Option Investor
Newsletter

Daily Newsletter, Saturday, 12/4/2010

Table of Contents

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

Leaps Trader Commentary

Has Santa Come Early This Year?

by James Brown

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Thank you, Santa! The Friday morning jobs report was horrendous. Economists were expecting +130,000 new jobs with +140,000 in new private payrolls. Instead the Labor Department said the nonfarm payrolls report showed +39,000 new jobs and only +50,000 in private payrolls. There were several analysts expecting +175,000 new jobs. This was the perfect excuse to sell stocks, especially after the recent rally. Yet there was barely any profit taking on Friday morning. After churning sideways for a few hours the up trend resumed. If that's not a gift from Santa to the bulls I don't know what is!

Overall the week played out as expected. The EU and IMF managed to engineer a bailout for Ireland. This cooled fears over a sovereign debt default and the potential domino effect for all the PIIGS countries. The euro currency began to rally. This put pressure on the U.S. dollar, which has reversed lower after hitting two month highs in November. Now the dollar weakness is refueling the commodity rally. Gold is soaring and nearing its all-time highs again. Commodity plays are back in vogue. Economic data in the U.S. continues to show improvement, except for the labor market. The steady stream of data helped fuel the rally in U.S. markets.

We are in a traditionally bullish time of year for the stock market. Not only are traders looking for a "Santa Claus" rally but the "January effect" has gotten earlier and earlier each year so now it takes place in December. The January effect is where money managers start placing their bets in the small cap space. With stocks in an up trend and investors expecting the U.S. and global recovery to pick up speed in 2011 we want to maintain our bullish bias on stocks.

The S&P 500 index has broken out of its 1175-1200 trading range and is now challenging resistance at its 2010 highs set last month. While it doesn't technically fulfill the requirements for a cup-and-handle pattern the S&P 500 certainly looks poised to breakout past 1225 and surge higher into yearend. I wouldn't be surprised to see a little resistance in the 1240-1250 zone but the 1200 level should act as new support.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ continues to show strength thanks in part to strong gains in the semiconductor sector. You'll notice on the daily chart that the NASDAQ found technical support at its rising 40-dma. Meanwhile the SOX semiconductor index has been showing lots of relative strength. The chips have broken out past resistance near the 400 level and set new two-year highs. It is worth pointing out that the semis do look short-term overbought and due for some profit taking.

Daily chart of the NASDAQ index:

Weekly chart of the SOX semiconductor index:

The small caps are showing plenty of strength with the Russell 2000 index breaking out past its April 2010 highs. The next hurdle is the 760-765 zone where the $RUT failed three times back in 2008. Odds are good that the current rally could stall there and we might see some profit taking. Of course we will want to use the decline as a new entry point for bullish positions.

Daily chart of the Russell 2000 index:

Assuming North Korea doesn't start shooting again and Spain or Portugal don't see a sudden meltdown then this week will likely be dominated by more economic data. There isn't a lot on the docket. Thursday will bring the weekly initial jobless claims, and the wholesale inventory numbers. Friday we'll see the trade balance report for October, the import/export prices, and the Michigan Sentiment figures.

In summary, my bias remains bullish. However, stocks appear a little bit overbought here. With the NASDAQ and S&P 500 testing resistance I would look for a little decline this week and use the dip as an entry point if we see our candidates pull back toward support.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

As expected improving economic data in the U.S. overshadowed concerns overseas. The markets even managed to overlook a very disappointing jobs number on Friday morning. When the market wants to go up it will find a way. On a short-term basis stocks are starting to look a little overbought and due for some profit taking.

DO and NOK were closed. JAS and LCC made the jump from the watch list.

New stop losses for ESRX, RIG, 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

So Far So Good

by James Brown

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Editor's Note:

Stocks have soared the past few days. While I remain bullish on the market many stocks are starting to look a little bit overbought. I don't want to chase the move. Thus, no new plays tonight. Our watch list continues to do a good job providing candidates we can buy calls on a dip.


Play Updates

Stocks Stage Another Rally

by James Brown

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Editor's Note:

We had two plays closed this past week but two more candidates made the leap from the watch list.

-James


Closed Plays


DO and NOK have been closed.


Play Updates


Arch Coal Inc. - ACI - close: 32.26

12/04 update: ACI delivered a very strong week. Shares broke out past resistance near $30.00 to close at new two-year highs. If you are looking for a new entry point I would be tempted to buy calls on a dip near $30.00 again. Our time frame is twelve months and we're setting our first target at $39.75.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.70/ 4.85

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 5.75/ 7.30

11/22/10 Play opened. ACI @ $30.15

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


Akamai Technology - AKAM - close: 52.96

12/04 update: AKAM continues to drift higher yet the stock remains under its 2010 highs printed last month near $54.00. Some of the shorter-term oscillators are hinting at another pull back soon. We can look for support near $50.00 or the 100-dma near $47.50. I am not suggesting new positions at current levels.

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 $11.50/11.75

11/27/10 New stop @ 43.75
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: 43.75
Play Entered on: 10/06/10
Originally listed on the Watch List 10/02/10


Baidu, Inc. (Baidu.com) - BIDU - close: 109.23

12/04 update: China is still trying to cool off its red hot economy and many believe the Chinese government will continue to tighten monetary policy in 2011. The fear is that China will go too far and apply the brakes to the economy too fast, which will hurt the entire globe. Every time there is a headline regarding China potentially tightening policy the Chinese stocks sink. BIDU saw a couple of spikes lower this past week. Traders bought the dip in the $104.50-105.00 zone but BIDU bounced thanks to technical support at the rising 50-dma. If BIDU does breakdown and close under its 50-dma it could be a signal that the stock is poised for a deeper correction. If that occurs I would expect a pull back toward the $95 area. I'm not suggesting new positions at this time.

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 $27.90/28.30

10/30/10 Adjusted exit target 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: 80.90

12/04 update: BRK.B gave us a little bit of a scare. Shares were flirting with a breakdown under technical support at its 200-dma. Fortunately investors continued to buy the dips near $79.00. This past week's rebound is encouraging but the rally stalled at short-term resistance near $81 and its 50-dma. I remain cautious here and would hesitate to launch new positions. A close over $82 or $84 would help confirm the long-term up trend is still in place. I will repeat my earlier comments that readers might want to raise their stops toward $78.00.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 0.54/ 0.58

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.60/ 4.80

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: 63.92

12/04 update: Energy stocks erupted into a new rally this past week. COP surged four points to close at new two-year highs. Volume has been strong on the rally, which is encouraging. If you're looking for a new entry point I would consider small positions on dips near $60 but you may want to use a tighter stop loss than our stop under $55.

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 $8.25/8.40

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


Deere & Co - DE - close: 78.31

12/04 update: DE also gave us a bit of a fright with the late November drop under $75 and its 50-dma. Fortunately it was a one-day event. The stock quickly recovered. DE did manage to break the short-term trend of lower highs and close over $77.50. Readers could use this move as a new entry point to buy call LEAPS.

- Current (very small) Positions -
Nov 26, 2010 - entry price on DE @ 75.50, option @ 4.75
symbol: DE1221A90 2012 JAN $90 call - current bid/ask $5.45/5.60

12/04/10 DE offered another entry point with the move over $77.50
11/26/10 DE hit our trigger @ 75.50

Current Target: $ 88.00, 94.00
Current Stop loss: 73.45
Play Entered on: 11/26/10
Originally listed on the Watch List --/--/--


Walt Disney Co. - DIS - close: 37.59

12/04 update: Good news! Short-term support near $36.00 held up again and DIS is bouncing toward resistance near $38. Short-term technicals look positive and if the market cooperates DIS could set new multi-year highs with a move over $38 soon. In the news this past week DIS raised their annual dividend by 5 cents to 40 cents a share. I am not suggesting new positions at current levels.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 2.97/ 3.05

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.45/ 4.65

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


EMC Corp. - EMC - close: 22.13

12/04 update: We are quickly running out of time with our 2011 January $20 calls. These will expire in about seven weeks. Fortunately, EMC has rallied toward its highs and looks poised to breakout. Our target to exit these options is at $22.50. We will plan on selling half of our 2012 calls as well. I am not suggesting new positions at this time but if you see EMC test its trendline of higher lows readers could buy calls on the dip.

- 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 $2.28/2.33

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $3.90/4.05

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: 18.95
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 54.20

12/04 update: ESRX surged to new highs on December 1st and the stock has been consolidating gains since. On a short-term basis the stock looks poised to rally from here. Aggressive traders may want to consider launching new positions at current levels. I would prefer to buy calls on a dip near $52.00. I am raising our stop loss t $47.90. 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 $6.75/6.90

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $9.45/10.20

12/04/10 new stop @ 47.90
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: 47.90
Play Entered on: 10/25/10
Originally listed on the Watch List 10/16/10


SPDR Gold ETF - GLD - close: 138.07

12/04 update: Dollar weakness has helped re-start the gold rally. The GLD added about five points this past week and looks close to testing its all-time high of $139.15 set on Nov. 9th. Goldman Sachs is forecasting gold futures to surpass $1,700 an ounce next year so we might want to reconsider our final exit target. Currently the plan is to exit at $149.00.

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 $18.40/19.20

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


Goldman Sachs - GS - close: 162.31

12/04 update: Right on cue GS started bouncing for us. The stock is back above potential resistance at the $160 level. The next short-term hurdle is $163 and then the $170-171 zone. If you're looking for a new entry point consider waiting for another dip into the $160-158 zone. The financials look a little short-term overbought and could see a pull back soon.

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 4.25
symbol: GS1116D180 2011 Apr $180 call - current bid/ask $ 4.15/ 4.30

- or -

Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $ 9.85/10.10

11/22/10 GS hit our trigger @ $160.75

Current Target(s): $179.75, 199.50
Current Stop loss: 149.75
Play Entered on: 11/22/10
Originally listed on the Watch List 10/24/10


Humana Inc. - HUM - close: 57.04

12/04 update: Healthcare stocks lagged the rest of the market on Friday. HUM has been underperforming the last couple of days. This relative weakness is a little worrisome. If you do launch new positions you may want to start small. Support near $55 and the 50-dma could be used as an entry point although if you do launch new positions you'll want to consider a tighter stop loss.

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 $ 8.20/ 9.40

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: 145.38

12/04 update: Instead of correcting back toward support near $133 IBM has decided to consolidate sideways in the $141-146 zone. Naturally this is a much more bullish choice for IBM but it does make picking our next entry point more challenging. Currently IBM has bounced back toward the top of its range. I am not suggesting new bullish 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 $10.60/10.75

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: 69.33

12/04 update: The market's recent strength has been a boon for INFY. Shares have rallied past resistance near $67.00 and its 50-dma. My only complaint is the lack of volume behind this bullish move. INFY is nearing potential resistance at $70. I am not suggesting new positions at this time.

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 $11.50/12.60

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


Jo-Ann Stores, Inc. - JAS - close: 46.94

12/04 update: After the closing bell on December 1st JAS reported earnings. The company delivered a profit of $1.09, which was one cent better than expected. Revenues of $535.3 million beat Wall Street's expectations. Management pretty much guided in-line for 2011. The lack of excitement sent shares lower and the next day JAS spiked down toward its trendline of higher lows. Shares hit $43.50 and suddenly rebounded. Volume was pretty big on Thursday's volatile session. Fortunately JAS has not violated its uptrend. Our trigger to buy call LEAPS was hit at $44.50. I would still consider new positions now but cautious investors may want to watch JAS for a few days just to wait for the post-earnings dust to settle. I'm setting our first target at $54.50. We'll put the stop loss at $41.45.
FYI: July calls were the longest ones available.

- Current Positions -
Dec 2, 2010 - entry price on JAS @ 44.50, option @ 3.75
symbol: JAS1116G50 2011 Jul $50 call - current bid/ask $ 4.40/ 4.70

12/02/10 Play triggered @ $44.50

Chart of JAS:

Current Target(s): $54.50
Current Stop loss: 41.45
Play Entered on: 12/02/10
Originally listed on the Watch List: 11/27/10


US Airways Group, Inc. - LCC - close: 11.04

12/04 update: Our new play on LCC has been triggered with Friday's dip under $11.00 (our trigger was at the $11.00 mark). Unfortunately, I'm concerned with the relative weakness in the airline industry. The XAL index has not participated in the market's recent strength this past week. Long-term the trend for the XAL and LCC is still up but short-term this relative weakness is a caution signal. Readers may want to wait for a dip toward $10.50 (or bounce near $10.50) before launching new positions. Both the $10.50 and $10.00 levels should offer some support. We have a stop loss at $9.49.

- Current Positions -
Dec 3, 2010 - entry price on LCC @ 11.00, option @ 1.95
symbol: LCC1221A12.5 2012 Jan $12.50 call - current bid/ask $ 1.84/ 1.93

12/03/10 Play triggered @ $11.00

Chart of LCC:

Current Target(s): $14.90
Current Stop loss: 9.49
Play Entered on: 12/03/10
Originally listed on the Watch List: 11/27/10


L-3 Communications - LLL - close: 73.25

12/04 update: LLL's support near $70.00 and its trendline of higher lows is holding. The recent bounce looks like a new entry point to buy calls. There is some short-term resistance near $74.00 but the recent action is encouraging. I will repeat my earlier comments that cautious traders may want to tighten their stops.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 6.20/ 6.50

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

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: 79.76

12/04 update: I remain very optimistic on MCD. The stock has rallied from the bottom of its current $77-80 trading range (and technical support at its 50-dma). If the market cooperates MCD could breakout over resistance near $80 soon. If the market slides then we're probably looking at another dip toward $78. I'm not suggesting new positions at this time but aggressive traders may want to consider small positions on a close over $80.00. Currently our target is $89 but it wouldn't surprise me to see MCD testing $99 by next December.
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 $5.55/ 5.70

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: 27.02

12/04 update: It was a big week for MSFT with the shares adding +8% and breaking out past their 200-dma. I remain very long-term bullish on MSFT but I wouldn't launch new positions here. Wait for a dip toward the $26-25 zone again.

Previous Comments:
The $28.00 level could be significant resistance as would the 2010 highs near $31.50.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $3.90/ 4.00

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.71/ 2.81

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: 87.53

12/04 update: NKE managed to tag new highs on December 1st and then spent the next couple of sessions consolidating sideways. The stock is short-term overbought. I'm not suggesting new positions at this time. Look for support near $84 on a correction. Don't forget that NKE is due to report earnings on December 21st. Cautious investors may want to take profits and exit early ahead of the announcement.

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 $7.75/ 7.90

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: 10.00

12/04 update: Hmm... it was an interest week for NOK. I warned readers last week that shares had been underperforming and we were at risk of getting stopped out. Sure enough on Monday NOK gaps open lower at $9.29 and closes this trade. The next day NOK dips toward a new trendline of higher lows and suddenly soars higher. On the weekly chart this is nice big bullish engulfing candlestick (reversal) pattern). Should we buy this bounce? NOK still offers a lot of potential.

We do have to record this loss on the newsletter but I'm not dropping NOK. Let's watch it for another week and see what happens. We might see another entry point soon. Aggressive traders could launch new positions now. In summary, our play has been closed but we'll keep NOK on the play list for another entry point. I don't want to confuse readers by moving it to the watch list.

- Closed Positions -
Nov 12, 2010 - entry price on NOK @ 10.25, option @ 1.75
symbol: NOK1221A10 2012 Jan $10 call - exit @ $1.21 (-30.8%)

11/29/10 Trade Stopped out. NOK gap down at $9.29, option @ $1.21 (-30.8%)
11/12/10 Play triggered @ $10.25

Chart of NOK:

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: 14.79

12/04 update: Semiconductor stocks have been surging higher and leading the way is NVDA. The stock has rocketed to new highs past $14.00. While the move is very exciting the stock is now short-term overbought. Readers may want to consider taking some profits right here and now. Eventually NVDA will see another correction. At the moment our final target to exit is $15.75 but we still have months left with our 2012 calls. No new positions at this time. I'm setting a new stop loss at $12.25.

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 $3.90/ 4.00

12/04/10 New stop loss @ 12.25
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

Current Target(s): $12.50 & 15.75
Current Stop loss: 12.25
Play Entered on: 09/13/10
Originally listed in New Plays on 08/28/10


Old Dominion Freight Line Inc. - ODFL - close: 30.65

12/04 update: Strength in the transports has pushed ODFL to new all-time highs past the $30.00 level. I am not suggesting new positions at this time. If the market does see a correction look for ODFL to find support in the $28-26 zone. FYI: The spreads in the April options are ridiculous. Hopefully these will narrow as we get closer to expiration.

- Current Positions -
Nov 22, 2010 - entry price on ODFL @ 28.42, option @ 1.95
symbol: ODFL1116D30 2011 APR $30 call - current bid/ask $ 2.00/ 5.10

11/22/10 ODFL opens at $28.42

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


Transocean Ltd. - RIG - close: 70.51

12/04 update: It was a big week for RIG. The stock surged to $72.50 by Friday. This is a new six-month high. RIG pared its gains after testing its trendline of higher highs. I wouldn't be surprised to see RIG pull back toward $68 again. I am not suggesting new long-term positions in RIG at this time. Please note that I am raising our stop loss to $59.90. More conservative traders may want to use a stop closer to $62 or $64.

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 $16.40/16.80

12/04/10 New stop @ 59.90
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: 59.90
Play Entered on: 06/09/10
Originally listed on the Watch List 06/05/10


TASER Intl. - TASR - close: 4.10

12/04 update: There has been no follow through in TASR's most recent bounce. The stock has not participated in the market's strength this past week. That should make us nervous. I am not suggesting new positions at this time. Cautious investors might want to raise their stops.

- 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: 57.02

12/04 update: Healthcare names have been underperforming the market this past week. WLP was an exception on Thursday but the stock reversed lower again on Friday with a -2.4% decline. Taking a step back the stock is channeling higher and should find support near $55. Yet given the sector's recent weakness I'm not suggesting new positions at this time.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 4.55/ 4.75

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: 103.34

12/04 update: Casino stocks got a pop on December 1st after the Macau Gaming Inspection Bureau reported a +42% increase in gaming revenues versus a year ago. Unfortunately for WYNN the rally didn't last very long. I'm concerned that WYNN is not participating in the market's recent rally. While the stock is holding support near $100 I am starting to wonder if we'll see a better entry point on a dip near $95 soon.

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 $10.45/10.70

- or -

Nov 19th, 2010 - entry price on WYNN @ 101.33, option @ $16.05
symbol: WYNN1221A112 2012 JAN $112 call - current bid/ask $16.30/16.70

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

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

Diamond Offshore - DO - $66.23

12/04 update: DO has continued to underperform its peers in the oil services sector. Early in the week some of the drillers spiked lower on news that the Obama administration had re-installed the drilling ban off Florida. Shares of DO spiked lower to $63.37, which was enough to close our play (stop loss at $63.90). It's the first time in a long time we've had a LEAPS play get stopped out.

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 - exit near $0.95 (-50%)

- or -

Oct 21, 2010 - entry price on DO @ 67.50, option @ 4.79
symbol: DO1221A86 2012 Jan $85.25 call - exit @ $2.79 (-41.7%)

11/30/10 Stopped out $63.90
11/27/10 New stop loss @ 63.90
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

Chart of DO:

Current Target(s): $79.00 & 89.00
Current Stop loss: 63.90
Play Entered on: 10/21/10
Originally listed on the Watch List 10/16/10


Watch

Toys and Shipping

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's candidates I would keep an eye on FINL. The stock looks like a bullish candidate right now. However, the company is due to report earnings on December 21st. I would hesitate to open long-term positions in front of the earnings announcement.

-James


New Watch List Entries

MAT - Mattel Inc.

UPS - United Parcel Service


Active Watch List Candidates

BVN - Compania de Minas Buenaventura

F - Ford Motor Co.

NFX - Newfield Exploration

SBUX - Starbucks Corp.

WLL - Whiting Petroleum


Dropped Watch List Entries

JAS and LCC graduated to the play list.


New Watch List Candidates:

Mattel Inc. - MAT - close: 26.02

Company Info

Investors are buying stocks with the belief that the worse is behind us and that the U.S. will continue to recover in 2011. That means that consumer spending should improve and business at MAT should pick up. The stock is already hitting new two-year highs but trades at a discount to its rival Hasbro (HAS). I suspect that if the rally continues into 2011 MAT could make a slow and steady climb toward the $30 highs. The P&F chart is forecasting a move toward $33.00. Keep in mind that MAT doesn't move very fast. I'm suggesting the 2012 calls if MAT dips to $25.00. Readers may want to consider the 2013 calls.

Buy-the-Dip trigger: $25.00

BUY the 2012 January $25.00 calls (MAT1221A25)

Chart of MAT:

Originally listed on the Watch List: 12/04/11


United Parcel Service - UPS - close: 71.80

Company Info

The transportation sector has broken out to new two-year highs and cleared major resistance. Much like the financials, Dow Theory suggest we can't have a sustained rally without the transports. The relative strength in this sector is very encouraging but on a short-term basis these stocks look a little bit overbought. I am suggesting we play this group through UPS. Broken resistance at $70.00 should be new support. Let's use a trigger to buy call LEAPS at $70.25. If triggered we'll use a stop loss at $65.90. Our long-term targets are $79.50 and $87.50.

Buy-the-Dip trigger: $70.25

BUY the 2012 January $75 calls (UPS1221A75)

- or -

BUY the 2013 January $80 calls (UPS1319A80)

Chart of UPS:

Originally listed on the Watch List: 12/04/10


Active Watch List Candidates:

Compania de Minas Buenaventura - BVN - close: 53.17

BVN slipped to $49.14 last week before traders bought the dip. I still think shares are in the process of correcting. I am moving our trigger lower to $47.00. If triggered we'll use a stop loss at $44.45. Keep your position size small.

Buy-the-Dip trigger: $47.00 (half a position)

BUY the 2011 JUNE $50 calls (BVN1119F50)


Ford Moto Co. - F - close: 16.80

Ford showed some relative strength last week. Unfortunately the stock continues to look too overbought for us to launch long-term positions. Wait for a correction toward the $14.50 level. 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)


Newfield Exploration - NFX - close: 70.13

Oil and oil service stocks have been showing strength and NFX surged to new highs. I didn't want to chase it last week and we don't want to chase it now. We will raise our trigger to $63.00. If triggered I'm listing our stop loss at $57.25.

Buy-the-Dip trigger: $63.00

BUY the 2011 June $65 calls (NFX1118F65)

- or -

BUY the 2012 January $65 calls (NFX1221A65)


Starbucks Corp. - SBUX - close: 32.72

SBUX surged to new multi-year highs. The breakout past $31.00 is very encouraging. Yet I don't want to chase it here. Let's wait and see if the stock returns to the $31-30 zone and re-evaluate an entry point. We'll leave our trigger at $28.50 for now just in case the market sees some profit taking. 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: 113.49

WLL is another oil stock that is setting new highs. The all-time high was near $112 back in 2008. The breakout past resistance near $110-112 is bullish but I don't want to chase it. There is no change from my prior comments. I have listed a trigger to launch bullish positions at $102.50. If triggered use a stop at $95.90.

Buy-the-Dip trigger: $102.50

BUY the 2011 March $100 calls (WLL1119C100)

- or -

BUY the 2012 January $110 calls (WLL1221A110)