Option Investor
Newsletter

Daily Newsletter, Saturday, 1/15/2011

Table of Contents

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

Leaps Trader Commentary

Earnings Remain the Focus.

by James Brown

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Investors are ignoring economic data in favor of earnings news. The Q4 earnings season has begun and so far the results are pretty strong. Intel (INTC) and J.P.Morgan (JPM) were high-profile reports last week. INTC's results fueled strong gains in the semiconductor sector and JPM's results sparked another big day of gains for the banking stocks. Both are key sectors that tend to lead the market.

The market's trend is still up but a growing concern is that stocks are getting too overbought. On a short-term basis the SOX semiconductor index looks very overbought and due for some profit taking. Energy stocks, homebuilders, and healthcare are three more sectors that look like the SOX and overdue for some profit taking.

My biggest concern right now is that positive earnings results will fuel another last gasp higher and then when the earnings fire runs out of oxygen, stocks will reverse. It's a normal pattern that's quite common during earnings season. Of course sometimes the pattern is more obvious than others, especially when stocks see a big run up in front of the earnings news. Don't get me wrong! I'm happy to hear the healthy earnings news. We need corporate America to show an improving earnings picture that will help pave the way for future gains in 2011. We just need to be careful. Stocks commonly see a post-earnings depression. It's this depression that will fuel the market correction we've been expecting.

The S&P 500 has broken out past resistance at the 1280 level and is quickly approaching the next level of resistance at 1300. The 1300 level was resistance back in the third quarter of 2008. A nice big round number like 1300 would make a good spot for traders to decide to take profits. I know that seems simple but the big even numbers tend to be support going down and resistance going up.

Daily chart of the S&P 500 index:

The NASDAQ is soaring. The NASDAQ composite powered past what should have been stronger resistance near the 2725 level and it's already past the 2750 mark. Now we're looking at the 2007 highs in the 2800-2860 zone as overhead resistance. The tech-heavy NASDAQ is very overbought here and way overdue for some profit taking. Let's say earnings news pushes the NASDAQ to 2800. A -5% correction from the 2800 level would be 2660.

Daily chart of the NASDAQ Composite index:

Intel's earnings helped lift an already overbought semiconductor index even higher. The SOX index is looking very extended here and nearing potential resistance at the top of its bullish channel.

Weekly chart of the SOX semiconductor index:

The small cap Russell 2000 index has broken out past key resistance near the 800 level. Believe it or not the Russell actually looks relatively healthy here. This index is overbought given the five-month rally but shares are rebounding from support at the bottom of its bullish channel. The Russell probably offers the best hope that this rally has further to run.

Daily chart of the Russell 2000 index:

I really don't see any changes from my prior comments. This week is going to be one of the busiest for Q4 earnings releases. The trend is up and I would expect stocks to continue this melt up higher. It's the week after this that I would expect stocks to begin correcting lower.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

Transocean (RIG) hit our final exit target this past week. Overall portfolio results were mixed last week. DE hit our first profit target. EMC is getting close to our exit target. GLD looks ready to move lower. I'm suggesting short-term puts on the GLD. GS and IBM are both reporting earnings this week. We want to go ahead and sell our April GS calls now ahead of the report. MCD almost hit our stop loss. I've decided to close our GME trade early.

New stop losses for DE and GS.

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

Should We Buy Puts?

by James Brown

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Editor's Note:

Stocks continue to march higher as investors react to strong earnings news. These next two weeks could see some volatility. Odds are good the market could run out of gas. Once the earnings news is out, stocks tend to see a little post-earnings depression.

I don't want to sound like a broken record here but we need to wait for a pull back before loading up with new long-term bullish positions. I believe we could see a very attractive entry point in early February. We just have to be patient and wait.

Last week I talked about buying puts as part of a hedge against our bullish positions. As the S&P 500 nears potential resistance at 1300 and the NASDAQ nears potential resistance near 2800 I would definitely reconsider buying puts again on the major market indices (probably puts 30 to 60 days out). How big of a hedge (if any) is up to your and your own personal level of risk. Any of the big ETFs could work well for us as short-term put candidates (SPY, MDY, IWM).

I suspect that we could see several new bullish plays added to the newsletter before the end of February.


Play Updates

RIG Reaches Our Target

by James Brown

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Closed Plays


GME and RIG have been closed.


Play Updates


Arch Coal Inc. - ACI - close: 34.04

01/15 update: ACI is churning sideways in what is shaping up to be a volatile $2-3 range around the $33-36 area. On a short-term basis I'd look for a pull back toward $32 and if the market corrects then look for a dip closer to $30.00. Since we are expecting a market correction I want to move our stop loss down to $28.90 (from $29.75). We'll look for new bullish positions near $30.00. 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 $ 5.15/ 5.25

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 7.50/ 7.80

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: 28.90
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


Akamai Technology - AKAM - close: 51.75

01/15 update: AKAM turned in a strong week. Shares rallied back above resistance near $50 and its 100 and 50-dma. There are new rumors floating around that AKAM is a takeover target (which is nothing new). On a short-term basis I would look for a dip near $50.00 as support. I'm not suggesting new bullish positions at this time.

FYI: For some reason the spreads on AKAM's LEAPS are getting wider.

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 $ 8.20/10.05

- Third Position -

Dec. 20, 2010 - entry price on AKAM @ 50.49, option @ 5.40
symbol: AKAM1221A60 2012 JAN $60 call - current bid/ask $ 4.25/ 5.85

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: 107.73

01/15 update: BIDU spent the week consolidating sideways but with a slightly bullish tone. Shares look poised to breakout past the $108 level. I suspect there is a good chance that BIDU will retest the $100 or even $95 levels when the market corrects lower. Thus, 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 $22.20/22.60

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: 81.65

01/15 update: After weeks of consolidating sideways with a bearish trend of lower highs I was starting to think BRK.B was going to breakdown under support and stop us out. Thankfully support near the 200-dma held up and shares have started to breakout higher this past week. If I wasn't expecting a market correction lower then BRK.B's recent move looks like a new bullish entry point to buy calls.

Our 2011 January $85 calls are going to expire worthless in four trading days. Meanwhile I couldn't find an earnings date for BRK.B but it looks like, from the data on the company's website, they normally report earnings in February. 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/ 0.03

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 3.55/ 3.75

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: 42.22

01/15 update: I warned readers a week ago that BVN would probably continue lower. Shares are definitely underperforming the rest of the market and that's worrisome. The stock is now testing technical support at its 200-dma. If this level breaks then we're looking at possible support near $42.00 or at $40.00.

The gold miners will likely be held hostage to gold prices and right now the price of gold looks ready to fall. I cautioned readers that our entry point at $45 was an aggressive, higher-risk trade. Our plan was to open small (half) positions to limit our risk.

I am not suggesting new positions at this time.

- Current Positions -
Jan 5, 2011 - entry price on BVN @ 45.00, option @ 3.90
symbol: BVN1119F50 2011 JUN $50 call - current bid/ask $ 1.40/ 1.85

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

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: 89.52

01/15 update: Target achieved. It was a strong week for DE. Analyst upgrades and bullish comments pushed DE toward resistance near $90.00. The stock gapped open higher at $89.47 on January 13th. Our first target to take profits was $88.00. The 2012 January $90 call opened at $10.00 that morning (+110%). I am raising our stop loss from $74.80 to $78.90. If and when the market corrects DE could retest support near $80 and its 50-dma. I'd wait for the correction before considering new positions. I'm adjusting our secondary, longer-term target from $94 to $99.00.

- 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 $ 9.90/10.10

01/15/11 New stop loss @ 78.90, Adjusted second target to $99.00
01/13/11 1st Target Hit $88.00. Option @ $10.00 (+110%)
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

Chart of DE:

Current Target: $ 88.00, 99.00
Current Stop loss: 78.90
Play Entered on: 11/26/10
Originally listed on the Watch List --/--/--


Walt Disney Co. - DIS - close: 39.29

01/15 update: It was a quiet week for DIS. The stock is still consolidating its gains from the early January rally and breakout higher. Broken resistance at $38.00 should be new support but there is no guarantee it will hold if and when the wider market corrects lower. I'm suggesting we hold off on any new positions at this time.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 3.50/ 3.60

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 5.10/ 5.35

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: 24.54

01/15 update: Wow! EMC has continued to rally higher. Makes me wish we still had those 2011 January $20 calls now. They're trading near $4.50. Volume has been strong on the recent rally, which is normally a good sign. I would be tempted to go ahead and take profits right now on our last remaining position. Currently our exit target is $24.75 and EMC hit $24.59 on Friday. Given the recent strength I'm adjusting our exit target to $25.35. The 2007 high and next level of resistance was $25.47. We will raise our stop loss to $21.90. I'm going to suggest we exit our position ahead of EMC's earnings report in late January. If and when the market correct we can re-evaluate new positions.

- 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 $5.50/5.65

01/15/11: New stop loss @ 21.90, Adjusted target to $25.35
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 & 25.35
Current Stop loss: 21.90
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 57.59

01/15 update: ESRX has rallied to new highs with last week's move past the $57 level. There is a good chance that ESRX will hit our final exit target at $59.50. More aggressive traders may want to aim higher. I don't see any changes from my prior comments. More conservative traders might want to consider raising their stops. I am not suggesting new bullish positions at this time.

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $8.00/8.20

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $11.10/11.65

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: 132.69

01/15 update: I have been warning readers for weeks that gold was forming a top and would see a correction. It looks like that correction has begun. The GLD gold ETF has formed a triple-top or rounding top shaped pattern. What's really worrisome is that the U.S. dollar turned lower this past week and gold did not rally on the move in the dollar. Has this relationship of dollar down/gold up finally soured? There has been talk that gold as a safe-haven investment is losing its luster given the improvements in the U.S. economy and Europe's debt struggles.

I am still expecting a correction in the GLD down toward the $125 area, which will coincide with a decline toward the rising 200-dma. It's going to be painful watching our 2012 January calls contract. In an effort to protect ourselves and potentially make a little more money on this trade I am suggesting some put positions. We want to buy the April $125 puts, currently going for $2.14. We'll consider selling these puts as GLD nears $125.

Currently our final long-term bullish target is $149.00. I'm not suggesting new bullish positions at this time.

FYI: As you know several weeks ago Goldman Sachs raised their 2011 price target on gold to $1,700 an ounce. This past week another firm just raised their 2011 price target to $1,600 an ounce.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $13.20/13.50

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ xxx.xx, option @ xx.xx
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 2.08/ 2.14

01/15/11 Added April Puts to protect ourselves from further declines.
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

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: 175.00

01/15 update: Exit the April calls! The markets are closed on Monday, January 17th. GS is due to report earnings on Wednesday the 19th before the opening bell. While I expect GS to deliver strong numbers I don't want to hold the April calls over the announcement. I'm suggesting we exit our April calls now. We'll keep the 2012 January calls but we'll plan to sell half at $179.75. I am raising our stop loss to $159.75. More conservative traders may want to use a stop closer to $165. I am not suggesting new bullish positions at this time.

(We will update the final exit price for the April calls at Tuesday's open)

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 4.25
symbol: GS1116D180 2011 Apr $180 call - Exit early @ $5.90 (+38.8%)

- or -

Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $12.05/12.45

01/15/11 Exit the 2011 April calls. Bid @ $5.90 (+38.8%)
01/15/11 New stop loss $ 159.75
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: 159.75
Play Entered on: 11/22/10
Originally listed on the Watch List 10/24/10


Humana Inc. - HUM - close: 59.35

01/15 update: The rebound in HUM is picking up steam. Shares broke out past resistance near $58.00 and rallied to new six-week highs on positive analyst comments. The trend is up but I hesitate to launch new positions given our expectation for a market correction within the next four weeks. More conservative traders might want to consider raising their stops.

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 $ 9.10/ 9.80

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: 150.00

01/15 update: IBM is still marching higher. Shares have climbed to new all-time highs and settled at round-number, psychological resistance at $150.00. I would not expect to see a lot of movement on Tuesday. IBM is due to report earnings on January 18th after the closing bell. Will the stock rally on earnings news or will IBM sell off on Wednesday morning? That's the question. More conservative traders may want to protect themselves with some short-term puts (buy them before Tuesday's closing bell). You could buy some out of the money January puts, that expire in a few days very cheap. Or you may want to buy some February puts since we are expecting a market correction over the next couple of months. I am not suggesting new bullish positions at this time.

Prior Comments:
We have already exited the 2011 calls for a gain.

- Current Positions -
Sep 30, 2010 - entry price on IBM @ 136.00, option @ 7.80
symbol: IBM1221A150 2012 Jan $150 call - current bid/ask $10.90/11.05

01/15/11 Consider buying protective puts ahead of earnings
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: 10.79

01/15 update: The rally in LCC has stalled. The airline sector hit some profit taking on January 11th. The XAL airline index recovered from the decline on the 11th but LCC has not. This relative weakness is a bit worrisome. I wouldn't be surprised to see another dip toward $10.00 or even the 200-dma. I'm not suggesting new bullish positions at this time.

- 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 $ 1.60/ 1.69

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: 75.87

01/15 update: Last week I warned readers to expect some profit taking after the early January gains. Shares are consolidating under resistance at the 200-dma. If the $75 level breaks then LLL should find some support near $72.00. I am not suggesting new bullish positions at this time.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 6.80/ 7.10

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

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: 74.06

01/15 update: Whoa! MCD gave us a fright this past week. The correction lower continued. On Thursday MCD broke down under technical support at its 200-dma. The situation looked dire. Friday morning saw the stock spike down to $72.14 before bouncing. The +1.9% gain on Friday has produced a bullish engulfing (reversal) pattern. This could be a new entry point to buy calls but these engulfing patterns normally need to see confirmation. I'd probably wait for a close over $75.00 before considering new positions. Keep in mind that the 100-dma and 50-dma are now overhead resistance. Our stop loss remains 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 $2.29/ 2.34

01/14/11 MCD produces a potential bullish reversal
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: 28.30

01/15 update: MSFT spent the week consolidating sideways near new support around the $28 level. Earnings are two weeks away but results from its rivals could have an influence this week. If the market corrects lower I would look for a pull back toward the 200-dma. I would not begin new long-term 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 $3.00/ 3.15

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: 33.21

01/15 update: Transport stocks have been inching higher but really did not participate in the market's rally on Friday. ODFL has a similar sideways move with traders buying the dips near short-term support at $32.00. I'm still worried about a market correction so we don't want to open new positions at this time. 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/ 4.40

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


Target Corp. - TGT - close: 55.07

01/15 update: TGT closed virtually unchanged on the week with shares churning in the $55-56 zone. I am very concerned that if and when the broader market corrects lower, how will that impact shares of TGT. This stock has already seen a significant correction but will technical support at the 200-dma really hold up? We already have a relatively tight stop loss at $53.75 so we'll hold on for another week and re-evaluate. I am not suggesting new bullish positions at this time. 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 $ 2.90/ 2.99

- or -

Jan 6, 2011 - entry price on TGT @ 55.81, option @ 4.25
symbol: TGT1319A65 2013 Jan $65 call - current bid/ask $ 3.45/ 4.05

01/06/11 Play triggered at $55.81

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: 16.66

01/15 update: There is nothing new to report on for USG. The stock has been bouncing sideways in the $16-17 zone. I'm still expecting a correction toward $15.00. I am not suggesting new positions at this time. Let's wait and see if the $15 level holds up.

- 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 $ 3.20/ 3.70

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: 63.55

01/15 update: It was a big week for WLP with the stock climbing another three points to close at new nine-month highs. The stock looks very short-term overbought given the two-week, almost nonstop rally higher. Broken resistance near $60.00 should offer some support. I am not suggesting new bullish 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 $ 6.75/ 6.95

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


Gamestop Corp. - GME - close: $20.37

01/15 update: We need to re-evaluate our GME trade. The oversold bounce failed near short-term resistance at $21.00. GME is underperforming the rest of the market. My biggest concern right now is that the market will see a correction in the next two or three weeks and how will that affect shares of GME? Will this stock be able to hold support near $20.00? Or will the correction take GME down toward support near $18.00.

I hate to jump in and out of LEAPS positions but I'm suggesting we exit this trade early right now. We'll cut our losses and look to see if we can get a better entry point near $18.00.

- Closed Positions -
Jan 6, 2011 - entry price on GME @ 21.25, option @ 2.50
symbol: GME1221A22.5 2012 Jan $22.50 call - Exit Early @ bid $2.08 (-16.8%)

- or -

Jan 6, 2011 - entry price on GME @ 21.25, option @ 2.75
symbol: GME1319A25 2013 Jan $25.00 call - Exit Early @ bid $2.46 (-10.5%)

01/15/11 Exit Early. GME @ 20.37.
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


Transocean Ltd. - RIG - close: 79.01

01/15 update: Target achieved! Oil service stocks have continued to rally higher. Shares of RIG hit $78.61 on Thursday and tagged another new relative high at $79.11 on Friday. Broken support near $80.00 from late 2009 and early 2010 could be overhead resistance. Our final exit target was hit at $78.50. Our 2012 January $60 calls were trading at $21.30 (+193.7%) when the target was ht.

- Current Positions -
Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - Exit @ $21.30 (+193%)

01/13/11 Target hit. RIG @ 78.50 option @ $21.30
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%)

Chart of RIG:

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


Watch

Oil Services & Healthcare

by James Brown

Click here to email James Brown

Editor's Note:

The market's trend is up but stocks tend to peak during the first half of earnings season. We're expecting a pull back in the next two or three weeks. After the big gains we've already seen the correction could be sharp! That's why some of our triggers are so low.

In addition to tonight's new candidates I would check out the follow stocks and keep them on your radar screen for an entry point in February. Additional stocks on my watch list: AMR, IPI, HLIT, CELL, MTG, PMI, JBLU, RYL, CBR, A, OXY, and PG.


New Watch List Entries

NFX - Newfield Exploration

UNH - UnitedHealth Group, Inc


Active Watch List Candidates

AKS - AK Steel holding

CMP - Compass Minerals

FLR - Fluor Corp.

MAT - Mattel Inc.

MON - Monsanto Co.

NYB - New York Community Bancorp

VZ - Verizon Communications

X - U.S. Steel Corp


Dropped Watch List Entries

UPS was removed.


New Watch List Candidates:

Newfield Exploration Co. - NFX - close: 71.06

NFX is an oil service stock. Shares saw a huge rally off its late August lows. The rally ran out of gas in December and shares have been consolidating sideways. I'm expecting a breakdown under support at $70.00 soon. When that happens it could be a quick journey lower toward the next major level of support at $60.00. I'm suggesting a trigger to open long-term bullish positions at $60.50. If triggered we'll use a stop loss at $54.40. Our long-term targets are the $75 and $85 levels. FYI: The P&F chart is bullish with a $90 target.

Company Info

Buy-the-Dip trigger: $60.50

BUY the 2012 January $65 calls (NFX1221A65)

- or -

BUY the 2013 January $70 calls (NFX1319A70)

Chart of NFX:

Originally listed on the Watch List: 01/15/11


UnitedHealth Group, Inc. - UNH - close: 40.77

Healthcare stocks have been garnering bullish attention. The sector is breaking out to new multi-year highs. Helping lead the charge is UNH. Short-term UNH looks a little overbought. I am suggesting we wait for a dip back to $36.50 as an entry point to open long-term positions. If triggered we'll use a stop loss at $33.45. FYI: The P&F chart is bullish with a $67 target.

Company Info

Buy-the-Dip trigger: $36.50

BUY the 2012 January $40 calls (UNH1221A40)

- or -

BUY the 2013 January $40 calls (UNH1319A40)

Chart of UNH:

Originally listed on the Watch List: 01/15/11


Active Watch List Candidates:


AK Steel Holding - AKS - close: 15.36

01/15 update: Shares of AKS were downgraded again. The stock has sunk to its 200-dma. As you know I'm expecting a market-wide correction relatively soon. When that happens AKS could over correct. I am moving our trigger to buy calls from $14.00 down to $12.25. We'll move our stop loss to $10.75. The 2010 low was $11.34.

Buy-the-Dip trigger: $12.25 <-- new trigger

BUY the 2012 January $15.00 calls (AKS1221A15)

- or -

BUY the 2013 January $15.00 calls (AKS1319A15)

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


Compass Minerals - CMP - close: 89.14

01/15 update: The stock market is breaking out to new highs and yet CMP is still consolidating sideways under resistance near $90-91. Wait for the correction. Right now I'm suggesting a trigger to open positions at $80.50. If triggered we'll use a stop loss at $75.75. Unfortunately, CMP does not have any LEAPS available and the longest dated options are 2011 Junes.

Buy-the-Dip trigger: $80.50

BUY the 2011 June $85.00 calls (CMP1118F85)

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


Fluor Corp. - FLR - close: 71.19

01/15 update: FLR was a new watch list candidate last week. If I had known before hand shares were going to surge +10% we would have considered a different strategy. As it stands now FLR looks overbought. There is some support near $65 but when the markets does correct lower FLR could over correct. I am adjusting our buy-the-dip entry point to $60.50. We'll use a stop loss at $54.75. Buy-the-Dip trigger: $60.50 <-- new trigger

BUY the 2012 January $65 calls (FLR1221A65)

- or -

BUY the 2013 January $70 calls (FLR1319A70)

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


Mattel Inc. - MAT - close: 23.95

01/15 update: MAT has been trying to hold support near $24 and its 100-dma but it's not doing a very good job. Just to be on the safe side I'm adjusting our buy-the-dip trigger to $21.00 and our stop loss to $19.75. Our long-term targets are $29.00 and $36.00.

Buy-the-Dip trigger: $21.00 <-- 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


Monsanto Co. - MON - close: 74.33

01/15 update: Agriculture names were en vogue last week. MON rallied to new multi-month highs. We don't want to chase this move. 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 2012 January $70 calls (MON1221A70)

- or -

BUY the 2013 January $75 calls (MON1319A75)

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


New York Community Bancorp - NYB - close: 18.69

01/15 update: Hmm... financials were showing lots of relative strength last week. Yet NYB was not really participating. That's a troubling sign. If NYB hits our buy-the-dip entry point at $17.00, we only want to open small positions (1/2 or 1/4 your normal trade size). If triggered we'll use a stop loss at $15.75.

Buy-the-Dip trigger: $17.00

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


United Parcel Service - UPS - close: 72.48

01/15 update: I am removing UPS from the watch list. I'd rather find candidates that will move faster than UPS' recent performance. Readers may want to keep this stock on their watch list anyway.

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


Verizon Communications - VZ - close: $35.93

01/15 update: VZ spent the week consolidating sideways. Bigger picture VZ still looks poised to correct lower. I am moving our trigger to launch positions down to $33.00 and our stop loss down to $31.45. Our long-term targets are $40.00 and $44.00.

Buy-the-Dip trigger: $33.00

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: 54.67

01/15 update: X's oversold bounce failed twice near $58.00. Short-term traders may want to consider bearish put positions and target a drop toward $50.00. I'm suggesting we launch long-term bullish positions when X hits $50.50. If triggered we'll use a stop at $44.80. Our long-term targets are $64.75 and $74.75.

Buy-the-Dip trigger: $50.50

BUY the 2012 January $55.00 calls (X1221A55)

- or -

BUY the 2013 January $60.00 calls (X1319A60)

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