Option Investor
Newsletter

Daily Newsletter, Saturday, 8/8/2009

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

If You Have Ever Wondered...

by James Brown

Click here to email James Brown

The last four weeks have been exceptionally bad if you're a bear. The shorts have been squeezed over and over and over again. The NASDAQ composite is up 15% off its July lows. The Dow Industrials are up 15.8%. The S&P 500 is up 16%. The small cap Russell 2000 index is up 20% off its July lows. If you have ever wondered what an overbought market looked like this is it! The combination of short covering and mutual funds that have been under weight the market and chasing performance has produced an incredible move.

The latest catalyst to send bears into hiding was the jobs report on Friday. Last week I warned readers that the bigger risk was the jobs number coming in better than expected. That's exactly what happened. Economists were looking for -320,000 jobs created and the Labor Department said we only lost 247,000 jobs. The official unemployment rate ticked higher from 9.5% to 9.4%. If you have been trading for any serious length of time you have probably heard that some of the most dangerous four words ever are "this time it's different". Consider this... unemployment continued to rise for 15 months after the 1991 recession ended. The jobless rate continued to rise for 19 months after the 2001 recession. Why is this recession/recovery going to be different?

I'm going to speculate on why this recovery might be different. You have probably heard commentators talk about a "V shaped recovery. That's what we'd like to see - a quick rebound back into growth. Then there is the "U" shaped recovery where the economy stops falling but it doesn't improve for a while before eventually bouncing. Some suspect we could have an "L" shaped recovery where the economy flat lines for a significant period of time. I strongly suspect we're going to see a "W" shaped recovery.

I have mentioned before how most recessions see a quarter or two of positive growth before rolling over again. This past recession has been the sharpest and ugliest since the 1930s. A year ago we feared a depression-like slow down. Through massive economic stimulus and loose monetary policy the Federal Reserve and other global banking entities have helped avoid a total collapse. Businesses slashed expenses and workers like there was no tomorrow. Furthermore as consumer spending slowed corporations delayed ordering inventory for fear it would sour on their shelves. Inventories got so low the recession has pushed them down like a coiled spring and the inventory restocking cycle is about to shoot higher again. Unfortunately, I think the rebound is going to run out of gas pretty fast.

Consumer spending remains very weak. The latest GDP showed spending was twice as bad as expected. When you consider that consumer spending is almost 70% of our economy that doesn't bode well. I do think the economy is going to see a bounce in the third and fourth quarter but it will be the peak inside the "W" bottom for the economy. Businesses will be slow to rehire workers. That will keep unemployment relative high. It might improve but it will stay elevated. Concerns over unemployment will keep a lid on consumer's wallets, which will make any recovery weaker than expected. Analysts are already worried about the crucial back-to-school shopping season. We are going to hear from a number of retailers this week, the key report will be Wal-Mart (WMT). Investors will probably ignore the second-quarter results and focus totally on management's guidance for the third and fourth quarters. If WMT or the majority of retailers are bearish it could be the catalyst that sends the market lower.

We do need to go lower. The rally's current pace is unsustainable. As a matter of fact we should welcome a correction, which would be healthy for the market's long-term performance. The longer we put off some sort of pull back the sharper it's going to be when it shows up. I just hope mutual funds let the pull back occur. There are a lot of funds that are under invested and they're chasing performance. They don't want to buy stocks this extended but they're afraid of missing the rally and they only have four and a half months left to catch up and beat their benchmarks. This massive pool of capital on the sidelines is going to put a bottom under the market and probably keep any correction relatively shallow. The question right now is what will be the spark that sends stocks lower?

That spark might be some lackluster comments from the retailers. Or it could be comments from the Federal Reserve. They have a meeting on Tuesday and Wednesday this week. No one really expects them to change interest rates, especially not after the comments out of Europe last week. The president of the European Central Bank, Mr. Trichet, said, "Economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down." Meanwhile the Bank of England kept rates at a record low of 0.5% and raised their quantitative easing program from 125 billion pounds to 175 billion pounds. Why would they raise it? Because it's not working. They have no fear of inflation right now. The worry is deflation. Japan is already sliding into deflation and Trichet said the euro-zone might see some temporary "negative inflation". With Europe still painting an economic picture of "less bad" the Federal Reserve will probably try to avoid rocking the boat.

Weekly Chart of the S&P 500 index:

Weekly Chart of the NASDAQ index:

Overall I am bullish for the remainder of 2009 but it will probably be a three steps forward two steps back sort of market. We've already seen several steps higher in the last four weeks so we need that shuffle lower. The S&P 500 and the NASDAQ are still flirting with resistance and the internals of the market are suggesting the rally is running out of gas. We need to be patient when it comes to launching new long-term bullish LEAPS positions. I would focus on a dip toward the 955-945 zone on the S&P 500 index as likely support. I encourage readers to continue sending in potential LEAPS candidates.

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

I realize this is starting to sound like a broken record but stocks are still extremely overbought. The S&P 500 index is up 16% from its July lows. The Russell 2000 is up 20%. We don't want to chase this move. Be patient. The market can't keep this pace for much longer. I would watch for a dip toward the 950 region for the S&P 500 index.

Currently we have ten stocks on our watch list.

BEAV - BE Aerospace Inc., trigger: $13.00
BG - Bunge Limited, trigger $61.00
CNX - Consol Energy Inc., trigger $30.50
DISH - Dish Network Corp., trigger 16.25
ERJ - EMBRAER - Empresa Brasileira de Aeronáutica, trigger $17.50
IGT - Intl. Game Tech., trigger $17.50
MEE - Massey Energy Corp., trigger $20.50
MICC - Millicom Cellular, trigger: $62.50
WLT - Walter Energy Inc., trigger $36.00
X - United States Steel Corp., trigger 37.50

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a dropped play this week.



Jim's portfolio and updates has been included in the normal play updates section.


New Plays

How Many Times?

by James Brown

Click here to email James Brown


Can We See Some Profit Taking, Please?


Editor's Note:

I don't know how many times I can say the same thing but stocks are overbought and we need to be patient. This is not a good point to be launching new longer-term investments like LEAPS options. The trend is up and will probably be up the rest of the year. We just have to pick our entry points and this isn't one of them.

I've added two new candidates to the watch list DISH and X.


Play Updates

Hope You Enjoyed The Ride

by James Brown

Click here to email James Brown


Closed Plays


None. We did not close any plays.


Play Updates


ACGY $10.47 -0.36 -- Acergy S.A.

ACGY tends to trade with the more volatile oil service stocks and the sector soared last Monday only to drift lower the rest of the week. Shares of ACGY rallied toward their June 2009 highs but didn't quite make it. Now we're starting to see some bearish curves in the short-term technicals. More conservative traders may want to consider a higher stop loss.

I'm not suggesting new LEAPS positions at this time. Our stop is at $6.95. Our plan is to exit in the $14.50-15.00 zone. ACGY is still testing resistance on its Point & Figure chart, which is currently forecasting a bullish target of $24.00.

April 25th, 2009 - entry price on ACGY @ 7.61, option @ 1.05
symbol: QLS-AB, 2010 JAN $10 LEAP call - current bid/ask $1.75/2.05
-stop loss on ACGY @ 6.95

Chart of ACGY


ACI $18.01 +0.19 -- Arch Coal Inc.

Coal stocks broke out to new highs last Monday and then spent the rest of the week churning sideways. Shares of ACI barely tagged a new relative high and focused mostly on the churning sideways. Short-term I would not be surprised to see a correction back to the $16.50 or $15.75 levels. Readers can use a dip near $16.00 as a new entry point. Our long-term target is the $30 region. If you do launch new positions I would buy the 2010 January $20 calls or 2011 January $25 calls rather than the ones originally listed below.

May 14th, 2009 - entry price on ACI @ 16.00, option @ 1.30
symbol: ACI-AE, 2010 JAN $25 LEAP call - current bid/ask .50/0.60
-stop loss on ACI @ 12.85

-or-

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: OSE-AF, 2011 JAN $30 LEAP call - current bid/ask $1.20/1.30
-stop loss on ACI @ 12.85

Chart of ACI:


BAC $16.42 -0.28 - Bank of America Corp.

BAC soared to new highs for 2009 and the breakout past resistance in the $14-15 zone is very bullish. Yet the stock is very overbought and due for a correction.

I want to remind readers that this is a long-term, two-year trade. Our exit target is the $30-40 zone.

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $7.75/7.85
-stop loss on BAC @ none.

Chart of BAC


CRM $46.73 +1.36 -- Salesforce.com

The rally continues in CRM and shares broke out over resistance last week to close at new highs for 2009. The stock is now within striking distance of our first target at $49.00. Readers could start taking profits now. More conservative traders may want to raise their stops toward $40.00 instead of our stop at $34.90. I am not suggesting new LEAPS positions at this time. We want to sell half of our position at $49.00. We'll sell the second half at $57.00.

April 1st, 2009 - entry price on CRM @ 30.00, option @ 4.30
symbol: CRM-AH, JAN 2010 $40 LEAP call - current bid/ask $9.40/9.60
-stop loss on CRM @ 34.90.
(note: readers have reported getting a better entry price than $4.30)

-or-

April 1st, 2009 - entry price on CRM @ 30.00, option @ 2.00
symbol: CRM-AI, JAN 2010 $45 LEAP call - current bid/ask $6.20/6.40
-stop loss on CRM @ 34.90.

Chart of CRM:


DBC $23.29 -0.11 -- PowerShares DB Commodity Index (ETF)

The commodities have been somewhat volatile last week thanks to big moves in the U.S. dollar. Early last week the dollar sank to new lows for 2009. Then on Thursday and Friday the dollar produced a big oversold bounce. In contrast commodities rallied sharply only to trim their gains. I am not suggesting new bullish positions in DBC at this time. Our long-term target is $30.00.

FYI: The DBC is an ETF on the Deutsche Bank Liquid Commodity index using futures on light sweet crude oil, heating oil, aluminum, gold, corn and wheat.

July 6th, 2009 - entry price on DBC @ 21.50, option @ 4.28
symbol: VCZ-AT, 2011 JAN $20 LEAP call - current bid/ask $5.00/5.80
-stop loss on DBC @ 18.90.

-or-

July 6th, 2009 - entry price on DBC @ 21.50, option @ 2.62
symbol: VCZ-AY, 2011 JAN $25 LEAP call - current bid/ask $2.70/3.40
-stop loss on DBC @ 18.90.

Chart of DBC:


DO $89.04 -0.52 -- Diamond Offshore

Aside from the Monday morning pop last week the oil service stocks were under performers. Shares of DO drifted lower and the July 27th high is starting to look like a bearish double top. I am suggesting readers wait for a dip into the $82.00-80.00 zone to launch new bullish LEAPS positions. We'll put the stop at $69.95 but we could probably get away with a stop at $74.40.

-NEW- Buy the dip trigger: $82.00

BUY 2010 JANUARY $80 CALL (symbol: KWJ-AP)
-or-
BUY 2010 JANUARY $90 CALL (symbol: KWJ-AR)

Chart of DO:


DXO $4.83 -0.10 -- Deutsche Bank Double-long Oil ETN

The dollar's early weakness last week helped push the DXO to new highs for 2009 near $5.00. As the dollar bounced the DXO began to see some profit taking. I realize it's tempting to want to take profits here. Some traders are nimble enough to trade in an out of this ETF. We're trying to make this a long-term investment. Wait for a dip toward its 100-dma and trendline of higher lows before considering new positions.

Prior comments on this play:
The DXO is our long-term oil position. When we say long-term we're talking two or three years (or more). Currently the plan is to build a long-term position averaging down on dips. The $2.50 region is the sweet spot to buy the DXO. Anything under $2.50 is a gift. I want to repeat that this is not a trade. It's a multi-year investment. Currently our exit target is the $25.00 to $30.00 zone.

The Crude oil double-long ETN (exchange-traded note) offers investors two times the leveraged exposure to the monthly performance of the Deutsche Bank optimum yield crude oil index plus the monthly TBill index return.

Basically, when oil was $147 a barrel this ETN was $29.65. If oil returns to the $150 range over the next few years this ETN could rally to $30 for a 1500% return. This ETN does not expire. It can be used in IRAs and has no margin requirements like crude oil futures.

ETN Info:

Deutsche Bank ETN Fact Sheet

Deutsche Bank Pricing Description

Our plan called for buying this ETN instead of the options.

Current position in the DXO = $2.15 entry (no stop loss at this time)

Chart of DXO


ERTS $20.71 +0.02 -- Electronic Arts

Investors need to turn more defensive on ERTS. The company reported earnings last week. ERTS beat the bottom line estimate by 11 cents and actually beat the top line estimate, which has been an uncommon feat this season. Yet investors sold the news. The stock has been consolidating sideways in a pennant-shaped formation and the breakdown is bearish. I suspect shares will trend toward the $19-18 zone. Thus traders may want to consider selling some short-term calls (like August or Septembers) against your LEAP position to increase our returns. I would read up on diagonal spreads and the necessary margin requirements if you were interested. We'd have to use at-the-money or only slightly out-of-the-money calls to make this spread worthwhile.

I am not suggesting new LEAPS positions at this time.

We have two targets. We want to take part of the position off the table at $29.00. Take the rest off at $34.00.

April 20th, 2009 - entry price on ERTS @ 18.00, option @ 1.08
symbol: EZQ-AE, JAN 2010 $25 LEAP call - current bid/ask .85/0.95
-stop loss on ERTS @ 17.95.

-or-

April 20th, 2009 - entry price on ERTS @ 18.00, option @ 0.70
symbol: WZW-AF, JAN 2010 $30 LEAP call - current bid/ask .15/0.30
-stop loss on ERTS @ 17.95.

Chart of ERTS:


FAS $76.08 +5.56 - Direxion Fincl.Bull 3x ETF

It's been a very exciting week for the financials, especially the triple-leveraged ETFs like the FAS. This security has risen 33% in the last week and more than doubled from its July lows. If you haven't taken any profits yet I would strongly consider doing so right here right now! The banks are up huge in the last four weeks and way overdue for a correction. The FAS can move just as fast to the downside and we need to be expecting a correction. We're not suggesting new bullish positions in the FAS at this time.

Currently we have sold one third of our position at $60.00 (pre-split price of $12.00) and we plan to sell another third at $120.00. We'll re-evaluate our final target for the last third of our position as needed. FYI: On July 9th, 2009 the FAS performed a 1:5 reverse split.

Our plan called for buying the ETF instead of the options.

Current position in the FAS = $2.64 entry (stop loss: 2.64)
post-split prices are: $13.20 entry (stop loss: 13.20)

Exit 1/3 position @ 60.00 (+354%) /pre-split: 12.00

Chart of FAS

Chart of RIFIN (Russell 1000 financial services)


FCX $63.41 -0.58 - Freeport McMoran

FCX surged to new highs for 2009 last Monday and then spent the rest of the week churning sideways in a narrow range. I expect the stock to fill the gap back to $60.00 and probably dip back toward the $55.00 zone. If you're looking for a new long-term bullish entry point I'd prefer to wait for a correction toward the $52.50-50.00 zone or its 100-dma but there is no guarantee FCX will see any of these levels any time soon. The stock is actually within striking distance of our exit price at the $69.00 mark. I am suggesting that we sell 50% to 75% of our position at $69.00 and we'll maintain a small position and exit completely at $77.50.

The Point & Figure chart is bullish with a $93 target. We don't want to chase this move but investors might want to consider new positions near $50.00 or its 100-dma. Our long-term target is $69.00.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $13.70/13.85
-stop loss on FCX @ 39.45
-or-
June 22nd, 2009 - entry price on FCX @ 46.00, option @ 10.00
symbol: OBQ-AL, 2011 JAN $60 LEAP call - current bid/ask $17.45/17.80
-stop loss on FCX @ 39.45

Chart of FCX:


FSLR $146.47 + 3.71 -- First Solar

FSLR has almost erased the July bounce from $140 as investors continue to sell the stock following its last earnings report. The $140 level appears to be decent support but if the market eventually corrects I can't say $140 will hold.

We are not suggesting new positions.

This play looked like a done deal back on April 30th when shares spiked higher. Here's a repost of our April 30th, 2009 trade recap:

The covered-call trade is now at maximum profit. We bought FSLR at $128.00 and sold the 2010 $150 LEAP for $40.70. After the April 30th move odds are almost guaranteed that we'll be called out but we have to leave it in our portfolio until we are. Profit if called is $40.70 for the call option we sold and a $22 rise in the stock price (from $128 to $150). Together that's a $62.70 gain on a $128 investment (+48.9%).

Our put-spread play is a position we plan on holding until expiration in January 2010. We bought the 2010 $100 LEAP put for $32.90. We sold the 2010 $250 LEAP put for $135.70. Our net credit was $103 into our account. If you covered on April 30th by buying back the $250 LEAP put (at the time trading around $80.00) our profit would only be about $23.00. That's not our plan. We're holding this position until January 2010 and will buy back the $250 LEAP put then with the expectation it will be worth even less (as the stock continues to climb).

Covered Call position:

Long 100 shares of FSLR @ $128.00
Short 2010 $150 LEAPS Call LZL-AA @ $40.70
Profit if called is $40.70 in option premium + $22 in stock (+49%)

Put Spread position:

Long 2010 $100 LEAPS Put LQM-MT @ $32.90
Short 2010 $250 LEAPS Put LZL-MJ @ $135.70, net credit $103

Currently the 2010 Jan. $100 put is worth (bid) $5.20.
The 2010 Jan. $250 put is worth $104.60.
If you're curious the 2010 Jan. $150 call is at $20.10.

Chart of FSLR


GLBL $8.43 +0.12 -- Global Industries

A 23% gain is not a bad week. GLBL broke through the $7.00 level early in the week and then soared past $8.00 and its May highs following its better than expected earnings report. The company reported on August 6th and results of 40 cents per share were 24 cents better than expected. Revenues also beat estimates. The stock was upgraded by two different firms on Friday and shares spiked to $8.83 Friday morning. That's only 2 cents away from our exit target at $8.85. I strongly suggest that readers start taking some profits right now. We are not suggesting new bullish positions at this time. If we're lucky GLBL will hit $8.85 on Monday and we will exit. More aggressive traders could aim for the $10.00 or $11.00 levels.

Note: GLBL is up almost 70% from its July lows. If the stock does not hit our target we have to expect a correction. At the very least a fill the gap move back toward $7.50.

Our plan called for buying the stock instead of the options. Our entry point to buy GLBL was hit on January 6, 2009

Current position in GLBL = $4.10 entry (stop loss: 4.85)
Current target to exit is $8.85.

Chart of GLBL:


GT $18.11 +0.57 -- Goodyear Tire & Rubber Co.

GT traded over $18.75 on Tuesday but shares spent most of the week consolidating sideways. The stock is up more than 80% from its July lows. We have to expect a correction. The only support is probably the $15.00-14.50 region. A 50% correction of the rally would be a dip near $14.35.

I'm not suggesting new LEAPS positions at these levels. Our long-term target is $25.00.

June 6th, 2009 - entry price on GT @ 12.94, option @ 2.20
symbol: GT-AC, 2010 $15 LEAP call - current bid/ask $4.40/4.60
-stop loss on GT @ 9.90.
-or-
June 6th, 2009 - entry price on GT @ 12.94, option @ 2.65
symbol: VYR-AD, 2011 $20 LEAP call - current bid/ask $3.70/4.30
-stop loss on GT @ 9.90.

Chart of GT:


HOS $22.37 +0.58 -- Hornbeck Offshore Services

The oil service stocks have been under performing the rest of the market. If the market finally corrects this group could really see some profit taking, which probably means HOS will break the trendline of support. I would wait for a dip or a bounce near its July lows (19.00-18.50 zone) before considering new bullish LEAPS positions. Our long-term target is $35.00.

June 27th, 2009 - entry price on HOS @ 21.20, option @ 4.90
symbol: HOS-AD, 2010 JAN $20 LEAP call - current bid/ask $4.00/4.80
-stop loss on HOS @ 17.85
-or-
June 27th, 2009 - entry price on HOS @ 21.20, option @ 2.70
symbol: HOS-AE, 2010 JAN $25 LEAP call - current bid/ask $1.85/2.35
-stop loss on HOS @ 17.85

Chart of HOS:


INTC $18.50 -0.20 -- Intel Corp.

Semiconductors have been under performing and Intel is a big reason why. I've been warning readers that the stock would probably fill the gap. It may take a few weeks but eventually we should see INTC dip toward $17.00. I would use a dip or bounce in the $17.00-16.00 zone as a new entry point. Our target is the $24-26 zone.

FYI: Shares of Intel don't move very fast. Readers might want to consider turning this play into a calendar or diagonal spread to further maximize your gains. Especially now with the stock edging lower.

June 13th, 2009 - entry price on INTC @ 16.31, option @ 1.36
symbol: VNL-AD, 2011 LEAP $20 call - current bid/ask $2.27/2.33
-stop loss on INTC @ 14.40.

Chart of INTC:


JOYG $42.88 +1.88 -- Joy Global Inc.

JOYG is on fire right now. The stock just added another 15% last week and managed to close above its May 2009 highs. The strength is very encouraging but shares are now overbought. I am not suggesting new LEAPS position at this time. We are upping our stop loss to $29.00.

June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 3.80
symbol: JQY-AH, 2010 JAN $40 LEAP call - current bid/ask $7.70/7.90
-stop loss on JOYG @ 29.00
-or-
June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 6.90
symbol: ZMC-AH, 2011 JAN $40 LEAP call - current bid/ask $12.10/12.90
-stop loss on JOYG @ 29.00

Chart of JOYG:


KSU $23.18 +1.15 -- Kansas City Southern

The Dow transportation index just barely closed at a new high for 2009. The breakout is much easier to see on the Dow Jones railroad index (DJUSRR). The huge rally in the railroads is very evident in KSU's chart with a surge from $15.00 to more than $23.00 in four week's time. We should be expecting some profit taking sooner or later. Broken resistance in the $18.00-17.00 zone should offer new support. I am not suggesting new LEAPS positions at this time. Our long-term target is the $27.50-30.00 zone.

May 9th, 2009 - entry price on KSU @ 17.01, option @ 0.90
symbol: KSU-AE, 2010 JAN $25 call - current bid/ask $1.90/2.45
-stop loss on KSU @ 13.90.

The symbol changed from LJR-AE to KSU-AE.

Chart of KSU:


LNN $40.92 +2.32 -- Lindsay Corp.

The stock market's reaction to the jobs number on Friday morning was enough to fuel a rally in LNN and a breakout to new highs for 2009. The stock cleared resistance near $41.50 in the April-May time frame and hit $42.05. Unfortunately LNN began to trim its gains into the closing bell. We had a breakout trigger to buy LEAPS at $41.55 so our play is now open. If you missed it I wouldn't worry. The stock market is very overbought and due for a correction. LNN will probably retest the $38.00-35.00 zone. If you are looking for a new entry point I would wait for a dip closer to the $36.00-35.00 region (near the trendline of higher lows).

We want to sell half our LEAPS position at $49.50 and half at $59.50. We'll use a stop loss under the June low at $29.65.

August 7, 2009 - entry price on LNN @ 41.55, option @ 8.80
symbol: NRR-AG, 2010 JAN $35 LEAP call - current bid/ask $8.10/8.80
-stop loss on LNN @ 29.65
-or-
August 7, 2009 - entry price on LNN @ 41.55, option @ 6.00
symbol: NRR-AH, 2010 JAN $40 LEAP call - current bid/ask $5.40/6.00
-stop loss on LNN @ 29.65

Chart of LNN:


MDR $21.52 +0.82 - McDermott Intl. Inc.

MDR could see some volatility this week. Earnings are due out Monday, August 10th after the closing bell. Wall Street expects a profit of 37 cents a share. If the stock sees a sell-off I would look for support in the $19.00-18.00 zone. Our target to exit is a move into the $30.00-35.00 zone.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 $20 LEAP call - current bid/ask $3.90/4.10
-stop loss on MDR @ 14.75.

Chart of MDR:


MSFT $23.56 +0.10 -- Microsoft Corp.

MSFT has been drifting sideways since its post-earnings sell-off. Shares are flirting with a breakdown under their 50-dma and the bottom edge of the bullish channel.

I would consider new long-term LEAPS positions anywhere in the $22.50-20.00 zone but I seriously doubt the stock will break $21.00 any time soon. More conservative traders may want to raise their stops toward the $20.00 mark.

This is going to be a long-term (18-month) trade. MSFT doesn't move that fast (normally). Investors might want to turn this into a calendar or diagonal spread, selling calls against your LEAPS position. My long-term target is the $30 region.

June 2nd, 2009 - entry price on MSFT @ 21.60, option @ 2.20
symbol: VMF-AE, 2011 Jan. $25 call - current bid/ask $2.68/2.73
-stop loss on MSFT @ 18.40.

Chart of MSFT:


MT $37.38 +0.22 -- ArcelorMittal

MT's rally topped out on Monday and shares have been consolidating sideways all week. A 50% correction of the July rally (bottom to top) would be near $33.50. If you're looking for a new entry point I'd prefer to buy LEAPS on a bounce near support around the $30.00 level. Our long-term target is the $50 region. We'll use a stop loss at $24.45.

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.70
symbol: MT-AH, JAN 2010 $40 call - current bid/ask $3.80/4.10
-stop loss on MT @ 24.45.

-or-

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.00
symbol: MT-AJ, JAN 2010 $50 call - current bid/ask $1.25/1.40
-stop loss on MT @ 24.45.

Chart of MT:


NYX $28.77 +1.11 -- NYSE Euronext

NYX had a good week thanks to a strong bounce on Monday and then again on Friday. Shares closed over short-term resistance near $28.00 and technical resistance at the exponential 200-dma. I would prefer to launch new LEAPS positions on a dip near the $25-24 zone and I would definitely wait for a bounce first. Our long-term target is the $35.00-40.00 zone.

Apr. 11th, 2009 - entry price on NYX @ 21.51, option @ $1.81
-- NZV-AD, 2010 $30.00 LEAP call - current bid/ask $2.65/2.70
-stop loss on NYX at $19.95

Chart of NYX:


PBR $42.54 +0.16 -- Petroleo Brasiliero

It was a mixed week for oil companies and shares of PBR drifted sideways. Odds favor a correction back toward the $37.50-35.00 zone. I would wait for another dip or bounce near $35.00 before considering new LEAPS positions. If PBR does offer a new entry point I'd buy the 2010 $45.00 calls not the $50s. The plan is to sell half our position at $49.50 and the rest at $57.50.

Apr. 4th, 2009 - entry price on PBR @ 35.10, option @ $2.80
symbol: PMJ-AJ, 2010 $50.00 LEAP call - current bid/ask $2.20/2.30
-stop loss on PBR at $29.00

Chart of PBR:


PCU $27.13 +0.37 - Southern Copper Corp.

The rally in mining stocks ran out of steam around Monday and PCU spent most of the week churning sideways. We should be expecting some sort of correction after a run from $18.50 to almost $28.00 in four week's time. I'd prefer to wait for a dip back in the $22.00-20.00 zone as our next entry point. Our target is $30.00.

April 20th, 2009 - entry price on PCU @ 19.00, option @ 1.95
symbol: PCU-AE, JAN 2010 $25 LEAP call - current bid/ask $4.90/5.20
-stop loss on PCU @ 16.45.

Chart of PCU:


PEP $57.74 -0.09 -- PEPSICO Inc.

PEP made headlines and soared to new 2009 highs last Monday when the company announced it had reached a merger agreement to buy its two biggest bottlers. PEP had previously tried to buy The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) for about $6 billion but was rejected. The new deal, half in cash and half in stock, is worth $7.8 billion. Investors spent the rest of the week taking profits and shares look like they are ready to fill the gap from Monday morning. I would consider launching new positions on a dip in the $55.00-52.00 zone. Our long-term target is the $65-70 zone. We'll use a stop loss at $51.50. This is an 18-month bet.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $4.60/5.00
-stop loss on PEP at $51.50

Chart of PEP:


RAI $44.10 +0.42 -- Reynolds American Inc.

RAI consolidated sideways all week only to spike to new highs on the jobs report. Shares hit $44.80 and reversed. This almost looks like a short-term top. The stock is very overbought and I'm suggesting readers look for a dip into the $41.00-40.00 zone before launching new LEAPS positions. I'm suggesting we take some money off the table at $49.50 and exit completely at $57.50.

July 24th, 2009 - entry price on RAI @ 42.50, option @ $1.45(estimate)
symbol: RAI-BI, 2010 FEB $45.00 LEAP call - current bid/ask $2.15/2.30
-stop loss on RAI at $35.99

or

July 24th, 2009 - entry price on RAI @ 42.50, option @ $4.50(estimate)
symbol: OWO-AH, 2011 JAN $40.00 LEAP call - current bid/ask $5.20/6.50
-stop loss on RAI at $35.99

Chart of RAI:


RIG $75.06 -2.05 -- Transocean Ltd.

Buckle your seat belts. The correction in RIG has already begun. The company missed earnings estimates by 24 cents and shares gapped down on the news. The stock is now sliding through a cloud of moving averages, which should be support. The recent highs near $82.50 look like a bearish double top. I fully expect RIG will retest the $70.00 level and possibly support near $65.00 and its 200-dma. Wait for signs of a bounce first before considering new LEAPS positions. Currently our upside target is $98.00.

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 5.40
symbol: RIG-AP, JAN 2010 $80 call - current bid/ask $5.90/6.10
-stop loss on RIG @ 64.99.

-or-

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 3.90
symbol: RIG-AZ, JAN 2010 $85 call - current bid/ask $4.10/4.30
-stop loss on RIG @ 64.99.

Chart of RIG:


SGY $11.77 +0.38 -- Stone Energy Corp.

SGY has more than doubled from its July lows. Readers will want to strongly consider taking some profits right here even though our official target to exit is $14.75. Seriously! Officially I'm suggesting readers sell half their LEAPS/stock position right here.

The rally has stalled with shares of SGY churning sideways in the $11.00-12.00 zone. I would expect a correction back toward the $9.00 level. I am not suggesting new LEAPS or stock positions at this time.

June 22nd, 2009 - entry price on SGY @ 6.35, option @ 0.75
symbol: STQ-AB, 2010 JAN $10 LEAP call - current bid/ask $3.20/3.50
-stop loss on SGY @ 5.80

FYI: sell half LEAPS position at $3.20 (+326%)

-or-

June 22nd, 2009 - entry price on SGY @ 6.35, (buying the stock)
-stop loss on SGY @ 5.80

FYI: sell half stock position at $11.77 (+85.3%)

Chart of SGY:


SLB $53.25 -0.45 -- Schlumberger Ltd.

SLB is another oil service stock that has already begun to correct. I am expecting a dip toward $50.00 and probably a pull back toward support near $47.50. Wait for a bounce from this region before considering new bullish positions.

Currently our exit strategy has three parts. The plan was to sell one third of our position at $59.00, which was originally our first target. We'll sell another one third at $69.00. We'll exit our final third at $77.50.

