkei 225 gapped higher and traded higher through its morning session, but it lost steam in the afternoon session, perhaps after the Chinese data was released. The Nikkei 225 dipped into negative territory before recovering enough to close higher by 0.09 percent. The Hang Seng dropped 0.06 percent, the Straits Times was flat, and China's Shanghai Composite dropped 0.38 percent. The Shanghai Composite actually closed well off its intraday 2089.02 low, closing at 2106.96. This closing value matches--exactly--its previous six-month low from 7/31. It marks an equal-low test. Will the Shanghai Composite whip higher again or will market participants see prices whipped the other direction, through that previous low? Perhaps put China's Shanghai Composite on your radar screen.

European bourses got off to a mixed start, too, with a little flicking of that whip going on there, too. This weekend, Der Speigel published an article suggesting that the ECB was considering capping yields on borrowing costs. Today, a spate of ECB and other officials spoke out against the speculation.

An ECB spokesperson scolded those who speculated "on the shape of future ECB interventions," specifically referencing those who say the ECB will buy bonds. The spokesperson went on to say that the ECB would act strictly within its mandate, as reported in a MarketPulse article. This sounds as if there's been some reversals in the course of those at the head of the crack-the-whip game, but this may be posturing before the meetings that begin in Europe on August 23. I don't believe today's scolding is going to stop the speculation, of course, since that's what we humans do. We retail traders will just have to be prepared to be whipped around by the headlines of the day.

In an interview that was to appear in Germany's Frankfurter Rundschau ECB executive board member Joerg Asmussin asserted his preference that Greece remain in the EU. However, that was in preparation for stating that Germany's Bundesbank does not stand alone in its concern about new ECB bond-buying talk. Other entities were joining Bundesbank's show of concern. His second and third points were that the outcome is now in Greece's hands and that Greece's exit from the EU would be manageable, if that should occur, although likely not an orderly event. Reuters obtained an advance copy of the interview and reported it this morning.

As this week's meetings approach, meetings in which Greece is expected to ask again for an extension of time in which to meet ECB demands, it's impossible to ascertain how much these headlines constitute posturing. Last week, Germany's Bundesbank was reported to be more open to a discussion of bond-buying than had previously been thought, whipping our markets higher when it was believed that they might drop their opposition. Today's stories characterize the Bundesbank as stepping up the opposition and insisting on strict conditions being met before further help is offered.

Most European bourses saw end-of-day bounces off their lows, but they mostly still closed lower. The FTSE 100 dropped 0.48 percent; the DAX, 0.10 percent; and the CAC 40, 0.22 percent. Amid stern talk in the Eurozone, Spain's IBEX 35 dropped a deeper 1.21 percent.

Another warning about a potential default surfaced today, and it wasn't in Europe. Today, Belize missed a $23 million payment on $544 million of bonds. The finance minister admitted that the country is unlikely to be able to pay during the grace period that begins today, either. The yield on that debt had climbed from 6 percent to 8.5 percent this year. Some experts in debt strategy theorize that the country is trying to force a disadvantageous restructuring for debt holders after those debt holders rejected previous restructuring suggestions.

Reporting companies today included Lowes (LOW, 26.26, down 1.61 or 5.78 percent). The company disappointed, reporting earnings of $0.64 a share when analysts had predicted $0.70 a share. Sales declined two percent.

Urban Outfitters (URBN, 31.28, down 0.12 or 0.38 percent) reported after the close. The company reported profit of $0.42 per share, beating expectations of $0.33 a share. Revenue at $676.30 million was higher than the anticipated $672 million. As this report was typed, URBN had zoomed up to 36.35, up 5.07 or 16.21 percent from the day's close.

Story stocks today included Best Buy (BBY, 18.16, down 2.11 or 10.41 percent). The company has chosen French national Hubert Joly, currently head of Carlson, to step in to the CEO spot, a selection that investors failed to applaud. Carlson owns such companies as T.G.I. Friday's and Radisson. Joly will take over the reins from interim CEO Mike Mikan in early September, a Wall Street Journal article announced.

Wal-Mart (WMT, 72.30, up 0.31 or 0.43 percent) stepped up as a story stock, too, announcing the return and expansion of last year's popular holiday layaway plan. The plan will now include more items and will encompass a longer period of time, from September 16 to December 14.

In a move that investors did appear to applaud, Aetna (AET, 40.18, up 2.14 or 5.63 percent) announced today its intention to buy Coventry Health Care Inc. (CVH, 42.04, up 7.10 or 20.32 percent) for $5.6 billion. The cash-per-share part of the deal represents a 20.4 percent premium over Friday's closing price for Coventry. The move adds more than 5 million new members and increases Aetna's share of Medicare/Medicaid business. It doubles Aetna's Medicaid membership. This move occurs amidst other consolidations in the Medicare/Medicaid space, such as WellPoint Inc.'s recent deal to buy Amerigroup Corp. Some analysts concluded that Aetna appeared to be betting that government health care would remain in place.

More reports surface that Facebook's (FB, 20.01, up 0.96 or 5.04 percent) founder and Chief Executive Mark Zuckerman faces stanch criticism from investors and others. One of those others is Arun Sundararajan, a professor at New York University's Stern School of Business.

Apple (AAPL, 665.15, up 17.04 or 2.63 percent) topped $665 today as reports surfaced that Samsung Electronic's CEO would talk to AAPL's CEO in an effort to settle the companies' disputes before the jury begins deliberating. U.S. District Judge Lucy Koh had requested the talk between the two CEO's. I couldn't find news that a settlement had been reached, but AAPL doesn't need a reason to rise and perhaps someone knows more than I do anyway. The close cemented the company's status as the highest market capitalization of a U.S. company on a closing basis, according to numerous articles appearing after the close. If we have to consider European politicians and finance ministers as cracking that whip that drives our markets, we have to add AAPL as one of the leaders right up at the head of the line cracking that whip.

Today, auto club AAA said that U.S. drivers paid an average of $3.72 per gallon for gasoline. That cost was just above the 2008 previous high for this date of $3.717. Some experts expect to see $3.75 a gallon by Labor Day, with prices dropping after that, barring a hurricane that impacts production. In this weekend's Wrap, Jim Brown also mentioned the propensity for gasoline prices to fall after Labor Day passes.

Let's look at charts.

Charts

Those new to my Monday Wraps might find the following two paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with ovals, usually green for upside and red for downside. Orange ovals are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher oval, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Annotated Daily Chart of the SPX:

Last Monday, I noted that the SPX had fulfilled many of the steps it usually took when setting up a rally pattern. Those included a strong gain, a mostly sideways move while the 9-ema rose up underneath it, a dip to test that 9-ema's support, and then a repeat of that action. The SPX needed the strong gain next. It took longer to produce that gain than it usually does with more days of consolidation, but the SPX finally produced that gain in a spectacular fashion.

In doing so, it has touched the bottom of the next target zone. This is where potential resistance can be found. The SPX is also at the point in this pattern in which it typically trades sideways for 1-5 days while the 9-ema rolls up underneath it again. Bulls want to see that pattern continue. Today's small-range candle could be part of that pattern, but we know what to watch in order to see that the pattern is changing.

The next upside target zone currently being tested extends all the way up to about 1432, but resistance on daily closes might be found at any point now. Protect bullish profits in this zone. If the SPX should break above its April high and maintain daily closes above it, look to the possibility that price will also break through the top of the chart's rising price channel and head toward next resistance marked by the green rectangle.

If, instead of merely trending sideways while the 9-ema rolls up underneath the SPX to provide support, the SPX breaks down through that average on daily closes and particularly if it produces daily closes beneath about 1395-1396, the pattern might be changing. In that instance, watch for the possibility that the SPX will roll all the way down through its rising channel again, testing marked channel and other support. Further downside targets are also marked in case the SPX should break through channel support.

It's natural for price to roll up and down within a rising price channel.

Annotated Daily Chart of the Dow:

The Dow's chart setup appears almost identical. Bulls want the same bounce, 1-5 days of sideways movement, dip to test the 9-ema and repeat pattern to continue. The Dow has moved to the bottom of its next target and potential resistance zone, like the SPX. Resistance could be found anywhere now. If the Dow should break above its early May high and sustain values above it, confirmed by daily closing levels above the top of its price channel, the next potential target is marked on the chart.

If the Dow should instead roll down through its 9-ema, producing daily closing values below it, confirmed by daily closes below 13,085-13,087, prepare for a possible test of the bottom of the price channel. Lower potential targets are marked if the Dow should break down out of that channel.

Annotated Daily Chart of the NDX:

The NDX's pattern is similar with regard to the action around the 9-ema, but the NDX broke out of the top of its rising price channel. Since its actions are so similar to the other indices in other respects, it's tempting to think that rising price channel just wasn't drawn correctly. However, note that the NDX was finding resistance at the underside of that top line for about a week before finally breaking through last week. The channel appears relevant. Bulls now want that channel's resistance to now serve as support on any retests.

The 9-ema now converges with the top of the former rising price chart. If the NDX should drop back now to retest the 9-ema, it would be testing both entities at the same time. A drop through the top of the channel and below the 9-ema, especially if confirmed by daily closes below about 2710-2715, suggests a further drop down to test the July swing highs. Further potential downside targets are marked on the chart.

Annotated Daily Chart of the RUT:

The RUT outperformed other indices at the end of last week, as all of us hapless souls forced to adjust our RUT trades know. However, back in July, the RUT broke through the bottom of its more sharply rising channel, and its climb since then has been along the underside of that former channel. The former support line has served as a resistance line as the RUT forms a new rising channel underneath that first one. Therefore the chart looks a little different, and the RUT's strength of last week must be viewed with a somewhat jaded eye.

Still the advice is the same. As long as the RUT is zooming up, trending sideways until it runs into or can dip to the 9-ema, and then repeating that action, it's maintaining a rally pattern. Technicians will recognize today's candle as an inside-day candle, another indication of indecision, and will look to a break outside today's range in either direction as sign of confirmed strength or weakness. Personally, I have never found "inside day" theory to be particularly trustworthy in my own trades, but it's possible that such breaks would lead to tests of the next closes resistance or support. In other words, maybe such breaks outside today's range would predict short-term direction, but I wouldn't count on it meaning anything more just yet, and I wouldn't even count on it meaning that much for a short-term moe, based on my own observations about inside days.

The RUT, like the other indices, has moved into the bottom of a likely target and resistance zone, so resistance might be found at any point now. Bulls want pullbacks to stop at the 9-ema. However, if they don't, the RUT risks dropping back to test the August 13 low. The potential support zone near there is composed of historical swing lows, congestion zone chop, moving averages and Keltner channel lines, so it's nearly impossible to ferret out the one price point that will make the difference. It must be considered a zone of possible support. A failure beneath about 786-788 on daily closes suggests a drop to test the August 1 low and maybe even to test the 755-758 zone.

Sometimes it's possible to conclude that AAPL is one of the leaders of that crack-the-whip game we've all been playing this summer. Sometimes the stock seems to be single-handedly propping up markets when they threaten to whip lower. No matter what kind of price channel, regression channel, triangle or wedge shape you had drawn on AAPL's chart heading into last week, it broke out last week. It broke above the April high. This is where I believe that Keltner channels help me most. In such a situation, where is one to look for the next potential price target and resistance zone?

Annotated Daily Chart of AAPL:

As can be seen from examining the chart, AAPL's stock sometimes adheres to the channel boundaries, as it did on tests on 4/18, 4/25, 5/18, 7/5, 7/9, 7/10, etc. Sometimes it does not, as occurred on the left-hand side of the chart, when AAPL zoomed outside the widest Keltner channel and just kept going on a strong momentum run. It's not a failure of the Keltner channels (or the more familiar Bollinger bands or less familiar Donchian channels) to predict price action when such a breakout occurs. Such breakouts show us or warn us that the underlying is on a momentum run. Trying to fade the run is like being stuck at the tail end of that crack-the-whip game: it can be fun, but it's certainly dangerous to those not fleet and sure of foot. It was dangerous last week when AAPL broke up through the middle Keltner channel and headed up to the top of the widest one.

Now that AAPL is closely approaching the next potential resistance, bulls are forewarned to watch for that potential resistance, perhaps by cinching up stops on their bullish trades. Any bears who have latched on thinking it's time for a turnaround can be forewarned to watch for another breakout as a sign that the stock is still on a momentum run.

Tomorrow's Economic and Earnings Releases

The economic calendar proves light across the globe tomorrow. FOMC Member, Atlanta Federal Reserve Bank President Dennis Lockhart, will answer questions from the audience when he addresses the Latin American Chamber of Commerce and World Affairs in Atlanta. Early in July, Lockhart claimed he was inching closer to lending support to QEIII if the economy weakened. With the FOMC Minutes to be released Wednesday, market watchers may attempt to glean hints about how close Lockhart was edging to that position and how the intervening economic releases might have impacted his stance.

Most eyes and ears will be attuned to Europe and, possibly, China, this week, especially as the August 23-24 meetings in Berlin approach. Be alert to the probability that many politicians, ECB officials and eurozone finance ministers will be issuing statements that reiterate or refine their stances ahead of these meetings and the markets might be dragged around like a child playing crack the whip. We may see warnings and promises and any manner of headlines that can whip our markets.

Tomorrow, our markets will also be awaiting Dell's earning after the close.

What about Tomorrow?

Annotated 30-Minute Chart of the SPX:

The SPX spent Thursday and Friday testing the upper boundary of the widest Keltner channel. Today, it dropped back into the middle channel. With this setup, the middle channel's upper boundary now looks like potential resistance, at the closest green rectangle. Of course that can be overcome by a gap higher tomorrow morning, and all that takes in this climate is a headline or two.

For now, a test of that nearest resistance seems about as likely as a test of the support near 1413-1415, and vice versa. A drop through that 1413-1415 zone on sustained 30-minute closes suggests a decline toward 1407-1409. A zoom up through 1418-1419 on sustained 30-minute closes suggests a test of 1420-1422. Further downside targets are marked on the chart, but look to the daily chart for further upside targets.

Annotated 30-Minute Chart of the Dow:

The Dow's setup is similar, although the Dow never quite made it up to the top Keltner channel line last Thursday and Friday. It, too, fell back inside the middle channel today. Now that channel's upper boundary can be presumed to be potential resistance on 30-minute closes. That boundary is marked by the nearest green rectangle. Sustained 30-minute closes above this boundary set a potential target at the next green rectangle. Potential support lies at moving average marked by the lower orange rectangle, in a band from about 13242-13252. Sustained 30-minute closes below that zone set up a potential downside target near 13190-13200. As the chart is set up now, it looks as likely for nearby support to be tested as for nearby resistance, and vice versa. Between that nearest green rectangle and the lower orange one, it's all just noise.

Further potential targets are marked on the chart.

Annotated 30-Minute Chart of the NDX:

The NDX not only tested the outer Keltner channel's (pink) boundary: it scrambled up on top of it and dragged its smallest (grey) channel up there with it. The NDX has been in breakout mode on this chart since Thursday morning and remained there today, too. When momentum is this strong, it's impossible to predict when it will wane, and the move can be equally dangerous for bulls riding the move or bears trying to fade it. The first tentative sign that something has changed would be sustained 30-minute closes beneath about 2773-2775, but that would be only a small and tentative change. A more trustworthy sign of change would be sustained 30-minute closes below the 45-ema, which should be between about 2769-2772 tomorrow morning.

The daily chart is needed to locate further potential upside targets, but downside ones are marked on the chart.

Annotated 30-Minute Chart of the Russell 2000:

Thursday morning, the RUT followed the NDX by also scrambling outside its widest (pink) Keltner channel and dragging its smallest (grey) channel up there on the roof with it. Today, the RUT managed to maintain most closes above that widest Keltner channel, but it was also showing the propensity to find strong resistance on 30-minute closes at the marked channel boundaries, even if those channel lines were climbing. That can of course change by tomorrow morning with one spoken sentence saying, "Yes, we will consider capping yields by buying bonds" by someone somewhere in Europe. However, for now, the RUT looks as if its short-term strength is waning.

First tentative proof will come with sustained 30-minute closes beneath the pink Keltner channel line, but more reliable proof of a change in tenor would require sustained closes beneath the (peach) 45-ema. That should be between 811-813 tomorrow morning.

We had a down day on most indices, but the pullbacks were small and were of the type we often see after large climbs. We're all standing breathless, waiting for the leaders to start running again and whip us one direction or the other. We have a defined rally pattern that we can use to set scenarios and make observations about any changes in that pattern. With volatility indices so low and equity indices testing resistance, think about what will be your benchmark for determining what is an expected pullback and what is something more.


New Option Plays

Industrial Goods

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Dresser-Rand Group - DRC - close: 50.96 change: +0.21

Stop Loss: 49.45
Target(s): 54.75
Current Option Gain/Loss: Unopened
Time Frame: exit prior to Sept. option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
DRC is in the industrial goods sector. The company's recent earnings report in early August was a miss but traders bought the news thanks to growing profit margins. Now after almost two weeks of consolidating under resistance at the $50.00 level DRC has broken out. Traders bought the dip today with prior resistance at $50 acting as new support.

I am suggesting new bullish positions at the open tomorrow. We'll use a stop loss a $49.45. Our target is $54.75. FYI: The Point & Figure chart for DRC is bullish with a $58 target.

- Suggested Positions -

buy the Sep $50 call (DRC1222i50) current ask $2.25

Annotated Chart:

Entry on August xx at $ xx.xx
Average Daily Volume = 489 thousand
Listed on August 20, 2012



In Play Updates and Reviews

Another Quiet Summer Session on Wall Street

by James Brown

Click here to email James Brown

Editor's Note:

Monday proved to be another quiet summer day on Wall Street. Traders bought the dip this morning and equities drifted higher but not quite into positive territory.

PCYC was stopped out. PM was triggered.

Current Portfolio:


CALL Play Updates

Amgen Inc. - AMGN - close: 83.24 change: -0.14

Stop Loss: 81.45
Target(s): 88.50
Current Option Gain/Loss: Sep85c: -21.4% & Oct85c: -11.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
08/20/12 update: It was another quiet day for AMGN with shares churning sideways. Traders bought the dip again near the 10-dma. I don't see any changes from my prior comments. More conservative traders may want to wait for a close over $84.00 before initiating positions.

- Suggested Positions -

Long Sep $85 call (AMGN1222i85) Entry $1.35

- or -

Long Oct $85 call (AMGN1220j85) Entry $2.15

08/15/12 triggered at $83.75

Entry on August 15 at $83.75
Average Daily Volume = 4.8 million
Listed on August 14, 2012


BRCM - Broadcom - close: 35.72 change: -0.11

Stop Loss: 34.40
Target(s): 38.50
Current Option Gain/Loss: +21.1%
Time Frame: 4-6 weeks
New Positions: see below

Comments:
08/20/12 update: It is a similar story here with BRCM. The stock is consolidating sideways. I don't see any changes from my prior comments. The $36.00 level does look like potential short-term resistance.

We will adjust our stop loss up to $34.40. I am not suggesting new positions at this time.

- Suggested Positions -

Position: Nov $36.00 Call (BRCM1217K36) entry $1.80

08/18/12 new stop loss @ 34.40
08/08/12 new stop loss @ 33.25
no follow through, turning cautious
08/07/12 triggered @ $34.75
08/06/12 adjust stop loss to $32.45

Entry on August 07 at $34.75
Average Daily Volume = 10 million
Earnings Oct-23rd
Listed on Aug 4, 2012


Caterpillar - CAT - close: 90.44 change: +0.43

Stop Loss: 85.90
Target(s): 91.50
Current Option Gain/Loss: +31.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/20/12 update: CAT displayed some relative strength today with a +0.4% gain. The close over round-number resistance at $90.00 is bullish but I would not launch new positions here. The 100-dma could be another level of resistance and it is at $91.50.

Earlier Comments:
I do consider this somewhat aggressive. CAT's recent earnings were strong and the company raised guidance but its stock price is probably still vulnerable to negative economic headlines. Furthermore the $90.00 level might be round-number resistance.

- Suggested (SMALL) Positions -

Long Sep $90 call (CAT1222I90) Entry $1.90

08/13/12 new stop loss @ 85.90
08/07/12 triggered @ $87.25

Entry on August 07 at $87.25
Average Daily Volume = 8.6 million
Listed on August 6, 2012


Concur Technologies - CNQR - close: 72.00 change: -0.04

Stop Loss: 68.75
Target(s): 74.75
Current Option Gain/Loss: Sep75c: +24.0% & Nov75c: +8.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/20/12 update: Hmm... CNQR closed virtually unchanged today. Yet the intraday action would suggest this might be a short-term top. I would expect a pullback toward $70.00, which should be new support.

- Suggested Positions -

Long Sep $75 call (CNQR1222i75) Entry $1.25

- or -

Long Nov $75 call (CNQR1217j75) Entry $3.60

08/16/12 new stop loss @ 68.75
08/15/12 triggered at $70.25

Entry on August 15 at $70.25
Average Daily Volume = 577 thousand
Listed on August 13, 2012


Intl. Business Machines - IBM - close: 200.50 change: -0.72

Stop Loss: 197.40
Target(s): 209.00
Current Option Gain/Loss: -31.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/20/12 update: IBM drifted back toward the $200 level. Traders bought the dip and readers could use this pullback to $200 as a new entry point. FYI: The Point & Figure chart for IBM is bullish with a $226 target.

- Suggested Positions -

Long Sep $205 call (IBM1222i205) Entry $1.71

Entry on August 17 at $201.08
Average Daily Volume = 3.4 million
Listed on August 16, 2012


Joy Global, Inc. - JOY - close: 57.09 change: +1.19

Stop Loss: 52.75
Target(s): 59.75
Current Option Gain/Loss: Sep $57.5c: -17.4% Oct60c: - 4.4%
Time Frame: exit prior to the Aug. 29th earnings report
New Positions: see below

Comments:
08/20/12 update: JOY was showing some strength today with a +2.1% gain. The stock is quickly approaching short-term resistance at the $57.40 level. Considering our time frame I am consolidating our targets down to just one at $59.75. We do not want to hold over the Aug. 29th earnings. FYI: The Point & Figure chart for JOY is bullish with a longer-term $74 target.

- Suggested Positions -

Long Sep $57.50 call (JOY1222i57.5) Entry $2.70

- or -

Long Oct $60.00 call (JOY1220j60) Entry $2.50

Entry on August 17 at $56.27
Average Daily Volume = 2.1 million
Listed on August 16, 2012


Netflix, Inc. - NFLX - close: 64.24 change: +0.55

Stop Loss: 59.45
Target(s): 69.50
Current Option Gain/Loss: - 0.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/20/12 update: Traders bought the dip in NFLX near $62 this morning and the stock rallied back to tag the $65 level again. I warned readers to look for a dip toward the $62.50 area. Readers might want to consider a tighter stop loss closer to $62 now.

Earlier Comments:
I do consider this an aggressive trade. NFLX can be volatile. Nimble traders may want to wait and buy calls on a dip.

- Suggested (SMALL) Positions -

Long Sep $67.50 call (NFLX1222i67.5) Entry $2.23

Entry on August 16 at $63.46
Average Daily Volume = 5.8 million
Listed on August 15, 2012


Philip Morris Intl. - PM - close: 93.17 change: -0.21

Stop Loss: 91.40
Target(s): 99.00
Current Option Gain/Loss: -10.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
08/20/12 update: PM rallied just enough to hit our trigger to buy calls at $93.60. At this point I would wait for a new high above $93.60 to launch positions. More nimble traders could try and buy calls on a dip or a bounce near the $92 area instead. FYI: The Point & Figure chart for PM is bullish with a $106 target.

- Suggested Positions -

Long 2013 Jan $95 call (PM1319A95) Entry $2.78

Entry on August 20 at $93.60
Average Daily Volume = 4.2 million
Listed on August 18, 2012


PVH Corp. - PVH - close: 87.19 change: -1.82

Stop Loss: 84.75
Target(s): 91.50
Current Option Gain/Loss: +00.0%
Time Frame: exit prior to the Aug 27th earnings report
New Positions: see below

Comments:
08/20/12 update: Ouch! PVH completely erased Friday's gains with a -2.0% drop today. Our option is back to where we started. It looks like PVH is headed for $86 and the 10-dma. I am not suggesting new positions at this time.

Earlier Comments:
The $90.00 level could be resistance but we will aim for the 2012 highs near $93.00. FYI: The Point & Figure chart for PVH is bullish with a $97 target.

- Suggested Positions -

Long Sep $87.50 call (PVH1222i87.5) Entry $3.27

08/18/12 more conservative traders may want to take profits early
08/16/12 new stop loss @ 84.75
08/14/12 triggered on gap open at $85.62 (trigger was 85.25)

Entry on August 14 at $85.62
Average Daily Volume = 845 thousand
Listed on August 13, 2012


Qualcomm - QCOM - close: 62.80 change: -0.49

Stop Loss: 60.95
Target(s): 64.25
Current Option Gain/Loss: +27.6%
Time Frame: 4-6 weeks
New Positions: see below

Comments:
08/20/12 update: QCOM hit a little bit of profit taking today (-0.7%). I would look for short-term support near $62.00. If not, then QCOM will hit our stop loss near $61.00.

I am not suggesting new positions at this time.

- Suggested Positions -

Position: Oct $62.50 Call (QCOM1222J62.5) entry $1.70

08/18/12 adjust exit target to $64.25
08/16/12 new stop loss @ 60.95
08/07/12 triggered @ 60.51

Entry on August 07 at $60.51
Average Daily Volume = 1.5 million
Listed on Aug 4, 2012


SBA Communications - SBAC - close: 60.56 change: +0.05

Stop Loss: 58.95
Target(s): 64.90
Current Option Gain/Loss: Sep60c: -18.4% & Dec65c: -19.2%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
08/20/12 update: SBAC is showing a little bit of volatility. The stock traded down to a new two-week low at $59.10. Yet it bounced all the way back to close in positive territory. The rebound is encouraging but I am not suggesting new positions.

Our multi-week target is $64.90. We might need some patience on this one. SBAC doesn't move super fast. FYI: The Point & Figure chart for SBAC is bullish with a long-term $100 target.

- Suggested Positions -

Long Sep $60 call (SBAC1222i60) Entry $1.90

- or -

Long Dec $65 call (SBAC1222L65) Entry $1.30

08/16/12 new stop loss @ 58.95
08/14/12 triggered @ 60.75

Entry on August 14 at $60.75
Average Daily Volume = 1.5 million
Listed on August 11, 2012


Under Armour, Inc. - UA - close: 56.75 change: -0.98

Stop Loss: 55.70
Target(s): 64.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
08/20/12 update: There was no follow through on Friday's rally. UA gave back -1.7% today. The stock remains inside its $56-58 trading range.

I suspect UA could see another short squeeze. The most recent data listed short interest at 24% of the 78 million share float. The August high was $58.48. I am suggesting a trigger to buy calls at $58.55. We'll use a stop loss at $55.70. Our target is $64.00. FYI: The Point & Figure chart for UA is bullish with a long-term $85 target.

Trigger @ 58.55

- Suggested Positions -

Buy the Oct $60 call (UA1220J60)

Entry on August xx at $ xx.xx
Average Daily Volume = 2.1 million
Listed on August 18, 2012


WellPoint Inc. - WLP - close: 57.38 change: +0.12

Stop Loss: 55.85
Target(s): 59.75
Current Option Gain/Loss: - 8.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/20/12 update: News that Aetna (AET) was buying Coventry Health Care for $5.7 billion caused a stir in the healthcare sector this morning. Yet shares of WLP remain inside its $56-58 trading range.

I am not suggesting new positions at this time.

- Suggested Positions -

Long Sep $57.50 call (WLP1222I57.5) Entry $1.60

08/16/12 new stop loss @ 55.85
08/08/12 triggered @ 56.50

Entry on August 08 at $56.50
Average Daily Volume = 4.4 million
Listed on August 7, 2012


PUT Play Updates

FB - Facebook - close: 20.01 change: +0.96

Stop Loss: 20.35
Target(s): 17.00
Time Frame: 2-4 weeks
Current Option Gain/Loss: -13.7%
New Positions: see below

Comments:
08/20/12 update: It looks like we were celebrating a little early on FB. The stock was actually upgraded this morning to a "buy". This probably sparked some short covering. FB surged back to prior support and what should be resistance at $20.00. We just lower our stop loss to $20.35 this past weekend. I am not suggesting new positions.

Earlier Comments:
Facebook has turned into the stock everyone loves to hate. Facebook has 674 million shares outstanding as of Friday. On August 15th another 268 million shares will see their lockup expire and become available for trading. That is 40% additional shares. If you were an investor or employee and you watched your shares decline from $35 to $20 ahead of your lockup expiration you are probably just waiting for an opportunity to sell. Another factor is that taxes are due on the awarded shares regardless of whether they are sold. That means employees have a big tax bill and they have not been able to sell those shares to pay the taxes. That is an additional incentive to pull the trigger on at least part of their position on August 15th.

Facebook has hundreds of detractors and they seem to be racing each other trying to put a lower price target on the stock. Mark Hulbert was on CNBC on Friday with a $13.80 price target based on a bunch of different metrics.

Facebook also has the various lawsuits over the IPO including the valuation and the various claims made about users and revenue in the days leading up to the IPO. There are plenty of clouds and no real catalysts to pump up the stock.

Facebook said expenses grew by 60% in Q2 and they would grow faster in Q3/Q4. That means earnings will decline.

I am recommending a September option with plans to exit (some time) after the August 15th share lock up expiration.

Suggested Positions

current position: Sept $20 PUT (FB1220U20) entry $1.45

08/18/12 new stop loss @ 20.35, readers may want to take profits now
08/07/12 triggered @ 20.95
08/06/12 adjust entry trigger to $20.95

Entry on August 07 at $20.95
Average Daily Volume = 80.0 million
Listed on August 5, 2012


CLOSED BULLISH PLAYS

Pharmacyclics - PCYC - close: 61.06 change: -1.83

Stop Loss: 59.45
Target(s): 67.00
Current Option Gain/Loss: -33.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
08/20/12 update: PCYC had a lot of potential with its bullish breakout past resistance at $60.00. Unfortunately with the market up several weeks in a row and the major indices near resistance, traders are nervous right now. PCYC was downgraded this morning and the stock spiked down to hit $59.45 intraday. That just happens to be our stop loss.

- Suggested Positions -

Long Sep $65 call (PCYC1222i65) Entry $2.70 exit $1.80 (-33.3%)

08/20/12 stopped out at $59.45
08/18/12 new stop loss @ 59.45
08/16/12 triggered on gap open higher @ 60.94

chart:

Entry on August 16 at $60.94
Average Daily Volume = 879 thousand
Listed on August 15, 2012