Option Investor
Newsletter

Daily Newsletter, Saturday, 8/15/2009

Table of Contents

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

Leaps Trader Commentary

What Do You Fear?

by James Brown

Click here to email James Brown

Another week has gone by and stocks continue to defy gravity. Recently the market has suffered from selective hearing. It only heard good news and ignored any bad news. This sort of environment doesn't last forever and the market is going to need to see some real evidence that the economy is recovering as we head deeper into the fall. After the second quarter earnings season analyst and investor expectations have risen sharply and forecasts are being revised higher.

We could argue that the July rally was fueled by short covering. It was also fueled by hope and fear. Hope that the economy is truly improving and we'll soon see growth. Fear from money managers that if they don't get in now they'll miss the rally. I've said it before. Professional money managers are scared. They're scared to under perform their benchmarks (normally the S&P 500) and they're scared to under perform their peers. Their bonus and for some their jobs depend on performing well. This has left them chasing the market higher.

We are not professional mutual fund or hedgefund managers. We are individual traders and don't face the same performance anxiety or pressures. Therefore we can choose how and when we deploy our capital. We don't have to chase this rally. We're allowed to wait for a better entry point. The question is, "what do you fear?" Do you fear losing money or do you fear missing out? Are you going to be more upset if you went long the market (stocks, or LEAPS) now and lost money on a correction? Or would you be more upset if the market broke out higher from here and ran another 10 or 15% without you?

Can the market run higher from here? Absolutely. It can also correct sharply. The market is always right. We just have to try and discern what it's trying to tell us. I believe the market is telling us that for the next four or five months the trend is up. Hopefully we'll see a couple of pull backs along the way and if we're ready for them we can use them as entry points. The current environment with money managers chasing performance is unlikely to change for the rest of 2009. That means that any correction is likely to be shallow and smaller than we might expect. Right now I'd love to see the S&P 500 dip back toward the 950 level. As broken resistance it should be support and would seem to make a great entry point to get long the market again. We will see 950 again? I don't know but given the condition above (shallow corrections), maybe not. That means we may want to jump in around 970 or 960.

Technically the market has stalled at serious resistance. The 1,000 area is not only psychological resistance for the S&P 500 but it's also the 38.2% Fibonacci retracement from its 2007 highs. The 1,013 mark is a 50% bounce off its 2009 lows. The 1,016 level happens to be where you'll find the 200-month moving average for the S&P 500. These all add up to heavy resistance for the index, which explains why the rally has stalled. A breakout from here would be pretty bullish and probably spark another massive wave of short covering for those still short (short interest has been falling). If this occurs I'd target a rally to 1,060 and 1,100. Would I launch new long-term LEAPS positions on a move over 1,020? Probably not but nimble traders could certainly try more short-term strategies.

Weekly chart of the S&P 500:

Monthly chart of the S&P 500:

The big picture has not changed. Last week it was announced that foreclosure filings, potential foreclosures, rose to more than 360,000 in July. That's a new all-time high and accounts for 1 out of every 355 households in America. I believe that's the fifth month in a row that foreclosure filings have been over 300,000. I've been warning readers for months that there is another tidal wave of foreclosures coming. The recent bounce in sales and the very minor improvements in home values could easily be swamped by this wave.

I am still in the "W"-shaped post-recession bounce/recovery camp. I expect the economy to grow in the third and fourth quarters. The first half of 2010 could be dicey. This "W" bottom outlook may end up being a tough position to hold on to. As we see more and more improvements in the second half of 2009, thanks to the inventory-rebuilding phase, there is going to be a huge amount of hype and media attention about how wonderful the economy is and how we have nothing to fear. Don't be surprised by it but more importantly don't be seduced by it. We're expecting stocks to trend higher for the rest of 2009 anyway (hopefully with a couple of pull backs along the way). I just want to urge caution when you start looking out to 2010.

Consumer spending is still weak and likely to remain soft for the foreseeable future. That means back to school and the 2009 holiday shopping season are probably going to be worse than expected. If the consumer doesn't participate in the recovery then it's going to be a very unstable rebound. We're also seeing signs of deflation here in the U.S., Europe, China and it's already evident in Japan. If we combine deflation with falling housing prices, weak consumer demand, tight credit markets for business and individuals, and a fragile commercial real estate market, then the bulls have one heck of a wall of worry to climb.

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The rally is getting more and more narrow as investors look for new leadership in the market. Most of the market looks tired and due for a correction. Unfortunately there are so many people looking to buy the dip we probably won't see a healthy pull back. Trading involves timing your entry point and we need patience.

Currently we have twelve stocks on our watch list.

ANR - Alpha Natural Resources, Inc., trigger 31.00
BEAV - BE Aerospace Inc., trigger: $15.00
BG - Bunge Limited, trigger $61.00
CLF - Cliffs Natural Resources Inc., trigger 23.50 or 32.55
CNX - Consol Energy Inc., trigger $35.25
DISH - Dish Network Corp., trigger 16.25
ERJ - EMBRAER - Empresa Brasileira de Aeronáutica, trigger $18.50
IGT - Intl. Game Tech., trigger $17.50
MEE - Massey Energy Corp., trigger $23.50
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

Lighter Than Expected

by James Brown

Click here to email James Brown


Shallow Corrections


Editor's Note:

The market's rally has stalled but it's not showing any willingness to move lower either. No one wants to buy at these levels but no one wants to sell either. Currently the S&P 500 and NASDAQ are facing heavy resistance. Logic would suggest the market is due for a correction but market's don't act on logic. Markets move on fear and greed. Right now there are too many people afraid they're going to miss the rally.

If stocks do see a correction the crowd of investors fearful of missing the rally is going to jump in and buy the dip so pull backs are probably going to be lighter than expected. I'm bullish for the rest of the year but we need to be patient and wait for the next entry point.

I've added new candidates to the watch list.


Play Updates

GLBL Tags Our Exit

by James Brown

Click here to email James Brown


Closed Plays


GLBL hit our target at $8.85 (+115%)


Play Updates


ACGY $10.42 -0.03 -- Acergy S.A.

We're still seeing short-term technicals deteriorate but ACGY has not broken the bullish pattern of higher lows. 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 $1.65/2.00
-stop loss on ACGY @ 6.95

Chart of ACGY


ACI $17.85 -0.43 -- Arch Coal Inc.

Coal stocks have been drifting sideways with a bullish bias. ACI has just been drifting sideways. I would still look for a correction toward the $16.50-16.00 zone. 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 .40/0.50
-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 $1.05/1.20
-stop loss on ACI @ 12.85

Chart of ACI:


BAC $17.39 +0.39 - Bank of America Corp.

BAC continues to lead the financial sector higher. The stock got a boost last week when it was learned that influential hedgefund manager John Paulson bought 168 million shares of BAC in the second quarter. The relative strength is great but shares are clearly overbought. If you're looking for a new entry point I suggest lots of patience as we wait 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. I'm adding a stop loss at breakeven $6.24 on BAC. More conservative traders may want to place theirs higher (maybe just under $10 or $11).

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $8.50/8.70
-stop loss on BAC @ 6.24

Chart of BAC


CRM $47.12 -0.87 -- Salesforce.com

CRM came pretty close to our first target at $49.00 last week. Shares rallied to $48.50 a few times on August 12th thanks to an upgrade. Traders will want to give some serious thought to taking some profits now. CRM reports earnings on August 20th after the closing bell. If you don't take some money off the table ahead of earnings then you may want to consider buying some short-term protective puts. August puts expire after Friday, August 21st so you may want to use September puts if you choose to buy a little insurance. Of course if CRM hits $49.00 before earnings the plan is to sell half our position anyway. Our second target to sell the final half is at $57.00. I am not suggesting new positions at this time.

April 1st, 2009 - entry price on CRM @ 30.00, option @ 4.30
symbol: CRM-AH, JAN 2010 $40 LEAP call - current bid/ask $9.70/9.90
-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 $6.50/6.70
-stop loss on CRM @ 34.90.

Chart of CRM:


DBC $22.70 -0.66 -- PowerShares DB Commodity Index (ETF)

The commodity space ran into some profit taking last week. Some strength in the U.S. dollar didn't help matters. If you're looking for a new entry point I'd consider waiting for a dip near $21.50 and its 200-dma. 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 $4.40/5.50
-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 $2.35/2.90
-stop loss on DBC @ 18.90.

Chart of DBC:


DO $87.63 -2.61 -- Diamond Offshore

Last Thursday DO appeared to breakout from its short-term correction but oil service stocks reversed again on Friday. The stock is testing technical support with its 30, 40, and 50-dma all converging near the 86-87 zone.

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 $4.54 -0.34 -- Deutsche Bank Double-long Oil ETN

After hitting new 2009 highs in early August the DXO has started to correct. Strength in the dollar is undermining the rally in oil. There are two very different views on oil. If the global economy is beginning to recover then demand should pick up. Yet there have been numerous forecasts from the energy agencies and OPEC that have lowered forecasts. So who's right? Right or wrong there seems to be a growing camp of traders that prefer to buy oil as a hedge against inflation instead of gold. Of course inflation is nowhere to be seen right now.

Short-term the trend is down. Look for an entry point near the long-term trendline of higher lows.

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 $21.29 +0.24 -- Electronic Arts

ERTS is showing some decent relative strength if you consider that recent data showed video game sales fell 29% in July (year over year). The plunge in sales was almost twice as bad as expected. The consumer really is cutting back. Yet the news had little impact on ERTS. Friday's close over the 50-dma is bullish but the stock has resistance at the top of its gap near $21.75 and then stronger resistance in the 22.25 region.

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 $1.05/1.15
-stop loss on ERTS @ 17.95.

-or-

April 20th, 2009 - entry price on ERTS @ 18.00, option @ 0.70
symbol: DXU-AD, JAN 2010 $30 LEAP call - current bid/ask .25/0.35
-stop loss on ERTS @ 17.95.
(note the symbol changed from WZW-AF to DXU-AD)

Chart of ERTS:


FAS $73.61 -1.33 - Direxion Fincl.Bull 3x ETF

Pull backs in the financial sector have been very shallow. The RIFIN index bounced from its 10-dma and FAS followed suit. This sector remains extremely overbought. I am not suggesting new bullish positions in FAS at this time. While this is a long-term trade I would strongly consider raising your stop loss toward the July low near $35.00.

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. Honestly, I'm thinking we may want to take profits at $90.00 but we'll make that decision when the FAS gets there. 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 $63.65 -2.42 - Freeport McMoran

FCX managed to close at new highs for the year on Thursday only to trip and fall 3.6% on Friday. Overall shares have been sliding sideways for the last two weeks. The stock remains very overbought. 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.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $13.85/14.00
-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 $17.15/17.65
-stop loss on FCX @ 39.45

Chart of FCX:


FSLR $141.78 - 2.98 -- First Solar

The action in FSLR is getting worse and we're going to have to take action. The stock has continued to sell off and once again it's testing the $140 level, which also happens to be the 61.8% Fibonacci retracement of its February-May rally. Odds are not good that this level will hold a second time.

Here's the plan. We want to buy back (close the short) on the 2010 January $250 put (currently at $109.40). Our original net credit was $102.80. Closing the put now puts our play at -6.60 but we'll still be long the 2010 January $100 put. If FSLR breaks $140 it's probably headed for $100, which is why we want to keep it. More nimble traders may want to consider using a trigger and wait for FSLR to actually break down intraday or close under $140 before actually closing the $250 put.

We're going to keep the covered call play the way it is. We bought the stock at $128.00 and sold the call for $40.70. Our cost in the stock is only $87.30. The ideal situation now is for FSLR to close in January anywhere under the $150 level but above our cost. We'll keep the full premium on the covered call and still have a stock position.

We are not suggesting new positions.

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

- Update 08/15/09 -
Cover the 2010 $250 Put at $109.40. Keep the $100 put.

Currently the 2010 Jan. $100 put is worth (bid) $5.60.
The 2010 Jan. $250 put is worth $109.40.
If you're curious the 2010 Jan. $150 call is at $17.20.

Chart of FSLR


GT $17.80 -0.52 -- Goodyear Tire & Rubber Co.

The rally in GT has clearly stalled with shares drifting sideways the last two weeks. Shares remain overbought and due for a correction. The nearest support is the $15.00-14.50 zone. A 50% correction of the July-August 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 $4.20/4.30
-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 $3.50/3.90
-stop loss on GT @ 9.90.

Chart of GT:


HOS $21.54 -0.55 -- Hornbeck Offshore Services

Short-term and long-term technicals are turning negative on HOS. I am suggesting that more conservative traders exit early right now. There is still support in the $20.00-18.00 zone but if the market eventually corrects HOS could over correct. I am not suggesting new long-term LEAPS positions at this time. 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 $3.70/4.00
-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 $1.65/2.05
-stop loss on HOS @ 17.85

Chart of HOS:


INTC $18.77 -0.28 -- Intel Corp.

The semiconductors have been under performing and weighing on the NASDAQ's performance. Meanwhile the trend in INTC has moved from down to sideways. I've been warning readers that the stock would probably fill the gap from July. 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.

June 13th, 2009 - entry price on INTC @ 16.31, option @ 1.36
symbol: VNL-AD, 2011 LEAP $20 call - current bid/ask $2.30/2.35
-stop loss on INTC @ 14.40.

Chart of INTC:


JOYG $40.47 -2.12 -- Joy Global Inc.

JOYG spiked lower on Friday after an analyst downgraded but shares found support near $40.00. The stock looks a little heavy here and a larger pull back would be healthy for it. Readers can launch new positions on a dip near $35.00.

June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 3.80
symbol: JQY-AH, 2010 JAN $40 LEAP call - current bid/ask $6.00/6.20
-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 $10.20/10.90
-stop loss on JOYG @ 29.00

Chart of JOYG:


KSU $23.33 -0.03 -- Kansas City Southern

The railroads have been soaring higher lately but volume has been declining as the stock rise. The stock is currently testing resistance at its 2009 highs and if it does break through I would expect round-number resistance near $25.00. This group is clearly overbought and I strongly suspect we'll see some profit taking sooner rather than later. 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 $2.15/2.40
-stop loss on KSU @ 13.90.

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

Chart of KSU:


LNN $43.79 -1.59 -- Lindsay Corp.

LNN delivered an impressive week with a rally toward $46.00. I was really expecting a bit of a pull back. At this point broken resistance in the $41.00-40.00 zone should now be new support. That's where we should look for a new entry point.

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 $10.30/10.90
-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 $7.20/7.60
-stop loss on LNN @ 29.65

Chart of LNN:


MDR $23.49 -0.63 - McDermott Intl. Inc.

MDR turned in a strong performance with a rally toward its 2009 highs. Volume was pretty strong on the rally, which is a good sign. Unfortunately shares are now testing resistance in an overbought state. We can probably expect some profit taking. Our target to exit is a move into the $30.00-35.00 zone. Coincidentally the P&F chart is bullish with a $35 target.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 $20 LEAP call - current bid/ask $5.10/5.30
-stop loss on MDR @ 14.75.

Chart of MDR:


MSFT $23.69 +0.07 -- Microsoft Corp.

Somebody wake me up. MSFT continues to put me to sleep. The stock has traded in a $1.75 range for about three weeks now.

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 $2.75/2.83
-stop loss on MSFT @ 18.40.

Chart of MSFT:


MT $35.49 -0.61 -- ArcelorMittal

MT has pulled back toward round-number support at $35.00 and its rising 30 and 50-dma (and its exponential 200-dma). Yet I don't think the correction is over yet. 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 $2.95/3.20
-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 .90/1.25
-stop loss on MT @ 24.45.

Chart of MT:


NYX $28.61 -0.51 -- NYSE Euronext

NYX is holding up reasonably well but I'm not suggesting new LEAPS positions at current levels. Look for a dip near its 100-dma and then we can buy LEAPS on a bounce. 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 $2.50/2.53
-stop loss on NYX at $19.95

Chart of NYX:


PBR $42.21 -0.65 -- Petroleo Brasiliero

PBR just reported second quarter earnings after the closing bell on Friday. Profits fell 20% to $4.16 billion with lower oil prices impacting margins. The results were still better than expected. On a short-term basis the stock looks tired. I would wait for a correction into the $37.50-35.00 zone before evaluating new long-term 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 $1.80/1.95
-stop loss on PBR at $29.00

Chart of PBR:


PCU $27.51 -1.09 - Southern Copper Corp.

Copper prices spiked to new 2009 highs on Thursday and PCU followed suit. The relative strength is very encouraging but shares remain very overbought. I am not suggesting new LEAPS positions at this time. Our exit 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 $4.40/4.80
-stop loss on PCU @ 16.45.

Chart of PCU:


PEP $56.56 +0.07 -- PEPSICO Inc.

Yuck! It looks like PEP has been down almost everyday since its early August spike. I don't see any news to account for the weakness. You'd think with analysts raising their views on rival Coca-Cola (KO) and rival Dr.Pepper/Snapple raising their outlook that investors would be more bullish on PEP. I suspect that the recent weakness may be due to the rash of headlines about the soaring price of sugar. Rising sugar prices can't be good for a company like PEP.

I would dial back the entry point to buy new LEAPS. Look for a dip into the $54.00-52.00 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 $4.00/4.50
-stop loss on PEP at $51.50

Chart of PEP:


RAI $44.87 +0.20 -- Reynolds American Inc.

RAI is up six weeks in a row and up seven out of the last eight weeks. Shares may be inching higher but momentum has definitely slowed. I am not suggesting new bullish positions at this time. At the very least we should expect a pull back toward $42.00. 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 $2.45/2.60
-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 $6.10/6.80
-stop loss on RAI at $35.99

Chart of RAI:


RIG $75.56 -1.93 -- Transocean Ltd.

It's been a rocky week for the oil service stocks thanks to volatility in crude oil and the U.S. dollar. The stock has short-term support at $74.00 and short-term resistance at $78.00. I wouldn't be surprised to see RIG pull back to its long-term trendline of higher lows. 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 $5.70/6.00
-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 $4.00/4.20
-stop loss on RIG @ 64.99.

Chart of RIG:


SGY $13.15 -0.27 -- Stone Energy Corp.

SGY continues to show relative strength and the stock posted another weekly gain. Shares are now testing technical resistance at their exponential 200-dma. If you did not take profits last week I strongly suggest you take some profits right here, right now! Our official target to exit completely is $14.75 but SGY is very, very overbought. 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 $4.20/4.50
-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 $53.38 -1.75 -- Schlumberger Ltd.

SLB is another volatile oil service stock that's been bouncing around between short-term support and resistance. SLB is testing a significant trendline of support but I would not be surprised to see a dip back toward $50.00 or even the $47.50 level.

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 $3.10/3.30
-stop loss on SLB @ 44.90.

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

Chart of SLB:


UNG $12.49 +0.02 - U.S. Natural Gas ETF

I have been very cautious on the UNG since late June and have only grown more wary. The action over the last few weeks almost looks like a bear-flag pattern, which certainly doesn't bode well for our bullish position.

Previous Comments:

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 $1.35/1.50
-stop loss on UNG @ no stop

Weekly Chart of UNG:


UYG $5.41 -0.06 - ProShares Ultra Financials (2x) ETF

Banking stocks have been a pillar of support for the market but the rally in this sector stalled last week. Financials are very overbought and due for a correction. I am not suggesting new positions at this time.

Editor's Note: The idea is to hold this ETF as a long-term investment but experienced investors may want to trade it by taking profits now and re-entering on a pull back.

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 $21.21 -0.33 -- Vodafone Group

The upward momentum in VOD has stalled. 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 $2.15/2.25
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $16.82 -0.33 -- MEMC Electronic Materials Inc.

The solar energy stocks have suffered a bit lately but WFR managed a bounce from its simple 200-dma last week. I suggest waiting for a dip or a bounce near $16.00 as our next entry point. Last week's low near $16.25 may have been it. However, I wouldn't give up if you didn't jump in. One of the bigger names in the group, FSLR, doesn't look so hot and if FSLR breaks down it could drag the sector with it. Furthermore WFR is also a semiconductor company and the semis haven't been too hot lately. I would be patient since odds are probably good that WFR will retest the $16.25-16.00 zone again (and its long-term trendline of higher lows, see chart below). 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 $1.30/1.40
-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 $1.80/2.10
-stop loss on WFR @ 14.75

Chart of WFR:


DROPPED Plays

GLBL $8.57 -0.36 -- Global Industries

Target achieved! GLBL displayed some relative strength last week and hit $8.93 on Thursday, August 13th. Our plan was to exit at $8.85. The play is closed but I would place the stock on your watch list for a significant correction, where shares might offer another entry point.

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. TARGET ACHIEVED +115%

Chart of GLBL:



Watch

Steel makers and Coal Stocks

by James Brown

Click here to email James Brown


New Watch List Entries

ANR - Alpha Natural Resources, Inc.,

CLF - Cliffs Natural Resources Inc.,


Active Watch List Candidates

BEAV - BE Aerospace Inc.

BG - Bunge Limited

CNX - Consol Energy Inc.

DISH - Dish Network Corp.

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MICC - Millicom Intl. Cellular

WLT - Walter Energy Inc.

X - United States Steel Corp.


Dropped Watch List Entries

We did not drop any watch list candidates this week.


New Watch List Candidates:

ANR $36.09 -0.57 - Alpha Natural Resources, Inc.

ANR is another coal company that's been showing a lot of strength. Shares just broke out from a two-week consolidation. While it would be tempting to buy LEAPS now the industry and the markets are overbought. The plan is to buy LEAPS on a dip near what should be support around $30.00. If triggered our long-term target is the $45.00-50.00 zone.

Company Info:
Alpha Natural Resources is one of America's leading producers of coal, which is an essential part of our daily lives. From generating light and heat to helping make the steel that goes into our roads, bridges and buildings, coal powers our future. In fact, coal generates 40% of the world's electricity and powers almost 70% of global steel production. (source: company press release or website)

Buy-the-Dip trigger: $31.00

BUY the 2010 January $35.00 calls (symbol: ANR-AG)
or
BUY the 2011 January $40.00 calls (symbol: VJV-AH)

Chart of ANR:


CLF $28.16 -1.05 -- Cliffs Natural Resources Inc.

CLF is another metal producer that's building a long-term bottom. I'm suggesting two different trigger points to launch positions. We want to buy a dip at $23.50 or a breakout over $32.50. If triggered our long-term target is the $50.00-55.00 zone. We'll use a stop loss at $19.40 for the dip entry point and a stop at $24.50 for the breakout entry point.

Company Info:
Cliffs Natural Resources Inc. (NYSE: CLF) is an international mining and natural resources company. We are the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal. With core values of environmental and capital stewardship, our colleagues across the globe endeavor to provide all stakeholders operating and financial transparency as embodied by the Global Reporting Initiative (GRI) framework. (source: company press release or website)

Buy-the-Dip trigger: $23.50

Breakout trigger: $32.55 BUY the 2010 January $30.00 call (CLF-AF)

Chart of CLF:


Active Watch List Candidates:


BEAV $17.63 -0.55 -- BE Aerospace Inc.

BEAV managed to hit new highs for the year. I'm upping our trigger to buy LEAPS from $14.00 to $15.00. I'm raising the stop loss to $11.90.

Buy-the-Dip trigger: $15.00

BUY the 2010 January $15.00 calls (symbol: BQV-AC)
or
BUY the 2010 January $17.50 calls (symbol: BQV-AW)
or
BUY the stock at $15.00

Note: At $15.00 you could just buy the stock instead but the $15 calls will allow you more leverage on your investment.

Chart of BEAV:


BG $67.03 +1.00 -- Bunge Limited

BG management has decided to take advantage of their stock's strength and raise capital. The stock gapped down last week when it was announced BG would sell another 10.5 million shares of common stock at $65.50 a share. The low for the week was $65.20.

Our plan hasn't changed. We want to wait for a dip near its long-term bullish up trend. 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 $40.24 -1.13 -- Consol Energy Inc.

Coal stocks were generally flat with a bullish bias last week. Not CNX. The stock soared to new six-week highs. If shares are showing this much relative strength we need to raise our entry point. A 50% correction of the July-August rally would be a pull back to $35.00. I'm upping our trigger to buy LEAPS to $35.25. We'll use a stop loss at $28.50. If triggered we want to sell half at $48.50 and half at $57.50.

Buy-the-Dip trigger: $35.25

BUY the 2010 January 35.00 calls (symbol: CNX-AG)
or
BUY the 2011 January 40.00 calls (symbol: VTL-AH)

Chart of CNX:


DISH $17.75 -0.24 -- Dish Network Corp.

It looks like DISH may have produced a short-term top with last Monday's post-earnings pop to $20.00. Shares have been consolidating lower ever since. I still believe that consumers will continue to cocoon in their homes as they deal with these tough economic times and that makes DISH an attractive bet.

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.

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:


ERJ $22.04 -0.96 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

The rally in ERJ also appears to be losing steam. Shares hit $24.00 last week but short-term technicals are rolling over. We have a trigger to buy a dip at $18.50. Our target is the $29-30 zone. I'm suggesting a stop loss at $15.45.

Buy-the-Dip trigger: $18.50

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

Chart of ERJ:


IGT $19.06 -0.52 --- Intl. Game Technology

Shares of IGT are slowly correcting as well. A 50% correction of the July-August rally is about $17.50. 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 $29.56 -0.98 -- Massey Energy Corp.

MEE, just like CNX, has rallied to new highs. The relative strength is great but it's tough to plan a long-term entry point. A 50% retracement of the July-August rally is about $22.50-23.00. I am upping our trigger to buy LEAPS to $23.50. We'll raise the stop loss to $17.99. 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: $23.50 *new*

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

Chart of MEE:


MICC $71.01 -1.12 -- Millicom Intl. Cellular

Nothing has changed for us. MICC has started to correct but we need to see a deeper pull back. It might take a few weeks but we want to buy a dip near support around $62.50. Buy-the-Dip trigger: $62.50

BUY the 2010 January $70 call (symbol: CQD-AN) *new*

Chart of MICC:


WLT $54.41 -2.04 -- Walter Energy Inc.

WLT is another high-flying coal stock. Shares are extremely overbought after several weeks of gains. There might be some support near $45.00 but WLT is likely to overcorrect. We'll keep our trigger at $41.00 for now. 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:


X $46.14 -1.18 United States Steel Corp.

Steel maker X also rallied to new highs last week. Shares closed over the $45.00 level and their exponential 200-dma. It looks like shares have produced a very long-term bottom over the last few months and we want to be patient and wait for a correction. The plan is 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.

Buy-the-Dip trigger: $37.50

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

Chart of X: