Option Investor
Newsletter

Daily Newsletter, Sunday, 8/21/2011

Table of Contents

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

Leaps Trader Commentary

Poised to Retest

by James Brown

Click here to email James Brown

The S&P 500's rally off its August lows ended after a three-day bounce. The markets stalled at technical resistance. Investors have just experienced one of the worst four week periods for the S&P 500 since 1950. Currently the S&P500 index is down -10.6% year to date. The DJIA is off -6.5%, the NASDAQ Composite is down -11.7%, and the small cap Russell 2000 index is down -16.8% year to date. The volatility and weakness in stocks fueled another rally in safe-haven securities like U.S. bonds and gold. Bond yields fall as bonds rally and the yield on the U.S. ten-year note fell to a record low of 2.0% on Thursday. Meanwhile gold has surged to new all-time highs. The precious metal hit $1,881 an ounce intraday.

Most of the headlines last week were negative but I'll share a couple of positive headlines first. One surprise was the Q2 GDP numbers out of Japan. Analysts were expecting -2.5% growth in Japan in the aftermath of the earthquake and tsunami. Yet Japan said Q2 GDP came in at -1.3% instead. Meanwhile here at home in the U.S. the rate for mortgages has fallen to 50-year lows. Freddie Mac said the average 30-year fixed mortgage rate fell to 4.15% and the 15-year rates are down to 3.51%. These are pretty incredible numbers. Too bad most consumers can't qualify for them and to many homeowners are underwater to refinance.

Now it's time for the bad news and there was a lot of it. It's probably not surprising that the markets rolled over so soon. One of the biggest events last week was supposed to be the meeting between two of Europe's most powerful people, Germany's Merkel and France's Sarkozy. Yet the meeting was a bust. There was no suggestion to raise the size of the 750 billion-euro European Financial Stability Facility (EFSF). Many analysts were speculating the two leaders might propose a new Eurobond. Instead the meeting concluded with these two suggesting a new financial transaction tax, which helped sink the financial stocks again.

Another black cloud for the markets last week was the rush of analysts cutting their growth forecasts. Morgan Stanley issued a rather dour outlook for the rest of 2011 and 2012. The firm suggested the U.S. and Europe were "dangerously close" to a new recession. MS wasn't alone. J.P. Morgan, Goldman Sachs, and Citigroup economists all reduced their GDP growth estimates. Of course we shouldn't be too surprised. The last few months have seen a parade of slowing or lackluster economic reports. This past week the economic data seemed to accelerate lower.

The New York Empire State manufacturing index was supposed to come in at -0.4 but instead fell to -7.7. Readings under zero indicate economic contraction. One of the biggest surprises was the Philly Fed survey. There was some disagreement over what the Philly Fed was supposed to come in at. A few were expecting a rise from 3.2 to 5.2. Others were expecting a drop from 3.2 down to 1.0. Yet the Philly Fed disappointed with a huge plunge to -30.7. Again, readings under zero indicate economic contraction.

The residential real estate sector remains a huge drag on the U.S. economy and last week's report on existing home sales for July was another disappointment. Economists were expecting sales to come in at an annual pace of 4.87 million. July's report showed a drop to 4.67 million. Meanwhile purchase applications fell to a new one-year low. Another concern for economists was rising inflation pressures evident in both the CPI and PPI reports last week. One report that was not surprising is July's Risk of Recession numbers, which rose for the third month in a row and came in at 31% versus 26% in June. Granted this is a lagging report and some analysts believe the U.S. is already back in recession territory. Lest you forget the prior week saw consumer sentiment for August drop to a new 30-year low. Given all the headlines it certainly seems like all the dominos are stacking up for another recession.

Last week I suggested readers watch the Fibonacci retracement levels of the sell-off for overhead resistance. The 38.2% Fib retracement did prove to be resistance but the market was not using the intraday low on August 9th. The Fib tool worked best if you used the August 8th closing low. Looking at the S&P 500 index's daily chart you can see how the market came to a dead stop at the 38.2% Fib level near 1205. Now it appears the S&P 500 will retest the prior week's support near 1120. If that level fails then it will probably be a quick drop toward support near 1100.

A bounce from 1120 or 1100 could qualify as a potential bullish double bottom pattern. However, if 1100 fails then we're looking at a new bear market for the S&P500 and most likely a drop toward the 1050 area. Coincidentally the S&P500 was trading in the 1050-1040 zone last August when Ben Bernanke announced QE2 at the Jackson Hole conference. (FYI: it will actually take a drop under 1090 to mark a new bear market for the S&P500 index)

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The action in the NASDAQ Composite looks very ugly. Using the August 8th close, the bounce stalled at the 38.2% Fib retracement of the sell-off. Unfortunately, last week's weakness has left the NASDAQ at a new closing low, which is very bearish for this coming week. There might be some support near 2325 but if the NASDAQ trades under the August 9th intraday low of 2331 I would expect a drop toward the 2300 level. Coincidentally the bearish target from the head-and-shoulders pattern form over the last several months is forecasting a drop to the 2327 level but that doesn't mean the market will find support there. If the market happens to bounce we can look for resistance near 2500.

Weekly chart of the NASDAQ Composite index:

Daily chart of the NASDAQ-100 index:

The small cap Russell 2000 index also failed at the 38.2% Fibonacci retracement of the sell-off but it was using the intraday lows near 640. This index ended the week at what could be support near the prior week's closing lows but I wouldn't bet on it staying support. Odds are really good that a breakdown under support at 640 will portend a drop to the next level of support at 620 and then the 600-580 zone if the 620 level fails. On a bounce the $RUT is facing resistance at 700, 720, and 740 levels.

Daily chart of the Russell 2000

Weekly chart of the Russell 2000

We're still watching the transportation stocks for clues to the market's health. Unfortunately the Dow Jones Transportation index was hit very hard. From Monday's close of 4684 the $TRAN fell almost -10% in four days. The index has broken below the prior week's lows suggesting this isn't a bottom yet. Looking at the weekly chart the next level of support appears to be the 4070 area and the 4000 mark. That's another -3.5% to -5% decline. If we're headed for a recession then investors will want to stay wary of the transports.

Weekly chart of the Transportation index:

Another chart I want to look at is the GLD gold ETF. Gold is soaring. We're talking hundreds of dollars (gold futures prices) in just the last several weeks. With moves this volatile we should not consider it a "safe haven" trade but I will say the price of gold has been very resilient. I was expecting a bigger bout of profit taking when the exchanges raised the margin requirements on gold. There was a pull back on the news but it was very brief. Now there is new speculation they will raise margins again soon.

There has been plenty of discussion on whether or not gold is in a bubble. I like legendary trader Dennis Gartman's answer. He said gold is certainly feeling bubble-like but it's not there yet. He suspect gold will eventually hit the euphoric bubble stage where we could see gold futures rally $50, $100, even $200 in one day. Looking at the weekly chart of the GLD it looks like gold is already in a bubble but if you consider Gartman's comments then there is a lot more to come.

There are plenty of analysts who are predicting gold will hit the $2,000 an ounce level. At the current pace gold will probably hit $2,000 in the next week or two. Some are predicting $2,500 an ounce. Yet there are some gold bugs suggesting gold could hit $5,000 an ounce over the next five years.

I don't want to come across too bullish on gold but it's a very interesting story. Some are calling it the "other" reserve currency. There is the belief that central banks around the globe are buying gold and still have a lot more buying to do. If you don't like the euro or the dollar or the Swiss franc then buy gold.

Currently gold looks way, way, way too overbought. I'd have a really hard time pulling the trigger here on the GLD. I have no doubt there is a crowd of traders praying for a pull back so they can buy it. Aggressive traders may want to consider buying the next dip. Unfortunately I can't tell you whether the dip is going to be a $5.00 pullback, $10, or $25 drop in the GLD. If the GLD were to reverse today then a dip to the 170-165 area might be an entry point but the simple 10-dma is the first level of technical support and that's nearing $173.

Investors have to remember that the problem with bubbles is that they pop. Once this bubble pops the sell-off could be astonishingly quick.

Weekly chart of the Gold ETF (GLD)

The economic calendar is a bit lighter this week. We'll see new home sales and the durable goods orders for July. The biggest economic report will be Friday's second estimate on the Q2 GDP for the U.S. Right now estimates for Q2 GDP are in the +1.1% area but a few economists are expecting a revision lower toward +0.0% growth. No one expects a drop into negative territory but if it were to happen it could rock the stock market. Aside from the GDP number the biggest event will be the Federal Reserve chairman Bernanke's comments at a conference in Jackson Hole, Wyoming. A year ago Bernanke announced the Fed's QE2 program at this conference. Now the entire QE2 stock market rally (from when the program actually began) has been erased.

There is a huge amount of speculation over what the Fed might say on Friday at this conference. No one is expecting QE3. Inflation data has been a little too high and there isn't enough political capital in Washington to get QE3 done right now. Yet investors are expecting Bernanke to say something to support the stumbling economy. If he does not then we could certainly see another leg lower as we head into September. Meanwhile, outside of the economic realm, the market will digest some earnings news from the retail sector this week.

- Tuesday, August 23 -
New Home Sales for July

- Wednesday, August 24 -
Durable Goods Orders for July

- Thursday, August 25 -
Weekly Initial Jobless Claims

- Friday, August 26 -
Second estimate for U.S. Q2 GDP
Ben Bernanke's comments from Jackson Hole

It will certainly be interesting to see how Bernanke's comments impact the U.S. bond market. The rally in bonds continues and that's driving bond yields lower and lower. This past week the 10-year note saw its yield hit 2.0% for the first time ever. There is a mad rush for yield and money managers still consider the U.S. bond market to be one of the safest investments in spite of the credit downgrade by S&P two weeks ago. Some of the short-term U.S. notes have been flirting with a yield of 0.0%. The problem now is that yields are getting so low it's going to be nearly impossible to outpace inflation. That might be part of the Fed's plan. If bond yields get too low then money managers will be forced to put that money to work somewhere else. The most obvious target will be stocks.

I cautioned readers a week ago that we could see the market retest its lows. I'll confess the pull back was a bit sooner than expected. If we do see the S&P 500 break below the 1100 level it's going to make for a very ugly September, which is traditionally the worst month of the year for stocks.

What concerns me is Europe. Every single week the global markets get jerked around by headlines out of Europe. One sentence I heard a lot this past week was "this is not 2008" with the person being interviewed discussing how the U.S. economy and banking system is significantly healthier than we were back in 2008. They are correct. Unfortunately it seems Europe is having their 2008 moment with European banks unwilling to trust their neighbors. The last couple of European bank "stress tests" have been widely panned as worthless and unrealistic. This past week there was a headline that an "unnamed bank" needed to borrow $500 million from the ECB's emergency funds. That sounds eerily familiar to what the U.S. was experiencing during the Lehman Brothers meltdown days.

We find ourselves in a very uncertain market. The U.S. is teetering on the brink of recession. After watching the debt ceiling fiasco there is very little confidence in our political system. Europe is trying to avoid its own financial crisis. The only positive seems to be how China appears to have successfully engineered a soft landing for their economy.

Stock market bulls will argue that the U.S. market is cheap on a P/E basis. The problem is that stocks can always get cheaper, and the usually do in a bear market. Technically the major U.S. indices are not in a bear market but a plenty of the sector indices are (healthcare, insurance, homebuilders, cyclicals, airlines, defense, oil, oil services, biotech, banks, networking, Internet, and semiconductors). The challenge with bear markets is that the bounces tend to be fast and sharp only to roll over forming a new lower high.

This week I am neutral on the market. I would be tempted to buy another bounce if we saw the S&P 500 rebound from the 1100 level again. Otherwise, we're probably better off to wait and see what Fed chairman Bernanke has to say on Friday before we consider new long-term LEAPS positions.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Volatility spikes back toward extremely high levels as stocks drop toward their August lows. A number of stocks have broken down to new relative lows and we had four candidates get stopped out, most on Thursday's widespread market plunge. Risk off is the current market signal and money is flowing into bonds and gold instead of equities.

We have updated stop losses for CLF and MDR.

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

Awaiting Word from Jackson Hole

by James Brown

Click here to email James Brown

Editor's Note:

A year after Bernanke announced QE2 the market is once again waiting for the Federal Chairman's comments from Wyoming.

Stocks remain very volatile and the oversold bounce from the early August lows has failed. Will stocks bounce again? Or will we see the major averages break down into a new leg lower? We may not know the answer for another week.

The economic calendar is pretty light this week but Ben Bernanke speaks from the Jackson Hole, WY on Friday. Plus, we'll get the second look at U.S. Q2 GDP estimate on Friday. Many are expecting the GDP numbers to slip under +1%.

September is traditionally the worst month of the year for stocks. We are not in a rush to launch new long-term LEAPS positions given the current environment of uncertainty.

No new trades tonight. We are adding three new candidates to the watch list.

-James


Play Updates

Another Rough Week for Stocks

by James Brown

Click here to email James Brown

Editor's Note:

The stock market remains a perilous place and investors are in a sell-first, ask questions later kind of mood.

We saw four stocks breakdown to new relative lows and hit our stop losses in what prove to be another volatile week.

-James


Closed Plays


CRS, EMN, SPW, and TEX all hit stop losses.


Play Updates


Cliffs Natural Resources - CLF - close: 67.64

Update 08/20: Whoa! CLF dropped almost 10 points in the last week. We had added this stock to our watch list to buy the dip at $74.00. Thursday's market sell-off saw shares of CLF gap open lower at $71.51, triggering our play. Now CLF is testing its lows from August 8th and 9th. A breakdown under current short-term support in the $67.50-67.00 area could signal a drop toward the $60.00 region. I am very concerned over CLF's relative weakness this past week. Yes, we did want to buy the dip but this has been a very sharp pull back and now CLF is threatening a breakdown.

We had listed a stop loss at $66.50. I am adjusting our stop loss to $64.95 given our new lower entry point at $71.51. Cautious traders may want to take the opposite tact and raise their stops closer to $67.00 instead.

I am not suggesting new positions at this time. Let's wait and see if CLF can bounce from here, which would produce a possible bullish double bottom pattern.

Earlier Comments:
The plan was to use small positions to limit our risk. Our targets are $89.00 and $99.00.

- Suggested (SMALL) Positions -
Aug 18, 2011 - entry price on CLF @ 71.51, option @ 4.25
symbol: CLF1221A85 2012 JAN $85 call - current bid/ask $ 3.70/ 3.85

- or -

Aug 18, 2011 - entry price on CLF @ 71.51, option @ 10.50*
symbol: CLF1319A90 2013 JAN $90 call - current bid/ask $ 8.60/ 9.05

08/18 *entry on 2013 Jan. $90 call is an estimate. Option did not trade on Thursday.

Chart of CLF:

Current Target: $89.00 and 99.00
Current Stop loss: 64.95
Play Entered on: 08/15/11
Originally listed on the Watch List: 08/13/11


EMC Corp. - EMC - close: 20.28

Update 08/20: Technology stocks have been getting hammered. This past week was another brutal one. If Thursday's market plunge wasn't bad enough shares of EMC also suffered a downgrade Thursday morning. Shares gapped open lower at $20.74 and then plunged to $19.84 that morning before recovering. Our buy-the-dip entry point at $20.25 was hit. If you missed it Thursday morning you got another chance on Friday.

EMC is now testing psychological, round number support at $20.00. More conservative traders may want to raise their stop toward the $19.84 low. Currently the newsletter has a stop loss at $18.90. Readers could buy this dip now but I'd prefer to wait and see if the S&P 500 index will bounce at 1120 or will it retest the 1100 level before making any new decisions here.

Earlier Comments:
The plan was to use small positions to limit our risk. Our first target is $25.75. Our second target is $28.50. Aggressive traders could aim higher.

- Suggested (SMALL) Positions -
Aug 18, 2011 - entry price on EMC @ 20.25, option @ 2.20
symbol: EMC1221A20 2012 JAN $20 call - current bid/ask $ 2.12/ 2.15

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 1.65/ 1.79

Chart of EMC:

Current Target: $25.75 and 28.50
Current Stop loss: 18.90
Play Entered on: 08/18/11
Originally listed on the Watch List: 07/23/11


McDonalds Corp. - MCD - close: 87.23

Update 08/20: MCD was pretty content to consolidate sideways all week. Shares fid see some volatility on Thursday's market sell-off but the stock only dipped to its rising 50-dma. Traders bought that dip on Friday and MCD actually closed up on the week. I would be tempted to launch new positions here but readers may be better off to wait and see if the S&P 500 index bounces at 1120 or bounces at 1100 before initiating new positions.

Earlier Comments:
The plan was to use small positions to limit our risk. Our first target is $99.00.

- Suggested (small) Positions -
Aug 15, 2011 - entry price on MCD @ 86.82, option @ 2.50
symbol: MCD1221A90 2012 JAN $90 call - current bid/ask $ 3.15/ 3.25

- or -

Aug 15, 2011 - entry price on MCD @ 86.82, option @ 3.90
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 4.45/ 4.65

Current Target: $99.00
Current Stop loss: 81.75
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


McDermott Int. Inc. - MDR - close: 11.87

Update 08/20: It was an ugly, ugly week for MDR. When investors start to worry about a new recession the volatile sectors like oil services get hit hard. MDR actually gapped open higher on Monday, August 15th. Then it spent the rest of the week crashing. By Friday's closing bell MDR had lost -21.7% from Monday's close. The stock settled right at the prior week's low. The intraday low on Friday was $11.79 and our stop loss was been at $11.75.

MDR is at the make it or break it point. Just in case shares see a Monday morning spike lower before reversing higher I am adjusting our stop loss to $11.49. Most of the damage has been done to our call options. I'd rather not see them get stopped out Monday morning only to have MDR rebound higher on us.

I am not suggesting new positions at this time. Nimble traders could buy calls if we see the S&P 500 index bounce from 1120 or the 1100 level midweek.

Earlier Comments:
The plan was to use small (half) positions to limit our risk and keep some cash in reserve in case we want to add to positions on a decline. Our long-term targets are $19.50 and $23.50 but the $18 level and $22 level could prove to be tough resistance.

- Suggested (small) Positions -
Aug 15, 2011 - entry price on MDR @ 14.67, option @ 2.15
symbol: MDR1221A15 2012 JAN $15 call - current bid/ask $ 0.80/ 0.90

- or -

Aug 15, 2011 - entry price on MDR @ 14.67, option @ 1.15
symbol: MDR1221A17.5 2012 JAN $17.50 call - current bid/ask $ 0.35/ 0.50

08/20/11 adjust stop loss to $11.49

Chart of MDR:

Current Target: $19.50, and $23.50
Current Stop loss: 11.49
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Visa Inc. - V - close: 79.60

Update 08/20: Visa was a watch list candidate. Our plan was to buy calls on a the dip at $80.00. Shares gapped open lower on Thursday and dipped to $79.95, triggering our play. Friday saw shares spike even lower and hit $79.33 before bouncing back. I'm a little concerned that shares closed under $80.00 and the weekly chart shows a brand new bearish engulfing candlestick pattern. If the market's major indices continue to sink we can expect Visa's share price to drop toward the 200-dma and the August 9th low near $76. Therefore I am not suggesting new positions at this time.

Previously I suggested that cautious traders wait to buy a dip near the 200-dma. At this time I would prefer to buy calls on a bounce from the $76 area instead.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on V @ 80.00, option @ 4.00
symbol: V1221A90 2012 JAN $90 call - current bid/ask $ 3.65/ 3.75

- or -

Aug 18, 2011 - entry price on V @ 80.00, option @ 7.75
symbol: V1319A100 2013 JAN $100 call - current bid/ask $ 6.75/ 7.65

Current Target: $94.00, and $99.00
Current Stop loss: 74.90
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


Walter Energy Inc. - WLT - close: 74.15

Update 08/20: Our aggressive trade on WLT is not off to a very good start. Shares did rally on Monday but shares were hit hard in the market-wide sell-off on Thursday. By Friday's closing bell WLT was down -9% for the week. I warned readers that WLT was a volatile stock but that still hurts. Shares look like they are headed for the prior week's low and what should be support near $70.00.

I would wait for a dip near $70 or better yet a bounce off the $70 level before considering new bullish positions. We have a stop loss at $69.00.

Earlier Comments:
WLT can be a volatile stock so I do consider this an aggressive, higher-risk trade. We have a wide stop loss and the option we're using is very out of the money. We definitely want to keep our position size small. We'll start this trade with a stop loss at $69.00. Our upside targets are $97.75 and $129.00 (a very long-term target).

- Suggested (small) Positions -
Aug 15, 2011 - entry price on WLT @ 82.82, option @ 6.65
symbol: WLT1221A100 2012 JAN $100 call - current bid/ask $ 4.30/ 4.50

- or -

Aug 15, 2011 - entry price on WLT @ 82.82, option @ 14.05
symbol: WLT1319A100 2013 JAN $100 call - current bid/ask $10.10/12.40

Current Target: $97.75 and $129.00
Current Stop loss: 69.00
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


CLOSED Plays


Carpenter Technology - CRS - close: 43.68

Update 08/20: We were unprepared for the volatility in CRS this past week. The plan was to buy the dip at $46.00. The stock gapped open lower at $46.07 on Thursday and closed the same day at $44.32, under potential support at $45.00 and its 200-dma. Friday saw a breakdown to a new multi-month low and shares hit $43.23 Friday morning. We had listed a stop loss at $43.40 so our new trade has already been stopped out. CRS is flirting with a bearish breakdown under its long-term up trend.

NOTE: CRS does not have long-term LEAPS. We will have to use the 2012 March calls.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on CRS @ 46.00, option @ 4.10
symbol: CRS1217c50 2012 MAR $50 call - exit $3.70 (-9.7%)

08/19 CRS hit our stop loss at $43.40 on Friday morning
08/18 CRS hit our trigger to buy calls at $46.00.

Chart of CRS:

Current Target:
Current Stop loss: 43.40
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


Eastman Chemical Co. - EMN - close: 76.00

Update 08/20: EMN is another casualty to the market's volatility last week. We had EMN on our watch list to buy calls on a dip at $81.00. The stock gapped down at the open on Thursday at $80.34, triggering our play. Shares continued to fall and closed Thursday at $77.41 after hitting a low of $76.67. The previous week the low was $76.88. The selling pressure continued on Friday and EMN hit our stop loss at $76.00. This is a breakdown under EMN's long-term trendline of what should have been support.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on EMN @ 80.34, option @ 5.00*
symbol: EMN1221A90 2012 JAN $90 call - exit $3.10 (-38%)

08/19 EMN hit our stop loss at $76.00
08/18 *entry price is an estimate. option did not trade that day.
08/18 EMN gapped open lower at $80.34, under our trigger of $81.00, opening our trade.

Chart of EMN:

Current Target:
Current Stop loss: 76.00
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


SPX Corp. - SPW - close: 50.06

Update 08/20: SPW is another example of the carnage in this market. What appeared to be support from August 8th-11th in the $52.50-52.00 zone did not even slow SPW down on Thursday's sharp market-wide decline. Our stop loss at $51.90 was hit on Thursday morning within the first hour of trading. By Friday's closing bell SPW lost another -11% for the week.

NOTE: SPW does not have LEAPS so we're playing the March $60 and $65 calls.

- Suggested (small) Positions -
Aug 15, 2011 - entry price on SPW @ 57.22, option @ 6.25
symbol: SPW1217C60 2012 MAR $60 call - Exit $3.75* (-40%)

- or -

Aug 15, 2011 - entry price on SPW @ 57.22, option @ 4.25
symbol: SPW1217C65 2012 MAR $65 call - Exit $2.75* (-34.2%)

08/18/11 stopped out at $51.90.
* options did not trade on Thursday. These are estimates.

Chart of SPW:

Current Target: $64.75, and 72.50
Current Stop loss: 51.90
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Terex Corp. - TEX - close: 13.69

Update 08/20: Our aggressive trade on TEX has been stopped out. The bounce from the August 9th low proved to be nothing but a speed bump on the way down. TEX failed at its 10-dma on Monday and plunged lower the rest of the week. By Friday's closing bell TEX had lost another -19% and broke down below what should have been support at $15.00. Our stop loss was hit at $14.45 on Thursday, August 18th.

- Suggested (small) Positions -
Aug 15, 2011 - entry price on TEX @ 17.11, option @ 1.45
symbol: TEX1221A20 2012 JAN $20 call - Exit $0.73 (-49.6%)

- or -

Aug 15, 2011 - entry price on TEX @ 17.11, option @ 3.40
symbol: TEX1319A20 2013 JAN $20 call - Exit $2.15 (-36.7%)

08/18/11 stopped out at $14.45

Chart of TEX:

Current Target: $24.75
Current Stop loss: 14.45
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Watch

Tech, Oil & ETFs

by James Brown

Click here to email James Brown


New Watch List Entries

BMC - BMC Software

RRC - Range Resources

XOP - S&P Oil & Gas ETF


Active Watch List Candidates

ESV - Ensco Plc.

KO - Coca-Cola Co.

MMR - McMoRan Exploration


Dropped Watch List Entries

CLF, CRS, EMC, EMN, and V all graduated to the play list.



New Watch List Candidates:


BMC Software - BMC- close: 37.48

Company Info

Technology stocks have been getting hammered. Worries about a slowing economy and a recent downgrade for IT spending has not helped matters. Shares of BMC have already erased their oversold bounce and closed at new multi-month lows on Friday. While tech stocks have accelerated lower they could see the biggest gains when the market bounces.

Right now BMC is headed for long-term support in the $35-34 area. I am suggesting we launch small bullish positions on a dip at $35.00 with a tight stop loss at $33.75.

Buy-the-Dip trigger: $35.00

BUY the 2012 Jan $40 call (BMC1221A40)

- or -

BUY the 2013 Jan $40 call (BMC1319A40)

Chart of BMC

Originally listed on the Watch List: 08/20/11


Range Resources Corp. - RRC - close: 57.45

Company Info

RRC is an independent oil and gas company. The stock has weathered the market storm reasonably well. That's not to say the last four weeks haven't been volatile but RRC has not seen the same breakdown elsewhere in the sector.

If the market continues to sink then RRC could retest support in the $51-50 zone. I am suggesting we launch small bullish positions on a dip at $52.00 with a stop loss at $49.50.

Buy-the-Dip trigger: $52.00

BUY the 2012 Jan $60 call (RRC1221A60)

- or -

BUY the 2013 Jan $60 call (RRC1319A60)

Chart of RRC:

Originally listed on the Watch List: 08/20/11


S&P Oil & Gas ETF - XOP - close: 48.68

Company Info

The XOP is an oil and gas ETF with 76 components. The biggest components are stocks like HK, GPOR, WNR, HNR, CVI, and COG. The group was murdered back in early August and the correction from its July highs has hit -24%. There is a good chance this sell-off is not over yet and the XOP could drop toward support in the $45-44 zone. I want to be ready if it does.

I am suggesting small bullish positions if XOP hits $45.00 with a stop loss at $43.40. If the $44 level doesn't hold then the XOP could be headed for the $37.50 area.

Buy-the-Dip trigger: $45.00

BUY the 2012 Jan. $50 call (XOP1221A50)

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BUY the 2013 Jan. $60 call (XOP1319A60)

Chart of XOP:

Originally listed on the Watch List: 08/20/11


Active Watch List Candidates:



Ensco Plc. - ESV - close: 42.32

08/20 update: Stocks are accelerating lower yet again. ESV is dropping faster than I expected. Shares look poised to retest support near $40.00. I am adjusting our buy-the-dip entry point to $40.00 and moving our stop loss to $38.40. If the $40 level breaks down as support then ESV could be facing a drop toward the $35-33 zone. We do want to keep our position size small to limit our risk.

buy-the-dip at $40.00

BUY the 2012 Jan $45 call (ESV1221A45)

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BUY the 2013 Jan $45 call (ESV1319A45) - new strike

Originally listed on the Watch List: 07/30/11


Coca-Cola Co - KO - close: 67.10

08/20 update: KO was showing relative strength the first half of the week. By Friday's closing bell the stock was only down 4 cents for the week. There is still a good chance KO will contract back into the $66-64 zone. Cautious traders may want to wait for a dip closer to $64. I am suggesting a buy-the-dip entry point at $65.00 with a stop loss at $63.40.

Keep positions small.

Buy-the-Dip trigger: $65.00

BUY the 2012 Jan. $70 call (KO1221A70)

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BUY the 2013 Jan. $70 call (KO1319A70)

Originally listed on the Watch List: 08/13/11


McMoRan Exploration Co. - MMR - close: 11.41

08/20 update: The rebound failed at $14.00 and MMR lost -14.7% by the end of the week. Shares set a new multi-month closing low on Friday. I am expecting MMR will retest support near $10.00. We're going to tweak our entry point and lower the buy-the-dip trigger to $10.25 with a stop loss at $9.40.

Buy the dip at $10.25

BUY the 2012 Feb $12 call (MMR1218B12) -Februarys-

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BUY the 2013 Jan $15 call (MMR1319A15)

Originally listed on the Watch List: 07/23/11