Option Investor
Newsletter

Daily Newsletter, Sunday, 6/26/2011

Table of Contents

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

Leaps Trader Commentary

No Rush

by James Brown

Click here to email James Brown

Investors remain cautious on the market. Early last week stocks were in rebound mode and Tuesday was the best one-day gain for the S&P 500 since April 20th. Unfortunately the rally ran out of steam the following session and now the oversold bounce has almost been completely erased. The market's major indices are flirting with a breakdown under key support as investors digest a flurry of headlines from economic data to the ongoing drama with Greece.

Last week we had the FOMC meeting. The Federal Reserve left rates unchanged in the 0.0%-to-0.25% zone. The Fed also kept their extended period language and confirmed they will end the QE2 program at the end of June. There was no word on any potential QE3 program. During the following press conference Fed chairman Ben Bernanke admitted the Fed does not know why the U.S. growth is so frustratingly slow.

The FOMC also lowered their 2011 GDP estimates to the +2.7%-2.9% range down from +3.1%-3.3% but a downward revision was widely expected. The Fed raised their unemployment estimates into the 8.6-8.9% versus prior expectations for 8.4-8.7%. These comments didn't inspire a lot of confidence in the market.

The stock market was also unhappy with bearish PMI data out of both Europe and China. However, there were comments from Chinese officials suggesting the country might lighten up on their attempts to slow down their economy. While back at home in the U.S. another drop for new home sales failed to excite anyone.

In positive news the U.S. GDP Q1 growth estimate was revised higher from +1.8% to +1.9%. At this point Q1 data is getting to be old news. The first look at Q2 GDP will be in late July. Durable Goods orders for May rose +1.9% and followed an upwardly revised +2.7% from the prior month. Yet orders less transportation was only +0.6%, which was slightly less than estimates. Back across the Atlantic the latest IFO survey data in Germany was positive but European stocks remain hostage to the Greek crisis.

Speaking of this long, drawn out Greek tragedy, one of the main players, Greece's prime minister got to keep his job last week after he survived a no confidence vote. Now the prime minister has to wrangle his government into accepting the latest austerity plan. This was actually good news - that Greece has agreed with the EU and IMF to a new five-year austerity plan but this needs to be approved by Greek parliament. That vote is this week and if it fails then Greece may not get the money it needs in July to avoid a debt default.

Just when it seemed that the Greek problem might get a reprieve concerns over the rest of the PIIGS countries resurfaced on Friday. Moody's rating agency downgraded sixteen Italian banks over concerns they were undercapitalized. This fanned the flames regarding how weak Italy, Ireland, Portugal and Spain really are and reminded investors that even if the Greek problem gets solved (it won't) there are bigger challenges on the horizon.

Looking at the U.S. markets the S&P 500's bounce from the 200-dma on June 16th has reversed. This index actually retested the 200-dma on Thursday morning with a dip toward 1260. Traders bought this dip a second time and Thursday saw a sharp intraday rebound. By Thursday's closing bell the market look poised to rally again. Then the Italian bank downgrade hit and stocks reversed course yet again. In spite of all this volatility the volatility index (VIX) is only at 21. If the market breaks down under support we could see the VIX spike back toward the 30 level.

There are a lot of people watching the simple 200-dma as their buy/sell signal. A breakdown would be very bearish. Currently a breakdown under the 200-dma would likely involve a breakdown under support near 1260 as well. I would also point out that the March low near 1250 (actually 1249) could be significant support. If the S&P 500 does break 1250 then I would expect a decline toward support near 1220 and then the 1200 levels.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite doesn't look much different. This tech-heavy index saw a stronger bounce early in the week but it stalled under the 2700 level. This index closed on its 200-dma near 2650 on Friday. Support remains near the 2600 level and a breakdown here would be very ugly.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The rebound in the small cap Russell 2000 index still shows promise but I'm concerned there is overhead resistance at 820 and its 50 and 100-dma. Plus, this Friday was the once-a-year Russell rebalancing so Monday might see some volatility as the index adjusts to this rebalance. The $RUT has support in the 770-780 zone along with its 200-dma. A breakdown under this level would suggest a much deeper correction to follow.

Daily chart of the Russell 2000

Weekly chart of the Russell 2000:

The SOX semiconductor index is trying to bounce after its very sharp sell-off in June. Broken support near 410 and its 200-dma should be new overhead resistance. As long as this sector struggles the NASDAQ is going to have a hard time mounting a rally.

Weekly chart of the SOX semiconductor index:

The transportation sector saw a sharp rebound last week. Yet the rally reversed near resistance and now the index has produced a new bearish reversal pattern. I would expect another drop toward the 200-dma. A breakdown under the 200-dma or the 5,000 level would be very bearish for the market.

Daily chart of the Transportation index:

Weekly chart of the Transportation index:

This week the economic calendar is pretty busy. There is going to be a lot of data coming out. Here are some of the highlights:

- Monday, June 27-
personal income and spending

-Tuesday, June 28-
Case-Shiller 20-city home price index
Consumer Confidence for June

-Wednesday, June 29-
Pending Home Sales for May

-Thursday, June 30-
weekly initial jobless claims
Chicago PMI

-Friday, July 1-
ISM index for June
Michigan consumer sentiment
construction spending.

The biggest economic releases are the ISM on Friday and the Chicago PMI on Thursday. The Q2 earnings season doesn't officially start until July 11th with Alcoa's earnings report but we will see a few early releases. Major earnings reports this week are Nike (NKE) on Monday; GIS and MON on Tuesday; and DRI on Thursday. Don't forget that we could see any number of earnings warnings over the next couple of weeks prior to the onset of reporting season.

Looking ahead the first part of the week will probably be dominated by headlines of Greece again. Their parliament is supposed to vote on the new five-year austerity plan this Tuesday. After Tuesday the focus will be on the economic data at the end of the week. In the meantime we will probably hear a lot about the debt ceiling talks or lack thereof between the White House and congress. They have until early August to raise the debt ceiling before the U.S. does the unthinkable and defaults on our debt.

There is still a chance stocks could see some last minute end-of-quarter window dressing but I would not use a bounce here as a new entry point for long-term LEAPS positions. If we're lucky the stock market might consolidate sideways in a trading range until earnings season arrives in mid July. Then the fireworks should really start. Investors will be looking at corporate earnings and guidance to show us just how bad Q2 really was and whether or not corporate America agrees with the Fed that conditions should improve later this year.

In summary, the market's intermediate trend is still down. The major averages are likely to retest major support this week again. A breakdown would be very bearish. The headlines will still be dominated by events overseas and currency fluctuations between the dollar and euro will create volatility in commodities. I would not be in a rush to open new long-term bullish positions here. I'd like to see the market digest the first two weeks of earnings before making any big decisions.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market's oversold bounce from support is already in jeopardy. The S&P 500 is flirting with a breakdown under support near 1260 and its simple 200-dma. Meanwhile we are seeing several stocks produce a new lower high or worse they are producing the right shoulder to a bearish head-and-shoulders pattern.

Investors need to stay defensive here. The market might see some quarter-end window dressing but the intermediate trend remains down. It will be interesting to see if Q2 earnings can reverse this trend or will earnings results merely accelerate the sell-off lower?

There are new stop losses for BEAV, BMY, CACI, CNI, and FISV.

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

A Real Chance

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's oversold bounce is struggling. There is a very real chance that stocks break down under key support soon. If that happens the breakdown would suggest that stocks are in for a much deeper correction.

Investors are struggling with a lot of different headwinds from a possible slowdown in the U.S. to the sovereign debt crisis in Europe and inflation worries overseas.

I am not adding any new long-term LEAPS candidates tonight. Cautious investors may want to consider some sort of hedge. Put options on the major indices or calls on the VIX might work.

I don't see any changes from my prior comments which I'm reposting below:

Earlier Comments:
A drop to 1,250 on the S&P 500 would push the correction to -8%. If the S&P 500 breaks down under 1,250 then it's probably headed for 1,200, which would be almost -12%. A drop to 1,200 would also be a 50% retracement of the S&P 500's rally off the lows from last August.

We may want to consider the idea of waiting until the market gets a chance to react to July's Q2 earnings news. That would mean our next entry point may not be until mid to late July.

If we do happen to see a bullish entry point (on our watch list or play list) we'll need to trade defensively and keep our position size small to limit our risk.


Play Updates

The Rebound Is Struggling!

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Boeing Co. - BA - close: 71.26

06/25 update: I have been warning readers to expect a drop toward $70 in BA. The stock fell to $70.29 and hit its simple 200-dma on Thursday. BA really accelerated lower on Wednesday following news from the Paris air show. It seems that BA's main rival, Airbus, is gaining significantly more business. Maybe customers are tired of all the delays at BA. This pull back toward $70.00 in BA is a pivotal turning point. This is important support bolstered by the 200-dma. A breakdown here would also be a breakdown of BA's long-term up trend (see weekly chart). Actually if you look at the chart below BA seems to have already broken the long-term up trend.

Traders could certainly buy this dip to support but with the market's major indices looking weak I would probably wait. Let's wait for a bounce from these level. Cautious traders could wait for a new close over $75.00 or its 50-dma before considering new positions.

FYI: We only have small positions open to limit our risk.

- Current Positions -
Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.50
symbol: BA1221A80 2012 JAN $80 call - current bid/ask $ 2.60/ 2.67

Apr 27, 2011 - entry price on BA @ 76.50, option @ 4.95
symbol: BA1319A90 2013 JAN $90 call - current bid/ask $ 3.00/ 3.20

06/25/11 BA dips toward support near $70 and 200-dma as expected.
06/04/11 re-evaluated our risk and moved the stop loss to $69.75 under the simple 200-dma
05/14/11 New stop loss @ 73.90
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: 38.93

06/25 update: BEAV is still holding up relatively well and the stock actually looks poised to move higher. There is some resistance in the $40.00-40.50 area and given our time frame I am adjusting our exit target down to $39.90. We only have three weeks left before July options expire. More conservative traders will want to exit now to lock in a profit. The newsletter will plan on exiting this positions next Friday (July 1st) at the closing bell assuming shares don't hit our exit at $39.90 first. We will raise our stop loss up to $36.75. I am not suggesting new positions at this time.

- Current Positions -
Feb 23, 2011 - entry price on BEAV @ 34.00, option @ 2.75
symbol: BEAV1116G35 2011 JUL $35 call - current bid/ask $ 4.00/ 4.20

06/25/11 new stop loss @ 36.75, Plan on exiting July 1st
06/25/11 adjusted exit target to $39.90
06/18/11 Consider an early exit now (bid @ $3.20)
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: $39.90
Current Stop loss: 36.75
Play Entered on: 02/23/11
Originally listed on the Watch List: 01/22/11


Bristol-Myers Squibb Company - BMY - close: 28.93

06/25 update: It was a bullish week for BMY with the stock surging to new multi-year highs. Late Wednesday there was positive news on a Phase III drug trial for Eliquis, a blood thinner created by both BMY and rival Pfizer (PFE). The positive news garnered BMY's stock an upgrade. The following session BMY gapped open higher and rallied to $29.50. Shares have started to see some profit taking and the close under $29.00 is a little disappointing since prior resistance could have been support. Odds are BMY will eventually fill the gap and that means a drop toward $28.25. I am not suggesting new bullish positions at this time. We will raise our stop loss to $26.95.

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 $ 2.23/ 2.28

- or -

Mar 14, 2011 - entry price on BMY @ 26.14, option @ 1.63
symbol: BMY1319A27.5 2013 JAN $27.50 call - current bid/ask $ 2.87/ 2.95

06/25/11 New stop loss @ 26.95
06/04/11 New stop loss @ 25.90

Current Target: $32.00
Current Stop loss: 26.95
Play Entered on: 03/14/11
Originally listed in the New Plays 03/12/11


CACI International - CACI - close: 63.74

06/25 update: CACI continues to show strength. The stock hit new four-year highs on Tuesday. Traders bought the dip near short-term support at $62.00 midweek. CACI actually looks ready to breakout to new relative highs again. I remain cautious given the stock market's downward slope but the action in CACI is bullish. You could launch positions here and just use a tight stop. Speaking of stops I am raising our stop to $59.75, which is under technical support at the 100-dma.

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 $ 2.40/ 2.65

- 2nd Position -

May 31, 2011 - entry price on CACI @ 63.14, option @ 2.65*
symbol: CACI1117I65 2011 SEP $65 call - current bid/ask $ 2.40/ 2.65

06/25/11 new stop loss @ 59.75
06/04/11 Adjustment - new stop @ 58.75
*5/31/11 estimate on the entry point of our 2nd position
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

Current Target: $69.00
Current Stop loss: 59.75
Play Entered on: 04/04/11
Originally listed on the Watch List: 02/12/11


Canadian Natl. Railway Co. - CNI - close: 75.29

06/25 update: Uh-oh! The action last week turned bearish. The early week rally past $77 reversed and now it looks like a lower high or even the right shoulder to a bearish head and shoulders pattern. Meanwhile the long-term trend is still up. However, CNI looks poised to drop toward support near $74.00 and its 100-dma. This $74 area is key support. That's where CNI's long-term trendline of higher lows (see chart below) will cross. I am raising our stop loss to $72.75. More conservative traders may want to raise their stop even higher toward $74. Nimble traders could get ready to buy another bounce from $74.00 but I am not suggesting new positions at this time.

- Current Positions -
Feb 28, 2011 - entry price on CNI @ 72.39, option @ 2.90
symbol: CNI1221A80 2012 JAN $80 call - current bid/ask $ 3.10/ 3.40

06/25/11 new stop loss @ 72.75
05/21/11 new stop loss @ 71.75
05/05/11 new entry point @ 75.00
04/02/11 New stop loss @ 69.00

Chart of CNI:

Current Target: $89.00
Current Stop loss: 72.75
Play Entered on: 02/28/11
Originally listed in the New Plays 02/26/11


Coach Inc. - COH - close: 58.66

06/25 update: The RLX retail sector index is up two weeks in a row but it's struggling with resistance near the 520 level and its 100-dma. There are growing concerns about an economic slow down in the U.S. If investors really start to think we will see a double dip recession then retail names may not fare very well. I am very concerned with COH. The action this past week is essentially a failed rally move and what appears to be the right shoulder to a bearish head-and-shoulders pattern. The supporting neckline is near $58.00. A close under $58.00 would suggest a drop toward $52.00 although technical support near the 200-dma might halt the sell-off. We already have a stop loss at $57.40 so there isn't much room to raise it. More conservative traders may want to exit immediately to cut their losses, especially with Friday's close under technical support at the 50-dma. I am not suggesting new positions at this time. The plan was to keep our position size small to limit our risk.

- Current Positions -
Jun 03, 2011 - entry price on COH @ 61.00, option @ 4.40
symbol: COH1221A65 2012 JAN $65 call - current bid/ask $ 3.10/ 3.30

- or -

Jun 03, 2011 - entry price on COH @ 61.00, option @ 6.80
symbol: COH1319A70 2013 JAN $70 call - current bid/ask $ 5.20/ 5.50

06/25/11 COH appears to be forming an H&S pattern. Consider an early exit now.
06/18/11 COH looks weak. Readers may want to consider an early exit.

Current Target: $75.00
Current Stop loss: 57.40
Play Entered on: 06/03/11
Originally listed on the Watch List: 05/28/11


Costco Wholesale - COST - close: 79.13

06/25 update: I am urging caution on our COST trade. The rally early last week has failed. Shares broke down back below the $80 level and its 50-dma. I would expect a decline toward technical support at the 100-dma or possibly the $75.00 level. 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 $ 4.90/ 5.00

- or -

Apr 7, 2011 - entry price on COST @ 76.37, option @ 5.05
symbol:COST1319A85 2013 JAN $85 call - current bid/ask $ 6.15/ 6.40

06/25/11 expecting a dip toward the 100-dma
06/04/11 Adjusting our stop to $74.75
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: 74.75
Play Entered on: 04/07/11
Originally listed on the Watch List: 01/29/11


Dr. Pepper Snapple Group, Inc. - DPS - close: 39.89

06/25 update: Warning! DPS is correcting lower. Shares broke down under technical support at the 50-dma and under price support at the $40.00 level. Cautious traders may want to raise their stops near the $39.50 level to really limit your risk. Friday's move looks like a failed rally bounce at the 50-dma and I would expect a dip toward the 100-dma near $38.50 or a drop toward prior resistance and what should be new support near $38.00. No new positions at this time.

FYI: DPS does not have LEAPS so we are using 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 $ 2.25/ 2.50

- or -

May 11, 2011 - entry price on DPS @ 40.55, option @ 1.00
symbol: DPS1119K45 2011 NOV $45 call - current bid/ask $ 0.65/ 0.85

06/25/11 DPS looks poised to correct toward the $38 level.

Chart of DPS:

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


Fiserv, Inc. - FISV - close: 60.71

06/25 update: There is no change from my prior comments. I am still suggesting that cautious traders exit early right now. FISV looks poised to drop toward support near $60 or technical support at the 200-dma (currently 59.50). If FISV breaks down past the 200-dma then the next level of support is $58.00. Aggressive traders could place their stop under the $58.00 level. I am raising our stop loss to $58.95. The peaks in April and June looks like a bearish double top for FISV. 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 $ 0.70/ 0.90

06/25/11 new stop loss @ 58.95
06/04/11 new stop loss @ 58.45

Current Target: $74.75
Current Stop loss: 58.95
Play Entered on: 02/14/11
Originally listed on the Watch List: 01/29/11
Originally listed in the New Plays 02/12/11


Intel Corp. - INTC - close: 21.20

06/25 update: After a very sharp correction lower in the first part of June the SOX semiconductor index is trying to bounce. Unfortunately Intel isn't helping very much. The stock did rebound from support near $21.00 and its 200-dma again. Yet shares closed almost unchanged for the week. Traders could certainly use this bounce from support as a new entry point but given the market's recent choppiness I'd rather wait. Readers could wait for a new close over $22.00 or the 50-dma as their next entry point.

Cautious traders might want to raise their stops closer to the $21.00 level. FYI: INTC is due to report earnings on July 20th.

- Current Positions -
Jun 01, 2011 - entry price on INTC @ 22.00, option @ 1.41
symbol: INTC1221A22.5 2012 JAN $22.50 call - current bid/ask $ 1.00/ 1.05

- or -

Jun 01, 2011 - entry price on INTC @ 22.00, option @ 2.38
symbol: INTC1319A22.5 2013 JAN $22.50 call - current bid/ask $ 1.91/ 1.99

Current Target: $26.00-28.00 zone
Current Stop loss: 20.45
Play Entered on: 06/01/11
Originally listed on the Watch List: 05/07/11


Monsanto Co. - MON - close: 65.96

06/25 update: We only have two days left before MON reports earnings. The company is due to announce on June 29th before the opening bell. Analysts are expecting a profit of $1.11. I am still suggesting that more conservative traders consider an early exit ahead of the earnings announcement. That means exiting Tuesday before the close. We do not know how the end of ethanol subsidies recently passed by congress will impact MON's business or what management will say as they offer guidance.

Overall the stock dipped toward support near $65 just as expected. 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 $ 4.35/ 4.45

- or -

Mar 15, 2011 - entry price on MON @ 65.50, option @ 8.75
symbol: MON1319A75 2013 JAN $75 call - current bid/ask $ 6.40/ 6.65

06/25/11 Earnings are June 29th. Consider exiting ahead of the announcement.
06/18/11 Get defensive. Consider raising your stop loss or reducing your position size. Decide if you're willing to hold over the earnings report or if you'll exit early prior to the announcement.
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


Southwestern Energy Co. - SWN - close: 40.84

06/25 update: Energy stocks have been struggling. SWN fared better than many of its peers but the action this past week looks like a new lower high. Shares of SWN are currently testing technical support at the 100-dma. The stock should have additional support at the $40.00 level. Unfortunately the oil index looks poised to breakdown even further. If that happens we could see SWN break down below $40 and hit our stop loss at $39.45. More conservative traders may want to abandon ship and exit this trade now. I am not suggesting new positions at this time.

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 $ 2.36/ 2.42

- or -

Apr 7, 2011 - entry price on SWN @ 40.50, option @ 5.85
SWN1319A45 2013 JAN $45 call - current bid/ask $ 5.20/ 5.50

06/25/11 SWN looks poised to drop toward support near $40.00.
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: 100.04

06/25 update: UNP eked out a three-cent gain for the week. Unfortunately the action last week looks bearish with a failed rally and a new lower high. UNP looks poised to drop toward technical support at the 100-dma (currently 98.38). If UNP breaks down under the 100-dma it will likely hit our stop pretty quickly at $97.00. I am not suggesting new positions at this time.

- Current Positions -
May 5, 2011 - entry price on UNP @ 100.15, option @ 5.00
UNP1221A110 2012 JAN $110 call - current bid/ask $ 3.75/ 3.85

- or -

May 5, 2011 - entry price on UNP @ 100.15, option @ 6.00
UNP1319A120 2013 JAN $120 call - current bid/ask $ 5.50/ 5.80

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


Zimmer Holdings, Inc. - ZMH - close: 61.50

06/25 update: ZMH is down four weeks in a row and down five out of the last six weeks. I have been warning readers that ZMH might dip toward support near $60.00. It certainly looks like that is where ZMH is headed. I would prefer to see the stock bounce from $60.00 before considering new bullish positions.

Earlier comments:
Healthcare stocks had been one of the market's strongest sectors. When this market correction is over I expect healthcare to remain popular with investors. I like ZMH since an aging baby boomer population is going to see rising demand for ZMH's replacement joints and implants.

- Current Positions -
Jun 10, 2011 - entry price on ZMH @ 63.00, option @ 4.00
ZMH1221A65 2012 JAN $65 call - current bid/ask $ 3.30/ 3.60

- or -

Jun 10, 2011 - entry price on ZMH @ 63.00, option @ 5.50
ZMH1319A70 2013 JAN $70 call - current bid/ask $ 4.50/ 5.00

06/25/11 We are still expecting a dip toward $60.00. Wait for a bounce from this level before considering new positions.

Current Target(s): $78.50 & 88.50
Current Stop loss: 58.90
Play Entered on: 06/10/11
Originally listed on the Watch List: 04/30/11


Watch

Healthcare Plans

by James Brown

Click here to email James Brown


New Watch List Entries

WLP - Wellpoint Inc.


Active Watch List Candidates

AGN - Allergan Inc.

AXP - American Express Co

BCR - C.R.Bard Inc.

HSY - Hershey Co.

MCD - McDonald's Corp.

PEP - Pepsico

T - AT&T Inc.


Dropped Watch List Entries

None.



New Watch List Candidates:


Wellpoint Inc - WLP - close: 77.33

Company Info

Healthcare names have been some of the market's best performers in the second quarter. WLP is one of them and the long-term trend for this stock is still very bullish. Yet even healthcare stocks will likely collapse if the market's major indices breakdown under key support levels.

We want to be ready if the market breaks down and pulls WLP down with it. On a short-term basis WLP's bounce just failed at resistance near $80.00. The stock is testing support near $75.00. I suspect that a market drop could pull WLP down toward the next level of support at $70.00. I am suggesting a buy-the-dip trigger at $70.50 with a wide (aggressive) stop loss at $64.75. More conservative traders may want to wait and watch for a dip toward the simple 200-dma (currently near $65).

If we do get triggered we want to keep our position size small to limit our risk.

Buy-the-Dip trigger: $70.50

BUY the 2012 Jan. $75 call (WLP1221A75)

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BUY the 2013 Jan. $80 call (WLP1319A80)

Chart of WLP:

Originally listed on the Watch List: 06/25/11


Active Watch List Candidates:



Allergan Inc. - AGN - close: 80.87

06/25 update: The rally from the $79.00 level from two weeks ago is reversing. AGN is testing support near $80 and the 50-dma again. We are still waiting for a correction back to significant support near $75.00. We have a buy-the-dip trigger at $75.50 and a stop loss at $72.00. Our long-term targets are $85 and $97.50.

Buy-the-Dip trigger: $75.50

BUY the 2012 Jan $80 call (AGN1221A80)

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BUY the 2013 Jan $85 call (AGN1319A85)

Originally listed on the Watch List: 06/04/11


American Express Co. - AXP - close: 48.34

06/25 update: AXP's bounce has failed near round-number resistance at $50.00. Shares look headed lower toward support near $47 and the 100-dma. I am actually expecting a dip toward the 200-dma so we'll keep our buy the dip entry point at $45.50 for now. If triggered we'll use a stop loss at $42.90. Our long-term targets are $55 and $65.

Buy-the-Dip trigger: $45.50

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


C.R.Bard Inc. - BCR - close: 107.52 change: -1.28

06/25 update: We have been expecting a correction in BCR and it looks like that correction has begun. Nimble traders willing to make short-term traders may want to buy puts right here and target a drop toward the 100-dma near $102.50. I am anticipating a correction toward round-number support near $100 so we have a buy-the-dip entry point at $101.00 with a stop loss at $97.75.

Buy-the-Dip trigger: $101.00

BUY the 2012 Jan. $105 (BCR1221A105)

Originally listed on the Watch List: 06/11/11


Hershey Co. - HSY - close: 55.94

06/25 update: In this market investors are turning to defensive names and HSY managed another gain for the week. The bounce from $55.00 almost looks like a new bullish entry point but I'm still concerned that the stock market's correction may not be over yet. Thus I'm reluctant to open new positions here. Currently our plan is to buy call LEAPS on a dip at $52.25. If triggered we'll use a stop loss at $48.75. Our long-term targets are $60 and $64.

Buy-the-Dip trigger: $52.25

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


McDonald's Corp. - MCD - close: 81.84

06/25 update: MCD's rally stalled at resistance near $83.00. Now shares appear to have formed a bearish double top but there hasn't been any follow through yet. MCD should have support near $80 and near $78. Currently our plan is to launch positions 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: $68.45

06/25 update: PEP is still slowly correcting lower. Shares are currently flirting with a breakdown under support near $68.00. I am expecting a dip toward the simple 200-dma, currently at $66.18. We will adjust our buy-the-dip trigger down to $66.50 and keep our stop loss, if triggered, at $64.75. Our targets are $75 and $79.

Buy-the-Dip trigger: $66.50

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: 30.44

06/25 update: AT&T continues to slip with a bearish trend of lower highs. The stock is poised to retest support near $30.00 soon. If the market breaks down I'm expecting shares of T to fall toward their 200-dma. We have a buy-the-dip entry point at $29.25 with a stop at $27.90. I would keep our position size small to limit our risk. 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 (small positions)

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