Option Investor
Newsletter

Daily Newsletter, Sunday, 2/20/2011

Table of Contents

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

Leaps Trader Commentary

Manage Your Capital

by James Brown

Click here to email James Brown

Stocks continue to coast higher. Traders are buying the dips just as fast as they can. The parade of positive economic data in the U.S. certainly helps grease the wheels for this bull market. Last week's Philly Fed survey was very impressive. Economists were only expecting a small increase from 19.3 to 21.0 but February saw a surge to 35.9. This was a seven-year high for the Philly Fed survey.

On Friday the market's midday swoon was sparked by news that China had raised their bank reserve requirements yet again. This time by another 50 basis points. This pulls money out of the system, which is supposed to slow down loan growth and thus slow down the economy. Investors were briefly worried that it would slow down demand but worries did not last long and stocks rebounded into Friday's closing bell.

This past week saw cotton prices surge to multi-decade, and apparently all-time highs on huge demand from China. Several agricultural commodities continue to rally and metals were holding up too. Gold and copper were marching higher but silver prices were sprinting to new 30-year highs. In addition to mining stocks the steel stocks were seeing some strength last week. Inflation concerns remain front and center on the global stage but they're not big enough (yet) to slow down the stock market rally.

Bloomberg reported that the S&P 500 has rallied to new 32-month highs. The index is also up +100% from its early 2009 bear-market lows. Last week I suggested that the next hurdle could be the 1350-1365 zone. That hasn't changed. No one knows if and when the next correction will occur or how deep the correction will be when it happens. Typically the farther we stretch the rubber band the harder and faster it snaps back. In the meantime, while we wait for the rubber band to snap, traders remain poised to buy the dip.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

This past week the NASDAQ composite bounced from a test of broken resistance near the 2800 level. This index appears to be on a collision course with its 2007 highs near 2861. There is no reason to suspect it won't get there.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

Nothing has changed for the SOX semiconductor index. This high-profile technology sector continues to rally inside its bullish channel. Last week I made note that the SOX was rising without much help from its biggest component Intel. Well now Intel (INTC) is starting to participate, which could keep the rally going.

Daily chart of the SOX semiconductor index:

The Russell 2000 has seen three strong weekly gains in a row. This small cap index looks like it's headed for the next level of resistance near 850-855 dating back to 2007. At this pace the Russell 2000 could be there before the end of the month. If something did spark a pullback I would watch for the $RUT to find support near 800 and its 50-dma.

Daily chart of the Russell 2000 index:

Weekly chart of the Russell 2000 index:

The transportation sector continues to rally, which is important for Dow Theory followers. The breakout last week is bullish and we could see this sector challenge its all-time highs in the next couple of weeks.

Weekly chart of the Dow Jones Transportation index:

The economic calendar this week is not quite as packed as last week's. There will be plenty of lagging data on the housing market with the Case-Shiller 20-city price index data from December, the existing home sales for January, and January's new home sales. We'll hear the February consumer confidence numbers, which should tick higher. Durable goods orders are expected to turn positive from a drop in December. On Friday we will get the latest estimate on Q4 GDP, which could tick higher to +3.3%. This week we could also hear analysts start looking ahead to the next jobs report just two weeks away on March 4th where current estimates are for the headline number to surge to +170,000 new jobs.

Overall almost nothing has changed from last week. Stocks are marching higher no matter what the headlines. Economic data continues to come in positive. Investors are currently ignoring the spread of protests across the middle east, some of which have started to turn violent. The markets are also digesting news of rising inflation. On a short-term basis the U.S. dollar looks poised to decline, which would further fuel the rally in commodities.

I am also hearing more chatter about the "unknown" or "unforeseen" catalyst that will reverse this market. Without the wall of worry that bull markets like to climb, some traders may feel uncomfortable. That is certainly understandable. The boogey-man is a lot less intimidating when you know his name. If the stock market is any indication then investors are feeling pretty fearless right now.

There are a lot of traders, both big and small, who are praying for a real dip lower so they can buy it. Thus pull backs will likely remain shallow until we do hit something unexpected. Yet even then the decline will probably prove to be an entry point. In this environment I would focus on managing your capital so that when the opportunity (correction lower) does occur we will have money available to buy the dip.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. markets continue to climb powered by strong economic data and a stronger buy-the-dip mentality. The spread of protests across the middle east is not having much impact on the financial markets thus far.

Overall most stocks in our portfolio either consolidated sideways or continued to rally. MSFT was an exception with a decline. Meanwhile we had planned to exit our DE play on Feb. 15th to avoid holding over earnings.

We have new stop losses for MD 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

No Entry

by James Brown

Click here to email James Brown

Editor's Note:

Bulls remain firmly in control. The S&P 500 index has rallied to a new 32-month high and does not appear to be slowing down. Thus far the urge to buy the dips has been so strong that all the dips are shallow. I remain bullish on stocks but I am reluctant to open a bunch of long-term positions with the market so overbought and due for some profit taking. Of course the market can always grow more overbought.

While I am not adding any new plays tonight we did add more candidates to our watch list and adjust some of the entry point strategies for current watch list candidates.


Play Updates

Another Bullish Week

by James Brown

Click here to email James Brown


Closed Plays


DE was closed last week.


Play Updates


Arch Coal Inc. - ACI - close: 33.04

02/19 update: Last Monday's rally in ACI slowly faded throughout the week so that shares closed virtually unchanged for the week. ACI appears to be consolidating in a neutral pattern of higher lows and lower highs. If the stock breaks down I would wait for a dip or a bounce near $28 and/or its 200-dma 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 $ 4.05/ 4.20

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.50/ 7.30

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: 85.05

02/19 update: The rally in shares of BRK.B continues although the stock is up less than a quarter for the week. Broken resistance near $84 should be support but I would look for a dip near the 50-dma before considering new bullish positions. Keep in mind that BRK.B is due to report earnings in very late February or the first week or two of March. We still don't have a confirmed earnings date yet. Cautious investors may not want to launch new positions until after we hear the results and see the market's reaction to the news.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.05/ 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.

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: 44.84

02/19 update: It has been a dramatic couple of weeks for BVN. Two weeks ago we had an unexplained plunge toward support near $40. Now we have a huge rebound to mirror the prior decline with BVN up over +10% from its recent lows. The stock is back above its 200-dma but the rally failed near its early February highs around the $46 level. Rising commodity prices should be bullish for a miner like BVN.

On a short-term basis I would expect a little pull back toward the $43-42 zone. It's up to you if you want to buy call LEAPS on a dip or wait for a bounce from this area.

FYI: The AND ETF continues to show weakness but this past week the declines did not have any affect on shares of BVN so the early February similarities could have been a coincidence.

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 $ 1.85/ 2.30

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

Current Target: $ 54.75
Current Stop loss: 38.95
Play Entered on: 01/05/11
Originally listed on the Watch List --/--/--


Walt Disney Co. - DIS - close: 43.56

02/19 update: There is little change from my prior comments on DIS. The stock is consolidating sideways and added 15 cents for the week. DIS remains 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.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 6.00/ 6.10

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.35/ 8.05

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

Current Target(s): $43.00, 49.00
Current Stop loss: 37.85
Play Entered on: 10/27/10
Originally listed on the Watch List 10/24/10


Fiserv, Inc. - FISV - close: 63.52

02/19 update: The big headline for FISV last week was news that Warren Buffett's Berkshire Hathaway had sold all of its position in FISV. These headlines failed to have much impact on the stock and FISV actually short-term overbought given the two-week rally. FISV is now testing its 2011 highs. Readers may want to wait for dips near the rising 50-dma, which is also the bottom of the bullish channel, before initiating new positions.

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. 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 @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 3.40/ 3.70

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


SPDR Gold ETF - GLD - close: 135.41

02/19 update: Recent weakness in the U.S. dollar has helped fuel gains for metal commodities like silver and gold. Silver is breaking out to new 30-year highs. Gold is trending higher but it's not seeing the same move that silver is. The GLD is back above its 50-dma and trading near potential resistance in the $135 area. My concern now is that a new lower higher now, in the $135-139 zone, would inspire the bears and shake the confidence of gold bulls. Meanwhile all the unrest spreading across the middle east is actually bullish for gold since many investors see it as a safe haven play when geopolitical risks are rising.

We still have an April put as a hedge should gold suddenly plunge lower on us. I am not suggesting new long-term bullish positions at this time. 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 $13.05/13.35

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.53/ 0.57

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: 61.44

02/19 update: It was a surprisingly bullish week for HUM. The stock rallied from short-term support near $58 and set new two-year closing highs. I am not suggesting new positions at this time. Currently we only have half a position open.

- Current (half) Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $10.40/11.10

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.

Current Target(s): $69.00
Current Stop loss: 51.75
Play Entered on: 09/17/10
Originally listed on the Watch List 09/04/10


L-3 Communications - LLL - close: 80.85

02/19 update: LLL spent most of the week consolidating sideways. Thus far traders are respecting the trend of higher lows but I would not launch new long-term bullish positions at this time. If LLL does see a correction I'm watching the $76-75 zone as support.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 9.40/ 9.60

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: 65.54

02/19 update: The easy part of this trade is over. Now comes the hard part. MD's oversold bounce to "fill the gap" is complete. Shares are now testing resistance in the $65-66 zone and will soon test its 30 and 50-dma, both overhead resistance. MD also looks short-term overbought given the two and a half week rebound. It would be natural to see some profit taking soon. Please note our new stop loss at $59.75. 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 $ 4.90/ 5.90

02/19 New stop loss @ 59.75
02/03 Trade triggered at $61.00, Option @ $3.60

Chart of MD:

Current Target(s): $69.50
Current Stop loss: 59.75
Play Entered on: 02/03/11
Originally listed on the Watch List 01/22/11


Microsoft Corp. - MSFT - close: 27.06

02/19 update: Traders bought the dip in MSFT near its 100-dma and exponential 200-dma last week. I am not convinced the correction is over but the broader market's rally higher could limit MSFT's decline. I'm not suggesting new long-term bullish positions at this time and would prefer to consider new positions on a dip or bounce near $26 and its long-term trendline of support.

- 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 $2.20/ 2.34

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: 18.73

02/19 update: Target achieved but more on that in a moment. The rally in USG has stalled and shares appear to be digesting their gains. However, if you look hard enough USG could be forming a short-term head-and-shoulders pattern. These patterns are bearish and if USG breaks down under the $18.00 level it would forecast a drop toward $16.00. I am not suggesting new bullish positions at this time.

On February 14th USG opened strong and quickly rallied to $19.91 before paring its gains. Our original profit target was $19.90. However, last weekend I had suggested we take profits early and sell half on Monday morning instead of waiting for the stock to hit $19.90. Currently we only have half a position open. 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 $ 2.70/ 2.95

- or -

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

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: 67.40

02/19 update: The rally in WLP is making significant progress. Shares broke out to new 52-week highs. The stock could easily hit our exit target at $69.75. More aggressive traders may want to aim higher but the $70.00 level should be significant resistance. The newsletter will exit completely at $69.75. I am raising our stop loss to $62.45.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 8.00/ 8.20

02/19/11 New stop loss @ 62.45
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: 62.45
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


CLOSED Plays


Deere & Co - DE - close: 93.62 on Feb. 15th

02/19 update: Our plan was to exit our DE positions on Tuesday February 15th at the closing bell to avoid holding over earnings. DE closed at $93.62 and our option was trading near $11.40 (the low for the week).

On a short-term basis the trend in DE is still up and I would expect shares to rally toward $100 before seeing any significant profit taking. After hearing CAT's positive news on global sales we may want to keep CAT and DE on our radar screens for a correction.

- Current (very small) Positions -
Nov 26, 2010 - entry price on DE @ 75.50, option @ 4.75
symbol: DE1221A90 2012 JAN $90 call - closed @ $11.40 (+140%)

02/15/11 DE closed at $93.62. Option @ $11.40 (+140%)
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 --/--/--


Watch

Financials & Tires

by James Brown

Click here to email James Brown

Editor's Note:

The stock market continues to hit new relative highs. Eventually the market will see a normal, healthy correction but when it shows up it could be a sharp and scary looking decline. Until the correction appears the trend is up and we will make adjustments to our entry point strategies on the watch list below.

In addition to tonight's new watch list candidates I want to point out a few more stocks on my radar screen. Fedex Corp (FDX) recently warned but the news has not slowed down the rally in its stock price. Shares of FDX look poised to challenge resistance near $100 soon. I'm not suggesting positions now but keep an eye on the $100-95 zone.

SCHN, a steel company, looks like a tempting trade. The stock is bouncing from support near $60 and is currently testing resistance near $65.

The SOX semiconductor index has been in rally mode for months. What is impressive is that the chip stocks have been rallying without much help from Intel (INTC). Now shares of INTC are breaking out over resistance near $22. I'm not suggesting new positions in INTC but if you look at a multi-year chart a breakout past the $23 area could signal a very significant change in trend and might be an entry point.

Boeing Co. (BA) could be a strong candidate. I was very close to listing it as a new play tonight with the suggestion that investors merely start with small positions and slowly add to them on dips or breakouts. BA has been consolidating sideways for months and bigger picture it looks ready to rally past its early 2010 highs. Short-term I would be very tempted to buy calls on a dip near the 50 or 100-dma. Alternatively we could wait for a close over potential resistance near the $76.00 mark. The $90.00 level will probably be a significant hurdle but my long-term target would be the $100-105 area.


New Watch List Entries

C - Citigroup, Inc.

GT - Goodyear Tire


Active Watch List Candidates

AKS - AK Steel holding

ATI - Allegheny Tech.

BEAV - BE Aerospace Inc.

BWA - BorgWarner Inc.

CACI - CACI International

CMP - Compass Minerals

Costco Wholesale - COST

EAT - Brinker International

FSLR - First Solar, Inc.

HSIC - Henry Schein Inc

JRCC - James River Coal Co.

MAT - Mattel Inc.

MON - Monsanto Co.

NFX - Newfield Exploration

Teva Pharmaceuticals - TEVA

UNH - UnitedHealth Group, Inc


Dropped Watch List Entries

ORLY, TIF, and X were removed.


New Watch List Candidates:

Citigroup, Inc. - C - close: 4.91

Company Info

Big picture the trend for the banks is improving. Credit quality for their loan portfolio is improving. Delinquencies are inching lower. There is still risk with high unemployment and a lack of improvement in the residential housing market but overall the banks appear to be doing okay. Looking ahead one year and two years down the road, we have to ask ourselves, "will Citigroup be trading higher or lower from here?"

I strongly suspect that Citigroup could be trading significantly higher so we will want to start building a position when we get the opportunity. On a very short-term basis Citigroup looks poised to breakout from a five-week trading range but I don't want to buy it short-term. We want a long-term entry point. The $5.00-5.15 zone is not only major resistance on the daily charts it is also major resistance on the point-and-figure chart. I would consider launching bullish positions if Citigroup (C) can close over $5.20. In the meantime there is always a chance of some unexpected market decline pushing the banking stocks lower. Citigroup has a long-term trendline of support that should help the stock in the $4.50 area. Therefore, I will list Citigroup with a buy-the-dip trigger at $4.60 but we'll readjust our strategy if we see a close over $5.20.

Right now I do not have a time frame for either entry point to be triggered. It could be weeks from now but I wanted to get you thinking about possible positions. Shares of Citigroup are so cheap that I'm listing buying the stock as an alternative to buying call LEAPS. It's up to you if you want a stock that doesn't expire or call LEAPS that do. Obviously the calls offer more reward for their risk. You could always start small and build a position slowly after the play has been opened.

Buy-the-Dip trigger: $4.60 (alternative entry: close over $5.20)

BUY shares of Citigroup (C) stock (stop loss @ 4.19)

- or -

BUY the 2012 January $5.00 call (C1221A5)

- or -

BUY the 2013 January $5.00 call (C1319A5)

Chart of C:

Originally listed on the Watch List: 02/19/11


Goodyear Tire - GT - close: 14.89

Company Info

Vehicle sales are improving here in the U.S. but they're soaring overseas in emerging markets like China and India. That should bode well for Goodyear. Keep in mind that GT does face one major challenge. Rising commodity costs could be a growing hurdle. Management already expects commodity costs to rise 25% in 2011.

The stock has broken the bearish down trend but shares of GT are short-term overbought. I am suggesting we wait for a dip and use a trigger at $13.50 to enter positions. If triggered we'll use a stop loss at $11.75. Our long-term target is $18.50.

Buy-the-Dip trigger: $13.50

BUY the 2012 January $15.00 call (GT1221A15)

- or -

BUY the 2013 January $15.00 call (GT1319A15)

Chart of GT:

Originally listed on the Watch List: 02/19/11


Active Watch List Candidates:


AK Steel Holding - AKS - close: 17.20

02/19 update: AKS is breaking out and shares just rallied past resistance near $17.00 this past week. It's time for us to adjust our entry point strategy on this stock. Aggressive traders may want to consider new positions now with the stock near $17.00. I am raising our buy-the-dip entry point to $16.10. We'll raise the stop loss to $13.90. If AKS hit our trigger at $16.10 we only want to open small bullish positions (either one half or one quarter your normal trade size) to limit our risk. Our long-term target is the $25.00 area.

Buy-the-Dip trigger: $16.10 <-- new trigger and strikes.

BUY the 2012 January $20.00 calls (AKS1221A20)

- or -

BUY the 2013 January $20.00 calls (AKS1319A20)

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


Alleghney Technology - ATI - close: 68.52

02/19 update: There is no change from my prior comments on ATI. The trend is up but $70 is overhead resistance. 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: 36.76

02/19 update: We have been looking for BEAV to correct lower. The stock's long-term trendline of higher lows should meet up near the 200-dma. I am suggesting a trigger to open positions at $34.00 with a stop loss at $29.90. More conservative traders may want to use a stop closer to $32.00 instead. (July options are still the longest available)

Buy-the-Dip trigger: $34.00

BUY the 2011 July $35.00 calls (BEAV1116G35)

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


BorgWarner Inc. - BWA - close: 80.23

02/19 update: The rally in BWA continues with another new high. It looks like momentum has stalled with the stock near $80 but that could be a reflection of February option expiration. I am moving our buy-the-dip entry point to $74.00 and moving our stop loss to $69.75. However, if BWA hits our trigger at $74.00 we want to use very small positions. This would be a higher-risk entry point. BWA doesn't have LEAPS so we'll have to settle for July calls.

Buy-the-Dip trigger: $74.00 <-- new trigger & strikes

BUY the 2011 July $80 calls (BWA1116G80)

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


CACI International - CACI - close: 58.78

02/19 update: There is no change from my prior comments on CACI. 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)

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


Compass Minerals - CMP - close: 95.07

02/19 update: Looking at the weekly chart the action this past week in CMP looks like a top. I am still expecting a correction toward the $90 area. 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

BUY the 2011 September $100 calls (CMP1117I100)

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


Costco Wholesale - COST - close: 75.43

02/19 update: Potential entry point alert! COST has been consolidating sideways in the $74-75 zone for two weeks. The $75.00 level has been resistance for years. This Friday COST actually closed at new all-time highs. Aggressive traders may want to buy calls on this breakout. I am not quite ready to pull the trigger yet but I'm not ready to remove COST from the watch list. Let's see what happens over the next two weeks. My biggest concern is COST's earnings report due out on March 2nd. I want to see the results and investor reaction to the news.

Trigger to enter positions: temporarily removed.

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


Brinker International - EAT - close: 24.16

02/19 update: There is no change from my prior comments on EAT. 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)

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


First Solar, Inc. - FSLR - close: 168.22

02/19 update: Nothing has changed for us with FSLR. The stock actually rallied to another new 52-week high but the action on Friday looks like a bearish reversal candlestick pattern. Instead of FSLR reporting earnings on Feb. 17th the report date has been moved to Feb. 24th. FSLR will announce earnings after the closing bell this coming Thursday. I suspect that FSLR could see a post-earnings drop. 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)

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


Henry Schein Inc. - HSIC - close: 69.85

02/19 update: HSIC is up seven weeks in a row and we don't want to chase it. I suspect the stock could see some profit taking after the earnings report. The company is due to announce on Feb. 22nd. At the moment our plan is to buy a dip at $63.50, although we might want to move that trigger closer to the $65 level. If triggered our stop is at $59.40. HSIC doesn't have LEAPS so we'll have to settle for July calls.

Buy-the-Dip trigger: $63.50

BUY the 2011 July $65 call (HSIC1116G65)

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


James River Coal Co. - JRCC - close: 21.18

02/19 update: Coal stocks have been a mixed bag lately. More aggressive traders may want to buy a dip in JRCC near $20.00. Right now the 200-dma has risen to the $19 level. I will up our buy-the-dip trigger to $19.25 and raise our stop loss to $17.25. 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: $19.25 <-- new Trigger

BUY the 2011 September $20 calls (JRCC1117I20)

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


Monsanto Co. - MON - close: 72.39

02/19 update: The action this past week in MON suggests the stock is poised to correct lower. I'm willing to wait and see. However, I will raise our buy-the-dip trigger to $65.50 and leave the stop loss at $59.75.

Buy-the-Dip trigger: $65.50 <-- new Trigger

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: 68.53

02/19 update: NFX reported earnings last week and missed by nine cents. The stock spiked lower on Thursday following the news. I am looking for a correction toward $60 and its 200-dma. Our buy-the-dip entry point is at $60.50 for now. 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: 55.25

02/19 update: Yuck! What's going on with ORLY? First shares gap higher on its earnings numbers. Then they gap lower on guidance. The low on Friday was $54.72. The $54.00 level and the 200-dma should offer some support but I'm not so sure we want to buy calls at the moment. I am removing ORLY from the watch list tonight since our trade has not been triggered. I'll keep it on my radar screen for a while and let the dust settle for a week or two. FYI: The long-term up trend of higher lows should lie in the $52-51 area for ORLY. Watch that area. Draw a trendline from the October 2008 lows.

Conditions may have changed following earnings. ORLY has been removed.

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


Teva Pharmaceuticals - TEVA - close: 51.04

02/19 update: TEVA spent the week consolidating sideways. There is no change from my prior comments. Currently we have a buy-the-dip trigger at $49.00 with a stop loss at $46.90. If triggered we want to keep our position size small to limit our risk.

Buy-the-Dip trigger: $49.00

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: 64.70

02/19 update: TIF is hovering near its all-time highs and resistance at the $65.00 level. A failure here might be a bearish double top. We do not want to launch bullish positions at this time but I would keep it on your radar screen. I am removing it from the watch list for now.

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


UnitedHealth Group, Inc. - UNH - close: 42.84

02/19 update: UNH has been consolidating sideways for two weeks. I don't see a lot of changes from my prior comments except a new stop. We want to wait for a dip at $38.50 with a stop loss at $35.75.

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: 61.86

02/19 update: It was a bullish week for X. The stock was upgraded by Goldman Sachs and steel stocks in general we're showing strength. Yet X has resistance in the $67-70 zone so we don't want to launch long-term positions right here. I think X offers potential but I am temporarily removing it from the watch list. Keep this stock on your radar screen.

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