Option Investor
Newsletter

Daily Newsletter, Saturday, 1/23/2010

Table of Contents

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

Leaps Trader Commentary

Not Surprised

by James Brown

Click here to email James Brown

The late January correction is upon us. I hope none of our readers are surprised. We've been talking about this very real possibility for weeks now. It showed up about one week later than I expected but a week earlier than Jim expected. I'm going to keep this commentary brief. We already know the news. By and large investors have been selling the earnings news without regard to the results. This past week the correction received its own "stimulus" package with very bearish talk about new rules for the banking sector coming out of the White House. Our challenge now is deciding our strategy.

You've probably heard people talking about the 1085 level on the S&P 500. This level was support in late November and early December. The market is very short-term oversold. Odds are pretty good we could see a bounce near 1085. However, it would only be a bounce. I suspect this correction will take us toward the 1050-1035 zone. Corrections are typically -5% to -10%. A 10% pull back for the S&P 500 would be near 1035. If stocks overshoot to the downside we could see the S&P dip toward its rising 200-dma near the 1,000 level. This is going to be a multi-day process and could actually take a few weeks. What does that mean for us? It means we need to be patient with our entry point.

We've been waiting for this correction as an opportunity to enter new long-term positions. There is no need to rush into a trade. We don't have to buy the first dip. Our time frame is 12, 18 or even 24 months for some of our trades. We've got time.

Taking a step back and waiting for the dust to clear is not a bad idea. The recent volatility could be a sign of things to come. We've got an FOMC meeting this week and an FOMC chairman who's job is suddenly in jeopardy. Yes, Ben Bernanke may not get confirmed for another term. Wall Street HATES uncertainty and while many like to point fingers at Bernanke he is a known quantity versus the unknown of who would take his place should he not get confirmed. Back to the FOMC meeting, no one expects the Fed to change rates so the focus will be on their comments about the economy. Odds are it will be a bland report as Ben tries not to rock the boat ahead of his confirmation deadline.

Overall economic data this past week has been mixed. We're still seeing some improvement in the U.S. but weekly jobless claims have started to climb again and that is definitely a bearish signal. Investors are going to be focused on the next jobs report come February but prior to that the focus will be the GDP report this coming Friday. Currently Q4 GDP estimates are for +4.4% growth in the U.S. If the GDP number disappoints stocks are going to react negatively. Remember, it's my opinion that the GDP surges in Q4, stays positive for Q1 and probably Q2 and then begins to slip again for our double-dip scenario.

Speaking of GDP, China just announced their Q4 GDP growth of more than 10%. The actual number was a slightly less than expected but the country is red-hot. The authorities are trying to tap the brakes to keep inflation under control and keep the economy from overheating. Rumors and talk that China told banks to stop lending in January or raise their capital levels damaged investor sentiment. Now the worry is that China is close to raising interest rates. The big picture is that China is trying to slow down demand and for a world struggling to rebound from a global recession that's not good news, especially since China is a crucial component to the rebound.

Put it all together and we have a post-earnings sell-off, concerns over the future for the banks thanks to populist politics from the White House, concerns that China is trying to slow down their economy, and now add to that very real worries that Greece could default on its debt, which could spark a domino effect. If Greece falls then countries like Ireland, Italy, Spain and Portugal could default. The euro has been sinking on fears of a default and the future of the 16-country euro zone is in doubt. We've got a pretty good storm to put investors on the defensive. Take your time and plan your trades. Let the stocks come to you.

Chart of the S&P 500 Index:

Weekly Chart of the S&P 500 Index:

Chart of the Russell 2000 Index:

Chart of the NASDAQ Composite:

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 (some analysts are predicting it will not show up until 2011). Lousy consumer spending, rising foreclosures, and lagging job growth will be the main culprits. Several 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 and 2011. 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:

It looks like the January correction we've been waiting for has finally begun. Now that stocks are starting to reverse there is no way to tell where they will stop but traders are focusing on possible support near 1085 and the 1050-1035 zone on the S&P 500. A typical 10% correction would bring the S&P 500 back down to 1035.

Double check your stop loss placement to make sure you're comfortable with the amount of risk your taking. This past week BAC, BQI and RGLD were stopped out.

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.




New Plays

Plotting An Entry

by James Brown

Click here to email James Brown


S&P 1085 and 1035 are Levels to Watch


Editor's Note:

You are going to hear this more than once in tonight's newsletter. We've been waiting and predicting a correction in January and now it looks like the correction has finally appeared. Readers shouldn't be alarmed. Corrections are normal although this one has gotten off to a speedy start. We want stocks to pull back so we can enter new long-term positions. The challenge now remains the same as it has been - patience. At least now we can start plotting where we might find potential entry points.

The 1085 level on the S&P 500 might offer some support. I am suggesting readers focus on the 1050-1035 region. This would be a 10% pull back in the S&P 500. It is probably not going to happen all at once. It could take a few weeks to finally get there in spite of the sudden drop. At least that would be normal. The political rhetoric lately could cause stocks to accelerate lower.

Keep an eye on the Watch List for potential candidates.


Play Updates

No Place To Hide

by James Brown

Click here to email James Brown


Closed Plays


BAC, BQI, and RGLD


Play Updates


ACI $24.80 -0.51 -- Arch Coal Inc.

Last week was kind of rough for the coal stocks. After weeks of positive analyst comments one analyst has now turned bearish on the sector. The news that China is trying to slow down its economy from red-hot to just hot isn't good for any of the commodity players, including coal. However, ACI wasn't doing that bad until Thursday. That's when shares broke down from their sideways consolidation. I warned readers that a correction toward $24 was a good bet. Let's just hope $24 holds. If not the $22 level should offer stronger support and if that fails the 200-dma is quickly approaching the $20.00 level.

We do need to be aware that ACI is about to report earnings on January 29th. Wall Street's estimates are for a profit of 17 cents a share. It's up to you if you want to buy any protective puts ahead of the report. Of course by then ACI could be trading at $20 if the market's current pace doesn't slow down.

Last week I suggested that more conservative traders consider raising their stops toward $22.00. That's not a bad idea. Our exit strategy hasn't changed. We want to sell the final half of this trade at $34.75.

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: OSE-AF, 2011 JAN $30 LEAP call - current bid/ask $2.35/2.50
-stop loss on ACI @ 19.40

Chart of ACI:


ANR $44.14 -0.97 - Alpha Natural Resources, Inc.

ANR suffered from the same factors pushing ACI lower. The correction accelerated in the last two days of trading. The 50-dma might offer some support but I would look for a dip toward $42.00. If that doesn't hold we'll be stopped out at $41.45. More aggressive traders could put their stops under the $40.00 level. Our second and final target is $57.25. I am not suggesting new bullish positions at this time.

Aug. 25th, 2009 - entry price on ANR @ 34.00, option @ 7.00
symbol: VJV-AH, 2011 JAN $40 LEAP call - current bid/ask $10.20/12.20
-stop loss on ANR @ 41.45
bought 1/2 LEAP position on 08/25/09 (option price @ 7.00)

01/06/10 ANR hits 1st target at $49.80. Option @ $15.20 (+117.1%)

Chart of ANR:


CHK $26.62 -0.56 -- Chesapeake Energy Corp.

CHK spent most of the week churning sideways but was unable to escape the market wide decline on Friday. Thursday's session also looks like a short-term bearish reversal. I've been warning readers to expect a dip to $26.00. While that should be support with the 50-dma and 100-dma I am not convinced that CHK will actually hold that level. Look for a dip closer to $24.00 and its rising 200-dma. No new positions at this time. Our long-term target is $40.00.

Oct 30th, 2009 - entry price on CHK @ 24.00, option @ 4.70
symbol: VEC-AE, JAN 2011 $25 LEAP call - current bid/ask $4.85/4.95
-stop loss on CHK @ 20.95

Chart of CHK:


CNX $49.16 -0.59 -- Consol Energy Inc.

CNX is another coal stock that's getting hit by the commodity weakness and China news. Shares are breaking down under round-number support near $50.00 and its 50-dma. We were expecting a dip to $50 but now that the market is melting lower CNX will probably trade lower. The 100-dma near $47.50 could offer some support but I'd look for a dip closer to $45.00, which puts us in danger of getting stopped out with our stop loss at $44.95.

More conservative traders may want to abandon ship and exit early now. I am not suggesting new positions at this time.

Currently we have a second target to take profits at $58.50. We have a third and final long-term target at $64.90.

FYI: Readers should be aware that CNX is due to report earnings on January 28th before the market opens.

Sep 1st, 2009 - entry price on CNX @ 36.50, option @ 7.80(estimate)
symbol: VTL-AH, 2011 JAN $40 LEAP call - current bid/ask $13.20/13.70
-stop loss on CNX @ 44.95

1st Target hit 09/16/09 @ 48.50, option price $15.40 (+97%)

Chart of CNX


DE $53.02 -2.43 -- Deere & Co.

DE is now off 11% from its early January highs and shares appear to be headed for $50 now that DE has broken the 50-dma. On a short-term basis the stock is oversold but I wouldn't expect a bounce until the $50 area, which should be strong support. Readers can launch new positions on a bounce near $50.00, which should be underpinned by the rising 100-dma. Our long-term target on DE is $69.50.

Nov 18th, 2009 - entry price on DE @ 51.00, option @ 8.75(estimate)
symbol: VER-AJ, 2011 JAN $50 LEAP call - current bid/ask $ 8.45/ 8.60
-stop loss on DE @ 48.45

Chart of DE:


DSX $14.45 -0.34 - Diana Shipping Inc.

We are at risk of getting stopped out. DSX has fallen 10% in the last four days. Friday's session saw a breakdown under key technical support at its 100 and 200-dma. If there is any follow through lower odds are very high we'll be stopped out at $14.25.

News that China is trying to put the brakes on its economy is not good news for the shipping companies so it's understandable why investors are in a selling mood. I am not suggesting new positions at this time. Our long-term target is $24.00.

Jan 11th, 2010 - entry price on DSX @ 16.44, option @ 2.75(estimate)
symbol: XDJ-AW, 2011 JAN $17.50 LEAP call - current bid/ask $ 1.50/ 1.70
-stop loss on DSX @ 14.25

Chart of DSX:


EMR $42.08 -1.03 -- Emerson Electric Co.

EMR was doing just fine until Thursday. Then shares began to retreat. Now the stock has broken support at its 50-dma and its long-term trendline of higher lows. This is worrisome and could herald a much deeper correction. I would look for a dip toward $40.00, which should be decent support. We will raise our stop loss to $37.40, which is just under price support and its 200-dma. I am not suggesting new positions at this time. Our plan is to sell half of our position at our original target of $47.50. We'll sell the rest at $54.50.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $4.80/5.10
-stop loss on EMR @ 37.40.

Chart of EMR:


FST $26.06 -0.60 -- Forest Oil Corp.

FST is actually holding up reasonably well but the stock still looks overbought and due for a correction. I would watch for a dip toward $24 at a minimum and probably closer to the $22.50 region. I'm not suggesting new long-term positions at this time. Our long-term target is $37.50.

Oct 15th, 2009 - entry price on FST @ 23.85, option @ 7.40
symbol: OJG-AD, 2011 $20 LEAP call - current bid/ask $8.20/8.50
-stop loss on FST @ 19.49

Chart of FST:


GHM $17.99 -0.83 -- Graham Corp.

Ouch! The last couple of days have been very painful for GHM. Thursday saw a failed rally and bearish reversal. Friday was just a continuation of the decline with a drop toward short-term support near $18.00. If the $18 level doesn't hold we can watch the $17-16 zone. Even if GHM bounces we could be in trouble with resistance in the $20.00 region. I am not suggesting new positions at this time. GHM is due to report earnings on January 29th before the market opens. Wall Street expects a profit of 7 cents a share.

Last week we sold half our position. Our final target is $24.00.

Oct 26th, 2009 - entry price on GHM @ 15.15, option @ 2.65
symbol: GHM-FC, 2010 JUNE $15 call - current bid/ask $3.30/4.80
-stop loss on GHM @ 15.75

01/18/10 sell half, GHM $19.65, option @ 4.90 bid

- or -

Oct. 26th 2009 - entry price on GHM (the stock) @ 15.15
- stop loss on GHM @ 15.75

01/18/10 sell half, GHM $19.65

Chart of GHM:


GNK $22.37 +0.08 -- Genco Shipping

GNK is a shipping stock that lost 10% in the last four days. The stock has corrected toward technical support at its rising 200-dma and its trend of higher lows. If this level breaks the bulls are in trouble. I'm not suggesting new positions at this time. Our plan was to use small positions to keep our risk limited. Our long-term target is $39.00.

Nov 21st, 2009 - entry price on GNK @ 25.46, option @ 5.00
symbol: OKJ-AF, 2011 $30 LEAP call - current bid/ask $2.30/2.55
-stop loss on GNK @ 20.95

Chart of GNK:


HON $39.88 change: -0.85 - Honeywell Intl. Inc.

HON was holding up pretty well until Thursday. That's when the rug was pulled out from underneath the stock. Shares fell beneath what should have been support near $40.00 and its 50-dma on Friday. This is very bearish and the next level of support should be $38.00. Any lower and we'll get stopped out. Our first target to take profits is at $49.00. Our second target is at $54.00.

I am not suggesting new bullish positions at this time. HON is due to report earnings on January 29th before the market opens. Wall Street is looking for a profit of 90-cents a share.

Dec 11th, 2009 - entry price on HON @ 41.00, option @ 3.25
symbol: VAD-AI, 2011 $45 LEAP call - current bid/ask $1.85/1.90
-stop loss on HON @ 37.75

Chart of HON:


INTC $19.91 -0.93 -- Intel Corp.

Is it surprising to see shares of INTC suffer some profit taking after its earnings report? No. Is it surprising to see INTC drop 4.4% on Friday? Yes! INTC doesn't normally move that fast and shares were plunging on Friday with a drop through the 50-dma and a precarious close at the 100-dma. We can expect a correction toward the bottom of its multi-month trading range in the $18.50-18.00 zone, which should be supported by the rising 200-dma. If INTC corrects any further we'll be stopped out.

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 $2.08/2.12
-stop loss on INTC @ 17.90.

Chart of INTC:


MTW $11.54 -0.65 -- Manitowoc Inc.

Shares of MTW are correcting fast. The stock gave up nearly 16% in the last four day. We were lucky that shares gapped open higher on Jan. 19th giving us an exit to sell half. MTW has gone from very short-term overbought to oversold. We can look for support near its 50-dma rising toward $11 but I suspect that MTW will actually dip toward $10.00. More conservative traders may want to raise their stops toward $10.00. I am not suggesting new positions at this time. Our long-term target is $17.00.

FYI: It looks like MTW is due to report earnings around Feb. 2nd but this date is unconfirmed.

Oct 30th, 2009 - entry price on MTW @ 9.10, option @ 2.61
symbol: VMT-AB, 2011 JAN $10 call - current bid/ask $3.30/3.80
-stop loss on MWT @ 8.95

01/18/10 Sell Half! MTW @ 13.70, option at $4.80 bid.

- or -

Oct. 30th 2009 - entry price on MTW (the stock) @ 9.10
- stop loss on MTW @ 8.95

01/18/10 Sell Half! MTW @ 13.70

Chart of MTW:


ORCL $24.15 -0.68 -- Oracle Corp.

We have been expecting ORCL to correct lower and fill the gap and shares are finally starting to pull back. There is still some support at $24.00. I am suggesting readers wait for a dip into the $23.00-22.00 zone. You may want to wait for a bounce first before initiating new long-term positions. Our stop loss is at $21.75. Our long-term target is $29.75.

FYI: Shares of ORCL don't move very fast. Readers might want to consider turning this play into a calendar or diagonal spread to further maximize your gains.

Dec. 18th, 2009 - entry price on ORCL @ 24.05, option @ 2.55
symbol: VOC-AE, 2011 LEAP $25 call - current bid/ask $2.33/2.37
-stop loss on ORCL @ 21.75.

Chart of ORCL:


PEP $62.39 -0.55 -- PEPSICO Inc.

The bounce in PEP is fading. Shares are now back below their rising 100-dma. I am somewhat concerned that PEP could be building a bear-flag type of pattern. If PEP is building a bear flag then a breakdown could forecast a drop toward $55. I am concerned enough that to protect ourselves I am suggesting we buy the March $55 puts (symbol: PEP-OK), which will cost us $0.50.

I am not suggesting new long-term LEAPS positions at this time. 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 $4.40/4.60
-stop loss on PEP at $54.95

Temporary protective put:
Jan. 23rd, 2009 - entry price on PEP @ 60.39, option @ 0.50
symbol: PEP-OK March $55 put - current bid/ask $0.40/0.50

Chart of PEP:


RAI $53.09 -0.32 -- Reynolds American Inc.

RAI has retreated back toward the bottom of its previous trading range. Monday's bullish breakout over resistance now looks like a potential bull-trap pattern. If the market continues to sink shares of RAI might succumb this time and correct with it. I am suggesting once again that readers take profits if you have not done so already. More conservative traders may want to exit completely. Our final target is $57.50. I'm not suggesting new positions at this time.

FYI: Earnings are due out on Feb. 4th.

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 $12.50/14.30
-stop loss on RAI at $49.45

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

Chart of RAI:


TBT $47.35 +0.09 -- UltraShort 20+ Year Treasury Bond ProShares

Short-term TBT really has not performed for us but this is a really long-term trade. Interest rates will eventually rise. I wouldn't rush into positions. You can probably wait for a dip toward $46.00 maybe lower. Our time frame is 12 to 24 months. Be sure to give yourself a wide stop loss.

Hmm... it's interesting to see the spreads on this options suddenly widen!

Our first long-term target is $59.75. Our second target is $67.50.

FYI: The TBT is an exchange traded fund (ETF) that tries to deliver twice the inverse performance of the Barclays Capital 20+ Year U.S. Treasury index.

Jan. 09th, 2010 - entry price on TBT @ 50.63, option @ 4.90
symbol: XRJ-AC, JAN 2011 $55 LEAP call - current bid/ask $3.20/4.55
-stop loss on TBT @ 41.90

Jan. 09th, 2010 - entry price on TBT @ 50.63, option @ 7.90
symbol: YHT-AH, JAN 2012 $60 LEAP call - current bid/ask $6.15/8.10
-stop loss on TBT @ 41.90

Chart of TBT


TEX $21.46 -0.61 -- Terex Corp.

I cautioned readers to look for a dip near $21.00. That may not be enough. With the market in retreat TEX will probably trade toward $20 and possibly lower. I'm not suggesting new positions at this time. Our final target is $29.50.

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.10
symbol: VXQ-AD, JAN 2011 $20 LEAP call - current bid/ask $4.80/5.00
-stop loss on TEX @ 17.75

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

Chart of TEX:


TLT $92.00 -0.16 -- iShares 20+Yr Bond ETF

Just like our TBT trade the TLT isn't quite moving our direction. Yet in our original play description I warned readers that you might want to wait for a failed rally near $92.00. Well now the TLT is testing $92 and its 50-dma. If this ETF continues to move higher the next level of resistance is the 100-dma and 200-dma nearing the $94 level.

You have plenty of time to open positions. This ETF doesn't move very fast. Wait for your entry point. More conservative traders can use a stop closer to $96 or the 200-dma.

FYI: The TLT is an exchange traded fund that tries to mimic the performance of the Barclays Capital U.S. 20+Year Treasury Bond Index.

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 6.40
symbol: VJL-MG, JAN 2011 $85 LEAP put - current bid/ask $4.40/4.80
-stop loss on TLT @ 100.50

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 8.90
symbol: YLI-MB, JAN 2012 $80 LEAP put - current bid/ask $6.20/7.30
-stop loss on TLT @ 100.50

Chart of TLT


UNH $33.16 +0.06 -- UnitedHealth Group Inc.

Shares of UNH peaked near $36.00 the day after Scott Brown won the Massachusetts senate race. The stock promptly turned lower and the correction has shaved off nearly 10%. While the future for healthcare stocks just got a lot brighter last week I wouldn't be surprised to see UNH dip toward $30 again. Wait for a pull back near the $30 region to open new bullish positions.

The plan was to use small positions to limit our risk. Our long-term target is $42.50.

Dec 16th, 2009 - entry price on UNH @ 31.55, option @ 3.80
symbol: VUH-AG, 2011 JAN $35 LEAP call - current bid/ask $3.85/3.95
-stop loss on UNH @ 28.95

Chart of UNH:


UYG $5.47 -0.34 - ProShares Ultra Financials (2x) ETF

The UYG gave up 8.6% in the last four trading days. The breakdown under the small cloud of moving averages near $5.75 is definitely bearish. More conservative traders will want to seriously consider an early exit right now. The only reason to not exit now would be to hope for an oversold bounce so we can exit on a bounce back near $6.00. I don't have high hopes for the banking sector right now. Not with Obama painting a big target on the banks. I am not suggesting new positions at this time.

Our second and final target is $9.50.

FYI: 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: 5.30)

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

Chart of UYG:


VICR $ 8.86 +0.06 -- VICOR Corp.

A positive gain for VICR on Friday is encouraging but I don't expect the strength to last. The short-term trend for VICR has turned bearish. I would now expect a pull back toward $8.00. Wait for a dip and probably a bounce near the $8.00 region before considering new long-term positions. More conservative traders may want to raise their stops toward the $8 level (but not too close).

Our twelve-month target is the $13.50-14.00 zone (one reason I prefer the stock over the option). Remember, if the market dips in January VICR will probably dip with it.

Dec 26th, 2009 - entry price on VICR@ 9.30, option @ 1.40
symbol: VQV-GB, 2010 JUL $10 call - current bid/ask $0.60/0.95
-stop loss on VICR @ 7.45

- or -

Dec. 26th 2009 - entry price on VICR (the stock) @ 9.30
-stop loss on VICR @ 7.45

Chart of VICR:


CLOSED Plays

BAC $14.90 -0.57 - Bank of America Corp.

President Obama's new proposed rules on the banks is an unforeseen event and investors are worried. The bank stocks have reversed sharply lower since Obama voiced these new limitations. Shares of BAC hit $14.71 on Friday afternoon as the market accelerated lower. Our stop loss was hit at $14.75.

If BAC continues to correct lower I would look for a pull back toward $12.50 and if things get really bad the $10.00 region.

Jan 25th, 2009 - entry price on BAC @ 6.24, option @ 2.38
symbol: VBA-AB, JAN 2011 $10 LEAP call - Stopped out @ $5.50
-stop loss on BAC @ 14.75 hit on 01/22/10

01/22/10 Stopped out -- option at $5.50 (+131%)

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

Chart of BAC


BQI $0.92 -0.04 -- Oilsands Quest Inc.

Shares of BQI plunged 14% on January 19th as investors reacted to some big news in the company. I think shareholders were probably right to react so negatively. BQI announced that not only was their CEO, Mr. Hopkins, leaving but that BQI was selling its oil shale assets near Pasquia Hills in Saskatchewan to a new company named Canshale Corp. Canshale happens to be a new company formed by the very same Mr. Hopkins. Two more board members were jumping ship and moving to Canshale while another BQI executive announced his retirement for February.

BQI dipped to $0.95 on the 19th and hit our stop loss, on the nose, at $0.89 on January 20th closing this trade.

Nov 27th, 2009 - entry price on BQI @ 1.05, (buy the stock)
-stop loss on BQI @ 0.89

01/20/10 Stopped out at $0.89 (-15.2%)

Chart of BQI:


RGLD $44.50 +0.44 -- Royal Gold Inc.

RGLD garnered some positive analyst comments on Friday but it wasn't enough to keep shares from hitting our stop loss. The stock really broke down on Thursday with a decline through its 200-dma and a low of $44.01. Friday morning RGLD hit our stop at $44.00 closing this trade. Gold miners will probably be a trade again later in the year. Right now they look too weak.

Nov. 7th, 2009 - entry price on RGLD @ 50.70, option @ 7.50
symbol: ZMO-AL, 2011 JAN $60 LEAP call - current bid/ask $2.60/2.85
-stop loss on RLGD @ 44.00

01/22/10 RGLD hit our stop @ $44.00, option at $2.35 (-68.6%)

Chart of RGLD



Watch

Loading the Watch List

by James Brown

Click here to email James Brown


New Watch List Entries

MCD - McDonald's Corp.

PETM - PETsMART

PNRA - Panera Bread Co.

WMT - Wal-Mart Stores Inc


Active Watch List Candidates

MOS - Mosaic Co.

POT - Potash Corp.

PPDI - Pharmaceutical Product Development Inc.


Dropped Watch List Entries

None.


New Watch List Candidates:

MCD $63.39 +0.19 -- McDonald's Corp.

It doesn't matter whether you believe we're going to see a double-dip recession or the worst is behind us. Consumers are going to continue to watch their wallets with record high unemployment. That should be good news for MCD. Shares have been out performing the rest of the market and actually look poised to move higher in spite of the market's weakness. I still think MCD will correct.

I am suggesting we buy LEAPS on a dip to $60.00. The 200-dma near $58.00 should be significant support. If triggered at $60 we'll use a stop loss at $53.95. Our long-term target is $74.50. I'm suggesting the 2011 LEAPS. You may want to buy the 2012 instead.

Company Info:
McDonald's is the leading global foodservice retailer with more than 31,000 local restaurants serving more than 58 million people in 118 countries each day. More than 75% of McDonald's restaurants worldwide are owned and operated by independent local men and women. (source: company press release or website)

Buy-the-Dip trigger: $60.00

BUY the 2011 January $65 calls (VMD-AM)

Chart of MCD:


PETM $26.30 -0.47 -- PETsMART Inc.

The concept here is that consumers are going to go out less, which means more time and home with their pets. I suspect that PETM will weather the economic "rebound" or double-dip better than most. I'm suggesting we buy LEAPS on a dip into the $24.00-23.00 zone. The 200-dma should offer decent support. If triggered our stop loss will be $21.40. Our long-term target is the $34-35 zone but given the lack of LEAPS we'll aim for 29.00.

Company Info:
PetSmart, Inc. (PETM) is the largest specialty retailer of services and solutions for the lifetime needs of pets. We have more than 1,149 pet stores in the United States and Canada, more than 161 in-store PetsHotels cat and dog boarding facilities and Doggie Day Camps, and are a leading online provider of pet supplies and pet care information. PetSmart provides a broad range of competitively priced pet food and pet supplies; offers complete pet training and pet adoption services. (source: company press release or website)

Buy-the-Dip trigger: $24.00

Readers may want to consider buying the stock. PETM doesn't have LEAPS. The longest-dated options are 2010 Julys.

BUY the 2010 July $25 calls (QPT-GE)

Chart of PETM:


PNRA $72.81 -0.60 -- Panera Bread Co.

This is a relative strength play. Maybe it was the cold weather driving people into PNRA's store for comfort food but the company pre-announced better than expected earnings last week. The stock gapped open higher and garnered some positive analyst comments. The trend is clearly bullish. However, PNRA has some old resistance in the $75 region. I think the stock will retreat back toward $65.00 before too long.

We want to use a trigger to buy LEAPS at $65.50. If triggered we'll use a stop loss at $59.50. Our long-term target is the $84.50 level.

Company Info:
Panera Bread bakery-cafes showcase the art and craft of bread making, helping customers truly appreciate and enjoy a great loaf of bread by studying its crust, crumb and craft. Panera Bread understands that great bread makes great meals, from made-to-order sandwiches to tossed-to-order salads and soup served in bread bowls. Panera Bread is widely recognized for driving the nationwide trend for specialty breads. As reported by The Wall Street Journal, Panera Bread scored the highest level of customer loyalty among quick-casual restaurants, according to research conducted by TNS Intersearch. (source: company press release or website)

Buy-the-Dip trigger: $65.50

BUY the 2011 January $70 calls (ZGM-AN)

Chart of PNRA:


WMT $52.94 +0.02 -- Wal-Mart Stores Inc.

WMT is the biggest retailer on the planet. If the economy does recovery then sales should increase. If the economy doesn't recover then consumers, looking to stretch their dollar, will shop at WMT even more! The company is not immune to economic weakness but it should weather any storm better than most.

On a long-term chart WMT broke out from a major consolidation last quarter. I'm suggesting we buy LEAPS on a dip at $50.50. If triggered we'll use a stop loss at $46.75. Our first long-term target is $62.50. More aggressive traders may want to use the 2011 January calls (the $50 strike VWT-AJ).

Company Info:
Walmart serves customers and members more than 200 million times per week at more than 8,424 retail units under 53 different banners in 15 countries. With fiscal year 2009 sales of $401 billion, Walmart employs more than 2.1 million associates worldwide. (source: company press release or website)

Buy-the-Dip trigger: $50.50

BUY the 2012 January $50 calls (WWT-AJ)

Chart of WMT:


Active Watch List Candidates:


MOS - Mosaic Co. $58.63 -1.44

The outlook for MOS has taken a very bearish turn in the last couple of sessions. Hopefully readers aren't surprised. We're expecting a dip toward support near $55.00, which is why we set our trigger to open positions at $56.00. More conservative traders may want to wait and look for a dip toward the rising 200-dma near $52 instead.

If we are triggered at $56.00 the plan is to buy the 2011 January $65 LEAPS with a stop loss on MOS at $49.00. Our long-term target is the $90-100 zone. (Readers might want to consider the 2012 LEAPS too).

NOTE: In 2009 MOS issued a special cash dividend of $1.30 per share payable back on December 3rd, 2009. The CBOE issued a new LEAPS symbol to account for the dividend. The old 2011 LEAPS have a root symbol of ZHX. The LEAPS we want to use are the ZXW root symbols.

Buy-the-Dip trigger: $56.00

BUY the 2011 January $65 call (symbol: ZXW-AM)

Chart of MOS:


POT - Potash Corp. $109.05 -3.59

POT remains a very volatile stock! This month alone has seen two $15 moves, one up and one down. While the $105 level should be short-term support I now think, given the market's new weakness, that POT could dip toward $100 and its rising 200-dma. Thus I'm moving our trigger to buy LEAPS lower to $101.

POT is due to report earnings on January 28th before the market opens. Wall Street is looking for a profit of 80 cents a share. This report could have a big impact on the stock price and produce even more volatility.

CAUTION: More conservative traders may want to wait until after the report (wait for the dust to settle... give it a couple of days) before initiating new positions - even if POT hits our trigger before the earnings announcement.

If POT hits our trigger to buy LEAPS at $101. we will use a stop loss at $89.00. Our long-term target is $160 or higher.

Buy-the-Dip trigger: $101.00 *new*

BUY the 2011 January $110 calls (symbol: VPT-AB) *new strike*

Chart of POT:


PPDI $23.27 +0.08 -- Pharmaceutical Product Development Inc.

It was an interesting week for PPDI. The company issued an earnings warning on Wednesday. That's what caused the spike lower. Oddly enough traders bought the dip! PPDI expects 2010 earnings in the $1.00-1.12 range versus Wall Street's estimates around $1.27. The fact that PPDI did not sell off on this news and did not sell off on Thursday and Friday with the rest of the market is pretty encouraging.

I do not see any changes to my previous comments. The plan is to buy calls with a trigger at $24.25. If triggered we'll use a stop loss at $21.90. Our first target is $29.25.

Breakout trigger: $24.25

BUY the 2010 July $25.00 calls (symbol: PJQ-GE)

Chart of PPDI: