Option Investor
Newsletter

Daily Newsletter, Saturday, 10/10/2009

Table of Contents

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

Leaps Trader Commentary

Theory Intact!

by James Brown

Click here to email James Brown

Stocks delivered one of the best weeks since July with 4% gains for the major averages. Our theory remains intact for now. It appears that fund managers are still chasing performance and used the two-week correction as an entry point to jump back in. However, while our bias is still bullish, I remain concerned about volume. Volume was a lot stronger on the down days during the correction than last week's bounce. This could suggest that the internals or building blocks for last week's rally weren't super strong.

Last week produced some records. The U.S. dollar fell to new 2009 lows and gold futures broke out to new all-time highs above $1,050 an ounce. There are analysts calling for $1,300 and $1,500 for gold. If you look at a weekly chart for gold or the GLD gold ETF I can see an inverse head-and-shoulders pattern that would forecast a rise to $1,300 for gold or $130 for the GLD but it could take months to get there. With the dollar sinking the commodity stocks are back in vogue, which is good news for our LEAPStrader portfolio.

Looking ahead this week we'll see the FOMC minutes from their September meeting. I suspect Bernanke has already let the cat out of the bag with last Thursday's comments about being ready to raise rates when the time is right. Does anyone really expect him to say anything else? Seriously! Why is that market-moving news? The only noteworthy change was in the Fed Funds Futures, which has started to price in a potential 1/4-point rate hike in March/April 2010.

Consumer sentiment and industrial production are the next two big economic reports out this week but I believe they'll take a backseat to corporate earnings. Earnings season begins to hit its stride this week and we have a lot of high-profile announcements. J.P.Morgan (JPM), IBM, Goldman Sachs (GS), General Electric (GE), Google (GOOG), and Bank of America (BAC) are just a few of them. Earnings results and managements' ability to spin these results will be what moves the market. If managements' tone is positive on the recovery then stocks should continue to rally. If we get too many misses or the outlooks come in too cautious then investors could sell first and ask questions later.

Short-term I wouldn't be surprised to see the S&P 500 contract after tagging the 1075-1080 zone again. As long as investors buy the dip at the 1060 or 1040 levels the up trend should remain intact. When the S&P 500 starts to hit the 1120-1135 zone is when I'll start to worry about the market looking a little heavy. Too many investors have been aiming for the 1125 region and could start selling. Furthermore, once the mutual fund fiscal year is over come Halloween there could be more profit taking!

Chart of the S&P 500 Index:

LONGER TERM OUTLOOK

Previous Comments on my Long-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. A few weeks ago 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

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Current Portfolio


Portfolio Comments:

The strength in this market is encouraging. Although I'm a little concerned by the lack of volume on the rebound compared to the big volume during the correction.

The dollar weakness/commodity strength has been a boon for the portfolio. We have a few stocks that could hit targets soon.

I am trimming the Watch List. Some of our bullish candidates are losing their flavor.

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

Sooner Than Expected

by James Brown

Click here to email James Brown


Where's the Top?


Editor's Note:

Our market bias is unchanged. We're still bullish for 2009. Yet I was somewhat surprised at how fast the market rebounded. Now the S&P 500 is nearing its September highs.

Here's something to consider: The 1100-1120-1135 zone in the S&P 500 could be major resistance. The 50% retracement of the bear market is about 1120. A lot of investors (big and small) are aiming for 1120 as their unofficial year-end target. So what happens if we get there in a couple of weeks and still have November and December to go?

Stocks might see some profit taking once the fiscal year ends for many fund managers after Halloween.

Let's just say I'm still bullish but growing even more selective about adding new long-term multi-month investments to the newsletter.

No new plays tonight.


Play Updates

Zeroing In

by James Brown

Click here to email James Brown

The dollar decline and commodity rise was good news for our play list. A few of the miners are zeroing in on our final targets.


Closed Plays


None, there were no closed plays.


Play Updates


ACGY $13.58 -0.21 -- Acergy S.A.

Investors have a decision to make. ACGY is due to report earnings on October 14th. Do you exit ahead of the report or do you hold over the report. The stock is pretty close to our target at $14.50. I am suggesting the following. We will go ahead and exit at $14.50 should ACGY get there in the next day or two. If not we will plan to exit on Tuesday, October 13th at the closing bell. In the meantime I'm raising our stop loss to $9.95. I'm not suggesting new LEAPS positions at this time.

April 25th, 2009 - entry price on ACGY @ 7.61, option @ 1.05
symbol: QLS-AB, 2010 JAN $10 LEAP call - current bid/ask $3.70/4.20
-stop loss on ACGY @ 9.95

Chart of ACGY


ACI $23.28 -0.16 -- Arch Coal Inc.

Coal stocks turned in a tremendous week. Shares of ACI are poised to challenge their 2009 highs near $24.00 soon. I am raising our stop loss to $17.95.

Our long-term target is the $30 region.

May 14th, 2009 - entry price on ACI @ 16.00, option @ 1.30
symbol: ACI-AE, 2010 JAN $25 LEAP call - current bid/ask $1.80/1.90
-stop loss on ACI @ 17.95

-or-

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: OSE-AF, 2011 JAN $30 LEAP call - current bid/ask $3.20/3.40
-stop loss on ACI @ 17.95

Chart of ACI:


ANR $38.17 -0.80 - Alpha Natural Resources, Inc.

ANR is another coal stock that turned in a strong week. Short-term the stock is facing resistance near $40.00 but should have support near $36.00. I'm dropping the trigger to buy more LEAPS at $30.50. I am raising our long-term target from $45-50 to $50-60.

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 5.10
symbol: HIC-AG, 2010 JAN $35 LEAP call - current bid/ask $8.20/9.20
-stop loss on ANR @ 29.50

bought 1/2 LEAP position on 08/25/09 (option price @ 5.10)

-or-

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 7.00
symbol: VJV-AH, 2011 JAN $40 LEAP call - current bid/ask $8.80/9.30
-stop loss on ANR @ 29.50
bought 1/2 LEAP position on 08/25/09 (option price @ 7.00)

Chart of ANR:


BAC $17.50 +0.17 - Bank of America Corp.

BAC has recovered sharply from its October lows near $15.60. Can the rally continue? The company is due to report earnings on Friday, October 16th before the opening bell. Readers might want to buy some super cheap October puts on Thursday night just in case BAC tanks on the earnings report. Keep in mind October options expire after Friday.

I'm not suggesting new positions at this time. I'm adjusting our long-term target to the $25-30 zone. I want to remind readers that this is a long-term, two-year trade.

Note our new stop at $11.90.

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $8.50/8.60
-stop loss on BAC @ 11.90

Chart of BAC


BG $64.01 -0.10 -- Bunge Limited

BG could have short-term resistance near $65.00 and its 50-dma so don't be surprised if the stock dips back toward $62-60 again. Fortunately it looks like the $60.00 level is holding as new support. More conservative traders might want to raise their stop loss toward $59.00.

If BG can close over $65.00 again I'd consider new long-term LEAPS positions. Our target is the $85-90 zone.

Sep 15th, 2009 - entry price on BG @ 63.00, option @ 5.90
symbol: BGW-DN, 2010 APR $70 LEAP call - current bid/ask $4.30/4.60
-stop loss on BG @ 56.99

Chart of BG:


CLF $35.54 -0.14 -- Cliffs Natural Resources Inc.

Steel and material stocks were relative strength leaders last week. CLF broke out to new 2009 highs.

I am suggesting we sell half our position at $39.75. We'll sell the second half at $44.75. More aggressive traders may want to aim for $50.

Sept. 5th, 2009 - entry price on CLF @ 26.19, option @ 4.84
symbol: CLF-AE, 2010 JAN $25 LEAP call - current bid/ask $11.20/11.40
-stop loss on CLF @ 22.24 (FYI: Gap open entry)

Chart of CLF:


CNX $49.15 -0.36 -- Consol Energy Inc.

CNX, another coal stock, turned in a huge performance last week. The stock is now testing resistance near $50.00. This would be a logical spot to expect a dip. Short-term the $46 level could offer some support.

CNX has already hit our first target at $48.50. We will plan to sell the second half or our position 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 $14.90/15.10
-stop loss on CNX @ 34.75

Target hit 09/16/09 @ 48.50, option price $14.50 (+152%)

-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 $15.70/16.30
-stop loss on CNX @ 34.75

Target hit 09/16/09 @ 48.50, option price $15.40 (+97%)

Chart of CNX


CRS $23.94 -0.56 -- Carpenter Technology Corp.

CRS continues to bounce from support near $22.00. I'd prefer to open new positions near $20.00 but another bounce from $22 could work. 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 MAR $20 LEAP call - current bid/ask $5.30/5.50
-stop loss on CRS @ 17.50

Chart of CRS:


DISH $20.03 +0.01 -- Dish Network Corp.

DISH is still testing round-number resistance at $20. After a five-week run higher the stock looks a little tired. I'm not suggesting new positions at this time. 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 $5.30/5.60
-stop loss on DISH @ 15.45.

Chart of DISH:


DO $100.11 -0.61 -- Diamond Offshore

DO broke out to new 2009 highs. The stock is now testing round-number, psychological resistance at the $100 level. I'd expect another dip back toward the $96-95 zone but the trend is up. Please note our new stop loss at $87.00. I'm not suggesting new positions at this time.

If you're concerned that DO might breakdown from here then consider some cheap October puts (that expire in two weeks).

Our first target is $109.00. 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 $16.50/18.10
-stop loss on DO @ 87.00

-or-

Sep 2nd, 2009 - entry price on DO @ 86.50, option @ 5.20
symbol: KWJ-AT, 2010 JAN $100 LEAP call - current bid/ask $10.40/10.80
-stop loss on DO @ 87.00

Chart of DO:


EMR $39.10 +0.08 -- Emerson Electric Co.

EMR has been under performing the market. Shares are still stuck in a three-week down trend of lower highs. I would wait for a close over $40.00 before launching new LEAPS positions. Or you could still use a dip near $37.00 but if EMR violates the 50-dma the situation will turn more bearish. Our target is $47.50. 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 $4.40/4.60
-stop loss on EMR @ 33.50.

Chart of EMR:


FAS $86.42 +2.19 - Direxion Fincl.Bull 3x ETF

! Important Exit Alert !
The rebound in the financials has produced a dramatic bounce for the FAS. I am suggesting that investors exit the FAS at $90.00. More aggressive traders may want to only exit 1/3 of their original position and keep the remaining third with a $110 or $120 target. I'm suggesting a complete exit at $90.00. It's certainly possible that financials could keep rising but odds are growing that we could see profit taking after most of the big banks report earnings.

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) 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 $74.34 -0.64 - Freeport McMoran

The bounce in FCX has been impressive with an October low near $63.00. Shares rallied to new 2009 highs in the wake of gold's surge to new record highs. Readers may want to start scaling out of positions now. It is our plan to exit the remainder of our position at $77.00. I'm raising the stop loss to $61.95. I'm not suggesting new positions at this time.

June 22nd, 2009 - entry price on FCX @ 46.00, option @ 6.00
symbol: FCX-AK, 2010 JAN $55 LEAP call - current bid/ask $20.65/20.85
-stop loss on FCX @ 49.95

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 $22.40/23.95
-stop loss on FCX @ 49.95

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

Chart of FCX:


FSLR $156.69 - 0.04 -- First Solar

The news that FSLR is being added to the S&P 100 index hasn't helped the stock much. Shares are still struggling under the four-month trendline of lower highs and the $160 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) $1.75.
If you're curious the 2010 Jan. $150 call is at $20.70.

Chart of FSLR


GT $17.23 +0.15 -- Goodyear Tire & Rubber Co.

GT is recovering nicely from its October lows. Shares are nearing potential resistance near $17.50.

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 $3.10/3.30
-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 $3.10/3.50
-stop loss on GT @ 11.90

Chart of GT:


HOS $27.62 -0.24 -- Hornbeck Offshore Services

HOS has rallied back to the top of its trading range and resistance near $28.00. Shares look poised to move higher but it's worth noting that volume has been falling on the rebound. 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 $7.60/8.50
-stop loss on HOS @ 19.95
-or-
June 27th, 2009 - entry price on HOS @ 21.20, option @ 2.70
symbol: HOS-AE, 2010 JAN $25 LEAP call - current bid/ask $4.00/4.50
-stop loss on HOS @ 19.95

Chart of HOS:


INTC $20.17 +0.29 -- Intel Corp.

The semiconductor stocks have also produced a dramatic turnaround thanks to strength in shares of Intel. The stock is back above $20.00 and threatening to hit new 2009 highs. The company reports earnings after the closing bell on October 13th. Wall Street's estimates are for a profit of 27 cents a share.

More conservative traders may want to consider buying some cheap October puts before the close on Tuesday to protect yourself from a major disappointment in Intel's earnings. I suspect that Intel will deliver good news so I'm not suggesting any puts.

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 $2.82/2.88
-stop loss on INTC @ 15.90.

Chart of INTC:


LNN $38.29 +1.00 -- Lindsay Corp.

LNN has begun to bounce but I remain very cautious. At the moment I'm thinking we may want to consider an early exit as the stock nears what should be resistance near $40.00. I'd rather cut our losses early and look elsewhere. I am not suggesting new positions at this time.

August 7, 2009 - entry price on LNN @ 41.55, option @ 8.80
symbol: NRR-AG, 2010 JAN $35 LEAP call - current bid/ask $ 5.40/ 5.90
-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 $2.70/3.30
-stop loss on LNN @ 34.50

Chart of LNN:


MDR $25.54 -0.36 - McDermott Intl. Inc.

MDR has managed to break the three-week down trend and technical indicators are improving. More conservative traders might want to raise their stops closer to $22.00.

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 $6.10/6.30
-stop loss on MDR @ 19.00

Chart of MDR:


MSFT $25.55 -0.12 -- Microsoft Corp.

MSFT is flirting with its 2009 highs near $26.00. The trend of higher lows is still intact so shares may continue to rally into its earnings report still two weeks away. 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 $4.70/4.90
-stop loss on MSFT @ 19.95.

Chart of MSFT:


MT $37.42 -0.44 -- ArcelorMittal

MT produced a pretty good bounce last week but I'm still cautious here. The previous trendline of support could become new resistance. I'm not suggesting new positions at this time. 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 $2.40/2.55
-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 $0.40/0.55
-stop loss on MT @ 29.50

Chart of MT:


NYX $28.11 -0.29 -- NYSE Euronext

The bounce in NYX is struggling but on an optimistic note there was no follow through on the bearish breakdown. I'm not suggesting new long-term 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 $1.36/1.40
-stop loss on NYX at $23.65 *new*

Chart of NYX:


PBR $47.96 +0.52 -- Petroleo Brasiliero

It was a strong week for PBR. This Brazilian oil company saw its stock breakout to new 2009 highs and close over significant resistance. The option values have started to recover but we need to amend our exit strategy. I'm suggesting we sell half our position at $54.50. We'll sell the second half at $59.50.

Apr. 4th, 2009 - entry price on PBR @ 35.10, option @ $2.80
symbol: PMJ-AJ, 2010 $50.00 LEAP call - current bid/ask $2.60/2.75
-stop loss on PBR at $33.50

Chart of PBR:


PCU $33.24 -0.02 - Southern Copper Corp.

Prepare to exit. Our second and final target is $34.00. More aggressive traders could aim higher but the stock looks overbought here. Of course if copper and gold continue to rally PCU will likely follow.

April 20th, 2009 - entry price on PCU @ 19.00, option @ 1.95
symbol: PCU-AE, JAN 2010 $25 LEAP call - current bid/ask $8.50/8.80
-stop loss on PCU @ 22.00

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

Chart of PCU:


PEP $60.59 +0.20 -- PEPSICO Inc.

The rally in PEP stalled after the company reported earnings last week. PEP beat the estimate by 5 cents but revenues missed Wall Street's expectations. Management reaffirmed their full-year guidance. Shares of PEP have been trading sideways the last few days.

More conservative traders might want to raise their stops toward the $55 region. Please note I'm fine-tuning our target to $69.90. 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 $5.70/6.00
-stop loss on PEP at $51.50

Chart of PEP:


RAI $47.59 +0.28 -- Reynolds American Inc.

Whoa! What happened to RAI? When the market reversed higher RAI took it to heart and leapt out in front. I seriously doubt this big bounce was fueled by news that RAI raised their dividend by 5 cents. The stock has broken out to new 2009 highs. We could see RAI hit our first target soon.

I'm not suggesting new LEAPS positions at this time. Our first target to take profits is at $49.50 (sell half). Our second and final target is $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 $3.70/3.90
-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 $7.90/8.50
-stop loss on RAI at $39.75

Chart of RAI:


RIG $90.28 -1.83 -- Transocean Ltd.

Oil service stocks produced a nice surge midweek. RIG broke out to new 2009 highs. Short-term the stock could find support in the $87-85 zone. I'm adjusting our exit strategy. We want to sell half at $98.00. We'll sell the second half at $109.00. I am raising our stop loss to $74.90.

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 5.40
symbol: RIG-AP, JAN 2010 $80 call - current bid/ask $13.30/13.50
-stop loss on RIG @ 74.90.

-or-

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 3.90
symbol: RIG-AZ, JAN 2010 $85 call - current bid/ask $ 9.90/10.20
-stop loss on RIG @ 74.90.

Chart of RIG:


SLB $62.89 +0.24 -- Schlumberger Ltd.

SLB is another oil service stock that produced a dramatic rebound. Shares are testing their 2009 highs near $63.00. I'm raising our stop loss to $52.40.

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 $5.10/5.30
-stop loss on SLB @ 52.40

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

Chart of SLB:


SPW $58.58 -0.17 -- SPX Corp.

The bounce in SPW has been pretty anemic. If shares fail to breakout over $60.00 soon we'll probably exit early. I'm not suggesting new long-term positions at this time. Our long-term target is the $79.00 mark.

Oct 2nd, 2009 - entry price on SLB @ 58.50, option @ 5.70
symbol: SPW-CL, 2010 MAR $60 LEAP call - current bid/ask $5.30/5.60
-stop loss on SPW @ 52.40

Chart of SPW:


TEX $21.92 +1.09 -- Terex Corp.

We asked for a bounce and TEX delivered. Shares soared from $18.00 to a new high near $22.00 last week. I would not open new positions at this time. 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 $7.20/7.50
-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 $6.20/6.90
-stop loss on TEX @ 14.25

Chart of TEX:


UYG $6.10 +0.10 - ProShares Ultra Financials (2x) ETF

Volume has been fading fast on the bounce. I'm concerned the rally is losing steam. We've been pondering an exit in UYG and it's time to amend it. I'm suggesting investors take profits at $6.25. More conservative traders may want to exit completely. The newsletter is suggesting readers only sell half. I'm also raising the stop loss to $3.99. I am not suggesting new positions at this time.

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

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

Current position in the UYG = $1.50 entry (stop loss: 3.99)

Chart of UYG:


VOD $21.35 -0.18 -- Vodafone Group

The correction in VOD continues. The stock has pulled back toward the $21.00 level, which happens to be the 50% retracement of the July-September rally. More aggressive traders might want to consider bullish positions on a bounce from here. Please note that I'm raising our stop loss to $19.40. 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 $1.85/1.95
-stop loss on VOD @ 19.40

Chart of VOD:


WFR $16.30 +0.43 -- MEMC Electronic Materials Inc.

I am still looking for a bounce near $17.00. More importantly I'm looking for an exit at the $17.00 mark. I'm not suggesting new positions at this time.

June 23rd, 2009 - entry price on WFR @ 17.50, option @ 2.50
symbol: CJC-AD, 2010 JAN $20 LEAP call - current bid/ask $0.65/0.75
-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 $1.45/1.70
-stop loss on WFR @ 14.95

Chart of WFR:


X $43.85 -0.27 United States Steel Corp.

The steel, metal and material stocks all showed relative strength last week. X delivered a nice bounce but shares are nearing what could be tough resistance at $45.00 with its 50-dma, 30-dma, and exponential 200-dma directly overhead. I wouldn't be surprised to see shares pull back first before pushing higher. Our stop loss is at $37.40. Our long-term target is the $60-70 zone.

Oct 3rd, 2009 - entry price on X @ 41.00, option @ 3.35
symbol: FBJ-AI, 2010 JAN $45 LEAP call - current bid/ask $4.30/4.50
-stop loss on X @ 37.40

Chart of X:


XIDE $7.64 -0.03 Exide Technologies

Traders need to be careful here. The bounce in XIDE failed to break the three-week trendline of lower highs. That's a concern and might portend another test of the $7.00 level and its 50-dma. I hesitate to launch new positions until we see another strong bounce from $7.00 or a close over $8.00. Readers will want to consider a tighter stop loss if you open new positions above $8.00.

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 call - current bid/ask $1.45/1.70
-stop loss on XIDE @ 4.85

-or-

Buy the stock @ 6.50, stop loss at $4.85

Chart of XIDE:



Watch

Overhaul

by James Brown

Click here to email James Brown
Editor's Note:

I'm hitting the "refresh" button on the watch list. We've replaced 50% of our list with new candidates. If that wasn't enough I'm providing an additional list of stocks that caught my attention. Check these out and consider adding them to your own personal watch list:

LSTR, EXH, CMC, PTEN, KWK, ME, HLX, OSG, DVN, CRK, VISN, HP, HSC, and WGOV.


New Watch List Entries

BUCY - Bucyrus Intl.

CR - Crane Co.

FST - Forest Oil Corp.

PCX - Patriot Coal Corp.

TRN - Trinity Industries


Active Watch List Candidates

AVY - Avery Dennison

CHK - Chesapeake Energy Corp.

ESV - ENSCO Intl. Inc.,

MTW - Manitowoc Inc.

TXT - Textron Inc.


Dropped Watch List Entries

BEAV, COST, ERJ, FWLT, IGT, MEE, and MTL.


New Watch List Candidates:

BUCY $36.99 +0.35 -- Bucyrus Intl.

The falling dollar is boosting commodities. This is lending strength to the miners. Thus a mining equipment provider like BUCY is getting some bullish attention.

The stock looks bullish right here near $37.00 and if the dollar continues to fall, lifting commodities, BUCY may continue to rally from here. Yet I suspect BUCY could retrace back toward its 50-dma again. It may not be too but in the next few weeks.

Let's use a dip at $34.10 as an entry point to buy LEAPS. We'll use a stop loss at $29.00. Our long-term target is $49.00.

FYI: Earnings are expected on October 23rd.

Company Info:
Bucyrus is a world leader in the design and manufacture of high productivity mining equipment for the surface and underground mining industries. Bucyrus' surface mining equipment is used for mining coal, copper, iron ore, oil sands and other minerals. Bucyrus' underground mining equipment is used primarily for mining coal and also used in mining minerals such as potash and trona. In addition to machine manufacturing, Bucyrus manufactures high quality OE parts and provides world-class support services for their machines. Bucyrus' corporate headquarters is located in South Milwaukee, Wisconsin, USA. (source: company press release or website)

Buy-the-Dip trigger: $34.10

BUY the 2010 April $35.00 call (HBU-DG)

Chart of BUCY:


CR $26.96 +0.08 -- Crane Co.

CR is another stock that looks like a tempting bullish candidate right now. Shares broke out to new 2009 highs after a three-week consolidation. Instead of chasing the rally I'm suggesting readers buy LEAPS on a dip at $25.00. Our long-term target is $34.75. We'll use a stop loss at $22.40.

Company Info:
Crane Co. is a diversified manufacturer of highly engineered industrial products. Founded in 1855, Crane provides products and solutions to customers in the aerospace, electronics, hydrocarbon processing, petrochemical, chemical, power generation, automated merchandising, transportation and other markets. The Company has five business segments: Aerospace & Electronics, Fluid Handling, Engineered Materials, Merchandising Systems and Controls. Crane has approximately 11,000 employees in North America, South America, Europe, Asia and Australia. (source: company press release or website)

Buy-the-Dip trigger: $25.00

BUY the 2010 March $25 calls (CR-CE)

Chart of CR:


FST $20.71 -0.22 -- Forest Oil Corp.

It looks like FST has found a bottom in spite of the bearish environment for natural gas prices. The stock has support near $18.00 and resistance near $22.00. I'm suggesting the following. Buy small positions on a dip at $18.25 or on a close above $22.50. Normally our triggers, targets and stops are all on an intraday basis but this time I'd rather see a close over $22.50. If triggered our long-term target is $37.50.

Company Info:
Forest Oil Corporation is engaged in the acquisition, exploration, development, and production of natural gas and liquids in North America and selected international locations. Forest's principal reserves and producing properties are located in the United States in Arkansas, Louisiana, New Mexico, Oklahoma, Texas, Utah, and Wyoming, and in Canada. (source: company press release or website)

Buy-the-Dip trigger: $18.25

Breakout trigger: $22.50 (close above)

BUY the 2011 January $20 LEAP call (OJG-AD)

Chart of xxx:


PCX $13.07 +0.25 -- Patriot Coal Corp.

Most of our coal candidates have been doing very well. PCX looks like it could out perform most of its peers. The breakout over $10 and its recent retest of that level as support is very bullish. I'm suggesting investors buy LEAPS on a dip at $11.00. The stock can be volatile so we'll use a stop loss at $8.75. Our long-term target is the $20-25 zone.

Company Info:
Patriot Coal Corporation is a leading producer and marketer of coal in the eastern United States, with 14 current mining complexes in Appalachia and the Illinois Basin. The Company ships to domestic and international electric utilities, industrial users and metallurgical coal customers, and controls approximately 1.8 billion tons of proven and probable coal reserves. (source: company press release or website)

Buy-the-Dip trigger: $11.00

BUY the 2011 January $15 LEAP call (OKI-AC)

Chart of PCX:


TRN $18.20 +0.85 -- Trinity Industries

TRN is another stock that looks like a buy right now. Shares recently spent a few days consolidating and testing support near $16.00 and its 50-dma. Now we're seeing the stock rebound from this level.

I am suggesting readers buy LEAPS on a dip at $17.05. Our target is the $25-30 zone. Stop loss at $13.90. More conservative traders may want to use a stop closer to $15.00.

Company Info:
Trinity Industries, Inc., headquartered in Dallas, Texas, is a multi-industry company that owns a variety of market-leading businesses which provide products and services to the industrial, energy, transportation, and construction sectors. Trinity reports its financial results in five principal business segments: the Rail Group, the Railcar Leasing and Management Services Group, the Inland Barge Group, the Construction Products Group, and the Energy Equipment Group. (source: company press release or website)

Buy-the-Dip trigger: $17.05

BUY the 2011 January $20 LEAP call (XYT-AD)

Chart of TRN:


Active Watch List Candidates:


AVY $ 36.29 +0.54 -- Avery Dennison

A week ago AVY looked ready to crash back toward support near $30.00. Now the stock has rallied back toward its 2009 highs. We certainly don't want to chase it here.

We'll raise the trigger to buy LEAPS from $30.25 to $32.00. We'll raise the stop loss to $29.40. Our long-term target is $44.50.

Buy-the-Dip trigger: $30.25

BUY the 2010 January $35 calls (symbol: AVY-AG)

Chart of AVY:


BEAV $20.99 +0.43 -- BE Aerospace Inc.

We've had BEAV on the watch list for a long time. The trend is up but we can't seem to find an acceptable entry point for a long-term position. Short-term traders may want to take another look at it.

We're dropping it from the watch list for now.


CHK $28.66 +0.38 -- Chesapeake Energy Corp.

CHK has been showing some impressive relative strength the past few days. I am raising our trigger to buy LEAPS from $23.50 to $25.00. We'll use a stop loss at $21.45. Our long-term target is $40.00.

Buy-the-Dip trigger: $25.00

BUY the 2011 January $25 calls (symbol: VEC-AE)

Chart of CHK:


COST $58.64 +0.01 -- Costco Wholesale

COST looks way too extended and isn't showing any signs of correcting soon. I'm dropping it as a bullish candidate but I would keep an eye on it for an eventual correction.


ERJ $23.27 +0.04 -- EMBRAER - Empresa Brasileira de Aeronáutica S.A.

We've been waiting a long time for an entry point in ERJ. I'm dropping it as a bullish candidate - at least for now.


ESV $45.06 -0.38 -- ENSCO Intl. Inc.

Uh-oh! It looks like ESV is breaking out without us. More aggressive traders may want to consider bullish positions on a dip near $43.00 since that level is now broken resistance. I am raising our trigger from $38.00 to $40.00 (and our stop loss to $37.25). We're going to aim for the $55-60 zone.

Buy-the-Dip trigger: $40.00

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:


FWLT $31.76 -0.03 -- Foster Wheeler AG

I believe that FWLT has a lot of potential but I wouldn't open positions now and if shares did end up filling the gap I'd still be cautious. I'm removing it from the watch list.


IGT $21.52 +0.25 --- Intl. Game Technology

A week ago I was expecting a deeper correction in IGT. The stock bounced instead providing a perfect rebound off the bottom of its bullish channel. The stock has potential as a short-term trade but it looks too overbought right now for a long-term position. I'm dropping it from the watch list.


MEE $31.39 +0.00 -- Massey Energy Corp.

MEE is another high-flying coal stock. Shares produced a huge bounce last week. Yet I wouldn't chase the move. The stock has been very volatile and if it rolls over from here the pattern will start to look like a bearish head-and-shoulders.

We already have coal stocks in the newsletter. I'm dropping MEE as a candidate for now.


MTL $19.35 +0.66 -- MECHEL OAO

The relative strength in MTL is amazing but it's not very conducive for us with a longer-term view. The risk of a correction is rising with MTL up more than 100% in just the last several weeks. I still see a lot of potential but we're not going to chase it. I would definitely keep MTL on your personal watch list but I'm dropping it from this one.


MTW $10.26 +0.05 -- Manitowoc Inc.

Wow! A week ago the stock was crashing. Shares have been very volatile the last few weeks. The recent action is bullish but we don't want to chase such a big bounce. I'm upping our trigger to $8.25 but it may take a few weeks for MTW to hit our entry point. Our long-term target is $17.00.

Buy-the-Dip trigger: $8.25

BUY the 2011 January $10 calls (symbol: VMT-AB)

or BUY the STOCK at $8.25

Chart of MTW:


TXT $19.49 +0.11 -- Textron Inc.

The correction has been short circuited. TXT produced a new double-bottom near $17.40. More aggressive traders may want to consider buying bullish positions on a dip near $18.00. I'm raising our trigger from $15.25 to $16.25. I'm raising the stop loss to $13.75. ur long-term target is the $30 region.

Buy-the-Dip trigger: $16.25

BUY the 2011 January 17.50 call (symbol: XUD-AW)

Chart of TXT: