Option Investor
Newsletter

Daily Newsletter, Sunday, 11/20/2011

Table of Contents

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

Leaps Trader Commentary

Stocks Fall From Consolidation

by James Brown

Click here to email James Brown

It seems like the Christmas holiday gets earlier every year. One of my local radio stations is already playing Christmas music 24 hours a day and it's not even Thanksgiving yet. That seems a bit early. I'd like to enjoy my holidays one at a time, thank you! Investors were definitely not in the holiday spirit this past week. Stocks sank with a sharp reversal lower following Tuesday's bounce. The market seemed to suffer from a general malaise regarding the situation in Europe. It looks like we were right to question the Thursday-Friday rally the week before. By Friday's closing bell the S&P 500 had lost -3.8% for the week. The NASDAQ composite fell -3.9% and the small cap Russell 2000 dropped -3.3%. Gold lost its safe haven status with a plunge to new two-week lows. Meanwhile crude oil surged past the $100 a barrel mark for the first time in months.

Most of the economic data in the U.S. this past week was generally benign with a couple of exceptions. The Retail Sales data for October rose +0.5%, which was better than expected. The New York Empire State manufacturing survey for November rebounded back into positive territory at 0.6 after October's reading of -8.5. The Philadelphia Federal Reserve survey on business activity fell from 8.7 in October to 3.6 in November. Inflation data was mild. The Producer Price Index for October dropped 0.3%, which was lower than the 0.2% decline economists has been expecting. The core PPI was unchanged. Consumer Price Index, a read on inflation at the consumer level, fell 0.1% in October while the core-CPI, which excludes food and energy, rose +0.1%. The report was generally in-line with expectations. Homebuilders did not seem to gain any benefit from news that the latest housing starts and building permits came in higher than expected. Another positive was jobless claims. The weekly initial jobless claims dropped to a new six-month low at 388,000.

Unfortunately none of this data helped fuel gains for the stock market. Investors wearily eyed the situation in Europe. The Fitch rating agency made headlines with their report that the major U.S. banks are at risk if the EU debt contagion spreads. Wow! There's a shocker. Thanks, Fitch. This helped push the financials lower. On top of that the Moody's rating agency downgraded several banks in Germany. Speaking of Germany the ZEW poll, an indicator of economic sentiment, saw its six-month outlook fall to its lowest level in three years.

Europe is still the main driver for market direction these days. After a lot of fireworks two weeks ago market participants are still watching European bond yields. Italian bond yields continue to flirt with the 7% level. Not helping is an uptick in Spanish bond yields, which have risen past 6%. A new wrinkle in this European puzzle is France, which has seen a sharp spike in its bond yields thanks to growing worries that the country might lose its AAA credit rating. French banks have HUGE exposure to toxic debt from the likes of Italy and Greece.

Major Indices:

Last week I suggested investors watch the S&P 500 for a break in its neutral triangle pattern or pennant formation. Unfortunately the index has broken down from this consolidation pattern. The S&P 500 fell to 1210 on Thursday, which happens to be the 38.2% Fibonacci retracement of its rally off the October low. A further breakdown probably means a drop toward the 1185-1180 zone but there is a slim chance that round-number support at 1200 or the 50-dma could hold the market. There are some market pundits suggesting that a breakdown under 1200 will forecast a drop back toward the 1100 area. I am not that bearish yet but a close under 1200 would be very ominous. If stocks manage to bounce the S&P 500 is looking at resistance in the 1240-1250 zone.

Daily chart of the S&P 500 index:

We don't want to look at the NASDAQ composite chart because it's ugly. The 2600 level was supposed to be key support. The NASDAQ broke this level on Thursday and confirmed the drop with another decline on Friday (plus a close under its 50-dma). I suspect we could see the NASDAQ composite fall toward the 2525-2500 zone but whether 2500 can hold up as support is a good question.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index has also broken down from its triangle consolidation pattern but the sell-off hasn't been that bad. The $RUT is still hugging the 720 level. I am optimistic that if the sell-off continues the $RUT might find support near 700 and its 50-dma but that's probably wishful thinking. I'd keep an eye on the 680 level if the market decline continues.

Daily chart of the Russell 2000 index

There are a number of economic reports coming out this week and they're all squeezed into the first three days. The U.S. markets are closed on Thursday for the Thanksgiving holiday. The stock market will be open for a half day on Friday.

The big events this week on the calendar are the Q3 GDP estimate and the FOMC minutes. No one is expecting any significant changes for the GDP estimate so a surprise there could move the market. The market is always interested in a closer look at what the Federal Reserve is thinking.

- Monday, November 21 -
existing home sales for October

- Tuesday, November 22 -
Q3 GDP estimate
FOMC Minutes

- Wednesday, November 23 -
Weekly Initial Jobless Claims (normally released on Thursday)
Personal Income and Spending
Durable goods orders
Michigan Consumer Sentiment

- Thursday, November 24 -
markets are closed for Thanksgiving Holiday

- Friday, November 25 -
markets open a half day

The Week Ahead:

This holiday shortened week could be interesting. There was a lot of interest focused on Spain's election this weekend. The conservative party won with voters betting the conservatives are better prepared to kick start Spain's struggling economy and crushing unemployment. This might give Europe a boost on Monday morning that could filter back toward U.S. markets. However, the real headlines will probably be focused on the "Super committee" in Washington D.C.

As you already know this super committee of democrats and republicans were charged with finding ways to cut at least $1.2 trillion in spending over the near 10 years or face draconian cuts to defense and entitlement programs. Yet no one seems to think this group is going to come together with a deal. Why? Because the automatic cuts that kick in if they don't agree on a deal don't actually hit the budget until 2013. That's after the 2012 elections. You can bet that both sides are going to use the failure of the super committee as propaganda for their re-elections next November. There is always a chance that the politicians will change the rules and vote in new legislation that cancels the automatic spending cuts that were supposed to spur agreement between the two parties. The actual deadline for this super committee is Monday night so congress can vote it by Wednesday, November 23rd. The question is how will the market react since no one actually expects any progress?

Traditionally the Thanksgiving week is bullish for stocks but this year could be an exception. Doing my research this weekend it seems that investor sentiment has definitely taken a turn for the worse, especially when it comes to Europe. Market participants are going to remain focused on European bond yields, especially Italy and Spain. Should France actually lose its AAA rating it could spark a sharp knee-jerk reaction lower for stocks but no one expects that to happen, at least not this week.

Looking ahead I still have a bullish bias for the rest of the fourth quarter but the next week or two might be rough. I would hesitate to buy the dip until we actually see a bounce off support.

I hope you and your family have a wonderful Thanksgiving holiday. It doesn't matter if you live in the U.S. or not, we have much to be thankful for! Now pass me the gravy.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market's bullish trend could be in serious jeopardy. This past week saw the S&P 500 index breakdown from a neutral triangle-shaped consolidation. Plus the NASDAQ composite broke down under significant support near the 2600 level. There is still a chance that the S&P 500 bounces from the 1200 level but a breakdown under 1200 would be very ominous.

This past week was added CSX as a new trade. INTC and RAI made the jump from our watch list to active trade.

I have updated the stop loss on AGN.

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

High Dividends

by James Brown

Click here to email James Brown


- New Trades -


Enterprise Products Partners - EPD - close: 45.72

Company Info

Why We Like It:
EPD is classified as a midstream energy company. What I like about it is the dividend. Right now investing in high-dividend stocks is popular and EPD is currently yielding 5.4%. Not only that but shares have broken out past major resistance at the $44.00 level in the past few weeks.

The stock doesn't move very fast but given the bullish breakout and high dividend I am expecting EPD to garner a lot more interest from the bulls. I am suggesting readers open bullish positions now at current levels with a stop loss at $41.75. More conservative traders could choose to wait and buy calls on a dip near $44.00 should the stock see a correction and they might also want to use a higher stop loss. Our long-term target is $59.00. FYI: The Point & Figure chart for EPD is bullish with a $60 target.

I am listing the 2013 calls but there are also 2014s available (with a much wider spread).

- Suggested Positions -
Nov 21, 2011 - entry price on EPD @ --.--, option @ -.--
symbol: EPD1319A50 2013 JAN $50 call - current bid/ask $ 1.50/ 1.80

Chart of EPD:

Current Target: $59.00
Current Stop loss: 41.75
Play Entered on: 11/21/11
Originally listed in the New Plays 11/19/11



Play Updates

Stocks Sink on EU Malaise

by James Brown

Click here to email James Brown


Closed Plays


CBG was closed


Play Updates


Allergan Inc. - AGN - close: 82.40

Comments:
11/19 update: The action in AGN was bearish but that's not surprising given the market's decline. Investors have a decision to make. Either raise your stop to limit your risk or widen your stop to give AGN a little more room to move. I am somewhat concerned that AGN has broken the bullish trend of higher lows with last Thursday's drop. I suspect that we'll see AGN correct lower toward $80.00 or toward the 200-dma near $79.00. With our stop loss at $79.45 we would get stopped out if AGN pulled back to its major moving average.

I am suggesting we move our stop loss to $77.45, which is under the early October low of $77.71. It does raise the risk on this trade but it gives AGN a chance to find support near the simple and exponential 200-dma.

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 $ 2.20/ 5.00

11/19/11 Taking an aggressive stance on our stop loss and moving it down to $77.45
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: 77.45
Play Entered on: 10/17/11
Originally listed on the Watch List: 09/24/11


Bank of America - BAC - close: 5.78

Comments:
11/19 update: Financial stocks were some of the worst performers last week as investors fret over the situation in Europe and the exposure American banks might have to the EU debt. Last week the Fitch rating agency published a report saying the major U.S. banks would suffer if the EU debt contagion spread. Gee, thanks, Fitch. Like we didn't already know that.

I think we're going to see BAC trade lower soon. There was a report from Reuters late this past week suggesting that S&P was going to change the way they rate the credit ratings of banks. Bank of America, Citigroup (C) and Morgan Stanley (MS) might all see their credit rating downgraded by S&P after they implement this new rating process. That will likely send shares of BAC lower.

The October low was $5.13. I would look for a new dip into the $5.15-5.00 zone as a new entry point to buy calls. We are setting up a new entry point and LEAPS position.

We'll use a trigger at $5.15 to buy the 2013 $10.00 call. These will be pretty cheap by the time BAC hits $5.15 so I am not listing a stop loss on this position.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ 8.10, option @ 0.57
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.01/ 0.02
(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 $ 0.47/ 0.49
(No stop loss on this position)

(2nd Position: Trigger to buy calls @ $5.15)

--- 00, 2011 - entry price on BAC @ -.--, option @ -.--
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.47/ 0.49
(no stop loss on this position)

11/19/11 New trigger to buy calls @ $5.15 (see 2nd 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: 30.81

Comments:
11/19 update: It was not a good week for BMY. Shares of this drug maker broke down under support in the $31.00 region. The stock looks headed for support near old resistance at the $30.00 mark. We have a stop loss at $29.40. If the market sells off too hard we could actually see BMY hit our stop loss and close this trade. On the other hand if we see BMY hold support near $30.00 then investors can use the pull back or a bounce from $30.00 as a new entry point.

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 $ 1.15/ 1.21

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: 2.12

Comments:
11/19 update: I warned readers that BZH could see some profit taking surrounding its earnings report. The company reported earnings on Nov. 15h and management announced a loss of 57 cents. That is 21 cents worse than expected even though revenues soared +25% to $334.9 million, which was above expectations. BZH said their backlog of homes to build has surged from 772 a year ago to 1,450 today.

I am expecting the correction to pull BZH toward the $2.00 level. Worst case scenario we might see a dip to its 50-dma near $1.86. More conservative traders might want to consider raising their stop loss since we have a wide stop loss at $1.57.

- 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 $ 0.70/ 0.80

11/15/11 BZH reports a loss of 57 cents a share, worse than expected
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


Cisco Systems - CSCO - close: 18.42

Comments:
11/19 update: Technology stocks were underperformers last week although not quite as bad as the financials. CSCO retreated from multi-month highs. Shares look like they could fill the gap. Previously I suggested readers wait for a dip toward the $18.00-17.50 zone. I would still wait. More conservative traders may want to wait and buy calls on a bounce from this area.

- Suggested Positions -
OCT 28, 2011 - entry price on CSCO @ 18.28, option @ 1.68
symbol: CSCO1319A20 2013 JAN $20 call - current bid/ask $1.96/2.01

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


CSX Corp. - CSX - close: 21.64

Comments:
11/19 update: Our new trade on CSX is open. Unfortunately our positions have been opened near the high for the week with Monday morning's gap higher. CSX gapped open at $22.59. During the two-day market sell-off shares broke short-term support near $22.00. Now CSX is trading near the bottom of its previous range in the $21.25 area.

I am not convinced the market correction is over. Readers may want to wait on new positions. We could see CSX retest the $21 level or even drop toward $20.00 before rebounding. I would be tempted to buy call LEAPS on a bounce from either level.

Earlier Comments:
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.

- Suggested Positions -
NOV 14, 2011 - entry price on CSX @ 22.59, option @ 2.24
symbol: CSX1319A25 2013 JAN $25 call - current bid/ask $ 1.94/ 2.01

- or -

NOV 14, 2011 - entry price on CSX @ 22.59, option @ 3.30
symbol: CSX1418A25 2014 JAN $25 call - current bid/ask $ 2.72/ 3.00

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


EMC Corp. - EMC - close: 23.07

Comments:
11/19 update: EMC plunged lower last this past week. Thursday's market wide drop was bad enough but EMC's decline was exacerbated by a bearish earnings report from rival NTAP. EMC gapped down on Thursday and temporarily traded under support near $23.00 and its 50-dma. Shares underperformed again on Friday with a slide back to this level.

Currently we have a stop loss at $22.20. If the market continues to breakdown then I would expect EMC to stop us out. On the other hand this pull back to support might end up being a new entry point. Traders might want to consider buying calls again if EMC and the S&P 500 open positive on Monday morning.

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 $ 2.60/ 2.67

11/19/11 EMC has fallen back to support near $23.00 and its 50-dma. A bounce here could be a new bullish entry point.
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: 15.00

Comments:
11/19 update: GLW is holding up reasonably well. The stock only lost 19 cents for the week. This past week saw more articles discussing how cheap GLW is on a valuation basis. With a P/E of 7 this stock could definitely appeal to the value investor.

I would look for another dip or a bounce out of the $14.50 area as a new entry point.

- Suggested Positions -
OCT 25, 2011 - entry price on GLW @ 14.27, option @ 2.05
symbol: GLW1319A15 2013 JAN $15 call - current bid/ask $2.68/2.73

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: 27.99

Comments:
11/19 update: HPQ was one of the few stocks to post a gain for the week although shares are still struggling with overhead technical resistance at the descending 100-dma.

Investors have a decision to make. Do you take profits now with our 2013 Jan. $25 call up +76% or do you hold on and ride out what could be a volatile week?

HPQ is due to report earnings on Monday (Nov. 21st) after the closing bell. Wall Street is expecting a profit of $1.13 a share. I suspect this report could be negative. It is the first quarterly report with the new CEO Meg Whitman at the helm. This is her chance to clean house and toss all the garbage into this earnings report and blame it on her predecessor. If HPQ reports a big miss we could see shares plunge back to $25.00 or worse! Currently we have a stop loss at $23.90.

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 $ 6.60/ 6.70
Stop Loss @ 23.90

11/19/11 Readers need to decide: Take profits now (+76%) or hold on and expect some volatility following HPQ's earnings report on Nov. 21st
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: 56.38

Comments:
11/19 update: I am concerned about our HSY trade. Shares spent most of the week bouncing sideways in the $56.00-57.00 zone along with its simple 200-dma and exponential 200-dma as technical support. There was s spike lower on Nov. 14th down to $55.64. We have a stop loss at $55.40. If the stock market continues to breakdown we could easily see HSY fall to new relative lows and stop us out. The short-term trend of lower highs doesn't bode well. 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 $ 1.75/ 2.02

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


Intel Corp. - INTC - close: 24.29

Comments:
11/19 update: I've got good news and I've got bad news Intel. The good news is that shares broke out to new three year highs early last week. Our plan was to buy calls when INTC closed over $25.25. Shares closed at $25.34 on November 15th. The stock gapped down at $25.13 the next morning. That was the start of a two-day market sell-off. Suddenly the rally early in the week looks like a potential bull trap and the decline back to $24.00 has put the bullish trend of higher lows in jeopardy. Fortunately the $24.00 level was prior resistance and should offer some support.

Personally, I'd rather see INTC close back above $25.00 again before considering new bullish positions. We do have a stop loss at $22.90. If the market sell off continues then nimble traders could try and open positions on a dip near the $23.25-23.00 zone instead.

Earlier Comments:
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.

- Suggested Positions -
Nov 16, 2011 - entry price on INTC @ 25.13, option @ 1.08
symbol: INTC1319A30 2013 JAN $30 call - current bid/ask $ 0.93/ 0.97

- or -

Nov 16, 2011 - entry price on INTC @ 25.13, option @ 2.00
symbol: INTC1418A30 2014 JAN $30 call - current bid/ask $ 1.70/ 1.80

Chart of INTC:

Current Target: $29.75
Current Stop loss: 22.90
Play Entered on: 11/16/11
Originally listed on the Watch List: 11/12/11


JP Morgan Chase - JPM - close: 30.62

Comments:
11/19 update: Ouch! It was a rough week for the bank stocks. JPM fell -8%. The market's two-day sell off on Wednesday and Thursday pushed JPM under support near the $32.00 level. Investors remain very nervous about U.S. banks exposure to the EU debt problem. Fitch came out with a report last week reiterating everyone's fears about bank risk if the EU contagion spreads.

If the market sell-off continues we could see JPM hit our stop loss at $29.90 soon. However, if that happens readers may want to keep JPM on their watch list. I would be tempted to buy calls again on a dip or a bounce near the October lows near $28.00.

Earlier Comments:
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 $ 2.05/ 2.10

11/19/11 If we get stopped out, consider buying calls on a dip near $28.00
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: 7.22

Comments:
11/19 update: Bullish data about housing starts and building permits did not helped the homebuilders last week. Shares of KBH produced a bearish reversal or failed rally pattern under resistance at $8.00 on Wednesday. More conservative traders might want to consider a higher stop loss. On a short-term basis I am expecting KBH to dip to the $7.00 level. If the market really sells off then look for a dip to the 50-dma instead. I am not suggesting new positions at this time but a strong bounce off $7.00 might change my mind.

Earlier Comments:
KBH can be a volatile stock. There is no need to chase it. 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 $ 1.02/ 1.14

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: 34.77

Comments:
11/19 update: The market's widespread decline has pulled KFT back down toward technical support near its 50 and 100-dma. Unfortunately this move has produced a bearish engulfing candlestick pattern on the weekly chart. If the market continues lower I would look for KFT to drop toward the $34 level and its 200-dma.

I am not suggesting new positions at this time.

Earlier Comments:
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 $ 2.83/ 3.00

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: 70.10

Comments:
11/19 update: Right now investing in high-dividend stocks is a popular strategy. KMB just announced a 70-cent quarterly dividend a few days ago. This may have helped limit the stock's losses on the week to just a $1.00. I am still concerned that the trading action last week is technically bearish. If the market continues lower we could see KMB correct down toward the $68.00 area.

