Option Investor
Newsletter

Daily Newsletter, Saturday, 9/18/2010

Table of Contents

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

Leaps Trader Commentary

Market Melt Up Continues

by James Brown

Click here to email James Brown

The unexpected September market rally continues. Stocks are slowly melting higher on low volume and without much conviction but that hasn't stopped the S&P 500 index from gaining more than 7% in September. Investors waded through a mix of positive and negative headlines last week with the PPI, CPI, Consumer Sentiment, jobless claims, foreclosure numbers, and plenty of corporate news. Meanwhile the dollar surged lower, helping gold prices spike to new highs near $1,280 an ounce.

Prices are on the rise with both the PPI and CPI posting gains last week. The +0.4% jump in the wholesale Producer Price Index was higher than the +0.3% estimate and twice that of July's +0.2%. The increase helped relieve fears of deflation in the U.S. but the core-PPI, excluding volatile energy and food costs, was unchanged at +0.1%. On Friday the Consumer Price Index, a much broader gauge of inflation, rose +0.3% driven by big gains in food (+1.2%) and energy (+3.8%). Yet the core-CPI reading came in at +0.0%.

The Federal Reserve Bank of Philadelphia's general economic index was a disappointment. Economists were hoping to see this gauge of business activity rise from -7.7 in August to +2.0 in September. It did show improvement but September's reading came in at -0.7. Readings under 0.0 indicate contraction for the Delaware, southern New Jersey, and eastern Pennsylvania region.

Jobless claims on Thursday showed improvement. Economists were expecting a rise from 453K a week ago to 460K. The Labor Department said initial weekly jobless claims fell to 450,000, a new two-month low. The trend has been improving since initial claims peaked at 504K on August 13th. The four-week moving average fell from 478K to 465K. Sadly anything over 400K is still way too high. It's going to take years before employment gets back to normal.

RealtyTrac Inc. issued some dour numbers last week. The firm said August was the worst month on record for foreclosures with banks repossessing over 95,000 homes. Thus far 2010 has been an ugly year with three of the last five months hitting new all-time highs for foreclosures. Currently one out of every 381 households in the U.S. has received a foreclosure filing.

The combination of high unemployment, rising foreclosures, falling home values is having an impact on consumer sentiment. Friday saw the release of the preliminary September consumer sentiment figures. Economists were hoping for an increase what we got was a drop from 68.9 to 66.6, the lowest reading in a year. The expectation component fell from 62.9 to 59.1 suggesting consumers are growing more worried about the future. The reporting period for this data also covered part of the sharp market sell-off in August so it's not too surprising to see sentiment slipping. Bearish consumer attitudes did not seem to have much affect on their spending. The most recent retail sales figures were better than expected and many stores said it was one of the better back-to-school seasons they've seen in a while.

Stocks were also reacting to some high-profile corporate earnings. FedEx (FDX) made headlines on Thursday morning when the company missed earnings estimates by a penny with a profit of $1.20 a share. Revenues were up +18% to $9.46 billion, which was better than expected. Unfortunately traders were focused on the negative. FDX announced plans to close 100 trucking terminals and layoff 1,700 workers after the busy holiday shipping season. Management also guided earnings lower for the next quarter. FDX CFO Mr. Graf said, "We expect continued strong demand for our package transportation services through at least December". Yet CEO Mr. Smith commented on the conference call that, "We expect a phase of somewhat slower economic growth going forward." FDX is seen as a bellwether for the economy so the news is definitely bearish.

On a much more positive note the tech sector continues to outperform. There is an M&A fever for tech stocks, especially in the software industry. Investors are still focused on the tech sector for growth. Meanwhile earnings from a couple of tech titans were better than expected. Thursday night both Oracle (ORCL) and Research In Motion (RIMM) both reported. ORCL had an exceptional quarter with earnings of 42 cents a share on revenues of $7.59 billion. Wall Street was expecting 37 cents on $7.27 billion. Shares of ORCL soared to new 10-year highs on the news.

Smartphone giant RIMM reported better than expected results and strong subscriber growth. Yet shares failed to hold their gains. The stock spiked to a new two-week high and immediately reversed as traders sold into strength. Investors are very worried that RIMM is losing market share to growing competition from AAPL's iPhone and GOOG's rising brand of Android smartphones.

The stock market's upward momentum has been slowing and the S&P 500 had risen near resistance at the 1130 area. It looked like the strong earnings from ORCL and RIMM on Thursday night might be enough to push the market higher and spark a bullish breakout. The S&P 500 did rally to 1131 on Friday morning but quickly reversed and closed with a fractional gain. Technically the market looks tired. The S&P 500 is up over 8% from its late August lows near 1040 and the 1130 area has been tough resistance for months. Without a clear catalyst to drive stocks higher the market is probably poised for profit taking. Of course things could change if President Obama says something unexpected on Monday or the Federal Reserve surprises the market on Tuesday.

On a short-term basis I would look for the S&P 500 to correct toward the 1100 level. If the 1100 area fails then look for a dip to 1080. If we actually see the S&P 500 breakout higher and close over 1135 then the outlook improves significantly. I would still expect some sort of consolidation but a breakout past resistance near 1130 would forecast a move toward 1240 by year end at the very least a rally toward the 2010 highs.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The action in the NASDAQ looks very similar. The sharp rally from its late August lows has fueled a +10% gain and the close over the 200-dma is technically bullish. Yet the NASDAQ is now overbought and due for a correction. Odds favor a pull back toward the 2250 area. I wouldn't want to chase this move. Longer-term, if the up trend continues, we are looking at a target near the 52-week highs around 2500 for the NASDAQ.

Chart of the NASDAQ index:

The small cap Russell 2000 index is slowly stair-stepping higher. The recent trend has been for a big one-day pop higher and then four or five days of consolidating sideways. Currently the $RUT is consolidating near resistance at 650 and its 100 and 200-dma. The lows in July and August look like a bullish double bottom. However, the $RUT has yet to break through the bearish trend of lower highs. While the S&P 500 and NASDAQ are challenging their August resistance the $RUT is failed to trade that high. If stocks consolidating we can expect the $RUT to dip back toward 630. If the rally continues then look for resistance near 670.

Daily chart of the Russell 2000 index:

The week ahead could have some landmines. President Obama will be speaking at a "town meeting" on CNBC this Monday. Lately the trend has been for stocks to decline when the President speaks but with the midterm elections in the near future there is no telling what he might say. The big event for the week is the FOMC meeting on Tuesday. No one expects a change in rates so the focus will be on the statement. There is plenty of speculation about further quantitative easing, which would drive the dollar lower (and gold likely higher), but some are suggesting we won't see any QE out of the Fed until after the elections in six weeks. Later in the week we'll get the initial jobless claims. Analysts are looking for a repeat of last week with 450,000 new claims. Throughout the week there will be a handful of real estate data and home sales figures.

I am hearing more and more analysts sharing their opinion for a strong fourth-quarter rally. The real question is what happens over the next six weeks? Does the market roll over and languish ahead of the elections? Or, as some contrarians are suggesting, will the market breakout through resistance now since no one expects it? Personally, I would hesitate to chase anything. Be patient and wait for a correction.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

PNRA hit our exit target at $88.00 last week. Meanwhile the rally in NTAP is getting ridiculous so we're taking an early exit in that stock as well. GLD looks over-extended and due for a pull back. Actually a number of candidates look ready for a pull back. We could see a new entry point in the next two to four weeks.

New stop losses for BUCY @ $57.40 and INFY @ 56.75.

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

Don't Chase It!

by James Brown

Click here to email James Brown

Editor's Note:

Unfortunately not much has changed since last week. Stocks are still overbought only instead of the S&P 500 up +6% in September we're up +7%. If you look to the August lows the S&P 500 is up +8% in about three weeks. We really don't want to chase stocks here. The S&P 500 is facing heavy resistance near 1130. Meanwhile the small cap Russell 2000 is still under performing. Plus the financials, which have seen a significant bounce, are still trading with a bearish trend of lower highs and lower lows.

I am optimistic about the four quarter. We are looking for a bullish entry point somewhere in the next six weeks. Odds are we won't see the entry point until we get to October. We did have two stocks make the jump from watch list to play list last week and I've added two more bullish candidates but we're still looking for a correction first.


Play Updates

Too Fast Too Soon

by James Brown

Click here to email James Brown


Closed Plays


NTAP and PNRA were closed.


Play Updates


Baidu, Inc. (Baidu.com) - BIDU - close: 85.73 change: -0.36

Shares of BIDU continue to struggle under their August highs. Momentum is definitely stalling. The action on Tuesday and Friday certainly looks like a short-term bearish reversal. We can expect a correction back toward the $80 region. I am not suggesting new bullish positions at this time but nimble traders could wait for a bounce from $80. FYI: Recently there have been some rumors that BIDU might try and acquire Sohu.com, China's leading online brand and Internet portal.

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 $6.85/7.00
-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:


Bucyrus Intl. - BUCY - close: 70.37 change: +1.25

Wow! The rally in BUCY continues. I have to warn you that shares will likely see a correction soon. The stock has rallied from $53 to over $70 (+32%) in less than a month. This pace is unsustainable and BUCY is nearing potential resistance at its 2010 highs (near $72.50). I am suggesting we go ahead and take some profits on the 2011 Jan $60 calls. We'll sell half our position now. I'm also raising the stop loss to $57.40. We should expect a significant correction. I would look for a dip back toward $66-64. We will add a secondary, long-term target (especially for the 2012 calls) of $87.50.

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - current bid/ask $13.85/14.10
-stop loss on BUCY @ 57.40

- or -

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 13.00
symbol: BUCY1221A70 2012 JAN $70 call - current bid/ask $16.15/16.45
-stop loss on BUCY @ 57.40

09/18/10 Take Profits. We want to sell half of our 2011 Jan $60 calls.
BUCY is at $70.37. The calls are bid $13.85 (+62.9%) 09/18/10 New stop loss at $57.40

Chart of BUCY:


ConocoPhillips - COP - close: 55.27 change: -0.09

I am surprised that crude oil did not see a bigger rally last week considering the sell-off in the U.S. dollar but there are still concerns over demand for energy as the U.S. economy creeps along. Shares of COP did not make any progress. Odds are growing we will see COP correct back toward the $53-52 zone. I am tempted to raise the stop closer toward the $50 level. I'm not suggesting new bullish positions at this time.

Prior Comments:
Our first target is $69.00. FYI: The Point & Figure chart is suggesting a long-term $79 target. We are using a stop loss at $47.99.

May 20, 2010 - entry price on COP @ 51.00, option @ 3.75
symbol: COP 11A55.00 2011 JAN $55 call - current bid/ask $3.10/3.20
-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 $4.05/4.25
-stop loss on COP @ 47.99

09/04/10 COP gave us a new entry with the move over $54.00
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:


EMC Corp. - EMC - close: 20.57 change: +0.01

Warning! While EMC managed another gain for the week I think shares are quickly running out of steam. The stock is struggling under its 2010 highs and after a big rally from $18 in late August the stock is still overbought. Readers should expect a correction toward the $19.50-19.00 zone. I'm not suggesting new positions at this time.

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 $1.68/1.71
-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 $3.00/3.15
-stop loss on EMC @ 17.80

09/04/10 EMC has provided a new entry point with the move over $19
07/03/10 More Conservative Traders may want to exit early!

Chart of EMC:


SPDR Gold ETF - GLD - close: 124.54 change: -0.09

The bull market in gold continues and it was a strong week for the precious metal. Gold futures broke out to new highs closing in on the $1,280 an ounce level. Thus far gold futures are up +16% this year and gold is working on its 10th straight year of gains, making it the longest bull market in gold since 1920. It seems like everyone has an opinion on gold. The long-term trend is up but short-term I'm concerned that gold and specifically the GLD ETF is overbought. The GLD is up six out of the last seven weeks. While the breakout to a new all-time high (for the GLD) is bullish it looks due for some profit taking. My bias is still bullish but I am not suggesting new positions at this time.

Previous Comments
Currently our stop loss is at $112.90. 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 $9.85/10.05
-stop loss on GLD @ 112.90

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $12.65/12.95
-stop loss on GLD @ 112.90

Weekly Chart of GLD:


Humana Inc. - HUM - close: 50.37 change: -1.07

HUM has made the jump from our watch list to our play list. Shares rallied to a new multi-year high on Monday only to reverse course. Shares spent the rest of the week in profit taking mode. The selling accelerated on Friday and HUM hit our trigger to buy calls at $50.50 on Friday afternoon. The stock has spent the last several months building a base in the $43-52 zone and a breakout higher should herald the beginning of another long-term up trend. More conservative traders may want to wait for a bounce first before initiating positions. Technically this past week has created a bearish engulfing (reversal) pattern but these patterns need to be confirmed first. Now that the play is open our first long-term target is $59.50. We'll start with a stop loss at $44.90. I'm listing the 2011 January calls but I prefer the 2012 Jan. calls. FYI: The point-and-figure chart is forecasting a long-term target of $66.00.

Sep 17, 2010 - entry price on HUM @ 50.50, option @ 1.85
symbol: HUM1122A55 2011 Jan $55 call - current bid/ask $1.70/ 1.85
-stop loss on HUM @ 44.90

- or -

Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $6.00/ 6.40
-stop loss on HUM @ 44.90

Chart of HUM:


Infosys Technologies - INFY - close: 65.07 change: +0.16

Shares of INFY continue to post gains. The stock vaulted to new 10-year highs this past week thanks in part to a big rally back home in the Indian market. The close over resistance at $64.00 is certainly bullish but INFY is very short-term overbought. We should expect a correction. I would look for a pull back toward the $62 area. Wait for the dip before considering new bullish positions. I am adjusting our stop loss to $56.75. FYI: The P&F chart is now forecasting a long-term target of $82.

Previous Comments:
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 $6.70/ 7.60
-stop loss on INFY @ 56.75

- or -

July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $8.00/ 9.40
-stop loss on INFY @ 56.75

Chart of INFY:


Intuitive Surgical - ISRG - close: 295.77 change: + 3.52

Bingo! We have been expecting an oversold bounce back to the $300 level and finally got it this week. Shares of ISRG garnered an "over weight" analyst recommendation Friday morning and that helped shares spike to $301.42 but ISRG was unable to maintain its gains. The move on Friday looks like a potential failed rally/bearish reversal at resistance (near $300) but readers may want to wait for a little confirmation first before launching new bearish positions.

Previous Comments:
When we started this play I suggested options significantly out of the money. This was probably going to be a real black or white win/lose situation. However, we did take profits early on 8/28/10 given the sharp sell-off but our long-term target is $250.00. The plan was to use small positions to limit our risk. We have a stop loss at $311.00.

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 $10.30/11.20
-stop loss on ISRG @ 311.00

08/28/10 Take Profits, sell half @ $18.30 (+30.7%)

Chart of ISRG:


McDonald's Corp. - MCD - close: 74.32 change: -0.48

After several weeks of gains it looks like MCD is finally running out of steam. The stock lost less than a dollar this past week but momentum is beginning to rollover. I am expecting MCD to retest the $72 level and potentially the $70 region before bouncing again. This could take a couple of weeks. No new positions at this time. More conservative traders may want to exit completely from the 2011 Jan. calls.

Prior Comments:
Keep your positions small. Our long-term target is $79.75. FYI: The Point & Figure chart forecasting an $99 (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 $6.25/ 6.40
-stop loss on MCD @ 66.75

- or -

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $3.65/ 3.75
-stop loss on MCD @ 66.75

08/28/10 New stop @ 66.75
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: 98.51 change: -0.54

If you haven't done so yet take profits in MICC. Shares have spent a week and a half consolidating sideways in the $97-99.50 zone. While you could argue MICC has maintained its bullish trend of higher lows I am still worried that shares are a little overbought and struggling under round-number resistance at $100. I am expecting a correction back toward $95 and potentially back toward the $92.50-90 zone. We have already taken profits once near $99. Our secondary, long-term target is $109.00 but we're not suggesting new bullish positions at this time. FYI: The P&F chart is bullish and forecasting a $119 target.

Previous Comments:
Keep your positions small to limit your risk. MICC is (normally) a volatile stock. Our second, long-term target is the $109.00 levels. Our stop loss is at $86.40.

May 6, 2010 - entry price on MICC @ 80.00, option @ 8.60
symbol: MICC 11A90.00 2011 Jan $90 call - current bid/ask $12.20/13.20
-stop loss on MICC @ 86.40

09/04/10 Take Profits Early, MICC @ 98.79, option @ $12.90 (+50%)
plus new stop at $86.40

Chart of MICC:


NVIDIA Corp. - NVDA - close: 10.55 change: -0.02

NVDA has made the leap from watch list candidate to play list. The stock saw a very big move last Monday with a rally from $10.10 to $10.77. We had a trigger to buy calls at $10.75. While the action in NVDA the past couple of weeks has been bullish I'm a little bit concerned with the major market indices stuck under resistance. I suspect that odds are very high we will see NVDA retest the $10.00 level. I'm suggesting readers wait for another dip or even a bounce from $10.00 before launching positions here. We are starting the play with a stop loss at $9.45.

Previous Comments:
This remains an aggressive, higher-risk trade. NVDA has been struggling and sales growth has been slowing down but we are betting the worse has already been priced in for this stock. Keep your positions very small to limit our risk. Our first target is $12.50. Our second, longer-term target is $14.00.

Sep 13, 2010 - entry price on NVDA @ 10.75, option @ 1.58
symbol: NVDA1122A10 2011 Jan $10 call - current bid/ask $1.39/ 1.42
-stop loss on NVDA @ 9.45

- or -

Sep 13, 2010 - entry price on NVDA @ 10.75, option @ 1.69
symbol: NVDA1221A12.5 2012 Jan $12.50 call - current bid/ask $1.55/ 1.62
-stop loss on NVDA @ 9.45

09/13/10 Play Triggered @ $10.75

Chart of NVDA:


Occidental Petroleum - OXY - close: 76.20 change: -0.25

OXY has been giving us a little bit of a scare the last couple of weeks but shares finally rolled over under resistance. On the weekly chart OXY has created a bearish engulfing (reversal) candlestick pattern but this needs to be confirmed. A new close under $75.00 or $74.00 could be seen as a new entry point for bearish positions.

Previous Comments:
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 $ 1.28/ 1.32
-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 $ 5.45/ 5.65
-stop loss on OXY @ 80.25

Chart of OXY:


PEPSICO Inc. - PEP - close: 66.12 change: -0.49

Hmmm... PEP is another stock that appears to be running out of gas although shares weren't moving that fast to begin with. The stock just produced a bearish reversal pattern on Friday near $67 resistance. I would expect a correction back toward the $64 area or the 200-dma. I'm not suggesting new positions at this time. FYI: PEP is due to report earnings on Oct. 7th.

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 $6.95/7.05
-stop loss on PEP at $59.85

09/04/10 may want to consider new positions with 2012 calls
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: 60.16 change: +0.30

RIG has been struggling with resistance near $60.00 this past week but the stock did manage another weekly gain. The stock even managed to close over the $60.00 mark for the first time in months. While I remain very bullish on RIG I am not suggesting new positions at this time. Look for a correction back toward $55.00 before considering new positions. We have already taken profits once at $59.00. Our secondary, longer-term target is $75.00. I suspect we will end up selling the 2011 calls before RIG hits $75.00.

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.

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 6.50
symbol: RIG 11A50.00 2011 Jan $50 call - current bid/ask $12.35/12.50
-stop loss on RIG @ 47.45

- or -

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $11.15/11.45
-stop loss on RIG @ 47.45

09/10/10 Target Hit @ 59.00, 2011 Jan $50 call @ $11.45 (+76.1%), the 2012 Jan $60 call @ $10.35 (+42.7%)

Chart of RIG:


TASER Intl. - TASR - close: 3.88 change: -0.02

It was another quiet week for news on TASR (there was none). Shares have been consolidating sideways under resistance near $4.00. Friday was somewhat significant with traders buying the dip near $3.80 since $3.80 was prior resistance and should be new support. This remains an aggressive trade. We want to keep our positions small. I would be tempted to buy TASR on dips near $3.80 or a close over $4.06 (but adjust your stop loss).

Previous Comments:
Our stop loss is at $3.45. Our long-term target is $4.90.

STRATEGY: Buy TASR stock (entry $3.69), stop loss $3.45

08/30/10 TASR opens Monday at $3.69 (entry point)
08/28/10 TASR listed as a new play

Chart of TASR:


CLOSED Plays

NetApp, Inc. - NTAP - close: 49.04 change: +0.36

Take the money and run! Shares of NTAP have continued to rally but I'm worried the stock has gone too far too fast. A move from $38 to $49 in the last five weeks is extreme. I am suggesting we exit our remaining position (2012 calls).

Shares of NTAP are on fire because traders believe the next major acquisition will be in technology and NTAP is a likely target. By selling now we are giving up the opportunity should someone bid more than $50 for the company. More aggressive traders may want to consider leaving a position open. I'm suggesting we exit now and pocket the gains.

Aug 12, 2010 - entry price on NTAP @ 37.50, option @ 4.00
symbol: NTAP1221A45 2012 Jan $45 call - sell it! bid @ 10.15
-stop loss on NTAP @ 34.75

09/18/10 Exit Now! NTAP @ 49.04, 2012 Jan $45 call @ 10.15 (+153.7%)
09/11/10 Sell the rest of the 2011 calls, NTAP @ 46.33, call @ 8.30 (+176%)
09/04/10 Take Profits Early, NTAP @ 44.05, 2011 $40 call @ 6.45 (+115%)
The 2012 $45 call @ $7.05 (+76%)

Chart of NTAP:


Panera Bread - PNRA - close: 86.76 change: +0.14

It's game over for our short-term PNRA call trade. The stock was nice enough to spike to $88.72 on Sept. 14th. Our final target to exit was $88.00. Shares appear to be rolling over or at least losing momentum under resistance near the 2010 highs. I would expect a correction very soon.

Aug 30th, 2010 - entry price on PNRA @ 80.75, option @ $4.20
symbol: PNRA1122A85 2011 $85.00 LEAP call - exit @ $8.50
-stop loss on PNRA at $78.45

09/14/10 Closed - PNRA hit our final target at $88.00, option @ 8.50 (+102%)
09/04/10 Take profits early. Sell half. PNRA @ 85.02, option @ 6.20 (+47.6%)
08/30/10 Triggered at $80.75

Chart of PNRA:


Watch

Farm Equipment & Steel

by James Brown

Click here to email James Brown


New Watch List Entries

DE - Deere & Co

STLD - Steel Dynamics


Active Watch List Candidates

BRK.B - Berkshire Hathaway

BVN - Compania de Minas Buenaventura

HD - Home Depot

SRCL = Stericycle Inc.

VMED - Virgin Media

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

GILD was removed. HUM and NVDA graduated to the play list.


New Watch List Candidates:

Deere & Co - DE - close: 72.45 change: +2.81

Shares of DE were hitting new highs on Friday after Russian Prime Minister Putin offered state support for DE to expand its business in Russia. The stock rallied to new 52-week highs. The stock was already on a bullish path with a strong bounce from support near $60 back in August. If investor sentiment regarding the global economy improves then DE should be a winner. However we don't want to chase it here. If the market corrects I'm expecting DE to retest the $66-65 zone. Let's use a trigger to buy calls at $66.50. We'll place our stop loss at $61.90. If triggered our long-term target is $79.00. I prefer the 2012 LEAPS.

Company Info:
Deere & Company, founded in 1837 (collectively called John Deere), has grown from a one-man blacksmith shop into a corporation that today does business around the world and employs more than 50,000 people. John Deere consists of three major business segments (agriculture and turf, construction and forestry, and credit). Those segments, along with the support operations of parts and power systems, are focused on helping customers be more productive as they help to improve the quality of life for people around the world. The company's products and services are primarily sold and serviced through John Deere's dealer network. (source: company press release or website)

Buy-the-Dip trigger: $66.50

BUY the 2011 March $70.00 calls (DE1119C70)

- or -

BUY the 2012 January $75.00 calls (DE1221A75)

Chart of DE:


Steel Dynamics - STLD - close: 15.01 change: -0.13

You'll notice that shares of STLD have been consolidating sideways in the $13.00-15.00 zone for a few months now. Shares managed to breakout on Friday morning but quickly reversed with the stock closing at the $15.00 strike price for option expiration. What I find very interesting is that STLD (and others) have recently issued earnings warnings for the third quarter. Yet shares of STLD did not sell-off on its earnings warning. Instead the stock continued to march higher throughout the week. If a stock can climb on an earnings warning then investors must have already priced in all the bad news. I do think STLD will correct toward the middle of its previous range. I am suggesting a trigger to buy call LEAPS at $14.25. If triggered we'll use a stop loss at $12.90. Our long-term target is $19.00.

Company Info:
Steel Dynamics, Inc. (SDI) is the nation’s fifth largest producer of carbon steel products with 2009 annual revenues of $4.0 billion on steel shipments of 4.0 million tons. Based in Fort Wayne, Indiana, SDI employs about 6,000 and operates five electric-furnace mini-mills. Over half of the company's steel shipments are flat-rolled steel and the remainder is "long products" (bars and beams) and fabricated products. SDI is among the most profitable American steel companies in terms of profit margins and operating profit per ton (source: company press release or website)

Buy-the-Dip trigger: $14.25

BUY the 2011 February $15.00 calls (STLD1119B15)

- or -

BUY the 2012 January $15.00 calls (STLD1221A15)

Chart of STLD:


Active Watch List Candidates:

Berkshire Hathaway - BRK.B - close: 82.72 change: -0.82

Shares of BRK.B closed unchanged on the week. Unfortunately for the bulls the stock produced a bearish reversal pattern on Friday. We have been waiting for shares to correct so this is a positive sign for us. The plan is to buy calls on a dip at $80.50. If you're patient you could wait for a dip near $79.00 instead. If triggered at $80.50 I'm suggesting a stop loss at $74.95. Our long-term target is $92.50 and $99.00. I prefer the 2012 calls.

Buy-the-Dip trigger: $80.50

BUY the 2011 Jan. $85 calls (BRKB1122A85)

- or -

BUY the 2012 Jan $90 calls (BRKB1221A90)

Chart of BRK.B:


Compania de Minas Buenaventura - BVN - close: 41.22 change: -0.30

BVN also produced a bearish failed rally pattern last week. There is some short-term support at $40.00 but I'm looking for a dip to $38.50. Patient traders could wait for a dip toward the 100-dma instead as their entry point. If we are triggered at $38.50 we want to use a stop loss at $34.75. Our long-term target is $47.50 but we might adjust it higher.

Buy-the-Dip trigger: $38.50

BUY the 2011 March $40 calls (BVN1119C40)

Chart of BVN:


Gilead Sciences - GILD - close: 34.56 change: -0.41

I am temporarily removing GILD as a bullish candidate. The original plan could still work. We were waiting for a dip to buy calls at $33.00 with a tight stop loss at $31.49. However, I'm worried any significant correction in the biotech sector could see an exaggerated move in shares of GILD. Readers may want to keep an eye on this stock to see if support near $32.00 will hold.


Home Depot - HD - close: 29.89 change: -0.06

HD's breakout from the July-August trading range has stalled. It's time for a correction. I am adjusting our trigger to buy calls on HD from $29.00 to $28.75. When this stock corrects I'm looking for a pull back toward the simple 50-dma. If triggered our long-term target is $33.90 and $36.00. We can expect to find resistance near $32.00. I prefer the 2012 calls over the 2011 calls.

Buy-the-Dip trigger: $28.75

BUY the 2011 Jan $30.00 calls (HD1122A30)
- or
BUY the 2012 Jan $30.00 calls (HD1221A30)

Chart of HD:


Stericycle - SRCL - close: 69.97 change: +0.31

SRCL set new all-time highs (again) last week. Although it looks like momentum is slowing near the $70 region. I don't see any changes from last week's comments reposted below:

Investors appear to be interested in medical waste disposal if shares of SRCL are any indication. After more than two months of consolidating near the $65 area it looks like SRCL is poised to move. We do not want to chase it here. Look for a dip back toward $66.00. We'll use a stop loss at $63.40. If triggered our long-term target is $79.00. However, we will have to adjust our exit point as SRCL does not have LEAPS. The longest dated options are 2011 Februarys.

Buy-the-Dip trigger: $66.00

BUY the 2011 February $70 calls (SRCL1119B70)

Chart of SRCL:


Virgin Media - VMED - close: 21.70 change: -0.05

Shares of VMED continue to consolidate sideways. The stock has a lid on it near $21.90-22.00. I am concerned the major market averages are poised to correct so I'm lowering our trigger on VMED down to $20.00. We'll move the stop loss down to $18.40. Our first long-term target is $24.00. I prefer the 2012 LEAPS over the 2011s. FYI: The Point & Figure chart is forecasting a long-term target of $36.

FYI: Keep your position size small!

Buy-the-Dip trigger: $20.00 *adjusted*

BUY the 2011 Jan $20.00 call (VMED1122A20) *adjusted*

- or

BUY the 2012 Jan $25.00 call (VMED1221A25)

Chart of VMED:


Wynn Resorts - WYNN - close: 91.91 change: +2.10

It's not about Vegas for WYNN. Macau is the engine for growth thanks to China's bustling economy. WYNN is still showing relative strength. The stock closed at new four-week highs. We still don't want to chase it. When the market does correct WYNN could be volatile. I'm keeping our trigger to buy calls at $85.00. If triggered we'll use a stop loss at $79.00. Our first target to take profits is $99.00. Longer-term we'll consider a target at $109. I prefer the 2012 calls over the 2011s but if you're just aiming for $99 the 2011s can work. Remember, small positions to limit your risk. This is an aggressive trade.

Buy-the-Dip trigger: $85.00

BUY the 2011 Jan $90 calls (WYNN1122A90)
- or -
BUY the 2012 Jan $100 calls (WYNN1221A100)

Chart of WYNN: