Option Investor
Newsletter

Daily Newsletter, Sunday, 4/10/2011

Table of Contents

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

Leaps Trader Commentary

Q1 Earnings Kick Off!

by James Brown

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Earthquakes, rate hikes, commodity spikes, and renewed violence filled the headlines last week. Yet stocks managed to hold on to their gains although the rally has definitely stalled. Investors could have been waiting for the beginning of the Q1 earnings season to begin or the markets could have been waiting to see how the drama in Washington D.C. was going to unfold.

All week long the battle over the U.S. budget raged over the airwaves. Disagreements between the Democrats and the Republicans left the U.S. government facing a potential shutdown, the first time in 15 years. In a last minute deal a shutdown was avoided when officials agreed to a $38 billion cut in spending. How much this event impacted the stock market is unknown but now that it is past it is one less thing to worry about.

Speaking of government moves, the European Central Bank (ECB) announced its first rate hike since 2008. The ECB's lending rate now stands at 1.25%. This fueled a rally in the euro and pushed it to a two-year high but more on that in a bit. While the ECB was raising rates the country of Portugal was officially asking the EU for aid. (a.k.a. a bailout). The fact that stocks did not react negatively to this Portugal news is positive but then again it wasn't that big of a surprise given the events leading up to it. The Bank of England decided to leave their rates unchanged at 0.5% with no change in their asset repurchase program.

The violence across Africa and the Middle East continues. Protests continue to grow violent in Syria. Now there are new reports of protestors in Egypt turning their anger towards the army. Nigeria, a major oil exporter, said eight people died when a bomb went off at an election office. Meanwhile the battle between Gaddafi and Libya's rebels continue. Oil got a boost when word spread that Gaddafi was targeting his country's oil fields to prevent the rebels from selling oil to generate cash to fuel their war effort. Crude oil futures soared to 30-month highs with the price of Brent crude rising to $126 a barrel and WTI oil hitting $113 a barrel.

Contributing to the rise in oil was another drop in the U.S. dollar. The ECB's rate increase lifted the euro and the dollar dropped. The combination of a falling dollar and growing worries about inflation in the U.S. kept the rally in commodities very much alive. Silver was a big performer with a new 30-year high at $40.65 an ounce. Silver is getting very close toward its all-time highs around $41.50 an ounce. Gold also rallied to new all-time highs with a move to $1,476 an ounce on Friday. Copper prices also witnessed a strong rally last week. Investors might continue to pour money into commodities if stocks reverse lower.

I cautioned readers a week ago that the S&P 500 was due for a consolidation, which might entail a sideways move. The index just spent the last week testing and failing at resistance near 1340. With Friday's decline the index looks poised to correct lower. On a short-term basis the 1320 level should offer some support but it wouldn't surprise me to see the S&P 500 dip towards the 1300 level again. Unfortunately, a pull back now will reinforce the idea of a potential bearish double top pattern.

Daily chart of the S&P 500 index:

The NASDAQ composite has a similar pattern with the index struggling near its late February highs and unable to hit its 2011 highs. The tech-heavy NASDAQ does look poised for profit taking but on a short-term basis there could be support near its 50-dma, which is conveniently near the 2750 level. If the 2750 level fails then look for support near 2700 and its 100-dma. A 50% retracement of its March bounce would pull the NASDAQ toward the 2700 level.

Daily chart of the NASDAQ Composite index:

I continue to watch the SOX semiconductor index for clues since the chips have a big influence on the NASDAQ. The SOX has been struggling with technical resistance at its 50-dma. I'm surprised the SOX didn't show more weakness since so many chip stocks were sliding lower on Friday. If the SOX closes under the 425 level again it would not bode well for the group and would suggest a another leg down (maybe toward 400 or the 200-dma).

Daily chart of the SOX semiconductor index:

The rally in the small caps has run into trouble. I cautioned readers that the prior trendline of support could now act as resistance. After a very strong bounce off its March lows the Russell 2000 (and the IWM etf) look poised for profit taking.

Daily chart of the IWM Russell 2000 ETF:

Two weeks ago strength in the transports was helping fuel the market's rally. Yet it seems the surge in crude oil prices has put an early end to the transport rally. Rising fuel costs are going to hamper any improvements in business for the airlines, truckers, etc. Even the railroad stocks are starting to see some profit taking.

chart of the Dow Jones Transportation Index:

There are a lot of reports on the economic calendar this week. The U.S. trade numbers due out on Tuesday are expected to improve somewhat. Business inventories and the March retail sales numbers come out on April 13th. The big event on the 13th will be the Fed's Beige book report. Thursday and Friday will see a rush of economic data with the PPI, CPI, Michigan Sentiment data, New York Empire Manufacturing index, and weekly initial jobless claims. Yet the biggest headlines may not be economic data but earnings reports.

The Q1 earnings season unofficially starts on Monday when Dow-component Alcoa (AA) reports after the closing bell. There won't be a lot of reports this week but there will be some high-profile names like Bank of America (BAC), Google (GOOG), and J.P.Morgan Chase bank (JPM). The following week the flow of earnings announcements will turn into a virtual flood. It will be interesting to see how many companies blame the earthquake in Japan as a disruption to their sales and production numbers. This past Thursday there was another earthquake off the coast of Japan, measuring 7.1 on the Richter scale. Our markets held up pretty well on the news but it is a reminder that Japan, one of the world's biggest economies and manufacturers, will have an impact on corporate results.

I've said it before, the U.S. stock market has already baked in strong earnings results for the first quarter. Corporations need to turn in much better than expected numbers if there are any hopes of keeping this rally alive. Otherwise the temptation to sell the news and lock in profits may be too great and the market could see a correction in the second half of April. On the other hand, if profits and guidance are better than expected it could be just the ticket we need to launch this market into another leg higher.

I would expect volatility to increase over the next two or three weeks. We may not see it in the major indices but individual stocks could see some huge swings as traders react to the Q1 earnings data. If the markets do produce a correction then it may prove to be another entry point for us but we'll want to wait for the major indices to bounce from support before considering new positions. Don't forget that we still face the end of QE2 in late June but for the moment Wall Street will be focused on corporate earnings. Be careful. I would hesitate to launch new bullish positions at this time.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market's major averages saw their rally stall. Meanwhile there was a stealth correction going on with many stocks succumbing to profit taking or worse, producing a bearish reversal pattern last week. It seems investors are getting nervous ahead of earnings season.

MD hit our profit target to exit at $69.50.

BEAV, MON, and TEVA 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 for a Reaction

by James Brown

Click here to email James Brown

Editor's Note:

The rally in stocks has stalled as we approach the onset of Q1 earnings season. Earnings unofficially kick off on Monday, April 11th when Dow-component Alcoa (AA) reports after the closing bell. The flow of earnings news will turn into a flood the following week.

I'm not adding any new plays tonight. Stocks are short-term overbought and struggling with overhead resistance. The major indices look poised for profit taking. Positive earnings news is already baked into the market. Companies are going to have to really deliver better than expected results to keep this rally alive. Odds are pretty good that the market could see a correction lower in the second half of April. We will definitely see some individual stocks get crushed lower on disappointing data. I'm reluctant to open a bunch of new bullish positions here.

I would encourage investors to take a step back for the next couple of weeks and see how stocks react to the Q1 earnings data. Any pull back may end up being a new bullish entry point but at the same time a drop in the market now will look like a potential bearish double top pattern.


Play Updates

Stocks Lose Momentum

by James Brown

Click here to email James Brown


Closed Plays


MD has hit our profit target to exit.


Play Updates


Arch Coal Inc. - ACI - close: 34.53

04/09 update: Coal stocks peaked on Wednesday morning last week but ACI was already correcting lower a couple of days earlier. Shares have failed again near resistance in the $36-37 zone and they're currently resting on technical support near their 50-dam. A breakout past $37.00 would be bullish but until then I remain cautious. FYI: ACI is due to report earnings on April 26th.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.55/ 4.65

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 7.15/ 7.80

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: 15.78

04/09 update: AKS tagged a new five-week high on Wednesday morning but eventually settled with a 10-cent loss for the week. I remain cautious on AKS even though shares should have significant support in the $16.00-15.00 zone. This area is bolstered by the 200-dma near $14.50. I am not suggesting new bullish positions at this time. FYI: AKS is due to report earnings on April 26th.

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 $ 1.05/ 1.09

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 2.06/ 2.22

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: 63.60

04/09 update: Uh-oh! It was not a good week for ATI. The stock produced a bearish reversal pattern on Wednesday and the declines on Thursday and Friday confirmed the reversal lower. The breakdown under $65.00 and its 50-dma doesn't help either. It is starting to look like ATI is forming a potential bearish double top pattern. I would expect a decline toward support near $60.00 and its 100-dma. More conservative traders may want to lighten up on their position size. I am not suggesting new positions at this time. 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 $ 6.10/ 6.40

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $10.60/12.80

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: 37.23

04/09 update: It was a volatile week for BEAV but most of the volatility was higher! Shares rallied to a new six-week high of $39.49 on Thursday (+9.5% for the week) before giving back -2.9% on Friday. Broken resistance near $36.00 and its 50-dma should now be new support. Please note our new stop loss at $32.95. Remember, our target to exit is the $40.00 mark. FYI: BEAV is due to report earnings on April 25th. 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 $ 3.70/ 4.70

04/09/11 New stop loss @ 32.95
04/02/11 New stop loss @ 31.95

Current Target: $40.00
Current Stop loss: 32.95
Play Entered on: 02/23/11
Originally listed on the Watch List: 01/22/11


Bristol-Myers Squibb Company - BMY - close: 27.51 04/09 update: It was a bullish week for BMY with the stock up four out of the last five days. Shares are nearing significant resistance at the $28.00 level. Don't be surprised if BMY chops around the $28-27 area for a while until it builds up enough steam to push higher. I am not suggesting new positions at current levels. FYI: BMY is due to report earnings on April 28th.

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 $ 1.70/ 1.75

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 2.41/ 2.48

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: 81.80

04/09 update: Ever since the news hit that David Sokol, a potential successor for Warren Buffet, resigned from Berkshire on March 31st, the stock has been slipping lower. Now BRK has spent the last few days testing technical support at its 200-dma. The stock looks poised for a significant breakdown. More conservative traders may want to adjust their stops higher or lighten up on their position size. I am not suggesting new positions at this time.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 2.61/ 2.77

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.

Chart of BRK.B

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: 43.45

04/09 update: For a company that mines gold and silver, shares of BVN have not performed very well while the two commodities are breaking out to new highs. This weakness in BVN is worrisome. Shares are currently stuck under their 200-dma. Readers may want to wait for a close over $46.00 before considering new bullish positions.

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

- Current Positions -
Jan 5, 2011 - entry price on BVN @ 45.00, option @ 3.90
symbol: BVN1119F50 2011 JUN $50 call - current bid/ask $ 0.60/ 0.90

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: 75.37

04/09 update: It was an ugly week for BWA. Shares hit a new high on Monday and have been down ever since. The stock lost nearly six points and is now testing support near its 50-dma and its trendline of higher lows. The action last week has painted an ugly bearish reversal on its weekly chart. If the S&P 500 rolls over from current levels I would expect BWA to follow it lower and putting this trade in jeopardy of getting stopped out. I am not suggesting new positions at this time. FYI: BWA is due to report earnings on April 28th.

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 $ 2.85/ 3.70

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: 4.56

04/09 update: After consolidating sideways for more than a week shares of Citigroup broke out on April 6th but the rally has stalled near technical resistance at its 50 and 100-dma. Earnings are coming up on April 18th. Readers may want to wait and see how the market reacts to Citigroup's earnings news before considering new positions.

We still have four weeks left before Citigroup's 10-for-1 reverse stock split but I have yet to get a response from the CBOE or the Options Industry Council on how this reverse split will affect C's options.

The reverse split will occur after trading closes on May 6th and C will start trading at the new price on Monday, May 9th.

- 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 $ 0.27/ 0.28

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.58/ 0.60

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


CACI International - CACI - close: 60.06

04/09 update: The lack of follow through on the April 1st intraday bounce is a little disappointing but the pull back toward support near $60.00 can be used as a new bullish entry point. However, readers may want to wait. The major market indices look vulnerable to more declines and that could pull CACI lower toward its 50-dma or the $58.00 level. FYI: CACI is due to report earnings on May 4th.

Earlier Comments:
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.

- Current (small) Positions -
Apr 4, 2011 - entry price on CACI @ 62.04, option @ 3.30
symbol: CACI1117I65 2011 SEP $65 call - current bid/ask $ 2.05/ 2.30

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


Canadian Natl. Railway Co. - CNI - close: 73.88

04/09 update: CNI and the railroad industry ran into some profit taking last week. Now that CNI has declined under the $75.00 level we can look for a dip near the $72.50 area as a potential entry point for bullish positions. Our long-term target is $89.00. FYI: Earnings are due on April 26th.

- Current Positions -
Feb 28, 2011 - entry price on CNI @ 72.39, option @ 2.90
symbol: CNI1221A80 2012 JAN $80 call - current bid/ask $ 2.80/ 3.30

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


Costco Wholesale - COST - close: 76.41

04/09 update: Tuesday and Wednesday last week saw shares of COST failing under the $76.00 level. That changed on Thursday. The company reported same-store sales of +13.0% for March versus estimates of only +7.4%. Shares of COST gapped open at $76.37 on Thursday and rallied to $78.46 intraday. This is a bullish breakout past the major resistance near $75-76 from 2008. The stock hit some profit taking on Friday after Goldman Sachs downgraded the stock to a "neutral".

The 2012 January $80 call opened at $3.80 on Thursday. The 2013 January $85 call was trading near $5.05. I would still consider new bullish positions now or on dips near $75.00. Just bear in mind that if the market corrects lower from here that COST will not be immune. Shares could see a correction toward the 50-dma if the market sinks. Readers may want to start small and slowly build up a position. Our long-term targets are $89.50 and $99.00.

- Current Positions -
Apr 7, 2011 - entry price on COST @ 76.37, option @ 3.80
symbol:COST1221A80 2012 JAN $80 call - current bid/ask $ 3.80/ 3.95

- or -

Apr 7, 2011 - entry price on COST @ 76.37, option @ 5.05
symbol:COST1319A85 2013 JAN $85 call - current bid/ask $ 4.90/ 5.20

Chart of COST:

Current Target: $89.50, 99.00
Current Stop loss: 69.95
Play Entered on: 04/07/11
Originally listed on the Watch List: 01/29/11


Walt Disney Co. - DIS - close: 41.76

04/09 update: DIS has spent the last several days consolidating lower. I am still expecting a pull back toward support near $40 and its 100-dma, especially if the S&P 500 rolls over from current levels. I am not suggesting new positions at this time. FYI: DIS is due to report earnings on May 10th.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 4.65/ 4.75

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 6.70/ 6.90

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: 23.91

04/09 update: Be careful here! The trading in EAT has taken a turn for the worse. The reversal began on Wednesday and shares have fallen three days in a row. Friday's drop is a bearish breakdown under support near $24 and its 50-dma. This decline has produced an ugly bearish reversal pattern on the weekly chart. EAT still has some support near $23.50 but more conservative traders may want to consider an early exit now or lighten up your position size. You could exit now and avoid or minimize any losses. If the market corrects lower from here then odds are good that EAT will hit our stop loss. I am not suggesting new positions at this time. FYI: EAT is due to report earnings on April 27th.

- Current Positions -
Feb 23, 2011 - entry price on EAT @ 22.50, option @ $ 1.10
symbol: EAT1116G25 2011 JUL $25 call - current bid/ask $ 1.10/ 1.50

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: 15.33

04/09 update: Ford rallied toward $16.00 before running out of gas. Shares are now testing short-term support near $15.25 and its 50-dma. This dip to support looks like a new bullish entry point however I am concerned that the market's major indices look vulnerable to new declines. Readers may want to wait. If the market sells off then we might see Ford retest the $14.75 area again.

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 $ 1.99/ 2.02

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.38/ 1.45

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: 62.36

04/09 update: FISV is still consolidating sideways under resistance near the $63.00 level. I am not suggesting new positions at this time but a close over $64.00 might change that. FYI: FISV is due to report earnings on April 27th.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.40/ 2.80

Current Target: $74.75
Current Stop loss: 57.50
Play Entered on: 02/14/11
Originally listed on the Watch List: 01/29/11
Originally listed in the New Plays 02/12/11


SPDR Gold ETF - GLD - close: 143.66

04/09 update: New declines in the U.S. dollar and concerns over inflation are helping drive precious metals higher. Gold has broken out to new all-time highs and hit $1,476 an ounce this past week. After spending five months of consolidating sideways under the $140 level the GLD has also broken out to new highs. Currently our final target to take profits and exit is at $149.00. I have to admit that I am very, very tempted to raise our target price to $155 or even $165. Aggressive traders may want to reconsider what their exit plan is. The newsletter will stick with the $149.00 exit price.

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 $17.40/17.75

- Short Term Put -

Jan 18, 2011 - entry price on GLD @ 133.63, option @ 1.70
symbol: GLD1116P125 2011 APR $125 PUT - current bid/ask $ 0.00/ 0.03

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: 15.00

04/09 update: It was a quiet week for GT but momentum is fading. The stock looks like it's ready to correct lower. I would expect a dip toward the $14.00 area. I am not suggesting new positions at this time. 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 $ 2.40/ 2.50

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 3.60/ 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: 8.87

04/09 update: KEY did not make any progress last week. Shares have been bouncing around the $8.80-9.00 zone with overhead resistance at its 50-dma. Odds are growing that KEY will dip and retest support near $8.50 and its simple 200-dma. Readers can choose to either wait for another bounce near $8.50 or wait for a close over $9.20 as their new 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 $ 0.61/ 0.66

- or -

Mar 17, 2011 - entry price on KEY @ 8.60, option @ 1.35
symbol: KEY1319A10 2013 JAN $10 call - current bid/ask $ 1.07/ 1.25

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: 79.52

04/09 update: Investors bought the dip near $78.00 but LLL has been unable to break the bearish trend of lower highs. I wouldn't be surprised to see LLL stuck trading sideways until its earnings report on April 21st. 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 $ 8.40/ 8.60

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


Monsanto Co. - MON - close: 66.22

04/09 update: Watch out! Shares of MON are plunging. I warned readers that this week might be volatile thanks to the company's earnings report. MON reported earnings on April 6th with profit of $1.87 a share. That beat estimates of $1.85 but revenues were a minor miss at $4.13 billion compared to the $4.15 billion estimate. Furthermore, it appears that MON only managed to beat Wall Street's estimates due to an improvement in their tax rate. MON's management reaffirmed their full year guidance in the $2.72-2.82 zone but this is below Wall Street's estimate of $2.86 for the year.

Lack of improvement in their margins and worries that MON might be losing market share have sent the stock falling sharply with a drop from $74 to $66 in the last few days. More conservative traders will want to consider an early exit right now! I am not suggesting new positions at this time. There is a chance that MON will find support near $64.00 or at its simple 200-dma near $62.00. I am raising our stop loss to $61.75.

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 $ 5.70/ 5.85

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 7.25/ 7.50

04/09/11 New stop loss @ 61.75, Readers may want to exit early now.

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


PACCAR Inc. - PCAR - close: 51.28

04/09 update: PCAR struggled with resistance near $54.00 and has started to correct lower. We can use this dip in the $52-51 zone as a new entry point. However, with the major market indices looking vulnerable to more declines, odds are pretty good that PCAR will test support near $50.00 and its 200-dma. I would wait for a dip closer to $50.00 before considering new 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 $ 3.70/ 3.90

- or -

Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 8.00
PCAR1319A54.7 2013 JAN $54.70 call - current bid/ask $ 6.00/ 7.80

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: 58.62

04/09 update: I have been warning readers to expect a pull back into the $57.00-55.00 zone. I believe that could happen pretty soon. SMG just spent three days last week failing at resistance near the $60.00 mark. Personally, I would watch the 50-dma, currently near $55.25, and look for a dip near this moving average before considering new bullish positions.

Earlier Comments:
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/ 3.10

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


Southwestern Energy Co. - SWN - close: 40.55

04/09 update: Rising crude oil prices have not helped shares of SWN, a gas and oil company. The stock has corrected lower and is now testing prior resistance and what should be support near $40.00. SWN hit our buy-the-dip trigger at $40.50 on Thursday, April 7th. Technically I would still consider new positions now with SWN so close to support. However, the energy sector has not seen much benefit to rising oil prices. Investors are worried about demand destruction as fuel prices rise (consumers driving less). Readers may want to wait and see if SWN bounces from the $40 level first before considering new positions. You could always start with a small position to limit your risk and add to it as the trade progresses. Our long-term target is the $50-52.50 zone.

- Current (SMALL) Positions -
Apr 7, 2011 - entry price on SWN @ 40.50, option @ 2.90
SWN1221A45 2012 JAN $45 call - current bid/ask $ 2.89/ 2.96

- or -

Apr 7, 2011 - entry price on SWN @ 40.50, option @ 5.85
SWN1319A45 2013 JAN $45 call - current bid/ask $ 5.40/ 5.95

Chart of SWN:

Current Target(s): $50.00-52.50
Current Stop loss: 36.75
Play Entered on: 04/07/11
Originally listed on the Watch List: 04/02/11


Teva Pharmaceuticals - TEVA - close: 50.46

04/09 update: TEVA is not making any progress. The stock has been stuck in the $50-51 zone for over two weeks. This past week has seen every rally attempt fail near the descending 50-dma, which is a bearish development. If the stock breaks down under $50.00 again more conservative traders may want to abandon ship! Please note that I am raising our stop loss to $46.90. The low in July 2010 was $46.99. The low in March was $47.30. I am not suggesting new bullish positions at this time.

Earlier Comments:
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 $ 2.35/ 2.48

- or -

Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 3.35
symbol: TEVA1319A60 2013 JAN $60 call - current bid/ask $ 2.80/ 3.60

04/09 New stop loss @ 46.90
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: 16.33

04/09 update: USG saw a spike down toward its March lows but managed a bounce at $15.65. The stock is currently struggling with a bearish trend of lower highs. More conservative traders may want to exit early now to avoid or minimize any losses. 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 $ 1.25/ 1.50

- or -

Dec 20, 2010 - entry price on USG @ 15.25, option @ 3.00
symbol: USG1319A20 2013 Jan $20 call - current bid/ask $ 2.55/ 3.10

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


MEDNAX Inc. - MD - close: 67.90

04/09 update: Target achieved. MD rallied toward resistance near $70.00 and managed to hit a new two-year high at $70.48 on Wednesday. Our final target to exit and take profits was hit at $69.50 on April 5th. The option was trading with a bid near $7.00 at the time.

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

- Current Positions -
Feb 03, 2011 - entry price on MD @ 60.33, option @ 3.60
symbol: MD1120H65 2011 AUG $65 call - exit @ 7.00 (+94.4%)

04/05 Target Hit @ 69.50, Option @ 7.00 (+94.4%)
03/05 New stop loss @ 62.40
02/19 New stop loss @ 59.75
02/03 Trade triggered at $61.00, Option @ $3.60

Chart of MD:

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


Watch

Telecom Titan

by James Brown

Click here to email James Brown

Editor's Note:

I was considering a long-term trade on FMX, the beverage company that services Latin America, but the stock does not have LEAPS. If you're interested, look for a dip near $58.00 as a potential entry point.


New Watch List Entries

T - AT&T Inc.


Active Watch List Candidates

BA - Boeing Co.

HSY - Hershey Co.

JRCC - James River Coal Co.

PBR - Petrobras


Dropped Watch List Entries

COST and SWN graduated to the play list.


New Watch List Candidates:

AT&T - T - close: 30.71

Company Info

News that AT&T is trying to acquire T-Mobile to become the largest wireless service provider and bypass rival Verizon has given shares of T a significant boost. It's far from a done deal and AT&T will face plenty of red tape but Wall Street seems to like the combination. T has rallied to new two-year highs with the late March gains. Short-term traders could be tempted to buy the bounce from $30.00 last week. However, with the market's major indices looking poised for a correction I am suggesting we wait for a dip.

We will list a buy-the-dip entry point at $29.25. If triggered we'll use a stop loss at $26.95. FYI: AT&T is due to report earnings on April 20th (before the opening bell) and analysts are looking for a profit of 57 cents a share. Readers may want to wait until after we see the market's reaction to T's earnings report before considering new bullish positions. Our long-term target is the $36-40 zone.

Buy-the-Dip trigger: $29.25

BUY the 2012 January $30.00 call (T1221A30) current ask $2.07

- or -

BUY the 2013 January $30.00 call (T1319A30) current ask $2.70

Chart of T:

Originally listed on the Watch List: 04/09/11


Active Watch List Candidates:


Boeing Co. - BA - close: 73.47

04/09 update: I heard a lot of negative analysts comments about Boeing following the news stories about a Southwest airliner having to make an emergency landing after a crack in the fuselage turned into a significant hole. The rip in the metal skin of the plane was due to stress fractures. BA said these were not supposed to show up until 60,000 hours of use. Yet the cracks appeared at 30,000 hours. Now Boeing's 737s around the globe are going under new examinations and tests.

In spite of all the bad news shares of BA barely budged. The stock has been consolidating sideways in the $73-75 zone. Now Friday's move looks like a bearish reversal but that's not due to the news but merely a reaction to the wider market weakness on Friday. Big picture I don't see any changes from my prior comments. The stress fracture story is worrisome but Wall Street doesn't seem concerned. We will adjust our trade by limiting our position size to one half or one quarter your normal trade.

Our trigger to open positions remains at $76.50. We'll use a stop loss at $69.75. Our long-term targets are $89 and $104.

FYI: BA is due to report earnings on April 27th.

Breakout trigger: $76.50 <--- Small Positions Only!

BUY the 2012 Jan. $80 call (BA1221A80)

- or -

BUY the 2013 Jan. $90 call (BA1319A90)

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


Hershey Co. - HSY - close: 55.71

04/09 update: HSY continues to show relative strength. The stock has rallied (slowly) to new three-year highs. There is no change from my prior comments. 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.

Keep in mind that HSY is due to report earnings on April 26th. More conservative traders may want to wait and see how the market reacts to HSY's earnings before considering new positions (even if shares hit our trigger in the meantime). FYI: The Point & Figure chart for HSY is bullish with a $64 target.

Buy-the-Dip trigger: $52.25

BUY the 2012 $55 calls (HSY1221A55)

- or -

BUY the 2013 $55 calls (HSY1319A55)

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


James River Coal Co. - JRCC - close: 23.79

04/09 update: Coal stocks have been consolidating lower the last few days. We are still waiting for a dip. The plan is to buy call LEAPS on a dip at $22.50.

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

BUY the 2012 January $25 calls (JRCC1221A25)

- or -

BUY the 2013 January $27.50 calls (JRCC1319A27.5)

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


Petroleo Brasileiro (a.k.a. Petrobras) - PBR - close: 40.64

04/09 update: There energy sector has not seen much benefit from the steeply rising oil prices. Wall Street might be worried that if oil rises too fast then the industry could see demand destruction as consumers cut back on driving and organizations and governments start spending more money on alternative energies. Of course long-term the trend for oil and these oil companies is higher.

We are still waiting for PBR to dip under $40. I am suggesting a trigger at $39.00. More conservative traders could wait for a dip closer to $38.00 instead. 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