Option Investor
Newsletter

Daily Newsletter, Saturday, 6/5/2010

Table of Contents

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

Leaps Trader Commentary

Markets Are Nervous

by James Brown

Click here to email James Brown

Friday's non-farm payroll report was a disaster but you probably already knew that by now. I'm going to keep this commentary as brief and concise as possible. Markets are very nervous right now. They're facing geopolitical risk with North Korea and Israel. There is sovereign debt risk in Europe with Greece and now Hungary. Spain and Portugal are looming in the shadows. There is recession risk with Europe already on the verge of recession. China is slamming on the brakes to cool their economy and the most recent data says it's working. Investors worry China will go too far. The U.S. jobs growth data on Friday suggests our recovery is on very fragile footing. The lack of real job growth will keep consumers nervous and hoarding cash. That has a negative impact on retailers and the rest of the economy. Slow sales mean business will hesitate to hire new workers and the whole thing turns into a vicious cycle.

I want to touch on the geopolitical issues for a moment. An ambassador for North Korea said the situation on the Korean peninsula is "grave" and that war could breakout at any moment. These comments may be due to news that South Korea was having some success in convincing Japan and China, North Korea's biggest and best ally, into considering financial sanctions against North Korea. Meanwhile Israel's blockade of ships headed for the Gaza strip has turned into a firestorm of controversy when IDF soldiers killed nine people in self defense. Enemies of Israel will certainly use this to their advantage and tempers in the area just got a lot hotter.

Europe appears to be headed for its own banking crisis similar to what happened in the U.S. back in 2008. European banks are hesitant to trust their neighbors and more and more banks are storing cash with the European Central Bank (ECB) instead of lending it to other banks. The amount of money in the ECB's overnight depository surged to 320.4 billion euros, which is the highest in history. The last five days have seen overnight deposits spike past 300 billion euros. Europe is already poised for recession with strict austerity measures cutting into growth and a major bank failure or a widespread recapitalization of the banks would do serious harm to the economy and consumer sentiment.

Speaking of sentiment, news that the country of Hungary is facing a Greek-like debt problem pushed investor sentiment into the tank on Friday morning. The country's new prime minister said that Hungary's economy is in terrible shape and they could be facing a possible debt default. This wouldn't be the first time. Two years ago Hungary borrowed $24 billion to avoid a default. While Hungary isn't that big of a country it is just another signal that the EU is facing serious and widespread challenges. Hungary does not use the euro currency but the euro still plunged to a new four-year low on Friday at $1.1956. Many expect that the euro could be facing parity with the dollar over the next several months.

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

The euro weakness has pushed the dollar significantly higher. Friday saw the dollar breakout from a two-week consolidation. This is normally very negative for commodities and commodities are already suffering from fears the global economy is slowing down. The CRB commodity index has technically turned very bearish with a "death cross" of the 50-dma crossing under the 200-dma. On a positive note gold and natural gas seem to be exceptions to this commodity weakness.

The big story on Friday was the U.S. non-farm payrolls (jobs) report. Investors were expecting big gains. The estimates had been rising each week from 480,000 new jobs to 503K, then 513K. There were several whispers numbers of 600K, 700K, 800K new jobs. Positive comments from the White House this past week only added to the fever. We knew that temporary census jobs would be the majority of gains but analysts were still looking for 150,000+ new jobs from the private sector. Imagine their surprise when the jobs report came out and the total was only 411,000 while private sector jobs sank to 41,000. That's a big drop from April's 218,000.

The unemployment rate fell from 9.9% to 9.7% thanks to 325,000 discouraged workers unable to find jobs, giving up their search. Thus the unemployment rate decline due to a smaller workforce. What is really distressing is that the number of unemployed for six months or longer hit a new record. As you know we need 125,000+ new jobs every month just to breakeven. If our economy only produced 41,000 new jobs we're not making any progress. Suddenly the fears of a double-dip recession in the U.S. just got a lot more realistic.

I am very concerned that the disappointing jobs number on Friday could have been the catalyst that sparks another new leg down for stocks. The S&P 500 index has failed twice in the last two weeks near the 1100 area. If we break the 1050 level again I would expect the next stop to be 1,000 and that may not hold. The 1,000 level is just psychological support. We'd probably end up with a drop toward the 950 level. Now it probably won't happen all at once but you already know how fast this market can move.

I have been warning readers that we're not in a very friendly environment to launch new long-term bullish positions. I would be very cautious going forward. The situations in N.Korea and Israel could simmer for months and the economic struggles in Europe could last years. For now the path of least resistance is down.

Chart of the S&P 500 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:

It has not been a good week for stocks. The oversold bounce appears to have rolled over and the market is headed for its recent lows. All the gains we had in WLT have vanished. This remains a dangerous market to be bullish. Investors need to stay defensive. Keep your positions small.

There are no stop loss changes.

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

So Far Away

by James Brown

Click here to email James Brown


S&P Fails Near 1100 Again!


Editor's Note:

The jobs data on Friday was extremely disappointing. No one was expecting a number that low for the private sector. The data definitely lends more strength to the double-dip recession camp. This is the second time in two weeks the S&P 500 has failed near the 1100 level. Suddenly downside target near 1,000 or 950 don't seem so far away.

We need to be very cautious about initiating new bullish positions. Check out tonight's watch list for three new candidates.



Play Updates

Jobs Data Feeds Decline

by James Brown

Click here to email James Brown


Closed Plays


CIR and IMN are closed.


Play Updates


BorgWarner Inc. - BWA - close: 37.60 change: -2.37

News flow for BWA remains light. The stock was performing pretty well midweek but traders sold it hard on Friday for a 5.9% loss. This now looks like a failed rally at $40.00 resistance. I would expect another decline toward support in the $35-34 zone and its 200-dma. I am repeating my comments from last week that more conservative traders will want to strongly consider exiting the remainder of our position right now to avoid a loss. 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 $4.20/4.80
-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:


Cliffs Natural Resources - CLF - close: 49.22 change: -4.00

Friday's jobs report created huge doubts about the economic rebound and cyclical stocks like CLF were hammered. Shares lost about 10% for the week but most of that came from Friday's 7.5% sell-off. The close under $50.00 is bearish but CLF still has some technical support at its rising 200-dma near 47.75. I cautioned readers last week that CLF would remain very volatile and get pushed around by movement in the dollar. Friday's market saw the dollar breakout from a two-week consolidation phase, which doesn't bode well for CLF. Given the current market conditions and the breakout higher in the dollar I am strongly suggesting that more conservative traders exit early right now. You can minimize any losses in the 2011 Jan. $60 calls and actually avoid a loss in the 2012 Jan. $70 calls.

NO new positions at this time!

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 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 $5.55/5.85
-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 $ 7.75/ 8.30
-stop loss on CLF @ 44.90

06/05/10 Suggested Cautious Traders Exit Early!

Chart of CLF:


ConocoPhillips - COP - close: 50.06 change: -1.92

Bulls are getting hit hard in the energy sector. COP is only down $1.00 from our initial entry point but the options are trading a lot lower. COP traded in a 5% range this past week. Unfortunately Thursday's failed rally near $52.50 and its 100-dma is bearish. I am very concerned that the bullish breakout in the U.S. dollar on Friday will continue to weigh on oil and thus push the oil sector lower. More conservative traders may want to exit early or raise their stops toward the May 25th low of $48.51. At this point I do expect COP to retest that low near $48.50 and probably dip toward the $47.50 area. I am not suggesting new bullish positions at this time. 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 $2.57/2.70
-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 $3.40/3.60
-stop loss on COP @ 46.00

Chart of COP:


EMC Corp. - EMC - close: 18.38 change: -0.68

According to a IDC Q1 sales in the external data storage market rose 17.1% from a year ago. That should be good news for companies like EMC and NetApp but I'm guessing comparisons to Q1 2009 are pretty easy. The news didn't have an affect on the stock price. As of Thursday EMC was looking strong with a bullish breakout over its 50-dma and the $19.00 level but Friday saw this move reversed. I remain very cautious on EMC. 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 $1.17/1.23
-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 $2.55/2.60
-stop loss on EMC @ 16.75

Chart of EMC:


Fortune Brands - FO - close: 45.68 change: -2.17

FO spent the week consolidating sideways and looked ready to breakout higher until Friday rolled around. Anything related to consumer buying plunged and FO gapped open lower and lost 4.5% on the session. The stock appears to be headed for a retest of support near $44.00 and its rising 200-dma. Nimble traders could try buying call options on a dip or a bounce near $44.00 but I would be very cautious and use very small positions.

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 $1.40/ 1.60
-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:


Lockheed Martin - LMT - close: 77.39 change: -2.32

On Tuesday LMT announced it was selling two units and reorganizing the rest of its divisions. The news didn't have much of an impact on the stock price. LMT just drifted sideways near $80.00 albeit with a very subtle trend of lower highs. That trend got a lot more violent on Friday with a 2.9% loss and a close under its 200-dma. The combination of the jobs report sparking a market-wide sell-off and news that the Pentagon is trying to cut $100 billion from their budget over the next five years was the double whammy. Yet if you think about it, potential budget cuts and the market decline could have been an easy reason to sell LMT even more. I do expect LMT to hit their May 21st low near $76.00 and it wouldn't surprise me to see the stock trade closer to $75.00. At that point we're in danger of getting stopped out. More conservative traders may want to exit now to preserve capital. I am not suggesting new bullish positions at this time.

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 $ 3.20/ 3.60
-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 $ 4.80/ 5.40
-stop loss on LMT @ 74.75

06/05/10 More Conservative traders may want to exit early!

Chart of LMT:


Mckesson - MCK - close: 68.56 change: -2.72

MCK closed at new 10-year highs on Thursday yet Friday's 3.8% pull back took a chunk out of the option values below. We can blame Friday's move on the market but if MCK doesn't bounce back soon Thursday will look like a bull trap. Nimble traders could try buying calls on dips near $66.00 but I would be very cautious here. More conservative traders may want to raise theirs toward $66. 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 $ 3.60/ 3.90
-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 $ 5.10/ 6.10
-stop loss on MCK @ 63.99

Chart of MCK:


Millicom Intl. - MICC - close: 79.12 change: -2.25

MICC has spent the last two weeks bouncing around the $76-82 range. Considering the weakness in the market here and overseas I'd say that's almost a victory. Last week I suggested aggressive traders could buy calls on dips near $77 and we got that entry point on June 1st. I remain very cautious here. Instead of buying dips readers may want to wait for a close over $82.00 (or even $85) as small confirmation the trend is still higher.

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 $ 5.10/ 6.20
-stop loss on MICC @ 74.40

Chart of MICC:


PEPSICO Inc. - PEP - close: 61.44 change: -1.93

PEP was holding up reasonably well with traders buying dips near $62 and its 200-dma. That changed on Friday with PEP gapping open lower and close under these support levels. Odds just jumped significantly that PEP will retest the $60 level and probably hit our stop loss at $59.85. I strongly suggest more conservative traders exit now to avoid a loss. No new positions at this time. 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 $5.15/5.35
-stop loss on PEP at $59.85

06/05/10 More cautious traders may want to exit now to avoid a loss.

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

Chart of PEP:


Titanium Metals - TIE - close: 17.01 change: -0.91

TIE has continued to outperform. Shares managed to hit a new one-year high on Thursday but failed to hold it. Overall the path of least resistance appears to be up but I want to warn you. The dollar's strength is pressuring the commodity market and several commodities are starting to breakdown. TIE's relative strength is impressive but if the market really starts to breakdown this stock could become a target for profit taking.

If you're looking for an entry point I would look for a dip or a bounce near the $15.00 area and its rising 100-dma.

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 $5.60/5.90
-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: $67.79 change: -4.38

Ouch! Last week was painful for WLT. The stock fell almost 14%. On Tuesday it dropped toward $70 and traders sold the midweek bounce. It looks like the market is reacting to news that China appears to be having some success slowing down their economy. The recent Chinese PMI data came below economists' estimates. Investors fear that China might go too far and really slam on the brakes to keep their economy from overheating and this will affect demand for coal.

The breakdown under $70 on Friday significantly raises the risk that WLT will retest support near $65 at its May lows. We recently raised our stop loss to $64.90 and I am concerned we could get stopped out soon.

Prior Comments:
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 $ 7.40/ 7.90
-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 $10.30/11.40
-stop loss on WLT @ 64.90

Chart of WLT:


Wal-Mart Stores Inc. - WMT - close: 50.40 change: -1.32

WMT only lost 16 cents for the week but the action was definitely bearish. The oversold bounce reversed at the $52 level and Friday saw WMT slide 2.5% back toward support near $50.00. The company made headlines on Friday when the CEO, speaking to shareholders at their annual meeting, said WMT plans to hire 500,000 people over the next five years (worldwide). The emphasis is on their global growth because growth in the U.S. has slowed. It's possible that investors were disappointed that WMT couldn't think of a better use for $15 billion since management just announced a massive stock buyback program. I still think WMT is a buy near support at $50 and its long-term trendline but if it closes under $50 we probably want out. I'm keeping our stop loss (to exit this trade) at $48.95 for the moment.

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 $3.90/4.15
-stop loss on WMT @ 48.95

Chart of WMT


CLOSED Plays

CIRCOR Intl. - CIR - close: 28.19 change: -1.40

CIR has not been the best play for us, starting with the terribly high entry price on the option. This past week has not been a good week for CIR. Tuesday's plunge back under the 200-dma was followed with a failed rally near $30.00. Odds are very good that we will get stopped out soon. I'm suggesting we exit early now to salvage a little bit of capital.

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 $0.90/2.15
-stop loss on CIR @ 27.45

06/05/10 Exit Early, CIR @ 28.19, option @ 0.90 (-82%)

Chart of CIR:


Imation Corp. - IMN - close: 9.19 change: -0.81

Ouch! What in the world happened to IMN. Shares spiked higher at the open on Friday, tagged resistance near $10.50 (Shares hit $10.54) and hit its 30-dma before immediately plunging. Shares lost over 8% on no news. There is no reason for IMN to under perform this badly. Unless the company has invested too much in Hungarian bonds. The Friday plunge to new relative lows was enough to hit our stop loss at $9.25 and close this play.

May 6, 2010 - entry price on IMN @ 10.00,
Stop loss at $9.25

06/04/10 Stopped out @ 9.25 (-7.5%)

- or -

May 6, 2010 - entry price on IMN @ 10.00, option @ 1.00
symbol: IMN 10J10.00 2010 Oct $10 call - current bid/ask $0.60/1.40
-stop loss on IMN @ 9.25

06/04/10 Stopped out @ 9.25, option @ 0.60 (-40%)

Chart of IMN:



Watch

Commodity-Related Candidates

by James Brown

Click here to email James Brown


New Watch List Entries

GLD - SPDR Gold ETF

RIG - Transocean Ltd.

UNG - United States Natural Gas (ETF


Active Watch List Candidates

BA - Boeing Co.

CRM - Salesforce.com

CRS - Carpenter Technology

HSY - Hershey Co.

RT - Ruby Tuesday, Inc.

WYNN - Wynn Resorts Ltd.


New Watch List Candidates:

SPDR Gold ETF - GLD - close: 119.19 change: +1.23

Right now investors are scared. They are scared that China will slow down their economy too much. They are scared that Europe and the EU will not be able to solve their sovereign debt challenges and they're scared that Europe will see a banking crisis similar to our own back in 2008. Investors are also scared that the U.S. economy could be slowing down. What do investors do when they're scared? More and more of them are buying gold. That should be good news for bulls in the GLD.

I am tempted to buy options on the GLD right now but I suspect we'll get a better price if we wait. I'm suggesting a trigger to open positions at $115.00. More nimble traders could try and launch positions in the $112-110 zone. If triggered I'm suggesting a stop loss at $107.75, which is under the 200-dma.

Company Info:
The GLD is an exchange traded fund (ETF) that seeks to mimic the price of gold bullion.

Buy-the-Dip trigger: $115.00

BUY the 2010 March $120 call (GLD 11C120.00)

- or -

BUY the 2012 Jan. $130 call (GLD 12A130.00)

Chart of GLD:


Transocean Ltd. - RIG - close: 50.20 change: -0.91

RIG has gotten lots of unwelcome press in the last 40+ days as the market reacts to the worst oil spill in U.S. history. RIG owned the deepwater oil rig that blew up and created the oil spill in the gulf but they were not operating it. BP was the operator. While RIG may have some responsibility to the spill I doubt it justifies the stock falling from $90 to $50 in six weeks. This move appears to be overdone but I don't think it's over yet. The late December 2008 low for RIG was $41.95. That's probably acting like a magnet for the bears.

I am suggesting we use a trigger to buy long-term calls on RIG if shares hit $43.50. We'll try and limit our risk with a stop loss at $38.45. I do consider this an aggressive play since we really don't know yet how much RIG might be liable for in clean up costs and risks associated with the spill and oil rig explosion. If triggered our long-term targets are $59 and $75.

Company Info:
Transocean, the world’s largest offshore drilling contractor, provides the most versatile fleet of mobile offshore drilling units to help clients find and develop oil and natural gas reserves. Building on more than 50 years of experience with the highest specification rigs, our 18,000 employees are focused on safety and premier offshore drilling performance. (source: company press release or website)

Buy-the-Dip trigger: $43.50

BUY the 2011 January $50 call (RIG 11A50.00)

- or -

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

Chart of RIG:


U.S. Natural Gas ETF - UNG - close: 8.18 change: +0.17

After two and a half long years of steady declines it looks like the UNG natural gas ETF has FINALLY found a bottom. More and more nat-gas is being talked about as a replacement for dirty coal plants in the U.S. The futures price of natural gas has fallen so low that producers are prepared to cut back production. Why sell a commodity for a loss when you can just dial back production? If you have a long-term outlook the current glut of natural gas is temporary.

Technically the UNG has been building a base for more than two months. The recent breakout higher looks bullish. I suspect UNG will dip and retest the recent highs as support. That's why I'm suggesting a trigger to buy calls at $7.80. If triggered we'll use a stop loss at $6.70. That's a relatively wide (aggressive) stop but we want to give this ETF room to move. Our long-term targets are $11.00 and $14.00. Just because the options look "cheap" don't buy too many. Be disciplined with your position size. You can add to positions later once UNG confirms the trend change.

Company Info:
The United States Natural Gas Fund, LP ("UNG") is a new way for investors and hedgers to manage their exposure to energy. The United States Natural Gas Fund LP (UNG) is an exchange traded security that is designed to track in percentage terms the movements of natural gas prices. UNG issues units that may be purchased and sold on the NYSE Arca. The investment objective of UNG is for the changes in percentage terms of the units' net asset value to reflect the changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire, less UNG's expenses. (source: company press release or website)

Buy-the-Dip trigger: $7.80

BUY the 2011 Jan. $8.00 call (UNG 11A8.00)

- or -

BUY the 2012 Jan. $10.00 call (UNG 12A10.00)

Chart of UNG:


Active Watch List Candidates:

Boeing Co. - BA - close: 61.15 change: -3.16

I am growing more and more concerned about this market. We could see another leg down. I'm taking a more cautious approach to new entries and that means we're adjusting the trigger for BA. Shares are already close to potential support near $60.00 and the 200-dma but if you look on the weekly chart the $55.00 level should also be support and it wouldn't surprise me to see BA trading near $55 in a couple of weeks.

I am moving our trigger to open positions down to $55.50 and our stop to $49.40. You don't have to buy the dip. Instead you could wait to buy a bounce from $55.00. Our long-term target is $79.00.

Buy-the-Dip trigger: $55.50 (small size 1/2 to 1/4 normal trade size)

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

Chart of BA:


Salesforce.com - CRM - close: 89.64 change: -5.56

CRM broke out past major resistance near $90.00 on Thursday. I didn't see any specific news. The stock does have about 10% short interest so odds are good most of Thursday's rally was short covering. Unfortunately for the bulls the stock was hammered lower on Friday. Shares have been very volatile with a move from $75 to $95 in about two weeks. We don't want to chase CRM here. I would consider raising our trigger toward the $75 area. Our entry point could be a few weeks away. For now our suggested trigger remains $70.50. 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: $35.32 change -2.50

The bounce in CRS is rolling over and shares appear to be building a bull-flag pattern. I'm betting CRS will see a correction toward the $30 level and its 200-dma. We want to use a dip to $31.00 as our entry point. 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: 48.29 change: -1.12

HSY has been showing relative strength. The markets were encouraged that HSY's employees voted in favor of a labor deal that would set the stage for a $200 million expansion that would eventually see the number of employees double. Shares of HSY rallied to new relative highs and broke out from its six-week trading range. I had been expecting a correction toward prior resistance near $42.00 but we may need to readjust our entry point strategy. I'm starting to think a dip near $44 or $46 might be a potential entry point. However, at this moment, given the market's weakness, I'm leaving our trigger at $42.50 for now. 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: $10.07 change: -0.57

There is no change from my prior comments on RT. The stock looks poised to break support near $10.00. If it does break it should be a quick drop toward the $9.00 level. I'm actually adjusting our entry point to $9.05.

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: $9.05

BUY the stock at $9.05

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

Chart of RT:


Wynn Resorts - WYNN - close: 79.81 change: -4.35

The oversold bounce has stalled near resistance around the $85.00 area. As the market slides lower I'm expecting it to pull shares of WYNN toward $70.00 and its 200-dma. I do consider this an aggressive play. The jobs data was bearish for the economy and consumers will remain cautious. On top of that WYNN is a volatile stock. 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: