Option Investor
Newsletter

Daily Newsletter, Saturday, 2/6/2010

Table of Contents

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

Leaps Trader Commentary

How Convenient

by James Brown

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Well that was exciting wasn't it? I'm referring to the plunge in the markets last week. It was an impressive worldwide sell-off. The January correction has pushed the Chinese Shanghai to a 10% decline, the Hong Kong Hang Seng to a 12% decline, Germany is off 10%, England is off 8.6%, and the S&P 500 finally hit a 10% correction on Friday afternoon. I have been predicting that the S&P 500 would fall into the 1050-1035 zone. The index hit 1044, which is almost a perfect test of its 38.2% Fibonacci retracement of its July-January rally.

How convenient that a rumor showed up right as the S&P 500 was testing significant support. The rumor suggested that Greece might receive an aid package over the weekend. No one wanted to be short if Greece gets a bailout and stocks gap open higher on Monday. Bail out or not this debt problem in Europe is going to be an issue for quite a while. I mentioned last week that not only is Greece at risk of a default but Portugal, Spain, Italy and Ireland are all in trouble. Portugal was a big problem last week and was the real culprit behind Thursday's declines.

Wednesday night (or Thursday morning) the country of Portugal tried to raise cash by selling debt. Portugal wanted 500 million euros. They were only able to secure 300 million euros. This is what you call a "failed auction". Investors were not willing to hold Portugal's debt for fear of not getting paid back. Fortunately, neither Greece nor Portugal are very big countries or economies but they do pose a serious risk to the future of the euro-zone. There are rules about debt limits to belong to the euro-zone and if these countries don't comply they will either need a bail out or get kicked out. That threatens the concept of the euro-zone and the value of the euro currency is plunging.

Chart of the FXE euro ETF:

This weakness in the euro is lifting the dollar and will probably keep the dollar strong for a while. This has crushed commodities, which is actually a good thing since it should help keep a lid on inflation. Of course no one is worried about inflation when the big concern is jobs. the January jobs report was a disappointment. The Labor Department said the U.S. lost 20,000 jobs versus estimates for -5,000 to +15,000. There were several very significant revisions. December's job losses were revised down from -85,000 to -150,000. The number of jobs lost to this recession was revised from 7.2 million to 8.4 million

Oddly enough the unemployment fell. Economists were expecting unemployment to tick up from 10.0% to 10.1%. Instead the rate fell to 9.7%. Sadly this was due to the massive number of workers who have given up looking for jobs and are no longer counted as part of the workforce. The jobs problem is not going away any time soon. The U.S. needs about 150,000 new jobs a month just to stay even. If you consider the under-employed rate then almost 20% of the U.S. workforce needs a job. We're talking millions and millions of new jobs need to get back to "normal".

It starts to make sense when you hear analysts talking about a "new normal" where business is slow and jobs remain scarce. You have heard it before. Consumer spending accounts for nearly 70% of the U.S. economy. Consumers are going to cut back on spending if they have lost their job or if they are worried about losing their job. Meanwhile businesses are not going to hire anyone if consumers aren't spending. It's a vicious cycle.

On a short-term basis stocks look poised to bounce. Yet the bullish reversal pattern created on Friday actually needs to see confirmation first. I do think it will be confirmed and stocks will rebound. With the volatility spiking and the S&P starting to bounce from "support" there were lots of traders selling puts thinking this was a bottom. If stocks don't bounce then there could be a HUGE rush to sell and buy back those puts.

Now that stocks look poised to rebound what's the plan? I would expect the bounce to struggle when the S&P 500 rises toward potential resistance near 1100 or the 1120 levels. Rarely are corrections this "clean" with a perfect bounce so close to -10%. I strongly suspect that we'll see this bounce roll over and the S&P 500 will either retest last week's low or dip toward the 1,000 level and/or its rising 200-dma. Thus we will see another opportunity to buy LEAPS on a dip. Be patient.

Chart of the S&P 500 Index:

Weekly 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 (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:

The S&P 500 bounced right on target. Unfortunately that doesn't mean the correction is over. It could be but the bounce needs to clear some significant resistance.

We did see a few stocks hit our stop loss last week but we're also seeing a few new bullish entry points as well.

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

Jumping In Early

by James Brown

Click here to email James Brown


Close Enough, The Baby-Bs Almost Hit Our Trigger


Berkshire Hathaway Inc. - BRK.B - $73.57 +0.96

Shares of BRK.B did correct but not as deep as we expected. Traders bought the dip at $71.61 on Friday. Our trigger to buy BRK.B was at $71.50. That's pretty close. Instead of waiting and hoping that BRK.B eventually dips toward $70.00 I am suggesting we go ahead and buy LEAPS on Berkshire now. You can choose the 2011 or 2012 options.

There is a good chance that the correction isn't over yet even though stocks look poised to bounce. You may want to consider buying a small position now and then if BRK.B does dip back toward $70.00 we can add to positions. Our first target is $90.00. Our second target is $99.50

News that Standard & Poor's had removed Berkshire's AAA credit rating doesn't seem to have had much of an effect on the stock price. What should be affecting the stock price is BRK.B's inclusion in the S&P 100 index and S&P 500 index. This is supposed to take place when Berkshire completes their acquisition of BNI this month (February) but I could not find a firm date for that to happen. Berkshire said they were not going to issue more stock when it was added to the indices.

FYI: If you want to look these options up on the CBOE website the symbol is BRK'B

FYI part 2: If you didn't know here's a recap of Berkshire Hathaway compliments of the Associated Press: " Berkshire owns more than 60 subsidiaries, including clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses typically account for more than half of the company's revenue. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co"

Feb 6th, 2010 - entry price on BRK.B @ 73.57, option @ 4.80
symbol: 2011 JAN $80 XPB1122A80 LEAP call - current bid/ask $4.00/4.80
-stop loss on BRK.B @ 64.95

Feb 6th, 2010 - entry price on BRK.B @ 73.57, option @ 6.50
symbol: 2012 JAN $85 WDW1221A85 LEAP call - current bid/ask $5.80/6.50
-stop loss on BRK.B @ 64.95

Chart of BRK.B:



Play Updates

Believe It or Not

by James Brown

Click here to email James Brown

Believe it or not we're seeing some new entry points given the market's recent action.


Closed Plays


DE, TEX, and UYG all hit our stop this past week.


Play Updates


ACI $21.08 +0.20 -- Arch Coal Inc.

After a very rough week for the markets shares of ACI gained a penny for the week. Shares appear to have found some support north of $20.00 and its 200-dma. ACI was even downgraded to a "sell" last week and shares didn't break down. This is a good sign for us. While I am certainly tempted to buy call LEAPS on this dip it might be a better bet to wait for signs of a bounce first. Shares have immediate resistance overhead with the 50-dma and the $24.00 level past that.

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 $1.15/1.30
-stop loss on ACI @ 18.99

Chart of ACI:


CHK $24.52 +0.34 -- Chesapeake Energy Corp.

The market correction and the weakness in commodities has pulled CHK down toward technical support at its 200-dma. I've been warning readers to expect a dip toward $24.00. CHK fell to $23.56 on Friday. I'm optimistic that CHK will see an oversold bounce from here the short-term trend is still down. This is technically an entry point but I would use relatively tight stops under Friday's low. Keep in mind that CHK is due to report earnings around Feb. 17th. 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 $3.70/3.80
-stop loss on CHK @ 20.95

Chart of CHK:


CNX $46.05 +0.83 -- Consol Energy Inc.

I have been expecting a dip toward support near $42.50 and its 200-dma. Yet traders bought the dip at $44.00 - twice (intraday on Friday). I would rather buy call LEAPS on a dip or a bounce near $42.50 but more aggressive traders could launch positions here.

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

Sep 1st, 2009 - entry price on CNX @ 36.50, option @ 7.80(estimate)
symbol: VTL-AH, 2011 JAN $40 LEAP call - current bid/ask $11.50/11.90
-stop loss on CNX @ 41.45

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

Chart of CNX


EMR $45.15 -0.12 -- Emerson Electric Co.

EMR reported earnings last week. The results were good. The company beat earnings estimates by 14 cents with a profit of 56 cents a share. Revenues were $5.01 billion versus $4.69 billion. Management guided fiscal year 2010 higher. Investors reaction sent the stock soaring to new 52-week highs near $47.00. EMR has since pared its gains but the trend is still up. 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.

Please note our new stop loss at $39.75.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $7.10/7.40
-stop loss on EMR @ 39.75

Chart of EMR:


FST $23.98 -0.49 -- Forest Oil Corp.

I am a little surprised that FST hasn't shown more weakness. Commodities have been getting crushed by the strength in the dollar. Energy stocks have been a big part of what's leading the market lower. While FST has corrected the trend is still up. Traders bought the dip at its rising 50-dma on Friday, which is exactly what we were expecting. Aggressive traders may want to consider new bullish positions here. I have a suspicion that FST may see $22 or even $20 before this correction is all over. Consider waiting for a lower entry point. 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 $6.70/7.00
-stop loss on FST @ 19.49

Chart of FST:


INTC $19.47 +0.45 -- Intel Corp.

Believe it or not INTC gained seven cents on the week. I will admit Thursday looked pretty ugly with a big drop toward $19.00 and its exponential 200-dma. Traders did buy the dip for now. Unfortunately the short-term trend is still down and Friday's session produced an "inside day" so there's not decisive turnaround yet. If the correction continues INTC should have additional support at the simple 200-dma near $18.60. I am not suggesting new positions at this time but with our stop loss at $17.90 I could see buying call LEAPS on a dip or a bounce from the 200-dma.

Our long-term target is the $24-26 zone.

June 13th, 2009 - entry price on INTC @ 16.31, option @ 1.36
symbol: VNL-AD, 2011 LEAP $20 call - current bid/ask $2.02/2.07
-stop loss on INTC @ 17.90.

Chart of INTC:


MOS - Mosaic Co. $55.18 +1.17

Attention! This could be another entry point in MOS. The rest of the market may have been sinking to new lows but MOS managed to hold its lows from last week. Traders bought the dip on Friday and the move now looks like a potential short-term bullish double bottom. I am suggesting readers buy call LEAPS on this bounce. If you prefer to see some momentum first then wait for a move over the 50-dma or the $60.00 level but I am suggesting positions now.

Our stop loss is unchanged at $49.00. More conservative traders may want to consider a stop loss closer to $52.00-52.50ish. Our long-term target is the $90-100 zone. (Readers might want to consider the 2012 LEAPS too).

FYI: There could be some stock-moving news this week. Several companies in this industry, including MOS, will be presenting at an analyst/investor conference on Feb. 10th.

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.

Jan 28th, 2010 - entry price on MOS @ 56.00, option @ 6.10
symbol: ZXW-AM, 2011 LEAP $65 call - current bid/ask $5.95/6.30
-stop loss on MOS @ 49.00

Chart of MOS:


MTW $10.85 -0.42 -- Manitowoc Inc.

Readers may want to consider raising their stops on MTW. Shares only lost 5 cents on the week but the action was bearish. The company reported earnings on Feb. 3rd and disappointed the market by missing estimates by nine cents. Revenues were also a miss. Management essentially said business would be less bad in 2010. The stock produced a failed rally at $12.00 on the earnings news. The breakdown under $11.00 and its 50-dma is short-term bearish.

I am not suggesting new bullish positions at this time. Odds are growing that MTW could see a correction toward $10.00 and possibly historical support near $9.00. I am leaving our stop at $8.95 for now. You may want to raise your stop. 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 $2.70/2.90
-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 $23.55 +0.44 -- Oracle Corp.

ORCL managed a gain on the week. The stock was upgraded a few days ago and given a $30 price target. Shares have essentially been consolidating sideways above support near $23.00. I am encouraged that ORCL did not close under $23.00 during last week's market weakness. However, if the market does not see any follow through from Friday's bounce we can probably expect a dip toward $22.00 and its 200-dma for ORCL.

I would consider buying calls here near $23.00 but readers may want to wait for a new close over $24.00 (or that dip near $22.00). Be patient about opening new bullish positions. Our stop loss is at $21.40. 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 $1.99/2.03
-stop loss on ORCL @ 21.40.

Chart of ORCL:


PEP $59.51 -0.13 -- PEPSICO Inc.

Shares of PEP tried to bounce again but it failed midweek. The stock is back to testing technical support at its exponential 200-dma. Nothing has changed for us. I'm still very concerned that PEP is poised for a larger decline. It's not too late to buy some protective puts (listed below). Keep in mind that PEP is due to report earnings on February 11th. If you're going to buy puts do it before earnings. I am not suggesting new long-term LEAPS 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 $4.15/4.25
-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 $0.51/0.54

Chart of PEP:


POT - Potash Corp. $103.48 +1.59

The situation in POT is the same as MOS. The stock has bounced near last week's low. The move looks like a short-term bullish double bottom. I see it as a new bullish entry point to buy call LEAPS. If you don't want to buy them here then consider waiting for a move over $110 or the 50-dma. More conservative traders may want to use a tighter stop near $95 or near the January low of $98.27. Our long-term target is $160 or higher.

Jan. 28th, 2010 - entry price on POT @ 101.00, option @ 11.75
symbol: VPT-AB, 2011 LEAP $110 call - current bid/ask $13.95/14.30
-stop loss on POT @ 89.00.

Chart of ORCL:


RAI $52.00 -1.51 -- Reynolds American Inc.

Warning! RAI has produced a very clear breakdown. The stock has been consolidating sideways in a narrow range for weeks and weeks. The company reported earnings on February 4th and investors sold the news. RAI missed Wall Street's estimate by six cents with a profit of $1.10 a share. Revenues were slightly above estimates. Management guided future earnings in line with estimates. It looks like normal profit taking. Unfortunately it's also a bearish breakdown under the 50-dma for a stock that's been overbought for a long time.

More conservative traders may want to take profits immediately! I am not suggesting new positions. There is a very real risk that we could get stopped out at $49.45 this week. Our final target is $57.50.

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 $11.30/12.40
-stop loss on RAI at $49.45

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

Chart of RAI:


TBT $46.99 -0.13 -- UltraShort 20+ Year Treasury Bond ProShares

Our bearish trade on bonds (TBT and TLT) is not panning out for us. The idea was that the U.S's ballooning deficits and debt would push rates higher as investors demanded more reward for their risk of holding U.S. debt. Unfortunately, we didn't factor in a potential meltdown in Europe. The debt default scare in Europe is pushing money into the perceived safety of U.S. bonds. This scenario could go on for weeks and months.

I do not have much faith that the situation in Europe will be solved painlessly. That puts us at risk. I am raising our stop loss on the TBT to $45.90. If we get stopped out I'll put the TBT back on our watch list for a new opportunity down the road. I am not suggesting new positions at this time.

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 $2.92/3.20
-stop loss on TBT @ 45.90

Jan. 09th, 2010 - entry price on TBT @ 50.63, option @ 7.90
symbol: YHT-AH, JAN 2012 $60 LEAP call - current bid/ask $6.05/7.75
-stop loss on TBT @ 45.90

Chart of TBT


TLT $91.98 +0.20 -- iShares 20+Yr Bond ETF

We are facing the same troubles in the TLT as we are with the TBT except in the opposite direction with the TLT poised to move higher. This ETF is ready to rally toward the next level of resistance near $94 and its 200-dma. I am suggesting more conservative traders adjust their stop loss down to $92.65 so they'll be taken out if TLT rallies much further. I am adjusting the newsletter's stop loss down to $94.15. I am not suggesting new bearish positions at this time.

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 $4.10/4.40
-stop loss on TLT @ 94.15

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 8.90
symbol: YLI-MB, JAN 2012 $80 LEAP put - current bid/ask $5.90/7.10
-stop loss on TLT @ 94.15

Chart of TLT


UNH $32.54 +0.08 -- UnitedHealth Group Inc.

UNH has been trying to hold short-term support near $32.00. I suspect that it will fail and UNH will once again dip toward stronger support near $30.00. Wait for that dip or a bounce near $30 before launching new 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 $3.70/3.80
-stop loss on UNH @ 28.95

Chart of UNH:


VICR $ 8.38 +0.31 -- VICOR Corp.

VICR is providing an entry point. We've been waiting for a dip toward support near $8.00 and we got it. Not only that VICR delivered a nice bounce from $8.00 on Friday and did not breakdown under this level. I am suggesting new positions now. More conservative traders may want to use a stop loss closer to $8.00.

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 $0.40/0.70
-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

DE $49.82 -0.05 -- Deere & Co.

Shares of DE only lost 13 cents on the week but Friday's intraday decline was enough to tag our stop loss at $48.45 and close this trade. I still think DE offers potential and I'm putting it back on my personal watch list for a bounce near its simple 200-dma near $46.00 or a breakout above its 50-dma.

Nov 18th, 2009 - entry price on DE @ 51.00, option @ 8.75(estimate)
symbol: VER-AJ, 2011 JAN $50 LEAP call - current bid/ask $ 6.75/ 6.90
-stop loss on DE @ 48.45

02/05/10 STOPPED OUT, DE hit our stop at $48.45.
Estimated exit on the option at $6.25 (-28.5%)

Chart of DE:


TEX $18.14 -0.46 -- Terex Corp.

The ugliness continues in shares of TEX. The stock plummeted this past week with shares plunging to $17.32, under its simple 200-dma, on Friday. Our stop loss was hit at $17.75. TEX has suffered a huge amount of technical damage. Even if shares did bounce I wouldn't trust it.

Sept. 11th, 2009 - entry price on TEX @ 18.25, option @ 4.10
symbol: VXQ-AD, JAN 2011 $20 LEAP call - current bid/ask $2.80/3.00
-stop loss on TEX @ 17.75

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

Stopped Out (02/05/10), estimated exit @ $2.75 (-32.9%)

Chart of TEX:


UYG $5.23 +0.11 - ProShares Ultra Financials (2x) ETF

The market's sell-off on Thursday was enough to send the DJUSFN index lower and that pushed the UYG through our stop loss at $5.30 closing this trade. If the UYG closes under $5.00 it might be a bearish candidate.

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%)

02/05/10 Stopped out @ 5.30 (+253%)

Chart of UYG:



Watch

Not Over Yet

by James Brown

Click here to email James Brown


New Watch List Entries

FXB - CurrencyShares British Pound


Active Watch List Candidates

AKAM - Akamai Technologies

MCD - McDonald's Corp.

MSFT - Microsoft Corp.

PETM - PETsMART

PNRA - Panera Bread Co.

PPDI - Pharmaceutical Product Development Inc.

WMT - Wal-Mart Stores Inc


Dropped Watch List Entries

BRK.B has been promoted to an active trade.


New Watch List Candidates:

FXB - CurrencyShares British Pound Sterling $155.83 -1.21

Investor focused has turned to Europe and all the troubles facing their growing debt burden and possible defaults among the PIIGS countries. While Britain is not one of the five countries currently under the microscope there has been a growing worry about the country's economic rebound. It has been the slowest of the big economies to recover. The British Pound has broken key support this past week.

Aggressive traders may want to go ahead and buy put options now! I think we can get a better price if we wait for a bounce back toward $158.00. I'm suggesting a trigger to buy puts at $157.50. If triggered we'll use a stop loss at $162.55. Our first target is $150.00. Our second target is $144.00.

Company Info:
The CurrencyShares British Pound Sterling is an Exchange Traded Fund (ETF) that tries to mimic the performance of the British Pound measured in U.S. dollars. According to the company's website: The British pound sterling is the fourth-most-traded currency in the world, accounting for 15% of global foreign exchange transactions. The USD/British pound sterling pair is the third-most-traded currency pair, accounting for 12% of the global foreign exchange transactions. (source: company press release or website)

Buy-the-Bounce trigger: $157.50

BUY the 2010 September $150 put (FWK1018U150)

Chart of FXB:


Active Watch List Candidates:


AKAMAI Tech. - AKAM - $25.32 -0.19

It looks like traders are selling the earnings news. AKAM reported earnings on Feb. 3rd. There was not a very big reaction in the stock price but shares do look ready to correct lower in spite of all the bullish analyst comments following the earnings report.

I am raising our trigger to buy LEAPS from $21.50 to $22.10. I want to stay above the rising 200-dma. If triggered our long-term target is $29.50. We'll start with a stop loss at $17.99.

Buy-the-Dip trigger: $22.10 *new*

BUY the 2011 January $25.00 calls (OMU1122A25)

Chart of AKAM:


MCD $63.37 -0.69 -- McDonald's Corp.

MCD was added to the Goldman Sachs "conviction buy list" last week. The stock soared to a new 52-week high on the news. Traders promptly sold into strength as the market fell to new relative lows. I don't see any changes from my prior comments. We're waiting to buy LEAPS on a dip at $60.00 . You could wait for a dip toward the 200-dma near $58.00 instead. 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.

Buy-the-Dip trigger: $60.00

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

Chart of MCD:


Microsoft - MSFT - $28.02 +0.18

Thus far MSFT is holding support at the top of its gap from late last year. I do think the correction continues. Right now the plan is to buy LEAPS on a dip at $25.00 but we might want to consider launching positions on a dip near the rising 200-dma (near 25.75). If triggered we'll use a stop loss at $22.75. Our long-term target is $35.00.

Buy-the-Dip trigger: $25.00

BUY the 2012 January $25 calls (WMF1221A25)

Chart of MSFT:


PETM $25.35 -0.17 -- PETsMART Inc.

Traders bought the dip twice near $25.00 this past week. It's certainly possible that PETM rallies from here but I'm still expecting a pull back toward stronger support near $24.00 and its rising 200-dma. 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.

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 $70.60 -0.70 -- Panera Bread Co.

PNRA is still holding up pretty well considering the market's recent weakness. Shares still look overbought. 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.

Readers should be aware that PNRA is due to report earnings on Feb. 11th after the market's closing bell. Shares could see some volatility following the report.

Buy-the-Dip trigger: $65.50

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

Chart of PNRA:


PPDI $22.50 +0.08 -- Pharmaceutical Product Development Inc.

PPDI is still trading sideways within its prior range. The stock fell under its 50-dma and 100-dma but managed to rebound near its January lows. There is no change in our plan. We want to use a trigger to buy LEAPS at $24.25.

If triggered at $24.25 we'll use a stop loss at $21.90. Our first target is $29.25.

Readers should be aware that PPDI is due to report earnings on February 8th after the market's close. Shares could see some volatility following the report.

Breakout trigger: $24.25

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

Chart of PPDI:


WMT $53.45 +0.48 -- Wal-Mart Stores Inc.

Shares of WMT continue to churn sideways in the $52.50-55.00 zone. The stock doesn't move very fast. It could take a while before WMT hits our trigger to open positions 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).

FYI: WMT is due to report earnings on Feb. 18th.

Buy-the-Dip trigger: $50.50

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

Chart of WMT: