Option Investor
Newsletter

Daily Newsletter, Sunday, 11/13/2011

Table of Contents

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

Leaps Trader Commentary

Italian Bonds Teeter on the Brink

by James Brown

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The Italian bond market jolted the global markets on Wednesday. It was another volatile week for stocks. After staring into the abyss on Wednesday it seems that Europe is slowing backing away from the edge. Both Italy and Greece are replacing old leaders with new ones bent on stronger austerity measures to prevent an EU meltdown. At least that's what they want you to believe. It was a quiet week for economic data but the consumer sentiment report was positive. Meanwhile stocks did benefit from a couple of positive corporate headlines thanks to CSCO and CAT.

It was another week of European headlines dominating the news and stock market action. Stocks were surging on Tuesday only to see gains vanish with Wednesday's big decline, which was the biggest one-day drop for the market in about three months. Financial stocks were hammered with a -5% loss as investors reacted to news that yields on Italy's 10-year bonds had risen over 7%. The 7% level is key psychological level for the market. It was at this level that Portugal, Greece, and Ireland all asked for a bailout. Unfortunately Italy is too big for a bailout as the EU's third largest economy and one of its largest debtors with $2.6 trillion in sovereign debt.

Thankfully news that Italian Prime Minister Berlusconi would resign helped calm the markets. News that Italy's Senate had approved stronger austerity reforms to comply with EU demands also fueled investor sentiment. The next step is for Italy's lower house to approve the reform, which should occur this weekend. Meanwhile in Greece the government has replaced Prime Minister Papandreou with Lucas Papdemos as their new interim leader.

Back home in the U.S. we got positive news from tech giant Cisco Systems (CSCO) who reported stronger than expected earnings. Dow-component Caterpillar (CAT) said its backlog of orders had risen +40% and that sales for the quarter were the best in its history. Another big positive for stocks was the Michigan consumer sentiment report out Friday morning. Economists had been expecting a rise from 60.9 to 61.3 in November. Yet Friday's report showed a surge to 64.2. Analysts like to think that consumer sentiment provides insight on consumer spending. Rising sentiment should suggest stronger consumer spending, which accounts for about 70% of the U.S. economy.

The stock market's two-day bounce on Thursday and Friday is encouraging but I am somewhat concerned that Friday's rally is misleading. The U.S. bond market was closed for the Veteran's day holiday and volume in the equity markets was pretty low. This throws doubt on Friday's widespread rally.

Major Indices:

Take a moment to study the S&P 500 index. You can see that it has been consolidating sideways over the last couple of weeks with a neutral pattern of lower highs and highs lows. Traditionally these "pennant" formations are neutral but more often than not the prevailing trend continues. That's good news since the prior trend here was up. We should see the S&P 500 breakout of this pattern this week.

If the bulls can keep the rally going then their next obstacle is resistance in the 1285-1300 zone. Beyond that we're looking at major resistance near 1350.

Daily chart of the S&P 500 index:

The action in the NASDAQ is a bit more volatile with a plunge from 2727 on Wednesday to 2600 on Thursday morning. The 2600 level continues to hold as support. Pretty soon that level will also gain additional support from the rising 50-dma. Unfortunately you could argue that Wednesday is a new lower high. Traders could buy dips near 2600 or wait for a breakout past resistance.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index also has a neutral pattern of lower highs and higher lows. Once again the prevailing trend should have the edge here. Yet I'm not sure how far the small caps can rally. The simple 200-dma is near the June lows near 775, which could prove to be tough resistance. Seasonally this should be a bullish time of year for small caps (November through January). If this index can breakout it could signal a significant move higher for the wider market.

Daily chart of the Russell 2000 index

We are starting to see economic data pick up again after a relatively quiet week. The big reports will be the national PPI and CPI data. Plus the Philly Fed on Thursday could be a market mover.

- Tuesday, November 15 -
Producer Price Index (PPI)
Retail Sales for October
New York Empire Manufacturing Survey

- Wednesday, November 16 -
Consumer Price Index (CPI)
Industrial Production & Capacity Utilization

- Thursday, November 17 -
Weekly Initial Jobless Claims
Housing Starts & Building Permits
Philly Fed survey

The Week Ahead:

I'd like to think that after Greece and Italy replace their Prime Ministers with new leaders focused on austerity that we will see the pace of headlines out of Europe cool off. It's possible the markets will give these new leaders some time to put their house in order before we see another crisis. Then again that could be wishful thinking. One of the more disturbing bits of analysis I read this weekend stated that austerity has never been successful in saving a country that is buckling under a massive debt load. Time and time again governments have tried but every time austerity produced recessions, higher unemployment, lower tax revenues and eventually they needed to go into bankruptcy and restructure their debt. This does not bode well for Europe, especially for Greece and Italy.

Unfortunately, this means the crisis in Europe is not over yet. It may not be over for years to come. The situation is growing dire enough that the stronger countries, like Germany, are pondering what if scenarios that essentially boil down to a divided Europe where the EU might only consist of the stronger, more fiscally responsible countries.

On a short-term basis I am hoping we get a break from the parade of EU headlines. Of course these headlines might just get replaced with headlines from Washington about the "super committee" that is supposed to be finding a way to slash $1.2 trillion in spending by the November 23rd deadline. At the moment there is little consensus among committee members and this could prove to be a stumbling block for U.S. markets.

I am still cautiously bullish on stocks but you can see that the major indices are stuck in a sideways range. The problem is that we do not know which headline is going to be the one that knocks the market one way or the other out of that neutral pattern. If we are lucky it will be a positive headline on stronger economic data in the U.S. that determines market direction.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

U.S. markets experienced another rocky week thanks to developments in Europe. Fortunately, the latest headlines delivered a positive spin for stocks. We saw X make the jump from our watch list to our play list. Meanwhile CSC hit our stop loss following a bearish earnings report.

I have updated stop losses on KFT and RHT.

Once again we are going to see some earnings announcements that could create volatility in our portfolio. More conservative traders may want to adjust their stop loss or take profits early.

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

Showing Growth

by James Brown

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CSX Corp. - CSX - close: 22.49

Company Info

Why We Like It:
Six to eight weeks ago investors were worried that the U.S. was on the verge of another recession. The flow of economic data since then, while uneven, is suggesting that the U.S. is edging further away from another slow down. Growth remains tepid but it is growth. One sign of this improvement has been a slow climb in railroad traffic.

Railroads as a group have been showing relative strength the last couple of days. CSX outperformed on Friday with a +3.6% gain and a breakout past its 100-dma and the exponential 200-dma. This looks like a new bullish entry point. Of course given our long-term time frame you don't have to rush out and buy calls immediately. You could wait for a dip back into the $22-21 zone, especially if stocks pull back.

I do see potential resistance at the $24.00 level and the $26.75-27.00 zone. Yet the Point & Figure chart for CSX is bullish with a $33.50 target. You can see the bullish breakout on the P&F chart below (from StockCharts.com). I am setting our long-term target at $29.75.

My biggest worry with any new bullish trade is Europe. If the EU is unable to solve their problems, then the European region will fall into deep recession, which will then slow down the global economy.

You can choose the 2013 or 2014 call.

- Suggested Positions -
NOV 14, 2011 - entry price on CSX @ --.--, option @ -.--
symbol: CSX1319A25 2013 JAN $25 call - current bid/ask $ 2.31/ 2.36

- or -

NOV 14, 2011 - entry price on CSX @ --.--, option @ -.--
symbol: CSX1418A25 2014 JAN $25 call - current bid/ask $ 3.20/ 3.45

Chart of CSX:

P&F Chart of CSX:

Weekly Chart of CSX:

Current Target: $29.75
Current Stop loss: 19.75
Play Entered on: 11/14/11
Originally listed in the New Plays 11/12/11



Play Updates

Another Volatile Week in the Books

by James Brown

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Closed Plays


CSC was closed.


Play Updates


Allergan Inc. - AGN - close: 85.02

Comments:
11/12 update: Shares of AGN continue to churn sideways in the $86-81 zone although this past week traders bought the dip twice at $82.00. A breakout or a close over $86.00 could be used as a new bullish entry point. Our long-term target is $99.00.

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 @ 85.46, option @ 5.10
symbol: AGN1319A100 2013 JAN $100 call - current bid/ask $ 2.50/ 5.00

10/22/11 Earnings are coming up. Readers might want to consider raising their stop loss. We are keeping ours at $79.45.

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: 6.21

Comments:
11/12 update: It was another very volatile week for financial stocks with all the competing headlines out of Europe. Unfortunately BAC appears to be underperforming its peers. Shares are in a new short-term downtrend of lower highs and lower lows. If shares breakdown and close under $6.00 it would be very bearish although nimble traders could try and launch new positions on a dip near the October low (around $5.15).

If we do see a new entry point I would buy the 2013 calls (probably the $7.50s). We don't have much time left on the 2012 calls, which are pretty much dead money at this point.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ 8.10, option @ 0.57
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.03/ 0.04
(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 $ 0.58/ 0.59
(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: 31.79

Comments:
11/12 update: BMY has now spent two weeks consolidating sideways in the $31-32 range. Readers can use a close over $32.00 as a new bullish entry point (and aim for our long-term target).

Earlier Comments:
We have two exit targets. One at $33.50 and a longer-term target at $35.75. 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 $ 1.45/ 1.48

10/22/11 BMY is due to report earnings this week on Oct. 27th. Readers may want to take profits now or prior to the report.
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.

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


Beazer Homes - BZH - close: 2.40

Comments:
11/12 update: Wow! It proved to be a very bullish week for BZH. Shares rallied +17.6% and closed at new multi-week highs. More conservative traders may want to take profits now. The stock has seen a big bounce over the last few weeks. There could be a huge temptation for investors to sell the earnings news coming out this week.

Cautious investors will want to take profits on Monday to avoid holding over the earnings report on Tuesday morning (Nov. 15th). Wall Street is expecting BZH to deliver a loss of 36 cents a share.

I am not suggesting new positions at this time.

- Suggested Positions -

(stock position)
OCT 28, 2011 - entry price on BZH @ $2.12

(option position)
OCT 28, 2011 - entry price on BZH @ 2.12, option @ 0.70
symbol: BZH1319A2.5 2013 JAN $2.50 call - current bid/ask $ 0.85/ 1.00

11/12 BZH has seen a big bounce. Cautious investors may want to take profits now before BZH reports earnings on Nov. 15th. (BZH +13.2%, option +21.4%)
10/28 trade begins: BZH opens @ $2.12
10/27 BZH meets our entry point requirement with a close over $2.05

Current Target: $3.70
Current Stop loss: 1.57
Play Entered on: 10/28/11
Originally listed on the Watch List: 10/22/11


CB Richard Ellis - CBG - close: 16.32

Comments:
11/12 update: CBG is still underperforming the market but it looks like the correction has stalled. Shares may have found a bottom with traders buying the dip at short-term support in the $15.80 area. We've been lucky. The low last week was $15.79. Our stop loss is at $15.75. I'd wait for a new close over $16.50 or $17.00 before considering new bullish positions.

NOTE: CBG does not have LEAPS. We are using the 2012 March calls.

- Suggested Positions -
OCT 25, 2011 - entry price on CBG @ 16.63, option @ 1.80
symbol: CBG1217C18 2012 MAR $18 call - current bid/ask $ 1.20/ 1.55

10/31 scheduled exit to sell half of our March calls.
exit $2.30 (+27.7%)
10/29 Plan on selling half at the open on Monday to lock in a gain.
new stop loss @ 15.75
adjusted final target from $20.00 to $21.50

Current Target: $21.50
Current Stop loss: 15.75
Play Entered on: 10/25/11
Originally listed on the Watch List: 10/15/11


Cisco Systems - CSCO - close: 19.02

Comments:
11/12 update: CSCO added almost a dollar last week thanks to a strong earnings report. Analysts were expecting a profit of 39 cents a share. CSCO delivered 43 cents and revenues came in much better than expected. Management offered positive earnings guidance for the next quarter. Shares gapped higher the next day. The stock closed at new multi-month highs on Friday.

I wouldn't chase it here but the $18.00-17.50 zone looks like support. Investors could wait for another pull back.

- Suggested Positions -
OCT 28, 2011 - entry price on CSCO @ 18.28, option @ 1.68
symbol: CSCO1319A20 2013 JAN $20 call - current bid/ask $2.15/2.17

10/29/11 new stop loss @ 16.40
10/28/11 stock opens at $18.28
10/27/11 CSCO meets our entry requirement: close at $18.44
10/22/11 Added entry to buy a close over $17.75
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.

Current Target: $21.75
Current Stop loss: 16.40
Play Entered on: 10/28/11
Originally listed on the Watch List: 10/08/11


EMC Corp. - EMC - close: 24.64

Comments:
11/12 update: EMC's +2.4% bounce on Friday erased its loss on the week down to three cents. Shares are stuck in the $24-25 zone. More aggressive traders might want to consider bullish positions on a breakout past $25.00 or its simple 200-dma near $25.40.

I am not suggesting new positions at this time.

Earlier Comments:
The plan was to use small positions to limit our risk.

- Suggested (SMALL) Positions -
(Remaining positions)
Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 3.35/ 3.45

10/31/11 scheduled exit. EMC gapped down at $24.47. The 2012 $20 call opened at $4.65 (+111.3%). We also had plans to sell half of our 2013 $25 calls, which opened at $3.02 (+67.7%)
10/29/11 Plan to sell the rest of our 2012 Jan $20 calls on Monday at the open. Also plan to sell half of our 2013 Jan $25 calls on Monday at the open.
10/29/11 new stop loss @ 22.20
10/22/11 new stop loss @ 21.40
10/17/11 sold half of 2012 calls @ open, bid $3.55 (+61.3%)
10/15/11 Plan to Sell Half of our 2012 calls ASAP
10/08/11 new stop loss @ 19.85
09/24 new stop loss @ 19.49
09/17 new stop loss @ 19.80

Current Target: final target for 2013 calls @ $27.50
Current Stop loss: 22.20
Play Entered on: 08/18/11
Originally listed on the Watch List: 07/23/11


Corning Inc. - GLW - close: 15.19

Comments:
11/12 update: After churning sideways most of the week GLW displayed relative strength on Friday with a +4.2% gain and a breakout past the 100-dma. I couldn't find any specific news on Friday to account for the extra strength.

Over the weekend Barron's published a bullish article on GLW. Barron's said shares were very cheap, with the company trading near book value and that insiders were buying the stock. Barron's suggested GLW could rally +20% from current levels. With a P/E of 7 the stock does look cheap.

I am not suggesting new positions at this time but nimble traders might consider buying a dip near $14.75.

- Suggested Positions -
OCT 25, 2011 - entry price on GLW @ 14.27, option @ 2.05
symbol: GLW1319A15 2013 JAN $15 call - current bid/ask $2.70/2.74

Current Target: $18.00
Current Stop loss: 12.85
Play Entered on: 10/25/11
Originally listed on the Watch List: 10/22/11


Hewlett-Packard - HPQ - close: 27.58

Comments:
11/12 update: There has been some concern over how the massive floods in Thailand is affecting the hardware makers but most of the damage seems to be directed at the disk drive industry. HPQ's stock has not seen much impact from this natural disaster. HPQ is still trending higher with a bullish pattern of higher lows. The stock is nearing resistance in the $28 region and its 100-dma. Furthermore HPQ is due to report earnings soon on November 21st, after the closing bell. I would hesitate to open positions prior to the earnings announcement. There is always the chance HPQ misses or management says something that could case the stock to spike lower.

I am not suggesting new positions at this time.

- Suggested (SMALL) Positions -
Longer-term Trade
Sep 26, 2011 - entry price on HPQ @ 22.59, option @ 3.75
symbol: HPQ1319A25 2013 JAN $25 call - current bid/ask $ 6.20/ 6.25
Stop Loss @ 23.90

10/31/11 scheduled exit for the remainder of our 2012 calls @ the open. Options opened at $5.40 (+100%), plus we sold half of our 2013 $25 calls, which opened at $5.70 (+52%).
10/29/11 new stop loss on 2013 calls at $23.90
10/29/11 prepare to exit remainder of 2012 position on Monday @ open
prepare to sell 1/2 (half) of 2013 position on Monday at open
10/17/11 Planned exit, sell 1/2 of 2012 position, bid @ 4.10 (+52.4%)
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
10/08/11 new stop loss (both positions) at $21.40

Current Target: 2013 call target: 32.50
Play Entered on: 09/26/11
Originally listed in New Plays: 09/24/11


Hershey Co. - HSY - close: 56.99

Comments:
11/12 update: It was a relatively quiet week for HSY. The company did announce a $250 million bond offering, yielding 1.5%, due in 2016. I see this as a non-event. The company has a strong credit rating and it's cheap money. The bigger headline was cautious comments from rival chocolate maker Barry Callebaut, who voiced concerns over rising raw material costs. I am worried about HSY's new trend of lower highs and lower lows. This is a bearish pattern within the longer-term bullish one. The stock is nearing what should be support at its simple and exponential 200-dma(s).

I am not suggesting new positions at this time.

- Suggested (SMALL) Positions -
Oct 19, 2011 - entry price on HSY @ 60.57, option @ 3.90
symbol: HSY1319A65 2013 JAN $65 call - current bid/ask $ 1.81/ 2.46

10/29/11 adjust stop loss to $55.40, under 200-dma
10/27/11 reports earnings that are in-line with estimates
10/19/11 HSY opens at $60.57, option opens @ 3.90
10/18/11 HSY meets our entry requirement with a close over $60.25

Current Target: $67.00 & 74.00
Current Stop loss: 55.40
Play Entered on: 10/19/11
Originally listed on the Watch List: 09/17/11


JP Morgan Chase - JPM - close: 33.28

Comments:
11/12 update: A week ago JPM closed near $34.00. After a volatile week the stock is only down -2%. There seemed to be a rash of positive headlines out of Europe late in the week but longer-term the problem in Europe is far from solved. That's why this trade is a higher-risk bet that EU will somehow avoid a sovereign debt default, or at least engineer a default in such a way as to not bring down the entire union (or its banking system).

Depending on which direction financials go next week you could wait for a breakdown toward support near $30.00 or wait for a breakout over resistance near $35.00 as your entry point.

I have been suggesting that readers take a very cautious approach to position size. Start small to limit our risk.

- Suggested Positions -
Nov 01, 2011 - entry price on JPM @ 32.47, option @ 2.38
symbol: JPM1319A40 2013 JAN $40 call - current bid/ask $ 2.77/ 2.91

11/12/11 remember to keep position size small.
11/05/11 new stop loss at $29.90

Current Target: $46
Current Stop loss: 29.90
Play Entered on: 11/01/11
Originally listed on the Watch List: 10/29/11


KB Home - KBH - close: 7.60

Comments:
11/12 update: It turned out to be a bullish week for homebuilders, albeit a volatile one. Shares of KBH rallied +7.4% and Friday saw a breakout over its 100-dma and the $7.50 level. I wouldn't chase it here. Wait for a dip back toward $7.00 or its rising 30-dma. It's a volatile stock. We will see another dip.

Earlier Comments:
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.

- Suggested Positions -
(Stock Position)
Oct 19, 2011 - entry price on KBH @ 7.17

- or -

(Option Position)
Oct 19, 2011 - entry price on KBH @ 7.17, option @ 1.25
symbol: KBH1319A10 2013 JAN $10 call - current bid/ask $ 1.04/ 1.28

10/19/11 Trade opens. KBH opens @ 7.17, option @ 1.25
10/18/11 KBH meets our entry requirement with a close above $7.00

Current Target: $9.90
Current Stop loss: 5.95
Play Entered on: 10/19/11
Originally listed on the Watch List: 10/15/11


Kraft Foods Inc. - KFT - close: 35.57

Comments:
11/12 update: KFT spent the week churning sideways but shares ended on a high note with a +1.2% gain on Friday. KFT still has resistance near $36.00. Readers may want to wait for a close over $36.00 before considering new bullish positions.

We are raising our stop loss to $32.40.

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/ 3.35

11/12/11 new stop loss @ 32.40

Current Target: $38.00
Current Stop loss: 32.40
Play Entered on: 09/22/11
Originally listed on the Watch List: 09/17/11


Kimberly-Clark Corp. - KMB - close: 71.10

Comments:
11/12 update: Our new play on KMB is off to a good start. Shares opened at $69.50 on Monday and have slowly drifted higher. The weekly chart has produced a new bullish engulfing candlestick pattern. I would still consider new bullish positions now or readers could wait for another dip near $70.00.

Earlier Comments:
KMB does have long-term resistance in the $73.00-73.50 area. Therefore we will only open small (half-sized) positions now. When KMB closes above $74.00 we'll reconsider adding new positions to this play. Our long-term target is $79.75 but we'll readjust it as the play progresses. The Point & Figure chart is currently suggesting a long-term target of $98.00. NOTE: KMB does not move very fast. Investors may want to try and maximize their returns by changing this into a vertical (a.k.a. calendar) spread.

- Suggested Positions -
Nov 07, 2011 - entry price on KMB @ 69.50, option @ 2.05
symbol: KMB1319A75 2013 JAN $75 call - current bid/ask $ 2.55/ 2.75

Current Target: $79.75
Current Stop loss: 65.75
Play Entered on: 11/07/11
Originally listed in the New Plays 11/05/11


Limited Brands, Inc. - LTD - close: 43.94

Comments:
11/12 update: It turned out to be a bullish week for LTD. Shares were definitely outperforming on Friday with a +3.8% gain. A positive consumer sentiment report didn't hurt the retailers. LTD has broken the short-term two-week trend of lower highs. While I would be tempted to buy calls here I would wait. LTD is due to release earnings on Wednesday (Nov. 16th) after the market's closing bell. Wall Street is expecting a profit of 24 cents a share. You never know when a company might miss or have management guide lower and send the stock into a nosedive. I'd wait to see how the street reacts on Thursday before considering new positions.

More conservative traders may want to consider raising their stop loss just in case LTD does sell-off after earnings.

Earlier Comments:
The plan was to keep our position size small

- Suggested (SMALL) Positions -
Oct 25, 2011 - entry price on LTD @ 43.70, option @ 4.25
symbol: LTD1319A50 2013 JAN $50 call - current bid/ask $ 3.90/ 4.20

10/25/11 trade begins when LTD opens at $43.70
10/24/11 closed at $43.79, meets our entry point requirement
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.

Current Target: $54.00
Current Stop loss: 37.90
Play Entered on: 10/25/11
Originally listed on the Watch List: 08/27/11


Red Hat Inc. - RHT - close: 50.05

Comments:
11/12 update: Bingo! Last week I suggested waiting for a dip toward the $48.50 area as another entry point. RHT provided a dip to $48.00 instead before bouncing back. On a short-term basis RHT has resistance near $51.00. I am not suggesting new positions at this time.

Please note that we are raising the stop loss to $44.75.

- Suggested Positions -
Nov 01, 2011 - entry price on RHT @ 47.70, option @ 4.75
symbol: RHT1319A60 2013 JAN $60 call - current bid/ask $ 4.60/ 6.00

11/12/11 new stop loss @ 44.75

Current Target: $59.75
Current Stop loss: 44.75
Play Entered on: 11/01/11

Originally listed on the Watch List: 10/29/11


Ross Stores Inc. - ROST - close: 89.77

Comments:
11/12 update: The market-wide sell-off last Wednesday pushed ROST from $90 toward support near $86.00. Shares have almost completely recovered. While the trend is up I am concerned that ROST could see more profit taking soon. The company is due to report earnings on Thursday, Nov. 17th, before the opening bell. Analysts are expecting a profit of $1.22 per share.

The stock is up several weeks in a row. There could be a huge temptation for investors to sell the earnings news to lock in a gain. I am not suggesting new positions at this time and more conservative traders may want to seriously consider taking some money off the table before ROST announces earnings.

We are leaving our stop loss at $81.75 for now. I'm expecting ROST to have support at $86 and $83 should the stock see a sell-off.

- Suggested Positions -
Oct 11, 2011 - entry price on ROST @ 84.36, option @ 5.30
symbol: ROST1319A100 2013 JAN $100 call - current bid/ask $ 6.70/ 7.00

11/12/11 Cautious investors may want to take profits early. Option has a bid of $6.70 (+26.4%)
11/05/11 new stop loss @ 81.75
10/22/11 new stop loss @ 79.25
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.

Current Target: $99.00
Current Stop loss: 81.75
Play Entered on: 10/11/11
Originally listed on the Watch List: 09/10/11


U.S. Steel Corp. - X - close: 26.14

Comments:
11/12 update: Shares of X have made the leap from our watch list to our play list. The plan was to buy calls on a dip at $25.50. Wednesday's market-wide sell-off provided that opportunity. Shares found support near $25.00 (actually the intraday low was $25.16). Shares hit $24.77 on Thursday morning before rebounding.

I would still consider new positions here but you could wait for another dip toward the $25.00 area, which should remain support.

- Suggested (SMALL) Positions -
Nov 09, 2011 - entry price on X @ 25.50, option @ 5.00
symbol: X1319A30 2013 JAN $30 call - current bid/ask $ 5.10/ 5.25

11/09/11 Trade opened at $25.50 (small positions)

Chart of X:

Current Target: $37.50
Current Stop loss: 21.40
Play Entered on: 11/09/11
Originally listed on the Watch List: 11/05/11


CLOSED Plays


Computer Sciences Corp. - CSC - close: 26.48

Comments:
11/12 update: Ouch! From the close on Nov. 8th ($32.97) to the low on Nov. 10th ($24.92) shares of CSC fell eight points (-24.4%). The company reported earnings on November 9th before the opening bell. Analysts had been expecting a profit of 67 cents a share. The company actually beat by a wide margin with a profit of 94 cents but revenues missed and management guided lower for 2012.

CSC fell -15% on the 9th but closed at $27.80. Our stop loss wasn't hit until the 10th. Actually, CSC gapped open below our stop loss at $27.37, exacerbating our loss.

- Suggested Positions -
OCT 28, 2011 - entry price on CSC @ 32.37, option @ 3.30
symbol: CSC1319A35 2013 JAN $35 call - exit $1.90 (-42.4%)

Chart of CSC:

Current Target: $39.00
Current Stop loss: 27.75
Play Entered on: 10/28/11
Originally listed on the Watch List: 10/22/11



Watch

Energy & Technology

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new watch list candidates, this is a list of stocks on my radar screen that might develop into LEAPS trades. We'll have to see if they offer us an entry point. Some of them need to correct lower. Others need to breakout past resistance.

On my Radar Screen: ATVI, TGT, WMT, MON, CAT, DE, LRCX, SBUX, CMA, TSLA,

- James



New Watch List Entries

APC - Anadarko Petroleum

INTC - Intel Corp.

MSFT - Microsoft Corp.

USO - U.S. Oil ETF


Active Watch List Candidates

EBAY - eBay Inc.

ERTS - Electronic Arts

MCD - McDonald's Corp

NVDA - NVIDIA Corp

QCOM - QUALCOMM

RAI - Reynolds American

TJX - TJX Cos. Inc.


Dropped Watch List Entries

X has graduated to the play list.



New Watch List Candidates:


Anadarko Petroleum - APC - close: 80.72

Company Info

APC is a global oil and gas company. Shares are currently consolidating under major resistance near the $85.00 level. A breakout would mean new all-time highs.

I am suggesting we launch bullish positions if APC can close over $85.25. We'll buy calls the next morning with a stop loss at $77.00. Our long-term target is $109. FYI: The Point & Figure chart for APC is bullish with a $105 target.

Wait for a close over $85.25

BUY the 2013 Jan $110 call (APC1319A110)

Chart of APC:

Originally listed on the Watch List: 11/12/11


Intel Corp. - INTC - close: 24.85

Company Info

Intel is the 800 lb. gorilla in the semiconductor space. The stock has made major progress in the past few weeks with a breakout past resistance at the $24.00 level. Investors could probably buy calls now. I am suggesting we wait for a close over $25.25, which would be a new multi-year high. If this occurs, we'll buy calls the next morning with a stop loss at $22.90. Our long-term target is $29.75 although I will point out that INTC has potential resistance in the $28-29 zone. FYI: The Point & Figure chart for INTC is bullish with a $35 target.

Wait for a close over $25.25

BUY the 2013 Jan $30 call (INTC1319A30)

- or -

BUY the 2013 Jan $30 call (INTC1418A30)

Chart of INTC:

Originally listed on the Watch List: 11/12/11


Microsoft Corp. - MSFT - close: 26.91

Company Info

MSFT is a "safe" way to trade the technology sector. When it comes to big cap tech stocks this one is huge. Many investors see MSFT as a value play instead of a technology stock. I still see potential if shares can breakout of this long-term consolidation of lower highs and higher lows.

I am suggesting we wait for MSFT to close over resistance at $27.50. If this happens we'll buy calls the next morning with a stop loss at $25.45. Our exit target will be $31.25 but we'll make adjustments as needed.

Wait for a close over $27.50

BUY the 2013 Jan $30 call (MSFT1319A30)

- or -

BUY the 2014 Jan $30 call (MSFT1418A30)

Chart of MSFT:

Originally listed on the Watch List: 11/12/11


U.S. Oil ETF - USO - close: 38.21

Company Info

There has been an increase of saber-rattling between Iran and Israel. While we don't expect Israel to actually attack Iran's nuclear facilities it is a possibility. Should that occur oil would skyrocket as Iran tries to shut down the Straits of Hormuz, which carry nearly a third of the global oil tanker traffic. Eventually Iran's nuclear ambitions are going to come to some sort of head. We hope it can be achieved without military action but that prospect seems to be dimming.

Meanwhile, assuming the EU can avoid an economic meltdown, the global economic picture seems to be improving and that means rising demand for oil. We'd like to own some out of the money calls on oil and a great way to do that is the USO. Unfortunately the USO looks short-term overbought here.

I am suggesting we buy calls on a dip at $36.00. The $35.00 level should offer some support. If triggered we'll use a stop loss at $33.75, under the 50-dma. Our long-term target is the $45-50 zone.

Buy-the-Dip trigger: $36.00

BUY the 2013 Jan $40 call (USO1319A40)

- or -

BUY the 2013 Jan $50 call (USO1418A50)

Chart of USO:

Originally listed on the Watch List: 11/12/11


Active Watch List Candidates:



eBay Inc. - EBAY - close: 31.76

update 11/12: EBAY is still churning sideways in the $30-33 zone. If this stock doesn't start showing some improvement over the next couple of weeks we'll probably drop it.

I am suggesting investors wait for a close over resistance at $35.00. If that occurs we'll open bullish positions the next day with a stop loss at $29.95. Our long-term target is $45.00.

Trigger: Buy a close over $35.00

BUY the 2013 Jan $40 call (EBAY1319A40)

Originally listed on the Watch List: 10/22/11


Electronic Arts - ERTS - close: 23.90

update 11/12: ERTS consolidated lower on falling volume. The action in this stock probably took a backseat to the headlines for rival Activision/Blizzard (ATVI), which released their "Call of Duty: Modern Warfare 3" to record-breaking sales of $400 million.

Longer-term we remain bullish on ERTS. I am suggesting we wait for ERTS to close over $26.00 and we'll launch call LEAPS positions the next morning with a stop loss at $21.95.

Wait for ERTS to close over $26.00

BUY the 2013 Jan $30 call (ERTS1319A30)

Originally listed on the Watch List: 11/05/11


McDonald's Corp. - MCD - close: 94.76

update 11/12: Traders continue to buy the dips in MCD and the stock hit new all-time highs. At the moment we do not want to chase it. The $100 level is probably round-number, psychological resistance. I'd rather wait for a correction.

I am suggesting we wait for a dip and buy calls on a dip at $91.00. We'll use a stop loss at $86.75. We will set our long-term target at $108.00.

Buy-the-Dip trigger: $91.00

BUY the 2013 Jan $100 call (MCD1319A100)

Originally listed on the Watch List: 11/05/11


NVIDIA Corp. - NVDA - close: 14.98

update 11/12: I am somewhat surprised that NVDA didn't see a bigger move on its earnings report. The company beat estimates by 3 cents but guidance was only in-line with estimates. The stock saw some post-earnings volatility on Friday morning but nothing out of the ordinary for NVDA.

I don't see any changes from my prior comments. Currently we are waiting for a breakout past resistance near $16.00. I am suggesting we wait for a close over the $16.00 level and then open positions the next day. We'll start bullish positions with a stop loss at $13.90. Our long-term target is $22.50.

NOTE: Due to NVDA's volatility this is an aggressive trade. We want to keep our position size small.

Wait for a close over $16.00 (small positions)

BUY the 2013 Jan. $20 call (NVDA1319A20)

Originally listed on the Watch List: 10/29/11


QUALCOMM Inc. - QCOM - close: 56.62

update 11/12: QCOM almost hit our trigger on Thursday with a dip to $54.66. Shares have essentially churned sideways in the $55-57 range for the last several days. I am suggesting we wait. QCOM will likely try to fill the gap with a dip toward $54.00. More conservative traders could wait for a dip to $52.50.

I am suggesting we buy calls at $54.25. If that doesn't happen then we might consider buying a close over resistance at $60.00 instead. If we are triggered at $54.25 we'll use a stop at $49.45. Our long-term target is $74.50.

Earlier Comments:
QCOM recently reported much better than expected earnings, beating both the top and bottom line estimates. Management raised their guidance looking ahead. The company is reaping the benefits from the booming smartphone market. The CEO said there is over 300 new devices in development that will use QCOM electronics inside. That sounds like there is a lot of potential for growth.

Buy-the-Dip trigger: $54.25

BUY the 2013 Jan $60 call (QCOM1319A60)

Originally listed on the Watch List: 11/05/11


Reynolds American Inc. - RAI - close: 38.90

update 11/12: RAI has been churning sideways in the $38-39 zone the last couple of weeks. There is no change from my prior comments.

At the moment I am suggesting we wait for a close over $40.00. If that occurs we'll launch bullish positions the next morning with a stop loss at $37.85. Our long-term target is $49.00.

NOTE: Investors may want to check out rival Altria Group (MO) instead, which looks poised to breakout past resistance near $28.00 soon.

Trigger: Buy a close over $40.00

BUY the 2013 Jan $42.50 call (RAI1319A42.5)

Originally listed on the Watch List: 10/22/11


TJX Cos. Inc. - TJX - close: 61.34

update 11/12: TJX has been showing relative strength. The breakout past $61.00 on Friday looks like a bullish entry point. However, TJX is due to report earnings on November 15th, before the opening bell. We do not want to launch new positions prior to the announcement. The stock is at all-time highs and there could be a temptation for investors to sell the news and lock in a gain.

We will raise our buy-the-dip entry point to $56.25 and raise our stop loss to $52.40.

Buy-the-Dip trigger: $56.25 *new trigger*

BUY the 2013 Jan $60 call (TJX1319A60)

11/12/11 new trigger @ 56.25, new stop 52.40
10/29/11 adjusted trigger to $55.00, stop to $51.75
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