Option Investor
Newsletter

Daily Newsletter, Sunday, 9/18/2011

Table of Contents

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

Leaps Trader Commentary

All Eyes On the Fed

by James Brown

Click here to email James Brown

The U.S. stock market bounced hard with a five-day rally and a +5% gain for most of the major indices. The gains were fueled by a parade of bullish rumors and events concerning Europe all staged to scare shorts into covering positions. Meanwhile safe haven trades like bonds and gold retreated and the U.S. dollar saw some profit taking as the euro produced an oversold bounce.

Let's hit the rewind button and quickly hit the major events last week. Monday morning was ugly with a spike lower thanks to negative comments from some German officials suggesting the best move might be a Greece bankruptcy or expulsion from the EU zone. Chancellor Merkel scrambled to refute this idea and offered renewed support for Greece. Unfortunately for Europe, the European stock markets were down hard on Monday, especially France, thanks to worries that the major French banks might get downgraded. Yet stocks in the U.S. staged a very sharp rebound off their Monday lows thanks to rumors that China was in talks to buy Italian bonds. Italy is one of the struggling PIIGS nations in the EU and if China is willing to buy Italian bonds then maybe their support will help end worries Italy might default.

The rumors continued on Tuesday after word spread that the remaining BRIC countries might be poised to buy European debt. On Wednesday the positive "momentum" continued in Europe with an overhyped conference call between top leaders from Germany, France, and Greece. The result of the call was vocal affirmation that Greece will indeed meet its budgetary goals in spite of all the evidence to the contrary.

Thursday saw more "help" for the EU zone when the U.S. Federal Reserve, the European Central Bank, and three more central banks all presented a coordinated effort to provide short-term three-month dollar loans to struggling European banks, which might be facing liquidity issues. The fact that stocks rallied on this news is a bit of a mystery. Central banks do not coordinate in this fashion unless the situation is in serious jeopardy. Yet day after day the markets continue to rebound in the face of lackluster or negative economic data here in the U.S.

Looking at the major U.S. reports there was nothing to get excited about. The August retail sales figures were flat. The PPI for August came in flat with core prices rising +0.1%. The weekly initial jobless claims were worse than expected at 428,000. the New York Empire manufacturing survey was worse than expected with a drop from -7.7 to -8.8. Negative numbers indicate contraction. The Philly Fed survey improved from -30.7 to -17.5 but economists were expecting a bounce to -10.0. The consumer sentiment report on Friday saw a bounce from 55.7 to 57.8, which was a minor improvement. To put that into perspective, Bloomberg.com said that consumer sentiment data averaged 89 during the five years prior to the last recession. I believe readings over 90 are considered "healthy".

Major Indices:

The S&P 500 continues to trade off technical levels. Last week was a rebound from 1140 on Monday to 1220 on Friday. The actual low last Monday was 1136. The big bounce should negate the bearish head-and-shoulders pattern for the S&P 500 it does not negate the bear-flag pattern (see below). The breakout past 1200-1205 is bullish but stocks are now short-term overbought. If the S&P 500 falls back under 1200 then I'd look for support near 1180. If the S&P 500 can breakout past resistance at 1230 then it will probably see a run at the 1250 level.

Bear Flag pattern on the S&P 500 index:

Weekly chart of the S&P 500 index:

The tech-heavy NASDAQ produced some impressive gains last week with a +7.5% rebound off its Monday morning low. The close over resistance at 2600 and its 50-dma is also very bullish but you have to contrast that against its short-term overbought condition. If this rally continues then the NASDAQ composite could face resistance near 2660 and then at 2700 near its 200-dma. On a pullback I would look for support near 2550.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

We are seeing a very similar story in the small cap Russell 2000 index. The $RUT did see a +7.3% bounce from its Monday morning low. Plus, it closed above the prior week's high. Yet it remains at the 38.2% Fib retracement level and it remains inside the bear-flag pattern. Sometimes a bearish head-and-shoulders pattern will actually have two right shoulders and a pull back from current levels might be the second shoulder to that bearish pattern.

Daily chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

We have a relatively quiet week for economic data. There will be several reports on the housing market (I'm not listing all of them). The biggest event will be the conclusion to the two-day FOMC meeting on Wednesday. The announcement is usually around 2:15 p.m. ET.

- Tuesday, September 20 -
Housing Starts & Building Permits

- Wednesday, September 21 -
exiting home sales
FOMC announcement @ 2:15 p.m.

- Thursday, September 22 -
Weekly Initial Jobless Claims
Leading Indicators

Another key event this week will be the German vote on changes to the EFSF euro zone rescue fund. The EU is trying to increase the size of this fund and change the rules so it can purchase bonds (similar to the Fed's QE programs). All the EU members need to approve it but Germany is the key vote. If they vote it down it would be very bearish for the stock market.

The market's focus this week will be the FOMC announcement on Wednesday and any new headlines from Europe. Fed chairman Ben Bernanke has already alluded to some sort of stimulus being approved at this meeting. Since the market is already expecting stimulus then he'll need to come out with a bigger than expected deal to actually lift the market. We are facing a greater risk that whatever plans the Fed offers is not enough for investors and stocks see a sell-the news reaction instead.

Assuming we get past the FOMC announcement on Wednesday without any market meltdown then investors will hopefully turn their attention toward corporate earnings. The Q3 earnings season is less than four weeks away. Of course the worry will be how good were earnings during a quarter where so many economic reports came in worse than expected?

Speaking of expectations there was a rash of analysts downgrades. The major firms were lowering their S&P 500 price targets. Goldman Sachs just dropped their 2011 yearend target to 1250 based on the current environment of uncertainty. This isn't too surprising since many firms were lowering their GDP forecasts in the last few weeks. This is going to increase the focus on corporate earnings as investors look for growth and guidance.

The big picture hasn't changed that much. Credit markets are still pricing in a Greek default sooner or later. My thoughts on Greece have not changed. Here's a repost from last week:

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?

...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.

You already know that a week ago Germany said they were taking emergency steps to prepare their banks for a worst case scenario on a Greek default. How many other countries are trying to shore up their banking system while central banks, the EU and the IMF try to keep Greece's head above water just a little bit longer before they cut the life line and let them sink? I'm not suggesting that Greece will default this week but sometime in the next six months might be a good bet.

I warned readers a week ago that if the market does rally we could see money managers chasing performance. The end of September ends the third quarter while the end of October is the fiscal yearend for many funds. Most funds have underperformed the market this year. They don't have much time left if they're trying to catch up!

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market just delivered its best one-week gain since late June. Now equities are arguably short-term overbought. Now the focus will be on Fed Chairman Ben Bernanke's new stimulus expected on Wednesday. The question will be how much action by the Fed has already been priced into the market. Will the Fed news spur stocks higher or will we see a sell-the-news event?

We have seen two watch list candidates, BMY and NVDA, make the jump to our active play list.

There are new stop losses for both EMC and V. Plus, I have a conditional stop loss change on CLF (see play updates tonight).

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

Can the Fed Stimulate Stocks?

by James Brown

Click here to email James Brown

Editor's Note:

One week ago the stock market look poised on the precipice of a significant breakdown. Here we are a week later and the major indices are all up +5% or more. There is plenty of speculation on whether this new rally is in anticipation of the Federal Reserve offering new stimulus this week or is it really hope that Europe is nearing some sort of solution on their debt contagion worries.

I seriously doubt investors are buying stocks on hope that Europe's problems are over (because they're not over). As a matter of fact, all the "positive" headlines regarding Europe and Greece this past week could have been smoke and mirrors and posturing while behind the scenes the major EU players are actually preparing for a Greek default.

Now we face a risk that the Federal Reserve Chairman Ben Bernanke might disappoint the markets with not enough stimulus in Wednesday's announcement. If market participants are disappointed then we could easily see stocks reverse course and head for their August lows.

I wouldn't be surprised to see a muted reaction to the FOMC announcement on Wednesday. Will we see some profit taking? Likely but it depends on what Bernanke says. We are only three weeks away from Q3 earnings season so there is a chance that stocks churn sideways until earnings begin. However, I am reluctant to launch new long-term bullish positions after a +5% rally in the market and the risk of a big disappointment on Wednesday.

No new trades tonight although we did add four new candidates to our watch list.

-James


Play Updates

New 52-week Highs

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Bank of America - BAC - close: 7.23

update 09/17: Bloomberg.com made headlines for BAC on Friday when it ran an article regarding a potential Countrywide bankruptcy. Essentially the Bloomberg article suggested that BAC could eliminate most of its troubles and the big overhang on its stock price by letting its Countrywide division file for bankruptcy and removing all (or at least most) of its legal liabilities for all the bad loans made by Countrywide.

There is plenty of opinion on whether or not BAC would actually go through with what the author called the "nuclear option" (as in a nuclear bomb). Just the fact that BAC could have its Countrywide division file for bankruptcy should give them a lot more leverage with creditors making demands on the company and that should be positive for BAC's stock price.

Looking at BAC the stock essentially churned sideways this past week in spite of all the optimism over potential progress in Europe and the U.S. market's big bounce.

At this point I would probably wait for a dip near $6.00 or wait for a close over $8.00 and its 50-dma as potential entry points 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 $ 0.24/ 0.26
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 $ 1.05/ 1.08
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: 59.15

update 09/17: BHI produced another bounce from the $56-55 zone but it failed to breakout past $60.00 or its neutral pennant pattern of lower highs and higher lows. The U.S. market looks short-term overbought here so we might see BHI retest the $58-56 zone soon. Nimble traders could buy another bounce from $56 but conservative traders may want to wait for a new close over $60.00 before considering new positions. Cautious traders might want to raise their stop toward the $54 or $55 levels.

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 $ 3.65/ 3.75

- or -

AUG 29, 2011 - entry price on BHI @ 57.62, option @ 7.00
symbol: BHI1319A70 2013 JAN $70 call - current bid/ask $ 7.25/ 7.60

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


Bristol Meyers Squibb - BMY - close: 30.53

update 09/17: Drug giant BMY has made the jump from our watch list to our play list. The stock displayed relative strength last week and broke out above resistance at the $30.00 level. These are new four-year highs for the stock. Our trigger to open positions was a close over $30.25. Thus, I would still consider new positions now. Technically, Friday's close was our entry point so we'll enter positions on Monday morning at the open. Keep in mind that the market looks short-term overbought so you could wait for a dip back toward $30.00 as your entry point.

I will point out that BMY could have resistance in the $32.00-32.50 zone dating back to mid 2007.

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

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ --.--, option @ -.--
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.08/ 1.15

09/16 Friday's close at $30.53 is our trigger to buy calls. Our entry will be Monday morning.

Chart of BMY:

Current Target: $33.50 and 35.75
Current Stop loss: 27.75
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


Cliffs Natural Resources - CLF - close: 77.94

update 09/17: CLF is still churning sideways. Monday's low was a new higher low while Friday's failed rally near $80 was a new lower high in this sideways consolidation. Any significant market drop should push CLF back towards the $75-74 area. More conservative traders may want to raise their stops toward the $72-73 area. I am leaving our stop loss at $67.00 for now. However, if we see CLF close over $80.00 then we will move our stop loss to $72.20.

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 $ 6.50/ 6.65

- or -

Aug 18, 2011 - entry price on CLF @ 71.51, option @ 10.50*
symbol: CLF1319A90 2013 JAN $90 call - current bid/ask $12.95/13.25

09/17 if CLF closes over $80.00 then move stop to $72.20
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: 22.76

update 09/17: It was a strong week for tech stocks. EMC rallied from its Monday morning lows under $21.00 to hit $22.99 on Friday morning. The $23.00 level is resistance so do not be surprised if EMC sees a pull back from here. The $22 and $21 levels should remain short-term support.

We are going to go ahead and raise our stop loss to $19.80, just under the August low. More conservative traders may want a stop closer to $20.60, which is under the early September low, or a stop near $20.90, which is under last Monday's low instead.

I am not suggesting new positions at this time.

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 $ 3.55/ 3.65

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 2.66/ 2.82

09/17 new stop loss @ 19.80

Current Target: $25.75 and 28.50
Current Stop loss: 19.80
Play Entered on: 08/18/11
Originally listed on the Watch List: 07/23/11


McDonalds Corp. - MCD - close: 88.29

update 09/17: MCD spent the week recovering from the Friday sell-off a week ago. Yet the rally only reached as far as the September 8th close. Essentially, MCD has only filled the gap and if it stops here it's a new lower high. While I am longer-term bullish on MCD this pause at short-term resistance at the top of the gap is troubling and I would expect a pull back soon. I would wait for another bounce from the $86-85 area before considering new bullish 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 $ 3.35/ 3.45

- or -

Aug 15, 2011 - entry price on MCD @ 86.82, option @ 3.90
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 4.95/ 5.10

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: 14.61

update 09/17: MDR rallied from its Monday morning lows of $12.76 to $14.97 on Friday. That's a +17.3% rise. Odds are good that MDR will see some profit taking soon. Nimble traders might want to consider buying a bounce from the $14.00 level. If you do launch positions I would consider the 2013 calls instead of the 2012s. Cautious investors may want to raise their stop toward the $12.50-12.75 area.

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 $ 1.70/ 1.85

- or -

Aug 15, 2011 - entry price on MDR @ 14.67, option @ 1.15
symbol: MDR1221A17.5 2012 JAN $17.50 call - current bid/ask $ 0.80/ 0.90

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


NVIDIA Corp. - NVDA - close: 15.46

update 09/17: NVDA has made the leap from our watch list to our play list. Shares hit our alternative entry point to buy a close over $15.00 on Wednesday when the stock closed at $15.28. Unfortunately, that means our actual entry point was Thursday morning when NVDA gapped open higher at $15.62.

On a short-term basis the action on Friday looks like a failed rally at resistance near $16.00 and its 100-dma and exponential 200-dma. I would expect a dip back toward $14.50 or even $14.00. Use a dip near these levels as a new entry point to buy calls.

Currently our stop loss is at $12.25. Our exit target is $19.75.

- Suggested (small) Positions -
SEP 14, 2011 - entry price on NVDA @ 15.62, option @ 2.40
symbol: NVDA1221A15 2012 JAN $15 call - current bid/ask $ 2.30/ 2.34

- or -

SEP 14, 2011 - entry price on NVDA @ 15.62, option @ 4.25
symbol: NVDA1319A15 2013 JAN $15 call - current bid/ask $ 4.00/ 4.20

Chart of NVDA:

Current Target: $19.75
Current Stop loss: 12.25
Play Entered on: 09/15/11
Originally listed on the Watch List: 09/10/11


Visa Inc. - V - close: 90.85

update 09/17: Visa delivered a bullish week with a breakout past resistance at $89.00 and the $90.00 level. Shares hit new 2011 highs on Friday at $91.52. The close over $90.00 actually looks like a new bullish entry point. However, I am concerned that the U.S. market's might be short-term overbought and a market pull back could push Visa back toward the $89-88 area. Therefore, I would hesitate to launch new positions at this time.

Conservative traders might want to take some money off the table now, especially with the 2012 calls. Please note our new stop loss at $81.45.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on V @ 80.00, option @ 4.00
symbol: V1221A90 2012 JAN $90 call - current bid/ask $ 7.50/ 7.65

- or -

Aug 18, 2011 - entry price on V @ 80.00, option @ 7.75
symbol: V1319A100 2013 JAN $100 call - current bid/ask $10.00/10.85

09/17 new stop loss @ 81.45. Readers may want to take some profits here with the 2012 calls up +87.5%
08/27 new stop loss at $77.00

Current Target: $94.50, and $99.00
Current Stop loss: 81.45
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


Walter Energy Inc. - WLT - close: 82.19

update 09/17: WLT spent the entire week drifting sideways inside the $88-82 zone with a bearish trend of lower highs. The big news for WLT last week was Monday's announcement that the Board of Directors had appointed Walter Scheller from president of U.S. operations to chief executive officer.

There is still speculation that WLT is a takeover target but the fever seems to be cooling. The stock certainly underperformed the broader market last week. Two weeks ago the big story was speculation that Anglo American might buy WLT for $120 a share.

I am not suggesting new positions at this time.

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 $ 6.20/ 6.65

- or -

Aug 15, 2011 - entry price on WLT @ 82.82, option @ 14.05
symbol: WLT1319A100 2013 JAN $100 call - current bid/ask $10.25/12.45

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

Updated Entry Points

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidates, here's a few more stocks I'm currently watching for potential trades: TGT, CRS, TJX, HUM, FAST, CERN. Some of them need to see a pull back first.

- James



New Watch List Entries

HSY - Hershey Co

KFT - Kraft Foods Inc

LVS - Las Vegas Sands Corp

VMW - VMware, Inc.


Active Watch List Candidates

BMC - BMC Software

IR - Ingersoll-Rand

LTD - Limited Brands Inc

KO - Coca-Cola Co

MOS - Mosaic Co.

ROST - Ross Stores

RRC - Range Resources


Dropped Watch List Entries

BMY & NVDA graduated to the play list. EXXI has been removed.



New Watch List Candidates:


Hershey Co. - HSY - close: 59.42

Company Info

HSY just posted its fifth gain in a row and closed at new multi-year highs. Investors are probably drawn to the 2.3% dividend yield and the relative lack of volatility in the stock. A breakout past potential round-number resistance at $60.00 could herald a new leg higher. Nimble traders may want to try and buy a dip in the $57-56 zone. I am suggesting we wait for a close over $60.00 and then initiate positions with a stop loss at $55.75.

trigger: A close over $60.00

BUY the 2012 Jan $65 call (HSY1221A65)

- or -

BUY the 2013 Jan $65 call (HSY1319A65)

Chart of HSY:

Originally listed on the Watch List: 09/17/11


Kraft Foods Inc. - KFT - close: 35.06

Company Info

KFT is a defensive stock. Shares have a long-term bullish trend and investors are probably drawn to the 3.3% dividend yield. KFT has consistently bounced from its rising 200-dma, which is currently near $33.00. I am suggesting a buy-the-dip entry point at $33.50 with a stop loss at $31.75.

NOTE: KFT is a very slow moving stock. It will take months to make any progress. Once a position is over readers may want to turn these into calendar spreads (a.k.a. vertical spreads).

Buy-the-Dip trigger: $33.50

BUY the 2013 Jan $35 call (KFT1319A35)

Chart of KFT:

Originally listed on the Watch List: 09/17/11


Las Vegas Sands - LVS - close: 47.46

Company Info

LVS has been trading sideways in a wide range for months. The short-term bullish trend of higher lows is suggesting the stock could see a breakout soon. Nimble traders may want to buy calls on a move over $49.00. I am suggesting we wait and buy calls only if LVS can close over $50.00. If triggered we'll use a stop loss at $44.75. Our first target is $59.00. FYI: The Point & Figure chart is bullish with a $60 target.

trigger: Close Over $50.00

BUY the 2012 Jan $55 call (LVS1221A55)

- or -

BUY the 2013 Jan $60 call (LVS1319A60)

Chart of LVS:

Originally listed on the Watch List: 09/17/11


VMware, Inc. - VMW - close: 93.59

Company Info

If investors can get past their recession fears then technology stocks will most likely see the biggest gains. The group has certainly performed well when the market is in rally mode. VMW could be an outperformer if stocks continue to melt higher. Currently VMW is trading near resistance at $95.00 and its 50 and 100-dma.

I am suggesting we buy calls when VMW hits $96.00 with a stop loss at $89.00. I do consider this an aggressive, higher-risk trade. The $100 level has been resistance in the past and could be resistance again. If we are triggered at $96.00 we want to keep our position size small. Our target is $119.50. NOTE: That's a lot of money to buy the 2013s. You may want to stick with the 2012s instead.

Breakout trigger: $96.00 (Small Positions)

BUY the 2012 $110 call (VMW1221A110)

- or -

BUY the 2013 $110 call (VMW1319A110)

Chart of VMW:

Originally listed on the Watch List: 09/17/11


Active Watch List Candidates:



BMC Software - BMC- close: 42.30

update 09/17: BMC displayed impressive relative strength with a rebound from $28 to over $42 last week. The move has created a bullish breakout from its trading range. We are adjusting our entry point strategy. I'm now suggesting a buy-the-dip entry point at $40.25 with a stop loss at $37.40 (under the September low). Our targets are $46.50 and 49.75.

Buy-the-Dip trigger: $40.25 *new trigger*

BUY the 2012 Jan $45 call (BMC1221A45)

- or -

BUY the 2013 Jan $45 call (BMC1319A45) 09/17 adjusted entry point to buy the dip at $40.25, stop 37.40
09/17 adjusted option strikes to 2012 and 2013 Jan $45s.

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


Energy XXI - EXXI - close: 25.14

update 09/17: EXXI is not cooperating so I am removing it from the play list. Shares continue to churn sideways inside a neutral pennant formation. Our buy-the-dip entry point has not been hit at $20.50. More aggressive traders may want to consider buying a breakout or a close over $26.50 or $27.00 instead. I am removing EXXI from the watch list and will place it back on my radar screen to keep an eye on it.

Trade Never Opened

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


Ingersoll-Rand - IR - close: 35.70

update 09/17: IR displayed relative strength last week and the stock has broken out above resistance at the $35 level and its 50-dma. Aggressive traders may want to buy calls now. I'm concerned the wider market is a bit overbought and due for a pull back. Thus I'd still rather buy a dip. We'll adjust our entry point strategy on IR to buy a dip at $33.00 with a stop loss at $31.00. A more aggressive stop loss would be placing it under the $30.00 level instead. I've updated the 2013 option strike to the $40s.

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

Buy-the-Dip trigger: $33.00 *new trigger*

BUY the 2012 Jan $35 call (IR1221A35)

- or -

BUY the 2013 Jan $40 call (IR1319A40)

09/17 adjusted strategy to buy the dip at $33.00, stop loss @ 31.00, new option strikes as well

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


Coca-Cola Co - KO - close: 71.23

update 09/17: KO rallied toward its 2011 highs and closed near multi-year highs as well. More aggressive traders may want to buy calls now. I am still expecting a market pull back. We will adjust our buy-the-dip entry point to buy calls at $67.00 with a stop loss at $63.49, which is under the August lows. I've adjusted our 2013 strike to the $75s.

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: $67.00 *new trigger*

BUY the 2012 Jan. $70 call (KO1221A70)

- or -

BUY the 2013 Jan. $75 call (KO1319A75)

09/17/11 stocks are showing strength. New entry point at $67.00, stop at $63.49
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: 40.28

update 09/17: LTD delivered a strong week with a rally from its Monday morning lows near $36.00 to close over round-number resistance at $40.00. We do not want to chase it here but we do need to adjust our strategy. I am moving our buy-the-dip entry point to $37.50 with a stop loss at $34.40. I've updated our option strikes to the 2012 Jan $40 and 2013 Jan $45s.

Buy-the-Dip trigger: $37.50 *new trigger*

BUY the 2012 Jan $40 call (LTD1221A40)

- or -

BUY the 2013 Jan $45 call (LTD1319A45)

09/17/11 new trigger @ 37.50, updated option strikes.

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


Mosaic Co. - MOS - close: 70.99

update 09/17: MOS spent another week consolidating sideways. The stock was essentially pinned to the $70.00 level for September option expiration. The stock has been trading in a neutral pennant formation of lower highs and higher lows. I would expect a breakout soon. Nimble traders may want to buy short-term calls on a move over $72.50 or its 200-dma and buy short-term puts on a breakdown under $68.00.

The newsletter's strategy has not changed. We are waiting for a breakout over $75.00 with a trigger to buy calls at $75.50.

NOTE: MOS has earnings on Sept. 28th. Conservative traders will not want to open positions prior to earnings. Wait to see the post-earnings move first.

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)

- or -

BUY the 2013 Jan $85 call (MOS1319A85)

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


Ross Stores Inc. - ROST - close: 80.67

update 09/17: ROST has been showing impressive relative strength. We need to adjust our entry point strategy. I am moving our buy-the-dip entry point trigger to $76.50 and our stop loss to $71.40. I've updated our option strikes as well.

Buy-the-Dip trigger: $76.50 *new trigger*

BUY the 2012 Jan $80 call (ROST1221A80)

- or -

BUY the 2013 Jan $85 call (ROST1319A85)

09/17/11 new trigger at $76.50, stop @ 71.40, new strikes.

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


Range Resources Corp. - RRC - close: 63.44

update 09/17: RRC spent the week consolidating sideways. We are adjusting our entry point strategy here too. I am moving our buy-the-dip entry to $57.00 with a stop loss at $53.45. I've adjusted our options to the 2012 Jan $60s and the 2013 Jan $65s.

Readers may want to consider an alternative and wait for a close over $67.00 instead.

Buy-the-Dip trigger: $57.00 *new trigger*

BUY the 2012 Jan $60 call (RRC1221A60)

- or -

BUY the 2013 Jan $65 call (RRC1319A65)

09/17/11 new trigger at $57.00, stop 53.45

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