Option Investor
Newsletter

Daily Newsletter, Sunday, 1/23/2011

Table of Contents

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

Leaps Trader Commentary

It Has Begun

by James Brown

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After several weeks of gains it looks like the rally is finally running out of steam. The tone of trading has changed and investors are starting to sell the news as more and more corporations report earnings. This development is not surprising. As a matter of fact we've been expecting it. Granted, one down week does not make a trend but don't just look at the major indices. I spent hours this weekend looking at hundreds and hundreds of stocks. It certainly looks like the correction has begun.

This week we'll see another wave of economic data. The Consumer Confidence numbers for January and the Case-Shiller home price index come out on Tuesday. Analysts are expecting a -1.3% decline in home prices. Wednesday brings the latest new home sales data (for December). Yet the big event will be the conclusion to the two-day FOMC meeting. No change in interest rates is expected. As is usually the case investors will be eager to dissect the Fed's press release for any hint of a change in their bias, comments on the health of the economy, and the future of any quantitative easing programs.

On Thursday we'll get the latest durable goods report and the pending home sales data. Then on Friday we'll see another big announcement, this time for the advance Q4 GDP estimate. Economists are expecting +3.8% growth last quarter. Any disappointment there would definitely be a surprise and bad news for stocks.

I was expecting the S&P 500 to run into resistance at the 1300 mark but the rally stalled at 1295. The overall trend is still very much up so all my talk of a potential top could be a little premature until stocks see some follow through lower. When stocks correct, and they will, I'm looking for potential support at 1250 or the 50-dma for the S&P 500.

Daily chart of the S&P 500 index:

The NASDAQ is looking a bit weaker here. Big declines in stocks like AAPL, GOOG, and FFIV all played their part. The NASDAQ composite has broken its first level of technical support at the 10-dma and actually failed there on Friday. The larger trend is still up but I think the correction has started. I am expecting some short-term support at 2650 but would probably look for a drop toward the 2600 area.

Daily chart of the NASDAQ Composite index:

The sell-off in the NASDAQ could accelerate if the SOX semiconductor index breaks down any further. In spite of the declines last week the trend for the SOX is still up. I don't expect this bullish channel to hold so watch the SOX as an early warning signal for the NASDAQ. There is potential support near 420 but I would look for a decline closer to 400.

Weekly chart of the SOX semiconductor index:

What a difference a week can make. Last week the Russell 2000 ($RUT) was probably the healthiest looking index of the big three. Now it's the weakest. The correction has already begun for the small caps and the $RUT hs broken support near 780 and its trend of higher lows. I would not be surprised to see the $RUT bounce near 765 but any rebound is probably temporary. I'd love to see a dip toward the 740 area, which we could use as a new bullish entry point (but I might be day dreaming to think the $RUT will pull back that far).

Daily chart of the Russell 2000 index:

Looking at the big picture I don't see any changes. The S&P 500 broke a seven-week winning streak. Some profit taking here would be healthy and normal. Stocks will see a little post-earnings depression over the next few weeks. Speaking of earnings we are going to hear a lot of them this week. We should see this pull back as a positive event. It means that in the next two or three weeks we could see our next entry point to launch new long-term LEAPS positions.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 broke a seven-week winning streak. The rally was looking tired and we have been expecting a market top sooner rather than later. A few of our candidates look vulnerable. AKAM and BIDU come to mind and we're adding some short-term puts to protect ourselves and possibly profit from the drop. GS and LCC both look very weak here. Meanwhile IBM surged to new all-time highs on a strong earnings report. We want to exit our EMC trade on Monday to avoid holding over earnings.

FYI: I have adjusted stop losses on ACI, BVN, IBM, and LCC.

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

Entry Point Ahead

by James Brown

Click here to email James Brown

Editor's Note:

Finally, we're starting to see some weakness in the market's up trend. The S&P 500, NASDAQ and Russell 2000 actually posted a loss on the week. We have been looking for a market top in the second half of January and this could be it. That means the next two or three weeks could offer a great entry point. All we have to do is wait and watch for the market to pull back toward support.

We will continue to add new buy-the-dip candidates to our watch list. No new plays tonight but we do have four new watch list candidates.


Play Updates

IBM Hits New Highs

by James Brown

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Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 31.61

01/22 update: Shares of ACI are correcting lower as we expected. However, I'm still concerned. The major market indices have just not started to pull back. When the market does finally see a correction it could exaggerate the weakness in ACI. I still think our stop loss is just a little bit too high. ACI should have support near the $28.00 area and right now our stop is at $28.90. I'm suggesting we move our stop down to $27.75. The trick is trying to balance short-term volatility with our longer-term bullish outlook on ACI. I won't lower it again. If ACI breaks down under $28.00 it could have bigger problems. Wait for ACI to dip into the $30-28 zone before considering new 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.

FYI: ACI is due to report earnings on Monday, January 28th before the opening bell. If you feel like buying some protective puts ahead of the announcement you have to do so before Friday's close.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 3.85/ 4.00

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.05/ 6.25

01/22/11 New stop loss @ 27.75
01/15/11 New stop loss @ 28.90
01/01/11 new stop loss @ 29.75
12/25/10 New stop loss @ 28.75
11/22/10 Play opened. ACI @ $30.15

Chart of ACI:

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: 48.93

01/22 update: It was a rough week for technology stocks. AKAM was not exempt from the profit taking. On a short-term basis the action in AKAM looks bearish. It has a short-term double top at $52.50 and a new lower highs. The close back under the $50 level and the small cloud of moving averages is not healthy.

Bigger picture I am worried that AKAM may have topped out and that shares could see a much bigger correction. Conservative traders may want to exit positions early. I am suggesting we buy some puts to protect us. Let's buy the May $40.00 puts. We'll hold the puts over AKAM's earnings report on February 9th and then re-evaluate our strategy. If for some reason AKAM were to hit our stop loss at $43.75 in the next two weeks, I'd hold on to the puts. On a short-term basis I am expecting a dip back toward the $45 level and its rising 200-dma.

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 $ 7.70/ 7.90

- Third Position -

Dec. 20, 2010 - entry price on AKAM @ 50.49, option @ 5.40
symbol: AKAM1221A60 2012 JAN $60 call - current bid/ask $ 4.15/ 4.30

- Short-Term Put -

Jan. 22, 2011 - entry price on AKAM @ 48.93, option @ 1.66
symbol: AKAM1121Q40 2011 MAY $40 PUT - current bid/ask $ 1.61/ 1.66
(We'll update our entry price on Monday)

01/22/11 Buy May $40 puts to protect ourselves
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

Chart of AKAM

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: 105.10

01/22 update: Be careful here! The January bounce in BIDU is losing steam quickly. Shares are rolling over under the new trend of lower highs. Right now I would expect another pull back to the $95 area. I am not suggesting new positions at this time. Investors should know that BIDU is due to report earnings on January 31st.

BONUS TRADE: Let's try and make some money on the pull back. I'm suggesting we buy the March $95 puts on Monday morning (more aggressive traders could buy February puts). Our target on this trade is $96.00.

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 -
Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - current bid/ask $20.25/20.50

- BONUS TRADE (short-term puts) -

Jan 22, 2011 - entry price on BIDU @ 105.10 option @ 2.82
symbol: BIDU1119O95 2011 MAR $95 PUT - current bid/ask $ 2.74/ 2.82
(we'll update the entry price for Monday's open)

01/22/11 Buy March $95 put
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

Chart of BIDU

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: 80.45

01/22 update: The bullish breakout in BRK.B two weeks ago has failed. BRK.B retreated back into its prior trading range. I remain very cautious on this stock. We are not suggesting new bullish positions. Our 2011 January $85 calls have expired. I still can't find an earnings report date for Berkshire but they normally report in February.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - expired @ 0.00 (-100%)

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 3.25/ 3.40

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: 40.83

01/22 update: Mining stocks continue to sink. We were too early on buying the decline in BVN. The bad news this past week is that BVN's rally attempt failed at $45.00 and shares have now broken down under their simple 200-dma. The stock is quickly approaching what should be decent support at the $40.00 mark but given the trend in the mining sector and gold prices odds are rising that we will get stopped out soon. If you look at the weekly chart (below) you'll see that BVN should have some support near $40 but our stop loss at $39.90 is too tight. I hate to do it but we need to adjust our stop loss lower to give BVN a chance to bounce. Obviously you don't have to lower your stop. You could just exit now. Or as an alternative you could buy puts on BVN as a hedge. The stock has already seen a -28% correction.

I am lowering the newsletter's stop loss to $38.95. If we see BVN find support near $40.00 we might want to consider new bullish positions but bear in mind the short-term trend for gold prices is down, which will continue to put pressure on the mining stocks.

Earlier Comments:
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.

- Current Positions -
Jan 5, 2011 - entry price on BVN @ 45.00, option @ 3.90
symbol: BVN1119F50 2011 JUN $50 call - current bid/ask $ 0.95/ 1.60

01/22: Adjust the stop loss to $38.95
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: 89.24

01/22 update: DE is still hovering near its highs around the $90.00 level. When it corrects I would look for a dip toward the 50-dma or the $80.00 area. Wait for the pull back before considering new positions. FYI: DE is due to report earnings on Feb. 16th.

- 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 $ 9.75/ 9.90

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

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: 39.74

01/22 update: DIS briefly broke support near $39.00 last week but quickly rebounded. Shares are now retesting resistance at the $40.00 mark. I would be surprised if DIS made it much further. The $38.00 level should be decent support. 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 $ 3.75/ 3.80

- 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: 23.98

01/22 update: Last week EMC rallied to $25.00 and failed. I hope I don't end up regretting moving our exit target from $24.75 to $25.35. The peak for the last nine years was $25.47 set back in 2007.

Last week I suggested we exit our positions ahead of EMC's earnings report. The company reports on Tuesday morning, January 25th. That means we need to exit our positions on Monday at the closing bell! More aggressive traders may want to hold on since you have another 11 months to go. The trend is up but the $25.00-25.50 zone could end up being resistance and EMC is looking a little overbought here.

- 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 $5.00/5.25

01/22/11: Plan to exit on Monday, Jan. 24th at the closing bell.
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

01/22 update: ESRX rallied to new highs with a surge to $58.77 on Monday. The stock has been consolidating sideways since that move higher. ESRX does look a little bit overbought here. Readers may want to go ahead and take profits early. Right now our exit target is $59.50. More aggressive traders may want to consider a higher target. The Point & Figure chart is very optimistic with a forecast $89 target. You certainly have time but eventually ESRX will correct. The stock should find support near $55 and near the $52.50 area. 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 $8.30/8.50

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $11.55/11.80

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: 131.03

01/22 update: Just as we expected, gold prices continued to decline even as the dollar slipped lower. Normally these two move in opposite directions. I am expecting the GLD to correct back down to the $125 area. In the meantime, last week I suggested we buy some short-term puts to profit from the move lower. The GLD gapped open at $133.63 on Tuesday, Jan. 18th. The April $125 puts opened at $1.70 the same day.

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. Two weeks ago 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 $12.30/12.55

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 2.39/ 2.45

01/18/11 GLD opened at $133.63. April $125 put opened at $1.70
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: 166.20

01/22 update: GS reported better than expected earnings but revenues were a miss and investors sold the news. Shares of GS have broken several layers of support. Honestly I am concerned that we could get stopped out soon as GS pulls back toward the $160 area. I am not suggesting new bullish positions at this time.

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $ 8.15/ 8.40

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: 58.01

01/22 update: HUM displayed a little volatility last week, especially on Tuesday. The short-term trend of higher lows is still in place for now. I remain somewhat cautious here and would not be surprised to see HUM retest the $55 area. I am not suggesting new positions at this time. FYI: HUM is due to report earnings on Feb. 7th.

Previous Comments:
We have already sold (exited) our 2011 calls for a profit.

- Current Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $ 8.50/ 9.00

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: 155.50

01/22 update: IBM delivered better than expected earnings numbers and healthy guidance. Traders reward the stock by pushing it up another $5. While the trend is up it looks like IBM is a bit short-term overbought. I would expect a pull back toward the $150-147.50 zone. Please note that I am raising the stop loss to $139.75. I am also raising our exit target from $159.00 to $164.50. 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 $13.80/14.00

01/22/11 New stop loss @ 139.75. New target at $164.50
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): $164.50
Current Stop loss: 139.75
Play Entered on: 09/30/10
Originally listed on the Watch List 09/25/10


US Airways Group, Inc. - LCC - close: 9.83

01/22 update: A week ago I was worried we'd see LCC decline toward $10. Sure enough that's where the stock went. The action in LCC and the XAL airline index is not very encouraging. I debated whether or not to exit our LCC tonight, especially after Friday's lack of follow through on Thursday's bounce. Cautious traders definitely want to consider an early exit now. I am expecting LCC to dip toward support near $9.50 and its 200-dma. Currently our stop loss is at $9.49 but that's a little too tight. I'm moving it to $9.44. 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 $ 1.22/ 1.29

01/22/11 Adjust stop to $9.44
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: 77.57

01/22 update: It was a decent week for LLL with shares climbing back above their 200-dma. The stock is now testing resistance near $78.50 again. I wouldn't expect a lot of movement out of LLL this week until Thursday. The company reports earnings on Thursday morning (Jan. 27th). The results could spark some volatility. If the news is bad then look for a drop back toward the $72 level. 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 $ 7.90/ 8.20

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: 75.01

01/22 update: MCD posted a gain for the week but the rally all happened last Tuesday. Shares of MCD consolidated sideways the rest of the week as investors sit tight and wait for earnings. MCD is due to report earnings on Monday morning, January 24th before the opening bell. Wall Street is expecting a profit of $1.16 a share. If MCD says something disappointing then we have a good chance of getting stopped out. I am not suggesting new positions at this time. 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 $2.56/ 2.63

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%)

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: 28.02

01/22 update: MSFT has been consolidating sideways near $28 for a few weeks now. The action this past week has a bearish tone and I would expect MSFT to breakdown from here. However, there is a good chance that MSFT just churns sideways for a few more days. The company is due to report earnings on Thursday (Jan. 27th) after the closing bell. Analysts are looking for a profit of 68 cents a share. Thus Friday morning could be exciting as the stock reacts to the earnings news. Look for support near $26 and its 200-dma if MSFT sees any profit taking. 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 $4.25/ 4.35

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.98/ 3.10

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: 31.82

01/22 update: After three weeks of failing to rally past the $33 level it looks like ODFL could be poised for a correction. I am expecting a pull back toward the $30 area. I'm not suggesting new positions at this time.

We only have about three months left before April expiration. More conservative traders may want to exit now and lock in a profit.

FYI: The spreads in the April options are ridiculous. Hopefully these will narrow as we get closer to expiration.

- Current Positions -
Nov 22, 2010 - entry price on ODFL @ 28.42, option @ 1.95
symbol: ODFL1116D30 2011 APR $30 call - current bid/ask $ 2.90/ 3.60

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: 55.73

01/22 update: TGT gave us a scare last week with a dip to $53.86 but shares managed to recover. The stock is trying to bounce but it is struggling to get past resistance at the bottom of its gap near the $56 area. On a short-term basis I would expect another dip toward $54 and its 200-dma again. I am still reluctant to open new bullish positions.

- Current Positions -
Jan 6, 2011 - entry price on TGT @ 55.81, option @ 3.50
symbol: TGT1221A60 2012 Jan $60 call - current bid/ask $ 3.05/ 3.20

- or -

Jan 6, 2011 - entry price on TGT @ 55.81, option @ 4.25
symbol: TGT1319A65 2013 Jan $65 call - current bid/ask $ 3.55/ 4.15

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: 15.47

01/22 update: USG spent almost five weeks churning sideways above the $16 level. Now the stock is starting to roll over and broke support at $15. I've been warning readers to look for a decline toward $15. I remain cautious here so we don't want to open new positions at this time. If the $15 level fails we can watch the $14.00 mark with potential support at its 100-dma. More conservative traders will want to consider raising their stops closer to $14.00.

- Current Positions -
Dec 20, 2010 - entry price on USG @ 15.25, option @ 1.50*
symbol: USG1221A20 2012 Jan $20 call - current bid/ask $ 1.40/ 1.60

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 2.70/ 3.20

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: 61.45

01/22 update: After two weeks of big gains in January shares of WLP are finally seeing some profit taking. The stock could find some short-term support near $60 or $58 but I would not buy the dip, not yet. WLP is due to report earnings on January 26th and Wall Street is expecting a profit of $1.22 a share. Let's wait and see how investors react to WLP's earnings news and then re-evaluate our trade.

- 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


Watch

Expanding the Watch List

by James Brown

Click here to email James Brown

Editor's Note:

It looks like the market correction may have started. The next two or three weeks could offer a great entry point.


New Watch List Entries

BEAV - BE Aerospace Inc.

JRCC - James River Coal Co.

MD - MEDNAX Inc.

TIF - Tiffany & Co.


Active Watch List Candidates

AKS - AK Steel holding

CMP - Compass Minerals

FLR - Fluor Corp.

MAT - Mattel Inc.

MON - Monsanto Co.

NFX - Newfield Exploration

NYB - New York Community Bancorp

UNH - UnitedHealth Group, Inc

VZ - Verizon Communications

X - U.S. Steel Corp


Dropped Watch List Entries

- None


New Watch List Candidates:

BE Aerospace Inc. - BEAV - close: 38.05

The defense and aerospace sector has seen the rally stall at resistance. It's time for a pull back. We want to be ready when that happens. Wait for BEAV to dip to $32.50 as our entry point to buy long-term calls. If triggered at $32.50 we'll use a stop loss at $29.45. BEAV doesn't have LEAPS so we'll have to settle for 2011 July calls. FYI: Earnings are due out on February 3rd.

Company Info

Buy-the-Dip trigger: $32.50

BUY the 2011 July $35.00 calls (BEAV1116G30)

Chart of BEAV

Originally listed on the Watch List: 01/22/11


James River Coal Co. - JRCC - close: 21.50

The correction in coal stocks has been pretty painful the last couple of weeks. I don't think the pull back is over yet either. However, when the sell-off does end we want to increase our exposure to this group. Aggressive traders might want to consider bullish positions near $20.00. I am suggesting a trigger to launch positions at $18.50. If triggered we'll use a stop loss at $15.90. JRCC doesn't have LEAPS so we'll have to settle for 2011 June calls. FYI: Earnings are due out in late February.

Company Info

Buy-the-Dip trigger: $18.50

BUY the 2011 June $20 calls (JRCC1118F20)

Chart of JRCC

Originally listed on the Watch List: 01/22/11


MEDNAX Inc. - MD - close: 65.90

MD is a specialized healthcare company and the stock has been a very consistent winner for investors since the August lows. Now the stock has finally hit resistance at $70 and it's beginning to pull back. The $60 area should be support. I am suggesting we launch bullish positions at $61.00. If triggered we'll use a stop loss at $55.90. MD doesn't have LEAPS so we'll have to settle for 2011 August calls. FYI: Earnings are expected on Feb. 3rd.

Company Info

Buy-the-Dip trigger: $61.00

BUY the 2011 August $65 calls (MD1120H65)

NOTE: Keep your position size small. The options on MD wide spreads, which puts us at a disadvantage!

Chart of MD

Originally listed on the Watch List: 01/22/11


Tiffany & Co. - TIF - close: 57.83

Shares of TIF have been soaring since the August lows but the rally finally peaked in December. Now shares are in correction mode and look like they are headed for the $52.50-50.00 zone. We want to use a trigger to launch bullish positions on a dip at $52.50. If triggered we'll use a stop loss at $47.75.

Company Info

Buy-the-Dip trigger: $52.50

BUY the 2012 January $60 calls (TIF1221A60)

Chart of TIF

Originally listed on the Watch List: 01/22/11


Active Watch List Candidates:


AK Steel Holding - AKS - close: 14.10

01/22 update: As expected the correction in AKS continues. The stock is now testing support near $14.00 and I'm expecting it to break. Shares should find much stronger support near $12.00. We want to launch bullish positions at $12.25 with a stop loss at $10.75. The 2010 low was $11.34.

FYI: Earnings are out on Jan. 25th.

Buy-the-Dip trigger: $12.25

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: 85.35

01/22 update: Traders sold the rally on Tuesday and CMP has fallen from $90.50 to almost $85 in three days. The $85 level is short-term support but I'm expecting it to fail. Our plan is to buy calls on a dip at $80.50 with a stop at $75.75. Unfortunately, CMP does not have any LEAPS available and the longest dated options are 2011 Junes.

Look for CMP's earnings on Feb. 7th.

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: 71.02

01/22 update: FLR produced what appears to be a bearish reversal on Wednesday last week but it hasn't seen any follow through lower yet. There is no change from my prior comment. We want to launch bullish positions at $60.50 with a stop at $54.74.

FLR is due to report earnings on Feb. 23rd. Buy-the-Dip trigger: $60.50

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

01/22 update: MAT is still slowly drifting sideways. There is no change from my prior comments. We want to open bullish positions at $21.00 with a stop loss at $19.75. Keep your position size small to limit your risk. Our long-term targets are $29.00 and $36.00.

FYI: MAT will report earnings on Feb. 2nd.

Buy-the-Dip trigger: $21.00

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


Monsanto Co. - MON - close: 70.11

01/22 update: It looks like the correction in MON has begun. Nimble traders could try buying puts to capture the drop toward $64. I am suggesting we open bullish positions at $64.00 with 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


Newfield Exploration Co. - NFX - close: 68.34

01/22 update: If you do any short-term trading then NFX looks like a bearish candidate. I would buy puts right now and exit near $63.50 or target $61.00. I have NFX listed as a long-term LEAPS candidate but we want to wait to buy calls 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: Earnings are Feb. 16th.

Buy-the-Dip trigger: $60.50

BUY the 2012 January $65 calls (NFX1221A65)

- or -

BUY the 2013 January $70 calls (NFX1319A70)

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


New York Community Bancorp - NYB - close: 18.31

01/22 update: There is no change from my prior comments. 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.

Look for some movement this week. NYB is due to report earnings on Jan. 26th.

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


UnitedHealth Group, Inc. - UNH - close: 40.77

01/22 update: There is no change from my prior comments on 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.

Buy-the-Dip trigger: $36.50

BUY the 2012 January $40 calls (UNH1221A40)

- or -

BUY the 2013 January $40 calls (UNH1319A40)

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


Verizon Communications - VZ - close: $34.95

01/22 update: VZ is still correcting lower. There is no change from my earlier comments. We want to launch positions at $33.00 with a stop loss at $31.45. Keep your position size small to limit your risk. 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: 53.29

01/22 update: Shares of X are still correction lower. Nimble, short-term traders may want to buy puts now and target a drop toward $50 or $48. I am adjusting our entry point to buy the dip closer to the 200-dma. Instead of launching positions at $50.50 we'll move the trigger down to $48.50. Our stop will remain at $44.80. Keep your position size small to limit your risk. Our long-term targets are $64.75 and $74.75.

Buy-the-Dip trigger: $48.50

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