Option Investor
Newsletter

Daily Newsletter, Saturday, 9/10/2011

Table of Contents

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

Leaps Trader Commentary

Another Chapter in the Greek Tragedy

by James Brown

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Worries over a Greek debt default and the impact that would have on the European banking system have the stock market locked in a state of fear. The S&P 500 index is down five out of the last six sessions and it's down six out of the last seven weeks. Last Monday may have been a holiday for U.S. markets but the sell-off in Europe continued. European markets are trading at two-year lows and European banking stocks are getting crushed with many of them down -35% to -40% in the last two months. Money continues to flow into safe haven securities like the U.S. ten-year bond and the 10-year German bund.

The rally in the bond market and the spike in the volatility index (VIX) are clear signs that investors are worried. They would rather park money in the 10-year note yielding less than 2% than risk it in the equities market. Less than eight weeks ago the 10-year U.S. note was yielding about 3.0%. Today the yield is close to 1.9% and hit 1.89% at its lows on Friday. That is a monumental move and reminds me of the massive rally in bonds back in late 2008 during the Lehman Brothers market meltdown. Yields have broken down under their 2008 lows to hit new 60-year lows.

Weekly chart of the 10-year bond Yield:

The volatility index (VIX) remains elevated above the 30 level and saw a +12% spike on Friday. Yet thankfully we are nowhere near the levels seen back in late 2008. There is always the chance that the "fear gauge" rallies to multi-year highs if we do see a debt default in Europe.

Long-term chart of the Volatility Index (VIX):

Some of the biggest moves last week were in currencies. Rising concerns over trouble in Europe sent the euro currency plunging. This fueled a big rally in the U.S. dollar, which kept pressure on commodities. Most commodities are traded in dollars so a stronger dollar usually means cheaper commodities. This helped keep a lid on gold. Otherwise we probably would have seen gold surge to a new high.

Weekly chart of the Euro ETF:

Weekly chart of the Dollar ETF:

Looking back, last week was all about Europe but we'll hit some of the non-Europe highlights first. In the U.S. the August ISM report came in better than expected at 53.3. Economists were expecting a drop from 52.7 to 51.0. There were some concerns midweek that China and Japan might face a debt rating downgrade. Meanwhile, Federal Reserve Chairman Ben Bernanke briefly made headlines when he spoke at the Minnesota Economic club but his comments offered nothing new and mainly repeated his Jackson Hole statements.

I warned readers a week ago that we would likely see fireworks out of Europe. Sure enough the Greece/Italy/Germany/EU soap opera did not disappoint. Germany is Europe's largest and strongest economy and the lynchpin to any further EU aid for its struggling neighbors. Thus it was big news when a German court struck down a lawsuit challenging that country's participation any EU bailouts. This news helped fuel market gains on Wednesday. Unfortunately the market reversed on Thursday. Market participants were surprised that the European Central Bank left interest rates unchanged at 1.5%. With so many EU economies bordering on a new recession the market was expecting further help from the ECB. Reinforcing this atmosphere was the ECB's downward revision to their EU GDP forecast.

Friday's stock market decline was also fueled by a number of stories. The biggest was rumors that Greece could announce a default over the weekend. Thus no one wanted to be long the stock market, especially financials. There was also news that a German official had resigned from the board of the ECB and that Germany was working on a backup plan to strengthen their major banks should Greece default.

There has been talk before about how the major EU countries should stop funding bailouts and instead use their cash to strengthen their own banks so that when a default occurs their own economies don't crash too. Thus it was a one-two punch to hear that Germany was working on an emergency plan to underpin their banks on the same Friday that Greece was rumored to default. I'm surprised the stock market did not see sharper declines.

The problem is not just Greece. They are a tiny country in the scheme of things. The challenge is what might happen if they are allowed to default. How many tens of billions of dollars in Greek debt is owned by all the European banks? How many banks would fail if Greece defaults? Furthermore, if Greece throws up their hands in defeat and says, "We can't pay back all this money, sorry." What will stop Ireland, Italy, Portugal and Spain from doing the same thing?

Greece is already facing depression levels of economic growth because of all the austerity measures. No one wants to live through that. It's tough to be a politician when your country is suffering a depression. Do you really thing these politicians have the will power to do the right thing or take the easy road? I'm sure the political pressure on the PIIGS countries has been intense but how long can it last? If a Greek default could cripple the entire European banking system, what would a default by Italy or Spain do to the banking system? The prior European bank "stress tests" have been considered a sham because they never truly accounted for a default. You can see why authorities and the markets are so concerned about the "contagion" effect or "domino" effect. If Greece falls, who's the next country to default?

Major Indices:

Last week's trading action in the U.S. markets is worrisome. Not only has the S&P 500 index formed a bear-flag pattern (we mentioned this last week) but it has also formed a bearish head-and-shoulders pattern over the last there weeks. Depending on where you draw the H&S pattern and the neckline, a breakdown would forecast a drop toward the 1,050 level. Yet a breakdown from the bear-flag pattern would forecast a drop toward the 1,000 level. Considering these ominous technical signals you can see why I'm reluctant to add a bunch of new bullish long-term LEAPS trades. Short-term the S&P 500 index has support near 1140, 1120 and then the 1100 level. Overhead we are looking at resistance near 1200 and 1230. FYI: a drop under 1090 would mark a new bear market (-20%) for the S&P500 index.

H&S pattern on the S&P 500 index:

Bear Flag pattern on the S&P 500 index:

Weekly chart of the S&P 500 index:

It's not quite as clear on the NASDAQ but it too appears to be building a bear-flag pattern. Plus, it also has the three-week bearish head-and-shoulders pattern. The H&S pattern would forecast a drop toward the 2200 area. While the flag pattern would forecast a drop toward the 2100 area.

Daily chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index:

Naturally it is the same story on the small cap Russell 2000 index. The bear-flag pattern, if confirmed, would forecast a drop toward the 550 area. The three-week bearish head-and-shoulders pattern would forecast a drop toward the 550 area. To get there it would take the $RUT to breakdown under the longer-term trendline of higher lows on its weekly chart (essentially a breakdown under the August lows).

Daily chart of the Russell 2000 ETF (IWM)

Intraday chart of the Russell 2000 ETF (IWM)

I will admit that the combination of multiple bearish technical patterns is pretty ominous. Yet these patterns are not fool-proof. There is no guarantee that the market will breakdown or hit these potential downside targets. We can use them as a warning signal that the market is weak and the path of least resistance is probably down. If you're comfortable playing the bearish side of things then they offer clear entry and exit points, which would be easy to do using options on the SPY, the DIA, the QQQ, and the IWM.

Next week the focus will remain on the drama in Europe. Yet here at home we will see some key economic reports. The key reports to watch are the PPI on Wednesday and the CPI, Empire manufacturing index, and Philly Fed on Thursday.

- Tuesday, September 13 -
Import/Export prices

- Wednesday, September 14 -
PPI for August
Retail sales of August

- Thursday, September 15 -
Weekly Initial Jobless Claims
CPI for August
New York Empire Manufacturing survey for September
Philly Fed survey

- Friday, September 16 -
University of Michigan (Consumer) Sentiment

Stocks look weak. The crisis in Europe is getting worse. The S&P 500 index could be facing another -10% drop over the next several weeks. Personally, I would consider adjusting your stop losses or scaling back current positions to reduce risk. There is a chance that Ben Bernanke pulls some sort of rabbit out of his hat at the meeting two weeks from now. Yet whatever stimulus the Fed provides it may not trump a credit default in Europe.

You could definitely argue that a Greek default is already priced into the market but that does not mean that stocks would not see a massive knee-jerk reaction on the news. Aggressive and nimble traders may want to consider trading short-term put options on a breakdown and target a drop toward 1050 or 1000 on the S&P 500 (make sure you buy options with enough time to get there). Technically a breakdown under 1090 would be a new bear market for the U.S. market but a decline to 1050 or 1000 is probably an entry point for us a longer-term option traders.

I still think the market could bounce from another test of the 1120 or 1100 levels on the S&P 500. If we see a close under 1100 then we definitely need to switch gears and put our crash helmets on.

Don't forget that the end of October is fiscal year end for a lot of money managers. Who knows where they will buy the dip? If the market does rally off support we could definitely see fund managers chasing the rebound.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Volatility remains elevated as markets react to daily headlines out of Europe. The U.S. market's major indices look poised for more declines. Investors need to play defense. Consider raising your stops or reducing your position size to limit risk.

MCD was a disappointment last week on lower than expected same-store sales. Meanwhile WLT was a big winner thanks to take over speculation.

There are new stop losses for both MCD and WLT.

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

Stay Defensive

by James Brown

Click here to email James Brown

Editor's Note:

Active traders need to stay defensive in this market. I've mentioned it elsewhere tonight but the major market averages have produced two different bearish technical patterns, the head-and-shoulders pattern and the bear-flag pattern. While neither has been confirmed or triggered yet they do not inspire any confidence.

This coming week could see another parade of market moving headlines out of Europe. I would not bet on them being positive for the market. Therefore, we are not adding any new trades in tonight's newsletter. Although we did add three new watch list candidates.

I would hate to launch new positions now only to see the S&P 500 drop toward 1050 or the 1,000 levels that are being forecasted by these technical patterns. Nimble traders may want to consider buying some short-term (October) puts on the major indices if we see a breakdown and confirmation of the sell signals.

-James


Play Updates

WLT Soars, MCD Sours

by James Brown

Click here to email James Brown

Editor's Note:

Investors need to exercise caution here!

The U.S. market's major indices look vulnerable and have formed not one but two different technical bearish sell signal. These signals have not been triggered or confirmed yet but they do not bode well if you're bullish on stocks (or call LEAPS). Readers will want to reconsider their stop loss placement and may want to consider scaling back positions to limit risk.

-James


Closed Plays


None. No closed plays this week.


Play Updates


Bank of America - BAC - close: 6.98

update 09/10: The sell-off on Tuesday pushed BAC to an intraday low of $6.80. The situation in Europe and the FHFA lawsuit could keep the pressure on BAC. I'm repeating my comments from last week. Readers might do well to wait for a dip or a bounce near the $6.00 level (near the August lows) as our next entry point to buy long-term call options.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ 8.10, option @ 0.57
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.29/ 0.31
No Stop on this position (at this time)

- or -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 1.16/ 1.27
No stop loss on this position (at this time)

09/03 no stop loss on this trade at this time.

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: 56.79

update 09/10: BHI has been consolidating sideways in a neutral pattern of higher lows and lower highs. Shares did test support near $55.00 on Tuesday. Now I am concerned that further market weakness could push BHI toward its August lows near $53.00. I would wait for a dip or a bounce near $53.00 before considering new bullish positions. If the $53 level breaks then BHI is looking at a drop toward support near $50.00.

Earlier Comments:
The plan was to keep our position size small. 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 @ 57.62, option @ 3.85
symbol: BHI1221A65 2012 JAN $65 call - current bid/ask $ 3.50/ 3.60

- or -

AUG 29, 2011 - entry price on BHI @ 57.62, option @ 7.00
symbol: BHI1319A70 2013 JAN $70 call - current bid/ask $ 6.70/ 6.95

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


Cliffs Natural Resources - CLF - close: 76.63

update 09/10: It was a rocky week for CLF. Shares fell to $73.30 on Tuesday. Yet rallied to $81.46 on Wednesday. I am concerned that CLF could be forming a bear-flag pattern, much like the major indices. A breakdown under $72.00 might forecast a multi-week drop the $55-50 zone. More conservative traders will want to consider raising their stop loss toward $70 or toward the $72 area. The newsletter is going to keep our stop under the August low for now. If you're really feeling cautious then exit now to lock in a gain!

I am not suggesting new positions at this time.

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 $ 6.95/ 7.10

- or -

Aug 18, 2011 - entry price on CLF @ 71.51, option @ 10.50*
symbol: CLF1319A90 2013 JAN $90 call - current bid/ask $13.10/13.45

09/03 look for a dip toward $75.00
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: 21.29

update 09/10: Not much has changed for EMC. The market's sell-off on Tuesday saw EMC hit an intraday low of $20.59. This stock is still consolidating sideways inside a neutral pattern of lower highs and higher lows, at least for now. If the market continues to sink then we can expect EMC to retest support near $20.00. I would wait for a dip or a bounce near the $20.00 level before considering new bullish positions. We have a stop loss at $18.90. Cautious traders may want to raise it close to the August low of $19.84.

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 $ 2.73/ 2.77

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 2.06/ 2.26

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: 85.03

update 09/10: Ouch! MCD had been churning between technical support at its 40-dma and resistance at $90.00. That changed on Friday. Before the opening bell on Friday the company reported August same store sales growth of +3.5. According to an AP article, this was MCD's 100th consecutive month of same-store sales growth. However, analysts had been expecting +4.9% growth.

The disappointment saw shares of MCD gap open lower at $86.29 and plunge to $83.65 intraday. Shares hit their 100-dma before trimming its losses. If the stock market's major indices looked healthier I would use this dip in MCD as a new entry point. However, right now the market looks vulnerable. I am not suggesting new positions at this time.

I am actually moving our stop loss from $81.75 to $79.50. If the market breaks down then MCD will likely drop toward support near $80.00 and its 200-dma. More conservative traders may want to make the opposite move and raise their stop toward Friday's low instead. If we see it, a bounce from $80 would be a new bullish entry point.

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 $ 2.35/ 2.45

- or -

Aug 15, 2011 - entry price on MCD @ 86.82, option @ 3.90
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 3.95/ 4.15

09/10/11 adjusted stop loss down to $79.50
09/03/11 look for a dip toward the 50-dma

Current Target: $99.00
Current Stop loss: 79.50
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


McDermott Int. Inc. - MDR - close: 13.24

update 09/10: MDR is still trading sideways in a range. I would expect this stock to retest its lows near the $12.00-11.60 zone if the market continues to retreat. A rebound off the $12.00 area can be used as a new entry point but readers may want to buy the 2013 calls instead of the 2012s.

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/ 0.60

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: 86.35

update 09/10: Visa managed to close with a gain for the week but shares remain under resistance in the $89-90 zone. If the market sells off then V might retest support near $80 or its 200-dma. I would prefer to launch new positions on a bounce near $80.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on V @ 80.00, option @ 4.00
symbol: V1221A90 2012 JAN $90 call - current bid/ask $ 5.90/ 6.05

- or -

Aug 18, 2011 - entry price on V @ 80.00, option @ 7.75
symbol: V1319A100 2013 JAN $100 call - current bid/ask $ 8.90/ 9.30

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: 88.22

update 09/10: Wow! It was a big week for WLT. Tuesday the stock drifted lower toward $75.00. Yet Wednesday the stock surged +30% intraday to $97.30 thanks to speculation WLT was a takeover candidate. There was a Bloomberg article that suggested Anglo American might consider buying WLT in a deal worth $120 a share.

WLT almost hit our first target at $97.75. After a +13.6% gain for the week and the market looking vulnerable more conservative traders may want to think about taking some money off the table now. I am not suggesting new positions at this time. We will raise our stop loss to $73.50.

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. 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 $ 9.75/11.50

- or -

Aug 15, 2011 - entry price on WLT @ 82.82, option @ 14.05
symbol: WLT1319A100 2013 JAN $100 call - current bid/ask $14.50/17.60

09/10/11 new stop loss @ 73.50

Current Target: $97.75 and $129.00
Current Stop loss: 73.50
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Watch

Drugs, Semiconductors, Apparel

by James Brown

Click here to email James Brown

Editor's Note:

Investors will want to trade defensively. Keep your position size small to limit your risk.

- James



New Watch List Entries

BMY - Bristol-Meyers Squibb

NVDA - NVIDIA Corp.

ROST - Ross Stores


Active Watch List Candidates

BMC - BMC Software

EXXI - Energy XXI

IR - Ingersoll-Rand

LTD - Limited Brands Inc

KO - Coca-Cola Co

MOS - Mosaic Co.

RRC - Range Resources


Dropped Watch List Entries

ESV and MMR



New Watch List Candidates:


Bristol Meyers Squibb - BMY - close: 29.16

Company Info

BMY is a major drug company. Investors tend toward big, blue cap defensive names like BMY when the market gets volatile. That's one reason why shares are trading near three-year highs. The stock has failed twice at resistance near $30.00 but it still has a bullish trend of higher lows, suggest it could see a breakout soon.

The high on Thursday was $30.14. I am suggesting we launch bullish positions if we see BMY close over $30.25. If triggered we'll use a stop loss at $27.75. Nimble traders could look to buy another bounce near $26 if we see one.

NOTE: BMY is not a very fast moving stock. We will need to be patient.

Breakout trigger: close over $30.25

BUY the 2013 Jan. $35 call (BMY1319A35)

Chart of BMY:

Originally listed on the Watch List: 09/10/11


NVIDIA Corp. - NVDA - close: 13.88

Company Info

NVDA issued positive earnings guidance last week. The stock popped higher on the news and closed over technical resistance at its 50-dma. Shares have been surprisingly resistant to profit taking since the announcement. No one seems to be in a rush to sell. Given the company's bullish outlook I am seriously tempted to buy calls on NVDA right here. However, even bullish stocks tend to go down if the market sells off.

I am suggesting two different entry points. We will try and buy a dip at $13.25 with a stop loss at $11.49, which is under the August low. Cautious traders could wait and hope for a dip into the $12.50-12.00 zone instead as your entry point. Alternatively, if we see NVDA close over $15.00 we'll buy calls then with a stop loss at $12.25, which is under Tuesday's low.

Buy-the-Dip trigger: $13.25 (or a close over $15.00)

BUY the 2012 Jan. $15 call (NVDA1221A15)

- or -

BUY the 2013 Jan. $15 call (NVDA1319A15)

Chart of NVDA:

Originally listed on the Watch List: 09/10/11


Ross Stores Inc. - ROST - close: 74.09

Company Info

If the stock market breaks down further we could see ROST drop toward its long-term trendline of support. We want to be ready to take advantage of the sell-off and buy the dip. I am suggesting we launch small bullish positions on a dip at $67.50 with a stop loss at $64.00.

Buy-the-Dip trigger: $67.50

BUY the 2012 Jan $75 call (ROST1221A75)

- or -

BUY the 2013 Jan $75 call (ROST1319A75)

Chart of xxx:

Originally listed on the Watch List: 09/10/11


Active Watch List Candidates:



BMC Software - BMC- close: 38.46

update 09/10: BMC is still churning sideways in the $37-42 range. We're expecting a drop toward support near $35.00. I am adjusting our buy-the-dip entry point to $35.00 (from 35.50) and moving our stop loss to $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: $35.00

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: 49.24

update 09/10: We remain long-term bullish on the energy sector but I am removing ESV as a LEAPS candidate, at least for now. If the market breaks down we can watch for a test of support near $40.00.

Trade Never Opened.

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


Energy XXI - EXXI - close: 23.88

update 09/10: EXXI is another energy stock that has been consolidating sideways. I am adjusting our buy-the-dip trigger to the $20.50 level and moving our stop loss to $19.45. If EXXI breaks down under psychological support near $20 then it's probably headed for $17.50 or $15.00. Aggressive traders could use a dip near $22 or $21 instead as their entry point.

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: $20.50 *new trigger*

BUY the 2012 Jan $25 call (EXXI1221A25)

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


Ingersoll-Rand - IR - close: 32.27

update 09/10: IR held up reasonably well considering the market's poor performance. A breakdown under the $32.00-31.50 level probably means IR will test the $30.00 level. I am concerned that with the market's major indices poised for declines that we might actually see IR test its August lows instead. Thus we're moving our buy-the-dip trigger from $30.00 to $28.00 and our stop loss to $26.40.

We do want to keep our position size small to limit our risk.

Buy-the-Dip trigger: $28.00 *new trigger*

BUY the 2012 Jan $35 call (IR1221A35)

- or -

BUY the 2013 Jan $35 call (IR1319A35)

Originally listed on the Watch List: 09/03/11


Coca-Cola Co - KO - close: 69.37

update 09/10: Investors are cautious and they're turning to defensive names like KO. The stock hit new relative highs on Thursday. Yet even KO will sell off if the market breaks down. I am adjusting our trigger lower. We'll use a buy-the-dip trigger at $64.50 and a stop loss at $61.45, which is under the March 2011 low.

Remember, this is a slow-moving stock. It's going to take months for KO to make significant headway but the trend is up. Our plan is to keep positions small to limit our risk.

Buy-the-Dip trigger: $64.50 *new trigger*

BUY the 2012 Jan. $70 call (KO1221A70)

- or -

BUY the 2013 Jan. $70 call (KO1319A70)

09/10/11 adjusted entry point to $64.50, stop loss to $61.45
09/03 adjusting buy-the-dip trigger to $66.50
09/03 removing the secondary entry point
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


Limited Brands, Inc. - LTD - close: 36.60

update 09/10: LTD managed to post a gain for the week but shares did not break the bearish trend of lower highs. I do not see any changes from my prior comments. We're still look for a retest of its August lows. More conservative traders may want to wait and use a trigger closer to $30.00 to launch positions. We'll start with a stop loss at $29.45.

Buy-the-Dip trigger: $32.50

BUY the 2012 Jan $35 call (LTD1221A35)

- or -

BUY the 2013 Jan $40 call (LTD1319A40)

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


McMoRan Exploration Co. - MMR - close: 11.93

update 09/10: I remain long-term bullish on MMR but I'm growing less convinced that the $10.00 level will hold up as support if the market melts down. We are removing MMR from the watch list but I would keep it on your personal radar screen.

Trade Never Opened.

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


Mosaic Co. - MOS - close: 69.97

update 09/10: MOS only lost 3 cents for the entire week. That's a decent show of strength. At the moment I do not see any changes from our prior comments. We are waiting for a breakout and want to buy calls at $75.50. Alternatively readers may want to consider buying calls on a dip or a bounce near the $60.00 level instead and use a stop loss under the August low at $55.70

Earlier Comments:
MOS has rallied toward resistance in the $74-75 area. I am suggesting we buy calls if MOS hits $75.50 with a stop loss at $67.45. It's a wide stop but MOS can be a volatile stock. We'll use the $80/$85 calls. FYI: Just in case MOS retreats lower then we'll be watching for a possible entry point on a dip in the $60-55 area instead (and we'll use lower option strikes).

Buy-the-breakout trigger: $75.50

BUY the 2012 Jan $80 call (MOS1221A80)

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BUY the 2013 Jan $85 call (MOS1319A85)

Originally listed on the Watch List: 09/03/11


Range Resources Corp. - RRC - close: 62.80

update 09/10: RRC is holding up reasonably well. Yet if the market sells off it could easily see a correction toward $55 or its 200-dma. I do not see any changes from my prior comments. The plan is to buy calls at $55.00. Readers may want to wait and buy a bounce from this level instead. If triggered we'll use a stop loss at $51.50.

Buy-the-Dip trigger: $55.00

BUY the 2012 Jan $60 call (RRC1221A60)

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BUY the 2013 Jan $60 call (RRC1319A60)

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