Option Investor
Newsletter

Daily Newsletter, Saturday, 11/6/2010

Table of Contents

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

Leaps Trader Commentary

QE and Jobs Growth Power Stocks Higher

by James Brown

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After last week investors should be encouraged. The Federal Reserve did not disappoint. Ben Bernanke and his team announced a $600 billion quantitative easing plan plus another $300 billion as they reinvest their mortgage-based security asset sales. More importantly the market did not sell the news. After the big gains off the late August lows, with much of it driven by QE expectations, I thought for sure the announcement was already baked into the market. However, traders are interpreting the Fed's move as a "put" under the market. Essentially the Fed isn't going to let the market see any significant declines. At least that's belief. You can argue with it all you want but stocks are going higher with this mentality.

On top of the Fed news we're starting to see an improvement in the economic data. Spending is improving. ISM manufacturing and services is improving. The biggest surprise was the jobs number on Friday. Economists were only expecting +60,000 jobs and the Labor Department said the U.S. added +151,000 jobs in October. Actually the private sector added +159,000 but there were some declines in government hiring. That's the biggest report in several months. The August job losses were revised from -57K to -1K and September was revised from -95K to -41K. Adding to the rosy picture was an increase in hours worked, which normally precedes any increase in hiring.

The combination of strong Q3 earnings results, improving economics, a very supportive Fed, and a weaker dollar has created a very bullish environment for stocks. We have had a bullish market bias for the fourth quarter but our challenge today is our next entry point. The S&P 500 is up +17 from its August lows. The NASDAQ and Russell 2000 index are up even more. It's tough to chase new highs because you don't want to be the sucker who bought the top. At the same time you don't want the market to run away without you. Every day investors are facing both of these fears and so far traders have been more worried about the market getting away from them. Common sense tells you this up trend isn't going to last for much longer but then again the market plays by its own rules. Even if stocks do see a correction I don't think it will be very deep. There are too many people looking for dips to jump on board.

Currently the S&P 500 has rallied past resistance near 1200 and its 2010 highs near the 1220 area. The close at new 52-week highs is very bullish but stocks are still very overbought. The best case scenario here is a sideways consolidation. Maybe the market can churn sideways for a little while, burn off some of this overheated steam, and then make another run into yearend. On a short-term basis I would watch the 1200 level to be support for the S&P 500. On a bigger pull back the 1160 level is probably a good area to watch. I want to remind readers that the inverse head-and-shoulders pattern formed in the S&P over the summer is forecasting a bullish target of 1240. The 1240 level could be our next overhead resistance.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ Composite has delivered an incredible run with a +22% gain in the last ten weeks. This tech-heavy index has broken out past its 2010 highs and closed at new two-year highs this past week. On a short-term basis look for the NASDAQ to fill the gap from Thursday morning. You'll also notice that the 10-dma has been short-term support. I hate to buy this chart because it's so overbought but I wouldn't short it either. As much as I would like to see a correction toward 2400 I don't think it will happen, at least not this year. A normal 5% pull back would suggest a drop to 2450 but I doubt the index will get that low before traders buy the dip.

Daily chart of the NASDAQ index:

Weekly chart of the NASDAQ index:

We also want to keep an eye on the small cap Russell 2000 index. After a three-week consolidation near the 700-710 zone the small caps are in breakout mode again. The $RUT is nearing potential resistance at its 2010 highs around 742 and I expect the index to get there pretty quick. This level would be a logical spot to look for some resistance but lately the market has been plowing right past traditional resistance levels. A dip back toward the 713-710 zone would certainly look like a new bullish entry point.

Daily chart of the Russell 2000 index:

Weekly chart of the Russell 2000 index:

In summary, we want to wait for a dip but dips are likely to be shallow with everyone looking for the same entry point. This is a good time to practice strong money management. With stocks this overbought you may not want to initiate full positions. Consider scaling into positions a little at a time to limit your risk in case we do see a long, overdue pull back. Economic data next week is pretty sparse. The big event is probably Cisco Systems (CSCO) earnings report on Wednesday night.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The market rallied on the QE2 news and stocks are trading near multi-month highs (for some of our candidates they are at all-time highs). The trend is up but we don't want to launch new positions without some sort of dip. We're taking some profits on our NVDA play after the stock hit our early target.

New stop losses for GLD, ESRX, MCD, and NVDA.

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

Mea Culpa

by James Brown

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Editor's Note:

I have to issue my mea culpa tonight. I truly expected the market to see some sort of sell-the-news reaction to the QE2 news on Wednesday. When I saw the rally on Thursday I knew there wasn't going to be a correction. Now that doesn't mean we won't see a correction some day. The market will correct. Unfortunately, I don't know what the catalyst will be to spark any serious profit taking.

Our market bias is bullish but we don't want to buy new highs. At the same time waiting for dips has not been very effective - at least any normal dip. Instead of adding new plays tonight I adjusted the entry point for almost all of our current watch list candidates. With the new format you are seeing tonight I plan to add a lot more to the watch list.


Play Updates

Bulls Stampede Higher on QE and Jobs News

by James Brown

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Editor's Note:

You will probably notice some changes in tonight's newsletter. We'd like to add more candidates and trading ideas to the newsletter and that's going to require a few changes to our format. I did not add any charts to the updates tonight. You probably have you own charting application and hopefully you're looking at your own charts as you consider any potential candidates from the newsletter. I will still point out any support or resistance I believe is significant. The option data on current positions remains updated. If there is a significant change in one of our plays I will provide a chart. New plays will continue to get have charts provided with the play description.

I look forward to fine-tuning the LEAPStrader newsletter to provide more as we near the new year.

-James


Closed Plays


None. No closed plays this week.


Play Updates


Akamai Technology - AKAM - close: 53.28

11/06 update: AKAM has rallied to new three-year highs. The stock looks short-term overbought (as is most of the market) with its rally from the October lows. I am not suggesting new positions at this time. Look for short-term support near $50 or $48. More conservative traders may want to tighten their stops. Currently our stop is $41.90.

Previous Comments:
We have already taken profits on our 2011 calls. That leaves the 2012 calls. Our second, longer-term target is $59.75. FYI: AKAM has seen some takeover chatter in the last couple of months.

- Current Positions -
Oct 06, 2010 - entry price on AKAM @ 45.50, option @ 7.50
symbol: AKAM1221A50 2012 JAN $50 call - current bid/ask $11.60/12.15

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

Current Target: $59.75
Current Stop loss: 41.90
Play Entered on: 10/06/10
Originally listed on the Watch List 10/02/10


Baidu, Inc. (Baidu.com) - BIDU - close: 108.80

11/06 update: It looks like BIDU might be losing some momentum. Shares hit a lower high last week but traders are still buying it near short-term support in the $107-106.75 zone. If you're optimistic then this is just another sideways consolidation. Readers know I'm worried BIDU is very overbought. It wouldn't surprise me to see a pull back toward $100 again. I am not suggesting new bullish positions at this time. More conservative traders may want to use a higher stop loss. FYI: Check out a Point & Figure chart on BIDU. It looks very bullish and is forecasting a $165 target.

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.

- Current Positions -
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 $27.65/28.60

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

Current Target: $129.00
Current Stop loss: 94.00
Play Entered on: 08/02/10
Originally listed on the Watch List 07/31/10


Berkshire Hathaway - BRK.B - close: 83.72

11/06 update: Our BRK.B play is off to a great start. The stock rallied +5.2% last week following its dip toward technical support at the 200-dma. Shares have rallied right to prior resistance near $84.00. Given the market's trend it should help BRK.B break out but I would probably look for a dip toward $82-81 again first and readers could use the dip as a new entry point. Overall there is no real change from my prior comments although more conservative traders may want to raise their stops toward $77-78.

I prefer the 2012 calls if you're opening new positions.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 2.35/ 2.45

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 6.05/ 6.45

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

Current Target: $ 99.00
Current Stop loss: 74.40
Play Entered on: 10/29/10
Originally listed on the Watch List 09/11/10


Bucyrus Intl. - BUCY - close: 73.77

11/06 update: A week ago I suggested readers buy the dip. Shares of BUCY surged on Thursday and Friday and appear to have broken the short-term trend of lower highs. I'm not suggesting new bullish positions at current levels. The $75 level is probably still short-term resistance. The $67.50-70.00 zone should offer some support.

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.

- Current Positions -
Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - current bid/ask $14.80/15.00
-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 $15.85/16.10
-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

Current Target: $ 87.50
-special- Sell the 2011 calls when BUCY hits $78.50
Current Stop loss: 63.75
Play Entered on: 09/01/10
Originally listed on the Watch List 07/24/10


ConocoPhillips - COP - close: 61.81

11/06 update: COP delivered an almost perfect pullback to the 38.2% Fibonacci retracement of the September-October rally. Traders bought the dip and COP rallied sharply higher in the last couple of days. The U.S. dollar weakness earlier in the week is bullish for oil, which should be good for energy stocks. The Fed's QE program should keep the dollar weak. However, the dollar is so oversold it could bounce at any time. What I find interesting is that commodities held their gains on Friday in spite of a bounce in the dollar. Energy stocks performed very well last week but the OIX oil index is nearing what could be heavy resistance in the 720-730 zone. It's probably time we start expecting a profit taking, or at least some sort of sideways consolidation for this sector. Looking at COP's chart the $58-55 zone should be pretty solid support and readers can enter new positions on dips or rebounds from this area.

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.

- Current Positions -
May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $6.90/7.00

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!

Current Target: $ 69.00
Current Stop loss: 54.85
Play Entered on: 05/20/10
Originally listed on the Watch List 05/08/10


Walt Disney Co. - DIS - close: 37.20

11/06 update: After four days of consolidating sideways near $36.00 the rally in DIS continues. Shares climbed to new five-month highs and DIS is now approaching potential resistance at its 2010 highs near $38. This coming week could be exciting. DIS is due to report earnings on November 11th, after the closing bell. Wall Street expects a profit of 46 cents a share. I probably would not open positions in front of earnings. Wait to see if DIS sees any post-earnings drop. The stock should have support near $35 so I would wait for a dip or a rebound from the $35-36 zone as our next entry point. Remember, we have a long-term time frame here. We can afford to wait for the right entry point. FYI: The Point & Figure chart has a bullish target of $48.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 2.63/ 2.71

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.00/ 4.25

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

Current Target(s): $42.00
Current Stop loss: 32.75
Play Entered on: 10/27/10
Originally listed on the Watch List 10/24/10


Diamond Offshore - DO - $69.80

11/06 update: With the OSX oil services index at new seven-month highs you might think DO is underperforming its peers. You'd be right but the stock did produce a nice bounce from support near $65 last week. I had suggested readers buy the bounce. I remain long-term bullish on DO but I wonder what will happen to shares when the market and the energy sector finally corrects. The OSX index is up +29% in the last ten weeks or so. It will see a correction eventually and that could drive DO back toward $65. So while I'm bullish on DO we can afford to wait on new entry points.

Short-term look for resistance near $72.50 and DO's 200-dma. FYI: The Point & Figure chart for DO is very bullish with a $92 target.

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.

- Current Positions -
Oct 21, 2010 - entry price on DO @ 67.50, option @ 1.90
symbol: DO1119C80 2011 Mar $79.25 call - current bid/ask $1.88/1.96

- or -

Oct 21, 2010 - entry price on DO @ 67.50, option @ 4.79
symbol: DO1221A86 2012 Jan $85.25 call - current bid/ask $3.85/5.05

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

Current Target(s): $79.00 & 89.00
Current Stop loss: 62.40
Play Entered on: 10/21/10
Originally listed on the Watch List 10/16/10


EMC Corp. - EMC - close: 21.57

11/06 update: Shares of EMC have spent the last few weeks in a bullish consolidation under resistance near the $21.50-22.00 level. Actually the $21.50 line has been resistance for the last two and a half weeks and EMC just broke through that level in the last few days. The stock looks poised to rally higher, which is a good thing since we're running out of time with the 2011 calls.

In the news last week the WSJ reported that merger talks between EMC and Isilon (ISLN) were waning as the two companies can't agree on price. There is still a lot of M&A expected in the tech sector and if EMC makes a big acquisition its stock price could gap down lower on the announcement. That remains a risk that a stop loss may not be able to prevent. Hopefully any such decline would be temporary.

I would be tempted to buy more 2012 call LEAPS if EMC can close over $22.00. I'd probably use the 2012 Jan. $25 calls (symbol: EMC1221A25). FYI: The P&F chart is bullish with a long-term $34.50 target.

- Current Positions -
May 6, 2010 - entry price on EMC @ 18.25, option @ 1.40
symbol: EMC 11A20.00 2011 Jan $20 call - current bid/ask $1.98/2.04

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $3.65/3.80

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!

Current Target(s): $22.50 & 24.75
Current Stop loss: 18.45
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 52.77

11/06 update: Wow! ESRX is really showing some relative strength. The stock broke out over resistance near $50.00 and added +8.7% last week. The stock is nearing potential resistance in the $53-54 zone near the 2010 highs. Odds are really good we'll see the rally stall and eventually correct. Broken resistance near $50.00 should be new support. If you're looking for a new bullish entry point I'd prefer to launch positions on a dip or a bounce from the $50 area. FYI: The P&F chart is bullish with a $74 target.

NOTE: I'm adjusting the stop loss to $46.90. 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.

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $5.95/6.15

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $8.85/ 9.45

11/06/10 New stop @ 46.90
10/25/10 Trade is opened. ESRX opens @ $49.30

Current Target(s): $59.50
Current Stop loss: 46.90
Play Entered on: 10/25/10
Originally listed on the Watch List 10/16/10


SPDR Gold ETF - GLD - close: 136.38

11/06 update: There seem to be a million opinions about gold. Traders are asking questions? Is it a bubble? Do I buy the breakout? Will the new Republican controlled House somehow lift the dollar and reverse gold? Will the new QE2 keep the dollar low and thus maintain the bull market in gold? What happens when other countries start launching their own QE programs and how will that effect the dollar? Gold futures did see an intraday bounce last Wednesday on the Fed's announcement. It wasn't until Thursday when the dollar sank to new relative lows that gold finally moved and move it did. Gold rallied toward new highs while the GLD actually broke out to new all-time highs.

Personally, I think the Fed's QE2 program will keep the dollar weak. I'm certain the dollar will see some impressive rebounds (bounces in the dollar are bearish for gold) and it's currently very oversold now but the trend should be down and that's long-term bullish for gold. With the GLD at new highs I am not suggesting new bullish positions at this time.

On a short-term basis look for support near $133 and $129.

Don't forget, we want to sell the rest of our 2011 March calls when the GLD hits $138.00 (the ETF hit $136.61 on Friday). More nimble traders may want to adjust this exit target closer to $140. I'm setting our long-term target for the 2012 calls at $149.00.

Please note our new stop loss at $123.40. More conservative traders may want to use a stop closer to $128.00 instead.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - current bid/ask $17.80/18.10

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $17.60/18.10

11/06/10 new stop @ 123.40
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

Current Target(s): $149.00
- special - exit the March calls when the GLD hits $138.00
Current Stop loss: 123.40
Play Entered on: 08/06/10
Originally listed on the Watch List 06/05/10


Humana Inc. - HUM - close: 59.56

11/06 update: While it looks like we sold our 2011 calls a little early I'm not complaining. Shares of HUM have continued to rally and the stock is now up five weeks in a row. Yet there are signs the stock is losing steam. HUM reported earnings last week. Wall Street expected $1.66 a share on revenues of $8.46 billion. HUM delivered $2.01 a share but revenues were only $8.43 billion. Management also raised their 2011 guidance, which is always a good sign. Shares of HUM spiked over $61.00 but couldn't hold it. I strongly suspect that HUM will see a correction very soon. Look for HUM to find some short-term support in the $56-55 zone or worse the $53-52 area. I'd wait for shares to hit this support and bounce before launching new positions.

Previous Comments:
We have already sold (exited) our 2011 calls for a profit.

- Current Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $10.00/11.30

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.

Current Target(s): $69.00
Current Stop loss: 48.75
Play Entered on: 09/17/10
Originally listed on the Watch List 09/04/10


Intl.Business Machines - IBM - close: 146.92

11/06 update: Shares of IBM continue to march higher. The trend is unbelievably steady. While I find the lack of volatility in IBM's climb higher odd we don't want to fight the trend. That doesn't mean we want to buy new highs either. Speaking of highs, IBM gained +2.3% last week and closed at new all-time highs. The $150 level will probably act as round-number, psychological resistance. Meanwhile, on a short-term basis, the $142 level should be support. I am not suggesting new positions at this time. Eventually IBM will correct and we can re-evaluate an entry then.

Prior Comments:
We have already exited the 2011 calls for a gain.

- Current Positions -
Sep 30, 2010 - entry price on IBM @ 136.00, option @ 7.80
symbol: IBM1221A150 2012 Jan $150 call - current bid/ask $10.60/10.75

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

Current Target(s): $159.00
Current Stop loss: 129.50
Play Entered on: 09/30/10
Originally listed on the Watch List 09/25/10


Infosys Technologies - INFY - close: 68.96

11/06 update: Strength in the tech sector helped INFY post another gain for the week. Bigger picture the trend for INFY is still very bullish. While I would prefer to launch new positions on a bounce from the $65 area I'm almost tempted to consider bullish positions on a dip near $67.50 instead. More conservative traders might want to use a stop loss closer to $64-65.

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

- Current Positions -
July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $ 9.60/13.60

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

Current Target(s): $79.00
Current Stop loss: 61.75
Play Entered on: 07/01/10
Originally listed on the Watch List 06/26/10


McDonald's Corp. - MCD - close: 79.30

11/06 update: MCD has rallied back to its highs near $79. Last week's bullish earnings report from SBUX buoyed some of the restaurant stocks. Shares of MCD look poised to breakout past round-number resistance at $80.00 soon. One of these days MCD might announce another stock split. The stock's last split was 2:1 back in March 1999 around the $80 zone.

I remain very bullish on MCD but we don't want to chase new highs. The stock should have some short-term support near the bottom of its rising bullish channel (just watch the 30-dma or 40-dma for support). Please note our new stop loss is $71.90.

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.

- Current Positions -
June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $5.10/ 5.25

11/06/10 New stop @ 71.90
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%)

Current Target(s): $89.00
Current Stop loss: 71.90
Play Entered on: 06/29/10
Originally listed on the Watch List 06/12/10


Microsoft Corp. - MSFT - close: 26.85

11/06 update: It looks like MSFT's breakout over resistance at its 200-dma is not going to hold. The action this past week actually looks like a short-term top and I would expect a pull back toward $26 and possibly $25. Use any dip as a new bullish entry point (or better yet wait for the rebound to launch positions).

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.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $3.65/ 3.80

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.52/ 2.63

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

Current Target(s): $31.00
Current Stop loss: 23.25
Play Entered on: 10/18/10
Originally listed in New Plays on 10/16/10


NVIDIA Corp. - NVDA - close: 12.61

11/06 update: Target achieved. NVDA hit our first target at $12.50 on Thursday. Please note our new stop loss at $10.40.

The strength in the SOX semiconductor has been very, very impressive. While NVDA's rally hasn't been quite that extreme shares of NVDA still added +5% last week. This coming week could be volatile. Not only is the SOX very overbought and due for some profit taking but NVDA is also expected to report earnings on November 11th, after the closing bell. Wall Street wants to see a profit of 14 cents a share.

On a short-term basis NVDA probably has overhead resistance at its 200-dma. I am not suggesting new bullish positions in front of earnings. The $11.50 level and $11.00 level should offer some support.

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.

- Current Positions -
Sep 13, 2010 - entry price on NVDA @ 10.75, option @ 1.69
symbol: NVDA1221A12.5 2012 Jan $12.50 call - current bid/ask $2.36/ 2.46

11/06/10 New stop @ 10.40
11/04/10 Target hit @ 12.50, take profits: 2012 calls @ $2.40 (+42.0%)
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

Current Target(s): $12.50 & 14.00
Current Stop loss: 10.40
Play Entered on: 09/13/10
Originally listed in New Plays on 08/28/10


Transocean Ltd. - RIG - close: 63.92

11/06 update: RIG's earnings on November 3rd were essentially in line with estimates. The stock did see some volatility on Thursday but shares are holding up with technical support at the 40-dma. I remain long-term bullish on RIG but I am concerned. The OSX oil services index is up substantially in the last couple of months and this sector will eventually see a correction. When that happens RIG might dip toward the $58-55 zone. Therefore I'm not suggesting new positions at this time.

Originally this was an aggressive trade given the unknown risks associated with RIG's connection to the Gulf oil spill. Six months later we have a pretty good idea of what RIG's liabilities might be and the market has already factored them in. (current estimate on liabilities is $116 million minus their insurance coverage)

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.

- Current Positions -
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%)

Current Target(s): $75.00
Current Stop loss: 54.85
Play Entered on: 06/09/10
Originally listed on the Watch List 06/05/10


TASER Intl. - TASR - close: 4.11

11/06 update: The selling in TASR seems to have stopped. Shares have spent over a week now forming a new base in the $3.85-4.05 zone. While it might be tempting to launch new positions on a close over $4.20 I would not. The market is still very overbought. No new positions at this time.

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

- Current Positions -
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

Current Target(s): $ 4.90
Current Stop loss: 3.75
Play Entered on: 08/30/10
Originally listed in New Plays on 08/28/10


WellPoint Inc. - WLP - close: 57.35

11/06 update: The rally in healthcare has slowed a little bit but the HMO healthcare index closed near its 2010 highs. Shares of WLP has rallied toward short-term resistance near $58.00. The company reported earnings last week that beat the street by 17 cents. Analysts were estimating $1.57 on $14.2 billion in revenue. WLP delivered a profit of $1.74 a share on $14.33 billion in revenue. Management raised their guidance for the rest of 2010. The stock saw an initial spike on the move and shares have continued to rally since.

Readers can choose whether or not they want to wait for another dip toward $55.00 and the 50-dma as an entry point or wait for a close over resistance in the $58.00-58.25 zone.

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

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 4.40/ 4.70
-stop loss on WLP @ 52.50

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

Current Target(s): $69.75
Current Stop loss: 52.50
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


Watch

Defense and Coffee

by James Brown

Click here to email James Brown

Editor's Note:

I am making some changes to the play updates and watch list format. The biggest change is less charts for updates and returning candidates. The goal is to add more stocks and more candidates to the newsletter.

I have updated almost all of our buy-the-dip triggers in the watch list tonight.

-James


New Watch List Entries

LLL - L-3 Communications

SBUX - Starbucks Corp.


Active Watch List Candidates

AAPL - Apple Inc.

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

NYX - NYSE Euronext

WLL - Whiting Petroleum

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

SRCL


New Watch List Candidates:

L-3 Communications - LLL - close: 73.90

It looks like the trend is changing for LLL. After a terrible performance in 2010 shares appear to have found a bottom. Now LLL has a new trend of higher lows and higher highs. Granted it could be a big bear-flag pattern but given the market's bullish posture I suspect LLL is ready to begin a new leg higher. You could argue that a Republican controlled congress is bullish for defense stocks.

I am suggesting we buy call LEAPS on a dip at $72.00. We'll use a stop loss at $67.90. Our first target is $79.50. Our second target is $89.00.

Company Info:
Headquartered in New York City, L-3 Communications employs approximately 67,000 people worldwide and is a prime contractor in C3ISR (Command, Control, Communications, Intelligence, Surveillance and Reconnaissance) systems, aircraft modernization and maintenance, and government services. L-3 is also a leading provider of a broad range of electronic systems used on military and commercial platforms. The company reported 2009 sales of $15.6 billion (source: company press release or website)

Buy-the-Dip trigger: $72.00

BUY the 2012 January $75 calls (symbol: LLL1221A75)

Chart of LLL:


Starbucks Corp. - SBUX - close: 30.87

SBUX served up some steaming hot earnings last week. Wall Street was expecting a profit of 32 cents with revenues of $2.77 billion. SBUX beat estimates with a profit of 37 cents on revenues of $2.84 billion. Same-store sales soared +8%, which was better than the +5.5% expectation. Management has offered an optimistic outlook and SBUX plans to open another 500 stores in fiscal year 2011.

Essentially SBUX is a play on the consumer. If jobs are improving and consumer spending is improving, then SBUX is set to keep the rally going. We don't want to buy new highs. Broken resistance near $28 should be support so I'm suggesting a trigger to buy calls on a dip at $28.50. We'll use a stop loss at $25.90. Our long-term target is $34.75 and $38.75.

Company Info:
Since 1971, Starbucks Corporation has been committed to ethically sourcing and roasting the highest quality arabica coffee in the world. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. In addition to its Starbucks retail stores, the company produces a wide range of branded consumer products globally, including ready-to-drink beverages, packaged coffees and premium ice creams. The company’s brand portfolio features Starbucks Coffee, Tazo Tea, Seattle’s Best Coffee and Torrefazione Italia Coffee, enabling Starbucks to appeal to a broad consumer base (source: company press release or website)

Buy-the-Dip trigger: $28.50

BUY the 2012 January $30.00 calls (symbol: SBUX1221A30)

Chart of SBUX:


Active Watch List Candidates:

Apple Inc. - AAPL - close: 317.17

It seems unlikely that given this market's bullishness that AAPL will ever see $280 any time soon. I am adjusting our trigger to launch bullish positions on a dip to the rising 50-dma (currently at $287). We will round up and set our trigger (this week) at $290.00. We'll move the stop loss, if triggered, to $279.00. Our first long-term target is $345.

Buy-the-Dip trigger: $290.00

BUY the 2012 January $300 calls (1221A300)

- or -

BUY the 2013 January $320 calls (1319A320)


Compania de Minas Buenaventura - BVN - close: 54.20

BVN continues to tag new highs as resource and commodity names rally on dollar weakness. This stock will correct eventually. I am moving our trigger to open bullish positions to $48.00 and moving our stop loss to $41.00. I would keep your position small (half normal size or less) given our aggressive entry point.

Buy-the-Dip trigger: $48.00 (half a position)

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


Deere & Co - DE - close: 79.10

Another week, another gain for DE. I am suggesting we use the 50-dma to open positions. Currently the 50-dma is at $72.40. We'll round up to $73.50 as our trigger point to buy call LEAPS. Keep your position small (at least half normal size) given our aggressive entry point. Our new stop is $69.00.

Buy-the-Dip trigger: $73.50 (only half a position)

BUY the 2012 January $80.00 calls (DE1221A80)


Ford Moto Co. - F - close: 16.21

Shares of Ford have exploded higher hitting new six-year highs on strong auto sales. I certainly regret not buying the stock near $13.00 a few weeks ago. Broken resistance near $14.25 should be new support. I'm suggesting a trigger to buy the stock or call LEAPS at $14.30. We'll move our stop loss to $12.95.

Buy-the-Dip trigger: $14.30

BUY the stock - or -
BUY the 2012 January $15.00 calls (F1221A15)


Goldman Sachs - GS - close: 171.07

GS managed to gain $10 on the strength in financials. The stock is very short-term overbought and we don't want to chase it. However, odds of GS dipping to $152 any time soon are low. I am raising our trigger to buy call LEAPS to $160.25. We'll move our stop loss to $152.25. I would keep your position small (at least half your normal size) given our more aggressive entry point.

Buy-the-Dip trigger: $160.25

BUY the 2011 April $180 calls (GS1116D180)

- or -

BUY the 2012 January $190 calls (GS1221A190)


Home Depot - HD - close: 31.92

HD has been consolidating under resistance near $32.00 for about six weeks now. Nimble, more aggressive traders may want to consider launching positions on a dip near $31.00. I am suggesting we wait for a close over $32.50. When HD does close above this level we'll buy the open the next day. New stop at $29.90.

Wait for HD to close over $32.50, then launch positions.

BUY the 2012 Jan $35.00 calls (HD1221A35)


Nike Inc. - NKE - close: 84.11

As much as I want to see NKE correct back toward support near $75 I don't think it's going to happen. After consolidating sideways for most of October NKE is breaking out higher again. I am adjusting our strategy. We want to buy call LEAPS at $82.00. However, we want to keep our positions very small given this aggressive entry and we'll move our stop loss to $79.50.

Buy-the-Dip trigger: $82.00

BUY the 2012 Jan $100 calls (NKE1221A100)


Nokia Corp. - NOK - close: 10.77

I'm not willing to give up just yet on buying a dip in NOK. We will adjust our entry point from $10.00 to $10.25 near the 50-dma. We'll move the stop loss to $9.65.

Buy-the-Dip trigger: $10.25

BUY the 2012 January $10.00 calls (NOK1221A10)


NYSE Euronext - NYX - close: 30.79

We've seen several stocks run away from us as we wait for a dip. I don't want that to happen to us with NYX. This stock has spent the last five months consolidating sideways under resistance at $31.00. Now shares are poised to breakout above this level. Let's use a trigger at $31.50 to buy call LEAPS. I'm moving the stop loss to $28.40.

Buy-the-Breakout Trigger: 31.50

BUY the 2012 January $35.00 calls (NYX1221A35)


Stericycle - SRCL - close: 72.39

I am removing SRCL from the watch list but readers may want to keep an eye on it just in case the stock ever bounces from support near $67.00.


Whiting Petroleum Corp. - WLL - close: 106.47

The $106-110 zone should be significant resistance for WLL so there is a chance shares will see a correction soon. I am adjusting our trigger higher. We'll follow the 50-dma (currently at 97.20). I'm moving the trigger to buy calls to $100 and we'll move our stop loss to $94.00.

Buy-the-Dip trigger: $100.00

BUY the 2011 March $100 calls (WLL1119C100)

- or -

BUY the 2012 January $110 calls (WLL1221A110)


Wynn Resorts - WYNN - close: 113.07

WYNN is now up five weeks in a row and looking pretty overbought at current levels. We still don't want to chase it but we will adjust the trigger higher. I'm now suggesting an entry point to buy calls at $101. We'll use a stop loss at $94.00. This has turned into an aggressive trade so keep your positions small (half normal size).

Buy-the-Dip trigger: $101.00 (small positions!)

BUY the 2011 MAR $110 calls (WYNN1119C110)
- or -
BUY the 2012 Jan $120 calls (WYNN1221A120)