April 20th, 2009 - entry price on SLB @ 45.01, option @ 3.00
symbol: SLB-AL, JAN 2010 $60 LEAP call - current bid/ask $3.20/3.40
-stop loss on SLB @ 44.90.

1st exit @ $59.00 (1/3 of position) option @ $7.25 (+141% estimate)

Chart of SLB:


UNG $13.13 -0.06 - U.S. Natural Gas ETF

I remain cautious on the UNG natural gas ETF. It almost looks like it is building a bear-flag type of pattern. The trend is still down and I expect a retest of the $12.00 level and potentially new lows.

I'm suggesting readers wait for the UNG to show new signs of bottoming before we consider new bullish positions. It may take several weeks but this is a long-term 18-month investment so we have time before putting any more capital to work here.

Trading Note: Investors may want to consider just cutting losses now. If I'm right we will get another entry point lower from here or at least on the way up instead of watching the premium slowly decay.

Looking at the big picture it seems like natural gas is in the process of making long-term (multi-year) lows here but that doesn't mean the commodity won't get more oversold first Our long-term target is the $25-30 zone.

June 16th, 2009 - entry price on UNG @ 16.26, option @ 3.90
symbol: ZZM-AT, JAN 2011 $20 LEAP call - current bid/ask $1.80/2.25
-stop loss on UNG @ no stop

Weekly Chart of UNG:


UYG $5.55 +0.31 - ProShares Ultra Financials (2x) ETF

As a double-long financial ETF it's been a very exciting few weeks. The UYG has soared to new multi-month highs. Readers may want to consider taking some profits right here since we'll probably see a correction and you can re-enter on the pull back. You don't have to sell everything just consider selling some of your UYG and then you have the freedom to re-enter that percentage of your investment on a dip near $4.50 or $4.00. I am not suggesting new positions at this time.

Please note that I'm raising the stop loss to $2.85.

Don't forget that the UYG trades off the DJUSFN index.

The plan is to hold the UYG for 18 to 24 months or longer. We'll evaluate potential exit points along the way.

Our strategy called for buying the ETF instead of the options.

Current position in the UYG = $1.50 entry (stop loss: 2.85)

Chart of UYG:


VOD $21.39 +0.40 -- Vodafone Group

VOD has turned in a decent couple of weeks. Broken resistance near $20.00 should now act as new support. Wait for a dip or a bounce near $20.00 as your new entry point. Our target is the $27.50 region.

July 10th, 2009 - entry price on VOD @ 18.25, option @ 1.10
symbol: VOD-AD, 2010 JAN $20 LEAP call - current bid/ask $3.20/3.50
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $17.45 -0.37 -- MEMC Electronic Materials Inc.

The trading in WFR continues to look bearish. Shares did not participate in the rally at all and now the semiconductors look vulnerable. WFR looks like it's ready to drop toward $16.00 and its 200-dma. Fortunately that's where the stock should find some support. Wait for the dip or a bounce near $16.00 before considering new bullish positions. Our long-term target is the $30.00 region.

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 2.50
symbol: CJC-AD, 2010 JAN $20 LEAP call - current bid/ask $1.65/1.75
-stop loss on WFR @ 14.75

-or-

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 3.43
symbol: ZET-AE, 2011 JAN $25 LEAP call - current bid/ask $2.10/2.25
-stop loss on WFR @ 14.75

Chart of WFR:



Watch

Cable TV and Steel

by James Brown

Click here to email James Brown


New Watch List Entries

DISH - Dish Network Corp.

X - United States Steel Corp.


Active Watch List Candidates

BEAV - BE Aerospace Inc.

BG - Bunge Limited

CNX - Consol Energy Inc.

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MICC - Millicom Intl. Cellular

WLT - Walter Energy Inc.


Dropped Watch List Entries

LNN hit our breakout trigger and graduated to the play list.


New Watch List Candidates:

DISH $18.42 +1.00 -- Dish Network Corp.

It appears that DISH has produced a long-term bottom with the lows in November 2008 and March 2009. Shares retested broken resistance near $14.00 as support in June and July. The overall pattern has definitely turned more positive. Meanwhile DISH is currently winning in the patent-infringement lawsuit with Tivo. Considering the tough economic times and consumer's tendency to stay home and cocoon the company should be holding up pretty well. We'll find out soon when DISH reports earnings on August 10th. Results will be out Monday morning before the bell. Keep your fingers crossed that traders do some profit taking.

We want to buy LEAPS on a dip into the $16.00-15.00 zone. The official trigger will be $16.25 and we'll use a stop loss at $13.85. Our long-term target is the $25-30 zone.

Company Info:
DISH Network Corporation (NASDAQ: DISH - News), the nation’s HD leader, provides approximately 13.584 million satellite TV customers as of March 31, 2009 with the highest quality programming and technology at the best value, including the lowest all-digital price nationwide. Customers have access to hundreds of video and audio channels, the most HD channels, the most international channels, state-of-the-art interactive TV applications, and award-winning HD and DVR technology including 1080p Video on Demand and the ViP® 722 DVR, a CNET and PC Magazine “Editors’ Choice.” DISH Network is included in the Nasdaq-100 Index (NDX) and is a Fortune 250 company. Visit www.dishnetwork.com. (source: company press release or website)

Buy-the-Dip trigger: $16.25

BUY the 2010 January $15.00 calls (symbol: HSW-AC)
(or consider the 2011 Jan. $20 calls)

Chart of DISH:


X $44.94 +1.54 United States Steel Corp.

Shares of X have shrugged off their recent earnings miss and the stock has rallied to new 2009 highs. Now that rally is running low on steam. If investors are buying stocks on the belief that a recovery is on the way then X will continue to be a target for appreciation. We want to jump on board with a trigger to buy LEAPS at $37.50. Traders can use the $37.50-35.00 zone to launch positions. We'll start with a stop loss at $32.40. Our target is the $60-70 zone. Currently the Point & Figure chart is bullish with a $64 target.

Company Info:
United States Steel Corporation, headquartered in Pittsburgh, Pa., is an integrated steel producer with major production operations in the United States, Canada and Central Europe and an annual raw steelmaking capability of 31.7 million net tons. The company manufactures a wide range of value-added steel sheet and tubular products for the automotive, appliance, container, industrial machinery, construction, and oil and gas industries. (source: company press release or website)

Buy-the-Dip trigger: $37.50

BUY the 2010 January $40 calls (symbol: FBJ-AH)

Chart of X:


Active Watch List Candidates:


BEAV $17.61 +0.65 -- BE Aerospace Inc.

Shares of BEAV have now rallied to their June 2009 highs near $18.00. This is the logical place for the up trend to stall. I am raising our entry point to buy LEAPS (or the stock) from $13.00 to $14.00.

Buy-the-Dip trigger: $14.00

BUY the 2010 January $15.00 calls (symbol: BQV-AC)
or
BUY the stock at $14.00

Note: At $14.00 you could just buy the stock instead but the $15 calls will allow you more leverage on your investment.

Chart of BEAV:


BG $71.87 -0.54 -- Bunge Limited

The upward momentum in BG is definitely slowing down. It might take a few weeks but we want to open positions near the longer-term bullish trendline. If triggered we're going to aim for the $85-90 zone. Currently the Point & Figure chart is bullish with a $94 target.

Buy-the-Dip trigger: $61.00

BUY the 2010 January 70 calls (BGW-AN)

Chart of BG:


CNX $85133 +1.18 -- Consol Energy Inc.

CNX is up more than 30% from its July lows. While I'm long-term bullish on coal stocks we don't want to chase this move. Right now the plan is to buy LEAPS on a dip near $30.00 but we might want to consider raising that trigger towards the $32.50 region. If triggered our long-term is the $48.50 level. We'll use a stop loss at $24.40.

Buy-the-Dip trigger: $30.50

BUY the 2010 January 35.00 calls (symbol: CNX-AG)

Chart of CNX:


ERJ $22.09 +0.48 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

Last Monday's rally in ERJ was certainly unexpected. The stock soared to new 2009 highs on strong volume and then spent the rest of the week consolidating sideways. I am upping our trigger to buy LEAPS from $17.50 to $18.50. Our target is the $29-30 zone. Set your stop at $15.45.

Buy-the-Dip trigger: $18.50

BUY the 2010 January $20.00 call (symbol: ERJ-AD)

Chart of ERJ:


IGT $19.92 +0.31 --- Intl. Game Technology

IGT hit new 2009 highs last week but shares have begun to reverse. Momentum indicators are suggesting the rally is out of gas, which is good news since we want to buy a pull back. I am suggesting that readers buy LEAPS on a dip into the $17.50-16.00 zone. Our long-term target is the $25.00-30.00 zone.

Buy-the-Dip trigger: $17.50 (17.50-16.00 zone)

BUY the 2010 January $17.50 call (IGT-AW) -or-
BUY the 2010 January $20.00 call (IGT-AD) -or- BUY the 2011 January $20.00 call (VGG-AD)

Chart of IGT:


MEE $28.55 +1.14 -- Massey Energy Corp.

MEE posted strong gains on Friday but shares spent the week drifting sideways. The stock remains extremely overbought with the rally from its July lows near $16.00. We might want to raise our entry point to the $22.50-22.00 zone but for now the plan is to buy LEAPS at $20.50. We'll use a stop at $15.75. Our long-term target is the $35.00-40.00 range. The P&F chart agrees and points to a $37.50 target.

Buy-the-Dip trigger: $20.50

BUY the 2010 January $25.00 call (MEE-AE)
-or
BUY the 2011 January $30.00 call (VHK-AF)

Chart of MEE:


MICC $73.37 -0.45 -- Millicom Intl. Cellular

The rally in MICC has definitely stalled. The MACD on the daily chart is about to turn bearish. It might take a few weeks but we want to buy a dip near support around $60.00. Buy-the-Dip trigger: $62.50

BUY the 2010 January $80 call (symbol: CQD-AP)

Chart of MICC:


WLT $55.26 +3.01 -- Walter Energy Inc.

WLT has not given up its leadership position in the coal sector. The stock is just screaming higher. It can't keep up this pace for much longer but I wouldn't want to short it. It might take a few weeks but we want to buy LEAPS on a dip near support, which should be the $40.00 level. We'll use a stop loss at $34.40. Our long-term target is $60.00.

Buy-the-Dip trigger: $41.00

BUY the 2010 January 50.00 call (WLT-AJ)

-or-

BUY the 2011 January 50.00 call (OZE-AJ)

Chart of WLT: