Option Investor
Newsletter

Daily Newsletter, Saturday, 9/25/2010

Table of Contents

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

Leaps Trader Commentary

Squeezing Resistance

by James Brown

Click here to email James Brown

The rally in U.S. stocks had started to stall with three declines in a row. That changed on Friday with a big short squeeze on better than expected economic data. The major indices surged back toward their recent highs. For the week the S&P 500 gained +2.0%, the small cap Russell 2000 added +3.0%, the NASDAQ composite rose +2.8%, while the NASDAQ-100 index surged +3.4%. If you think those are impressive gains look at the gains for the month thus far. The S&P 500 is up +9.4% and the NASDAQ is up over +12%. There are only four trading days left in the month and we're on track for the best September performance in 70 years.

Friday's rally started overseas. It was a relatively quiet week in Asia with several markets closed on Wednesday or Thursday for holiday but China and Japan still posted minor gains on Friday. The real action was in Europe. A better than expected reading on business confidence in Germany helped put traders in a bullish frame of mind. Meanwhile the country of Spain slashed its budgets and raised taxes on those making more than 120,000 euros a year so the country could reaffirm their debt-to-GDP targets for 2010 and 2011. The Spanish government is trying to bring down the deficit from 11% in 2009 to 6% in 2011. European markets also reacted well to the U.S. durable goods data. Friday's session saw the English FTSE rise +0.9%, the German DAX rally +1.8%, and the French CAC-40 jump +1.9%.

The euro currency continued to rally as well marking its fourth weekly gain in the last five weeks. Concerns over a slowing U.S. economy and expectations for the Federal Reserve to launch another massive round of quantitative easing come this November is weighing on the U.S. dollar. The dollar has been plunging almost non-stop the last two weeks and settled at new eight-month lows on Friday. This dollar weakness is pushing commodities higher. Metals have been big winners with significant gains in copper, silver, and platinum. Of course gold gets all the headlines as gold futures tagged $1,300 an ounce intraday on Friday. Some are predicting gold will hit $1,500 an ounce. While Friday's trade at $1,300 is a new all-time dollar high, bear in mind that adjusted for inflation the January 1980 high of $875 an ounce would equal $2,318 an ounce today. Agriculture commodities are surging too with wheat, sugar and coffee on the rise. Starbucks (SBUX) just announced that they would have to raise prices for some of their coffee drinks to account for the rising cost of coffee beans.

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

Daily chart of the GLD gold ETF:

Daily chart of the SGG sugar ETN:

The big event on Friday was the U.S. durable goods orders. Durable goods are items expected to last at least three years like automobiles, refrigerators, and washing machines. According to the Commerce Department August durable goods orders fell -1.3% versus estimates for a -1% decline. This was the worst decline in a year, weighed down by a -10.3% drop in transports. This was fueled by a -40.2% plunge in commercial aircraft orders but this is a very volatile sector. The August drop in plane orders follows a +69% surge in July. Excluding the volatile transport sector, demand for durable goods rose +2.0%, which was better than expected and a nice improvement from July's -2.8% decline. The +2% gain in August is the best reading, ex-transports, since March of this year. To sum up this paragraph the positive reversal in orders from July to August is a good sign that businesses and consumers are still spending. Business investment is still moving at a strong clip while manufacturing appears to have recovered from its recent stumble. We'll have to wait and see if the next round of manufacturing data supports this.

The Commerce Department also released the August new home sales figures. The government said the seasonally adjusted annual sales pace came in at 288,000. This was better than expected but it still tied July for the second worst reading on record. May's 282,000 was the lowest reading since records began back in 1963. Year over year the August number reflects a -29% drop in new home sales. Builders can't compete with the flood of foreclosures on the market so they have scaled back their production. The inventory of new homes on the market is down to 206,000, which is the lowest level in 40 years. Believe it or not new home construction is up +25% off its lows but we're still down almost -75% from the 2006 peak. Homebuilders rallied sharply on then news and the DJUSHB index gained +2.6%. The HGX index rose +3.3%.

Technically the market remains very overbought. We're up four weeks in a row with very big gains. Normally I would be looking for a correction but the calendar could interfere with that. Money managers that have been waiting for a dip to jump on board this market rally might feel compelled to buy the market even at these levels. Pretty soon we'll hit the beginning of October and the first few days of the month tends to see an influx of new money. To make matters even worse the end of October is also the fiscal year end for the majority of mutual funds. Not only will they be compelled to lock in gains before their year is out (which could amount to selling pressure in October) but they will also be tempted to do some year-end window dressing for their statements. This push-pull could easily create some serious volatility in October. Will the pressure to sell and lock in gains overpower the pressure to chase this rally and window dress their portfolio? Or will it be the other way around? Plus, there is a widespread expectation that the fourth quarter will be bullish for stocks. A lot of money managers are crossing their fingers and praying for a pull back so they can hop on board. At the same time investors know that taxes are going up next year. Do they choose to sell now and pay taxes now in 2010 before they go up? How will that affect the fourth quarter?

On a short-term basis we can look for support on the S&P 500 in the 1130-1120 zone and near the 1100 area and its now rising 50-dma. If the S&P 500 can breakout past resistance near 1150 there is potential resistance at the mid May high around 1172 and then the 2010 highs near 1210-1220.

Daily chart of the S&P 500 index:

The tech-heavy NASDAQ composite has been a real leader during September with big gains. The NASDAQ has seen a nearly non-stop rally from 2100 to 2381. This index is very overbought. Yet on a positive note the inverse head-and-shoulders pattern is forecasting a rally toward the 2010 highs (near 2525). It's not going to get there in a straight line, in spite of the last four weeks, so the challenge is waiting for the right entry point. The 2300 area and 2250 region should offer some support.

Daily chart of the NASDAQ index:

I also want to bring your attention to the NASDAQ-100 index (NDX). The NDX is the largest 100 stocks in the NASDAQ composite and the large caps are on fire. The NDX is up over +15% from the late August lows. It's also getting very close to potential resistance at the 2010 highs. This is a very good spot for us to expect some profit taking. However, if you look at the weekly chart below you'll also see that the NDX has produced what almost looks like a bullish cup-and-handle formation suggesting an eventual breakout past these highs.

Weekly chart of the NASDAQ-100 (NDX) index:

The charts for the small cap Russell 2000 and the Dow Jones Transports look similar in that they have both rallied to resistance. A breakout for either would be bullish for the market but both are overbought and due for a correction. We also want to keep an eye on the SOX semiconductor index. Word that Oracle (ORCL) was interested in buying a semiconductor company sent the whole sector higher on Friday and the SOX vaulted past its 50-dma and managed to close the gap from early August. Yet the SOX still has a bearish pattern of lower highs and lower lows for now.

Daily chart of the Russell 2000 index:

Daily chart of the Dow Jones Transportation index:

Daily chart of the SOX semiconductor index:

We have a very busy week of economic data in front of us. If we continue to see a trend of "less bad" numbers or even positive gains then stocks should find support. Any significantly negative surprises could be used as an excuse for profit taking. On Monday we'll have the Chicago Federal Reserve activity index. Tuesday we'll see the latest consumer confidence numbers and the Richmond Fed survey. Analysts believe confidence will fall from 53.5 to 52.9. Tuesday will also bring the Case-Shiller 20-city home price index. Thursday is a busy day with weekly initial jobless claims, GDP estimate, New York ISM, Chicago PMI, and the Kansas Federal Reserve manufacturing survey. This is the third estimate for Q2 GDP growth and economists don't expect any changes at +1.6%. Friday will see the final reading for September's University of Michigan consumer sentiment number. We'll also see the latest auto sales figures and construction spending on Friday. The big event on October 1st is the national ISM manufacturing index and analysts are expecting a drop from 56.3 to 54.5.

If this new wave of economic data does not confirm the recent trend of moderate growth then stocks could fall sharply as investors price back into the market a growing risk of a double-dip recession. I don't expect that to happen but it is a risk. Bigger picture we have to deal with monthly and annual money shuffle for mutual funds. They are going to feel a lot of pressure to chase this rally, especially if the S&P 500 can maintain its gains above 1130. There is a chance we'll see some selling pressure ahead of the Q3 earnings season, which begins in a couple of weeks. However, as we approach the midterm elections I'm expecting stocks to show strength the second half of October and into November. Our challenge right now is an entry point. We don't want to chase stocks following a +10% rally from the August lows. Yet I suspect that pullbacks are going to be shallower than we might normally expect.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks continue to melt higher in dramatic contrast to normal, seasonal trends. We are taking advantage of the market's recent strength to take some profits in stocks like BIDU and NVDA (selling the 2011 calls but keeping the 2012s). We are also closing our put plays since the market environment has turned so bullish.

New stop losses for BIDU, GLD, INFY, NVDA, and RIG.

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

Mutual Fund Moves

by James Brown

Click here to email James Brown

Editor's Note:

October 31st is only five weeks away. Not only is that Halloween it is also the fiscal year end for many mutual funds. What sort of moves will these money managers be making between now and then? Will they be selling their winners to lock in gains? Or will they feel compelled to chase the market higher? Odds are very good October could see a lot of volatility.

Currently the market remains very overbought with the S&P 500 up +9% and the NASDAQ up +12% for the month of September. We don't want to chase stocks at these levels so I'm not adding any new plays tonight. Yet the trend is up. Our challenge is picking an entry point. We want to buy dips but if fund managers are looking for an entry point then dips may be a lot shallower than normal.

I've added three new candidates to the watch list tonight.


Play Updates

Take The Money and Run

by James Brown

Click here to email James Brown

Editor's Note:

We want to take advantage of the big moves in BIDU and NVDA to take some money off the table.


Closed Plays


ISRG and OXY are closed.


Play Updates


Baidu, Inc. (Baidu.com) - BIDU - close: 97.83 change: +2.80

Take profits now! It has been an exceptional week for shares of BIDU. The stock is up five days in a row. The week started with a big surge toward $90 last Monday. Now BIDU is nearing potential round-number, psychological resistance at $100 following an impressive four-week rally from its August lows near $76. We want to sell the 2011 Jan $90 calls now. Our original target was $99.50 but Friday's move to $98.13 was close enough. We will keep the 2012 Jan $100 calls but more conservative traders may want to take some money off the table with this position as well. We'll set a long-term target of $119 for the 2012 calls. Please note our new stop loss at $79.00.

Previous Comments:
BIDU is a very volatile stock. This is an aggressive, higher-risk trade. Keep your position size small to limit your risk. We have already taken profits on the 2011 calls. Our target for the 2012 calls is $119. Our new stop loss is $79.00.

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 8.00
symbol: BIDU1122A90 2011 JAN $90 call - exit now @ $14.75
-stop loss on BIDU @ xx.xx

- or -

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - current bid/ask $19.80/20.10
-stop loss on BIDU @ 79.00

09/25/10 Take Profits on the 2011 calls, BIDU @ 97.83, option @ 14.75 (+84.3%)
09/25/10 New stop @ 79.00

Chart of BIDU:


Bucyrus Intl. - BUCY - close: 70.97 change: +2.30

BUCY managed another gain for the week even though it struggled with resistance near $72.00. Shares surged on Friday with a +3.3% rally thanks to the market's widespread strength. The stock remains overbought and under resistance at its 2010 highs near the $72-74 zone. I am not suggesting new positions at this time. Even though the major market indices look poised to rally higher odds favor a pull back for BUCY. Look for support in the $66-64 zone.

Previous Comments:
We have taken profits once already near $70. Our second, longer-term target is $87.50 although we'll probably sell the rest of our 2011 calls before BUCY gets that high. Currently our stop loss is at $57.40.

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - current bid/ask $14.05/14.25
-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 $16.05/16.45
-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: 56.36 change: +1.14

Crude oil prices really haven't moved much this past week but that didn't stop the oil sector from moving higher. Traders are still buying the dips in COP and the stock posted another gain for the week. There is potential resistance near $58.00 and at the $60 levels. 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 $3.60/3.70
-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 $4.40/4.50
-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: 21.64 change: +0.84

Wow! EMC is in breakout mode. After spending eight days in a row struggling with resistance near the $21.00 level shares of EMC have surged to new two-year highs. The market's volume has been terribly low but EMC saw volume that was double the norm on today's rally. While this is very encouraging the stock is still very overbought following a four-week surge from $18.00. I would not chase EMC at these levels.

Previous Comments:
Our first target is $22.50 (sell at least half). 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 $2.38/2.42
-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 $3.65/3.75
-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: 126.69 change: +0.39

Concerns over quantitative easing and weakness in the U.S. dollar have pushed gold futures to new all-time highs near $1,300 an ounce. The GLD gold ETF has also hit new all-time highs over $126.00 a share. Gold continues to look very overbought and due for a correction but with the dollar sinking to new multi-month lows there is no guarantee we'll see a correction any time soon. At the same time the $1,300 level is a nice, big round-number psychological level that could spark some profit taking in gold. Normally when gold moves lower it does so very quickly. More conservative traders will want to seriously consider taking some money off the table right here and now, especially if you're holding the 2011 March calls. The trend is up but I'm not suggesting new positions at this time. Please note our new stop loss at $116.45. I am adjusting our long-term exit target to $138.50.

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - current bid/ask $11.00/11.20
-stop loss on GLD @ 116.45

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $13.45/13.75
-stop loss on GLD @ 116.45

09/25/10 New stop @ 116.45, new target 138.50

Weekly Chart of GLD:


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

Uh-oh! The HMO healthcare index has continued to inch higher and actually looks poised to breakout over significant resistance in the 1600 region. Yet shares of HUM have continued to correct lower. Support near $50 and its 30-dma seem to be holding up but I would rather see a sign of strength first before initiating new positions (like a close over $51 or $52). I remain long-term bullish on the stock.

Previous Comments:
Our long-term target is $59.50. We're using 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 $1.50/ 1.65
-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 $5.70/ 6.20
-stop loss on HUM @ 44.90

Chart of HUM:


Infosys Technologies - INFY - close: 66.88 change: +1.47

The rally in INFY continues, stretching into its fourth week in a row. INFY rallied to another set of 10-year highs while the Indian Sensex index surged to new two-year highs this past week. Bank of America has turned cautious on Indian IT firms and actually downgraded INFY on Friday morning but it didn't have much impact on the stock price. BoA is concerned that the Indian companies are starting to look overvalued and a slowdown in the U.S. could hurt earnings. On a short-term basis I'm still expecting INFY to correct. Look for a dip or a bounce near $62 before considering new bullish positions. Please note that I'm raising the stop loss to $58.75.

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 $7.90/ 8.90
-stop loss on INFY @ 58.75

- or -

July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $9.10/11.50
-stop loss on INFY @ 58.75

09/25/10 New stop @ 58.75

Chart of INFY:


McDonald's Corp. - MCD - close: 75.10 change: +0.46

Investors are looking for safety, security, and dividends. MCD continues to look attract and just raised its dividend. According to Barrons, MCD just raised its dividend for the 34th year in a row. The company bumped its quarterly dividend by 11% to $0.61 a share. That's good enough to give MCD a 3.3% annual yield. Overall I don't see any changes from my prior comments. The trend is up but MCD is still overbought. Wait for a correction toward $72 before considering new positions. 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 $6.30/ 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 $3.75/ 3.95
-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: 100.00 change: +1.81

MICC displayed a little bit of volatility last week. The stock tagged a new 18-month high at $102.72 on Wednesday but traders sold into strength and shares hit $97.29 on Thursday morning. We were expecting the $100 region to act as resistance so this back and forth is not surprising. I am still expecting a correction. Now this could be a simple dip and bounce near $95.00 or it could be a correction back toward $90.00. Thus we're not suggesting new bullish positions at this time. If you haven't taken profits yet, what are you waiting for!

Previous Comments:
Keep your positions small to limit your risk. MICC is (normally) a volatile stock. We have already taken some money off the table as MICC neared $99. 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 $12.80/13.90
-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: 12.26 change: +0.64

Take profits now! Shares of NVDA are soaring. The stock added more than +16% last week. The stock garnered an upgrade and a $14 price target but that wasn't the catalyst behind the big move higher. NVDA is rising on speculation it is a takeover target (many believe Oracle might buy the company). I am suggesting we sell our 2011 Jan. $10 calls right here. Our original target was $12.50 but let's not wait. We will keep our 2012 calls. More conservative traders may want to sell part of their 2012 position anyway to take some money off the table since NVDA is so overbought. I am raising our stop loss to $9.95. We should expect a correction toward the $11 region.

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 - sell it now, option @ 2.70 (+70.8%)
-stop loss on NVDA @ 9.95

- or -

Sep 13, 2010 - entry price on NVDA @ 10.75, option @ 1.69
symbol: NVDA1221A12.5 2012 Jan $12.50 call - current bid/ask $2.45/ 2.64
-stop loss on NVDA @ 9.95

09/25/10 Sell the 2011 calls, NVDA @ 12.26, option @ 2.70 (+70.8%)
09/25/10 new stop 9.95
09/13/10 Play Triggered @ $10.75

Chart of NVDA:


PEPSICO Inc. - PEP - close: 66.13 change: +0.34

Shares of PEP are virtually unchanged for the week. However, the stock is starting to drift lower, which is what we expected. I'm looking for a dip back toward $64 and the rising 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 $6.85/7.05
-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: 60.06 change: +0.59

Believe it or not shares of RIG posted a loss for the week. It was a small loss but shares have been under performing the oil services sector the last few days. The OSX index is testing technical resistance at the 200-dma and looks ready to breakout higher. Shares of RIG have been hovering near resistance around the $60 level. I would expect a pull back toward $55 and its 50-dma. Nimble traders can look for a new entry point near $55. Please note I'm adjusting the stop loss higher to $49.00.

Previous Comments:
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. This is a very aggressive trade given the unknown risks associated with RIG's connection to the Gulf oil spill.

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 6.50
symbol: RIG 11A50.00 2011 Jan $50 call - current bid/ask $11.80/12.00
-stop loss on RIG @ 49.00

- or -

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $10.60/10.80
-stop loss on RIG @ 49.00

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:


Steel Dynamics - STLD - close: 14.48 change: +0.15

I've got good news and bad news. The good news is that STLD has made the jump from our watch list to the play list with a pull back to our trigger at $14.25 on Thursday. The bad news is that STLD has been under performing the market this past week. We were expecting a little correction in this steel stock but the relative weakness is worrisome. The stock bounced where we expected it to but now we want to see some confirmation. If you haven't launch positions yet you may want to wait for a new close over $15.00 before considering it. It does look like STLD has built a significant base over the last four months. If the manufacturing data expected this week is bullish then this stock should perform well.

We're starting with a stop loss at $12.90. Our first target is $19.00.

Sep 23, 2010 - entry price on STLD @ 14.25, option @ 1.29
symbol: STLD1119B15 2011 Feb $15 call - current bid/ask $ 1.15/ 1.25
-stop loss on STLD @ 12.90

- or -

Sep 23, 2010 - entry price on STLD @ 14.25, option @ 2.50
symbol: STLD1221A15 2012 Jan $15 call - current bid/ask $ 2.40/ 2.65
-stop loss on STLD @ 12.90

09/24/10 Play Triggered, STLD @ $14.25

Chart of STLD:


TASER Intl. - TASR - close: 3.98 change: +0.12

TASR had some news last week. The company made a sale with its evidence collection systems to a Minnesota police department. The Axon evidence collection device records video and audio of stops and arrests and then transfers them to an evidence management system. Unfortunately the stock really did not move on the news. As a matter of fact shares of TASR have been stuck in the $3.80-4.00 zone for over three weeks now. The market's strength in September has not had much affect on TASR and that is a problem! More conservative traders may want to start inching up their stop losses or just abandon ship. If TASR can't move with the S&P 500 up +9% and the NASDAQ up +10% in the last three weeks then when will TASR move? I am not suggesting new positions at this time.

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

Intuitive Surgical - ISRG - close: 305.58 change: + 6.53

I'm giving up on ISRG. Not because I'm bullish on the stock. Longer-term I still think it trades lower. However, the market's bullishness is making this a dangerous put play. The stock almost hit our stop loss twice last week. I would rather close this play and look for new bullish candidates elsewhere.

This is a PUT play.

EXIT EARLY

Aug 20, 2010 - entry price on ISRG @ 299.00, option @ 14.00
symbol: ISRG 11m250 2011 Jan $250 PUT - current bid/ask $ 9.00/ 9.50
-stop loss on ISRG @ 311.00

09/25/10 Exit Early, ISRG @ 305.58, option @ 9.00 (-35.7%)

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

Chart of ISRG:


Occidental Petroleum - OXY - close: 76.30 change: +1.73

OXY still looks weak and only gained about 10 cents for the week. Yet I'm giving up on the stock as a leaps put play. The market is poised to move higher over the next few months. I would rather close this play now and look for new bullish candidates. More aggressive traders may want to let it ride.

- This is a PUT Play -

Exit Early

Aug 16, 2010 - entry price on OXY @ 74.00, option @ 2.17
symbol: OXY1122M60 2011 Jan $60 put - bid $ 1.12 (-48.3%)
-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 $ 5.35 (-18.6%)
-stop loss on OXY @ 80.25

09/25/10 - Exit Early, OXY@ 76.30

Chart of OXY:


Watch

Technology, Footwear, Aerospace

by James Brown

Click here to email James Brown


New Watch List Entries

IBM - Intl. Business Mach.

NKE - Nike Inc.

LMT - Lockheed Martin


Active Watch List Candidates

BRK.B - Berkshire Hathaway

BVN - Compania de Minas Buenaventura

DE - Deere & Co

HD - Home Depot

SRCL = Stericycle Inc.

VMED - Virgin Media

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

STLD graduated to the play list.


New Watch List Candidates:

Intl.Business Machines - IBM - close: 134.11 change: +2.44

I've been waiting for IBM to breakout from its trading range for months! Now it looks like it could happen soon. This technology giant has been dead money for almost a year. A breakout past resistance near the $135 area could be huge and herald a new leg higher. The Point & Figure chart is already bullish and is forecasting a $166 target. I am suggesting we wait for a move to $136.00 before launching bullish positions. If triggered we'll use a stop loss at $129.50. Our long-term target is $159.00.
FYI: earnings are due out on Oct. 18th.

Company Info:
International Business Machines (IBM) is one of the largest providers of IT technology, hardware, and services in the world.

Breakout trigger: $136.00

I Prefer the 2012 calls but readers may want to use the 2011s to capture a short-term move. I'm listing both.

BUY the 2011 Jan $140 calls (IBM1122A140)

- or -

BUY the 2012 Jan $150 calls (IBM1221A150)

Chart of IBM:


Nike Inc. - NKE - close: 79.57 change: +1.90

Named after the winged goddess of victory, shares of NKE are doing a victory lap right now with a new all-time high on Friday. The company reported strong earnings of $1.14 a share, which was 13 cents ahead of estimates. While revenues were a bit light the company said its backlog was strong and business in China grew +25%. That launched shares of NIKE to a new high of $81.70 on Friday morning. After four months of consolidating I suspect NKE is poised for a new leg higher. However, we don't want to chase it here. Shares are a little overbought. I'm suggesting we use a dip to $75.25 as our entry point. If triggered we'll use a stop loss at $69.45. Our long-term target is $98.00. I prefer the 2012 calls but more aggressive traders may want to use the 2011 calls and just exit early near $89 instead.

Company Info:
NIKE, Inc. based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned Nike subsidiaries include Cole Haan, which designs, markets and distributes luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., a leading United Kingdom-based global football (soccer) brand. (source: company press release or website)

Buy-the-Dip trigger: $75.25

BUY the 2011 Jan $80 calls (NKE1122A80)

- or -

BUY the 2012 Jan $90 calls (NKE1221A90)

Chart of NKE:


Lockheed Martin - LMT - close: 73.13 change: +1.46

LMT is one of the largest defense contractors and aerospace companies in the world. Unfortunately for shareholders the stock has been drifting lower for the last four months in a row. It looks like the trend has changed in the last couple of weeks. LMT managed to find some support near $68 and has broken out from a long, bull-wedge shaped pattern. Volume has been increasing on the bounce, which is a good sign. The company just recently raised their dividend +19% to $0.75 a share.

While I am tempted to buy call LEAPS now I think the market is overbought and poised to dip. I'm suggesting we use a dip to $70.50 as our entry point to buy call LEAPS on LMT. If triggered at $70.50 we'll use a stop loss under the September low at $67.90. Our first long-term target is $79.00.

Company Info:
Headquartered in Bethesda, Md., Lockheed Martin is a global security company that employs about 136,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's 2009 sales from continuing operations were $44.5 billion. (source: company press release or website)

Buy-the-Dip trigger: $70.50

BUY the 2011 Jan. $75 calls (LMT1122A75)

- or -

BUY the 2012 Jan $75 calls (LMT1221A75)

Chart of LMT:


Active Watch List Candidates:

Berkshire Hathaway - BRK.B - close: 83.32 change: +2.08

I can't explain why shares of BRK.B surged from $81 on Thursday's close to almost $86 Friday morning. I doubt it was Warren Buffett's cheerful announcement that "we're still in a recession". The rally quickly evaporated but shares still managed a +2.5% gain for the session. While I'm longer-term bullish on BRK.B we still don't want to chase it.

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: 41.85 change: +0.09

Shares of BVN didn't move much last week. The stock has continued to consolidate sideways under resistance near $42.50. More aggressive traders may want to consider opening bullish positions on a move over $43.00. I would prefer to wait for a dip. I'm still suggesting a trigger to buy calls on a dip at $38.50. 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:


Deere & Co - DE - close: 72.64 change: +1.45

If the next wave of economic data continues to show improvement in the manufacturing sector it should be a strong positive for shares of DE. However, we don't want to chase it. The stock is very overbought even after the mid-week pull back. Currently the plan is to buy calls on a dip at $66.50. Given my outlook for the next few weeks market pull backs might be shallower than expected. More aggressive traders may want to start thinking about bullish positions on a dip near $68.50 instead.

If triggered at $66.50 we want to use a stop loss at $61.90. Our long-term target is $79.00. I prefer the 2012 LEAPS.

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:


Home Depot - HD - close: 31.64 change: +0.80

Uh-oh! It looks like shares of HD are starting to run away without us. The stock has performed very well the last few days and is quickly closing in on potential resistance near $32.00. We don't want to chase it. However, I will adjust our trigger higher from $28.75 to $30.00. We'll move the stop loss to $27.90. 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: $30.00

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

Chart of HD:


Stericycle - SRCL - close: 69.86 change: +1.25

Shares of SRCL only lost a few cents last week but I do think the correction has begun. Overall I don't see any changes from my prior comments. The stock has shown lots of relative strength but we don't want to chase it.

Prior comments:
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: 22.74 change: +0.57

VMED spent most of the week consolidating under resistance. Then the Friday morning market surge occurred and VMED jumped to a new multi-year high. I still hesitate to chase it here although more aggressive traders may want to consider scaling into positions. I am suggesting we be patient and wait for VMED to retest round-number support near $20.00 as our entry point. If triggered we'll use a stop loss at $18.40. Our first long-term target is $24.00. I prefer the 2012 LEAPS over the 2011s.

FYI: Keep your position size small!

Buy-the-Dip trigger: $20.00

BUY the 2011 Jan $20.00 call (VMED1122A20)

- or

BUY the 2012 Jan $25.00 call (VMED1221A25)

Chart of VMED:


Wynn Resorts - WYNN - close: 90.20 change: +3.15

As expected shares of WYNN continue to show volatility. The stock spiked to $95.88 on the 21st and slipped to $86.06 by the 23rd. Unfortunately our trigger is at $85.00. More aggressive traders may want to consider new positions on Friday's bounce. I'm actually going the opposite direction and moving our trigger lower. The market is overbought and due for a consolidation. I'm suggesting readers move their trigger to launch positions down to $81.50. We'll move the stop loss to $77.00. 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: $81.50

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

Chart of WYNN: