Option Investor
Newsletter

Daily Newsletter, Saturday, 5/29/2010

Table of Contents

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

Leaps Trader Commentary

Worst May in Decades

by James Brown

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The idea of "sell in May and go away" certainly seems attractive now after this past month. It was very ugly for stocks. We had the "flash crash" early in the month and the bounce rolled over and plenty of stocks hit new relative lows. Depending on who you listen to or which market you're looking at it was the worst month in over a year and the worst May since 1968 or 1940. Investors were facing a three-day weekend here in the U.S. and no one seemed excited about holding positions over the break.

I don't blame them. Geopolitical tensions are rising. The situation with North Korea has not improved with the country still on "war" alert and looking for a fight. Another hot spot was the Persian Gulf area. Evidently President Obama decided to beef up our military presence in the Gulf and Iran claims they spotted a U.S. nuclear submarine in the Straits of Hormuz. It could be part of the new carrier group sent to reinforce the one already in the Arabian Sea. The U.S. has been gearing up for an offensive in Afghanistan but I fail to see how sending a sub into the Persian Gulf helps the Afghan war. Maybe the situation with Iran is getting worse.

As usual the real story remains Europe, with the debt contagion spreading there, and now to make matters worse the status of the banks. First let's talk about Spain. Credit rating agency Fitch downgraded Spain from AAA to AA+. This was the second downgrade in about a month after S&P cut Spain to AA. Fitch claims that Spain's budget cuts and bank bailouts will put a drag on their economy. You know, that robust Spanish economy that already has 20% unemployment and massive amounts of real estate no one is buying and a budget deficit that's so bad many believe it could be the next debt stink bomb to go off in the EU. Europe is facing some pretty long-term economic challenges. We are too but Europe will have a much harder time facing these obstacles. Odds are probably 100% that we'll be hearing more credit rating downgrades from the EU for months, probably years to come. Better get used to it.

Spain's economic plight is nothing new. What really worries investors is the situation with the banks and how it is deteriorating. European banks don't trust one another and they are reluctant to lend money to each other. This is very similar to what happened during our financial crisis back in 2008 when Lehman Brothers collapsed. We eventually had to have several major banks bailed out and recapitalized. It was extremely painful. The major European banks could be in a similar situation. Some of them are still highly leveraged. Naturally the markets are spooked and investors are quick to hit the sell button after seeing what happened to the U.S. markets.

This past week we had some significant economic data. The Chicago ISM number dipped 4.1 points to 63.8 in May but readings over 50 for this report still indicate growth. The New York ISM reading rallied from 429.4 to 449.3, which is a nice show of improvement. We're going to get the national ISM report this week. If it disappoints it could turn already defensive traders into downright bears.

Investors were also dissecting the latest reading on consumer spending. Economists were expecting consumer spending to rise 0.3%. After several months of gains consumer spending came in flat! You've heard it a million times. Consumer spending accounts for nearly 70% of the U.S. economy. Now a lot of that is essentials that people will always buy every month. It's everything above and beyond the essentials to live that get the economy going. If consumers aren't spending more where did the money go? It went into savings. The report said the U.S. savings rate surged back to 3.6%, which is the highest level since January. A rising savings rate should be bad news for the retailers.

This past week also had some new data on housing and some of it looked pretty good. Unfortunately, any gains in existing and new home sales is a temporary blip. The tax credit has expired and sales are going to fall. Analysts are already predicting that housing values will decline another 5% by year end. Readers of this column know that foreclosures have been rising at a record pace. Unfortunately banks aren't in a hurry to lend mortgages in the U.S. and the standards to get a mortgage these days remain tight. All the headlines about plunging mortgage rates are not going to help the housing market if no one can get financed.

We have a lot of economic data coming out this week. The national ISM report is on Tuesday. Wednesday is the ADP employment report, which is a precursor to the government's jobs report on Friday. The ADP report does not count government hiring so they're numbers are going to be a lot lower but analysts are expecting significant improvement. If the ADP number disappoints it would not bode well for Friday. Of course Friday's non-farm payrolls report is the big event. Estimates are running around +500,000 jobs for the month of May. About half of that (250K) are expected to be temporary census workers hired by the government. Last month's report was pretty solid. If May's jobs report can deliver a strong number it could really give this market a boost. If it fails to hit estimates the stock market could tank! In addition to the U.S. data this week the overseas markets will be digesting French PPI, Germany's unemployment, the EU unemployment number, German retail sales, and the EU GDP results.

You already know that I have been expecting the U.S. economy to roll over into the second half of a "W"-shaped (double-dip) recession some time in late 2010 or early 2011. Believe me, I don't want it to happen, but lately it seems the chances are rising. Europe is facing their own double-dip recession on top of a bad-debt contagion they can't contain and now the potential for a banking crisis. If Europe plunges into recession it's going to have an impact on our economy and the rest of the world, including China since the EU is a major trading party with China. The employment situation in the U.S. is not improving fast enough. Last month's jobs numbers were a big improvement but it could take several years before we finally create enough jobs for everyone who wants to work. We need something in the neighborhood of 125,000 to 150,000 new jobs every month just to stay even. With millions of Americans out of work it will take a long time for our economy to be considered "healthy" again. Our real estate market could also take a while to heal.

If the U.S. does face another double-dip recession what is the stock market going to do? I bet your first thought was "go down" and you'd be right. Now how do we take this bias, because it's still just an opinion for now, and apply it to our LEAPS trading? Not everything declines in a bear market but bullish positions are very, very challenging. Our strategy on LEAPS needs to be very conservative when it comes to position size. We need to be more conservative (tighter) with our stops and take profits sooner. I will be applying these changes to our trading in this newsletter.

However, I am not ready to give up just yet. Look at a long-term chart for the transports, semiconductors, the Russell 2000, defense stocks, even the retailers are all still in an up trend. Granted they will tend to follow the S&P 500 but the game isn't over yet. The S&P 500's bounce did fail near resistance at 1100 and its 200-dma this past week. That is short-term bearish. I wouldn't be surprised to see the S&P 500 bounce around the 1100-1050 zone the next few days. Given the shortened week and the jobs report on Friday stocks could just drift sideways and wait on Friday's announcement. If we're really lucky the rebound continues but the 1150 level will be new overhead resistance.

This is not a very friendly environment to be launching new long-term bullish positions - not with the S&P 500 looking so fragile. Trade carefully and preserve your capital. There is always another entry point if we wait for it.

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 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

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Current Portfolio


Portfolio Comments:

Some of the material names are doing a lot better. WLT and CLF have rallied. A few of our candidates have started to show some short-term strength. Yet overall the trend is still down. Investors need to stay defensive. Keep your positions small.

There are new stop losses for BWA, CLF, IMN, MCK, MICC, TIE, and WLT.

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

Dangerous Territory

by James Brown

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Focus on the Jobs Report


Editor's Note:

Unfortunately not much has changed for us in the last three days. For some stocks the oversold bounce continues. Yet the major averages still look fragile. I don't expect any big moves until Friday's jobs report but the ISM or the ADP numbers could surprise us and start the move (up or down) early. Unless of course Europe continues to spew more bad news like a financial oil-spill that the EU regulators can't plug.

This is not a very friendly environment for long-term bullish positions. Let's wait for the right entry point.



Play Updates

Updated Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

I am growing more and more concerned about the market. My expectations about a double-dip in the U.S. sometime in the next twelve months are growing. That doesn't bode well for stocks (or long-term bullish LEAPS positions). We need to take a more defensive attitude. I'm raising stops and will be more quick to take profits.


Closed Plays


None. No closed plays this week.


Play Updates


BorgWarner Inc. - BWA - close: 37.26 change: -0.80

Uh-oh! BWA rallied more than 10% off its May lows but the rally failed near $38 and its 20-dma and 50-dma. I find this worrisome especially given the fading volume on the bounce. I would strongly suggest more conservative traders sell the rest of their positions now to avoid or minimize any losses. The bid on the 2011 Jan $40 call LEAPS is $3.90, which is pretty much breakeven. Officially we'll sell another half (now 1/4 of our original) position, which leaves us with a very small position. The recent low was $33.93. We'll up our stop loss to $33.75. No new positions at this time.

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 $3.90/6.00
-stop loss on BWA @ 33.75

05/29/10 Sell half of remaining position, BWA @ 37.26, option @ 3.90 (+0.00%)
04/29/10 1st Target Hit, BWA @ 44.50, option @ $7.63 (+95%)

Chart of BWA:


CIRCOR Intl. - CIR - close: 29.72 change: -0.72

I'd like to think this past week was a significant bottom for CIR but it's too early to tell. If the rest of the market continues to sink I do not have any hopes that CIR will be able to hold above the $28 level. The action in May has been extremely damaging to its longer-term bullish posture. I remain very, very cautious here. CIR failed at its 10-dma on Friday and I would probably expect a retest of the $28 area over the next few days. I am not suggesting new bullish positions at this time.

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 $1.40/2.20
-stop loss on CIR @ 27.45

Chart of CIR:


Cliffs Natural Resources - CLF - close: 55.86 change: -1.83

CLF has continued to bounce, which is encouraging and shares have cleared the $55 level, another positive sign. The rally has currently stalled near the 100-dma. Unfortunately, this play is going to remain volatile due to dollar strength or weakness and its affect on commodities.

CLF's Chairman recently wrote a letter to shareholders voicing his concern over Australia's proposed "super tax". He said that currently their Australian operations accounts for 23% of CLF's $2.3 billion annual revenues. Here is an excerpt from his letter to shareholders:

As written, the Government's proposal could result in the total effective tax burden on Cliffs' Australian profits increasing to approximately 60% from a current rate of approximately 39%. This would make the Australian resources industry the highest taxed in the world.

In defending this proposal, the Australian Federal Government is claiming that the mining industry is not paying its fair share of taxes. We, along with countless others in the industry, argue this is demonstrably not the case. This is not a tax on "Super Profits". It is a new tax added on to the current federal and state taxes, royalties and other taxes already paid by participants in the Australian mining industry. Our Australian-based iron ore operations have contributed A$625 million to tax revenues over the past ten years. During this time, the Company has also invested A$460 million of capital in Australia and created over 400 new jobs.

He goes on to say that if this proposal does get passed, which could take a while to happen, CLF will have to re-evaluate their expansion plans in Australia.

I'm still optimistic on CLF but if we heard any more news about China's economy slowing down it could have a negative impact on stocks like CLF. The idea that Europe is sliding back into recession and will see a drop in demand for commodities could already have an impact.

I would not be surprised to see CLF retest the $51-50 zone. Consider using that dip or a bounce from this area as our next entry point. I am turning more defensive with our stop loss and raising it to $44.90. You might be able to get away with a stop closer to the recent lows near $46.00.

Prior Comments:
This is an aggressive trade. CLF can be volatile. Plus, there is a chance that Australia will levy a new tax on resource names like CLF. I suggested readers keep their position size small. Our stop loss is at $39.50. Our first target is $75.00.

May 21, 2010 - entry price on CLF @ 46.50, option @ 6.65
symbol: CLF 11A60.00 2011 JAN $60 call - current bid/ask $8.40/8.70
-stop loss on CLF @ 44.90

- or -

May 21, 2010 - entry price on CLF @ 46.50, option @ 7.55
symbol: CLF 12A70.00 2012 JAN $70 call - current bid/ask $10.30/11.20
-stop loss on CLF @ 44.90

Chart of CLF:


ConocoPhillips - COP - close: 51.86 change: -0.35

Thankfully Tuesday looks like it may be a significant low or bottom for COP. The oil sector remains in a downtrend. Oil was sold off so hard thanks to the dollar's rally in May that the commodity managed a snap-back rally in spite of any real weakness in the dollar this past week. The worry here is that it could just be an oversold bounce. We still have incredibly high levels of inventory in the U.S. and analysts are worried about slowing demand for all commodities for a Europe that appears to be headed back toward recession.

Short-term the bounce in COP stalled at its 100-dma. I would not be surprised to see shares retest the $50-49 area again. I would prefer to buy bounces instead of the dips at this point since we don't know when one of these days the dip may not stop. I am VERY tempted to raise the stop loss closer to the $48.00 level. If COP does provide an entry point and you choose to buy calls I would keep your positions very small.

Our first target is $69.00.

May 20, 2010 - entry price on COP @ 51.00, option @ 3.75
symbol: COP 11A55.00 2011 JAN $55 call - current bid/ask $3.30/3.40
-stop loss on COP @ 46.00

- or -

May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $4.00/4.20
-stop loss on COP @ 46.00

Chart of COP:


EMC Corp. - EMC - close: 18.62 change: -0.16

EMC looks a lot better thanks to an analyst upgrade on Thursday. Shares rallied toward their 50-dma and stalled but some of the short-term technicals actually look positive. I remain cautious on this stock. I suspect that EMC will bounce around the $17-19 zone for a while. If you're interested in launching new positions try and time one on a dip or rebound near $17.50. If you do launch positions keep them small. If the major market averages breakdown I expect EMC to follow them lower.

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 $1.21/1.28
-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 $2.49/2.68
-stop loss on EMC @ 16.75

Chart of EMC:


Fortune Brands - FO - close: 47.45 change: -0.29

Shares of FO were upgraded to a "buy" on Wednesday and that helped the oversold bounce surge from $44 toward $48 this past week. FO was looking pretty oversold so the bounce isn't that surprising. What worries me was the economic data out this week. The savings rate in the U.S. surged back to 3.6%. If consumers are nervous and trying to save more that's going to have an impact on retail sales.

The optimist inside of me would like to think FO will be much higher by yearend but the implications for a double-dip recession in the U.S. some time in the next 12 months doesn't bode well for the likes of FO. I am strongly suggesting that more conservative traders exit this position right now with the Sept. $50 calls trading near $2.00. That would minimize any potential losses. It is possible that FO manages to rally toward $50, which would obviously be a better exit for you but you're taking a risk that the bounce never gets that high. I am not suggesting new positions at this time. Do not be surprised to see FO retest the $45-44 zone and its rising 200-dma.

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 $1.95/ 2.15
-stop loss on FO @ 42.90

05/29/10 -Conservative traders should exit now-
04/17/10 Sell Half - FO @ $52.00, option @ $4.30 (+95%)

Chart of FO:


Imation Corp. - IMN - close: 10.28 change: -0.06

Some of the short-term indicators on IMN are starting to turn bullish but the stock has failed to break the trend of lower highs over the last few weeks. I remain optimistic here but we will raise our stop loss to $9.25.

Keep your positions small. I still prefer buying the stock over the calls. The spreads on the October and January calls are outrageously wide. Really, it's ridiculous. If you want to try the options consider trying a limit order for a price closer to the bid and see if you get filled. You might get lucky - but then what happens when we try to sell them? A market order is going to hurt our exit plans here!

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 $9.25

- or -

May 6, 2010 - entry price on IMN @ 10.00, option @ 1.00
symbol: IMN 10J10.00 2010 Oct $10 call - current bid/ask $0.25/2.45
-stop loss on IMN @ 9.25

Chart of IMN:


Lockheed Martin - LMT - close: 79.92 change: -0.64

Shares of LMT have gone no where over the last five sessions. The stock is just hovering near the $80 level. This would make more sense if last week was an option expiration week or the week before LMT's earnings but it's not. I don't see any changes from my prior comments. You would think that rising geo-political tensions with North Korea and Iran would be bullish for defense stocks but they don't appear to be helping. I'm not suggesting new bullish positions but a close over $82.00 might change my mind.

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 $ 4.20/ 4.50
-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 $ 5.70/ 6.40
-stop loss on LMT @ 74.75

Chart of LMT:


Mckesson - MCK - close: 70.00 change: -0.07

MCK continues to show relative strength. This is very encouraging since the initial spike over $70 looked like a bull trap. I do not see Wednesday's news that MCK raised their dividend by 50% to 18-cents a share as having much of an impact on the stock. The new yield is still less than 1% at current share prices. I don't see any changes from my prior comments. Readers could wait for a close over $71.00 as a new entry point. Or if the market breaks down then look for a dip toward the 200-dma (but we would be stopped out in that event). Speaking of stops I am raising our stop loss to $63.99 and more conservative traders may want to raise theirs toward $66. If you do open positions you still want to trade small. This was labeled an aggressive trade with a plan to keep positions small. Our first target is $94.50.

May 18, 2010 - entry price on MCK @ 71.00, option @ 3.25
symbol: MCK 11A75.00 2011 Jan $75 call - current bid/ask $ 4.20/ 4.50
-stop loss on MCK @ 63.99

- or -

May 18, 2010 - entry price on MCK @ 71.00, option @ 4.10
symbol: MCK 12A80.00 2012 Jan $80 call - current bid/ask $ 5.70/ 6.50
-stop loss on MCK @ 63.99

Chart of MCK:


Millicom Intl. - MICC - close: 79.93 change: -1.31

I couldn't find any news to explain the weakness on Wednesday but it may have been a reaction to trading in European markets. MICC has been unable to build on its bounce and traders seem to be selling the rebound attempts. This is short-term bearish for us. I am turning a lot more defensive with our stop loss and raising it to $74.40. If MICC breaks down under the early May low we want out. We can still enter positions near this long-term trendline of higher lows but I'd prefer to do so on a dip near $77.00.

Keep in mind that this is a higher-risk trade given MICC's volatility. 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 $ 5.60/ 6.50
-stop loss on MICC @ 74.40

Chart of MICC:


PEPSICO Inc. - PEP - close: 62.89 change: -0.01

The action in PEP has been somewhat volatile for this stock over the last few days. While PEP is considered a defensive consumer stock it will be interesting to hear how the drop in the euro will affect their sales. Earnings are due out until late July so we have a while before that news is released. Thus far PEP is holding to some support near $62 and its 200-dma but I am not suggesting new bullish positions at this time. More conservative traders may want to consider taking profits now or raising their stops toward last week's low near $61.00. 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 $5.65/5.80
-stop loss on PEP at $59.85

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

Chart of PEP:


Titanium Metals - TIE - close: 17.67 change: -0.06

I am concerned about the wider market and that makes me want to sell the remaining position in TIE especially with the 2012 Jan $15 call trading at $6.00. However, TIE has been able to rally in spite of the market. We do risk seeing shares reverse if the market breaks down but currently the path of least resistance for TIE appears to be higher. I am raising our stop loss to $13.49. I am not suggesting new long-term bullish positions.

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. More aggressive traders may want to aim a lot higher.

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $6.00/6.40
-stop loss on TIE @ 13.49

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

Chart of TIE:


WLT - Walter Energy Inc. close: $79.33 change: -0.72

The last week and a half have been a good one for WLT with a big bounce from $65 to $80. This is a volatile stock that swings from oversold to overbought very quickly. Shares now look short-term overbought. If you're looking for a new entry point consider waiting for a dip or a better yet the next bounce in the $75-70 zone. Please note our new stop at $64.90.

Keep an eye open on news regarding China. Fears that China will slow down its economy too much could send coal names back into a down trend again.

Our first target is $99.00.

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 $13.40/14.10
-stop loss on WLT @ 64.90

- or -

May 6, 2010 - entry price on WLT @ 73.00, option @ 14.10
symbol: WLT 12A90.00 2012 Jan $90 call - current bid/ask $16.10/17.40
-stop loss on WLT @ 64.90

Chart of WLT:


Wal-Mart Stores Inc. - WMT - close: 50.56 change: -0.14

I don't see a lot of change from my prior comments on WMT. The stock has been hovering in the $50-51 zone all week. News that the savings rate in the U.S. rose to 3.6% didn't have much affect on shares of WMT, but is normally seen as a negative for retailers. If people are trying to save money they're probably going to do a lot of their shopping at WMT. I am still bullish on this company and buying this dip near $50.00 is 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 $3.90/4.10
-stop loss on WMT @ 48.95

Chart of WMT



Watch

Waiting for an Entry Point

by James Brown

Click here to email James Brown


New Watch List Entries

None, no new watch list candidates tonight.


Active Watch List Candidates

BA - Boeing Co.

CRM - Salesforce.com

CRS - Carpenter Technology

HSY - Hershey Co.

RT - Ruby Tuesday, Inc.

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

None.

Active Watch List Candidates:

Boeing Co. - BA - close: 64.18 change: -0.95

The bounce in BA has stalled in the $65 area. I still expect shares will roll over and test support near $60.00 and its 200-dma near $59.00. That's why our trigger to open positions is at $60.00. Remember, this is an aggressive trade in a dangerous market. We want to keep positions very small and instead of buying a dip to $60.00 readers may want to wait for the next bounce before initiating positions. If triggered we will use a stop loss at $54.75. More conservative traders may want to use a slightly tighter stop near the $57.50 area. Our long-term target is $79.00.

Buy-the-Dip trigger: $60.00 (small size 1/2 to 1/4 normal trade size)

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

Chart of BA:


Salesforce.com - CRM - close: 86.53 change: -0.47

I remain bullish on CRM. Shares have held up reasonably well and appear to be consolidating in what could be a bull-flag pattern (albeit an irregularly shaped one). I don't see any changes from my prior comments. Aggressive traders may want to consider bullish positions on a dip near $75.00 (or buy a bounce from $75). I am suggesting we use a dip at $70.50. If the market breaks down CRM could see some serious profit taking. 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: $38.91 change -0.91

CRS has produced a pretty good bounce off its May lows but I'm not convinced the correction is over yet. More aggressive traders could buy dips in the $34-33 zone. I'm suggesting we wait for a dip to $31.00 to open bullish positions. The $30.00 level and the 200-dma should be decent support. If triggered our stop is at $26.90. Our long-term target is $44.75. Maybe by the time CRS finally hits our trigger the January calls will become available.

Buy-the-Dip trigger: $31.00

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

Chart of CRS:


Hershey Co. - HSY - close: 46.80 change: -0.49

There is no change from my prior comments. HSY is still holding up. We are waiting for a correction and it could take a few weeks to occur. 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.

Buy-the-Dip trigger: $42.50

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

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

Chart of HSY:


Ruby Tuesday Inc. - RT - close: $10.76 change: -0.04

It's been three days and RT is still stuck in the $11-10 zone. I suspect shares will breakdown and trade toward $9.00. I'm suggesting a trigger to open bullish positions at $9.25. January 2011 options are the longest ones available so I prefer buying the stock over an option. If triggered we'll use a stop at $8.25. Our first long-term target is $12.00. Our longer-term target is $14.75.

Buy-the-Dip trigger: $9.25

BUY the stock at $9.25

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BUY the 2011 January $10.00 calls (RT 11A10.00)

Chart of RT:


Wynn Resorts - WYNN - close: 83.88 change: -0.61

WYNN has produced a nice bounce from its May lows but I'm not convinced the correction is over. I'm still expecting a dip toward the 200-dma that's nearing $70. We want to use a trigger at $70.50 to open bullish positions but keep in mind this is a volatile stock in a dangerous market. Keep your position size very small. If trigger we'll use a stop loss at $63.75. 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.

Buy-the-Dip trigger: $70.50

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

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

Chart of WYNN: