Option Investor
Newsletter

Daily Newsletter, Sunday, 2/27/2011

Table of Contents

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

Leaps Trader Commentary

Bulls Shrug Off Libya, Buy Dip

by James Brown

Click here to email James Brown

News that the violence in Libya has bloomed into a civil war has not derailed the stock market rally. Thus far investors have shrugged off the implications of rising oil prices on the U.S. and global economies. Traders managed to ignore the disappointing Q4 GDP revisions, which fell from +3.2% growth to +2.8% growth. Instead the focus remains on positive economic data. Last week the German Ifo institute's business confidence index, a survey of 7,000 executives and managers, rose to a new all-time high. Meanwhile back in the U.S. the final consumer sentiment number for February rose to 77.5, the highest reading since January 2008.

This does not mean we should ignore Libya. With the country in turmoil they're probably not pumping oil and any disruptions to the global oil supply will be painful. Rising oil tends to precede any recession here in the U.S. If crude prices don't pull back we're going to hear more and more about its impact on U.S. growth and consumer spending. In just a couple of months we'll be talking about the summer driving season when gasoline prices tend to rise, which would put further pressure on consumers' wallets.

The bigger problem is the unrest across the Mideast. The revolution in Tunisia was the spark that started this fire and spread to Egypt and now Libya. Citizens are already protesting the new government in Tunisia and there were new protests in Egypt this past week as well. While it looks like the king of Saudi Arabia manage to pacify his people with $35 billion in handouts, there is still civil unrest in Yemen and Bahrain and Iraq.

It's hard to imagine something more dramatic than a civil war but unless we do see something bigger than violence in Libya I suspect the market's focus will be on economic data here in the U.S. and we do have a lot of economic headlines coming this week.

Last week the S&P 500 index witnessed a 50-point drop (-3.7%) but traders were ready and jumped in to buy the dip near support at the 1300 level. Not only was this round-number, psychological support it was also support at the rising trendline of higher lows (see chart below). Until the trend breaks investors can use this pull back as an opportunity to launch new bullish positions. The next level of resistance is the 1345-1350 zone.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite saw a steeper pull back of -4.5% with the drop from 2840 toward the 2710 area. Traders bought the dip twice near the 2710 level, producing a mini-double bottom pattern. The rising 50-dma also lent some support and the index's trend remains higher. On a short-term basis the NASDAQ has potential resistance at its 10-dma and the 2800 and 2840 levels but I suspect the NASDAQ composite will make a run at its 2007 highs near 2860.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

We have been watching the SOX semiconductor index for clues as to how the NASDAQ might move. Profit taking in the SOX looked pretty severe and the index broke down from its narrow bullish channel. Yet just as quickly the index is bouncing back. Typically the bottom edge of the bullish channel, once broken, can become new resistance. We'll have to wait and see if that happens this week or if the chip stock continue to rally. I looked at several chip names and they all looked relatively healthy, which should bode well for this week.

Daily chart of the SOX semiconductor index:

The small cap Russell 2000 experienced a sharp, two-day drop but bulls were ready and bought the dip near round-number support around the 800 level and the rising 50-dma. This is what we expected. I suspect that the Russell 2000 index will try to rally toward its 2007 highs near the 850-855 zone, which might prove to be heavy resistance.

Daily chart of the Russell 2000 index:

Weekly chart of the Russell 2000 index:

The huge spike in crude oil prices has naturally had a very negative impact on the transportation sector since rising oil means rising fuel costs. On a short-term basis the Dow Jones Transportation index is bouncing from support but there has been some technical damage done to the chart.

Daily chart of the Dow Jones Transportation index:

This week we have a VERY full economic calendar:

--- Monday ---
Personal Income & Spending, Chicago PMI for February, pending home sales.

--- Tuesday ---
(national) ISM index for February, auto & truck sales, construction spending.

--- Wednesday ---
ADP Employment report for February, Federal Reserve's Beige Book report, Challenger, Gray & Christmas job cuts report.

--- Thursday ---
(national) ISM Services index for February, revised Q4 productivity, weekly initial jobless claims.

--- Friday ---
Nonfarm payrolls (jobs) report for February, Unemployment rate for February, Factor Orders for January, average workweek and hourly earnings for February.

Expectations for the jobs report are rising. Consensus estimates have risen from +170,000 jobs to +180,000 for the headline number. Many analysts are expecting the number to come in at more than +200K due to the massive blizzard in January pushing jobs into February. Private payrolls are expected to be even higher. Last month this report was a huge miss but it failed to knock the market down. Two months in a row could be a different story but we'll have to wait and see. Unemployment is expected to tick higher from 9.0% to 9.1% but we all know that's not the real unemployment rate, which is closer to 15-to-16%. Aside from the jobs report on Friday the big events will likely be the ISM reports and the Fed's Beige Book.

This weekend I read an interesting tidbit on the CNNMoney.com website. Two weeks ago there were a number of headlines about the S&P 500 doubling (+100%) off its 2009 bear-market lows. The article pointed out that this was the fastest +100% gain in the S&P 500 ever at just 712 days. The second and third fastest doubles in the S&P 500 took 890 days and 903 days. While I don't think the number of days here matter it helps illustrates just how overbought the market is. Don't get me wrong. I remain bullish on the market and expect stocks to resume their climb but eventually we will see another multi-week or multi-month correction. That might happen once the major averages hit resistance at their 2007 highs.

In the meantime we want to take advantage of the market's dip and consider some new bullish positions. More conservative traders will want to consider raising their stops. Everyone will want to re-evaluate their risk tolerance. Plan now for the unexpected. What will you do if the S&P 500 suddenly reverses lower and breaks support at the 1300 level or the 50-dma? We can play the trend but have a plan ready. Are you going to be exiting positions or preparing to buy the next drop to support?

- James

P.S. Keep an eye on the U.S. dollar. It's currently slipping lower but I'm wondering how much farther will it fall. Normally when geopolitical tensions rise the dollar rises since investors see it as a "safe haven" trade. That is not happening right now. Gold, on the other hand, is rising but the precious metal is nearing its previous highs. Will gold breakout or roll over? Will the dollar bounce at prior support or will it breakdown to new lows? The Fed's QE2 program is set to expire in June, which might relieve some pressure on the dollar. Yet prior to June we will see some interesting headlines out of Europe. Spain and Portugal need to roll over about 20 billion euros worth of debt. In June the EU is expected to announce their latest bank stress tests results. If the debt auctions for Spain don't go well the euro will fall and the dollar should rise.

Weekly chart of the U.S. Dollar ETF (UUP):


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The stock market's recent decline has provided an entry point for bulls to buy the dip. We had several candidates make the jump from watch list to our active play list. The new additions to the portfolio are: AKS, BEAV, BWA, C, CMP, EAT, and GT.

We have new stop losses for GLD, HUM, and MSFT.

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

Oil, Rails, and Trucks

by James Brown

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Editor's Note:

We will fill in our entry prices below for Monday's open on Feb. 28th.


Apache Corp. - APA - close: 123.53

Company Info

Why We Like It:
Bears could argue that oil prices are artificially high due to the risk premium built in thanks to the unrest across the Mideast. Unfortunately no one can tell us when this unrest and violence will end. The trend in oil and energy stocks could have a while to go before it runs out of steam. APA is attractive now that shares are just now breaking out from its recent consolidation.

I am suggesting bullish positions now with a stop loss at $114.75. Our long-term target is $143.50. FYI: The Point & Figure chart for APA is bullish with a $129 target.

- Suggested Positions -
Feb 28, 2011 - entry price on APA @ xx.xx, option @ x.xx
symbol: APA1221A140 2012 JAN $140 call - current bid/ask $ 7.80/ 8.00

- or -

Feb 28, 2011 - entry price on APA @ xx.xx, option @ x.xx
symbol: APA1319A140 2013 JAN $140 call - current bid/ask $12.55/15.15

Daily Chart of APA:

Weekly Chart of APA:

Current Target: $143.50
Current Stop loss: 114.75
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Canadian Natl. Railway Co. - CNI - close: 71.92

Company Info

Why We Like It:
Rising oil prices are bad news for transports but if anyone is going to benefit it should be the railroads. Trains are the most efficient and offer the biggest bang for the buck when it comes to moving freight per gallon of fuel. Shares of CNI just broke out past resistance at $70.00 a few days ago and traders just bought the dip at this new support. I am suggesting bullish positions now on the bounce from $70.00. We'll start this play with a stop loss at $67.00. Our long-term target is $89.00.

- Suggested Positions -
Feb 28, 2011 - entry price on CNI @ xx.xx, option @ x.xx
symbol: CNI1221A80 2012 JAN $80 call - current bid/ask $ 2.55/ 2.80

Chart of CNI:

Current Target: $89.00
Current Stop loss: 67.00
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Ford Motor Co - F - close: 15.07

Company Info

Why We Like It:
The late January and early February profit taking in Ford was pretty painful but shares had been overbought and due for a correction. Ford is probably the healthiest American auto maker as the company continues to reduce its debt. As the U.S. and global economies recover we will see an increase in vehicle sales (barring any disaster that sends oil toward $150 a barrel or higher). Right now is our chance to buy call LEAPS on Ford with the stock near its long-term trendline of higher lows. I am suggesting bullish positions now but if we're lucky we will see a dip toward $14.00 and its 200-dma.

I'm suggesting a stop loss at $12.40. Our long-term exit targets are $19.75 and $24.00.

- Suggested Positions -
Feb 28, 2011 - entry price on F @ xx.xx, option @ x.xx
symbol: F1221A15 2012 JAN $15 call - current bid/ask $ 2.04/ 2.08

- or -

Feb 28, 2011 - entry price on F @ xx.xx, option @ x.xx
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.44/ 1.50

Chart of F:

Current Target: $19.75, and $24.00
Current Stop loss: 12.40
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Play Updates

A Flurry of Activity

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 33.40

02/26 update: ACI found some short-term support near $32 last week. Big picture nothing has changed. This stock is still consolidating sideways in a neutral pattern of higher lows and lower highs. If you prefer to buy on strength then look for a breakout past the $35 level. Officially I'm adjusting our strategy and not suggesting new positions at this time.

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 $ 4.35/ 4.45

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.45/ 7.05

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


AK Steel Holding - AKS - close: 15.76

02/26 update: The profit taking across the market last week hit the material names especially hard. Shares of AKS plunged to $15.82 on Tuesday and hit $15.21 on Wednesday. We had a buy-the-dip entry point at $16.10 so our trade was triggered on Tuesday's decline. Big picture demand for steel has been on the rise. That hasn't changed. I would still consider new positions now or you could wait for AKS to close over short-term resistance at $17.00. AKS can be volatile so our plan was to limit our risk by keeping our position size small. Our long-term target is the $25.00 area.

- Current Positions -
Feb 22, 2011 - entry price on AKS @ 16.10, option @ 1.55
symbol: AKS1221A20 2012 JAN $20 call - current bid/ask $ 1.26/ 1.39

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 2.20/ 2.83

Chart of AKS:

Current Target: $25.00
Current Stop loss: 13.90
Play Entered on: 02/22/11
Originally listed on the Watch List: 12/25/10


BE Aerospace Inc. - BEAV - close: 34.34

02/26 update: We have been waiting for BEAV to correct toward its long-term trendline of support. The market weakness last week was just the catalyst needed to push shares toward our buy-the-dip entry point at $34.00 (triggered on Wednesday). BEAV managed a bounce at the exponential 200-dma. The correction may not be over yet and BEAV could test additional support at the simple 200-dma near $32.00. I would wait for another dip into the $33-32 zone before considering new bullish positions or readers could wait and buy a bounce. Please note I'm adjusting our stop loss from $29.90 up to $31.49.

If you do open new positions I would buy the Octobers (just released) instead of the Julys.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 2.80/ 3.00

Chart of BEAV:

Current Target: $40.00
Current Stop loss: 31.49
Play Entered on: 02/23/11
Originally listed on the Watch List: 01/22/11


Berkshire Hathaway - BRK.B - close: 84.87

02/26 update: BRK.B could be poised to rally on Monday. Berkshire Hathaway reported earnings on Saturday. Based on the Class A shares, analysts were expecting a profit of $1,690 a share. Berkshire delivered $2,656 a share. With the company's earnings report Warren Buffett released his letter to shareholders. Mr. Buffett remains bullish on America and said his company is eager to make more acquisitions.

Readers may want to add to positions if/when BRK.B breaks out past the $85-86 level of resistance. You can buy the 2012 or 2013 call LEAPS.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.45/ 4.65

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: 45.63

02/26 update: BVN just reported earnings on Feb. 25th. The company missed estimates by 3 cents but crushed the revenue estimate. Overall shares did not move much on the news. The stock did see a spike higher last week that failed near technical resistance at its 100-dma. I would not launch new positions at this time. Wait and watch for BVN to retest and bounce from the $44 area. We also want to keep an eye on gold. If gold can breakout past its 2010 highs then gold could fuel the next leg higher in the mining stocks.

Earlier Comments:
I cautioned readers that our entry point at $45 was an aggressive, higher-risk trade. Our plan was to open small (half) positions to limit our risk.

- Current Positions -
Jan 5, 2011 - entry price on BVN @ 45.00, option @ 3.90
symbol: BVN1119F50 2011 JUN $50 call - current bid/ask $ 2.05/ 2.55

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 --/--/--


BorgWarner Inc. - BWA - close: 76.95

02/26 update: Our aggressive, higher-risk trade on BWA has been opened. Shares hit our buy-the-dip entry point at $74.00 on Feb. 23rd. You got another chance the very next day with another dip at $74.00. Now BWA is rebounding and look poised to run towards the recent resistance at $80.00.

BWA has been volatile lately so we have a wide (aggressive) stop loss at $69.75. More conservative traders may want to use a stop closer to the $73.00 area. Our targets are optimistic at $88.00 and at $99.00 but keep in mind our plan was to use small positions to limit our risk.

I would still consider new positions now on the bounce and would pick the October calls instead of the Julys but you'd have to stomach some pretty ugly spreads.

- Current Positions -
Feb 23, 2011 - entry price on BWA @ 74.00, option @ 4.20
symbol: BWA1116G80 2011 JUL $80 call - current bid/ask $ 4.20/ 5.60

Chart of BWA:

Current Target: $88.00, $99.00
Current Stop loss: 69.75
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/05/11


Citigroup, Inc. - C - close: 4.70

02/26 update: On a short-term basis the action in Citigroup last week is an ugly breakdown from its trading range. Yet bigger picture the decline provided us an entry point to buy C near its long-term trendline of higher lows. The stock hit our buy-the-dip entry at $4.60 on Feb. 23rd. I would still consider new positions now at current levels.

Depending on your personal tolerance for risk you'll want to consider buying the stock (same price as many LEAPS) or actually buying the call LEAPS (greater risk/reward).

Of course you don't have to buy a big position now. You could slowly scale into your position a little at a time.

- Current Positions -
Feb 23, 2011 - entry price on Citigroup stock (C) @ 4.60

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.48
symbol: C1221A5 2012 JAN $5 call - current bid/ask $ 0.46/ 0.48

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.82/ 0.83

Chart of C:

Current Target: $6.50, and $7.75
Current Stop loss: 4.19
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/19/11


Compass Minerals - CMP - close: 92.00

02/26 update: Material stocks of any kind were hit hard last week during the market's sell-off. Shares of CMP fell to an intraday low of $88.86 on Feb. 23rd. Traders bought the dip again the very next day at $88.70. Our buy-the-dip trigger was hit at $90.50 and I would still consider new positions now on the bounce. I'm setting our upside, exit targets at $99.00 and $109.50. We should expect the $100.00 mark to act as round-number, psychological resistance. Our plan was to limit our risk by using small positions.

- Current Positions -
Feb 23, 2011 - entry price on CMP @ 90.50, option @ $ 4.70
symbol: CMP1117I100 2011 SEP $100 call - current bid/ask $ 4.30/ 4.80

Chart of CMP:

Current Target: $99.00 and $109.50
Current Stop loss: 87.00
Play Entered on: 02/23/11
Originally listed on the Watch List: 12/25/10


Walt Disney Co. - DIS - close: 42.95

02/26 update: DIS is still holding up pretty well in spite of the market's recent sell-off. I would still expect shares to eventually fill the gap and probably retest the $40 level as support. 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 $ 5.70/ 5.80

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.30/ 7.65

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


Brinker International - EAT - close: 23.82

02/26 update: The market pull back was just enough to pull EAT toward support near $22 and its 5-dma. Our buy-the-dip trigger was hit at $22.50 on Feb. 23rd. If you missed the entry point I would still be tempted to buy this bounce or you can wait for a breakout over resistance near $25.00. I am raising our stop loss from $19.90 to $20.95. Our exit target is $29.50. FYI: If you open new positions I would prefer the October calls (just released) instead of the Julys.

- Current Positions -
Feb 23, 2011 - entry price on EAT @ 22.50, option @ $ 1.10
symbol: EAT1116G25 2011 JUL $25 call - current bid/ask $ 1.20/ 1.75

Chart of EAT:

Current Target: $29.50
Current Stop loss: 20.95
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/12/11


Fiserv, Inc. - FISV - close: 63.00

02/26 update: FISV held up very well only losing 50 cents for the week. Traders bought the dip near its rising 40 and 50-dma. FISV looks poised to breakout past resistance near the $64 level soon. If you missed the entry point on the dip consider waiting for the breakout. Our 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 $ 3.30/ 3.60

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: 137.38

02/26 update: Escalating violence in Libya has turned into a civil war. Rising geopolitical tensions tend to push gold prices higher as investors seek a "safe haven" investment. The GLD has rallied almost nonstop the month of February and is now nearing its 2010 highs near the $138-139 zone. A breakout past this level would be very bullish but the GLD might pull back first and need to build up some steam. Things could change if violence continues to spread across the Mideast.

I strongly suspect that our April put, which we bought as a hedge against a sudden drop in gold, will expire worthless given the new rally.

Please note that I am raising our stop loss to $127.00. 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 $15.35/16.00

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.22/ 0.24

02/26/11 New stop loss @ 127.00
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

Chart of GLD:

Current Target(s): $149.00
Current Stop loss: 127.00
Play Entered on: 08/06/10
Originally listed on the Watch List 06/05/10


Goodyear Tire - GT - close: 13.90

02/26 update: Our GT play is off to a good start. The market's sell-off pulled shares back toward its 20-dma. GT hit our buy-the-dip trigger at $13.50 on Feb. 23rd. We got a second chance to buy the dip on the 24th and if you missed it I would still consider new positions now on the bounce. We have a stop loss at $11.75 but more conservative traders may want to raise their stops. Our long-term target is $18.50.

- Current Positions -
Feb 23, 2011 - entry price on GT @ 13.50, option @ 1.90
symbol: GT1221A15 2012 JAN $15 call - current bid/ask $ 2.00/ 2.10

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 2.90/ 3.20

Chart of GT:

Current Target: $18.50
Current Stop loss: 11.75
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/19/11


Humana Inc. - HUM - close: 62.60

02/26 update: HUM continues to show relative strength. The stock spiked to $67.00 on Feb. 22nd following an analyst upgrade that morning. The rest of the market was plunging at that time so it was tough for HUM to hold on to those gains. Shares still managed to post a gain for the week but I am not suggesting new positions at this time. Our target to exit is the $69.00 mark. Currently we only have half a position open.

Please note our new stop loss at $55.90.

- Current (half) Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $11.40/12.50

02/26/11 New stop loss @ 55.90
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: 55.90
Play Entered on: 09/17/10
Originally listed on the Watch List 09/04/10


L-3 Communications - LLL - close: 79.95

02/26 update: Upward momentum in LLL has paused but the stock held up very well considering the market's sell-off last week. Shares are consolidating sideways on either side of the $80 level. I have been expecting a correction toward the $76-75 zone but I'm starting to think LLL might be able to break higher if the market resumes its up trend. I am not suggesting 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 $ 9.30/ 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: 65.12

02/26 update: MD only lost about 40 cents for the week. While the relative strength is encouraging I remain wary. The stock is testing resistance near $65-66 and it 30-dma. The 50-dma is also directly overhead. 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 $ 5.00/ 5.50

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

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: 26.55

02/26 update: The correction in MSFT continues. We have been expecting MSFT to pull back toward the $26.00 level and its 200-dma. I would wait for the dip near $26 or a bounce from this level before considering new bullish positions. I'm tweaking our stop loss and moving it from $25.90 to $25.75.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $3.15/ 3.25

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.07/ 2.16

02/26/11 Adjusted stop loss to $25.75
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: 25.75
Play Entered on: 10/18/10
Originally listed in New Plays on 10/16/10


U S G Corp. - USG - close: 16.89

02/26 update: USG quickly followed the market lower last week. Shares saw a high-volume plunge back toward prior support near $16.00. This support is holding but I'm somewhat reluctant to open new positions at this time. 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 $ 2.00/ 2.15

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 3.40/ 3.70

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: 66.52

02/26 update: WLP lost less than a dollar for the week. Traders bought the dip near $65.00 but volume has been light on the bounce. I don't see any changes from my prior comments. We have a stop loss at $62.45 and our final target to exit is $69.75.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 7.35/ 7.55

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


Watch

Banks and Solar

by James Brown

Click here to email James Brown
Editor's Note:

In addition to tonight's new watch list candidates there were several stocks that caught my eye. I'm still bullish on BA but I'm watching for a dip near $67.50 or a breakout past $76.00. KO might offer some opportunity here but bear in mind the stock does not normally move that fast. REG and O both have a nice bullish trend but they might make better covered-call plays than directional call or LEAPS plays. HSY is on my radar screen but I'm not seeing an entry point yet.


New Watch List Entries

KEY - KeyCorp

LDK - LDK Solar


Active Watch List Candidates

ATI - Allegheny Tech.

CACI - CACI International

Costco Wholesale - COST

FSLR - First Solar, Inc.

HSIC - Henry Schein Inc

JRCC - James River Coal Co.

MAT - Mattel Inc.

MON - Monsanto Co.

Teva Pharmaceuticals - TEVA


Dropped Watch List Entries

AKS, BEAV, BWA, C, CMP, EAT, and GT all made the jump from watch list to play list. NFX and UNH were dropped from the watch list.


New Watch List Candidates:

KeyCorp - KEY - close: 9.29

Company Info

KEY is a large bank that has seen its stock consolidate sideways for almost a year. Yet bigger picture the stock has a bullish trend of higher lows. I am suggesting we launch bullish positions on a dip at $8.60. Alternatively we can look for a breakout and close above round-number resistance at $10.00 as an entry point.

If we are triggered at $8.60 we want to use a stop loss at $7.85. Buy-the-Dip trigger: $8.60

BUY the 2012 January $10.00 call (KEY1221A10)

- or -

BUY the 2013 January $10.00 call (KEY1319A10)

Chart of KEY:

Originally listed on the Watch List: 02/26/11


LDK Solar Co. Ltd. - LDK - close: 14.09

Company Info

Investors continue to buy the dips in LDK and shares are building on a bullish trend of higher lows. Now the stock is facing significant resistance at the $15.00 level. A breakout here could herald the next leg higher. I am suggesting we use a trigger to open bullish positions at $15.55. If triggered our long-term targets are $19.75 and $24.50.

FYI: LDK is due to report earnings on March 29th but that date is not yet confirmed.

Breakout trigger: $15.55

BUY the 2012 January $17.50 calls (LDK1221A17.5)

- or -

BUY the 2013 January $20.00 calls (LDK1319A20)

Chart of LDK:

Originally listed on the Watch List: 02/26/11


Active Watch List Candidates:


Alleghney Technology - ATI - close: 66.36

02/26 update: ATI dipped toward $63 during the market's sell-off. Aggressive traders might want to consider new positions on the bounce. I am suggesting we stay put and wait for a pull back to $61.00. If triggered we'll use a 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


CACI International - CACI - close: 58.41

02/26 update: CACI only dipped to $56.00 before bouncing. I don't see any changes from my prior comments. 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


Costco Wholesale - COST - close: 73.57

02/26 update: COST has earnings coming up on March 2nd. I want to wait and see investor reaction to the news before we plan an entry point strategy.

Trigger to enter positions: temporarily removed.

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


First Solar, Inc. - FSLR - close: 155.72

02/26 update: FSLR reported earnings on Feb. 24th. The results were 4 cents better than expected but revenues were a miss. Management offered bullish guidance but investors are selling the news. The stock was downgraded following the earnings release. Currently we have a trigger to buy calls on a dip at $150.00. There is a chance that FSLR will dip toward support near $140 instead so readers may want to just take a step back and wait to see where FSLR finds support before initiating positions.

If we are triggered at $150.00 we'll use a stop at $139.00. Readers should consider this an aggressive, higher-risk trade. Our long-term target is $195.00.

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: 69.42

02/26 update: HSIC is showing relative strength. The stock only saw one serious down day last week and has been rebounding since. Shares look poised to breakout past $70 soon. I do not want to chase it here. I'm leaving our trigger at $63.50 for now but it's unlikely we will be triggered any time soon. (if triggered we'll use a stop at $59.40)

FYI: Aggressive traders may want to buy a dip near $67.00 and just adjust your stop loss higher.

Buy-the-Dip trigger: $63.50

BUY the 2011 Oct $65 call (HSIC1116J65) <-- new strike

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


James River Coal Co. - JRCC - close: 21.21

02/26 update: It is starting to look like JRCC will not hit the $20 level. Nimble traders may want to consider buying a breakout past $22.00 or its 50-dma near $23 instead. At the moment we'll leave our trigger at $19.25 but we may need to adjust it higher soon. If triggered we'll use a stop at $17.25. JRCC doesn't have LEAPS so we'll have to settle for 2011 September calls.

Buy-the-Dip trigger: $19.25

BUY the 2011 September $20 calls (JRCC1117I20)

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


Monsanto Co. - MON - close: 72.21

02/26 update: MON still looks vulnerable to more profit taking. We have a buy-the-dip entry point at $65.50 with a stop loss at $59.75.

Buy-the-Dip trigger: $65.50

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: 72.14

02/26 update: I am removing NFX from the watch list. The stock is seeing a huge bounce. Shares are unlikely to hit our trigger any time soon and I don't want to chase it at current levels.

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


Teva Pharmaceuticals - TEVA - close: 50.46

02/26 update: TEVA is inching closer and closer to our buy-the-dip entry point at $49.00. I would keep our position size small to limit our risk. If triggered we'll use a stop loss at $46.90.

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


UnitedHealth Group, Inc. - UNH - close: 42.84

02/26 update: I am removing UNH from our watch list. I'm still interested in trading it but it could take a while before shares consolidate toward support near $38.00. Readers will want to keep it on their radar screen. The stock might have just produced a bearish double top pattern. Our trigger to open positions was at $38.50.

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