Option Investor
Newsletter

Daily Newsletter, Saturday, 9/12/2009

Table of Contents

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

Leaps Trader Commentary

The Race Is On

by James Brown

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Fund managers came back from their summer vacation and decided to put more money to work. They don't get paid to sit there in cash and the performance chase has begun anew. We've been talking about it for weeks (months?) now. Too many money managers were under invested and didn't believe the bounce from the March lows. I don't blame them. Yet now they're trying to catch up and beat their benchmarks and their peers. Everyone wants a correction so they can buy it but it just hasn't happened. I'm not saying it won't happen or it can't happen but there is so much money on the sidelines and with seven weeks left before the year ends for many fund managers I seriously doubt we're going to see any real profit taking.

Last week several sectors broke out to new relative highs. The strength in the transports is bullish for the entire market. Dow Theory suggests that you can't have a sustainable market rally without participation by the transportation stocks. The sector broke out higher and FedEx (FDX) only reinforced it on Friday when they raised their earnings guidance.

This week we will get the PPI and CPI data. As long as the bogeymen of inflation and deflation remain scared of their shadow and stay hidden the markets should run unencumbered. Technically the S&P 500's breakout past the 38.2% Fibonacci retracement of the 2007-2009 market correction has traders looking at the 50% retracement as the next target in the 1,120 zone. However, the 2004 lows around 1,060 might present a little overhead resistance.

Chart of the S&P 500 index:

LONGER TERM OUTLOOK

My long-term outlook has not changed. I still expect the economy to see a double-dip, "W"-shaped rebound with the second dip in 2010. Lousy consumer spending, rising foreclosures, and lagging job growth will be the main culprits. This past week there were some comments out of the U.S. Treasury concerning foreclosures. The Obama administration's HAMP loan modification program can only help a certain number of homeowners and one official said that even if the HAMP program was a total success we should still expect millions of new foreclosures. This only reinforces my own belief that we will see another tidal wave of foreclosed homes in 2010. Some analysts are forecasting upwards of six million foreclosures in the next three years. What is that going to do to consumer confidence and consumer spending? It's not going to help! You can review my long-term outlook here. It's the second half our my "Two Months Left" commentary.

~ James Brown


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 delivered a five-day winning streak and almost made it six in a row. The trend is up and money managers are still chasing performance. Look for pullbacks to be smaller than you might expect.

Last week was a good one for the play list. CRM, KSU, and SGY (in red font on the table below) all hit our exit targets. I also decided to drop DBC for lack of performance.

Currently we have eleven stocks on our watch list.

BEAV - BE Aerospace Inc., trigger: $15.00
BG - Bunge Limited, trigger $61.00
COST - Costco Wholesale, trigger 51.50
ERJ - EMBRAER - Empresa Brasileira de Aeronáutica, trigger $18.50
ESV - ENSCO Intl. Inc., trigger 38.00
IGT - Intl. Game Tech., trigger $17.50
MEE - Massey Energy Corp., trigger $23.50
MTL - MECHEL OAO, trigger 13.25
MTW - Manitowoc Inc., trigger 7.75
SPW - SPX Corp., trigger 58.50
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

Still Buying Dips

by James Brown

Click here to email James Brown


Still Buying Dips


Editor's Note:

The market continues to show strength. We had three stocks hit our targets last week and two watch list candidates get triggered and added to the play list. Currently the market looks a little bit overbought. Instead of adding a new play I'm adding four new candidates to the watch list: ESV, MTL, MTW, and SPW.


Play Updates

Cashing In On CRM, KSU, and SGY

by James Brown

Click here to email James Brown


Closed Plays


CRM - hit our 2nd target at $57.00.

DBC - We've decided to close this play early.

KSU - hit our target at $27.50

SGY - hit our 2nd target at $14.75


Play Updates


ACGY $10.59 +0.03 -- Acergy S.A.

ACGY has rebounded from its test of technical support near its 100-dma and exponential 200-dma. Yet shares still have resistance in the $11.20-11.50 zone. I'm not convinced we want to open new positions yet. More conservative traders may want to use a tighter stop loss.

I'm not suggesting new LEAPS positions at this time. 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 $1.60/1.85
-stop loss on ACGY @ 7.60

Chart of ACGY


ACI $19.16 +0.31 -- Arch Coal Inc.

Some of the coal stocks continue to show relative strength. ACI rallied to new ten-week highs but ran out of steam when shares came near technical resistance at the exponential 200-dma. Broken resistance near $18.50 should offer some short-term support. The tone is bullish here but readers might want to wait for a move over $20.00 before launching new LEAPS positions. More conservative traders may want to raise their stop toward $16.00 and the simple 200-dma.

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 $0.55/0.65
-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 $1.55/1.75
-stop loss on ACI @ 12.85

Chart of ACI:


ANR $34.99 -1.01 - Alpha Natural Resources, Inc.

Shares of ANR are still struggling with resistance near the $37.50 region. If the stock corrects it should find some support in the $32-30 zone with the 50-dma and exponential 200-dma. I'd consider new positions on a dip into the 32-30 region.

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. 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 $4.80/5.10
-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 $7.50/8.50
-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 $16.97 -0.25 - Bank of America Corp.

The banking stocks struggled this past week and under performed the rest of the market. Shares of BAC are developing a short-term pattern of lower highs and technicals are suggesting the next move could be lower. Many of the financials appear to be forming a bearish head-and-shoulders pattern. I suspect that if BAC corrects, and that's an if, the correction could take it down to $14.00. There is still a lot of money on the sidelines and corrections are likely to be smaller than many expect. If BAC does bounce from $14.00 I'd use it as another entry point.

More conservative traders may want to take some money off the table now and scale back in on a dip. However, 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 $12.00).

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $8.25/8.45
-stop loss on BAC @ 6.24

Chart of BAC


CLF $30.23 +2.13 -- Cliffs Natural Resources Inc.

Many of the metal stocks were red hot last week. CLF lead the way with a gap open higher last Tuesday. I've adjusted our entry point for both CLF and the option. After buying the dip at $26.00 midweek CLF soared to new two-month highs and closed above round-number resistance at $30.00 and technical resistance at its exponential 200-dma. Shares actually look a little overbought here. I wouldn't be surprised to see a correction toward the $28-27 zone. 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 @ 26.19, option @ 4.84
symbol: CLF-AE, 2010 JAN $25 LEAP call - current bid/ask $7.30/7.50
-stop loss on CLF @ 22.24 (FYI: Gap open entry)

Chart of CLF:


CNX $41.36 -0.43 -- Consol Energy Inc.

CNX is another coal stock that has soared off its early September lows. Shares are currently struggling with some resistance near $42.00. If CNX corrects look for support and a potential entry point in the $36-37.50 region. 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 $8.60/8.80
-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 $10.00/11.00
-stop loss on CNX @ 29.99

Chart of CNX


CRS $23.59 -0.04 -- Carpenter Technology Corp.

Metal maker CRS has also turned in a strong week. Short-term the rally could be due for a dip. I would consider new call positions on a dip in the $21.00-20.00 zone. Our long-term target is the $35.00-40.00 zone.

Correction: The option suggested was mislabeled a 2010 January call when it's really a 2010 March call. The option symbol was correct for the March option.

Sep 1st, 2009 - entry price on CRS @ 20.50, option @ 3.10
symbol: CRS-CD, 2010 MAR $20 LEAP call - current bid/ask $5.20/5.40
-stop loss on CRS @ 17.50

Chart of CRS:


DISH $17.56 +0.53 -- Dish Network Corp.

DISH is still bouncing from its test of the $16.00 level and its rising 100-dma. The stock is currently testing short-term resistance near $17.70. Personally I'd consider new positions now but readers may want to wait for more confirmation and look for a move over $17.75 or $18.00 before launching 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 $3.40/3.60
-stop loss on DISH @ 15.45.

Chart of DISH:


DO $93.66 -0.83 -- Diamond Offshore

Many of the oil service stocks produced some impressive gains last week. Unfortunately several suffered profit taking on Friday as crude oil reversed lower. Shares of DO spiked to $95.71 and then closed in the red. The trend is up. I'd use dips in the $90-88 zone as a potential entry point to buy LEAPS. We have a stop loss at $79.45 but more conservative traders may want to use a stop closer to $85 or its rising 100-dma.

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 if you're launching new positions.

FYI: New January 2010 options have been added with the normal DO- root symbol. If you're going to buy new option positions I'd use these new symbols. The new 2010 January $90 call is DO-AA. The new 2010 January $100 call is DO-AC.

If you're curious about the KWJ- root symbol the CBOE created them back in February 2009 to account for DO's special cash dividend in March 2009. There was another special cash dividend in July 2009 and the KWJ series now represents 100 shares of DO plus $562.50 in cash.

Sep 2nd, 2009 - entry price on DO @ 86.50, option @ 12.30
symbol: KWJ-AR, 2010 JAN $90 LEAP call - current bid/ask $13.70/14.00
-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 $7.90/8.20
-stop loss on DO @ 79.45

Chart of DO:


EMR $39.38 -0.20 -- Emerson Electric Co.

EMR was a new watch list candidate last week and shares broke out to new eight-month highs. We had a trigger to buy LEAPS at $38.00. The stock hit $38.00 on Tuesday, September 8th and the option hit $4.50. Our stop loss is at $33.50 and our target is the $47.50-50.00 zone. I would still consider new bullish positions on a dip in the $38.00-37.00 region. EMR doesn't move super fast so I'm listing the 2011 LEAPS.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $4.90/5.20
-stop loss on EMR @ 33.50.

Chart of EMR:


FAS $76.68 -1.26 - Direxion Fincl.Bull 3x ETF

The financials continue to bounce but momentum is waning. Many of the banks and the banking indices look like they're building a bearish head-and-shoulders pattern. The same pattern is evident on the FAS. If this pattern is completed and the sector breaks down then the correction should carry FAS down toward the $50 region. However, it's worth noting that there is a ton of money on the sidelines and plenty of investors are just waiting for a dip to jump into the market. Any correction is likely to be a lot smaller than we might expect. Still more conservative traders may want to start taking some money off the table now. You could always re-enter positions if FAS does find support near $50.00.

I am not suggesting new bullish positions in FAS at this time.

Previous Comments on FAS:
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.

FYI: The FAS is based off and moves with the Russell 1000 Financial Services index.

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 $70.37 +1.11 - Freeport McMoran

It's been an interesting week for FCX. Normally shares tend to trade with the action in copper but last week FCX got a boost from gold. The company mines for both metals. Gold futures took of and broke out over the $1,000 an ounce level last week while copper has been sliding lower following the Tuesday gap higher. Shares of FCX have broken out to new 2009 highs over $70.00.

I am not suggesting new long-term bullish positions in FCX. We have already taken profits at $66.00. Our second and final target is $77.00 (down from $77.50). I'm raising our stop loss to $49.95. More conservative traders may want to use a stop closer to $55 or higher.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $18.15/18.30
-stop loss on FCX @ 49.95 *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 $20.65/21.60
-stop loss on FCX @ 49.95 *new*

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

Chart of FCX:


FSLR $136.75 + 1.53 -- First Solar

Wow! What a difference a week makes. I warned readers a week ago that the action in FSLR was starting to look like a short-term bottom. The stock took off on Tuesday and soared toward resistance near $140 and its declining 50-dma. What drove the rally? The company announced a deal to build the largest solar power-plant in the world in Inner Mongolia (China). FSLR has signed a memorandum of understanding with the Chinese government to build a 2-gigawatt plant, which is big enough to supply power for up to three million homes. The project will take years to complete and FSLR is due to begin construction in June 2010.

While the news is positive last week looks like nothing more than a big oversold bounce. The three-month trend is still down and shares are failing at resistance. 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) $5.20.
If you're curious the 2010 Jan. $150 call is at $12.80.

Chart of FSLR


GT $17.27 -0.03 -- Goodyear Tire & Rubber Co.

The technical picture is mixed for GT with a variety of conflicting signals. Short-term the September bounce looks a little tired. The correction may not be over yet.

I'm not suggesting new LEAPS positions at these levels. We have two targets. The plan is 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 $3.50/3.70
-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 $3.40/3.70
-stop loss on GT @ 11.90

Chart of GT:


HOS $24.62 -0.32 -- Hornbeck Offshore Services

HOS moves with the oil services sector and like the oil services group the stock reversed on Friday. I would expect a dip toward the $23.00 level. Use the dip as a new entry point. Readers might want to use March 2010 calls instead of Januarys. 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 $5.50/6.30
-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 $2.55/2.95
-stop loss on HOS @ 17.85

Chart of HOS:


INTC $19.51 -0.25 -- Intel Corp.

In spite of positive news out of the semiconductor sector last week and new relative highs for the SOX index, shares of Intel have been under performing. This relative weakness is a drag for all the major averages that INTC is a component. I'm not expecting a steep correction but we can't rule it out. INTC should find support near $18.00 and again at $17.00. 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 $2.52/2.56
-stop loss on INTC @ 15.90.

Chart of INTC:


JOYG $41.78 +0.81 -- Joy Global Inc.

Mining stocks have been strong thanks to new relative highs in gold. The tone for JOYG has changed sharply and looks much more positive. The stock actually looks short-term overbought given the six-day bounce. 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 (maybe 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 $5.90/6.10
-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 $10.40/11.10
-stop loss on JOYG @ 29.00

Chart of JOYG:


LNN $42.11 -0.04 -- Lindsay Corp.

I'm a little concerned about LNN. The oversold bounce stalled a little bit too early. The trend of higher lows is still in place but readers may want to wait for another dip and bounce from $40.00 before initiating new positions (don't forget to wait for the bounce).

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 $ 8.70/ 9.10
-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 $5.40/6.10
-stop loss on LNN @ 34.50

Chart of LNN:


MDR $27.48 +0.24 - McDermott Intl. Inc.

A couple of positive analyst calls last week helped MDR soar to new 2009 highs. MDR is looking a little short-term overbought so don't be surprised to see a dip. I will note that volume was pretty strong on the rally, which is bullish.

MDR is near the top of its bullish channel and more conservative traders may want to start taking profits right here! We want to sell 50% to 75% of our position at $29.75. We'll sell the remainder at $34.00. 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 $8.10/8.30
-stop loss on MDR @ 19.00

Chart of MDR:


MSFT $24.86 -0.14 -- Microsoft Corp.

The bounce from $24 is stalling a bit. MSFT looks like it will retest short-term support near $24 again. I'm not suggesting new long-term positions at this time.

This should be a long (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 $3.15/3.25
-stop loss on MSFT @ 19.95.

Chart of MSFT:


MT $39.67 +1.19 -- ArcelorMittal

It was a very strong week for MT. The stock rallied off its trendline of support and hit new 2009 highs near $40.00. Shares look a little short-term overbought and due for a dip. More conservative traders may want to raise their stops (near $32.50 or $34.50 could work). 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 $4.40/4.60
-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 $1.30/1.40
-stop loss on MT @ 29.50

Chart of MT:


NYX $27.78 -0.13 -- NYSE Euronext

Another week has gone by and NYX still looks vulnerable. The bounce has stalled and formed a new lower high. I am raising the stop loss again, this time to $23.45. More conservative traders may want to use a higher stop 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 $1.72/1.74
-stop loss on NYX at $22.00 *new*

Chart of NYX:


PBR $43.73 -0.44 -- Petroleo Brasiliero

PBR has continued to bounce off its early September lows and shares are quickly approaching resistance near $45.00. 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 $1.75/1.85
-stop loss on PBR at $33.50

Chart of PBR:


PCU $28.80 -0.24 - Southern Copper Corp.

The rally in copper prices stalled last week in spite of new lows for the U.S. dollar. The trend in PCU is still bullish but momentum is definitely waning. I'm not suggesting new long-term positions at this time.

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 $5.20/5.50
-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 $58.81 +0.95 -- PEPSICO Inc.

PEP appears to have build a new base over the last six weeks. The stock's rally is starting to pick up speed. More conservative traders might want to raise their stops toward the $55 region. 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 $5.40/5.60
-stop loss on PEP at $51.50

Chart of PEP:


RAI $45.87 +0.07 -- Reynolds American Inc.

What happened to RAI? It looks like the stock has run out of gas. Shares have been drifting sideways in a very narrow range the last few days. I don't see any news that would account for the lack of participation in the market's rally. This sort of move makes me cautious. A normal Fibonacci retracement of the June-August rally would produce a dip towards the $43.00 or $41.75 levels.

I'm not suggesting new LEAPS positions at this time. We want to take some money off the table at $49.50 (sell half) 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 $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 $7.10/7.60
-stop loss on RAI at $39.75

Chart of RAI:


RIG $81.49 +0.12 -- Transocean Ltd.

Some of the oil service stocks displayed relative strength last week. RIG was one of them but the rally has reached resistance near $82.50 and RIG looks a little overbought. I would expect a pull back. The $75.00-77.50 zone should be new support. 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 $8.00/8.20
-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 $5.60/5.80
-stop loss on RIG @ 64.99.

Chart of RIG:


SLB $60.39 +1.96 -- Schlumberger Ltd.

SLB is another oil services stock showing relative strength. The stock got a boost on Friday when Goldman Sachs upgraded shares to a "buy". The breakout is bullish. Officially I'm not suggesting new positions at this time but if SLB were to fill the gap and bounce from the $58 level again I'd be tempted to buy new LEAPS positions. I am raising our stop loss to $49.90.

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 $6.00/6.20
-stop loss on SLB @ 49.90 *new*

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

Chart of SLB:


TEX $17.89 +0.03 -- Terex Corp.

TEX was a watch list candidate and we had a breakout trigger to buy LEAPS at $18.25. Shares temporarily traded above resistance at $18.00 and its exponential 200-dma on Friday morning and hit our trigger. Unfortunately the rally reversed. This could be a bull-trap pattern. The trade is open but I am not suggesting new positions at this time. Instead I would wait for a new move over $18.50 or consider buying LEAPS on a bounce from the $16.00 level. I'm setting the stop loss at $14.25 under the 100-dma. Our upside target is the $28.00-30.00 zone.

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.40
symbol: HAG-AC, JAN 2010 $15 LEAP call - current bid/ask $4.10/4.20
-stop loss on TEX @ 14.25

-or-

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.10
symbol: VXQ-AD, JAN 2011 $20 LEAP call - current bid/ask $4.00/4.50
-stop loss on TEX @ 14.25

Chart of TEX:


UYG $5.61 -0.07 - ProShares Ultra Financials (2x) ETF

Financials have continued to bounce from their September lows but the rally is losing steam. The problem now is that if the sector rolls over from here it will looks like a bearish head-and-shoulders pattern. Should the UYG complete that H&S pattern and breakdown we could see a dip toward the $4.25-4.00 zone. However, there is so much money on the sidelines looking to buy a correction that any pull back will probably be smaller than investors think. More conservative traders may want to take some money off the table or raise their stop toward $4.00 (or both). 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 $23.20 -0.14 -- Vodafone Group

Last week VOD produced some impressive gains that started with a gap higher on Tuesday. Shares look somewhat overbought and a correction back toward $22 would be healthy. 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 $3.50/3.70
-stop loss on VOD @ 17.85

Chart of VOD:


WFR $17.21 -0.21 -- MEMC Electronic Materials Inc.

I was about ready to throw in the towel on WFR. Last week's rally in semiconductors and the solar industry has helped a lot. What makes this move higher in WFR even more impressive was that fact that WFR issued a Q3 earnings warning due to equipment failure at a plant in Texas in early August. It will take a few weeks before the plant is back online and at full capacity. If that wasn't enough WFR shutdown a separate plant in Texas and part of a plant in Missouri.

I suspect WFR will contract a bit and retest the $16.50 region. I would use such a move as a new entry point to buy LEAPS but this has turned into an aggressive trade and I would only open very small positions to limit risk. 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 $1.15/1.25
-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 $1.95/2.10
-stop loss on WFR @ 14.95

Chart of WFR:


XIDE $7.92 -0.08 Exide Technologies

XIDE managed to rally to new 2009 highs at $8.40 last week. The rally looks a bit overdone here and shares probably need to correct a bit. I am not suggesting new long-term positions at this time. 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 $1.80/2.05
-stop loss on XIDE @ 4.85

-or-

Buy the stock @ 6.50, stop loss at $4.85

Chart of XIDE:


CLOSED Plays

CRM $57.92 +1.50 -- Salesforce.com

Target achieved! CRM soared almost 10% last week and Friday saw a spike to $59.00. Our second and final target to exit CRM options and take profits was hit at $57.00. Shares of CRM spiked higher at the open on Friday, September 11 thanks to an analyst upgrade and the options gapped open higher providing a great exit. The 2010 January $40 calls are currently bid at $18.60 and the $45 are at $14.40.

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%)
09-11-09 sold final half @ 57.00 (estimated option exit @ $19.66 +357%)

-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%)
09-11-09 sold final half @ 57.00 (estimated option exit @ $11.60 +480%)

Chart of CRM:


DBC $21.94 -0.29 -- PowerShares DB Commodity Index (ETF)

I believe it's time to throw in the towel for our DBC trade. This is the commodity index ETF. The expectation was that if the U.S. dollar declined commodities, denominated in dollars, would rise in value. That is not happening with the DBC. There was a little pop on Monday when the dollar broke down to new lows but the rally in DBC has stalled. Bigger picture the DBC has created a very bearish posture and what appears to be a bearish head-and-shoulders pattern. While this ETF has not yet broken the trendline of higher lows I don't see a reason to wait for the breakdown. Should it suddenly begin to show strength again we might want to revisit on a close over $24.00. At this time I'm suggesting we cut our losses early.

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 $3.60/4.50
-stop loss on DBC @ 20.99.
09-12-09 Early Exit @ 21.94, option @ $3.60 (-15.8%)

-or-

July 6th, 2009 - entry price on DBC @ 21.50, option @ 2.62
symbol: VCZ-AY, 2011 JAN $25 LEAP call - current bid/ask $1.65/2.25
-stop loss on DBC @ 20.99
09-12-09 Early Exit @ 21.94, option @ $1.65 (-37.0%)

Chart of DBC:


KSU $27.56 -0.38 -- Kansas City Southern

Target achieved. Wow! KSU has been on fire with gains in 8 out of the last 9 weeks. The stock hit our target to exit at $27.50 on Thursday, September 10th. Our exit on the option was near $4.50. If that wasn't good enough KSU rallied to $28.51 on Friday. If you haven't exited I suggest caution. Shares are very, very overbought.

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

09-10-09 Target hit @ 27.50. Option exit approximately $4.50 (+400%)

Chart of KSU:


SGY $15.85 +0.70 -- Stone Energy Corp.

Target exceeded! The rally in SGY was very impressive with a 23% gain. Volume was pretty strong on the surge to new highs, which is bullish. Our second and final target to exit was $14.75 and SGY hit that level on September 9th. Our exit on the option was $3.90 but it's a lot higher now.

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%) 09-09-09 Final Exit @ 14.75, option @ $3.90 (+420%)

-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%) 09-09-09 Final Exit @ 14.75 (+132.2%)

Chart of SGY:



Watch

Oil Services, Metals and More...

by James Brown

Click here to email James Brown


New Watch List Entries

ESV - ENSCO Intl. Inc.,

MTL - MECHEL OAO

MTW - Manitowoc Inc.

SPW - SPX Corp.


Active Watch List Candidates

BEAV - BE Aerospace Inc.

BG - Bunge Limited

COST - Costco Wholesale

ERJ - EMBRAER - Empresa Brasileira de Aeronáutica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

X - United States Steel Corp.


Dropped Watch List Entries

EMR - hit our trigger and graduated to the play list.

TEX - hit our trigger and graduated to the play list.

MICC - I'm dropping it from the watch list.


New Watch List Candidates:

ESV $40.89 +1.39 -- ENSCO Intl. Inc.

ESV is another oil services stock. Shares have been showing a lot of relative strength and broke out from a triangle-shaped consolidation. Now the stock looks short-term overbought given the six-day bounce. We want to buy LEAPS on a dip at $38.00. We'll use a tight stop loss at $34.90. The Point & Figure chart is bullish with a $55.00 target. We're going to aim for the $55-60 zone.

Company Info:
Ensco International (NYSE: ESV) brings energy to the world as a global provider of offshore drilling services to the petroleum industry. Our fleet of 8 ultra-deepwater semisubmersible rigs (including five under construction) and 42 premium jackup rigs are strategically located in the most prolific worldwide oil and gas markets and are managed through four major business units: Deepwater, Asia & Pacific Rim, Europe & Africa and North & South America. More than 3,500 Ensco employees work around the clock for our customers. (source: company press release or website)

Buy-the-Dip trigger: $38.00

BUY the 2011 January $40 call (VKS-AH)
(More aggressive traders may want to trade January 2010 or March 2010 calls instead)

Chart of ESV:


MTL $15.35 +1.28 -- MECHEL OAO

A number of the metal and mining stocks just took off this past week. MTL, a Russian company, is one of them that is hitting new 2009 highs. The stock appears to have built a significant bottom over the last several months. I am suggesting we buy MTL the stock or LEAPS on a dip at $13.25. We'll use a stop loss at $9.75. The Point & Figure chart is bullish with a $27 target. Our long-term target is also $27.00.

Company Info:
Mechel is one of Russia’s leading mining and metals companies, uniting producers of coal, iron ore, nickel, steel, rolled products, and hardware. (source: company press release or website)

Buy-the-Dip trigger: $13.25

BUY the 2010 April $15.00 calls (symbol: MTL-DC)

or BUY the STOCK @ 13.25

Chart of MTL:


MTW $8.81 +0.35 -- Manitowoc Inc.

If the global economy is truly on the verge of recovery then business should be picking up for both of MTW's segments. At least that's what the recent rally might suggest. The stock has built a significant bottom over the last several months. Short-term shares are overbought and due for a dip. I'm suggesting investors buy the stock or LEAPS options on a dip at $7.75. Currently the Point & Figure chart is bullish with an $18.50 target. I'm setting our long-term target at $17.00.

Company Info:
Manitowoc was founded in the lakeshore community of Manitowoc, Wisconsin, in 1902 as a shipbuilding and ship-repair organization. Since that time, the company has grown and diversified, entering the lattice-boom crane business in the mid-1920’s and branching into commercial refrigeration equipment shortly after World War II. Today, the company is comprised of two segments – cranes and foodservice equipment. In each of these segments Manitowoc is the industry leader in market share, product innovation, and product support services. (source: company press release or website)

Buy-the-Dip trigger: $7.75

BUY the 2011 January $7.50 calls (symbol: VMT-AU)

or BUY the STOCK at $7.75.

Chart of MTW:


SPW $63.52 +2.07 -- SPX Corp.

Last week the multi-industry companies were upgraded with the expectation that these stocks would out perform the rest of the market when manufacturing finally turns positive. Shares of SPW really took off last week hitting new highs for 2009. The trend is up but we don't want to chase it here. I'm suggesting we buy LEAPS on a dip at $58.50. The Point & Figure chart is bullish with a target at $70. If triggered our long-term target is the $79.00 mark.

Company Info:
Founded as an automotive components supplier, SPX Corporation today is a global, Fortune 500, multi-industry company. We provide products and services for multiple industries — food and beverage, transportation, automotive, power generation and distribution, gas and oil production, manufacturing, pharmaceutical and biotechnology, agriculture and others. (source: company press release or website)

Buy-the-Dip trigger: $58.50

BUY the 2010 March $60 calls (symbol: SPW-CL)

Chart of SPW:


Active Watch List Candidates:


BEAV $19.19 +0.39 -- BE Aerospace Inc.

BEAV is hitting new highs for 2009. More aggressive traders may want to consider positions here. I'm still a little cautious with the stock building a bearish megaphone-shaped pattern. I will up our trigger to $16.00 and our stop loss to $13.40.

Buy-the-Dip trigger: $16.00

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 $65.62 -0.99 -- Bunge Limited

Bullish investors should be somewhat concerned that BG has not participated with the market's rally this past week. I'm turning more cautious here. We want to open smaller positions about 1/2 your normal trade. I'm also raising our stop loss to $57.49. Our trigger remains at $63.00. If you prefer to buy a breakout then look for a move over the red trendline of a move over $70.00. 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 APRIL 70 calls (BGW-DN) *NEW OPTION*

Chart of BG:


COST $56.81 -0.10 -- Costco Wholesale

The momentum in COST has come to a dead stop. Shares have been trading sideways for four days in a row with a narrow 75-cent range. Our plan is to buy LEAPS on a dip at $51.50. If triggered we'll use a stop loss at $47.00. Our target is the $65.00 region.

Buy-the-Dip trigger: $51.50

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

Chart of COST:


ERJ $23.69 -0.08 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

ERJ displayed some relative strength last week and shares are close to testing resistance near $24.00 again. We don't want to chase this move but $19.00 seems too low. I'm bumping the trigger back to $20.50. Currently I'm watching the 50-dma, 100-dma and exponential 200-dma as probable support on any correction. Stop loss at $17.75. Our target is the $29-30 zone. FYI: The P&F chart is bullish with a $42 target.

Buy-the-Dip trigger: $20.50

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

Chart of ERJ:


IGT $22.63 +0.06 --- Intl. Game Technology

Gambling-related stocks have been strong. Some of the casino stocks have really stolen the spotlight but IGT is also hitting new highs. The 50-dma, near $19.00, is also near the bottom of IGT's bullish channel. Our trigger is at $19.00 with a stop loss at $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 $29.99 +0.01 -- Massey Energy Corp.

The coal stocks have been showing relative strength. Yet MEE's rally stalled at its August highs. A 50% retracement of the July-August rally would be near $23.60. I'm raising our trigger to buy LEAPS on MEE to $25.00 but I'm keeping the stop at $19.95. More conservative traders may want to use a stop near $21.75 instead. Our long-term target is the $40.00. Readers may want to consider the 2011 January calls instead.

Buy-the-Dip trigger: $25.00 *new*

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

Chart of MEE:


MICC $76.24 +0.79 -- Millicom Intl. Cellular

Short-term traders may want to re-evaluate MICC. I'm dropping it as a long-term candidate. That doesn't the stock won't hit new highs but I don't see an attractive entry point to buy LEAPS.


X $45.86 +0.11 United States Steel Corp.

Steel and metal stocks have been showing a lot of relative strength. Unfortunately X has failed to hit new relative highs like so many peers. I'm raising our trigger to buy LEAPS from $37.50 to $40.25. We'll put the stop loss just under the 100-dma at $36.49. Our target is the $60-70 zone.

Buy-the-Dip trigger: $40.25

BUY the 2010 January $45 calls (symbol: FBJ-AI)

Chart of X: