Option Investor
Newsletter

Daily Newsletter, Saturday, 10/15/2011

Table of Contents

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

Leaps Trader Commentary

Stocks Up +16% Stepping Into Earnings

by James Brown

Click here to email James Brown

The major U.S. stock market indices are up an average of +16% in the last nine trading days. I'm looking at a move from the Tuesday, October 4th low. That's over a year's worth of movement in two weeks. The first week no one believed the advance calling it a bear-market rally. That's not too surprising since two weeks ago the S&P 500 did hit bear market levels. The small caps had been in a bear market for days. Yet this past week the disbelief turned into a panic as stocks continued to rise. Mutual fund managers only had three weeks left before the end of their fiscal year and the chase for performance was on!

Fueling the move was a wave of generally positive news coming out of Europe. Monday started the week of strong as investors reacted to last week's headlines that Germany's Merkel and France's Sarkozy were committing to a comprehensive rescue plan by the end of October. It wasn't smooth sailing all week in Europe. There was a little drama with Slovakia and whether they would vote to approve the expanded EFSF bailout fund. Overall the news flow was positive as the EU rushed to come up with some sort of plan to recapitalize their major banks. The euro currency soared and the dollar posted another weekly loss (it's now down two weeks in a row).

Economic data in the U.S. was generally positive and if it wasn't investors ignored it. The August trade deficit came in slightly smaller than expected at $45.6 billion. Weekly initial jobless claims were in-line with expectations near 400,000. The real surprise was September retail sales. The Commerce Department said sales rose +1.1%, which is the best showing since February. The gain followed a +0.3% rise in August. You've heard it a million times that 70% of the U.S. economy is fueled by consumer spending. This report helped ease concerns that the U.S. was slipping closer to a recession. The odd thing here is that strong consumer spending is not lining up with the dour consumer sentiment. We saw this last month too.

Consumer sentiment is in the tank. The headline sentiment number sank to 57.5, down from 59.4. This reading and the August reading near 55 are the lowest non-recession levels ever. Why is there a disconnect between consumer attitudes and their spending? It could be persistently high unemployment, the lack of improvement in the housing market and prior to October a ugly stock market didn't help. Traditionally a sentiment reading above 90 was considered healthy.

This past week did kick off the Q3 earnings season. Dow-component Alcoa (AA) disappointed again. Yet the stock didn't see much of a sell-off. JPM spiked prior to its earnings report but investors sold the news anyway even though JPM beat estimates. This put a wet blanket on financials on Thursday. Thursday night technology giant Google Inc. (GOOG) reported earnings that crushed the estimate. Shares of GOOG soared from $550 to $600 but eventually pared its gains to settle up +$33 on Friday.

Europe & Greece

I would love for the market to change its focus from Europe to Q3 earnings results but that's unlikely. Don't misunderstand me. The Q3 numbers are very important but they will still take a back seat to any major headline out of the EU. Two weeks ago the focus was on a Oct. 13th meeting by the EU on whether they would provide Greece with another 8 billion euros of rescue money. It was believe that Greece would be bankrupt without it by Oct. 17th. That changed last weekend. The meeting was delayed and Greece found some loose change under their couch and suddenly could make it another few weeks.

Now the focus is this coming Sunday. There is a major EU Summit on what to do about Greece and how to protect the EU banks. Let's be more specific here. It's probably a summit on how can they let Greece default without crashing their banking system. The most recent headline suggested that the EU, the IMF and the ECB were trying to come up with some way to let Greece write down their bond debt to 50% of their current value in such a way that would not be considered a default, which would trigger a waterfall of debt default swaps throughout the region and across the globe (a.k.a. financial Armageddon for Europe).

If you are a glass is half-full kind of person then the good news here is that the EU seems to be cooperating as they focus on how to protect their banking system from collapse, at least as well as a union of 17 different countries can cooperate. If you're a glass is half-empty person then so far all we have is a bunch of politicians and promises. The Eurozone has been talking about this problem for almost two years now. They only reason they're working together now is because they can actually see the edge of the cliff this problem is pushing them towards. If they don't solve it correctly then they're going to trade a Greece-sized cliff for a Spain or Italy-sized cliff, which are much, much higher. At the moment any rescue plans are desperately short of details and the stock market usually hates the unknown. Currently this rally has been fueled by hope (and for the bears, then it's fear) that Europe will actually solve this problem.

There is no doubt that the global markets will be sensitive to any headlines this week as we approach the summit next weekend. After a +16% rally in stocks there could be a sell-first, ask questions later attitude by market participants.

Major Indices:

The rebound in stocks really has been impressive. The S&P 500 is up +13.9% from its October low. The XLF financial ETF is up +15%. The NASDAQ composite is up +16%, retail +14.8%, cyclicals +20%, oil services +24.5%, semiconductors +18%, transportation average +18.7%, the small cap Russell 2000 index is up +18.4%. This move has been fueled by emotions and short covering. Fund managers were stricken by fear of missing the move and fear of underperforming their rivals with less than a month to go before fiscal yearend on October 31st. Now stocks are very short-term overbought.

Technically the S&P 500 has rallied past resistance at 1200 and 1220. Yet there is still resistance at its late August, early September high at 1230. If it can rally past 1230 then we've got a good chance of moving to 1250. On the other hand if the rally stalls at 1230 then we could see a correction back to the 1180-1170 zone (see the intraday chart).

Intraday chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The move in the NASDAQ composite has been huge! The breakout past 2600 and its exponential 200-dma and simple 100-dma is certainly bullish. Yet the move is so sharp the index looks very over-extended. The next level of overhead resistance is probably the 200-dma or the 2700 level. On a dip I would expect the 2600 level to offer support (that's -2.5% from here).

Daily chart of the NASDAQ Composite index:

The rebound in the small cap Russell 2000 index has been equally impressive. Yet it's not quite challenging its September highs yet. If the market does see a correction then the $RUT could decline back toward its 50-dma or the 675 area. The next level of overhead resistance looks like the September 16th high near 718 and the August 31st high near 737.

Daily chart of the Russell 2000 index

Looking ahead at the economic data this week and we have a busy schedule. Reports to watch are the NY Empire index, the PPI and CPI reports, the Fed's Beige Book, and the Philly Fed survey. On top of these economic releases the Q3 earnings season will hit full swing. Many of the big hitters in the banking sector and several major tech companies are reporting. This week is going to set the tone for earnings season.

- Monday, October 17 -
NY Empire manufacturing for October
Industrial production

- Tuesday, October 18 -
PPI reading for September

- Wednesday, October 19 -
CPI reading for September
Housing starts for September
Federal Reserve Beige Book

- Thursday, October 20 -
Weekly Initial Jobless Claims
Existing home sales for September
Philly Fed survey

The recent crop of better than expected economic data, not counting the consumer sentiment numbers, is bullish for the market. Fears that the U.S. was sliding into a recession seem to be receding. Positive corporate earnings and guidance could go a long way in supporting this hope. I will point out that the ECRI leading indicators continue to fall and point toward recession. Plus the U.S. bond market has been able to predict every recession we've ever had since 1970. Currently the bond market is suggesting odds of a recession are at 60% (within the next twelve months).

This week the market will be digesting corporate results while keeping both eyes focused on Europe. In the shadow of Europe's crisis with Greece there seem to be looming challenges for China. We've talked about this before with the on again/off again concerns over a hard landing in China. This past week saw consumer price inflation in China rise to 6.1%. The Chinese government has been trying to keep inflation down near 4%. Analyst have been concerned for the last several months that China's attempts to slow down their economy might go too far and fuel a global economic slowdown. It does seem that the globe is slowing down. Chinese exports fell to their slowest pace in seven months but this could be a reflection of the slowdown in Europe, which is China's biggest trading partner.

Overall I think there is a good chance we may have seen the lows for the year in stocks but that is going to depend on the EU's success with how they craft a default in Greece. There will be a default. The question is what shape will it take.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The major U.S. indices are all up double-digit percentages from their October lows in nine trading sessions. This isn't normal. It can be exciting if you're long the market but volatility usually goes both ways. On a positive note there is a good chance we've seen the lows for the year but that will depend on the success of Europe and their mishandling of Greece.

Short-term stocks are very overbought. I am suggesting we take profits on our 2012 EMC calls and the 2012 HPQ calls. We'll exit at the open on Monday. I have adjusted the stop loss for our 2012 HPQ position.

NOTE: AGN hit our requirement to open bullish positions at Friday's close. We'll open positions on Monday morning.

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

On My Radar Screen

by James Brown

Click here to email James Brown

Editor's Note:

The rebound from the October 4th low has been pretty amazing. The retail and financial sectors are up +15%. The NASDAQ composite is up +16%. The semiconductor index, transportation average, and the small cap Russell 2000 index are all up +18% or more. The OSX oil services index is up +24%. These are big moves in just nine trading days. The market trend is up but I would be very careful about launching new positions here. The market is overbought. If we want to see a healthy, sustainable advance then stocks need to see a correction.

This means we do not want to start new bullish positions with the market significantly overbought. The LEAPStrader newsletter is not adding any new trades tonight but we did add a couple of candidates to our watch list. Just because the market is overbought and needs to correct doesn't mean it will. Stocks can always grow more overbought, much to the dismay of the bears and anyone short the market.

In addition to our new watch list candidates, below is a list of stocks on my radar screen.

NVDA - It looks like shares have formed a bullish double bottom but the stock is trading just underneath resistance near $15.00. I'd rather wait for a pull back and buy a higher low, maybe a bounce near $14.00, but more aggressive traders may want to consider a breakout past $15.00. Just be aware that NVDA is very overbought.

MCD - This fast food stock has a very strong long-term trend. The last couple of months have been pretty choppy but shares are nearing their all-time highs. I would look for a close over $91.00 as a potential entry point for bullish positions. Readers should be aware that MCD is due to report earnings on Friday, Oct. 21st. I would hesitate to open positions prior to earnings even though I expect MCD to post strong numbers.

ATVI - This video game giant has rallied toward major resistance near the $13.00 level. Check out a long-term weekly chart over the past three years. Ideally I'd like to see ATVI consolidate sideways for another week or two and then breakout past resistance or even dip back toward $12.25 and rebound. Nimble traders could look to buy a dip. I'd wait for a convincing close over resistance near $13.00.

PETM - Shares look very short-term overbought with a run from $40 to $46. A breakout past $46.00 would be bullish and a new all-time high. I'd like to see it consolidate sideways for a few days first. Consider watching for a close over $46.50 before considering bullish positions.

LO - Investors looking for yield are drawn to LO's 5% dividend. Technically the breakout past the May highs is bullish and LO has already seen a pull back and bounce. I was tempted to buy it now. However, I am concerned the major indices are very overbought. Consider waiting for a dip into the $112.50 area before considering bullish positions.

-James


Play Updates

Take Some Money Off the Table

by James Brown

Click here to email James Brown

Editor's Note:

Stocks have seen a huge rebound off their October lows. Now the market is overbought and due for some profit taking. I am suggesting we take some money off the table with some of our 2012 January call positions (see details below).

-James


Closed Plays


IWM was closed.


Play Updates


Allergan Inc. - AGN - close: 86.21

update 10/15: The stock market's very impressive rebound has lifted AGN from $78 to past resistance at $86.00. Our plan is to buy calls on a close over $86.00. That occurred on Friday with AGN closing at $86.21. Thus we'll open positions on Monday morning at the open. However, I want to caution readers. The stock market and AGN are short-term overbought. You might want to consider waiting. The next couple of weeks could be challenging (see tonight's wrap).

Our stop loss is at $79.45. Our long-term target is $99.00. Investors should be aware that AGN is due to report earnings on October 26th.

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

- Suggested Positions -
OCT 17, 2011 - entry price on AGN @ -.--, option @ -.--
symbol: AGN1319A100 2013 JAN $100 call - current bid/ask $ 4.80/ 5.60

Chart of AGN:

Current Target: $99.00
Current Stop loss: 79.45
Play Entered on: 10/17/11
Originally listed on the Watch List: 09/24/11


Bank of America - BAC - close: 6.19

update 10/15: The big bounce in financials hit a snag when traders decided to sell the earnings news out of JPM this past week. BAC saw its rally fail near technical resistance at the 30-dma. Unfortunately this stock is stuck under a bearish trend of lower highs.

BAC is due to report earnings on Tuesday morning (Oct. 18th) before the opening bell. Analysts are expecting a profit of 22 cents a share. Reaction to earnings and the company's guidance could play a huge role in reversing the downtrend or accelerating the sell-off. At this point I would either wait for a new dip or bounce near the October lows ($5.13) or a close above the 50-dma ($6.90) before considering new long-term positions.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ 8.10, option @ 0.57
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.07/ 0.08
(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 $ 0.74/ 0.76
(No stop loss on this position)

10/03/11 Sept. 26th position stopped out at $5.75.
2012 Jan. $7.50 call @ 0.48 (-27.2%)
2013 Jan. $10 call @ 0.74 (-26%)
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


Bristol Meyers Squibb - BMY - close: 32.44

update 10/15: BMY almost posted a loss for the week. Shares have been struggling with the $33.00 level. The stock is also trading inside a narrow, rising channel. On a short-term basis we can expect a dip toward $32.00. Bigger picture I still think there is a chance that BMY corrects back toward $30.00 or its 50-dma before moving significantly higher.

I am not suggesting new positions at this time. We have two exit targets. One at $33.50 and a longer-term target at $35.75.

Earlier Comments:
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 $ 1.93/ 1.99

10/08/11 new stop loss @ 29.40
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: 29.40
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


EMC Corp. - EMC - close: 23.09

update 10/15: Take some money off the table!

EMC posted another gain for the week but it was a bit of a bumpy ride. Traders bought the dip on Thursday near $22.50. I would not expect a lot of movement out of EMC on Monday. The stock will likely drift sideways as investors wait for the earnings report out on Tuesday morning (Oct. 18th) before the opening bell. Wall Street is looking for a profit of 36 cents a share. EMC's results and guidance could produce some big moves on Tuesday.

NOTE: I am suggest we sell at least half of our 2012 January calls immediately. They are currently up +65.9%. We will not sell the 2013 calls but you can certainly take profits early if you are inclined to.

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 $ 3.65/ 3.75

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 2.66/ 2.76

10/15/11 Sell Half of our 2012 calls ASAP, current bid $3.65 (+65.9%)
10/08/11 new stop loss @ 19.85
09/24 new stop loss @ 19.49
09/17 new stop loss @ 19.80

Current Target: $25.75 and 28.50
Current Stop loss: 19.85
Play Entered on: 08/18/11
Originally listed on the Watch List: 07/23/11


Hewlett-Packard - HPQ - close: 26.11

update 10/15: Take profits here on 2012 calls.

HPQ posted another strong weekly gain but the stock has been unable to rally past resistance in the $26.00-26.50 zone. After a huge two-week rally in the market this looks like a good spot to do some profit taking on our 2012 calls. I am suggesting we sell at least half of this position. The bid on the 2012 $22.50 calls is at $4.65 (+72.8%). We'll post the exit on Monday morning. I'm not selling the 2013 calls yet. We still have a lot of time. However please note that we are adjusting the stop loss on our 2012 position to $22.85.

- 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 $ 4.65/ 4.70
Stop Loss @ 22.85

- 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 $ 5.30/ 5.40
Stop Loss @ 21.40

10/15/11 new stop loss for the 2012 position @ 22.85
10/15/11 Plan to sell 1/2 of 2012 calls on Monday (currently +72.8%)
10/08/11 new stop loss (both positions) at $21.40

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


Kraft Foods Inc. - KFT - close: 35.23

update 10/15: KFT continues to surge higher. The stock has rallied to resistance in the $35.00-35.50 zone. This stock, like most of the market, is short-term overbought. I would expect shares to correct lower. A pull back toward the $34-33 zone would be normal. I'm not suggesting new positions at this time.

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 $ 3.10/ 3.20

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


Ross Stores Inc. - ROST - close: 85.00

update 10/15: ROST has made the jump from our watch list to our play list. The plan was to buy calls when ROST closed over $83.00. Shares closed above $83 on Oct. 10th. Our entry point was the open on October 11th at $84.36. The 2013 January $100 call opened at $5.30.

If you're looking for a new entry point I would wait. The market is overbought. Broken resistance near $82.50 should be support so wait for a new dip into the $83-82 zone.

I am adjusting the stop loss to $77.00. Our long-term target is $99.00.

- Suggested Positions -
Oct 11, 2011 - entry price on ROST @ 84.36, option @ 5.30
symbol: ROST1319A100 2013 JAN $100 call - current bid/ask $ 5.40/ 5.70

10/15/11 adjusted stop loss to $77.00
10/11/11 ROST opened at $84.36
10/10/11 ROST closed above $83, our requirement to open the trade
10/08/11 adjusted option strike to 2013 Jan. $100 call
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.

Chart of ROST:

Current Target: $99.00
Current Stop loss: 77.00
Play Entered on: 10/11/11
Originally listed on the Watch List: 09/10/11


CLOSED Plays


iShares Russell 2000 ETF - IWM - close: 71.14

update 10/15: The reversal in stocks has been HUGE! Normal markets do not move this fast. The IWM is up +18.3% from its October low near $60.00 in less than two weeks. That's just not a normal, healthy market. Naturally I wouldn't be complaining if we had bought calls at $60. I just want to alert you that these sorts of moves are dangerous.

Our plan was to close positions the day after IWM closed above $68.00. Shares closed above $68.00 on Oct. 11th. Our trade was closed at the open on Oct. 12th.

- Suggested Positions -
Oct 04, 2011 - entry price on IWM @ 60.32, option @ 6.36
symbol: IWM1221M60 2012 JAN $60 PUT - Exit $2.53 (- 60.2%)

10/13/11 exit at the opening bell
10/12/11 IWM closed above $68.00 (requirement to exit/stop loss)
10/04/11 Trade begins at the open. IWM @ 60.32
10/03/11 meet our entry point requirement (close under $63.00)

Chart of IWM:

Current Target: $52.50
Current Stop loss: close over 68.00
Play Entered on: 10/04/11
Originally listed on the Watch List: 10/01/11



Watch

A Look at Real Estate

by James Brown

Click here to email James Brown

Editor's Note:

We're making some adjustments to our watch list tonight and adding a couple of new candidates in the real estate sector.

- James



New Watch List Entries

CBG - CB Richard Ellis Group

KBH - KB Home


Active Watch List Candidates

CSCO - Cisco Systems

HSY - Hershey Co

LTD - Limited Brands Inc

TJX - TJX Cos. Inc.


Dropped Watch List Entries

AGN and ROST graduated to the play list.



New Watch List Candidates:


CB Richard Ellis - CBG - close: 15.22

Company Info

This commercial real estate stock rallied from the depths of its bear-market lows near 2.50 back in 2009 to almost $30 in January this year. Now the stock has cut those gains in half. I suspect that any bad news has been priced in. CBG has been building a new base for the last two months in the $12.50-15.00 zone.

I am suggesting we wait for CBG to close above $16.00 and then launch bullish positions the next morning with a stop loss at $13.25. Our long-term target is $20.00. More aggressive traders could aim for the 200-dma instead. FYI: The Point & Figure chart for CBG has turned bullish with a $19.50 target.

NOTE: CBG does not have LEAPS. We're going to speculate with the 2012 March calls.

Trigger: Buy calls on a close above $16.00

BUY the 2012 March $18 call (CBG1217C18)

Chart of CBG:

Originally listed on the Watch List: 10/15/11


KB Home - KBH - close: 6.68

Company Info

The housing sector still has a long way to go before it's healthy again. Yet it looks like after a multi-month slide from $16 to $5 that KBH has finally hit bottom. Shares have produced a bullish double bottom with the lows in August and October. Now KBH is threatening to breakout past resistance at $7.00. If there is a breakout the stock could see a short squeeze. The most recent data listed short interest at 52% of the 65 million-share float.

I am suggesting we wait for a close over $7.00 and then buy calls the next day with a stop loss at $5.90. This is an aggressive trade and we want to keep our position size small. Due to KBH's low dollar stock price I am listing "buying the stock" as an alternative trade below since it's the same price as some of the LEAPS we occasionally trade. We will target a move toward $10.00.

NOTE: Nimble traders may want to try and jump in on a dip near $6.00 should KBH pull back that far but you'll want to adjust your stop loss lower.

Trigger: buy calls or the stock on a close above $7.00

Buy shares of KBH

- or -

BUY the 2013 Jan $10 call (KBH1319A10)

Chart of KBH:

Originally listed on the Watch List: 10/15/11


Active Watch List Candidates:



Cisco Systems - CSCO - close: 17.55

update 10/15: CSCO rallied another +5.3% for the week. Shares are up +17.5% from their October lows. We have been waiting for a breakout past the 200-dma. Our plan was to launch bullish positions if CSCO can close above the $17.50 mark. That happened on Friday and we would open positions the following session, which is Monday morning. However, I am ADJUSTING our entry point. Since the trade has not officially opened yet we can still make adjustments. The move past resistance this past week is definitely bullish. Yet I suspect that CSCO's rally may have run out of steam, at least on a short-term basis.

I am adjusting our entry point to buy calls on a dip at $16.65 and we'll move our stop loss down to $14.85. Our long-term target is $21.75.

Adjusted entry point - Wait for dip to $16.65

BUY the 2013 Jan. $20 call (CSCO1319A20)

10/15/11 We are adjusting our entry point. Wait for a dip to $16.65
10/14/11 CSCO hit our entry point requirement for a close over $17.50.

Chart of CSCO:

Originally listed on the Watch List: 10/08/11


Hershey Co. - HSY - close: 60.04

update 10/15: HSY continues to flirt with a breakout past resistance at $60.00. Friday's close at $60.04 is not very convincing. At the moment our plan is to buy calls the day after HSY closes above $60.25. More conservative investors may want to up their trigger point to $60.50 or even $61.00.

If triggered we'll start with a stop loss at $55.90.

trigger: A close over $60.25

BUY the 2013 Jan $65 call (HSY1319A65)

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


Limited Brands, Inc. - LTD - close: 42.66

update 10/15: It is time we adjust our entry point strategy on LTD. The recent trend of better than expected retail sales suggest the consumer is still very much alive in spite of the dour sentiment numbers. Meanwhile the market's strength has lifted LTD toward all-time highs and resistance near $42-43. It seems unlikely that we'll see LTD dip toward $35 any time soon.

I am suggesting we adjust our strategy and buy calls if LTD can close above $43.50. If we do see a close above $43.50 we'll launch positions the next morning with a stop loss at $37.90. I'm listing the 2013 $50 call. We want to keep our position size small.

Wait for a close above $43.50, then buy calls!

BUY the 2013 Jan $50 call (LTD1319A50)

10/15/11 New Strategy: buy a close over $43.50, stop 37.90
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.

Chart of LTD:

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


TJX Cos. Inc. - TJX - close: 57.71

update 10/15: I am not giving up on a buy-the-dip entry point for TJX, at least not yet. More aggressive traders may want to consider buying calls on a close above $59.00 or $60.00. We are adjusting our buy-the-dip entry point to $54.00 with a stop loss at $51.45, which is under the 200-dma.

Buy-the-Dip trigger: $54.00

BUY the 2013 Jan $60 call (TJX1319A60)

10/15/11 adjusted entry point to buy the dip at $54.00, stop at $51.45

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