Option Investor
Newsletter

Daily Newsletter, Saturday, 2/20/2010

Table of Contents

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

Leaps Trader Commentary

Can It Climb?

by James Brown

Click here to email James Brown

U.S. stocks turned in some impressive gains for a holiday shortened week. Yet in spite of the gains volume was light. If there is no volume on the bounce then that could mean investors are nervous or they just don't believe the rally is for real. The rebound started to lose steam as stocks neared overhead resistance. Now depending on which index you look at we're either at resistance or possibly just above it but almost all of them look short-term overbought with the sharp two-week bounce.

This week trading could be dominated by foreign markets again. Many expect the Chinese Shanghai market to open lower after a weeklong holiday. You probably remember the big headlines on February 12th when government officials waited for the Chinese market to close before announcing they were raising bank reserve requirements for the second time this year. Monday will be the first time Chinese investors will get a chance to react to that news. Reuters said short-selling pressure in the Hong Kong markets surged on Friday in anticipation of a down move in the Shanghai market.

More importantly China's decision to raise bank reserve requirements is an effort to cool down their economy. In the past they usually issued a series of moves to change policy and slow down lending and growth. This could be the beginning of a multi-month move to slow down business before the economy overheats. Economists are left to question how China's new stance will affect the struggling global rebound.

It will be interesting to see how the Shanghai market reacts this week but the real focus might be on Europe. Another week has passed without any hard details on the EU's "aid" package for Greece. We knew the "special summit" recently held by EU leaders was just a diversion to buy some time. During this lull most of the European stock markets have produced a string of gains. Now it looks like time could be running out.

Greece has a lot of debt it needs to rollover. The country plans to auction off five billion euros worth of ten-year bonds in the next week or two. The success or failure of this auction could have massive repercussions. If Greece is successful with this auction then it would go a long way to defuse the situation. If Greece is not successful then it will re-ignite the EU-implosion fears and debt default worries for Portugal, Italy, Ireland, (Greece) and Spain - the PIIGS countries. Bigger picture it raises concerns about the future of the EU since so many members are in trouble.

Credit default swaps on Greece debt are already at historical, all-time highs, which suggests investors have no faith in Greece's ability to repay their debts. Yet given the stakes for this auction one has to wonder if all the EU countries will pull together and secretly buy these Greek bonds just to make sure demand is strong and it's seen as a success. Sadly we don't have a date yet for this event but it's supposed to be "soon".

One of the biggest stories last week was the Federal Reserve's decision to raise the interest at the discount window from 0.50% to 0.75%. This is the rate they charge banks for emergency loans so it has no real affect on you and me. Business at the discount window has shrunk significantly so most analysts felt this move was largely symbolic. It was heralded as a move to "normalization" of the system. Unfortunately the Fed made this interest rate change after hours and left the world wondering for several hours what does "normalization" mean and what was the next piece of monetary policy to get normalized? The biggest concern was whether or not the Fed was going to normalize interest rates, which are currently sitting at an all-time historical low of 0.0%-0.25%.

Fortunately the answer seems to be that the Fed will leave interest rates alone for now. The mean reason for the Fed to raise rates is to combat inflation and in the U.S. inflation is virtually nonexistent. The next day, Friday, the consumer price index (CPI) came out with a +0.2% gain, which was smaller than expected. The 12-month rate came in at +2.7%. The core rate of inflation, which excludes more volatile food and energy prices, actually fell 0.1% in January. That was the first monthly decline in the core rate since December 1982. More than one economists believes that the Fed will leave rates unchanged for the rest of 2010.

Overall most of the economic data last week was bullish except for the weekly initial jobless claims, which continue to disappoint. Of course we already knew that unemployment was going to be a consistently dark cloud over the economy for months to come so no surprise there. This week we'll get another wave of economic data with consumer confidence, home sales data, the Richmond Fed survey, the Kansas City fed survey, the ISM numbers, and the GDP revision. As long as we don't get any serious disappointments I'm expecting the data flow to remain positive for stocks.

To wrap things up we've got China trying to slow down its economy and its market poised to fall short-term. European stocks have been in rally mode but that could change if Greece creates a stink with a failed debt auction. That would send the euro plummeting even more and the dollar's strength would hammer commodities again. Most of the economic data in the U.S. has been healthy as long as we ignore the unemployment numbers and turn a blind eye to the rising amounts of debt and questionable bidders for our own debt auctions. The short-term trend in stocks is up but we're arguably short-term overbought now with stocks near resistance. I'll be honest. Part of me feels like stocks should roll over soon and we'll see a new lower low before March is over. However, bull markets tend to climb a "wall of worry" and I believe we plenty of things to worry about for now. This bounce may not be over yet.

Chart of the S&P 500 Index:

Weekly Chart of the S&P 500 Index:

Chart of the Russell 2000 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:

Our portfolio is growing again. Both BIIB and BWA jumped from the watch list to our play list last week. CHK did well on its earnings report. EMR hit our first target. PRE is off to a great start. Yet overall it looks like the market's bounce is running into resistance and/or losing steam.

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

Bulls Back At It

by James Brown

Click here to email James Brown


Metals On the Rebound Again


Editor's Note:

Titanium Metals - TIE - close: 12.06 change: +0.28

Why We Like It:
The metal stocks are on the rebound again. What I find interesting is that investors are buying these stocks even though European GDP growth has stalled and China is slamming on the brakes to cool down their economy. Shares of TIE did see a significant correction from their highs and investors are buying it near prior resistance, which is typically new support.

I would consider this a slightly aggressive play for two reasons. First, China probably isn't through applying the brakes to its economy. Future announcements from the country could have an impact on the steel and metals industry. Second, TIE is due to report earnings on February 25th after the market's closing bell. Wall Street expects a profit of one-cent per share. Reaction to earnings could send this stock flying either direction. I am suggesting bullish positions now. More conservative traders may want to wait until after we see the market's reaction to the earnings news.

There is some resistance near $15.00 but our long-term target is $19.75. Choose either the 2011 or 2012 LEAPS.

Company Info:

TIMET is the world's largest supplier of high quality titanium metal products. With its unique combination of strength, light weight, corrosion resistance and other metallurgical properties, titanium is used in hundreds of diverse aerospace, industrial and emerging applications where no other metal is as reliable or economical, especially on a lifecycle costing basis. As a fully-integrated titanium manufacturer and distributor, TIMET's activities span every phase of titanium research, manufacturing and sales. (source: company press release or website)

Use the 2011 or 2012 January calls (Entry point - now, at current levels)

BUY CALL JAN 2011 $15.00 strike (VWN1122A15) current ask $1.40
-or-
BUY CALL JAN 2012 $15.00 strike (WWN1221A15) current ask $2.60

Chart of TIE:



Play Updates

A Pause In the Rally?

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 22.57 change: -0.08

ACI did manage a gain for the week but I'm concerned the bounce is stalling under technical resistance at the 100-dma. The stock might dip again and retest the $21.00-20.00 zone before moving higher. I suggest you look for the dip and then buy LEAPS on the bounce.

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 $1.25/1.40
-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 $4.40/4.80
-stop loss on ACI @ 18.99

Chart of ACI:


Biogen IDEC - BIIB - close: 56.61 change: +0.63

BIIB was on our watch list. The rally in biotech stocks continued and BIIB hit our trigger to buy LEAPS at $56.60 on Friday. I would still consider new positions now but since I am expecting a dip in the market readers could be patient. You might get a better entry point near $54.00. Our first target to take profits is at $64.90.

Feb 19th, 2010 - entry price on BIIB @ 56.60, option @ 4.60
symbol: OIY1122A60 2011 JAN $60 LEAP call - current bid/ask $4.30/4.70
-stop loss on BIIB @ 51.85

Chart of BIIB:


Berkshire Hathaway Inc. - BRK.B - $78.74 +2.10

It was another strong week for shares of Berkshire. Friday was very strong with a 2.7% gain and a breakout to new 52-week highs and past short-term resistance near $78.00. I'd rather not chase it here if you're looking for a new entry point. The stock will eventually correct again. The $80.00 level could prove to be round-number resistance. Although on the positive side of things I'm not longer worried about a bearish double top at $78.00. Remember, this is a long-term hold for us.

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 $6.00/6.40
-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 $7.50/8.20
-stop loss on BRK.B @ 64.95

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 37.35 change: +0.27

BWA was another watch list candidate that hit our trigger to buy LEAPS last week. The entry point was $37.55. Chart readers will notice that BWA has broken out from its bearish trend of lower highs and a four-week consolidation. I would still consider bullish positions now although I am expecting a little market dip. Readers could wait for a dip toward $36.00. Our first target is $44.50. Our second target is $49.75. FYI: More conservative traders might want to use a stop loss closer to $34.00.

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: ZWY1122A40 2011 JAN $40 LEAP call - current bid/ask $3.60/4.20
-stop loss on BWA @ 31.90

Chart of BWA:


Chesapeake Energy Corp. - CHK - close: 27.59 change: +0.13

It has been a very strong week for CHK in spite of weakness for natural gas prices. The reported better than expected earnings and garnered some analyst upgrades. The stock is surging but now looks short-term overbought. Our long-term target is $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 $5.25/5.35
-stop loss on CHK @ 20.95

Chart of CHK:


Consol Energy Inc. - CNX - close: 49.91 change: +0.24

The bounce in shares of CNX has stalled. I wouldn't be surprised to see shares consolidate back down toward the $47.50 region or even support near $45.00. How low it dips could really depend on commodity strength this week. I'll repeat my comments from last week. More conservative traders may want to wait for a close over $51.00 before considering new bullish positions.

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 $13.70/14.20
-stop loss on CNX @ 41.45

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

Chart of CNX


EMR $48.08 +0.35 -- Emerson Electric Co.

Target achieved. The rally in EMR continued and shares broke to new 52-week highs. The stock hit our target to sell half the position at $47.50 on Feb. 18th. I am raising our stop loss to $41.90. Our second and final target is still $54.50. I am not suggesting new positions at this time. The $50.00 level could easily be round-number, psychological resistance. We should expect resistance and some profit taking.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $9.10/9.70
-stop loss on EMR @ 41.90

02/18/10 1st Target hit @ 47.50, option @ $8.80 (+95.5%)

Chart of EMR:


Forest Oil Corp. - FST - close: 27.01 change: +0.32

Shares of FST were seeing some volatility last week with a big gap higher on the 16th and a bearish reversal pattern on the 17th. Thankfully there was no follow through on the bearish reversal but we can expect more volatility this week. FST is due to report earnings on Feb. 22nd after the closing bell. Wall Street expects a profit of 60 cents a share. I am not suggesting new positions at this time. We need to see how the stock reacts following its report. Please note our new stop loss at $21.75. More conservative traders may want to use a stop closer to $23.00 or $24.00. 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 $8.80/9.20
-stop loss on FST @ 21.75

Chart of FST:


Intel Corp. - INTC - close: 20.82 change: -0.02

INTC posted a gain for the week but most of it happened on Tuesday's gap higher. Shares have been consolidating sideways since the gap. DELL's earnings did not have much of an affect on INTC. Shares are close to recent resistance in the $21-22 zone so it's not surprising to see shares stall. If the trading range holds then we can expect a dip back toward the $19 region. 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 $2.49/2.52
-stop loss on INTC @ 17.90.

Chart of INTC:


Mosaic Co. -MOS - close: $60.78 change: +0.22

MOS managed a decent gain for the week but most of it happened on Tuesday's gap open higher. I did hear some news about declining potash inventory levels, which should be bullish for the industry. Shares have been spending the last few days holding above prior resistance and what should be support near $60 and its 50-dma. Although this "support" is so new if the market sees any real dip I don't expect it to hold. I suggested that more conservative traders wait for a move over $60 before launching positions and you got it last week. 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 $7.75/8.15
-stop loss on MOS @ 49.00

Chart of MOS:


Manitowoc Inc. - MTW - close: 12.25 change: -0.08

MTW's rally ran out of steam under $13.00. If the pull back continues I would look for support near $11.50 or near the 50-dma around $11.00. The real challenge for MTW will be to rally past its January highs. 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 $3.60/3.90
-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:


Oracle Corp. - ORCL - close: 24.32 change: -0.20

Last week was very healthy for ORCL. The stock broke out from its consolidation pattern, which had started to turn bearish on us. Shares rallied past the 50-dma and potential resistance at $24.00. I would be tempted to buy LEAPS at current levels or on dips near $23.50. 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 $2.11/2.15
-stop loss on ORCL @ 21.40.

Chart of ORCL:


PEP $62.66 +0.13 -- PEPSICO Inc.

Last week may have been a turning point for PEP. The trading definitely took on a more positive tone with a breakout past its 50 and 100-dma. The bounce did pause at its January highs but that's better than a lower high. Another positive last week was news that shareholders of both Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) has approved the merger with PEP.

I still hesitate to launch new long-term LEAPS with PEP still under resistance at $63.00. Although it is worth noting that our protective March put may not be needed any more. We'll have to wait and see. Our exit target for the 2011 January $60 LEAP is $69.90.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $5.45/5.60
-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 $0.06/0.08

Chart of PEP:


Potash Corp. - POT - close: $115.14 change: -0.06

The rally continues for POT with another weekly gain although it looks like momentum could be slowing a bit. There was some talk last week of declining potash inventories, which should be bullish for the industry. Shares of POT look a little bit overbought so I wouldn't be surprised to see a dip back toward $110-107.50ish. Please note that I am raising the stop loss to $94.75. 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 $19.10/19.70
-stop loss on POT @ 94.75

Chart of ORCL:


PartnerRe Ltd. - PRE - close: 79.25 change: +0.51

Our new trade on PRE is off to a nice start. The rally did not slow down in the least with shares up another four days in a row. PRE is definitely short-term overbought now. I would wait for a dip before considering new positions. The $76-74 zone should offer some support. 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.

Feb. 13th, 2010 - entry price on PRE @ 76.28, option @ 2.70
symbol: PRE1021H80, 2010 AUG $80 call - current bid/ask $3.70/4.10
-stop loss on PRE @ 69.75

Chart of PRE:


Reynolds American Inc. - RAI - close: 52.67 change: +0.27

The oversold bounce in RAI continues but we're still in jeopardy. RAI appears like it will have resistance near $53.00 and its 50-dma. A failure in this area will be a bearish reversal and a sign that we might want to exit early! More conservative traders will still want to consider an early exit now. I am not suggesting new positions. Our final exit 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 $11.60/13.10
-stop loss on RAI at $49.75

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

Chart of RAI:


UltraShort 20+ Year Treasury Bond ProShares - TBT - cls: 49.57 chg: -0.42

The TBT continues to move our direction with a spike over $50 last week. However, this trade is turning out to be more volatile than anticipated. We could see more volatility as currencies dance around affecting bond yields. This news about Greece trying to sell five billion euros worth of ten-year bonds in the next week or two could have a big impact on the dollar/euro relationship. If the U.S. ever sees its own "failed auction" we will see even crazier volatility.

While I am encouraged by the action in TBT this past week I'm still not suggesting new positions.

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 $3.15/3.50
-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 $6.70/7.05
-stop loss on TBT @ 45.90

Chart of TBT


iShares 20+Yr Bond ETF - TLT - close: 89.45 change: +0.48

The inverse to our TBT trade is the TLT. This ETF sank to new relative lows on Thursday. If the TLT bounces look for it to find some short-term resistance in the $91.00 region. 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 $4.70/4.85
-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 $6.95/7.30
-stop loss on TLT @ 94.15

Chart of TLT


UnitedHealth Group Inc. - UNH - close: 31.94 change: -0.75

The correction in shares of UNH continues. We've been expecting a pull back toward $30.00 for a while but it's taking a lot longer than expected. Shares just closed under their 50-dma again and with the pattern of lower highs I'm still short-term bearish. The $30.00 level should be very significant support. Wait for a dip or a bounce near $30.00 before considering new long-term LEAPS 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 $2.95/3.05
-stop loss on UNH @ 28.95

Chart of UNH:


VICOR Corp. - VICR - close: 9.54 change: -0.24

Hmm... it looks like the rally in VICR is running out of steam as it near resistance at $10.00. The action this past week, especially on Thursday and Friday looks like a potential failed rally pattern. I would expect a correction back toward the $9.00 area. 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).

Dec 26th, 2009 - entry price on VICR@ 9.30, option @ 1.40
symbol: VQV-GB, 2010 JUL $10 call - current bid/ask $0.80/1.15
-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 $0.80/1.15
-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

Catching My Eye

by James Brown

Click here to email James Brown


New Watch List Entries

None


Active Watch List Candidates

AKAM - Akamai Technologies

FXB - CurrencyShares British Pound

MCD - McDonald's Corp.

MSFT - Microsoft Corp.

PETM - PETsMART

PNRA - Panera Bread Co.

WMT - Wal-Mart Stores Inc


Dropped Watch List Entries

BIIB and BWA graduated to our play list. PPDI was removed.


New Watch List Candidates:

Editor's Note:

We had two watch list candidates graduate to the play list last week. I hesitate to add too many more with so much uncertainty in the market right now. Instead of listing a full-fledged watch list entry I'm sharing a few stocks that have caught my eye.

CELG looks tempting right here. CTXS could be a candidate if it breaks out past $45.50. I still think CRS could have potential. Last week I also mentioned SAFM, which broke out over the $50 level. FXB is already on the watch list but aggressive traders could jump in early.


Active Watch List Candidates:


AKAMAI Tech. - AKAM - $25.89 +0.16

AKAM is trying to breakout past resistance near the 50-dma and the $26.00 level. The stock still looks overbought and due for a deeper, more significant correction. 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 $154.00 -1.67

I hope we didn't miss our entry point. The FXB is falling just as expected. Unfortunately this currency ETF hasn't hit our entry point yet. I don't want to chase it and the currency markets are bound to see some volatility over the next couple of weeks, especially as Greece tries to sell more debt.

No change in our strategy for now. We want to buy LEAP puts if the FXB hits $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

BUY the 2010 September $150 put (FWK1018U150)

Chart of FXB:


McDonald's Corp. - MCD - close: 64.74 change: +0.26

We may want to reconsider our entry point strategy if MCD continues to show relative strength. I still see potential resistance in the $65-66 zone so I'm not ready to jump in yet. Our preferred entry point is a dip to $60.00. 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 - close: $28.77 change: -0.20

MSFT is bouncing sooner than expected. Shares found support near $27.60. I would hesitate to buy this bounce with technical resistance in the $29-30 zone. We'll stick to our plan for now, which is wait for a dip to $25.00. 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:


PETsMART Inc. - PETM - close: 27.34 change: +0.17

PETM has rallied back toward resistance at its 2009 highs. We don't want to chase it yet. Aggressive traders might want to reconsider and buy LEAPS on a close over $28.00 or $29.00 (the weekly chart shows some resistance near $29.00). I'd prefer to see a correction but we may not get it. If triggered at $24.00 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:


Panera Bread Co. - PNRA - close: 73.84 change: +0.50

I don't see many changes from my prior comments on PNRA. The stock is still consolidating sideways. You could argue that PNRA is poised to breakout from this trading range with resistance in the $74-75 zone. I am more concerned that PNRA looks extremely overbought on its weekly chart. However, more aggressive traders may want to consider opening small bullish positions on a close over $75.00. Officially our plan is to buy LEAPS on a dip near $65.00. 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 $21.20 +0.03 -- Pharmaceutical Product Development Inc.

I am dropping PPDI as a watch list candidate. The stock's oversold bounce is already rolling over. Shares look poised to retest the $20 region again. PPDI never hit our trigger to open positions at $24.25.


Wal-Mart Stores Inc. - WMT - close: 53.49 change: +0.02

WMT reported earnings this past week. The results failed to impress and management said Q1 sales could be challenging. Shares are still consolidating sideways. 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).

Buy-the-Dip trigger: $50.50

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

Chart of WMT: