Option Investor
Newsletter

Daily Newsletter, Sunday, 2/13/2011

Table of Contents

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

Leaps Trader Commentary

Bulls Declare Victory

by James Brown

Click here to email James Brown

"Victory!" Cheers and shouts of joy, happiness, and jubilation echoed across Egypt on Friday as President Mubarak signaled he would step down and beat a hasty retreat out of town. I hear a similar echo of victory from the stock market bulls. Yes, dear readers, the bulls have "won". This market has continued to climb no matter what the headlines are. Hugely disappointing jobs report? No problem. Regime change in one of the Mideast's most prominent players and an ally to the U.S.? No problem. It doesn't matter if the headlines are good or bad, this market continues to climb. Yet like the citizens of Egypt, traders may be wondering what now? What next?

Bull markets tend to climb a wall of worry. It seems we have nothing left to worry about. The market isn't reacting to our stagnant labor market and lack of any real job creation. The market isn't worried about rising inflation. The market has forgotten about Europe's credit crisis. Currently the picture looks pretty rosy for Wall Street. The Federal Reserve remains focused on their QE2 program, which makes equities look more attractive than bonds. Meanwhile corporate profits are improving with 73% of the S&P 500 companies beating estimates. Traders are being lulled into a greater sense of complacency, evident in the VIX volatility index slipping toward multi-year lows. This, dear reader, is worrisome.

I'm not trying to paint a bearish picture. With the U.S. stock market's major indices breaking through significant resistance I'm not sure I could paint a bearish picture even if I wanted to (and I don't want to). The problem is what will the market focus on next? Without some sort of focus, then stocks might start to just drift sideways. That would not necessarily be a bad thing. Consolidations don't always have to be downward. The market can consolidate sideways as it digests previous gains.

I was talking to Jim Brown this weekend. Both of us independently came to the same conclusion. In this environment, with stocks rising on both good news and bad news, it will take something totally unexpected to shock the market. I'm not trying to be chicken little proclaiming the sky is falling when it's not. I merely want to caution you that it's tough to plan for the unexpected. If we are lucky then maybe the market's collective attention will return to one of our current issues like the lack of job growth in the U.S. or China raising interest rates as they try to slow down their economy, or Europe's still struggling debt-laden PIIGS countries, or rising inflation across much of the globe. It seems like every other day I hear about corn, or sugar, or cotton, or copper hitting some new high. It's possible the markets will return their focus to the residential foreclosure problem in the U.S., which remains a huge issue for the housing market. In the meantime, bulls are in control and the market's trend is up. I would say "enjoy it" but I don't want investors to get too comfortable.

The S&P 500 index has continued to knock down one resistance level after another. I suspect the next hurdle is in the 1350-1365 zone. On a short-term basis this index has been bouncing on dips near the rising 10 or 20-dma. Odds are good that broken resistance at the 1300 level will be decent round-number, psychological support.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The tech-heavy NASDAQ composite continues to climb and just broke out over round-number resistance near the 2800 level on Friday. The next level of potential resistance are the 2007 highs in the 2825-2860 zone.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The SOX semiconductor index remains in a strong and steady channel higher. Last week I warned you that eventually this pattern is going to break but until then the trend is up! The challenge is trying hard to find a semiconductor stock that isn't so overbought you can still buy it. What is even more impressive is that the SOX has been rising with Intel (INTC), its biggest component, underperforming. Right now INTC is consolidating sideways under resistance near the $22 level. What happens if/when INTC breaks out higher?

Daily chart of the SOX semiconductor index:

The small cap Russell 2000 index has gone from a laggard and potential anchor for the market back to being a leader. The $RUT has broken out to new three-year highs. On a short-term basis the bottom of its prior channel might be resistance but the trend is definitely up. Bigger picture the 2007 highs near 850 will likely be a challenge but that's 30 points away!

Daily chart of the Russell 2000 index:

Weekly chart of the Russell 2000 index:

Last week I pointed out that we should be concerned because the Dow Jones Transportation average was not participating in the rally any longer. This is no longer a concern. The sideways consolidation in the transports narrowed and the bulls were victorious! The index has broken out higher and rushed straight toward its January highs. A failure here might look like a potential bearish double top but for now the momentum is up. Longer-term the transports could face steep resistance near the 5500 level. A rise past 5500 would be new all-time, record-breaking highs.

Daily chart of the Dow Jones Transportation index:

Weekly chart of the Dow Jones Transportation index:

This coming week we have a very full economic calendar. Monday is quiet but Tuesday, Wednesday, and Thursday are very full. We'll hear the January retail sales, New York Empire manufacturing index, import/export prices, December's business inventories, housing starts and building permits for January, the Producer Price Index (PPI) and Consumer Price Index (CPI) for January, weekly jobless claims, leading indicators, and the Philly Fed report for February. The big events there are probably the PPI and CPI since economists have been growing worried about rising inflation. Of course we've had very low inflation for a long time so a pick up in inflation would probably be normal here. What's not on the list is the FOMC minutes from the last meeting and these will be released on Wednesday.

In summary, am I bullish on the stock market? Yes, I am. Would I want to launch new long-term six month to eighteen month trades with the major averages at two and three-year highs? That prospect is a lot less enticing. Until we see some sort of consolidation and/or correction in stocks we might want to scale back our trade size and shorten our time horizon for our trades (and probably tighten stops too). If we can limit our risk then maybe we can take advantage of some of these bullish breakouts that are becoming so common these days.

While bulls take a victory lap around the stock exchange I am curious to see what the next crisis will appear on the horizon. Something needs to provide the next flight of stairs in the wall of worry. The successful protests in Egypt have inspired millions and demonstrations are being planned across the Mideast for those seeking change. We all know that change can be uncomfortable and the one thing the stock market hates the most is uncertainty.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks continue to climb the wall of worry. Yet now that Egyptian President Mubarak has resigned we could be left looking for the next crisis. Right now bulls are in control and the major averages have broken out past resistance.

It was a generally bullish week for the newsletter. BIDU hit our final exit target. DIS hit our first exit target. I am suggesting we take profits early on USG. We want to prepare to exit for a gain in our DE trade. Unfortunately this past week we saw AKAM perform very poorly due to its earnings news and shares gapped open under our stop loss. Plus, BVN shares have dropped dramatically on no news.

We have new stop losses for LLL, DE, DIS, HUM, USG, and WLP.

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

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

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



New Plays

Resilient

by James Brown

Click here to email James Brown

Fiserv, Inc. - FISV - close: 62.34

Why We Like It:
I am taking a more aggressive stance on FISV and promoting it from the watch list to the portfolio. The combination of the market's resiliency and FISV's up trend offers an opportunity to buy calls on this bounce. The stock spiked lower on its lackluster earnings results but traders bought the dip near $60 and its rising 50-dma (bottom of the rising channel). While FISV is an information technology company a lot of its customers are in the financial sector so keep an eye on the banking indices, which could influence this stock.

I am suggesting bullish positions now, on the bounce, but we want to keep our position size small. This is an aggressive entry point for us and FISV does not have LEAPS. The best we can do are the September calls. There is some short-term resistance near $63.00-63.50 but our long-term target is $74.75. We'll start the trade with a stop loss at $57.50 but more conservative traders may want to use a tighter stop. FYI: The Point & Figure chart for FISV is very bullish and is forecasting a $100 (long-term) target.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ xx.xx, option @ x.xx
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.85/ 3.20

Daily Chart of FISV:

Weekly Chart of FISV:

Current Target: $74.75
Current Stop loss: 57.50
Play Entered on: 02/14/11
Originally listed on the Watch List: 01/29/11
Originally listed in the New Plays 02/12/11


Play Updates

AKAM Plunges, BIDU Soars Again, DIS Scores

by James Brown

Click here to email James Brown

Editor's Note:

It was an overall bullish week for the newsletter. We are locking in gains on a couple of candidates.

-James


Closed Plays


AKAM and BIDU have been closed.


Play Updates


Arch Coal Inc. - ACI - close: 32.94

02/12 update: Coal stocks have been underperforming the last two weeks and ACI is no exception. I cautioned readers last week that ACI might retest the $30 level. I would wait for a dip near the $30-28 zone before considering new long-term bullish positions.

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

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.10/ 4.20

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.30/ 6.70

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: 27.75
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


Berkshire Hathaway - BRK.B - close: 84.91

02/12 update: The rally in BRK.B continues. The stock has now closed above the late 2010 resistance near $84.00 but there is still that one intraday spike closer to $86.00. If you prefer to buy on strength this the action this past week could be a new bullish entry point for you. I remain somewhat cautious, especially since Berkshire is due to report earnings in very late February or early March. Reaction to earnings results elsewhere in the market has been rather dramatic. Thus I would hesitate to open positions in front of earnings.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 3.95/ 4.25

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.

Chart of BRK.B:

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: 40.04

02/12 update: What in the world has happened to shares of BVN? There has been almost no news on the stock other than the company saying they will hold their conference call on Feb. 25th. That shouldn't have any affect on the share price. There has not been any significant sell-off in the price of gold, silver or copper. So why is BVN's stock falling so sharply?

The answer could be a new ETF. The Global X FTSE Andean 40 ETF (symbol: AND) just launched a few days ago and has been trading down sharply ever since. Is this a case of the tail wagging the dog? This new AND ETF is supposed to be comprised with stocks from three countries with the makeup totaling 49% Chile, 29% Columbia, and 22% Peru. Of that 22% of Peruvian stocks, shares of BVN equal about 17%. Meanwhile the major stock market index in Chile (the Chilean SE IGPA index) has been crashing lower the last few days and just bounced on Friday. The declines in the Chilean market, shares of the new AND, and shares of BVN all look very, very similar.

BVN hit $39.30 intraday on Friday and our stop loss is at $38.95. I really can't find any other plausible explanation for BVN's drop at the moment. Given this new development readers may want to seriously consider an early exit out of this trade. There is a chance that BVN could bounce but hope really isn't an investment strategy. Then again most of the damage has already been done. For now the stock seems to be hovering near support. You might want to bet on a bounce and hold it. I'm not suggesting new positions at this time.

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 $ 0.45/ 0.80

01/22: Adjust the stop loss to $38.95
01/05: Play is opened at $45.00 (small positions only)

Daily Chart of BVN:

Daily Chart of AND:

Weekly 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: 95.42

02/12 update: Shares of DE continue to rally. The stock has rallied past resistance at its 2008 highs to close at new all-time highs. What are the odds that DE will see some post-earnings profit taking? The company is due to report earnings on Feb. 16th before the opening bell. Currently the option is bidding $12.90 (+171%). Do we take profits now? Or risk a sell-off? We do own the 2012 calls so there is time for DE to recover. What are the opportunity costs of waiting for DE to recover?

I would seriously consider taking profits right now! Instead I am suggesting that we exit positions on Tuesday afternoon (at the closing bell on Feb. 15th) to avoid holding over DE's earnings report. I'd rather lock in a gain now than hold over earnings after this big run up. If by chance DE spikes to $99.00 before Tuesday's close then we'll exit at $99.00. In the meantime I am raising our stop loss to $91.75.

- 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 $12.90/13.10

02/12/11 Prepare to exit on Feb. 15th at the close.
02/12/11 New stop loss @ 91.75
02/05/11 New stop loss @ 84.00
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

Daily Chart of DE:

Current Target: $ 88.00, 99.00
Current Stop loss: 91.75
Play Entered on: 11/26/10
Originally listed on the Watch List --/--/--


Walt Disney Co. - DIS - close: 43.41

02/12 update: Our first target has been hit at $43.00. DIS reported better than expected earnings this past week. The market reacted by lifting the stock and shares gapped open higher at $42.76 on Wednesday and quickly hit our first target at $43.00. Our 2012 JAN $40 call was trading near $5.30 (+137%), and the 2013 JAN $40 call was trading near $7.40 (+103%) at that time.

DIS currently looks short-term overbought and due for some profit taking. I would expect shares to fill the gap and retest support near $40.00. I am not suggesting new positions at this time. We will raise our stop loss to $37.85.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 5.90/ 6.00

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.50/ 7.75

02/12/11 New stop loss @ 37.85
02/09/11 1st Target Hit. Options @ +137% and +103%
02/05/11 New stop loss @ 35.75
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

Chart of DIS:

Current Target(s): $43.00, 49.00
Current Stop loss: 35.75
Play Entered on: 10/27/10
Originally listed on the Watch List 10/24/10


SPDR Gold ETF - GLD - close: 132.32

02/12 update: Gold has been consolidating sideways even as the U.S. dollar bounces from its recent lows. Normally a rising dollar is bearish for gold prices. I still think there is a chance that the GLD could test its 200-dma before this correction is over. I am reluctant to consider new bullish positions at this time. Meanwhile we still have a lot of time on our protective put.

Currently our final long-term bullish target is $149.00.

FYI: Several weeks ago Goldman Sachs raised their 2011 price target on gold to $1,700 an ounce. Another firm 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 $10.95/11.30

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.88/ 0.91

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: 58.31

02/12 update: I'm feeling pretty lucky on HUM. The company reported earnings on Feb. 7th and missed expectations by 18 cents. Wall Street wanted to see 81 cents and HUM delivered 63 cents. This bad news was offset by management raising their full year 2011 guidance. Shares of HUM could have plunged on such an earnings miss. I remain very concerned about what appears to be a failed rally/bearish reversal pattern from two weeks ago.

As a matter of fact I'm concerned enough that I am suggesting we sell half of our remaining position right here and now (current bid $8.40). We will raise our stop loss to $51.75. No new bullish positions at this time.

- 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/ 8.70

02/12/11 Exit half of our 2012 calls now, bid $8.40 (+31.2%)
02/12/11 New stop loss @ 51.75
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.

Chart of HUM:

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: 80.04

02/12 update: LLL is still inching higher and is trying to breakout past round-number resistance at the $80.00 level. Shares still look a little overbought. I remain worried that LLL could see a correction toward the $76-74 zone. On a positive note the 50-dma crossing over the 200-dma (soon) is normally a very bullish development. We will raise our stop loss to $73.75. No 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 $ 8.90/ 9.20

02/12/11 New stop loss @ 73.75
02/05/11 There was no follow through lower.
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: 73.75
Play Entered on: 11/11/10
Originally listed on the Watch List 11/06/10


MEDNAX Inc. - MD - close: 63.80

02/12 update: The oversold bounce in shares of MD continues. I am suggesting caution here. MD could run into resistance in the $64-66 area. The stock might roll over and retest support again. I am not suggesting new bullish positions at this time.

Prior Comments:
MD doesn't have LEAPS so we had to settle for 2011 August calls. NOTE: Keep your position size small. The options on MD wide spreads, which puts us at a disadvantage!

- Current Positions -
Feb 03, 2011 - entry price on MD @ 60.33, option @ 3.60
symbol: MD1120H65 2011 AUG $65 call - current bid/ask $ 4.10/ 5.10

02/03 Trade triggered at $61.00, Option @ $3.60

Current Target(s): $69.50
Current Stop loss: 55.90
Play Entered on: 02/03/11
Originally listed on the Watch List 01/22/11


Microsoft Corp. - MSFT - close: 27.25

02/12 update: We have been expecting shares of MSFT to correct lower for weeks. It looks like the correction has finally begun. Investors were not impressed with news that MSFT and Nokia (NOK), two companies that have struggled to compete in the smart phone market, are teaming up together to try and face off against Google's Android and Apple's iPhone systems. I am looking for MSFT to find support near the $26 area. No new bullish 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 $3.40/ 3.50

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.25/ 2.29

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: 19.10

02/12 update: The rally in USG was unexpected. The action on late January was starting to look like a potential top and odds were building for a drop back toward the $15-14 level. I do not know what the catalyst was for USG's rally but the stock did (does?) have high short interest. The most recent data listed short interest at 18% of the relatively small 69-million share float. The action this past week definitely looks like a short squeeze.

USG almost hit our first target with the spike to $19.71 on Feb. 9th. Instead of waiting for USG to hit our first target at $19.90 I am suggesting we go ahead and take profits now. We'll move our stop loss up to $15.45. No new bullish positions at this time. Broken resistance near $17.50-17.00 should be new support. Our final, long-term target is still $24.75.

- Current Positions -
Dec 20, 2010 - entry price on USG @ 15.25, option @ 1.50*
symbol: USG1221A20 2012 Jan $20 call - current bid/ask $ 2.90/ 3.20

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 4.50/ 4.90

02/12/11 Take Profits (sell half) Options @ +93.3%, +50%
02/12/11 New stop loss @ 15.45
12/20/10 Play triggered at $15.25
*entry price is an estimate.

Chart of USG:

Current Target(s): $--.--, 2nd target: 24.75
Current Stop loss: 15.45
Play Entered on: 12/20/10
Originally listed on the Watch List: 12/11/10


WellPoint Inc. - WLP - close: 65.25

02/12 update: The trend in WLP is up but on a short-term basis the stock seems to be losing momentum. I would expect a correction lower soon, possibly back toward the $60 area. Thus I am not suggesting new bullish positions at this time. We will raise our stop loss to $57.25.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 6.90/ 7.10

02/12/11 New stop loss @ 57.25
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


Akamai Technology - AKAM - close: 41.43

02/12 update: Ouch! We've been growing cautious on AKAM for weeks, which is why we bought the May $40 put. Unfortunately, the reaction to AKAM's latest earnings report was pretty severe. The company actually beat estimates by 2 cents with revenues that were in-line with estimates. Management followed up with a warning that revenues and earnings would fall in the first quarter. The market reacted by sending shares of AKAM lower. The stock gapped open lower on Thursday at $41.69 while our stop loss was at $43.75, which doesn't really help when the stock gaps open. Our bullish call plays were closed on Thursday morning. Meanwhile the May $40 put naturally moved higher. Readers may want to cash out now (of the put) or you could hold on and see what happens. I would not be surprised to see AKAM produce an oversold bounce only to roll over again but that could take weeks. The newsletter is removing AKAM from the play list.

- Closed Positions -
Oct 06, 2010 - entry price on AKAM @ 45.50, option @ 7.50
symbol: AKAM1221A50 2012 JAN $50 call - Exit near $3.50 (-53.3%)

- Third Position -

Dec. 20, 2010 - entry price on AKAM @ 50.49, option @ 5.40
symbol: AKAM1221A60 2012 JAN $60 call - Exit near $1.50 (-72.2%)

- Short-Term Put -

Jan. 22, 2011 - entry price on AKAM @ 48.93, option @ 1.15
symbol: AKAM1121Q40 2011 MAY $40 PUT - current bid $ 3.05 (+165%)
(We'll update our entry price on Monday)

02/10/11 AKAM gaps open below our stop loss, closing our LEAPS.
02/09/11 AKAM reports earnings and provides lower guidance.
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

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: 129.58

02/12 update: Target achieved. The super strong, post-earnings rally in BIDU continues helped along with another analyst upgrade. Shares soared past $120 last week and managed to hit $129.65 on Friday. Our final exit target was hit at $129.00 on Friday.

Our protective March $95 puts we're already pretty much worthless after the earnings report. Our final "price" on the 2012 January $100 calls was $36.55 minus the price of our protective put ($2.80) so it was $33.75 (+159.6%).

Previous Comments:
BIDU is a very volatile stock. This is an aggressive, higher-risk trade. Keep your position size small to limit your risk.

- Current Positions -
Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - Exit near $36.55 (+181%)

- 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 $0.00 (-100%)
(we'll update the entry price for Monday's open)

02/11/11 Final Target Hit @ $129.00. Adjusted option @ $33.75 (+159%)
01/31/11 BIDU reports strong earnings. Stock gaps higher on Feb. 1st
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

Chart of BIDU:

Current Target: $129.00
Current Stop loss: 99.00
Play Entered on: 08/02/10
Originally listed on the Watch List 07/31/10


Watch

Technology, Restaurants, and Solar

by James Brown

Click here to email James Brown

Editor's Note:

As noted in tonight's commentary, the bulls have "won". Stocks continue to climb higher no matter what the headlines are. My expectations for a market correction in the second half of January have not been met. Now we need to re-examine our entry points on most of these watch list candidates.


New Watch List Entries

CACI - CACI International

EAT - Brinker International

FSLR - First Solar, Inc.


Active Watch List Candidates

AKS - AK Steel holding

ATI - Allegheny Tech.

BEAV - BE Aerospace Inc.

BWA - BorgWarner Inc.

CMP - Compass Minerals

Costco Wholesale - COST

Fiserv, Inc. - FISV

FLR - Fluor Corp.

HSIC - Henry Schein Inc

JRCC - James River Coal Co.

MAT - Mattel Inc.

MON - Monsanto Co.

NFX - Newfield Exploration

ORLY - O'Reilly Automotive

Teva Pharmaceuticals - TEVA

TIF - Tiffany & Co.

UNH - UnitedHealth Group, Inc

X - U.S. Steel Corp


Dropped Watch List Entries

FISV was promoted. FLR was removed.


New Watch List Candidates:

CACI International - CACI - close: 57.60

Company Info

CACI is an information technology company with a stock breaking out to new four-year highs. The move through resistance in the $54-55 zone was very bullish for CACI. The rally is looking a little tired and we want to be ready to buy the dip when CACI retest support. I am suggesting a trigger to open bullish positions at $54.50. If triggered we'll use a stop loss at $51.50. Our targets are the $67.50-70.00 zone. CACI doesn't have LEAPS so we'll have to settle for September calls. FYI: The Point & Figure chart for CACI is bullish with a $65 target.

Buy-the-Dip trigger: $54.50

BUY the 2011 September $60 calls (CACI1117I60)

Chart of CACI:

Originally listed on the Watch List: 02/12/11


Brinker International - EAT - close: 24.46

Company Info

Consumer sentiment and confidence continues to improve, which should mean consumer spending will improve. The market certainly thinks so given the trends in restaurant stocks. Shares of EAT broke out past resistance near $22.00 recently. I am suggesting we open bullish positions on a dip at $22.50. If triggered we'll use a stop loss at $19.90. Unfortunately, EAT does not have LEAPS so we'll have to settle for July calls. FYI: The Point & Figure chart for EAT is bullish with a $32.50 target.

Buy-the-Dip trigger: $22.50

BUY the 2011 July $25 calls (EAT1116G25)

Chart of EAT:

Originally listed on the Watch List: 02/12/11


First Solar, Inc. - FSLR - close: 166.11

Company Info

Shares of FSLR have been leaping and bounding higher thanks to a high degree of short interest. Every time it looks like FSLR might correct it gets squeezed higher. The most recent data listed short interest a 30% of the relatively small 55 million-share float.

Bigger picture FSLR has spent over a year consolidating sideways and is breaking out past resistance. While we don't want to chase it here there might be an opportunity on a correction and that correction could happen after its earnings report. FSLR is due to report earnings on February 17th, although that date is still unconfirmed. Wall Street is looking for a profit of $1.76 a share.

I am suggesting we open small bullish positions in FSLR on a dip at $150.00. If triggered we'll use a stop loss at $139.00. Our long-term target is $195.00. Warning! These options are not cheap.

Buy-the-Dip trigger: $150.00

BUY the 2012 January $170 calls (FSLR1221A170)

- or -

BUY the 2013 January $180 calls (FSLR1319A180)

Chart of FSLR:

Originally listed on the Watch List: 02/12/11


Active Watch List Candidates:


AK Steel Holding - AKS - close: 15.81

02/12 update: AKS still looks vulnerable to another downdraft that could push it toward its 200-dma and support near $14.00. We will leave our buy-the-dip trigger at $14.00 and our stop loss at $11.75.

Buy-the-Dip trigger: $14.00

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


Alleghney Technology - ATI - close: 67.47

02/12 update: Shares of ATI are still trending higher but it's not outlandish to think that shares could see a correction back toward the $60 area. We will leave our buy-the-dip entry point at $61.00 and our stop loss at $55.75. Our long-term targets are $75 and $85.

Buy-the-Dip trigger: $61.00

BUY the 2012 January $70.00 calls (ATI1221A70)

- or -

BUY the 2013 January $70.00 calls (ATI1221A70)

Originally listed on the Watch List: 02/05/11


BE Aerospace Inc. - BEAV - close: 38.71

02/12 update: The defense sector indices have broken out to new two-year highs but BEAV seems to be lagging its peers. BEAV may not have fully consolidated following its earnings report in early February. There is still a chance that this stock could correct toward its rising 200-dma. However we will raise our buy-the-dip entry point to $34.00 and raise our stop loss to $29.90. (July options are still the longest available)

Buy-the-Dip trigger: $34.00

BUY the 2011 July $35.00 calls (BEAV1116G30)

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


BorgWarner Inc. - BWA - close: 77.33

02/12 update: BWA rallied sharply last Monday and then rallied again following its stronger than expected earnings report and forecast. Actually the stock was up every day last week to post a +15% gain for the week. BWA is now very short-term overbought. The question is how low will it fall on the correction? Another way to say that is where will BWA find new support?

We will raise our buy-the-dip entry point to $71.00 and raise our stop loss to $66.90. It could take weeks before BWA corrects that deep and it would be a lot healthier if it took a while to correct. A sharp pull back now would make the rally look like a blow-off top. If and when BWA does hit our trigger we will want to keep our positions very small. This stock is obviously a little volatile. BWA doesn't have LEAPS so we'll have to settle for July calls.

Buy-the-Dip trigger: $71.00 <-- New Trigger

BUY the 2011 July $75 calls (BWA1116G75)

Originally listed on the Watch List: 02/05/11


Compass Minerals - CMP - close: 94.82

02/12 update: CMP did not see a lot of reaction to its earnings report last week. I am suggesting we raise our buy-the-dip trigger to $90.50 and we'll raise our stop loss to $87.00. If triggered we want to keep our position size small to limit our risk. Unfortunately, CMP does not have any LEAPS available and the longest dated options are 2011 Septembers

Buy-the-Dip trigger: $90.50 <-- new Trigger

BUY the 2011 September $100 calls (CMP1117I100)

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


Costco Wholesale - COST - close: 75.04

02/12 update: COST has spent the last few days consolidating sideways under long-term resistance at the $75.00 level. Friday's session actually saw COST close just above this mark but the current all-time high is near $75.25. Aggressive traders may want to consider buying a breakout but the newsletter is not ready to do so just yet. Meanwhile our buy-the-dip trigger at $66 seems unrealistic. I'm putting COST on "hold" for the moment. Let's give it another week and see what happens. FYI: Earnings are due out March 2nd.

Trigger to enter positions: temporarily removed.

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


Fiserv, Inc. - FISV - close: 62.34

02/12 update: I would have preferred to buy calls on a dip in the $56-55 zone but that appears unlikely. Instead of watching FISV climb without us, I am promoting this to a new play with new details tonight.

Look for details under the new play section.

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


Fluor Corp. - FLR - close: 73.52

02/12 update: FLR produced a very bullish week with a breakout to new two-year highs. Our buy-the-dip trigger near $60 is no longer reasonable. As a short-term bullish candidate FLR looks great but we may not want to launch long-term positions right here. I am removing it from the watch list and putting it back on my radar screen. Keep in mind that earnings are coming up in about ten days and FLR could see a reaction to its earnings news.

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


Henry Schein Inc. - HSIC - close: 67.36

02/12 update: It's not completely unreasonable to expect HSIC might see a correction toward the $63-62 zone. We will adjust our buy-the-dip entry point to $63.50. Just bear in mind it could take a few weeks for HSIC to pull back that low, especially since it's still in an up trend and by then we may have different option strikes to use. Then again earnings are Feb. 22nd so HSIC could see a reaction to earnings. We will reexamine our entry point following the earnings report. I am adjusting our stop loss to $59.40. HSIC doesn't have LEAPS so we'll have to settle for July calls.

Buy-the-Dip trigger: $63.50 <-- new trigger

BUY the 2011 July $65 call (HSIC1116G65)

Originally listed on the Watch List: 02/05/11


James River Coal Co. - JRCC - close: 21.20

02/12 update: JRCC has continued to slip although Thursday and Friday saw shares find technical support at the 100-dma. I don't see any changes from my prior comments. More aggressive traders may want to buy the dip at $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 September calls. FYI: Earnings are due out in late February (unconfirmed).

Buy-the-Dip trigger: $18.50

BUY the 2011 September $20 calls (JRCC1117I20)

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


Monsanto Co. - MON - close: 75.05

02/12 update: MON is consolidating sideways. Short-term traders might want to buy calls if this stock can breakout past the $77.00 mark. I would not launch new long-term positions at this time. Currently our buy-the-dip entry point at $64.00 is very unlikely to be hit any time soon but I'm not quite ready to adjust it higher. Let's give MON another week and see what happens. (if triggered our stop loss is $59.75)

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: 70.91

02/12 update: News that Egyptian President Mubarak would step down should deflate some of the risk premium in oil and that could suck some of the momentum out of the oil sector. Shares of NFX already look like they are reversing with the failed breakout on Monday, Feb. 7th. NFX is due to report earnings on Feb. 16th so shares could see some profit taking on the news. We will leave our buy-the-dip entry point at $60.50 for now and then reexamine our strategy next week.

If triggered we'll use a stop loss at $54.40. Our long-term targets are the $75 and $85 levels.

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


O'Reilly Automotive - ORLY - close: 57.58

02/12 update: ORLY is still consolidating sideways. The company reports earnings this week on Feb. 16th so the stock could see some profit taking on the news. I am leaving our buy-the-dip entry point at $53.50 for now with the stop loss at $49.75. Nimble investors may want to consider buying a breakout past $59 and its 50-dma should the reaction to earnings prove bullish. ORLY doesn't have LEAPS so we'll have to settle with the August calls.

Buy-the-Dip trigger: $53.50

BUY the 2011 August $55 calls (ORLY1120H55)

Originally listed on the Watch List: 02/05/11


Teva Pharmaceuticals - TEVA - close: 51.04

02/12 update: Surprise, surprise! We were expecting that TEVA might see some volatility regarding the situation in Egypt. Instead the stock missed its earnings expectations and issued a warning. The stock almost hit our trigger at $50.25. TEVA is still a titan in the generic drug space and the very long-term trend is up.

I am adjusting our buy-the-dip entry point to $49.00 and moving our stop loss to $46.90 (the 2010 lows were at $47.00). If triggered we want to start small so keep your position size limited.

Buy-the-Dip trigger: $49.00 <-- new Trigger

BUY the 2012 January $55 calls (TEVA1221A55)

- or -

BUY the 2013 January $60 calls (TEVA1319A60)

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


Tiffany & Co. - TIF - close: 64.45

02/12 update: TIF has continued to march higher. Our trigger at $55.50 seems highly unlikely to be hit any time soon. The stock should find some support near $65 but a failure here would look like a bearish double top. I like TIF longer-term but our entry strategy needs to change. I'm going to leave it on the watch list tonight but we'll remove our trigger and reexamine things next week.

Buy-the-Dip trigger: temporarily removed.

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


UnitedHealth Group, Inc. - UNH - close: 42.38

02/12 update: UNH is still trending higher but it's losing momentum. Odds are growing this stock will see a decline soon. Shares should find support near $38.00. Currently we have a trigger to buy calls on the dip at $38.50 with a stop loss at $34.50.

Buy-the-Dip trigger: $38.50

BUY the 2012 January $40 calls (UNH1221A40)

- or -

BUY the 2013 January $45 calls (UNH1319A45)

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


United States Steel Corp. - X - close: 58.92

02/12 update: Shares of X did not make a lot of progress last week and yet given the market's advance, a pull back in X toward the $50 area seems less likely. Aggressive traders might want to consider positions on a move over the $61.50 level. X still has long-term potential but our trigger at $48.50 probably won't work. I'm going to temporarily remove our trigger point and we'll revisit X again next week.

Buy-the-Dip trigger: temporarily removed

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