Option Investor
Newsletter

Daily Newsletter, Sunday, 5/29/2011

Table of Contents

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

Leaps Trader Commentary

It Could Have Been Worse

by James Brown

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The parade of bearish economic data continues. I'm surprised the U.S. market did not see steeper declines. The S&P 500 index posted its fourth week of losses but the selling has been almost orderly with a trend of lower highs and lower lows. The volatility index (VIX) is not suggesting a lot of investor fear given its pull back from its midweek highs. Overall markets were weak on growing concerns that the global economy is losing momentum.

Worries continue about the debt situation in Europe. Now there are new concerns about China's economy. The U.S. seems to have hit a soft patch and Japan is still reeling from its disaster. In spite of concerns over Europe the euro currency staged a comeback. The dollar retreated, which boosted precious metals. Gold, silver, and copper all rallied. Gains in oil were very mild last week but oil does look poised to rise.

Here at home in the U.S. both the Chicago fed economic index and Richmond fed survey declined. The April durable goods data was negative and worse than expected. Pending home sales plunged -11.6%, which was significantly below estimates. Initial jobless claims rose +10,000 to 424K last week. This was worse than expected and above 400,000 for the seventh week in a row. While not necessarily negative the latest GDP estimate was unchanged at +1.8%.

Overseas the news was not any better. Europe is reporting bearish PMI data. Italy's credit rating has been downgraded to a negative credit watch. Business confidence in Europe fell for the third month in a row. On the other side of the world Chinese manufacturing expanded at its slowest pace in almost a year.

Further depressing investor confidence were a number analyst revisions. Both Goldman Sachs and UBS downgraded their global growth forecasts. Meanwhile ING Groep and Credit Suisse downgraded their Chinese growth forecasts. Goldman also raised their forecast on Brent crude oil prices, which will be another headwind for global growth.

The only positives last week seemed to be another decline in gasoline prices, which fell about 7 cents a gallon. Mortgage rates remain near their lows but no one is buying so this doesn't really matter does it? One bullish surprise was the consumer sentiment figures for May, which rose unexpectedly from 72.4 to 74.3. Considering the overwhelmingly negative news flow I am surprised the market didn't see a deeper sell-off.

Last week I warned readers to look for a drop toward the S&P 500's simple 100-dma. Fortunately this level of technical support managed to hold almost all week before stocks finally bounced on Thursday. Sadly the bounce on Friday stalled at its short-term trendline of lower highs. Looking at the weekly chart the long-term trend is still up but it is definitely in jeopardy of being broken soon. A close under the 100-dma would be a bearish development. While I would hope the 1300 level on the S&P 500 index would hold as support if we saw a breakdown I would expect a correction toward the 1280 area and possibly toward the 1260-1250 area. On the other hand a rally past 1340 could certainly reignite the market's up trend.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

It was a rough week for plenty of technology stocks. The NASDAQ gapped open lower on Monday. The index hit new five-week lows. The Wednesday-Friday bounce was just enough to fill the gap down from Monday so it's not a very convincing rebound (the top of a gap tends to be resistance). The NASDAQ composite actually spent most of the week trading under its multi-month trendline of higher lows. Friday's rally back above the 50-dma put the index back above this level. Unfortunately the NASDAQ-100 index (NDX) is still trading under this trendline and under its 50-dma.

Daily chart of the NASDAQ Composite index:

Daily chart of the NASDAQ-100 index:

We have been worried about the small cap stocks leading the market lower. Yet this past week the Russell 2000 small cap index actually saw a strong rebound and managed a gain for the week. The longer-term up trend still appears to be in serious jeopardy so I wouldn't get too confident here but a close over the 840 level would be encouraging for the bulls. My biggest concern is that the $RUT will merely kiss the old trendline of support and then roll over.

Daily chart of the (Russell 2000):

Weekly chart of the (Russell 2000):

We have another busy week of economic data. Some of the highlights will be the Chicago PMI, the May Consumer Confidence (not Sentiment, that was last week), the ISM manufacturing index, the ISM services index, factory orders, vehicle sales, the ADP employment report, and the non-farm payrolls (jobs) report.

The biggest event on the calendar will be the jobs report for May that comes out on Friday, June 3rd. Economists are expecting +185,000 new jobs compared to +244K in April. Private payrolls are expected to come in at +220K. The ISM index on June 1st will be another big headline for the markets. Analysts are expecting the ISM to fall from 60.4 to 57.6 in May.

Memorial Day is the unofficial start of summer. This means we can expect lower average volume for the stock market. It also means we could be facing the summer doldrums as investors pull back and wait for fall. There is a greater risk of that now given the end of QE2 at the end of June. No one knows for sure how the market will react to the end of this stimulus. It's a huge reason for traders to be cautious and step away until we see what happens in the U.S. bond market. How will interest rates move? How will stocks react?

There are plenty of pundits expecting the market correction to continue. Unfortunately for the bulls the month of June has a recent history of declines. Yet I haven't given up hope yet. In spite of all the negative headlines the S&P 500 is down less than -3% from its highs set four weeks ago. Thus far the correction has been pretty mild. While the short-term trend is down there is a chance that stocks will merely churn sideways although that may be wishful thinking on my part.

I know you've heard it a hundred times already but the situation in Europe with Portugal, Italy, Ireland, Greece and Spain will remain a potential landmine for stocks. Europe is trying to decide what the next step is to prevent a default by Greece. Meanwhile bond yields are rising on the rest of this group as investors demand more reward for the risk of holding government debt.

My comments from last week still apply. I am suggesting a defensive, step back and wait mindset. I would not rush to buy the dip this week. A normal market correction is anywhere from -5% to -20%. Right now a -9% correction would push the S&P 500 toward its simple 200-dma and near its March lows. I'm not predicting that sort of move just pointing out the possibilities. If you are concerned about the market correction accelerating lower then consider scaling back your position size now. Free up some cash so when we do see the market bottom again you'll be able to take advantage of it.

If you are a U.S. citizen or enjoy living in this country then take a moment this weekend to think about what Memorial Day stands for. A lot of soldiers have died to protect the U.S. and the freedoms it stands for. To all the men and women who have served or are still serving in our armed forces I can't say "thank you" enough.

Enjoy your weekend!

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

Stocks extended their bearish trend of lower lows and lower highs last week. The short-term trend is down in spite of Friday's bounce. Yet we are not seeing widespread weakness. A number of our candidates posted gains for the week.

I am concerned about Ford. The stock's weakness this past week has broken support. Plus, I'm suggesting an early exit out of our PCAR trade since shares look poised to breakdown even further.

CACI, EAT, SWN, and UNP all have updated 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

Limited Positions

by James Brown

Click here to email James Brown

Editor's Note:

I'm starting to feel like a broken record here. Little has changed for us. The market continues to drift lower and extended its losses to four weeks in a row. Yet losses for the major indices have been mild. The bounce on Friday could have been short covering ahead of the long, holiday weekend.

Economic data is mixed but concerns remain about a slow down in the U.S. economy. Meanwhile the U.S. markets remain captive to developments in Europe and the EU's struggles with Greece and the rest of the PIIGS countries and their debt worries.

The end of QE2 is fast approaching and will be here in five weeks. The end of this stimulus "should" be already baked into the market but then when the market should do something the market tends to behave poorly. Summer has unofficially started with the Memorial Day weekend. That means the stock market is facing the summer doldrums. June has not had a very good history of stock market gains in recent years.

I remain hesitant to launch new bullish positions. We want to take a wait-and-see approach. Let the market come to you instead of chasing stocks. If you do open positions I would strongly consider you keep your position size small to limit your exposure. I am not adding any new trades tonight but we are adding two new candidates to the watch list.


Play Updates

Not That Bad

by James Brown

Click here to email James Brown


Closed Plays


PCAR has been closed.


Play Updates


Boeing Co. - BA - close: 76.99

05/28 update: BA did indeed dip toward support near $75.00 and its 50-dma. Traders bought this dip on Wednesday morning. Since then BA has been struggling with technical resistance at its 30-dma. This bounce looks like a new bullish entry point but my market bias makes me cautious on new positions. If the major indices continue to slide then we could see BA testing its 100-dma. I remain long-term bullish here but hesitant on initiating new positions.

- Current Positions -
Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.50
symbol: BA1221A80 2012 JAN $80 call - current bid/ask $ 4.60/ 4.70

Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.95
symbol: BA1319A90 2013 JAN $90 call - current bid/ask $ 4.90/ 5.10

05/14/11 New stop loss @ 73.90
04/27/11 Play opened. Small positions.

Current Target: $89.00, and $104.00
Current Stop loss: 73.90
Play Entered on: 04/27/11

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


BE Aerospace Inc. - BEAV - close: 36.63

05/28 update: Stay cautious on BEAV. Shares did breakout but the break was down. The stock did find support in the $35.50 area like it did in April and early May. Yet the bounce is now stalling at the small cloud of moving averages overhead. We do not want to open new positions here. If you look at the daily chart you'll notice that the 200-dma has been support over and over again. Currently the 200-dma has risen to the $35 level. We'll see if it holds again.

Note: We have less than two full months left before July options expire!

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 2.50/ 2.65

05/14/11 Sell at least half now. Bid @ $3.60 (+30.9)
05/14/11 Adjusted upside target to $42.50
05/14/11 New stop loss @ 34.75
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: $42.50
Current Stop loss: 34.75
Play Entered on: 02/23/11
Originally listed on the Watch List: 01/22/11


Bristol-Myers Squibb Company - BMY - close: 28.47

05/28 update: The good news for BMY this past week is that prior resistance near $28.00 held up as support. On the other hand a lot of short-term technicals still looks bearish. While this bounce from $28 looks like a potential entry point for bullish positions my market bias makes me hesitant to launch new positions.

Our long-term target 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 $ 1.95/ 1.98

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 2.68/ 2.76

Current Target: $32.00
Current Stop loss: 24.95
Play Entered on: 03/14/11
Originally listed in the New Plays 03/12/11


CACI International - CACI - close: 62.56

05/28 update: CACI delivered a hard-fought gain this past week. Shares dipped toward support near $60.00 before bouncing. The rebound in the last couple of days was just enough to push CACI to a gain on the week. Volume was improving on the rally, which is a positive sign. I would consider this bounce a new entry point for bullish positions. Please note that we're raising our stop loss to $59.25.

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/ 2.55

- 2nd Position -

May 31, 2011 - entry price on CACI @ xx.xx, option @ x.xx
symbol: CACI1117I65 2011 SEP $65 call - current bid/ask $ 2.05/ 2.55

05/28/11 New stop loss @ 59.25.
05/28/11 New entry point on the bounce. 2nd position above.
05/07/11 New stop loss @ 57.75

Chart of CACI

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: 77.31

05/28 update: Railroad stocks managed to outperform their transport brethren. CNI rallied from its lows near $74 back toward its all-time highs near $78. If you're looking for new positions I'd probably wait for another dip and then buy the bounce from the $75-76 area. Or you could wait for a close over its early May highs but keep in mind the $80 level might be round-number resistance.

- 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

05/21/11 new stop loss @ 71.75
05/05/11 new entry point @ 75.00
04/02/11 New stop loss @ 69.00

Current Target: $89.00
Current Stop loss: 71.75
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Costco Wholesale - COST - close: 81.53

05/28 update: Right on cue COST hit some profit taking on its earnings report. The stock actually started to falter ahead of the report thanks to the market's weakness early last week. Analysts were expecting a profit of 77 cents a share. COST delivered 80 cents with revenues up +16% to $20.62 billion, which also beat estimates. The stock declined toward its early May lows and found support at its rising 40-dma. The bounce has risen just enough to fill the gap down. The question now is will COST continue to rise or will the correction continue?

I'm going to err on the side of caution and expect a correction toward the 50-dma. If that level fails then look for a drop to the 100-dma, which was support in March. I am not suggesting new positions at this time.

- Current Positions -
Apr 7, 2011 - entry price on COST @ 76.37, option @ 3.80
symbol:COST1221A80 2012 JAN $80 call - current bid/ask $ 6.05/ 6.20

- or -

Apr 7, 2011 - entry price on COST @ 76.37, option @ 5.05
symbol:COST1319A85 2013 JAN $85 call - current bid/ask $ 7.10/ 7.30

05/21/11 Take Profits - Sell Half now! COST @ 83.40.
2012 $80 call @ $7.55 (+98.6%), 2013 $85 call @ $8.30 (+64.3%)
05/14/11 New stop loss @ 75.75
04/30/11 New stop loss @ 73.40

Current Target: $89.50, 99.00
Current Stop loss: 75.75
Play Entered on: 04/07/11
Originally listed on the Watch List: 01/29/11


Walt Disney Co. - DIS - close: 41.52

05/28 update: DIS continues to trade sideways. The stock has now spent two weeks consolidating sideways near support in the $41 area. There are several moving averages all converging near resistance at $42.00. If you're looking for a new entry point I'd be tempted to buy calls again if we see DIS close over $42.00 but if you do buy calls you'll want to consider a tighter (higher) stop loss.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 3.95/ 4.05

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 6.05/ 6.20

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


Dr. Pepper Snapple Group, Inc. - DPS - close: 41.06

05/28 update: We have been expecting a dip back toward $40.00, which should be support. It looks like the correction back to $40 has begun. I would consider new positions on a decline near $40.00 but more conservative traders might want to wait and buy the bounce. Currently our exit target is $46.00. DPS does not have LEAPS so we'll have to use the November 2011 calls.

- Current Positions -
May 11, 2011 - entry price on DPS @ 40.55, option @ 2.85
symbol: DPS1119K40 2011 NOV $40 call - current bid/ask $ 2.80/ 3.40

- or -

May 11, 2011 - entry price on DPS @ 40.55, option @ 1.00
symbol: DPS1119K45 2011 NOV $45 call - current bid/ask $ 0.95/ 1.15

Current Target: $46.00
Current Stop loss: 37.95
Play Entered on: 05/11/11
Originally listed on the Watch List: 05/07/11


Darden Restaurants - DRI - close: $50.92

05/28 update: Not surprisingly DRI did pull back into the $51-50 zone. I would be tempted to launch positions here but you might want to wait for a dip closer to the 30-dma instead. I remain long-term bullish on DRI but my short-term market bias is clouded and there's a good chance the market continues to slip. Our long-term targets are $59.50 and $64.75.

- Current Positions -
May 19, 2011 - entry price on DRI @ 52.03, option @ 2.74
symbol: DRI1221A55 2012 JAN $55 call - current bid/ask $ 2.10/ 2.30

- or -

May 19, 2011 - entry price on DRI @ 52.03, option @ 5.50
symbol: DRI1319A55 2013 JAN $55 call - current bid/ask $ 4.40/ 4.80

Current Target: $59.50, 64.75
Current Stop loss: 47.40
Play Entered on: 05/19/11
Originally listed on the Watch List: 05/14/11


Brinker International - EAT - close: 25.80

05/28 update: Restaurant names are still showing relative strength. EAT ended the week near its multi-year highs. Shares look poised to breakout past resistance near $26 soon. I am not suggesting new long-term positions but short-term traders may want to consider calls on a breakout past $26.

Please note our new stop loss at $23.90, just under the 100-dma. FYI: We have less than two full months before July options expire.

- 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/ 1.60

05/28/11 New stop @ 23.90
04/02/11 New stop @ 22.90
03/26/11 New stop @ $21.95

Current Target: $29.50
Current Stop loss: 23.90
Play Entered on: 02/23/11
Originally listed on the Watch List: 02/12/11


Ford Motor Co - F - close: 14.60

05/28 update: Uh-oh! Stock market weakness last Monday (May 23rd) was enough to push Ford under support near its 50 and 200-dma. This move also breaks the two-month trend of higher lows. Ford now has a multi-week trend of lower highs and lower lows. All is not lost - yet. The $14.50 level has been on and off again support for a long time. Ford has been consolidating sideways near $14.50 the last few days. Unfortunately the trend is now down.

More conservative traders may want to abandon ship right now. If the stock market continues to slip then Ford could be facing a drop toward its March lows. I am not suggesting new positions at this time.

- Suggested Positions -
Feb 28, 2011 - entry price on F @ 15.29, option @ 2.17
symbol: F1221A15 2012 JAN $15 call - current bid/ask $ 1.22/ 1.26

- or -

Feb 28, 2011 - entry price on F @ 15.29, option @ 1.50
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 0.84/ 0.89

- Second Position, listed May 7th, 2011 -

May 9, 2011 - entry price on F @ 15.12, option @ 1.71
symbol: F1221A15 2012 JAN $15 call - current bid/ask $ 1.22/ 1.26

- or -

May 9, 2011 - entry price on F @ 15.12, option @ 1.09
symbol: F1319A20 2013 JAN $20 call - current bid/ask $ 0.84/ 0.89

05/28/11 Ford is growing weaker. Conservative traders may want to exit early now.
05/21/11 New stop loss @ 13.49
05/07/11 New entry point on bounce from $15.00
03/26/11 New stop loss @ $12.95

Current Target: $19.75, and $24.00
Current Stop loss: 13.49
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Fiserv, Inc. - FISV - close: 63.46

05/28 update: On Wednesday FISV announced that its Board had approved a stock buyback program of up to 7.5 million shares (about 5% of the outstanding shares). It's unclear if this replaces or adds to the previous buyback program that still had 1.8 million shares left to go. The stock was trending higher this past week and managed a gain. FISV is quickly approaching resistance and its all-time highs in the $64-65 area. The relative strength is encouraging but I'm not suggesting new positions at these levels. More conservative traders might want to raise their stops near the $60 level.

- Suggested Positions -
Feb 14, 2011 - entry price on FISV @ 62.30, option @ 3.20
symbol: FISV1117I65 2011 SEP $65 call - current bid/ask $ 2.05/ 2.25

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: 21.68

05/28 update: JRCC managed to post a gain for the week after traders bought the dip near $20.25 midweek. Tuesday's close under the 200-dma was worrisome but thankfully JRCC recovered quickly. JRCC has essentially been churning sideways in the $20-22 zone the last two weeks. The $22 level remains resistance. I am not suggesting new positions at this time.

FYI: The spreads on our 2013 LEAPS just got a LOT wider!

- Current Positions -
Apr 12, 2011 - entry price on JRCC @ 22.50, option @ 3.10
symbol: JRCC1221A25 2012 JAN $25 call - current bid/ask $ 1.90/ 2.15

- or -

Apr 12, 2011 - entry price on JRCC @ 22.50, option @ 4.70
symbol: JRCC1319A27 2013 JAN $27 call - current bid/ask $ 2.00/ 3.70

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: 69.64

05/28 update: What a difference two weeks can make. MON has produced a significant bounce with the stock up seven out of the last eight session. It looks like the stock may have stalled with Friday's session unable to rally past resistance near $70 and its 100-dma. At this point the trend from the last few months remains a bearish one of lower highs and lower lows. More conservative traders may want to abandon ship right now. On a short-term basis I would expect a pull back into the $67-65 area. If MON can find support above $65 and its 200-dma again and it produces a new higher low then we might reconsider new positions. Tonight I am not suggesting new bullish 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 $ 6.40/ 6.55

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 8.15/ 8.35

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

Chart of MON:

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


Scotts Miracle Grow Co. - SMG - close: 59.06

05/28 update: SMG has been showing some impressive relative strength the last few days. The stock is back above resistance near $58.00 and resistance at several of its key moving averages. I would not chase SMG here but we can start looking for a new entry point. Shares are nearing prior resistance in the $60.00-60.50 area.

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 $ 2.35/ 2.65

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: 43.37

05/28 update: Energy stocks have been slowly drifting higher all week or at least off Monday's lows. SWN is no different but shares are nearing prior resistance in the $44.00-44.50 area. I would not launch new positions at these levels. On a positive note the 50-dma should offer some technical support. Please note our new stop loss at $39.45.

Earlier comments:
We wanted to keep our position size small to limit our risk.

- Current (SMALL) Positions -
Apr 7, 2011 - entry price on SWN @ 40.50, option @ 2.90
SWN1221A45 2012 JAN $45 call - current bid/ask $ 3.70/ 3.80

- or -

Apr 7, 2011 - entry price on SWN @ 40.50, option @ 5.85
SWN1319A45 2013 JAN $45 call - current bid/ask $ 6.70/ 7.00

05/28/11 new stop loss @ 39.45
05/07/11 New stop loss @ 37.75

Current Target(s): $50.00-52.50
Current Stop loss: 39.45
Play Entered on: 04/07/11
Originally listed on the Watch List: 04/02/11


Union Pacific Corp. - UNP - close: 103.53

05/28 update: My comments on CNI apply to UNP as well. Railroad stocks have been performing well and outperformed the market's major averages and the transportation index. On a short-term basis UNP is now testing resistance at the $104 level. I am not suggesting new positions at this time. Nimble traders may want to consider buying calls on another bounce from the $100 level. Please note our new stop loss at $97.00.

- Current Positions -
May 5, 2011 - entry price on UNP @ 100.15, option @ 5.00
UNP1221A110 2012 JAN $110 call - current bid/ask $ 5.10/ 5.25

- or -

May 5, 2011 - entry price on UNP @ 100.15, option @ 6.00
UNP1319A120 2013 JAN $120 call - current bid/ask $ 6.35/ 7.20

05/28/11 New stop loss @ 97.00

Current Target(s): $119.75-134.00
Current Stop loss: 97.00
Play Entered on: 05/05/11
Originally listed on the Watch List: 04/30/11


CLOSED Plays


PACCAR Inc. - PCAR - close: 49.45

05/28 update: Attention! Readers have a choice to make here. The stock market just posted its fourth weekly decline in a row. Shares of PCAR has continued to weaken as well. The oversold bounce on Wednesday just failed near its exponential 200-dma. The stock has a bearish trend of lower highs and lower lows. On a short-term basis I would seriously consider an early exit immediately! The only reason I would not exit now is the weekly chart. PCAR is testing its long-term trendline of support on the weekly chart and it has not broken support yet. Of course the breakdown could happen soon.

I am suggesting we go ahead and exit positions now. Given the weakness in the market's major averages I wouldn't be surprised to see PCAR drop toward its March lows.

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 - Exit @ 2.35 (-36.4%)

- or -

Mar 21, 2011 - entry price on PCAR @ 50.75, option @ 8.00
PCAR1319A54.7 2013 JAN $54.70 call - exit @ 5.10 (-36.2%)

05/28/11 Exit early. Options @ -36.4% & -36.2%
05/14/11 New stop loss @ 47.75

Chart of PCAR

Weekly Chart of PCAR

Current Target(s): $58.00, 64.00
Current Stop loss: 47.75
Play Entered on: 03/21/11
Originally listed on the Watch List: 03/19/11


Watch

Luxury & Lodging

by James Brown

Click here to email James Brown


New Watch List Entries

COH - Coach Inc.

HOT - Starwood Hotels & Resorts


Active Watch List Candidates

AXP - American Express Co

HSY - Hershey Co.

INTC - Intel Corp.

MCD - McDonald's Corp.

PEP - Pepsico

T - AT&T Inc.

ZMH - Zimmer Holdings



New Watch List Candidates:


Coach Inc. - COH - close: 63.91

Company Info

You might naturally think that with the markets worried about a possible slow down in the U.S. economy that luxury good retailers would be suffering. The exact opposite is happening. High-end companies like COH and TIF are soaring. COH tagged new all-time highs this past week and shares have been very resistant to the stock market's recent weakness.

It would seem the high-end consumer is spending again. Meanwhile technicals for COH are positive. COH spent most of May in the $58-61 zone. This area should be new support. I am suggesting we buy calls on a dip at $61.00. We'll start this trade with a stop loss at $57.40. More aggressive traders may want to give COH more room and put their stop under $55 instead.

I would keep our position size small to limit our risk. The market's correction may not be over yet and if the market accelerates lower COH will eventually succumb. Buy-the-Dip trigger: $61.00 (small positions)

BUY the 2012 Jan. $65 call (COH1221A65) current ask $5.80

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BUY the 2013 Jan. $70 call (COH1319A70) current ask $7.60

Chart of COH:

Originally listed on the Watch List: 05/28/11


Starwood Hotels & Resorts - HOT - close: 60.48

Company Info

HOT is another surprise. If investors are so worried about a slow down in the economy then why isn't HOT showing more weakness? The stock's simple 200-dma has been technical support for months. Shares of HOT have spent most of the last three months consolidating sideways and now the stock looks ready to rally again. Aggressive traders may want to buy calls now with this past week's rally past $60.00 and its 100-dma.

I see some resistance in the $61.50 area so I am suggesting that we wait for a close over $62.00 to launch positions. Normally our triggers are intraday but this time I'm suggesting we wait for HOT to close above this level. If triggered we'll use a stop loss at $57.00. The $65.00 level remains overhead resistance but I'm setting our long-term target at $74.75. Currently the point and figure chart is bullish with a $72 target.

Breakout trigger: CLOSE above $62.00

BUY the 2012 Jan $65 call (HOT1221A65) current ask $4.20

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BUY the 2013 Jan $70 call (HOT1319A70) current ask $6.65

Chart of HOT:

Originally listed on the Watch List: 05/28/11


Active Watch List Candidates:



American Express Co. - AXP - close: 51.13

05/28 update: Financial stocks produced a nice bounce on Friday but bigger picture the group continues to look bearish. The banking indices have a significant pattern of lower highs and lower lows. Friday's move doesn't change that. AXP happens to buck this trend. The stock is trending higher. However, we don't want to chase it with the market's major indices looking vulnerable.

Our plan is to buy calls on AXP when the stock corrects. The $48-47 area should be significant support. I am suggesting a buy-the-dip entry point at $47.50. If triggered we'll set our stop loss at $43.90, under the 200-dma. Our long-term targets are $55 and $65. Buy-the-Dip trigger: $47.50

BUY the 2012 Jan $50 call (AXP1221A50)

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BUY the 2013 Jan $50 call (AXP1319A50)

Originally listed on the Watch List: 05/21/11


Hershey Co. - HSY - close: 55.02

05/28 update: We have been waiting for HSY to correct. The stock dipped to $53.77 on Thursday morning before bouncing. Unfortunately that's not low enough. We've been hoping for a dip to $53.00. More aggressive traders may want to consider new positions now. I'm still worried about the market's major indices. Since the market's correction may not be over yet we'll stick to our entry point at $53.00. More conservative traders could step back and wait to see if HSY can correct toward the $51-50 area and its 200-dma.

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)

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BUY the 2013 $55 calls (HSY1319A55)

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


Intel Corp. - INTC - close: 22.21

05/28 update: Yuck! It was an ugly week for shares of INTC. Shares are down five out of the last six session and INTC is quickly approaching what should be significant support at the $22.00 level. Odds are really good that INTC will hit our trigger to buy calls at $22.00 this week. More conservative traders may want to wait. INTC could see a drop toward its 50-dma near $21.60 or its 100-dma near $21.45 instead. Readers could choose to wait and buy a bounce instead of trying to catch the falling knife.

The newsletter will stick to our plan with a trigger at $22.00 since our time frame is several months but you the reader can be much more nimble than our newsletter so consider waiting before initiating new positions. Our long-term targets are the $26-28 zone. If triggered we'll use a stop loss at $20.45.

Buy-the-Dip trigger: $22.00

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

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

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


McDonald's Corp. - MCD - close: 81.62

05/28 update: After a two and a half month rally MCD's rally has finally stalled. It looks like it's time for a correction. More aggressive traders may want to buy calls on a dip near $80.00 since as prior resistance it should offer some support. I'm expecting MCD to correct a bit lower than that. Our plan is to buy calls at $78.50. If triggered we'll use a stop loss at $75.75, under the simple 200-dma. Our long-term targets are $89 and $99. The P&F chart is suggesting a $113 target. Buy-the-Dip trigger: $78.50

BUY the 2012 Jan $80 call (MCD1221A80)

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BUY the 2013 Jan $85 call (MCD1319A85)

Originally listed on the Watch List: 05/21/11


Pepsico, Inc. - PEP - close: $70.40

05/28 update: The move in PEP is similar to the rally in MCD. After several weeks of gains the stock has started to see some profit taking. I am suggesting a buy-the-dip entry point at $68.00. If triggered we'll use a stop loss at $66.40 and use targets at $75 and $79. Buy-the-Dip trigger: $68.00

BUY the 2012 Jan. $70 call (PEP1221A70)

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BUY the 2013 Jan. $70 call (PEP1319A70)

Originally listed on the Watch List: 05/14/11


AT&T - T - close: 31.29

05/28 update: AT&T has spent the month of May consolidating sideways above support near $31.00. The stock does have a bearish three-week trend of lower highs but the larger trend is bullish. Even if AT&T broke down from its current consolidation the stock should find support near $30.00. I am considering a higher entry point for this trade. However, since I'm still concerned about the market's major averages we'll wait and leave things the way they are. If the stock market continues to slip then AT&T could see a decline toward its 100 or 200-dma although it could take several weeks to occur.

If triggered at $29.25 our stop will be $27.90. Our long-term target is the $36-40 zone. AT&T doesn't move very fast so we will need lots of patience.

Buy-the-Dip trigger: $29.25

BUY the 2012 January $30.00 call (T1221A30)

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BUY the 2013 January $30.00 call (T1319A30)

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


Zimmer Holdings, Inc. - ZMH - close: 68.18

05/28 update: ZMH managed to find some support near $66.50 last week. The stock actually posted a gain for the week with the bounce on Thursday and Friday. On a short-term basis ZMH looks poised to rise. Yet I don't want to chase it here for our long-term trade. Given the cloudy outlook for the market in June I'd rather wait and see if ZMH can retreat toward the $65-64 area. We will leave our trigger to buy calls at $64.00. If triggered we'll use a stop loss at $59.90. Our long-term targets are $78.50 and $88.50, although the high $80s might be a little optimistic.

Buy-the-Dip trigger: $64.00

BUY the 2012 Jan. $70 call (ZMH1221A70)

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BUY the 2013 Jan. $70 call (ZMH1319A70)

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