Option Investor
Newsletter

Daily Newsletter, Sunday, 3/6/2011

Table of Contents

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

Leaps Trader Commentary

Sweet Spot or Overbought

by James Brown

Click here to email James Brown

Are you seasick yet? The last couple of weeks have definitely seen an increase in market volatility. Investors are reacting to conflicting headlines between violence in Libya and the Mideast, strong economic data in the U.S., and spiking oil prices. Tuesday's big drop was alleviated by Thursday's rally - the best one-day gain in the markets in three months.

The rumors midweek that Libya's Gaddafi had accepted a peace plan proved to be false. The White House is calling for Gaddafi to step down, which is unlikely to happen as the country of Libya has apparently fallen into a state of civil war. Over the weekend the pro-Gaddafi forces found success in their attacks on nearby rebel-held cities while the rebels were successful in their push toward the oil-production areas of the nation. Meanwhile violence and protests are picking up again in the countries Yemen and Bahrain.

The big headline on Friday was the U.S. non-farm payrolls report. Expectations for this report had been rising on a weekly basis and by Friday economists were looking for a gain of +178,000 jobs in February. The headline number came in at +192,000. It was slightly better than expected but much lower than the +220K to +250K whisper numbers that had been circulating last week. Overall the U.S. did see a gain of +250,000 jobs thanks to upward revisions in December and January.

The government's (U3) unemployment rate fell from 9.0% to 8.9%, a surprise bonus but this was largely due to a drop in the participation rate of the labor force. If you stop looking for work the government doesn't count you as part of the labor force. The total unemployment rate or U6 rate is still at 16.7%. Another concern inside Friday's jobs report was the lack of improvement in the average hours worked and average hourly pay. Both of these were flat. Normally we want to see these statistics rising as a precursor to more permanent hiring by businesses.

In addition to the jobs number the factory orders for January released on Friday was better than expected. Earlier in the week we also saw positive news for February vehicle sales, which rose to the highest levels since August 2008. The ISM figures were outstanding. The ISM manufacturing survey rose to its highest level since May 2004 and the ISM services index rallied to its best levels since August 2005. The parade of economic data remains very, very positive. More than once this week I heard analysts talking about how businesses (and stocks) are in the "sweet spot" with an accommodative FOMC, rising earnings, and improving economic growth. Overall expectations for 2011 remain pretty bullish. Everyone seems to be worried about 2012 as the year stocks and the economy will struggle.

That does not mean it will be smooth sailing in 2011. Thus far investors have been pretty accepting of higher oil prices. Brent crude oil futures hit $116 a barrel on Friday. The WTI contract is nearing $105 a barrel. Yet if oil continues to climb or remains elevated we could see a real problem. The huge jump in oil has produced a 30-cent rise in gasoline prices in the last two to three weeks. 30-cents a gallon has a HUGE impact on how much money U.S. consumers have available for other purchases. The average price at the pump is around $3.35 a gallon right now. There are certain parts of the country that are already paying close to $4.00 a gallon. Gas is on the rise overseas as well with fuel in the United Kingdom near $8.00 a gallon. A recent Bloomberg article listed gasoline in the U.K. at 1.30 pounds (about $2.10) a liter, with more than 80 pence of this in taxes. With 3.78 liters in a gallon that's $7.94 a gallon. Eventually higher oil and fuel prices will have a negative impact on consumer spending, which is widely quoted as 70% of the U.S. economy. Unfortunately, I do not know what the magic number is for the price of oil that will finally spark the sell-off and reversal in stocks. For the moment the stock market's (and oil's) trend remains higher.

Last week the S&P 500 index retested technical support near the 1300 level and its rising 40-dma. The index also tested short-term resistance and failed near the 1330 area. The battle lines are pretty clear. I'm looking at 1330 and 1350 as resistance overhead. 1300 and 1275 as support on the way down. Honestly, if we see the S&P 500 close under the 1300 mark I believe this would portend a much deeper correction in stocks. If that were to happen we could see the S&P 500 drop toward 1250 or 1225. A pull back near 1225 would line up pretty closely with a normal 38.2% Fibonacci retracement of the rally off the August lows. I want to repeat that I'm not predicting a correction that low but if the market breaks down that could be a downside target. On the upside if the S&P can get past the 1350 level then we're looking at the 1400 level as the next major milestone with a pause or two along the way.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite found support at its rising 50-dma this past week. It also failed at short-term resistance near 2800 again. The trend of higher lows is still bullish but momentum indicators are naturally waning. Now the February high near 2840 will probably be resistance. If the rally continues then the NASDAQ could try and hit the 2007 high near 2860. There are plenty of levels where the NASDAQ might find support if the market rolls over but the key levels for me are the 2600 area and the 2540 zone.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The semiconductor sector garnered some positive analyst comments last week. Overall the general trend is still higher for this key sector. Yet technically the up trend is in jeopardy. The bottom of its prior bullish channel is now resistance but this doesn't mean the group can't continue to climb.

Daily chart of the SOX semiconductor index:

Not much has changed for the small cap Russell 2000 index. Investors continue to buy the dips, which is very encouraging but I will point out that some of the longer-term momentum oscillators are naturally starting to waver and roll over. Technically the $RUT has found support near its 50-dma and the index looks poised to rally higher. Yet there is short-term resistance near 840 and long-term resistance in the 850-855 zone. It could take a while for the Russell 2000 to chew through resistance near the 850 area.

Daily chart of the Russell 2000 index:

Weekly chart of the Russell 2000 index:

The surge higher in oil prices has taken its toll on the transportation sector. High fuel costs can crush the airline industry and it certainly hurts the truckers. No one is immune but the railroads are probably the most efficient with their fuel costs, moving more freight per gallon of gas, and thus far the rails are holding up reasonably well (look at a chart of the Dow Jones Railroads Index: DJUSRR). If the transportation index fails it will likely drag the rails down with it. Furthermore, Dow Theory followers believe that we can't have a sustained market rally without this group and a breakdown here could herald a steeper correction in the wider market.

On a short-term basis the transports produced a bearish reversal two weeks ago but did not see any follow through lower. The oversold bounce has failed at technical resistance near the 30 and 50-dma. A move back above the 5100-5150 zone might alleviate fears of a sell-off in the transports. Whether you trade stocks in this group or not it remains a sector to watch.

Daily chart of the Dow Jones Transportation index:

Weekly chart of the Dow Jones Transportation index:

Looking ahead the economic calendar is a lot lighter than last week. The two biggest events are probably the weekly initial jobless claims and the Michigan Sentiment figures for March. On a positive note the weekly initial jobless claims have come in under the 400,000 mark for three out of the last four weeks and is expected to come in at 382,000 this week. This is a positive trend. In economic news we will also hear the wholesale inventory number, trade balance figures, February's retail sales numbers, and January's business inventories.

Unfortunately the biggest "event" this week will probably be the widely anticipated "Day of Rage" protests in Saudi Arabia scheduled for Friday, March 11th. Iraq had a day of rage protest in February. Yemen held their day of rage on Tuesday. The global markets are mostly focused on Saudi's "day of rage" because they are the world's key oil producer. The Saudi government has banned all forms of protests ahead of this event and plan on having thousands of security forces and police ready to quell any uprising. Meanwhile crude oil prices are unlikely to retreat until after this day has pasted.

Oil prices and the ongoing violence across the Mideast will remain in the spotlight this week. Rising oil prices have preceded any recession here in the U.S. If oil doesn't retreat soon we will hear more and more analysts raising concerns about a slowdown in what has turned into a very healthy (albeit slow job growth) recovery.

This week is also the two-year anniversary of the 2009 bear-market low. It will be interesting to hear if the main stream media chooses to put a bearish or bullish spin on this anniversary. Last week I pointed out that the S&P 500 has seen its fastest +100% gain ever off the 2009 lows. Historically you could argue that stocks are overbought and due for some profit taking. Yet bulls will claim that the market is in the "sweet spot".

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The major market indices are starting to see more volatility. Normally markets get volatile at tops and bottoms so traders need to turn a little bit more defensive here. Consider raising your stops or trading in smaller positions. We had one stock, FSLR, make the jump from the watch list to play list this week.

We have new stop losses for ACI and MD.

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

Cautiously Bullish

by James Brown

Click here to email James Brown

Editor's Note:

Every day there are new headlines about the rising price of oil, unrest and violence in the Middle East and North Africa. Thus far investors have been able to shrug off most of the negative news in favor of strong economic data in the U.S. Yet how long can this continue? Eventually oil and gasoline prices will start to have an impact on consumer spending.

The market's trend is up and traders continue to buy the dips but I am growing more cautious on stocks. There is a chance that the market consolidates sideways for a while. That would not surprise me this week with the "day of rage" protests scheduled for Friday in Saudi Arabia. The market might hold its breath until after Friday, March 11th to see what happens.

We do want to respect the trend and that trend is higher but do so carefully. I am not adding any new bullish plays tonight since we have seen our play list grow considerably in the last couple of weeks.


Play Updates

Healthcare Surges, Gold Hits New High

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Arch Coal Inc. - ACI - close: 35.99

03/05 update: Coal stocks were trending higher last week. ACI broke out from its two-month consolidation but the rally paused near its January highs. I would expect a dip back toward the $34 area. Volume was improving on the rally. I would be tempted to buy calls on another bounce from $34.00. Please note our new stop loss at $29.75.

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 $ 5.95/ 6.10

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 8.30/ 8.95

03/05/11 New stop loss @ 29.75
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: 15.52

03/05 update: Hmm... there was a mix of bullish and bearish analyst comments on the steel names last week. Shares of AKS really didn't move much and consolidated sideways. Yet on a very short-term basis the stock has a bearish trend of lower highs. At this point I'd rather buy calls on a rally past the $16.40-16.50 zone. 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 $ 1.21/ 1.26

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 2.12/ 2.29

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


Apache Corp. - APA - close: 122.62

03/05 update: APA is our new play from last weekend. The stock opened stronger at $123.49 on Monday only to plunge during Tuesday's market decline. Traders bought the dip on Wednesday at $119.04, which is somewhat consistent with the pattern of higher lows. Traders were still buying the dip on Friday. I would still consider new bullish positions now at current levels.

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 @ 123.49, option @ 8.00
symbol: APA1221A140 2012 JAN $140 call - current bid/ask $ 7.45/ 7.65

- or -

Feb 28, 2011 - entry price on APA @ 123.49, option @ 14.50
symbol: APA1319A140 2013 JAN $140 call - current bid/ask $14.20/15.55

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


BE Aerospace Inc. - BEAV - close: 35.50

03/05 update: So far so good. Technical support near the exponential 200-dma and the long-term trend of higher lows is holding up. BEAV garnered some supportive analyst comments earlier in the week too. Shares were seeing an oversold bounce late in the week. It's probably not too late to consider bullish positions but there is a chance BEAV will retest the $34.50-34.00 zone again. Shares do have short-term overhead resistance at $36.00 and its 50-dma.

If you do open new positions I would buy the October calls.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 3.00/ 3.50

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: 85.50

03/05 update: Shares of BRK.B did indeed rally following its better than expected earnings news last weekend. Bullish comments from the company's founder, Warren Buffett, did not hurt. The stock saw some profit taking but found support near the $85.00 level. I would seriously consider new long-term positions here. (FYI: 2013 calls are available)

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.75/ 4.95

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: 46.06

03/05 update: Gold and silver were surging to new highs and yet shares of BVN stalled. The stock appears stuck in the 445-48 range. I am 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 $ 2.10/ 2.35

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: 77.75

03/05 update: It turned out to be a relatively quiet week for BWA in spite of all the market volatility. Shares were consolidating sideways under resistance near the $78 level. Yet BWA continues to see a bullish pattern of higher lows. This would suggest the stock is poised to break out higher soon. I do not see any changes from my prior comments.

Prior Comments:
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.

- Current Positions -
Feb 23, 2011 - entry price on BWA @ 74.00, option @ 4.20
symbol: BWA1116G80 2011 JUL $80 call - current bid/ask $ 4.60/ 5.40

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: 4.54

03/05 update: It looks like the correction in C is not over yet. We got several more chances to buy the dip near the $4.60 level. Then on Friday shares of Citigroup and Goldman Sachs were both downgraded by Bank of America over worries about their Q1 results. C reacted with a -2.99% loss and a breakdown under its 100-dma to new two-month lows. I would now expect a drop toward $4.40 and possibly its 200-dma (near $4.25). If we actually see Citigroup trade down into the $4.40-4.25 zone I would buy it (or call LEAPS). We have a stop loss at $4.19.

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 $ 0.37/ 0.39

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.73/ 0.74

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: 90.45

03/05 update: The action in CMP is not very inspiring. Quite honestly the stock looks poised to breakdown. I will point out that CMP has not yet broken its bullish trend of higher lows. Thurs this dip near $90.00 could be used as a new bullish entry point.

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 $ 3.80/ 4.10

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


Canadian Natl. Railway Co. - CNI - close: 73.86

03/05 update: Transportation stocks have struggled with the sharp rise in oil prices. Yet the railroad stocks have been somewhat immune to the effect of oil. That won't last forever if oil continues to climb but right now there appears to be no fear oil in many of the railroad charts. Shares of CNI opened at $72.39 on Monday and the stock closed at new all-time highs by Friday. Readers can open positions now or wait for a dip anywhere in the $72.00-70.00 zone. Our long-term target is $89.00.

- Suggested Positions -
Feb 28, 2011 - entry price on CNI @ 72.39, option @ 2.90
symbol: CNI1221A80 2012 JAN $80 call - current bid/ask $ 3.20/ 3.50

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


Walt Disney Co. - DIS - close: 43.55

03/05 update: DIS continues to show resilience but the stock is struggling with resistance near the $44 level. Bigger picture I would still look for a correction toward $40 eventually. 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 $ 6.15/ 6.25

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.75/ 8.00

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

03/05 update: Nothing has changed for us with EAT. The stock actually closed unchanged on the week as well. I would consider new bullish positions now or you can wait for a breakout past the $25.00 level. Our stop loss is at $20.95. Our exit target is $29.50. FYI: If you open new positions I would prefer the October calls 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/ 1.55

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


Ford Motor Co - F - close: 14.42

03/05 update: The major U.S. automakers reported strong vehicle sales figures this past week. Yet that didn't stop shares of F from slipping to new relative lows and breaking short-term support near $14.50 and its exponential 200-dma. Rival GM also broke down to new lows under its IPO price.

A week ago I suggested that we buy call LEAPS in Ford if we see a dip near $14.00 and its 200-dma. It looks like that could happen soon and I would still consider new positions now at current levels.

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 @ 15.29, option @ 2.17
symbol: F1221A15 2012 JAN $15 call - current bid/ask $ 1.66/ 1.68

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.21/ 1.25

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


Fiserv, Inc. - FISV - close: 61.47

03/05 update: Be careful here. FISV has been underperforming. Shares slipped to technical support near the rising 50-dma on Friday. A close under the 50-dma would be bearish but nimble traders could look to buy a dip or bounce near $60.00, which should be round-number support. More conservative traders will want to seriously consider raising their stop loss closer to the $60.00 level. I am somewhat reluctant to open new positions at this time.

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 $ 2.50/ 2.80

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


First Solar, Inc. - FSLR - close: 146.57

03/05 update: We anticipated that FSLR would see a post-earnings sell-off. Shares did indeed hit our buy-the-dip trigger at $150.00, which occurred on Feb. 28th. What we did not anticipate was all the confusion over new regulations in Italy over that country's solar power incentives. The headlines regarding Italy kept a lid on solar energy names this past week. Shares of FSLR were stuck in the $145-150 zone.

We currently have a stop loss at $139.00. More aggressive traders may want to put their stop under the simple 200-dma near $135.00. I suspect that FSLR would hold at support near $140 and after this past week the $145 level might be new support. Readers have a choice. I would either wait for a dip near $140.00 as our next bullish entry point or wait for a new rally back above the $150.00 level as a bullish entry point.

Prior Comments:
Readers should consider this an aggressive, higher-risk trade. Our long-term target is $195.00.

- Suggested Positions -
Feb 28, 2011 - entry price on FSLR @ 150.00, option @ 16.20
symbol: FSLR1221A170 2012 JAN $170 call - current bid/ask $14.10/14.50

- or -

Feb 28, 2011 - entry price on FSLR @ 150.00, option @ 25.35
symbol: FSLR1319A180 2013 JAN $180 call - current bid/ask $18.75/23.15

Chart of FSLR:

Current Target: $195.00
Current Stop loss: $139.00
Play Entered on: 02/28/11

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


SPDR Gold ETF - GLD - close: 139.35

03/05 update: Escalating violence in Libya and protests in the Mideast have helped lift gold prices to new all-time highs. The GLD hit a new high at $140.55 on March 2nd. The commodity has been steadily marching higher since its late January low. While the GLD is short-term overbought the trend is very much higher. Silver has actually been outperforming gold by a significant margin with silver surging to new 30-year highs.

Big picture the path of least resistance for gold is still higher. I wouldn't be surprised to see some profit taking but nothing to serious. I am not suggesting new bullish positions at this time.

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.

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 $16.80/17.35

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.15/ 0.17

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

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: 13.68

03/05 update: GT spent the week consolidating sideways. It looks like shares might test the $13.00 level, which readers could use as an entry point to launch new positions. 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 $ 1.80/ 1.90

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 2.80/ 3.10

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: 64.56

03/05 update: Shares of HUM spiked toward its recent highs early in the week thanks to an analyst upgrade. The trend is higher and more conservative traders may want to raise their stop loss. 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.

- Current (half) Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $12.60/13.50

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: 79.20

03/05 update: LLL has now spent four weeks consolidating sideways in the $78-81 range. If the stock breaks out past $81 it should herald the next leg higher and move toward $90. I am not suggesting new positions at this time but nimble traders may want to reconsider new positions on a close over $81.00 (with a tighter stop, of course). Our final target is $89.00.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 8.80/ 9.10

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: 67.06

03/05 update: It's been a bullish week for MD. The stock broke through resistance near $66.00 and its 50-dma. The next level of significant resistance should be the $70.00 level. Our final target to exit is $69.50. Please note our new stop loss at $62.40. 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 $ 5.40/ 6.60

03/05 New stop loss @ 62.40
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: 25.95

03/05 update: Uh-oh! The situation does not look good for MSFT. We have been expecting a correction lower toward $26.00 and its simple 200-dma for a long time. Yet the stock seems to be accelerating lower. Shares actually closed under $26.00 and under its 200-dma on Friday. The intraday low was $25.80 and our stop is at $25.75. If there is any follow through lower on Monday we will get stopped out. I am not suggesting new 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 $2.76/ 2.81

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $1.76/ 1.84

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.

Chart of MSFT:

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: 16.83

03/05 update: USG delivered a quiet week. Shares were consolidating sideways near short-term resistance at $17.00. I remain cautious on USG at this time and reluctant to opening bullish positions. 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 $ 1.95/ 2.05

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 3.20/ 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: 67.99

03/05 update: Healthcare names have been showing relative strength. WLP got a boost thanks to an upgrade midweek. The stock hit $69.41 on Thursday. Our final exit target is $69.75. More conservative traders may want to go ahead and lock in a profit now. I am not suggesting new positions at this time.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 8.30/ 8.50

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

Chart of WLP:

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

Sprouting New Highs

by James Brown

Click here to email James Brown

Editor's Note:

Tonight's new candidate has broken out to new multi-year highs after a four-month consolidation.


New Watch List Entries

SMG - Scott's Miracle Gro


Active Watch List Candidates

ATI - Allegheny Tech.

CACI - CACI International

Costco Wholesale - COST

HSIC - Henry Schein Inc

JRCC - James River Coal Co.

KEY - KeyCorp

LDK - LDK Solar

MON - Monsanto Co.

Teva Pharmaceuticals - TEVA


Dropped Watch List Entries

FSLR graduated to the play list.


New Watch List Candidates:

Scotts Miracle Grow Co. - SMG - close: 55.74

Company Info

On a short-term basis SMG looks like a bullish candidate right now. The breakout past resistance near $55.00 is bullish. After a four-month consolidation sideways the stock is ready for another leg higher. However, the old 2007 high was $57.45, just a couple of points away. I am suggesting we wait for a breakout to a new all-time high. Let's use a trigger at $58.00 to open small bullish positions. If triggered at $58.00 we'll use a stop at $53.75. Nimble traders could look for an alternative entry point on a dip near the bullish trendline of higher lows (currently a dip near $53.00 would suffice). We want to keep our position size small to limit our risk. SMG doesn't have LEAPS so we'll have to buy September calls.

Breakout trigger: $58.00

BUY the September $60 calls (SMG1117I60) current ask $2.25

Chart of SMG:

Originally listed on the Watch List: 03/05/11


Active Watch List Candidates:


Alleghney Technology - ATI - close: 65.43

03/05 update: ATI is still consolidating sideways. Aggressive traders might want to buy dips near $63 or a breakout over $67. I am suggesting we wait for the dip at $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: 59.87

03/05 update: CACI has tested resistance near $60.00 three times and shares look poised to breakout higher soon. Aggressive traders might want to consider small bullish positions on a breakout. I don't want to chase it here. We will adjust our buy-the-dip entry point to $56.50 and adjust our stop loss to $52.45. 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: $56.50 <-- new trigger

BUY the 2011 September $60 calls (CACI1117I60)

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


Costco Wholesale - COST - close: 72.81

03/05 update: COST experienced some volatility last week with another failed rally at $75.00 and s sell-off on its earnings report. The earnings results were okay. Profits were in-line with estimates while revenues beat expectations. On a short-term basis the stock looks vulnerable. I'm still cautious about launching new positions. I want to wait another week and see what happens. Nimble traders could look at support near $70 or wait for a breakout over $75.00. Officially we don't have an entry point yet.

Trigger to enter positions: temporarily removed.

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


Henry Schein Inc. - HSIC - close: 69.56

03/05 update: We have been waiting and watching for a correction back toward support but it does not look like HSIC is going to cooperate. Shares are consolidating under resistance at $70.00 and the stock is poised to breakout higher. I am concerned that HSIC is still very overbought and due for a correction but that doesn't mean shares can't run to $80 first in the meantime. I am changing up our strategy. Instead of waiting for a dip we will buy calls on a breakout higher. Please note this is an aggressive strategy for us and the option spreads are a little wide. Thus we want to keep our position size VERY small to really limit our risk but still participate if HSIC does breakout.

We'll use a breakout trigger at $70.55. If triggered we'll use a stop loss at $65.75. Our upside target is $79.75. I am suggesting the July calls (not the Octobers).

- Very Small Positions -

Buy-the-breakout trigger: $70.55 <-- new trigger

BUY the 2011 Jul $75 call (HSIC1116G75) <-- new strike

Chart of HSIC:

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


James River Coal Co. - JRCC - close: 20.25

03/05 update: JRCC is underperforming its peers in the coal sector. That should make investors cautious. Currently our plan is to launch positions on a dip at $19.25 (near technical support at the 200-dma). More conservative traders may want to remove their triggers and wait to see how the market reacts to JRCC's earnings report due out sometime in the next week (date unconfirmed, estimated March 7th-11th).

If we are triggered at $19.25 we'll use a stop loss 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


KeyCorp - KEY - close: 9.26

03/05 update: There is almost no change in the price of KEY from last week and I see no changes from my prior comments. 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)

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


LDK Solar Co. Ltd. - LDK - close: 12.57

03/05 update: Solar stocks have struggled as the industry tries to decipher the recent regulatory changes in Italy, a growing section of the solar energy market. Investors have taken a sell-first ask questions later approach. LDK reversed at $15.00 and is now testing its 50-dma. Aggressive traders might want to buy a dip near $12.00. I am suggesting we wait for the breakout with a trigger 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)

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


Monsanto Co. - MON - close: 73.06

03/05 update: MON has now bounced twice near the $69.00 level. This could be new support. Yet MON still looks vulnerable. Readers might want to consider buying a breakout past $76.00. I would rather wait for a correction. We'll keep our buy-the-dip entry point at $65.50 for now.

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


Teva Pharmaceuticals - TEVA - close: 50.32

03/05 update: TEVA has been consolidating sideways near the $50 level. Aggressive traders could initiate positions now. I am suggesting we stick to our plan to buy a dip 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