Option Investor
Newsletter

Daily Newsletter, Sunday, 3/27/2011

Table of Contents

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

Leaps Trader Commentary

Five Percent in Two Weeks

by James Brown

Click here to email James Brown

One thing we can say about the stock market lately is that it has not been boring. However, I can probably sum things up for you in one sentence. Investors are ignoring bad news and continue to buy stocks due to stronger fundamentals in the U.S. and global recovery. On a short-term basis stocks are in rebound mode and are likely to continue higher thanks to end of quarter window dressing.

Worries over Japan have subsided substantially but the country continues to struggle with one of its damaged nuclear reactors and radiation levels have been rising. The Japanese have quietly been evacuating more and more people away from the power plant. Meanwhile worries over Europe's debt problems seem to be fading even as Portugal slips closer and closer to a debt default. Portugal's government has not been able to pass the needed austerity measures and there is a growing expectation the country will need a bailout. Fortunately, investors seem to be shrugging this off given that the EU has been prepping for another bailout with its rescue funds. Yields on debt for the PIIGS countries has been rising, suggesting some unease by investors but that hasn't stopped a bounce in the European stock markets.

Back at home in the U.S. the strength of our economic recovery is showing a few bruises. The durable goods orders came in weaker than expected. The University of Michigan consumer sentiment figures slipped lower than estimated. Existing home sales and prices continue to fall. New home sales have plunged to the lowest level on record. The only positive headline was the final Q4 GDP estimate getting revised higher from +2.8% to +3.1% growth.

Commodity prices remain a concern. Oil is the first one that comes to mind. The conflict in Libya will likely disrupt that country's oil exports for months to come and oil has rallied back over $100 a barrel. Furthermore there is bickering among NATO allies over what exactly the no-fly zone over Libya really means. Do they or don't they target Gaddafi? How much support do they provide the rebels? Who's in charge of the Libyan offensive? Rumors that Al-Qaeda fighters have joined the resistance against Gaddafi probably makes Western nations uneasy.

Elsewhere in the middle east violence continues to rise. Demonstrations and protests in Syria, Yemen, and Bahrain are growing bloody. Everyone is extremely worried that if this revolution hits Saudi Arabia we could be in serious trouble since Saudi is the world's swing oil producer. At the moment the Saudi population has been pacified with billions in handouts. If the price of precious metals is any indication then investors are definitely nervous. Silver futures rallied to a new 30-year high at $38.18 an ounce. Gold futures hit a new all-time high at $1,448.60 an ounce on an intraday basis.

Looking at the U.S. markets the rebound in stocks has been impressive. The S&P 500 is up +5% off its mid March lows near 1,250. The close over resistance near 1,300 and its 50-dma is bullish. Yet +5% in two weeks is a bit much and stocks may have gone from oversold to overbought. The S&P 500 looks like it may have broken the trendline of lower highs (see chart) but I wouldn't be surprised to see this index dip back and retest support near the 1300 level again. Overhead there is resistance near 1330 and the February highs near 1344 - might as well call it 1350.

Daily chart of the S&P 500 index:

The NASDAQ composite has also seen a +5% rebound from its March lows. The close over the 2700 level is bullish but the index seems to be stalling near its 50-dma and its trend of lower highs (see chart). On a positive note many of the big cap tech stocks that led the NASDAQ higher for much of 2010 appear to have reversed higher this past week. There is plenty of disagreement over how much Japan's disaster will impact today's "just in time" supply chains but from the look of this bounce in stocks the optimists seem to be winning.

Daily chart of the NASDAQ Composite index:

Micron's (MU) bullish earnings report a couple of days ago fueled a strong bounce in the semiconductor sector. While the group seems to be bouncing there is definitely overhead resistance for the SOX index. A failed rally in the SOX might be an early warning signal for the NASDAQ.

Daily chart of the SOX semiconductor index:

The small cap Russell 2000 index has produced a +6% rebound off its March lows. The 830 level was resistance in late February and early March and that's where the rally stalled on Friday. If this rally continues the $RUT is not that far away from new three-year highs. A breakout past the 840 level could herald a new leg higher. However, odds are good the $RUT will see some profit taking first before we see it rally past the 840 level. Then again we don't know how strong the end of quarter window dressing might be.

Daily chart of the IWM Russell 2000 ETF:

Weekly chart of the IWM Russell 2000 ETF:

This coming week has a lot of economic reports. The big headlines will probably come from the consumer confidence numbers, ADP employment report, the Chicago PMI, ISM index, and the nonfarm payrolls (jobs) report for March. The confidence numbers come out on March 29th. ADP is out on the 30th. The Jobs report is out on Friday, April 1st. Economists are estimating +185,000 new jobs with private payrolls rising +203,000.

Looking at the big picture I don't see any changes from my comments last week. The end of QE2 in June and Spain and Portugal's debt auctions in June could cause a lot of turmoil for the stock market. Prior to that the Q1 earnings season that begins in mid April will either provide more fuel for the rally to begin its next leg higher or it could sap the strength of this bull market if corporate guidance is too cautious. On a short-term basis we have four trading days left before the first quarter ends on March 31st. Odds are stocks will continue to drift higher throughout the remainder of the month and into the first few days of April.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The bulls have become expert climbers as they navigate the market's wall of worry. There has been plenty of opportunity for the market to cave into external shocks but thus far investors are focused on the bullish fundamentals of U.S. and global growth.

WLP hit our profit target to exit on Friday at $69.75.

EAT, F, GT, and LLL also had their stop losses updated.

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

Looking Ahead

by James Brown

Click here to email James Brown

Editor's Note:

The last two weeks have produced a sharp rebound in stocks. The major averages are back above important resistance levels. Yet I don't see anything as a must-buy right now kind of trade. On a short-term basis stocks will probably continue to drift higher as mutual funds window dress their portfolios into the quarter end March 31st on Thursday.

Bigger picture the mid to late June time frame is pretty hazy as the Fed winds down their QE2 program. I'm starting to wonder if the markets will see another correction come July. For now the market's trend is up and I remain optimistically bullish here. Q1 earnings season will begin in mid April and offer a lot more clarity on corporate earnings and guidance going forward. The earnings results will either renew the market's rally or halt it.

Overreaction to earnings news in April could also provide some new entry points so I'm not in a rush to load up on candidates. No new trades tonight.


Play Updates

Wellpoint Hits Our Target

by James Brown

Click here to email James Brown


Closed Plays


WLP hit our profit target.


Play Updates


Arch Coal Inc. - ACI - close: 35.29

03/26 update: There has been an increase in bullish comments and articles regarding the coal sector the last couple of weeks. Shares of ACI have been inching higher but the stock is now testing resistance in the $36.00-36.50 zone. The action on Friday looks like a short-term bearish reversal. I wouldn't be surprised to see another dip into the $34-33 zone. 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 $ 5.30/ 5.40

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 7.90/ 8.45

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: 15.63

03/26 update: Action in shares of AKS was muted this past week. The stock bounced from support near $15.00 and its 100-dma only to fail near short-term resistance at $16.00. There is no change from my prior comments. I have been suggesting readers wait for a close over the $16.00 level 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 $ 1.07/ 1.13

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 1.99/ 2.31

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: 65.07

03/26 update: ATI, another steel stock, delivered a much better performance with gains nearly every day this past week. The stock is now back above its 30 and 50-dma. My only complaint would be a lack of volume behind the move. I would consider new positions on this bounce but readers might want to wait for a dip into the $63.50-62.50 zone before initiating trades. 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 $ 7.20/ 7.50

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $11.00/13.00

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: 34.82

03/26 update: It was a quiet week for BEAV. The stock slowly drifted higher toward the $35 level. Short-term technicals have been improving but volume was pretty light this past week. Readers can launch new positions here or look for another dip into the $34-33 zone since the simple 200-dma has been acting as support. More conservative traders may want to raise their stops toward the $32.50 area.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 2.55/ 2.75

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: 27.29

03/26 update: It turned out to be a strong week for BMY. The volatility in this stock has definitely increased during the month of March. Friday shares rallied +3.2% and saw an intraday spike toward resistance at $28.00 on news of an FDA approval. The company said the U.S. FDA had approved BMY's ipilimumab drug, which is designed to fight advanced melanoma, a deadly form of skin cancer. Unfortunately for consumers the drug isn't cheap. The new treatment will cost $30,000 a dose and patients usually get four doses in a treatment.

The drug approval news is very encouraging but the volatility is worrisome. Readers might want to consider small bullish positions on another dip or bounce from the $26.50-26.00 area.

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 $ 1.42/ 1.46

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 1.99/ 2.17

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: 85.24

03/26 update: BRK.B rallied with the market on Monday and then spent the rest of the week consolidating sideways on either side of the $85 level. There is no change from my prior comments. I remain bullish on BRK.B and we can open small bullish positions now or look for dips into the $83-82 zone. More conservative traders may want to raise their stops closer to the $80.00 level. Don't forget that there are 2013 calls 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 $ 4.20/ 4.35

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: 43.63

03/26 update: Strength in the precious metals helped fuel gains for BVN. The stock rallied higher, pushing past its 50-dma, the $45.00 level, and above its simple 200-dma. Unfortunately the intraday bearish reversal lower in gold on Friday sapped shares of BVN. The stock fell over -5% and back under $45 and its 200-dma.

Big picture the trend for BVN is higher but all the volatility can be frustrating. If gold starts to sell-off then BVN might retest the $40 area. 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/ 1.20

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: 77.28

03/26 update: BWA underperformed last Tuesday and Wednesday morning but traders bought the dip again. Shares produced a strong bounce from the $72 level to tag $78 on Friday. The $78.00 level is short-term resistance. Previously I suggested buying a move over $76.00. Today I would probably look for a dip into the $76-75 zone. More conservative traders might want to consider a stop loss closer to the $71.50 area.

Prior Comments:
BWA has been volatile lately so we have a wide (aggressive) stop loss at $69.75. 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 $ 4.10/ 4.80

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: 4.46

03/26 update: It turned out to be a very interesting week for Citigroup. A week ago Friday the big headline was the Federal Reserve allowing most of the 19 major banks the ability to raise or restart their dividends. Citigroup wanted to participate so on Monday they announced a 1-for-10 reverse stock split and a cash dividend of 1 cent per share on a post-split basis. Here's an excerpt from the company's management:

"Citi is a fundamentally different company than it was three years ago," said Vikram Pandit, Chief Executive Officer of Citigroup. "The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year."

From the company's press release:
"Citi anticipates the reverse stock split will be effective after the close of trading on May 6, 2011, and that Citi common stock will begin trading on a split adjusted basis on the New York Stock Exchange (NYSE) at the opening of trading on May 9, 2011."

Essentially what this means is that for every 10 shares of Citigroup common stock you own it will be converted into one share. At the moment Citigroup is at $4.46 a share. If you had 10 shares it would be converted into 1 share valued at $44.60 and you would be eligible for the one cent dividend. That's down from Citigroup's 54-cent dividend back in 2007.

This reverse split will reduce the number of outstanding shares from 29 billion to 2.9 billion. Currently Citi's stock accounts for almost 10% of the daily trading volume on the NYSE so it's not good news for NYSE's revenue. Yet it will reduce the commission for those traders that are charged based on the number of shares they are trading.

Proponents of the reverse split will argue that this will allow for more investors to buy Citigroup since a lot of institutional investors are not allowed to own stocks under $10 or under $5 a share. Opponents of the reverse split argue that these gimmicks are normally a sign of desperation by management to mask the problem that pushed the stock toward its lows to begin with.

Effects on Options?

What are the effects of Citigroup's reverse split on its options? At the moment we don't know. Currently the 2013 January $5.00 call LEAP has a bid of $0.56. Normal options represent 100 shares. Does the reverse split mean we'll get a new option with a $50.00 strike price valued at $0.056 that only represents 10 shares? I have emailed the CBOE for an answer but have yet to receive a response. When they do reply I'll let you know. We do have about six weeks before this reverse split will take place.

In the mean time the trend for Citigroup's stock is still down! The reverse split news produced a momentary pop. Shares look headed toward their simple 200-dma near $4.30. I would either wait for a dip near $4.30 or wait for a close over $4.65 before considering new bullish positions. 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 $ 0.24/ 0.25

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.56/ 0.59

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: 73.79

03/26 update: Hmm... I'm a little bit concerned with CNI. The DJUSRR railroad index broke out to new all-time highs yet CNI did not. The long-term trend for CNI is still bullish but the stock is actually developing a short-term trend of lower highs. Readers may want to be cautious and look for a dip near the rising 40 and 50-dma before considering new bullish positions. Better yet wait for a bounce from this area. 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: 42.97

03/26 update: DIS produced a decent bounce this past week thanks in part to some bullish analyst comments. Yet I would not start new long-term 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 $ 5.60/ 5.70

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.50/ 7.65

02/12/11 New stop loss @ 37.85
02/09/11 1st Target Hit. Options @ +137% and +103%
02/05/11 New stop loss @ 35.75
01/08/11 New stop loss @ 34.95
01/08/11 Target changed to $43.00 and $46.00
10/27/10 Play opened, DIS opened @ $35.60

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


Brinker International - EAT - close: 24.55

03/26 update: EAT has held support near the $23.50 level multiple times now. I would use this new bounce as a bullish entry point. I am raising our stop loss to $21.95. More conservative traders may want to raise their stop closer to the 50-dma or the $23.50 level instead. 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 $ 1.55/ 1.70

03/26/11 New stop @ $21.95

Current Target: $29.50
Current Stop loss: 21.95
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/12/11


Ford Motor Co - F - close: 15.01

03/26 update: Traders bought the dip near $14.00 on Wednesday and Ford surged to a new two-week high on Thursday. It seems like concerns over supply disruptions due to the earthquake in Japan are being ignored. Ford appears to be bouncing from its long-term uptrend. I would use this bounce as a new entry point to buy calls. We will raise our stop loss to $12.95. More conservative traders may want to move their stop closer to the $13.75 area instead.

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 $ 1.89/ 1.93

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.31/ 1.36

03/26/11 New stop loss @ $12.95

Current Target: $19.75, and $24.00
Current Stop loss: 12.95
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Fiserv, Inc. - FISV - close: 61.54

03/26 update: FISV has seen a strong $4 bounce off its mid March lows near support at $58.00. Now the stock is facing potential resistance in the $62-64 zone. I am not suggesting new bullish positions at this time but nimble traders might want to consider buying another bounce from the $60 level.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.35/ 2.50

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: 139.26

03/26 update: The U.S. dollar sank to new 52-week lows early in the week but started to rebound in the last couple of days. Meanwhile gold rallied to a new all-time high on Thursday but reversed lower intraday. The reversal lower received a lot of media attention and plenty of market pundits were calling it a short-term top. They might be right but the long-term trend is still up. Not only are individual investors buying gold but so are central banks around the world, especially China and India.

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 $14.70/15.00

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.07/ 0.09

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: 15.45

03/26 update: GT saw some volatility on Tuesday after the company issued a press release. Management said GT had strong momentum coming out of the recession. Furthermore things were shaping up to make a record profit in 2013. The stock spiked to $16.00 on the news and faded but traders were buying the dip the rest of the week.

If you are looking for a new entry point I'd probably wait for another bounce from the $14.50 area. Please note our new stop loss at $12.75. 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 $ 2.80/ 2.90

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 3.90/ 4.10

03/26/11 New stop loss @ 12.75

Current Target: $18.50
Current Stop loss: 12.75
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/19/11


Humana Inc. - HUM - close: 66.08

03/26 update: Healthcare stocks were showing some strength this past week. HUM managed to rally toward its 2011 highs near $67. The trend is up but I am not suggesting new bullish positions in HUM at current levels. Our target to exit is the $69.00 mark. More aggressive traders may want to aim higher! 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 $13.90/14.80

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: 8.72

03/26 update: The dividend news for the 19 major U.S. banks a week ago failed to have a significant impact on the sector. The banking indices still have a bearish trend of lower highs. Meanwhile shares of KEY have retreated to technical support near $8.50 and its simple and exponential 200-dma. I cautioned readers last week that KEY would probably dip toward the $8.60-8.50 area. I would be tempted to buy calls on this dip to support but readers may want to wait for some show of strength first. A close over $9.00 or its 30-dma might suffice. We have a stop loss at $7.85. More conservative traders may want a stop closer to the 200-dma or the $8.25 level instead. 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 $ 0.65/ 0.70

- or -

Mar 17, 2011 - entry price on KEY @ 8.60, option @ 1.35
symbol: KEY1319A10 2013 JAN $10 call - current bid/ask $ 0.99/ 1.28

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: 79.62

03/26 update: It was a relatively quiet week for LLL with the stock consolidating sideways. I am a little bit concerned with the bearish trend of lower highs that seems to be developing. The correction may not be over yet for LLL. Please note our new stop loss at $74.75. I am not suggesting new 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 $ 8.80/ 9.10

03/26/11 New stop loss @ 74.75
02/12/11 New stop loss @ 73.75
02/05/11 There was no follow through lower.
01/29/11 LLL is correcting lower!
01/08/11 Take Profits Early. LLL @ 78.23. Option @ $8.50 (+46.5%)
01/08/11 New stop loss @ 69.90
11/11/10 Play triggered with LLL's gap open @ 71.87

Current Target(s): $79.50, 89.00
Current Stop loss: 73.75
Play Entered on: 11/11/10
Originally listed on the Watch List 11/06/10


MEDNAX Inc. - MD - close: 65.04

03/26 update: I warned readers a week ago that MD looked vulnerable to more selling pressure. Shares managed to post a gain on the week but only because of the pop higher on Friday. Otherwise MD had been sinking to new four-week lows. Instead Friday saw a rally thanks to an analyst upgrade but the rally was fading into the closing bell. I remain cautious here. The low last week was $62.76. Our stop loss is at $62.40. 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 $ 4.40/ 5.30

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


Monsanto Co. - MON - close: 70.76

03/26 update: MON has seen a strong bounce off its mid March lows in the $64-65 zone. The rally seems to be stalling near its 50-dma and volume has been fading. It might be time for a little pull back. MON should have some short-term support near $68.00. If MON sees another dip and bounce above the $65 level I would consider new positions. For now the stock has a two-month trend of lower highs to break. Investors should note that MON will report earnings on April 6th. More conservative traders may want to wait until after we see Wall Street's reaction to their earnings report before considering new positions. We currently have a stop loss at $59.90, which is under the simple 200-dma. More conservative traders may want to consider a stop closer to the $64 area. 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 $ 8.55/ 8.70

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 9.65/10.25

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


PACCAR Inc. - PCAR - close: 49.86

03/26 update: PCAR was a new watch list candidate last week. Shares were upgraded on Monday the 21st and the stock popped higher above resistance near $49 and $50 and its 200-dma. Our trigger to open positions was hit at $50.75. The 2012 Jan. $54.70 calls were trading near $3.70 and the 2013 Jan $54.70 calls were near $8.00. Shares have since filled the gap and continued to bounce, which is positive. Readers may want to wait for a new rise past $51.00 or a move past the 50-dma, currently at $51.50 before initiating new long-term bullish positions.

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.

- Current (SMALL) Positions -
Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 3.70
PCAR1221A54.7 2012 JAN $54.70 call - current bid/ask $ 3.20/ 3.50

- or -

Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 8.00
PCAR1319A54.7 2013 JAN $54.70 call - current bid/ask $ 5.40/ 7.00

Weekly Chart of PCAR:

Current Target(s): $58.00, 64.00
Current Stop loss: 44.95
Play Entered on: 03/21/11
Originally listed on the Watch List: 03/19/11


Scotts Miracle Grow Co. - SMG - close: 58.28

03/26 update: SMG is another watch list candidate that has made the jump to our active play list. Shares have been showing relative strength and broke out past their 2007 high to hit new all-time highs on Friday. Our trigger to buy calls was hit at $58.00. I would still consider small bullish positions now at current levels or you could look for a dip into the $57-55 zone. We have a stop loss 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. Our target is the $65-70 zone.

- Current (SMALL) Positions -
Mar 25, 2011 - entry price on SMG @ 58.00, option @ 3.00
SMG1117I60 2011 SEP $60 call - current bid/ask $ 2.90/ 3.10

Chart of SMG:

Current Target(s): $65.00-70.00
Current Stop loss: 53.75
Play Entered on: 03/25/11
Originally listed on the Watch List: 03/05/11


Teva Pharmaceuticals - TEVA - close: 50.41

03/26 update: It turned out to be a strong week for TEVA with a big bounce off its lows. Shares are back above the $50.00 mark. While the stock has broken the short-term bearish trend of lower highs there is potential technical resistance with its 50, 100, and 200-dma all in the $51-52 area. TEVA could see another pull back before finally pushing through this congestion. I'm cautiously optimistic here and would like to see a new higher low before considering new positions but we could use the close over $50 as an entry point. We wanted 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 $ 2.45/ 2.54

- or -

Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 3.35
symbol: TEVA1319A60 2013 JAN $60 call - current bid/ask $ 3.15/ 3.50

03/19 New stop loss at $45.90

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: 16.81

03/26 update: USG managed to find support at its rising 100-dma, which is encouraging but the stock has stalled near its early March highs. While I am cautiously optimistic here I am not suggesting new positions.

- Current Positions -
Dec 20, 2010 - entry price on USG @ 15.25, option @ 1.50*
symbol: USG1221A20 2012 Jan $20 call - current bid/ask $ 1.65/ 1.90

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 3.00/ 3.50

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


CLOSED Plays


WellPoint Inc. - WLP - close: 69.34

03/26 update: Target achieved. Shares of WLP finally rallied that last inch to hit resistance and its all-time highs near $70.00 on Friday. Our exit target at $69.75 was hit. Our 2012 January $65 call hit $9.22 intraday (bid around $9.00).

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - Exit @ $9.00 (+ 71.4%)

03/25/11 Target hit @ 69.75, Option bid @ $9.00 (+71.4%)
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

Chart of WLP:

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


Watch

Aerospace & Energy

by James Brown

Click here to email James Brown


New Watch List Entries

BA - Boeing Co.

PBR - Petrobras


Active Watch List Candidates

CACI - CACI International

Costco Wholesale - COST

JRCC - James River Coal Co.


Dropped Watch List Entries

PCAR and SMG graduated to the play list. HSIC was removed.


New Watch List Candidates:

Boeing Co. - BA - close: 73.34

Company Info

Airline stocks have been struggling with higher oil prices but that is not the case with aerospace giant Boeing. Traders bought the dip near support at BA's long-term trendline of higher lows and technical support at its 200-dma two weeks ago. Nimble traders may want to consider buying dips near the $70 area. I am suggesting we wait for a bullish breakout to new multi-year highs.

The high in 2010 was $75.59. Let's use a trigger at $76.00 to open bullish positions. We'll use a stop loss at $69.75. Our long-term targets are $89 and $104.

Breakout trigger: $76.00

BUY the 2012 Jan. $80 call (BA1221A80)

- or -

BUY the 2013 Jan. $90 call (BA1319A90)

Chart of BA:

Originally listed on the Watch List: 03/26/11


Petroleo Brasileiro (a.k.a. Petrobras) - PBR - close: 40.62

Company Info

High energy prices could be here to stay. One energy stock that was lagging its peers back in 2010 was PBR. That seems to be changing. PBR broke out past significant resistance back in late December. After a rocky consolidation it rallied again in late February. It looks like the trend has reversed and the Point & Figure chart for PBR is forecasting a target in the $50s.

I am suggesting we buy calls on a dip near the simple 50-dma. We'll use a trigger at $39.00 and if the play is opened we'll use a stop loss at $35.75, just under its 200-dma. I would keep our position size smaller because PBR can be a volatile stock. Our long-term target is $53.00. Buy-the-Dip trigger: $39.00

BUY the 2012 Jan. $40 calls (PBR1221A40) current ask $4.70

- or -

BUY the 2013 Jan. $45 calls (PBR1319A45) current ask $4.70

Chart of PBR:

Originally listed on the Watch List: 03/26/11


Active Watch List Candidates:


CACI International - CACI - close: 60.85

03/26 update: CACI has been stronger than expected and shares broke out past resistance at the $60.00 level this past week. Readers may want consider buying calls on this bullish breakout. Personally, I'm not quite ready to chase it yet. We will move our buy-the-dip entry point higher to the $58.00 level and move our stop loss to the $53.90 mark. 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: $58.00

BUY the 2011 September $60 calls (CACI1117I60)

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


Costco Wholesale - COST - close: 71.46

03/26 update: COST delivered a bounce this past week but I remain concerned. Shares appear to be forming a bear-flag pattern. If the stock fails at its 50-dma near $73 it will look like a short-term bearish entry point. I don't see any changes from my prior comments. 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: 67.46

03/26 update: HSIC also produced a bounce this last week but I'm not convinced the correction is over. If you're interested in following this stock as a candidate I would consider buying a dip in the $64.00-63.50 area or a breakout past $70.00. I've decided that the spreads on HSIC's options are not improving so we will remove it as a candidate.

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


James River Coal Co. - JRCC - close: 23.90

03/26 update: JRCC almost hit our buy-the-dip entry point at $22.00 this past week. I am still suggesting readers wait for a pull back into the $22.00-20.00 zone before launching positions and conservative traders will want to wait and buy a bounce from this area. There is some good news today. JRCC now has LEAP options and I've listed the 2012 January $25 call as our option to play.

If triggered at $22.00 we'll 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.

Buy-the-Dip trigger: $22.00

BUY the 2012 January $25 calls (JRCC1221A25) <-- new strike

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