Option Investor
Newsletter

Daily Newsletter, Saturday, 3/13/2010

Table of Contents

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

Leaps Trader Commentary

This Could Be The Week

by James Brown

Click here to email James Brown

Stocks continue to climb the wall of worry but even climbers stop to catch the breath. It's time that the market pause, pull back, and build up some steam again before moving significantly higher. I know you've probably already heard it this weekend but the market is overbought.

Look at some of these numbers. The RLX retail index and XAL airline index are up five weeks in a row. The banking indices are up four weeks in a row. The railroad index is up six weeks in a row. The BTK biotech index is up seven weeks in a row and up 22.8% since breaking out past the 1,000 level in February. The S&P 500 is up about 10% off its February low. The small cap Russell 2000 index is up 16.5% from its February low. These are impressive numbers. The trend is clearly higher but that doesn't mean we want to open new positions at current levels.

It is very encouraging that investors are shrugging off potentially negative news. The CPI inflation numbers out of China last week were higher than expected. The worry there is that rising inflation will force China to raise rates, which will slow down their economy, and thus slow down one of the world's biggest engines for growth. Fortunately, analysts wrote it off as a seasonal spike thanks to the Lunar New Year festival in February. Closer to home investors were happy to see a rise in February retail sales. The markets ignored the decline in March's preliminary consumer sentiment from 73.6 to 72.5.

I hate to be the bearer of bad news but eventually, and probably soon, stocks will reverse. You could say we've gone too far too fast. We need a little pull back before things overheat. The correction could be a couple of days or it could be a couple of weeks. The problem is we don't know what event will spark the sell-off. Volume has been slowing down as investors hesitate to chase stocks higher. Don't be frustrated when the short-term reversal finally hits. We can view it as an entry point. At this point traders are probably looking for any excuse to take profits, especially with the S&P 500 sitting at resistance near 1150.

This week we have a handful of events that could be used as a catalyst to sell. The biggest event is probably the FOMC meeting on Tuesday. Any odd comment or change in the Fed's stance would be a perfect excuse to hit the sell button. If that doesn't do it then traders could sell on the CPI, the PPI, the New York Empire Survey, or the Philly Fed survey, all of which come out this week. It really doesn't matter but readers should be expecting it. I suspect that any pull back will be short-lived. After options expiration this coming Friday money managers will be chasing performance as the first quarter comes to a close on March 31st.

I do have to warn you that there is a new rumor out that European leaders are planning another aid package for Greece. The country has been making headlines with tens of thousands protesting in the street over the budget cuts to reduce their debt. If there is an aid package announced, and the global markets decide they like the details, then Europe and the euro could rally. U.S. markets could rally as well with the dollar sliding, giving a boost to commodity prices. If this happens on Monday it could interrupt my expectations for a market correction or it might just delay it a day or two.

In summary, I remain bullish on the market but we need to see some sort of correction and odds are good it could happen this week assuming we don't see some global rally on another aid package for Greece. Wait for the correction to occur before launching new long-term LEAPS positions. Before I go, don't forget that this weekend is Daylight savings and we need to set our clocks forward one hour.

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 LEAPS play list continues to grow. Last week we had two watch list candidates, Visa (V) and Fortune Brands (FO), both jump to the play list. We also had shares of POT and VICR soaring. I am suggesting readers take profits on both POT and VICR.

The market looks overbought and due for a dip. When the correction does occur we could easily see a 5% pull back across the board. Readers may want to wait on launching new positions.

There are a few new 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

It's Time

by James Brown

Click here to email James Brown


Waiting For An Entry


Editor's Note:

The stock market is overbought. I'm sure you've heard it a dozen times this weekend but it's true. It's time for a healthy, normal pull back before the market can build on a sustainable move higher. This is not the spot to be launching new long-term bullish candidates.

I added three new candidates to the watch list all with a buy-the-dip entry point.



Play Updates

Take Some Profits

by James Brown

Click here to email James Brown

Editor's Note:

We have a couple of bullish candidates that really outperformed the market last week. I am suggesting readers take some profits early!


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 25.35 change: -0.17

The rally in coal stocks continues and ACI posted another weekly gain. Shares are now testing previous resistance near $26.00. I am still concerned that shares could be forming a bearish head-and-shoulders pattern (and it would be a large one). I'm not suggesting new bullish positions at this time. 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 $2.15/2.25
-stop loss on ACI @ 19.85

--2nd Entry--
Feb 13th, 2010 - entry price on ACI @ 21.65, option @ 4.40
symbol: YEP1221A25 2012 JAN $25 LEAP call - current bid/ask $5.70/6.40
-stop loss on ACI @ 19.85

Chart of ACI:


Biogen IDEC - BIIB - close: 58.76 change: -0.02

The rally in biotech stocks continues. Check out a chart of the BTK biotech index. This sector is growing very overbought and due for a correction. While BIIB does not look as overbought as the BTK index if the sector corrects BIIB will likely pull back as well. Readers may want to wait for a dip back toward the $56-55 zone or the 50-dma before considering new bullish positions. 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 $5.00/5.40
-stop loss on BIIB @ 51.85

Chart of BIIB:


Berkshire Hathaway Inc. - BRK.B - $82.24 -0.12

The rally in shares of Berkshire take a much needed rest. Shares consolidated sideways the last few days. A correction back toward the $78-75 region would be a normal pull back. If you're looking for an entry point I would wait. In the mean time more conservative traders may want to take some money off the table.

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 $7.70/8.20
-stop loss on BRK.B @ 69.00

Feb 6th, 2010 - entry price on BRK.B @ 73.57, option @ 6.50
symbol: 2012 JAN $85 WDW1221A85 LEAP call - current bid/ask $8.50/9.50
-stop loss on BRK.B @ 69.00

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 37.08 change: +0.19

BWA has been correcting the last several days. I suggested readers look for a pull back into the $36-35 zone and we got it. The good news is that Thursday's intraday bounce and Friday's gain looks like a short-term bullish reversal. The bad news is that if the market corrects I would still expect BWA to trade lower. Traders may want to be patient here. We might get a entry point closer to $34.00 in the next week or two.

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 $3.20/4.40
-stop loss on BWA @ 32.49

Chart of BWA:


Celgene Corp. - CELG - close: 61.37 change: +0.07

Hmm... My concerns about CELG have not changed. There is a HUGE rally happening in the biotech sector and shares of CELG are not participating. Shares are consolidating sideways under the $62.00 level. When the sector corrects, and it will correct, CELG may suddenly choose to participate. Readers may want to wait and see how dip any correction is before launching positions. If you're the optimistic type then you may want to buy LEAPS on a move over $62.50.

This past week Reuters ran an article on Morningstar's top ten takeout (acquisition) targets in the biotech sector. CELG was number 5 on that list. Our target is the $74.00 level. I have been 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 $5.20/5.60
-stop loss on CELG @ 54.75

Chart of CELG:


Chesapeake Energy Corp. - CHK - close: 25.64 change: -0.15

The price of natural gas has taken a nosedive lower in the last few weeks and it looks like it's starting to have an affect on shares of CHK. Shares of CHK are down three weeks in a row although this past week saw the stock spend most of its time moving sideways. I'll repeat my suggestion from a week ago. More nimble traders might consider buying a dip or bounce near the rising 200-dma. If CHK closes under the trendline of higher lows we may exit early. 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 $3.70/3.80
-stop loss on CHK @ 21.75

Chart of CHK:


Consol Energy Inc. - CNX - close: 54.33 change: +0.40

CNX has spent the last few days consolidating sideways under resistance near $55.00. I am concerned that if CNX retreats from current levels it will look like a bearish head-and-shoulders pattern and the market is overbought and due for a correction, which makes that a real possibility. I am not suggesting new positions at this time.

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 $16.90/17.50
-stop loss on CNX @ 43.45

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

Chart of CNX


Deluxe Corp. - DLX - close: 19.13 change: -0.14

Thanks to a moderately bullish market last week shares of DLX did not see much follow through on its bearish reversal under $20. Instead shares have been consolidating sideways. The lack of profit taking is encouraging but if the broader market does correct I would expect DLX to correct with it. I am suggesting readers wait on new positions. Let's wait and see if DLX bounces from the $18 level again or closes above $20.00. 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 $1.20/1.55
-stop loss on DLX @ 16.75

Chart of DLX:


EMR $48.09 +0.14 -- Emerson Electric Co.

Shares of EMR are still not participating in the market's recent strength. The overall trend is still up and shares needed to consolidate. If the broader market does correct I would look for EMR to dip toward the 50-dma or possibly the $44.00 area. 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 $9.10/ 9.50
-stop loss on EMR @ 41.90

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

Chart of EMR:


Fortune Brands - FO - close: 47.34 change: +0.13

FO is a new addition to the play list. The stock was added to our watch list a week ago. I suggested investors buy a breakout over $47.55. On Friday the stock hit $47.56 so the play is now open. Unfortunately, we could be the victim of bad timing here. FO inches to a new 52-week high with the major market indices looking overbought and due for a correction. While this play is "open" I would wait on launching positions. Odds are good that we could get a better entry point near $45.00 or even $44.00 in the next week or two. Our target is $62.00.

Mar. 12th, 2009 - entry price on FO @ 47.55, option @ $2.20
symbol: FO1018I50 SEP 2010 $50 call - current bid/ask $2.00/ 2.20
-stop loss on FO @ 39.95

Chart of FO:


Forest Oil Corp. - FST - close: 29.42 change: +0.72

FST displayed some relative strength on Friday with a 2.5% gain compared to a +0.7% gain for the OSX index and a -0.05% loss for the OIX index. The stock had been consolidating sideways for over a week so the breakout is certainly bullish. Yet shares are now facing potential round-number, psychological resistance at $30.00. I am not suggesting new positions at this time. Our long-term target is $37.50. Please note our new stop at $23.45.

Oct 15th, 2009 - entry price on FST @ 23.85, option @ 7.40
symbol: OJG-AD, 2011 $20 LEAP call - current bid/ask $10.20/10.90
-stop loss on FST @ 23.45 *new*

Chart of FST:


Intel Corp. - INTC - close: 21.27 change: +0.02

The NASDAQ and the Russell 2000 have broken out to new 52-week highs yet the SOX semiconductor index has not. The chips normally lead the tech sector but this time they are lagging. That might change if INTC can breakout past its 2010 highs near $21.50. I am not suggesting new positions at this time.

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

NOTE: I couldn't get any current option quotes on INTC this weekend. I am listing the last trade for the 2011 LEAPS below ($2.68).

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 $2.68/2.68
-stop loss on INTC @ 17.90.

Chart of INTC:


Mosaic Co. -MOS - close: $63.80 change: +3.87

Positive comments from POT about the state of the fertilizer business sent many of the agriculture/chemical names higher on Friday. Shares of MOS gapped open higher and closed with a 6.4% gain. The news is certainly very bullish but I am not suggesting new positions on this spike higher. 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 $8.80/9.10
-stop loss on MOS @ 51.90

Chart of MOS:


Manitowoc Inc. - MTW - close: 12.68 change: +0.20

The rally seems to be losing a little steam in MTW. The trend is still bullish but shares have been stuck under resistance near $13.00. If the market corrects I would not be surprised to see MTW retest its 100-dma. I am not suggesting new positions at this time. Please note our new stop loss at $9.85. 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 @ 9.85 *new*

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 @ 9.85

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

Chart of MTW:


Oracle Corp. - ORCL - close: 25.05 change: +0.19

Technology stocks have helped lead the market higher but ORCL has unfortunately sat out on the latest push higher. Shares managed a 10-cent gain for the week. While the trend is up I do not expect ORCL to sit out any market correction. I would expect a pull back toward $23.00. Our long-term target is $29.75.

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 $2.42/2.46
-stop loss on ORCL @ 21.40.

Chart of ORCL:


PEPSICO Inc. - PEP - close: 65.10 change: +0.13

After several days of consolidating near $64 and its early December 2009 high shares of PEP have finally broken out higher. This is a bullish development and reduces the risk of PEP forming a bearish double top. Unfortunately it does not reduce the chance of PEP correcting if the market pulls back. On a short-term basis PEP should find support near $63.75 and near $63.00. Our exit target for the 2011 January $60 LEAP is $69.90. If you have the 2012 LEAPS then you might want to aim higher.

Our protective put (March $55) will expire worthless in five days.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $7.10/7.20
-stop loss on PEP at $57.40

Temporary protective put:
Jan. 23rd, 2009 - entry price on PEP @ 60.39, option @ 0.50
symbol: PEP-OK March $55 put - current bid/ask $0.01/0.04

Chart of PEP:


Potash Corp. - POT - close: $125.27 change: +8.34

POT soared to new eight-week highs on Friday after the company's CEO Bill Doyle issued some strong statements. Doyle believes that the distributor pipeline for their product has been depleted and business should see a strong rebound in 2010. The company raised their earnings guidance from the $0.70-1.00 range to $1.30-1.50 range for the year. Analysts were only expecting $0.87.

The stock stalled at resistance near $125-126. While I expect POT will eventually move higher I am suggesting we take advantage of this temporary pop higher and sell half our position now! I am raising our stop loss to $99.50. More conservative traders may want to use a stop closer to $105 or $110. Our long-term final 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 $26.35/26.75
-stop loss on POT @ 99.50 *new*

SELL HALF (03/13/10) option @ $26.35 bid (+124%)

Chart of POT:


PartnerRe Ltd. - PRE - close: 78.32 change: -0.22

The correction in PRE continues. The stock appears to be building a bull flag pattern. I don't think the pull back is over yet. If the market corrects PRE could dip toward the $76-75 zone. Look for a dip or a bounce there as an entry point.

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 $2.85/3.50
-stop loss on PRE @ 69.75

Chart of PRE:


Reynolds American Inc. - RAI - close: 52.31 change: -0.46

What a difference a week makes! A week ago RAI was setting new closing highs. Something happened last Monday. I could not find any news to explain the sudden reversal lower. I would assume it is some sort of new litigation or a negative twist for any ongoing litigation for the tobacco industry to affect RAI like this. More conservative traders may want to abandon ship early. I am not suggesting new bullish positions at this time. At the moment 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 $12.10/13.00
-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: 47.87 chg: -0.58

The consolidation in the TBT is narrowing. Shares of this ETF produced a lower high near its 200-dma last week, which is bearish. Given the neutral pattern of higher lows and lower highs (a pennant shape) the breakout could go either way. Fundamentally bonds should eventually go down and yields go up as the U.S. debt gets too high but this could take months or years to really get moving. 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 $2.10/2.30
-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 $4.45/4.70
-stop loss on TBT @ 45.90

Chart of TBT


Titanium Metals - TIE - close: 14.13 change: +0.58

TIE managed another weekly gain but momentum is slowing a bit. The stock looks a little overbought given its bounce from the 100-dma over two weeks ago. I would expect a correction, probably toward the $13.00-12.00 region.

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 $2.05/2.20
-stop loss on TIE @ 10.45

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $3.30/3.60
-stop loss on TIE @ 10.45

Chart of TIE:


iShares 20+Yr Bond ETF - TLT - close: 90.48 change: +0.56

The consolidation in the TLT continues to narrow. Given the prevailing trend shares of this ETF should break lower but there is no guarantee. 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 $3.55/3.70
-stop loss on TLT @ 94.15

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 8.90
symbol: YLI-MB, JAN 2012 $80 LEAP put - current bid/ask $5.85/6.25
-stop loss on TLT @ 94.15

Chart of TLT


UnitedHealth Group Inc. - UNH - close: 32.91 change: -0.59

It looks like the rally in healthcare stocks has stalled. Investors are waiting to see how this latest push for healthcare reform in Washington shapes up. If UNH does dip toward support near $30.00 I would still consider new bullish positions but at this point I would probably wait for a bounce first.

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 $3.30/3.40
-stop loss on UNH @ 28.95

Chart of UNH:


Visa Inc. - V - close: 93.25 change: +0.51

We listed Visa on the watch list a week ago. It looked like shares were poised to breakout and breakout they did. The $90.00 level was major resistance and has been since mid 2008. I suggested traders buy LEAPS if Visa hit $91.00 and the stock did so on Tuesday. The 2011 January $100 calls were around $4.60. Visa's breakout and follow through rally is very bullish. However, we are concerned that the market is overbought and due for a dip. I am suggesting that readers wait for a dip back toward $90.00 or even $88.00 before launching new positions again. The $100 level could be round-number resistance but our target is $109.00. Investors might want to consider the 2012 LEAPS instead. Please note our stop loss at $81.75.

Mar 9th, 2009 - entry price on V @ 91.00, option @ 4.60
symbol: VSK1122A100 JAN 2011 $100 LEAP call - current bid/ask $5.65/5.75
-stop loss on V @ 81.75

Chart of V:


VICOR Corp. - VICR - close: 11.80 change: -0.17

VICR reported better than expected earnings on Tuesday night and the stock soared on Wednesday. Shares hit new 18-month highs. I am suggesting we take advantage of this move and sell half of our position, especially now since the market looks overbought and due for a pull back. I am not suggesting new positions at this time.

Our final long-term target is $13.50 (one reason I prefer the stock over the option). Please note our new stop loss at $8.80.

Dec 26th, 2009 - entry price on VICR@ 9.30, option @ 1.40
symbol: VQV-GB, 2010 JUL $10 call - current bid/ask $2.10/2.40
-stop loss on VICR @ 8.80 *new*

SELL HALF (03/13/10) option @ $2.10 (+50%)

--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 $2.10/2.40
-stop loss on VICR @ 8.80 *new*

SELL HALF (03/13/10) option @ $2.10 (+200%)

- or -

Dec. 26th 2009 - entry price on VICR (the stock) @ 9.30
-stop loss on VICR @ 8.80

SELL HALF (03/13/10) stock @ $11.80 (+26.8%)

Chart of VICR:


Wal-Mart Stores Inc. - WMT - close: 53.90 change: -0.07

The sideways consolidation in WMT is narrowing. I'd like to think the stock is going to breakout higher but with the market overbought and due for a pull back WMT could retreat as well, although the stock has failed to participate in the market's rally one can hope it will not participate in the correction. Readers have plenty of choices. You could wait for a dip toward $52.00 or wait for a close over $55.00 as your entry point. It depends on your style and personal preference.

This is a long-term trade. WMT doesn't move very fast. Our long-term target is the $63.00 level. The Point & Figure chart is more optimistic with a $68 target. Since WMT does not move very fast readers may want to supplement their position by turning it into a calendar spread or a diagonal spread to enhance their gains.

Mar 7th, 2009 - entry price on WMT @ 54.14, option @ 4.60
symbol: WWT1221A55 JAN 2012 $55 LEAP call - current bid/ask $4.55/4.70
-stop loss on WMT @ 49.45

Chart of WMT



Watch

Metals, Food, and Retail

by James Brown

Click here to email James Brown


New Watch List Entries

CRS - Carpenter Technology

RT - Ruby Tuesday, Inc.

TSCO - Tractor


Active Watch List Candidates

FXB - CurrencyShares British Pound

XHB - S&P Homebuilder ETF


Dropped Watch List Entries

FO and V both graduated from the watch list to the play list.


Editor's Note:

I am seeing an increase in bullish candidates thanks to the market's recent strength. A few stocks that caught my eye this weekend were SFY, CIR, IRC, CVD, NFX, SHAW, CPO and TBL. Readers may want to do some more research and watch these for possible entry points.


New Watch List Candidates:

Carpenter Technology - CRS - close: $34.74 change +1.34

As investors grow more comfortable with the economic rebound the material stocks have been on the move again. CRS rallied to new 52-week highs last week. Shares are testing potential resistance near $35.00 and with the market overbought and due for a dip this could be a spot for CRS to correct. I am suggesting we buy calls on a dip at $30.25. CRS can be a volatile stock so a pull back toward $30.00 could be quick. If triggered we'll use a stop loss at $25.75. Our long-term target is $44.50. I would be tempted to aim higher but CRS only has September calls as the longest ones available. Currently the Point & Figure chart is very bullish with a $57 price target.

Company Info:
Carpenter (NYSE:CRS) is a leader in the development, manufacture and distribution of cast/wrought and powder metal stainless steels and specialty alloys including high temperature (iron-nickel-cobalt base), stainless, superior corrosion resistant, controlled expansion alloys, ultra high-strength and implantable alloys, tool and die steels, and other specialty metals as well as cast/wrought titanium alloys. (source: company press release or website)

Buy-the-Dip trigger: $30.25

BUY the 2010 September $35 calls (symbol: CRS1018I35)

Chart of CRS:


Ruby Tuesday Inc. - RT - close: $10.74 change: +0.20

Is there a recession in consumer spending? You wouldn't notice by the strength of the restaurant stocks. Shares of RT have been showing lots of relative strength with a very significant bullish breakout in the last two weeks. The most past the $9.00-9.50 zone was a big bullish buy signal. Right now the stock is short-term overbought and due for a dip. I am suggesting we use a dip to $9.50 as our entry point. We'll use a stop loss at $7.90.

I am suggesting readers buy the stock but options are available so we will list both. If triggered our first target is $12.25. Our second, longer-term target is $14.75. FYI: The Point & Figure chart is very bullish with a $19 target.

Company Info:
Ruby Tuesday, Inc. has Company-owned and/or franchise Ruby Tuesday brand restaurants in 46 states, the District of Columbia, Guam, and 14 foreign countries. As of March 2, 2010, the Company owned and operated 659 Ruby Tuesday restaurants, while domestic and international franchisees (including Hawaii) operated 168 and 57 restaurants, respectively. (source: company press release or website)

Buy-the-Dip trigger: $9.50

BUY the stock at $9.50

- or -

BUY the 2010 October $10.00 calls (symbol: RT1016J10)

Chart of RT:


Tractor Supply Co. - TSCO - close: 58.30 change: +0.33

TSCO is a specialty retailer that has been screaming higher the last several days. The $54-55 zone was significant resistance and the breakout pushed TSCO to new 52-week highs. We want to jump on board when the market corrects. I'm suggesting a trigger to buy calls on a dip at $54.25. If triggered our first target is $66.00. We'll use a stop loss at $49.75.

Company Info:
Even though we started out serving the needs of farmers and ranchers near Minot, North Dakota, we now make our home in rural communities all across America. In each Tractor Supply store, you’ll find a staff of experts, better known as your friends and neighbors. They’re proud of where they live and even more proud to bring you the products, services and seasoned advice you need out here (source: company press release or website)

Buy-the-Dip trigger: $54.25

BUY the 2010 October $55 call (symbol: QTF1016J55)

Chart of TSCO:


Active Watch List Candidates:


FXB - CurrencyShares British Pound Sterling $151.33 +1.21

The FXB is still trying to bounce. Traders bought the dip again on Wednesday last week. There is a rumor that another aid package for Greece could be announced on Monday and that could lift the euro, which could also lend some strength to the pound.

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:


Homebuilders ETF - XHB - close: 16.82 change: -0.05

The homebuilders are still trying to inch higher. The sector could see a flurry of activity as consumers try to close on deals ahead of the April deadline for the current tax credit incentive. Beyond April the sector will need to see some organic improvement, which could happen given the normal spring and summer home buying season.

Currently the plan is to buy LEAPS on a move past 17.00 with a trigger at $17.05. I am adjusting that trigger a little higher to $17.25. More nimble traders might consider trying to buy a dpi or a bounce near $15.50 if the market corrects. 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: $17.25

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

-or-

BUY the 2012 Jan $20.00 calls (KHG1221A20)

Chart of XHB: