Option Investor
Newsletter

Daily Newsletter, Saturday, 7/17/2010

Table of Contents

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

Leaps Trader Commentary

Manufacturing, Financials, and the Consumer

by James Brown

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The roller coast ride continues and it looks like there are traders that want to get out before the next plunge lower. After an 8% rally in the market we were poised for some profit taking. Sometimes it can be very challenging to correctly identify what is moving the markets. Now is not one of those times. A rash of bearish economic data and disappointing earnings guidance was enough to spark the sell-off on a low-volume summer expiration Friday.

This past week was all about disappointment. The markets were unhappy with the less than optimistic tone in the FOMC minutes. Investors were unhappy with the disappointing manufacturing data with big declines in the Philly Fed and New York (Empire State) Fed surveys. Traders have been very unhappy with the quality of earnings from the financial sector. To top it all off it looks like the consumer is retreating again thanks to a huge drop in the preliminary consumer sentiment report.

High profile banks like JPM, BAC and Citigroup (C) all report earnings this past week. It looked like JPM knocked the cover off the ball but the company only did so by releasing billions from their loan loss reserves. CEO Jamie Dimon admitted these were not "normal" earnings. Therein lies the challenge for the banks. Investors want to know what their "normalized" earnings are going to be. For months we heard about how great the wide yield spread was for the banks and how they could just rake in a profit. Yet the big disappointment with JPM, BAC, and C is declining revenues and rising costs. Mortgage revenues are down. Trading revenues are down. It is not shaping up to be a very healthy earnings season.

Financials are a huge part of the market and the major averages can't have a sustained rally unless the banks participate. While we're on the subject of financials, I thought the Goldman Sachs settlement with the SEC would have had a much more bullish effect on the market. Yet there are industry analysts that feel like GS gave up too early and when they caved into the SEC's fraud charges all of Wall Street lost with them. Of course most of these settlements let the accused get away without admitting any guilt or wrongdoing. GS got away cheap with a $550 million (record-setting) fine. Plus they had to admit they made a "mistake" with how they market some of their mortgage-related securities. On the same day the U.S. senate passed the financial reform bill 60-39. This is a monster bill with 390,000 words. No one knows yet how all of these rules are going to get implemented. President Obama may sign it into law soon but the actual regulations haven't been written yet and the impact may not be felt for months or years to come. What does that mean to the banks? It means the shadow of uncertainty is still close by and could keep a lid on the banking sector.

Aside from the earnings parade Friday was dominated by bearish results from the preliminary Consumer Sentiment numbers for July. The headline composite number plunged -9.5 points to 66.5. This is the 8th largest drop in the history of this report. Why does this matter? Wall Street believes that consumer sentiment will forecast consumer spending. We saw a similar move in the most recent consumer confidence number, which declined -10.4 points to 52.9. We already have declining retail sales numbers. If consumers are pulling back even more it will significantly raise the risk of a double-dip recession in the U.S.

Another concern, in addition to declines in manufacturing and a nervous consumer, has been the inflation data. Both the CPI and PPI have been declining. We're actually starting to see a deflationary trend. The markets fear deflation because it is so much harder to fight than inflation. The Federal Reserve will have to get creative again since they can't lower interest rates, which are already in the 0.0%-to-0.25% zone.

Technically the markets look pretty ugly. The rally (a.k.a. oversold bounce) in the S&P 500 came to a dead stop near the 1100 level. This was also near the declining 50-dma. This index, like many of its peers, is now in a bearish trend of lower highs and lower lows. I have been warning readers that any rallies would probably be short and sharp, which is normal for a "bear" market. Officially the S&P 500 is not in a bear market yet but it's moving that direction. I suspect we'll see the S&P 500 retest the 1020 level before the end of August if not sooner.

Weekly chart of the S&P 500 index:

Daily chart of the S&P 500 index:

We can still look for potential support near the 1,000 level on the S&P 500 but longer-term odds are good we'll see this index decline toward the 950 area. That makes it very challenging to place long-term bullish LEAP trades. The NASDAQ doesn't look any better. The oversold bounce failed near resistance at its 50 and 200-dma (now in a death cross pattern). I would be watching the 2,000 level as support for the NASDAQ.

Daily chart of the NASDAQ index:

Unfortunately the small caps are struggling too. The Russell 2000 index failed near 640 and its 200-dma. Shares might see some support near the 580 level. The bigger concern is the bearish trend of lower highs and lower lows.

Daily chart of the Russell 2000 index:

Optimistically earnings results and improvements in Europe might be able to turn the market around. Yes, you heard me right, improvements in Europe. The debt crisis in Europe has not gone away but last week Spain was successful with a three billion euro 15-year bond auction. We will see more debt auctions from struggling EU nations later this month. If these auctions are successful it could help heal the fears still circling around the EU, the euro, and the fate of the region. Plus, we should hear from the bank stress test on 91 of Europe's banks in about a week's time. Currently expectations are for a strong showing but you could argue positive results from this stress test is already baked into the market.

Meanwhile earnings will be the primary focus this week. The next five trading days will be the busiest week of the Q2 earnings season. If corporate guidance improves and investors choose to take a more bullish interpretation from corporate guidance then stocks might turn around. Our problem is the sour note cast by JPM, BAC, C, GOOG, and GE. Once you get off on the wrong foot it can be hard to recover.

I have been cautioning readers to expect the market to top out in mid July. It looks like the reversal occurred a little bit earlier than expected. I'm not saying it's straight down from here. Earnings results could produce some short-term pops but look for traders to sell into strength.

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:

The stock market rally has stalled and reaction to recent high-profile earnings results has not been bullish. It looks like the market is poised to retreat lower again. Readers will want to consider taking profits early or exiting early to protect capital. We have closed BA given its failed rally and we're taking profits early in MCD.

Please note the new stop losses for CRS, EMC, and MCD.

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

Coal & Consumers Cool Off

by James Brown

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Market Vectors Coal ETF - KOL - $30.70 -0.96

Why We Like It:
The bulls will argue that strong demand from China and India should mean coal stocks are a buy. Yet coal stocks are clearly trending lower. This is probably due to rising concerns over a double dip recession in the U.S., in Europe, and China trying to slow down their own economy. Looking at the KOL ETF you can see that the bullish up trend has been broken. The recent oversold bounce failed at the 50-dma. This also looks like a right shoulder to a bearish head-and-shoulders pattern.

More conservative traders could wait for a breakdown under the $28.00 level as their entry point. I am suggesting bearish positions now. Our first target is $25.50. We will tentatively set a second target at $22.00. I would start off with small positions. You can add to it when KOL confirms the trend with a close under $28.00. I'm suggesting a stop loss at $33.25.

Company Info:

The KOL is an exchange traded fund (ETF) focused on the coal sector. This security tries to mimic the price and yield of the Stowe Coal Index. The top ten holdings in the KOL ETF are: BTU, JOYG, China Coal Energy, China Shenhua Energy, BUCY, ANR, CNX, MEE, WLT, and Yanzhou Coal Mining Co. (source: company press release or website)

- This is a PUT play -

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

BUY PUT 2011 JAN $27.00 strike (KOL1122M27) current ask $2.60

The $27 puts are the lowest strike available for Jan. 2011.

Chart of KOL


Walter Energy - WLT - close: 63.30 change: -2.23

Why We Like It:
We just listed KOL as a bearish LEAPS put play but if you want to get more bang for your buck WLT could be a candidate for you. WLT is much more volatile and offers more reward along with greater risk. Like the KOL trade the long term up trend has been broken. The path of least resistance for WLT seems to be down. Fears of a double-dip recession has spooked investors.

I am suggesting very small positions now. We can add to them later after WLT confirms the trend. We'll use a stop loss at $70.55. Our first downside target is $51.00. Our second target is $42.50. FYI: WLT is due to report earnings on July 28th after the market's closing bell.

Company Info:

Walter Energy is a leading U.S. producer and exporter of premium hard coking coal for the global steel industry and also produces steam coal and industrial coal, metallurgical coke and coal bed methane gas. The Company has revenues of approximately $1.0 billion and employs approximately 2,050 people. (source: company press release or website)

This is a PUT play!

I prefer the 2012 Put LEAPS but 2011's should also work for us.

BUY PUT 2011 JAN $55.00 strike (WLT1122M55) current ask $5.60

- or -

BUY PUT 2012 JAN $50.00 strike (WLT1221M50) current ask $10.20

Chart of WLT


Consumer Discretionary Sector - XLY $30.02 -1.09

Why We Like It:
The consumer is still in trouble. They are worried about their job security and the falling prices of their homes. Consumers are spending less and saving more in the "new normal". The most recent consumer sentiment numbers were a real disappointment. Friday's report could be the catalyst that ignites the next leg down for these stocks. Instead of picking an individual company I'm suggesting the XLY.

I am suggesting bearish positions now. We'll use a stop loss at $32.25. Our first target is $26.00.

Company Info:

The Consumer Discretionary Select Sector SPDR (ETF) is an exchange traded fund with a wide focus on consumer-related companies. Individual components include companies in the automobile industry, consumer durables, apparel, hotels, restaurants, leisure, retailers, and media companies. The top tend holdings in this ETF are: MCD, DIS, Comcast, HD, AMZN, TGT, F, Time Warner, DirecTV, and LOW. (source: company press release or website)

This is a PUT play!

We can use the 2012 or 2011 PUT LEAPS.

BUY PUT 2011 JAN $28.00 strike (XLY1122M28) current ask $1.95

- or -

BUY PUT 2012 JAN $25.00 strike (XLY1221M25) current ask $2.81

Chart of XLY



Play Updates

Busy Earnings Week

by James Brown

Click here to email James Brown


Closed Plays


BA has been closed.


Play Updates


BorgWarner Inc. - BWA - close: 40.43 change: -2.15

The bullish reversal in BWA from July 7th continued into this week. Shares managed to hit a new two-month high before giving up 5% on Friday's market-wide decline. Fueling the move higher was an analyst upgrade and a new $50 price target (FYI: the point & figure chart is suggesting a $58 price target)

On the weekly chart BWA has a bearish reversal pattern but it needs to see some confirmation. If the major indices continue to sink we can expect BWA to retest the $38-36 zone. I am not suggesting new positions at this time. More conservative traders may want to take profits now and exit early.

BWA is due to report earnings on July 30th.

Prior Comments:
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 $5.40/5.70
-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:


ConocoPhillips - COP - close: 51.85 change: -1.01

The big news in the oil industry this past week was BP's success on finally stopping the leaking well in the Gulf of Mexico. It's a temporary fix but oil stocks rallied on the news. Well, most oil stocks rallied. COP did not see much of a bump on Thursday. Technically shares of COP are not acting very healthy. The bounce from its July lows stalled at the 61.8% Fibonacci retracement of the late June sell-off. COP now has a new lower high and we can expect shares to retrace back toward the $49-48 zone. Given the rising chances that the stock market will sink to new relative lows, more conservative traders will want to seriously consider an early exit from our COP trade. A week ago I warned readers that if this bounce fails you'll want to consider an early exit!

In other news COP announced their quarterly cash dividend of $0.55 payable on September 1st to shareholders of record on August 2nd. FYI: COP is due to report earnings on July 28th.

Prior Comments:
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 $2.73/2.80
-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 $3.65/3.90
-stop loss on COP @ 47.99

07/17/10 COP's bounce has failed. Consider an early exit!
07/03/10 More Conservative traders may want to exit early!

Chart of COP:


Carpenter Technology - CRS - close: $32.49 change -1.38

I am growing more and more concerned about shares of CRS. Last week's economic data from the Philly Fed and New York Fed manufacturing reports shows a clear slow down in manufacturing in the U.S. That certainly doesn't bode well for the likes of CRS. Indicators are mixed depending on what time frame you look at. Short-term the stock appears headed lower. I am expecting a dip toward the simple 200-dma near $31.17. Please note that I am raising the stop loss to $29.90. More conservative traders may want to go ahead and exit early now or raise your stop toward $31.00.

I am not suggesting new bullish positions at this time. FYI: CRS is due to report earnings on July 29th.

Previous Comments:
The plan was to initiate small positions to limit our risk. Our long-term target is $44.75.

June 29, 2010 - entry price on CRS @ 34.00, option @ 5.30*
symbol: CRS 10L35.00 2010 DEC $35 call - current bid/ask $3.10/3.30
-stop loss on CRS @ 29.90 *(entry price is an estimate)

Chart of CRS:


EMC Corp. - EMC - close: 20.15 change: -0.43

EMC remains an outperforming stock. Shares rallied eight days in a row and broke out to new 2 1/2 year highs this past week before giving back 2% on Friday. The breakout and close over the $20.00 level is a very bullish development but I'm not sure if shares can hold it. If the market retreats I would expect EMC to pull back into the $19-18 zone.

Please note that we are raising the stop loss to $17.45. The Point & Figure chart is very bullish and points to a $34.50 target. Investors should be aware that EMC is due to report earnings on Wednesday, July 21st before the opening bell. Analysts are expecting a profit of 27 cents a share. More conservative traders may want to consider some sort of hedge in case EMC disappoints.

Previous Comments:
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 $1.89/1.93
-stop loss on EMC @ 17.45

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $3.20/3.35
-stop loss on EMC @ 17.45

07/17/10 new stop @ 17.45
07/03/10 More Conservative Traders may want to exit early!

Chart of EMC:


Infosys Technologies - INFY - close: 58.31 change: -1.04

INFY reported earnings on July 13th. The results were in-line with expectations. Revenues were slightly ahead of estimates at $1.36 billion. Unfortunately, INFY offered mixed guidance and traders decided to sell the news, thus the gap down on Tuesday morning. INFY has been relatively volatile over the past few weeks. I would not be surprised to see the stock retest the rising 200-dma near $56.00. Look for a bounce from the $56 area before considering new bullish positions.

Previous Comments:
We have a stop loss at $54.90. Our long-term target is $79.00.

July 1, 2010 - entry price on INFY @ 59.00, option @ 7.50
symbol: INFY 11A60.00 2011 Jan $60 call - current bid/ask $4.60/ 5.00
-stop loss on INFY @ 54.90

- or -

July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $7.10/ 7.90
-stop loss on INFY @ 54.90

Chart of INFY:


McDonald's Corp. - MCD - close: 69.94 change: -1.39

MCD lost 1.9% on Friday but still managed a gain for the week. The multi-day rally had stalled near its 2010 highs around the $71-72 area so it is not a surprise to see some profit taking. While I'm on the subject of profit taking I think it's time that we took some profits early! We want to sell part of our position now with shares struggling under resistance. If MCD performs well following its earnings report we'll reconsider adding to positions.

MCD is due to report earnings on Friday, July 23rd before the opening bell. Wall Street expects a profit of $1.12 a share. Keep in mind that if the market sinks lower we can expect MCD to fade back toward the $68-66 zone. I am raising our stop loss to $64.75. FYI: The Point & Figure chart forecasting an $82 (long-term) target.

Prior Comments:
Keep your positions small. Our long-term target is $79.75.

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.65
symbol: MCD 11A70.00 2011 Jan $70 call - current bid/ask $4.00/ 4.10
-stop loss on MCD @ 64.75

- or -

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $3.50/ 3.65
-stop loss on MCD @ 64.75

07/17/10 Take Profits! 2011 Jan $70 call @ 4.00, 2012 $80 call @ 3.50

Chart of MCD:


Mckesson - MCK - close: 68.00 change: -1.40

We are seeing a little bit of a change in character for MCK. After churning sideways for several days the stock rallied midweek and broke out over the 50-dma. The rally didn't last long but short-term technicals have improved. I'm still concerned the $70-71 level remains resistance and I expect MCK to retest the $65-64 zone before moving much higher but the retest of $65 looks a lot less of a sure thing after this past week. I am not suggesting new bullish positions at this time.

FYI: MCK is expected to report earnings on July 30th.

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 $ 2.40/ 2.50
-stop loss on MCK @ 62.90

- or -

May 18, 2010 - entry price on MCK @ 71.00, option @ 4.10
symbol: MCK 12A80.00 2012 Jan $80 call - current bid/ask $ 4.30/ 4.60
-stop loss on MCK @ 62.90

Chart of MCK:


Millicom Intl. - MICC - close: 85.88 change: -2.10

This past week saw MICC challenge short-term resistance near the $88 level. While it failed to break out the stock's posture has taken on a more bullish tone. This coming week could be a volatile one. MICC is due to report earnings on Tuesday, July 20th before the opening bell. Wall Street expects a profit of $1.40 a share. I am not suggesting new bullish positions ahead of the earnings report. If you're concerned MICC will miss and crash you have one day (Monday) to consider buying puts to protect yourself. Readers may want to consider a tighter stop loss closer to $80 and the 200-dma.

Previous Comments:
Keep your positions small to limit your risk. MICC is (normally) 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 $ 7.30/ 7.90
-stop loss on MICC @ 74.40

Chart of MICC:


PEPSICO Inc. - PEP - close: 62.45 change: -0.71

This could be an important week for PEP and our LEAPS trade. The company is due to report earnings on Tuesday, July 20th before the opening bell. Wall Street estimates a profit of $1.08 a share. If PEP disappoints I would not be surprised to see shares dip under the $60.00 level and hit our stop loss. Given the current trend of lower highs and lower lows more conservative traders may want to exit early. I am not suggesting new bullish positions at this time. Our final target remains $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 $5.00/5.10
-stop loss on PEP at $59.85

06/26/10 Repeat - More cautious traders will want to consider an exit.
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: 52.08 change: -2.62

Shares of RIG spent most of the week drifting sideways under resistance near $55 and its 50-dma. Things got exciting late Thursday afternoon after BP said they successful stopped the leaking well with a temporary cap. Shares of RIG shot from $52 to $55 in a few minutes on this announcement. Unfortunately, RIG gave back all of its gains with a 4.7% decline on Friday.

I remain bullish on RIG but readers may want to wait for another bounce from the $50 level or wait for a strong close over the $55 level.

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 $41.80. Our long-term targets are $59 and $75. FYI: The P&F chart is forecasting an $82 target.

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 6.50
symbol: RIG 11A50.00 2011 Jan $50 call - current bid/ask $ 8.80/ 9.00
-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 $ 9.25/ 9.70
-stop loss on RIG @ 41.80

Chart of RIG:


U.S. Oil Fund - USO - close: 34.16 change: -0.42

The USO posted a loss for the week even though the dollar has been plunging. Normally a falling dollar is bullish for commodities since it takes more dollars to buy them. Unfortunately for the oil bulls the rally stalled on Wednesday and reversed. Considering all of the negative economic data last week on the fading momentum in the U.S. manufacturing sector, I see the recent action in the USO as a new entry point to buy puts. Previous Comments:
I'm suggesting a stop loss at $36.15. Our first target to take profits is $28.00. Our second is $25.25. Keep your positions small to limit your risk.

- PUT PLAY -

July 06, 2010 - entry price on USO @ 33.06, option @ 2.34
symbol: USO 11M30.00 2011 Jan $30 PUT - current bid/ask $ 1.74/ 1.79
-stop loss on USO @ 36.15

- or -

July 06, 2010 - entry price on USO @ 33.06, option @ 2.70
symbol: USO 12M25.00 2012 Jan $25 PUT - current bid/ask $ 2.14/ 2.46
-stop loss on USO @ 36.15

Chart of USO


CLOSED Plays

Boeing Co. - BA - close: 61.60 change: -2.47

A few days ago BA updated their 20-year outlook for global aircraft demand. Based on their optimistic assumptions of +3% global growth for the next 20 years BA is estimating that the current worldwide fleet of commercial and freight airplanes will need to grow from 18,890 planes (now) to 30,900 planes. This is an improvement from their prior estimate of 29,000. The industry revenues to sell these planes is estimated at 3.6 trillion (over the next 20 years). The bullish forecast had no impact on shares of BA. Well, that may not be true. The stock did spike higher on Thursday morning, tagged its 50-dma and immediately reversed lower. After more than a week of hovering near the $65 level shares plunged 3.8% on Friday's market-wide decline.

I have been warning readers that if BA fails near the $66 area, more conservative traders will want to exit early. The newsletter is going to follow that suggestion tonight and close this play early. Obviously there is still a chance that BA will hold support near its 200-dma and the $60.00 area but I'm not willing to bet on it at this time. Exit now to preserve capital.

Prior comments:
Remember we want to keep our positions very small.

07/17/10 - Exit Early. BA @ 61.90

Jun 12th, 2010 - entry price on BA @ 66.22, option @ 5.55
symbol: BA1122A70 2011 JAN $70 LEAP call - option @ $3.00 (-45.9%)
-stop loss on BA @ 59.45

Chart of BA:



Watch

Double Whammy

by James Brown

Click here to email James Brown

Editor's Note:

Please note that last week in my editors note I listed AXO as a possible short-term trade. I meant to type AZO. Right now AZO looks a little too extended after hitting another round of record highs. I wouldn't trade it now but it's worth putting on your watch list.


New Watch List Entries

MA - Mastercard Inc.


Active Watch List Candidates

BVN - Compania de Minas Buenaventura

CRM - Salesforce.com

GLD - SPDR Gold ETF


Dropped Watch List Entries

MET has been dropped.


New Watch List Candidates:

Mastercard Inc. - MA - close: 197.22 change: -14.59

Weakness in the financials combined with the sour consumer sentiment data and produced a double-whammy for MA. Shares collapsed for a 6.8% decline. I think Friday's move looks a little overdone. We don't want to chase it. However, the trend is down. Not only has MA produced a bearish double top with the January and April peaks but shares also saw the rally fail at its 50-dma in June. Now MA has produced a bearish head-and-shoulders pattern. A breakdown under the June low would be very bearish!

I am suggesting a trigger to open PUT LEAP positions at $192.40. If triggered we'll use a white stop loss at $212.25. Our first target is $161.00. FYI: MA is due to report earnings on August 3rd.

Company Info:
MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 22 billion transactions each year, and provides industry-leading analysis and consulting services to financial-institution customers and merchants. Powered by the MasterCard Worldwide Network and through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. (source: company press release or website)

Break Down trigger: $192.40

I prefer the 2012 PUT LEAPS but the 2011 PUTS should also work well.

Keep your positions small. MA can be a very volatile stock!

BUY the 2011 Jan $180 PUT LEAPS (MA1122M180)

- or -

BUY the 2012 Jan $160 PUT LEAPS (MA1221M160)

Chart of MA:


Active Watch List Candidates:

Compania de Minas Buenaventura - BVN - close: 38.32 change: -1.03

The rally in BVN stalled at resistance near the $40.00 level, which isn't that surprising. We have been expecting a correction. I don't see any changes from my prior comments. More aggressive traders may want to look for an entry point near $35.00. I think BVN might over correct so we're listing a trigger to open bullish positions at $32.00.

If triggered at $32.00 we'll use a stop loss at $29.49. Our first target is $42.25. Our second, more aggressive target is $47.50.

Buy-the-Dip trigger: $32.00

BUY the 2010 December $40 calls (BVN1018L40)

Chart of BVN:


Salesforce.com - CRM - close: 92.05 change: -3.94

Shares of CRM were upgraded on Wednesday but it was not enough to push the stock past resistance near its 2010 highs. The action on Friday looks like CRM could be forming a possible double top. Short-term I would expect a correction. Longer-term I'm still bullish on CRM. The stock is prone to bouts of volatility and I suspect if we're patient we may get an entry point near the 200-dma around the $75 area.

Right now our suggested trigger to buy call LEAPS is $76.00. If triggered we'll use a stop loss at $69.00. Our first long-term target is $97.00. Our second target is $119.00.

Buy-the-Dip trigger: $76.00

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

Chart of CRM:


SPDR Gold ETF - GLD - close: 116.67 change: -1.56

Normally a weaker dollar is bullish for commodities, including gold. Yet the recent plunge in the dollar has not had much affect on gold or the GLD. Instead gold and the GLD are facing some profit taking. It looks like the GLD may have just produced a bear-flag pattern. If that is true then this pattern is forecasting a correction toward the $112 area, which is perfect for us. I am suggesting a trigger to open bullish positions at $112.50. If triggered we'll use a stop loss at $107.40. Our target is $140.

Buy-the-Dip trigger: $112.50

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

- or -

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

Weekly Chart of GLD:


MetLife Inc. - MET - close: 37.80 change: -1.29

MET has been under performing. The stock produced a new lower high this past week. I am dropping it as a bullish candidate. The plan was to use a trigger at $43.25.

Our trade never opened.