Option Investor
Newsletter

Daily Newsletter, Sunday, 5/1/2011

Table of Contents

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

Leaps Trader Commentary

Earnings Fuel New Market Highs

by James Brown

Click here to email James Brown

It was a great week to be bullish on stocks. Better than expected earnings results, easy-going Fed policy, and a falling U.S. dollar all overshadowed lackluster economic data. The market powered past resistance to close at new two-year highs. Maybe the market has selective memory. Concerns over Europe's debt problems? Forgotten. Libya's civil war? Forgotten. Rising oil and the impact $5 gas might have on the consumer? Probably not forgotten but definitely being ignored.

The U.S. stock market just ended the best six months of the year with a bang! The S&P 500 index rose +1.9% for the week. The NASDAQ composite was up +1.8%. The Russell 2000 small cap index and Dow Industrials were up +2.3% and +2.4%, respectively. Yes, the end of April marks the end of the best six months of the year. That's why you probably heard so much about the "sell in May and go away" strategy.

Historically stocks produce the best returns from November through April year after year after year. Obviously there are exceptions. The talking heads on CNBC seemed to be doing everything in their power to convince you, the viewer, that selling in May and going away would be a foolish strategy this year. You know, because this time it's different. Now I'm not suggesting that we "sell in May" but the tone on CNBC seemed a little too eager but I'm not here to bash television tonight. I will point out that not only are the market's major indices at two-year highs but that some of them are at all-time highs like the small cap Russell 2000, Dow transports (and the individual railroad index), and the healthcare index.

Fueling the rally was another very strong week of corporate earnings. More than 60% of the S&P 500 components have reported their Q1 earnings. Only 15% of the companies reporting have missed estimates. That's better than normal. We're past the heaviest two weeks of earnings. Corporate reports will continue to crowd the headlines for the next couple of weeks but we're in the home stretch and these will likely have less of an effect on the market as a whole. Investors focus will likely return toward economic data.

Speaking of economic data this past week the reports were less than inspiring. The U.S. Q1 GDP estimate came in low. Consumer confidence was flat. The ISM Chicago number is declining. Plus, the weekly initial jobless claims came in worst than expected yet again. Weekly jobless claims have been above the 400,000 level the last few weeks and they're getting worse. This past week they hit 429,000 when economists were only expecting 390,000. The recent trend of rising claims does not bode well for the upcoming jobs report due out this Friday. Currently economists are expecting +145,000 jobs for April, which is a drop from March's +216K.

One of the biggest events this past week was the FOMC meeting on Wednesday. As expected there was no change in rates. The Fed said they see the economy growing at a "moderate pace" which is a bit of a verbal downgrade from their prior comments. Of course this means they will keep rates low for the foreseeable future and the Fed's statement kept the "extended period" language. The group of Fed governors downgraded their 2011 GDP forecast from a range of +3.4% to 3.9% down to +3.1% to 3.3%. Last week's meeting was unique in that Federal Reserve Chairman Ben Bernanke held his very first post-meeting news conference with reporters. Evidently the market liked his responses and stocks rallied into the close on Wednesday. Precious metals also saw a huge boost from his comments.

Gold and silver were some of the best performers last week. The U.S. dollar continues to sink and fell to new multi-year lows again. A falling dollar is great for the country's debt problems since the debt is worth less every day. A falling dollar isn't so great if you get paid in dollars or buy stuff with them. Food inflation is on the rise and a declining dollar is bullish for commodities since it takes more dollars to buy them. The combination of inflation fears and dollar weakness pushed gold and silver to new highs. Gold rocketed toward $1,570 an ounce on an intraday basis. Meanwhile silver came close to the $50 an ounce level on an intraday basis. Silver's old 1980 high was $50.50. Gold is up +8% for the month but silver is up +22%. Both metals look very short-term overbought and due for some profit taking. Considering the dollar is oversold, these trends could reverse at any moment.

Weekly Chart of the U.S. dollar index:

Weekly Chart of the GLD gold ETF:

Weekly Chart of the SLV silver ETF:

The big cap S&P 500 index has rallied to new two-year highs. The close over 1350 helps alleviate worries about a bearish double top pattern. The next level of likely resistance is the 1400 area. Beyond that it would be the May 2008 peak near 1440. On a short-term basis the S&P 500 is a little bit overbought. I suspect traders would jump in to buy the dip in the 1350-1340 zone.

Daily chart of the S&P 500 index:

The NASDAQ composite's breakout past the 2007 highs near 2860 is very positive. Yet the NASDAQ also looks short-term overbought here. The February 2011 high near 2840 could offer some support. Otherwise the NASDAQ is probably looking at a dip toward the 2815-2800 area.

Daily chart of the NASDAQ Composite index:

Intel (INTC) helped launch a reversal in the semiconductor sector two weeks ago. Shares of INTC are still climbing and hit new multi-month highs on Friday. The stock actually looks very, very short-term overbought and due for some profit taking. My concern is that when that profit taking hits it will have a very negative impact on the SOX index, although broken resistance near $22.00 for INTC should be new support. The SOX index has climbed to new six-week highs and closed back above its 50-dma.

Daily chart of the SOX semiconductor index:

One of the most encouraging signals in the market is a new high for the small cap Russell 2000 index. After a two-week bounce the small caps could see a dip but it continues to build on a bullish trend of higher highs and higher lows.

Daily chart of the IWM Russell 2000 ETF:

We have a very busy economic calendar this week. I'm not going to list everything but some of the highlights will be the ISM index, factor orders, ADP employment report, ISM services, and of course the non-farm payrolls (jobs) report. The ISM comes out on Monday. The ISM services and ADP report are released on Wednesday. The jobs report will come out Friday morning.

Looking ahead the trend is up but there are definitely some potholes in the road. On a very short-term basis the first few days of this week could be strong. It's a new month and fund managers normally put new money to work in the market. Thus the market is likely to grow even more overbought before it seems some normal profit taking. Things might get quiet on Thursday as we wait for the jobs report on Friday morning. Although lately even a disappointing jobs numbers has not been able to derail this rally. Any dip could just be another entry point for the bulls.

I can't predict what's going to happen but it wouldn't surprise me to see some selling or maybe a sideways market the last couple of weeks of June. The Fed's QE2 program is set to expire at the end of June. Currently there is a lot of unknowns surrounding that event. What will happen to the bond market and the U.S. debt auctions once QE2 is over? How will that impact the dollar? Fortunately, that's almost nine weeks away.

There is a good chance that Europe's debt problems will flare up again in the next several weeks and that could always have an impact on stocks. I'd also keep an eye on oil and gasoline prices. Gas prices tend to rise in the summer and they're already in the $4-$5 range in parts of this country. How much higher can fuel prices go before they start to impact the consumer-driven economy? Wal-mart (WMT) issued some sobering comments this past week. Many of their customers live paycheck to paycheck and WMT's end of month sales are falling as consumers run out of money toward the end of the month.

I've been telling readers that the last two weeks were pivotal for the market with earnings and the FOMC meeting. There is no arguing that the bulls have clearly won the battle. The trend is up and we should be looking for buy-the-dip entry points.

Sunday Night Update: President Obama has informed the nation that the world's most-wanted man, Osama Bin Laden, has been killed. This news could help drive stocks higher on Monday.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

GT hit our profit target on Friday thanks to a strong earnings report. Gold is soaring to new highs and our GLD trade is above the $150 level. This ETF looks very overbought and readers may want to take profit early right now.

ATI, BEAV, and COST all have new stop losses.

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

Breakout Higher!

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market's major indices are in breakout mode with new two-year highs or better for the entire lot of the Dow Industrials, S&P 500, NASDAQ composite, and the Russell 2000 small cap index. The Dow transports, railroads, and healthcare indices are also at all-time highs. The bulls are definitely in control. It would seem that the "don't fight the Fed" strategy is still working.

The market's strength last week is very encouraging and we're adding new candidates to the watch list. Stocks now look a little bit overbought so we want to see a dip before initiating new long-term trades, so no new trades tonight, although Boeing (BA) did graduate to the play list last week.

One stock you might want to look at is FormFactor, Inc. (FORM). This is a semiconductor company and the chip stocks have seen significant improvement in the last week. FORM doesn't have LEAPS but I would still be tempted to buy calls on it if shares can breakout and close over resistance near the $11.00 level. After several months of building a base in the $8.50-11.00 zone, a close over $11.00 could signal a new leg higher.


Play Updates

Goodyear Tire Soars Higher on Earnings

by James Brown

Click here to email James Brown


Closed Plays


GT hit our profit target. The play is closed.


Play Updates


Arch Coal Inc. - ACI - close: 34.30

04/30 update: ACI didn't make much progress this past week in spite of a positive earnings report. The company beat estimates by a penny, beat on revenues and raised their guidance. The stock is still bouncing around the $32-35 zone. I'm not suggesting new positions at this time. However, if ACI can eventually breakout of this four-month trading range we may consider new positions.

Our plan is 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 $ 3.80/ 3.95

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 6.40/ 6.55

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: 16.25

04/30 update: AKS posted a gain for the week but the stock didn't make much progress. The company reported earnings on the 26th and beat estimates by 9 cents but missed on the revenue number. Shares were upgraded following the earnings report and the stock rallied from $16 to $17 on the news. Yet investors have been selling into strength. AKS is stuck under resistance at $17. The only positive I see right now is the bullish trend of higher lows. There has been some bullish comments about rising steel demand globally but AKS isn't seeing a lot of demand for its stock right now. Readers might want to raise their stops closer to the simple 200-dma.

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 $ 0.96/ 1.02

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 2.28/ 2.43

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: 72.00

04/30 update: ATI rallied to new two-year highs and broke out past resistance near $70.00. The bullish move was fueled by a strong earnings report. ATI reported on the 27th and beat estimates by 9 cents a share. The company reaffirmed their earnings guidance. Shares look a little short-term overbought with a three-week rally from $62 to $72. I am not suggesting new positions at this time.

Please note that I am adjusting our first target to take profits from $75.00 down to $74.50. We'll move our final, long-term target to $84.50. I am moving our stop loss from $59.00 to $61.90.

- Suggested Positions -
Mar 10, 2011 - entry price on ATI @ 60.78, option @ 6.40
symbol: ATI1221A70 2012 JAN $70 call - current bid/ask $10.10/10.30

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $15.10/15.70

04/30/11 New stop loss @ 61.90
04/30/11 Adjusted targets to $74.50 and $84.50
04/02/11 New stop loss @ 59.00

Current Target: $74.50, and $84.50
Current Stop loss: 59.00
Play Entered on: 03/10/11
Originally listed on the Watch List: 02/05/11


Boeing Co. - BA - close: 79.78

04/30 update: Our new play on BA is off to a strong start. The plan was to launch bullish LEAPS positions at $76.50. BA hit our trigger on April 27th. The 2012 January $80 call was trading near $4.50. The 2013 Jan. $90 call was at $4.95. The company reported earnings on April 27th and beat Wall Street's estimates by 8 cents a share. Revenues were a miss at $14.91 billion versus $15.13 billion. Investors must have been expecting worse. In the next two days BA garnered a couple of upgrades. The stock is now trading at new two-year highs.

On a short-term basis the $80 level is probably resistance and I would expect a dip back toward the $76-75 area. I would use a pull back toward this zone as our next entry point to buy calls. Our long-term targets are $89 and $104.

- Current Positions -
Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.50
symbol: BA1221A80 2012 JAN $80 call - current bid/ask $ 6.15/ 6.25

Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.95
symbol: BA1319A90 2013 JAN $90 call - current bid/ask $ 5.95/ 6.10

04/27/11 Play opened. Small positions.

Chart of BA:

Current Target: $89.00, and $104.00
Current Stop loss: 69.75
Play Entered on: 04/27/11

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


BE Aerospace Inc. - BEAV - close: 38.59

04/30 update: Monday was not as volatile as I expected. BEAV reported earnings and beat by 3 cents and beat on revenues. The company raised their earnings guidance. Shares slowly drifted higher the rest of the week. Yet shares remain under resistance in the $39-40 zone. 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.

Please note our new stop loss at $33.95.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 4.30/ 4.60

04/30/11 New stop loss @ 33.95
04/09/11 New stop loss @ 32.95
04/02/11 New stop loss @ 31.95

Current Target: $40.00
Current Stop loss: 33.95
Play Entered on: 02/23/11
Originally listed on the Watch List: 01/22/11


Bristol-Myers Squibb Company - BMY - close: 28.10 04/30 update: BMY managed to breakout past resistance at $27.00 ahead of its earnings report. The company reported on April 28th and beat estimates by 5 cents and beat the revenue estimate. Yet the news failed to move the stock. The rally seems to have stalled at the $28.50 level. I am not suggesting new positions at this time. Let's wait and see if BMY gives us another bounce from the $27.00 level first.

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 $ 1.81/ 1.85

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 2.52/ 2.59

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: 83.30

04/30 update: The bounce in BRK.B is now two weeks old and shares are hitting potential resistance at their 50-dma and price resistance near $84.00. I wouldn't be surprised to see a short-term dip soon. On a positive note last week's gains confirmed the bullish reversal from two weeks ago on the weekly chart. 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 $ 2.80/ 2.89

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: 4.59

04/30 update: Financial stocks are still underperforming the rest of the market but Citigroup did manage to post a gain for the week. Thursday saw Citigroup breakout and close above technical resistance at its 50-dma. LEAPS traders need to make a decision this week. Do you hold your current options or do you sell ahead of the reverse 1-for-10 split.

The Options Clearing Corp. produced this (click here) update on Citigroup's options regarding the split. A normal option represents 100 shares. The post-split current options will represent 10 shares, which is what we expected.

The newsletter will exit our Citigroup positions on Friday, May 6th to avoid the mess when Citigroup begins trading post-split on Monday, May 9th. After Citigroup's split there will be new options issued. Going forward investors will prefer to buy the new ones with the post-split price and not the old ones with the adjusted strike price symbols that represent 10 shares.

- 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 $ 0.50/ 0.52

04/30/11 Plan on exiting these positions on Friday, May 6th at the close.

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: 61.11

04/30 update: We have three days left until CACI's earnings on May 4th after the closing bell. I am not suggesting new positions in front of earnings. 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. 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 $ 2.10/ 2.30

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: 77.43

04/30 update: It was a very bullish week for railroad stocks. Strong earnings results powered the industry higher with big moves from stocks like UNP and NSC. Even CNI had a strong rally. The company reported earnings on April 26th and beat estimates by two cents. While CNI missed the revenue estimate they did raise guidance. The stock is now trading at a new all-time high. I would expect some short-term resistance at $78.00 and CNI looks a little overbought so it's probably time for a dip. I'd look for another dip and bounce from the $75-74 zone as a potential entry point. 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 $ 3.90/ 4.10

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: 80.89

04/30 update: The rally continues for COST with another all-time high this past week. Last Tuesday the company announced plans to raise its dividend by +17% to $0.24 a share. Plus, they upped their stock buyback program to $4 billion. On a short-term basis COST looks overbought so I'm not suggesting new positions at this time. I'd like to see COST retest support or find new support on a pull back before we consider new positions. Our long-term targets are $89.50 and $99.00.

Please note our new stop loss at $73.40.

- Current Positions -
Apr 7, 2011 - entry price on COST @ 76.37, option @ 3.80
symbol:COST1221A80 2012 JAN $80 call - current bid/ask $ 5.65/ 5.80

- or -

Apr 7, 2011 - entry price on COST @ 76.37, option @ 5.05
symbol:COST1319A85 2013 JAN $85 call - current bid/ask $ 6.55/ 6.75

04/30/11 New stop loss @ 73.40

Current Target: $89.50, 99.00
Current Stop loss: 73.40
Play Entered on: 04/07/11
Originally listed on the Watch List: 01/29/11


Walt Disney Co. - DIS - close: 43.10

04/30 update: DIS is still bouncing around the $40-44 range. On a positive note shares closed above technical resistance at its 50-dma. Yet if the market does see some profit taking I would not be surprised to see a dip back toward the 100-dma. Odds are DIS will continue to churn sideways until after its earnings report due out on May 10th. 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 $ 5.20/ 5.30

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 7.20/ 7.35

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

04/30 update: EAT displayed some volatility on Wednesday as investors digested the earnings report. The company beat by 2 cents but revenues were only inline. Shares retested both support near $23.15 and resistance near $25.75. I am growing concerned that EAT's upward momentum has stalled. More conservative traders may want to abandon ship to minimize or avoid any losses. 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 $ 0.90/ 1.35

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: 15.47

04/30 update: Ford spiked to a new six-week high on its earnings report last week. Unfortunately the rally didn't last very long. Shares seemed to fail at the 100-dma. Earnings were good with Ford delivering a profit 12 cents better than expected on stronger than expected revenues. Yet investors are still cautious on the automakers. I am reluctant to open positions right now. Let's wait and see if Ford provides another bounce from the $15 area and its 50 and 200-dma. More conservative traders may want to up their stop loss closer to $14.00 or the $14.50 level.

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 $ 1.86/ 1.89

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.19/ 1.25

03/26/11 New stop loss @ $12.95

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


Fiserv, Inc. - FISV - close: 61.31

04/30 update: Warning! FISV just produced a bearish reversal pattern on its weekly chart. Shares had been inching higher and hit new all-time highs on Wednesday at $64.71. Then the company reported earnings that night. FISV missed by 2 cents and only guided in-line. Traders sold the news on Thursday and the stock closed under its 50-dma but found support at its 100-dma. The weekly chart produced a bearish engulfing candlestick pattern. This is normally a reversal pattern but it needs to see confirmation. More conservative traders might want to go ahead and exit early. I am not suggesting new positions at this time. We can watch for support near $60 and near the $58.00 level.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 1.70/ 1.95

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: 152.37

04/30 update: Growing concerns about inflation and new multi-year lows for the U.S. dollar fueled another week of big gains for the precious metals. Gold rallied to a new all-time high of almost $1,570 an ounce on Friday. The GLD hit $153.03. Our old target to exit was $149.00 but last week we adjusted our exit strategy and moved the target to $159.00 (FYI: if you are curious the GLD hit $149 on April 27th and the 2012 Jan. $130 call had a bid of $21.70).

Please note that I am adjusting our target again. I was not expecting gold to move so quickly. Currently gold and the GLD look very short-term overbought and due for some profit taking. Readers will want to seriously consider an early exit right now to lock in gains. We are adjusting our final exit target to $157.00 and I am raising our stop loss to $149.40.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 12.45*
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $24.80/25.35

*Adjusted entry price from $10.75 to $12.45.

04/30/11 New stop loss @ 149.40, new exit target @ 157.00
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


James River Coal Co. - JRCC - close: 23.32

04/30 update: JRCC was showing some strength on Friday with a +2.5% gain and a breakout over short-term resistance at $23.00. JRCC is still building a bullish trend of higher lows. However, I would not launch positions now. We can't find an confirmed earnings date but it could be later this week. 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 $ 2.90/ 3.20

- or -

Apr 12, 2011 - entry price on JRCC @ 22.50, option @ 4.70
symbol: JRCC1319A27 2013 JAN $27 call - current bid/ask $ 3.80/ 5.10

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: 68.04

04/30 update: There are plenty of bulls that will pronounce the long-term positive outlook for the agriculture and fertilizer names due to global demand trends. Yet shares of MON are just not moving. The stock continues to underperform the major averages. This past week was almost a mirror image of the week before. Technicals are turning worse. I'm concerned that the $70 level along with the 50-dma and 100-dma will all act as overhead resistance. I would seriously consider an early exit right here to cut our losses. Yet MON is holding support near $65 for now. We'll hold on another week but I am not suggesting new positions at this time.

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/ 6.05

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 7.55/ 7.80

04/09/11 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: 37.33

04/30 update: It was not a great week for PBR. The OIX oil index is climbing. Crude oil prices are climbing. Yet PBR slipped lower and retested support near its 200-dma. Traders bought the dip but technicals for PBR are deteriorating. I am not suggesting new bullish positions in PBR at this time.

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 $ 2.39/ 2.46

- or -

Apr 12, 2011 - entry price on PBR @ 39.00, option @ 3.15
symbol: PBR1319A45 2013 JAN $45 call - current bid/ask $ 2.54/ 2.72

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: 53.11

04/30 update: PCAR failed to see any progress last week. The stock is struggling with resistance in the $54.50-55.00 area. I suspect PCAR will dip back toward support in the $51-50 zone soon. Wait for a bounce near $50 before considering new positions. More conservative traders might 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 $ 4.20/ 4.40

- or -

Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 8.00
PCAR1319A54.7 2013 JAN $54.70 call - current bid/ask $ 7.00/ 7.90

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: 56.47

04/30 update: Uh-oh! SMG is showing relative weakness with declines the last couple of days. Friday saw a breakdown under its 50-dma and on strong volume. Earnings are coming up on Tuesday morning (May 3rd). I am not suggesting new positions at this time. More conservative traders may want to use a tighter stop loss.

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 $ 1.70/ 1.85

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: 43.86

04/30 update: SWN took full advantage of the strength in oil stocks this past week. Shares soared from $40 toward resistance near $44 and briefly traded at a new multi-month high. Earnings were released on the 28th and were in-line with expectations. Revenues were a beat and management issued some positive comments helping boost the rally. Now SWN looks short-term overbought and at resistance. We should expect a little pull back here. Look for a bounce in the $42-40 zone as a possible entry point.

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 $ 4.05/ 4.15

- or -

Apr 7, 2011 - entry price on SWN @ 40.50, option @ 5.85
SWN1319A45 2013 JAN $45 call - current bid/ask $ 6.75/ 7.20

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


Goodyear Tire - GT - close: 18.15

04/30 update: Target achieved. Well that happened a lot faster than anticipated. GT reported earnings on Friday that beat estimates by 30 cents. Wall Street was looking for 12 cents and GT delivered 42. Revenues came in at $5.4 billion versus the $4.77 billion estimate. Management offered some positive guidance and the stock soared. GT opened at $17.87 on Friday and rallied to $18.68 intraday before paring its gains. Our target to exit was hit at $18.50. The bid on our 2012 Jan. $15 call was about $4.55. The bid on the 2013 Jan $15 call was about $5.45.

- Current Positions -
Feb 23, 2011 - entry price on GT @ 13.50, option @ 1.90
symbol: GT1221A15 2012 JAN $15 call - Exit @ 4.55 (+139.4%)

- or -

Feb 23, 2011 - entry price on GT @ 13.50, option @ 2.90
symbol: GT1319A15 2013 JAN $15 call - Exit @ 5.45 (+87.9%)

04/29/11 Target hit @ 18.50. Exit on the 2012 Jan $15 call was $4.55 (+139.4%), exit on the 2013 Jan $15 call was $5.45 (+87.9%)
03/26/11 New stop loss @ 12.75

Chart of GT:

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


Watch

Chemicals, Rails, and Medical

by James Brown

Click here to email James Brown


New Watch List Entries

DOW - Dow Chemical

UNP - Union Pacific

ZMH - Zimmer Holdings


Active Watch List Candidates

HSY - Hershey Co.

T - AT&T Inc.


Dropped Watch List Entries

BA has graduated to the play list.


New Watch List Candidates:

Dow Chemical - DOW - close: $40.99

Company Info

Industrial names continue to lead the U.S. stock market higher. DOW is a very large diversified chemical company. After three months of consolidating sideways shares finally broke out past resistance near $39 several days ago. We want to buy call LEAPS on a dip. I am suggesting a trigger at the $39.00 level, which should new support. If triggered we'll use an initial stop loss at $35.90. Our long-term targets are $47.00 and $56.00.

Buy-the-Dip trigger: $39.00

BUY the 2012 Jan. $40 call (DOW1221A40)

- or -

BUY the 2013 Jan. $45 call (DOW1319A40)

Chart of DOW:

Originally listed on the Watch List: 04/30/11


Union Pacific Corp. - UNP - close: 103.47

Company Info

The railroad industry broke out to new all-time highs this past week due to very strong earnings results. UNP actually missed Wall Street's profit estimates by two cents but the stock rallied anyway. Management issued some positive comments about economic growth and improvement ahead. After four months of consolidating under resistance at the $100 level, shares of UNP finally broke out. Now broken resistance at $100 should be new support. I am suggesting we buy call LEAPS on a dip at $100.25. If triggered we'll use a stop loss at $94.45. Our long-term targets are $119.75 and $134.00.

Buy-the-Dip trigger: $100.25

BUY the 2013 Jan. $110 call (UNP1221A110)

- or -

BUY the 2013 Jan. $120 call (UNP1319A120)

Chart of UNP:

Originally listed on the Watch List: 04/30/11


Zimmer Holdings, Inc. - ZMH - close: 65.25

Company Info

ZMH manufacturers a host of orthopedic implants and artificial joints. As the baby boomer population ages there will likely be a growing demand for these products. The stock rallied to new two-year highs this past week on stronger than expected earnings. I suspect that ZMH will fill the gap with a dip back to $63.00. I am suggesting we buy call LEAPS at the $63.00 level. An alternative entry point would be to wait for a dip or a bounce near the 50-dma. If we are triggered a $63.00 I am suggesting a stop loss at $59.35, under the April low. Our long-term targets are $78.50 and $88.50, although the high $80s might be a little optimistic. Buy-the-Dip trigger: $63.00

BUY the 2012 Jan. $70 call (ZMH1221A70)

- or -

BUY the 2013 Jan. $70 call (ZMH1319A70)

Chart of ZMH:

Originally listed on the Watch List: 04/30/11


Active Watch List Candidates:


Hershey Co. - HSY - close: 57.71

04/30 update: HSY posted another gain for the week. Yet shares have spent the last four days churning in the $57-58 zone. HSY remains overbought and we don't want to chase it. I am leaving our buy-the-dip entry point at $53.00 but that could take a few weeks before HSY corrects that low.

If triggered at $53.00 we'll use 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: 31.12

04/30 update: I was starting to worry that we may have missed the boat with T on Wednesday's breakout past $31.00. Yet the rally has reversed two days in a row now. The recent action looks like a failed rally/bearish reversal pattern. I'm going to leave our trigger to open positions at $29.25 for now.

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)

- or -

BUY the 2013 January $30.00 call (T1319A30)

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