Option Investor
Newsletter

Daily Newsletter, Sunday, 8/28/2011

Table of Contents

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

Leaps Trader Commentary

Bernanke Passes the Buck

by James Brown

Click here to email James Brown

It was another eventful week. Stocks managed to reverse higher. Most of the U.S. indices ended Friday up more than +4% for the week. The small cap Russell 2000 index posted a +6.1% gain. Bonds saw their rally stall and trimmed their August gains as money flowed into equities. Even gold saw a pull back after setting new all-time highs near $1,920 an ounce on Monday. There was plenty of speculation throughout the week that stocks were rebounding on hopes that Bernanke would offer new stimulus on Friday's speech from Jackson Hole.

The rebound actually began on Tuesday, August 23rd thanks to a bullish bounce in stocks overseas, mainly in Europe. Thursday turned out to be a volatile session with financial stocks spiking higher on news that Warren Buffett's Berkshire would invest $5 billion in Bank of America (BAC) through preferred stock and warrants. Thursday's morning gains faded thanks to an active rumor mill. One of the biggest rumors was worry that Germany might lose its triple-A credit rating but the agencies reaffirmed the country's debt while the market was still open. Another major headline on Thursday was news that Apple's (AAPL) CEO Steve Jobs would resign due to his failing health.

In economic news this past week the U.S. durable goods orders came in better than expected. Yet the revision to Q2 GDP was moved lower to +0.99% growth instead of +1.3% growth. There had been worries that Q2 GDP might have been revised down into the +0.0%-0.5% range due in part to the impact of Japan's earthquake and tsunami. Of course one of the biggest events was Ben Bernanke's speech on Friday. The Fed chairman failed to offer anything immediate for the markets but stocks rallied anyway.

Essentially Mr. Bernanke did some significant finger pointing at Washington and suggested that the fiasco over the debt ceiling extension this summer has done significant damage to consumer, business, and investor confidence. There also seemed to be some contradictory statements. On one hand Bernanke suggested the Fed has done all it can do to foster growth and the rest will be up to Washington to "promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies." Yet he also said that they would extend the next FOMC meeting (on September 22nd) to a two-day event to further discuss all the different policy options available to the Fed so that they can take the best course of action to do something further to stimulate the economy.

The Fed remains extremely frustrated with the slow growth in the economy but Bernanke was still singing the same "second half bounce in 2011" song. Ben believes the U.S. will see +2.0% growth for the rest of the year but that doesn't seem to line up with all the Wall Street analysts who have been downgrading their growth forecasts in recent weeks. It would seem the Fed chairman has held out the carrot for additional stimulus or further action at the next meeting but what that action could be was not discussed. Given the market's big bounce off of Friday's lows it looks like investors decided to buy the news instead of sell it. Or at least the shorts decided to cover on the news ahead of the weekend if you're feeling cynical.

Looking at the S&P500 index it rallied from support near 1120 but has been struggling with resistance in the 1180 area and has yet to actually breakout from its gap down highs back on August 18th. The 1200-1205 area remains overhead resistance as well. The S&P500 is actually trading inside a neutral pennant pattern of lower highs and higher lows. While these are supposed to be "neutral" the prevailing trend tends to resume and in this case that would be down.

There is still a good chance that the market has produced a bullish double bottom but we can't confirm that yet, at least not looking at the S&P500. We are currently moving into a week with plenty of economic landmines. The wrong news story could send stocks back toward their August lows. Personally, I would either wait for a close over 1205 or wait to buy a dip or a bounce near the 1100 level again. (FYI: a drop under 1090 would start 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 rebound in the NASDAQ composite was pretty impressive with a +5.8% gain on the week. The NASDAQ has a stronger double-bottom looking pattern with support near 2340. The index produced a huge bounce but it has yet to truly "fill the gap" from August 18th and the 2500 and 2550 levels remain overhead resistance.

Weekly chart of the NASDAQ Composite index:

Daily chart of the NASDAQ-100 index:

The action in the small caps looks more like the S&P500 with a neutral trend of lower highs and higher lows. The $RUT did fill the gap with Thursday's spike to resistance near 700. The action on Thursday looked pretty ugly but there was no follow through on Friday. I suspect we'll see more sideways action until Friday's jobs report. I'd focus on support at 660 and 640 and resistance at 700 and 720. Until we see a break one way or the other then longer-term investors might consider all this movement as just noise.

Daily chart of the Russell 2000

Weekly chart of the Russell 2000

The Dow Jones Transportation index saw a pretty big bounce off its Friday morning lows (+5.3%) and closed near its high for the week. You could argue that the Friday low and Monday-Tuesday lows is a short-term bullish double bottom pattern. Nimble, short-term traders could buy this bounce with a stop under Friday's low but it's still an ugly chart given all the damage over the last several weeks. Should the transports actually roll over again then we're looking at potential support at 4070 and the 4000 levels.

Weekly chart of the Transportation index:

We have a very busy week for economic reports ahead of us. Potential market movers are the consumer confidence numbers, the ADP employment report, the Chicago-area PMI, and of course the jobs report on Friday. Right now estimates are for the jobs report to show between +30,000 to +75,000 compared to last month's +117K. The U.S. needs about +150,000 a month just to stay even with population growth. We have millions and millions of unemployed workers and we're not going to make any progress until the jobs data improves significantly. Given the recent up-tick in the weekly initial jobless claims there is a good chance the Friday jobs number will disappoint.

- Monday, August 29 -
Personal income and spending for July
Pending home sales for June

- Tuesday, August 30 -
Consumer confidence for August

- Wednesday, August 31 -
ADP Employment report for August
Chicago PMI (ISM) index
Factory Orders for July

- Thursday, September 1 -
Weekly Initial Jobless Claims
(national) ISM index for August
vehicle sales

- Friday, September 2 -
Nonfarm payroll (jobs) report for August
Unemployment rate

Looking ahead this is a tough week to call. Stocks remain oversold in spite of the big bounce last week. August and September are traditionally weak months for the market. Meanwhile the end of October is the fiscal year end for a lot of mutual funds and hedge funds. Will money managers buy stocks now expecting the bounce to continue because they need to book more gains? Or will money managers avoid stocks given all the uncertainty and stay in the safety of bonds or cash?

Sadly we remain hostage to the fiscal turmoil in Europe. Some are predicting that the banking crisis in Europe is only going to get worse. The future of the EU is still cloudy at this point. That should keep things exciting if you trade currencies but it will remain a nightmare for the equity markets.

My comments from last week still apply today. A lot of analysts consider U.S. stocks cheap at current levels but they can always get cheaper. While the major indices are not in a bear market yet many of the sector indices are in or flirting with their own bear markets.

Last week it seemed that the fear of another recession in the U.S. eased somewhat. That's probably an illusion. Investors were likely distracted by all the headlines and the oversold bounce in stocks. We are still at risk of a recession and there will be a lot of focus on the national ISM data that comes out on Thursday. Readings over 50 indicate growth while readings under 50 indicate contraction. Given the recent trend of economic reports, this one could be another disappointment.

Looking past this week the potential market movers are President Obama's speech on September 6th and the next FOMC meeting on September 22nd.

If I had to predict this week then I'm looking for choppy, sideways action until the jobs report on Friday.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks produced a very big bounce this past week. Most of our LEAPS candidates outperformed the major indices. We are updating a couple of stop losses on CLF and V.

This could be another rocky week due to all the economic headlines the market will have to digest.

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

Financials & Oil Services

by James Brown

Click here to email James Brown


- New Trades -

Bank of America - BAC - close: 7.76

Company Info

Why We Like It:
BAC has been leading the U.S. financial sector lower for months thanks to constant worries over its balance sheet and liabilities from its Countrywide acquisition years ago. For weeks BAC's management has been telling Wall Street that they did not need to raise capital. Yet this past week they gave Warren Buffett's Berkshire a sweetheart deal for $5 billion.

Is $5 billion in new capital going to make a difference? Probably not. They are paying a premium on Buffett's cash because his investment will be viewed as a vote of confidence in BAC and hopefully stop the stock's multi-month slide lower.

I am suggesting we launch long-term call positions now but we want to keep our position size small and try to ignore the daily volatility in this stock. Consider this like a lottery ticket play. The options are cheap and if we win, then we could win big. If not, then we didn't have much invested.

On a short-term basis (this week) the markets could see additional volatility thanks to the parade of economic reports and the jobs data out on Friday. Cautious traders may want to wait and see if BAC dips back toward the $7.00-6.00 range and then initiate bullish positions.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ --.--, option @ -.--
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.50/ 0.52
No Stop on this position (at this time)

- or -

AUG 29, 2011 - entry price on BAC @ --.--, option @ -.--
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 1.36/ 1.39
No stop loss on this position (at this time)

Chart of BAC:

Current Target: $12.00-to-$15.00
Current Stop loss: --.--
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11


Baker Hughes Inc. - BHI - close: 56.59

Company Info

Why We Like It:
BHI is an oil services stock that was crushed during the market's August sell-off. Shares fell from their late July highs near $80 to trade near $53 this past week. It looks like after this -33% correction that BHI has finally found support this past week. I am suggesting we buy Friday's bounce but this is an aggressive entry point considering the trend. We want to keep our position size small and we'll use a tight stop loss at $52.40.

Our long-term targets are $67 and $74. I do want to caution traders that one of our biggest risks is probably news that BHI will make an acquisition. If BHI does purchase another company, then shares of BHI could gap open lower on us, which is another reason to keep our position size small.

- Suggested Positions -
AUG 29, 2011 - entry price on BHI @ --.--, option @ -.--
symbol: BHI1221A65 2012 JAN $65 call - current bid/ask $ 3.45/ 3.55

- or -

AUG 29, 2011 - entry price on BHI @ --.--, option @ -.--
symbol: BHI1319A70 2013 JAN $70 call - current bid/ask $ 6.50/ 6.70

Chart of BHI:

Weekly Chart of BHI:

Current Target: $67.00 and 74.00
Current Stop loss: 52.40
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11



Play Updates

Big Bounce for Stocks

by James Brown

Click here to email James Brown

Editor's Note:

After the market's big bounce this past week I am concerned that stocks could be vulnerable to profit taking, especially with so many economic reports due out this coming week. There is no telling what headline could spark the next sell-off. I do believe that the August lows have formed a significant bottom but readers may want to avoid launching new positions until after we see the market's reaction to the jobs report due out on Friday.

-James


Closed Plays


None. No closed plays this week.


Play Updates


Cliffs Natural Resources - CLF - close: 76.60

update 08/27: The market's big bounce this past week helped fuel a nine-point rally in CLF. Shares managed to close above resistance at the $75.00 level on Friday. It certainly looks like CLF has built a bullish double bottom in August. The next challenge for bulls will be overhead resistance near $80 and above that the 200-dma.

Nimble traders might want to try and buy a dip or a bounce in the $73-71 zone. Otherwise, I would wait until after we see the market's reaction to the jobs data on Friday.

We will adjust our stop loss again. The August 19th low was $67.50. We'll move our stop loss to $67.00.

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 $ 6.30/ 6.50

- or -

Aug 18, 2011 - entry price on CLF @ 71.51, option @ 10.50*
symbol: CLF1319A90 2013 JAN $90 call - current bid/ask $12.10/12.70

08/27 new stop loss @ 67.00
08/20 adjusted stop loss to $64.95.
08/18 *entry on 2013 Jan. $90 call is an estimate. Option did not trade on Thursday.

Current Target: $89.00 and 99.00
Current Stop loss: 67.00
Play Entered on: 08/15/11
Originally listed on the Watch List: 08/13/11


EMC Corp. - EMC - close: 21.61

update 08/27: EMC managed to outpace the rebound in the NASDAQ with a +6.5% gain this past week. Yet in spite of the big bounce EMC is just now testing short-term technical resistance at the 10-dma. That tells you just how oversold the stock was. EMC still has short-term resistance at the top of its August 18th gap down near $22.50.

In the news this past week EMC has increased its stock buyback program from $1.5 billion to $2.0 billion. Meanwhile the stock was downgraded but the news didn't have any significant impact.

Given our long-term time frame on EMC I would still consider new positions here but I strongly suspect we might get another opportunity to buy a dip in the $21-20 zone again before next weekend. Readers will want to wait for the dip or buy calls on the bounce.

Earlier Comments:
The plan was to use small positions to limit our risk. Our first long-term 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 $ 2.84/ 2.91

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 1.91/ 2.12

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: 89.93

update 08/27: MCD hit new all-time highs this last week as shares flirted with a breakout past the $90.00 level. Traders bought the dip at MCD's rising 10-dma on Friday morning. I would be tempted to launch new positions here. However, there is a good chance one of the economic reports this coming week could spark some market-wide profit taking. Readers may want to wait for another dip into the $88.00-86.00 zone before launching new long-term positions.

Conservative traders might want to use a stop loss closer to the $84.50 area.

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 $ 4.15/ 4.25

- or -

Aug 15, 2011 - entry price on MCD @ 86.82, option @ 3.90
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 5.35/ 5.65

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: 13.18

update 08/27: Whew! MDR gave us a scare this past week. We escaped by the skin of our teeth. Tuesday morning saw a dip to $11.52 before shares reversed higher to post a +6.5% gain by Tuesday's closing bell. Our stop loss is $11.49. For the week MDR is up +11% and off its Tuesday low the stock is up +14%. You could certainly argue MDR is very short-term overbought here.

Shares have been very volatile. Friday alone saw a 7.5% trading range. It does look like MDR has put in a double bottom with its August lows. I would be tempted to buy call LEAPS now. However, instead of buying LEAPS now I'd probably look for another dip near $12.25-12.00. MDR is still facing potential short-term resistance near $14.00. Conservative traders may just want to wait and see how the market reacts to this coming Friday's jobs report before initiating new positions.

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 later. 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 $ 1.15/ 1.25

- or -

Aug 15, 2011 - entry price on MDR @ 14.67, option @ 1.15
symbol: MDR1221A17.5 2012 JAN $17.50 call - current bid/ask $ 0.50/ 0.65

08/20/11 adjust stop loss to $11.49

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: 85.85

update 08/27: The rebound in Visa outpaced the market. The S&P500 is up +4.7% for the week but Visa is up +7.8%. Shares are still struggling to get past resistance in the $86-87-88 zone. It does look like Visa is building a bullish pattern of higher lows. Investors have to decide if they're willing to buy Friday's bounce and use a tighter stop loss or wait for a close over resistance at $88 or even resistance at $90.00. The $90 level was a top for the stock back in July. On the other hand we have to weigh the odds on another market pull back should any of the economic reports coming out this week disappoint. If you're patient we could see Visa retest the $82-80 level and I'd much rather buy a bounce from $80.

We will go ahead and raise our stop loss to $77.00. Cautious traders may want to put theirs closer to last Friday's low near $79.60 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 $ 5.70/ 5.85

- or -

Aug 18, 2011 - entry price on V @ 80.00, option @ 7.75
symbol: V1319A100 2013 JAN $100 call - current bid/ask $ 8.25/ 8.85

08/27 new stop loss at $77.00

Current Target: $94.00, and $99.00
Current Stop loss: 77.00
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


Walter Energy Inc. - WLT - close: 79.04

update 08/27: WLT rallied almost five points for the week. After the low on Monday (71.73) the stock had a consistent trend of higher lows and higher highs. Friday's close over the 10-dma is short-term bullish but there is still resistance at the top of the August 18th gap down near $83.00.

We face a similar conundrum here in WLT. Long-term this is probably a great entry point. Yet short-term the stock could easily retest the $75-70 zone on some disappointing economic data. We are facing a heavy week of economic reports so it might pay off to wait and look for another dip (anywhere in the $75-70 zone). Cautious traders will naturally want to wait and buy the bounce. Meanwhile, this past week there were rumors that WLT was a takeover target but it didn't seem to have much affect on the stock price.

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 $ 5.05/ 5.25

- or -

Aug 15, 2011 - entry price on WLT @ 82.82, option @ 14.05
symbol: WLT1319A100 2013 JAN $100 call - current bid/ask $10.60/12.70

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


Watch

Energy & Apparel

by James Brown

Click here to email James Brown

Editor's Note:

I had written a bullish trade set up to buy a dip on BIDU given the stock's long-term up trend. Another dip near BIDU's 200-dma could be used as an entry point. Unfortunately, the options on BIDU are just way too pricey.

In addition to tonight's new candidates, here is a list of stocks I'm watching as potential bullish trading ideas:

WPI, DLTR, COST, NKE, ROST, FSLR, CRS and SPX.

On tonight's watch list you'll notice that we've tweaked some of our entry points.

- James



New Watch List Entries

EXXI - Energy XXI

LTD - Limited Brands Inc


Active Watch List Candidates

BMC - BMC Software

ESV - Ensco Plc.

KO - Coca-Cola Co.

MMR - McMoRan Exploration

RRC - Range Resources

XOP - S&P Oil & Gas ETF


Dropped Watch List Entries

None.



New Watch List Candidates:


Energy XXI - EXXI - close: 24.46

Company Info

We like the fundamental story behind EXXI and some of its recent joint ventures with MMR. The two companies both seem poised for big growth and profits. The sell-off in EXXI is overdone but that doesn't mean it's finished. Currently EXXI is consolidating sideways. Given our long-term timeframe readers may want to launch positions now. I am suggesting a buy-the-dip entry point at $21.50, near its August lows. If triggered we'll use a stop loss at $19.45. I do want to warn you that EXXI can be a volatile stock so keep your position size small.

FYI: EXXI does have 2013 January calls but the spreads are way too wide.

Buy-the-Dip trigger: $21.50

BUY the 2012 Jan $25 call (EXXI1221A25)

Chart of EXXI:

Originally listed on the Watch List: 08/27/11


Limited Brands, Inc. - LTD - close: 36.41

Company Info

Depending on what time frame you look at LTD's chart you'll either see a bullish trend or a bearish trend. On a short-term basis over the last few days the stock is trending higher and Friday's breakout over $36 is bullish. Pulling back to look at the last few months and LTD has a bearish trend of lower highs and lower lows. Step back even further and look at a three-year weekly chart you'll see that LTD still has a long-term bullish trend of higher lows.

Aggressive traders may want to consider buying calls now given the long term trend and the recent rebound. However, we face a perilous week with a parade of economic headlines and the jobs report on Friday. We don't know if stocks will swoon back to their lows on negative headlines.

I am suggesting a buy-the-dip trigger at $32.50 with a stop loss at $29.45. If we do not see a pull back in the next couple of weeks we will re-evaluate our entry point strategy.

Buy-the-Dip trigger: $32.50

BUY the 2012 Jan $35 call (LTD1221A35)

- or -

BUY the 2013 Jan $40 call (LTD1319A40)

Chart of LTD:

Originally listed on the Watch List: 08/27/11


Active Watch List Candidates:



BMC Software - BMC- close: 39.57

update 08/27: BMC is up about two dollars for the week. Yet in spite of the bounce BMC has not yet rallied past resistance near $40.00. This stock is still very, very oversold from its July-August sell-off. Yet I'm not convinced the worst is over yet. Tonight we're going to keep buy-the-dip entry point but we'll adjust it to $35.50 with a stop loss at $33.75. As an alternative readers may want to consider bullish positions if BMC can close above the $40.00 or $41.50 levels.

Buy-the-Dip trigger: $35.50

BUY the 2012 Jan $40 call (BMC1221A40)

- or -

BUY the 2013 Jan $40 call (BMC1319A40)

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


Ensco Plc. - ESV - close: 46.22

update 08/27: ESV is up over +9% for the week but most of that was on Friday's +6.5% gain. I did not see any specific news behind ESV's relative strength on Friday. Did Bernanke say something specific on Friday that would drive investors to high-paying dividend stocks like ESV? I don't believe he did but clearly investors were in a buying mood. I certainly don't want to chase it today. We have a headline heavy week in front of us. Tonight we'll adjust our buy-the-dip entry point to $40.50. More aggressive traders may want to buy a dip near $42.50 instead. If we are triggered at $40.50 we'll use a stop loss at $38.40. We do want to keep our position size small to limit our risk.

buy-the-dip at $40.50

BUY the 2012 Jan $45 call (ESV1221A45)

- or -

BUY the 2013 Jan $45 call (ESV1319A45)

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


Coca-Cola Co - KO - close: 68.50

update 08/27: Gain in KO last week were pretty mild. Shares essentially churned sideways between short-term support near $67.00 and resistance at $70.00. I do not see many changes from my prior comments. I am suggesting a buy-the-dip entry point at $65.00. Cautious traders could wait for a dip closer to $64.00. If we are triggered at $65.00 we'll use a stop loss at $63.40, which is under the August low.

Please note that we'll add an alternative entry point. If KO can close over $70.50 then we'll adjust our strategy to buy calls the following session and we'll buy the 2012 Jan $75 or 2013 Jan $75 calls with a stop at $66.40 instead.

Keep positions small.

Buy-the-Dip trigger: $65.00

BUY the 2012 Jan. $70 call (KO1221A70)

- or -

BUY the 2013 Jan. $70 call (KO1319A70)

08/27 Adding a secondary entry point to buy $75 calls if KO can close over $70.50. stop loss at $66.40.

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


McMoRan Exploration Co. - MMR - close: 11.79

update 08/27: MMR did not truly participate in the market's big bounce this past week. That alone is a worrisome sign. Shares churned sideways in the $11.00-12.00 range all week. Aggressive traders may want to consider bullish positions if we see MMR close over $12.00 or the $12.25 levels. I am still suggesting we wait and buy a dip at $10.25 instead. If triggered at $10.25 we'll use a stop loss at $9.40. We want to keep our position size small.

Buy the dip at $10.25

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

- or -

BUY the 2013 Jan $15 call (MMR1319A15)

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


Range Resources Corp. - RRC - close: 59.76

update 08/27: I don't see any big changes from my prior comments on RRC. The last four weeks have been very volatile. You'll notice that shares are trading in a neutral pattern of higher lows and lower highs. Currently we have a buy-the-dip entry point at $52.00 but to get there RRC would have to produce a bearish breakdown from this neutral pattern. The reason we wanted to buy a dip was that RRC has significant support in the $52-50 zone.

Tonight we are adjusting our buy-the-dip trigger to $52.50 to stay just above the simple 200-dma. If triggered at $52.50 we'll use a stop loss at $49.45. As an alternative readers may want to consider buying a breakout from the current neutral pattern on a move above or a close above $63.00 instead.

Buy-the-Dip trigger: $52.50

BUY the 2012 Jan $60 call (RRC1221A60)

- or -

BUY the 2013 Jan $60 call (RRC1319A60)

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


S&P Oil & Gas ETF - XOP - close: 50.44

update 08/27: The XOP delivered +3% gain for the week but shares are still struggling with resistance in the $50-51 area. I suspect we could see another dip toward last week's lows. We will adjust our buy-the-dip entry point to buy calls at $46.50 and use a stop loss at $44.75. Keep positions small.

Buy-the-Dip trigger: $46.50 - new trigger -

BUY the 2012 Jan. $50 call (XOP1221A50)

- or -

BUY the 2013 Jan. $60 call (XOP1319A60)

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