Option Investor
Newsletter

Daily Newsletter, Monday, 3/8/2010

Table of Contents

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

Leaps Trader Commentary

One Year Later

by James Brown

Click here to email James Brown

Happy anniversary! This weekend (March 6th) marks the one-year anniversary of the bear-market low. Wow! What a long, amazing road it's been. The S&P 500 hit 666.79 intraday on the 6th and closed at 676 on March 9th, 2009. Since then the S&P 500 has rallied more than 70% off its lows. The Dow Industrials have rallied 63%, the NASDAQ composite soared 84%, and the small cap Russell 2000 index has gained 95% off its 2009 low.

Last week alone was pretty impressive with significant gains across the board for the major averages. Most of them broke out from the bull-flag pattern I mentioned. A week ago I suggested the S&P 500 could be setting up for a run toward 1150 and it's almost there. As a matter of fact the bull flag target should put the S&P around the 1150 region, which is conveniently very heavy resistance from January 2010. Bull flag targets for the NASDAQ should be around the 2350 area and for the Russell 2000 around the 670 area. Now that doesn't mean the rally will fail at these levels but readers should be ready for some profit taking.

What's fueling this move higher besides the bull market climbing the wall of worry I outlined a couple of weeks ago? First and foremost the jobs report on Friday was better than expected. It's true that we're still losing jobs but they're getting better. Combine that with no inflation and there should be no risk of the Fed raising rates any time soon. Meanwhile China's economic boom is still intact. There has been a lot of worry the last few weeks that China is trying to slam on the brakes before its economy overheats. Comments out of Chinese officials this past week said the country was on track for 8% growth. This drove gains in commodity-related stocks, especially coal.

Bulls also scored a win in the Greece department. For the moment worries about Greece defaulting on their debt are on hold. The country was able to successfully sell five billion euros worth of five-year bonds albeit at 6.3% interest. You can be sure the rest of the EU nations were not going to let this debt auction fail. Greece still needs to roll over another 15 billion worth of debt by the end of May but the recent success has moved the dial on Greece from a boil to a slow simmer. I wouldn't be surprised to see the dollar's rally correct and the euro and British pound bounce for a little while.

This week looks pretty quiet. There are no major economic reports. The only significant event will be another record-setting pace of debt sales for the U.S. The Treasury department will auction off $210 billion worth of bonds. No one is expecting any fireworks but it could make headlines given the quiet week.

In my last commentary I was growing bullish on stocks. I am more bullish today but the S&P 500 will probably struggle to break through resistance at the 1150 level. The market could bounce around the 1150-1120 zone for a while before moving significantly higher. I am encouraging that we are seeing some sectors breakout past their recent tops. The Russell 2000's strength is very impressive. The banking indices are getting close to breaking out past significant resistance and if they do they could fuel the rally for weeks to come. Biotechs were a notable winner last week. The defense, retail, and insurance sectors hit new 52-week highs.

Chart of the S&P 500 Index:

Weekly Chart of the S&P 500 Index:

Weekly 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:

Commodity-related stocks performed well last week. Coal was a strong industry and our TIE play did very well. Biotech was also a big winner although CELG under performed its peers. Please note that we updated a handful of stop losses tonight.

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

Graduating Early

by James Brown

Click here to email James Brown


Jumping In Early - WMT


Wal-Mart Stores Inc. - WMT - close: 54.14 change: +0.18

Why We Like It:
We have had WMT on our watch list for a while. If the economy stumbles WMT should garner more customers as more affluent consumers downgrade while struggling consumers spend even more of their paycheck at WMT. If the economy improves then WMT should benefit as consumers expand beyond the essentials to higher-margin goods. Investors were unfazed a couple of weeks ago when WMT said Q1 sales would be "challenging".

Initially we had WMT on the watch list with a plan to buy call LEAPS on a dip near $50.00. I don't think shares will correct that much. Instead the stock looks like it's about to breakout higher. If you look at the stock it's been consolidating in the $52-55 level for weeks. You might notice this consolidation is narrowing and I predict WMT will finally start moving higher again.

I am suggesting we jump in early and buy call LEAPS now. More conservative traders could wait for a close over $55.00 instead. Our long-term target is the $63.00 level. The Point & Figure chart is more optimistic with a $68 target. We'll start the play with a stop loss at $49.45.

Company Info:

Walmart serves customers and members more than 200 million times per week at more than 8,416 retail units under 53 different banners in 15 countries. With fiscal year 2010 sales of $405 billion, Walmart employs more than 2.1 million associates worldwide (source: company press release or website)

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

BUY call 2012 JAN $55.00 (symbol: WWT1221A55) current ask $4.60

Chart of WMT



Play Updates

Resources Lead 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: 24.32 change: +0.54

M&A in the coal sector and rising prices for coal this past week helped fuel gains for stocks in this industry. ACI is back above the $24.00 level, which has been resistance in the past. I am raising our stop loss to $19.85.

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 $1.75/1.85
-stop loss on ACI @ 19.85 *new*

--2nd Entry--
Feb 13th, 2010 - entry price on ACI @ 21.65, option @ 4.40
symbol: YEP1221A25 2012 JAN $25 LEAP call - current bid/ask $5.20/5.50
-stop loss on ACI @ 19.85 *new*

Chart of ACI:


Biogen IDEC - BIIB - close: 57.21 change: +0.55

Biotech stocks were huge winners last week with the BTK biotech index surging more than 12% to new multi-year highs. Unfortunately BIIB lagged behind its peers with a 4% gain. The trend in BIIB is still bullish. It's probably not too late to buy LEAPS but the risk now is that the biotech sector is short-term overbought and due for a correction. Just because BIIB didn't keep up with the index doesn't mean it won't dip with the index. You might get a better entry point if you wait for a pull back closer to $55.00. 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 $4.30/4.60
-stop loss on BIIB @ 51.85

Chart of BIIB:


Berkshire Hathaway Inc. - BRK.B - $83.36 +0.68

It was another strong week for BRK.B with the stock pushing past resistance near $80.00 to close at new 52-week highs. Our 2011 Jan $80 calls have almost doubled in a month's time. More conservative traders may want to go ahead and take some money off the table now. I am not suggesting new positions at this time. Please note our new stop loss at $69.00.

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 $8.40/8.80
-stop loss on BRK.B @ 69.00 *new*

Feb 6th, 2010 - entry price on BRK.B @ 73.57, option @ 6.50
symbol: 2012 JAN $85 WDW1221A85 LEAP call - current bid/ask $9.00/9.90
-stop loss on BRK.B @ 69.00 *new*

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 37.65 change: -0.53

Uh-oh! BWA failed to participate in the market's rally. If you look at the weekly chart the rally has failed two weeks in a row. I am not suggesting new positions at this time. Odds are growing that BWA will see a correction back toward the $36-35 zone. I am raising our stop loss to $32.49, which is under the 200-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.
Unfortunately, the bid/ask spread is not a typo. It's really that wide, which is another reason to not open positions.

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: ZWY1122A40 2011 JAN $40 LEAP call - current bid/ask $3.60/6.60
-stop loss on BWA @ 32.49 *new*

Chart of BWA:


Celgene Corp. - CELG - close: 61.91 change: +0.92

CELG was added to our watch list a week ago. The big rally in biotech last week helped CELG breakout to new 52-week highs. Shares also hit our trigger to buy LEAPS at $60.75 last Monday. We're starting with a stop loss at $54.75 but more conservative traders may want to use a tighter stop loss. Broken resistance near $60 should offer a little support. I do see some resistance near $66.00 on the long-term chart. Our target is the $74.00 level. I am suggesting the 2011 Jan. $65 calls but readers may want to buy the 2012 calls.

Mar 1st, 2010 - entry price on CELG @ 60.75, option @ 5.40
symbol: VCS1122A65 2011 JAN $65 LEAP call - current bid/ask $5.60/5.80
-stop loss on CELG @ 54.75

Chart of CELG:


Chesapeake Energy Corp. - CHK - close: 26.31 change: +0.12

Crude oil might be bouncing but natural gas prices have sunk to new multi-year lows. It's not too surprising to see shares of CHK stalling. I am not suggesting new positions at this time. More nimble traders might consider buying a dip or bounce near the rising 200-dma. I am raising the stop loss to $21.75 on CHK. 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 $4.15/4.25
-stop loss on CHK @ 21.75 *new*

Chart of CHK:


Consol Energy Inc. - CNX - close: 55.05 change: +2.00

The rally in coal stocks produced a big move in CNX with shares rising about 10% last week. The stock is now challenging resistance near the $55 level. I am not suggesting new positions at this time. Please note our new stop at $43.45, which is just under the simple 200-dma.

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 $17.20/17.90
-stop loss on CNX @ 43.45 *new*

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

Chart of CNX


Deluxe Corp. - DLX - close: 19.25 change: -0.19

I've got good news and bad news on DLX. The good news is that shares rallied to new 52-week highs last week and hit our trigger to buy LEAPS at $19.10. The bad news is that the rally reversed at the $20.00 level on Friday. I cautioned readers that $20 could be a challenge and it's one of the reasons this was labeled an aggressive trade. Friday's session does look like a short-term bearish reversal. It looks like the weakness may have been due to an analyst downgrade on Friday. I would wait on new positions. DLX might dip toward its trendline of higher lows near the $18 area. A bounce near $18 would be a better entry point.

We'll start with a stop loss at $16.75. Our target is $24.75.

Mar 1st, 2010 - entry price on DLX @ 19.10, option @ 1.10
symbol: DLX1016J20 2010 OCT $20 call - current bid/ask $1.35/1.70
-stop loss on DLX @ 16.75

Chart of DLX:


EMR $48.49 +0.54 -- Emerson Electric Co.

I am a little disappointed that EMR did not participate more strongly in the market's rally last week but shares did hit new relative highs. The $50.00 level remains possible resistance. Our second and final target is still $54.50. I am not suggesting new positions at this time.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $9.50/10.00
-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: 28.32 change: +0.66

Oil stocks delivered strong performances last week. FST was not exception with a decent gain. Yet shares of FST seem to be struggling a little bit with the January 2010 highs near $28.75. I am not suggesting new positions at this time. Our long-term target is $37.50.

Oct 15th, 2009 - entry price on FST @ 23.85, option @ 7.40
symbol: OJG-AD, 2011 $20 LEAP call - current bid/ask $9.60/10.10
-stop loss on FST @ 21.75

Chart of FST:


Intel Corp. - INTC - close: 20.79 change: +0.26

INTC under performed the rest of the market and continues to trade sideways. Shares have been stuck in a new trading range for 2 1/2 weeks. The only positive was the bounce from new short-term support near $20.25. 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 $2.35/2.39
-stop loss on INTC @ 17.90.

Chart of INTC:


Mosaic Co. -MOS - close: $61.60 change: +1.17

MOS' performance last week was a little disappointing. It did manage a gain but most of it happened on last Tuesday's gap higher. Shares spent the rest of the week struggling with resistance near $62.00. I am still concerned that MOS could be forming the right shoulder to a bearish head-and-shoulders pattern. I am not suggesting new positions at this time. Please note our new stop loss at $51.90. 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 $8.10/8.60
-stop loss on MOS @ 51.90 *new*

Chart of MOS:


Manitowoc Inc. - MTW - close: 12.71 change: +0.26

MTW delivered a strong week but the rally has stalled near its January highs. More conservative traders may want to consider a tighter stop loss. A breakout over $13.00 would certainly be bullish but I suspect the January 2010 highs could be a challenge to break. 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 $3.80/4.00
-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: 24.95 change: +0.19

ORCL has spent the last two weeks consolidation sideways under resistance at the $25.00 level. On a positive note it does look like the stock is poised to breakout higher soon. Right now our stop loss is at $21.40 but I'm tempted to raise it toward the February lows. Our long-term target is $29.75. FYI: Earnings are expected at the end of March. Readers may want to wait until after the earnings report before considering new positions.

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

Dec. 18th, 2009 - entry price on ORCL @ 24.05, option @ 2.55
symbol: VOC-AE, 2011 LEAP $25 call - current bid/ask $2.33/2.37
-stop loss on ORCL @ 21.40.

Chart of ORCL:


PEPSICO Inc. - PEP - close: 64.37 change: +0.26

PEP continues to march higher and the rally has stalled at its 2009 highs from early December. On a short-term basis the stock looks a little overbought and due for a pull back. Yet if shares pull back now it would look like a possible (bearish) double top under $65.00. I'm not suggesting new positions at this time. Hopefully the scenario that plays out is PEP pulls back toward short-term support near $63.00 and then rallies through $65.00 over the next few weeks. Please note our new stop loss at $57.40.

It looks like our protective March put was not needed and will expire worthless. 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 $6.60/6.70
-stop loss on PEP at $57.40 *new*

Temporary protective put:
Jan. 23rd, 2009 - entry price on PEP @ 60.39, option @ 0.50
symbol: PEP-OK March $55 put - current bid/ask $0.03/0.05

Chart of PEP:


Potash Corp. - POT - close: $116.81 change: +1.89

The action in POT mirrored that of MOS with a rally Monday and Tuesday and a more of a sideways move the rest of the week. POT had a better performance with a string of new relative (intraday) highs. The sector is benefitting from positive analysts comments. More conservative traders may want to consider upping their stop loss toward the January lows near $99. 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 $20.05/20.20
-stop loss on POT @ 94.75

Chart of ORCL:


PartnerRe Ltd. - PRE - close: 78.57 change: -0.13

PRE's out performance in February has turned to under performance in March. Shares failed to rally with the rest of the market last week although we really can't fault it too much since the stock was overbought and due for a rest. Still it can be a little frustrating to see the IUX insurance index surge to new multi-year highs and PRE doesn't join in. If you're looking for an entry point I would prefer to buy LEAPS on a dip or a bounce in the $76-76 zone, which as previous resistance should be support.

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

Feb. 13th, 2010 - entry price on PRE @ 76.28, option @ 2.70
symbol: PRE1021H80, 2010 AUG $80 call - current bid/ask $3.10/3.50
-stop loss on PRE @ 69.75

Chart of PRE:


Reynolds American Inc. - RAI - close: 54.74 change: +0.59

It looks like the rally is back on track with RAI setting a new 52-week closing high on Friday. Short-term the stock is a little overbought but the trend is definitely higher. Currently our final target is $57.50 but I am seriously tempted to raise our target toward $60 or higher.

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 $14.00/15.00
-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: 48.13 chg: +1.15

I don't see too many changes from my prior comments. The selling paused at its February lows and shares traded sideways for a few days. Friday's rebound higher was encouraging but I hesitate to launch new positions. I'm suggesting readers wait for a close over $51.50 before considering new LEAPS 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 $2.43/2.55
-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 $4.75/5.40
-stop loss on TBT @ 45.90

Chart of TBT


Titanium Metals - TIE - close: 13.74 change: +0.58

Resource stocks are back in rally mode again. Positive comments out of China about their rate of growth added fuel to the fire. A positive earnings report on March 1st didn't hurt either. The company beat both the earnings and revenue estimates. Shares of TIE surged sharply and broke through resistance near the $12.50 level. I suggested an alternative entry point to buy calls on a move over $12.50. Please note that I'm raising our stop loss to $10.45, which is just under the February 2010 low. On a short-term basis the stock is overbought. Look for a dip back toward $13.00-12.50 as short-term support.

There is some resistance near $15.00 but our long-term target is $19.75.

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 1.40
symbol: VWN1122A15, 2011 JAN $15 LEAP call - current bid/ask $1.90/2.00
-stop loss on TIE @ 10.45 *new*

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $3.10/3.30
-stop loss on TIE @ 10.45

Chart of TIE:


iShares 20+Yr Bond ETF - TLT - close: 90.27 change: -1.20

Thus far the trend of lower highs is still in place. The rally stalled near $92 last week. I am not suggesting new positions at this time. A close under $88 might change my mind. 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 $3.80/3.95
-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 $6.20/6.50
-stop loss on TLT @ 94.15

Chart of TLT


UnitedHealth Group Inc. - UNH - close: 33.74 change: +0.79

The healthcare sector index is on the rebound after a few weeks of consolidating sideways. UNH may be lagging it a little bit but the trend is the same. Traders bought the dip on Thursday and shares look poised to move higher. It is definitely starting to look like the dip to $30 may not happen.

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

Dec 16th, 2009 - entry price on UNH @ 31.55, option @ 3.80
symbol: VUH-AG, 2011 JAN $35 LEAP call - current bid/ask $3.65/3.75
-stop loss on UNH @ 28.95

Chart of UNH:


VICOR Corp. - VICR - close: 10.23 change: -0.05

The first week of March was a winner for VICR with a 7.5% rally and a breakout past resistance at $10.00 to close at new 52-week highs. I am raising our stop loss to $7.95, which is just under the February low. More conservative traders may want to use a slightly higher stop loss. If you were waiting for a breakout over $10.00 as your entry point you got it.

FYI: It looks like VICR is still due to report earnings on March 8th or 9th (I can't find a confirmed date). Shares could see a lot of volatility following the announcement.

Our long-term 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 $0.90/1.70
-stop loss on VICR @ 7.95 *new*

--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 $0.90/1.70
-stop loss on VICR @ 7.95 *new*

- or -

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

Chart of VICR:



Watch

Time to Reload

by James Brown

Click here to email James Brown


New Watch List Entries

FO - Fortune Brands Inc.

V - Visa Inc.

XHB - S&P Homebuilder ETF


Active Watch List Candidates

FXB - CurrencyShares British Pound


Dropped Watch List Entries

CELG and DLX both graduated from the watch list to the play list.

AKAM, MSFT, PETM, and PNRA were removed.

WMT was promoted to the play list tonight.


New Watch List Candidates:

Fortune Brands - FO - close: 46.42 change: +1.22

The RLX retail index has broken out to new multi-year highs in spite of persistently high unemployment levels. I'm suggesting we take a look at a consumer goods company that could ride this wave higher in the retailers. Shares of FO have been building on a trend of higher lows and they're now poised to breakout over resistance in the $46.50-47.00 region.

I am suggesting a trigger to buy calls at $47.55. If triggered our long-term target is $62.00. We'll use a stop loss at $39.95 to start.

Company Info:
Fortune Brands, Inc. is a leading consumer brands company. Its operating companies have premier brands and leading market positions in distilled spirits, home and security, and golf products. Beam Global Spirits & Wine, Inc. is the company's premium spirits business. Major spirits brands include Jim Beam and Maker's Mark bourbon, Sauza tequila, Canadian Club whisky, Courvoisier cognac, Cruzan rum, Teacher's and Laphroaig Scotch, EFFEN vodka and DeKuyper cordials. The brands of Fortune Brands Home & Security LLC include Moen faucets, Aristokraft, Omega, Diamond and Kitchen Craft cabinetry, Therma-Tru door systems, Simonton windows, Master Lock security products and Waterloo storage and organization products. Acushnet Company's golf brands include Titleist, Cobra and FootJoy. Fortune Brands, headquartered in Deerfield, Illinois, is traded on the New York Stock Exchange under the ticker symbol FO and is included in the S&P 500 Index and the MSCI World Index. (source: company press release or website)

Breakout trigger: $47.55

FO doesn't have any LEAPS so we're suggesting the Septembers.

BUY the 2010 Sep. $50 calls (FO1018I50)

Chart of FO:


Visa Inc. - V - close: 88.51 change: +1.47

We are quickly moving to a cashless society with more and more people using their credit or debit cards for all their transactions. Visa is at the forefront of this change and the stock is looking very strong. Shares have rallied toward their all-time highs and resistance near $90.00. Odds are good that Visa will manage to breakout this time.

I am suggesting a trigger to buy call LEAPS at $91.00. If triggered our first target is $109.00 even though I do expect some resistance at $100.00. Investors might want to consider the 2012 LEAPS instead.

Company Info:
Visa is a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and checks. Visa has built one of the world’s most advanced processing networks, capable of handling more than 10,000 transactions per second, with reliability, convenience and security. Visa does not issue cards, extend credit or set rates and fees for consumers (source: company press release or website)

Breakout trigger: $91.00

BUY the 2011 Jan. $100 calls (VSK1122A100)

Chart of V:


Homebuilders ETF - XHB - close: 16.57 change: +0.31

I have my doubts about the homebuilders later this year and the next due to rising tide of foreclosures. However, the sector has fought back from the grave and the worst year on record. Now the XHB looks downright bullish after months of consolidating under resistance in the $16-17 zone. Investors are betting that the major builders have learned their lesson, cut expenses to the bone, and should come out a much leaner, much more profitable sector as we approach the spring and summer home selling season.

The September 2009 high was $16.75. I am suggesting we buy call LEAPS on the XHB if the ETF can hit $17.05. If triggered our first target is $21.00. Our second target is $23.90. We'll use a stop at $14.49.

Company Info:
The SPDR S&P Homebuilders exchange traded fund seeks to mimic the performance of the S&P homebuilders industry index.

Breakout trigger: $17.05

BUY the 2011 Jan $17.50 calls (XJL1122A17.5)

-or-

BUY the 2012 Jan $20.00 calls (KHG1221A20)

Chart of XHB:


Active Watch List Candidates:


AKAMAI Tech. - AKAM - $29.20 +0.93

AKAM has exploded higher this past week. Shares are at new 52-week highs. We don't want to chase it. I was hoping we could jump in on a dip near the 200-dma but doesn't look like it will happen any time soon.

While I remain bullish on AKAM I would not open long-term positions at this time so I'm removing it from the watch list - at least for now. Our trigger at $22.50 was never hit.


FXB - CurrencyShares British Pound Sterling $150.92 +1.06

The rally in the dollar looks a little tired and the FXB is starting to bounce from oversold levels. The trend is still down but we don't want to launch positions here. Look for a bounce toward resistance in the $156-158 zone. More conservative traders are going to want to wait for the bounce to roll over first before initiating positions. Right now our plan is to buy long-term puts at $156.50. If triggered we'll use a stop loss at $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:


Microsoft - MSFT - close: $28.59 change: -0.04

I am concerned about MSFT. The market surges higher last week and shares of MSFT failed to participate. I am temporarily removing MSFT from the watch list although I will personally be watching it for a dip toward the $26-25 zone. Our trigger to buy LEAPS at $26.50 has not been hit yet.


PETsMART Inc. - PETM - close: 30.27 change: +0.34

Shares of PETM gapped open higher on Thursday following its better than expected earnings report and Q1 guidance. The stock rallied past resistance in the $27.50-29.00 region. Shares are too overbought now to open long-term positions. I'm temporarily removing PETM from the watch list. Our trigger to buy calls at $24.50 was never hit.


Panera Bread Co. - PNRA - close: 78.04 change: +4.00

The lack of news behind PNRA's rally on Friday is a mystery. I suspect that once shares got past resistance at $75.00 the rally turned into a short squeeze. While I am bullish on PNRA this is not an entry point for a long-term bullish position. Shares remain very overbought. Short-term traders may want to consider buying some calls on a dip or bounce near $75.00. I am removing PNRA from the watch list but will keep it on my personal watch list. Our trigger to buy calls at $65.50 was never hit.


Wal-Mart Stores Inc. - WMT - close: 54.14 change: +0.18

I am disappointed that WMT did not show more strength during last week's rally but I remain bullish on the stock, especially longer-term. We are going to promote WMT from the watch list to the play list tonight.