Option Investor
Newsletter

Daily Newsletter, Saturday, 4/10/2010

Table of Contents

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

Leaps Trader Commentary

Short-Term Prospects

by James Brown

Click here to email James Brown

Do you remember the old Wendy's commercials where the little old lady asks, "Where's the beef?". I feel like asking "Where's the correction?" The stock market continues to melt up with many investors waiting for their chance to hop on board. Is this another case of fund managers having to put their money somewhere so they reluctantly put it into the market?

The major averages are up six weeks in a row and hitting new 52-week highs. The S&P 500 index is up 14% from its February 2010 intraday low. The NASDAQ Composite is up 16.8% from its February intraday low and the small cap Russell 2000 index is up 21% from its February intraday low. Does "smart money" really want to chase these kinds of moves?

Last week I said that the S&P 500 index was technically still bullish and looked poised to rally higher. Now it seems like the path of least resistance is up until someone finally comes up with a reason to sell. That reason could be earnings but more on earnings season in a bit. First let's chat about the headlines.

The Greece financial fiasco continues to fester across the Atlantic. The Greek bond market is imploding with yields on 10-year Greek notes soaring toward 7.5%. Essentially this is the open market shouting that they do not believe Greece can make it on its own. Eventually Greece will have to see a real bailout with real money and not just promises to help. While this Greece challenge makes headlines it's not having much affect on the major European markets. The German DAX and English FTSE continue to climb and both remain near 18-month highs.

The real issue is not Greece but the other PIIGS countries. Portugal, Ireland, Italy, and Spain are all on the warming up on the sidelines for their chance to bat at the world series of debt defaults. If the EU is struggling with how to handle Greece how are they going to handle countries like Italy or Spain that have economies and debt issues four to five times larger than Greece? These countries are facing their own default scenarios and the ratings agencies are starting to notice. Furthermore Germany is the EU's largest economy and the Germans do not want to bailout Greece. How do you think the Germans going to feel about throwing money at Italy or Spain? You can see why some analysts believe the EU and the euro is eventually doomed.

The trials and tribulations of the EU are longer-term big picture problems that will take months and years to sort out. In the short-term we're faced with the prospect of Q1 earnings season. Dow-component Alcoa (AA) actually kicks off earnings season this week but investors tend to gloss over their report since the company has a history of missing estimates. The high-profile names everyone will be watching are BAC, GOOG, JPM and INTC. These big cap leaders will set the tone for earnings season. The challenge is that even if they beat estimates stocks could still see a sell-the-news reaction. It's the perfect excuse to take profits. Wait until the company reports and no matter what the results are investors can sell into strength knowing there will be a lot of volume following the announcement.

I suspect that stocks will continue to melt higher into the second full week of earnings (two weeks from now). After this second week of results are over odds are pretty good that the profit taking will begin in earnest. A lot of investors are going to want to lock in gains early and jump in front of the sell-in-May and go-away crowd.

In summary the market remains very overbought and due for some profit taking. The long-overdue correction could begin in the second half of April, especially if investors are worried that the Federal Reserve could change the language to their fiscal policy at the April 27-28th meeting. I would hesitate to open any new long-term bullish positions over the next few weeks since stocks are going to look a lot more attractive after a 10% haircut.

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 stock market continues to slowly melt higher. The major indices hit new 52-week highs on Friday. We have worried about the rally running out of steam for weeks now. The onset of earnings season could finally herald a pause in the market's up trend.

Shares of MTW have rallied toward their 2010 highs. If you did not take profits back in January you may want to take some money off the table now. I've decided to close our DLX play. The trend is up but shares look vulnerable. We might bet a better entry point on DLX in a few weeks.

There are several updated stop losses tonight. Here's the list of new stop losses: FO, INTC, MTW, ORCL, and PRE.

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

Adding Exposure to Energy

by James Brown

Click here to email James Brown


Testing Broken Resistance


Occidental Petrol - OXY - close: 86.56 change: -0.02 stop: 77.45

Why We Like It:
The OIX oil index and OSX oil services index are both flirting with new 52-week highs. You could argue they're under performing the major averages since the main indices are hitting new highs but energy stocks have been tossed around by crude oil's reaction to dollar volatility. Now it looks like the dollar is beginning to roll over again, which should be bullish for commodities.

I like OXY because the stock has been showing relative strength. Shares broke out to new 52-week highs a few days ago and traders did not hesitate to buy the dip when it tested broken resistance as new support. Oil prices are likely to trend higher as we move toward the summer driving season. At the same time there are still geopolitical tensions simmering between Israel and Iran. There are rumors that Israel may choose to try and attack Iran's nuclear infrastructure by the end of 2010 if the U.S. won't. I'm not suggesting that is a fundamental reason to buy oil stocks but it could raise the "risk" premium in oil.

I still feel like launching new long-term bullish positions now is a risky proposition. The stock market is very overbought with big gains off the February lows. Odds are pretty good the market could see a correction (5% to 10%) that begins in the second half of April. Consider it a post-earnings season depression. There is no guarantee this will occur but corrections are a normal course of both bull and bear markets. While we're talking about earnings OXY is due to report earnings on April 29th.

Considering this scenario with a potential market correction looming in the just around the corner I am suggesting we only open half positions (or smaller positions than you might normally). More conservative traders could use a stop loss near $84 or $80 since $85 should be support. I'm suggesting a stop loss under the 200-dma. Our long-term target is the $99.00 level.

Company Info:

Occidental Petroleum Corporation is an international oil and gas exploration and production company with operations in the United States, Middle East/North Africa and Latin America regions. Oxy is the fourth largest U.S. oil and gas company, based on equity market capitalization. Oxy's wholly owned subsidiary, OxyChem, manufactures and markets chlor-alkali products and vinyls. Occidental is committed to safeguarding the environment, protecting the safety and health of employees and neighboring communities and upholding high standards of social responsibility in all of the company's worldwide operations. (source: company press release or website)

Remember - only half (small) positions

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

BUY 2011 January $90.00 CALL (OXY 11A90.00) current ask $7.00
- or -
BUY 2012 January $100.00 CALL (OXY 12A100.00) current ask $8.00

Chart of OXY:



Play Updates

Starting To See Profit Taking

by James Brown

Click here to email James Brown

Editor's Note:

The major indices may be flirting with new 52-week highs but we're starting to see some profit taking across the different sectors. Our biotech stocks are inching lower. Agriculture names are retreating. The rally's momentum has definitely stalled for most issues although FO surged to a new high last week.


Closed Plays


Deluxe Corp. (DLX) has been closed.


Play Updates


Arch Coal Inc. - ACI - close: 25.29 change: +0.27

It is amazing what a difference a week can make. The coal mine disaster for Massey Energy did not have much affect on the rest of the coal stocks. Shares of ACI started the week on a strong note and managed an 8% gain for the week. The stock needs to see follow through. If shares fail here it will look like a lower high and we have not yet escaped the bearish head-and-shoulders pattern. I am reluctant to suggest new bullish positions at this time even though analysts seem to be growing more bullish on coal again.

Readers need to note that ACI is due to report earnings on Monday, April 19th before the opening bell. If you are considering any protective puts you'll need to buy them before the market closes on Friday, April 16th. I am not suggesting any puts at this time.

Our final target for the LEAP trade 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 $6.10/6.40
-stop loss on ACI @ 19.85

Chart of ACI:


Biogen IDEC - BIIB - close: 56.52 change: +0.09

BIIB continues to under perform the broader market and its peers in the biotech sector. We were expecting a pull back toward the $55-54 zone but this relative weakness is not a good sign. Shares have now broken technical support at their simple 50-dma. Bigger picture it looks like BIIB should find support in the $55 area but I'm almost tempted to cut this play early and look for more promising candidates. Let's give the stock another week and see what happens. Readers should note that BIIB is due to report earnings on April 20th before the market's opening bell.

Our first target to take profits is at $64.90.

Feb 19th, 2010 - entry price on BIIB @ 56.60, option @ 4.60
symbol: OIY1122A60 2011 JAN $60 LEAP call - current bid/ask $3.80/4.10
-stop loss on BIIB @ 51.85

Chart of BIIB:


Berkshire Hathaway Inc. - BRK.B - $80.49 +0.81

Shares of BRK.B have been correcting slowly for five weeks now. The profit taking began to pick up some speed this past week until shares hit the rising 50-dma. Traders bought the dip and while the stock lost ground for the week it ended on a strong note. I still think shares are overbought even after a five-week churn sideways. I would prefer to launch new longer-term bullish positions on a pullback into the $77-73 zone. We remain very long-term bullish. 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 $6.20/6.50
-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 $7.90/8.20
-stop loss on BRK.B @ 69.00

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 38.19 change: +0.16

BWA made some headlines this past week when the company purchased Dytech ENSA. Details of the deal were not disclosed but Dytech, which makes parts for exhaust systems, had sales of $180 million in 2009.

On a short-term basis the action in BWA looks almost bearish with the failed rally on April 5th. Yet there was not much follow through and traders bought the dip at its 50-dma on Thursday. Longer-term the trend is still up and shares should be poised for a big move higher given the months of building a base in the $30-35 zone.

If you are looking for a new position now I would prefer to buy a bounce in the $36-35 area or wait for a breakout past $40.00.

Our first target is $44.50. Our second target is $49.75. FYI: More conservative traders might want to use a stop loss closer to $34.00.

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: ZWY1122A40 2011 JAN $40 LEAP call - current bid/ask $3.50/3.90
-stop loss on BWA @ 32.49

Chart of BWA:


Celgene Corp. - CELG - close: 61.89 change: -1.23

CELG under performed the market on Friday after the stock was downgraded to a "hold" one day after the company's analyst day. The action over the past week actually looks short-term bearish with a failed rally at $64.00. I have been suggesting readers wait for a dip back toward the $60.00-58.00 zone before considering new bullish positions. Considering the relative weakness the past few days I would focus more on the $58 level and/or its rising 100-dma as likely support. You can wait for the bounce before initiating positions.

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 $5.30/5.80
-stop loss on CELG @ 54.75

Chart of CELG:


EMR $50.80 -0.14 -- Emerson Electric Co.

The rally in EMR stalled this past week with shares churning sideways above the $50.00 level. I want to repeat my prior suggestion that more conservative traders go ahead and exit early now to lock in a gain. I am not suggesting new bullish positions. The trend is up but EMR is overbought. I would look for support near $48 and its rising 50-dma on a pull back. 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 $11.00/11.60
-stop loss on EMR @ 44.75

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

Chart of EMR:


Fortune Brands - FO - close: 50.67 change: +1.09

Good news! FO is in breakout mode again. After three weeks of consolidating sideways under resistance at $50.00 the bulls finally managed to push the stock to new 52-week highs. This is very bullish and aggressive traders may want to consider new positions here. I am raising our stop loss to $45.75. More conservative traders could try placing their stop closer to $48.00 instead. Please note I am adjusting our long-term target down to $59.75.

Mar. 12th, 2009 - entry price on FO @ 47.55, option @ $2.20
symbol: FO1018I50 SEP 2010 $50 call - current bid/ask $3.50/ 3.80
-stop loss on FO @ 45.75 *new*

Chart of FO:


Forest Oil Corp. - FST - close: 27.53 change: +0.21

The price of oil has been getting tossed around by the U.S. dollar but it looks like the dollar's bounce is rolling over and that should be bullish for oil prices. Traders bought the dip in FST on Thursday morning and shares do look poised to rally higher but the $30.00 level remains overhead resistance. I remain cautious on FST given its relative weakness. 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 $ 8.60/ 9.00
-stop loss on FST @ 23.45

Chart of FST:


Intel Corp. - INTC - close: 22.55 change: +0.24

The SOX semiconductor index managed to hit new 52-week highs last week and it did so without any help from Intel. Shares of INTC have been consolidating sideways and has done so for the last two and a half weeks. On a positive note INTC appears to have short-term support near $22.00. We are raising our stop loss to $19.80 near the 200-dma.

INTC reports earnings on Tuesday April 13th after the closing bell. If you're worried the company might disappoint then consider some protective puts. Officially the newsletter is not suggesting any puts. I suspect any profit taking would be met with support at $22, $21 and near $20. If INTC can breakout past resistance near $22.80 I suspect shares could see a quick rally toward our target in 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 $3.45/3.55
-stop loss on INTC @ 19.80 *new*

Chart of INTC:


Mosaic Co. - MOS - close: $56.65 change: -0.94

The correction in MOS continues. After a worse than expected earnings report the stock has been slowly sinking. I cautioned readers last week that MOS would probably fall toward $55.00. It's getting close to this level, which should offer some support that is now underpinned by its simple 200-dma. More conservative traders may want to raise their stop loss just in case the $55 level does not hold.

Longer-term we're bullish on the agriculture sector and MOS but the short-term trend remains down. Wait for a bounce from support before considering new bullish positions.

I have gone ahead and added the $0.17 for the protective put we bought two weeks ago to the cost of our LEAPS position. FYI: Our long-term target is the $90 level.

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 @ 6.27
symbol: ZXW-AM, 2011 LEAP $65 call - current bid/ask $4.30/4.45
-stop loss on MOS @ 51.90

Chart of MOS:


Manitowoc Inc. - MTW - close: 14.33 change: +0.73

It's taken about three months but the LEAP calls have rallied back to the same price we first took profits at back in January. Shares of MTW continue to perform well and the stock outperformed on Friday with a 5.3% gain. I couldn't find any specific news for the outperformance but investors remain bullish for the industrial sector. The 2010 January high was $14.60, which will probably be overhead resistance. Don't be surprised to see some profit taking soon. Please note our new stop loss at $10.85.

I am not suggesting new bullish positions at this time. 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 $4.80/5.10
-stop loss on MWT @ 10.85 *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 @ 10.85 *new*

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

Chart of MTW:


Oracle Corp. - ORCL - close: 26.13 change: +0.30

The NASDAQ managed to close up at a new 52-week high and shares of ORCL are not far behind. Traders continue to buy the dip and the stock has closed above recent resistance near the $26.00 level. I remain concerned that ORCL's trajectory is just too slow but we still have months to go. I am not suggesting new positions at this time due to ORCL's slow movement rate. Please note our new stop loss at $22.95. 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 $2.89/2.94
-stop loss on ORCL @ 22.95 *new*

Chart of ORCL:


PEPSICO Inc. - PEP - close: 66.36 change: +0.39

After several days of failing to breakout past the $67.00 level shares of PEP are beginning to drift lower. Broken resistance in the $63-64 zone should offer some support as well as the 200-dma now above the $60 level. The larger trend is up but PEP still looks overbought and due for a deeper pull back. 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 $7.70/7.85
-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: $115.19 change: +0.62

Shares of POT continue to perform as expected. I have been warning readers to expect a pull back toward the $115-110 zone and shares hit $112.27 on Thursday. The short-term trend is still down so the correction may not be over yet. On a short-term basis the agriculture stocks are correcting but longer-term we remain bullish on this industry. If the $110 level fails to hold support then look for additional support near $105 and POT's rising 200-dma. I am not suggesting new bullish positions at this time.

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 $17.60/17.95
-stop loss on POT @ 99.50

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

Chart of ORCL:


PartnerRe Ltd. - PRE - close: 80.70 change: +0.19

Shares of PRE displayed some relative strength last week with a new five-month high. Traders continue to buy the dips near the rising 10-dma. While our bias on PRE is bullish I still hesitate to launch new positions at this time. Eventually the market will correct and we will see a better entry point. The $76 region should offer some support as well as the 50-dma. If we do see a new entry point I would use the November calls. Please note our new stop loss at $73.75.

Our first target is $84.90. Our second, longer-term target is $97.50 but this could be wishful thinking given the August options.

Feb. 13th, 2010 - entry price on PRE @ 76.28, option @ 2.70
symbol: PRE1021H80, 2010 AUG $80 call - current bid/ask $3.50/3.80
-stop loss on PRE @ 73.75 *new*

Chart of PRE:


Reynolds American Inc. - RAI - close: 54.47 change: +0.54

RAI posted a loss on the week but investors continue to buy the dips. Traders jumped in twice near the $53.60 level last week. The stock has spent over four months consolidating sideways in the $51-55 zone and if shares can finally break out of this range it could begin a new leg higher.

Currently our final target to take profits and exit is $59.75. More conservative traders may want to take profits right now! 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 $12.70/15.00
-stop loss on RAI at $50.75

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

Chart of RAI:


UltraShort 20+ Year Treasury Bond ProShares - TBT - cls: 48.70 chg: -0.24

The bond market sold off hard on Monday morning but recovered following a very strong auction on Wednesday. The Treasury department sold $21 billion in 10-year notes with huge demand. The bond market continued to drift higher the rest of the week. Our fundamental outlook on the dollar, bonds and interest rates has not changed. Eventually the ballooning U.S. debt will 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 $2.57/2.69
-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: 16.46 change: -0.02

Warning! The action in TIE this past week looks like a failed rally and reversal lower. You could argue the action on Tuesday looks like a lower high or a second peak in a bearish double top pattern. The bounce on Friday morning failed. I expect shares of TIE to correct lower from here. More conservative traders may want to exit early immediately. At the very least I would look for a dip toward $15.00 and probably closer to the $14-13 zone. I am not suggesting new bullish positions at this time. We decided to sell half our position on March 27th. 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 $3.30/3.60
-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 $4.50/5.10
-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: 88.98 change: +0.21

Bonds sold off hard last Monday but bounced on a strong auction of 10-year notes on Wednesday. The path of least resistance appears to be down but it will likely be a bumpy ride. 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 $4.05/4.15
-stop loss on TLT @ 93.15

Jan. 09th, 2010 - entry price on TLT @ 89.29, option @ 8.90
symbol: YLI-MB, JAN 2012 $80 LEAP put - current bid/ask $6.35/6.80
-stop loss on TLT @ 93.15

Chart of TLT


UnitedHealth Group Inc. - UNH - close: 32.26 change: -0.36

I am growing more concerned over the weakness in the healthcare sector and shares of UNH. The HMO healthcare index appears to have formed a bearish double top. Meanwhile UNH is forming a new trend of lower highs. It's true that traders bought the dip again near $32 and its 100-dma on Friday but odds are growing this stock will see a dip back toward support near $30.00. After three months of consolidating in the $32-35 zone I'm not so sure the $30 level is going to hold as support. More conservative traders may want to consider taking some money off the table. I am not suggesting new bullish positions at this time.

Plus we have to consider the risk of UNH's earnings report. The company reports earnings on Tuesday, April 20th before the opening bell. At this time I am not suggesting any protective puts but you might want to consider them ahead of the report.

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 $2.51/2.56
-stop loss on UNH @ 28.95

Chart of UNH:


Visa Inc. - V - close: 92.52 change: +1.52

Visa posted a very minor loss for the week. More importantly investors continue to buy the dips and shares look poised to rally higher. I'm still concerned about the market being overbought but it can always grow more overbought. If you're willing to buy a new high then look for V to trade above $93.75 before considering new positions. I would still prefer to open positions on a dip near support but that may not happen soon. 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 $4.65/4.80
-stop loss on V @ 81.75

Chart of V:


Wal-Mart Stores Inc. - WMT - close: 55.07 change: -0.31

After almost three weeks of churning sideways WMT is finally beginning to see some profit taking. The $54.00 level should offer some support and if we're really lucky we'll see a dip closer to $52.50. I would launch new positions on weakness. 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 $5.10/5.25
-stop loss on WMT @ 49.45

Chart of WMT


CLOSED Plays

Deluxe Corp. - DLX - close: 19.42 change: -0.17

We have been expecting a correction in shares of DLX for several days now. This past week the stock has produced a new lower high and I suspect the correction could be close at hand. Instead of sitting through the pull back I'm suggesting we go ahead and exit early. We can exit now and avoid a loss and still put DLX back on our watch list for a better entry point.

Mar 1st, 2010 - entry price on DLX @ 19.10, option @ 1.10
symbol: DLX1016J20 2010 OCT $20 call - current bid/ask $1.25/1.45
-stop loss on DLX @ 16.75

04/10/10 - Exit Early @ $1.25, cost $1.10.

Chart of DLX:



Watch

Energy & Industrial Goods

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new watch list candidates I wanted to draw your attention to a few more stocks.

BAC has broken out to new five-month highs. I'd keep my eye on this stock for a correction, which might happen after its earnings report on April 16th.

The trend in Goldman Sachs (GS) is bullish and a move past $182 might be a bullish entry point. I hesitate to open positions if we're expecting a market correction in the second half of April. GS reports earnings on April 20th.

MCD has broken out to new multi-year highs. We had it on our watch list a while ago and dropped it. The company reports earnings on April 21st. This might be a buy on any correction.

Some of the energy stocks are starting to show some relative strength and COP just broke out past resistance at the $55.00 mark. I'm not sure I would chase it here but I would place it on your personal watch list. Earnings are due out on April 28th.


New Watch List Entries

APA - Apache Corp.

DE - Deere & Co.


Active Watch List Candidates

CIR - CIRCOR Intl.

CRS - Carpenter Technology

CVD - Covance Inc.

EMC - EMC Corp.

IMN - Imation Corp.

MDR - McDermott Intl.

MICC - Millicom Intl.

RT - Ruby Tuesday, Inc.

SAFM - Sanderson Farms Inc.

TRMB - Trimble Navigation


Dropped Watch List Entries

TSCO was dropped.


New Watch List Candidates:

APA - Apache Corp. - close $106.76 change: +0.47

Crude oil looks like it's in breakout mode as we head toward the summer driving season. At the same time it looks like natural gas may have finally found a bottom. Bulls have tried betting on a bottom in natural gas before and they always lost as rising natural gas inventories sent the commodity lower. Now it looks like gas might have found a bottom as traders start betting on higher usages rates to keep consumers cool during the warmer summer months. The combination of rising oil and rising natural gas should be a bullish recipe for APA.

Shares of APA have been consolidating sideways since the peak in January but the consolidation has a neutral pattern of lower highs and higher lows. I suspect that APA will breakout higher. Bulls should have the upper hand but I want to see confirmation. I am suggesting we use a trigger at $110.50 to buy calls on the stock. If triggered at $110.50 we'll use a stop loss at $102.45. Our first target is $124.75.

FYI: Readers should know that APA is due to report earnings at the end of April but the April 29th announcement date is unconfirmed. Furthermore on Friday, April 9th there was a news story out that APA was in the final talks to buy the shallow water Gulf of Mexico assets from rival Devon Energy for $750 million. Lastly the Point & Figure chart is bullish and is currently forecasting a long-term target of $127.00.

Company Info:
Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. Our mission is to grow a profitable company for the long-term benefit of our shareholders by building a portfolio of core areas which provide long-term growth opportunities. (source: company press release or website)

Breakout trigger: $110.50

BUY the 2010 October $115 calls (APA 10J115.00)

Chart of APA:


DE - Deere & Co. - close: 61.68 change: +1.06

Shares of DE closed just under their 52-week highs near the $62 level on Friday. The trend is up and investors remain bullish on industrial stocks as they bet on the global recovery. However, instead of buying a breakout I am suggesting readers wait for a correction. Earnings season is about to start and after several weeks of non stop gains in the market stocks could be poised for a sell-off following their earnings results.

I am suggesting we use a dip to $55.50 as our entry point to buy LEAPS on DE. If you're really patient you could try waiting for a dip toward the rising 200-dma. If we are triggered at $55.50 we'll use a stop loss at $49.49. Our first target is $69.75. FYI: The Point & Figure chart is bullish with a long-term target of $89.00.

Company Info:
Deere & Company, founded in 1837 (collectively called John Deere), has grown from a one-man blacksmith shop into a corporation that today does business around the world and employs more than 50,000 people. The company continues to be guided, as it has been since its beginning, by the core values exhibited by its founder: integrity, quality, commitment and innovation. How We're Organized - John Deere consists of three major business segments (agriculture and turf, construction and forestry, and credit). (source: company press release or website)

Buy-the-Dip trigger: $55.55

BUY the 2011 January $60 call (DE 11A60.00)
- or -
BUY the 2012 January $60 call (DE 12A60.00)

Chart of DE:


Active Watch List Candidates:

CIRCOR Intl. - CIR - close: 33.24 change: +0.22

CIR has been slowly trying to bounce and the trend of lower highs is still bullish. However, two weeks ago the stock formed a bearish reversal and this past week has done nothing to change that. I am still expecting a correction toward the $30.00 region, which should offer some support.

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: $38.63 change +0.13

The upward momentum in CRS is not going to last forever. Shares are up six weeks in a row and up eight out of the last night weeks. I strongly suspect the $40.00 level will act as round-number, psychological resistance, especially after a 50% rally off its February lows. I'm betting that any correction in CRS is going to be pretty sharp. We want to wait for a pull back toward the $30.00 level. 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 (CRS 10I35.00)

Chart of CRS:


Covance Inc. - CVD - close: 61.61 change: +0.20

Traders bought the dip near $60.00 again. I have to admit that shares of CVD still look bullish in spite of the four-week sideways consolidation above $60.00. I would be tempted to buy a breakout over $63.00. However, we're expecting a market correction following the second week of earning season. If we're patient we should get a much better entry point. The rising 200-dma near $55.00 should offer strong support. I am moving our trigger to buy calls down to $56.00. We'll adjust our stop loss to $53.45. If triggered our long-term target is $74.50. Currently the Point & Figure chart is bullish with a $79 target.

Buy-the-Dip trigger: $56.00

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

Chart of CVD:


EMC Corp. - EMC - close: 18.54 change: +0.14

Shares of EMC continue to bounce around the $18-19 zone. More aggressive traders may want to consider opening bullish positions on a breakout past $19.10. The March 25th high was $19.04. I'm still betting on a market correction sometime in the next three to five weeks. The 200-dma should offer support. I am suggesting we use a trigger to buy call LEAPS at $17.25 with a stop loss at $15.90 (adjusted from last week). 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)

Please note our new option.

Buy-the-Dip trigger: $17.25

BUY the 2011 January $17.50 LEAP CALL (EMC 11A17.50)
- or -
BUY the 2012 January $20.00 LEAP call (EMC 12A20.00)

Chart of EMC:


Imation Corp. - IMN - close: 11.45 change: +0.00

As the market melts up to new relative highs traders continue to buy the dips in IMN. Eventually this stock is going to correct and we're going to be ready for it. Shares should have support near $10.00 and the $9.50 levels.

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. We'll use a stop loss at $9.24. 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 (IMN 10J12.50)

Chart of IMN:


McDermott Intl. - MDR - close: 27.76 change: +0.57

MDR is still trending higher as traders buy the dips near its rising 10-dma. The stock looks poised to breakout past resistance near the $28.00 level. However, I want to caution readers that we are facing a good chance the market could correct following earnings season this month. If the market corrects MDR will likely follow it lower.

We can still choose to open bullish positions on a breakout higher but I am suggesting we only open half your normal position size (or less). We'll keep our trigger at $28.25 but keep in mind I do expect a pull back eventually - probably toward the $26-25 zone. More patient traders can wait for the pull back before initiating positions.

If triggered at $28.25 I am suggesting a stop loss at $23.90 (adjusted from last week). 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:


Millicom Intl. - MICC - close: 89.88 change: +1.02

MICC showed almost no change for the week but traders did buy the dip at its rising 30-dma on Thursday. The early April spike higher continues to look like a bearish reversal/failed rally pattern. We want to be patient here and wait for a correction. Broken resistance near $80.00 should offer 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.

Buy-the-Dip trigger: $81.00

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

Chart of MICC:


Ruby Tuesday Inc. - RT - close: $11.71 change: -0.67

RT reported earnings this past week. The company beat Wall Street's estimates and raised their 2010 guidance. The stock reacted by surging to $12.55 on Thursday. The stock was hit with profit taking on Friday in what looks like a big failed rally/reversal pattern. The trend is certainly up but RT is overbought and due for a correction. We want to wait for that correction. Please note that I am raising our trigger to buy the stock from $9.00 to $9.50. We'll raise the stop loss to $8.45.

It could take a few weeks for RT to correct low enough to finally hit our entry point. Nimble traders could look into short-term bearish positions. If we are triggered at $9.50 our first target is $12.00. Our longer-term target is $14.75.

Buy-the-Dip trigger: $9.50

BUY the stock at $9.50

- or -

BUY the 2010 October $10.00 calls (RT 10J10.00)

Chart of RT:


Sanderson Farms Inc. - SAFM - close: 55.98 change: +0.53

Shares of SAFM continue to drift higher in a bullish channel of higher lows and higher highs but the stock has yet to challenge the late March resistance. That could happen shortly. I still don't want to chase it so we'll wait for a correction. Right now the plan is to buy calls on a dip at $48.50 with a stop loss at $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

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

Chart of SAFM:


Trimble Navigation - TRMB - close: 28.98 change: +0.25

TRMB was downgraded on Wednesday but traders quickly jumped in to buy the dip near $27.50. Now the stock is right back near its highs and looks poised to rally higher. More aggressive traders may want to consider going long on a move over $29.25. I still think the stock will correct when the market corrects. It could be two or three weeks down the road but if we're patient it will make a huge difference in our entry point and potential profitability. Broken resistance near $26.00 should be support. If you're really conservative you could wait for a dip closer to $25.00. I'm suggesting a trigger for bullish positions 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.

Please note our new options (Novembers)

Buy-the-Dip trigger: $26.05

BUY the 2010 November $30 calls (TRMB 10K30.00)

Chart of TRMB:


Tractor Supply Co. - TSCO - close: 66.46 change: -0.02

Whoa! It looks like our TSCO play is dead before it even started. Shares have rallied with out us. We were waiting to buy a dip near support. Yet TSCO has exploded higher this past week thanks to management raising guidance. The company now expects Q1 earnings in the 22-24 cent range compared to Wall Street's estimates of just 1 cent. The stock gapped open higher. I am dropping TSCO as a bullish candidate for now.

Trigger was never hit. Dropped as a candidate.

Buy-the-Dip trigger: $55.25

Chart of TSCO: