Option Investor
Newsletter

Daily Newsletter, Sunday, 5/8/2011

Table of Contents

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

Leaps Trader Commentary

Commodities Make A Splash

by James Brown

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There was no lack of headlines last week. Unless you have been living under a rock you probably know that Osama Bin Laden is dead. That headline crossed the wires on Sunday night a week ago. Yet the Bin Laden bounce in the stock market was very short-lived as stocks rolled over midday on Monday. This began a weeklong correction lower. Almost nothing was spared and commodities were hardest hit.

Economic data this past week was mixed. There is a growing concern that the U.S. economy has hit a soft patch. That doesn't bode well since the second and third quarters tend to be slower. Weekly jobless claims continue to tick higher. Yet the government's nonfarm payroll (jobs) report on Friday came in better than expected. The headline number showed +244,000 new jobs created in April. Economists were only expecting +145,000. It looks like a blow out number. Unfortunately the unemployment rate ticked higher because 235,000 people started looking for work again, thus increasing the size of our workforce. This increase makes the April number look like we broke even. Yet the household survey, which is separate from the nonfarm payroll survey, showed that full-time employment fell -291,000 for the month.

I warned readers a week ago that stocks were due for some profit taking. This newsletter also cautioned that precious metals were overbought and due for a pullback but the vicious drop in gold and silver was a lot stronger than expected. During the month of April gold rallied +8% and silver surged +22%. Yet this past week gold gave back -4.6% and silver plunged -27%. The sell-off in silver grabbed the most headlines.

The CME Group, which owns the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange, raised the margin requirements to trade silver futures five times in nearly two weeks. This had to be shocking to anyone who has been trading silver lately and the new requirements exacerbated the sell-off. Since traders were looking for something to sell to meet their margin calls the drop in silver probably influenced all the commodities and most likely played a significant part in the very sharp drop in crude oil on Thursday.

Adding insult to injury was a drop in the euro currency and a very big bounce for the U.S. dollar. Shorting the dollar was a very, very crowded trade. The volatile moves in the euro and dollar were huge! Currency moves are measured in pips and the reversal in the euro was close to 600 pips. Forex traders can be leveraged anywhere between 10 and 100 times. The sharp reversals in currencies and commodities were brutal. Investors were losing fortunes or making a fortune if you were on the right side of the trade. There is a story circulating that back in April someone bought $1 million worth of put options on the SLV silver ETF. Sadly that million-dollar trade wasn't me but the Option Investor newsletter did have a very successful put trade on the SLV this past week.

Weekly Chart of the U.S. dollar index:

Weekly Chart of the GLD gold ETF:

Weekly Chart of the SLV silver ETF:

The timing of the stock market decline might make one think the sell-in-May crowd is still alive and well. I believe that's just a coincidence and investors can use this pull back in the major averages as a new bullish entry point. The late day spike lower on Thursday was just enough for the S&P 500 index to hit the 50% retracement of its late April rally. The index closed on support near the 1340 level on Friday. This looks like an entry point but more conservative traders could wait for a bounce from the 50-dma or a new close over 1350.

Daily chart of the S&P 500 index:

The NASDAQ-100 index (NDX) is less than 1.5% from its highs set in late April. The biggest tech stocks haven't seen that much of a correction. The NASDAQ composite isn't that far behind. The composite has essentially seen a normal 38.2% Fibonacci retracement of its late April rally. Overall the trend is still up. Could the NASDAQ correct lower? Of course but we can look for support at the 2800 level and the 2750 area, which is now underpinned by its 50-dma. I would actually be a little surprised to see the NASDAQ composite close under the 2800 level this week.

Daily chart of the NASDAQ-100 index:

Daily chart of the NASDAQ Composite index:

I would still keep an eye on the SOX semiconductor index. Fortunately the group has been showing decent strength. I suspect investors will continue to buy dips in this sector. Meanwhile I'd rather focus on the small cap Russell 2000 index. Technically the $RUT (and the IWM ETF) has produced a bearish engulfing candlestick pattern on the weekly chart. This is a warning signal but these patterns normally need to see follow through. Fortunately the small cap index found support near its 50-dma and I'm expecting a bounce.

Daily chart of the IWM Russell 2000 ETF:

This week is another busy one for economic data but nothing as large as the jobs report we just saw on Friday. Some of the highlights will be the import/export prices, wholesale inventory numbers, trade balance, PPI and CPI, and Michigan Sentiment numbers. The big ones to watch are probably the PPI on May 12th and the CPI on May 13th since the market is still concerned about inflation. Corporate earnings are winding down but Cisco Systems (CSCO) will make headlines when they report on Wednesday.

Investors will continue to cast a wary eye on Europe. This past week witnessed volatility thanks to rumors that Greece would leave the Eurozone. The country quickly denied these rumors but Greece will remain in the spotlight. Many analysts believe it's only a matter of time before Greece defaults on its debts. Yields for government debt from the rest of the PIIGS countries remain elevated as investors demand more reward for their risk.

We have already discussed the end of QE2 coming up at the end of June. It remains the only significant milestone to watch between now and the Federal Reserve's semi-annual review before congress in midsummer. Now that earnings season is pretty much over investors will once again refocus on economic data. Fortunately the bulls have gotten pretty good at climbing the wall of worry so the current soft spot in the U.S. economy might just be fuel for the fire under this bull market.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

Ten months later our bullish trade on the GLD has been closed. Precious metals saw significant profit taking this past week and our GLD play was stopped out at $149.40. The sell-off in crude oil pulled oil stocks lower and our PBR play has been stopped out. Meanwhile we had planned an early exit from our Citigroup trade to avoid any mess caused by the 1-for-10 reverse stock split.

We had several candidates resist the market's widespread pull back and a few managed to post gains for the week.

CACI and SWN 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

Close Enough

by James Brown

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Dow Chemical - DOW - close: $39.72

05/07 update: We added DOW to our watch list a week ago hoping for a dip to $39.00. The stock slipped to $39.11 on Thursday before bouncing. Now there is still a chance that DOW will hit $39.00 or even drop toward its 30 or 50-dma in the $38.50-38.00 area. If that occurs I'd use it as a new bullish entry point to buy calls. However, after a weeklong correction lower I suspect the market is poised to rally from current levels. We want to go ahead and launch positions in DOW now instead of waiting.

Bears could argue that this past week was a bearish reversal for DOW but I would argue it was just an overdue bout of profit taking. Readers may want to keep their position size small to limit their risk. We'll use a stop loss at $35.90. More conservative traders could put their stop closer to the rising 100-dma instead. Our long-term targets are $47.00 and $56.00. FYI: The Point & Figure chart is bullish with a $69 target.

BUY the 2012 Jan. $40 call (DOW1221A40) current ask $3.75

- or -

BUY the 2013 Jan. $45 call (DOW1319A40) current ask $4.00

Chart of DOW:

Current Target: $47.00, $56.00
Current Stop loss: 35.90
Play Entered on: 05/09/11
Originally listed on the Watch List: 04/30/11


Play Updates

Rough Week for Commodity-related Equities

by James Brown

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Closed Plays


C, GLD, and PBR have been closed.


Play Updates


Arch Coal Inc. - ACI - close: 30.90

05/07 update: It was a rough week for coal stocks. Most of the market sold off Monday through Thursday but anything commodity-related suffered a worse fate. ACI broke down from its consolidation near $34 and hit new three-month lows near its exponential 200-dma. ACI "should" have support in this $31-30 area with the simple and exponential 200-dma but the short-term trend is definitely bearish and technical indicators don't look healthy. Fortunately, the wider market looks poised to bounce, which should help ACI. We have a stop loss at $29.75.

Another issue influencing ACI shares was news early last week the company was buying its rival, International Coal Group Inc. (ICO), for $3.4 billion. This move increases ACI's footprint in the high-demand metallurgical coal industry. Analysts seemed bullish on the deal but shares of ACI only saw a momentary spike on Monday morning.

I am not suggesting new bullish positions at this time. 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 $ 2.39/ 2.46

- or -

Nov 22, 2010 - entry price on ACI @ 30.15, option @ 5.15
symbol: ACI1319A35 2013 JAN $35 call - current bid/ask $ 4.65/ 4.85

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: 14.91

05/07 update: The sell-off/correction in AKS is now several days old. It started with the failed rally near $17.00 two weeks ago. Shares are now testing what should be support in the $14.50-15.00 zone, an area bolstered by the simple 200-dma. Unfortunately, last week's decline did break down through AKS' multi-month trend of higher lows, which would suggest a potential change in trend for AKS. I am not suggesting new positions at this time. We have a stop loss at $13.90 but more conservative traders may want to raise theirs closer to $14.50 or closer to the 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 $ 0.64/ 0.68

- or -

Feb 22, 2011 - entry price on AKS @ 16.10, option @ 2.95
symbol: AKS1319A20 2013 JAN $20 call - current bid/ask $ 1.55/ 1.90

Chart of AKS:

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: 70.00

05/07 update: ATI held up pretty well considering the market's declines last week. Shares are still hovering near the $70.00 level. Traders bought the dip multiple times near the $68.50 area. I am not suggesting new positions at this time.

- Suggested Positions -
Mar 10, 2011 - entry price on ATI @ 60.78, option @ 6.40
symbol: ATI1221A70 2012 JAN $70 call - current bid/ask $ 9.20/ 9.40

- or -

Mar 10, 2011 - entry price on ATI @ 60.78, option @ 10.20
symbol: ATI1319A70 2013 JAN $70 call - current bid/ask $14.00/14.70

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: 61.90
Play Entered on: 03/10/11
Originally listed on the Watch List: 02/05/11


Boeing Co. - BA - close: 79.31

05/07 update: BA also held up very well last week. The stock saw a mild consolidation as shares churned sideways in the $78-80 zone. On a short-term basis I would expect a breakout higher soon. I am tempted to raise our stop loss. More conservative traders may want to up their stop into the $73-75 zone. BA appears to have support near $78 and then in the $76-75 area.

I am not suggesting new long-term positions at this time. 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 $ 6.25/ 6.40

Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.95
symbol: BA1319A90 2013 JAN $90 call - current bid/ask $ 6.05/ 6.25

04/27/11 Play opened. Small positions.

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: 37.22

05/07 update: BEAV produced a bearish reversal candlestick last Monday and the market's decline pulled shares toward technical support at the 50-dma. Fortunately traders bought the dip at this level and BEAV produced a bounce one day ahead of the market.

We have less than three months before our July options expire. I am not suggesting new positions at this time. BEAV is facing resistance near $39 and near the $40 levels. Currently our target to exit is the $40.00 level. More aggressive traders could aim higher.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 3.30/ 3.50

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: 28.64

05/07 update: BMY actually managed a gain for the week. The stock rallied last Tuesday and spent the rest of the week consolidating sideways. The stock continues to look a bit over-extended with the nearly non-stop rally from early April. I am not suggesting new positions at this time.

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 $ 2.25/ 2.29

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 2.93/ 3.05

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: 80.21

05/07 update: BRK.B lost about three points for the week. The company reported earnings that were substantially lower than a year ago period. The company has a very significant insurance division and the rash of natural disasters last quarter took a bite out of BRK.B's business.

Technically the situation looks bearish. BRK.B is under technical support at the 200-dma and flirting with a breakdown under the $80.00 mark. The stock has a bearish trend of lower highs and now lower lows. More conservative traders may want to exit early right now to limit losses. I suspect the market is poised to bounce, which should help BRK.B so we're going to hold on for another week and see what happens. 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 $ 2.17/ 2.35

01/22/11 2011 January calls expired (-100%)
12/11/10 New stop loss @ 77.75.
11/20/10 New entry point on bounce from 200-dma
11/20/10 New stop @ 75.75
10/29/10 Play triggered on dip at $79.00.

Current Target: $ 99.00
Current Stop loss: 77.75
Play Entered on: 10/29/10
Originally listed on the Watch List 09/11/10


CACI International - CACI - close: 61.14

05/07 update: CACI eked out a gain for the week thanks to a positive earnings report. The company beat estimates by 13 cents and then raised their 2011 guidance. The stock popped on the news but gains were limited due to a falling stock market. Shares look poised to rally from here. I would consider new positions now. Nimble traders may want to try and enter on a dip near $60.50ish. I am raising our stop loss to $57.75.

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 $ 2.05/ 2.25

05/07/11 New stop loss @ 57.75

Current Target: $69.00
Current Stop loss: 57.75
Play Entered on: 04/04/11
Originally listed on the Watch List: 02/12/11


Canadian Natl. Railway Co. - CNI - close: 76.68

05/07 update: After hitting new all-time highs on Monday shares of CNI were due for some profit taking. The stock slipped toward $75 before bouncing. Last week I suggested readers wait for a dip toward the $75-74 zone as our next entry point and we got it. 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 $ 3.60/ 3.90

05/05/11 new entry point @ 75.00
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: 80.45

05/07 update: While COST did not manage a gain last week the minor profit taking is a show of strength compared to the market's widespread declines. Shares have been digesting its prior gains and while this consolidation is healthy I am not suggesting new long-term bullish positions at these levels. FYI: Last week COST reported April same-store sales growth of +12.0% versus estimates for +8.8%.

- 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/ 5.85

- or -

Apr 7, 2011 - entry price on COST @ 76.37, option @ 5.05
symbol:COST1319A85 2013 JAN $85 call - current bid/ask $ 6.65/ 6.85

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: 43.06

05/07 update: DIS lost less than a nickel for the week. The stock has been consolidating sideways above its 50-dma. On a short-term basis I would expect DIS to breakout higher from this consolidation soon but the stock continues to have overhead resistance near $44.00. We should expect some volatility out of DIS shares this week. Earnings are expected on May 10th after the closing bell. Wall Street is looking for a profit of 56 cents a share. 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/ 5.35

- 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: 24.22

05/07 update: Investors bought the dip in EAT near support at $23.20 last week. This is the third time the stock has bounced at this level in the last four weeks. Shares appear stuck in the $23-26 zone. I remain concerned about EAT's lack of momentum. 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 $ 0.95/ 1.25

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: 15.11

05/07 update: Ford has spent the last two weeks consolidating lower after its failed rally near $16 and the 100-dma. Yet in spite of the market's sell-off, shares of Ford held support near $15.00 and the 50 and 200-dma. If you had a bearish outlook on this stock you could argue that Ford might be building a big bear-flag consolidation pattern. Yet the long-term trend for Ford is up.

I am suggesting we use this bounce from $15.00 as a new bullish entry point. I've added a second position for the newsletter below. We will fill in our entry price for the new position on Monday morning. 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 $ 1.68/ 1.71

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.09/ 1.14

- Second Position, listed May 7th, 2011 -

May 9, 2011 - entry price on F @ --.--, option @ -.--
symbol: F1221A15 2012 JAN $15 call - current bid/ask $ 1.68/ 1.71

- or -

May 9, 2011 - entry price on F @ --.--, option @ -.--
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 1.09/ 1.14

05/07/11 New entry point on bounce from $15.00
03/26/11 New stop loss @ $12.95

Chart of F:

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: 61.61

05/07 update: FISV managed to close up on the week but little has changed in the last several days. FISV has been consolidating sideways between technical support at its 100-dma and short-term resistance near $62.75 (and its 10, 20, and 30-dma). The fact that FISV did not sell-off and breakdown under support in spite of the market's sharp decline is a positive development. Yet FISV still looks vulnerable here. I am not suggesting new bullish positions at this time.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 1.65/ 2.05

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


James River Coal Co. - JRCC - close: 22.82

05/07 update: JRCC saw a big spike higher last Monday, presumably on the ACI/ICO merger news. Analysts were speculating that the coal industry could see further consolidation. Yet the rally in JRCC reversed and shares were fading lower the rest of the week. This stock could see additional volatility on May 10th. JRCC reports earnings before the opening bell and Wall Street is expecting a profit of 30 cents a share. We do not want to open new positions ahead of the earnings report.

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 $ 2.75/ 3.00

- or -

Apr 12, 2011 - entry price on JRCC @ 22.50, option @ 4.70
symbol: JRCC1319A27 2013 JAN $27 call - current bid/ask $ 3.80/ 4.60

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: 65.27

05/07 update: Last weekend I warned readers that the situation in MON was growing worse. This past week saw a breakdown from the $68-66 trading range. Fortunately, the stock found support again near the $64 level. The stock has developed a bearish trend of lower highs and lower lows. There is a chance that MON might be able to hold support near $64.00 and its 200-dma (currently at $63.65). However, we do not want to open new bullish positions at this time. I will repeat my prior comments that more conservative traders will want to consider an early exit.

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 $ 4.70/ 4.85

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 6.35/ 6.55

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

Current Target(s): $85.00
Current Stop loss: 61.75
Play Entered on: 03/15/11
Originally listed on the Watch List: 01/08/11


PACCAR Inc. - PCAR - close: 53.01

05/07 update: PCAR only lost 10 cents for the week. Traders bought the dip near $52 on Thursday. I was hoping for a dip closer to $50.00 as a new entry point. I am not suggesting new positions at current levels. 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 $ 4.30/ 4.50

- or -

Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 8.00
PCAR1319A54.7 2013 JAN $54.70 call - current bid/ask $ 7.10/ 8.10

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: 57.97

05/07 update: SMG saw some volatility following its earnings report on May 3rd. The company beat estimates by 17 cents. The volatility continued later in the week as different analysts offered competing opinions on SMG. One firm raised their target while another downgraded the stock. At the end of the week SMG posted a gain and shares look poised to move higher. I would consider new positions now or you could wait for a move past resistance at $60.00.

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 $ 2.20/ 2.55

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: 41.91

05/07 update: After a big bounce from its April lows SWN was due for some profit taking. That's exactly what happened last week. I have been suggesting that readers look for a bounce in the $40-42 zone as a new entry point. The stock tried to bounce on Friday but gave back almost all of its gains. I'm a little bit concerned that the early May peak and the late March highs could be considered a potential bearish double top pattern. I would keep your position size small. We will raise our stop loss to $37.75.

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 $ 3.35/ 3.45

- or -

Apr 7, 2011 - entry price on SWN @ 40.50, option @ 5.85
SWN1319A45 2013 JAN $45 call - current bid/ask $ 6.10/ 6.30

05/07/11 New stop loss @ 37.75

Current Target(s): $50.00-52.50
Current Stop loss: 37.75
Play Entered on: 04/07/11
Originally listed on the Watch List: 04/02/11


Union Pacific Corp. - UNP - close: 102.34

05/07 update: UNP was a watch list candidate that hit our trigger to open positions last week. We wanted to see a dip back toward support near $100 and the newsletter had a trigger at $100.25. UNP hit that trigger on May 5th. Actually UNP gapped open lower at $100.15 that morning opening our trade. If you missed the entry point consider waiting for a dip into the $101-100 zone as another entry although considering the big picture I would still consider bullish positions right now instead of waiting.

We have a stop loss at $94.45. Our long-term targets are $119.75 and $134.00.

NOTE: Last week there was a typo in the watch list. I wrote "buy the 2013 Jan. $110 call" but listed the 2012 option symbol. This is supposed to be the 2012 $110 call since we already have a 2013 call listed below.

- Current Positions -
May 5, 2011 - entry price on UNP @ 100.15, option @ 5.00
UNP1221A110 2012 JAN $110 call - current bid/ask $ 5.05/ 5.20

- or -

May 5, 2011 - entry price on UNP @ 100.15, option @ 6.00
UNP1319A120 2013 JAN $120 call - current bid/ask $ 6.20/ 6.55

Chart of UNP:

Current Target(s): $119.75-134.00
Current Stop loss: 94.45
Play Entered on: 05/05/11
Originally listed on the Watch List: 04/30/11


CLOSED Plays


Citigroup, Inc. - C - close: 4.52

05/07 update: Our trade on Citigroup is over. The plan was to exit positions on Friday to avoid holding over the 1-for-10 reverse stock split occurring this weekend. Shares will open on Monday morning around $45.20 and the number of outstanding shares will drop from 29 billion to 2.9 billion. Unfortunately for us the stock has not moved much. Shares have been stuck in this sideways range between $4.35 and $4.60 for several weeks.

The 2012 Jan $5.00 call closed with a bid at $0.22. The 2013 Jan $5.00 call closed with a bid at $0.52.

- Closed Positions -
Feb 23, 2011 - entry Citigroup stock (C) @ 4.60, closed @ 4.52 (-1.7%)

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.48
symbol: C1221A5 2012 JAN $5 call - Exit @ 0.22 (-54.1%)

- or -

Feb 23, 2011 - entry price on C @ 4.60, option @ $0.85
symbol: C1319A5 2013 JAN $5 call - Exit @ 0.52 (- 38.8%)

05/06/11 Planned exit on Friday at the closing bell.
04/30/11 Plan on exiting these positions on Friday, May 6th at the close.

Chart of C:

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


SPDR Gold ETF - GLD - close: 145.30

05/07 update: Last week was an ugly one for commodities. Gold and silver reversed midday on Monday and it was all downhill from there. Silver took the worst hit but the GLD fell from $153.61 at its high on Monday to $142.55 at its low on Thursday. Our stop loss at $149.40 was hit on May 3rd. The bid on our 2012 Jan. $130 call was trading near $22.00.

While our play has been closed, readers may want to keep an eye on the GLD. The $140 area should offer some support.

- 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.

05/03/11 Stopped out @ 149.40, Option @ $22.00 (+76.7%)
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

Chart of GLD:

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


Petroleo Brasileiro (a.k.a. Petrobras) - PBR - close: 34.35

05/07 update: The sell-off in commodities was not limited to precious metals. Crude oil was hammered for a huge loss on Thursday. The oil stocks were already succumbing to profit taking and Thursday's decline in the commodity just made it worse. Shares of PBR had actually hit our stop loss the day before on May 4th when it broke down under support near the simple 200-dma and at the $36.00 level.

Our play was closed at $35.75. The bid on the 2012 Jan $40 call was near $1.85 and the bid on the 2013 Jan. $45 call was near $2.15.

Prior Comments:
The plan was to keep our position size small because PBR can be a volatile stock.

- Current (SMALL) Positions -
Apr 12, 2011 - entry price on PBR @ 39.00, option @ 3.35
symbol: PBR1221A40 2012 JAN $40 call - Exit @ 1.85 (- 44.7%)

- or -

Apr 12, 2011 - entry price on PBR @ 39.00, option @ 3.15
symbol: PBR1319A45 2013 JAN $45 call - Exit @ 2.15 (-31.7%)

05/04/11 Stopped out @ $35.75.

Chart of PBR:

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


Watch

Beverages & Semiconductors

by James Brown

Click here to email James Brown

Editor's Note:

Our DOW candidate has been promoted to the play list in our New Plays section tonight.



New Watch List Entries

DPS - Dr. Pepper Snapple

INTC - Intel Corp.


Active Watch List Candidates

HSY - Hershey Co.

T - AT&T Inc.

ZMH - Zimmer Holdings


Dropped Watch List Entries

UNP graduated to the play list. DOW has been promoted to a new play tonight.



New Watch List Candidates:


Dr. Pepper Snapple Group, Inc. - DPS - close: 39.28

Company Info

If you look at a weekly chart of DPS you can see that shares have been trading in a very wide range over the last several months from the $34 area to the $40 level. You could argue that the lows near $34 (actually closer to $33.65) form a bullish double bottom. If DPS can breakout past $40.00 it could herald the beginning of another leg higher.

The recent high was $40.43. I am suggesting a breakout trigger to launch bullish positions at $40.55. If triggered we'll use a stop loss at $37.95. Our long-term target is $46.00. Unfortunately, DPS does not have LEAPS so we'll have to use the October 2011 calls.

Breakout trigger: $40.55

BUY the 2011 October $40 calls (DPS1119K40) current ask $2.30

- or -

BUY the 2011 October $45 calls (DPS1119K45) current ask $0.80

Chart of DPS:

Originally listed on the Watch List: 05/07/11


Intel Corp. - INTC - close: 23.25

Company Info

Semiconductor giant Intel has been underperforming the market and its peers for months. That changed about three weeks ago when the company delivered an earnings report that was much more bullish than expected. Shares have been surging higher ever since and on big volume. The breakout past resistance near $22.00 was another bullish development. Yet now INTC is overbought.

I am suggesting we launch bullish positions on a dip at $22.25 since $22.00 should now be new support. Our long-term targets are the $26-28 zone. If triggered we'll use a stop loss at $20.75.

Buy-the-Dip trigger: $22.25

BUY the 2012 Jan. $22.50 call (INTC1221A22.5) current ask $2.26

- or -

BUY the 2013 Jan. $22.50 call (INTC1319A22.5) current ask $3.20

Chart of INTC:

Long-term Chart of INTC:

Originally listed on the Watch List: 05/07/11


Active Watch List Candidates:



Hershey Co. - HSY - close: 56.06

05/07 update: HSY has started to see some profit taking but shares remain very overbought with the three-month rally from $46. We are waiting for a deeper correction. The plan is to open bullish positions at $53.00.

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: 31.26

05/07 update: AT&T managed to tag a new two-year high this past week. Shares were relatively resilient to the market's correction lower. Yet in spite of this strength the stock looks vulnerable. I am expecting a dip towards $30.00. We will raise our buy-the-dip entry point from $29.25 to $30.25. We'll move our stop loss up to $28.45. Our long-term target is the $36-40 zone.

Buy-the-Dip trigger: $30.25 <-- new trigger

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


Zimmer Holdings, Inc. - ZMH - close: 67.50

05/07 update: ZMH displayed relative strength last week. Shares did not participate in the market's pull back and rallied to a new high on Friday. The overall pattern is bullish but ZMH looks short-term overbought. We don't want to chase it. Currently our buy-the-dip trigger is at $63.00 but readers might want to consider raising their entry point. 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)

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