Option Investor
Newsletter

Daily Newsletter, Saturday, 8/29/2009

Table of Contents

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

Leaps Trader Commentary

Pat, I'd Like to Buy a Catalyst

by James Brown

Click here to email James Brown

The stock market should have been a lot higher last week. The Federal Reserve's Chicago national activity index improved. The consumer confidence numbers that came out last Tuesday were better. We had much stronger new home sales figures last Wednesday (if you ignore the +/- 13% margin of error). DELL reported better than expected earnings. Intel issued a surprise positive revenue guidance. Yet the market consolidated sideways. Is the rally dying? Or is it just a lack of buyers ahead of a three-day holiday weekend and a heavy week of economic data?

SHORT TERM OUTLOOK

I am still bullish but the recent action, especially Friday's, warrants a little bit more caution. We're trading LEAPS with a long-term time frame. A 5% or 10% correction in the market shouldn't be that big of a problem. If anything it would be a new entry point. Yet I'm not expecting anything that serious. There are too many investors waiting to buy the dips. The 1,000-980 zone for the S&P 500 should now be support. The question is, "will we test that support any time soon?"

This week brings another look at the ISM manufacturing and service data. Theses were getting closer to positive territory and if they do it should confirm the current expectation that the U.S. GDP will be positive in the third quarter. The wildcard is Friday's non-farm payrolls (jobs) report. If we don't start seeing some improvement there's going to be renewed warnings about the "jobless recovery". Positive ISM data could send stocks higher but we're also faced with the possibility that stocks merely churn sideways as investors wait for the Friday jobs data and the holiday weekend. A better than expected jobs report could be just the catalyst we need to send this market on its next leg higher.

I still believe that any dips are going to be relatively shallow, especially for the next couple of months. The end of October is the year end for many mutual and hedge funds. They're still busy chasing performance to wait for a real sell-off.

I'll repeat what I said last week: Technically the breakout over 1,020 in the S&P 500 is also a breakout past the 38.2% Fibonacci retracement of the 2007-2009 sell-off. The next Fib retracement resistance is the 50% mark near the 1100 level. I do see potential resistance in the 1060-1070 zone but odds are the market is now aiming for 1100. The 1,000-980 level should now act as support.

LONGER TERM OUTLOOK

My long-term outlook has not changed from last week. You can review it here.

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market's trend is still up. It just took a few days to digest some gains and some news. Both bulls and bears could argue that stocks should have been a lot higher last week given the amount of good news that came out. While we still want to buy dips it is probably wise to trade smaller positions and tighter stops.

Currently we have fourteen stocks on our watch list.

BEAV - BE Aerospace Inc., trigger: $15.00
BG - Bunge Limited, trigger $61.00
BJS - BJ Services Company, trigger $14.00 or $17.10
CLF - Cliffs Natural Resources Inc., trigger 23.50 or 32.55
CNX - Consol Energy Inc., trigger $35.25
CRS - Carpenter Technology Corp. , trigger 20.50
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
TEX - Terex Corp., trigger 15.00 or 18.25
WLT - Walter Energy Inc., trigger $36.00
X - United States Steel Corp., trigger 37.50
XIDE - Exide Technologies, trigger 6.50

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

Should Have Been Higher

by James Brown

Click here to email James Brown


Is the Rally Tired or Just Resting?


Editor's Note:

At this point every day there isn't a correction it's another victory for the bulls. The market has been able to maintain its gains. However, there seems to be more and more caution among investors. We had a lot of good news last week both economic and corporate and yet the market struggled to make new highs. Stocks should have traded much, much higher. The fact that they didn't suggest the rally may be getting tired. Or it's just a lack of buyers with so many professionals on Wall Street still on vacation and planning a long, Labor Day weekend.

The market may not be correcting but a few individual stocks are. We continue to add to the watch list and almost weekly we see candidates get triggered. Instead of adding new plays tonight I've added two new candidates to the watch list: BJS and CRS.


Play Updates

Questions On Commodity ETFs

by James Brown

Click here to email James Brown


Closed Plays


UNG, we have closed our play on the Natural Gas ETF.


Play Updates


ACGY $10.48 +0.03 -- Acergy S.A.

ACGY is still consolidating sideways with a $1.00 range for the week. Thus far the trend of higher lows is still in place. 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.

April 25th, 2009 - entry price on ACGY @ 7.61, option @ 1.05
symbol: QLS-AB, 2010 JAN $10 LEAP call - current bid/ask $1.55/2.10
-stop loss on ACGY @ 6.95

Chart of ACGY


ACI $17.72 +0.29 -- Arch Coal Inc.

Coal stocks also spent last wee consolidating lower. ACI is developing a pattern of higher lows and lower highs, which is normally neutral. We might be better off waiting to buy a breakout over $19.00 or $20.00 (given the exponential 200-dma near $20) instead of a dip near $16.00. 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 .30/0.40
-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 $1.00/1.15
-stop loss on ACI @ 12.85

Chart of ACI:


ANR $34.45 +0.56 - Alpha Natural Resources, Inc.

ANR is another resource play. The stock was on our watch list. The plan was to buy half our LEAPS position at $34.00 and then buy the second half on a bounce near $30.00. We'll use a trigger at $30.50. The $30.00 level is round-number, psychological support that's also bolstered by the 50-dma and exponential 200-dma. Our long-term target is the $45.00-50.00 zone.

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 5.10
symbol: ANR-AG, 2010 JAN $35 LEAP call - current bid/ask $4.40/5.00
-stop loss on ANR @ 29.50
bought 1/2 LEAP position on 08/25/09 (option price @ 5.10)
plan to buy 2nd half when ANR hits $30.50.

-or-

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 7.00
symbol: VJV-AH, 2011 JAN $40 LEAP call - current bid/ask $7.20/7.80
-stop loss on ANR @ 29.50
bought 1/2 LEAP position on 08/25/09 (option price @ 7.00)
plan to buy 2nd half when ANR hits $30.50.

Chart of ANR:


BAC $17.98 +0.06 - Bank of America Corp.

BAC continues to inch higher but traders should note that the stock has formed a bearish pattern over the last few weeks. This is suggesting the next significant move will be down. Nimble traders might be tempted to take profits soon and scale back in on a correction. I'm not suggesting new positions at this time.

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 $9.10/9.20
-stop loss on BAC @ 6.24

Chart of BAC


CRM $52.25 -0.43 -- Salesforce.com

After big gains two weeks ago CRM just spent last week consolidating sideways. There is a good chance that CRM will eventually fill the gap. More conservative traders may want to exit completely if they have not done so already. Our second and final target is $57.00. I am not suggesting new positions at this time.

I want to repeat - if you have not taken some profits off the table I suggest you do so now.

April 1st, 2009 - entry price on CRM @ 30.00, option @ 4.30
symbol: CRM-AH, JAN 2010 $40 LEAP call - current bid/ask $13.60/13.90
-stop loss on CRM @ 42.50.
(note: readers reported getting a better entry price than $4.30)
08-21-09 sold half, gap higher @ $51.65 (option opened @ $14.50 +237%)

-or-

April 1st, 2009 - entry price on CRM @ 30.00, option @ 2.00
symbol: CRM-AI, JAN 2010 $45 LEAP call - current bid/ask $ 9.90/10.10
-stop loss on CRM @ 42.50.
08-21-09 sold half, gap higher @ 51.65 (option opened @ $9.90 +395%)

Chart of CRM:


DBC $22.73 -0.05 -- PowerShares DB Commodity Index (ETF)

It's the same story here. DBC has been consolidating sideways. Aggressive traders might want to consider buying LEAPS on a rise above $23.50 and its 200-ema. I would suggest waiting for a dip near its longer-term trendline of higher lows. 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 $4.10/5.00
-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 $2.10/2.60
-stop loss on DBC @ 18.90.

Chart of DBC:


DISH $16.86 +0.05 -- Dish Network Corp.

DISH is also sliding sideways. The stock is testing technical support at its 50-dma and exponential 200-dma. I would still buy LEAPS here but more conservative traders may want to wait for a bounce over $17.50 or the $18.00 level to initiate positions. Our long-term target is the $25.00-30.00 zone.

August 22nd, 2009 - entry price on DISH @ 17.18, option @ $3.20
symbol: HSW-AC, 2010 JAN $15 call - current bid/ask $3.00/3.10
-stop loss on DISH @ 15.45.

Chart of DISH:


DO $90.76 -0.28 -- Diamond Offshore

DO broke higher last week but spent a few days consolidating sideways. More aggressive traders may want to open small positions now. Or readers might want to use a breakout trigger over $95.00 as an entry point. I am bumping up our trigger to buy LEAPS from $85.50 to $86.50. I'm raising the stop loss to $79.45. Our first target is $109.00. We can expect resistance about every $5.00 at $95, $100, etc. Readers might want to consider the 2011 January calls.

-NEW- Buy the dip trigger: $86.50

BUY 2010 JANUARY $90 CALL (symbol: KWJ-AR)
-or-
BUY 2010 JANUARY $100 CALL (symbol: KWJ-AT)

Chart of DO:


DXO $4.70 -0.04 -- Deutsche Bank Double-long Oil ETN

The commodity and resource ETFs have come under scrutiny as the CFTC looks into whether these exchange traded funds should be affected by position limits and if so how big of a limit should they be allowed to take? This represents a potential danger for us. Hypothetically if the DXO owns 20% of the market in oil futures and the CFTC says they can only own 10% (or less) then shares of DXO could drop in a hurry. Deutsche Bank has already stopped issuing new shares of the DXO as they wait for the CFTC's decision. Until this issue is resolved we need to be a lot more cautious on our DXO positions.

I am suggesting a stop loss at $4.25, which is just under the August low of $4.29. More aggressive traders could put their stops under $4.00 and the 100-dma, which is close to the longer-term trend of higher lows. If we do get stopped out at $4.25 we'll reconsider new positions after any decision by the CFTC.

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 (NEW STOP @ 4.25)

Chart of DXO


FAS $80.20 +0.49 - Direxion Fincl.Bull 3x ETF

FAS has tagged new seven-month highs but shares appear to be forming a bearish wedge-like pattern. More conservative traders may want to take some more money off the table. Any correction will probably be pretty steep. I am raising our stop loss to $35.00, which is just under the July lows. More conservative traders looking to just raise their stop may want to up theirs toward the $50 level instead.

I am not suggesting new bullish positions in 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. 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: 7.00)
post-split prices are: $13.20 entry (stop loss: 35.00)

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

Chart of FAS

Chart of RIFIN (Russell 1000 financial services)


FCX $65.48 +1.22 - Freeport McMoran

Resource stocks continue to drift higher on hopes for the economic recovery and expectations for a weak dollar. FCX is back near its 2009 highs although shares could be forming a bearish, wedge-shaped pattern.

I'm not suggesting new long-term LEAPS positions at this time. 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 $14.65/14.80
-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 $17.90/18.45
-stop loss on FCX @ 39.45

Chart of FCX:


FSLR $124.21 - 1.67 -- First Solar

The oversold bounce in FSLR is struggling. Shares just failed near their 10-dma. I am still expecting a dip toward the $100 level. We're not suggesting new positions at this time. At the moment we're long the 2010 January $100 put and we have a covered call play that should be fine if FSLR stays above $100.

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) $7.40.
If you're curious the 2010 Jan. $150 call is at $ 7.60.

Chart of FSLR


GT $16.20 -0.80 -- Goodyear Tire & Rubber Co.

After an amazing July-August rally GT is finally starting to correct. Shares should find some support in the $15.00-14.00 zone. More conservative traders may want to consider raising their stops toward $12.

I'm not suggesting new LEAPS positions at these levels. I am adjusting our exit target. We want to sell half at $22.75 and half at $26.75.

June 6th, 2009 - entry price on GT @ 12.94, option @ 2.20
symbol: GT-AC, 2010 $15 LEAP call - current bid/ask $2.90/3.00
-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 $2.85/3.10
-stop loss on GT @ 9.90.

Chart of GT:


HOS $22.34 +0.04 -- Hornbeck Offshore Services

HOS is almost unchanged on the week. Volume has all but dried up. A breakout past its exponential 200-dma near $23.50 might be a new bullish entry point to buy LEAPS. 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 $3.90/4.60
-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 $20.25 +0.78 -- Intel Corp.

INTC continues to surprise. The slow drift lower turned higher last week. Then things really got exciting on Friday. The company raised their third quarter revenue guidance and guided gross margins to the upper half of their previous range. This is really good news and a good sign that businesses are beginning to restock their inventories. Shares of INTC gapped open higher on Friday. I would expect INTC to fill the gap before moving higher. Please note our new stop loss at $15.90. Our long-term 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 $3.05/3.10
-stop loss on INTC @ 15.90.

Chart of INTC:


JOYG $39.34 -0.18 -- Joy Global Inc.

JOYG is under performing its rival FCX. Shares traded sideways last week around its 38.2% Fibonacci retracement of its July-August run. I am not suggesting new long-term bullish positions at this time.

TRADING NOTE: JOYG is due to report earnings on Wednesday, September 2nd before the opening bell. Readers may want to protect themselves with some short-term, out of the money (cheap) puts just in case the company says something disappointing. The idea is that cheap puts act as temporary insurance should JOYG plummet on its earnings report. If JOYG rallies post earnings the puts usually evaporate. It's up to you if you want to pay for a little "insurance" or not.

The last few quarters JOYG has been beating the estimate. Thus expectations might be too high if they miss or only come inline. At the same time if JOYG does move lower I would expect to see support near $35.00 so puts may not pay off.

June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 3.80
symbol: JQY-AH, 2010 JAN $40 LEAP call - current bid/ask $4.90/5.10
-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 $ 9.50/ 9.90
-stop loss on JOYG @ 29.00

Chart of JOYG:


KSU $24.99 +1.37 -- Kansas City Southern

KSU has gone from a real under performer back in May and June to a real out performer for July and August. Shares just broke higher again on Friday with a 5.8% rally and a close over resistance at $24.00. I could not find any specific news for the move. The stock is extremely overbought now and I'm not suggesting new long-term LEAPS positions at this time. Please note our new stop loss at $17.99. More conservative traders may want to raise their stops closer to $20.00 instead. 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 $2.80/3.10
-stop loss on KSU @ 17.99.

Chart of KSU:


LNN $43.20 -0.94 -- Lindsay Corp.

LNN has started to correct after an impressive August rally. Shares should find support in the $42.00-40.00 zone. We can use a dip or a bounce in that area as a new bullish entry point to buy LEAPS.

We want to sell half our LEAPS position at $49.50 and half at $59.50. I am raising our stop loss to $34.50.

August 7, 2009 - entry price on LNN @ 41.55, option @ 8.80
symbol: NRR-AG, 2010 JAN $35 LEAP call - current bid/ask $ 9.70/10.90
-stop loss on LNN @ 34.50
-or-
August 7, 2009 - entry price on LNN @ 41.55, option @ 6.00
symbol: NRR-AH, 2010 JAN $40 LEAP call - current bid/ask $6.60/7.30
-stop loss on LNN @ 34.50

Chart of LNN:


MDR $24.04 -0.01 - McDermott Intl. Inc.

MDR spiked to new highs on Monday. Then after a 10% correction traders bought the dip again on Thursday. The path of least resistance is still up. We want to sell 50% to 75% of our position at $29.75. We'll sell the remainder at $34.00.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 $20 LEAP call - current bid/ask $5.30/5.50
-stop loss on MDR @ 17.25.

Chart of MDR:


MSFT $24.68 -0.01 -- Microsoft Corp.

The action in MSFT on Friday was disappointing. Large cap tech stocks rallied sharply following better than expected earnings from DELL and a positive revenue surprise from Intel. MSFT spiked to $25.50 but investors quickly sold into strength. The stock gave up its gains forming what appears to be a short-term top. I would expect a dip back toward the $24.00-23.00 zone. I'm not suggesting new positions at this time.

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 $3.25/3.30
-stop loss on MSFT @ 19.95.

Chart of MSFT:


MT $36.74 -0.14 -- ArcelorMittal

MT is still consolidating sideways. Investors looking for a new entry point can watch the trendline of higher lows. Our long-term target is the $50 region.

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.70
symbol: MT-AH, JAN 2010 $40 call - current bid/ask $3.20/3.50
-stop loss on MT @ 27.40.

-or-

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.00
symbol: MT-AJ, JAN 2010 $50 call - current bid/ask .90/1.05
-stop loss on MT @ 27.40.

Chart of MT:


NYX $28.46 -0.06 -- NYSE Euronext

NYX continues to bounce following its trendline of higher lows. This is still an opportunity to launch positions but I would only enter small positions probably 1/2 to 1/4 your normal size and I suggest you raise your stop loss! An alternative entry would be to wait for a new rise over $30.00. 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 $2.12/2.17
-stop loss on NYX at $19.95

Chart of NYX:


PBR $41.47 -0.68 -- Petroleo Brasiliero

PBR produced a failed rally and bearish reversal pattern last Monday. The stock has fallen every day since. Now shares are testing technical support at their 40 and 50-dma. I am not suggesting new long-term positions at this time. 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 $1.35/1.45
-stop loss on PBR at $33.50

Chart of PBR:


PCU $29.46 +0.74 - Southern Copper Corp.

Copper prices have rallied to new highs for the year and this has helped fuel new highs on PCU. The stock hit our first target to take profits on Monday, August 24th at $29.75. The plan was to sell half our position. Our second and final target is $34.00. Our LEAP option traded over $6.00 on Monday. I'm not suggesting new positions at this time.

April 20th, 2009 - entry price on PCU @ 19.00, option @ 1.95
symbol: PCU-AE, JAN 2010 $25 LEAP call - current bid/ask $5.70/6.10
-stop loss on PCU @ 19.99.

Target Hit @ 29.75 on 08/24/09. Sold 1/2 at $6.00 (+207%)

Chart of PCU:


PEP $56.76 -1.00 -- PEPSICO Inc.

PEP was bouncing along just fine until the disappointing consumer confidence numbers. The stock lost 1.7% on Friday. If shares correct I would look for short-term support near the $55.00-54.00 zone. I'm not suggesting new LEAPS positions at this time but we can keep an eye out for a bounce near $54.00. 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 $4.20/4.60
-stop loss on PEP at $51.50

Chart of PEP:


RAI $45.56 -0.26 -- Reynolds American Inc.

After hitting new highs for the year on Monday shares of RAI produced a bearish reversal last Tuesday. There hasn't been much follow through to the downside yet but the stock remains very overbought and due for a correction. I would look for a dip near the $43.00-42.00 area. I'm suggesting we take some money off the table at $49.50 (sell half) and exit completely at $57.50. More conservative traders may want to raise their stops closer to $40.00.

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 $2.70/2.90
-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 $6.50/7.30
-stop loss on RAI at $35.99

Chart of RAI:


RIG $77.56 +0.22 -- Transocean Ltd.

Shares traded in a $4.00 range but closed nearly unchanged for the week. The longer-term trend of higher lows (bullish) is now competing with the bearish trend of lower highs. I would use dips near the rising trendline as an entry point but readers may want to raise their stops (maybe $70 or $72.50 if you open new 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 $6.30/6.50
-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 $4.30/4.50
-stop loss on RIG @ 64.99.

Chart of RIG:


SGY $13.24 +0.14 -- Stone Energy Corp.

SGY has spent another week fighting with technical resistance at its exponential 200-dma. More conservative traders may want to exit completely right now to lock in a gain. I am not suggesting new long-term bullish positions at this time. We have already sold half at $11.77. Our second and final target is $14.75. FYI: I'm raising the stop loss again, this time to $8.75. More conservative traders may want to place their stop closer to $10.00.

June 22nd, 2009 - entry price on SGY @ 6.35, option @ 0.75
symbol: STQ-AB, 2010 JAN $10 LEAP call - current bid/ask $4.10/4.60
-stop loss on SGY @ 8.75

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 @ 8.75

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

Chart of SGY:


SLB $57.36 +0.46 -- Schlumberger Ltd.

The bullish breakout two weeks ago continues. Traders are buying the dip right where you'd expect it near $55.00 and its cloud of moving averages. If you're looking for a new bullish position dips near $55.00 would work but I would probably raise your stop toward the $50.00 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 $4.50/4.70
-stop loss on SLB @ 44.90.

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

Chart of SLB:


UYG $5.77 +0.03 - ProShares Ultra Financials (2x) ETF

The financials continue to set new highs but the trading action over the last few weeks is starting to build a potentially bearish pattern. 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. It's true that as a leveraged ETF there will be slippage in the daily performance between UYG and the underlying index.

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 $21.79 -0.17 -- Vodafone Group

VOD, much like the English FTSE index, has rallied to ten-month highs. Yet momentum is clearly stalling. Shares are a little overdone and due for a correction. Investors can open new positions on a dip near $20.00, which should be new support. 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 $2.55/2.65
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $16.55 +0.50 -- MEMC Electronic Materials Inc.

WFR has rallied back from the abyss. The stock looked like it was going to breakdown under its longer-term trendline of higher lows. The Thursday-Friday bounce has saved it - for now. I am inching our stop loss up to $14.95. I would be tempted to buy LEAPS again if WFR can clear the small cloud of moving averages. That would take a rally above the $18.00 level. 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 $1.05/1.15
-stop loss on WFR @ 14.95

-or-

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 3.43
symbol: ZET-AE, 2011 JAN $25 LEAP call - current bid/ask $1.70/1.85
-stop loss on WFR @ 14.95

Chart of WFR:


CLOSED Plays

UNG $11.13 -0.38 - U.S. Natural Gas ETF

Natural gas futures continue to slide and some traders are betting on a move to $2.00 or lower for the spot price (it's already near $3.00). While the weakness in the commodity is to blame for UNG's miserable performance would you believe this ETF is actually worth 10% more than its NAV? The CFTC is reviewing all of the commodity ETFs as they decide whether or not to issue position limits for these trading vehicles. Hypothetically if the CFTC decides that any one ETF can only hold 10% of the outstanding futures positions and the UNG holds 20% then we have a problem. UNG would have to unload half its position. The UNG has already stopped issuing new shares making it more like a closed-end fund. Given the scarcity of shares UNG is trading above what is should technically be worth. While this is good news the trend is down and the CFTC decision is still a potential landmine.

I am suggesting we cut our losses now and wait for the CFTC to reach a decision before re-evaluating any potential bullish trades here.

June 16th, 2009 - entry price on UNG @ 16.26, option @ 3.90
symbol: ZZM-AT, JAN 2011 $20 LEAP call - current bid/ask $1.20/1.30
-stop loss on UNG @ no stop

Early Exit 08/29/09 with the UNG @ 11.13 and the option @ 1.20 (bid)

Chart of UNG:



Watch

Oil Services & Specialty Metals

by James Brown

Click here to email James Brown


New Watch List Entries

BJS - BJ Services Company

CRS - Carpenter Technology Corp.


Active Watch List Candidates

BEAV - BE Aerospace Inc.

BG - Bunge Limited

CLF - Cliffs Natural Resources Inc.,

CNX - Consol Energy Inc.

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MICC - Millicom Intl. Cellular

TEX - Terex Corp

WLT - Walter Energy Inc.

X - United States Steel Corp.

XIDE - Exide Technologies


Dropped Watch List Entries

ANR was promoted to the play list this weekend.


New Watch List Candidates:

BJS $15.43 +0.01 -- BJ Services Company

BJS is an oil services stock that appears to be breaking out from a multi-week consolidation in the $13.50-15.00 zone. I'm tempted to buy LEAPS now but as you can see on the chart below BJS has a larger, triangle pattern building. I'm suggesting two different triggers to open LEAPS positions. We can buy a dip near $14.00 with a stop loss at $11.95 or we can buy a breakout at $17.10 with a stop loss at $13.95. More aggressive traders could get an early jump on the breakout with a move over $16.00 instead. Our long-term target is the $25.00 region.

Company Info:
BJ Services has earned a reputation for providing reliable fracturing services for virtually every major shale oil and gas operator. Since 1981, our skilled engineers and crews have successfully designed and pumped more than 12,000 shale frac stages around the world. We know that every shale formation is different and we offer the most advanced fracturing technologies–the right fluids, proppants and equipment–needed to “crack the code” for optimum frac designs and operations. (source: company press release or website)

Buy-the-Dip trigger: $14.00

or

Breakout trigger: $17.10

BUY the 2010 January $15.00 LEAP (symbol: BJS-AC)

Chart of BJS:


CRS $21.75 +0.48 -- Carpenter Technology Corp.

CRS is a specialty metals stock that appears to be breaking out from a multi-week consolidation, which tested its trendline of higher lows (support). The rally stalled at its 200-dma but I think it's temporary. If you review a weekly chart CRS appears to be forming a significant bottom. I'm suggesting we buy LEAPS on a dip back toward support near $20.00. We'll use a trigger at $20.50 and a stop loss at $17.50. Our long-term target is the $35-40 zone.

Company Info:
Carpenter (NYSE:CRS) is a leader in the development, manufacture and distribution of cast/wrought and powder metal stainless steels and specialty alloys including high temperature (iron-nickel-cobalt base) alloys, controlled expansion alloys, ultra high strength alloys, implantable alloys, tool and die steels and other specialty metals, as well as cast/wrought titanium alloys. (source: company press release or website)

Buy-the-Dip trigger: $20.50

BUY the 2010 March calls (symbol: CRS-CD)

Chart of CRS:


Active Watch List Candidates:


BEAV $18.19 -0.01 -- BE Aerospace Inc.

BEAV managed to hit new 2009 highs on Friday. The stock's trend of higher lows is still in place but momentum is slowing. The plan is to buy long-term LEAPS positions on a dip at $15.00. More aggressive traders may want to consider jumping in early near $16.00. If triggered our stop is at $11.90.

Buy-the-Dip trigger: $15.00

BUY the 2010 January $15.00 calls (symbol: BQV-AC)
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 $68.75 +0.16 -- Bunge Limited

We raised our trigger to $63.00 last week but BG has continued to stay just beyond our reach. The stock is nearing potential resistance at $70.00 and the top of its gap down. I'm not going to give up here. Keep the trigger at $63.00. We'll use a stop loss at $54.75. More conservative traders can still wait for a dip closer to $60.00 and a stop loss closer to $59.00. 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: $63.00

BUY the 2010 January 70 calls (BGW-AN)

Chart of BG:


CLF $26.42 +0.31 -- Cliffs Natural Resources Inc.

CLF is starting to roll over. Shares do have some support near $25.00 and its 100-dma but we're looking to buy LEAPS on a dip at $23.50 near the 200-dma and its longer-term trend of higher lows (see chart). We also have a breakout trigger should CLF unexpectedly rally. 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.

Buy-the-Dip trigger: $23.50

Breakout trigger: $32.55 BUY the 2010 January $25.00 call (CLF-AE) *updated strike*

Chart of CLF:


CNX $38.83 +0.35 -- Consol Energy Inc.

It looks like CNX has started to correct. There is a good chance the stock will dip toward the $35.00 level. We're going to jump in a little early at $36.50. We'll use a stop loss at $29.99 but more conservative traders might want to consider a stop near $32.50 instead. If triggered we want to sell half at $48.50 and half at $57.50.

Buy-the-Dip trigger: $36.50

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

Chart of CNX:


ERJ $21.80 -0.60 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

We are still waiting for a correction in ERJ. More conservative traders may want to wait for a dip into the $19.00-18.00 zone with the 50-dma. We have a slightly more aggressive entry at $20.50. Our target is the $29-30 zone. I'm suggesting a stop loss at $16.45.

Buy-the-Dip trigger: $20.50

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

Chart of ERJ:


IGT $21.08 -0.15 --- Intl. Game Technology

There is no change from my previous update on IGT. We're still waiting for a dip toward the bottom of its bullish channel. I am inching up the stop loss to $15.95. We only want to open small positions at least 1/2 our normal trade size. Our long-term targets are $25.00 (sell half) and $29.00 (sell half).

Buy-the-Dip trigger: $19.00 (19.00-17.50 zone)

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

Chart of IGT:


MEE $28.43 +0.53 -- Massey Energy Corp.

It looks like MEE has finally started to correct. A 38.2% Fibonacci retracement of its July-August rally would be $25.00. I am adjusting our trigger to buy LEAPS to $25.25. I'm raising the stop loss to $19.95. 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: $25.25 *new*

BUY the 2010 January $25.00 call (MEE-AE)

Chart of MEE:


MICC $70.91 -1.51 -- Millicom Intl. Cellular

MICC is slowly consolidating. We're still waiting for a more significant correction. Currently the plan is to buy a correction back toward $62.50. More aggressive traders might want to raise that trigger. Buy-the-Dip trigger: $62.50

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

Chart of MICC:


TEX $16.70 +1.12 -- Terex Corp.

TEX spent the week consolidating sideways. We have two different triggers to catch TEX on a breakout or on a dip. I'm suggesting a stop loss at $11.75 for the dip entry point and a stop loss at 13.90 for the breakout entry point. Our upside target is the $28.00-30.00 zone.

Buy-the-Dip trigger: $15.00

-or-

Breakout trigger: $18.25

BUY the 2010 JAN $15.00 Calls (symbol: HAG-AC)
-or-
BUY the 2011 JAN $20.00 Calls (symbol: VXQ-AD)

Chart of TEX:


WLT $54.80 -0.44 -- Walter Energy Inc.

After an astonishing run WLT has started to correct. The stock is already off more than 12% from its recent highs. The rally has been so strong that we need to be patient on the pull back. I am upping our trigger to buy LEAPS from $41.00 to $46.00, which would be a 30% pull back off its highs. We'll use a stop loss at $38.50.

Buy-the-Dip trigger: $46.00 *new*

BUY the 2010 January 50.00 call (WLT-AJ)

-or-

BUY the 2011 January 50.00 call (OZE-AJ)

Chart of WLT:


X $44.60 +1.16 United States Steel Corp.

We might want to buy dips near $40.00 and its rising 50-dma instead of waiting for a deeper correction. I'm leaving the trigger at $37.50 for now but keep an eye on X for a bounce from $40 this week. I'm raising our stop loss to $33.75. Our target is the $60-70 zone.

Buy-the-Dip trigger: $37.50

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

Chart of X:


XIDE $7.32 -0.11 Exide Technologies

XIDE held up pretty well considering how strong the rally was two weeks ago. I still expect the stock to fill the gap. The plan is to buy calls on a dip at $6.50. We'll use a stop loss at $4.85. Our target is $12.00.

Buy-the-Dip trigger: $6.50

BUY the 2010 March $7.50 Calls (symbol: FRU-CU)
-or-
Our alternative strategy is to buy the stock at $6.50

Chart of XIDE: