Option Investor
Newsletter

Daily Newsletter, Sunday, 4/3/2011

Table of Contents

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

Leaps Trader Commentary

Window Dressed to Resistance

by James Brown

Click here to email James Brown

The stock market absorbed a lot of headlines last week. Through it all investors remained bullish and bought the dip on Tuesday. End of quarter window dressing may have played a key part in the stock market's rally past 1300 but no one's complaining. Overall the S&P 500 ended the first quarter of 2011 with a +5.9% gain. It was the best Q1 performance since 1998.

Looking back at some of the headlines, investors are still nervous about Europe. Standard & Poor's downgraded both Greece and Portugal's debt ratings. Some of the economic data this past week was mixed. U.S. factory orders were disappointing with a 0.1% decline. Consumer confidence fell to a four-month low. The Chicago PMI report for March was slightly ahead of expectations at 70.6. The weekly initial jobless claims remain under 400,000. The ISM manufacturing index slipped from 61.4 to 61.2. Oil continued to climb and closed at two-year highs near $108 a barrel. The Libyan rebels are struggling to make any progress and the situation could turn into a long, drawn out civil war. The U.S. plans to end its participation soon. Meanwhile the damaged Japanese nuclear reactor is still leaking tainted water into the Pacific ocean.

There are growing concerns about inflation. An interview with Wal-mart's (WMT) top management reaffirmed that we should expect higher inflation soon. Meanwhile there were several FOMC governors speaking out this past week with differing opinions on what the Federal Reserve's next step is. Of course the biggest headline last week was the March jobs report. Economists were expecting an increase of +185,000 jobs. The nonfarm payroll number came in at +203,000. Private job growth hit +230,000. The unemployment rate ticked down to 8.8% but this decline is probably being impacted by workers losing their unemployment benefits and no longer being counted. There are more and more pundits talking about the slow but steady improvement in the labor market and the market reacted with gains for the first day of the second quarter. Big picture the jobs number is improvement but it's not enough. We need about 125,000 to 150,000 new jobs a month just to keep up with population growth.

The S&P 500's almost 6% rally for the first quarter was completely recovered in the last two and a half weeks of March. Stocks are now short-term overbought and the S&P 500 is nearing the 2011 highs near 1344 and likely resistance at the 1350 mark. Stocks probably need a rest. That could mean a pull back or that could mean a sideways consolidation. On a short-term basis the 1320 and 1300 levels should be support. If the S&P can breakout to new relative highs then it's probably looking at resistance in the 1365-1370 zone before it reaches the 1400 level.

Daily chart of the S&P 500 index:

The NASDAQ is up +7.1% off its March lows and the tech-heavy index is nearing resistance at the 2800 level. While the trend is up we should probably expect some sort of consolidation here too. Look for short-term support near the 2750 area.

Daily chart of the NASDAQ Composite index:

I am concerned about the action in the SOX semiconductor index. Chip stocks tend to lead the NASDAQ higher or lower. This hasn't been the case lately but SOX may end up being an anchor weighing down the rally. The March rebound has stalled at technical resistance near the 50-dma. Now chips look poised to correct lower again.

Daily chart of the SOX semiconductor index:

One of the most bullish indicators in the market is the strength in small cap stocks. The Russell 2000 index (and the IWM ETF below) has broken out to their best levels since 2008. A bullish breakout higher in small caps is very encouraging but I want to point out that the small caps have hit what might be resistance at the prior channel's trendline. Don't be surprised to see a pull back here but the close over 840 is a big positive for this market.

Daily chart of the IWM Russell 2000 ETF:

Another positive for the markets is a two-year high in the transportation index. It's pretty impressive the transports can rally with oil at two-year highs. They do look a little short-term overbought so it's time for some profit taking. However, if the transports can keep this up trend alive it's a bullish signal for the Dow Theory crowd. The index is nearing its all-time highs.

chart of the Dow Jones Transportation Index:

The economic calendar this week is pretty small. The Fed minutes on April 5th might make headlines. The ISM services and wholesale inventory numbers are probably the two biggest releases.

On a short-term basis the stock market's trend is up. Lately the first few days of the month tend to be bullish as fund managers put new money to work. We do need to be aware that the Q1 earnings season will start in a couple of weeks. I've said it before. This earnings reporting season could be pivotal in keeping the rally alive or sparking another correction. Investors are expecting goods news from corporate America but if results and guidance don't match up with what's already baked into the market then we'll definitely see some profit taking. Something that might be unique this earnings season is the effects of Japan. Will businesses blame a bad quarter on Japan's disaster? How will the market react to this sort of news?

We also want to keep an eye on the U.S. dollar. Long-term the country's too big to comprehend debts will crush the dollar but there are some market pundits suggesting the dollar may have found a short-term bottom. If the dollar can rally it would be bearish for commodity prices but this would have a positive influence on our inflation worries. I'm still concerned about how the financial markets will react to the end of QE2 in June but that's three months away. The trend for the market is higher but stay cautious. Until the major indices get past their 2011 highs there is a chance we'll see a bearish double top pattern develop.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks finished off the first quarter of 2011 with strong gains. It was the best Q1 performance since 1998 with the S&P 500 up over +5%. Now the major averages have stalled near key resistance levels. After a nearly non-stop, two-week rebound, can the bulls keep the rally going? Or will stock see some profit taking?

The Q1 earnings announcement cycle is about to begin soon and stocks will probably see more volatility as investors react to the news.

HUM hit our profit target to exit at $69.00.

ATI, CNI, and EAT 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

Information Technology

by James Brown

Click here to email James Brown

CACI International - CACI - close: 62.33

04/02 update: CACI is an information technology company that services the federal government. In today's Internet age, providing IT for the government is big business. The stock has been consistently climbing higher for months. We have had CACI on our watch list with plans to buy call LEAPS on a dip but we have been unable to catch a dip at the right time. When the market sold off hard in the middle of March, shares of CACI pulled back but the selling wasn't that bad. Now shares have broken through resistance near the $60.00 level and traders bought the dip again on Friday.

I am suggesting we launch small bullish positions now given CACI's recent strength. I do consider this a much more aggressive entry point and hopefully if we keep our position size small we can limit our risk. The March low was close to $57.00. I'm listing our stop loss at $56.75. Our first upside target is $69.00. CACI doesn't have LEAPS so we'll have to use the 2011 September calls.

- Suggested (small) Positions -
Apr 4, 2011 - entry price on CACI @ --.--, option @ -.--
symbol: CACI1117I65 2011 SEP $65 call - current bid/ask $ 3.00/ 3.30

Chart of CACI:

Current Target: $69.00
Current Stop loss: 56.75
Play Entered on: 04/04/11
Originally listed on the Watch List: 02/12/11


Play Updates

Humana Inc. Soars to New Two-Year Highs

by James Brown

Click here to email James Brown


Closed Plays


HUM hit our final exit target.


Play Updates


Arch Coal Inc. - ACI - close: 35.55

04/02 update: Coal stocks continued to climb last week. The KOL coal ETF broke out past resistance to hit new two-year highs. ACI trended higher but seemed to lag its peers. The stock is still struggling to breakout past resistance in the $36-37 zone. Once again the action on Friday looks like a bearish reversal pattern. I am not suggesting new positions at this time. Aggressive traders may want to consider buying a close over $37.00. If ACI were to dip I would look for support near the 50 and 100-dma.

FYI: Earnings for ACI should be coming up in about two weeks (near April 15th).

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 5.20/ 5.35

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 7.90/ 8.40

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: 15.88

04/02 update: AKS posted a gain for the week but the action last week is a bit worrisome. AKS broke out higher, past resistance near $16.00 but then reversed on Wednesday and Thursday. Is this a bull-trap pattern? AKS is hovering near a huge cloud of moving averages in the $16-15 zone so this area should offer technical support. A breakdown under $15 or the 200-dma near $14.50 would be very bearish. Given the recent weakness and what might be a reversal lower this past week in AKS I would be hesitant to open new positions.

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 $ 1.11/ 1.17

- 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


Allegheny Technology - ATI - close: 67.32

04/02 update: The rebound in ATI continues. The stock looks headed for the next level of resistance near $70.00 although I would expect another dip into the $66-65 zone first. I'm not suggesting new positions at this time. If ATI fails at $70.00 it would start to look like a potential bearish double top pattern. Please note our new stop loss at $59.00. 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 $ 8.00/ 8.30

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $11.30/15.30

04/02/11 New stop loss @ 59.00

Current Target: $75.00, and $85.00
Current Stop loss: 59.00
Play Entered on: 03/10/11
Originally listed on the Watch List: 02/05/11


BE Aerospace Inc. - BEAV - close: 36.04

04/02 update: The rebound in BEAV has run into what looks like potential resistance in the $36.00 area and the 50 and 100-dma. After the bounce from $33 two weeks ago BEAV might churn sideways in this area, especially if the broader market loses any momentum. I am adjusting our stop loss to $31.95. More conservative traders may want to put their stop closer to the 200-dma. I am not suggesting new positions at this time.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 3.10/ 3.40

04/02/11 New stop loss @ 31.95

Current Target: $40.00
Current Stop loss: 31.95
Play Entered on: 02/23/11
Originally listed on the Watch List: 01/22/11


Bristol-Myers Squibb Company - BMY - close: 26.46 04/02 update: After the big spike higher and volatility two weeks ago shares of BMY spent the week fading lower. The stock is testing short-term support near $26.50. Readers can use a dip near $26.50-26.00 as an entry point for new position but you may want to wait for a bounce before initiating positions.

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 $ 1.18/ 1.23

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 1.85/ 1.96

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: 83.68

04/02 update: It was a relatively quiet week for BRK.B's stock but there were big headlines for Berkshire. David Sokol, an executive at Berkshire and someone many believed might succeed Warren Buffet when he steps down, has resigned from the company. Evidently Sokol purchases shares of Lubrizol (LZ) before he pitched the idea of Berkshire buying the company to Warren Buffet. Berkshire announced plans to buy LZ for $9 billion last week. Big picture this story should have no effect on shares BRK.B. Readers can look to buy another bounce from the $82.00 area near the 200-dma as a potential entry point. 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 $ 3.30/ 3.50

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: 42.63

04/02 update: It was a mixed week for mining and resource plays. BVN spent the week consolidating sideways near support. I am growing more cautious on this stock. BVN has developed a bearish trend of lower highs that is competing with the longer-term bullish trend of higher lows. Readers may want to wait for a close over $46.00 or its 100-dma 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 $ 0.40/ 0.70

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: 81.03

04/02 update: BWA dipped back toward $76.00 and then sprung higher. Shares tagged a new all-time high on Friday at $81.84. Short-term traders could look to buy dips near $78 but I am not suggesting new bullish positions at this time. At the moment we have a stop loss at $69.75 but I'm looking at moving it higher towards the $72.50-73.00 zone.

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 $ 6.10/ 6.40

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: 4.45

04/02 update: Financials have continued to lag behind the rest of the stock market. While it looks like the banking sector may have found a bottom in the last couple of weeks the banks still have a bearish trend of lower highs. Citigroup is no exception. The stock has been churning sideways in the $4.40 area for several days now. I'm still longer-term bullish on Citigroup but readers may want to wait until shares close over the $4.60 level and its 50-dma before initiating new positions. Nimble traders could try and buy a dip near technical support at its 200-dma but honestly, if C hits a new relative low, it may not stop.

FYI: I am still waiting to hear back from the CBOE or the Options Industry Council on how Citigroup's reverse 10-for-1 split will affect our LEAP positions. The reverse split will occur after trading closes on May 6th and C will start trading at the new price on Monday, May 9th.

Readers may want to note that Citigroup is due to report earnings on April 18th.

- 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 $ 0.23/ 0.24

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.55/ 0.57

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: 75.81

04/02 update: It was a bullish week for CNI. The stock has broken out past resistance at the $75.00 level. If you're still looking for an entry point look for dips in the $75-74 area. I am raising our stop loss to $69.00. 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 $ 3.60/ 4.00

04/02/11 New stop loss @ 69.00

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: 42.85

04/02 update: DIS did not make much progress last week. Shares churned sideways on either side of $43.00. Some of the technical indicators are suggesting that DIS will correct lower again soon. We should probably expect another pull back toward support near $40.00. 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 $ 5.40/ 5.55

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.35/ 7.60

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: 25.43

04/02 update: EAT delivered a nice performance last week but shares are now approaching likely resistance at its early March highs near $25.50. We do not want to open new positions at this time. Don't be surprised to see EAT pull back a little bit toward the 40 or 50-dma soon. I am adjusting our stop loss to $22.90. More conservative traders may want to consider a stop closer to $24.00 instead. Our exit target is $29.50.

- Current Positions -
Feb 23, 2011 - entry price on EAT @ 22.50, option @ $ 1.10
symbol: EAT1116G25 2011 JUL $25 call - current bid/ask $ 1.85/ 2.05

04/02/11 New stop @ 22.90
03/26/11 New stop @ $21.95

Current Target: $29.50
Current Stop loss: 22.90
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/12/11


Ford Motor Co - F - close: 15.01

04/02 update: Ford reported some very positive March sales numbers with a +19% jump from last year. This news helped fuel a rise to new one-month highs but the rally stalled at F's 50-dma. I remain bullish on Ford and would still consider new positions now but we might get a better entry point on a dip in the $14.80 area.

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/ 1.96

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.32/ 1.40

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: 62.88

04/02 update: The rebound in FISV continues. The stock has been going almost straight up for two and a half weeks. I would expect FISV to pause or reverse near resistance in the $63-64 area. The bounce is encouraging but shares look short-term overbought and probably need to consolidate sideways for a while.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.70/ 3.00

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: 139.20

04/02 update: Gold spent the last few days consolidating sideways and the GLD closed virtually unchanged for the week. Depending on who you listen to gold is either going to rally to $5,000 an ounce or is due for a massive sell-off any day now. Odds are that the unrest in the Middle East and Africa is not going away any time soon. The debt challenges for Europe and the U.S. will be here for a long time as well. Both of these are bullish for gold. Yet it looks like the U.S. dollar, which fell to new relative lows two weeks ago might be finding a bottom. At the moment the trend in the dollar is still down but that could change as we get closer to the end of QE2. If the dollar sees a significant bounce it could be bearish for gold.

I am not suggesting new long-term bullish positions at this time. However, short-term traders might want to consider buying a breakout in the GLD past the $141.50 level. Right now our final target is the $149.00 mark but readers may want to consider upping their long-term target toward the $160 area.

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: A few months 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 $14.45/15.00

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.03/ 0.06

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: 15.22

04/02 update: GT continues to build on its bullish trend of higher lows and the stock looks ready to breakout past $15.50 soon. Readers can still buy dips in the $14.50-14.00 zone. 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 $ 2.55/ 2.65

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 3.70/ 4.00

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


KeyCorp - KEY - close: 8.95

04/02 update: Banks have been underperforming the market for several weeks now but it looks like KEY may have found a bottom at its 200-dma in March. The current bounce is testing resistance near $9.00 and its 50-dma. I would not be surprised to see KEY retest support near $8.50 and its 200-dma again and if the stock does see another dip near support we can use it as another entry point. A breakout past the 50-dma (currently $9.10) could be seen as an alternative entry point. FYI: KEY is due to report earnings on April 18th.

Prior Comments:
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 $ 0.66/ 0.69

- or -

Mar 17, 2011 - entry price on KEY @ 8.60, option @ 1.35
symbol: KEY1319A10 2013 JAN $10 call - current bid/ask $ 1.11/ 1.36

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: 79.10

04/02 update: We are not seeing a lot of progress in LLL. Shares have been consolidating sideways for a couple of months. LLL is starting to see a slightly bearish trend of lower highs. LLL could be headed for a retest of support near $76-75. 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 $ 8.20/ 8.40

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: 68.48

04/02 update: The last couple of days have shown big improvement in MD and shares closed at new two-month highs. The stock looks headed for its January resistance near $70.00. Our target to exit is $69.50. More aggressive traders may want to aim higher. A breakout past $70.00 would be very bullish.

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 $ 5.90/ 6.90

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: 73.17

04/02 update: It was a bullish week for MON with the stock breaking out above its two-month trend of lower highs. I want to warn you that this week could be volatile. MON is due to report earnings on April 6th before the opening bell. Wall Street is looking for a profit of $1.85 a share. I am not suggesting new positions in front of the earnings report. We'll re-evaluate next weekend.

Prior Comments:
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 $ 9.70/ 9.90

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 8.80/11.50

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: 53.44

04/02 update: PCAR is performing much better than expected. Shares are up four days in a row and have broken through several layers of resistance. I wouldn't chase it here. Wait for a dip back toward the $52-51 area and consider buying calls then.

Hmm... I can't explain why the 2013 call LEAP is not performing better. It could be a lack of volume and prices have yet to respond to PCAR's rally.

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 $ 4.70/ 5.00

- or -

Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 8.00
PCAR1319A54.7 2013 JAN $54.70 call - current bid/ask $ 7.20/ 8.50

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: 58.40

04/02 update: It turned out to be a quiet week for SMG. Shares hovered sideways at new highs near $58. I would still consider new positions right here but the stock market looks a little bit overbought here. Readers may want to wait for a dip near $57-55 before initiating new positions. 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 $ 2.75/ 3.00

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: 50.54

04/02 update: TEVA did not make any progress last week. The stock has been consolidating sideways near the $50 level. I remain longer-term bullish on TEVA but readers may want to wait on new positions. The stock has a lot of technical resistance in the $51-52 area. You could wait for another dip near $48.50 or wait for a breakout past $52.50 as alternative entry points. 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 $ 2.38/ 2.45

- or -

Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 3.35
symbol: TEVA1319A60 2013 JAN $60 call - current bid/ask $ 3.20/ 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: 16.60

04/02 update: Unfortunately little has changed for USG. The stock has not participated in the market's rebound higher. Shares remain under resistance near $17 and its 50-dma. The recent action does not inspire confidence. 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/ 1.60

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 2.60/ 3.20

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


Humana Inc. - HUM - close: 69.99

04/02 update: Target achieved. Healthcare stocks continued to rally. Shares of HUM accelerated higher with a run toward the $70.00 mark. HUM hit our final target to exit at $69.00 on Thursday.

- Current (half) Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - Exit near $15.50 (+142.1%)

03/31/11 Final Target Hit @ $69.00. Option @ +142.1%
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.

Chart of HUM:

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


Watch

Chocolate & Oil

by James Brown

Click here to email James Brown


New Watch List Entries

HSY - Hershey Co.

SWN - Southwestern Energy Co.


Active Watch List Candidates

BA - Boeing Co.

CACI - CACI International

Costco Wholesale - COST

JRCC - James River Coal Co.

PBR - Petrobras


Dropped Watch List Entries

CACI was promoted to the active play list.


New Watch List Candidates:

Hershey Co. - HSY - close: 54.30

The threat of food inflation, higher commodity costs, and rising violence in the African nation of the Ivory Coast, the world's largest producer of cocao, has not stopped the rally in shares of HSY. The country just announced they were raising prices this past week and reaffirmed their 2011 outlook. Considering all the outside influences HSY's stock looks pretty healthy. It just broke out past major resistance near $52 a few weeks ago. I am suggesting we open small bullish positions on a dip back to $52.25. If triggered we'll use a stop loss at $48.40, under the 200-dma. Our long-term targets are $60 and $64. FYI: The Point & Figure chart for HSY is bullish with a $64 target.

Company Info

Buy-the-Dip trigger: $52.25

BUY the 2012 $55 calls (HSY1221A55)

- or -

BUY the 2013 $55 calls (HSY1319A55)

Chart of HSY:

Originally listed on the Watch List: 04/02/11


Southwestern Energy Co. - SWN - close: 42.87

SWN is an oil and gas company focused on production here in the U.S. This past month the stock produced a huge rally, fueled by strong volume, and broke out through resistance at the $40 level. We don't want to chase it but a dip back toward $40 could be a new entry point. I am suggesting we buy call LEAPS on a dip at $40.50. If triggered we'll use a stop loss at $36.75. Our long-term target is the $50-52.50 zone. FYI: The P&F chart is bullish with a $51 target.

Company Info

Buy-the-Dip trigger: $40.50

BUY the 2012 $45 calls (SWN1221A45)

- or -

BUY the 2013 $45 calls (SWN1319A45)

Chart of SWN:

Originally listed on the Watch List: 04/02/11


Active Watch List Candidates:


Boeing Co. - BA - close: 74.01

04/02 update: BA's bounce from the mid-March lows has run from support near $68 and its 200-dma to resistance near $74.00. We want to see a breakout to new highs. Last April saw a spike to $76.00. I am suggesting a trigger to buy calls at $76.50. This is an adjustment from last week, which said $76.00. We'll use a stop loss at $69.75. Our long-term targets are $89 and $104.

Breakout trigger: $76.50 <--- New Trigger

BUY the 2012 Jan. $80 call (BA1221A80)

- or -

BUY the 2013 Jan. $90 call (BA1319A90)

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


CACI International - CACI - close: 62.33

04/02 update: I am promoting CACI to the active trade list. Look for details in tonight's "new plays" section.

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


Costco Wholesale - COST - close: 74.25

04/02 update: The action in COST is improving. Shares broke through technical resistance at its 30 and 50-dma last week. The stock is headed for its 2011 highs near $75 soon. Our plan is to buy calls when COST hits $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


James River Coal Co. - JRCC - close: 25.14

04/02 update: After six days of consolidating sideways JRCC displayed some relative strength on Friday with a +4% gain. This might be a short-term bullish entry point but I wouldn't want to launch long-term LEAPS positions here. I'm suggesting we wait for a dip and use a trigger at $22.50 as our entry point.

If triggered at $22.50 we'll use a stop loss at $19.90. Our long-term target is $29.50. We do want to keep our position size small to limit our risk.

Buy-the-Dip trigger: $22.50 <--- Updated Trigger

BUY the 2012 January $25 calls (JRCC1221A25)

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


Petroleo Brasileiro (a.k.a. Petrobras) - PBR - close: 41.41

04/02 update: PBR has climbed to new two-week highs. More aggressive traders may want to consider positions now. I'd rather wait. There is a chance that oil and oil stocks will correct when the current futures contract expires. I'm suggesting we buy a dip at $39.00. 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

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