Option Investor
Newsletter

Daily Newsletter, Saturday, 12/11/2010

Table of Contents

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

Leaps Trader Commentary

Two-Year Highs

by James Brown

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Stocks have rallied to new two-year highs. Gains last week were fueled by strong moves in the financials and insurance sectors, plus relative strength in the small caps. Both the S&P 500 and small cap Russell 2000 have broken out past key resistance levels. December's historical trend for bullishness is off to a strong start this year. Aside from some volatility early last week the action in the U.S. dollar and commodities seemed to flatten out. Gold futures tagged new all-time highs on Tuesday before suddenly reversing course.

One of the most notable events last week was the improvement in consumer confidence. The preliminary reading for December showed consumer confidence rising from 71.6 in November to 74.2. Economists were only expecting an improvement to 72.5. This is a six-month high and the uptrend in confidence should bode well for consumer spending patterns. You've heard it before. Consumer spending accounts for nearly 70% of the U.S. economy.

General Electric (GE) made headlines when it raised its quarterly cash dividend for the second time this year. When companies raise their dividend investors see it as a sign of confidence in the future.

The S&P 500's breakout past resistance in the 1220-1225 zone is very encouraging. Not only is this a breakout past the 2010 highs it is also a rally through resistance at the 61.8% Fibonacci retracement of the bear-market decline (see the weekly chart below). The S&P 500 closed the week at 1240. Readers might recall that the inverse head-and-shoulders pattern from the spring and summer was projecting a 1240 target. Now that we're hear this could be some short-term resistance. That's okay with me. I'd love to see some profit taking here so we can use the pull back as a new entry point to launch new positions. The S&P 500 should find support near 1225-1220 now since broken resistance tends to act as new support. The next major obstacle for this index is the 1300 area.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The tech-heavy NASDAQ index is very close to three-year highs. Broken resistance in the 2550-2500 zone should be new support. The next significant hurdle for the NASDAQ is the 2725-2730 area. I would keep an eye on the 40-dma, which is where traders were buying the dip last month.

Daily chart of the NASDAQ index:

Strength in the semiconductor sector has played a big part in the NASDAQ's rally. The SOX index has been very strong with a breakout past resistance near the 400 area. Now the SOX is nearing its next hurdle with resistance in the 420-425 area. With the sector looking overbought and extended it might be time to expect some profit taking.

Weekly chart of the SOX semiconductor index:

The action in the small cap Russell 2000 index ($RUT) this past week is very positive. The 760-765 zone was major resistance and the $RUT powered right through it. That doesn't mean that the $RUT is not overbought and due for some profit taking. It is. However, bulls are clearly in control here and fund managers seem confident enough to bet on the small caps as they look ahead into 2011. Broken resistance near 740 would be support but I'm not sure the $RUT would decline that far. Keep an eye on the short-term moving averages.

Daily chart of the Russell 2000 index:

Weekly chart of the Russell 2000 index:

Looking ahead we have a very full economic calendar this week. The big event will be the FOMC meeting on Tuesday, Dec. 14th. No one expects a change in interest rates. The news will focus on the Fed's comments, their economic outlook, and any updates on the QE2 program. Tuesday will also bring the Producer Price Index (PPI), which looks at inflation at the wholesale level. We'll also hear the November retail sales numbers. Plus, Tuesday will bring the October business inventory data. Wednesday is another busy day with the Consumer Price Index (CPI), which is a wider look at inflation. The New York Empire State manufacturing survey is released on Wednesday. Plus, we'll see the latest industrial production and capacity utilization numbers. Thursday will bring the November housing starts and building permit data. Plus the weekly initial jobless claims. The big report on Thursday could be the Philadelphia Fed survey.

We still need to keep an eye on China. The market has been worried that if China raises their interest rates they might go too far and slow down their economic growth, which in turn would slow down the global recovery. Of course we've been talking about a potential rate hike in China for months so when it finally happens the market may not react with the same volatility it would have weeks ago. China is facing a challenge with rising inflation so they need to do something. On Friday the Chinese government just raised bank reserve requirements for the umpteenth time this year. I'm exaggerating but they have raised bank requirements several times to slow down loan growth. There was some speculation that China could announce a rate hike this weekend or on Monday. Let's hope they do. That could be the catalyst we need to spark some profit taking in the U.S. market. That way we can use the pull back as a new bullish entry point.

Overall the mood on Wall Street is improving pretty fast. More and more firms are raising their 2011 yearend targets and/or raising their expectations for U.S. GDP growth. This is encouraging and the positive attitude could be contagious. My market bias remains very bullish although short-term stocks look a little overbought and due for a pullback. We want to buy the dip when it happens. My concern is that money managers might start chasing stocks higher and we won't see a big enough dip! I want to warn readers not to chase it. If you are a short-term trader then you have more flexibility but we're buying LEAP options with multi-month time frames. Stay patient and wait for your entry point. Of course that entry point may end up being a breakout higher (depending on the stock you're following).

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The stock market managed to keep the rally alive and the S&P 500 and the NASDAQ composite marched to new two-year highs. The move was fueled by big gains in the financial sector. Gains in the rest of the market were mild. Some sectors are starting to look a little tired. Investors might want to consider an early exit in NVDA to lock in gains. Last week TASR hit our final exit target at $4.90.

New stop losses for HUM, GS, EMC, BRK.B, MSFT, and RIG.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.



New Plays

Santa's Coming to Town

by James Brown

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Editor's Note:

Traditionally December is a bullish time of year for stocks. You might even hear traders talk about the Santa Claus rally. Thus far December 2010 has been a big win for the bulls. The S&P 500 is up about 60 points this month alone. We really don't want to chase this sort of move. Sooner or later stocks will see some profit taking. That's just the nature of the market. We want to be ready to buy the dip as stocks near support. I'm not adding any new plays tonight but we did add four new candidates to the watch list.


Play Updates

A Week of Consolidation

by James Brown

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Closed Plays


TASR hit our final exit target.


Play Updates


Arch Coal Inc. - ACI - close: 32.26

12/11 update: It was a volatile week for ACI. Shares spiked to a new two-year high on Dec. 7th only to reverse lower. That was followed up with an analyst downgraded on the 8th. Traders bought the dip at ACI's 10-dma but I wouldn't be surprised to see more profit taking. I would still consider new bullish positions on dips near the $30.00-28.00 area. Our long-term target is $39.75. More aggressive traders could aim a lot higher, especially if you're holding the 2013 calls.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.55/ 4.65

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.70/ 7.10

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: 51.33

12/11 update: AKAM held an analyst day last week. You can see the reaction on Dec. 9th with shares falling. Wall Street firms essentially reaffirmed their previous ratings on AKAM. Some were positive, some ratings were neutral. Investors may have been disappointed that AKAM did not deliver stronger news to push the stock above resistance at $55.00. Naturally, after two days of selling, the short-term oscillators have turned negative. If the selling continues we can look for AKAM to find support near $50.00 or its 100-dma closer to $48.00. I would be tempted to buy calls (start with small positions) on a dip or bounce near the 100-dma.

On a positive note AKAM has been selected to be added to the NASDAQ-100 index. AKAM will be included on Dec. 20th. All of the mutual funds that seek to mimic the NASDAQ-100 will have to buy shares of AKAM eventually. Thus buying pressure for AKAM should increase later this month.

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 $10.20/10.60

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: 107.86

12/11 update: There was a lot of news out of China this past week. A couple of Chinese IPOs were making headlines with a strong buying interest. Plus, investors remain concerned that China might raise interest rates. The government did raise bank reserve ratios again. It is widely expected that China will raise interest rates soon. Since it is expected I'm not sure the Chinese market and U.S. market will see much of a sell-off on the news. It all depends on how big the interest rate hike will be. Overall the combination of rate hike fears and new IPOs sucking up available cash left BIDU to wander sideways. BIDU did fail at $112 last week. Now the stock has a neutral pattern with higher lows (bullish) with lower highs (bearish). Any significant correction in the Chinese or U.S. market will probably drag BIDU 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 $26.40/26.65

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: 80.68

12/11 update: It was a quiet week for BRK.B with the stock consolidating sideways between its 200-dma (support) and its 40-dma (resistance). If you look at an intraday chart BRK.B looks poised to breakout higher but then why hasn't it been following the major averages higher? I still remain cautious on launch new positions and would like to see a close over $82.00 or even a close over $84.00 before we consider new positions.

I haven't given up hope on our 2011 January calls but we only have six weeks left. Besides, "hope" is a terrible investment strategy. Readers may want to consider exiting the 2011 calls on any bounce that gets us even close to breakeven. We will go ahead and raise our stop loss to $77.75.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 0.31/ 0.36

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.00/ 4.20

12/11/10 New stop loss @ 77.75.
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: 77.75
Play Entered on: 10/29/10
Originally listed on the Watch List 09/11/10


ConocoPhillips - COP - close: 64.58

12/11 update: COP rallied to new two-year highs early in the week. Unfortunately the rally ran out of steam and shares spent the rest of the week drifting between $65 and $64. If the market and oil sector see a correction we can look for this stock to find short-term support near $62. I am not suggesting new long-term bullish positions at this time. FYI: option values did not change this past week.

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: 82.14

12/11 update: DE displayed some relative strength early in the week. The breakout past resistance at $80 is a positive signal. Shares managed to close at new two-year highs. While the short-term trend is up I would not launch positions here. Wait for a dip or a bounce near $78 or its 50-dma before considering new plays.

- 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 $6.75/6.90

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: 36.66

12/11 update: Fans are super excited to see Disney's new "Tron Legacy" movie that opens this month. Unfortunately the action in shares of DIS this past week were anything but exciting. The stock produced another failed rally at resistance near $38.00 and has continued to sink. On a short-term basis DIS should find support near $36.00. I would still consider new long-term bullish positions on a dip near the $36.00-35.00 area but readers may want to wait and buy a bounce instead of the decline.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 2.54/ 2.58

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.10/ 4.30

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: 22.25

12/11 update: EMC has been very slowly drifting higher. If the stock market continues to cooperate we could see EMC breakout past its November highs and breakout to new three-year highs soon. Let's hope it happens before yearend. We only have six weeks left on our 2011 January calls. Readers could exit these calls now for a profit but I'd like to hang on and sell at our target of $22.50 (aggressive traders could just ride these calls until expiration since EMC could be trading near $23.00 or higher six weeks from now). We will plan on selling half of our 2012 calls as well. I am not suggesting new positions at this time. Please note our new stop loss at $19.49.

I want to reiterate that cautious traders will want to strongly consider selling their 2011 calls now. Every decline in EMC between now and expiration will take serious chunks out of the option value.

- 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 $2.35/2.40

- 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

12/11/10 New stop loss @ 19.49
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: 19.49
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 54.76

12/11 update: ESRX delivered a quiet week for us. Shares drifted sideways in the $54-55 zone. The stock did close at new all-time highs but gains were limited. If you're looking for a new entry point I would prefer to buy calls on a dip near $52.00. FYI: The P&F chart is bullish with a $80 target (it was $74).

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $6.85/7.00

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $9.65/11.25

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: 135.41

12/11 update: It was a rocky week for gold. The precious metal actually hit new all-time highs only to reverse lower. The GLD plunged from $139.50 back to $134. Did gold (and the GLD) just produce a bearish double top? We can't tell at this time but it is worrisome. Of course we have to keep an eye on the U.S. dollar. Future dollar weakness should be bullish for gold. If this ETF does see further selling I think we're looking at a pull back toward $130 ler even its 100-dma near $127.50. I'm not suggesting new positions at this time.

FYI: Goldman Sachs is forecasting gold to hit $1,700 an ounce in 2011. We might want to reconsider raising our final exit target. Currently the plan is to exit 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 $16.20/16.80

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: 168.47

12/11 update: Financials were the best performing sector last week. This helped fuel GS' rally to $168. The stock is nearing potential resistance in the $170-171 zone. Look for short-term support near $164 and $162 on any pull back. I would consider launching new bullish positions on a dip into the $162-160 area. I am raising our stop loss to $152.75, just under the simple 200-dma.

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 4.25
symbol: GS1116D180 2011 Apr $180 call - current bid/ask $ 5.40/ 5.55

- or -

Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $11.15/11.45

12/11/10 New stop loss @ 152.75
11/22/10 GS hit our trigger @ $160.75

Current Target(s): $179.75, 199.50
Current Stop loss: 152.75
Play Entered on: 11/22/10
Originally listed on the Watch List 10/24/10


Humana Inc. - HUM - close: 56.51

12/11 update: We haven't seen a lot of change in HUM. Shares have continued to narrow their consolidation. There is still technical support at the 50-dma but until Friday it looked like HUM might breakdown. Friday saw a brief rally above the bearish trendline of lower highs but the morning strength faded. I am cautious on this stock and I am not suggesting new bullish positions at this time. I am raising our stop loss to $49.75 and more conservative traders may want to raise their stop loss toward the $52 or $54 levels instead.

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 $ 7.60/ 8.80

12/11/10 New stop loss @ 49.75
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: 49.75
Play Entered on: 09/17/10
Originally listed on the Watch List 09/04/10


Intl.Business Machines - IBM - close: 144.82

12/11 update: Hmmm... should we be worried about IBM? Both the NASDAQ and the S&P 500 have rallied to new two-year highs. Yet IBM has spent almost all of December trading in the $143.50-146.00 range. Granted you could argue IBM needs to finish digesting its very impressive September-October gains but the lack of participation in the market's rally is a concern. I remain long-term bullish on IBM but we're not suggesting 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 $ 9.75/ 9.95

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: 69.77

12/11 update: Shares of INFY are holding up pretty well considering the sharp decline in the Indian stock market this past week. After the pop higher on Dec. 7th, INFY spent the week drifting back toward short-term support near $69.00. If the market pull back continues I would look for short-term support near $68-67 for INFY. 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 $11.60/12.80

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: 46.15

12/11 update: JAS spent the week consolidating sideways in the $48-46 range. We can use this dip near $46.00 as an entry point to buy calls again, or if you're patient, we might get a better entry point on a dip toward $45-44. The stock has a bullish trend of higher lows that should intersect with the $44-45 area. Our first target is $54.50 .

- Current Positions -
Dec 2, 2010 - entry price on JAS @ 44.50, option @ 3.75
symbol: JAS1116G50 2011 Jul $50 call - current bid/ask $ 3.70/ 4.00

12/02/10 Play triggered @ $44.50

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: 10.93

12/11 update: Airline stocks tumbled on Dec. 7th. Shares of LCC were caught up in the sector-wide sell-off. Fortunately there was not much follow through but shares of LCC still posted a loss for the week. Last week I cautioned readers to look for a dip toward $10.50 and we got it. I would open new bullish positions in the $11.00-10.00 area. Cautious traders might want to wait for LCC to break the short-term trend of lower highs first.

- 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 $ 1.70/ 1.77

12/03/10 Play triggered @ $11.00

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: 71.39

12/11 update: LLL's early December strength has faded. Shares are flirting with a breakdown under the 50 and 100-dma. The stock looks headed for the bullish trendline of higher lows in the $70-71 area. I remain cautious on LLL and would not open new positions at this time. More conservative traders may want to consider raising their stop loss closer toward $70.00.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 5.00/ 5.20

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: 77.56

12/11 update: MCD displayed some volatility last week. Shares have produced both a bull trap (bearish reversal) pattern. Plus, MCD has produced a breakdown under technical support at the 50-dma. On Dec. 7th MCD broke out past resistance at $80.00 after consolidating sideways in the $77.00-80.00 range for weeks. Unfortunately, the next day MCD reported same-store sales figures and investors were unhappy with the results. Globally, MCD's November same-store sales rose +4.7% but that was a decline from October's +6.5% pace. Volume has been steep on the decline this past week. MCD could be due for a correction. Shares have short-term support at $77.00 and a breakdown at this level would probably herald a drop toward support near $74 (possibly $72). I remain long-term bullish on MCD but we're not suggesting new bullish 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 $4.20/ 4.35

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: 27.34

12/11 update: MSFT continues to drift higher. The $27.50-28.00 zone does look like overhead resistance so I would expect a little correction in MSFT before shares breakout past $28. Wait for a dip near $26 before considering new long-term bullish positions. Please note our new stop loss at $24.40.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $4.10/ 4.20

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $3.05/ 3.20

12/11/10 New stop loss @ 24.40
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: 24.40
Play Entered on: 10/18/10
Originally listed in New Plays on 10/16/10


Nike Inc. - NKE - close: 87.80

12/11 update: It was a quiet week for NKE. Shares eked out another gain but essentially NKE continues to drift sideways. If the market corrects then we can look for NKE to test support in the $85-84 zone. I want to remind readers that NKE is due to report earnings on December 21st. Holding over earnings can be risky. Given our long-term time frame we will hold over the event. I am not suggesting new long-term bullish positions at this time. Our final target is the $95-100 zone.

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 $7.55/ 7.75

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: 9.81

12/11 update: Two weeks ago we were stopped out of NOK with the drop under $9.50. Shares managed a quick rebound higher. I kept NOK on the newsletter with the expectation we might see another entry point soon. NOK still offers some long-term potential but I'm going to remove it from the play list. We may have to watch it for a few more weeks. Shares have a bullish trend of higher lows off its June bottom but the stock also has a bearish pattern of lower highs.

No Position at this time

11/29/10 Trade Stopped out.

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: 14.95

12/11 update: Investors have a decision to make on NVDA. The SOX semiconductor index has produced an impressive rally but upward momentum in the sector seems to be stalling a little as the SOX nears potential resistance at the 420 level. Meanwhile NVDA has seen its rally stall near resistance at $15.00. The trend for both the SOX index and NVDA is still very bullish but both look overbought and due for some profit taking. Your decision is do you take profits on our 2012 January calls now (currently up +133%) or do you endure what could be a painful pull back since we have a long-term focus and another year to go on our call LEAPS? Keep in mind you could sell now and jump back in on a dip near the $13.00-12.50 area.

Officially the newsletter will keep our position open. I am also raising our long-term exit target to $17.75.

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 $3.95/ 4.10

12/11/10 Decision - Sell now with option up +133% or Stay the course.
12/11/10 New long-term target at $17.75
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: 30.96

12/11 update: ODFL rallied to new all-time highs and hit $31.70 last week. The pull back from its high saw light volume, which is normally a good sign. Nothing has changed for us. ODFL continues to look bullish. If the market or the transport sector does see a correction we can look for ODFL to dip toward $29-28, or worse case $26.00. If you're looking for a new entry point I'd prefer to open positions on a dip near $28.00. Plus, if we do see an entry point we now have July calls we can choose from.

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 $ 2.65/ 3.20

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: 72.23

12/11 update: Oil and oil service stocks spent the week consolidating sideways. RIG did the same although RIG's consolidation had a much more bullish bent to it. The stock set new six-month closing highs. If this sector sees a correction I would look for RIG to find support near $68 and then at $65. We are raising our stop loss to $61.90. Our long-term target is $78.50. I would not open 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 $17.00/18.25

12/11/10 New stop @ 61.90
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: 61.90
Play Entered on: 06/09/10
Originally listed on the Watch List 06/05/10


WellPoint Inc. - WLP - close: 57.68

12/11 update: This is the second time in two weeks that traders bought the dip in WLP near $55.70. Shares have been bouncing the last three days but volume has been light. I remain somewhat cautious on the stock. We can use the bounce as a new entry point but readers may want to start with small positions.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 4.35/ 4.55

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: 101.00

12/11 update: The action in WYNN continues to look bearish. The stock has been holding at support near $100 but the trend of lower highs is getting tighter. This would normally suggest WYNN is about to breakdown under support soon but it's not a guarantee. If WYNN does break $100 it will probably be a quick drop toward the next level of support near $95.00. I am adjusting our stop loss from $94.75 down to $93.95. If the $95 level breaks then WYNN will probably test the $90 level and its simple 200-dma. I am not suggesting new positions at this time.

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 $ 8.35/ 8.55

- or -

Nov 19th, 2010 - entry price on WYNN @ 101.33, option @ $16.05
symbol: WYNN1221A112 2012 JAN $112 call - current bid/ask $14.45/14.80

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

TASER Intl. - TASR - close: 4.57

12/11 update: Target achieved. It was a big week for TASR. The stock surged on news the company had received five follow-on orders. The stock spiked to $4.92 on Dec. 8th. Our exit target was $4.90.

- Closed Positions -
Buy TASR stock (entry $3.69), Exit @ $4.90 (+32.7%)

12/08/10 Final Target Hit @ $4.90 (+32.7%)
10/23/10 Sell at least Half of our position: TASR @ 4.53 (+22.7%)
10/23/10 New Stop @ 3.75
08/30/10 TASR opens Monday at $3.69 (entry point)
08/28/10 TASR listed as a new play

Chart:

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


Watch

Four New Candidates

by James Brown

Click here to email James Brown

Editor's Note:

Our bias remains positive. We just need a decent bout of profit taking so we can take advantage of the dip to launch new bullish positions.

-James


New Watch List Entries

GME - GameStop Corp

TGT - Target Corp

USG - U S G Corp

X - U.S. Steel Corp


Active Watch List Candidates

BVN - Compania de Minas Buenaventura

F - Ford Motor Co.

MAT - Mattel Inc.

SBUX - Starbucks Corp.

UPS - United Parcel Service

WLL - Whiting Petroleum


Dropped Watch List Entries

NFX has been removed from the watch list.


New Watch List Candidates:

Gamestop Corp. - GME - close: $22.24

Company Info

Strategy:
Video game sales are on the mend. The market is feeling more comfortable about an improvement in consumer spending as the economy improves next year. GME looks like a potential trade with shares breaking a long-term trendline of lower highs. I am suggesting we launch positions on a dip at $21.25. Depending on your risk tolerance we could open positions anywhere in the $21.25-20.00 zone. If triggered I'm suggesting a stop loss at $18.90. I would be very surprised to see GME breakdown under $20.00. Our long-term targets are $24.90 and $29.75.

Buy-the-Dip trigger: $21.25

BUY the 2012 January $22.50 call (GME1221A22.5)

- or -

BUY the 2013 January $25.00 call (GME1319A25)

Chart of GME:

Originally listed on the Watch List: 12/11/10


Target Corp. - TGT - close: 58.95

Company Info

Strategy:
TGT is another play on improving consumer sentiment and consumer spending. The rally in TGT has stalled near resistance at $60.00 but the big picture trend is higher. I am suggesting we launch long-term bullish positions on a dip at $57.00. Actually we can use the $57.00-55.00 zone as our entry point range. If triggered we'll start with a stop loss at $53.75. Our long-term target is $69.75.

Buy-the-Dip trigger: $57.00

BUY the 2012 January $60 calls (TGT1221A60)

- or -

BUY the 2013 January $65 calls (TGT1319A65)

Chart of TGT:

Originally listed on the Watch List: 12/11/10


U S G Corp. - USG - close: 14.65

Company Info

Strategy:
USG has spent the last five and a half months building a bottom in the $11.50-15.00 zone. The stock has started to see a trend of higher lows and USG is getting closer to breaking out past resistance near $15.00 and its 200-dma. We want to launch bullish positions on a breakout past $15.00. I'm suggesting a trigger at $15.25. If triggered our first long-term target is $19.90. Our second is $24.75. We'll start the play with a stop loss at $12.75. If USG fails at $15.00 again then nimble traders may want to consider buying calls on a dip or a bounce near $13.00 but if you do I'd use a very tight stop loss (say $12.40). FYI: Investors may want to note that USG has a relatively high amount of short interest. The most recent data listed short interest at almost 19% of the 69 million-share float. A breakout could spark some short covering.

Breakout trigger: $15.25

BUY the 2012 January $20.00 calls (USG1221A20)

- or -

BUY the 2013 January $20.00 calls (USG1319A20)

Chart of USG:

Originally listed on the Watch List: 12/11/10


United States Steel Corp. - X - close: 53.61

Company Info

Strategy:
U.S. Steel is another stock with a high degree of short interest. The latest reading put shorts at 20% of the 143 million-share float. With X in breakout mode it's got to be tough on the bears. Investor sentiment has turned bullish for X with the breakout past resistance near $50.00 and its 200-dma. I am suggesting we launch long-term bullish positions on a pull back to $50.75. We'll start the play with a stop loss at $45.75. Our long-term targets are $64.75 and $74.75.

Buy-the-Dip trigger: $50.75

BUY the 2012 January $60.00 calls (X1221A60)

- or -

BUY the 2013 January $60.00 calls (X1319A60)

Chart of X:

Originally listed on the Watch List: 12/11/10


Active Watch List Candidates:


Compania de Minas Buenaventura - BVN - close: 53.17

BVN just tested support near $49.00 for the second time in two weeks. While it looks like BVN might bounce from here the correction may not be over yet. I am actually moving our trigger to launch long-term positions to $46.00 and we'll move the stop loss to $43.75. Keep your position size small.

Buy-the-Dip trigger: $46.00 (half a position)

BUY the 2011 JUNE $50 calls (BVN1119F50)


Ford Moto Co. - F - close: 16.73

Ford has spent the last week and a half consolidating sideways. Short-term traders may want to consider buying calls on a breakout over $17.00. We're looking for a long-term entry point so I'm suggesting we wait for a dip to $14.50. If we don't see Ford begin correcting in the next two weeks I'll remove it from the watch list. 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)


Mattel Inc. - MAT - close: 25.48

There is no change from my prior comments on MAT. We want to buy call LEAPS on a pull back into the $25.00-24.00 zone. Keep in mind that MAT doesn't move very fast but the trend is up and the outlook for the consumer is improving. I am adding the 2013 calls to our potential trade. If triggered at $25.00 we want to use a stop loss at $22.75. Our long-term targets are $29.00 and $36.00.

Buy-the-Dip trigger: $25.00

BUY the 2012 January $25.00 calls (MAT1221A25)

- or -

Buy the 2013 January $25.00 calls (MAT1319A25)

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


Newfield Exploration - NFX - close: 72.37

NFX continues to show very impressive relative strength. Unfortunately the stock is very overbought. It could take a long time before NFX sees a big enough correction that I would want to launch a long-term position. Thus I'm temporarily removing it from the watch list. Short-term traders may want to keep an eye on it.


Starbucks Corp. - SBUX - close: 32.59

SBUX hit new three-year highs again last week. Shares remain overbought following the late summer rally. While I expect shares of SBUX to find support in the $31-30 zone a real correction would have SBUX retesting the $28.00 area. We will keep our buy-the-dip trigger at $28.50 for now but it could take weeks before SBUX corrects that low.

Buy-the-Dip trigger: $28.50

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


United Parcel Service - UPS - close: 72.89

The transport sector continues to show strength. The breakout in the last three weeks is very bullish on a long-term time frame. Yet short-term the transports and UPS look a little overbought. I am inching up our buy-the-dip trigger to $70.55. 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: $70.55

BUY the 2012 January $75 calls (UPS1221A75)

- or -

BUY the 2013 January $80 calls (UPS1319A80)

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


Whiting Petroleum Corp. - WLL - close: 113.61

WLL tagged new highs again last week. The action on Wednesday looks like a short-term bearish reversal. WLL could pull back toward its trend of higher lows. Aggressive traders may want to buy calls on a dip into the $107-105 zone. I'm suggesting we wait for a pull back to $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)