Option Investor
Newsletter

Daily Newsletter, Saturday, 10/31/2009

Table of Contents

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

Leaps Trader Commentary

S&P 500 Breaks Support, Looks Vulnerable Here

by James Brown

Click here to email James Brown

Bulls are scared and on the run as the market ends October on a down note. What makes last week so frightening is the S&P 500's breakdown under support near the 1050 level, its 50-dma, and its long-term trendline off its March 2009 lows. It was also the end of the fiscal year for many fund managers who may not feel the need to chase performance any longer. After a 60% rally off the March lows the S&P 500 is probably due for a larger decline.

Earnings season is still in progress but investors' attention has turned to economic data. The economic data we have been getting has been mixed. The market rallied on Thursday thanks to a better than expected GDP number. Yet the move looked like it was all short covering. Many analysts are starting to think that with all the government stimulus the third quarter GDP results were mostly a one-time gain. A number of economists are expecting fourth quarter GDP to fall into the +1.5% to +2.5% zone. Not everyone agrees. A few more bullish analysts are raising their GDP numbers to north of +4%. The main reason behind rising estimates are the falling inventory numbers. Inventory levels in the U.S. have continued to slide and that means we should be nearing a significant inventory rebuilding phase for the economy. Unfortunately we've been expecting this rebuilding phase for a couple of quarters now.

The stock market action over the last couple of weeks has been fueling new speculation that the climb off the 2009 lows is nothing more than a massive bear-market rally. We're also hearing more and more analysts considering the double-dip recession scenario. I've been warning investors about a double-dip recession for months. The economic picture gets pretty muddy when we look toward the second and third quarters of 2010.

On a short-term basis the market appears to have formed a top. Small caps and transports have been leading it lower. Both of these sectors now seem a little oversold and due for a bounce. We're also seeing corrections in energy, miners, and technology. On Friday the semiconductor index broke support near 300 and its 100-dma. The financials were really hammered pretty hard last week and the banking indices have dropped to three-month lows. Investors are worried that some of the major banks will still have to raise significant capital by selling more stock, which would dilute shareholders.

I would expect next week to be flat to down. We might see an oversold bounce but I wouldn't expect it to last. We have a lot of economic data about to hit the wires. The nationwide ISM manufacturing report comes out on Monday. The ISM services data comes out on Wednesday. The FOMC will announce their decision on interest rates around 2:15 p.m. on Wednesday. No one expects Ben Bernanke to raise rates but their comments about the state of the economy and how soon they might raise rates could easily move the markets. On Friday the big report everyone will be waiting for is the non-farm payrolls (jobs) report. Job losses have been declining but they're still job losses. We've been hearing about how any recovery would be a jobless recovery for months now. We've been warned that unemployment would continue to climb even as the economy improved. Now that the GDP has turned positive the focus will sharpen even more on employment. Right now estimates are for 175,000 lost jobs for the month of October.

We also need to keep an eye on the U.S. dollar. The dollar has been in decline since its peak last March. Two weeks ago the dollar was nearing its lows from 2008. Last week looks like a short squeeze. The short dollar trade is extremely crowded. If the dollar can reverse higher it will put bearish pressure on commodities. It will also have a negative impact on our exports. The long-term trend for the dollar appears to be down but it is still very oversold and probably due for a more significant correction higher.

Study the S&P 500 for a moment. Now that we've broken support the next level of support appears to be the 1,000 level and its 100-dma. If the 1,000 level doesn't hold I would expect a decline toward the 950 level. A 10% correction from the S&P 500's high at 1100 would be 990 and a 15% correction is about 935. I would become extremely worried if the S&P 500 closed under the 950 level.

Chart of the S&P 500 Index:

Weekly Chart of the S&P 500 Index:

Chart of the Russell 2000 Index:

Chart of the Dollar ETF (UUP):

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

Click here to email James Brown


Current Portfolio


Portfolio Comments:

October has come to a screeching halt and the market looks heavy with major averages breaking key support levels. We've only got two months left for 2009 and I'm using this weekend to close several plays that are using 2010 January LEAPS. We also had a few get stopped out given the market's sudden weakness.

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

Entry Point Dilemma

by James Brown

Click here to email James Brown


Where To Buy The Dip?


Editor's Note:

As you know I've been warning readers to wait on opening new bullish positions. The market was struggling under resistance and now it's begun to correct lower. We were watching the 1,050 level on the S&P 500. This should have been significant support underpinned by its 50-dma and the trendline from the March lows. The index sliced right through it. The next level of potential support is probably the 1,000 level and its 100-dma. If that breaks then we're probably looking at a dip toward the 950 level.

So where would you rather enter new bullish positions: at the 1,000 level or the 950 level? A normal 38.2% Fibonacci retracement of the March-October rally would be near 937. I am suggesting investors use patience and wait for the market to present the right entry point.

No new plays tonight.



Play Updates

Cleaning House

by James Brown

Click here to email James Brown


Closed Plays


BG, CLF, CRS, GT, MDR, MT, NYX, RIG, SLB, VOD, X


Play Updates


ACI $21.66 -1.44 -- Arch Coal Inc.

The action in the coal stocks these last two weeks has been very bearish. Friday's session on ACI produced a big bearish engulfing candlestick as traders reacted to earnings. I expect a dip back toward $20.00, which should be support.

Please note that we are exiting the 2010 January $25 LEAP at this time. We'll keep the 2011 $30 LEAP but I am raising our stop loss to $18.95. I am not suggesting new positions at this time.

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 $0.80/0.95
Exit early 10/31/09 with LEAP at $0.80 (-38.4%)

-or-

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: OSE-AF, 2011 JAN $30 LEAP call - current bid/ask $2.20/2.45
-stop loss on ACI @ 18.95

Chart of ACI:


ANR $33.97 -2.07 - Alpha Natural Resources, Inc.

It's been a tough couple of weeks for ANR. The stock is off almost 20% from its October highs. Shares broke down under the $35.00 level and look headed for the 100-dma. I wouldn't be surprised if that level breaks too. Look for a dip to $30.00. Readers may want to consider defensive action ahead of ANR's earnings report on November 3rd. The company reports before the morning bell. It might pay off to consider buying some short-term November puts in case ANR crashes on its earnings results.

We are closing the 2010 January $35 LEAPS at this time. We'll keep the 2011 LEAPS active.

Our long-term target is the $50-60 zone. I am not suggesting new bullish positions at this time.

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 5.10
symbol: HIC-AG, 2010 JAN $35 LEAP call - current bid/ask $4.90/5.20
Exit Early 10/31/09 ..option at $4.90 (-4.0%)

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 $8.30/8.70
-stop loss on ANR @ 29.50
bought 1/2 LEAP position on 08/25/09 (option price @ 7.00)

Chart of ANR:


BAC $14.58 -1.15 - Bank of America Corp.

Warning! BAC is breaking down. The stock helped lead the financials lower as investors worried that the government might force BAC to raise more capital by selling stock, which would dilute shareholders. The close under its 100-dma and the $15.00 level is very bearish.

We want to sell half our position right here to lock in a gain! I'll leave the stop loss at $11.90 for now. More conservative traders may want to exit completely right here. I'm not suggesting new positions at this time. Our long-term target is the $25-30 zone.

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - current bid/ask $6.00/6.10
-stop loss on BAC @ 11.90

10/31/09 Sell Half -- option at $6.00 (+152%)

Chart of BAC


CHK $24.50 -1.54 -- Chesapeake Energy Corp.

Energy stocks have been beaten up pretty badly these past two weeks. CHK has already corrected about 20% from its October high. The stock hit our trigger to buy LEAPS on Friday at $24.00. We have a stop loss at $20.75. Our long-term target is $40.00.

Please note that while $24.00 appears to be support and bolstered by the 100-dma I would wait for a bounce before launching new positions. Consider waiting for a new close over $26.00 instead of buying the dip.

Oct 30th, 2009 - entry price on CHK @ 24.00, option @ 4.70
symbol: VEC-AE, JAN 2011 $25 LEAP call - current bid/ask $4.80/5.00
-stop loss on CHK @ 20.75

Chart of CHK:


CNX $42.81 -3.00 -- Consol Energy Inc.

Warning! CNX is breaking down. The stock has crashed through potential support at $45.00, its 50-dma and the bottom of its rising channel. I would expect a dip toward $40.00 and its 100-dma soon.

We are exiting our 2010 January $35 LEAPS at this time. We'll keep the 2011 LEAPS active. I'm not suggesting new positions at this time.

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 $ 9.00/ 9.20
-stop loss on CNX @ 37.40

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

Exit Early 10/31/09 @ 42.81, option @ 9.00 (+56.5%)

-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 $10.80/12.50
-stop loss on CNX @ 37.40

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

Chart of CNX


EMR $37.75 -1.59 -- Emerson Electric Co.

EMR is starting to break down after weeks of consolidating sideways. This correction could be painful. I would expect a dip toward $36.00 and possibly the $35-34 zone. I'm raising our stop loss to $33.85.

Earnings are due out on November 3rd before the opening bell. If you want to buy short-term puts as protection then Monday is your day to do so. I am not suggesting new positions at this time. Our target is $47.50.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $3.60/3.90
-stop loss on EMR @ 33.50.

Chart of EMR:


FSLR $121.93 - 4.54 -- First Solar

Investors were very unhappy with FSLR's recent earnings report. The stock gapped open lower on Thursday. While shares might try and fill the gap the trend is still down. As long as FSLR closes above $87.30 at yearend our covered call play turn out okay.

One alternative would be to buy back the 2010 $150 January call (currently $4.20 ask) and then sell FSLR here near $122. Your potential profit would be:
$40.70 - $4.20 = $36.50 - 6.00 = $30.50 / $128.00 = +23.8%
(sold call)-(buy back call)= $36.50 - (loss on stock)= $30.50/$128.00

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%) if FSLR is above $150.00.

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) $4.40.
If you're curious the 2010 Jan. $150 call is at $ 3.90.

Chart of FSLR


FST $19.60 -1.61 -- Forest Oil Corp.

The correction in FST has been pretty sharp. The stock has broken down under $20.00 and its exponential 200-dma. Look for support near $18.00. A bounce near $18.00 could be used as a new bullish entry point (or a close over $22.00). Our long-term target is $37.50.

FYI: Earnings are out on November 2nd after the market's closing bell.

Oct 15th, 2009 - entry price on FST @ 23.85, option @ 7.40
symbol: OJG-AD, 2011 $20 LEAP call - current bid/ask $4.30/4.90
-stop loss on FST @ 17.35

Chart of FST:


GHM $14.17 -0.48 -- Graham Corp.

The correction in GHM hit -26% at Friday's low near $13.30. The stock fell toward support near $15.00 and kept right on falling. We had a trigger to buy LEAPS at $15.15. Our play is open but I would wait for a new close over $15.00 before considering new bullish positions.

Our target is $24.00. Our stop is at $12.40.

Oct 26th, 2009 - entry price on GHM @ 15.15, option @ 2.65
symbol: GHM-FC, 2011 JUNE $15 call - current bid/ask $1.50/3.60
-stop loss on GHM @ 12.40

- or -

Oct. 26th 2009 - entry price on GHM (the stock) @ 15.15
- stop loss on GHM @ 12.40

Chart of GHM:


INTC $19.11 -0.11 -- Intel Corp.

INTC is testing technical support at its 100-dma. I don't expect it will hold. Shares will probably fill the gap near $17.00 before it's done correcting. Just remember, this is a long-term trade.

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 $2.27/2.41
-stop loss on INTC @ 15.90.

Chart of INTC:


MSFT $27.73 -0.49 -- Microsoft Corp.

The post-earnings rally is beginning to fade. MSFT will probably fill the gap. I am suggesting investors sell half their position right now to lock in a gain. We're not suggesting new positions at this time. Please note that I'm raising our stop loss to $21.90. Our upside target is only $30.00. More aggressive traders may want to aim for $32 or $34.

June 2nd, 2009 - entry price on MSFT @ 21.60, option @ 2.20
symbol: VMF-AE, 2011 Jan. $25 call - current bid/ask $4.80/4.95
-stop loss on MSFT @ 21.95.

10/31/09 - Sell Half @ 27.73, option @ 4.80 (+118%)

Chart of MSFT:


MTW $ 9.14 -1.31 -- Manitowoc Inc.

The correction in MTW has been sharp. The company reported earnings last week and missed estimates. The stock has now lost 25% after failing near the $12.00 level. Shares stalled at the 50-dma and exponential 200-dma on Friday. The low was $9.03. We had a trigger to buy LEAPS or the stock at $9.10.

Our play is open but I would wait if you're looking for an entry point. Given the stock market's current posture everything could move lower from here. Watch for a dip near $8.00 before considering new positions on MTW. We'll use a stop loss at $7.49. Our long-term target is $17.00.

Oct 30th, 2009 - entry price on MTW @ 9.10, option @ 2.61
symbol: VMT-AB, 2011 JAN $10 call - current bid/ask $2.55/2.70
-stop loss on MWT @ 7.49

- or -

Oct. 30th 2009 - entry price on MTW (the stock) @ 9.10
- stop loss on MTW @ 7.49

Chart of MTW:


PBR $46.22 -2.22 -- Petroleo Brasiliero

PBR has pulled back toward prior resistance just as expected. The question now is will shares be able to rebound. The stock is nearing its long-term trendline of higher lows. I am raising our stop loss to $43.40. I'm not suggesting new bullish positions at this time. FYI: Earnings are expected on November 13th.

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 $2.20/2.35
-stop loss on PBR at $43.40

Chart of PBR:


PEP $60.55 -0.84 -- PEPSICO Inc.

PEP may be a defensive stock but it's not immune to a market correction. Shares are testing short-term support near $60.00. If this support breaks look for support near the 100-dma. I am not suggesting new positions at this time.

More conservative traders might want to raise their stops toward the $55 region. Our exit target is the $69.90 mark.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $5.50/6.40
-stop loss on PEP at $51.50

Chart of PEP:


RAI $48.48 -0.15 -- Reynolds American Inc.

RAI is holding up relatively well. However, if the S&P 500 really starts to correct lower I would expect RAI to follow. I would expect to see some support near $47 and near $44.00. Please note that we're closing the February 2010 LEAPS at this time. We will keep the 2011 LEAPS active. I'm not suggesting new positions at this time.

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 $4.20/4.60
-stop loss on RAI at $39.75

Sold Half on 10/19 @ 49.50, option @ $4.10 (+182%)

10/31/09 Exit the 2010 FEB leaps, option @ $4.20 (+189%)

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 $ 8.70/ 9.80
-stop loss on RAI at $39.75

Sold Half on 10/19 @ 49.50, option @ $8.90 (+97%)

Chart of RAI:


TEX $20.22 -1.42 -- Terex Corp.

Ouch! The sell-off in TEX last week was pretty steep. The stock shaved off more than 21% and now TEX is testing round-number support at $20.00 and technical support at its 50-dma. We "should" see a bounce from here but I wouldn't bet on it. I'm raising our stop loss to $17.75. More conservative traders may want to exit early from the 2010 LEAPS. I'm going to give TEX one more week and then we'll probably exit the 2010 LEAPS but keep the 2011 LEAPS open.

Our final target is $29.50. I'm not suggesting new positions at this time.

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.40
symbol: HAG-AC, JAN 2010 $15 LEAP call - current bid/ask $5.70/5.90
-stop loss on TEX @ 17.75

Sell half (10/24/09), option at $8.80 (+100%)

10/31/09 Exit early 2010 Jan. $15 leaps, option @ $5.70 (+29.5%)

-or-

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.10
symbol: VXQ-AD, JAN 2011 $20 LEAP call - current bid/ask $5.20/5.70
-stop loss on TEX @ 17.75

Sell half (10/24/09), option at $7.50 (+82.9%)

Chart of TEX:


UYG $5.22 -0.47 - ProShares Ultra Financials (2x) ETF

Financial stocks have been big under performers the last several days. Investors are worried that some of the major banks that still owe the government TARP money might be forced by the government to raise capital by selling more stock, which would dilute shareholders. The UYG is pulling back toward potential support near $5.00, its 100-dma, and its trendline from its lows. More conservative traders may want to exit completely right here or raise their stops near the $5.00 level. I am raising our stop loss to $4.40. I am not suggesting new positions at this time. Our second and final target is $9.50.

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: 4.40)

10/14/09 Exit - Sell Half @ 6.31 (gap open exit, +320%)

Chart of UYG:


XIDE $6.12 -0.03 Exide Technologies

The breakdown in XIDE was pretty dramatic. The stock broke support near $7.00, and fell through its 38.2% retracement level. The selling stalled near $6.00 and its 100-dma. This also happens to be where the 50% retracement level is. Technically a bounce from here would be a bullish entry point but I hesitate to do so given the market's bearish posture. I'm raising our stop loss to $5.75.

It's important to note that XIDE is due to report earnings on November 5th or 6th. The date is not confirmed yet. Traders may want to consider protective puts.

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 $0.60/0.80
-stop loss on XIDE @ 5.75

-or-

Buy the stock @ 6.50, stop loss at $5.75

Chart of XIDE:


CLOSED Plays

BG $57.06 -3.36 -- Bunge Limited

Shares of BG have just collapsed in the last two weeks. The selling accelerated in the last few days and BG broke multiple levels of support. Our play was stopped out at $56.99 on Friday.

Sep 15th, 2009 - entry price on BG @ 63.00, option @ 5.90
symbol: BGW-DN, 2010 APR $70 LEAP call - Exit 10/30/09 @ $2.00 (-66.1%)
-stop loss on BG @ 56.99

Chart of BG:


CLF $35.57 +0.70 -- Cliffs Natural Resources Inc.

The rally in the dollar pushed commodity prices and commodity-related stocks lower. CLF fell from $40.00 to $33.00. Traders bought the pull back at $33.00 but I would not suggest buying this bounce. If the dollar continues to rally CLF could see a deeper correction. We have the 2010 January LEAPS and I'm suggesting investors exit completely right here.

I would keep CLF on your watch list. We might go for 2011 or 2012 LEAPS if we see another entry point down the road.

Sept. 5th, 2009 - entry price on CLF @ 26.19, option @ 4.84
symbol: CLF-AE, 2010 JAN $25 LEAP call - current bid/ask $11.00/11.30
-stop loss on CLF @ 29.00 (FYI: Gap open entry)

10/15/09 Sold Half @ $39.75, Option @ 14.60 (+201.6%)

10/31/09 Exit Completely @ $35.57, Option @ 11.00 (+127.2%)

Chart of CLF:


CRS $21.03 -1.23 -- Carpenter Technology Corp.

I'm giving up early on CRS. The stock has been bouncing near its 100-dma. I still expect the $20.00 level and the 200-dma to offer some support. Yet I'm suggesting we exit early. The metal stocks have been struggling. If the dollar continues to rise then commodity and resource related stocks could struggle.

I would keep CRS on your watch list. We may get another entry point further down the road.

Sep 1st, 2009 - entry price on CRS @ 20.50, option @ 3.10
symbol: CRS-CD, 2010 MAR $20 call - current bid/ask $3.10/3.30
-stop loss on CRS @ 18.50

10/31/09 - Exit early @ $21.03, option @ $3.10 (+0.00%)

Chart of CRS:


GT $12.88 -0.12 -- Goodyear Tire & Rubber Co.

The market can be cruel. GT reported earnings last week. Profits and revenues were better than expected. Yet the stock fell almost 20% on some cautious comments about the fourth quarter. We didn't get stopped out until Thursday when GT slipped under the $12.00 level.

June 6th, 2009 - entry price on GT @ 12.94, option @ 2.20
symbol: GT-AC, 2010 $15 LEAP call - exit @ 0.50 on 10/29/09
-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 - exit @ 1.45 on 10/29/09
-stop loss on GT @ 11.90

Chart of GT:


MDR $22.23 -1.12 - McDermott Intl. Inc.

MDR has broken down from its sideways consolidation. The stock has found some support near $22.00 and its 100-dma. This also happens to be the 50% retracement of its July-September rally. In spite of this "support" I'm suggesting an early exit. We have the 2010 January LEAPS and it's time we get out.

April 4th, 2009 - entry price on MDR @ 15.56, option @ 2.70
symbol: MDR-AD, 2010 JAN $20 LEAP call - current bid/ask $3.30/3.50
-stop loss on MDR @ 20.90

Sell Half @ 25.49 (10/24/09) option @ $5.80 (+114.8%)

10/31/09 - Early exit @ 22.23, option @ 3.30 (+22.2%)

Chart of MDR:


MT $34.02 -1.88 -- ArcelorMittal

The selling pressure in the metal stocks has been pretty sharp. MT was hammered and broke several layers of support. The stock has created a bearish head-and-shoulders pattern that is forecasting a drop toward $28.00. I'm suggesting an early exit right now.

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.70
symbol: MT-AH, JAN 2010 $40 call - current bid/ask $1.05/1.25
-stop loss on MT @ 31.75

10/31/09 Early exit @ 34.02, option @ $1.05 (-61.1%)

-or-

June 17th, 2009 - entry price on MT @ 30.50, option @ 2.00
symbol: MT-AJ, JAN 2010 $50 call - current bid/ask $0.10/0.20
-stop loss on MT @ 31.75

10/31/09 Early exit @ 34.02, option @ $0.10 (-95%)

Chart of MT:


NYX $25.85 -1.73 -- NYSE Euronext

NYX was breaking down last week with the rest of the market but shares really accelerated lower after its earnings on Friday. I'm suggesting an early exit right here.

Apr. 11th, 2009 - entry price on NYX @ 21.51, option @ $1.81
-- NZV-AD, 2010 $30.00 LEAP call - current bid/ask $0.48/0.51
-stop loss on NYX at $23.65

10/31/09 Exit early @ 25.85, option @ 0.48 (-73.4%)

Chart of NYX:


RIG $83.91 -2.93 -- Transocean Ltd.

RIG still has potential support at its long-term trendline of higher lows (see chart). Yet we're going to go ahead and exit early right here. The U.S. dollar is a risk. If the dollar continues to rise it will put pressure on oil and that will weigh on the energy sector.

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 5.40
symbol: RIG-AP, JAN 2010 $80 call - current bid/ask $ 8.70/ 8.90
-stop loss on RIG @ 77.50.

Sell Half (10/24/09) at $89.85, option @ 12.30 (+127.7%)

10/31/09 Exit early @ $83.91, option @ 8.70 (+61.1%)

-or-

July 3rd, 2009 - entry price on RIG @ 70.50, option @ 3.90
symbol: RIG-AZ, JAN 2010 $85 call - current bid/ask $ 6.00/ 6.20
-stop loss on RIG @ 77.50.

Sell Half (10/24/09) at $89.85, option @ 8.90 (+128.2%)

10/31/09 Exit early @ $83.91, option @ 6.00 (+53.8%)

Chart of RIG:


SLB $62.20 -2.60 -- Schlumberger Ltd.

Short-term SLB looks a little oversold and the stock will probably find some support near $60 and its long-term trendline of higher lows. Aggressive traders could hang on and bet on a rebound from here or the $60 level. We have the 2010 January calls and I want to exit early especially with the market looking so vulnerable.

April 20th, 2009 - entry price on SLB @ 45.01, option @ 3.00
symbol: SLB-AL, JAN 2010 $60 LEAP call - current bid/ask $ 5.80/ 6.00
-stop loss on SLB @ 56.75

1st exit @ $59.00 (1/3 of position) option @ $7.25 (+141% estimate)
2nd exit @ $69.00 (1/3 of position) option @ $10.70 (+256%)

10/31/09 Early exit @ 62.20, option @ $5.80 (+93.3%)

Chart of SLB:


VOD $22.19 -0.80 -- Vodafone Group

I'm giving up early on VOD. The stock has produced a little double top near $23.20 this month. I'm suggesting investors exit early right here but I'd keep VOD on your watch list. We might get another entry point if shares can find support near $20.00.

July 10th, 2009 - entry price on VOD @ 18.25, option @ 1.10
symbol: VOD-AD, 2010 JAN $20 LEAP call - current bid/ask $2.35/2.55
-stop loss on VOD @ 19.40

10/31/09 Early exit @ 22.19, option @ 2.35 (+113%)

Chart of VOD:


X $34.49 -2.25 United States Steel Corp.

The breakdown in X has been pretty strong. Shares fell through support near $40.00 and its trendline of higher lows. The selling didn't stop until shares tagged the 200-dma on Friday and that may be wishful thinking that it holds here. Fortunately, we had a stop loss at $39.75, which X hit last Tuesday.

Oct 3rd, 2009 - entry price on X @ 41.00, option @ 3.35
symbol: FBJ-AI, 2010 JAN $45 LEAP call - current bid/ask $2.10/2.20
-stop loss on X @ 39.75

10/27/09 Stopped @ 39.75, option @ 1.70 (-49.2%)

Chart of X:



Watch

Adjusted Triggers

by James Brown

Click here to email James Brown
Editor's Note:

The stock market looks a little dangerous here. The fiscal year end for many funds is now over. There is a lot less pressure to chase performance and managers could start dumping stocks they feel are weak or vulnerable.

I'm not adding any new watch list candidates tonight. The key will where the market finds support. Will the S&P be able to hold the 1,000 level or will it correct toward the 950 level. I'm adjusting several triggers lower in anticipation of a larger correction.


New Watch List Entries

No new candidates


Active Watch List Candidates

AVY - Avery Dennison

BQI - Oilsands Quest, Inc.

CR - Crane Co.

ESV - ENSCO Intl. Inc.,

PCX - Patriot Coal Corp.

TXT - Textron Inc.


Dropped Watch List Entries

CHK, GHM, and MTW all graduated to the play list last week.

We're dropping TRN.


New Watch List Candidates:

No new watch list candidates tonight.

Active Watch List Candidates:


AVY $ 37.79 -0.53 -- Avery Dennison

I am moving our trigger to buy LEAPS on AVY back down to $30.50. Previous resistance at $30.00 should be new support. Plus, this is where the stock should find its trendline of higher lows. If triggered our stop loss is $27.40. Our long-term target is $44.50.

Buy-the-Dip trigger: $30.50

BUY the 2010 April $35 calls (symbol: AVY-DG)

Chart of AVY:


BQI $1.20 -0.13 -- Oilsands Quest Inc.

Oil and energy stocks have been getting hammered. A rising dollar is putting pressure on oil. I still think BQI has formed a significant bottom over the last several months but I'm lowering our entry point. The new trigger to buy the stock is $1.05. We'll lower our stop loss to $0.85. Please use wise judgment when it comes to your position size. Don't over do it just because the stock is "cheap".

I'm setting our long-term target at $2.90.

Buy-the-Dip trigger: $1.05

BUY the stock at $1.05

Chart of BQI:


CR $27.19 -0.38 -- Crane Co.

CR is reversing sharply after soaring to new highs last week. I'm adjusting our entry point lower. Our new trigger to buy LEAPS is $22.60, just above the 200-dma. We'll move our stop loss to $19.85. If triggered our target is $34.75. (It could take a few weeks before CR hits our trigger).

Buy-the-Dip trigger: $22.60

BUY the 2010 JUNE $25 calls (CR-FE) *new month*

Chart of CR:


ESV $45.79 -2.39 -- ENSCO Intl. Inc.

We're going to ratchet our trigger down in ESV as well. The stock is correcting. Shares should find both round-number support and technical support near $40.00. I'm lowering our trigger to buy LEAPS to $40.50. If triggered at $42.00 we'll use a stop at $37.25. We're going to aim for the $55-60 zone.

Buy-the-Dip trigger: $40.50

BUY the 2011 January $45 call (VKS-AI)
(More aggressive traders may want to trade January 2010 or March 2010 calls instead)

Chart of ESV:


PCX $11.30 -0.89 -- Patriot Coal Corp.

Coal stocks have been getting crushed lately. I think PCX's correction will be deeper than originally expected. I'm lowering our trigger significantly. We'll use an entry point at $8.50 and a stop loss at $7.75.

Buy-the-Dip trigger: $ 8.50

BUY the 2011 January $10 LEAP call (OKI-AB) *new strike*

or

Buy the stock @ 8.50.

Chart of PCX:


TRN $16.88 -0.55 -- Trinity Industries

The railroad and transport stocks have really been under performing lately. I am removing TRN as a bullish candidate. If the stock breaks $16.00 it will probably fall toward the $14-12 zone.


TXT $17.78 -1.23 -- Textron Inc.

TXT has formed a bearish double top. Nimble, short-term traders may want to use bearish strategies. Long-term I still think TXT has formed a significant bottom. I am lowering our trigger to buy LEAPS or the stock from $15.00 down to $13.00. We'll use a stop loss at $11.75. Our long-term target is the $30 region.

Buy-the-Dip trigger: $13.00

BUY the 2011 January 15.00 call (symbol: XUD-AC) *new strike*

Chart of TXT: