Option Investor
Newsletter

Daily Newsletter, Sunday, 4/24/2011

Table of Contents

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

Leaps Trader Commentary

Very Busy Week Ahead

by James Brown

Click here to email James Brown

Stocks saw a bit of a reversal last week. Instead of lousy earnings and positive economic data we had positive earnings and lousy economic data. That's not entirely true. Earnings results from the first week of the Q1 earnings season weren't that bad. The only thing lousy about them was investor reaction to the news. Thankfully that has changed and traders have taken a much more bullish tone with last week's earnings data. In response the U.S. stock market rallied off its lows from Monday, April 18th. The DJIA is at new two-year highs and the rest of the major indices are hot on its heels.

The U.S. wasn't the only one seeing positive headlines. Europe saw a rally thanks to successful debt auctions in countries like Spain and Portugal, two nations that are struggling with their debt burden. There seems to be a growing consensus that it's only a matter of "when" not "if" Greece will default on its debt but thus far this pessimism for Greece has been unable to derail the rally in stocks. Meanwhile strength in Europe has fueled gains for the euro currency, which rallied to 15-month highs against the U.S. dollar.

This weakness in the dollar, which fell to new multi-year lows against a basket of currencies, has continued to fuel big gains for the commodity space. It was an historic week for gold prices, which rallied past $1,500 an ounce for the first time ever. Silver continues to see very strong momentum with the precious metal trading over $45.00 an ounce for the first time in decades. The U.S. dollar looks oversold here and a bounce could spark some profit taking across the resource and commodity names but there is no denying the trend is lower for the dollar.

Weekly Chart of the U.S. dollar index:

Daily Chart of the U.S. dollar index:

Some of the economic data last week was pretty disappointing. The weekly initial jobless claims are ticking higher and came in at 403,000. This is the second week in a row it is over the 400K mark. One of the biggest surprises was the Philadelphia Federal Reserve Manufacturing survey (Philly Fed report). Economists were expecting a pull back from a 27-year high at 43.4 in March to 33.0 in April Yet the Philly Fed fell to 18.5 in April. It was the biggest one-month drop since October 2008. One report doesn't mark a trend but the decline was shocking.

Negative economic news was completely overshadowed by earnings data. Technology stocks stole the spotlight and Apple Inc. (AAPL) garnered a lot of attention with its record-setting quarter. It seems the company can do no wrong. Analysts were expecting a net profit of $5.37 a share. AAPL delivered $6.40 a share. Revenues came in at more than $24.6 billion. The company saw a huge increase in iPhone sales and they sold every iPad they could make. Several analyst firms raised their price targets on AAPL with a few of them at $425, $495, and $612 a share. AAPL may have been the most anticipated report but the biggest surprise and the one that probably had the biggest impact on the markets was Intel (INTC). Wall Street was expecting Intel to deliver 46 cents a share on revenues of $11.59 billion. Yet the company blew away the estimate with a profit of 56 cents a share and $12.85 billion in revenues. Even more impressive the company raised their Q2 guidance. Wall Street was caught off guard and INTC gapped higher, fueling strong gains for the semiconductor sector.

At the end of the holiday shortened week the S&P 500 index had rallied off its Monday lows near 1295 close just under resistance at its April highs near the 1340 level. From the Monday low to Friday's close it was a +3.2% rise. For the record the 2011 was set in February near 1344. A close over 1344 would be very bullish and probably spark another round of short covering. In the mean time the S&P 500 should still find some short-term support near 1320 and its 50-dma. If you really wanted to get technical you could argue that the S&P 500 may have formed an inverse head-and-shoulders pattern over the last three months. A close over the "neckline" could signal a new target at 1430.

Daily chart of the S&P 500 index:

The NASDAQ Composite has seen an equally impressive bounce. The index tested technical support at its 100-dma and then managed to close over its early April highs. Yet the NASDAQ remains under its February highs. Unfortunately this index is facing some heavy resistance in the 2825-2860 area dating back to its highs from 2007.

Daily chart of the NASDAQ Composite index:

The SOX semiconductor index got a big boost from Intel (INTC) this past week. The SOX's close over its 50-dma is bullish but the index is still trading under resistance in the 445 area. The SOX has been an anchor slowing the NASDAQ down for weeks but a close over the April highs would be another bullish signal for both indices.

Daily chart of the SOX semiconductor index:

One of the most encouraging indices is the small cap Russell 2000 index. The small caps continue to move with a bullish trend of higher lows and higher highs. As long as this trend holds the market's rally should continue.

Daily chart of the IWM Russell 2000 ETF:

This coming week we'll see a lot more economic data. Monday will bring the new home sales for March. Tuesday we'll see the Case-Shiller 20-city home price index, expect a decline. Tuesday also brings the April consumer confidence numbers. The durable goods orders come out on Wednesday but the big event Wednesday is the FOMC meeting. This meeting ends early and Fed chief Ben Bernanke will hold his first ever post-meeting press conference. If Bernanke says something wrong he could spark some serious volatility in the stock market. Thursday and Friday will bring several reports but the biggest ones are the Q1 GDP estimate, pending home sales, and the Chicago PMI. In spite of all the reports, the biggest events, outside of the Fed meeting and Bernanke's press conference, will remain corporate earnings. This is one of the busiest weeks of the season with hundreds of companies reporting.

Big picture the path of least resistance still seems to be up. Yet until we see the S&P 500 close at a new high I believe the risks of a double top or failed rally pattern near resistance remain elevated. On the positive side of things, the earnings sentiment has turned a lot more bullish. Yet the deeper we move into earnings season the weaker the earnings results tend to get.

I am still concerned that the upward momentum could slow due to the "sell in May and go away" crowd. The S&P 500 is already up +6% for the year. Investors could be tempted to lock in gains now and come back in October. On the other hand the stock market seems to be growing more resilient to any outside shocks. The civil war in Libya? No problem. Violence in Nigeria, another major oil producing country? No problem. Violence against demonstrators in the middle east? No problem, although there could be a reaction to the news out of Syria with over 100 protestors shot dead on Friday.

The rising price of oil and gasoline remains a worry. Eventually fuel prices will get high enough to finally impact consumer spending. You would think this is bullish news for the oil companies but there are already worries about demand destruction as prices rise past $4.00 to over $5.00 a gallon in some parts of the U.S. I'm curious if we will hear new cries for windfall taxes against the oil companies when ExxonMobil (XOM) reports earnings this week (of course they shouldn't since most oil companies only have margins of 8% versus a lot higher margins for companies like AAPL, GOOG, and MSFT).

Last week I cautioned readers that these two weeks (last week and this week) are pivotal for the market. We should either see a breakout past resistance at the 2011 highs or a failed rally and the beginning of a new correction lower. While I'm optimistic here given last week's performance I remain cautious. Anything could happen between now and next weekend.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks have produced an impressive turnaround in the last few days. Now the S&P 500 index is once again facing resistance near its 2011 highs. Will it break out higher this time or will it fail? We're facing a huge week of earnings news plus several economic reports and an FOMC meeting, not to mention the very first post-FOMC meeting press conference.

This past week did see some volatility. BWA and TEVA have been stopped out. Meanwhile I'm suggesting an early exit from our KEY and LLL trades.

PCAR has a new stop loss.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.



New Plays

Too Much or Not Enough

by James Brown

Click here to email James Brown

Editor's Note:

I struggled to find any worthy candidates for our LEAPS newsletter this weekend. There were plenty of short-term bullish candidates but nothing matched up with our nine-month to twelve-month or longer time frame. Potential candidates had either moved too much this past week, or didn't move enough. Or they had earnings coming up in just a few days or they had options but they didn't have LEAPS or the option spreads were too wide. Whatever the case I couldn't find anything worthy of the newsletter tonight in spite of looking at nearly 1,000 stocks.

With the S&P 500 still trading under resistance at its 2011 highs I remain cautious. New highs in the DJIA are nice. The bullish pattern of higher lows and higher highs in the small cap Russell 2000 is very encouraging. If we can get past this week, with another huge number of earnings releases and the FOMC meeting, without any significant declines then I might take a less cautious stance on potential trades.


Play Updates

Could Be A Volatile Week

by James Brown

Click here to email James Brown


Closed Plays:

BWA and TEVA were stopped out. We're exiting early with KEY and LLL.


Play Updates


Arch Coal Inc. - ACI - close: 34.64

04/23 update: It appears that short-term support near $32.50 is holding for ACI. The stock is rebounding higher and just cleared some resistance near $34.00 and several of its key moving averages. On a short-term basis things look bullish for ACI but the stock is still stuck in the middle of its trading range with resistance in the $36-37 area.

This could be a very important week. ACI is due to report earnings on April 26th before the opening bell. Analysts are looking for a profit of 32 cents a share. There is a good chance that ACI's earnings could be the fuel that finally kicks the stock out of this range but the stock could honestly go either way here. I am not suggesting new positions ahead of the earnings report.

Please note that I am adjusting our exit strategy. We want to sell half of our position at $39.75. Our final, long-term target will be $44.75.

- Current Positions -
Nov 22, 2010 - entry price on ACI @ 30.15, option @ 3.90
symbol: ACI1221A35 2012 JAN $35 call - current bid/ask $ 4.20/ 4.30

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.45/ 7.10

04/23/11 Adjusted targets to $39.75 and $44.75
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, $44.50
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: 16.07

04/23 update: AKS posted a gain for the week and closed above technical resistance with a move above several key moving averages. Yet the stock has not been able to rally past its April highs. Shares could see a lot of volatility this week as AKS is due to report earnings on April 26th before the opening bell. Analysts are looking for a profit of 32 cents a share. I am not suggesting new positions ahead of the earnings report. More conservative traders may want to adjust their stops.

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 $ 0.98/ 1.03

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 1.92/ 2.57

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: 69.40

04/23 update: ATI was showing strength early last week and hit new two-year highs with an intraday move over $70.00 on Tuesday. The stock has been hovering under resistance near $70.00 as investors wait for earnings. ATI is due to report earnings on April 27th before the opening bell and Wall Street expects a profit of 50 cents a share. I am not suggesting new bullish positions ahead of the earnings report. More conservative traders may want to adjust their stops or even take profits early before ATI announces earnings.

- Suggested Positions -
Mar 10, 2011 - entry price on ATI @ 60.78, option @ 6.40
symbol: ATI1221A70 2012 JAN $70 call - current bid/ask $ 8.80/ 9.10

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $11.90/16.00

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: 37.26

04/23 update: Buckle your seatbelt. Monday could be a volatile day for BEAV. The company reports earnings Monday morning before the opening bell. Earnings estimates are at 46 cents a share. I am not suggesting new positions at this time. Currently our target to exit is the $40.00 level. More aggressive traders could aim higher. If BEAV moves lower look for support near $35.00 and then at the 200-dma.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 3.60/ 3.90

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: 27.82

04/23 update: A week has gone by and BMY has barely moved. Shares are still consolidating under resistance at $28.00. That may not change as investors wait for BMY's earnings. The company is due to report on April 28th before the opening bell. Analysts expect a profit of 53 cents a share. I am not suggesting new positions at this time. More conservative traders may want to tighten their stop loss!

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 $ 1.79/ 1.83

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 2.45/ 2.57

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: 82.36

04/23 update: BRK.B gave us another scare with a breakdown under its 200-dma and an intraday dip under the $80.00 level but shares are bouncing from this psychological support level. Now shares are back above their 200-dma and testing technical resistance at its 100-dma. The Sokol sell-off seems to be over now. On a positive note the weekly chart has produced a bullish engulfing candlestick reversal pattern but this needs to see confirmation. 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 $ 2.84/ 2.94

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


Citigroup, Inc. - C - close: 4.55

04/23 update: Citigroup managed to post a gain for the week after beating earnings estimates by a penny. Shares did tag technical support at their 200-dma on the 18th and the rebound has currently stalled near resistance at $4.60 and its 50-dma. Overall the financials are still lagging behind the rest of the market. Currently I am not suggesting new positions at this time but a close over $4.70 might change my mind.

We still have about two weeks left before Citigroup's 10-for-1 reverse stock split. 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 $ 0.21/ 0.23

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - current bid/ask $ 0.54/ 0.56

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: 60.14

04/23 update: CACI gave us a scare on Monday with a breakdown under technical support at the 50-dma. Thankfully the stock has recovered but the bounce has stalled near $60.00. We do not want to launch new positions in front of the earnings report due out on May 4th. More conservative traders might want to consider a stop loss closer to $58.00.

Earlier Comments:
I do consider this a more aggressive trade and 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 $ 1.85/ 2.05

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: 73.23

04/23 update: It was a volatile week for CNI but the stock appears to have produced a short-term bottom with the dip and bounce from the $71.00 level. I wouldn't get too comfortable. Railroad companies have been delivering generally positive earnings but investors have been selling the news. CNI is due to report earnings on April 26th after the closing bell. Wall Street has set their estimates at 88 cents a share. I am not suggesting new positions in front of the earnings report. More conservative traders may want to raise their stop loss closer to $70 or $71. Our stop is at $69.00. Our long-term target is $89.00.

- Current Positions -
Feb 28, 2011 - entry price on CNI @ 72.39, option @ 2.90
symbol: CNI1221A80 2012 JAN $80 call - current bid/ask $ 2.40/ 2.70

04/02/11 New stop loss @ 69.00

Current Target: $89.00
Current Stop loss: 69.00
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Costco Wholesale - COST - close: 78.87

04/23 update: COST has rallied to a new all-time high and looks poised to challenge $80 soon. I would not launch new positions at these levels. Wait for a dip. 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 $ 4.75/ 4.90

- or -

Apr 7, 2011 - entry price on COST @ 76.37, option @ 5.05
symbol:COST1319A85 2013 JAN $85 call - current bid/ask $ 5.55/ 6.00

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: 42.27

04/23 update: We have been expecting a dip toward $40.00 for DIS. Shares hit $40.46 and the stock bounced from technical support at its 100-dma on April 18th. Now shares are testing technical resistance at the 50-dma. 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 $ 4.80/ 4.90

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 6.75/ 7.00

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

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


Brinker International - EAT - close: 24.75

04/23 update: EAT rallied back toward its 2011 highs and stalled. Earnings are coming up this week so I would expect EAT To consolidate sideways until the report. The company should announce on April 27th before the opening bell. Analysts expect to see a profit of 45 cents a share. I am not suggesting new bullish positions at this time.

- Current Positions -
Feb 23, 2011 - entry price on EAT @ 22.50, option @ $ 1.10
symbol: EAT1116G25 2011 JUL $25 call - current bid/ask $ 1.35/ 1.65

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: 15.43

04/23 update: Investors bought the dip again near support at $14.50 and its 200-dma. The rally past $15.00 and its 50-dma is bullish. While I would like to buy this bounce I suggest we wait. Ford is due to report earnings on Tuesday morning (April 26th) before the market opens. Wall Street is expecting a profit of 50 cents a share. Let's wait and see how investors react to the earnings news before we consider new positions.

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 $ 1.95/ 1.99

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.29/ 1.39

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: 63.75

04/23 update: FISV temporarily hit a new all-time high over $64.00 this past week. The stock looks poised to move higher but I suspect FISV will continue to consolidate sideways until we see its earnings report. FISV should announce on April 27th after the closing bell. Estimates are for $1.04 a share. We don't want to launch positions in front of earnings.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.75/ 3.10

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: 146.74

04/23 update: It was an historic week for gold. The U.S. dollar's drop to new multi-year lows and worries over inflation helped lift gold past $1,500 an ounce for the first time ever. The GLD also hit historic highs. Now the commodity looks a little short-term overbought. I would expect a dip but the trend is up.

Last week I suggested that conservative traders stick to our prior plan and exit our GLD calls at $149.00. Currently the newsletter is taking a more interactive approach. We'll try and ride this move higher and continue to adjust our stop losses. At the moment we have a final target at $159.00 and a stop at $139.40.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 12.45*
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $19.80/20.05

*Adjusted entry price from $10.75 to $12.45.

04/16/11 New stop loss @ 139.40, new exit target @ $159
*04/16/11 April put has expired. $1.70 added to our cost.
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: 15.96

04/23 update: It was a bullish week for GT with the stock breaking out from its consolidation and closing at new 52-week highs. The move is bullish and I'm tempted to launch positions here. However, GT is due to report earnings on April 29th and I would hesitate to launch positions in front of earnings. Analysts are expecting a profit of 12 cents a share. 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 $ 2.90/ 3.00

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - current bid/ask $ 4.20/ 4.40

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


James River Coal Co. - JRCC - close: 22.77

04/23 update: JRCC only produced a minor gain for last week. More importantly it looks like shares may have set a new short-term bottom with the bounce from the $21.35 area. Earnings are coming up near the end of April or early May so I would hesitate to launch positions here. Our long-term target is $29.50. We do want to keep our position size small to limit our risk.

- Current Positions -
Apr 12, 2011 - entry price on JRCC @ 22.50, option @ 3.10
symbol: JRCC1221A25 2012 JAN $25 call - current bid/ask $ 2.60/ 2.90

- or -

Apr 12, 2011 - entry price on JRCC @ 22.50, option @ 4.70
symbol: JRCC1319A27 2013 JAN $27 call - current bid/ask $ 2.65/ 5.70

Current Target: $29.50
Current Stop loss: 19.90
Play Entered on: 04/12/11
Originally listed on the Watch List: 01/22/11


Monsanto Co. - MON - close: 67.52

04/23 update: Little has changed for MON in a week. Traders bought the dip again near $66.00 but the rebound has stalled near $68.00. MON is suffering a bearish trend of lower highs and lower lows.

Once again I'm suggesting that more conservative traders may want to consider an early exit. I am not suggesting new positions at this time. If the weakness continues I'm expecting a correction toward support near the $63.00-62.50 area and its 200-dma.

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 $ 5.90/ 6.00

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 7.30/ 7.80

74/09/11 New stop loss @ 61.75, Readers may want to exit early now.

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


Petroleo Brasileiro (a.k.a. Petrobras) - PBR - close: 38.22

04/23 update: The April sell-off continued until PBR hit technical support at its 200-dma (near $36). I cautioned readers to look for this dip and the bounce can be used as a new entry point. However, PBR now faces likely resistance at its 50-dma and the $40 level overhead. Long-term I remain bullish on PBR and the oil sector in general.

We have a stop loss at $35.75. The plan was to keep our position size small because PBR can be a volatile stock. Our long-term target is $53.00.

- Current (SMALL) Positions -
Apr 12, 2011 - entry price on PBR @ 39.00, option @ 3.35
symbol: PBR1221A40 2012 JAN $40 call - current bid/ask $ 2.79/ 2.86

- or -

Apr 12, 2011 - entry price on PBR @ 39.00, option @ 3.15
symbol: PBR1319A45 2013 JAN $45 call - current bid/ask $ 2.86/ 2.98

Current Target(s): $53.00
Current Stop loss: 35.75
Play Entered on: 04/12/11
Originally listed on the Watch List: 03/26/11


PACCAR Inc. - PCAR - close: 53.27

04/23 update: PCAR's earnings were positive. The company beat on revenues and beat earnings estimates by four cents. The stock rallied on the news and is now challenging resistance near its early April highs. I would expect a dip here but we can use dips in the $52-50 zone as a new entry point.

Please note our new stop loss at $46.45. More conservative traders may want to use a higher stop loss.

FYI: 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 $ 4.30/ 4.60

- 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/ 8.30

Current Target(s): $58.00, 64.00
Current Stop loss: 46.45
Play Entered on: 03/21/11
Originally listed on the Watch List: 03/19/11


Scotts Miracle Grow Co. - SMG - close: 57.48

04/23 update: SMG is still bouncing from its test of the 50-dma but the stock isn't making much progress. The stock has been struggling with resistance in the $57.50 area. The trend is up but I'm a little hesitant to launch positions this close to earnings (expected on May 3rd).

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 $ 2.00/ 2.20

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: 40.54

04/23 update: Crude oil and the oil sector have continued to bounce from their April lows. SWN is now above round-number resistance at the $40.00 level. The close over $40.50 looks like a new bullish entry point. However, readers may want to wait until after the earnings report on April 28th before considering new positions. SWN reports after the market's closing bell and analysts are looking for a profit of 39 cents a share.

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 $ 2.59/ 2.65

- or -

Apr 7, 2011 - entry price on SWN @ 40.50, option @ 5.85
SWN1319A45 2013 JAN $45 call - current bid/ask $ 4.95/ 5.35

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



CLOSED Plays


BorgWarner Inc. - BWA - close: 76.94

04/23 update: Hmmm... was our stop loss too tight? Were market makers trying to trigger some stops? BWA found support near $70.00 (actually 70.07) on March 15th. Yet this past week shares dipped to $69.26 before bouncing back above the $70.00 level on April 18th. Our stop loss was hit at $69.75 closing this trade. After a painful two-week sell-off from its April highs now BWA is bouncing with a move from $69.26 to almost $77 in four days.

I warned readers that BWA was volatile but this is still frustrating. 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 - exit @ $1.25 (-70.2%)

04/18 Stopped out @ $69.75, Option @ $1.25 (-70.2%)

Chart of BWA:

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


KeyCorp - KEY - close: 8.35

04/23 update: KEY reported earnings on April 18th and investors were unhappy with the results. Shares have now fallen below support near $8.50 and below technical support at the 200-dma. I am throwing in the towel on KEY. Bears could argue the recent declines could help shape the finishing touches of a bearish head-and-shoulders pattern. I am suggesting we exit positions immediately to cut our losses.

- Current Positions -
Mar 17, 2011 - entry price on KEY @ 8.60, option @ 0.87
symbol: KEY1221A10 2012 JAN $10 call - exit bid $0.39 (-55.1%)

- or -

Mar 17, 2011 - entry price on KEY @ 8.60, option @ 1.35
symbol: KEY1319A10 2013 JAN $10 call - exit bid $0.58 (-57%)

04/23/11 Exit early. Options @ -55% & -57%

Chart of KEY:

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


L-3 Communications - LLL - close: 77.69

04/23 update: That's close enough for me. Last week I expressed my concern that defense names might struggle as congress seeks to cut the U.S. budget. However, instead of exiting a week ago I suggested we exit on a bounce at $77.75. Well LLL rallied to $77.71 on Thursday. Let's go ahead and abandon ship now.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - Exit @ $6.80 (+17.2%)

04/23/11 Exit early @ 77.69, Option @ 6.80 (+17.2%)
04/16/11 Plan on an exit soon! New exit target 77.75
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

Chart of LLL:

Current Target(s): $77.75
Current Stop loss: 73.75
Play Entered on: 11/11/10
Originally listed on the Watch List 11/06/10


Teva Pharmaceuticals - TEVA - close: 45.01

04/23 update: Ouch! Biotechs can be tough to trade. A week ago I wrote about news from rival Biogen (BIIB) making progress with its multiple sclerosis drug sending shares of TEVA lower. This past week BIIB reported earnings and offered even more news on its latest trials for their MS drug, a drug that will rival TEVA's treatment. Wall Street is obviously worried that BIIB's treatment could spell lowered sales for TEVA as shares of TEVA gapped open almost ten percent lower on Thursday.

Thursday saw TEVA opened lower at $45.81. Our stop loss was $46.90 so the play was immediately closed.

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 - exit @ $1.05 (-56.2%)

- or -

Mar 11, 2011 - entry price on TEVA @ 49.00, option @ 3.35
symbol: TEVA1319A60 2013 JAN $60 call - exit @ $2.07 (-38.2%)

04/21 Stopped out on gap down. Options @ -56.2% & -38.2%
04/09 New stop loss @ 46.90
03/19 New stop loss at $45.90

Chart of TEVA:

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


Watch

Earnings Plus an FOMC meeting

by James Brown

Click here to email James Brown

Editor's Note:

The tone of trading has improved significantly in the past week. The DJIA has broken out to new multi-year highs and the S&P 500 and the NASDAQ Composite may not be far behind. However, we are still in the very middle of earnings season. Anything can happen and individual stocks could see huge volatility as investors react to earnings news. Plus, this week we'll hear from the Federal Reserve and see the very first post-FOMC meeting press conference with Ben Bernanke. Thus, while I am positive on the markets I am cautious here. We are not adding any new watch list candidates tonight.

I am adding some stocks to my radar screen. These might have potential but I'm not ready to list them yet. They are: ORCL, DOW, PCX, UNH and ZMH. Last week's radar screen candidates were: KO, PEP, MCD, and UN.


New Watch List Entries

None, no new watch list candidates


Active Watch List Candidates

BA - Boeing Co.

HSY - Hershey Co.

T - AT&T Inc.


Active Watch List Candidates:


Boeing Co. - BA - close: 75.44

04/23 update: Shares of BA are turning things around. The stock is up six days in a row, which would suggest investors are no longer worried about fracturing airplane hulls or budget cuts in the U.S. defense budget. BA is nearing its 2010 highs near $76.00. Currently our plan is to buy calls when shares hit $76.50. However we want to keep our position size very small to limit our risk. Furthermore, cautious traders may want to wait to see how the market reacts to BA's earnings report before considering new positions. The company is due to report earnings on April 27th, before the opening bell.

We'll use a stop loss at $69.75. Our long-term targets are $89 and $104.

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

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


Hershey Co. - HSY - close: 56.75

04/23 update: HSY's current rally is almost three months old. Shares have stalled near $57 as investors wait for the company's earnings report. Odds are pretty good that HSY could see some profit taking after its earnings announcement no matter how good the results are just because the stock is so overbought at the moment. HSY announces on April 26th prior to the opening bell.

At the moment we have a buy-the-dip entry point at $53.00 and a stop loss at $49.45. Our long-term targets are $60 and $64.

Buy-the-Dip trigger: $53.00

BUY the 2012 $55 calls (HSY1221A55)

- or -

BUY the 2013 $55 calls (HSY1319A55)

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


AT&T - T - close: 30.68

04/23 update: Earnings for AT&T have come and gone and there was no profit taking. The company reported a profit of 57 cents a share with revenues of $31.25 billion. Wireless subscribers rose to 97.5 million. Overall the report was pretty much in-line with expectations. Shares of AT&T remain stuck in their $30-31 trading range.

More aggressive traders may want to consider bullish positions now or consider a breakout entry point above $31.00. I remain a little bit cautious here, especially with the S&P 500 still trading under resistance. I'm leaving our trigger at $29.25 for the moment.

If we are triggered at $29.25 we'll use a stop at $26.95. 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

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