Option Investor
Newsletter

Daily Newsletter, Saturday, 10/2/2010

Table of Contents

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

Leaps Trader Commentary

A Full Plate

by James Brown

Click here to email James Brown

Dedicated market observers already know that not much has changed in the last week. Stocks have been consolidating sideways but the S&P 500 index doesn't have enough fuel to power past resistance near 1150. It's widely expected that last minute quarter-end window dressing kept the market near its highs for the month. It was quite a month with the markets delivering their best September performance since 1939. Yet now we face the third-quarter earnings season, a mid-term election, and fiscal year end for many mutual funds on October 31st. At the same time the flow of economic data continues to be mixed and does not show a strong U.S. economy. Meanwhile the Chinese economy continue to chug along with positive readings on the latest PMI reports. Expectations that the Federal Reserve will embark on a new round of quantitative easing is pushing the dollar lower on a daily basis, which is fueling a huge rally in gold. The price of gold has soared to new all-time highs over $1,300.00 an ounce.

I'm going to quickly touch on some of the recent economic data. Personal income improved with a +0.5% gain, which was better than expected. Spending also rose, coming in at +0.4%. Unfortunately the rise in personal income appears to have come from extended and emergency unemployment in August so it's not real and will eventually fade away. On a more positive note the spending is real and seems to be steady. Construction spending jumped to +0.4% in August, which was significantly better than the -0.4% economists were expecting. Sadly most of the construction spending came from government projects and not private funding.

The final reading for September consumer sentiment showed up positive. Analysts were expecting it to come in relatively flat to the mid-month reading of 66.6 but consumer sentiment improved to 68.2. It is assumed that a positive trend in consumer confidence will translate into stronger consumer spending. To keep things in perspective consumer confidence is lagging behind normal levels, which averaged 84.5 over the past decade and averaged 97 during the last U.S. expansion.

The ISM manufacturing report (a.k.a. Purchaser manager's index, PMI report) that came out on Friday was a disappointment. The ISM slipped from 56.3 in August to 54.4 in September. Numbers above 50.0 indicate growth and expansion but it's starting to move the wrong direction (lower). New orders slipped from 53.1 to 51.1 and backorders fell from 51.5 to 46.5, which does not indicate a strong growth environment as we head into the fourth quarter. The inventory gauge rose from 51.4 to 55.6, which would suggest demand is slowing down. If demand is waning then there is no need to ramp up production or higher more workers.

Next week's major economic reports will be the ISM services index and the September jobs report (non-farm payroll data). The ISM services number comes out on Tuesday. This is relevant because the U.S. economy is largely service oriented. Economists are expecting a small improvement from 51.5 to 51.8. The bigger report next week is the jobs number. The headline number is expected to rise from 67,000 new jobs to 70,000 new jobs. Of course the number to watch for is the private employment. Last month private sector job growth came in at +67K. Unfortunately next Friday's report will still be tainted by the last remaining census worker layoffs. Given the condition of state budgets right now I won't be surprise to see another unexpected rise in state government layoffs.

We only have thirty days left until the midterm elections. You can expect the rhetoric to really heat up. As the mud slinging intensifies it could have a negative impact on consumer and investor sentiment. On a much more positive note there is a very strong historical pattern of market gains in the next 12 months following a midterm election (no matter who wins the vote). The stock market hates uncertainty and just getting past the elections will remove a level of uncertainty about what to expect from Washington next year. Money managers are well aware of this trend and we expect investors to start placing their bets for a fourth-quarter rally ahead of the election. Thus the second half of October, or at least the last week, should have a positive trend.

Speaking of trends, the market's short-term trend is up. Yet the upward momentum has stalled. The S&P 500 can't seem to get past resistance near 1150. Throw a Fibonacci retracement tool on the S&P 500 and stretch it from support near 1040 (August lows) to the recent highs near 1150. You'll see the 38.2% Fib retracement hits 1108. That's where I would expect a market pull back in a "normal" market. Yet this time I suspect any correction will be shallower than normal. As I said earlier there are too many people waiting for a pull back to jump on board. I'm not saying it can't fall that low. I would love to see a dip to 1100 on the S&P 500 so we can buy it. Realistically I'm watching the 1120 level and expect it to hold up as decent support, underpinned by the simple 200-dma.

Daily chart of the S&P 500 index:

As you know most of the major averages look similar. They're all very extended from their August lows and look ripe for a pull back. The question is, where will traders buy the dip? I'm looking for the NASDAQ composite to find support near 2300. The small cap Russell 2000 should see some support in the 660-640 range. I know that's kind of a wide range but the small caps tend to be more volatile. The Dow Transports should see some support in the 4350 area. I'm still watching the SOX semiconductor index too. Normally the chips tend to lead the NASDAQ. While the SOX has been showing strength it still has a bearish pattern of lower highs.

Daily chart of the NASDAQ index:

Daily chart of the Russell 2000 index:

Daily chart of the Dow Jones Transportation index:

Daily chart of the SOX semiconductor index:

Some of the biggest events this month, outside of the jobs report and pre-election headlines, will be the third-quarter earnings season and the fiscal year end for mutual funds. Everyone expects the third quarter to have been very weak. With that in mind we could see stocks rally because their earnings results "could have been worse!" On the other hand, after a +10% rally in September, any significant miss is going to be a big signal to sell and lock in gains. The question is how will mutual funds react? Their yearend is coming up quick. They're going to want to get rid of their losers but they also want to lock in some gains and do a little window dressing as well. Given my outlook for a fourth-quarter rally, investors will probably use any post-earnings weakness as a potential entry point on the stronger companies.

In summary, we want to buy the dip. If I had to guess I'm looking for a correction in the Oct. 6th to the 20th time frame but that's just a guess. The jobs report and Q3 earnings announcements could spark a lot of volatility. Watch the support levels listed above and wait for the correction. Or if you're feeling cautious then wait for the bounce to start before initiating positions.

Editor's Note: The LEAPStrader newsletter next week (Oct.9th) will not come out until Monday (Oct. 11th).

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

We are starting to see the rally stall but for a few select stocks the surge higher continues. Shares of INFY and RIG have continued to perform very well. We want to take profits in INFY and sell the 2011 calls. I would be very careful with BIDU and EMC, which have both formed bearish reversal patterns. IBM and LMT made the jump from the watch list to the play list. I'm updating a handful of stop losses tonight.

New stop losses for GLD, INFY, MCD, PEP, 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

Use A Pull Back

by James Brown

Click here to email James Brown

Editor's Note:

The market just delivered its best September performance in seventy years. Yet the momentum has stalled and the S&P 500 index is struggling with major resistance near 1150. After a +10% gain the market is overbought and due for a pull back. We do not want to chase stocks at these levels. The Q3 earnings season is about to begin and odds are very good we'll see some profit taking in the market but we can use a pull back in strong stocks as an entry point for a fourth-quarter rally.

I'm not listing any new plays tonight. Our watch list is doing a good job at triggering new positions for us through the week. I just added three new candidates to the watch list tonight.


Play Updates

Update Your Stop Losses

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: 98.80 change: -3.82

Warning! BIDU managed to post a gain but the action was all bearish this week. The stock tagged a new all-time high on the 28th at $107.19 but immediately reversed. BIDU spent the rest of the week bouncing around the $100-105 zone. On the weekly chart you can see a blow-off top, failed rally pattern. This is bearish! We knew BIDU was getting overbought, which was why we sold the 2011 calls last week. My only concern with the 2012 calls is that BIDU can be so volatile it would be painful to see us get stopped out at $79.00. On a more positive note we can look for support near $90, $87, and at $80.

We want to sell HALF of our 2012 calls at this time. I am not suggesting new positions at this time. Be prepared for a significant pull back but the longer-term trend is still higher.

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 stop is at $79.00.

Only one position left.

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - current bid/ask $22.30/22.55
-stop loss on BIDU @ 79.00

10/02/10 Sell half of 2012 calls, BIDU @ 98.80, option @ 22.30 (+71.5%)
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: 69.89 change: +0.54

Shares of BUCY did not make much progress. The stock is still struggling under resistance near $72.50. As I said last week this stock is poised for a correction. Look for a dip toward the $65 region. Look for the bounce before considering new positions.

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 $13.00/13.25
-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 $15.30/15.65
-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: 57.86 change: +0.43

A bullish breakout in oil prices, thanks to a weaker dollar, has buoyed the oil sector. Unfortunately, shares of COP seem to be lagging behind its peers. The trend is up but COP just isn't making a lot of progress. Right now COP is stuck near resistance at $58.00. I would prefer to wait for a dip or a bounce near $55.00 before considering new bullish positions.

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 $4.55/4.60
-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 $5.20/5.30
-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: 20.34 change: +0.03

Uh-oh! We need to be careful with EMC. The stock has created a bearish reversal. After surging to new multi-year highs a week ago the stock posted four days of declines and managed a little oversold bounce on Oct. 1st. I would expect a correction toward the $19.50 area. More conservative traders may want to consider raising their stop loss. I am not suggesting new positions at this time. In spite of the reversal the longer-term trend remains higher.

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 $1.48/1.52
-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 $2.81/3.05
-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: 128.91 change: +1.00

Growing expectations that the Federal Reserve will embark on another round of massive quantitative easing has been bullish for gold. The U.S. dollar is plunging on the idea of new QE and that boosting demand for gold and metals. Gold futures hit new all-time highs over $1,300 an ounce this past week. The GLD is following the futures higher. This commodity is extremely short-term overbought and due for a correction.

I am suggesting we go ahead and sell at least half of our 2011 March $120 calls. The dollar is very oversold and I think it could bounce as it nears the January 2010 low. We'll sell half of the March calls. We'll raise our stop loss to $118.49. FYI: The Point & Figure chart is forecasting a $158 target.

Previous Comments
Our long-term target is $138.50.

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - current bid/ask $12.70/13.05
-stop loss on GLD @ 118.49

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $14.35/14.80
-stop loss on GLD @ 118.46

10/02/10 Sell half of the 2011 March calls, option @ 12.70 (+64.9%)
10/02/10 New stop $ 118.49
09/25/10 New stop @ 116.45, new target 138.50

Weekly Chart of GLD:


Humana Inc. - HUM - close: 50.13 change: -0.11

The stock market has been consolidating sideways the last several days so I'm not surprised to see HUM do the same near support at the $50.00 level. Yet if you compare it to the HMO index then shares of HUM have been lagging behind its peers. The HMO index has been climbing for weeks and is now testing major resistance in the 1600 region. A breakout here would be very bullish for the sector but odds favor a pull back first. The question is, if the HMO pulls back, will HUM follow it lower and if so how far?

If HUM's support near $50 breaks down I would look for additional support near $48 and its rising 200-dma. A bounce from $48 could be our next bullish entry point.

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 $1.45/ 1.60
-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/ 6.10
-stop loss on HUM @ 44.90

Chart of HUM:


Intl.Business Machines - IBM - close: 135.64 change: +1.50

IBM's nearly non-stop rally during the month of September pushed the stock to new multi-year highs. Shares had been stuck under resistance in the $133 zone for nine months. The breakout is very bullish. Yet on a short-term basis IBM looks like it is losing steam. Our bullish call play was triggered when IBM hit $136.00 but I suspect we will see a better entry point near $133-132 soon. Readers may want to wait for a pull back before initiating new positions. We're starting with a stop loss at $129.50 and a long-term target at $159.00. FYI: earnings are due out on Oct. 18th.

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

Sep 30, 2010 - entry price on IBM @ 136.00, option @ 3.90
symbol: IBM1122A140 2011 Jan $140 call - current bid/ask $3.70/ 3.80
-stop loss on IBM @ 129.50

- or -

Sep 30, 2010 - entry price on IBM @ 136.00, option @ 7.80
symbol: IBM1221A150 2012 Jan $150 call - current bid/ask $7.65/ 7.80
-stop loss on IBM @ 129.50

09/30/10 Play triggered $136.00, stop $129.50

Chart of IBM:


Infosys Technologies - INFY - close: 70.52 change: +3.21

Wow! After slowly drifting higher most of the week shares of INFY exploded higher on Friday with a +4.7% gain. The Indian market rose +1.8% on Friday. I couldn't find any specific news behind the sharp rally on Friday. Shares of INFY are up almost +23% in the last month. I am suggesting we go ahead and sell the 2011 Jan. $60 calls now. INFY is very overbought here and while I remain bullish a correction is going to see these 2011 options implode.

Sell the 2011 calls now. We'll keep the 2012 calls open. Keep in mind that INFY is due to report earnings on Oct. 15th, before the bell. If INFY disappoints in any way the stock should see a sharp sell off given its recent gains. I am not suggesting new positions at this time. FYI: The P&F chart is now forecasting at $97 target. Please note that I'm raising the stop loss to $61.75.

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 - Sell Now: bid @ $11.20
-stop loss on INFY @ xx.xx

- or -

July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $11.50/14.20
-stop loss on INFY @ 61.75

10/02/10 Sell the 2011 Calls, INFY @ 70.52, option @ 11.20 (+49.3%)
10/02/10 New stop @ 61.75
09/25/10 New stop @ 58.75

Chart of INFY:


Lockheed Martin - LMT - close: 69.61 change: -1.67

I've got good news and bad news on LMT. The good news is that we've been expecting a pull back toward $70.00 and we got it this week so our play was opened at $70.50. The bad news is that we were expecting LMT to pull back along with the market, not by itself. I suspect the high-volume sell-off (which is normally a bad sign) that occurred on Friday, Oct. 1st, was due to news that flight testing for the F-35 fighter jet, made by LMT, was suspended until they finish adjusting the fuel system software.

While our play on LMT is open I am not suggesting new positions at this time! We want to see a bounce now given the unusual weakness. Look for a bounce or a close over $71.00 before considering new bullish positions. Currently we have a stop loss at $67.90. Our first long-term target is $79.00.
FYI: LMT is due to report earnings on Oct. 19th (date unconfirmed).

Oct 01, 2010 - entry price on LMT @ 70.50, option @ 1.25
symbol: LMT1122A75 2011 Jan $75 call - current bid/ask $1.10/ 1.20
-stop loss on LMT @ 67.90

- or -

Oct 01, 2010 - entry price on LMT @ 70.50, option @ 5.10
symbol: LMT1221A75 2012 Jan $75 call - current bid/ask $4.40/ 4.60
-stop loss on LMT @ 67.90

10/01/10 Play triggered $70.50, stop $67.90

Chart of LMT:


McDonald's Corp. - MCD - close: 74.92 change: +0.41

There is nothing new to report on MCD. The stock has spent most of the last month bouncing around the $73.50-76.00 zone. Granted these are all-time highs and shares were looking overbought. If the market sees a correction I would look for MCD to retest the $72 area. Wait for a dip near $72 before considering new bullish positions. Please note that I'm raising the stop loss to $67.90.

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 $6.05/ 6.15
-stop loss on MCD @ 67.90

- or -

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $3.80/ 3.95
-stop loss on MCD @ 67.90

10/02/10 New stop @ 67.90
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: 96.10 change: +0.15

We've been expecting MICC to pull back toward $95.00 and that's what happened last week. Traders bought the dip near support at $95 and its rising 50-dma, twice, on Thursday and Friday. The question is, "will this short-term support hold?" I suspect that if the major market indices see a pull back then we'll see MICC pull back even further. That's why I am reluctant to consider new positions here. More conservative traders may want to exit completely.

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 $10.20/11.30
-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: 11.35 change: -0.33

It should be no surprise that NVDA spent the week consolidating lower. The stock's rally had gotten a little overheated on rumors that Oracle (ORCL) was interested in buying a chip company. I am not convinced the pull back is over yet. Look for a dip toward $10.50 and/or its now rising 50-dma.

Previous Comments:
We took profits on the 2011 calls in late September. All we have left are the 2012 calls. Overall 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 @ 1.69
symbol: NVDA1221A12.5 2012 Jan $12.50 call - current bid/ask $1.99/ 2.11
-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: 67.00 change: +0.56

I am a little bit surprised by the relative strength we're seeing in PEP right now. Previously it looked like shares were poised to correct lower. Of course on one hand PEP is a very liquid large cap name that mutual funds can hide in. This coming week could be crucial for PEP. The company is due to report earnings on Thursday, October 7th, before the opening bell. Wall Street expects a profit of $1.22 a share. If the company delivers we could see PEP breakout past significant resistance in the $67-68 zone.

Please note that we're moving the stop loss to $62.90. I'm not suggesting new positions at this time. FYI: FYI: The Point & Figure chart is bullish with a $79 target.

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 $7.55/7.65
-stop loss on PEP at $62.90

10/02/10 New stop @ 62.90
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: 64.35 change: +0.06

So much for a dip! RIG surged +10% during the week and hit $65.98 on Thursday before succumbing to a little profit taking. The dollar weakness is driving oil higher and the oil service stocks are enjoying the boost from oil. Now broken resistance near $60.00 should be new support for RIG. I am adjusting our stop loss to $53.90. RIG should have additional support near $55 and its 50-dma. I am not suggesting new positions at this time. Wait for a pull back near support. FYI: I am setting a $68.00 target to sell the remainder of our 2011 calls.

Previous Comments:
We have already taken profits once at $59.00. Our secondary, longer-term target is $75.00. We want to sell the 2011 calls at $68.00. 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 $15.45/16.00
-stop loss on RIG @ 53.90

- or -

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $13.25/14.05
-stop loss on RIG @ 53.90

10/02/10 New stop @ 53.90
09/10/10 Target Hit @ 59.00 (take some money off the table), 2011 Jan $50 call @ $11.45 (+76.1%), the 2012 Jan $60 call @ $10.35 (+42.7%)

Chart of RIG:


Steel Dynamics - STLD - close: 14.64 change: +0.53

So far so good. STLD managed to hold support near $14.00 all week with a minor dip to $13.93. The bounce on Friday put it back above its 50-dma. I would be tempted to launch new positions here or you could wait for a new close over $15.00. Something to keep in mind is the wider market is still overbought. If the S&P 500 corrects it could drag STLD with it. Therefore readers may want to slow scale into positions. FYI: STLD is due to report earnings on Oct. 18th.

Previous comments:
STLD will probably see some resistance near $16.00 and then in the $18.50 region. Our first long-term target is $19.00. We currently have a stop loss at $12.90.

Sep 23, 2010 - entry price on STLD @ 14.25, option @ 1.29
symbol: STLD1119B15 2011 Feb $15 call - current bid/ask $ 1.20/ 1.30
-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 $ 2.45/ 2.70
-stop loss on STLD @ 12.90

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

Chart of STLD:


TASER Intl. - TASR - close: 3.88 change: +0.00

The only headlines for TASR last week were negative. The company is being sued by inventor James McNulty for patent infringement over TASR's wireless shells (imagine a small Taser weapon the size of a shotgun shell). The news came out on Monday and failed to have much impact on TASR's stock price. Shares have been consolidating sideways in the $3.80-4.00 zone for four weeks now. Readers may want to wait for a close over September's high of $4.06 before considering new bullish positions. Currently I'm not suggesting new positions.

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:


Watch

Internet, Healthcare, and Mobile Phones

by James Brown

Click here to email James Brown

Editor's Note:

I am expecting the market to see a correction in mid October and then begin its next leg higher into a decent fourth-quarter rally. With this sort of outlook we need to be searching for bullish candidates to buy the dip. In addition to today's new candidates I'm listing a few more stocks that caught my eye.

CI is facing resistance near $36. A breakout would be bullish but we may want to focus on a dip toward the 200-dma near $34.
LTM is trading near significant resistance at $40.00. After months of consolidation a breakout here could herald a new multi-month leg higher.
NEU has broken out from its consolidation but the rally stalled at resistance near $110. I would watch for a retest of support near $110 or better yet $105 as a potential entry point.
WLP is a healthcare stock that has broken out from a multi-month consolidation. Shares have also created an inverse H&S pattern. A close over resistance near $57.50 might be a bullish entry point.


New Watch List Entries

AKAM - Akamai Technology

CERN - Cerner Corp

NOK - Nokia Corp


Active Watch List Candidates

BRK.B - Berkshire Hathaway

BVN - Compania de Minas Buenaventura

DE - Deere & Co

HD - Home Depot

NKE - Nike Inc.

SRCL = Stericycle Inc.

VMED - Virgin Media

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

IBM and LMT graduated to the play list.


New Watch List Candidates:

Akamai Technology - AKAM - close: 49.33 change: -0.85

Back in July AKAM reported earnings that were in-line with estimates. The company's lackluster guidance was a disappointment and the stock plunged. Yet just a couple of days later traders were buying the dip and AKAM saw a six-week rally to new highs. Longer-term the trend is up and the consolidation in June and July looks like a bull-flag pattern. Short-term the stock is rolling over into a much needed correction. I'm expecting a pull back toward support in the $46-45 zone.

I am suggesting we launch bullish positions on a dip to $45.50. If triggered we'll use a relatively tight stop loss at $41.90. Our first target is $54.75. Our second, longer-term target is $59.75. FYI: AKAM has seen some takeover chatter in the last couple of months. Investors should note that AKAM is due to report earnings on Oct. 27th. I prefer the 2012 calls.

Company Info:
Akamai® provides market-leading, cloud-based services for optimizing Web and mobile content and applications, online HD video, and secure e-commerce. Combining highly-distributed, energy-efficient computing with intelligent software, Akamai's global platform is transforming the cloud into a more viable place to inform, entertain, advertise, transact and collaborate. (source: company press release or website)

Buy-the-Dip trigger: $45.50

BUY the 2011 January $50 calls (AKAM1122A50)

- or -

BUY the 2012 January $50 calls (AKAM1221A50)

Chart of AKAM:


Cerner Corp. - CERN - close: 85.03 change: +1.04

It looks like attitudes on CERN have changed recently. The stock spent the entire summer consolidating lower after hitting a new all-time high of $92.95 back on April 26th, 2010. Investors started buying the dips near $70.00 and now CERN has a bullish double bottom at that level. In the last several weeks CERN has broken out from its bearish trend of lower highs and begun to breakout past several layers of resistance.

While the impact of the new healthcare reform is still unclear it stands to reason that a company like CERN, a healthcare information systems company, could be a winner as the industry tries grow more efficient. Currently the Point & Figure chart is forecasting a 110 price target.

I am suggesting we use a pull back to 81.50 as our entry point to launch bullish LEAPS positions. If triggered we'll use a stop loss at $77.75. Our first long-term target is $89.50. FYI: CERN is due to report earnings on Oct. 27th (unconfirmed).

Company Info:
Cerner is transforming healthcare by eliminating error, variance and waste for healthcare providers and consumers around the world. Cerner(R) solutions optimize processes for healthcare organizations ranging in size from single-doctor practices, to health systems, to entire countries, for the pharmaceutical and medical device industries, employer health and wellness services industry and for the healthcare commerce system. These solutions are licensed by more than 8,500 facilities around the world, including approximately 2,300 hospitals; 3,400 physician practices covering more than 30,000 physicians; 600 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 700 home-health facilities; and 1,500 retail pharmacies. (source: company press release or website)

Buy-the-Dip trigger: $81.50

BUY the 2011 January $85 calls (CERN1122A85)

- or -

BUY the 2012 January $90 calls (CERN1221A90)

Chart of CERN:


Nokia Corp. - NOK - close: 10.31 change: +0.28

It's been an ugly couple of years for Nokia. The stock was trading near $40 back in late 2007. NOK spent much of 2009 in a wide trading range. Then shares collapsed last spring with a plunge toward $8 a share. NOK is a huge player in the mobile phone market but Wall Street feels that the company has lost the smartphone battle to Apple's iPhone and Google's Android phones.

I suspect that all the bad news for NOK has been priced into the stock. The company is making a comeback and trying to compete with AAPL's iPhone and iTunes store. NOK just announced that out of their 140 million users worldwide they have 200,000 people a day signing up for their Ovi Store, where consumers can download apps, games, and music. Currently the Ovi store is seeing more than two million downloads a day. Again, this doesn't compete with Apple but it's a move in the right direction and shares of NOK seem to have bottomed.

On a short-term basis NOK is trading in a $9.70-10.30 range. While we could go ahead and launch positions now we will probably get a better entry point on a market pull back soon. I am suggesting a trigger to launch bullish LEAPS positions on a dip to 9.85. If triggered we'll use a stop loss at $9.45. Our first long-term target is $11.85.

Company Info:
At Nokia, we are committed to connecting people. We combine advanced technology with personalized services that enable people to stay close to what matters to them. Every day, more than 1.3 billion people connect to one another with a Nokia device - from mobile phones to advanced smartphones and high-performance mobile computers. Today, Nokia is integrating its devices with innovative services through Ovi (http://www.ovi.com), including music, maps, apps, email and more. Nokia's NAVTEQ is a leader in comprehensive digital mapping and navigation services, while Nokia Siemens Networks provides equipment, services and solutions for communications networks globally (source: company press release or website)

Buy-the-Dip trigger: $9.85

I prefer the 2012 calls over 2011 calls.

BUY the 2011 January $10.00 calls (NOK1122A10)

- or -

BUY the 2012 January $10.00 calls (NOK1221A10)

Chart of NOK:


Active Watch List Candidates:

Berkshire Hathaway - BRK.B - close: 82.71 change: +0.03

Aside from some volatility on the 23rd and 24th shares of BRK.B have been consolidating sideways for three weeks. I don't see any changes from my prior comments. We're long-term bullish on this stock and hoping for a pull back to buy call LEAPS on the dip. More aggressive traders may want to consider an alternative strategy to buy calls on a breakout over $84-85 in case BRK.B does not see a dip.

The plan is to buy calls on a dip at $80.50. 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: 46.53 change: +1.35

BVN is a Peruvian miner of gold and silver and given the new highs in gold and silver prices it's not a surprise to see BVN breaking out. Unfortunately, BVN is breaking higher without us! The stock added about five points last week. Both gold and silver have been surging on weakness in the dollar, which could be nearing some support. Thus the miners, like BVN, could correct when the dollar bounces and gold corrects. Broken resistance in BVN near $42.00 should now be new support. I am upgrading our trigger to buy calls from $38.50 to $42.50. We'll move our stop loss to $39.40. Our first long-term target is $49.50.

Buy-the-Dip trigger: $42.50

BUY the 2011 March $50 calls (BVN1119C50) *updated*

Chart of BVN:


Deere & Co - DE - close: 68.57 change: -1.21

Uh-oh! We need to be careful about our strategy in DE. We have been expecting a pull back but the stock has created a dangerous three-candle bearish reversal on its weekly chart (see below). I am moving our trigger to buy the dip down to $62.00 and we're adjusting our stop loss to $59.00. If you bought the dip at $68.50 I would consider exiting early and waiting for a better entry point. I prefer the 2012 LEAPS over the 2011 options.

Buy-the-Dip trigger: $62.00 (updated)

BUY the 2011 March $70.00 calls (DE1119C70)

- or -

BUY the 2012 January $70.00 calls (DE1221A70)

Chart of DE:


Home Depot - HD - close: 31.82 change: +0.14

HD spent most of the week trading sideways under resistance near $32.00. I don't see any changes from my prior comments. We're waiting for a pull back. The plan is to buy call LEAPS on a dip at $30.00. More conservative traders could look for a dip near the 50-dma instead. If triggered our stop is $27.90. 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:


Nike Inc. - NKE - close: 80.25 change: +0.11

NKE has held up pretty well considering the rest of the market is moving sideways. Traders resisted the urge to lock in gains and do some profit taking but I doubt they will be able to resist much longer, especially if the market finally sees a correction. There is no change from my prior comments. We want to use a dip at $75.25 as an entry point to buy call LEAPS. 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.

Buy-the-Dip trigger: $75.25

BUY the 2011 Jan $80 calls (NKE1122A80)

- or -

BUY the 2012 Jan $90 calls (NKE1221A90)

Chart of NKE:


Stericycle - SRCL - close: 70.73 change: +1.25

SRCL continues to show relative strength and shares hit another new all-time high on Friday. We still don't want to chase it. I'm suggesting a dip to $66.00. More aggressive traders could jump in early at $67.00. FYI: If triggered we will use a stop loss at $62.75.

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. If triggered our long-term target is $79.00.

Buy-the-Dip trigger: $66.00

BUY the 2011 May $70 calls (SRCL1119E70) *updated to May*

Chart of SRCL:


Virgin Media - VMED - close: 23.35 change: +0.29

Shares of VMED have broken out to another wave of new 52-week highs. I still don't want to chase it. We will upgrade our trigger to buy calls at $21.00 and we'll raise our stop loss to $19.29. Our first long-term target is $24.90. I prefer the 2012 LEAPS over the 2011s.

FYI: Keep your position size small! This is a higher-risk trade.

Buy-the-Dip trigger: $21.00 *updated*

BUY the 2011 Jan $22.50 call (VMED1122A22.5) *updated*

- or

BUY the 2012 Jan $25.00 call (VMED1221A25)

Chart of VMED:


Wynn Resorts - WYNN - close: 87.09 change: +0.32

Thanks to the super strong Chinese economy shares of WYNN are more a play on Macau than on Vegas. Overall not much has changed in a week. The stock has been consolidating sideways near support at $86.00. Optimistically the stock would rally from here but I'm expecting a market pull back so we'll look for the next level of support in WYNN. I'm inching our trigger down to $81.00 and our stop loss, if triggered, to $76.75 (under the 200-dma). 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: $81.00

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

Chart of WYNN: