Option Investor
Newsletter

Daily Newsletter, Saturday, 1/29/2011

Table of Contents

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

Leaps Trader Commentary

Egypt Ignites a Sell-off

by James Brown

Click here to email James Brown

Buckle your seatbelt it could start to get bumpy! Up until Thursday the S&P 500 inched its way higher to finally hit the 1300 level. The NASDAQ was rebounding quickly towards its early January highs. While the Dow Jones Industrials were calmly hovering near 12,000. It looked like bulls were in control and end of month window dressing would rule the day. Yet the chaos in Egypt acted as a catalyst for investors to start taking money off the table. Worries over the government toppling and control of the Suez canal suddenly up for grabs sent oil higher. Meanwhile Q4 earnings data continued to pile in but some of the high profile reports were a disappointment. Both Amazon.com (AMZN) and Ford Motor Co. (F) plunged on their results. Positive economic data failed to buoy markets as well.

The Q4 GDP estimate came in at +3.2% but Wall Street was hoping for +3.5%. It was the sixth consecutive quarter of positive GDP growth. The move was fueled by a +7.1% surge in sales. This was the biggest move for the sales component in over 25 years. Unfortunately, the report was something of a letdown in spite of the numbers. The January consumer sentiment data was completely ignored for the Egypt news. If you were curious, the consumer sentiment survey came in at 74.2, which was better than its initial reading of 72.7 and above expectations.

The biggest headline on Friday was the riots in Egypt. Tens of thousands of citizens violated curfew to protest across Cairo, challenging President Mubarak's 30-year reign. The details of the situation in Egypt are beyond the scope of this newsletter. All that matters right now is that the stock market has chosen it as a catalyst to spark the stock market correction lower. At least that's what it looks like. Friday's bearish reversal was ugly and fueled by big volume but for now it's just a one-day decline. We need to see some follow through lower.

The S&P 500 index managed to finally hit round-number, psychological resistance at the 1300 level and then couldn't get past it. With Friday's failure it only reinforces this level as overhead resistance. On a short-term basis I would look for support near 1260 or 1250. A drop toward the 1250 area would qualify as a 38.2% Fibonacci retracement of the December-January rally. Meanwhile a -5% correction from 1300 would pull the S&P 500 down toward the 1235 area, which is close to the 50% correction.

Daily chart of the S&P 500 index:

The NASDAQ Composite was seeing a pretty strong rebound earlier in the week but it was a big underperformer on Friday with a -2.4% drop. Now the move higher and the failure near the early January highs looks like a bearish double top pattern. I wouldn't be surprised to see a little bounce from the 40-dma near 2675 but that probably won't hold as support. A pull back toward the 2650 level would qualify as a 38.2% Fibonacci retracement. A -5% correction would mean a drop toward the 2626 area.

Daily chart of the NASDAQ Composite index:

I continue to watch the SOX semiconductor index. Thus far, in spite of all the volatility, the SOX is still respecting its bullish channel higher. I don't think it will last much longer. When the breakdown happens I'm looking for a sharp drop toward 420 but that's probably not the bottom.

Weekly chart of the SOX semiconductor index:

The small cap Russell 2000 index has gone from out performer to under performer but that's normal for the more volatile small caps. The $RUT has clearly broken its uptrend and shares produced a new lower high this past week. Nimble traders may want to launch short-term bearish positions on this index. I don't see any changes from my comments last week. The 765 level could offer some support but I'd much rather see a dip toward the 740 level.

Daily chart of the Russell 2000 index:

Looking ahead we're going to have a huge week of headlines in front of us. There is a full parade of economic data from PMI data, auto sales, the ADP employment report, factory orders, the ISM and ISM services indices, and of course the U.S. non-farm payrolls (jobs) report for January on Friday. At the same time Q4 earnings will continue to roll in. Yet all of this is likely to take a back seat to headlines in Egypt if the situation doesn't improve soon.

Overall when the market wants to go down it will find a reason to go down. While the violence in Egypt is troublesome I am encouraged that the correction appears to have started. The next two or three weeks could offer a great entry point to launch new bullish positions.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market appears to have reversed at resistance and on big volume. The DJIA was struggling to break free of the 12,000 level. The S&P 500 had just hit 1300. The NASDAQ had bounced back toward its January highs. Then the news about Egypt hit and that seemed to be the catalyst to spark some serious profit taking.

We have been expecting the market to reverse in the second half of January so this shouldn't be a surprise. The market correction could be anywhere in the -3% to -10% range. It will be worse for individual stocks. Given this expectation I am suggesting we exit early and either take profits or cut our losses in the following stocks: ESRX, GS, IBM, LCC, MCD, ODFL, and TGT. Our EMC was closed as planned on Jan. 24th.

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

Potential Top

by James Brown

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Editor's Note:

We have been talking about a potential top in the U.S. stock market for a few weeks now. It looks like the correction has finally started but naturally we need to see some follow through lower. This pull back could take two weeks (or more) to finally run its course.

We continue to load more candidates to our watch list. No new trades tonight.


Play Updates

Cleaning House

by James Brown

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Editor's Note:

The market is flashing a bearish reversal signal at us. It's time to cut back on positions, clean house, and get ready for the pull back.

-James


Closed Plays


EMC, ESRX, GS, IBM, LCC, MCD, ODFL, TGT have been closed.


Play Updates


Arch Coal Inc. - ACI - close: 33.22

01/29 update: On Friday morning, Jan. 28th, ACI reported earnings of 33 cents a share with revenues of $835.4 million. Wall Street was expecting 43 cents on revenues of $850 million. Furthermore ACI's management actually guided their 2011 projections lower! Yet in spite of this terrible earnings news investors were buying ACI and other coal stocks on Friday.

I find the reaction to ACI's earnings news to be very encouraging but I would still expect a correction toward the $28 level, which I would use as a new entry point to buy call LEAPS.

Our long-term target is $39.75. More aggressive traders could aim a lot higher, especially if you're holding the 2013 calls.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.55/ 4.70

- or -

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

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

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: 47.75

01/29 update: I've been worried about our AKAM play for a while. That's why a week ago I suggested we buy the $40 May puts as protection. I suspect that AKAM will test support near $46 and its 200-dma soon. If AKAM breaks through the 200-dma it could herald a much deeper correction. I am repeating my previous comments that more conservative traders may want to exit bullish positions early right now or at least scale back on the size of your positions. I am not suggesting new trades at this time.

FYI: AKAM is due to report earnings on Feb. 9th before the opening bell.

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 $ 6.75/ 5.05

- Third Position -

Dec. 20, 2010 - entry price on AKAM @ 50.49, option @ 5.40
symbol: AKAM1221A60 2012 JAN $60 call - current bid/ask $ 3.45/ 3.65

- Short-Term Put -

Jan. 22, 2011 - entry price on AKAM @ 48.93, option @ 1.15
symbol: AKAM1121Q40 2011 MAY $40 PUT - current bid/ask $ 1.68/ 1.74
(We'll update our entry price on Monday)

01/24/11 May $40 put opened at $1.15
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

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: 106.54

01/29 update: Traders bought the dip in BIDU last Monday near its rising trendline of support. Yet the rally lost steam again, this time near $110. Friday saw a failed rally near the $110 level and I would expect BIDU to correct lower toward the $100 level and probably back toward the $95 level. Unfortunately, if BIDU closes under $100 it could signal a much deeper correction. I am not suggesting new positions at this time. Keep in mind that BIDU is due to report earnings on Monday, Jan. 31st after the closing bell.

Last week I suggested we buy some March $95 puts as protection against a market correction and any earnings announcement surprises. Our target on this put 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 $20.60/21.00

- BONUS TRADE (short-term puts) -

Jan 22, 2011 - entry price on BIDU @ 105.10 option @ 2.80
symbol: BIDU1119O95 2011 MAR $95 PUT - current bid/ask $ 2.11/ 2.18
(we'll update the entry price for Monday's open)

01/24/11 March $95 put opened at $2.80
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

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: 81.56

01/29 update: BRK.B started last week with a rally but it quickly ran out of steam near the $83 area. I would expect this stock to retest support in the $80-79 area. My concern is that if the market correction is too sharp we'll actually see BRK.B breakdown under support near $79.00. I am not suggesting new bullish positions at this time. I still can't find an earnings report date for Berkshire but they normally report in February.

NOTE: I would hate to throw good money after bad but if you're still long-term bullish on BRK.B but want to protect yourself I would be tempted to buy some March puts (maybe the $75 or $70s).

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 3.15/ 3.35

01/22/11 2011 January calls expired (-100%)
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: 41.53

01/29 update: We had a bit of a scare on Tuesday when BVN briefly traded under support near the $40.00 mark. Shares hit $39.92 before bouncing. This dip and bounce near $40 should be a new bullish entry point and yet I'm very reluctant to open new bullish positions given the widespread weakness in the major market indices. Odds are really good that we're going to see BVN retest the $40 level again. Traders could buy the dip but I think odds are rising we could get stopped out at $38.95 in the next couple of weeks.

FYI: I can't find an earnings report for BVN. Up through 2009 BVN would report earnings on March 31st but they seemed to have changed their schedule in 2010. I would expect them to announce earnings in the next few weeks.

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/ 1.55

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: 38.95
Play Entered on: 01/05/11
Originally listed on the Watch List --/--/--


Deere & Co - DE - close: 88.91

01/29 update: DE has been bouncing around the $88-92 zone the last couple of weeks. Shares failed at $92 again on Friday except this time I'm expecting the sell-off to continue. Look for support near $85 and near $82 and $80. I'd wait for a dip closer to the $82-80 zone before considering new bullish positions. FYI: DE is due to report earnings on Feb. 16th before the opening bell.

- 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 $ 9.50/ 9.65

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: 38.85

01/29 update: DIS has failed at resistance near $40 several times this month. We will probably see shares test broken resistance and what should be support near $38.00 soon. The question is will this level hold? If $38 doesn't hold how far will DIS retreat? At the moment our stop loss is under the 200-dma. I am not suggesting new bullish positions at this time. FYI: Investors should note that DIS is due to report earnings on Feb. 8th after the closing bell.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 3.10/ 3.25

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.70/ 4.95

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


SPDR Gold ETF - GLD - close: 130.28

01/29 update: Our short-term put on the GLD was looking like a pretty good bet as the GLD broke down to new four-month lows on Thursday. That changed when the market started reacting to the riots in Egypt. Suddenly investors wanted gold as a safety trade again. The pull back this week was just enough for the GLD to start testing the bottom of its long-term up trend but I'm not completely convinced the correction is over yet. Of the situation in Egypt gets worse over the weekend or if unrest spreads to other countries then gold is likely to rise on a short-term basis. I would still prefer to wait for a dip closer to the 200-dma and the $125 area before considering new bullish positions.

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 $11.65/11.95

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 2.16/ 2.22

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


Humana Inc. - HUM - close: 58.18

01/29 update: Believe it or not HUM posted a gain for the week. Unfortunately the action on Friday was very bearish erasing Thursday's gains. We could see HUM retest the $55 area soon. I am not suggesting new bullish positions at this time. FYI: Look for HUM to report earnings on Feb. 7th before the opening bell.

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 $ 8.40/ 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


L-3 Communications - LLL - close: 76.39

01/29 update: Look out below! LLL spiked toward $80.00 on Thursday as investors reacted to the generally positive earnings report Thursday morning. Yet the news wasn't enough to power the stock past resistance. Now LLL is correcting and will probably hit the $75.00 level soon. I would expect a correction toward the $72-70 zone before it's all over (that's going to be painful on our option). No new 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 $ 7.00/ 7.20

01/29/11 LLL is correcting lower!
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


Microsoft Corp. - MSFT - close: 27.75

01/29 update: MSFT delivered a surprise this past week. They were supposed to report earnings after the closing bell on Thursday yet the company released the numbers just minutes before the close instead. The results were good but the stock only saw a brief spike toward $29.50 and reversed lower intraday. For their December quarter MSFT earned 77 cents, which was 9 cents better than expected. Revenues came in above expectations. Investors sold the news anyway and Friday saw MSFT produce a bearish breakdown. I've been warning readers to expect a correction toward the $26 area or 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 $4.00/ 4.15

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.73/ 2.77

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


U S G Corp. - USG - close: 16.39

01/29 update: USG reported earnings on Jan. 26th that were good enough to send the stock higher but shares failed to breakout past resistance near $17.50. Now the stock is fading lower. I am still expecting a correction toward the $15.00 area. 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 $ 1.70/ 1.90

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 2.80/ 4.10

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: 62.66

01/29 update: WLP rallied to new nine-month highs on Thursday thanks to beating Wall Street's earnings estimates by 10 cents. Profit taking on Friday cut off -2.6%. I would expect a correction back to the $60-58 zone. No new positions at this time.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 5.75/ 5.95

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


EMC Corp. - EMC - close: 24.48

01/29 update: Last week I suggested we exit our bullish positions at the close on Monday, Jan. 24th. Our 2012 January $20 EMC calls closed at $4.85 on Monday. If you didn't exit then I would exit now. Shares have stalled at resistance near $25.00 and the market is poised to correct lower.

- Current Positions -
May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - Exit @ $4.85 (+94%)

01/24/11: Exit option @ $4.85 (+94%)
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!

Chart of EMC:

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: 56.16

01/29 update: ESRX came so close to our exit target at $59.50 and now it's fading lower. Earnings for this company are due out in the next two weeks. Combine that with the market's reversal on Friday and suddenly an early exit sounds much more appealing. Let's exit positions now and keep ESRX on our watch list for a correction toward support near $50.00.

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $6.90/7.10

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $ 9.95/11.00

01/29/11 Exit early. Options @ $6.90 (+42.2%), $9.95 (+40.1%)
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

Chart of ESRX:

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


Goldman Sachs - GS - close: 161.77

01/29 update: GS dipped to $160.12 on January 25th. Unfortunately, I don't expect this test of support to hold. Given the market's reversal on Friday odds are extremely high that we'll see GS hit our stop loss at $159.75 soon. I'd rather cut our losses now and look for a new entry point near $150 or $140.

- Current Positions -
Nov 22, 2010 - entry price on GS @ 160.75, option @ 9.40
symbol: GS1221D190 2012 Jan $190 call - current bid/ask $ 6.40/ 6.60

01/29/11 Exit early. GS @ 161.77, option @ 6.40 (-31.9%)
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

Chart of GS:

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


Intl.Business Machines - IBM - close: 159.21

01/29 update: Take profits in IBM and hurry! Last week we raised our target to $164.50. On Tuesday the stock spiked to $164.35. Shares have now started to correct. I am suggesting an early exit now to lock in gains. We can keep an eye on IBM for a potential entry point on a dip near $150 down the road.

- Current Positions -
Sep 30, 2010 - entry price on IBM @ 136.00, option @ 7.80
symbol: IBM1221A150 2012 Jan $150 call - current bid/ask $16.40/16.65

01/29/11 Exit Early Now! IBM @ 159.21, option @ $16.40 (+110%)
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

Chart of IBM:

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: 10.16

01/29 update: It looks like we may have been a bit too early to buy call LEAPS on LCC. Shares were actually climbing higher earlier this past week thanks to a stronger than expected earnings report. Yet the market reversal and sudden surge in oil prices hit the airline stocks pretty hard on Friday. LCC lost -8%.

We have a stop loss at $9.44 and more aggressive traders may want to let it ride. I am suggesting we exit positions early right now. I'd rather salvage some capital here and have it ready to buy the dips elsewhere.

- 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 $ 1.28/ 1.38

01/29/11 Exit early. LCC @ 10.16 Option @ 1.28 (-34.5%)
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

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


McDonald's Corp. - MCD - close: 73.28

01/29 update: MCD saw a pop on Monday as investors reacted to the company's earnings report. The results were only inline with expectations. The news could now push MCD past resistance near $76. Now the stock is testing support near its 200-dma and I don't think it will hold. I'm suggesting an early exit now to limit our losses.

- 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 $1.80/ 1.87

01/29/11 Exit early. MCD @ 73.28. option @ 1.80 (-18.1%)
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


Old Dominion Freight Line Inc. - ODFL - close: 32.19

01/29 update: Take profits now! ODFL rallied toward new highs on Thursday but shares stalled near the $33.50 area. Friday's market reversal shaved off -3.5%. I am suggesting an early exit now. Not only do we have April calls (ODFL doesn't have LEAPS) but the company is due to report earnings on Feb. 2nd, before the opening bell. I would much rather lock in a gain now than hold over the earnings announcement.

- Current Positions -
Nov 22, 2010 - entry price on ODFL @ 28.42, option @ 1.95
symbol: ODFL1116D30 2011 APR $30 call - current bid/ask $ 3.20/ 3.80

01/29/11 Exit early. option @ $3.20 (+64.1%)
12/25/10 New stop loss @ 26.75
11/22/10 ODFL opens at $28.42

Chart of ODFL:

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: 54.35

01/29 update: TGT's oversold bounce from the $54.00 level has not made any progress and now the stock has slipped back toward support near $54 and its 200-dma. What are the odds that TGT will be able to hold this level with a market-wide correction looming ahead of us. Odds are very slim. We want to exit early now to cut our losses early and save capital to buy the dip elsewhere.

- Current Positions -
Jan 6, 2011 - entry price on TGT @ 55.81, option @ 3.50
symbol: TGT1221A60 2012 Jan $60 call - current bid/ask $ 2.43/ 2.51

- or -

Jan 6, 2011 - entry price on TGT @ 55.81, option @ 4.25
symbol: TGT1319A65 2013 Jan $65 call - current bid/ask $ 2.95/ 3.60

01/29/11 Exit early. Options @ $2.43 (-30.5%), $2.95 (-30.5%)
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


Watch

Is it for Real?

by James Brown

Click here to email James Brown

Editor's Note:

Is this bearish reversal in the stock market for real? I certainly hope so. We want to see a correction so we can launch new positions. There are plenty of stocks that caught my eye this weekend. In addition to tonight's new watch list candidates here's a list of stocks on my radar screen that I'm hoping see a significant correction lower:

ORLY, TEVA, AMAT, DVN, ATO, BHI, MTD, BWA, JPM, PJC, ATI, BTU, PCX, TJX, FSLR, WMT, AAPL, ORCL, HLIT, and CRR.


New Watch List Entries

Costco Wholesale - COST

Fiserv, Inc. - FISV

Teva Pharmaceuticals - TEVA


Active Watch List Candidates

AKS - AK Steel holding

BEAV - BE Aerospace Inc.

CMP - Compass Minerals

FLR - Fluor Corp.

JRCC - James River Coal Co.

MAT - Mattel Inc.

MD - MEDNAX Inc.

MON - Monsanto Co.

NFX - Newfield Exploration

NYB - New York Community Bancorp

TIF - Tiffany & Co.

UNH - UnitedHealth Group, Inc

VZ - Verizon Communications

X - U.S. Steel Corp


Dropped Watch List Entries

MAT and NYB were removed from the watch list.


New Watch List Candidates:

Costco Wholesale - COST - close: 71.93

Company Info

The impressive rally in COST has run out of fuel near the $73 area. Friday's action looks like a bearish reversal that will hopefully begin a correction lower. We want to launch long-term bullish positions on a dip at $66.00. If triggered we'll use a stop loss at $61.40, just under the simple 200-dma. FYI: Earnings are due out in early March.

Buy-the-Dip trigger: $66.00

BUY the 2012 January $70 calls (COST1221A70)

- or -

BUY the 2013 January $70 calls (COST1319A70)

Chart of COST:

Originally listed on the Watch List: 01/29/11


Fiserv, Inc. - FISV - close: 61.33 change: -1.54

Company Info

FISV managed to rally to new all-time highs this past week. Friday's move looks like the beginning of a correction. FISV appears to have support near $58 and near $56. Broken resistance near $55.00 offers another level of support. I am suggesting that we launch bullish positions on a dip at $56.00. Unfortunately, FISV does not have LEAPS so the best we can do is September calls. If triggered use a stop loss at $51.90, under the simple 200-dma. FYI: FISV is due to report earnings on February 3rd.

Buy-the-Dip trigger: $56.00

BUY the 2011 September $60 calls (FISV1117I60)

Chart of FISV:

Originally listed on the Watch List: 01/29/11


Teva Pharmaceuticals - TEVA - close: 54.80 change: -1.01

Company Info

TEVA is an Israeli based drug company. The unrest in Egypt has sent the Israel markets lower. The combination of chaos in Egypt and a market correction in the U.S. could pull shares of TEVA back down toward the $50 level. The late December low was $50.25. I am suggesting we wait for another dip to $50.25 and use it as an entry point to buy call LEAPS on TEVA. If triggered we'll use a stop loss at $46.90, which is under the July lows from 2010. FYI: TEVA is due to report earnings on February 8th.

Buy-the-Dip trigger: $50.25

BUY the 2012 January $55 calls (TEVA1221A55)

- or -

BUY the 2013 January $60 calls (TEVA1319A60)

Chart of TEVA:

Originally listed on the Watch List: 01/29/11

Active Watch List Candidates:


AK Steel Holding - AKS - close: 15.58

01/29 update: Steel maker AKS saw a big move higher on its earnings report but the rally ran out of steam near $16.50. I'm keeping our buy-the-dip trigger at $12.25 for now but we may end up adjusting it toward $13 or higher depending on how fast AKS corrects. We want to launch bullish positions at $12.25 with a stop loss at $10.75. The 2010 low was $11.34.

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


BE Aerospace Inc. - BEAV - close: 38.24

01/29 update: BEAV spent most of the week bounce from the $38 level before returning to it on Friday's reversal. There is no change from my prior comments. I'm looking for a significant correction lower. 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. Buy-the-Dip trigger: $32.50

BUY the 2011 July $35.00 calls (BEAV1116G30)

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


Compass Minerals - CMP - close: 90.92

01/29 update: CMP was showing relative strength last week and broke our through the top of its trading range to hit new highs on Thursday. We don't want to chase it here. I'm hoping for a significant correction back toward support near $80.00. If that doesn't happen I'm looking for support near the $82.50-83.00 area. Unfortunately, CMP does not have any LEAPS available and the longest dated options are 2011 Septembers

Look for CMP's earnings on Feb. 8th.

Buy-the-Dip trigger: $80.50

BUY the 2011 September $85.00 calls (CMP1117I85)

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


Fluor Corp. - FLR - close: 68.33

01/29 update: FLR looks like it's forming a top. Nimble traders may want to buy puts for the move down. 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


James River Coal Co. - JRCC - close: 22.24

01/29 update: Coal stocks were showing some relative strength on Friday. I'd still rather wait and see if JRCC corrects toward lower support. I'm watching potential support near $20.00 and near its 200-dma closer to the $18.50 area. 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 September calls. FYI: Earnings are due out in late February. Buy-the-Dip trigger: $18.50

BUY the 2011 September $20 calls (JRCC1117I20)

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


Mattel Inc. - MAT - close: 23.51

01/29 update: I am removing MAT from the watch list. I still think it offers opportunity if we see an entry point in the $22-21 zone. However, I'd rather find something that offers more upside for the newsletter. Our trigger to open positions was never hit.

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


MEDNAX Inc. - MD - close: 66.28

01/29 update: Nimble traders might want to buy puts on MD right here. Shares look poised to drop. However, there is no way to account for the risk of holding over MD's earnings report due out on Feb. 3rd.

There is no change from my prior comments. 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. 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!

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


Monsanto Co. - MON - close: 71.54

01/29 update: The rebound in MON has failed near resistance. The stock looks poised to correct lower. Nimble traders might want to consider buying some short-term puts. 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: 69.04

01/29 update: NFX also looks like a short-term put candidate. Nothing has changed from my prior comments. We're looking for a significant correction lower. 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: 18.27

01/29 update: I am removing NYB from the watch list. Like MAT, shares of NYB offer potential if we get the right entry point. I would rather replace NYB with different stocks in the financial sector that could offer more reward. Our trigger to open positions in NYB was never hit.

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


Tiffany & Co. - TIF - close: 57.54

01/29 update: TIF is another short-term put candidate. The stock looks ready for its next leg lower. I don't see any changes from my prior comments. 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. Buy-the-Dip trigger: $52.50

BUY the 2012 January $60 calls (TIF1221A60)

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


UnitedHealth Group, Inc. - UNH - close: 40.93

01/29 update: UNH saw a bullish breakout higher on Thursday only to see those gains wiped out on Friday. It looks like a top. There is no change from my prior comments. 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

01/29 update: 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

01/29 update: Investors continue to buy bad news. X delivered earnings that were a significant miss and yet the stock rallied anyway. We don't want to chase it here. Right now our plan is to buy the correction on a dip at $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