Option Investor
Newsletter

Daily Newsletter, Saturday, 8/21/2010

Table of Contents

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

Leaps Trader Commentary

The Safety Dance

by James Brown

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Stocks are bouncing up and down and we continue to see investors do the safety dance out of stocks and into bonds (not to be confused with the one-hit wonder by "Men Without Hats").

Not much has changed in a week. Stocks continue to drift lower as investors worry about a slowing American economy. Traders were temporarily distracted by some merger news but overall late season corporate earnings failed to inspire and economic data continues to depress. The flight to safety continues with both U.S. and German bonds surging. The yield on the 10-year and 30-year German bonds hit 2.26% and 2.89%, respectively. The U.S. 10-year bond yield is at 2.61% and the 2-year hit an all-time low near 0.48%.

The big headlines in corporate news was M&A activity. Semiconductor giant Intel (INTC) offered to buy security software maker McAfee (MFE) for almost $8 billion. It's a move that many industry experts are skeptical of. BHP Billiton (BHP) made a $38 billion offer to buy Canada's Potash Corp. of Saskatchewan (POT) that has now turned hostile. It could be a good move for BHP since fertilizer demand is expected to grow for the next several years.

There are several issues that are putting investors on the defensive and likely to push stocks lower. First and foremost has been the near constant stream of negative economic data. Last week we got two more reasons to doubt the rebound with jobless claims rising and manufacturing starting to weaken. Economists were expecting initial jobless claims to rise on Thursday but they were not expecting a jump to 500,000. Not only is that a damaging psychological number but it's the third weekly rise in a row and doesn't bode well for the next jobs report in early September.

While the initial jobless claims data was bad the Philly Fed business activity survey was worse! The last few months have seen a parade of economic data showing the U.S. is slowing down but the manufacturing sector has been the sole standout and inspiring hope that we won't see a double dip. Unfortunately the Philly Fed numbers are suggesting the manufacturing sector is also starting to reverse. Economists were expecting a rise from 5.1 to 7.0 in the Philadelphia Federal Reserve manufacturing survey, with numbers above zero showing growth. Instead the July numbers reversed sharply falling to negative -7.7. Now one report doesn't make a trend but it certainly hurts investor confidence. We'll see more regional Fed surveys this week.

Another challenge is Greece and Europe's debt problem. I have been warning readers for weeks that the European debt crisis has not been solved and remains a problem. There have always been doubts on how Greece could repay the billions and billions of bailout funds as their economy quickly sinks into a depression. Now it seems the Greek economy is crumbling faster than expected with a tidal wave of bankruptcies and massive unemployment. Worry over Greece will quickly spread back to Spain, Italy, and Portugal. The sharp drop in the euro is a clear sign that confidence in Europe is quickly fading in spite of some better than expected GDP figures in the euro zone region.

Daily chart of the Euro ETF (FXE):

Daily chart of the U.S. Dollar ETF (UUP):

The U.S. is still facing an extremely fragile residential real estate market. I feel like I have been harping on this for over a year now so I'll keep this brief. Foreclosures are still at record highs (near one million in 2010) and they are expected to get a lot worse (+50% in 2011). It's all a vicious circle. Consumers are scared. They're saving more and spending less. Lower consumer spending means the economic rebound will be weak. Weak sales mean businesses will be cautious and slow to hire again or worse they'll reduce their headcount even more as they see the economy getting worse. High unemployment will exacerbate the foreclosure problem, dragging down home values, which scares consumers.

The only potential positive I see is the record low mortgage rates. This past week Freddie Mac (FRE) said the rate on a 30-year fixed mortgage hit a new all-time low of 4.42%. That's the lowest level since FRE started keeping track back in 1971. While everyone would love to refinance most homeowners can't qualify due to tighter, stricter lending requirements and negative home equity. However, there is a huge amount of adjustable rate mortgages that are due to reset this year and in 2011. With rates this low it's possible these mortgages could adjust lower or stay low, which would be a real boon for consumers and thus the economy.

I am also concerned about the upcoming election cycle. These elections will be nasty as several incumbents face an extremely tough fight. I realize I'm being cynical here but it seems like both sides will say anything to get elected. There will be plenty of talk about how bad the economy is and how they can fix it. All of the negative hype will have a bearish impact on consumer and investor sentiment. More and more Americans are raising their voices about the massive U.S. deficits, which will likely play a role in the election this year. Without a doubt it will be interesting to see what happens. Speaking of deficits about 90% of state governments are struggling with budget shortfalls. As they cut back on spending it will include a reduction in headcount, which only adds to the unemployment problem.

Next week we will see an increase in economic reports. A few of the highlights are the Chicago Federal Reserve business activity index on Monday. Tuesday we'll see the existing home sales figures. Wednesday will bring the Durable Goods number and New Home Sales report. Thursday is the weekly jobless claims and the Kansas Federal Reserve manufacturing survey. Friday will see the U.S. Q2 GDP revisions and the latest consumer sentiment figures. Expectations for the housing reports are falling. These could be market movers. Don't be surprised if home sales see a -5% decline, which would be really bad since summer is the height of the selling season. The biggest event is probably the next estimate on U.S. Q2 GDP. Do you remember the trade numbers from two weeks ago with the trade gap surging to $50 billion. That was a lot higher than expected and will force a downward revision in Q2 GDP. Analysts are estimating that the already disappointing +2.4% Q2 growth could get revised down to +1.5% or even +1.0%. This report could set the stage for a sharp sell-off into the Labor Day weekend.

Technically the market continues to look bearish. There are a few short-term indicators that are suggesting we might be a little oversold but any bounce is probably temporary. The S&P 500 failed twice at round-number resistance near 1100 last week. The low on Friday tagged the May 6th "flash crash" lows. I suspect we'll see the S&P 500 correct down toward the 1040 level in the next week or two and we might see the July lows near 1010 before September is out. If the S&P 500 breaks the July lows then things could get pretty ugly. The index has a bearish head-and-shoulders pattern that is forecasting a decline toward the 860 area. Personally I think the S&P 500 would see some significant support near 950.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

In summary I suspect that traders will continue to sell into rallies. Volume is going to remain very light until after the Labor Day weekend. Hopefully Wall Street's fund managers will come back from summer vacation with a positive attitude. Otherwise we could see them clean house and sell everything heading into the Q3 earnings season. I am crossing my fingers that the market will find a bottom in October and we'll be able to ride a year-end rally into Christmas. We should have a much better read on the double-dip recession risk by mid October but the market could remain volatile until after the early November elections.

~ James Brown


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

ISRG and OXY have made the jump from watch list to play list. Overall it was a relatively quiet week in spite of the market volatility. BIDU and RIG are offering new entry points but see play for details. Investors should stay defensive. The path of least resistance is still lower.

CRS has a new stop loss at $30.90.

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

On the Defensive

by James Brown

Click here to email James Brown

Editor's Note:

Investors remain on the defensive and money continues to move into the bond market for safety. This is not a healthy environment for launching new long-term bullish trades. Be patient and wait for the market correction to test significant support near 1040 or 1010 on the S&P 500. In the meantime check out some of the bearish candidates.

No new plays tonight.


Play Updates

The Play List Expands

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Baidu, Inc. (Baidu.com) - BIDU - close: 82.17 change: +0.98

BIDU only lost about 60 cents on the week. The pull back, thanks to market weakness, is giving us another entry point near support at $80.00. Yet I'm much more cautious now given the action in stocks. I would like to think the $80 level will hold as support but if the market continues to sink BIDU could easily dip to $77 or $75.00. Right now I am suggesting we stay defensive. Wait for a dip or a bounce near $75.00 as our next entry point.

Previous Comments:
BIDU is a very volatile stock. This is an aggressive, higher-risk trade. Keep your position size small to limit your risk. Our first long-term target is $99.50.

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 8.00
symbol: BIDU1122A90 2011 JAN $90 call - current bid/ask $6.95/7.10
-stop loss on BIDU @ 73.40

- or -

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - current bid/ask $12.10/12.35
-stop loss on BIDU @ 73.40

Chart of BIDU:


BorgWarner Inc. - BWA - close: 45.51 change: +0.25

BWA is still holding up pretty well. Shares managed a 20-cent gain for the week and support near $44 is still in play. News on BWA has been quiet. If the market continues to pull back I would expect BWA to test the $42.00 level. If you're looking for a new entry point wait for a new bounce near $42. We only have a very small position left.

Prior Comments:
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 $7.70/8.60
-stop loss on BWA @ 39.75

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: 53.89 change: -0.82

Oil stocks suffered the last few days as investors worried the slow down in the U.S. would affect demand for oil. Inventory numbers support the bears case right now with stock piles near multi-year highs. Thus far shares of COP have been testing the 38.2% Fibonacci retracement of their July-August rally but Friday saw a dip under the 50-dma and a dip toward the 50% retracement. Last week I warned readers that COP could dip toward the 200-dma near $52.50. I still believe that is a strong possibility. I am not suggesting new bullish positions at this time but a strong bounce near $52 might change that.

More conservative traders might want to raise their stop loss toward $51.50.

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 $3.20/3.30
-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 $4.00/4.15
-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: $33.26 change -0.57

Attention! I'm about ready to give up on our CRS play. The stock is underperforming its peers in the steel and metal industry. Shares have been unable to break the bearish trend of lower highs. We've seen CRS test support near $31.50 three times now. More conservative traders will want to seriously consider an early exit immediately. I am raising our stop loss to $30.90, which is still under the early July low ($31.20). I am not suggesting new bullish positions at this time.

FYI: This past week CRS declared a quarterly cash dividend of 18 cents a share, payable on September 3rd, 2010 to shareholders of record on August 31st.

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 $2.75/2.95
-stop loss on CRS @ 30.90 *(entry price is an estimate)

Chart of CRS:


EMC Corp. - EMC - close: 18.69 change: +0.14

Tech stocks continued to struggle. However, the Intel-McAfee deal has sparked new interest in the possibility of new mergers and acquisitions in the tech sector. Corporations are sitting on piles of cash. EMC could be a potential buyer but that is pure speculation. This past week saw EMC consolidate sideways above support near its rising 200-dma. More aggressive traders could initiate positions here but I would prefer to see some strength, like a close over $19.50 again.

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 $0.93/0.95
-stop loss on EMC @ 17.80

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $2.30/2.43
-stop loss on EMC @ 17.80

07/03/10 More Conservative Traders may want to exit early!

Chart of EMC:


SPDR Gold ETF - GLD - close: 119.97 change: -0.42

Gold and the GLD have done a pretty good job ignoring the rally in the U.S. dollar. Normally a rising dollar has a bearish impact on gold prices but not this week. The long-term and short-term trend for the GLD is still up but I am concerned the GLD is starting to look a bit overbought with a strong four-week bounce. We can look for short-term support near $118.00 or $116.00. If you're looking for a new bullish entry point wait for a dip or a bounce near $116.00.

Previous Comments
Currently our stop loss is at $111.00. Our first long-term target is $140.

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - current bid/ask $8.05/8.20
-stop loss on GLD @ 111.00

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $11.20/11.50
-stop loss on GLD @ 111.00

Weekly Chart of GLD:


Infosys Technologies - INFY - close: 59.57 change: -0.05

The Indian Bombay-Sensex index broke out to new two-year highs on Thursday this past week. Unfortunately shares of INFY are not seeing much benefit from its home-country strength. INFY is stuck in a trading range. You could argue it's in a neutral consolidation pattern. I am growing more concerned with the stock's performance. More conservative traders may want to cut back on their position size or raise their stop loss toward $56.00. I am not suggesting new positions at this time.

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/ 4.80
-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/ 7.50
-stop loss on INFY @ 54.90

Chart of INFY:


Intuitive Surgical - ISRG - close: 293.50 change: -13.00

ISRG was a new watch list candidate last weekend. The plan was to buy long-term puts if ISRG broke down and hit $299.00. Shares managed to lose more than $22 for the week and broke down under support near $300 on Friday. Our trigger was hit pretty early Friday morning. If you missed the entry point I would still consider new positions now or wait for a bounce back toward the $300 level, which should now act as new resistance.

This past week ISRG was in the news after Cardica Inc. reported its earnings and revealed a licensing deal with ISRG. The deal, worth $12 million to Cardica, gives ISRG 1.25 million shares of stock in the company and a worldwide exclusive license for Cardica's intellectual property for designs on tissue cutting, stapling, etc. It's not a big deal for ISRG, which has revenues of $1.28 billion and nearly a billion in cash.

What is a big deal was the breakdown in ISRG. Volume was more than twice the norm as shares broke down on Friday. I want to remind readers that ISRG is a volatile stock. We're starting this play with a stop loss at $321. Our first target is $250 (although we might exit early near $260). Keep your positions small.

I'm suggesting an option significantly out of the money. This is probably going to be a real black or white win/lose situation.

This is a PUT play.

Aug 20, 2010 - entry price on ISRG @ 299.00, option @ 14.00
symbol: ISRG 11m250 2011 Jan $250 PUT - current bid/ask $13.90/14.80
-stop loss on ISRG @ 321.00

Chart of ISRG:


McDonald's Corp. - MCD - close: 73.08 change: +0.11

It was a pretty good week for MCD considering the action in the market. Shares of MCD hit a new all-time high and claimed a "first" in China. The company made headlines on Thursday. Quoting the Wall Street Journal, "McDonald's became the first nonfinancial foreign company to launch a yuan-denominated bond in Hong Kong." MCD raised about 200 million yuan (equal to $29.5 million) in three-year bonds that pay 3% interest. MCD, which already has more than 1,100 stores in China, said they will use the money to fuel their expansion with plans to open more than 150 more locations in the next 12 months. You're probably thinking $29 million isn't a big deal for MCD but it could pave the way for more U.S. companies to raise money with debt auctions in the local Chinese currency.

FYI: The 2011 Jan $70 calls have doubled. Readers may want to take some money off the table.

Prior Comments:
Keep your positions small. Our long-term target is $79.75. FYI: The Point & Figure chart forecasting an $82 (long-term) target.

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.65
symbol: MCD 11A70.00 2011 Jan $70 call - current bid/ask $5.20/ 5.30
-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 $3.45/ 3.60
-stop loss on MCD @ 64.75

07/17/10 Take Profits! 2011 Jan $70 call @ 4.00 (+51%), 2012 $80 call @ 3.50 (+59%)

Chart of MCD:


Millicom Intl. - MICC - close: 92.07 change: -0.51

After a painful decline two weeks ago MICC managed a decent bounce but the rebound is stalling. The bearish reversal pattern created two weeks ago has not been canceled out yet. While I'm still long-term bullish on MICC if the wider market continues to sink we can expect a correction toward $85 or possibly the simple 200-dma. I am not suggesting new bullish positions at this time.

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 $ 9.30/10.10
-stop loss on MICC @ 79.90

Chart of MICC:


NetApp, Inc. - NTAP - close: 40.53 change: -0.17

It was a good week for bulls in NTAP. The stock rebounded from its rising 100-dma and the company delivered a decent earnings report. NTAP reported on Aug. 18th and beat estimates by 3 cents with a profit of 49 cents a share. Revenues just edged past estimates at $1.14 billion. The results garnered at least one new price target ($44) from analysts.

Technically the bounce is struggling near NTAP's 30 and 50-dma plus the stock has potential resistance near $42. Given the market's recent weakness I would stay cautious when it comes to new entries. We might see another entry point near $38 or even the $36 area. On a positive note the Intel-McAfee deal has increased speculation for more M&A in the tech sector.

Previous Comments:
We are using a stop loss at $34.75. Our long-term target is $49.00.

Aug 12, 2010 - entry price on NTAP @ 37.50, option @ 3.00
symbol: NTAP1122A40 2011 Jan $40 call - current bid/ask $ 4.35/ 4.45
-stop loss on NTAP @ 34.75

- or -

Aug 12, 2010 - entry price on NTAP @ 37.50, option @ 4.00
symbol: NTAP1221A45 2012 Jan $45 call - current bid/ask $ 5.25/ 5.45
-stop loss on NTAP @ 34.75

Chart of NTAP:


Occidental Petroleum - OXY - close: 75.06 change: -0.33

OXY continues to sink but I'm a bit disappointed with the action this week. OXY was on our watch list with a plan to buy puts if shares hit $74.00. The stock dipped to $73.90 on Monday and quickly rebounded. While the bounce failed and OXY struggles with a trend of lower highs I'm surprised the stock hasn't seen more weakness, especially given the weakness in oil. After months and months of bouncing near the $75-74 zone a breakdown under $74 should be very bearish.

Our play is open but I am suggesting readers look for a move to $73.50 before launching new bearish positions. We have a stop loss at $80.25. Our first target is $65.50. Our second target is $60.25. I prefer the 2012 puts over the 2011 puts but both should work.

- This is a PUT Play -

Aug 16, 2010 - entry price on OXY @ 74.00, option @ 2.17
symbol: OXY1122M60 2011 Jan $60 put - current bid/ask $ 2.09/ 2.17
-stop loss on OXY @ 80.25

- or -

Aug 16, 2010 - entry price on OXY @ 74.00, option @ 6.58
symbol: OXY1221M60 2012 Jan $60 put - current bid/ask $ 6.35/ 6.55
-stop loss on OXY @ 80.25

Chart of OXY:


PEPSICO Inc. - PEP - close: 64.80 change: +0.14

Shares of PEP only lost 11 cents for the week but the stock is slowly rolling over. We can probably expect a pull back toward $63-62 again. More conservative traders may want to exit early. We're not suggesting new positions at this time.

Previous Comments:
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 $6.10/6.20
-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: 51.00 change: -1.31

RIG gave up about $3 for the week but the pull back toward $50.00 looks like another entry point for us. Shares have been volatile as investors fret over the slowing U.S. economy and what that means for oil demand. The weakness in oil may not be over so patient investors might want to wait and see if we get an even better entry point to buy calls on RIG near $47-45. More conservative traders may want to raise their stop loss toward the July low of $44.30.

Previous Comments:
This is a very aggressive trade given the unknown risks associated with RIG's connection to the Gulf oil spill. 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 $ 6.80/ 6.95
-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 $ 7.20/ 7.45
-stop loss on RIG @ 41.80

Chart of RIG:



Watch

Credit Cards & Media

by James Brown

Click here to email James Brown

Editor's Note:

Another stock catching my eye is HANS. I think it's too early to add it to the watch list but keep an eye on it. Look for a dip toward $42.00 as a possible bullish entry point.


New Watch List Entries

V - Visa Inc.

VMED - Virgin Media


Active Watch List Candidates

BUCY - Bucyrus Intl.

BVN - Compania de Minas Buenaventura

CHRW - CH Robinson Worldwide

MA - Mastercard Inc.

SBUX - Starbucks Corp.

TASR - TASER Intl

WLT - Walter Energy


Dropped Watch List Entries

ISRG and OXY jumped to the play list. MA has been dropped.


New Watch List Candidates:

Visa Inc. - V - close: $70.10 change: -1.53

We have dropped MA as a watch list candidate and replaced it with Visa (V). Both stocks have been struggling lately but Visa looks weaker right now. Long-term I think the fundamentals are strong for both companies as we move farther and farther away from using cash and checks and more towards plastic (credit and debit cards). Unfortunately the slowdown in the U.S. economy might be taking its toll on these two companies. Shares of Visa look ready to breakdown from a four-month consolidation.

Aggressive traders may want to buy puts on a drop under $70.00. I'm concerned the May low of $68.29 might be support so I am suggesting a trigger to buy puts at $67.75. If triggered our immediate target is $60.25. Once triggered I don't expect this trade to last more than a few weeks. We'll use a stop loss at $70.55.

Company Info:
Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable digital currency. Underpinning digital currency is one of the world’s most advanced processing networks—VisaNet—that is capable of handling more than 10,000 transactions a second, with fraud protection for consumers and guaranteed payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, ahead of time with prepaid or later with credit products. (source: company press release or website)

- This is a PUT play -

Break down trigger: $68.00

BUY the 2011 Jan $60 puts (V1122M60) current ask $2.86

Chart of V:


Virgin Media - VMED - close: 20.50 change: +0.03

VMED has been consistently missing its earnings estimates for the last few quarters and yet investors don't seem to care. The stock is less than two points away from a two-year high. The breakout past $18.00 back in July was significant. I am suggesting we take advantage of future weakness to buy the dip. I'm listing a trigger to buy calls at $18.00, which should see additional support with the rising 200-dma. If triggered we'll start the play with a stop loss at $16.40. Our first target is $22.00. Our second, longer-term target is $24.75. I prefer the 2012 LEAPS over the 2011s. FYI: The Point & Figure chart is forecasting a long-term target of $36.

Company Info:
With almost 10 million customers, Virgin Media is the UK's first quad-play provider of broadband, TV, phone and mobile. The company is one of the largest residential broadband providers in the UK, using a unique fibre optic cable network to deliver next generation ultrafast internet access of up to 50Mb to just over half of all homes. Combined with a high speed ADSL service and mobile broadband products, Virgin Media is able to offer broadband internet access to virtually the entire country. Virgin Media has the UK’s most advanced TV on demand service and was the first TV platform to carry BBC iPlayer. It is the second largest provider of pay TV, was the first to launch a high definition TV service and offers a high-specification, HD-ready V+ personal video recorder. The company operates the most popular virtual mobile network in the UK which, when launched, was the world’s first such mobile phone service. It is also one of the largest fixed-line home phone providers in the country. Virgin Media is also a 50 per cent joint partner with BBC Worldwide in UKTV, which consists of ten channels including Dave, G.O.L.D., Watch and Alibi. (source: company press release or website)

Buy-the-Dip trigger: $18.00

BUY the 2011 Jan $20.00 call (VMED1122A20)

- or

BUY the 2012 Jan $20.00 call (VMED1221A20)

Chart of VMED:


Active Watch List Candidates:

Bucyrus Intl. - BUCY - close: 60.20 change: +0.11

We are still waiting for a correction in BUCY. Currently our plan is to buy calls on a dip at $51.50 but we might jump in early if we see BUCY bounce near $54.00. As of now, if we are triggered at $51.50 (in the next few weeks), we'll use a stop loss at $47.00. FYI: I prefer the 2012 call LEAPS but the 2011s should work.

Buy-the-Dip trigger: $51.50

BUY the 2011 Jan $60 calls (BUCY1122A60) *adjusted*

- or -

BUY the 2012 Jan $70 calls (BUCY1221A70)

Chart of BUCY:


Compania de Minas Buenaventura - BVN - close: 37.93 change: +0.03

BVN is another mining-related stock that has been holding up pretty well. Shares could be building another bull flag pattern. I am adjusting our entry point again. This time we want to launch bullish positions if BVN dips to $34.00. We'll use a stop loss at $31.40. Our first target is $42.25. Our second, more aggressive target is $47.50.

Buy-the-Dip trigger: $34.00

BUY the 2011 March $35 calls (BVN1119C35)

Chart of BVN:


CH Robinson Worldwide Inc. - CHRW - close: 66.16 change: +0.97

CHRW continues to show relative strength but I'm still betting on a correction before it breaks out to new highs. I am suggesting we buy call LEAPS if CHRW dips to $62.00. More conservative traders may want to hold off and wait for a dip closer to $60.00. If triggered we will use a stop loss at $57.75. Our first long-term target is $67.50. Our second, long-term target is $72.50.

Buy-the-Dip trigger: $62.00

NOTE: I prefer the 2012 calls!

BUY the 2011 January $65.00 calls (CHRW1122A65)

- or -

BUY the 2012 January $70.00 calls (CHRW1221A70)

Chart of CHRW:


Mastercard Inc. - MA - close: 206.34 change: - 2.52

I am temporarily giving up on MA as a bearish watch list candidate. I would still keep it on your personal watch list but in the mean time traders will want to checkout rival Visa (V), which looks ready to breakdown.


Starbucks Corp. - SBUX - close: 24.05 change: +0.01

I don't see any change from my prior comments on SBUX. The stock looks ready to breakdown. You can almost see a bearish head-and-shoulders pattern, which would forecast a drop towards $20. Currently I am suggesting a trigger to open bearish positions at $23.30 (just under the July low of $23.47). If triggered our first target is $20.15. Our second target is $18.25.

FYI: In the news last week SBUX announced it has bought out its Brazilian partner giving SBUX full ownership of its 23 stores in Brazil. Meanwhile on Friday a couple of articles surfaced suggesting that Via's strong surge in sales (SBUX's new instant coffee brand) could be in doubt. Rumor has it that SBUX employees gave customers free drinks for buying Via or that different products were rung up as Via sales.

- This is a PUT Play -

Break Down trigger: $23.30

BUY the 2011 Jan $20 put (SBUX1122M20)

- or -

BUY the 2012 Jan $20 put (SBUX1221M20)

Chart of SBUX:


TASER Intl. - TASR - close: 3.86 change: +0.04

TASR is still drifting lower. I don't see any changes from my prior comments. Currently the plan is to buy the stock at $4.25. However, we might alter our entry point if we see TASR bounce from the $3.60 level.

This is an aggressive trade and TASR can see big bouts of volatility. If triggered at $4.25 we'll use a stop loss at $3.79. There is some resistance near $5.00 but our first long-term target is $6.00. (Buy the stock, not the options!)

Breakout trigger: $4.25

BUY the stock (TASR) @ 4.25

Chart of TASR:


Walter Energy - WLT - close: 74.24 change: -3.12

Once again shares of WLT have rallied to the $80 level and stalled. Shares hit $79.71 on Thursday. I am suggesting we wait for a breakout over resistance with a trigger to buy calls at $81.00. If we are triggered at $81 we'll use a stop loss at $74.00. Our target is $99.00.

Keep in mind that WLT is a very volatile stock. We need to keep our position size small to limit our risk.

Breakout trigger: $81.00

BUY the 2011 Jan $90 calls (WLT1122A90)

- or -

BUY the 2012 Jan $100 calls (WLT1221A100)

Chart of WLT: