Option Investor
Newsletter

Daily Newsletter, Saturday, 1/8/2011

Table of Contents

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

Leaps Trader Commentary

Earnings Season Begins Soon

by James Brown

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The new year 2011 got started with a bang. Last Monday sent stocks to new two-year highs. Unfortunately there wasn't much follow through. The major indices have been consolidating sideways. That's not necessarily a bad thing but stocks remain overbought given their huge gains in December. Generally speaking the flow of economic data continues to improve. Sadly the labor market seems to be the exception. The jobs report on Friday was a huge miss.

Last Wednesday's strongly positive ADP employment report really raised expectations for the December jobs report on Friday. Analysts were raising their estimates on how many jobs the U.S. produced last month. Unfortunately, the government report was a miss. We did see job gains and the previous two months were revised higher but overall it was a disappointment. I'm surprised the market did not see a steeper sell-off on Friday. Investors could be waiting for earnings season to begin, which will start soon. Dow-component Alcoa (AA) typically kicks off earnings season and AA reports on January 10th.

At the same time we have another full week of economic data ahead of us. The wholesale inventory report on Tuesday begins the parade. Wednesday will bring the Federal Reserve's Beige Book report plus the import/export prices. Thursday, January 13th, will see the PPI for December and the weekly initial jobless claims. Friday will bring the CPI for December, Retail sales for December, industrial production, business inventories, and the Michigan Sentiment index for January. This week is going to see some big headlines with all the reports and earnings announcements.

The S&P 500 index is still trending higher and I wouldn't be surprised to see a move higher past 1280 this week. Yet like a rubber band stretched to its limit, the higher the market goes without correcting the bigger the correction could be when it finally shows up. The 1300 level is the next natural level of overhead resistance. Meanwhile on the downside the S&P 500 should find support about every 20 points at 1260, 1240, 1220, 1200. A -5% correction from current levels would mean a drop toward the 1205 area. Yet a -5% correction from the 1300 level would be 1235.

Daily chart of the S&P 500 index:

Bingo! Right on cue the NASDAQ rallied to the 2700 level. Like the S&P 500 the trend for the NASDAQ composite is still up and traders were buying the dip on Friday afternoon. The next level of resistance is probably the 2725 area. If the NASDAQ corrects lower or should I saw when it corrects lower I would watch for support near 2600 and its 50-dma. Yet that may not hold as a -5% correction from the 2700 level would be 2565.

Daily chart of the NASDAQ Composite index:

One bright spot in the market last week was the semiconductor sector. The SOX index rallied from the bottom of its bullish channel to close at new multi-year highs. The trend is still up, which is a big positive for the NASDAQ, but Intel (INTC) could change that when they report earnings on January 13th. If INTC disappoints it could be the catalyst that sparks a reversal.

Weekly chart of the SOX semiconductor index:

The small cap Russell 2000 index rallied toward resistance near 800 early last week and failed. That's not surprising since the $RUT is so overbought. This index is way overdue for a correction. We can look for some support near 765-760 but I would wait for a dip closer to the 740 area before looking for new bullish positions.

Daily chart of the Russell 2000 index:

In summary the major market indices have started moving sideways as investors look ahead to the beginning of earnings season. While the overall trend is still up odds are really good that the market could see a correction start as traders react to earnings news. Now I can't predict what's going to happen in the future. It wouldn't surprise me to see another push higher before the rally fades sometime in the next two weeks. I want to warn readers that the second half of January is not normally a very bullish time for stocks. If you're patient we could see a great entry point to launch new positions in early February.

I said it last week. If you're ready for the correction the pull back doesn't have to be scary. Instead we can look at it as an opportunity. The market will provide us another opportunity to launch new longer-term trades as we look ahead into 2011. If you're nimble enough then readers could try timing the pull back with some short-term put positions. Actually it might be a good idea to consider hedging your LEAPS portfolio with a few puts.

- James

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Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

My comments here are going to echo what I said in my editor's note for the play updates section. The volatility index really isn't moving much, which makes sense with the S&P 500 consolidating sideways the last few days. Yet we are seeing some big moves on our play list. NVDA and WYNN both hit our exit targets. Shares of COP, INFY, and LLL have rallied high enough that I'm suggesting an early exit (for LLL we only want to sell half). Meanwhile NKE hit our stop loss. We're also seeing strong moves in BIDU, MSFT, DIS, and WLP.

You'll also notice three new plays in our portfolio as BVN, GME and TGT made the jump from our watch list.

New stop losses for DIS, EMC, IBM, LLL, MSFT, RIG, and WLP.

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

Tonight Is The Time

by James Brown

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Editor's Note:

Nothing has really changed for us since last week. The market saw a big move on Monday, January 3rd but spent the rest of the week consolidating sideways. The larger trend is still up but stocks look overbought and due for some profit taking. Odds are that profit taking will hit during earnings season as traders sell the news.

Earnings season could also herald the beginning of the market-wide correction we are expecting. Stocks could see a -5% to -10% pull back over the next four to five weeks. The major indices might see a smaller decline but individual stocks will definitely see some volatility. Tonight is not the best time for us to be launching new long-term bullish positions. We want to wait for the correction and look for an entry point in late January or early February.

Tonight is the time for us to be thinking about a hedge. You could buy short-term puts (30 to 60 days out) on the S&P 500, the NASDAQ, even the small cap Russell 2000 index. How big of a hedge (if any) is up to your and your own personal level of risk. There is no guarantee of a correction lower but odds certainly favor one.

Given our current circumstances I am not suggesting new LEAPS positions at this time.


Play Updates

Taking Profits Again!

by James Brown

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Editor's Note:

It was an exciting week to start off 2011. The VIX volatility index isn't moving but we're definitely seeing some movement on our play list. I am suggesting early exit to lock in gains on COP, INFY, and LLL. NVDA and WYNN both hit our exit targets. NKE actually hit our stop loss.

-James


Closed Plays


COP, INFY, NKE, NVDA, and WYNN were all closed this past week.


Play Updates


Arch Coal Inc. - ACI - close: 34.64

01/08 update: ACI spent last week consolidating sideways between the $36-34 levels. If the market corrects we could easily see ACI dip toward $32.00. I would wait for a dip into the $30-32 zone before considering new long-term bullish positions. 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 $ 5.70/ 5.80

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 7.90/ 8.20

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: 48.69

01/08 update: AKAM is trying to find a bottom and bounced again from the $47 level early last week. The last few days the consolidation has narrowed in the $48-49 area. I am concerned that AKAM could find new overhead resistance near the $50 level and its 50-dma. I'm not suggesting new positions at this time. If the market sees a correction later in the month AKAM could be testing the $45 area.

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 $ 8.05/ 8.35

- Third Position -

Dec. 20, 2010 - entry price on AKAM @ 50.49, option @ 5.40
symbol: AKAM1221A60 2012 JAN $60 call - current bid/ask $ 4.50/ 4.70

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: 106.95

01/08 update: BIDU is starting the year off in bullish fashion. Shares have rallied about 10 points and broken back above its simple 50-dma. There is still some resistance overhead but the stock looks a lot healthier than it did a week ago. I am 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 $24.05/24.50

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: 79.74

01/08 update: Sadly shares of BRK.B have been dead money the last couple of months. This past week saw the stock briefly trade over technical resistance at its 50-dma but the rally rolled over. I am expecting our 2011 January $85 calls to expire worthless. If by some chance BRK.B surprises us and rallies toward $84 I would sell these calls in a heartbeat to recoup some of our capital. I am not suggesting new positions at this time.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 0.00/ 0.04

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 3.30/ 3.50

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


Compania de Minas Buenaventura - BVN - close: 45.32

01/08 update: BVN has made the jump from our watch list to our play list when shares hit our buy-the-dip trigger at $45.00 on January 5th. Looking at the recent action I am not convinced BVN's correction is over. Readers may want to wait for a dip closer to support near $42.00 and its rising 200-dma before initiating new bullish positions. Gold mining stocks have seen a lot of profit taking this past week but the longer-term trend is still higher. I labeled a dip $45.00 an aggressive, higher-risk entry point and suggested readers only open small (half-sized) positions.

I'm setting our stop loss at $39.90 (you may want to place your stop closer to $42). Our target is $54.75

- Current Positions -
Jan 5, 2011 - entry price on BVN @ 45.00, option @ 3.90
symbol: BVN1119F50 2011 JUN $50 call - current bid/ask $ 2.35/ 2.95

01/05: Play is opened at $45.00 (small positions only)

Chart of BVN:

Current Target: $ 54.75
Current Stop loss: 39.90
Play Entered on: 01/05/11
Originally listed on the Watch List --/--/--


Deere & Co - DE - close: 84.34

01/08 update: Shares of DE are still consolidating sideways under resistance near the $85.00 level. There is no change from my prior comments. If you're looking for a new entry point I'd wait for a dip near $80 and its rising 50-dma. 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 $7.50/7.65

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: 39.45

01/08 update: It was a big week for DIS. The stock broke out past major resistance at the $38.00 level and immediately rallied toward the next level of resistance at $40.00. I am raising our stop loss to $34.95. More conservative traders may want to raise their stop closer to the $36 or $37 levels. Broken resistance at $38 should be new support. If you're looking for a new entry point wait for a dip near $38. Please note that I am raising our target from $42 to $43 and we're adding a secondary long-term target at $46.00.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 3.80/ 3.90

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 5.35/ 5.60

01/08/11 New stop loss @ 34.95
01/08/11 Target changed to $43.00 and $46.00
10/27/10 Play opened, DIS opened @ $35.60

Current Target(s): $43.00, 46.00
Current Stop loss: 34.95
Play Entered on: 10/27/10
Originally listed on the Watch List 10/24/10


EMC Corp. - EMC - close: 23.47

01/08 update: EMC is off to a good start this year. Shares have rallied to new three-year highs. Another good week or two and EMC could hit our final target at $24.75. More aggressive traders may want to aim higher. Please note our new stop loss at $20.90. More conservative traders may want to raise their stops closer to the $22 area. I am not suggesting new bullish positions at this time.

- 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 $4.70/4.85

01/08/11 New stop loss @ 20.95
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: 20.95
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 56.25

01/08 update: ESRX rallied to new all-time highs last week. Broken resistance near $55 should offer some support. More conservative traders might want to consider raising their stops. I am not suggesting new bullish positions 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 $7.40/7.55

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $10.45/11.05

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: 133.58

01/08 update: It was not a good week for gold bulls. A sharp bounce in the U.S. dollar sent gold stumbling lower. The GLD has broken technical support at the 50-dma. Plus this ETF appears to be in the process of breaking down under its trend of higher lows. Plus, you could argue that the GLD has produced a bearish triple top pattern. Now we have known for several weeks that the GLD was overbought and due for a correction. I suspect that correction could carry the GLD all the way down toward the $125.00 area. If you don't want to endure that move then consider exiting early now. Long-term the trend for gold is still up. 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 $13.95/14.25

01/08/11 Expecting a correction toward $125
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

Chart of GLD:

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


Gamestop Corp. - GME - close: $20.77

01/08 update: GME is another watch list addition. We were looking for a correction back toward the $21-20 zone and we set a trigger to buy call LEAPS at $21.25. Well GME got there a lot sooner than expected. The stock began correcting lower as soon as 2011 began. The stock really plunged on Thursday, January 6th when the company reaffirmed its earnings guidance and reported same-store sales growth of +3.4%. The market was hoping for closer to +5%. GME opened at $21.29 on Thursday and quickly fell through technical support at the 200-dma. That was worrisome. However, traders bought the dip on Friday at $20.18. The $20 level should be pretty good support. Readers could buy calls on this dip near $20 but you might want to consider a tighter stop loss close to the $20.00 mark. Currently our stop is at $18.90. Our long-term targets are $24.90 and $29.75 if you're holding the 2013 option.

- Current Positions -
Jan 6, 2011 - entry price on GME @ 21.25, option @ 2.50
symbol: GME1221A22.5 2012 Jan $22.50 call - current bid/ask $ 2.38/ 2.46

- or -

Jan 6, 2011 - entry price on GME @ 21.25, option @ 2.75
symbol: GME1319A25 2013 Jan $25.00 call - current bid/ask $ 2.71/ 3.10

01/06/11 Play opened at $21.25

Chart of GME:

Current Target(s): $24.90, 29.75
Current Stop loss: 18.90
Play Entered on: 01/06/11
Originally listed on the Watch List: 12/11/10


Goldman Sachs - GS - close: 170.69

01/08 update: Financials were showing relative strength up until Friday. Shares of GS broke out to new multi-month highs but rolled over under $175. The stock is now testing what should be support in the $170 area. I am not suggesting new bullish positions this close to the company's earnings report. GS is due to report earnings on January 19th before the opening bell.

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 4.25
symbol: GS1116D180 2011 Apr $180 call - current bid/ask $ 5.25/ 5.40

- or -

Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $11.60/11.95

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: 56.83

01/08 update: It looks like our patience in HUM might pay off. The HMO healthcare index has broken out to new highs. While HUM is still underperforming the HMO index the trend has changed. HUM has broken the bearish trend of lower highs and established new support in the $55 area. More conservative traders might want to consider raising their stops. I would seriously consider buying new call LEAPS right here but my market bias is getting in the way since I'm still expecting a market pull back in the second half of January.

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 $ 7.80/ 8.20

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: 147.93

01/08 update: Wow! We are finally starting to see some movement in IBM. Shares have broken out past resistance at the $147.50 level. This is encouraging and potentially a new entry point if you like to buy on strength although if you're launching positions now you will want a much tighter stop loss (and probably a higher strike). Speaking of stops, the simple 200-dma has risen to $133.56. I am raising our stop loss to $133.49. 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 $10.65/10.80

01/08/11 New stop loss @ 133.49
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: 133.49
Play Entered on: 09/30/10
Originally listed on the Watch List 09/25/10


US Airways Group, Inc. - LCC - close: 11.40

01/08 update: What a difference a week can make. I was really starting to worry a week ago. Then the airline sector turned things around with a strong rally in January. LCC soared from $9.80 to $11.40. More conservative traders might want to raise their stops. I would hesitate to open new positions at this time since I'm still expecting a market-wide pull back in January.

- 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 $ 1.94/ 2.01

12/25/10 Readers may want to cut their losses early
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: 78.23

01/08 update: It was a very bullish week for defense stocks that saw a sector-wide rally. Shares of LLL broke out from its trading range and delivered a huge move higher (gaining about 8 points). The breakout past resistance at $74 and its 200-dma is very bullish but LLL is now short-term overbought and due for some profit taking. Our long-term targets have been $79.50 and $89.00 but I am suggesting we go ahead and take profits now (sell half). I am raising our stop loss to $69.90. More conservative traders could raise theirs toward $72 or near $74.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 8.50/ 8.90

01/08/11 Take Profits Early. LLL @ 78.23. Option @ $8.50 (+46.5%)
01/08/11 New stop loss @ 69.90
11/11/10 Play triggered with LLL's gap open @ 71.87

Chart of LLL:

Current Target(s): $79.50, 89.00
Current Stop loss: 69.90
Play Entered on: 11/11/10
Originally listed on the Watch List 11/06/10


McDonald's Corp. - MCD - close: 74.37

01/08 update: Ouch! What happened to MCD last week? Restaurant stocks were down across the board on Tuesday, January 4th. Yet MCD seemed to underperformed its peers with a breakdown under support near $76.00. I warned readers that MCD could see a correction but it is still painful to see when it happens. The stock is nearing technical support at its simple 200-dma (near $73) and at the same time it's nearing its long-term trendline of higher lows (see chart below). I would be tempted to buy new call LEAPS here near $74 or on a dip near the 200-dma. We have a stop loss at $71.90.

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 $2.64/ 2.70

01/08/11 This dip near $74 looks like a new entry point.
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%)

Chart of MCD:

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: 28.60

01/08 update: Investors got excited about some of the gadgets at the CES show in Vegas this past week and MSFT broke out to new relative highs on Thursday. It's certainly encouraging to see this relative strength but I would not begin new long-term positions at this time. I will raise our stop loss to $25.90.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $4.85/ 4.95

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $3.50/ 3.65

01/08/11 New stop loss @ 25.90
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: 25.90
Play Entered on: 10/18/10
Originally listed in New Plays on 10/16/10


Old Dominion Freight Line Inc. - ODFL - close: 32.73

01/08 update: ODFL is still slowly drifting higher. I don't see a lot of changes from my prior comments. Since I'm looking for a market pull back by the end of January I would wait before initiating new positions in ODFL. The $30 and $28 levels should offer some support.

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 $ 3.40/ 5.10

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: 75.04

01/08 update: It was a good week for shares of RIG. Oil services stocks saw some volatility early last week. RIG managed to rally higher and closed at new relative highs near $75.00. Our final exit target is $78.50. Another good week and RIG could be there. I am raising our stop loss to $67.40.

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 $19.20/19.50

01/08/11 New stop @ 67.40
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: 67.40
Play Entered on: 06/09/10
Originally listed on the Watch List 06/05/10


Target Corp. - TGT - close: 55.05

01/08 update: TGT is a new play that made the jump from our watch list. Retail stocks started to see some profit taking on Tuesday and it continued throughout the rest of the week. Investors have been disappointed that after all the hype about how strong the holiday shopping season was that same-store sales figures haven't been stronger. Shares of TGT were hammered on Thursday when the company reported same-store sales growth of +0.9% when analysts were expecting +3.9%. Shares of TGT gapped open lower at $55.81 on January 6th and since our trigger was at $56.00 the play was opened immediately. TGT did manage a bounce from its simple 200-dma on Thursday. While this should be support I am pretty cautious on launching new bullish positions. We were expecting a correction in TGT but not a move this fast. At the moment our stop loss is at $53.75. I would seriously consider giving TGT a little bit more room to maneuver and adjust the stop to $51.75 instead. Our long-term target is $69.75.

- Current Positions -
Jan 6, 2011 - entry price on TGT @ 55.81, option @ 3.50
symbol: TGT1221A60 2012 Jan $60 call - current bid/ask $ 3.15/ 3.30

- or -

Jan 6, 2011 - entry price on TGT @ 55.81, option @ 4.25
symbol: TGT1319A65 2013 Jan $65 call - current bid/ask $ 3.40/ 4.00

01/06/11 Play triggered at $55.81

Chart of TGT:

Current Target(s): $69.75
Current Stop loss: 53.75
Play Entered on: 01/06/11
Originally listed on the Watch List: 12/11/10


U S G Corp. - USG - close: 16.09

01/08 update: There is no change from my prior comments. USG is still consolidating sideways and I am expecting a correction back toward support near $15.00 and its 200-dma. Wait for the dip near $15 before considering new positions.

- Current Positions -
Dec 20, 2010 - entry price on USG @ 15.25, option @ 1.50*
symbol: USG1221A20 2012 Jan $20 call - current bid/ask $ 1.90/ 2.05

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 3.10/ 3.60

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: 60.46

01/08 update: The healthcare sector has been showing relative strength. Shares of WLP were up every day last week. The stock is now challenging resistance at its November highs near $60.50. I am not suggesting new bullish positions at this time. I am raising our stop loss to $54.90.

- 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

01/08/11 New stop loss @ 54.90
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: 54.90
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


CLOSED Plays


ConocoPhillips - COP - close: 67.11

01/08 update: The rally in COP seems to have run out of steam with a high at $68.77 on January 3rd. That's a little frustrating since our exit target has been $69.00. I am suggesting we go ahead and take profits now with the 2012 January $60 call bidding $9.75. Shares of COP look very overbought given the big rally in December. I'd rather exit now and we can re-evaluate a new entry point when shares see a correction. Obviously traders could choose to hold on since we have the 2012 calls and plenty of time.

- 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 $ 9.75/ 9.90

01/08/10 Exit Early. Option @ 9.75 (+105%)
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!

Chart of COP:

Current Target: $ 69.00
Current Stop loss: 59.75
Play Entered on: 05/20/10
Originally listed on the Watch List 05/08/10


Infosys Technologies - INFY - close: 76.08

01/08 update: INFY rallied to $77.92 on January 3rd last week. We have been aiming for $79.00. Unfortunately the stock seemed to stall under the $78.00 level. Now the stock is starting to see some profit taking. INFY looks very overbought given the huge rally in December. I am suggesting we go ahead and exit positions now to lock in a gain.

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 $14.80/16.40

01/08/11 Exit early. INFY @ 75.76. Option @ $14.80 (+80.4%)
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

Chart of INFY:

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


Nike Inc. - NKE - close: 83.53

01/08 update: The post-earnings correction in NKE continues. This past week saw NKE break down under support near $85 and its 50-dma. Shares hit our stop loss at $83.90 on Tuesday, Jan. 4th. I would keep NKE on your watch list. A dip toward $80 or the 200-dma might be a new bullish entry point. This has been a good example of why we want to consider buying protective puts or even exiting positions if a stock sees a big run up into an earnings report.

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

01/04/11 Stopped out @ 83.90. option @ $5.35 (less than -1%)
12/18/10 New stop loss @ 83.90
11/15/10 Play opened on Monday morning, NKE @ 82.91

Chart of NKE:

Current Target(s): $98.00
Current Stop loss: 83.90
Play Entered on: 11/15/10
Originally listed in New Plays on 11/13/10


NVIDIA Corp. - NVDA - close: 19.87

01/08 update: It was a HUGE week for shares of NVDA with the stock surging +29%. Investors were very excited about some of the news coming out of the CES convention in Vegas this week. NVDA rallied to new two-year highs and hit our exit target at $17.75 on Thursday's big move. The option was trading near $6.40 when NVDA hit our target. Today that option is over $8.00.

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 - exit @ $6.40 (+278%)

01/06/11 Target Hit @ $17.75. Option @ $6.40 (+278%)
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

Chart of NVDA:

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


Wynn Resorts - WYNN - close: 118.73

01/08 update: Target achieved. WYNN was another huge winner this past week. The soared rallied every day to gain about 15 points. Shares hit $119.33 on Friday. Our target to exit was $119.00. Volume was pretty strong on the rally. Readers may want to keep WYNN on their watch list in case we see another entry point down the road. The stock is short-term overbought and due for some profit taking.

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 - exit @ $19.25 (+83.3%)

- or -

Nov 19th, 2010 - entry price on WYNN @ 101.33, option @ $16.05
symbol: WYNN1221A112 2012 JAN $112 call - exit @ $23.50 (+46.4%)

01/07/11 Target hit @ 119.00. Options @ $19.25 (+83.3%) and $23.50 (+46.4%)
12/25/10 Adjusted stop loss to $94.00
11/19/10 Play opened on gap down at $101.33

Chart of WYNN:

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

Construction & Agriculture

by James Brown

Click here to email James Brown

Editor's Note:

You might look at some of the triggers on our watch list and think I'm dreaming. However, we are expecting a market-wide correction in the next three to four weeks. Stocks could easily see a -5% to -10% pull back over that time period. We want to be very cautious on launching new long-term bullish positions. Please note that I have adjusted most of the triggers on the watch list below to anticipate this correction.

In addition to tonight's new candidates I'm listing a few stocks on my watch list. Considering putting these stocks on your radar screen and wait for a correction and potential entry point in late January or early February.

A few stocks on my watch list: A, CBR, SPF, USU, LNG, LDL, TASR, PENN, PMI, RYL, JBLU, MXIM.


New Watch List Entries

FLR - Fluor Corp.

MON - Monsanto Co.


Active Watch List Candidates

AKS - AK Steel holding

CMP - Compass Minerals

MAT - Mattel Inc.

NYB - New York Community Bancorp

UPS - United Parcel Service

VZ - Verizon Communications

X - U.S. Steel Corp


Dropped Watch List Entries

BVN, GME, and TGT all graduated to the play list.


New Watch List Candidates:

Fluor Corp. - FLR - close: 65.92

Company Info

Investors are pretty optimistic about the global economy improving in 2011. The market has been bidding up industrials, including big construction companies like FLR. The stock appears to have stalled at new two-year highs after a very strong two-month rally. We want to be ready to hop on board when FLR corrects lower.

I am suggesting we use a buy-the-dip trigger at $57.50. If triggered we'll use a stop loss at $49.90. Our long-term targets are $69.00 and $79.00. Buy-the-Dip trigger: $57.50

BUY the 2012 January $65 calls (FLR1221A65)

- or -

BUY the 2013 January $70 calls (FLR1319A70)

Chart of FLR:

Originally listed on the Watch List: 01/08/11


Monsanto Co. - MON - close: 71.79

Company Info

MON is another play on the improving economy. Farmers are going to need more fertilizer as demand picks up for their crops. The stock has seen a nice rally in the last three weeks. We want to wait for a correction. I'm suggesting a trigger to open long-term bullish positions at $64.00. If triggered we'll use a stop loss at $59.75. Our targets are $79.00 and $87.50. Buy-the-Dip trigger: $64.00

BUY the

- or -

BUY the

Chart of MON:

Originally listed on the Watch List: 01/08/11


Active Watch List Candidates:


AK Steel Holding - AKS - close: 15.36

Shares of AKS were downgraded to a "sell" by Goldman Sachs on Friday. The stock plunged -7.4%. The low was $15.08. AKS looks like it's trying to bounce from its 200-dma. We have a trigger to buy calls at $15.00. However, since I'm still expecting a market correction in the second half of January we will adjust our trigger point. We'll move our trigger to open positions down to $14.00 and we'll move our stop loss to $11.90.

Buy-the-Dip trigger: $14.00 <-- new trigger

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


Compass Minerals - CMP - close: 87.79

It looks like CMP is ready to correct lower but shares have found support at their 30-dma. I am adjusting our entry point lower. Instead of $82.75 let's wait for a dip to $80.50 since the $80.00 level should be strong support, soon to be bolstered by its 200-dma. We'll move the stop loss to $75.75. Unfortunately, CMP does not have any LEAPS available and the longest dated options are 2011 Junes.

Buy-the-Dip trigger: $80.50 <-- new trigger

BUY the 2011 June $85.00 calls (CMP1118F85) <-- new strike

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


Mattel Inc. - MAT - close: 24.18

We've been expecting a correction in shares of MAT but the stock is falling a bit faster than I thought it would. The $24.00 level should be support but the market has yet to correct lower. The low on Friday was $24.08 so we're not triggered yet. I'm moving our entry point from $24.00 down to $22.10. We'll move our stop loss to $19.90. Our long-term targets are $29.00 and $36.00.

Buy-the-Dip trigger: $22.10 <-- new trigger

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: 18.63

I still think the $18.00 level should offer some support. Once again we're expecting a market pull back in the second half of January. I'd rather be conservative with our entry points. We'll move our trigger to buy calls on NYB down from $18.00 to $17.00. We'll move the stop loss to $15.75.

Buy-the-Dip trigger: $17.00 <-- new trigger

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


United Parcel Service - UPS - close: 72.15

We're going to play it safe on UPS too. The $70.00 level should be support but we'll move our trigger to launch long-term trades down to $68.00. I'll move the stop loss to $64.80. Our long-term targets are $79.50 and $87.50.

Buy-the-Dip trigger: $68.00 <-- new trigger

BUY the 2012 January $75 calls (UPS1221A75)

- or -

BUY the 2013 January $80 calls (UPS1319A80)

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


Verizon Communications - VZ - close: $35.93

VZ surged to new highs early in the week. Speculation is rampant that VZ and APPL will announce a new iPhone for VZ's network very soon. There is a chance VZ will see a sell-the-new move following the announcement. It is worth noting that the sell-off on Thursday-Friday makes last week look like a top for VZ.

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)

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


United States Steel Corp. - X - close: 56.14

We have been waiting for a correction in X and it looks like the pull back has begun with Friday's -4.9% decline. I am moving our trigger to launch long-term positions down from $54.00 to $50.50. We'll move our stop loss to $44.90. Our long-term targets are $64.75 and $74.75.

Buy-the-Dip trigger: $50.50 <-- new trigger

BUY the 2012 January $55.00 calls (X1221A55) <-- new strike

- or -

BUY the 2013 January $60.00 calls (X1319A60)

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