Option Investor
Newsletter

Daily Newsletter, Friday, 2/26/2010

Table of Contents

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

Leaps Trader Commentary

S&P 500 Could See 1150 Again

by James Brown

Click here to email James Brown

The stock market has produced a bumpy ride this week. Yet so far investors seem to be digesting the bad news without too much turmoil. There was no crash in the Chinese Shanghai market once it reopened from a weeklong holiday. It looks like the multi-day bout of profit taking in the European markets could end with a bounce on Friday. Overall this consolidation is starting to take on a more bullish tone. The big rebound off of Thursday's lows is definitely short-term bullish. We just need to see some confirmation.

While I'm growing more optimistic that doesn't mean we don't have some major issues still in front of us. The debt issues with Greece are heating up again. The country has been suffering protests and strikes from its labor force in response to the EU demanding deeper budget cuts. Bloomberg claims the country needs to pay off or roll over 20 billion euros worth of debt by May 2010. That's going to be an expensive proposition. This past week Fitch downgraded Greece's four major lenders and Moody's and S&P both said they were thinking about downgrading the country's credit rating again. Credit default swaps on Greek debt continue to climb higher. This is putting pressure on the euro, which sank to a new multi-month low against the dollar.

We can probably credit Fed Chairman Ben Bernanke for the benign correction in stocks this past week. Bernanke's semi-annual presentation to Congress was generally positive. He reinforced the view that the Fed would keep rates low for the foreseeable future. More than one analyst believes the Fed will leave rates unchanged for the rest of 2010.

Thank goodness for Ben because without him the new home sales data could have soured investor sentiment. January's new home sales pace was the absolute worst on record! Foreclosures in pre-existing homes continue to flood the real estate market and drive prices lower. Sadly there doesn't appear to be any end in sight for the foreclosure problem.

Bernanke didn't come out and say it but he suggested that the major snow storms that have hit so much of the U.S. these past few weeks could have a negative albeit temporary impact on economic data like home sales and jobs. His point was the weather's impact would be temporary. I just want to warn you that the next few weeks of economic data could be worse than expected.

I am writing this commentary on Friday morning since I'll be traveling the next several days. We have yet to see how the market will react to the GDP revision numbers and the ISM data due out before the opening bell. Economists are expecting U.S. GDP to remain unchanged at +5.7% for the fourth quarter of 2009. Unless there is a serious revision I doubt it will move the market.

Last week I gave you the "wall of worry" pitch and so far bulls look ready to climb it. The consolidation over the last few days is starting to look like a bull-flag pattern. If the market can breakout we could see the S&P 500 make a run at its highs near 1150 (see chart below).

Today's newsletter should be hitting your inbox on Friday, Feb. 26th. As I said earlier I'll be out of town the next several days. The next LEAPStrader newsletter should be delivered around March 9th. You're getting this one a couple of days early and the next one will be a couple of days late.

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:

Bears have been unable to capitalize on any market weakness. If stocks are reacting this well to news and economic data then the rebound may not be over yet. The late few days are starting to look like a bull-flag consolidation pattern.

Looking at our portfolio there were several stocks that produced one-day bullish reversal signals with Thursday's intraday bounce. These signals need to see confirmation but it's worth noting they could be new entry points.

Please note that at the time of this update option quotes were not available for the last half of the newsletter. On the image below all candidates starting at MTW and lower do not have accurate, up to date option values.

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

Need Confirmation

by James Brown

Click here to email James Brown
Editor's Note:

Traders continue to buy the dips in spite of growing concerns for Greece and lackluster economic data here in the U.S. I'm writing this ahead of the economic data due out Friday morning. We don't know yet how the market will react to the GDP revision or the ISM data expected before the opening bell.

I am growing cautiously bullish on stocks, especially given the big intraday bounce on Thursday but we need to see confirmation of the move with some follow through higher. Since we haven't seen the market reaction to Friday's economic data I'm not adding any new trades at this time, although we did add a couple of new candidates to the watch list.

I did find one more candidate readers may want to look at. It's Tractor Supply (TSCO). Shares of TSCO have broken out to new 52-week highs but they seem like they're struggling with the $55.00 level. I also see some resistance in the $57.50-58.00 zone on its long-term weekly chart but that doesn't mean shares can't keep climbing. Aggressive traders may want to consider bullish positions now or above $55.60. I think TSCO has the potential to challenge its highs in the $66-67 zone. We'll take a look at it again in the next newsletter.



Play Updates

Bullish Reversals

by James Brown

Click here to email James Brown

Editor's Note:

I want to inform readers that I will be traveling for the next several days. Thus the early newsletter today (Friday, Feb. 26th) instead of the weekend. Estimated delivery of the next LEAPStrader newsletter is Tuesday, March 9th. There will be no LEAPS newsletter for the next two weekends (Feb. 28th or March 7th).


The action on Thursday was impressive. Bullish engulfing (reversal) candlestick patterns were very common and suggest the pull back might ending soon.


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 22.15 change: +0.99

ACI has provided us another entry point. Last week I suggested waiting to buy the dip in the $21-20 zone and shares hit $20.50 on Thursday morning. Investors did buy ACI near its rising 200-dma and the rebound on Thursday has produced a bullish engulfing (reversal) candlestick pattern.

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 $1.20/1.30
-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 $4.10/4.40
-stop loss on ACI @ 18.99

Chart of ACI:


Biogen IDEC - BIIB - close: 54.89 change: -0.40

Our buy-the-breakout strategy hasn't worked that well for us on BIIB. Shares immediately reversed following last Friday's breakout. Fortunately shares appear to be finding support near $54.00 and its 40-dma. Last week I suggested readers might be better off looking for an entry point near $54.00 and we got it! Overall the biotech sector continues to outperform the rest of the market. 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 $3.40/3.70
-stop loss on BIIB @ 51.85

Chart of BIIB:


Berkshire Hathaway Inc. - BRK.B - $79.40 -0.28

Last week I warned readers that the $80.00 level might be overhead resistance. Thus far that has proven to be true with shares struggling to make it past $80 all week. With upward momentum slowing odds are rising that BRK.B is nearing a correction. A normal correction could see the stock dip back toward to the $75-73 zone.

This is a long-term trade. Take your time and wait for the right entry point. 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 $6.10/6.70
-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 $7.60/8.40
-stop loss on BRK.B @ 64.95

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 38.02 change: -0.12

Shares of BWA continue to consolidate sideways in the $37-38 zone. I would still consider new long-term positions here. If you prefer to buy on strength then look for a new high over $39.00. If you prefer to buy on dips then look for a dip toward $36.00, which should see additional support with the rising 50-dma. 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 $3.80/4.50
-stop loss on BWA @ 31.90

Chart of BWA:


Chesapeake Energy Corp. - CHK - close: 26.73 change: +0.19

If you were looking for another entry point in CHK this appears to be it! Traders are buying the dip near the 50% retracement of its February rebound. Thursday's session also looks like a bullish reversal higher although it neeOur 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 $6.00/6.35
-stop loss on CHK @ 20.95

Chart of CHK:


Consol Energy Inc. - CNX - close: 49.60 change: +1.42

CNX is another example of investors buying the dip in coal stocks on Thursday. Shares of CNX also produced a bullish engulfing candlestick with Thursday's intraday rebound. If you were looking for an entry point on CNX this is it. More conservative traders can wait for a close 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 $13.00/13.70
-stop loss on CNX @ 41.45

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

Chart of CNX


EMR $47.70 -0.46 -- Emerson Electric Co.

After hitting our first target at $47.50 last week the upward momentum in EMR has stalled. Shares do look overbought and due for a correction. I wouldn't be surprised to see a dip toward the 50-dma or even a pull back closer to the 100-dma. 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 $8.60/9.30
-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: 26.83 change: +0.50

FST is holding up pretty well. The company reported earnings on Feb. 22nd and missed expectations by 4 cents. Not only did FST miss the earnings number but it also missed the revenue number. Analysts were expecting 60 cents a share on $256 million in revenues. FST delivered 56 cents on $214.4 million. I am very, very surprised that FST did not see a bigger decline on this news. In fact the overall bullish trend remains intact and the intraday rebound on Thursday looks like a short-term bullish 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 $8.00/8.90
-stop loss on FST @ 21.75

Chart of FST:


Intel Corp. - INTC - close: 20.63 change: -0.33

The bearish reversal on Tuesday was looking pretty ugly but there was no follow through. Traders appear to be buying INTC near its 50-dma. I'm almost hopeful that INTC will try and breakout from this multi-month consolidation sideways. 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 $2.31/2.35
-stop loss on INTC @ 17.90.

Chart of INTC:


Mosaic Co. -MOS - close: $58.52 change: +0.90

If you are looking for another entry point in MOS this could be it. Most of the agriculture/fertilizer stocks were correcting sharply this week and almost all of them have produced a short-term bullish reversal with Thursday's intraday rebound. Now this reversal needs to see some confirmation but if you were looking for an entry point this could be it. However, before you commit any capital I have to warn you that MOS could be forming a bearish head-and-shoulders pattern. You may want to wait and see if shares clear the $62.50 region before launching 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 $6.50/6.80
-stop loss on MOS @ 49.00

Chart of MOS:


Manitowoc Inc. - MTW - close: 11.53 change: -0.05

Last week I cautioned readers to look for MTW to pull back toward $11.50 or its 50-dma and shares have done both. This should be short-term support. I would be tempted to reconsider new positions if MTW can trade back above $12.25 again but if you jump in that level you'll want a much higher stop loss. Our long-term target is $17.00.

NOTE: current bid/ask for the options is not correct. At the time of this update quotes were unavailable. The last trade was $3.00.

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: 24.87 change: +0.10

Shares of ORCL have been trading sideways all week but shares finally look ready to move again. Traders quickly bought the dip on Thursday when ORCL tested its rising 50-dma. There is still potential resistance near $25.00 but the trend is up. 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.

NOTE: current bid/ask for the option is not correct. At the time of this update quotes were unavailable. The last trade was $2.25.

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:


PEPSICO Inc. - PEP - close: 62.30 change: +0.22

Shares of PEP did not react much to news that rival KO was following in PEP's footsteps. KO announced it was buying its North American bottler in a deal worth nearly $12 billion. Shares of PEP were too busy bouncing from technical support at the 50-dma. Thursday's intraday rebound looks like a short-term bullish entry point although the stock currently has resistance near the $63.00 level.

I still hesitate to launch new long-term LEAPS with PEP still under resistance at $63.00. The strength we're seeing in PEP means our protective March put may not be needed. Our exit target for the 2011 January $60 LEAP is $69.90.

NOTE: current bid/ask for the option is not correct. At the time of this update quotes were unavailable. The last trade was $4.79.

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: $111.40 change: +2.88

The pull back in POT was a little deeper than expected but that's not surprising given the stock's volatility. Most of the fertilizer-related stocks rallied sharply on Thursday off their morning lows. The move in POT looks like a bullish reversal but it needs to see confirmation. I do want to point out that POT could be forming a bearish head-and-shoulders pattern (see chart). Readers may want to wait for a close over $116.50 before considering new positions (and a higher stop). Our long-term target is $160 or higher.

NOTE: current bid/ask for the option is not correct. At the time of this update quotes were unavailable. The last trade was $14.50.

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: 79.46 change: +0.31

PRE continues to show relative strength. Traders bought the dip near $78.00 on Wednesday and shares did not suffer as much as the rest of the market on Thursday morning. I am still concerned that PRE looks short-term overbought and due for a deeper correction. The $76-75 region should offer decent support.

FYI: On Thursday PRE that its Board of Directors had authorized a stock buyback program of up to eight million shares, which replaces the previous five million-share plan of which they had only redeemed 1.8 million shares.

Our first target is $84.90. Our second, longer-term target is $97.50.

NOTE: current bid/ask for the option is not correct. At the time of this update quotes were unavailable. The last trade was $3.90.

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: 53.14 change: -0.23

RAI continues to creep higher. The good news is that the bounce is chewing through potential resistance in the $52.50-53.00 zone. The stock is also on the verge of breaking out over its 50-dma again. I am not suggesting new long-term positions. Our final exit target is $57.50.

NOTE: current bid/ask for the option is not correct. At the time of this update quotes were unavailable. The last trade was $8.57, which probably doesn't reflect current values.

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: 47.55 chg: -0.56

Bonds have begun to rally again and that's pushing the TBT lower. I don't see any changes from my prior comments. However, more conservative traders may want to raise their stop loss toward $46.50. I wouldn't consider new long-term positions until we see the TBT close over the $51.50 level.

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

NOTE: current bid/ask for the options below are not correct. At the time of this update quotes were unavailable. The last trade for the 2011 $55 call was $2.48. The last trade for the 2012 $60 call was $5.80.

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


Titanium Metals - TIE - close: 11.71 change: +0.06

Shares of TIE remain an aggressive trade for us. China's attempts to slow down their economy will remain a larger threat in the background. On a more short-term basis the earnings report we expected on Feb. 25th appears to have been pushed out to the first week of March. I can't find a confirmed date yet. Our next challenge is the recent failed rally near the 30 and 50-dma. Traders did buy the dip on Thursday morning at the 100-dma but I'm suggesting readers take a step back. Let's be choosy about our next entry point. The $10.50 level has been resistance in the past so it should be decent support. Plus TIE has the rising 200-dma closer to $10.00. A bounce in the $10.50-10.00 zone could be a good entry point. Or you could wait for a new relative high over $12.50 as an entry point to buy call LEAPS. More conservative traders may want to wait until after we see the reaction to TIE's earnings whenever they announce. We're using a stop at $9.80.

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

NOTE: current bid/ask for the options below are not correct. At the time of this update quotes were unavailable. The last trade for the 2011 $15 call was $1.05. The last trade for the 2012 $15 call was $2.60.

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 1.40
symbol: VWN1122A15, 2011 JAN $15 LEAP call - current bid/ask $-.--/-.--
-stop loss on TIE @ 9.80

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $-.--/-.--
-stop loss on TIE @ 9.80

Chart of TIE:


iShares 20+Yr Bond ETF - TLT - close: 91.20 change: +0.51

The action in the bond market has produced a bounce in the TLT. That's not too surprising since the TLT was testing support. The close over $91.00 is short-term bullish but the TLT should also have additional resistance near $92.50. I am not suggesting new positions at this time. Our first target is $81.00.

NOTE: current bid/ask for the options below are not correct. At the time of this update quotes were unavailable. The last trade for the 2011 $85 put was $3.80. The last trade for the 2012 $80 put was $6.80.

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: 33.45 change: -0.17

These past few days have been bullish for UNH. It looks like shares are starting to turnaround. Maybe the correction is finally over. After five weeks of digesting its previous gains the stock is definitely rested. I was expecting a dip toward support near $30.00 but it may not happen.

It is noteworthy that healthcare stocks barely budged on Thursday in spite of President Obama's healthcare summit and debate. Many are expecting to see democrats apply more pressure on trying to get some sort of healthcare reform passed soon. Thus I need to reiterate the risk involved given the political game in Washington. Lawmakers could always do something unexpected that puts our position at risk.

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

NOTE: current bid/ask for the option below is not correct. At the time of this update quotes were unavailable. The last trade for the option was $3.55.

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: 9.44 change: +0.25

I cautioned traders to look for a dip toward $9.00. Thankfully VICR did find some support near $9.00 this past week. The big bounce on Thursday is encouraging but VICR still has significant resistance near the $10 level. More aggressive traders could buy this bounce but consider a tighter stop loss. An alternative would be to wait for a new close over $10.00 as your entry point.

Our twelve-month target is the $13.50-14.00 zone (one reason I prefer the stock over the option).

NOTE: current bid/ask for the option below is not correct. At the time of this update quotes were unavailable. The last trade for the option was $1.00.

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

Biotech & Business Services

by James Brown

Click here to email James Brown


New Watch List Entries

CELG - Celgene Corp.

DLX - Deluxe Corp.


Active Watch List Candidates

AKAM - Akamai Technologies

FXB - CurrencyShares British Pound

MSFT - Microsoft Corp.

PETM - PETsMART

PNRA - Panera Bread Co.

WMT - Wal-Mart Stores Inc


Dropped Watch List Entries

MCD was removed from the watch list.


New Watch List Candidates:

Celgene Corp. - CELG - close: 59.29 change: -0.20

We are officially adding CELG to the watch list. The biotech sector continues to outshine most of the market. CELG could help power those gains. The stock has been consolidating sideways for months under resistance near $60.00. Now shares are flirting with a major breakout higher. The past two weeks has seen resistance near $60.50. I am suggesting we use a trigger to buy call LEAPS at $60.75. If triggered we'll use a stop at $54.75. There is some resistance near $66.00 but our long-term target is $74.00. (Readers might want to buy the 2012 LEAPS)

Company Info:
Celgene is a multinational biopharmaceutical company committed to improving the lives of patients worldwide. At Celgene, we seek to deliver truly innovative and life-changing drugs for our patients. Our mission as a company is to build a major global biopharmaceutical corporation while focusing on the discovery, the development, and the commercialization of products for the treatment of cancer and other severe, immune, inflammatory conditions. (source: company press release or website)

Breakout trigger: $60.75

BUY the 2011 January $65 calls (VCS1122A65)

Chart of CELG:


Deluxe Corp. - DLX - close: 18.29 change: +0.13

It's been a rocky road but the trend has definitely been higher since DLX reported earnings back on January 28th. The company raised their profit guidance for 2010 and shares exploded on the news. The stock is currently above prior resistance at $18.00 but I see additional resistance near $19.00.

Given the up trend I'm suggesting we open small bullish positions with a trigger at $19.10. If triggered we'll use a stop at $16.75. Our long-term target is $24.75. FYI: I would consider this an aggressive trade since DLX could still have resistance at the $20.00 level as well.

Company Info:
Deluxe Corporation is a growth engine for small businesses and financial institutions. Through its industry-leading businesses and brands, the Company helps small businesses and financial institutions attract and retain customers. The Company employs a multi-channel strategy to provide a suite of life-cycle driven solutions to its customers. In addition to its personalized printed products, the Company offers a growing suite of business services, including logo design, payroll, web design and hosting, business networking and other web-based services to help small business grow. In the financial services industry, Deluxe sells check programs and fraud prevention, customer loyalty and retention programs to help banks build lasting relationships and grow core deposits. The Company also sells personalized checks, accessories, stored value gift cards and other services directly to consumers (source: company press release or website)

Breakout trigger: $19.10

DLX doesn't have any LEAPS. The longest options available are Octobers.

BUY the 2010 October $20.00 calls (DLX1016J20)

Chart of DLX:


Active Watch List Candidates:


AKAMAI Tech. - AKAM - $25.66 -0.10

Shares of AKAM are still struggling with resistance near $26.00. I am suggesting we buy call LEAPS on a dip at $22.50, which is a small adjustment from our previous trigger (22.10). If triggered our long-term target is $29.50. We'll start with a stop loss at $19.75.

Buy-the-Dip trigger: $22.50

BUY the 2011 January $25.00 calls (OMU1122A25)

Chart of AKAM:


FXB - CurrencyShares British Pound Sterling $152.18 -1.28

The FXB continues to fall without us! It definitely looks like we missed the entry point the week after Valentines day. Now the FXB looks short-term oversold. I don't want to chase it. The $155-157 zone should be new resistance. I am adjusting our trigger to buy LEAP puts from $158.50 to $156.50. We'll move the stop loss down to $160.55. Our first target is $150.00. Our second target is $144.00.

Buy-the-Bounce trigger: $156.50

BUY the 2010 September $150 put (FWK1018U150)

Chart of FXB:


McDonald's Corp. - MCD - close: 64.38 change: -0.33

MCD isn't cooperating with us. Shares are showing too much relative strength. We wanted to buy a dip near $60.00. I'm temporarily removing it from the watch list. Wait a minute? Too much strength? Yes, the short-term trend looks good and MCD acts like it's ready to breakout from the range over the last few months but the stock has long-term resistance at $67.00. If we're going to enter a long-term trade we want to wait for the right entry point.


Microsoft - MSFT - close: $28.60 change: -0.03

I am adjusting our entry strategy on MSFT. The 200-dma will most likely be technical support and it just crossed over the $26.00 level. I am raising our trigger to buy call LEAPS on MSFT to $26.50. We'll move our stop loss to $23.75. Our long-term target is $35.00.

Buy-the-Dip trigger: $26.50

BUY the 2012 January $25 calls (WMF1221A25)

Chart of MSFT:


PETsMART Inc. - PETM - close: 27.49 change: +0.22

The three-week bounce in PETM looks pretty impressive. Yet shares have stalled under resistance at $27.50. Even if it does rally from here there is long-term resistance near $29.00. I would much rather buy a dip. We're adjusting our entry point to $24.50. It could take a few weeks before PETM corrects enough to hit our entry. If triggered at $24.50 our stop loss will be $21.90. 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: $24.50

Readers may want to consider buying the stock. PETM doesn't have LEAPS. The longest-dated options are 2010 Octobers. BUY the 2010 October $25 calls (QPT1016J25)

Chart of PETM:


Panera Bread Co. - PNRA - close: 72.76 change: -0.28

PNRA is still consolidating under resistance near $75.00. Shares remain longer-term overbought and due for a correction but the longer it trades sideways the less of a chance of a pull back. Right now the plan is to buy a dip at $65.50. However, more aggressive traders may want to consider small bullish positions if PNRA can close over the $75.00 level. 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 (ZGM1122A70)

Chart of PNRA:


Wal-Mart Stores Inc. - WMT - close: 54.15 change: +0.23

I am starting to think that WMT just doesn't move fast enough for us to trade it. Currently shares are stuck in a $52.50-55.00 trading range. I suspect WMT is coiling for a breakout higher. At the moment our plan is to buy LEAPS on a dip near $50.00. We may alter our entry point strategy if WMT can close over resistance at the $55.00 level.

In the meantime if we're trigger at $50.50 we'll use a stop 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 (WWT1221A50)

Chart of WMT: