Option Investor
Newsletter

Daily Newsletter, Sunday, 10/2/2011

Table of Contents

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

Leaps Trader Commentary

Edge of the Cliff

by James Brown

Click here to email James Brown

The stock market's momentum definitely reversed in the third quarter. The first quarter of 2011 saw a +5.5% gain for the S&P 500. Equities stalled in the second quarter a fractional loss of less than 1% (virtually zero). The third quarter produced a -14.3% decline. It was the worst quarter for the stock market since the bear market of the "Great Recession". From the Q3 top in July to the August lows the S&P 500 saw a -18.8% plunge. Normally drops of -20% or more signal a new bear market. Technically we are not in a bear market yet but we're getting close.

I can sum up last week's trading pretty quickly. Stocks initially rallied early last week on hopes that Europe was making progress on its Greek debt problem but lack of details on any new plans left the rally without any fuel and stocks reversed sharply midweek. Technically the oversold bounce has failed. Stocks began to fall on Greek default fears and growing concerns over a U.S. and global economic slowdown. Worries over China began to grow with Chinese CDS spreads rising. The latest Chinese PMI data came below 50 for the third month in a row. Numbers under 50 indicate economic contraction. The country is still expected to grow at more than +8% but there were renewed worries of a hard landing.

It did not help that we are starting to see some earnings warnings (from DRI, NUE, IR, and MU). A bullish revision to the U.S. Q2 GDP number was ignored. A better than expected drop in the weekly initial jobless claims was discarded since the data was tainted by a technicality. You may have thought that Germany's vote of approval to expand the European Financial Stability Facility (EFSF) to 440 billion euro would have been good news but investors essentially sold the news. Then late in the week the Economic Cycle Research Institute (ECRI), the firm that produces the weekly leading indicators index, published their opinion that the U.S. was indeed falling into another recession.

Greece & Europe

Germany's vote on amending the EFSF bailout fund was critical but it will still take some time for the rest of the Eurozone members to approve the changes. Unfortunately Greece may not have much time left. EU leaders are meeting together on October 13th to decide if Greece will receive the next tranche of bailout funds (approximately 8 billion euros). If this next loan is not approved then Greece is expected to run out of money by October 17th. This could make the next two weeks pretty volatile for stocks, especially if European politicians decide to do any posturing prior to the meeting to appear tough on the issue before finally giving in. I discuss the situation with Greece in a little more detail in tonight's "new plays" section but you already know the story. Eventually Greece will default. Right now the EU is just trying to delay the inevitable.

Major Indices:

If you're looking at the U.S. markets tonight I don't see a lot of changes from my comments a week ago. If anything we are in worse shape. We've seen the oversold bounce and the bounce has failed. We have a new lower high and we are about to make a new lower low. Many of the major indices have produced both a bear-flag pattern and a bearish H&S pattern over the past several weeks. I warned readers that if the S&P 500 breaks down we're probably looking at a drop toward 1,050 or 1,000. I would bet on a drop toward 1,000 with a sharp bounce at 1,050 on the way down. On a very short-term basis the S&P 500 could still see support near 1120 and then at the 1100 mark.

Bear Flag pattern on the S&P 500 index:

Weekly chart of the S&P 500 index:

Technology stocks have been hammered lately. The NASDAQ composite has suffered a rough three days and closed on its lows on Friday. Instead of quarter end window dressing it was window washing instead. Money managers were dumping tech stocks to get them off their books. It looks like the NASDAQ has broken down from its bear-flag pattern but there is still potential support at 2415 and then at its August lows near the 2340 area. The flag pattern would suggest a multi-week drop toward the 2100 area. This would line up with the weekly chart's support near 2100.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

Small cap stocks are more volatile than their big cap rivals. The Russell 2000 index has produced both a bear flag pattern and a bearish head-and-shoulders pattern. The sharp oversold bounce has failed and the $RUT is testing its August lows again. Odds are against this level holding again but it remains support until broken. The bear-flag would suggest a multi-week target near 550. The H&S pattern would suggest a downside target near 580ish. Coincidentally the 2010 summer lows were near 588.

Daily chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

The first week of the month is always a busy one for economic reports. We'll see the ISM manufacturing index, the ISM services index, the ADP employment report and of course the nonfarm payrolls (jobs) report. Economists are expecting the ISM to come in near the dividing line of 50. Numbers above 50.0 suggest growth while numbers under 50.0 indicate contraction. The major report for the week is the jobs report on Friday. Analysts are expecting the U.S. to have gained +60,000 in September. Odds are good that last month's number will be revised down into negative territory. Expectations are negative so an upside surprise in the jobs number could spark a nice short squeeze.

- Monday, October 3 -
(National) ISM index for September
Construction Spending
Vehicle Sales

- Tuesday, October 4 -
Factory Orders

- Wednesday, October 5 -
ADP Employment Report for September
(National) ISM Services index for September

- Thursday, October 6 -
Weekly Initial Jobless Claims

- Friday, October 7 -
Nonfarm payrolls (Jobs) report for September
Wholesale inventory number
Consumer Credit

Looking ahead I am worried that the stock market is on the verge of a new multi-week decline. Let's assume for the moment that Europe continues to kick the Greece debt problem down the road. The market's focus should then turn toward corporate earnings. The Q3 earnings season is going to start in about two weeks. Will we see positive earnings growth or earnings misses? Will corporate guidance be strong? Or will management offer cautious guidance and lack of visibility? The bulls are arguing that stocks are cheap at current levels. I'm going to steal a concept from the 1996 movie Jerry Maguire. Corporations are going to need to show us the money otherwise their stocks are going to get a lot cheaper as investors sell the earnings news!

Seasonally the stock market tends to rally in the fourth quarter. However, the first half of October is usually pretty volatile. Right now I am very cautious on stocks and would not launch new bullish positions. The next two or three weeks will be critical. The S&P 500 is nearing support in the 1120-1100 zone. This is essentially the edge of the cliff. A breakdown under 1100 could spark a very significant sell-off. On the other hand, if we rebound, we could see another big round of short covering. The combination of earnings season and getting past the next major deadline for Greece in the next few weeks should catapult stocks one way or the other.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

This would appear to be a pivotal week for the U.S. stock market. Will the major indices bounce from their late summer lows or will they break down into a new leg lower? Headlines out of Europe remain the major driver for stocks but we'll see some significant economic data from the U.S. this week.

Investors need to stay defensive. Take another look at your stop loss placement. You may want to consider exiting early or reducing the size of your positions. If the major indices breakdown under their August lows it sets up for a much bigger decline.

I've updated the stop loss on part of our BAC trade and MCD has a new stop.

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

Greek Debt Prisoners

by James Brown

Click here to email James Brown

Editor's Note:

The global markets remain hostage to the Greek tragedy playing out in Europe. We are essentially prisoners, unable to escape. Every day the equity markets, the bond markets, and currency markets are battered back and forth by every little headline pertaining to the Greek national debt. The country is unable to pay back its creditors and each new installment of bailout funds only deepens the hole from which it cannot escape.

European leaders are desperately trying to postpone the inevitable default. When the default occurs it could wipe out the European banking system because so many banks own Greek bonds. The already fragile economies of Italy, Spain and Portugal could collapse.

How and when this all plays out we do not know but many expect Greece will default in the next twelve months. We will wake up one Monday morning and find out that Greece finally threw in the towel and gave up the night before. European and U.S. stock markets will gap down on the news. The knee jerk reaction will be very ugly.

Unfortunately, while we wait for this horror movie's climactic scene we are facing some dour economic data here at home. Fears of another recession continue to grow. Investors are naturally reacting by selling stocks and moving into safe haven investments like the U.S. bond market.

This is a very tough environment to be trading bullish LEAP positions. Eventually we'll see another capitulation sell-off. Once that occurs we can start to add to our play list again. In the meantime we are adding some bearish candidates to our watch list tonight. Essentially we need to see a breakout, one way or the other, from the market's current trading range. Right now, the path of least resistance seems to be down.

No new trades tonight. Please see the watch list for potential trades this week.

-James


Play Updates

Oversold Bounce Rolls Over

by James Brown

Click here to email James Brown

Editor's Note:

It was another ugly week for stocks. The oversold bounce that began on September 22nd failed on Tuesday. It was all downhill from there.

A handful of candidates managed to post gains for the week but the trading action was still bearish.

-James


Closed Plays


None. No closed plays this week.


Play Updates


Bank of America - BAC - close: 6.12

update 10/01: BAC lost 19 cents or about 3% for the week. That's not bad considering the market's recent weakness. Shares are back to testing support near $6.00. Unfortunately the recent failed rally is another new lower high in a bearish trend of lower highs. While plenty of analysts consider BAC to be super cheap it can always get cheaper. I am worried that if BAC breaks support at $6.00 it could drop toward the $4.00-3.00 zone.

We will raise our stop loss to $5.75. Currently this stop loss only applies to the September 26th position.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ 8.10, option @ 0.57
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.12/ 0.13
(no stop loss on this position)

- or -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.76/ 0.78
(No stop loss on this position)


2nd Position, listed 09/24/11, opened on 09/26/11

SEP 26, 2011 - entry price on BAC @ 6.48, option @ 0.66
symbol: BAC1221A7.50 2012 JAN $7.50 call - current bid/ask $ 0.56/ 0.57
Stop loss @ 5.75

- or -

SEP 26, 2011 - entry price on BAC @ 6.48, option @ 1.00
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.76/ 0.78
Stop loss @ 5.75

10/01 raising our stop loss on the Sep. 26th position to $5.75
09/24 adding 2nd position, stop loss at $5.40
09/03 no stop loss on this trade at this time.

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


BMC Software - BMC- close: 38.56

update 10/01: BMC only lost 29 cents for the week but the action was bearish with a failed rally under $41.00 near the top of the gap down. Shares are headed back toward $38.00 and look like they could drop toward their August lows near $37.20. Technical indicators on the daily chart are turning bearish. More conservative traders may want to abandon ship and exit early now. Currently we have a stop loss at $36.90. I am not suggesting new positions at this time.

- Suggested Positions -
SEP 22, 2011 - entry price on BMC @ 39.74, option @ 2.05
symbol: BMC1221A45 2012 JAN $45 call - current bid/ask $ 1.15/ 1.90

- or -

SEP 22, 2011 - entry price on BMC @ 39.74, option @ 5.40
symbol: BMC1319A45 2013 JAN $45 call - current bid/ask $ 3.90/ 4.90

10/01 Readers may want to exit early now! BMC @ $38.56
09/24 new stop loss @ 36.90
09/22 play opened at $39.74 (gap down)
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.

Current Target: $46.50, 49.75
Current Stop loss: 36.90
Play Entered on: 09/22/11
Originally listed on the Watch List: 08/20/11


Bristol Meyers Squibb - BMY - close: 31.38

update 10/01: BMY was one of the few stocks to post a gain for the week. The stock hit new multi-year highs intraday on Friday (@ 31.91). While the trend is up for BMY I am not suggesting new positions at this time. If the market breaks down under the August lows it will likely drag BMY with it and that could pull shares back down toward the $29.00 area.

I am not suggesting new positions at this time.

Earlier Comments:
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 @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.71/ 1.80

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

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


EMC Corp. - EMC - close: 20.99

update 10/01: EMC also posted a gain for the week but shares are well off their highs set on Tuesday morning near $22.25. The stock appears to be struggling with technical resistance at its descending 40-dma. Currently, given the market's pull back, EMC looks headed for a retest of support near $20.00. Nimble traders could buy another dip near $20.00. I am growing concerned that if the S&P500 or NASDAQ breaks down under their August lows then we'll see EMC break down as well. Currently we have a stop loss at $19.49. Should EMC close under $20 then I would expect a sell-off toward $18 or even $16 going forward.

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 $ 2.45/ 2.49

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 2.02/ 2.18

09/24 new stop loss @ 19.49
09/17 new stop loss @ 19.80

Current Target: $25.75 and 28.50
Current Stop loss: 19.49
Play Entered on: 08/18/11
Originally listed on the Watch List: 07/23/11


Hewlett-Packard - HPQ - close: 22.45

update 10/01: HPQ managed to end the week with a gain but the gap open higher on Monday means our entry point is $22.59, leaving our position at a minor loss. The stock failed twice near $24.50 and looks like it's ready to retest support near $22.00 soon. I would wait for a new bounce off the $22 area before considering new bullish positions.

Please note that I'm switching our stop losses. Last week I listed two different options with two different stop losses. We want the tighter stop loss on the short-term trade. I've made the corrections below.

- Suggested (SMALL) Positions -
Short(er)-Term Trade
Sep 26, 2011 - entry price on HPQ @ 22.59, option @ 2.69
symbol: HPQ1221A22.5 2012 JAN $22.50 call - current bid/ask $ 2.71/ 2.77
Stop Loss @ 19.70

- or -

Longer-term Trade
Sep 26, 2011 - entry price on HPQ @ 22.59, option @ 3.75
symbol: HPQ1319A25 2013 JAN $25 call - current bid/ask $ 3.70/ 3.85
Stop Loss @ 19.45

Current Target: $29.50
Play Entered on: 09/26/11
Originally listed in New Plays: 09/24/11


Kraft Foods Inc. - KFT - close: 33.58

update 10/01: KFT remains stuck in its trading range. The stock failed at resistance in the $35.00-35.50 zone and is rolling over again. The 200-dma and 200-ema might offer some technical support but I doubt they will hold if the S&P500 continues to sink. We should expect KFT to retest its lows near the $32.50 level. With the market in flux I am not suggesting new positions tonight.

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

- Suggested (SMALL) Positions -
Sep 22, 2011 - entry price on KFT @ 32.71, option @ 2.35
symbol: KFT1319A35 2013 JAN $35 call - current bid/ask $ 2.65/ 2.90

Current Target: $38.00
Current Stop loss: 31.75
Play Entered on: 09/22/11
Originally listed on the Watch List: 09/17/11


Coca-Cola Co - KO - close: 67.56

update 10/01: The action in KO last week was short-term bearish with a failed rally near $70 and a new lower high. The stock managed to close with a gain for the week but only because Friday's session ran out of time. Another few minutes would have erased its minor gain. The close under its 100-dma is not bullish. Previously I have cautioned readers that KO could see a correction back into the $65-64 zone if the market sells off. While the $66 level and the simple 200-dma might offer some support I would wait for a dip or a bounce in the $65-64 zone before considering new positions.

FYI: KO is due to report earnings on October 18th. Investors may want to wait until after we see the market's reaction to earnings before considering new trades.

Earlier comments:
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.

- Suggested Positions -
Sep 22, 2011 - entry price on KO @ 67.00, option @ 2.25
symbol: KO1221A70 2012 JAN $70 call - current bid/ask $ 2.45/ 2.48

- or -

Sep 22, 2011 - entry price on KO @ 67.00, option @ 3.00
symbol: KO1319A75 2013 JAN $75 call - current bid/ask $ 3.15/ 3.30

09/22/11 play opened at $67.00
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.

Current Target: $80.00
Current Stop loss: 63.49
Play Entered on: 09/24/11
Originally listed on the Watch List: 08/13/11


McDonalds Corp. - MCD - close: 87.82

update 10/01: MCD ended the week up 45 cents and hugging its 50-dma. Unfortunately the trading activity looks bearish with a failed rally near its all-time highs in the $91 area. If the stock market continues to sink we'll probably see MCD retesting its 100-dma soon.

Please note that I am changing my mind on our stop loss strategy. MCD should have decent support near $82 and the $80 level, plus its 200-dma just above $80.00. Yet we're going to move our stop loss from $79.50 to $84.75. I'd rather get stopped out and preserve some capital so we can re-enter positions on a bounce from $80 should the market see a significant breakdown.

Keep in mind that MCD is due to report earnings in about three weeks. I would hesitate to launch new positions in front of the report.

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 $ 3.70/ 3.85

- or -

Aug 15, 2011 - entry price on MCD @ 86.82, option @ 3.90
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 5.70/ 5.85

10/01/11 new stop loss at $84.75
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: 84.75
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


NVIDIA Corp. - NVDA - close: 12.51

update 10/01: Ouch! It was another ugly week for NVDA and many of the semiconductor stocks. Shares of NVDA lost more than -9%. The close under $13.00 is very bearish and if the stock market continues to sink this week then we'll probably see NVDA hit our stop loss at $12.25. More aggressive traders may want to put their stop under the August lows (near 11.65).

I am not suggesting new positions at this time.

- Suggested (small) Positions -
SEP 14, 2011 - entry price on NVDA @ 15.62, option @ 2.40
symbol: NVDA1221A15 2012 JAN $15 call - current bid/ask $ 0.89/ 0.90

- or -

SEP 14, 2011 - entry price on NVDA @ 15.62, option @ 4.25
symbol: NVDA1319A15 2013 JAN $15 call - current bid/ask $ 2.50/ 2.58

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: 85.72

update 10/01: The big headline for this industry last week was news that Bank of America (BAC), the country's biggest bank, will start charging a $5.00 monthly fee to customers that use their debit cards. We don't know yet how this will affect Visa, if it affects them at all. Some consumers will stop using their (Visa) debit card through BAC and avoid the $5 fee by using credit cards instead. Of course Visa makes money when they use their credit cards too. There's always the option of using a prepaid card, where Visa still makes money. Of course some consumers might just switch to using more cash or checks instead. Big picture, consumers are still making more and more transactions using their cards instead of cash or checks and that trend is unlikely to change.

For the week shares of Visa are down almost 5%. We currently have a stop loss at $84.45. If the market sell-off continues then there is a very good chance that Visa while hit our stop loss.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on V @ 80.00, option @ 4.00
symbol: V1221A90 2012 JAN $90 call - current bid/ask $ 5.65/ 5.80

- or -

Aug 18, 2011 - entry price on V @ 80.00, option @ 7.75
symbol: V1319A100 2013 JAN $100 call - current bid/ask $ 9.15/ 9.85

09/24 new stop loss at $84.45
09/20 1st target hit at $94.50
bid 2012 Jan $90 call @ $9.80 (+145%)
bid 2013 Jan $100 call @ $11.10 (+43.2%)
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: 84.45
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


Watch

Small Caps and Transports

by James Brown

Click here to email James Brown

Editor's Note:

The stock market is looking pretty ugly these days. The oversold bounce has failed. The major indices are poised to test and possibly break below their summer lows. This could signal a new leg lower.

We are adding some bearish LEAPS candidates to take advantage of the downdraft if stocks do fall to new lows. In addition to the IWM and IYT listed tonight you could also trade the SPY and DIA with similar strategies (see below).

- James



New Watch List Entries

IWM - iShares Russell 2000

IYT - iShares Dow Transports


Active Watch List Candidates

AGN - Allergan

HSY - Hershey Co

LTD - Limited Brands Inc

PSMT - PriceSmart

ROST - Ross Stores

TJX - TJX Cos. Inc.


Dropped Watch List Entries

LVS, RRC, and VMW have been removed from the watch list.



New Watch List Candidates:


iShares Russell 2000 ETF - IWM - close: 64.30

Company Info

The stock market's major indices are on the verge of a breakdown. If we do see a breakdown the small caps will likely underperform the rest of the market. I'm suggesting a bearish trade on the IWM.

You can already see the IWM's oversold bounce has failed. Shares have painted a bearish head-and-shoulders pattern over the last several weeks. Nimble traders could launch positions on an intraday drop below $63.00. I am suggesting we wait for the IWM to actually close under $63.00 before initiating positions and then we'll launch our put play.

Stocks tend to fall a lot faster than they climb so I am only listing the 2012 January puts.

If IWM closes under $63.00, buy PUTS.

BUY the 2012 Jan. $60 PUT (IWM1221M60)

Chart of IWM:

Originally listed on the Watch List: 10/01/11


iShares Dow Jones Transport ETF - IYT - close: 75.24

Company Info

The IYT follows the Dow Jones Transportation Average (index). This index has twenty components and is a price-weighted index. Thus the stocks with the biggest impact on the Transportation average and the IYT are probably FDX, UPS, UNP, NSC, CHRW, etc. based on their share price.

The market is on the verge of a breakdown. It looks like the transports are leading it lower. After weeks of churning sideways the IYT broke to new lows just two weeks ago. The oversold bounce has failed. Now it's on the verge of a new leg lower.

I am suggesting we buy puts if the IYT closes under $74.00. More nimble traders may want to use an intraday drop below $74.00 as their entry point. The hardest part will be placing our stop loss. Currently market volatility is pretty high and bear markets are notorious for super sharp rebounds. If triggered we'll start with a stop loss at $78.25.

Stocks tend to fall a lot faster than they climb so I am only listing the 2012 January puts.

If IYT closes under $74.00, buy PUTS.

BUY the 2012 Jan. $65 PUT (IYT1221M65)

Chart of IYT:

Originally listed on the Watch List: 10/01/11


Active Watch List Candidates:



Allergan Inc. - AGN - close: 82.38

update 10/01: AGN tried all week to breakout past resistance near $85.00. On Thursday it managed to close at $85.03 but the stock reversed hard on Friday down -3.1%. Our entry point to buy call LEAPS was not met (a close over $85.50). Please note that we're adjusting that to a close over $86.00.

On a short-term basis AGN is poised to test support near $80.00. A close under $80 would break the multi-week trend of higher lows.

If triggered we'll use a stop loss at $79.45. Our long-term target is $99.00.

TRADING NOTE: The option spreads for AGN leaps seem to be getting WORSE! This might be due to the rising volatility index (VIX). If these spreads do not contract soon I will drop AGN from the watch list. They are too wide to trade.

Earlier Comments:
Option spreads are wide for these LEAPS. We want to keep our position size pretty small to limit our risk.

Wait for a close over $86.00 *updated*

BUY the 2013 Jan $100 call (AGN1319A100)

Originally listed on the Watch List: 09/24/11


Hershey Co. - HSY - close: 59.24

update 10/01: HSY came awfully close to fulfilling our entry point requirement. Our plan was to buy calls if HSY closed above $60.00. Well Monday saw HSY close at $60.00. Tuesday saw an intraday rally to $60.96 but it closed at $59.97. The next three days HSY spent consolidating under the $60 level.

The larger trend is still up and I suspect that HSY could see more buying interest as people start to think about the Halloween holiday.

Please note that I am adjusting our entry point strategy. We want to wait for HSY to close above $60.25. We'll start with a stop loss at $55.75.

trigger: A close over $60.25 *updated*

BUY the 2013 Jan $65 call (HSY1319A65)

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


Limited Brands, Inc. - LTD - close: 38.51

update 10/01: If you're long LTD you'd better buckle your seatbelt. Looking at the weekly chart shares just produced a big bearish reversal pattern. Granted this needs to see confirmation but LTD definitely looks poised to retreat lower. I am expecting a dip toward the simple 200-dma. That's why our buy-the-dip entry point is at $35.50. Please note I am adjusting our stop loss to $32.90. More aggressive traders may want to keep their stop under the August low instead. We want to keep our position size small. More conservative traders could wait for a bounce off the 200-dma before initiating positions.

Buy-the-Dip trigger: $35.50

BUY the 2013 Jan $40 call (LTD1319A40)

10/01/11 adjusted stop loss to $32.90, if triggered
09/24/11 new trigger @ 35.50, updated 2013 option strike
09/17/11 new trigger @ 37.50, updated option strikes.

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


Las Vegas Sands - LVS - close: 38.34

update 10/01: Investors are getting cold feet over China. Worries over an economic slow down and what that might mean for gambling in Macau is impacting the casino stocks. LVS has dropped sharply. Shares look poised to test their August low and the March lows near $36 soon. A breakdown under this level would be very bearish.

Our plan was to buy calls if LVS closed above $50.00. Since that event is not going to happen any time soon we are dropping LVS as a candidate.

trigger: Close Over $50.00

Our trade did not open!

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


PriceSmart Inc. - PSMT - close: 62.32

update 10/01: The two-week correction in PSMT has produced a -17% drop. The stock is testing technical support at its 50-dma. The low on Thursday was $61.34. Since the S&P 500 has yet to test its August low near 1100 I suspect we could see PSMT drop toward its 100-dma. We will adjust our buy-the-dip entry point to $55.50 and adjust our stop loss to $49.75.

We want to keep our position size small.

Buy-the-Dip trigger: $55.50 (small positions)

BUY the 2012 Jan $65 call (PSMT1221A65) *new strike*

Originally listed on the Watch List: 09/24/11


Ross Stores Inc. - ROST - close: 78.69

update 10/01: ROST has spent the last two weeks churning sideways in the $77.00-82.50 zone. Friday saw a surge of volume as ROST outperformed with a minor gain. This was probably due to end of quarter window dressing.

We are adjusting our entry point strategy. The new plan is to wait for a close above $83.00 and buy the 2013 Jan $90 call with a stop loss at $75.75. In the meantime, if we happen to see a dip or a bounce near its 200-dma or the $72.50 area then nimble traders may want to take a shot at it with a tight stop loss. Should we see ROST bounce from its 200-dma then we'll reconsider our entry point again.

Buy a close over $83.00 *new trigger*

BUY the 2013 Jan $90 call (ROST1319A90)

10/01/11 new strategy: buy a close over $83.00
09/24/11 new trigger at $73.00, stop 69.50
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: 58.46

update 10/01: RRC continues to be very, very volatile. The stock bounced around from its 100-dma and the $57.50 area to over $65 and back again. I am removing RRC from the watch list. Instead of waiting to buy a dip near support in the $50-52 zone I'd rather watch from the sidelines and wait for RRC to hit that level and bounce before we consider new positions.

Speculators may want to consider some deep out of the money calls as a cheap bet just in case RRC does receive a takeover bid. There has been a lot of rumor that RRC is an acquisition target.

Buy-the-Dip trigger: $52.50

Our Trade Did Not Open.

09/24/11 new trigger at $52.50, stop 49.40
09/17/11 new trigger at $57.00, stop 53.45

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


TJX Cos. Inc. - TJX - close: 55.47

update 10/01: TJX is only a few points away from its all-time highs set two weeks ago. Shares weathered the market weakness relatively well. I don't see any changes from my prior comments. We're looking for a pull back toward its long-term trend of higher lows and technical support at the 200-dma. The plan is to buy calls on a dip at $52.00. More conservative traders may want to wait for a bounce from this area instead. If triggered we'll use a stop loss at $49.40.

Buy-the-Dip trigger: $52.00

BUY the 2013 Jan $60 call (TJX1319A60)

Originally listed on the Watch List: 09/24/11


VMware, Inc. - VMW - close: 80.38

update 10/01: Trading in VMW has taken a turn for the worse. Shares failed at resistance near $90.00 and its 200-dma and the stock closed the week down five points. Aggressive traders might want to consider buying a bounce from the $77.50 area. I am choosing to drop VMW as a candidate. Our trigger to open positions at $96.00 was not hit.

Breakout trigger: $96.00 (Small Positions)

Trade Did Not Open

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