Option Investor
Newsletter

Daily Newsletter, Saturday, 2/13/2010

Table of Contents

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

Leaps Trader Commentary

It Could Have Been Worse

by James Brown

Click here to email James Brown

Another week has gone by and nothing has changed. The stock market still looks poised to bounce higher while investors are trying to sift through a flood of mixed news events. I can't really say nothing has changed. Overall the news flow last week was negative. We did get a promise to help Greece at the special EU summit last Thursday but there were no details. All the sound bites and promises merely bought the EU some time before the situation imploded. Markets will be expecting some details later this week.

If you believe the numbers then China's consumer price index, a gauge of inflation, came in below expectations. That eased concerns that China would not tighten their monetary policy. Unfortunately that was the wrong idea. About 24 hours later China shocked the world by raising their bank reserve requirements for the second time in a month.

Chinese authorities patiently waited until after their markets were closed for a weeklong Lunar New Year holiday in which the nation of China moves from the year of the ox to the year of the tiger. If you listen to the experts on China this is just the beginning and the country could raise rates or tighten bank reserves several times this year to slow down lending, slow inflation, and slow down their economy. One analyst went so far as to say China isn't tapping the brakes they are slamming on the brakes to slow down their economy. With +10% GDP growth last year you really can't blame them for wanting to cool down before they are faced with runaway inflation. Unfortunately, if China is trying to slow down it casts a huge doubt on how long China will be the main engine of growth to pull the rest of the world out of recession.

U.S. data this past week wasn't very exciting either. The only good news was the January retail sales report, which came in better than expected. Investors ignored the news. Business inventory data was very disappointing and raises questions about how strong the recovery might be in the U.S. We went through a 13-month stretch of falling business inventories. After a two-month bounce it seemed like we were in the long-awaited inventory replenishment phase. If the bounce is already failing then businesses are even more cautious/worried than we expected.

This past week also brought the Q4 GDP data for Europe. It too was very disappointing. In the third quarter Germany was leading the region higher. In the fourth quarter Germany, Europe's largest economy, stalled with zero growth. France is Europe's second largest economy and were it not for France's +0.6% GDP gains in Q4 the entire region probably would have been negative. Overall the 16-country eurozone turned in +0.1% GDP growth in the fourth quarter. Meanwhile most of the PIGS countries delivered flat or negative GDP growth. The combination of the European economic recovery stalling and no details on the Greek aid package sent the euro sliding lower again. The euro may be in a serious, long-term decline. That's going to boost the dollar, which will put pressure on commodities.

We are going to get another parade of economic data this week. The results could move the market either direction. Headlines to watch out for are the NY Empire manufacturing survey, weekly chain store sales data, industrial production, FOMC minutes, producer price index (PPI), the Philly Fed survey, and the consumer price index (CPI).

If you consider how much negative data we saw last week stocks performed relatively well. You could certainly make the case that it could have been worse. On the other hand the oversold bounce has been very anemic and you could easily argue that this oversold rebound is shaping up to be a bear-flag pattern, especially on the S&P 500. Even if stocks do bounce there is significant resistance overhead. I'm concerned that any rebound may prove to be a short-term entry point for bearish trades.

In contrast to this sour outlook I did see a number of bullish charts this weekend. You'll notice that we're adding stocks to our watch list and we added a new stock to the portfolio. I am still very worried about a double-dip recession. Thus far 2010 is shaping up as expected with a very strong 2009 Q4 GDP that will probably fade lower throughout Q1 and Q2. Sadly the second half of this year remains as murky as ever.

In summary stocks are still trying to bounce but will remain extremely sensitive to any news out of Europe over Greece's debt problems. While we wait on news out of Europe the market will get tossed around by economic data in the U.S. I'm cautiously optimistic in spite of all storm clouds circling overhead but I would be very careful about putting money to work in the market. Consider slowly scaling into positions if you see an entry point.

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 oversold bounce in the stock market is struggling but overall last week was pretty bullish for our portfolio. I am still seeing new entry points in some of our candidates. You might notice that I have updated the LEAPS portfolio table below for any additional entry points outlined in the newsletter. The stop loss column is also up to date.

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

Reinsurance Rally

by James Brown

Click here to email James Brown


Outperforming Its Peers


PartnerRe Ltd. - PRE - close: 76.28 change: +0.01 stop: 69.75

Why We Like It:
The insurance sector has been trading sideways for months but it looks like PRE is breaking out after a four-month consolidation. The company just recently reported earnings that were significantly better than Wall Street's estimates. Revenues soared 29% and also beat expectations. The stock has been trading very technically. If you study the weekly chart you'll notice that the correction over the last four months has stalled and found support near the 50% retracement level. On the daily chart this coincides with the rising 200-dma. The breakout is a bullish breakout from its trend of lower highs, a breakout past its 50-dma and a breakout from an inverse head-and-shoulders pattern.

I am suggesting bullish call positions now. Unfortunately PRE doesn't have LEAPS so we'll have to use the 2010 August calls. Our first target is $84.90. Our second, longer-term target is $97.50. We'll use a stop loss at $69.75. More conservative traders might be able to get away with a stop closer to $71.50.

Company Info:

PartnerRe Ltd. (NYSE:PRE) is a provider of risk-assumption solutions for the global insurance and capital markets. We provide insurance companies with multiple lines of reinsurance — property & casualty, catastrophe, specialty lines, life, and alternative risk transfer — through our offices around the world. (source: company press release or website)

Use the 2010 August calls (Entry point - now, at current levels)

BUY CALL AUG 2010 $80.00 strike (PRE1021H80) current ask $2.70

Chart of PRE:



Play Updates

Coal Looks Ready To Charge

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


ACI $21.65 +0.20 -- Arch Coal Inc.

ACI managed to post a gain for the week. More importantly the stock held support near $20.00 and its rising 200-dma. The coal sector also garnered some bullish analyst comments on Friday. In last week's update I said I was tempted to buy call LEAPS again. Now I'm even more tempted. Shares have held support near the $20 level for nearly two weeks now. I am suggesting new positions now. I prefer the January 2012 $25 calls (see below). More conservative traders can wait for a move over $22.00 or its 50-dma (23.00) before initiating new positions.

Our exit strategy hasn't changed. Our final target is $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

--2nd Entry--
Feb 13th, 2010 - entry price on ACI @ 21.65, option @ 4.40
symbol: YEP1221A25 2012 JAN $25 LEAP call - current bid/ask $3.80/4.40
-stop loss on ACI @ 18.99

Chart of ACI:


Berkshire Hathaway Inc. - BRK.B - $76.90 +0.21

BRK.B rallied more than 4% on the week as investors bought the stock ahead of its inclusion into the S&P 100 and S&P 500 indices. Friday saw massive volume of 316 million shares as mutual funds added BRK.B to their portfolios. On a short-term basis I'm concerned that BRK.B may be forming a double top since the rally stalled at its early February highs. Don't be surprised if shares contract. This is a long-term hold for us. I suspect you have time to be patient and wait for your entry point. I would target a dip in the $73-70 zone as a possible entry.

Our first target is $90.00. Our second target is $99.50

Feb 6th, 2010 - entry price on BRK.B @ 73.57, option @ 4.80
symbol: 2011 JAN $80 XPB1122A80 LEAP call - current bid/ask $5.50/6.70
-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 $6.90/8.60
-stop loss on BRK.B @ 64.95

Chart of BRK.B:


CHK $24.96 -0.17 -- Chesapeake Energy Corp.

CHK is still holding support near $24.00 and its 200-dma. More aggressive traders might want to go ahead and launch new positions here. I am suggesting a trigger at $26.55 to open new bullish positions. If you do open positions I would use the January 2012 $30 call LEAPS. Don't forget that CHK is due to report earnings on Feb. 17th after the market's closing bell. Shares could see some volatility following the report. Our long-term target is still $40.00.

Oct 30th, 2009 - entry price on CHK @ 24.00, option @ 4.70
2nd entry Feb. 6th, 2009 - entry on CHK @ 24.52, option @ 3.80
symbol: VEC-AE, JAN 2011 $25 LEAP call - current bid/ask $3.80/3.90
-stop loss on CHK @ 20.95

Chart of CHK:


CNX $49.36 +0.87 -- Consol Energy Inc.

The oversold bounce in CNX continued and shares reclaimed technical resistance at the 100-dma and 50-dma. We're not out of the woods yet. CNX still has potential resistance near $50.00. The $45.00 level may be new support. If we get another dip and bounce near $45.00 we can probably use it as a new entry point. More conservative traders may want to wait for a clsoe over $51.00.

CNX hit our first target back in September. Currently the plan is to sell another portion of our position at $58.50. Our third and final target is $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 $13.60/14.10
-stop loss on CNX @ 41.45

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

Chart of CNX


EMR $46.21 -0.32 -- Emerson Electric Co.

Shares of EMR are still holding on to their gains. Traders bought the dip near $44.50 and the stock is close to hitting its 52-week highs again. We have nothing to complain about here. 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 $7.90/8.50
-stop loss on EMR @ 39.75

Chart of EMR:


FST $26.50 +0.85 -- Forest Oil Corp.

The rebound in FST continues. A bounce in crude oil prices certainly didn't hurt this past week. Shares of FST continue to outperform their peers. There are five trading days left until FST reports earnings on Feb. 22nd after the closing bell. Readers should expect some volatility following the report. Jim is expecting crude oil to bottom in the next week or two. If we see FST dip and retest support near $24 or its 50-dma we might want to use it as an 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 $8.50/8.90
-stop loss on FST @ 19.49

Chart of FST:


INTC $20.43 +0.37 -- Intel Corp.

INTC delivered an impressive week with a 5% gain and a breakout over resistance near $20.00 and a virtual cloud of moving averages. This is really good news but shares are still trading sideways in a wide trading range. I am not suggesting new 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 $2.43/2.48
-stop loss on INTC @ 17.90.

Chart of INTC:


MOS - Mosaic Co. $58.83 +0.41

MOS delivered a nice bounce last week following its bullish double bottom near $53.00. It looks like the company had some positive things to say at an industry conference on Feb. 10th. The good news is that shares are in a short-term up trend. The bad news is that shares are now approaching resistance near $60.00 and its 50-dma. More conservative traders may want to wait for a close over $60.00 before initiating new positions. 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.

Jan 28th, 2010 - entry price on MOS @ 56.00, option @ 6.10
symbol: ZXW-AM, 2011 LEAP $65 call - current bid/ask $7.30/7.65
-stop loss on MOS @ 49.00

Chart of MOS:


MTW $11.76 +0.41 -- Manitowoc Inc.

MTW oscillated on either side of $11.00 for a good portion of the week but finally managed a rally. Shares really out performed on Friday. The stock is nearing short-term resistance at $12.00. More aggressive traders may want to use a move over $12.00 or $12.25 as a new entry point. Please note our new stop loss at $9.45. More conservative traders may want to use a stop closer to $10.00. 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 $3.20/3.50
-stop loss on MWT @ 9.45

01/18/10 Sell Half! MTW @ 13.70, option at $4.80 bid (+83.9%)

- or -

Oct. 30th 2009 - entry price on MTW (the stock) @ 9.10
- stop loss on MTW @ 9.45

01/18/10 Sell Half! MTW @ 13.70 (+50.5%)

Chart of MTW:


ORCL $23.41 +0.06 -- Oracle Corp.

ORCL has spent a little more than two weeks now consolidating sideways along support near $23.00. I'm a little concerned that during this time shares have continued to see a bearish pattern of lower highs. Given our long-term time frame readers could still choose to open positions now. However, if this trend of lower highs persists I believe odds are we'll see ORCL dip toward $22.00 and its 200-dma. Buying a bounce from $22.00 would be more attractive. If you prefer to open positions on strength then wait for a new close over $24.00 again. 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 $1.87/1.91
-stop loss on ORCL @ 21.40.

Chart of ORCL:


PEP $60.92 -0.27 -- PEPSICO Inc.

PEP temporarily spiked above its 50-dma and 100-dma as investors reacted to its earnings report on Feb. 11th. Wall Street was expecting a profit of 91 cents a share and revenues of $13.25 billion. PEP missed earnings by a penny but beat on the revenue side with $13.3 billion. Management said they planned to close on their acquisition of Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) by the end of February. The hope is that by acquiring the company's main two bottle providers they will achieve much greater profitability.

I am encouraged by the bounce this past week but PEP still has a trend of lower highs. I am not suggesting new long-term LEAPS at this time. It is not too late to consider buying a short-term March put to protect yourself. Our exit target for the 2011 January $60 LEAP is $69.90.

If you're not interested in buying a protective put then consider raising your stop loss closer to the 200-dma near $58.00.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $4.80/4.90
-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 $0.19/0.22

Chart of PEP:


POT - Potash Corp. $111.60 +0.48

We knew this was going to be a volatile play. This past week just happened to be a good one for the bulls. There was an industry conference on the 10th and it seems that analysts came away with a positive impression that demand would pick up. Shares of POT delivered a nice rebound last week with a close over potential resistance at $110 but still under technical resistance at the 50-dma. While I am bullish on POT I think readers can probably wait for another dip near $105 or even the 200-dma before launching new positions. 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 $18.10/18.40
-stop loss on POT @ 89.00.

Chart of ORCL:


RAI $51.56 -0.34 -- Reynolds American Inc.

A week ago it looked like it was game over for our RAI play as shares broke down on their earnings report. Yet there has been virtually no follow through. Traders have been buying the dips near $51.00 and its rising 100-dma. Now this could just be a rest stop before RAI begins a new leg lower. Broken support near $53.00 is now new resistance. I am not suggesting new bullish positions. More conservative traders will still want to consider an early exit. Our final target is $57.50.

Please note our new stop loss at $49.75.

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 $11.00/12.20
-stop loss on RAI at $49.75

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

Chart of RAI:


TBT $48.81 -0.33 -- UltraShort 20+ Year Treasury Bond ProShares

Wow! What a difference a week can make. Last week I was worried about the TBT breaking down. Shares have reversed higher and spiked to $49.61 on Thursday. That doesn't mean we're out of the woods but it certainly improves our position.

The situation in Europe has not changed. Yes, there was a pep rally last Thursday where the EU leaders said they would stand behind Greece and help them get back on their feet but there were no details on what this help would look like. At the same time bond market experts are suggesting that the U.S. is close to our own "failed auction". This past week the amount of normal bidders decreased significantly and the gap was made up with bidders of unknown origin, which might suggest the U.S. is buying it's own debt to make it look like there is demand.

While I am encouraged by the action in TBT this past week I'm still not suggesting new positions. There are supposed to be new details on the Greece bailout this coming week and it the market doesn't like it then the euro will fall and the dollar will bounce and money could seek safety in U.S. bonds.

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 $3.40/3.75
-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 $6.75/7.40
-stop loss on TBT @ 45.90

Chart of TBT


TLT $90.19 +0.37 -- iShares 20+Yr Bond ETF

It's the same situation with the TBT but in reverse. We were concerned the TLT was going to breakout but the ETF has reversed lower instead. I would be tempted to buy new put LEAPS here but readers may want to wait for a new relative low under $88.75 first. Our first target is $81.00.

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 $4.60/4.75
-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 $6.75/7.40
-stop loss on TLT @ 94.15

Chart of TLT


UNH $32.54 +0.08 -- UnitedHealth Group Inc.

The upward trend in UNH is in trouble, at least short-term. The stock produced a failed rally/bearish reversal at $36 in January, at $34 in early February, and now shares are testing support near $32.00 and its 50-dma. I've been suggesting that UNH will eventually retreat toward $30.00, which should be significant support. Wait for the dip near $30.00 or better yet a bounce before launching new long-term call LEAPS positions.

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

FYI: In the news on Feb. 10th UNH issued a press release stating the company is issuing a cash dividend of 3 cents per share to be paid on April 20, 2010 to shareholders on record as of April 6th. As LEAPS holders we will not benefit from the dividend. The Board of Directors also announced they will renew their stock buyback program up to 120 million shares. The company purchased 74 million shares throughout 2009 with an average price of $24.26 a share.

Dec 16th, 2009 - entry price on UNH @ 31.55, option @ 3.80
symbol: VUH-AG, 2011 JAN $35 LEAP call - current bid/ask $3.25/3.35
-stop loss on UNH @ 28.95

Chart of UNH:


VICR $ 9.50 +0.14 -- VICOR Corp.

Last week I suggested readers buy LEAPS again but I'll be honest. I wasn't expecting a 13.3% rally in the last five days. I couldn't find any news to account for the huge relative strength. VICR doesn't seem to have that much short interest but it certainly looks like a short squeeze. The stock skyrocketed off the $8.00 level and soared past resistance near $9.l00 and its 50-dma. The next obstacle is round-number resistance at $10.00. Of course the problem now is VICR looks short-term overbought. I'm not suggesting new positions at this time.

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 $0.85/1.10
-stop loss on VICR @ 7.45

--2nd Entry Point--
Feb 6th, 2009 - entry price on VICR @ 8.38, option @ 0.70
symbol: VQV-GB, 2010 JUL $10 call - current bid/ask $0.85/1.10
-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:



Watch

Looking For More Relative Strength

by James Brown

Click here to email James Brown
Editor's Note:

We are adding a couple of new candidates to the watch list. Both have a very good chance of hitting our entry points this week.


New Watch List Entries

BIIB - Biogen IDEC

BWA - BorgWarner Inc.


Active Watch List Candidates

AKAM - Akamai Technologies

FXB - CurrencyShares British Pound

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

None.


New Watch List Candidates:

Editor's Note:

FYI: In addition to tonight's new watch list candidates I'm also watching Carpenter Technology (CRS) and Sanderson Farms (SAFM). Check them out.


Biogen IDEC - BIIB - close: 55.21 change: -0.48

The biotech sector has been one of the strongest performers in this market. The BTK biotech index has been able to recover from the recent sell-off attempts and is still trading near its 52-week high. BIIB has a similar pattern. The stock has been consolidating its gains in a $52-55 range the last several weeks. Now it looks like BIIB is beginning to breakout higher. If you study the weekly chart you'll see resistance near $55.00. Technically BIIB is already in breakout mode. I want to see a little confirmation first so I'm suggesting a trigger to buy long-term LEAPS at $56.60. If triggered our first target is $64.90. We'll use a stop loss at $51.85.

Company Info:
Biogen Idec is among the world's leading global biotechnology companies. We are a Fortune 500 company with more than $4 billion in revenue. Patients in more than 90 countries benefit from our products. In the near term, our success will be driven by continued solid performance of AVONEX, the expansion of RITUXAN into autoimmune treatments, the growth of TYSABRI, and ongoing geographic diversification. (source: company press release or website)

Breakout trigger: $56.60

BUY the 2011 January $60 calls (OIY1122A60)

Chart of BIIB:


BorgWarner Inc. - BWA - close: 36.64 change: +0.98

The early January rally saw BWA produce a major bullish breakout. Since then the January correction hasn't been that bad. Traders bought the dip twice near support around $34.00. Shares seem to be digesting their gains in a normal, healthy fashion. I am seriously tempted to buy LEAPS on BWA right here. However, on a short-term basis BWA still has a bearish trend of lower highs. I'm suggesting a trigger to buy call LEAPS at $37.55, which should break that trend. More conservative traders can wait for a new relative high over $38.50 before initiating positions. If triggered at $37.55 we'll use a stop loss at $31.90 (more cautious traders could use a stop near $33.75). Our first target is $44.50. Our second target is $49.75.

Company Info:
Auburn Hills, Michigan-based BorgWarner Inc. (NYSE: BWA) is a product leader in highly engineered components and systems for vehicle powertrain applications worldwide. The FORTUNE 500 company operates manufacturing and technical facilities in 64 locations in 17 countries. (source: company press release or website)

Breakout trigger: $37.55

BUY the 2011 January $40 calls (ZWY1122A40)

Chart of BWA:


Active Watch List Candidates:


AKAMAI Tech. - AKAM - $25.33 -0.19

AKAM gained a penny last week. While shares are sliding sideways the trend of lower highs is still in place. Thus the path of least resistance should be down. I'm expecting a dip toward technical support near its 200-dma currently rising toward $22.00. Currently our trigger to buy LEAPS is at $22.10. 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

BUY the 2011 January $25.00 calls (OMU1122A25)

Chart of AKAM:


FXB - CurrencyShares British Pound Sterling $156.18 -0.27

Investors have heard a lot about the PIIGS lately. That's Portugal, Italy, Ireland, Greece and Spain. All of them are European countries struggling with excessive debt. What a lot of investors don't know is that Britain's economy is still struggling. The British pound has turned bearish. A week ago the pound looked oversold and due for a bounce. That is still the case today. However, I'm adjusting our entry point to buy put LEAPS from $157.50 to $158.50. If triggered we'll use a stop loss at $162.55. Our first target is $150.00. Our second target is $144.00.

Buy-the-Bounce trigger: $158.50 *new trigger*

BUY the 2010 September $150 put (FWK1018U150)

Chart of FXB:


MCD $63.59 -0.20 -- McDonald's Corp.

MCD spent the week consolidating sideways. There is no change 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 $59.00 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 - $27.93 -0.19

MSFT spent the week vacillating on either side of $28.00. The short-term trend is still down but shares need to break support near $27.50. I don't believe the correction is over so we're waiting for a deeper retracement. Currently the plan is to buy call LEAPS at $25.00. However, more aggressive traders may want to jump in early if MSFT finds support at its rising 200-dma (closer to $26.00). 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 $26.59 +0.24 -- PETsMART Inc.

PETM displayed some relative strength last week. The stock gapped higher on Feb. 9th thanks to an analyst upgrade. The rally has stalled at its 50-dma but short-term PETM looks like it wants to trade higher. I'm suggesting we wait for a deeper correction toward support near $24.00 and its 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 $73.58 +0.67 -- Panera Bread Co.

I was expecting PNRA to see some profit taking when they reported earnings on Feb. 11th since shares had already rallied back in January when management pre-announced positive results. Shares of PNRA did initially gap open lower but the stock quickly rebounded. Now we can't always trust the first session's performance following a major event like earnings. I'm not willing to change our strategy just yet. PNRA, while strong, is overbought. We want to wait for a dip toward $65.00, which should be support. I'm suggesting a trigger at $65.50. If triggered we'll use a stop loss at $59.50. Our long-term target is the $84.50 level.

Buy-the-Dip trigger: $65.50

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

Chart of PNRA:


PPDI $21.65 -0.09 -- Pharmaceutical Product Development Inc.

The sell-off in PPDI really got ugly last week with a plunge past its 200-dma. Fortunately for shareholders the stock is seeing an oversold bounce. The recent weakness is almost enough to drop PPDI as a candidate. If we don't see some follow through on the recent bounce we will drop it. Our plan remains unchanged. 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.

Breakout trigger: $24.25

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

Chart of PPDI:


WMT $52.90 -0.18 -- Wal-Mart Stores Inc.

The consolidation in WMT is starting to take on a more bearish tone. We've been expecting a deeper correction. We just wish WMT would move more quickly. Our plan is unchanged. I'm suggesting readers buy call LEAPS 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: