Option Investor
Newsletter

Daily Newsletter, Saturday, 9/5/2009

Table of Contents

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

Leaps Trader Commentary

The End Game Begins

by James Brown

Click here to email James Brown

I suspect that Friday's jobs report left a lot of money managers disappointed. They were disappointed that the data wasn't worse and that the market did not sell-off on the news. There is still a crowd of investors both big and small hoping for a correction so they can get in. The difference is that many fund managers only have until the end of October to book their gains. That puts them at a severe disadvantage.

Friday's non-farm payrolls data was mixed. Economists were expecting the job growth to come in at -225,000 to -230,000. The Labor Department reported -216,000 but revised the previous two months to an additional -49,000. Those same economists were expecting the unemployment rate to tick up from 9.4% to 9.5% in August. Surprise! The unemployment rate hit 9.7%. Yet the markets chose to focus on the -216,000 number, which was the good news instead of the 9.7% unemployment, which is the bad news. Does that sound familiar? It wasn't that long ago that the U.S. stock market only responded to good news or found some way to spin the bad news into a bullish bias. Investors could have sold the jobs data if they wanted to and they did not.

It's hard to put a lot of emphasis on last week's trading due to the lack of volume. It was the last unofficial week of summer and investors were probably more focused on their three-day holiday weekend plans. Volume is supposed to come back this week. Now traditionally September is the worst month of the year for stocks. However, I don't believe the normal seasonal trends will apply. Again, too many funds are under invested and want to try and catch up to their peers before the clock runs out. This is why corrections should remain shallow.

Short-term my outlook is bullish. The S&P 500 should continue to find support at 990 or 980. Now it is worth noting that if the current bounce rolls over in the 1020-1030 zone it will start to look like another bearish head-and-shoulders pattern. Yet even if it does produce an H&S pattern it would only forecast a drop toward 940. The 950-940 zone should be strong support anyway. You could say I'm cautiously bullish and even if the market does sell-off I doubt it gets very far. Just be patient and pick your entry points although in the current environment I'm starting to see more breakout entry points than dip entry points. Consider scaling into positions 1/3 or 1/2 at a time. If a stock or ETF hits your entry only buy a partial position and wait.

LONGER TERM OUTLOOK

My long-term outlook has not changed. You can review it here. It's the second half of my "Two Months Left" commentary labeled "long-term outlook".

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Another week has passed and the bears were unable to take the market lower. The jobs report on Friday could have gone either way. Investors could have chosen to focus on unemployment jumping to 9.7% instead of the drop in job losses. This seems like a return to the days when the market only responded to good news and ignored bad news, which is bullish.

Volume should return this week and we should quickly find out if fund managers are going to keep chasing performance or sell this rally. Until the trend changes my bias is bullish.

Currently we have ten stocks on our watch list.

BEAV - BE Aerospace Inc., trigger: $15.00
BG - Bunge Limited, trigger $61.00
Cost - Costco Wholesale, trigger 51.50
EMR - Emerson Electric Co. , trigger 38.00
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
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

Missed It By That Much

by James Brown

Click here to email James Brown


Iron and Coal Production


Editor's Note:

CLF $25.57 -0.01 -- Cliffs Natural Resources Inc.

CLF produces iron ore pellets and mines metallurgical coal for the steel industry. That particular type of coal is normally in big demand. If the global economy is on the verge of turning around then business should be picking up for CLF. We had the stock on our watch list with a buy-the-dip entry point at $23.50. Last week shares hit $23.67 and bounced. I'm upgrading the stock to a full-fledged play. We want to buy LEAPS now. However, I'm also upgrading our stop loss. CLF is bouncing from technical support at it 200-dma but it's also bouncing from its multi-month trendline of higher lows. If CLF breaks that trendline we'll want to exit. I'm listing our stop loss at $22.24. Our long-term target is the $40.00-45.00 zone. More aggressive traders may want to aim for $50. Readers might also want to consider the 2011 January LEAPS instead.

Sept. 5th, 2009 - entry price on CLF @ 25.57, option @ 4.20
symbol: CLF-AE, 2010 JAN $25 LEAP call - current bid/ask $4.00/4.20
-stop loss on CLF @ 22.24

Chart of CLF:



Play Updates

LEAPS Portfolio Grows By Four

by James Brown

Click here to email James Brown


Closed Plays


On Tuesday, September 1st, we closed the DXO play following Deutsche Bank's announcement they would redeem the ETNs later this month.


Play Updates


ACGY $ 9.99 +0.13 -- Acergy S.A.

It looked like ACGY was beginning to breakdown early last week. Shares found support near the rising 100-dma (and its exponential 200-dma). While the rebound is encouraging ACGY actually looks like it's starting to develop a more bearish posture. The simple 200-dma is near $7.65 and the 50% retracement of the spring rally is near $7.88-7.90 so I'm raising our stop loss to $7.60 from $6.95. I repeat that more conservative traders may want to use a tighter 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 $1.10/1.50
-stop loss on ACGY @ 7.60

Chart of ACGY


ACI $17.55 +0.61 -- Arch Coal Inc.

ACI has spent the last six weeks churning sideways in the $16.50-18.50 range. The stock just bounced from $16.50 again. At this point it might be better to buy LEAPS on a breakout instead of a dip. Look for a move past $19.00 or the $20.00 level.

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 .25/0.30
-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 .95/1.20
-stop loss on ACI @ 12.85

Chart of ACI:


ANR $34.67 +0.65 - Alpha Natural Resources, Inc.

Investors bought the dip in the resource names last week. ANR dipped under $32.00 and rallied higher. We still have a trigger at $30.50 to buy the second half of our LEAPS position. 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 $4.80/5.00
-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 $7.30/7.90
-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 $17.09 +0.25 - Bank of America Corp.

Many of the financials began to breakdown early last week. Traders bought the dip in BAC at $16.00 near its rising 30-dma. If the rebound fails in the $17.50-18.00 zone it could portend a larger correction ahead. I'm not suggesting new positions at this time.

We might want to take a little money off the table near $20.00 or the $25.00 levels.

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 $10.00 or $11.00).

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $8.35/8.50
-stop loss on BAC @ 6.24

Chart of BAC


CNX $38.73 +1.62 -- Consol Energy Inc.

CNX was on our watch list. The plan was to buy LEAPS on a dip at $36.50. Shares hit our trigger on September 1st. Investors bought the dip as we expected near $36.00. We have a stop loss at $29.99 but more conservative traders might want to consider a stop near $32.50 instead. The plan is to sell half our position at $48.50 and the second half at $57.50.

Sep 1st, 2009 - entry price on CNX @ 36.50, option @ 5.75
symbol: CNX-AG, 2010 JAN $35 LEAP call - current bid/ask $6.90/7.10
-stop loss on CNX @ 29.99

-or-

Sep 1st, 2009 - entry price on CNX @ 36.50, option @ 7.80(estimate)
symbol: VTL-AH, 2011 JAN $40 LEAP call - current bid/ask $8.30/9.00
-stop loss on CNX @ 29.99

Chart of CNX


CRM $52.80 +0.45 -- Salesforce.com

CRM is still holding up pretty well. Shares are still digesting their gains. I don't see any changes from my prior comments. 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 $14.20/14.40
-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 $10.40/10.70
-stop loss on CRM @ 42.50.
08-21-09 sold half, gap higher @ 51.65 (option opened @ $9.90 +395%)

Chart of CRM:


CRS $20.92 +0.38 -- Carpenter Technology Corp.

CRS was recently added to our watch list. Shares hit our buy the dip trigger at $20.50 on Tuesday, September 1st. I would still consider new positions now although there is potential resistance near $22.00 and if you prefer to buy breakouts wait for a move over $22.00. Our long-term target is the $35.00-40.00 zone.

Sep 1st, 2009 - entry price on CRS @ 20.50, option @ 3.10
symbol: CRS-CD, 2010 JAN $20 LEAP call - current bid/ask $3.40/3.60
-stop loss on CRS @ 17.50

Chart of CRS:


DBC $21.62 -0.09 -- PowerShares DB Commodity Index (ETF)

The DBC is at a pivotal point. This commodity ETF has pulled back to significant support. Thus this is an opportunity to buy new LEAPS positions. However, it's also a danger zone. The ETF has also created a bearish head-and-shoulders pattern. A breakdown from here could forecast a drop toward the March lows. I am upping our stop loss to $20.99. If you're not comfortable buying the dip then consider waiting for a new bounce over $22.00 or its 50-dma before initiating positions. 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 $3.70/3.90
-stop loss on DBC @ 20.99.*new*

-or-

July 6th, 2009 - entry price on DBC @ 21.50, option @ 2.62
symbol: VCZ-AY, 2011 JAN $25 LEAP call - current bid/ask $1.75/1.90
-stop loss on DBC @ 20.99 *new*

Chart of DBC:


DISH $17.23 +0.93 -- Dish Network Corp.

It was a volatile week for DISH and shares almost hit our stop loss at $15.45. The current legal battle between Tivo and DISH has turned in favor of TiVo with the court ordering $200 million in damages. DISH plans to appeal. The stock shot higher in spite of the news.

I'm still bullish on the stock. If you didn't want to buy LEAPS on the dip then look for a rally past $17.71 (Friday's high) or the $18.00 level. 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 $3.20/3.40
-stop loss on DISH @ 15.45.

Chart of DISH:


DO $88.68 +1.63 -- Diamond Offshore

The oil service stocks ran into profit taking early last week. Fortunately traders bought the dip and the group was rebounding higher into the weekend. DO has a similar pattern with a dip to its trendline of higher lows. The stock hit our trigger to buy LEAPS at $86.50 on Wednesday, September 2nd. We have a stop loss at $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.

Sep 2nd, 2009 - entry price on DO @ 86.50, option @ 12.30
symbol: KWJ-AR, 2010 JAN $90 LEAP call - current bid/ask $10.60/10.90
-stop loss on DO @ 79.45

-or-

Sep 2nd, 2009 - entry price on DO @ 86.50, option @ 5.20
symbol: KWJ-AT, 2010 JAN $100 LEAP call - current bid/ask $5.80/6.00
-stop loss on DO @ 79.45

Chart of DO:


FAS $71.55 +1.51 - Direxion Fincl.Bull 3x ETF

The sell-off in financials early last week was steep. Traders are slowly buying the dip. If the rebound fails it could be setting up for a bearish head-and-shoulders pattern.

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 $66.00 +1.52 - Freeport McMoran

Copper prices did manage to hit a couple of new 2009 highs in August but for the most part the metal has been moving sideways the last few weeks. The sideways movement is really evident in shares of FDX. The stock has bounced back to the top of its trading range.

We've been planning to sell at least half of our position at $69.00 and then sell the second half at $77.50. I am suggesting that investors go ahead and take profits now! I'm also raising our stop loss to $47.00.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $15.00/15.10
-stop loss on FCX @ 47.00 *new*

09/05/09 - Take Profits (sell half) at $66.00, option @ 15.00 (+150%)

-or-

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 10.00
symbol: OBQ-AL, 2011 JAN $60 LEAP call - current bid/ask $18.50/18.85
-stop loss on FCX @ 47.00 *new*

09/05/09 - Take Profits (sell half) at $66.00, option @ 18.50 (+85%)

Chart of FCX:


FSLR $121.47 + 1.53 -- First Solar

FSLR is still struggling. The stock remains stuck in a narrow downtrend. Yet the action over the last three days is starting to look like a short-term bottom. If FSLR can bounce it should encounter resistance near $130 and again at $140. 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) $7.80.
If you're curious the 2010 Jan. $150 call is at $ 6.50.

Chart of FSLR


GT $16.35 +0.37 -- Goodyear Tire & Rubber Co.

GT managed to find support near the 38.2% Fibonacci retracement of its July-August rally. I don't see any changes from my prior comments. I am raising our stop loss to $11.90.

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 $2.95/3.10
-stop loss on GT @ 11.90
-or-
June 6th, 2009 - entry price on GT @ 12.94, option @ 2.65
symbol: VYR-AD, 2011 $20 LEAP call - current bid/ask $2.70/3.20
-stop loss on GT @ 11.90

Chart of GT:


HOS $23.78 +0.62 -- Hornbeck Offshore Services

HOS is showing some relative strength. The stock is breaking out from a large triangle formation and pushing through resistance at its 100-dma and exponential 200-dma. I would use this as a new bullish entry point to buy LEAPS. More conservative traders may want to raise their stops toward $20.00. 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 $4.60/5.30
-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 $2.20/2.50
-stop loss on HOS @ 17.85

Chart of HOS:


INTC $19.64 +0.22 -- Intel Corp.

INTC has filled the gap from August 28th and is starting to bounce. I am not suggesting new long-term positions at this time. 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 $2.75/2.76
-stop loss on INTC @ 15.90.

Chart of INTC:


JOYG $39.34 -0.18 -- Joy Global Inc.

Uh-oh! The action in JOYG is starting to look dangerous. Last week was pretty volatile. The stock spiked to $40 on Tuesday but failed. Then the company reported strong earnings with profits and revenues better than expected on Wednesday morning. Management even guided earnings higher. Yet investors sold the news anyway. Shares found support near $35.00 and its exponential 200-dma, which isn't surprising but JOYG has broken some support levels. If the current bounce fails under $40.00 it could be forecasting a deeper decline. I am not suggesting new positions at this time.

Currently our long-term target is the $48.50 level. More conservative traders may want to consider tighter stop losses.

June 22nd, 2009 - entry price on JOYG @ 33.00, option @ 3.80
symbol: JQY-AH, 2010 JAN $40 LEAP call - current bid/ask $3.80/4.00
-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 $ 8.40/ 8.70
-stop loss on JOYG @ 29.00

Chart of JOYG:


KSU $26.00 +1.00 -- Kansas City Southern

The railroad stocks have been showing strength the last couple of days. KSU has been leading the way higher. The stock broke out to new 2009 highs on Friday. At this pace KSU could hit our exit target in a couple of days. I am raising our stop loss to $19.75. The plan is to exit in 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 $3.50/3.80
-stop loss on KSU @ 19.75 *new*

Chart of KSU:


LNN $40.89 +0.94 -- Lindsay Corp.

LNN suffered a rough week and a half of profit taking falling 17% from its peak near $47.00. The stock is finally seeing an oversold bounce near support in the $39-40 zone. I see this pull back as another bullish entry point to buy LEAPS.

We want to sell half our LEAPS position at $49.50 and half at $59.50.

August 7, 2009 - entry price on LNN @ 41.55, option @ 8.80
symbol: NRR-AG, 2010 JAN $35 LEAP call - current bid/ask $ 7.90/ 8.30
-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 $5.10/5.50
-stop loss on LNN @ 34.50

Chart of LNN:


MDR $24.75 +0.52 - McDermott Intl. Inc.

MDR is also showing some relative strength. The pull back wasn't that deep and traders are buying the bounce from its 20-dma. We want to sell 50% to 75% of our position at $29.75. We'll sell the remainder at $34.00. I am raising the stop loss to $19.00. FYI: The Point & Figure chart has a $38 target.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 $20 LEAP call - current bid/ask $5.90/6.10
-stop loss on MDR @ 19.00 *new*

Chart of MDR:


MSFT $24.62 +0.51 -- Microsoft Corp.

MSFT tested short-term support near $24.00 and its 50-dma before finally bouncing on Friday. This may be a short-term entry point but I'm not sure it's a long-term entry. 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 $3.20/3.30
-stop loss on MSFT @ 19.95.

Chart of MSFT:


MT $35.79 +0.66 -- ArcelorMittal

The sideways consolidation in MT continues but the stock did manage to tag its longer-term up trend with last Wednesday's low. The bounce could be an entry point. However, if you launch positions now you may want to use a much tighter stop loss (maybe near $32.50 and the 100-dma). I'm moving our stop to $29.50. Our long-term target is the $50 region. FYI: If you do launch new positions I'd pick the $40 strike, not the $50.

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.70
symbol: MT-AH, JAN 2010 $40 call - current bid/ask $2.60/2.85
-stop loss on MT @ 29.50

-or-

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.00
symbol: MT-AJ, JAN 2010 $50 call - current bid/ask .65/0.80
-stop loss on MT @ 29.50

Chart of MT:


NYX $27.61 +0.29 -- NYSE Euronext

Investors need to turn more cautious on NYX. Last week the stock broke down under its trendline of higher lows. While shares found support near $27.00 the bounce has yet to reclaim the bullish trend. I am raising our stop loss to $22.00. Readers may want to raise their stops closer to $24.00 or even $26.00. I'm not suggesting new positions at this time. 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 $1.72/1.77
-stop loss on NYX at $22.00 *new*

Chart of NYX:


PBR $41.86 +1.60 -- Petroleo Brasiliero

The profit taking in PBR stalled when shares hit their long-term trend of higher lows (see chart). The bounce could be a short-term entry point. I'm 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 $1.35/1.50
-stop loss on PBR at $33.50

Chart of PBR:


PCU $28.25 +0.15 - Southern Copper Corp.

The rally in copper and shares of PCU both look tired. The trend of higher lows is still in place but momentum is definitely slowing. I would not be surprised to see a dip back toward $25.00. I'm not suggesting new long-term positions at this time. Please note our new stop loss at $22.00.

PCU has already hit our first target at $29.75. We plan to sell the second half of our position at $34.00.

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 @ 22.00 *new*

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

Chart of PCU:


PEP $57.54 +0.90 -- PEPSICO Inc.

PEP has continue to trade sideways over the last few weeks. The stock is currently bouncing from the $56.00 region. I'd prefer to open new LEAPS positions on a correction near the $55-54 level. 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 $4.80/5.00
-stop loss on PEP at $51.50

Chart of PEP:


RAI $46.60 +0.70 -- Reynolds American Inc.

Some of the tobacco stocks are showing relative strength. RAI is bouncing from support near $45.00 and still near its 2009 highs. I'm not suggesting new LEAPS positions at this time. I'm suggesting we take some money off the table at $49.50 (sell half) and exit completely at $57.50. I am raising our stop loss to $39.75.

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 $3.20/3.40
-stop loss on RAI at $39.75

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 $7.00/7.50
-stop loss on RAI at $39.75

Chart of RAI:


RIG $76.94 +1.71 -- Transocean Ltd.

RIG offered us another entry point with a dip to its rising trendline of support. However, shares also have a trend of lower highs. This triangle formation is normally neutral and at this point a breakout is imminent. My bias is bullish but more cautious traders may want to consider short-term puts as a minor insurance policy in case RIG breaks down. It's up to you if you want to buy Septembers or Octobers and how much money you want to spend.

An alternative entry point to buy LEAPS would be a new bullish breakout higher over $80.00. 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 $6.00/6.20
-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 $12.87 +0.52 -- Stone Energy Corp.

I don't see any changes from my prior comments. SGY is still consolidating sideways with overhead 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 $3.80/4.10
-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 $55.87 +1.45 -- Schlumberger Ltd.

Once again SLB found support near its 100-dma. The stock is bouncing and looks poised to rally from here. If you were looking for a new entry point then this is it. The July low was $48.13. I'm raising our stop loss to $48.00. More conservative traders may want to place their stop closer to $50.00.

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 $3.90/4.00
-stop loss on SLB @ 48.00

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

Chart of SLB:


UYG $5.35 +0.06 - ProShares Ultra Financials (2x) ETF

The profit taking in financials was strong early last week. Traders did buy the dip midweek but the bounce was kind of anemic. I'm not convinced the profit taking is over yet. The July low was $3.27. I'm raising our stop loss to $3.20. More conservative traders may want to raise their stop closer to $4.00 near the 200-dma. 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: 3.20)

Chart of UYG:


VOD $22.04 +0.52 -- Vodafone Group

VOD displayed some relative strength on Friday. I'm not suggesting new long-term positions at this time. 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 $2.75/2.85
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $16.59 +0.31 -- MEMC Electronic Materials Inc.

Once again WFR looked like it was breaking down for good and yet again it bounced back from a new relative low. The short-term trend is down and the longer-term trend is in doubt. More conservative traders may want to abandon ship right here. I am not suggesting new LEAPS positions at this time. 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 $1.05/1.10
-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 $1.80/1.95
-stop loss on WFR @ 14.95

Chart of WFR:


XIDE $7.01 +0.36 Exide Technologies

XIDE was a watch list candidate with a trigger to buy LEAPS at $6.50. Last week's sell-off hit our trigger on September 2nd. We actually had a choice - either buy the stock at $6.50 or buy the 2010 March $7.50 calls. We have a stop loss at $4.85. Our long-term target is $12.00.

Sep 2nd, 2009 - entry price on XIDE @ 6.50, option @ 1.25
symbol: FRU-CU, 2010 MAR $7.5 LEAP call - current bid/ask $1.25/1.45
-stop loss on XIDE @ 4.85

-or-

Buy the stock @ 6.50, stop loss at $4.85

Chart of XIDE:


CLOSED Plays

DXO $4.02 -0.06 -- Deutsche Bank Double-long Oil ETN

On Tuesday night, September 1st, 2009 Deutsche Bank issued a press release stating that they would close (or redeem) the DXO. Due to a "regulatory event" the company no longer wanted to operate the DXO, which is a leveraged (double long) ETF on oil. That evening we sent out an update to readers saying close the position immediately. We knew there was some sort of potential risk as the CFTC was looking into commodity ETFs. That's why we raised the stop loss to $4.25 last weekend.

The DXO dipped to $4.34 last Tuesday and then gapped open lower at $4.13 on Wednesday following the announcement. Our play was immediately closed.

CLOSED POSITION in DXO - Entry @ 2.15, Exit @ 4.13 (+92.0%)

Chart of DXO



Watch

It's Only Temporary

by James Brown

Click here to email James Brown

Editor's Note:
Our watch list shrank last week with a handful of stocks graduating to the watch list. We're adding two more tonight and I'm sure we'll quickly find more bullish candidates.


New Watch List Entries

Cost - Costco Wholesale

EMR - Emerson Electric Co.


Active Watch List Candidates

BEAV - BE Aerospace Inc.

BG - Bunge Limited

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MICC - Millicom Intl. Cellular

TEX - Terex Corp

X - United States Steel Corp.


Dropped Watch List Entries

BJS was dropped as a watch list candidate after BHI announced its acquisition last week.

CNX, CRS, and XIDE hit our entry points and graduated to the play list.

CLF was promoted as a new play.

WLT will be removed this week as a watch list candidate.


New Watch List Candidates:

COST $55.47 +0.48 -- Costco Wholesale

COST exploded higher last week when the company announced better than expected August same-store sales figures. Shares were already looking bullish prior to the announcement with a breakout above resistance near $50.00. Both consumers and businesses are trying to pinch pennies and COST should continue to grab market share.

We want to buy LEAPS on a dip at $51.50, which means COST needs to fill the gap from last week. If triggered we'll use a stop loss at $47.00. Our target is the $65.00 region.

Company Info:
Costco ended its 52-week fiscal year on August 30, 2009 with 559 warehouses in operation, including 406 in the United States and Puerto Rico, 77 in Canada, 21 in the United Kingdom, seven in Korea, six in Taiwan, nine in Japan, 32 in Mexico and one in Australia. The Company also operates Costco Online, an electronic commerce web site, at www.costco.com and at www.costco.ca in Canada. The Company plans to open an additional seven to eight new warehouses (including the relocation of one to two warehouses to larger and better-located facilities) in the first four months of fiscal 2010, prior to the end of calendar 2009. (source: company press release or website)

Buy-the-Dip trigger: $51.50

BUY the 2010 January $50 calls (symbol: PRQ-AJ)

Chart of COST:


EMR $37.41 +0.66 -- Emerson Electric Co.

EMR has been forming a long-term bottom for months. Shares are on the verge of breaking out higher from this consolidation. I'm suggesting readers buy LEAPS at $38.00. If triggered our target is the $47.50-50.00 zone. We'll use a stop loss under the July low a $33.50. EMR doesn't move super fast so I'm listing the 2011 LEAPS.

Company Info:
Emerson, based in St. Louis, Missouri (USA), is a global leader in bringing technology and engineering together to provide innovative solutions to customers through its network power, process management, industrial automation, climate technologies, and appliance and tools businesses. Sales in fiscal 2008 were $24.8 billion and Emerson is ranked 94th on the Fortune 500 list of America’s largest companies. (source: company press release or website)

Breakout trigger: $38.00

BUY the 2011 January $40 calls (symbol: VHH-AH)

Chart of EMR:


Active Watch List Candidates:


BEAV $17.73 +0.52 -- BE Aerospace Inc.

BEAV dipped to $16.40 last week. Shares appear to be forming a megaphone-shaped pattern, which is bearish. I'm keeping our trigger at $15.00. 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 $66.19 +0.56 -- Bunge Limited

I don't see any changes from my prior comments on BG. We're still waiting for a dip. Our trigger is at $63.00. More conservative traders may want to wait for a dip closer to $60.00 and its longer-term trendline of support. We'll use a stop loss at $54.75. 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:


ERJ $21.86 +0.16 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

ERJ came awfully close to hitting our trigger last week. The low was $20.60 and our trigger was at $20.50. After watching how ERJ has reacted this week I'm adjusting our trigger again. This time down to $19.00. We'll keep the stop at $16.45. Our target is the $29-30 zone.

Buy-the-Dip trigger: $19.00 *new*

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

Chart of ERJ:


IGT $20.99 +0.41 --- Intl. Game Technology

IGT also came close to hitting our trigger at $19.00. Shares should have support at the bottom of its bullish channel (near the 50-dma). Thus I'm keeping the trigger at $19.00 but I'm raising the stop loss to $16.75. 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

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

Chart of IGT:


MEE $27.57 +0.74 -- Massey Energy Corp.

I'm adjusting the trigger again on MEE. We want to buy LEAPS on a dip at $23.00. We'll keep the stop loss at $19.95. Our long-term target is the $35.00-40.00 range. Readers may want to consider the 2011 January calls instead.

Buy-the-Dip trigger: $23.00 *new*

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

Chart of MEE:


MICC $71.04 +2.22 -- Millicom Intl. Cellular

Foreign telecoms saw a decent bounce on Friday but the short-term trend for MICC is still down. Once the stock breaks support near $68 it has a chance to drop toward stronger support near $60.00. Currently the plan is to buy a correction back toward $62.50. Buy-the-Dip trigger: $62.50

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

Chart of MICC:


TEX $16.61 +0.55 -- Terex Corp.

I'm adjusting our strategy on TEX. We only want to trade the breakout trigger at $18.25 right now. I'm temporarily removing the dip trigger point at $15.00. Our upside target is the $28.00-30.00 zone.

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 $55.05 -0.42 -- Walter Energy Inc.

I'm giving up on WLT. We've been waiting for the right entry point for weeks. At this time I'm dropping it from our play list but I'll keep the stock on my watch list to see if it presents an entry point down the road. The area I'm watching is the $45-40 zone. I'd prefer to see WLT test support near $40.00 before considering new positions.

Buy-the-Dip trigger: None / dropping WLT.

Chart of WLT:


X $42.36 +0.20 United States Steel Corp.

I don't see any changes from my prior comments on X. 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: