Option Investor
Newsletter

Daily Newsletter, Sunday, 3/13/2011

Table of Contents

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

Leaps Trader Commentary

Losing Its Grip

by James Brown

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The market was battered by a number of different headwinds this past week. Oil, Libya, Saudi protests, and Japan all had an influence on stock prices. Thankfully oil prices retreated from their recent highs and yet gasoline prices here in the U.S. continued to creep higher, adding another nickel. Another positive was the day of rage protests in Saudi Arabia failed to materialize, which eased worries that the Middle East contagion would spread to the world's pivotal oil producer. Elsewhere protests continued in Bahrain and Yemen but investors overlooked these headlines. The civil war in Libya continues to burn. The U.S. and U.N. are considering a no-fly zone over Libya to prevent Kaddafi's forces from using the air. They'd better decide quickly seems recent headlines seem to show him making progress against the rebels. Investors were not completely immune to all of the volatility and fear. The VIX index inched higher and demand for last week's U.S. debt auctions of 10 and 30-year notes was very strong.

Last week the economic data was mixed. The initial jobless claims came in a little higher than expected but remained under the 400,000 mark. Another disappointment was the trade data. Strong U.S. exports was completely overshadowed by the surge in our deficit thanks again to high oil prices. One of the biggest disappointments was Friday's University of Michigan consumer sentiment survey. It was expected to drop from 77.5 in February to 76.5 in March. Instead the sentiment index plunged to 68.2. This was the lowest reading since October 2010 and Friday's report was the eighth largest drop since 1978. Consumer's attitudes are definitely being affected by surging gasoline prices and all the negative headlines in the news.

One of the biggest stories last week was Europe. Worries over Europe's debt crisis started to return and yields on debt for the PIIGS countries continued to climb, suggesting a lack of confidence in the EU's ability to handle this situation. Moody's downgraded Spain's credit rating and put them on outlook negative, which only highlighted the problem in Europe. However, there might be some good, if temporary, news on this issue. EU leaders met this weekend and agreed to offer more aid to their struggling members. Not only was the EU raising the amount of bailout money available but they were adjusting some of the terms. The loans to Greece were increased to 7.5 years from three years and the interest charged on these loans was lowered.

Technically the markets look pretty ugly. Thursday's drop inflicted a lot of damage to the charts. Yet we ended the week with the major averages clinging to support and possibly poised to bounce. On the S&P 500 the 1300 mark is psychological support but the intraday lows to watch are near the 1294 level. The S&P 500 did violate this low on Friday morning but rebounded. Friday's move could be nothing more than an oversold bounce so I would be very cautious this week.

If the S&P 500 does correct lower we can look for support near 1275. Personally I don't think it would hold that level. It might bounce at 1275 but I would expect a drop toward 1260-1250. A normal 38.2% Fibonacci retracement of the August-February rally would mean a pull back toward the 1227-1225 area, essentially back toward the prior resistance levels. Quite honestly a pull back to these levels might be healthy.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ Composite looks pretty ugly with the gap down on Thursday. The index violated the 2700 level on Friday morning before bouncing. Now its prior trend of higher lows and the 50-dma are overhead resistance. The NASDAQ-100 index (NDX) doesn't look any better. If we see the bounce in these indices fail near the 50-dma it could be a signal to sell. Looking at the composite, the 100-dma might offer some support but I wouldn't be surprised to see a correction toward the 2600 level.

Daily chart of the NASDAQ Composite index:

One of the worst developments last week was the sell-off in semiconductor stocks. Semis tend to lead the NASDAQ higher or lower and last week they accelerated lower. I warned readers when they broke their bullish channel in February. Now the SOX index has fallen toward support near 420 and its 100-dma. The group could see a bounce here but the path of least resistance is probably down.

Daily chart of the SOX semiconductor index:

The small cap index has also broken down from its bullish channel. I couldn't get a chart for the Russell 2000 index so I'm looking at the IWM ETF for the Russell 2000. You can see how the small cap index has broken support at its trend of higher lows and its 50-dma. It managed a bounce at its late February lows but the index appears poised for more declines. This doesn't bode well for the stock market and is another reason I might hesitate to launch new bullish trades.

Daily chart of the IWM Russell 2000 ETF:

Looking ahead we have another busy week of economic news and they're all concentrated into Tuesday, Wednesday and Thursday. The highlights of the week will probably be the New York Empire manufacturing survey for March, the import/export prices for February, the housing starts and building permits, the PPI for February, CPI for February, the Philly Fed survey and the initial jobless claims. The biggest event for the week on our economic calendar is the FOMC meeting on Tuesday, March 15th. Stocks just might churn sideways until we get to the Fed decision on Tuesday afternoon so investors can hear the latest statement before placing any new bets in the market.

Now that the "day of rage" protests for Saudi has passed by uneventfully the market might ignore, at least temporarily, the violence and unrest across North Africa and the Middle East. Now add the EU's decision this weekend to offer more support for their struggling members and that removes another worry for the market. The tragedy in Japan is definitely an issue. The country is struggling with thousands dead, even more still missing, and several nuclear energy plants at risk for a meltdown. Unless one of these nuke plants does see a full scale meltdown the impact of Japan on the U.S. markets might be muted. The earthquake-tsunami event failed to have much of an effect on Friday so I don't see why Japan would be an issue this week. In essence we have bearish technicals and trading action for the major averages yet many of the recent worries appear to be fading.

The question is will stocks finally lose their grip on the wall of worry and continue to slide lower? Or will investors concentrate on the trend of positive economic data in the U.S. and buy the dip?

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

It was a rocky week for stocks with the major averages breaking technical support on Thursday's sell-off. The lack of follow through lower on Friday offers a glimmer of hope for the bulls. Then again, if a civil war in Libya and the biggest earthquake Japan has ever seen in recorded history can't knock stocks lower, what will? The day or rage protests were a no-show. The U.S. continues to see strong economic growth.

Last week's volatility was enough to push CMP, FSLR and MSFT to our stop losses. Meanwhile ATI and TEVA graduated from the watch list to the play list.

WLP is the only stock with a new stop loss.

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

Turning Defensive

by James Brown

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Bristol-Myers Squibb Company - BMY - close: 26.41

Company Info

Why We Like It:
In times of market stress the drug and healthcare stocks used to be considered "safe haven" trades. That hasn't always worked out but recently shares of BMY have been holding up pretty well. In early March the stock rallied higher and broke through some key resistance levels. Now shares appear ready for a new leg higher in spite of the market's recent volatility.

I am suggesting bullish positions now or you could wait for dips into the $26.00-25.75 zone although $26.00 and the 200-dma should offer support. BMY does not move very fast. It could take several months before shares hit resistance at $28.00 and longer for BMY to hit our final target at $32.00. Investors might want to consider turning this trade into a calendar spread or vertical spread to maximize its potential.

NOTE: Cautious investors may want to avoid launching any sort of bullish positions right now, especially if the market does see a breakdown this week.

- Suggested Positions -
(we will fill in the entry price on Monday)

Mar 14, 2011 - entry price on BMY @ xx.xx, option @ x.xx
symbol: BMY1221A27.5 2012 JAN $27.50 call -
current bid/ask $ 1.12/ 1.16

- or -

Mar 14, 2011 - entry price on BMY @ xx.xx, option @ x.xx
symbol: BMY1319A27.5 2013 JAN $27.50 call -
current bid/ask $ 1.67/ 1.77

Chart of BMY:

Current Target: $32.00
Current Stop loss: 24.95
Play Entered on: 03/14/11
Originally listed in the New Plays 03/12/11


Play Updates

A Rocky Week

by James Brown

Click here to email James Brown

Editor's Note:

ATI and TEVA made the jump from watch list to play list.

-James


Closed Plays


CMP, FSLR, and MSFT were closed this past week.


Play Updates


Arch Coal Inc. - ACI - close: 32.48

03/12 update: It was a rough week for ACI as coal stocks continued to sell-off. We were expecting a dip to $34 but the pull back in ACI surpassed that level. Shares broke short-term support near $32 and its 100-dma to temporarily hit $31.39 on Friday morning. The action in ACI last week has created a huge bearish engulfing (reversal) candlestick pattern on the weekly chart. I am not suggesting new bullish positions and readers may want to raise their stop losses. Currently our stop is at $29.75.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.00/ 4.10

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.45/ 6.70

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: 29.75
Play Entered on: 11/22/10
Originally listed in the New Plays 11/20/10


AK Steel Holding - AKS - close: 15.46

03/12 update: AKS continued to drift lower most of the week. Suddenly shares surged +5.7% on Friday and broke its three-week trendline of lower highs. Steel stocks were showing lots of strength as investors bet the rebuilding of Japan will increase demand for steel and metals. I still see potential resistance in the $15.50-16.00 zone so I am not suggesting new positions at this time. Let's wait for a new close over $16.00 before we consider buying calls again.

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 $ 1.25/ 1.30

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 2.17/ 2.34

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: 118.82

03/12 update: The first half of the week was a quiet one for energy stocks. That changed on Thursday as oil-related stocks were hammered lower. APA broke down with a sharp plunge toward its 100-dma. The sector bounced on Friday but Thursday's decline inflicted a lot of technical damage to the charts. APA now has overhead resistance at $120.00 (and at $125). I am not suggesting new positions at this time. More conservative traders might just want to consider an early exit now since the path of least resistance might be down.

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 $ 6.35/ 6.55

- or -

Feb 28, 2011 - entry price on APA @ 123.49, option @ 14.50
symbol: APA1319A140 2013 JAN $140 call - current bid/ask $11.90/13.85

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


Allegheny Technology - ATI - close: 64.17

03/12 update: ATI was on our watch list with a trigger to buy calls on a dip at $61.00. The stock gapped open lower on Thursday at $60.78, opening our trade. Traders bought the dip in a big way on Friday with a +5.0% gain. This big move was probably a reaction to the damage in Japan. Investors believe the rebuilding efforts could raise demand for steel and metals.

If you missed the entry point in the $61-60 zone I'd probably wait for a dip near $62.50-62.00 as an entry point. Our long-term targets are $75 and $85.

- Suggested Positions -
Mar 10, 2011 - entry price on ATI @ 60.78, option @ 6.40
symbol: ATI1221A70 2012 JAN $70 call - current bid/ask $ 7.40/ 7.70

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $11.20/12.80

Chart of ATI:

Current Target: $75.00, and $85.00
Current Stop loss: 55.75
Play Entered on: 03/10/11
Originally listed on the Watch List: 02/05/11


BE Aerospace Inc. - BEAV - close: 34.29

03/12 update: The rebound in BEAV has stalled thanks to market weakness. Shares have been unable to shake off the bearish trend of lower highs. Readers may want to wait for a close over $36.00 or its 50-dma before initiating new bullish positions.

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 $ 2.60/ 2.80

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: 85.30

03/12 update: BRK.B spent the last week consolidating sideways. The larger trend is still very bullish. Depending on your own personal style you could look to buy dips near $82 or wait for a new close over $86 as a potential entry point. (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 $ 4.70/ 4.85

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: 43.53

03/12 update: BVN also experienced a rough week. Shares plunged on Thursday and broke down under its 200-dma. Traders did buy the dip on Friday but the short-term trend still looks bearish. BVN might retest support near $40.00 again. I'd wait for a dip or a bounce near $40.00 before considering new bullish positions.

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 $ 1.20/ 1.40

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: 74.66

03/12 update: BWA weathered the recent market volatility pretty well but Friday saw shares fall toward its late February support near $74.00. A breakdown here and the stock would probably test $70 pretty quickly. I am not suggesting new bullish positions at this time.

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. 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 $ 3.60/ 4.40

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: 4.57

03/12 update: Thus far C has managed to hold support near the $4.50 level. Readers may want to go ahead and initiate positions here. Otherwise we can wait and see if shares fall closer to their 200-dma, which is nearing $4.30. 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 $ 0.36/ 0.37

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.70/ 0.71

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


Canadian Natl. Railway Co. - CNI - close: 74.40

03/12 update: CNI spent the week bouncing sideways in the $73-75 zone but shares still posted a gain for the week. Railroad stocks have continued to hold up well and the industry seems poised for further gains. I'd probably look for a dip near the rising 30 or 50-dma as our next bullish entry point. 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 $ 3.50/ 3.90

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: 42.93

03/12 update: We are not seeing a lot of movement in DIS. Shares churned sideways in the $43.50-42.00 zone last week. I am still expecting a dip toward the 50-dma or the $40.00 level. 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 $ 5.75/ 5.90

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.35/ 7.85

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: 24.79

03/12 update: An analyst upgrade last week helped push EAT to new three-year highs. The stock looks poised for a dip toward $24 again. I'd wait for dips near the 50-dma before considering new bullish positions. 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 $ 1.95/ 2.15

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: 14.36

03/12 update: A week ago I warned readers that we might see another buy-the-dip entry point near $14.00 and its 200-dma. Sure enough Ford spent a good portion of the week testing support near $14.00. Shares actually gapped open lower on Friday at $13.90 before bouncing. I remain bullish on the stock but readers might want to seriously consider waiting for shares to close above short-term technical resistance at the 10-dma (currently near $14.50) first or wait for a close above $15.00 before initiating positions.

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 $ 1.63/ 1.65

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.18/ 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: 60.54

03/12 update: Ouch! It was a rough week for FISV. Shares broke through the 50-dma on Monday, failed near the 50-dma on Tuesday and Wednesday, and broke down under the $60.00 mark on Thursday. Friday's bounce was encouraging but FISV technicals have definitely soured. Now FISV has some overhead resistance in the $61-62 region. FISV should have support at its 100-dma and the $58.00 level but if the major market indices actually breakdown from current levels I would not bet on these levels in FISV holding. More conservative traders may want to raise their stop s toward the $59.00 area. I am not suggesting new positions at this time.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.20/ 2.40

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: 138.22

03/12 update: In spite of ongoing violence in Libya and the day of rage protests planned for Saudi on Friday, the price of gold was slowly drifting lower. When the Saudi protests failed to show up the price of gold initially moved lower on Friday but managed to rebound. The highs in early March could be a short-term top. I wouldn't be surprised to see the GLD correct back toward the $135-134 zone. I am not suggesting new bullish positions at this time.

Prior comments:
Our April put, which we bought as a hedge against a sudden drop in gold, will probably expire worthless. 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 $14.55/14.75

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.21/ 0.23

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: 14.98

03/12 update: It has been a very good week for GT. Traders bought the dip again near $13.25 and the stock has formed a double bottom there. The rally got another boost on Friday thanks to an analyst upgrade. Shares of GT are now testing its February highs and resistance near $15.00. I am not suggesting new positions at this time. More conservative traders may want to move their stop loss near the $13 level. 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 $ 2.60/ 2.75

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 3.50/ 3.90

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: 64.45

03/12 update: It was a very quiet week for HUM with the stock consolidating sideways. Shares still look a little bit overbought. I wouldn't be surprised to see a correction toward $60 but HUM is still building a trend of higher lows. 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 $12.50/13.30

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: 79.68

03/12 update: Nothing has changed for our LLL play. The consolidation inside the $78-81 range is now past is fifth week. Nimble traders might consider bullish positions on a breakout past $81 (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 $ 9.20/ 9.50

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: 66.55

03/12 update: MD has now spent about a week and a half trading sideways in the $86-88 zone. One strong week would be enough for MD to hit our target at $69.50. 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/ 6.30

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


Teva Pharmaceuticals - TEVA - close: 49.11

03/12 update: TEVA has made the jump from our watch list to our play list. Shares came close to hitting $49.00 earlier in the week but didn't actually trade at $49.00 until Friday. Normally pharmaceutical stocks are seen as safe-haven trades in times of market duress so I'm a little surprised at TEVA's recent weakness. The stock should find support in the $49-48 zone. While our play is open you might want to wait on new entries. We could see a dip toward the December lows near $48.50 soon and use that as an entry point to buy calls. The short-term trend is down so more conservative traders may want to wait for TEVA to break this trend. A close over $50.00 could work as an alternative entry point. I would keep our position size small to limit our risk.

- Current Positions -
Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 2.40
symbol: TEVA1221A55 2012 JAN $55 call - current bid/ask $ 2.34/ 2.46

- or -

Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 3.35
symbol: TEVA1319A60 2013 JAN $60 call - current bid/ask $ 3.00/ 3.40

Chart of TEVA:

Current Target(s): $56.00 & 62.50
Current Stop loss: 46.90
Play Entered on: 03/11/11
Originally listed on the Watch List: 01/29/11


U S G Corp. - USG - close: 16.93

03/12 update: USG has now spent over two weeks consolidating sideways above support near $16.00. I don't see any changes from my prior comments. 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 $ 1.90/ 2.05

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 2.95/ 3.60

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: 67.98

03/12 update: WLP almost hit our target last week. Shares rallied to $69.56 on Wednesday. Our target to exit is $69.75. More conservative traders may want to take profits now. The stock eventually closed almost unchanged on a weekly basis. I am raising our stop loss to $64.75. 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 $ 8.50/ 8.65

03/12/11 New stop loss @ 64.75
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


Compass Minerals - CMP - close: 87.18

03/12 update: The market sell-off last week was too much for shares of CMP. Shares hit our stop loss at $87.00 on March 7th. Now the stock is trying to bounce from support near $85.00. 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 - Exit @ $2.90 (-38.2%)

03/07 Stopped out @ 87.00, Option @ -38.2%

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


First Solar, Inc. - FSLR - close: 139.74

03/12 update: Our aggressive buy-the-dip (correction) in FSLR trade did not pan out. The stock has now seen a correction from $175 to $137 (-21.7%). Shares are nearing their 200-dma. Unfortunately our trade was stopped out at $139.00 on Thursday.

Prior Comments:
Readers should consider this an aggressive, higher-risk trade.

- Suggested Positions -
Feb 28, 2011 - entry price on FSLR @ 150.00, option @ 16.20
symbol: FSLR1221A170 2012 JAN $170 call - Exit @ $11.00 (-32%)

- or -

Feb 28, 2011 - entry price on FSLR @ 150.00, option @ 25.35
symbol: FSLR1319A180 2013 JAN $180 call - Exit @ 16.25 (-35.8%)

03/10 Stopped out @ 139.00, Options @ -32% & -35.8%

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


Microsoft Corp. - MSFT - close: 25.75

03/12 update: It has been an ugly six weeks for MSFT and shares hit our stop loss at $25.75 on Monday, March 7th. At this point MSFT is very oversold but I'm not sure where it would bounce. The $25.00 mark could be psychological support but MSFT has been sliding lower through support levels for weeks.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - Exit @ $2.65 (-19.6%)

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - Exit @ $1.80 (-21.7%)

03/07/11 Stopped out @ $25.75, Options @ -19.6% & -21.7%
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


Watch

Teetering at Support

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market is on the edge of a cliff. The major indices are teetering at key support levels. If the market breaks down it could begin a multi-week correction lower. If that happens we'll be looking at more buy-the-dip (correction) type of strategies. This could be a pivotal week for the market. Let's step back and see what happens. No new watch list candidates tonight.


New Watch List Entries

None, no new watch list candidates


Active Watch List Candidates

CACI - CACI International

Costco Wholesale - COST

HSIC - Henry Schein Inc

JRCC - James River Coal Co.

KEY - KeyCorp

MON - Monsanto Co.

SMG - Scott's Miracle Gro


Dropped Watch List Entries

ATI and TEVA graduated to the play list. LDK was removed.

Active Watch List Candidates:


CACI International - CACI - close: 58.26

03/12 update: CACI has continued to fail near resistance at $60.00 and shares appear to be correcting lower. Right now we have a buy-the-dip entry point at $56.50 with a stop loss at $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

BUY the 2011 September $60 calls (CACI1117I60)

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


Costco Wholesale - COST - close: 72.55

03/12 update: COST is in no man's land between resistance in the $75-76 zone and support near $70 (or lower). I am suggesting a new trigger to buy a breakout higher. We'll set our entry point to buy calls at $76.00. The all-time high is just under $75.50. If triggered we'll start with a stop at $69.95.

Buy-the-breakout trigger: $76.00

BUY the 2012 January $80 calls (COST1221A80)

- or -

BUY the 2013 January $85 calls (COST1319A85)

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


Henry Schein Inc. - HSIC - close: 67.49

03/12 update: HSIC appears to be correcting lower. If the stock can dip toward the $65-64 zone then we might reconsider buying calls on the dip. Otherwise we'll keep our 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).

Prior Comments:
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.

- Very Small Positions -

Buy-the-breakout trigger: $70.55

BUY the 2011 Jul $75 call (HSIC1116G75)

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


James River Coal Co. - JRCC - close: 20.50

03/12 update: It was a very volatile week for JRCC. The company reported earnings on Monday morning. The stock went from $20 to tag $24 by Tuesday intraday. Yet JRCC gave back all of its gains. Currently we have a buy-the-dip entry point at $19.25 (near the 200-dma) but if JRCC does hit our trigger we want to keep our position size pretty small to really limit our risk. 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


KeyCorp - KEY - close: 9.08

03/12 update: We are waiting for a correction toward the $8.50 area. 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: 10.64

03/12 update: Solar energy stocks have just gotten hammered lately. LDK is plunging lower. The stock is nearing potential support at the $10.00 level (and its 200-dma near $9.60). Aggressive traders may want to buy calls on a dip near $10.00. Our breakout trigger at $15.55 may not get hit for a long time so I am dropping LDK as a candidate.

We are removing LDK as a candidate.

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


Monsanto Co. - MON - close: 67.51

03/12 update: MON saw some pretty strong profit taking this past week. On Friday the stock gapped open lower at $65.62 before bouncing higher. I don't see any changes from my prior comments. Currently I'm suggesting a trigger to buy call LEAPS at $65.50. Readers could wait and see if shares dip toward $64.00 instead and use that as an entry point. If we are triggered at $65.50 I am suggesting a stop loss at $59.90 and we want to keep our position size small to limit our risk.

Buy-the-Dip trigger: $65.50 (SMALL POSITIONS)

BUY the 2012 January $70 calls (MON1221A70)

- or -

BUY the 2013 January $75 calls (MON1319A75)

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


Scotts Miracle Grow Co. - SMG - close: 55.91

03/12 update: SMG continues to hold up well. The stock managed to hit new relative highs last week. There is no change from my prior comments. The old 2007 high is $57.45. 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

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