Option Investor
Newsletter

Daily Newsletter, Saturday, 11/20/2010

Table of Contents

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

Leaps Trader Commentary

Still Kicking

by James Brown

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The market pull back in mid November was a little frightening but then they usually are. I suggested that investors should look for a 3% to 5% correction in the market and the S&P 500 delivered a -4.3% decline before traders jumped in to buy the dip. The lows last week were 1173, which was pretty close to the 1175 level we suggested you watch for support. Will stocks go straight up from here? Probably not but it's nice to see the up trend is still intact.

China raised bank reserve ratios again in an effort to slow down their economy. They've done this several times already this year, which reduces the amount of capital banks have available to lend out. Investors still seem worried that China will raise interest rates to slow down their inflation problem but after a -10% decline in the Shanghai market those fears may already be baked in. The Chinese market has already begun to rebound.

Meanwhile Europe remain front and center for many market participants. The apparent meltdown in Ireland has been averted thanks to a bailout by the IMF and EU. Sadly this may have only postponed the problem. Greece was the subject of a major bailout months ago but now many analysts are still expecting Greece to default on their sovereign debt about half way through 2011. When that happens it will once again shake investor confidence and raise doubts about the longevity of the European Union and the euro. One thing we are almost guaranteed to see next year is volatility in the euro and the dollar.

The economic situation here in the U.S. seems to be improving. Analysts are predicting that holiday sales could be the best we've seen in years. The retailers are pulling out all the stops with multi-day black Friday sales. Of course next week will be a holiday shortened trading week as the U.S. celebrates the Thanksgiving holiday. Aside from the holiday the big event on Wall Street will be the FOMC minutes, released on Tuesday. Investors want to know what the Federal Reserve was thinking at their last November 3rd meeting. Tuesday will also see the release of the next Q3 GDP estimate. Economists are expecting GDP growth to improve from +2.0% to +2.4%. Additional economic reports hitting the wires this week are: existing home sales, new home sales, mortgage applications, durable goods, personal income and spending, and the initial and continuing jobless claims.

Looking at the S&P 500 index we can see how the index bounced from support near 1175 and rallied back to psychological support/resistance near 1200. Traditionally Thanksgiving week tends to have a bullish bias and with that in mind I expect the S&P to break higher past the 1200 level. Bigger picture stocks might churn sideways for a little while but I can't tell you if the trading range is 1200-1175 or 1225-1175. The good news is that like Thanksgiving the month of December tends to have a bullish bias as well. If the S&P 500 can close over the 1225-1230 zone it will alleviate fears that the market is forming a big bearish double top pattern.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite came close to a -5% correction and the bounce has carried it back toward its spring highs near 2520. Overall trader sentiment for the tech sector remains optimistic in spite of CSCO's earnings report a couple of weeks ago. My only concern is that the high-flying tech stocks that helped fuel this rally are so overbought and extended that eventually they will see a correction.

Daily chart of the NASDAQ index:

In summary I remain optimistic on stocks. We are in a seasonally bullish time period for the market. Right on cue traders bought the correction suggesting this bull market is still very much alive. We still need to be disciplined with our entry points and stops. I'd much rather wait for stocks to dip toward support but we may not see a normal dip in this market. At the same time we're starting to see more bullish breakouts through resistance, which can offer an alternative entry point but it creates a challenge on stop loss placement. Don't be afraid to take a profit if you have one!

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

It was a rocky week on Wall Street but market participants are still buying the dip. BUCY was the big winner with CAT announcing a buyout of the company on Monday, Nov. 15th. Shares of BUCY gapped open higher above our target. Meanwhile WYNN made the jump from our watch list to play list.

New stop losses for 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

Coal & Freight

by James Brown

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Arch Coal Inc. - ACI - close: 30.30

Company Description:
St. Louis-based Arch Coal is the second largest U.S. coal producer, with revenues of $2.6 billion in 2009. Through its national network of mines, Arch supplies cleaner-burning, low-sulfur coal to U.S. power producers to fuel roughly 8 percent of the nation's electricity. The company also ships coal to domestic and international steel manufacturers as well as international power producers.

Why We Like It:
Coal names are on the move again. Investors have been buying up both energy names and commodity-related stocks. Meanwhile some of the coal stocks are breaking out. Shares of ACI had been stuck in a year-long trading range but managed to breakout through the top of the range this past month. I am suggesting we take advantage of this bullishness and buy call LEAPS on ACI at current levels. Patient investors could wait and hope for a dip back toward the $28.00 level. Our time frame is twelve months and we're setting our first target at $39.75. Coincidentally the Point & Figure chart is bullish and is forecasting a $39.50 target.

- Suggested Positions -
Buy the 2012 or 2013 January calls with ACI at current levels

Nov 22, 2010 - entry price on ACI @ xx.xx, option @ x.xx
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 3.85/ 3.95

- or -

Nov 22, 2010 - entry price on ACI @ xx.xx, option @ x.xx
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 5.80/ 6.25

Chart of ACI:

Current Target: $39.75
Current Stop loss: 26.75
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


Old Dominion Freight Line Inc. - ODFL - close: 28.53 change: +0.50

Company Description:
Old Dominion Freight Line, Inc. is a less-than-truckload multi-regional motor carrier providing one-to-five day service among six regions in the United States and next-day and second-day service within these regions. Through its four product groups, OD-Domestic, OD-Expedited, OD-Global and OD- Technology, the Company offers an array of innovative products and services that provide direct service to 48 states within the Southeast, Gulf Coast, Northeast, Midwest, Central and West regions of the country. In addition to domestic less-than-truckload services, the Company offers assembly and distribution services as well as container delivery services to and from all of North America, Central America, South America and the Far East. The Company also offers a broad range of expedited and logistical services for both its domestic and global markets.

Why We Like It:
The transportation sector has been showing some relative strength and looks poised to rally into the first quarter. If the GDP numbers show that the economy is slowly improving then it should mean stronger business for the freight companies. I like ODFL because shares have broken out over major resistance in the $26-27 zone and shares just spent three weeks digesting its gains and look ready to begin the next leg higher.

I am suggesting bullish positions now but patient investors might get a better entry point on a dip near $27.50-27.00 (or even $26.50 if the market corrects). We'll start this play with a stop loss at $25.45. Our long-term target is $34.75. I would aim higher but we can only buy 2011 April calls.

- Suggested Positions -
Buy the 2011 April $30 calls on ODFL at current levels ($29-26 zone)

Nov 22, 2010 - entry price on ODFL @ xx.xx, option @ x.xx
symbol: ODFL1116D30 2011 APR $30 call - current bid/ask $ 1.90/ 2.10

Chart of ODFL:

Current Target: $34.75
Current Stop loss: 25.45
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


Play Updates

Stocks Rebound Midweek

by James Brown

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Closed Plays


BUCY exceeded our target.


Play Updates


Akamai Technology - AKAM - close: 49.53

11/20 update: It was a volatile week for AKAM. Shares dipped toward support near $46 and its rising 100-dma before bouncing higher. The stock was downgraded early in the week and upgraded late in the week by another firm. The longer-term trend of higher lows is still in place. If shares can breakout over the $50 level then AKAM is poised to challenge its highs before yearend. More conservative traders may want to tighten their stops. Currently our stop is $41.90. FYI: Once again there was some takeover chatter about AKAM.

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 several months.

- Current Positions -
Oct 06, 2010 - entry price on AKAM @ 45.50, option @ 7.50
symbol: AKAM1221A50 2012 JAN $50 call - current bid/ask $ 9.45/ 9.75

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: 108.59

11/20 update: In the last several days the Chinese market has seen a very sharp correction, falling about -10% in just a few days. This move took a toll on BIDU. The stock went from nearly $115 to almost $103 before finally bouncing. The long-term trend is still up but I'm not suggesting new bullish positions at this time. More conservative traders may want to raise their stop loss.

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 $27.45/28.25

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: 80.77

11/20 update: Shares of BRK.B suffered two corrections in the last four weeks. Both times traders bought the dip near the stock's rising 200-dma. Thus we're looking at a new bullish entry point given the stock's current two-day bounce. Please note I am raising our stop loss to $75.75 and more conservative traders may want to use a stop closer to $78.00 instead. FYI: 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 $ 0.82/ 0.87

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.65/ 4.95

11/20/10 New entry point on bounce from 200-dma
11/20/10 New stop @ 75.75
10/29/10 Play triggered on dip at $79.00.

Current Target: $ 99.00
Current Stop loss: 75.75
Play Entered on: 10/29/10
Originally listed on the Watch List 09/11/10


ConocoPhillips - COP - close: 61.92

11/20 update: Energy stocks are still holding up pretty well considering the pull back in oil recently. COP has found some short-term support at its rising 30-dma. I would still look for additional support near $60 and $58 if the market corrects any further. I am not suggesting new bullish positions at this time.

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 $7.10/7.30

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: 37.01

11/20 update: DIS gave up about 75 cents last week in spite of one Wall Street firm putting a $48 price target on the stock. The consolidation under resistance near $38 is normal. I would still use dips in the $36-35 zone as potential bullish entry points. Remember, we have a long-term time frame here. We can afford to wait for the right entry point.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 2.77/ 2.83

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.00/ 4.35

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 - $68.93

11/20 update: The correction in DO took the stock down toward its 50-dma with a low of $66.62 for the week. The stock has been trying to bounce. Readers can use this rebound as a new entry point to buy calls but I would enter cautiously and start with small positions.

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 $1.73/1.79

- or -

Oct 21, 2010 - entry price on DO @ 67.50, option @ 4.79
symbol: DO1221A86 2012 Jan $85.25 call - current bid/ask $4.05/4.30

11/20/10 New Entry point on bounce from 50-dma. Use small positions
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: 21.82

11/20 update: The correction in EMC pulled shares down toward support near $20.50 and its 50-dma. Fortunately the stock has already begun to rebound and look poised to breakout past resistance near $22.00. Our first target is $22.50 so we will want to sell the rest of our 2011 calls when EMC hits this level. If you have a long-term time frame and willing to buy the 2012 calls then readers could initiate small positions on this bounce.

- 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 $2.12/2.16

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $3.75/3.95

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: 53.38

11/20 update: Traders bought the dip midweek near the 20-dma and ESRX has rebounded to new five-month highs. The stock is now challenging resistance near $54.00 (and the June 2010 high). The relative strength in ESRX is encouraging but I would not launch new positions at current levels. FYI: The P&F chart is bullish with a $74 target.

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $6.45/6.65

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $9.05/ 9.85

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: 132.20

11/20 update: The correction in gold and the metals has been pretty sharp but traders bought the dip near $130.00 on the GLD near its rising 50-dma. Worries over Ireland and a potential domino effect of defaults in Europe pushed the euro lower. This euro weakness powered big gains in the dollar and this in turn was pushing commodities lower. Bears would argue that commodities have produced a reversal. They might be right short term. Yet long-term the trend for gold and the GLD is still up. That doesn't mean that the GLD can't test support near $125.00 before continuing that up trend.

Currently we only have one position left (2012 calls) and I'm not suggesting new bullish positions at this time.

Our long-term target for the 2012 calls is at $149.00.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $15.05/15.60

11/09/10 Target hit - GLD opened at $138.70, 2011 Mar. Call opened @ $20.00 (+159%)
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
Current Stop loss: 123.40
Play Entered on: 08/06/10
Originally listed on the Watch List 06/05/10


Humana Inc. - HUM - close: 56.03

11/20 update: Shares of HUM saw some volatility this past week. The company said 2011 profits would be lower than previously thought as it adjusts for higher Medicare costs and changes due to the new healthcare reforms. Yet management reminded investors that the aging U.S. population creates a very favorable long-term environment for their company. Traders decided to buy the dip in HUM at its rising 50-dma. The pull back looks like a new entry point although if you're patient we might see a new entry point in the $54-53 zone again.

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 $ 7.90/ 8.90

11/20/10 Entry point on the dip.
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: 145.05

11/20 update: After a -4% correction bulls were buying the dip in IBM. The stock found some support near the $141 area and is now just a couple of points away from new highs. The relative strength is good news but I would not launch new positions at this time.

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 $10.30/10.55

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: 65.94

11/20 update: Shares of INFY have been struggling thanks to the sharp declines in the Indian stock market. Yet INFY only lost -0.6% on Friday compared to the -1.7% drop in the Sensex index. Last week's breakdown under short-term support near $66 was countered when traders bought the dip near the next level of support around $64.00. I'm not convinced the correction is over yet so I'm not suggesting new bullish positions at this time. Keep in mind our stop loss is at $61.75.

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 $ 9.00/10.10

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


L-3 Communications - LLL - close: 71.30

11/20 update: The trend of higher lows is still in play after traders bought the dip in LLL near $69.50 last week. This bounce looks like a new bullish entry point but I will admit there is still a chance that LLL is forming a huge bear-flag pattern. More conservative traders may want to consider a slightly higher stop loss (plus you may want to wait for a new close over $72.00 before launching positions).

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 5.30/ 5.60

11/11/10 Play triggered with LLL's gap open @ 71.87

Chart of LLL:

Current Target(s): $79.50, 89.00
Current Stop loss: 67.75
Play Entered on: 11/11/10
Originally listed on the Watch List 11/06/10


McDonald's Corp. - MCD - close: 79.64

11/20 update: Market participants were very quick to buy the dip in MCD. The stock has a relatively consistent trend of higher lows with bulls buying dips near the 30 or 40-dma. This past week saw a dip to the 40-dma, which was quickly bought. Now MCD is challenging its all-time highs and looks ready to breakout over round-number, psychological resistance at $80.00. We do not want to launch new positions at this time.
FYI: 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.

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

- 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 $5.25/ 5.40

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: 25.69

11/20 update: I warned readers to look for a pull back toward $25.50 and MSFT delivered. The $25.50-25.00 zone should be decent support and I would launch new positions at this time but more conservative traders may want to wait for a bounce first (and a close over $26.00 before initiating 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 $3.05/ 3.15

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.15/ 2.20

11/20/10 Another Entry Point on the dip toward the 50-dma
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


Nike Inc. - NKE - close: 85.81

11/20 update: NKE gapped open on Monday morning at $82.91 but quickly reversed lower. The correction pulled shares toward support near $80.00 and its 50-dma. Bulls jumped in to buy the dip and shares really exploded on Friday with a +4% gain to close at new highs. Investors seemed to applaud the company's decision to raise their cash dividend by +15% to 31 cents a share. I'd rather not chase NKE here. Wait for a dip near $83.00 before considering new bullish positions.

Previous Comments:
We wanted to keep our initial position size small to limit our risk.

- Current Positions -
Nov 15, 2010 - entry price on NKE @ 82.91, option @ 5.40
symbol: NKE1221A90 2012 Jan $90 call - current bid/ask $6.75/ 6.95

11/15/10 Play opened on Monday morning, NKE @ 82.91

Current Target(s): $95-100
Current Stop loss: 79.75
Play Entered on: 11/15/10
Originally listed in New Plays on 11/13/10


Nokia Corp. - NOK - close: 10.12

11/20 update: It was a tough week for Nokia. Credit rating agency Fitch downgraded NOK to BBB- and said their outlook was negative. Meanwhile NOK's stock was downgraded in Europe. Plus NOK admitted they have some power/battery problems with their N8 smartphones. The stock slipped toward round-number, psychological support near $10.00. The short-term trend is down and while I am tempted to buy calls on this dip to $10.00 more conservative traders may want to wait for a new close over the 50-dma before launching new positions.
Our time frame is nine to twelve months.

- Current Positions -
Nov 12, 2010 - entry price on NOK @ 10.25, option @ 1.75
symbol: NOK1221A10 2012 Jan $10 call - current bid/ask $ 1.51/ 1.58

11/12/10 Play triggered @ $10.25

Current Target(s): $12.45, 14.40
Current Stop loss: 9.49
Play Entered on: 11/12/10
Originally listed on the Watch List 11/06/10


NVIDIA Corp. - NVDA - close: 13.75

11/20 update: Heads up! NVDA is surging and the stock closed at new six-month highs. Traders have a decision to make. Originally our second target to exit has bee $14.00. last week I raised it to $14.50. Since we have 2012 calls I am raising our target to $15.75. Keep in mind that it could still take months to get there and it will likely be a rocky path. I am also raising our stop loss to $11.40. More conservative traders may want to raise their stops closer to the 50-dma (currently $11.75). I am not suggesting new positions at this time.

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.

- 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 $3.15/ 3.25

11/20/10 New target at $15.75
11/20/10 new stop @ 11.40
11/13/10 New stop @ 10.89
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

Chart of NVDA:

Current Target(s): $12.50 & 15.75
Current Stop loss: 11.40
Play Entered on: 09/13/10
Originally listed in New Plays on 08/28/10


Transocean Ltd. - RIG - close: 68.33

11/20 update: Investors are still buying the dips in the oil service stocks. RIG found support near $65 last week. The stock looks poised to breakout past resistance near $70.00 soon. 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 $78.50.

- 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 $14.95/15.20

11/13/10 new target @ 78.50
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): $78.50
Current Stop loss: 54.85
Play Entered on: 06/09/10
Originally listed on the Watch List 06/05/10


TASER Intl. - TASR - close: 4.27

11/20 update: Whew! What a difference a week can make. TASR was looking pretty ugly a week ago. The stock has rebounded and closed at new three-week highs. Readers may want to look for a pull back into the $4.10 region as a new entry point but consider raising your stop toward $3.85.

- 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: 58.61

11/20 update: The correction pulled WLP down toward technical support at its 200-dma but and this level held reasonably well. There was an intraday spike lower on Thursday as traders reacted to the earnings warning from HUM. Bulls were quick to buy the dip on Friday and WLP outperformed the market with a +4% gain. Last week I suggested readers buy call LEAPS on a bounce from the $56 level and we got it.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 5.25/ 5.70

11/20/10 Another entry point on the bounce from the 200-dma
10/14/10 Play Triggered when WLP hit $57.75, option @ $5.25

Current Target(s): $69.75
Current Stop loss: 52.75
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


Wynn Resorts - WYNN - close: 102.99

11/20 update: That big drop in WYNN on Friday was not relative weakness. Shares started trading ex-dividend on Friday morning. Back on Nov. 2nd the company declared a special one-time $8.00 dividend to shareholders and the stock is trading without that dividend as of Friday morning. Shares opened at $101.33. We had a trigger to buy call LEAPS at $102.50 so the play was opened on Friday morning. This explanation for the gap down doesn't mean the correction is over. While casino names were bouncing on Friday there was a Bloomberg report a few days ago that suggested Macau will crank down on casino growth, the number of new gaming tables, and tighter financial regulations. Macau has been driving the growth for most of the big casino names so the sector will be sensitive to headlines from this region.

I would still consider new positions now near the $103 area but if you're patient we might see a better entry point near $100. We have a stop loss at $94.75. I'm setting our first long-term target at $119.00.

Previous Comments:
Keep your positions small. This is an aggressive trade.

OPTION STRIKES: Note, given the $8.00 dividend the option strikes have been adjusted. The $110 calls are now the $102 calls. The $120 calls are now $112 calls.

- Current Positions -
Nov 19th, 2010 - entry price on WYNN @ 101.33, option @ $10.50
symbol: WYNN1119C102 2011 MAR $102 call - current bid/ask $10.80/11.05

- or -

Nov 19th, 2010 - entry price on WYNN @ 101.33, option @ $16.05
symbol: WYNN1221A112 2012 JAN $112 call - current bid/ask $15.55/16.15

11/19/10 Play opened on gap down at $101.33

Chart of WYNN:

Current Target(s): $119.00
Current Stop loss: 94.75
Play Entered on: 11/19/10
Originally listed on the Watch List 05/15/10


CLOSED Plays

Bucyrus Intl. - BUCY - close: 89.20

11/20 update: Target exceeded!
On Monday morning Caterpillar (CAT) announced a buyout of BUCY. Shares of BUCY gapped open higher at $90.08 and we had a target to exit at $87.50 to the play was closed immediately. On Monday the 2011 January $60 calls opened at $29.65 and the 2012 January $70 calls opened at $20.00.

- Closed Positions -
Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - Exit @ $29.65 (+248.8%)

- or -

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 13.00
symbol: BUCY1221A70 2012 JAN $70 call - Exit @ $20.00 (+53.8%)

11/15/10 Target exceeded on Gap Open Higher!
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:

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


Watch

Retailers Ramping Up

by James Brown

Click here to email James Brown

Editor's Note:

Black Friday is almost here and investors are increasing their focus on the retailers. We are looking at one tonight.

-James


New Watch List Entries

JCG - J. Crew Group Inc.


Active Watch List Candidates

BVN - Compania de Minas Buenaventura

DE - Deere & Co

F - Ford Motor Co.

GS - Goldman Sachs

HD - Home Depot

NFX - Newfield Exploration

SBUX - Starbucks Corp.

WLL - Whiting Petroleum


Dropped Watch List Entries

AAPL and DECK have been removed. WYNN graduated to the play list.


New Watch List Candidates:

J. Crew Group, Inc. - JCG - close: 36.49

Company Info:
J. Crew Group, Inc. is a nationally recognized multi-channel retailer of women's, men's and children's apparel, shoes and accessories. As of November 16, 2010, the Company operates 250 retail stores (including 221 J.Crew retail stores, 9 crewcuts stores and 20 Madewell stores), the J. Crew catalog business, jcrew.com and 85 factory outlet stores. (source: company press release or website)

Why We Like It:
JCG has been lagging its peers in the retail sector for several weeks now. It looks like that's about to change. The stock has spent the last four months building a new base in the $31-36 zone. This just happens to coincide with the 50% retracement of its 2009 rally. While it would be tempting to buy the breakout last week I suspect JCG will see a little profit taking. I'm suggesting we buy calls on a dip to $35.25. If triggered we'll use a stop loss at $32.40. Our first target is $44.75.

Warning: This is an aggressive entry point in front of the company's earnings report. JCG is due to report on Tuesday, November 23rd after the closing bell. Wall Street expects a profit of 54 cents a share. More conservative traders will want to strongly consider waiting until after we see how Wall Street reacts to the company's earnings results before initiating positions.

Buy-the-Dip trigger: $35.25

FYI: 2011 June are the longest dated options available.

BUY the 2011 June $40 calls (JCG1118F40) current ask $3.70

Chart of JCG:

Originally listed on the Watch List: 11/20/10


Active Watch List Candidates:

Apple Inc. - AAPL - close: 308.03

AAPL has seen a $20 pull back from its highs but I still don't want to chase it here. Depending on your outlook AAPL is either consolidating sideways in the $300-320 zone or it is about to form a bearish head-and-shoulders pattern and all it needs to do now is complete the right shoulder. If AAPL does produce an H&S pattern this would forecast a decline toward $280. A drop to $280 would also coincide with a 50% retracement of its August-November rally. It could take weeks before AAPL sees $280 again (if ever) so I'm removing AAPL as a watch list candidate for the time being. We'll certainly be keeping an eye on it. The support levels to watch are $300, $290, $280 and $270.

Summary: We're long-term bullish on AAPL but we don't want to chase it here. We'll wait for a significant correction. I'm dropping it from the watch list to make room for something that offers a higher chance of getting triggered.


Compania de Minas Buenaventura - BVN - close: 53.55

BVN has seen a 10% correction with the intraday November high to the intraday low last week. However, I'm not convinced the correction is over. We want to keep our trigger at $48.00 although more aggressive traders may want to buy a dip near the rising 50-dma. 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)


Deere & Co - DE - close: 77.98

DE came close but didn't quite hit our trigger at $73.50. The stock slipped toward the $74.00 level but traders bought the dip at the rising 50-dma. I remain bullish on DE but I am very hesitant to chase it at current levels. I'm suggesting we alter our strategy. Move the trigger to buy long-term calls to $75.50 but we'll also move the stop loss to $73.45. Plus, we want to keep our position size very small since this would be an aggressive entry point. To further limit our risk I'm adjusting our option as well.

Buy-the-Dip trigger: $75.50 (very small positions)

BUY the 2012 January $90.00 calls (DE1221A90)


Deckers Outdoor Corp. - DECK - close: 66.81

I'm sorry to report that we appear to have missed the entry point on DECK. The stock dipped to $58.40 last week and then surged to new highs. Our trigger at $56.00 remains untouched. I don't want to chase DECK at these levels. I'm removing it from the watch list but suggest readers keep it on their personal watch list for a correction and bounce from support.


Ford Moto Co. - F - close: 16.28

Ford spiked to new multi-year highs over $17 ahead of the GM IPO. I don't see too many changes from my prior comments. However, we will tweak our entry point and move it from $14.30 to $14.50. If we do get triggered I would start with a small position and slowly build a position over time. If triggered we want to use a stop loss at $12.95.

Buy-the-Dip trigger: $14.50

BUY the stock - or -
BUY the 2012 January $15.00 calls (F1221A15) - or -
BUY the 2012 January $17.50 calls (F1319A17.5)


Goldman Sachs - GS - close: 166.67

GS has not seen the same sort of correction the rest of the financial has experienced. The sideways consolidation looks bullish. However, because the banking sector has been relatively week I'm hesitant to launch new positions in GS at current levels. We'll keep our trigger at $160.75. We'll keep our stop loss at $152.25, just under the simple 200-dma. I would keep your position small (at least half your normal size) given our more aggressive entry point.

Buy-the-Dip trigger: $160.75

BUY the 2011 April $180 calls (GS1116D180)

- or -

BUY the 2012 January $190 calls (GS1221A190)


Home Depot - HD - close: 31.22

In spite of the volatility last week we are still on the sidelines. HD reported earnings on Nov. 16th. The company beat estimates by 3 cents with revenues that were in-line with estimates. However, the company raised its 2011 guidance. The stock briefly broke out above resistance at $32.00 but failed to hold those gains. Shares closed at $31.71 on Tuesday. Wednesday saw a nasty breakdown under technical support at its 50-dma and 200-dma. Our plan was to buy calls on a close over $32.50 so we're still waiting. If we do not see HD improve over the next week I might drop it as a bullish candidate.

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

BUY the 2012 Jan $35.00 calls (HD1221A35)


Newfield Exploration - NFX - close: 67.81

Energy stocks have held up pretty well and NFX has continued to show relative strength. The stock closed at new two-year highs on Friday but shares are also nearing significant resistance in the $68-70 zone. We do not want to open positions here. The plan is to wait for a correction back toward prior resistance. If triggered I'm listing our stop loss at $55.75. We'll set our first target at $69.00.

Buy-the-Dip trigger: $61.50

BUY the 2011 June $65 calls (NFX1118F65)

- or -

BUY the 2012 January $65 calls (NFX1221A65)


Starbucks Corp. - SBUX - close: 30.76

SBUX has been resilient and really didn't see that much of a pull back. The sideways consolidation is encouraging but we don't want to buy calls with SBUX trading near its highs. I'm suggesting we stick with the plan and wait for a dip to $28.50. We'll use a stop loss at $25.90. Our long-term target is $34.75 and $38.75.

Buy-the-Dip trigger: $28.50

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


Whiting Petroleum Corp. - WLL - close: 109.38

WLL is yet another energy stock showing relative strength. The stock set a new two-year closing high on Friday and shares are very close to resistance near $110. We don't want to chase it here but I will raise our trigger from $100 to $102.50. We'll also move the stop loss higher to $96.25.

Buy-the-Dip trigger: $102.50

BUY the 2011 March $100 calls (WLL1119C100)

- or -

BUY the 2012 January $110 calls (WLL1221A110)