Option Investor
Newsletter

Daily Newsletter, Sunday, 3/20/2011

Table of Contents

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

Leaps Trader Commentary

The Ides of March

by James Brown

Click here to email James Brown

It has been an interesting week, that's for sure. This is one year where investors should have heeded the warning, "beware the ides of March!" The world has been extremely focused on the situation in Japan. The country has been struggling to keep one of its earthquake-damaged nuclear reactors from melting down. Fortunately the situation seems to be improving after they were able to get a power line to the station and start using some of the plant's cooling pumps. It would appear, at this time, the situation is contained or at least getting closer. Yet new headlines of contaminated food and milk in the surrounding area could raise fears that the exposure was a lot worse than the Japanese government disclosed. The Japan story isn't over yet.

Meanwhile the situation in Libya's civil war has done an about face. While the U.N. argued over how and what their assistance to the Libyan rebels might be, Qaddafi was quickly pressing his attack and it looked like he would be able to quash this rebellion through sheer force of arms before the U.N. could make up its mind. When the Arab league finally voted to approve a no-fly zone over Libya, the U.N. followed up with their own vote to enforce a no fly zone to protect Libyan civilians. The moment that headline crossed the wires, Qaddafi announced a ceasefire. Yet secretly he continued to fire artillery at rebel outposts and rebel held cities. French, British, and Canadian war planes started attacking Libyan airspace and tanks while the U.S. fired over 100 tomahawk missiles into the country to take out key anti-aircraft weapons and radars. Qaddafi is calling this a new war of the "crusaders" against an Arab country and promises a long fight. According to the New York Times, the defiant dictator has resorted to using hundreds of human shields, who claim to have volunteered to stay at Qaddafi's compound, to prevent Western nations from bombing it.

The Libyan conflict forces the markets to keep an eye on the global oil supply. Libya's oil output could be significantly damaged for months to come. Meanwhile violence against protestors in other Arab nations is growing. Protestors have been killed in Bahrain, Yemen, and now Syria. These three countries are not big oil producers but investors fear the social "contagion," as it has been called, could spread to Saudi Arabia, the world's pivotal oil producer. It was big news two weeks ago when the markets feared the day of rage protests would ignite a revolution in Saudi but the protestors failed to show up in mass (if at all). Earlier in the month the Saudi king offered about $35 billion in handouts to his people, which is an attempt to keep them pacified. It seems to be working for now.

Oil prices have been volatile the last few weeks and that probably won't change any time soon. This week could see more volatility since the current month futures contract expires on Tuesday. The falling U.S. dollar, which broke down to new 52-week lows, supports rising commodity prices. One of the major stories this past week was a coordinated effort to stop the soaring Japanese Yen. Normally unilateral action by the Bank of Japan to sell yen only has a temporary effect on the currency markets but they are hoping that a coordinated effort by the G7 countries will have more impact. A rising yen would be very damaging for Japan's crucial export businesses.

Closer to home the Federal Reserve announced on Friday that it was allowing some banks to raise their cash dividends and/or stock buyback programs. Previously the 19 banks forced by the feds to do a stress tests could not raise dividends. The new rules allow the banks to raise their payout ratio up to 30% of the company's 2011 earnings. This is a big vote of confidence by the Fed since it means the balance sheets for these banks had improved to a much healthier state. While the announcement was widely expected it still buoyed financial stocks on Friday. Several banks announced higher dividends and several more said they plan to raise dividends later in the year.

Looking at the U.S. market's major indices it was an ugly week. I warned readers a week ago that I expected the S&P 500 to drop toward the 1260-1250 zone. The index fell to 1249 intraday on Wednesday. Stocks saw an oversold bounce off this support level but now broken support at 1300 is new overhead resistance.

There are plenty of traders who want to buy stocks on the dip but there is so much uncertainty the correction may not be over yet. If we see a bearish reversal near the 1300 level it could herald a much deeper decline. I'm still looking at a potential drop toward the 1225 area. Or worse case the 1200 level, which will soon be underpinned by the simple 200-dma. A drop toward 1225 or 1200 could definitely be a new bullish entry point.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

Last week I cautioned readers that the NASDAQ composite might see a correction to the 2600 level. Sure enough that is where the index fell to on Wednesday (low 2603). Now the oversold bounce is struggling with the 100-dma as resistance. If the bounce were to continue the NASDAQ could see resistance at 2700 and its 50-dma. I am concerned about the NASDAQ because big cap tech names have not seen a strong bounce. Instead they look vulnerable to more selling. A -10% correction for the NASDAQ would be a drop near the 2550 area. Part of the concern here could be the effect of Japan's earthquake ravaged manufacturing facilities. Investors are worried that the global supply chain could be disrupted for everything from electronic components to automobiles and more.

Daily chart of the NASDAQ Composite index:

Some of the semiconductor stocks could definitely be affected by the supply chain issues related to Japan. The sector fell to new 2 1/2 month lows before bouncing. The SOX could definitely see more of a bounce but there is plenty of resistance overhead.

Daily chart of the SOX semiconductor index:

The small caps might offer a little bit of hope. Unlike its big cap peers the small cap index did not break its 100-dma. While the short-term trend is still down a close over the 800 level (80 level on the IWM) would be encouraging. Of course a reversal near the 80(800) level could mean the correction has farther to go.

Daily chart of the IWM Russell 2000 ETF:

This coming week we have new and existing home sales data. The durable goods orders come out on the 24th. The next Q4 GDP estimate is released on Friday the 25th. We'll also hear the final Michigan consumer sentiment numbers for March. All in all it's kind of a quiet week. The GDP estimate is unlikely to change much. The market's focus will likely be on Japan, Libya, the Mid East, oil futures, and the currency markets.

Short-term the stock market is in no man's land. It has seen a bounce off support but it is nearly in the middle between support and resistance. We don't know yet if last week was a bottom or if the correction has farther to go. Big picture the strength of the U.S. economic recovery is improving and that is bullish for the market. Yet looking ahead I am very concerned about the May-June time frame. Not only will the Federal Reserve's QE2 program expire in June but Spain and Portugal will need to roll over nearly 20 billion euros worth of debt.

The expiration of QE2 in June could be a huge event. Right now the Fed is buying about 70% of the U.S.'s new debt. Who is going to step in and buy that debt when the Fed's program ends? If private money doesn't step in then demand for U.S. bonds will plunge, forcing yields sharply higher, which will push interest rates higher. While no one expects the Fed to do a QE3 they could probably issue some sort of extension on QE2 but that's just kicking the can down the road. In the meantime, assuming the situation in Japan, North Africa, and the Middle East cools down, then the markets will probably return their attention to the debt problems of Europe.

I'm optimistic for April and the first part of May but my crystal ball is pretty hazy on late May and June. The tone of the market could change again if corporate earnings, which start in April, come out strong. A wave of positive earnings guidance and forecasts could do wonders for investor sentiment.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

It was a rocky week for stocks. The S&P 500 plunged toward support near 1,250. The NASDAQ dipped toward the 2600 level. The Dow Industrials fell under the 11,600 mark intraday. While equities are seeing an oversold bounce there is no guarantee the correction is over. Investors should stay defensive consider all the uncertainties in the market. Japan's nuclear troubles, new developments in the Libyan civil war, and growing violence occurring at Mid East protests are all potential stumbling blocks for stocks. Hopefully the Japan situation will show improvement soon. The U.N.'s involvement might speed up situation in Libya for better or for worse. We'll have to wait and see how that pans out.

We did see APA hit our stop loss last week. KEY and MON graduated from the watch list to our play list. HUM has 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

Eye on Energy

by James Brown

Click here to email James Brown

Editor's Note:

We want to keep an eye on the energy space. The rally in oil may not be over. Wall Street is still nervous about the unrest across North Africa and the Middle East. We've got the U.N. getting involved with the Libyan civil war. We have protestors getting shot in Bahrain, Yemen, and now Syria. These three countries are not significant oil producers but they are neighbors to countries that are oil producers. The Saudi government is literally trying to buy time with billions in handouts for its people to keep them pacified. Plus, there are elections for Nigeria this year, which is a major exporter of light, sweet crude oil.

Meanwhile coal, natural gas, and solar stocks all showed some relative strength this past week as investors pondered the future of nuclear energy thanks to Japan's struggles to keep their earthquake-damaged reactors from melting. I am somewhat concerned that the rally in the oil sector is getting pretty long in the tooth. If you look at charts of the OIX oil index and OSX oil services index they look way overbought and due for a correction. Of course you can bet there are traders praying for a pull back so they can buy the dip in these oil stocks.

One stock I strongly considered adding tonight was Southwestern Energy Co. (SWN). Shares just broke out over major resistance at the $40.00 mark. The rally this past week was fueled by strong volume, which is normally a bullish signal. I'm just a little hesitant to chase it after a +14% rally in six days, especially when the stock market has been so volatile and the market's short-term trend remains in doubt.

Wall Street is facing a lot of cross winds tonight with the situation in Japan, the situation in Libya, and the Middle East. I'm praying the story in Japan has a happy ending and they can cool off their reactors before they see a complete meltdown. A successful resolution to Japan's nuclear troubles would be bullish for the market. However, if the stock market wants to go down it will find a reason. No new plays tonight.


Play Updates

Drugs Disappoint

by James Brown

Click here to email James Brown

Editor's Note:

Safe haven trades were hard to find last week. The drug sector disappointed. Even gold failed to do much during the market's sell-off.

Meanwhile, KEY and MON made the jump from our watch list to active play list.

-James


Closed Plays


APA has been closed.


Play Updates


Arch Coal Inc. - ACI - close: 34.47

03/19 update: Good news! There was no follow through lower on ACI's bearish reversal pattern created two weeks ago. Some of the coal stocks bounced and ACI rallied from support near $32 and its 100-dma. Yet shares remain inside the $32-36 trading range. I am not suggesting new bullish positions at this time.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 5.15/ 5.25

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 7.65/ 7.85

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: 15.27

03/19 update: The bounce in AKS has stalled at resistance near $16.00. I warned readers last week that this level could be trouble. If the market pulls back again AKS could retest the $14.50 area or its 200-dma. I am still suggesting we wait for a close over $16.00 before considering new bullish positions. FYI: If AKS can show some strength the stock might see some short covering. The most recent data listed short interest at 15% of the float.

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 $ 1.16/ 1.21

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 2.06/ 2.23

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


Allegheny Technology - ATI - close: 60.88

03/19 update: There has been no follow through on last Friday's bounce. Instead ATI spend the week slowly consolidating lower and testing support near $60.00. While I would still be tempted to buy calls near $60.00 readers may want to wait for ATI to break this bearish trend of lower highs. A move past $63.50 or the 50-dma should suffice. If the stock market correction continues then odds are good that ATI will fall toward the $58-57 zone. Remember that we have a stop at $55.75. 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 $ 5.90/ 6.10

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $10.10/11.60

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: 33.25

03/19 update: It has not been a good week for BEAV. Shares continue to build a bearish trend of lower highs and lower lows. The path of least resistance is definitely down. The only good thing is that BEAV is currently testing technical support near its simple 200-dma. Of course a breakdown here would be even more bearish. This past week's low was $32.53. More conservative traders may want to raise their stops closer to the $32.50 level. At the moment our stop loss is at $31.49. I am not suggesting new bullish positions at this time but a close over $34.25 or the $35.00 mark might change my mind.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 1.95/ 2.30

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


Bristol-Myers Squibb Company - BMY - close: 25.73 03/19 update: Wow! BMY came incredibly close to hitting our stop loss last week. The idea that drug stocks would be a safe haven play did not hold true for BMY this past week. BMY opened on Monday at $26.14 and managed to bounce from technical support at its simple 200-dma during that session. Unfortunately the very next day (3/15) shares gapped open lower and plunged past short-term support near $25.80. Wednesday saw the sell-off continue and BMY fell to new multi-month lows. The stock slipped to $24.97 and our stop loss is at $24.95. Thankfully the market has produced a two-day bounce and BMY is participating. Shares are up +3% off recent low. On a short-term basis BMY is now facing resistance at $25.80 and the 200-dma near $26.00. I am not suggesting new bullish positions at this time but a close over $26.00 might change my mind.

Our long-term targets is $32.00. Investors might want to consider turning this trade into a calendar spread or vertical spread to maximize its potential.

- Suggested Positions -
Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.13
symbol: BMY1221A27.5 2012 JAN $27.50 call - current bid/ask $ 0.87/ 0.92

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 1.41/ 1.57

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


Berkshire Hathaway - BRK.B - close: 83.48

03/19 update: The big event for Berkshire this week was the Monday announcement the company was buying Lubrizol Corp. (LZ) for $135 a share. BRK.B really didn't react much to the news on Monday. Shares did see a sell-off Tuesday and Wednesday but managed to find support above its simple 200-dma on Wednesday near $81. A week ago I suggested readers consider buying calls on dips near $82. If you missed that entry point you might want to wait for a new close over $85 before considering new positions.

Readers might want to raise their stops closer to the $80.00 level.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.00/ 4.20

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: 42.59

03/19 update: BVN spent the week consolidating sideways in a neutral pattern of higher lows and lower highs. The stock should have support near $40.00 and it appears to have resistance in the $44-45 zone. I am not suggesting new bullish positions at this time.

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

- Current Positions -
Jan 5, 2011 - entry price on BVN @ 45.00, option @ 3.90
symbol: BVN1119F50 2011 JUN $50 call - current bid/ask $ 0.90/ 1.15

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: 74.45

03/19 update: BWA experienced some volatility last week with a drop toward support near $70.00. Thankfully traders bought the dip at $70.07 on March 15th. The next day when the S&P 500 plunged lower BWA held up reasonably well. BWA's bounce from $70.00 could be used as a new bullish entry point. However, shares still have a short-term bearish trend of lower highs. I'd probably wait for a close over $76.00 or its 30-dma before considering new bullish positions.

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 $ 3.10/ 4.10

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: 4.50

03/19 update: Financials helped lead the bounce higher but the group was not immune to the sell-off early in the week. Citigroup spent a few days testing the $4.40 zone. This bounce to $4.50 almost looks like a new bullish entry point but C still has a short-term bearish trend of lower highs.

If you believe the market has put in a new bottom then this is an entry point. If you believe the correction is not over yet then I would wait for C to dip near its 200-dma around the $4.30 level. 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 $ 0.31/ 0.32

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.66/ 0.69

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: 72.99

03/19 update: CNI just provided us another entry point. A week ago I suggested looking for a dip near the rising 30 or 50-dma as a chance to buy calls again. CNI dipped to its 30-dma on March 15th. Shares almost hit their 50-dma on March 16th. Now the bounce has already filled the gap down from Tuesday morning. Big picture the trend is still up. If you missed the dip I wouldn't worry. There is a pretty good chance that CNI will retest the $71-70 zone again. I would still consider positions on a dip near the 50-dma. More conservative traders may want to raise their stops closer to the $70 level. 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: 41.23

03/19 update: We have been expecting DIS to dip toward support near $40.00. The low last week was $40.42. The correction may not be over yet. The $42.00 level is now new short-term resistance. 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 $ 4.75/ 4.80

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 6.55/ 7.00

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: 23.97

03/19 update: Previously I suggested buying dips near the rising 50-dma. That might occur soon. EAT managed to bounce from the $23.50 level twice this past week. More conservative traders may want to wait for EAT to break through the short-term trend of lower highs before initiating positions (a move over $24.50 should work). 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 $ 1.40/ 1.60

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: 14.49

03/19 update: It turned out to be a volatile week for Ford. Shares chopped sideways on either side of its 200-dma. There was some worry that the earthquake damaged plants in Japan might affect the global supply chain in manufacturing everything from electronics to automobiles. Ford acts like it's ready to bounce. At this point I would wait for a move past $14.85 or the $15.00 mark before considering new bullish positions.

FYI: Ford garnered some positive analyst comments and a $19 price target this past week.

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 $ 1.73/ 1.77

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.18/ 1.24

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: 60.02

03/19 update: FISV only lost 52 cents for the week but it was a bumpy ride. The stock broke down under its 100-dma and dipped toward support near $58.00 before bouncing. Friday's rally (+1.5%) appears to have broken the short-term bearish trend of lower highs. I am a little bit reluctant to buy this bounce with overhead resistance near the 50-dma and the $62-64 zone. Let's wait a few more days and then re-evaluate.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 1.85/ 2.05

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: 138.37

03/19 update: Normally a weaker dollar is bullish for gold but the GLD closed virtually unchanged for the week (+15 cents). There was a popular belief that investors were selling their winners (like gold) to cover losses and make margin calls on their other positions that were suffering due to the market's correction. The GLD did recover off its lows and this ETF appears to be building what looks like a bull-flag pattern. If that is the case then a breakout from this bull flag would forecast a rally toward the $148 area.

Short-term traders might want to buy calls on a move past $141. I am not suggesting new long-term 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 $15.00/15.25

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.14/ 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: 14.82

03/19 update: GT spent the week consolidating sideways. I don't see any changes from my prior comments. 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 $ 2.50/ 2.65

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 3.50/ 3.80

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: 64.91

03/19 update: HUM posted a gain on the week thanks to Friday's pop higher. Friday's move was fueled by an analyst upgrade who gave the stock a $77 price target. HUM had been consolidating sideways for over two weeks so Friday's rally might spark a new leg higher. Please note our new stop loss at $58.49.

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 $12.60/14.40

03/19/11 new stop loss @ 58.49
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


KeyCorp - KEY - close: 8.92

03/19 update: KEY has made the jump from our watch list to our play list. Our plan was to open bullish positions on a dip at $8.60. KEY came close to hitting the $8.60 level a few times last week but didn't actually hit this level until Thursday morning. The stock promptly rallied off this low.

Friday morning saw new relative strength in the banking sector after the Federal Reserve announced their approval that the 19 U.S. banks in their stress tests would be allowed to raise their cash dividends due to stronger balance sheets. Friday morning KEY announced plans to issue a secondary offering of stock valued at $625 million to pay off the rest of their TARP loan from the federal government. KEY's board of directors also announced that they might raise their cash dividend in the second half of 2011. Shares of KEY spiked higher on the news, hitting $9.43 intraday, before paring its gains.

I would still consider new long-term positions now. However, there is a chance, that as the secondary offering news circulates, that KEY will correct and retest the $8.60, possibly the $8.40 area. You could decide to wait and buy a dip near $8.60 again. Now that our play is open we have a stop loss at $7.85. Our long-term targets are $12 and $14.

- Current Positions -
Mar 17, 2011 - entry price on KEY @ 8.60, option @ 0.87
symbol: KEY1221A10 2012 JAN $10 call - current bid/ask $ 0.83/ 0.93

- or -

Mar 17, 2011 - entry price on KEY @ 8.60, option @ 1.35
symbol: KEY1319A10 2013 JAN $10 call - current bid/ask $ 1.13/ 1.43

Chart of KEY:

Current Target(s): $12.00, 14.00
Current Stop loss: 7.85
Play Entered on: 03/17/11
Originally listed on the Watch List: 02/26/11


L-3 Communications - LLL - close: 78.54

03/19 update: We have been expecting a correction in LLL for weeks now. Shares finally dipped toward $76 and its exponential 200-dma during the market's slide. LLL's bounce back has stalled near the gap down. I would not be surprised to see LLL retest the $76-75 zone again. No new bullish positions at this time. 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 $ 8.60/ 8.90

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: 64.20

03/19 update: MD spent most of last week consolidating sideways in the $66-64 area. While short-term support at $64.00 is holding MD has developed a bearish trend of lower highs suggesting the stock will breakdown soon. The next levels of support are $62 and $60. More conservative traders may want to exit early now to avoid or minimize any losses. I am not suggesting new bullish positions at this time. Our final target remains $69.50.

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

- Current Positions -
Feb 03, 2011 - entry price on MD @ 60.33, option @ 3.60
symbol: MD1120H65 2011 AUG $65 call - current bid/ask $ 4.00/ 4.80

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


Monsanto Co. - MON - close: 67.84

03/19 update: The world's demand for food is growing every day. Long-term MON should have a bullish forecast. Short-term the stock saw a correction. We have had MON on our watch list for a long time. Shares finally hit our buy-the-dip entry point at $65.50 on March 15th. The stock is bouncing from support in the $64-65 zone but MON has short-term resistance near the $69-70 area. We might see another entry point if MON retests the $65 level soon. We currently have a stop loss at $59.90, which is under the simple 200-dma. Our plan was to keep our position size small to limit our risk since MON can be so volatile at times. Our long-term targets are the $85-90 zone.

- Current (SMALL) Positions -
Mar 15, 2011 - entry price on MON @ 65.50, option @ 6.75
symbol: MON1221A70 2012 JAN $70 call - current bid/ask $ 7.45/ 7.65

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 8.90/ 9.25

Chart of MON:

Current Target(s): $85.00
Current Stop loss: 59.90
Play Entered on: 03/15/11
Originally listed on the Watch List: 01/08/11


Teva Pharmaceuticals - TEVA - close: 47.89

03/19 update: The correction in TEVA has been a little bit steeper and faster than expected. Nor has the drug sector been much of a safe haven for investors. TEVA broke down past its December lows and almost hit its July lows near $47.00. TEVA tagged a low of $47.30 last week and the short-term trend is still down. There is still a good chance that TEVA could hit the $47.00 level. I want to give TEVA a little bit more room to maneuver so we will lower our stop loss from $46.90 to $45.90. I'd hate to see a little intraday spike under $47.00 close our play and then have TEVA rally on us.

I would still be tempted to buy calls on a dip close to $47.00. Otherwise we may want to wait for a new close over $49 or $50 before considering new positions. We want to 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 $ 1.81/ 1.88

- or -

Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 3.35
symbol: TEVA1319A60 2013 JAN $60 call - current bid/ask $ 2.50/ 2.88

03/19 New stop loss at $45.90

Chart of TEVA:

Current Target(s): $56.00 & 62.50
Current Stop loss: 45.90
Play Entered on: 03/11/11
Originally listed on the Watch List: 01/29/11


U S G Corp. - USG - close: 15.78

03/19 update: Watch out! We are at significant risk of getting stopped out in USG. The stock has been fading lower all week and closed under the $16.00 level. Shares are trying to hold support at the 100-dma. The stock dipped to $15.51 at its worst levels last week. Our stop loss is at $15.45. I am not suggesting new positions at this time.

- Current Positions -
Dec 20, 2010 - entry price on USG @ 15.25, option @ 1.50*
symbol: USG1221A20 2012 Jan $20 call - current bid/ask $ 1.45/ 1.70

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 2.65/ 3.40

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: 66.65

03/19 update: WLP has been bouncing around the $65-68 zone. Many of the stock's short-term technicals have turned bearish. I would expect a pull back toward $65 and its 50-dma, possibly lower. More conservative traders may want to exit early now. We have a stop loss at $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 $ 7.55/ 7.75

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: 64.75
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


CLOSED Plays


Apache Corp. - APA - close: 120.11

03/19 update: It was a volatile week for APA. Shares dipped toward $113 at its worst levels of the week. Our play was stopped out at $114.75 on March 15th. The 2012 $140 calls were trading near $5.85 and the 2013 calls were trading near $11.30.

Feb 28, 2011 - entry price on APA @ 123.49, option @ 8.00
symbol: APA1221A140 2012 JAN $140 call - Exit @ $5.85 (-26.8%)

- or -

Feb 28, 2011 - entry price on APA @ 123.49, option @ 14.50
symbol: APA1319A140 2013 JAN $140 call - Exit @ $11.30 (-22%)

03/15 Stopped out @ $114.75, Options @ -26.8% & -22%

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


Watch

Long-Term Support

by James Brown

Click here to email James Brown
Editor's Note:

The entry point strategy has been adjusted on HSIC and JRCC.

I seriously considered bullish positions on Hershey Co. (HSY). The stock has been somewhat resistant to the market's recent weakness. After spending months in the $45-52 zone HSY has finally broken out. A couple of my concerns are the stock doesn't move that fast, which isn't necessarily a bad thing, and I'm wondering if we might get a better entry point down the road. Looking at the long-term, multi-year chart of HSY it appears the stock might have resistance near $57.50, $60, and $65. Here's a chart of HSY:

Weekly Chart of HSY:


New Watch List Entries

PCAR - PACCAR Inc.


Active Watch List Candidates

CACI - CACI International

Costco Wholesale - COST

HSIC - Henry Schein Inc

JRCC - James River Coal Co.

SMG - Scott's Miracle Gro


Dropped Watch List Entries

KEY and MON graduated to the play list.


New Watch List Candidates:

PACCAR Inc. - PCAR - close: 48.46

Company Info

PCAR has corrected back down toward its long-term bullish trendline of support. It's make it or break it time. A bounce back above resistance at $50.00 and its 200-dma could spark some short covering and launch the next leg higher.

I am suggesting a trigger to buy calls at $50.75. We should expect a little resistance near $52.50-53.00 and the $55.00 levels. Our long-term target is $64.50. If triggered at $50.75 we'll use a stop loss at $46.25.

If looks like PCAR must have had some sort of special dividend to create these odd strike prices. Instead of a normal $55.00 strike price PCAR has $54.70 strikes.

Breakout trigger: $50.75

BUY the 2012 Jan. $54.70 call (PCAR1221A54.7)

- or -

BUY the 2013 Jan. $54.70 call (PCAR1319A54.7)

Daily Chart of PCAR:

Weekly Chart of PCAR:

Originally listed on the Watch List: 03/19/11


Active Watch List Candidates:


CACI International - CACI - close: 58.60

03/19 update: CACI posted a minor gain for the week but essentially churned sideways under short-term resistance at $59.00. Currently our plan is to buy calls on a dip at $56.50 with a stop loss at $52.45. However, we might want to consider buying a breakout past the $60.00 level. 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: 70.66

03/19 update: The market's recent sell-off has dragged COST down toward support near $70 and its 100-dma. Short-term traders could buy this dip with a tight stop and look for a bounce back toward $75 but the 50-dma in the $72.50 area is probably short-term resistance. Currently our plan is to wait for a breakout past $75.00 and use a trigger at $76.00 to open bullish positions. 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: 66.50

03/19 update: We are adjusting our entry point strategy on HSIC. Instead of waiting for a breakout past $70.00 we will look for a dip to $62.50 instead. Use a trigger at $62.50 and if we're triggered we'll use a stop loss at $58.75, under the 200-dma. FYI: HSIC does not have LEAPS and the spreads on the October options are still very wide. Let's use the July $65 calls.

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.

- Very Small Positions -

Buy-the-dip trigger: $62.50 <-- New Trigger

BUY the 2011 Jul $65 call (HSIC1116G65) <- New Strike

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


James River Coal Co. - JRCC - close: 23.76

03/19 update: Coal stocks saw a rally last week as investors pondered the future of nuclear energy thanks to Japan's struggles to stop a meltdown. Shares of JRCC surged from support near $20.00 to $24.00. The stock looks short-term overbought here and I would expect a pull back.

We are going to adjust our entry point strategy. It looks like the $20.00 level is going to hold up better than previously expected. We will adjust our entry point strategy to buy calls on JRCC to $22.00 and use a stop loss at $19.45. Our long-term target is $29.50. We do want to keep our position size small to limit our risk. JRCC doesn't have LEAPS so we'll have to settle for 2011 September calls.

Buy-the-Dip trigger: $22.00 <-- New Trigger

BUY the 2011 September $25 calls (JRCC1117I25) <- New Strike

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


Scotts Miracle Grow Co. - SMG - close: 56.19

03/19 update: SMG continues to look healthy. The stock was resistant to profit taking and held support in the $55 area. Aggressive traders may want to buy calls now but otherwise 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. 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