Option Investor
Newsletter

Daily Newsletter, Saturday, 6/19/2010

Table of Contents

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

Leaps Trader Commentary

Back to Back Gains

by James Brown

Click here to email James Brown

The stock market rebound from its June 8th lows continued for another week. This was the best two-week run (+5.2%) in the Dow Industrials since November 2009. The DJIA managed to gain +2.3% last week. The S&P 500 rose +2.4% and the NASDAQ composite rallied +3.0%. Earnings concerns over Europe's debt worries and a mix of economic news helped fuel the move. It is worth noting that the rally's momentum seemed to stall as we approached quadruple-witching option and futures expiration on Friday.

Front page headlines were dominated by news from oil giant BP. The company's decision to fund a $20 billion victim compensation fund was a big deal. While the fund does not limit their exposure it helps quantify (a little) of what that exposure might be. However, headlines out of Europe were what moved the market. One such headline involved an international group of regulators who announced that Greece's budget cuts and austerity measures required by the EU and IMF's bailout were on track.

Another big positive was news that the country of Spain managed to sell 3.5 billion euros of debt (about $4.3 billion). Demand was strong for 3 billion in 10-year bonds with a yield of 4.86% and 479 million euros in 30-year bonds with a yield of 5.9%. Over the last few months Spain (and Portugal) have been labeled as the next country likely to face a debt default challenge. The fact that investors were willing to buy these bonds is a huge sign of confidence. Now we don't know who bought them. For all we know it was EU banks trying to put on a good show for the rest of the world but the fact remains Spain was able to sell debt. If you thought Spain was going to default in the next couple of years you wouldn't be buying their bonds.

Yet another positive headline from Europe was news that EU regulators, at a summit in Brussels, promised to reveal the results of their stress test of the major European banks. Markets hate the unknown so the fact that they are going to disclose these results is a positive. Plus, you could argue that maybe the results aren't that bad because if they were bad would the EU really reveal them. Put it all together and the euro currency saw one of its biggest one-week bounces against the dollar in over a year. Two weeks ago it hit a four-week low of $1.19 and on Friday it had risen to $1.2362 against the U.S. dollar. Now some argue that the vast majority of the euro's rise was short covering but it's a rally nonetheless. The test will be if the euro can breakout past the $1.25 level, which is expected to be resistance.

Chart of the FXE euro ETF:

Spin the globe a little further and check out some recent headlines out of China. Just announced this weekend the Chinese government has decided to increase the renminbi's "exchange-rate flexibility". Here is a quote from their announcement: "The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability." They go on to say that given this positive environment they are going to allow some flexibility in their currency's exchange rate. China has been widely criticized for manipulating their currency to keep their exports more competitive. The country has kept the yuan near 6.83 per dollar since July 2008 (FYI: China's currency is the renminbi, the yuan is merely a denomination much like our dollar). Economists consider this a huge vote of confidence for China's economy and the global recovery. This announcement could have a bullish affect on stocks this Monday.

Looking ahead at the economic calendar we're going to get existing home sales on Tuesday, New home sales on Wednesday, Durable goods orders on Thursday, the next GDP estimate on Friday and the University of Michigan consumer sentiment reading on Friday. Yet in spite of all the data the biggest event this week will be the two-day FOMC meeting. No one expects Ben Bernanke and the Federal Reserve to raise interest rates but the markets will still hold their breath on Wednesday waiting for the announcement. Recent inflation data has been bordering on the edge of deflation and with unemployment still stubbornly high the Fed has plenty of room to keeps rates near zero. There is a growing camp of opinion on Wall Street that the Fed will not only keep rates low throughout 2010 but probably through all of 2011 as well. That would be really good news. The year 2011 has a huge number of adjustable rate mortgages that will reset. I have been VERY concerned that any rise in interest rates would exacerbate the ongoing flood of foreclosures in the U.S. Maybe, just maybe, if we keep rates this low we'll see a reduction in the foreclosure problem.

I remain cautious on the stock market. The technical picture is very mixed. The cross currents I discussed a week ago are still in place. The lack of volume on this past week's rally is worrisome. Volume is a weapon of the bulls. Stocks rising on low volume can be a warning sign. It's possible we could blame it on traders just waiting for option expiration to pass. We could also blame it on normal summer low-volume trading. Whatever your opinion on the reason the fact remains low volume is a challenge.

The NASDAQ composite remains stuck under its 100-dma as it hovers near the 2300 level. The small cap Russell 2000 is still stuck near resistance around the 670 level. The S&P 500 is hovering under the 1120 level. It's a really good bet that in a week or two the 50-dma on the S&P 500 is going to cross under the 200-dma, which is normally a very bearish technical signal. You could also argue that all of the major averages look a little bit overbought given the big bounce from their June 8th lows. I would like to think we may see some end of quarter window dressing over the next eight trading days but the Stock Trader's Almanac disagrees. According to the Almanac the week after June option expiration has been down 11 years in a row.

Chart of the S&P 500 index:

The euro strength (oversold bounce or short covering rally) has pushed the U.S. dollar lower. Dollar weakness has fueled gains for both oil and gold. Gold actually hit a new all-time high on Friday near $1,260 an ounce. If investors are pouring money into gold it's not a positive sign for the stock market. Elsewhere in metals the rally in copper has stalled. If investors were truly optimistic about the global recovery then demand (and prices) for copper would be rising. That's not the case. Copper has a bearish trend of lower highs. Meanwhile the yield on the 13-week T-bill has bounced, which is a positive sign but yields on the 10-year U.S. bond have stalled. Actually 10-yr yields are consolidating sideways in a neutral pattern but odds favor a break into the prevailing trend, which is down.

Like I said, there are a lot of mixed signals and currents affecting the market. I suspect the China news regarding its currency exchange rate will be viewed as positive on Monday but it could be a one-day pop. I'm not expecting good things from the new and existing home sales numbers. You have heard it before. We could be in the eye of the storm with stocks stuck in a trading range as investors await more data (like Q2 earnings) before placing their bets on the future of the recovery.

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 markets have put together their best two-week rally in months and yet momentum is stalling across several sectors. I would be cautious here. The summer doldrums are upon us and there is plenty of uncertainty about the prospects for future growth.

There are new stop losses for BWA, COP, RIG 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

Take Your Pick

by James Brown

Click here to email James Brown

NovaGold Resources - NG - close: 7.36 change: +0.45

Why We Like It:
Inflation, deflation, sovereign debt default, geo-political risk, safe-haven, diversification... take your pick on why gold is going up. The price of gold has broken out to new all-time highs over $1,250 an ounce. While some call it a bubble many believe this trend could last a long time. We already have the GLD gold ETF on our watch list but we're waiting for the right entry point. In the mean time I suggest readers take a look at NG.

NG is not overbought and extended like so many of its peers. Yet the trend is still bullish. The stock has been consolidating sideways on either side of $7.00 for the last four weeks. Friday's big move looks like a bullish breakout fueled by strong volume. This play isn't without risk. NG is probably underperforming its peers for a reason. If you look at their earnings results NG continues to lose money.

I consider this an aggressive, speculative play on the gold miners, which can be a very volatile group. I'm suggesting bullish positions now with a stop loss under the 200-dma (near $6.26). More cautious traders could use a stop near $6.50. Our first target is $9.00. Our second target is $9.90. I prefer the stock over the option because the spreads on the option are so wide.

Company Info:

NovaGold is a growth-focused precious metals company engaged in the exploration and development of mineral properties in North America. The Company has a portfolio of mineral properties located in Alaska, USA, and British Columbia, Canada. The Company's largest projects are being advanced with major mining companies. The Donlin Creek project is held by a limited liability company owned equally by NovaGold and Barrick Gold U.S. Inc. The Galore Creek project is held by a partnership owned equally by NovaGold and Teck Resources Limited. NovaGold owns a 100% interest in the Rock Creek, Big Hurrah and Nome Gold deposits in Nome, Alaska, and in the Ambler deposit in northern Alaska. NovaGold has one of the largest reserve/resource bases of any junior or mid-tier gold company and trades on the TSX and NYSE-AMEX under the symbol NG. (source: company press release or website)

I prefer buying the stock over the option but we're listing both. The spreads on the options are a pretty wide!

Keep your position size small to limit your risk!

Buy the Stock: NG @ current levels, stop loss: 6.25

- or -

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

BUY CALL 2011 JAN $7.50 strike (NG1221A7.5) current ask $2.50/bid $1.70

Chart of NG:

Weekly Chart of NG:



Play Updates

RIG Gushes Higher

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Boeing Co. - BA - close: 67.96 change: +0.70

The rally in BA continues. Shares managed to close over technical resistance at the 100-dma but it has yet to clear the 50-dma. A week ago I mentioned that the IATA had raised their airline industry forecast to a profit for 2010. Now Forbes just ran an article suggesting the airline industry could see another buying binge for new planes.

On a short-term basis you could argue BA is a little overbought with the $8 bounce from $60. The $70 level could be significant support/resistance. Thus I would expect BA to spent a few days consolidating, maybe that means it moves sideways or maybe it retraces back to $65-63 before rebounding again. If you're looking for a new entry point I'd wait for the dip. FYI: I have adjusted our entry point for Monday's open.

Remember we want to keep our positions very small. I'm suggesting a stop loss at $59.45. Our long-term target is $79.00.

FYI: Readers may want to consider 2012 calls.

Jun 12th, 2010 - entry price on BA @ 66.22, option @ 5.55
symbol: BA1122A70 2011 JAN $70 LEAP call - current bid/ask $5.60/5.70
-stop loss on BA @ 59.45

Chart of BA:


Popular Inc. - BPOP - close: 3.00 change: +0.10

Shares of banking stock BPOP continue to churn sideways under short-term resistance in the $3.08-3.10 area. Overall the bounce in financials and BPOP still looks attractive. We still don't know what form the government's new financial regulation will take so it remains a dark cloud over the industry and raises our risk for bullish positions in the banking sector. However, BPOP is cheap enough the stock acts like a long-term option that never expires. That doesn't mean you should over do it. Keep your position size limited to reduce your risk. BPOP is still a bank and nonperforming loans could be a problem, especially since unemployment in Puerto Rico is more than 15% (Puerto Rico is BPOP's home base).

I am suggesting a stop loss at $2.40. Our first long-term target is $4.00. More aggressive traders may want to aim higher.

Keep your position size small to limit your risk!

BUY the STOCK (BPOP) not the option.
06/14/10 Entry Point: BPOP opened @ 2.91.
Stop loss at $2.40.

Chart of BPOP:


BorgWarner Inc. - BWA - close: 41.31 change: +0.22

Things got a little exciting on Tuesday. Shares of BWA gapped open higher and closed above round-number, psychological resistance at the $40.00 level. The move was fueled by an analyst upgrade from "neutral" to "buy" with a $50 price target. The rally did stall the last three days but the short-term trend is up. Look for the $40-38 zone to offer some short-term support. I am raising our stop loss to $34.75. More conservative traders who have not exited yet may want to raise their stop toward $36.00.

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 $5.70/6.30
-stop loss on BWA @ 34.75

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: 56.22 change: -0.14

It turned out to be a quiet week for CLF. The stock gained about 25 cents as it bounced around the $56-58 zone. Meanwhile CLF is still trying to negotiate a buyout offer for Spider Resources Inc. CLF raised their bid by 27% to $109 million in Canadian dollars. Currently Spider is in a merger deal with KWG Resources but Spider's board of directors has stated that CLF's bid is better. I don't see the Spider deal having much of an impact on CLF, who has annual revenues of $2.6 billion.

The $58 level has been resistance for a few weeks now. I would not be surprised to see CLF dip back toward the $52-50 zone. If shares do decline look for the dip or a rebound from this area as a new bullish entry point. An alternative entry point would be a close over resistance near $60 and its 50-dma.

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 $7.50/7.75
-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 $ 9.70/10.10
-stop loss on CLF @ 44.90

06/05/10 Suggested Cautious Traders Exit Early!

Chart of CLF:


ConocoPhillips - COP - close: 56.01 change: +0.83

Some of the big name oil stocks are doing well. Strength in oil on dollar weakness hasn't hurt this sector. Shares of COP appear to be outperforming its peers a little bit with a nice four-day rally and a bullish breakout above its 50-dma. I am raising our stop loss to $47.99. Broken resistance near $54 should offer a little support now. 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 $4.60/4.75
-stop loss on COP @ 47.99

- or -

May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $4.70/5.00
-stop loss on COP @ 47.99

Chart of COP:


EMC Corp. - EMC - close: 19.35 change: +0.00

It was a bullish week for EMC with a 3.6% gain and new six-week highs. The stock garnered an upgrade on the 17th to a "buy" rating and a $25 price target. While the trend in EMC has improved short-term the stock looks a little overbought with a nearly non-stop rally from its June 10th bounce. Don't be surprised to see it consolidate sideways or lower for a few days.

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 $1.34/1.39
-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 $2.75/2.87
-stop loss on EMC @ 16.75

Chart of EMC:


Fortune Brands - FO - close: 45.15 change: +0.01

The retail-related stocks have been under performing the market the last three days. Unfortunately FO's under performance started on Monday with a failed rally at $48.00. Shares are now retesting technical support near their rising 200-dma. A breakdown here would be very bearish and suggest a drop toward $35 or the fourth-quarter lows. More conservative traders who are still in this trade may want to raise their stops. I am not suggesting new positions at this time.

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 $0.65/ 0.80
-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: 80.69 change: -0.26

The short-term trend in LMT is still up but if you step back shares are stuck in the $76-82 trading range. It was encouraging to see traders buying the dips near $80.00 this past week but that could have been influenced by option expiration and the $80 strike price.

The markets are worried that LMT could suffer as the Pentagon tries to trim its budget. Investors have a right to be worried. LMT is the biggest military contractor on the planet and one of their biggest projects, the F-35 aircraft program has come under scrutiny. Long delays and out of control costs have pushed the estimated cost for the program to $382 billion for 2,457 planes over the 25-year life of the program (source: NYT). With potential budget cuts in military spending I would hesitate to launch new positions in LMT at this time. Of course there is a chance that any cuts will be smaller than expected and that could send shares of LMT higher.

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 $ 3.30/ 3.70
-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 $ 5.00/ 5.50
-stop loss on LMT @ 74.75

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

Chart of LMT:


Mckesson - MCK - close: 70.09 change: -1.01

Hmm... the market just had its best two-week run in months and MCK has been unable to hit new highs. Shares came close to their early June high but didn't quite make it. Is this a potential bearish double top? It is too early to tell for now but I am concerned that many of MCK's technical indicators are beginning to roll over as the stock fails to make any new headway. Overall the trend remains higher but it wouldn't surprise me to see MCK retest the $68 level and its rising 50-dma before closing above $72.

Remember, MCK has seen a sharp increase in short interest. If shares do close at a new high we could witness a short squeeze as bears try and cover positions.

I did not see any stock moving headlines out of MCK's analyst meeting on the 17th but the company did reaffirm its previous earnings guidance.

Previous Comments:
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 $ 3.40/ 3.60
-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 $ 5.00/ 5.80
-stop loss on MCK @ 63.99

Chart of MCK:


Millicom Intl. - MICC - close: 87.29 change: +0.89

MICC did post another gain for the week but shares spent most of their time churning sideways in the $86-88 zone. On a positive note MICC has broken out above its 50-dma. I remain bullish on MICC but readers may want to wait for a dip back toward the $85-84 zone before considering new bullish positions.

Previous Comments:
If you open positions keep them small to limit your risk. MICC is a volatile stock. 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 $ 8.20/ 9.20
-stop loss on MICC @ 74.40

Chart of MICC:


PEPSICO Inc. - PEP - close: 64.08 change: -0.41

Shares of PEP experienced a very quiet week with the stock barely moving as it hovered on either side if $64. The simple 50-dma is likely resistance directly overhead. If shares decline I would expect a dip back toward the $61 level and its May-June lows. I hesitate to open 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 $6.10/6.25
-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:


Transocean Ltd. - RIG - close: 54.61 change: +5.18

RIG delivered an exceptional performance last week with a 16.5% gain. More than 10% of that was gained on Friday. BP has been getting beat up in front of Congress and the TV cameras and the market is beginning to realize that RIG's potential liability to the oil spill in the Gulf is limited. The sharp move in shares of RIG could also be a little short covering as RIG breaks out over the $50.00 mark. I am sorely tempted to take profits now with our 2011 Jan. $50 calls almost double what we paid for them. More conservative traders may want to go ahead and book an early profit now. We are going to stick to our plan. On a technical note the $50.00 level should offer some short-term support now. Please note our new stop loss at $41.80.

Previous Comments:
This is a very aggressive trade given the unknown risks associated with RIG's connection to the Gulf oil spill. Our stop loss is at $38.45. More conservative traders could place theirs closer to $40.00 or the low near $41.88. Our long-term targets are $59 and $75.

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 6.50
symbol: RIG 11A50.00 2011 Jan $50 call - current bid/ask $11.10/11.35
-stop loss on RIG @ 41.80

- or -

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $10.75/11.30
-stop loss on RIG @ 41.80

Chart of RIG:


Ruby Tuesday Inc. - RT - close: $10.35 change: +0.06

Shares of RT have been bouncing around the $10.00-10.50 zone. I don't see any changes from my prior comments. If the market rolls over then RT could retest support near $9.00. If not then shares are facing technical resistance at the 50-dma near $11.00. The action two weeks ago certainly looks like a bullish reversal but I hesitate to launch new positions at this time.

FYI: RT will be presenting at an analyst consumer (industry) conference on June 23rd.

Previous Comments:
I prefer buying the stock over the option. Our long-term targets are $12.00 and $14.75.

Jun 08, 2010 - entry price on RT stock @ 9.05
-stop loss on RT @ 8.40

- or -

Jun 08, 2010 - entry price on RT @ 9.05, option @ 1.90
symbol: RT 11A10.00 2011 Jan $10 call - current bid/ask $ 1.60/ 2.10
-stop loss on RT @ 8.40

Chart of RT:


U.S. Natural Gas ETF - UNG - close: 8.53 change: -0.20

Shares of the UNG posted some strong gains early last week but momentum stalled a little bit. Shares have been hovering near $8.50, which was previous support back in December and March. On a short-term basis you could argue this ETF is a little overbought. Readers may want to wait for a dip or a bounce from the $8.00 area before considering new bullish positions. Look for the $9.00 level and the 200-dma to offer some overhead resistance. Our first long-term target is $10.85 but we will probably adjust this as necessary.

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.

Jun 12, 2010 - entry price on UNG @ 8.17, option @ 1.38
symbol: UNG1122A8 JAN 2011 $8 LEAP call - current bid/ask $1.50/1.56
-stop loss on UNG @ 7.35

- or -

Jun 12, 2010 - entry price on UNG @ 8.17, option @ 1.59
symbol: UNG1221A10 JAN 2012 $10 LEAP call - current bid/ask $1.60/1.72
-stop loss on UNG @ 7.35

Chart of UNG:


WLT - Walter Energy Inc. close: $70.68 change: -1.27

The outlook for coal depends on your bias for global growth. Companies with exposure to the metallurgical coal market are still poised to do well as it is a key ingredient in steel production. On a short-term basis I'm concerned that WLT is producing a new lower high near $75.00. If the stock market pulls back WLT could easily retest support near $65.00, which puts us at risk of getting stopped out. We opened this trade knowing WLT was extremely volatile. I'm adjusting our stop down to $63.90. If you're looking for an entry point wait for the next bounce in the $67-65 zone.

Prior Comments:
Keep an eye open on news regarding China. The plan was to use small positions to limit our risk. Our first target is $99.00.

May 6, 2010 - entry price on WLT @ 73.00, option @ 12.00
symbol: WLT 11A80.00 2011 Jan $80 call - current bid/ask $ 7.30/ 8.00
-stop loss on WLT @ 63.90

- or -

May 6, 2010 - entry price on WLT @ 73.00, option @ 14.10
symbol: WLT 12A90.00 2012 Jan $90 call - current bid/ask $10.60/11.30
-stop loss on WLT @ 63.90

Chart of WLT:


Wal-Mart Stores Inc. - WMT - close: 51.55 change: +0.14

Shares of WMT have spent the last four weeks churning sideways in the $50-52 zone. On a positive note the stock has been building a bullish trend of higher lows but WMT faces lots of overhead resistance. Technically this past week saw the simple 50-dma cross under the simple 200-dma (a.k.a. the "death cross") which is normally considered a very bearish signal.

Remember, this is a slow moving stock and WMT will trend with the major market averages but will also be influenced by investor sentiment towards economic growth and consumer spending. If you are in the double-dip camp for the U.S. economy you may want to exit positions here. While WMT will probably perform better than its peers it will still trend lower if the economy rolls over.

Previous Comments:
Our stop loss is at $48.95. 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 $3.35/3.50
-stop loss on WMT @ 48.95

Chart of WMT



Watch

No Man's Land

by James Brown

Click here to email James Brown

Editor's Note:

I'm not adding any new watch list candidates tonight. I was tempted to add LLL as a candidate and watch it for a breakout over the $85.00 level. However, the scandal involving an L3 unit eavesdropping on Airforce emails and the expectation for budget cuts by the Pentagon soured me on the idea. Stocks are kind of in no-man's land right now anyway. Let's see if the market can produce any follow through with the current bounce.


New Watch List Entries

None.


Active Watch List Candidates

BVN - Compania de Minas Buenaventura

CRM - Salesforce.com

CRS - Carpenter Technology

GLD - SPDR Gold ETF

MCD - McDonald's Corp.

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

None. No watch list candidates were dropped.

Active Watch List Candidates:

Compania de Minas Buenaventura - BVN - close: 39.49 change: +0.23

Mining stocks continue to rally thanks to strength in gold. Investors have ignored the recent dip in copper prices. There is also talk that gold could be near a top but the precious metal just broke out to a new high on Friday. On a short-term basis BVN looks overbought with a four-week rally in place. I am suggesting we wait for a pull back. The $35.00 level should be short-term support. Let's use a trigger at $35.15 to open bullish positions. Unfortunately we don't have any LEAPS so the longest-dated options available are December 2010 calls. If triggered we'll use a stop loss at $29.90. Our first target is $42.25. Our second, more aggressive target is $47.50.

Buy-the-Dip trigger: $35.15

BUY the 2010 December $40 calls (BVN1018L40)

Chart of BVN:


Salesforce.com - CRM - close: 95.72 change: -1.38

CRM closed the week near its all-time highs but some of the technical oscillators are suggesting the rally is running out of gas. We do not want to chase this stock here. CRM should have support near $90 and near $80. We want to wait for a dip toward $80. Our suggested entry point is $81.00. If triggered our stop loss is $74.00. Our new long-term target is $119.00.

Buy-the-Dip trigger: $81.00

BUY the 2011 January $85 calls (CRM 11A85.00)
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BUY the 2012 January $90 calls (CRM 12A90.00)

Chart of CRM:


Carpenter Technology - CRS - close: $38.99 change +2.26

I am suggesting we adjust our trigger on CRS and raise it from $33.00 to $34.00. The recent lows were $33.53 on June 8th and $33.02 on May 21st. If we're lucky CRS will retest the $34.00 level again before launching into its next leg higher. Previously I suggested that more aggressive traders consider bullish positions on a close over $40.00.

If triggered our stop loss is $29.40. 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: $34.00

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

Chart of CRS:


SPDR Gold ETF - GLD - close: 122.83 change: +0.93

The rally in gold continues. The precious metal hit a new all-time high of $1,263.70 an ounce on Friday with a +2.3% gain for the week. Gold is on track for its third monthly gain in a row. The GLD gold ETF hit $123.50 intraday.

With gold at a new high there is talk of a bubble in this commodity. Others argue that investors are seeking a safe haven. No one believes the troubles in Europe have been solved and there is growing doubt about the economic recovery in the U.S. especially with stubbornly high unemployment.

I don't want to chase gold here even though it has broken out above resistance. Let's wait for a dip toward the 50-dma. I'll raise our entry point to $117.50 and our stop loss to $109.50. Our target is $140.

Buy-the-Dip trigger: $117.50

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

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

Chart of GLD:


McDonald's Corp. - MCD - close: 69.88 change: -0.17

There is no change from my prior comments on MCD. The stock spent the week in a narrow range. I'm still expecting a dip before MCD moves much higher. Use a pull back into the $66-65 zone as a bullish entry point. Our official trigger is $66.50. We will use a stop loss at $63.25, just under the 200-dma. Our long-term target is $79.75.

Buy-the-Dip trigger: $66.50

BUY the 2011 January $70 calls (MCD1122A70)
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BUY the 2012 January $80 calls (MCD1221A80)

Chart of MCD:


Wynn Resorts - WYNN - close: 85.03 change: -0.52

WYNN hit $86.85 on June 16th - not enough to trigger out play. The larger trend for WYNN is still up but we want to wait for the right entry point. I would prefer to buy call LEAPS on a dip at $76 near the 100-dma. However, WYNN could easily run away from us if investor sentiment improves. That's why we have a higher-risk entry point at $87.75. Of course WYNN is a volatile stock and all positions here should be considered aggressive. Keep your position size small to limit your risk.

If triggered at $76.00 we'll use a stop loss at $69.75. If triggered at $87.75 our stop will be $79.45. Our long-term target is $112.50.

Buy-the-Dip trigger: $76.00 or Break-out trigger: $87.75

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

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BUY the 2012 January $100.00 calls (WYNN 12A100.00)

Chart of WYNN: