Option Investor
Newsletter

Daily Newsletter, Saturday, 5/15/2010

Table of Contents

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

Leaps Trader Commentary

Eurozone Prisoner

by James Brown

Click here to email James Brown

Are you ready for round two? The market's oversold bounce has rolled over and it appears the correction has already begun phase two. Concerns over the future and the possibility that the eurozone may eventually unwind sent markets lower, but you could argue it's the most convenient excuse for investors to sell stocks in a weak market. The euro currency's breakdown to new 19-month lows sent shockwave throughout the currency, equity and commodity markets.

Investors are wading through rising levels of uncertainty, which is exactly what Wall Street hates the most. Rumors were running wild the last couple of days. One rumor suggested that France had threatened to leave the eurozone if Germany didn't participate in the $1 trillion bailout fund. On Friday there was a rumor that France's credit rating was going to get downgraded. These are just rumors but they had an impact on an already shaken investor sentiment.

A week ago I mentioned that Greece may never be able to pay back its debut due to extremely low growth. It's not a new concept but it appears to be gaining steam. Meanwhile markets are worried that the big banks across Europe may have to recapitalize the same way U.S. banks did following the Lehman Brother's meltdown. Adding to European woes was signs that Spain could be facing deflation. Central banks fear deflation the most and a low-growth environment, high-unemployment environment doesn't help.

Chart of the U.S. dollar ETF (UUP):

Chart of the Euro currency ETF (FXE):

Chart of the USO oil ETF (USO):

Wild swings in the currency markets continue to plague the commodity markets. Crude oil has dropped to new relative lows. The oversold bounce in copper prices has rolled over. All of the uncertainty and rising fear levels has pushed gold futures to a new high near $1,250 an ounce. Volatility in oil will probably continue this week. The June futures contract expires this Thursday and storage at Cushing, OK, the primary delivery point for crude in the U.S., is vanishing quickly. The price of oil is going to drop even faster if we run out of storage for it. My question is what does elevated storage levels say about consumption and growth in the U.S. economy? That seems like a bearish reading to me.

The economic data in the U.S. continues to come in positive. Industrial production and manufacturing continue to improve. Last week's retail sales numbers saw their seventh monthly gain in a row. April retail sales gained +0.4%, which was better than the +0.2% economists were expecting but it was a big drop from the +2.1% gain in March. Year over year retail sales are up about 8% but a year ago the economy was crashing so comparisons are very easy. I warned readers last week that when we start to see the rate of improvement in our economic data slow down it could be a warning sign. Retail sales are just one factor and one month doesn't make a trend but we need to stay cautious. Speaking of cautious the consumer sentiment data slipped to 73.3 but appears to be range bound in the low 70s.

This week we will get the CPI and PPI reports but inflation has been tame so these will not be market movers. The FOMC minutes from their previous meeting will be out but is unlikely to raise any eyebrows since the Fed didn't change their wording in their announcement. The Philly Fed survey will be released and many see it as a precursor to the national ISM report. Plus, we will hear from Wal-Mart (WMT), the largest retailer on the planet, who reports earnings on May 18th before the market's opening bell. Analysts are expecting a profit of 85 cents a share. WMT's comments on the state of the economy and the consumer will be the real story.

Looking ahead we will remain hostage to the headlines in Europe. Last week's news about the planned $1 trillion fund to handle future debt default challenges for eurozone members produced a short-term pop but the impact was brief. Either the market has no faith this will solve the EU's problems or they doubt the fund will actually get implemented. This week will be noteworthy for Greece since the country has an $11 billion debt payment due on May 19th. It will be interesting to see how the markets react to this event and whether or not Greece pays it on time.

Looking out over the next several months it appears the EU is headed for a double-dip recession. Rising debt burdens are going to impeded growth even more and this next recession could be worse. The U.S. economy is still improving but having Europe slide back into recession is not going to help. Readers already know that I'm worried the U.S. will see a slowdown six to nine months out.

I'm still optimistic on the U.S. but short-term stocks look fragile and I would expect the market to retest the recent lows. The DJIA will probably retest the 10,200-10,000 zone. The S&P 500 index will probably retest support near 1100 and its 200-dma. The NASDAQ will probably test the 2200 area and its 200-dma. The small cap Russell 2000 will probably drop toward the 650 level and possibly its 200-dma. If these levels break then we could be in for a significant decline.

I've mentioned it before, that there are plenty of investors who believe the markets are in a long-term bear market. This group believes the rally off the 2009 lows was just a huge bear-market bounce. The S&P 500's failure at a key Fibonacci retracement level certainly helps their case. Cautious investors will want to scale back their positions, re-evaluate their stop loss placement, and consider buying puts on the market (maybe the SPY: S&P 500 index ETF) as an overall hedge in case of any serious downturn (give yourself time for these to work if you choose to buy any).

Right now the intermediate trend for the U.S. market is still up. Traders did buy the dip near the 10% correction levels. I do think we will retest these levels. Nimble traders can use weakness to open new bullish positions but I strongly suggest readers keep their position size very small. If a trade continues in your favor only then would I consider slowly adding to positions. I am still concerned that the big jump in volatility over the last couple of weeks could be a sign of a market top. Plus the headwinds from Europe and a bear-market in China's stock market could be substantial.

Chart of the S&P 500 Index:

Chart of the S&P 500 Index (WEEKLY):

Chart of the NASDAQ Composite 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 late 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. Estimates were in the 3 to 5 million foreclosures over the next three years but a White House advisor was quoted with estimates in the six to ten million range over the next three years. This only reinforces my own belief that we will see another tidal wave of foreclosed homes in 2010 and 2011. 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 market's oversold bounce produced a weekly gain but the failed rally on Thursday and Friday has cast a bearish shadow over stocks. The major indices look poised to retest their "flash crash" lows. Nimble traders could use any weakness near significant support levels as a possible entry point but be prepared for the possibility that stocks actually breakdown and keep sliding. If you have a profit you may want to cash it in.

There are no changes to our portfolio and no new stop losses.

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

Overpowering

by James Brown

Click here to email James Brown


Correction - Round Two


Editor's Note:

The stock market's oversold bounce has failed at resistance and begun to roll over. Odds are pretty good that the major indices will retest their May lows near psychological support (not necessarily the intraday lows). Even if the averages do hit their lows that doesn't mean we'll immediately bounce higher. Stocks could meander sideways until investors grow comfortable again.

Right now fear is overpowering greed and traders are more likely to sell into strength. If you believe this is a market correction and not the start of something worse then we can take advantage of any future weakness. Open bullish positions on strong stocks near significant support levels. I've added three new candidates to the watch list.



Play Updates

Bearish Bounce

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 23.97 change: -0.60

Headlines have been quiet on ACI lately. The coal sector has been not been as volatile as the rest of the market but the overall trend is the same. ACI bounced last Monday and it's been drifting lower every since. Thus far ACI is holding technical support near its 200-dma. Yet if the S&P 500 retests the May lows will ACI manage to hold on to support? At a minimum I would expect this stock to test the May 6th lows near $22.63. That's not very far away from our stop loss (21.95) and odds are growing quickly that we could end up getting stopped out. I remain very cautious on ACI and would hesitate to launch new positions.

We already sold half our position for profit. Our final long-term target for the LEAP trade is $34.75.

May 14th, 2009 - entry price on ACI @ 16.00, option @ 2.40
symbol: ACI1122A30 2011 JAN $30 LEAP call - current bid/ask $1.70/1.85
-stop loss on ACI @ 21.95

05/01/10 Sell Half, ACI @ $27.00, option @ 3.00 (+25%)

--2nd Entry--
Feb 13th, 2010 - entry price on ACI @ 21.65, option @ 4.40
symbol: ACI1221A25 2012 JAN $25 LEAP call - current bid/ask $5.40/5.80
-stop loss on ACI @ 21.95

05/01/10 Sell Half, ACI @ $27.00, option @ 7.60 (+72%)

Chart of ACI:


Berkshire Hathaway Inc. - BRK.B - $76.23 -1.04

Believe it or not BRK.B managed a gain for the week but the action was all bearish. The bounce last Monday and Tuesday failed near the trendline of lower highs and shares appear to be rolling over again. I would expect BRK.B to retest the lows in the $73-72 zone near its rising 200-dma. I don't see any changes from my prior comments. We can still launch positions on a dip in the $73-70 zone. More conservative traders may want to wait and buy a bounce instead of buying calls on a decline.

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 BRKB1122A80 LEAP call - current bid/ask $5.75/6.00
-stop loss on BRK.B @ 69.00

Feb 6th, 2010 - entry price on BRK.B @ 73.57, option @ 6.50
symbol: 2012 JAN $85 BRKB1221A85 LEAP call - current bid/ask $8.35/8.80
-stop loss on BRK.B @ 69.00

Chart of BRK.B:


BorgWarner Inc. - BWA - close: 39.20 change: -1.56

BWA also managed a gain for the week but the bounce is rolling over. The failed rally is short-term bearish and we can probably expect BWA to retest last week's lows near $36.75 and quiet possibly the 200-dma, which is nearing the $35.00 level. A guest on CNBC this Friday suggested that BWA could suffer due to euro weakness. My short-term outlook for BWA is down and more conservative traders may want to lighten up on their positions. You could exit now for a small profit. I am not suggesting new bullish positions at this time but we'll be looking for a strong bounce in the $35-37 zone.

We have already taken profits once at $44.50. Our second and final long-term target is $49.75.

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: BWA1122A40 2011 JAN $40 LEAP call - current bid/ask $5.00/5.40
-stop loss on BWA @ 33.40

04/29/10 1st Target Hit, BWA @ 44.50, option @ $7.63 (+95%)

Chart of BWA:


CIRCOR Intl. - CIR - close: 34.64 change: -1.08

CIR displayed relative strength most of the week thanks to better than expected earnings and positive analyst comments. The company reported earnings on May 10th and blew away the estimates. The street was expecting 16 cents and CIR delivered 33 cents. Revenues were worse than expected but management raised their guidance for the second quarter. This produced a pop in the stock price and one firm raised their price target for CIR's stock to $39.

Unfortunately the rally stalled at the 2010 highs near $36.00. Friday's session looks like normal profit taking after a 17% gain from the previous Friday's close. The trend is up but CIR is facing resistance with a weak market. I would hesitate to launch new bullish positions at this time. A reversal here could look like a bearish double top pattern. Plus, I'm still very concerned about the ridiculous spreads in the November calls.

Our long-term target is the $40 area.

NOTE: I suggested readers only initiate half a position to limit our risk.

May 6th, 2010 - entry price on CIR @ 30.50, option @ 5.00
symbol: CIR 10K35.00 2010 NOV $35 call - current bid/ask $1.40/5.20
-stop loss on CIR @ 27.45

Chart of CIR:


Continental Resources - CLR - close: 46.65 change: -1.60

Friday's session was rough with a 3.3% drop but CLR still managed a 6.7% gain on the week. CLR certainly acts like it wants to rally and the only thing holding it back is weakness in oil prices and the rest of the sector. Therein lies our challenge. The oil sector looks ready to breakdown as crude oil nears the $70 a barrel area. My bias on CLR is still bullish but if the sector sinks this stock could struggle. I would not be surprised to see CLR retest the $43-42 zone or even its rising 200-dma. Our long-term target is $59.00.

Our original plan called for a Half Position (or smaller) to limit our risk.

Apr 28, 2010 - entry price on CLR @ 45.25, option @ 4.40
symbol: CLR1018L50 2010 DEC $50 call - current bid/ask $5.00/5.50
-stop loss on CLR @ 39.75

Chart of CLR:


EMC Corp. - EMC - close: 18.57 change: -0.27

CSCO's earnings results should have buoyed the tech sector but investors sold the news instead. Meanwhile shares of EMC are following the action in the NASDAQ. The oversold bounce is failing and the short-term trend appears to be down. I am still expecting a correction toward the $17.50-17.30 zone near its rising 200-dma. Wait for the dip and use it (or a bounce near there) as a new entry point.

Currently our stop loss is at $16.75. More aggressive traders may want to use a wider stop (maybe $15.90). Our first target is $22.50. Our second, longer-term target is $24.75.

May 6, 2010 - entry price on EMC @ 18.25, option @ 1.40
symbol: EMC 11A20.00 2011 Jan $20 call - current bid/ask $1.30/1.35
-stop loss on EMC @ 16.75

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $2.38/2.54
-stop loss on EMC @ 16.75

Chart of EMC:


Flowserve - FLS - close: 107.24 change: -4.73

Last week was a volatile one for FLS. Shares rallied from $103.50 to over $113.50 the first three days of the week. The simple 30-dma has turned into overhead resistance and the rally stalled. Friday's widespread market decline prompted some profit taking and FLS gave back 4.2%. Short-term the trend looks bearish with this failed rally pattern and I would expect FLS to retest the May lows and the $100 level near the rising 200-dma. More conservative traders will want to seriously consider taking some money off the table. Consider reducing your exposure with smaller positions. If the $100 level does hold as support we'll reconsider new entry points then.

Currently we have a stop loss at $92.40 and our long-term target is $135.00. Meanwhile in corporate news FLS held their annual meeting on Friday, May 14th. I didn't see any significant headlines surface from the meeting.

May 6, 2010 - entry price on FLS @ 102.00, option @ 13.60
symbol: FLS 11A110.00 2011 Jan $110 call - current bid/ask $11.60/12.60
-stop loss on FLS @ 92.40

- or -

May 6, 2010 - entry price on FLS @ 102.00, option @ 14.90
symbol: FLS 12A120.00 2012 Jan $120 call - current bid/ask $15.30/17.20
-stop loss on FLS @ 92.40

Chart of FLS:


Fortune Brands - FO - close: 48.50 change: -0.87

Shares of FO managed a gain for the week but shares have been struggling with the $50.00 level the last few days. I don't see any changes from my previous comments where I suggested that FO's correction was headed for the $45.00 level. We may want to focus on the rising 200-dma closer to $44.00. I am not suggesting new bullish positions at this time and more conservative traders may want to exit completely. You could always reopen positions if we see a new entry point. Seriously this may be a good idea since we're dealing with September 2010 calls and not LEAPS.

We have already chosen to sell half our position near $52. Our long-term (final) target is $59.75.

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 @ 42.90

04/17/10 Sell Half - FO @ $52.00, option @ $4.30 (+95%)

Chart of FO:


Forest Oil Corp. - FST - close: 27.10 change: -0.77

Euro weakness produces dollar strength that pushes oil prices lower. Weak crude oil prices drag down the oil sector. This is the environment that shares of FST are facing. The OIX oil index and OSX oil services index both look like they could breakdown into a more serious decline. If that happens we can expect FST to follow suit. It hasn't happened yet but odds of a breakdown in oil and the oil sector seem to be growing. Therefore more cautious traders may want to exit any FST positions. You could exit now for a small profit. I am still focusing on FST's support near the $25.00 area. Alternatively readers could up their stops toward the May 6th low near $24.50. 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: FST1122A20.00 2011 $20 LEAP call - current bid/ask $ 8.70/ 9.00
-stop loss on FST @ 23.45

Chart of FST:


Imation Corp. - IMN - close: 10.65 change: -0.09

IMN surged 8% last week but the rally stalled right where you could expect it to near support/resistance at the $11.00 level. The action on Friday is somewhat encouraging with traders buying the dip twice near $10.45. However, if the market continues to slide we may see another entry point near the $10.00-9.75 zone. I would take a more cautious tone and wait for IMN to retest these lows and bounce before launching new positions. I prefer buying the stock over the calls but calls will give you more leverage. Our first long-term target is $12.25. Our second, even longer-term target is $14.25.

May 6, 2010 - entry price on IMN @ 10.00,
Stop loss at $8.95

- or -

May 6, 2010 - entry price on IMN @ 10.00, option @ 1.00
symbol: IMN 10J10.00 2010 Oct $10 call - current bid/ask $1.30/1.80
-stop loss on IMN @ 8.95

Chart of IMN:


Lockheed Martin - LMT - close: 80.79 change: -1.56

I have to warn you that the relative weakness in LMT this past week is not a good sign. The market managed a minor gain for the week but LMT actually lost ground. The initial oversold bounce in LMT stalled near its 30-dma and 50-dma around the $84 level. The rally failed several times and eventually shares reversed. Now the stock is retesting support near $80.00 and its rising 100-dma. I am very concerned that LMT will break $80 and if that happens we'll probably see a quick drop to the 200-dma near $77.75.

I am not suggesting new bullish positions at this time. Let's see where LMT eventually finds support. Our first target is $99.00. Our second, longer-term target is $109.00.

FYI: Our plan was to only use small (half) positions to limit our risk.

May 6, 2010 - entry price on LMT @ 80.50, option @ 6.50
symbol: LMT 11A85.00 2011 Jan $85 call - current bid/ask $ 4.50/ 4.80
-stop loss on LMT @ 74.75

- or -

May 6, 2010 - entry price on LMT @ 80.50, option @ 7.70
symbol: LMT 12A90.00 2012 Jan $90 call - current bid/ask $ 5.90/ 6.40
-stop loss on LMT @ 74.75

Chart of LMT:


Millicom Intl. - MICC - close: 86.97 change: -1.18

Shares of MICC continue to see lots of volatility. After a 10% plunge the prior week MICC just rebounded 10%. The bounce stalled near round-number resistance at $90.00 before paring its gains. Longer-term I'm still bullish on MICC but given the market's weakness both overseas and here in the U.S. I would probably expect another correction. Look for a retest of the $80 level or its rising 200-dma. Nimble could try and launch new positions on a dip or a bounce near $80.00 again. Keep in mind that this is a higher-risk trade given MICC's volatility and our relatively wide stop loss. I would use small positions if you do open a trade. Our long-term target is $99.50 and the $109.00 levels.

May 6, 2010 - entry price on MICC @ 80.00, option @ 8.60
symbol: MICC 11A90.00 2011 Jan $90 call - current bid/ask $ 9.70/10.30
-stop loss on MICC @ 67.75

Chart of MICC:


PEPSICO Inc. - PEP - close: 66.07 change: -0.41

PEP surged to a new 52-week high on May 12th thanks to Goldman Sachs putting PEP on their conviction buy list. Unfortunately that proved to be the top for the week as traders started taking profits on the big oversold bounce. PEP's relative strength this past week is encouraging but the latest candle on the weekly chart looks like a topping formation. I am not suggesting new bullish positions at this time. More conservative traders may want to take profits now or raise their stop loss. Our 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 $7.75/7.95
-stop loss on PEP at $59.40

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

Chart of PEP:


Titanium Metals - TIE - close: 15.40 change: -0.79

It looks like momentum traders are back at it in TIE. Shares rallied to a new 52-week high ($18.15) this past week with a breakout over resistance near the $17.35 area. Investors sold the new high but TIE's relative strength this past week is encouraging. I remain bullish on TIE but the stock could see sharp bouts of profit taking if the broader market indices continue to slide lower. I am not suggesting new long-term bullish positions at this time.

A few weeks ago we closed the 2011 January $15 call LEAP. We still have the 2012 January $15 call LEAP. Our final, long-term target is $19.75.

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $5.20/5.60
-stop loss on TIE @ 12.90

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

Chart of TIE:


Whiting Petroleum - WLL - close: 83.13 change: -2.54

The same factors influencing FST are affecting WLL (euro/dollar & dollar/oil relationships). The larger trend in WLL is still up but the action this past week is bearish with a failed rally under the $90.00 level. On a positive note there was no confirmation of the huge bearish engulfing candlestick pattern on the weekly chart - at least not yet. If the OIX oil index and OSX oil services index breakdown WLL could struggle. Considering this potentially bearish environment for oil stocks I would hesitate to launch new positions. More aggressive traders may want to consider launching positions on another bounce in the $77-78 zone.

Our long-term target is $99.50. Remember, this was an aggressive entry point and we wanted to keep positions small to limit our risk (half a position).

Half position

Apr 27, 2010 - entry price on WLL @ 83.50, option @ 7.50
symbol: OVK1122A90 JAN 2011 $90 LEAP call - current bid/ask $ 9.20/ 9.60
-stop loss on WLL @ 74.75

Chart of WLL:


WLT - Walter Energy Inc. close: $72.80 change: -2.71

Analysts love WLT due to the company's position supplying coking coal and metallurgical coal to the steel industry. Yet the coal sector continues to struggle and WLT's stock price looks vulnerable. The bounce stalled under $80 and shares spent most of the week testing support near $70 and its rising 200-dma. I would like to think WLT will be able to hold this level but with the major market indices looking weak WLT could breakdown and test the 2010 lows near $64.00. This is an aggressive trade because WLT is so volatile and we are using a wide stop loss. I hesitate to launch new positions at this time but nimble traders may want to consider buying calls on a dip or a bounce in the $65-63 zone or a close over $81.00. Our first target is $99.00.

FYI: In the news this past week WLT's Board of Directors authorized a new stock buy back program worth $45 million. This replaces the prior $100 million repurchase program that was recently completed (source: company press release).

The plan was to use small positions to limit our risk.

May 6, 2010 - entry price on WLT @ 73.00, option @ 12.00
symbol: WLT 11A80.00 2011 Jan $80 call - current bid/ask $ 9.70/10.20
-stop loss on WLT @ 62.40

- or -

May 6, 2010 - entry price on WLT @ 73.00, option @ 14.10
symbol: WLT 12A90.00 2012 Jan $90 call - current bid/ask $12.80/13.90
-stop loss on WLT @ 62.40

Chart of WLT:


Wal-Mart Stores Inc. - WMT - close: 52.12 change: -0.28

Investors appear to be cautious on WMT. This past week the Commerce Department said retail sales rose 0.4% in April, which was better than expected and marked the seventh monthly gain in a row. Yet the retail stocks failed to see any strength on the news. Technically shares of WMT look weak. The stock has spent several days now under its 200-dma while it tries to hold on to support near the $52.00 level. The stock produced a failed rally near $53 on Wednesday and it looks like shares want to trade down toward the $50.00 level.

Hopefully the company will offer some good news on Tuesday and turn things around. WMT is due to report earnings on Tuesday morning (May 18th) before the opening bell. Analysts expect a profit of 85 cents a share. Their results and more importantly any guidance could determine WMT's direction this week. I am not expecting any big surprises so I don't see a need to buy protective puts ahead of the report but that is a strategy more conservative traders may want to consider.

Given the market's bearish tone and WMT's bearish trend of lower highs I would wait for a dip closer to $50 before considering new long-term bullish positions.

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 $4.75/4.85
-stop loss on WMT @ 49.45

Chart of WMT



Watch

Candy, Healthcare, Casinos

by James Brown

Click here to email James Brown


New Watch List Entries

HSY - Hershey Co.

MCK - Mckesson Corp.

WYNN - Wynn Resorts Ltd.


Active Watch List Candidates

BA - Boeing Co.

CLF - Cliffs Natural Resources

COP - ConocoPhillips

CRM - Salesforce.com

CRS - Carpenter Technology

RT - Ruby Tuesday, Inc.


Dropped Watch List Entries

DE was removed from the watch list.


New Watch List Candidates:

Hershey Co. - HSY - close: 47.22 change: -0.34

Investors could turn more and more defensive as worries rise over the strength of the economic rebound both here and abroad. HSY could be a good candidate as a more defensive play. The rally has stalled near $48 and we want to be ready to buy calls on a correction. Prior resistance near $42 should offer some support. I am suggesting a trigger to buy call LEAPS a $42.50. If triggered we'll use a stop loss at $37.75. Our first target is $49.75. Our second, longer-term target is $57.00.

Company Info:
The Hershey Company (NYSE: HSY) is the largest producer of quality chocolate in North America and a global leader in chocolate and sugar confectionery. Headquartered in Hershey, Pa., The Hershey Company has operations throughout the world and more than 12,000 employees. With revenues of more than $5 billion, Hershey offers such iconic brands as Hershey’s, Reese’s, Hershey’s Kisses, Kit Kat, Twizzlers and Ice Breakers as well as the smooth, creamy indulgence of Hershey’s Bliss chocolates. (source: company press release or website)

Buy-the-Dip trigger: $42.50

BUY the 2011 January $45.00 call (HSY 11A45.00)

- or -

BUY the 2012 January $50.00 call (HSY 12A50.00)

Chart of HSY:


Mckesson - MCK - close: 67.72 change: -1.27

MCK is a relative strength play. While the market ha been rolling over MCK has been consolidating sideways. During the "flash crash" traders bought the dip in MCK near its 100-dma. A few days ago the stock broke out to a new 52-week high after Goldman Sachs put MCK on their "conviction buy" list. Now shares are flirting with resistance near $70.00. If you're going to trade in the healthcare sector why not pick someone who supplies equipment to the rest of the industry? Supply management seems like a safe and growing business given the healthcare reform.

While I will keep my eye on MCK for a potential entry point near the 200-dma I actually expect shares to breakout higher. I'm suggesting a trigger to open bullish positions at $71.00. If triggered our target is $94.50. We'll use a stop loss at $62.99. Keep positions small. Buying breakouts in this environment is probably a higher-risk trade.

Company Info:
McKesson Corporation, currently ranked 14th on the FORTUNE 500, is a healthcare services and information technology company dedicated to helping its customers deliver high-quality healthcare by reducing costs, streamlining processes, and improving the quality and safety of patient care. Over the course of its 177-year history, McKesson has grown by providing pharmaceutical and medical-surgical supply management across the spectrum of care; healthcare information technology for hospitals, physicians, homecare and payors; hospital and retail pharmacy automation; and services for manufacturers and payors designed to improve outcomes for patients. (source: company press release or website)

Breakout trigger: $71.00

Small positions

BUY the 2011 January $75.00 call (MCK 11A75.00)

- or

BUY the 2012 January $80.00 call (MCK 12A80.00)

Chart of MCK:


Wynn Resorts - WYNN - close: 82.21 change: -2.51

If the market is experiencing a correction and only a correction then we want to take advantage of this weakness. However, I suspect the correction is not over yet and a high-profile momentum name like WYNN could still see significant declines. The early May (flash crash) low for WYNN was $71.00. The $70 area and the rising 200-dma should offer some support. I am suggesting we use a trigger at $72.50 to open bullish positions. This is a volatile stock so we want to keep positions small. If triggered at $72.50 we'll use a stop loss at $64.00. Our long-term target is $99.00.

Note: Back in November 2009 WYNN declared a special cash dividend of $4.00 a share, that was payable in December 2009. They adjusted the option symbols to reflect this cash dividend. We want to use the normal call LEAPS with the VEG root symbol.

Company Info:
Wynn Resorts, Limited is traded on the Nasdaq Global Select Market under the ticker symbol WYNN and is part of the S&P 500 and NASDAQ-100 Indexes. Wynn Resorts owns and operates Wynn Las Vegas (www.wynnlasvegas.com), Encore (www.encorelasvegas.com) and Wynn Macau (www.wynnmacau.com). Wynn Las Vegas, a luxury hotel and destination casino resort located on the Las Vegas Strip features 2,716 luxurious guest rooms and suites, an approximately 111,000 square foot casino, 22 food and beverage outlets, an on-site 18-hole golf course, approximately 223,000 square feet of meeting space, an on-site Ferrari and Maserati dealership, and approximately 74,000 square feet of retail space. Wynn Macau is a destination casino resort in the Macau Special Administrative Region of the People's Republic of China and currently features 600 deluxe hotel rooms and suites, approximately 205,000 square foot casino, casual and fine dining in five restaurants, approximately 46,000 square feet of retail space, a health club, pool and spa, along with lounges and meeting facilities.(source: company press release or website)

Buy-the-Dip trigger: $72.50

BUY the 2011 January $80.00 calls (WYNN 11A80.00)
Use the call LEAPS with the VEG symbol: VEG1122A80

- or

BUY the 2012 January $90.00 calls (WYNN 12A90.00)

Chart of WYNN:


Active Watch List Candidates:

Boeing Co. - BA - close: 69.82 change: -1.94

BA managed a gain for the week but shares produced a new lower high. Short-term traders may want to consider puts. Right now our plan hasn't changed. We want to buy call LEAPS on a dip near $60.00. I am suggesting a trigger to buy call LEAPS on a dip to $60.50. If triggered we will use a stop loss at $54.75. Our long-term target is $79.00. We want to keep positions sizes small to 1/2 or 1/4 your normal trade to limit our risk.

Buy-the-Dip trigger: $60.50 (small size 1/2 to 1/4 normal trade size)

BUY the 2011 January $70 call (BA 11A70.00)

Chart of BA:


Cliffs Natural Resources - CLF - close: 53.98 change: -2.32

Dollar strength continues to pressure commodity-related stocks. I suspect that support near $50.00 will break and CLF will test its 200-dma near $46.00. I'm moving our trigger to buy calls down to $46.50. If triggered we'll use a stop loss at $39.50. Our first target is $75.00.

FYI: Investors need to know that miners with operations in Australia present greater risk. Currently the Australian government is considering a 40% "resource super profit tax". If this measure gets passed then CLF could see a much larger decline. I would keep your position size small to limit your risk.

Buy-the-Dip trigger: $46.50

BUY the 2011 January $60 call (CLF 11A60.00)

- or -

BUY the 2012 January $70 call (CLF 12A70.00)

Chart of CLF:


ConocoPhillips - COP - close: 55.84 change: -1.10

The oil sector has been struggling thanks to plunging crude oil prices (on dollar strength/euro weakness). Believe it or not COP has weathered this weakness pretty well. I still think shares will correct toward their 200-dma but readers might want to consider upping their trigger to buy calls from $51 to $52. If triggered we'll use a stop loss at $46.00. Our first target is $69.00.

Buy-the-Dip trigger: $51.00

BUY the 2011 January $55 call (COP 11A55.00)

- or -

BUY the 2012 January $60 call (COP 12A60.00)

Chart of COP:


Salesforce.com - CRM - close: 84.72 change: -1.96

Wow! It was a very active week for CRM. The stock soared toward $90.00 only to roll over again near resistance. The relative strength is encouraging but we don't want to chase it. CRM might see some post-earnings profit taking. The company reports earnings on Thursday, May 20th after the closing bell. Wall Street is looking for a profit of 30 cents a share. I am suggesting we stick to the plan and wait for a dip to $70.50 to open bullish positions. More aggressive traders may want to consider jumping in early near $75.00. If triggered our stop loss is $64.00. Our long-term target remains $99.00.

Buy-the-Dip trigger: $70.50

BUY the 2011 January $80 calls (CRM 11A80.00)
- or -
BUY the 2012 January $90 calls (CRM 12A90.00)

Chart of CRM:


Carpenter Technology - CRS - close: $39.14 change -2.03

CRS displayed relative strength midweek but the rally failed at its April highs. This now looks like a possible bearish double top pattern. I am still expecting a correction toward the $30 area. More aggressive traders might want to consider short-term puts with a stop above this recent high. We have a trigger to open bullish positions at $31.00. If triggered our stop is at $26.90. Our long-term target is $44.75. My time frame for CRS to hit our trigger is the next two or three weeks.

Buy-the-Dip trigger: $31.00

BUY the 2010 December $35 calls (CRS 10L35.00)

Chart of CRS:


DE - Deere & Co. - close: 58.36 change: -1.52

I am temporarily giving up on DE. Shares still offer potential near $52 and its 200-dma but I'd rather wait and see if this level holds. We are removing DE from the watch list for now.


Ruby Tuesday Inc. - RT - close: $11.50 change: -0.54

RT had a pretty big rally this past week but it failed near its mid April highs. We do not want to chase this stock. Wait for a correction back toward old resistance and what should be very significant support near $9.50-9.00. October options are the longest ones available so I prefer buying the stock over an option. It could take another two or three weeks before RT finally hits our trigger. If triggered we'll use a stop at $8.45. 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: