Option Investor
Newsletter

Daily Newsletter, Saturday, 4/3/2010

Table of Contents

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

Leaps Trader Commentary

The Jobs Report Disappoints

by James Brown

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I am not surprised that the market churned sideways this past week. Fund managers were just running out the clock on the first quarter. Investors were reluctant to make any big bets ahead of the jobs report on Friday. Plus, we had a ton of economic data to digest.

Overall the manufacturing data last week was bullish. It wasn't just the U.S. but around the world and it reinforces the hope that the economy is finally on the road to recovery. However, bears would argue that this economic rebound has already been priced into the stock market and that stocks are actually ahead of themselves. I want to warn you that the double-dip recession is still a threat.

Months ago I warned readers that we would see a super strong fourth-quarter following by slower growth in the first and second quarters of 2010. It is the second half of 2010 and early 2011 that looks questionable and we start to worry about the economic recovery fizzling out. I also warned readers that it would be hard to maintain your focus on the bigger picture while everyone cheers the bullish economic headlines during the first half of 2010.

It is true that the economic data this past week was positive. We have finally hit the inventory replenishment phase that we have been expecting for over one year. How long this burst of manufacturing will last is the real question. Businesses remain very cautious. Many of the biggest companies in America have been warning about the millions of dollars in new expenses it will cost them to conform to the new healthcare rules.

Ask yourself this question, if you're a business owner or a high-level executive in charge of hiring, how many new workers are you going to hire when you have millions in new healthcare expenses you have to sort through or worse yet you just don't know what it's going to cost you. I bet this will keep hiring to a minimum while the new rules and procedures get sorted out. The only one hiring will be the IRS who needs thousands of new agents to help collect new taxes.

Furthermore I want to remind you that the housing market is not making a comeback. We have seen eight months of fractional improvement in the Case-Shiller numbers but these are a seasonally adjusted three-month average. Sales have stalled and they're going to get worse. Two weeks ago a White House advisor said that they expect between 10 to 12 million new foreclosures over the next three years. I could not believe my eyes. That is double the more common estimate of five to six million foreclosures over the next three years, which was already an outrageous number. A tidal wave of foreclosures is going to swamp any housing recovery, which will keep consumers on the cautious side and thus encumber any economic rebound.

Technically the market's trend is still up. If you look at the S&P 500 the index actually looks poised to rally higher after two weeks of consolidating sideways. However, we have not yet seen the market's reaction to the jobs report on Friday, April 2nd. The jobs data was a disappointment. Prior to the report official estimates were in the 180,000 to 190,000 new jobs for the month of March. Whispers numbers were in the +300,000 range. The Labor Department said the country only added +162,000 jobs and that was with 48,000 new temporary census workers. Granted it is job growth and it's the best growth we've seen in three years but it's still a disappointment.

The jobs report could be the catalyst we need to finally spark a market sell-off. Don't get me wrong. My market bias is bullish over the next few months but short-term, over the next few weeks, I'd love to see a 5% correction, which would bring the S&P 500 index into the 38.2% to 50% Fibonacci retracement levels of its February to April rally. Of course you could take the opposite view and argue that the weak jobs number will keep the Federal Reserve on the sidelines and eliminate any pressure for them to raise rates but then they have been saying they wouldn't raise rates for a while anyway. Would the weaker jobs number really be a reason to buy stocks?

In summary, the manufacturing data has been bullish. The job market and real estate market remain fragile. Stocks are still overbought and overdue for a pull back. Wait for the market to correct before considering new long-term positions. Sometimes the best trade is no trade.

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:

The action in the stock market was muted last week as investors waited for the jobs report on Friday. I remain concerned about the action in the coal stocks. If you haven't taken profits yet in TIE you have another chance now with the stock posting another gain for the week.

Stocks could see some volatility on Monday as the markets react to the less than expected jobs number on Friday. The market remains overbought. I would prefer to wait for a correction before launching any long-term positions.

New stop losses tonight are updated for EMR, ORCL and RAI.

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

The Same Boat

by James Brown

Click here to email James Brown


Jobs Report Could Be The Catalyst


Editor's Note:

Unfortunately stocks didn't move much last week and we are still stuck in the same boat we have been for days. The market is overbought. The rally looks tired. Yet we can't get any profit taking. The jobs report came in less than expected and this could be the needed catalyst to finally spark some profit taking. Our bias remains bullish but a correction would be very healthy for the market and provide us a new entry point. Be patient and let the market come to you.

I added two new candidates to the watch list this weekend so we will be ready when the correction finally shows up.



Play Updates

The Trend is Still Up

by James Brown

Click here to email James Brown

Editor's Note:

We are only one day into the second quarter and bulls are still in control but that could change on Monday. Investors have yet to react to the jobs report.

I would hesitate to make any big decisions on Monday. Stocks could see a knee-jerk reaction lower on the worse than expected pace of job growth. At the same time this could be the catalyst needed to spark a much needed correction in the stock market.


Closed Plays


No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 23.38 change: +0.53

ACI managed to post a gain for the holiday shortened week but the stock is under performing its peers in the coal sector. The short-term trend is still bearish with lower highs and lower lows. Traders did buy the dip at the exponential 200-dma but I remain very cautious here. We are still facing the potential bearish head-and-shoulders pattern with the neckline and support near the $20 level. If the H&S pattern holds true it would forecast a decline toward $13. 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 $1.45/1.55
-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 $4.80/5.10
-stop loss on ACI @ 19.85

Chart of ACI:


Biogen IDEC - BIIB - close: 57.52 change: +0.13

Biotech stock BIIB has now spent two weeks correcting after topping out near the $60.00 level. Shares have been under performing the market and the BTK biotech index. I have been suggesting that investors look for a dip toward the $55-54 zone but shares might find some support near $56 and its rising 50-dma. My concern is that the major market indices have not even begun to correct yet and when they do BIIB could see an even sharper pullback. I remain cautious here and would wait for a solid bounce from support. The question is where will BIIB find support ($56, $54 or $52). Our first target to take profits is at $64.90.

FYI: Earnings are expected in mid April but the date is not yet confirmed.

Feb 19th, 2010 - entry price on BIIB @ 56.60, option @ 4.60
symbol: OIY1122A60 2011 JAN $60 LEAP call - current bid/ask $4.20/4.60
-stop loss on BIIB @ 51.85

Chart of BIIB:


Berkshire Hathaway Inc. - BRK.B - $81.65 +0.38

It's been four weeks now since BRK.B topped out near $83.50. The stock produced a bearish reversal on March 8th and it has been slowly sinking ever since. To have only fallen a couple of dollars is a pretty mild correction. Broken resistance near $80.00 "should" offer some support but I wouldn't bet on it when the market eventually corrects. We remain very long-term bullish on BRK.B but a much more normal correction would be a pull back into the $77-73.00 area. Take your time and wait for the entry point to come to you.

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 $6.80/7.00
-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 $8.10/8.70
-stop loss on BRK.B @ 69.00

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 39.22 change: +1.04

It has been a bullish week for BWA. After spending a couple of days consolidating near its 50-dma the stock took off in the last two sessions. Now BWA is closing at new 52-week highs. I couldn't find any specific news to account for the relative strength but I'm not complaining. Volume has been above average on this rally, which is normally a bullish sign. Shares actually look pretty bullish here. Let's hope the market doesn't derail it.

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 $3.30/4.40
-stop loss on BWA @ 32.49

Chart of BWA:


Celgene Corp. - CELG - close: 62.08 change: +0.12

Shares of biotech firm CELG have continued to pull back but the selling has stalled near the $62 level. That doesn't mean the correction is over but it's a step in the right direction. Since I'm still expecting the market to pull back I would wait for CELG to retest the $60-58 zone before considering new bullish positions. If the BTK biotech index does correct CELG's own pull back could get exaggerated.

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.

FYI: A few weeks ago CELG was number 5 on Morningstar's top ten list of potential takeout (acquisition) targets.

Mar 1st, 2010 - entry price on CELG @ 60.75, option @ 5.40
symbol: VCS1122A65 2011 JAN $65 LEAP call - current bid/ask $5.30/5.50
-stop loss on CELG @ 54.75

Chart of CELG:


Deluxe Corp. - DLX - close: 19.45 change: +0.03

DLX has been drifting sideways for two weeks now. While the trend is still up momentum is almost gone and shares are due for a correction. I've been suggesting readers wait for a pull back toward the $18.00 level, which as broken resistance should be new support. More conservative traders may want to raise their stop losses toward the $18 area. I am not suggesting new positions at this time. Wait for shares to bounce after a correction. 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 $1.15/1.50
-stop loss on DLX @ 16.75

Chart of DLX:


EMR $50.83 +0.49 -- Emerson Electric Co.

Shares of EMR continue to outperform. The stock broke through round-number, psychological resistance at the $50.00 level this past week. It's a very bullish development but I'm still concerned the stock is overextended. Shares have rallied to potential resistance near the July 2008 highs. More conservative traders may want to go ahead and take some money off the table right now! I am adjusting our stop loss again, this time to $44.75. EMR has already hit our first target at $47.50. Our second and final target is $54.50.

Sept. 8th, 2009 - entry price on EMR @ 38.00, option @ $4.50
symbol: VHH-AH, 2011 JAN $40 call - current bid/ask $11.10/11.50
-stop loss on EMR @ 44.75 *new*

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

Chart of EMR:


Fortune Brands - FO - close: 49.02 change: +0.51

Shares of FO have spent two weeks now consolidating sideways. I had suspect it was lack of selling by fund managers waiting for the quarter to end. Let's see what happens this week. We're bullish on FO but don't want to chase it after a 20% rally from $40. The stock should find some support on a dip into the $46-44 zone. Wait for the dip before considering new bullish positions. Our long-term target is $62.00. Unfortunately we could only find September calls, which will obviously get a lot cheaper on a pull back.

Mar. 12th, 2009 - entry price on FO @ 47.55, option @ $2.20
symbol: FO1018I50 SEP 2010 $50 call - current bid/ask $2.70/ 2.85
-stop loss on FO @ 39.95

Chart of FO:


Forest Oil Corp. - FST - close: 26.84 change: +1.02

Oil and oil service stocks have been rebounding thanks to a nice rally in crude oil futures. The recent parade of stronger manufacturing numbers should also indicate rising demand for commodities. Shares of FST have rallied from under the $25 level but shares still face resistance in the $27-30 zone and so far this could be nothing more than an oversold bounce. I remain cautious on FST, especially since the wider market indices like the S&P 500 have yet to correct.

I am not suggesting new bullish 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 $ 8.20/ 8.50
-stop loss on FST @ 23.45

Chart of FST:


Intel Corp. - INTC - close: 22.39 change: +0.10

After peaking near $22.75 two weeks ago INTC has been consolidating sideways. The trend is up but the waning momentum could be suggesting shares are ready to correct. Broken resistance near the $21.00 area should offer some support. FYI: Earnings are coming up on April 13th.

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 $3.30/3.40
-stop loss on INTC @ 19.25

Chart of INTC:


Mosaic Co. - MOS - close: $58.33 change: -2.44

Thursday was not a good session for MOS. The company reported earnings on Wednesday night and missed Wall Street's estimates by 5 cents. Revenues rose more than 25% but still missed analysts' expectations. The post-earnings sell-off produced a 4% decline on Thursday and a bearish breakdown from a two-week consolidation pattern. The short-term outlook on MOS is bearish and I would expect a correction toward $55.00 and its rising 200-dma. Longer-term analysts still seem optimistic for this industry, especially later this year. Wait for the bounce near $55.00 before considering new bullish positions.

Last week I suggested buy the April $50 puts trading near $0.17 at the time as a precaution that MOS collapsed after earnings. It looks like we may not need them and they'll probably expire worthless. Once they expire I'll add the cost of the $0.17 to our option price for the initial trade.

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 $5.10/5.45
-stop loss on MOS @ 51.90

Chart of MOS:


Manitowoc Inc. - MTW - close: 13.38 change: +0.38

MTW continues to creep higher. Thursday's session looks like a bullish breakout from a weeklong consolidation but it needs to see some follow through (check the intraday chart to see it). The trend is certainly up but I am not suggesting new bullish positions at this time. I still think the $13.75-14.25 zone could be a tough level of resistance for MTW to breakthrough and more conservative traders may want to take profits there again. 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 $4.10/4.40
-stop loss on MWT @ 9.85

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: 25.46 change: -0.25

It has been about 3 1/2 months and ORCL is just slowly inching higher. I'm starting to wonder if it just moves too slowly for us. If you're not turning this trade into a calendar spread or a diagonal spread I would actually consider exiting, taking my money and looking for something that has more potential. If ORCL does correct we can expect support near $24.00 and the 200-dma near $23.00. I am raising our stop loss to $22.49. I am not suggesting new positions at this time. Our long-term target is $29.75.

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

Dec. 18th, 2009 - entry price on ORCL @ 24.05, option @ 2.55
symbol: VOC-AE, 2011 LEAP $25 call - current bid/ask $2.52/2.58
-stop loss on ORCL @ 22.49 *new*

Chart of ORCL:


PEPSICO Inc. - PEP - close: 66.68 change: +0.52

The $67.00 level remains a solid top on shares of PEP. You could argue that the lack of profit taking in the stock is a show of relative strength. I still think shares look overbought and are probably due for a pull back. We can expect PEP to see some support in the $63-62 zone and the $60 level near the rising 200-dma. I am not suggesting new positions at this time. Our adjusted final target is $72.25.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $7.95/8.10
-stop loss on PEP at $59.40

03/27/10 SELL HALF: PEP $ 66.59, Option @ $8.00 (+77.7%)

Chart of PEP:


Potash Corp. - POT - close: $117.51 change: -1.84

The less than stellar earnings report from MOS on Wednesday night sparked some profit taking across the industry. Shares of POT lost 1.5% and set new three week lows. I have been warning readers to expect a pull back toward the $115-110 zone and shares are getting closer. The 50-dma and 100-dma are nearing $115 and should offer some support. Yet if the broader market actually corrects I would expect POT to slip toward the $110-105 area. I would definitely sit back and wait. We could see a much better entry point in a couple of weeks.

We sold half our position near $125. Our final target is $160.00.

Jan. 28th, 2010 - entry price on POT @ 101.00, option @ 11.75
symbol: VPT-AB, 2011 LEAP $110 call - current bid/ask $19.65/20.00
-stop loss on POT @ 99.50

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

Chart of ORCL:


PartnerRe Ltd. - PRE - close: 79.76 change: +0.04

The trend in PRE is still up but the rally has stalled near resistance around the $80.50 level. At the same time the IUX insurance index remains overbought and way overdue for a pull back. I would much rather consider new bullish positions on a dip or a bounce in the $76-75 zone so I suggest waiting a couple of weeks to see if we get that opportunity. If we do see a new entry point I would use the November calls.

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 $3.20/3.40
-stop loss on PRE @ 69.75

Chart of PRE:


Reynolds American Inc. - RAI - close: 54.78 change: +0.80

My, my, what a difference a week can make. The stock has shot higher and is now challenging resistance and its 52-week highs in the $54.70-55.00 zone. After weeks of consolidating sideways if RAI can breakout I see it making a move toward $60.00. Therefore I am adjusting our final target from $57.50 to $59.75. More conservative traders can stick to the $57.50 target or go ahead and take profits right now (not a bad idea, really!). We will move our stop loss to $50.75. I am not suggesting new positions at this time.

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 $13.50/15.80
-stop loss on RAI at $50.75 *new*

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

Chart of RAI:


UltraShort 20+ Year Treasury Bond ProShares - TBT - cls: 48.91 chg: +0.22

There was no follow through last week as the sell-off in bonds stalled. The TBT found resistance at the $50.00 level. This is probably temporary. The big picture fundamentals of rising U.S. debt will eventually push yields higher and that's bearish for bonds (and bullish for the TBT). I have been suggesting that readers wait for a move over $51.50 before launching new positions.

Our first long-term target is $59.75. Our second target is $67.50. Keep in mind that this security tends to move pretty slowly.

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 $2.54/2.74
-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 $4.70/5.05
-stop loss on TBT @ 45.90

Chart of TBT


Titanium Metals - TIE - close: 16.87 change: +0.28

The rally continues for TIE. Shares hit another new 52-week high at $17.39 on Tuesday. Shares of TIE are extremely overbought. When the correction comes it could be severe. I would not be surprised to see a pull back toward the $13-14 zone. I am not suggesting new bullish positions at this time. We decided to sell half our position a week ago. Our final, 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 $3.60/3.90
-stop loss on TIE @ 11.90

03/27/10 SELL HALF: TIE @ 16.21, option @ 3.20 (+128.5%)

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $5.00/5.30
-stop loss on TIE @ 11.90

03/27/10 SELL HALF: TIE @ 16.21, option @ 4.50 (+73%)

Chart of TIE:


iShares 20+Yr Bond ETF - TLT - close: 88.95 change: -0.55

There was no follow through in the sell-off two weeks ago but that's okay. We know this is a slow-moving equity. The trend is our friend and a real breakdown in the TLT appears imminent. Please note our new stop loss at $93.15. Our first target is $81.00.

FYI: The TLT is an exchange traded fund that tries to mimic the performance of the Barclays Capital U.S. 20+Year Treasury Bond Index.

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 6.40
symbol: VJL-MG, JAN 2011 $85 LEAP put - current bid/ask $4.05/4.25
-stop loss on TLT @ 93.15 *new*

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 8.90
symbol: YLI-MB, JAN 2012 $80 LEAP put - current bid/ask $6.30/6.70
-stop loss on TLT @ 93.15 *new*

Chart of TLT


UnitedHealth Group Inc. - UNH - close: 32.99 change: +0.32

The action in shares of UNH has been lagging behind the HMO healthcare index. The trading in UNH has also narrowed to a 75-cent range over the last several days. This activity following the lower high and failed rally on March 22nd doesn't inspire any confidence. Given the market's overbought condition I would wait for a pull back toward the $30.00 level, which should be support for UNH.

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

Dec 16th, 2009 - entry price on UNH @ 31.55, option @ 3.80
symbol: VUH-AG, 2011 JAN $35 LEAP call - current bid/ask $2.98/3.05
-stop loss on UNH @ 28.95

Chart of UNH:


Visa Inc. - V - close: 92.55 change: +1.52

Shares of V continue to show relative strength. Traders have been buying the dips for nearly two weeks now and the stock outperformed the broader market on Thursday with a 1.6% gain. The challenge now is getting past its all-time high from last month. Plus, we're faced with the prospect that if the market corrects shares of V could be a big target for profit taking. I remain bullish on Visa but readers may want to be patient here. Odds are probably pretty good that V will retest the $88-85 zone again. Our long-term target is the $109 mark. Investors might want to consider the 2012 LEAPS instead.

Mar 9th, 2009 - entry price on V @ 91.00, option @ 4.60
symbol: VSK1122A100 JAN 2011 $100 LEAP call - current bid/ask $4.85/5.00
-stop loss on V @ 81.75

Chart of V:


Wal-Mart Stores Inc. - WMT - close: 55.49 change: -0.11

Another week has gone by and shares of WMT are virtually flat. Big picture the trend is up but short-term if the market corrects I expect WMT to correct with it.

We can launch new positions on a dip into the $54-52.50 range but I would be patient and wait to buy LEAPS on a bounce. This is a long-term trade for us so you can take your time on an entry point.

Our long-term target is the $63.00 level. 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 $5.35/5.50
-stop loss on WMT @ 49.45

Chart of WMT



Watch

Relative Strength

by James Brown

Click here to email James Brown

Editor's Note:

We are still expecting a market correction but we're loading the watch list with stocks showing relative strength.


New Watch List Entries

CVD - Covance Inc.

MICC - Millicom Intl.


Active Watch List Candidates

CIR - CIRCOR Intl.

CRS - Carpenter Technology

EMC - EMC Corp.

IMN - Imation Corp.

MDR - McDermott Intl.

RT - Ruby Tuesday, Inc.

TRMB - Trimble Navigation

TSCO - Tractor

SAFM - Sanderson Farms Inc.


Dropped Watch List Entries

None.


New Watch List Candidates:


Covance Inc. - CVD - close: 62.34 change: +0.95

Most of the healthcare stocks saw their rally retreat following the passage of the reform bill. For shares of CVD it was more like a pause. The stock has been able to maintain its bullish posture with a sideways consolidation in the $60-62 zone. If the broader market looked healthier I would consider bullish positions in CVD right now. However, since we are expecting a market correction sooner than later I am suggesting we wait for a pull back in CVD. Use a trigger to open bullish positions at $57.50. We'll use a stop loss at $54.00, which is under the 200-dma. If triggered our long-term target is $74.50. Currently the Point & Figure chart is bullish with a $79 target.

Company Info:
Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $1.7 billion, global operations in more than 25 countries, and more than 10,000 employees worldwide. (source: company press release or website)

Buy-the-Dip trigger: $57.50

BUY the 2010 November $60.00 calls (CVD 10K60.00)

Chart of CVD:


Millicom Intl. - MICC - close: 89.90 change: +0.75

Foreign wireless companies have continued to show relative strength and MICC hit new 52-week highs last week. Actually the trading action on Thursday looks like a possible short-term top and failed rally. If the U.S. market corrects I expect MICC to pull back as well. Broken resistance near $80.00 should be new support. I am suggesting a trigger to buy LEAPS at $81.00. If triggered we'll use a stop loss at $74.00. Our long-term target is $99.50 and the $109.00 levels.

Company Info:
Millicom International Cellular S.A. is a global telecommunications group with mobile telephony operations in 14 countries in Asia, Latin America and Africa. It also operates cable and broadband businesses in five countries in Central America. The Group’s mobile operations have a combined population under license of approximately 266 million people. (source: company press release or website)

Buy-the-Dip trigger: $81.00

BUY the 2011 January LEAP $90.00 calls (MICC 11A90.00)

Chart of MICC:


Active Watch List Candidates:


CIRCOR Intl. - CIR - close: 32.07 change: -1.14

Shares of CIR produced a bearish reversal last week and the stock gapped down on Thursday following an analyst downgrade. Overall the trend is still higher and we have been anticipating a pull back. CIR should have support near $30.00 now. I'm suggesting we buy the longest calls available (currently Novembers) if CIR pulls back and hits $30.50. More conservative traders may want to wait and buy calls on a bounce from $30.00 instead of buying a dip to $30. If triggered we'll use a stop at $27.75. Our long-term target is the $40 area. FYI: The P&F chart is pointing to a $47 target.

NOTE: I would only start with half a position since the market has not started to correct yet and CIR has. We want to keep our exposure limited.

Buy-the-Dip trigger: $30.50

BUY the 2010 NOV $35 calls (CIR 10K35.00)

Chart of CIR:


Carpenter Technology - CRS - close: $37.28 change +0.68

CRS rallied again and hit new 52-week highs. Shares are up seven out of the last eight weeks. The action this past week looks like it could be a top but we'll have to wait for confirmation. The stock is very overbought and I think the correction will be a severe one. Our trigger to buy calls is at $30.00. If triggered we'll use a stop at $27.45. Our long-term target is $44.50. Currently the Point & Figure chart is very bullish with a $57 price target.

Buy-the-Dip trigger: $30.00

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

Chart of CRS:


EMC Corp. - EMC - close: 18.18 change: +0.14

The correction in EMC stalled last week but I don't think it's over. I am moving our trigger again. We now want to open bullish positions at $17.25 and we'll slide the stop loss to $16.20, if triggered. Our long-term target is $22.50. FYI: The Point & Figure chart is bullish with a $34.50 target. (Readers may want to buy 2012 calls and aim higher)

Buy-the-Dip trigger: $17.25

BUY the 2011 January $20.00 LEAP CALL (symbol: VUE1122A20)

Chart of EMC:


Imation Corp. - IMN - close: 11.13 change: +0.12

It looks like the correction in IMN may have finally started. Shares are testing round-number support near $11.00 but the market hasn't even begun to pull back yet. I believe IMN will trade near $10.00 before the correction is over.

I am suggesting we buy the stock (or calls) on a dip at $10.15. If triggered our first target is $12.25. Our second target is $14.25. FYI: The Point & Figure chart is bullish with a $17.50 target.

Buy-the-Dip trigger: $10.15

Buy the IMN stock at $10.15

-or-

BUY the 2010 October $12.50 call (symbol: IMN1016J12.5)

Chart of IMN:


McDermott Intl. - MDR - close: 26.86 change: -0.06

Shares of MDR continue to inch higher. The stock is nearing potential resistance at the $28.00 level and its 52-week highs. I am suggesting we use a breakout trigger to buy LEAPS at $28.25. If triggered we'll use a stop loss at $24.75. Our long-term target is $37.50. Investors may want to consider 2012 LEAPS and aim higher. Currently the Point & Figure chart is suggesting a $37 target.

Breakout trigger: $28.25

BUY the 2011 JAN $30.00 CALLS (MDR 11A30.00)

Chart of MDR:


Ruby Tuesday Inc. - RT - close: $10.81 change: +0.24

RT continues to trade sideways. The stock has been stuck in the $10.25-11.00 zone for three weeks now. You could argue the lack of profit taking is bullish. I suspect that RT will see a pullback following the company's earnings report due out on April 7th, 2010. Wall Street expects a profit of 23 cents a share. Due to the potential of a post-earnings sell-off I am lowering our trigger to open positions from $9.50 to $9.00. We'll keep the 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.

FYI: If RT happens to hit our trigger before the earnings report I would wait until after the earnings report before launching positions.

Buy-the-Dip trigger: $9.00

BUY the stock at $9.00

- or -

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

Chart of RT:


Sanderson Farms Inc. - SAFM - close: 53.95 change: +0.34

SAFM appears to have found resistance in the $56.50-57.00 zone. The stock is very overbought and could be poised to correct soon. I am adjusting our entry point strategy. We're moving the trigger to buy calls from $51.00 down to $48.50. We'll move the stop loss to $43.90. If triggered our target is $59.75. I would aim higher but we only have a few months.

Buy-the-Dip trigger: $48.50 *new*

BUY the 2010 NOV $55 calls (SAFM 10K55.00)

Chart of SAFM:


Trimble Navigation - TRMB - close: 28.52 change: -0.20

TRMB has spent this past week consolidating sideways and digesting its previous gains. The trend is up but shares are very overbought with a nine-week rally with very little profit taking along the way. Broken resistance near $26.00 should offer new support. I'm suggesting a trigger to buy calls at $26.05. If triggered we'll use a stop loss at $23.95. Our first target is $29.95. Our second target is $32.25. FYI: The P&F chart is bullish with a $42 target.

Buy-the-Dip trigger: $26.05

BUY the 2010 August $30 calls (symbol: TUH1021H30)

Chart of TRMB:


Tractor Supply Co. - TSCO - close: 59.40 change: +1.35

TSCO has been relatively resistant to profit taking. However, when the market does eventually correct we should see TSCO pull back and retest what should be support in the $55-54 zone. I'm suggesting a trigger to buy calls on a dip at $55.25. If triggered our first target is $69.00. We'll use a stop loss at $49.75.

Buy-the-Dip trigger: $55.25

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

Chart of TSCO: