Option Investor
Newsletter

Daily Newsletter, Saturday, 10/30/2010

Table of Contents

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

Leaps Trader Commentary

Focus On the Fed

by James Brown

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Economic data was pretty much ignored last week. Earnings results were ignored as well. Individual stocks moved on their earnings news but the market was focused on next week. Fund managers were holding their breath until the end of their fiscal year (Oct. 31st) and Monday begins a new year for Wall Street. The Republicans are expected to do well in the midterm elections on Tuesday but it's not clear if they can actually gain majority in the Senate. Meanwhile the market's main focus will be on the conclusion of the two-day FOMC meeting this Wednesday. Any announcement regarding monetary policy, interest rates, and any new quantitative easing program is expected around 2:15 p.m. on Wednesday afternoon. It would not surprise me at all to see the market levitate sideways until that announcement on Wednesday and then suddenly see an eruption in volatility.

The big report last week was the Q3 GDP number. Economists were expecting +2.0% growth and that's what the report delivered. It was an improvement over the +1.7% we saw in Q2 and a lot better than some of the +1.0 to +1.5% estimates some of the bears were throwing around about a month ago. Unfortunately if you back out inventory rebuilding (+1.4%) and government spending (+0.7%) then the GDP would have been very negative. Naturally there will always be some inventory replenishment and government spending so that's not realistic. What's important here is that the inventory build out cycle is almost complete. All the orders for this coming holiday season have been made weeks ago. Most of the government stimulus for 2010 has already been spent. Thus these two components should see significant declines next quarter. It's going to come down to business and consumer spending. Business spending has been holding up pretty well, especially spending on technology. Consumer spending has been mediocre but analysts are predicting one of the best holiday shopping seasons in years (mainly because the last couple of years have been so bad!).

Speaking of the consumer, last week saw consumer sentiment for October drop to a new eleven-month low at 67.7. September's reading was 68.2. I am a little surprised that the October reading wasn't stronger given the strong gains in the stock market. Then again retail investors have been taking money out of the market for weeks and weeks (following the May flash crash) and last week was the first week that stock funds actually saw positive inflows. The elections could be having an impact on sentiment. I warned readers here that all the negative campaign ads could have a bearish effect on consumer sentiment. I will mention that some analysts suggest consumer sentiment doesn't really have much effect on consumer spending. We report on it because traditionally strong consumer sentiment numbers are supposed to translate into healthier consumer spending, which is widely quoted as accounting for 70% of the U.S. economy.

There were a couple of ISM reports last week. Both reports were positive and both suggest the national ISM coming out this week should be bullish. The ISM Chicago report eked out +0.2% gain to 60.6 compared to September's 60.4 but economists were actually expecting a -2.0 decline. The employment component jumped from 53.6 to 54.6. Meanwhile the New York ISM gained +7 points to 477.9, the largest gain three months. New York also saw its employment component strengthen.

This coming week is jam packed with economic data. There will be multiple reports almost every day. The big ones to watch are the national ISM index on Monday, which is forecasted to drop from 54.4 to 54.0. After the two ISMs this past week the national index could see an upside surprise. Wednesday will see the ADP employment report and economists predict an improvement from -39,000 jobs to +23,000 jobs. The ISM Services index also comes out on Wednesday and it is forecast to come in nearly unchanged at 53.4. Of course Wednesday will also see the FOMC meeting announcement. Friday brings the non-farm payroll (jobs) report for October. Economists are forecasting +60,000 new jobs in the government report.

The market's impressive rally off the August lows has stalled. I'm expecting investors to sell the FOMC announcement no matter what Ben Bernanke says about QE2. If the Fed does announce a large number then stocks might see an intraday spike but I still think it fails. If you are a technical trader I wouldn't be surprised to see a "blow-off" top. This will be short-term bearish that will hopefully bloom into a normal correction that we can take advantage of and buy the dip in preparation for another strong yearend rally. In the charts below I'll outline what could happen following Wednesday's news.

On a short-term basis the S&P 500 has been oscillating on either side of resistance near 1185 for over two weeks. The 1200 level and the 2010 highs near 1210-1220 should be overhead resistance. On a correction I would like to see a pull back toward 1150 or better yet 1130.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The tech-heavy NASDAQ composite has been exceptionally strong with a +19% gain off its late August lows. I'm looking for a brief rally toward the 2010 highs near 2530 and then a correction. I'm crossing my fingers that the NASDAQ sees a pull back toward the 2380-2360 area but it's possible the 2400 level will hold as support.

Daily chart of the NASDAQ index:

Weekly chart of the NASDAQ index:

I normally don't discuss the Dow Jones Industrial Average because it's only 30 stocks versus 500 stocks in the S&P 500 index and 3,000 components in the NASDAQ Composite. However, moves in the DJIA can impact investor sentiment. Currently the DJIA has rallied toward its 2010 highs and what should be significant resistance near 11,200. This is the perfect spot for the rally to fail and begin a correction back toward the 10,800-10,700 range.

Weekly chart of the Dow Jones Industrial Average:

Much like the S&P 500 the small cap Russell 2000 index has stalled at resistance and has been drifting sideways for the last two and a half weeks. The 710 level seems to be the top for the $RUT and I'm hoping for a pull back toward the 670-660 zone so we can launch new positions on the correction. If the $RUT rallies instead we can look for additional resistance near 720 and then at the 2010 highs near 740.

Daily chart of the Russell 2000 index:

In summary this seems to be the perfect week for the market's rally to finally end and a normal healthy correction to begin. However, no one has ever accused the stock market of being logical. While I expect some sort of sell the news move on the FOMC announcement there is no telling what could happen. The first move might be a trap or we could see an intraday spike higher on the FOMC news only to watch it reverse lower.

I'm not picking sides but what if Republicans don't do as well as the market expects them to on Tuesday. What if the Federal Reserve does not announce any quantitative easing plans on Wednesday? If the Fed does announce, what if the program is too small ($250 billion)? Or too big ($2 trillion)? What if the jobs data on Friday is a complete miss and shows up negative again? There are a lot of potential landmines this week. I'm even willing to consider the unlikely possibility that after almost three weeks of churning sideways that the market's rally continues and we see new 52-week highs before the end of November. Fortunately, the better bet seems to be wait for the correction and then initiate positions as stocks dip to (or rebound from) support.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The market's rally has stalled but that's not surprising. Market participants are waiting for both the midterm election results and for the Federal Reserve's next meeting. It is widely expected that the FOMC will announce a new quantitative easing program on Wednesday. The details of that announcement could have very big implications for the stock market. If you are sitting on profits readers will want to seriously consider taking some money off the table. If the Fed disappoints then stocks could see a sharp decline.

We are taking advantage of some individual strength to exit some positions and take profits in AKAM and IBM tonight. We're also closing the STLD play early.

New stop losses for GLD.

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 play or option position exited or closed this week.



New Plays

Big Entry Point Up Ahead

by James Brown

Click here to email James Brown

Editor's Note:

On your mark! Get Ready! Now Wait!

Stocks have stalled as we wait for the midterm election results, the conclusion of the two-day FOMC meeting on Wednesday and any QE announcement. Plus we have the jobs report this coming Friday. There are plenty of opportunities for stocks to see a "sell the news" reaction and spark a much needed correction.

We don't want to launch new bullish positions if we suspect the market could be 5% to 10% cheaper in a week or two. Look for strong stocks and plan your entry points on a significant pullback near support.


Play Updates

Still Growing

by James Brown

Click here to email James Brown

Editor's Note:

Our portfolio continues to grow as candidates make the jump from watch list to open plays.


Closed Plays


STLD has been closed.


Play Updates


Akamai Technology - AKAM - close: 51.67 change: +0.56

This past week AKAM reported its Q3 earnings that were only inline with expectations (34 cents) while revenues of $253.6 million managed to beat estimates. This report helped power shares of AKAM to a new multi-year high on an intraday basis but shares failed to breakout over their 2010 highs from September near $53.00. Given AKAM's pause at resistance this past week I am suggesting that we go ahead and sell (exit) the 2011 January calls listed below. I suspect next week could see a lot of volatility in the market and AKAM may retest the $46 region. Nimble traders could try launching new positions on another dip or bounce near $46.

Previous Comments:
I remain longer-term bullish on AKAM. Our second, longer-term target is $59.75. FYI: AKAM has seen some takeover chatter in the last couple of months.

Oct 06, 2010 - entry price on AKAM @ 45.50, option @ 2.85
symbol: AKAM1122A50 2011 JAN $50 call - exit now: bid @ 5.10 (+78.9%)
-stop loss on AKAM @ 41.90

- or -

Oct 06, 2010 - entry price on AKAM @ 45.50, option @ 7.50
symbol: AKAM1221A50 2012 JAN $50 call - current bid/ask $10.75/11.10
-stop loss on AKAM @ 41.90

10/30/10 Sell the 2011 Jan. calls, option bid @ 5.10 (+78.9%)
10/06/10 Play triggered when AKAM hit $45.50

Chart of AKAM:


Baidu, Inc. (Baidu.com) - BIDU - close: 110.01 change: -2.16

BIDU continues to be one of the best momentum stocks of the last two years. Shares rallied to new all-time highs, this time over the $110 level. Readers can take profits at any time now. Just be aware that if you don't, and BIDU sees the long, overdue correction that will eventually show up, our option values are going to plummet!

On a short-term basis I would look for support near $105 and then at $100. More conservative traders may want to raise their stops toward the $100 area. I'm not suggesting new positions at this time. Please note that I'm adjusting our exit target for our 2012 calls from $119 to $129.00.

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 $129.00. Our stop is at $94.00.

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 $29.15/29.65
-stop loss on BIDU @ 94.00

10/30/10 Adjusted exit to $129.00.
10/23/10 New stop loss @ 94.00
10/21/10 BIDU reports strong earnings.
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:


Berkshire Hathaway - BRK.B - close: 79.56 change: -0.54

BRK.B saw some new headlines last week. One was about a hedge fund manager joining Berkshire as a new executive. Another headline was about BRK.B buying Sun Life's reinsurance business. I couldn't pinpoint what story sparked the sell-off in shares of BRK.B last week. We were expecting the stock to pull back but only with the wider market. This relative weakness is worrisome. On a more positive note BRK.B did hit our trigger to buy the dip at $79.00 on Friday and traders bought the pull back near the stock's rising 200-dma (technical support).

Shares remain near $79 and our entry point and thus the stock continues to offer us an entry point today. However, readers may want to wait and see if there is any follow through on Friday's intraday bounce. More conservative traders may want to use a tighter stop loss. Currently we have a stop at $74.40.

Our long-term target is $99.00 and I prefer the 2012 calls.

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 1.29/ 1.36
-stop loss on BRK.B @ 74.40

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.85/ 5.05
-stop loss on BRK.B @ 74.40

10/29/10 Play triggered on dip at $79.00.

Chart of BRK.B:


Bucyrus Intl. - BUCY - close: 68.16 change: +1.32

Bingo! Right on cue shares of BUCY continued to pull back and just as expected traders bought the dip near $65.00. This bounce looks like a new bullish entry point for call options.

Previous Comments:
We will plan to sell the rest of our 2011 calls when BUCY hits $78.50. We have taken profits once already near $70. Our second, longer-term target is $87.50

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - current bid/ask $10.35/10.55
-stop loss on BUCY @ 63.75

- or -

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 13.00
symbol: BUCY1221A70 2012 JAN $70 call - current bid/ask $12.85/13.20
-stop loss on BUCY @ 63.75

10/21/10 BUCY misses earnings.
10/11/10 New stop loss @ 63.75
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: 59.39 change: -0.19

COP reported earnings this past week and beat estimates by four cents but the stock's rally was already looking tired and shares corrected. The pull back this past week has created a bearish engulfing reversal pattern candlestick on the weekly chart. While this pattern needs to see confirmation it is a warning sign that COP may not be done correcting yet. I am still suggesting readers look for a pull back toward short-term support near $58 or the $56 levels before considering new positions.

Prior Comments:
We have already taken profits on the 2011 calls. That leaves the 2012 call position and our long-term target is $69.00.

May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $5.75/5.90
-stop loss on COP @ 54.85

10/23/10 Exit the 2011 Jan. $55 calls @ 7.05 (+88%)
10/23/10 New stop loss @ 54.85
10/11/10 New stop loss @ 51.90
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:


Walt Disney Co. - DIS - close: 36.13 change: -0.39

The market spent last week drifting sideways but DIS showed relative strength and broke out from a major consolidation pattern. Our plan was to buy call LEAPS if DIS could close over $35.50. That happened on Oct. 26th with a close at $35.96. Thus our entry point was the next morning (Oct. 27th) when DIS opened at $35.60. DIS might look a little bit overbought here so patient traders could wait for a dip back toward $35.50-35.00 as another entry point.

I am adjusting our stop loss to $32.75. I am also adjusting our first upside target to $42.00. We can expect some resistance near $38.00. FYI: DIS is due to report earnings on November 11th.

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 2.31/ 2.45
-stop loss on DIS @ 32.75

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 3.65/ 4.00
-stop loss on DIS @ 32.75

10/27/10 Play opened, DIS opened @ $35.60

Chart of DIS:


Diamond Offshore - DO - $66.16 change: -0.14

Just as we expected shares of DO continued to drift lower toward $65.00. This pull back looks like an entry point. However, I'm concerned because DO is showing relative weakness versus the OSX oil services index, which has continued to climb. I would keep an eye on DO's 50-dma and 100-dma and watch for these to offer some support. Consider waiting for a decent bounce before initiating new positions and then adjusting your stop losses.

I'm longer-term bullish on DO but short-term this weakness is troubling. We have a stop loss at $62.40. Our first long-term target is $79.00. Our second, longer-term target is $89.00.

NOTE - it looks like the option strikes have changed to reflect the recent dividend announced by DO. The 2011 March $80s are no the $79.25s. The 2012 Jan. $86s are now $85.25s.

Oct 21, 2010 - entry price on DO @ 67.50, option @ 1.90
symbol: DO1119C80 2011 Mar $79.25 call - current bid/ask $1.29/1.36
-stop loss on DO @ 62.40

- or -

Oct 21, 2010 - entry price on DO @ 67.50, option @ 4.79
symbol: DO1221A86 2012 Jan $85.25 call - current bid/ask $3.00/3.80
-stop loss on DO @ 62.40

10/21/10 Play triggered on a dip at $67.50

Chart of DO:


EMC Corp. - EMC - close: 21.02 change: +0.04

EMC hasn't made much progress the last couple of weeks. The stock is still consolidating under the $21.50 area. I am expecting a market pull back in the next couple of weeks and EMC could retest the $20-19 zone so 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. We have a stop at $18.45.

May 6, 2010 - entry price on EMC @ 18.25, option @ 1.40
symbol: EMC 11A20.00 2011 Jan $20 call - current bid/ask $1.72/1.77
-stop loss on EMC @ 18.45

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $3.35/3.45
-stop loss on EMC @ 18.45

10/23/10 Sell Half of the 2011 calls, bid @ 2.06 (+47%)
10/23/10 New stop loss @ 18.40
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:


Express Scipts - ESRX - close: 48.52 change: -0.14

ESRX's earnings last week and the reaction to the news was underwhelming. Wall Street was looking for 65 cents a share on revenues of $11.42 billion. ESRX met profit estimates but revenues were light at $11.25 billion. The company did offer somewhat bullish guidance for the rest of 2010 but the stock barely moved.

I remain longer-term bullish on ESRX but I'm starting to think we might see this stock churn sideways for a while longer. On a positive note the 50-dma is rising and could breakout above the 200-dma pretty soon. Keep an eye on the 50-dma as potential support. Plus the weekly chart has a long-term trendline of support and dips to it could be used as entry points.

I do see some resistance in the $53-54 zone. Our long-term target is the $59-60 area. Please note I'm setting the stop loss at $44.40.

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $4.15/4.35
-stop loss on ESRX @ 44.40

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $6.90/7.45
-stop loss on ESRX @ 44.40

10/25/10 Trade is opened. ESRX opens @ $49.30

Chart of ESRX:


SPDR Gold ETF - GLD - close: 132.62 change: +1.38

The lack of follow through on the GLD's breakdown two weeks ago is positive for us. However, we should not get complacent. The GLD did breakout higher on Friday from its recent trading range but there is some short-term resistance at the top of its gap down in the $133-134 area. A new failed rally in this $133-135 zone could spell a significant (intermediate) top for gold.

Everything depends on the Federal Reserve's decision on any quantitative easing program. This decision is due out on Wednesday afternoon (Nov. 3rd). If the FOMC announces a massive new QE program then the dollar could drop, which would lift gold. If the QE program is too small then the dollar could rally, which would spark selling in gold. Whatever happens next week should see lots of volatility. More conservative traders will want to seriously consider exiting their 2011 calls prior to the announcement, especially consider the WSJ's report this past week suggesting the FOMC will only announce a $250 billion QE program.

I am not suggesting new positions at this time. Please note I'm raising our stop loss to $121.00. We still want to sell (exit) the rest of our 2011 March calls if the GLD hits $138.00.

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - current bid/ask $14.75/15.15
-stop loss on GLD @ 121.00

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $15.65/16.00
-stop loss on GLD @ 121.00

10/30/10 New stop @ 121.00. Readers may want to exit ahead of FOMC meeting
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: 58.29 change: +0.45

The rally in HUM continues and the stock is now up four weeks in a row with a +18% gain. The company is due to report earnings on Monday morning (Nov. 1st) before the opening bell. Wall Street is looking for a profit of $1.66 a share. I'd say the odds of some profit taking on HUM's earnings report are almost guaranteed but if the company beats the stock could always see a temporary spike higher. I am not suggesting new bullish positions at this time. On a correction look for a pull back toward the $54-53 zone over a several day period.

Previous Comments:
We have already sold (exited) our 2011 calls for a profit. Our second, longer-term target is $69.00.

Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $9.30/10.50
-stop loss on HUM @ 48.75

10/23/10 Exit (sell) the 2011 Jan. $55 calls, bid @ 4.40 (+137%)
10/23/10 New stop loss $ 48.75
10/16/10 New stop loss @ 47.40
10/11/10 New Entry point - HUM is breaking out past $51.00.

Chart of HUM:


Intl.Business Machines - IBM - close: 143.60 change: +2.70

Target achieved! The pull back in IBM didn't last very long. Shares closed the week at new multi-year highs. IBM actually hit $144.00 on Friday. We had set our target to exit the 2011 Jan. $140 calls if IBM hit $144.00.

I still believe this pace is unsustainable and would not chase IBM at these levels. The stock will correct eventually and we'll get another entry point. Our long-term target is $159.00. Our stop is at $129.50.

Sep 30, 2010 - entry price on IBM @ 136.00, option @ 3.90
symbol: IBM1122A140 2011 Jan $140 call - exit at $6.70 (+71.8%)
-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 $ 9.70/ 9.90
-stop loss on IBM @ 129.50

10/29/10 IBM hit $144, our target to exit the 2011 calls (+71.8%)
10/18/10 IBM reported earnings
10/16/10 Short-term target for 2011 calls set at $144.00.
09/30/10 Play triggered $136.00, stop $129.50

Chart of IBM:


Infosys Technologies - INFY - close: 67.44 change: +0.54

INFY is still bouncing around the $68-66 level. I'm not convinced the $66 level is going to hold up as support for much longer. If the market corrects look for INFY to dip toward the $64-62 zone.

Previous Comments:
We have already sold the 2011 calls for a profit. Our remaining position are any 2012 calls. Our long-term target is $79.00.

July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $ 9.30/11.60
-stop loss on INFY @ 61.75

10/15/10 INFY reports earnings.
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:


McDonald's Corp. - MCD - close: 77.77 change: +0.29

If you look at your chart of MCD it might seem like shares spiked to a new all-time high of $79.90 on Friday but that appears to be a bad tick. The stock actually traded in a very mellow 60-cent range under $78.00. Shares of MCD remain very overbought and due for a much needed pullback. On a short-term basis I would look for support near $76.00. On a steeper decline we can watch for support near $74 and $72. I am not suggesting new bullish positions at this time.

Previous Comments:
We have already sold the 2011 calls for a gain. Our long-term target for the 2012 calls is $89.00. We have a stop loss at $69.75.

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $4.70/ 4.85
-stop loss on MCD @ 69.75

10/23/10 New stop @ 69.75
10/16/10 Sell the remaining 2011 calls, bid @ $8.00 (+201%)
10/16/10 New target for 2012 positions @ $89.00
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:


Microsoft Corp. - MSFT - close: 26.67 change: +0.39 stop: 23.25

It was a bullish week for MSFT with the company beating estimates with its earnings report. Wall Street wanted to see a profit of 55 cents on $15.8 billion in revenue. MSFT delivered 62 cents on $16.2 billion. Operating margins improved and the stock reacted with a strong gain on Friday. Unfortunately the intraday rally stalled near technical resistance at its 200-dma. I wouldn't be surprised to see MSFT retreat toward the $26-25 zone and I would use such a dip as a new entry point to buy call LEAPS.

Previous Comments:
The $28.00 level could be significant resistance as would the 2010 highs near $31.50. Long-term my upside target is $31.00. Our time frame is nine to twelve months. Stop loss at $23.25.

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $3.70/ 3.80
-stop loss on MSFT @ 23.25

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.61/ 2.76
-stop loss on MSFT @ 23.25

10/28/10 MSFT delivers stronger than expected earnings.

Chart of MSFT:


NVIDIA Corp. - NVDA - close: 12.02 change: -0.03

It is a little disappointing to see the SOX semiconductor index breakout to new relative highs and NVDA fail to participate. Then we already knew that NVDA had not been trading in sync with the sector. The trend for NVDA is still up but shares are struggling with some resistance at its exponential 200-dma and the September highs. If you're looking for new positions I'd wait for dips near $11 and its 50-dma. FYI: We should see earnings from NVDA in the next two weeks.

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 $2.10/ 2.21
-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:


Transocean Ltd. - RIG - close: 63.36 change: -0.80

Hmm... shares of RIG have been under performing the last several days. The stock failed at resistance near the 200-dma two weeks ago and has been slipping ever since. Yet the OSX oil services index has been a lot stronger. Overall the pull back in RIG is normal and shares are up significantly from their summer lows. We can expect to see a lot more volatility this week as RIG reports earnings on Nov. 3rd after the closing bell. Wall Street is looking for a profit of $1.36 a share. It will be interesting to see if RIG has anything to say on the BP Gulf Oil spill in its report. I am not suggesting new positions at this time.

Previous Comments:
We have taken profits twice, once at $59.00, and then we exited the 2011 calls at $67.00. We still have the 2012 calls and we're aiming for $75.00 although I'm thinking about adjusting that exit toward $79.00 instead. Both the $75.00 and $80.00 levels should be overhead resistance. This is an 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 @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $12.30/12.75
-stop loss on RIG @ 54.85

10/23/10 New stop @ 54.85
10/13/10 Target hit at $67.00 to exit the 2011 call option @ 17.40 (+167.6%)
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:


TASER Intl. - TASR - close: 3.97 change: +0.02

Ouch! What happened to TASR. Shares lost more than -12% last week. The answer is earnings is what happened! The company reported on Oct. 27th and missed estimates by 3 cents. Wall Street wanted to see a loss of 1 cent and TASR reported a loss of 4 cents. Revenues were a miss too at $21.1 million for the quarter. The action this past week looks pretty negative and the close under $4.00 and its 50-dma and 100-dma is very bearish. More conservative traders may want to exit right now! I am not suggesting new positions at this time. We have a stop loss at $3.75, which should help avoid any potential loss given our entry point (3.69).

Previous Comments:
Our long-term target is $4.90.

STRATEGY: Buy TASR stock (entry $3.69), stop loss $3.75

10/23/10 Sell at least Half of our position: TASR @ 4.53 (+22.7%)
10/23/10 New Stop @ 3.75
08/30/10 TASR opens Monday at $3.69 (entry point)
08/28/10 TASR listed as a new play

Chart of TASR:


WellPoint Inc. - WLP - close: 54.34 change: -0.27

Uh-oh! Both WLP and the HMO healthcare index rolled over this past week. WLP got a little help after Citigroup downgraded the stock from a "buy" to a "hold". Meanwhile the HMO index has formed what appears to be a little double top (bearish) pattern. I am not suggesting new bullish positions in front of the company's earnings report. WLP is due to report on November 3rd before the opening bell. Analysts are estimating a profit of $1.57 a share.

Prior comments:
Our stop loss is at $52.75. Our long-term target is $69.75.

Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 3.80/ 4.00
-stop loss on WLP @ 52.50

10/14/10 Play Triggered when WLP hit $57.75, option @ $5.25

Chart of WLP:


CLOSED Plays

Steel Dynamics - STLD - close: 14.54 change: +0.09

I'm giving up on STLD. The stock just won't move. The market has been marching higher and yet STLD continues to churn sideways. I'm dropping it to make room for future candidates that will move. Readers may want to put STLD on their watch list to see if shares ever breakout past $15.50, which might be a bullish entry point.

Exit early!

Sep 23, 2010 - entry price on STLD @ 14.25, option @ 1.29
symbol: STLD1119B15 2011 Feb $15 call - current bid $ 0.95 (-26.3%)
-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 $ 2.10 (-16%)
-stop loss on STLD @ 12.90

10/30/10 Exit early.
09/24/10 Play Triggered, STLD @ $14.25

Chart of STLD:


Watch

Consumer Electronics and Exchanges

by James Brown

Click here to email James Brown

Editor's Note:

We have a number of watch list candidates that we've been watching for a few weeks now and every week they continue to rally higher. Every week I say don't chase it. Eventually, this market and these stocks will correct lower. I strongly suspect that the correction could begin on Wednesday following the FOMC's announcement on any new QE program. The LEAPStrader newsletter is focused on longer-term trades in the six month to twelve month time frame so waiting for the right entry point is just part of our discipline and strategy. If we do not see a significant correction in the next two weeks then we'll consider reloading the watch list with a bunch of new candidates. Although recently the watch list has been doing a pretty good job of adding new stocks to our play list.


New Watch List Entries

AAPL - Apple Inc.

NYX - NYSE Euronext


Active Watch List Candidates

BVN - Compania de Minas Buenaventura

CERN - Cerner Corp

DE - Deere & Co

F - Ford Motor Co.

GS - Goldman Sachs

HD - Home Depot

NKE - Nike Inc.

NOK - Nokia Corp

SRCL = Stericycle Inc.

WLL - Whiting Petroleum

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

BRK.B and DIS have both graduated to the play list. CERN has been dropped.


New Watch List Candidates:

Apple Inc. - AAPL - close: 300.98 change: -4.26

AAPL is quickly gaining ground on XOM as the largest U.S. stock with the biggest market cap. The surge from $240 toward $320 pushed AAPL's market cap past $275 billion. We like AAPL because it's the stock everyone wants to own. The recession doesn't matter because consumers are still shelling out big bucks for the iPad and iPhones and AAPL is gaining ground in the PC market as well. Yes, AAPL is seeing very strong smartphone competition from Google and AAPL will also see lots of competition in the tablet computer industry but currently AAPL remains the leader.

We're expecting a market correction soon and want to be ready to jump into AAPL if (when) shares dip. I'm suggesting a trigger to buy AAPL call LEAPS when shares hit $280. More conservative traders may want to wait for a potential dip toward the $270 area. I'm setting our stop loss at $264.00. Our first long-term target is $345.

Company Info:
Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork, and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple is reinventing the mobile phone with its revolutionary iPhone and App Store, and has recently introduced its magical iPad which is defining the future of mobile media and computing devices. (source: company press release or website)

Buy-the-Dip trigger: $280.00

BUY the 2012 January $300 calls (1221A300)

- or -

BUY the 2013 January $320 calls (1319A320)

Chart of AAPL:


NYSE Euronext - NYX - close: 30.64 change: +0.23

Shares of the NYX have been consolidating sideways for the last several months. The action over the last few weeks has given the stock a much more bullish posture. The company is due to report earnings on November 2nd and I suspect the company will disappoint. Trading volumes last quarter have been very low, which should mean less profit for the NYX. Wall Street knows this so while I expect the NYX to miss estimates it shouldn't be a super big surprise. I'm looking for the stock to correct following its earnings news (and if not then, we can look for a correction with the market after the FOMC meeting). Watch the long-term trendline for support.

I'm suggesting a trigger to buy call LEAPS at $29.00 and we'll try and limit our risk with a relatively tight stop loss at $27.75. Our first target is $34.75.

Company Info:
NYSE Euronext (NYX) is a leading global operator of financial markets and provider of innovative trading technologies. The company's exchanges in Europe and the United States trade equities, futures, options, fixed-income and exchange-traded products. With approximately 8,000 listed issues (excluding European Structured Products), NYSE Euronext's equities markets – the New York Stock Exchange, NYSE Euronext, NYSE Amex, NYSE Alternext and NYSE Arca – represent one-third of the world's equities trading, the most liquidity of any global exchange group. NYSE Euronext also operates NYSE Liffe, one of the leading European derivatives businesses and the world's second-largest derivatives business by value of trading. The company offers comprehensive commercial technology, connectivity and market data products and services through NYSE Technologies. NYSE Euronext is in the S&P 500 index, and is the only exchange operator in the S&P 100 index and Fortune 500 (source: company press release or website)

Buy-the-Dip trigger: $29.00

BUY the 2012 January $30.00 calls (NYX1221A30)

Chart of NYX:


Active Watch List Candidates:

Compania de Minas Buenaventura - BVN - close: 52.89 change: +1.16

BVN has rallied to another new all-time high. The stock is up ten points in the last five weeks. We are waiting for a correction. Please note that I'm adjusting our entry point to $45.00 (from $44.00). If triggered use a stop loss at $39.90. We want to keep positions small (half your normal trade size) to limit our risk. FYI: I can't find an earnings date for this Peruvian miner.

Buy-the-Dip trigger: $45.00 (half a position)

BUY the 2011 JUNE $50 calls (BVN1119F50) <-- new strike.

Chart of BVN:


Cerner Corp. - CERN - close: 87.83 change: +0.58

CERN reported earnings on Thursday night and initially sold off on Friday morning but traders quickly bought the dip. There is significant resistance in the $92-95 zone so we don't want to launch positions now. I am removing CERN from the watch list but I would still keep an eye on it for a pull back toward support near $82.00 and its 200-dma.


Deere & Co - DE - close: 76.80 change: +1.30

The longer-term trend for DE is up but the stock has been churning sideways in the $74-78 zone for the last three and a half weeks. When the market does finally correct the profit taking in DE could be steep. I am moving our trigger lower from $70 to $67.50 and we'll move our stop loss to $62.40.

Buy-the-Dip trigger: $67.50 (only half a position)

BUY the 2012 January $75.00 calls (DE1221A75)

Chart of DE:


Ford Moto Co. - F - close: 14.13 change: -0.09

Ford managed to hit new six-month highs last week. The stock also rallied toward its 52-week highs and overhead resistance in the $14.50 area. I am expecting this resistance to hold and we should see Ford correct soon.

I'm suggesting we use a trigger at $12.75 to launch new long-term bullish positions. If triggered we'll use a stop loss at $10.90. Our first upside target is $16.00. Our second, longer-term target is $18.00. FYI: The Point & Figure chart is bullish with a $19.50 target.

Buy-the-Dip trigger: $12.75

BUY the 2012 January $12.50 calls (F1221A12.5)

Chart of F:


Goldman Sachs - GS - close: 161.13 change: -2.11

Financials in general have been under performing the market lately but GS is an exception. The stock is hitting new six-month highs. I am suggesting we wait for a correction with a trigger to launch positions at $152.50. We'll use a stop loss at $147.45. If triggered our first target is $179.00.

Buy-the-Dip trigger: $152.50

BUY the 2011 April $170 calls (GS1116D170)

- or -

BUY the 2012 January $180 calls (GS1221A180)

Chart of GS:


Home Depot - HD - close: 30.90 change: -0.29

HD continues to churn sideways in the $30-32 zone. I suspect that when the market does correct shares of HD will hit their long-term trendline of support. Investors should note that HD is due to report earnings in a couple of weeks.

Currently the plan is to buy call LEAPS on a dip at $29.00. I am moving our stop loss to $26.45, just under the July 2010 low. Our long-term target is $33.90 and $36.00.

Buy-the-Dip trigger: $29.00

BUY the 2012 Jan $30.00 calls (HD1221A30)

Chart of HD:


Nike Inc. - NKE - close: 81.44 change: +0.33

The rally in NKE has lost its momentum. Shares have produced a topping pattern over the last couple of weeks. Please note I'm adjusting our trigger down to $75.25. More conservative traders could wait for a pull back toward the rising trendline of support (see chart). We'll use a stop loss at $71.90. Our long-term target is $98.00.

Buy-the-Dip trigger: $75.25

BUY the 2012 Jan $90 calls (NKE1221A90)

Chart of NKE:


Nokia Corp. - NOK - close: 10.70 change: -0.33

We are still waiting for a correction in NOK too. I am adjusting our entry point down to $10.00 (from 10.25) and we'll inch the stop loss down to $9.40. Our first long-term target is $11.85.

Buy-the-Dip trigger: $10.00

BUY the 2012 January $10.00 calls (NOK1221A10)

Chart of NOK:


Stericycle - SRCL - close: 71.74 change: +0.67

SRCL hit new all-time highs earlier in the week. The stock experienced a little profit taking on its earnings report but selling was minor. Shares remain very overbought so we're waiting for a correction. Currently the plan is to buy calls on a dip at $67.00 with a stop loss at $63.40. Right now I'm suggesting we only use small positions (half your normal trade size) to limit our risk. If triggered our long-term target is $79.00. FYI: (May options are the longest options currently available.)

Buy-the-Dip trigger: $67.00 (half position)

BUY the 2011 May $70 calls (SRCL1119E70)

Chart of SRCL:


Whiting Petroleum Corp. - WLL - close: 100.44 change: +1.91

WLL delivered a strong earnings report midweek and traders initially sold the news. Yet bulls were buying the dip on Friday. Thus far WLL has seen a mild two-week pullback. We're hoping the correction continues. I am suggesting a trigger to buy LEAPS at $94.00 but more conservative traders could look for a pullback closer to $90.00. If we are triggered at $94 we'll use a stop at $88.90. Our first upside target is $109.00.

Buy-the-Dip trigger: $94.00

BUY the 2011 March $100 calls (WLL1119C100)

- or -

BUY the 2012 January $110 calls (WLL1221A110)

Chart of WLL:


Wynn Resorts - WYNN - close: 107.16 change: +0.11

WYNN is another stock that continues to run higher without us. We don't want to chase this four-week rally. Broken resistance near $94-95 should be decent support so I'm suggesting a trigger at $95.50 with a stop loss at $87.99. This has turned into an aggressive trade so keep your positions small (half normal size).

Buy-the-Dip trigger: $95.50 (small positions!)

BUY the 2011 MAR $105 calls (WYNN1119C105)
- or -
BUY the 2012 Jan $110 calls (WYNN1221A110)

Chart of WYNN: