Option Investor
Newsletter

Daily Newsletter, Saturday, 1/1/2011

Table of Contents

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

Leaps Trader Commentary

Looking Ahead for January

by James Brown

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The stock market's performance for 2010 was pretty good. The big cap S&P 500 index delivered a +12.7% gain for the year. The technology-heavy NASDAQ composite rallied +17%. Meanwhile the small cap Russell 2000 index outperformed them both with a +26% gain. Let's hope 2011 can keep up the pace.

Fund managers did a pretty good job of painting the tape at the end of the year. They held stocks near their highs so your year-end statements will look good. The question is, what will they do now that we're in a new tax year? We will answer that in a bit. First let's talk about last week. For the most part the economic data continues to come in positive with strong reports from the Chicago ISM (purchasing managers index) and the New York ISM. Yet in spite of this data the market continued to drift sideways, much like it did prior to Christmas. The best performers were some of the commodity and resource names thanks to weakness in the U.S. dollar. Copper is surging to all-time highs. Silver is hitting new 30-year highs. Gold is nearing its high. While short-term overbought; many believe the metals will continue to do well in 2011, especially if the Fed's QE2 keeps the dollar weak.

Looking ahead the market could see some volatility as traders react to more economic data. We have a busy week of data in front of us. Monday, January 3rd starts with the ISM manufacturing index for December and the construction spending numbers for November. The big event on Tuesday, the 4th, will be the FOMC minutes from the last meeting. Tuesday will also show us the Factory orders for November and the latest auto and truck sales figures. Wednesday we'll hear from ADP and their employment change report as a precursor for the government jobs report on Friday. Wednesday also brings the ISM services data for December. Thursday is the weekly initial jobless claims but unless these are wildly out of line they will probably be ignored since everyone will be focused on Friday. On Friday, January 7th, the big event for the week will be the December non-farm payrolls (jobs) report. Economists are expecting a gain of +132,000 jobs. In the report analysts are looking for private job growth to jump +142,000 (essentially the government is still shedding jobs and that's why the headline number will be less).

Technically not much has changed for us in the last week since the major indices spent the last five days moving sideways. The S&P 500 should still see some support around the 1245 area. If that level breaks then look for support near 1225 and its rising 50-dma. As you know I am expecting a correction in mid to late January. A normal -5% correction could pull the S&P 500 down toward the 1190 area. I would focus on support near 1200 or the 1175 areas.

Daily chart of the S&P 500 index:

The NASDAQ composite has been struggling with resistance in the 2670-2675 zone these last two weeks. Should the market manage an early January rally then look for a run towards the 2700 mark. You know how traders like big round numbers. A -5% correction from the 2700 level would be a pull back toward 2565. The NASDAQ may not dip that low since it has found support near its rising 40-dma in the past. Currently the 40-dma is nearing 2590.

Daily chart of the NASDAQ Composite index:

The SOX semiconductor index has broken out of its rising bullish channel but I wouldn't call it a breakdown, at least not yet. Chip stocks are moving sideways. We should expect a move up or down as soon as this week. A -5% correction in the SOX would be a dip toward the 390 level, near its rising 50-dma.

Weekly chart of the SOX semiconductor index:

We also want to look at the transportation sector. The Dow Jones transportation index has been consolidating sideways almost all of December. You can see how the consolidation has narrowed and it looks poised to breakout higher. If the breakout does occur it could boost the rest of the market. Profit taking in crude oil could certainly help the transports move higher.

Daily chart of the Dow Jones Transportation index:

Small caps have been some of the best performers in 2010. The Russell 2000 index has rallied over +33% from its late August lows. Now the upward momentum seems to be slowing. If stocks continue higher I would look for resistance near the 800 mark. If not, then look for a correction toward the 760 area. Since the small caps tend to be more volatile than the rest of the market it wouldn't surprise me to see a dip toward 740 or the rising 50-dma.

Daily chart of the Russell 2000 index:

I don't see any changes from my comments last week. Investors were happy to just run out the clock on the calendar as they waited for 2010 to end. We are now in a new year. Traders could be tempted to sell stocks now to lock in gains and put off worry about taxes until 2012. At the same time the first part of January could be bullish. Mutual funds will see a new inflow of cash and will need to put that money to work. Big investors are unlikely to put it in the bond market given the Fed's QE2 program. That means equities should remain in favor. There is no guarantee that the first week of January will be bullish. It really doesn't matter. Whether stocks start to see profit taking on Monday or two weeks from now the correction is coming.

The correction shouldn't be feared, at least not for us. We want to see a healthy pull back so we can load up on new positions as we look ahead into 2011. Right now I'm expecting that correction to begin in the middle to late part of January (two or three weeks from now). This will coincide with the onset of earnings season. That's the exciting part. We don't know yet how the market will choose to interpret earnings results. Significantly better than expected results and guidance for 2011 could alter our expectations for a pull back. Or the earnings news could merely post pone any profit taking. When the correction does happen I am expecting it to last two to four weeks (or more). Initially I would look for a -5% decline but the small caps will likely see a deeper pull back.

- James

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Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The year 2010 ended on a quiet note. The stock market continued its recent trend of moving sideways. It was so quiet that many stocks traded in a narrow range and some of our option values failed to move from last week's levels. Our bullish plays on COP and INFY are getting close to our exit targets. Cautious traders may want to take profits early. We need to be careful with our trades on AKAM and BIDU since both stocks are struggling.

New stop losses for ACI, INFY, and NVDA

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

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

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



New Plays

Consider A Hedge

by James Brown

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Editor's Note:

It was a quiet, peaceful end to what has been a rocky 2010. The stock market consolidated sideways as investors just wait for the clock to run out on the calendar.

We are expecting a market correction in mid to late January. That's when we want to start adding positions to the newsletter, not beforehand. As I said in the watch list tonight, I looked at hundreds of stocks. There were plenty of bullish candidates but nothing offering us an entry point today. Many need to see a healthy dip before we want to start adding them to the watch list.

I am urging patience. In another two weeks earnings season will begin and that could kick off the correction. If you're looking for a trade tonight I would suggest some sort of hedge on your bullish positions. You could buy puts on the S&P 500, puts on mid caps, or puts on the small caps. The ETFs I would look at the SPY (large cap), MDY (midcaps), or the IWM (small caps). If you really want to add some excitement then check out the double-long or double short ETFs and buy the appropriate call or put as a hedge against your bullish LEAP positions. They even have triple leveraged ETFs if you can't sleep at night.


Play Updates

Gold Surges Toward Its Highs

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 35.06

01/01 update: Coal stocks and most resource-related stocks continued to perform well. ACI rallied to new two-year highs last week. Shares are somewhat overbought. When the market corrects ACI could see a significant pull back. On a short-term basis I see some support near $34, $32, and $30. Please note our new stop loss at $29.75. 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 $ 5.95/ 6.05

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 8.15/ 8.40

01/01/11 new stop loss @ 29.75
12/25/10 New stop loss @ 28.75
11/22/10 Play opened. ACI @ $30.15

Current Target: $39.75
Current Stop loss: 29.75
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


Akamai Technology - AKAM - close: 47.05

01/01 update: The correction in AKAM continues. The stock is now about -13% from its highs. The peaks in November and December are starting to look like a bearish double top. I have been warning readers to expect a pull back toward the 200-dma. AKAM might find some additional support near the $45.00 level. I am not suggesting new positions at this time. If AKAM does indeed find support near $45 then we'll reconsider new bullish positions.

Previous Comments:
We have already taken profits on our 2011 calls. That leaves the 2012 calls. 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 $ 7.25/ 7.50

- Third Position -

Dec. 20, 2010 - entry price on AKAM @ 50.49, option @ 5.40
symbol: AKAM1221A60 2012 JAN $60 call - current bid/ask $ 4.05/ 4.20

12/25/10 AKAM is breaking down. Cautious traders exit early.
12/18/10 New Entry point, AKAM @ $50.87, 2012 Jan. $60 call ask @ $6.35
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: $69.00
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: 96.53

01/01 update: BIDU's oversold bounce has failed in the $100 area. This could be bad news for us. BIDU is back under its 100-dma and is now testing its long-term trendline of higher lows. At this point I would expect the dip to retest $95.00 again. Aggressive traders could buy the dip at $95.00 as long as they keep their stop at $94.00. Otherwise, I am not suggesting new bullish positions at this time. If stocks don't bounce this week BIDU may end up getting stopped out.

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 $18.55/18.80

12/20/10 BIDU spikes down to $94.33 (our stop is $94.00)
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: 80.11

01/01 update: Another week has pasted and BRK.B is still dancing sideways along its simple 200-dma. Unfortunately shares are still building their bearish trend of lower highs too. Currently our stop loss is at $77.75. I would prefer to see a move over $81.00 or $82.00 before considering new bullish positions. We only have three weeks left on our 2011 January calls.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 0.05/ 0.07

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 3.45/ 3.60

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: 68.10

01/01 update: COP almost hit our target on Friday. The high was $68.58. Our exit target is $69.00. More aggressive traders could aim higher. You certainly have more time. I'm not suggesting new bullish positions at this time but if COP does hit our exit target we'll put it back on the watch list for a dip toward support. More conservative traders may want to go ahead and exit now or raise their stops toward the $62.50 area.

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

- Current Positions -
May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $10.80/10.90

12/25/10 New stop loss @ 59.75
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: 59.75
Play Entered on: 05/20/10
Originally listed on the Watch List 05/08/10


Deere & Co - DE - close: 83.05

01/01 update: Nothing has changed for us with DE. The stock is still consolidating sideways and I'm expecting a pull back toward support near $80.00. This should also coincide with DE's multi-month bullish trend of higher lows. If you're looking for a new entry point a dip near $80.00 is where I would consider new positions. Cautious traders may want to move their stop closer to $78.00 instead. Our first target is $88.00.

- 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 $7.05/7.20

12/25/10 New stop loss @ 74.80
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: 74.80
Play Entered on: 11/26/10
Originally listed on the Watch List --/--/--


Walt Disney Co. - DIS - close: 37.51

01/01 update: DIS is still consolidating under resistance near $38.00. Thankfully shares are still building their bullish trend of higher lows. This would suggest DIS will breakout higher soon. There is no change from my prior comments. Readers may want to wait for a close over resistance at $38.00 before considering new bullish positions. Bear in mind my editor's note and market wrap commentary this weekend (we could see a correction in January). Cautious traders might want to move their stop loss closer to $35.00.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 2.85/ 2.90

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.30/ 4.60

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: 22.90

01/01 update: EMC tagged new three-year highs last week above the $23.00 mark. Upward momentum seems to be losing steam. I would expect a pull back toward the $22.00 level. If the market does see a correction in mid January like we think it might then EMC could see a correction toward its 100-dma closer to $21. I am not suggesting new bullish positions at this time. We might want to consider raising our long-term exit target since we have a year on our 2012 calls.

- Current Positions -
May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $4.30/4.35

12/13/10 New stop loss @ 19.95
12/13/10 Target hit @ 22.50, Exit 2011 Jan. $20 calls @ $2.51 (+79.2%)
12/13/10 Target hit @ 22.50, Sell half 2012 $20 calls @ $4.15 (+66%)
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: 19.95
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 54.05

01/01 update: ESRX has started to correct lower. Shares are developing a trend of lower highs and lower lows. I would still look for support in the $52-50 zone. I am not suggesting new bullish positions on ESRX at this time. Currently our exit target is $59.50.

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $6.10/6.25

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $8.90/ 9.75

12/18/10 new stop @ 49.75
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: 49.75
Play Entered on: 10/25/10
Originally listed on the Watch List 10/16/10


SPDR Gold ETF - GLD - close: 138.72

01/01 update: Recent weakness in the U.S. dollar has fueled big gains for the commodity space. Gold has rallied back toward its highs. The GLD is also nearing its highs set in early December. On a short-term basis the GLD should have support near its 50-dma around $135. If that fails then look for support near $130. Currently our final target is $149.00. 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.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $17.90/18.30

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: 168.16

01/01 update: There has not been much follow through on GS's failed rally near $171 last week. While this is positive I'm not convinced GS won't see a steeper pull back. If you are looking for a new entry point I'd probably wait to see where GS dips to during the mid to late January correction we're expecting in the market. Alternatively if you like to see strength then wait for a close over resistance near $171.00-172.00. FYI: GS is due to report earnings on January 19th.

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 4.25
symbol: GS1116D180 2011 Apr $180 call - current bid/ask $ 4.60/ 4.75

- or -

Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $10.95/11.15

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: 54.74

01/01 update: HUM is still struggling with a bearish trend of lower highs. Before the month of January is over we might see this stock retest support near $51-50 and its simple 200-dma. Therefore I'm not suggesting new bullish positions at this time.

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 $ 6.60/ 6.90

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: 146.76

01/01 update: IBM rallied midweek and tagged its November highs near $147.50. This is short-term resistance but IBM acts like it's ready to breakout higher. IBM has spent two months digesting its September-October gains. It should be ready to resume its move higher. If you're looking for a new entry point a close over $147.50 could work. Just keep in mind our expectation for a market-wide pull back in late January.

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 $10.50/10.70

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: 76.08

01/01 update: INFY continues to show relative strength. The stock hit another round of new ten-year highs this past week. Another good week and INFY will hit our final target at $79.00. More aggressive traders may want to aim higher. I am raising our stop loss to $69.00. I am not suggesting new positions at this time.

Previous Comments:
We have already sold the 2011 calls for a profit. We have also sold half of our 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 $16.10/17.10

01/01/11 New stop loss @ 69.00
12/25/10 Take Profits, sell half of 2012 calls, option @ 14.20 (+73.1%)
12/25/10 New stop loss @ 66.75
12/18/10 New stop loss @ 63.90
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: 69.00
Play Entered on: 07/01/10
Originally listed on the Watch List 06/26/10


US Airways Group, Inc. - LCC - close: 10.01

01/01 update: I am still worried about the weakness in the airline index. The sector appears to be correcting and has developed a trend of lower highs and lower lows. We are seeing a similar move in LCC. The decline seemed to pause last week but the path of least resistance is still down. Odds are growing that LCC will decline toward its rising 200-dma (currently near $9.25), which would stop us out since our stop is at $9.49. Aggressive traders could lower their stops. I'm reluctant to do that just yet. Conservative traders may want to consider just cutting their losses early. Dollar weakness will continue to put upward pressure on commodities. Rising oil prices is normally bad news for the airline stocks.

- 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 $ 1.29/ 1.36

12/25/10 Readers may want to cut their losses early
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: 70.49

01/01 update: I've got bad news. The bounce in LLL two weeks ago did not see any follow through higher. Shares continue to languish in the $70-72 area. I am not suggesting new bullish positions at this time. Currently LLL seems to have some support near $69.50 and $68.50. More conservative traders could raise their stops toward the $69 level.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 4.20/ 4.40

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: 76.76

01/01 update: MCD lost 20 cents for the week. The stock is hovering near its rising 100-dma. I want to warn readers that if MCD bounces in the next couple of weeks it might fail near its 50-dma or the $80 level again. Then if the market does correct in the second half of January we'll likely see MCD retest the $76 area or possibly the $74 area. Thus I am not suggesting 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 $3.55/ 3.65

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: 27.91

01/01 update: MSFT is slowly correcting lower. The stock remains overbought given its very strong December rally. I would look for a pull back toward the 200-dma before January is over. I am not suggesting new positions at this time.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $4.45/ 4.50

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $3.10/ 3.65

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: 85.42

01/01 update: The post-earnings sell-off in NKE continues. We were expecting a correction following the earnings report and I'm not convinced its over. Yet for now the stock is hovering near support near $85 and its rising 50-dma. This stock might test the $82-80 zone before the month of January is over. More aggressive traders might want to move their stop loss underneath the 200-dma. I am not suggesting new long-term bullish positions at this time. Our final target is $98.00.

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 $5.90/ 6.20

12/18/10 New stop loss @ 83.90
11/15/10 Play opened on Monday morning, NKE @ 82.91

Current Target(s): $98.00
Current Stop loss: 79.75
Play Entered on: 11/15/10
Originally listed in New Plays on 11/13/10


NVIDIA Corp. - NVDA - close: 15.40

01/01 update: It was another very strong week for NVDA. The stock rebounded from its three-month trendline of higher lows. Friday saw a breakout to new seven-month highs. This relative strength is great but I wouldn't chase it here, not with long-term positions. I am raising our stop loss to $12.75.

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 $4.25/ 4.40

01/01/11 New stop loss @ 12.75
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 & 17.75
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: 31.99

01/01 update: ODFL added 30 cents on the week to tag new all-time highs. Keep an eye on the Dow Jones Transportation index ($TRAN). The $TRAN has been consolidating sideways the last four weeks and looks poised to breakout higher. If that breakout occurs then it could really give ODFL a boost. I am not suggesting new long-term bullish positions at current levels.

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 $ 3.10/ 3.70

12/25/10 New stop loss @ 26.75
11/22/10 ODFL opens at $28.42

Current Target: $34.75
Current Stop loss: 26.75
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


Transocean Ltd. - RIG - close: 69.51

01/01 update: It was a quiet week for RIG with the stock moving less than 20 cents. The stock has found some technical support at the 40 and 50-dma. I am somewhat cautious on launching new positions since we might see a better entry point before the month of January is over.

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 $14.85/15.30

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


U S G Corp. - USG - close: 16.83

01/01 update: USG managed to post another gain for the week. I don't see any changes from my prior comments. We don't want to chase it here. If you're looking for a new entry point wait for a dip near $15.00 and its simple 200-dma. Of course it might be late January before we see a dip that low.

- Current Positions -
Dec 20, 2010 - entry price on USG @ 15.25, option @ 1.50*
symbol: USG1221A20 2012 Jan $20 call - current bid/ask $ 2.15/ 2.35

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 3.50/ 4.00

12/20/10 Play triggered at $15.25
*entry price is an estimate.

Current Target(s): $19.90, 24.75
Current Stop loss: 12.75
Play Entered on: 12/20/10
Originally listed on the Watch List: 12/11/10


WellPoint Inc. - WLP - close: 56.86

01/01 update: There is nothing new to report on for WLP. The stock traded sideways in a very narrow range last week. WLP still has a short-term bearish trend of lower highs. I remain cautious and will repeat my previous comments. If WLP closes under $55.00 readers will want to seriously consider an early exit. I am 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 $ 3.85/ 4.10

12/18/10 New stop loss @ 53.75.
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: 53.75
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


Wynn Resorts - WYNN - close: 103.84

01/01 update: The last week of 2010 was a relatively quiet one for WYNN. Shares spent most of the week inside the $101-103 zone. The stock displayed some relative strength on Friday with a +2% gain. I am encouraged that WYNN held support near $100. However, if the market does correct in late January this stock could easily retest the $95 or even the $90 level. I am not suggesting new bullish 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 $ 8.60/ 8.75

- or -

Nov 19th, 2010 - entry price on WYNN @ 101.33, option @ $16.05
symbol: WYNN1221A112 2012 JAN $112 call - current bid/ask $14.80/15.05

12/25/10 Adjusted stop loss to $94.00
11/19/10 Play opened on gap down at $101.33

Current Target(s): $119.00
Current Stop loss: 94.00
Play Entered on: 11/19/10
Originally listed on the Watch List 05/15/10


Watch

Slim Pickings

by James Brown

Click here to email James Brown

Editor's Note:

Looking for bullish candidates was tough this weekend. There are plenty of stocks that look bullish but the challenge is our time frame. I looked at hundreds of stocks tonight. Everything was either way overbought and ripe for some profit taking or they had been underperforming the market. We don't want to buy long-term options on either of those scenarios. Maybe my bias is getting in the way. We're bullish but odds are pretty good stocks will see a significant pull back in mid to late January. I'm expecting a -5% to -7% decline. Small caps will likely see a bigger correction than large caps.

We are adding one new candidate tonight and that's VZ. I have no doubt that over the next two or three weeks we will be adding lots of new candidates to the watch list.


New Watch List Entries

VZ - Verizon Communications


Active Watch List Candidates

AKS - AK Steel holding

BVN - Compania de Minas Buenaventura

CMP - Compass Minerals

GME - GameStop Corp

MAT - Mattel Inc.

NYB - New York Community Bancorp

TGT - Target Corp

UPS - United Parcel Service

X - U.S. Steel Corp


Dropped Watch List Entries


New Watch List Candidates:

Verizon Communications - VZ - close: $35.78

Company Info

Verizon is a huge telecom here in the U.S. Shares managed to breakout past major resistance near $33.75-34.00 this past month. Now the stock looks a little overbought with its five-week rally. I am suggesting we wait for a dip back toward prior resistance. I'm suggesting a trigger to buy call LEAPS at $33.75. If triggered we'll use a stop loss at $31.75. Our long-term targets are $40.00 and $44.00. FYI: The Point & Figure chart for VZ is bullish with a long-term target of $44.00.

Buy-the-Dip trigger: $33.75

BUY the 2012 January $35.00 calls (VZ1221A35)

- or -

BUY the 2013 January $35.00 calls (VZ1319A35)

Chart of VZ:

Originally listed on the Watch List: 01/01/11


Active Watch List Candidates:


AK Steel Holding - AKS - close: 16.37

AKS spent the week consolidating sideways above the $16 level. We want to wait for a dip toward support near $15.00 and its simple 200-dma. If triggered we'll use a stop loss at $12.75. FYI: The Point & Figure chart for AKS shows a bullish breakout over resistance and a $25 long-term target.

Buy-the-Dip trigger: $15.00

BUY the 2012 January $15.00 calls (AKS1221A15)

- or -

BUY the 2013 January $20.00 calls (AKS1319A20)

Originally listed on the Watch List: 12/25/10


Compania de Minas Buenaventura - BVN - close: 48.96

If you're feeling optimistic you could argue that BVN has found a bottom in the $47-48 region near its rising 100-dma. I'm concerned it could just a meager oversold bounce. Since we're expecting a market correction in January we'll leave our trigger at $45.00. Conservative traders may want to put their trigger near $43-42 instead. Keep your position size small to limit your risk.

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

BUY the 2011 JUNE $50 calls (BVN1119F50)


Compass Minerals - CMP - close: 89.27

CMP tried to rally again but failed near $90 resistance. The trend of higher lows is bullish but I'm expecting a correction toward old resistance near $82.50. That's why our trigger is at $82.75. If triggered we'll use a stop loss at $77.95 although we might be able to get away with a stop closer to $80.00. Unfortunately, CMP does not have any LEAPS available and the longest dated options are 2011 Junes.

Buy-the-Dip trigger: $82.75

BUY the 2011 June $90.00 calls (CMP1118F90)

Originally listed on the Watch List: 12/25/10


Gamestop Corp. - GME - close: $22.88

GME rallied to new six-month highs but we don't want to chase it. I'm suggesting a trigger to open positions at $21.25. More conservative traders may want to wait for a dip near the 50 or 200-dma instead. 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)

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


Mattel Inc. - MAT - close: 25.43

It looks like the correction in MAT has already begun. Shares were inching lower almost every day last week. Currently I'm suggesting we open bullish positions on a dip at $24.00. More conservative traders may want to wait for a dip closer to the simple 200-dma near $23.00. If triggered we want to use a stop loss at $22.75. Our long-term targets are $29.00 and $36.00.

Buy-the-Dip trigger: $24.00

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


New York Community Bancorp - NYB - close: 18.85

After big gains in December shares of NYB have started to see some profit taking. Broken resistance near $18.00 should be new support. I am suggesting we use a buy-the-dip trigger at $18.00. It could take a few weeks for NYB to retrace that far. If triggered we'll start with a stop loss at $16.65. FYI: The Point & Figure chart for NYB is bullish with a long-term target of $33.50.

Buy-the-Dip trigger: $18.00

BUY the 2012 January $17.50 calls (NYB1221A17.5)

- or -

BUY the 2013 January $20.00 calls (NYB1319A20)

Originally listed on the Watch List: 12/25/10


Target Corp. - TGT - close: 60.13

TGT has spent the last week and a half sliding sideways along the $60.00 level. The trend is up but if the market corrects lower then TGT could retest the $56-55 zone. I'm adjusting our trigger to buy LEAPS on a dip at $56.00 instead of $57.00. If triggered we'll start with a stop loss at $53.75. Our long-term target is $69.75.

Buy-the-Dip trigger: $56.00

BUY the 2012 January $60 calls (TGT1221A60)

- or -

BUY the 2013 January $65 calls (TGT1319A65)

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


United Parcel Service - UPS - close: 72.58

The transportation sector isn't moving. This group has been consolidating sideways for most of December. We want to wait for UPS to dip toward support near $70.00. More conservative traders could look for a dip near the rising 100-dma instead. 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: $70.10

BUY the 2012 January $75 calls (UPS1221A75)

- or -

BUY the 2013 January $80 calls (UPS1319A80)

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


United States Steel Corp. - X - close: 58.42

Shares of X managed a gain for the week but the stock has essentially been consolidating sideways the last ten days. There is no change from my prior comments. We're waiting for a correction. I am suggesting bullish positions on a dip at $54.00. More conservative traders could just wait and see where X finds support again (it could be $52 or $50). If triggered we will start the play with a stop loss at $48.75. Our long-term targets are $64.75 and $74.75.

Buy-the-Dip trigger: $54.00

BUY the 2012 January $60.00 calls (X1221A60)

- or -

BUY the 2013 January $60.00 calls (X1319A60)

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