I would either wait for a dip or a bounce near $68.00 or a new close over $71.50 as our next entry point.

Earlier Comments:
KMB does have long-term resistance in the $73.00-73.50 area. Therefore we will only start with small (half-sized) positions. 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 -
(half sized position)
Nov 07, 2011 - entry price on KMB @ 69.50, option @ 2.05
symbol: KMB1319A75 2013 JAN $75 call - current bid/ask $ 2.40/ 2.60

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: 40.86

Comments:
11/19 update: A better than expected earnings report from LTD was not enough to save the stock from the market's wide spread sell-off. Shares lost -7% on the week and broke down below its 50-dma.

On Nov. 16th the company reported earnings with a profit of 25 cents a share. That was a penny above estimates. Revenues did edge past expectations while guidance was in-line. With the stock trading near all-time highs I warned readers that LTD could see some profit taking. I am a little concerned that the weekly chart has produced a bearish engulfing candlestick pattern. I would wait for a bounce from the $40.00 level before considering new bullish positions.

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 $ 2.85/ 3.10

11/16/11 LTD reports earnings one cent above estimates
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


Reynolds American Inc. - RAI - close: 40.11

Comments:
11/19 update: As the stock market turned lower investors naturally turned more defensive. High-dividend names started to show relative strength. Shares of RAI surged from support near $38.00 past resistance at $40.00. This is a new all-time high for the stock.

Our plan was to wait for a close over $40.00. RAI closed at $40.23 on Nov. 17th. Our trade was opened on Friday, Nov. 18th at $40.02. We have a stop loss at $37.85. Our long-term target is $49.00.

- Suggested Positions -
Nov 18, 2011 - entry price on RAI @ 40.02, option @ 2.00
symbol: RAI1319A42.5 2013 JAN $42.50 call - current bid/ask $ 1.80/ 2.05

Chart of RAI:

Current Target: $49.00
Current Stop loss: 37.85
Play Entered on: 11/18/11
Originally listed on the Watch List: 10/22/11


Red Hat Inc. - RHT - close: 49.04

Comments:
11/19 update: On Tuesday we saw RHT surge to new all-time highs above resistance at $52.00. Unfortunately the market reversed lower the next day and RHT is now down three days in a row. The stock's bullish trend of higher lows is in jeopardy. If the market continues lower then we should expect RHT to retest support near $48.00.

I am not suggesting new positions at this time. If the $48 level fails then RHT is probably headed for the 50-dma or the $45.00 level.

- Suggested Positions -
Nov 01, 2011 - entry price on RHT @ 47.70, option @ 4.75
symbol: RHT1319A60 2013 JAN $60 call - current bid/ask $ 4.70/ 5.40

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: 86.10

Comments:
11/19 update: ROST also retreated from all-time highs. Shares had been flirting with a breakout past resistance near the $90 level. Yet the stock saw some profit taking following its earnings report on Nov. 17th. Earnings results were in-line with estimates at $1.26 (looks like estimated has been ratcheted up from the prior week of $1.22). In addition to its earnings report ROST announced a 2-for-1 stock split set for December 16th.

I remain bullish on the stock but I would rather wait for a dip or a bounce near the $84-83 zone before considering new positions.

- Suggested Positions -
Oct 11, 2011 - entry price on ROST @ 84.36, option @ 5.30
symbol: ROST1319A100 2013 JAN $100 call - current bid/ask $ 4.80/ 5.40

11/17/11 ROST reported earnings that were in-line and announced a 2-for-1 stock split set for Dec. 16th
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: 25.68

Comments:
11/19 update: Shares of X spent the week chopping sideways in a wide $2.50 range. You could argue that Thursday's move has produced a new lower high. If the market continues to drop I would expect X to fall toward the $25.00 or possibly the $24.00 level.

This is an aggressive trade because X can be volatile and we have a wide stop loss. That's why we're using small positions to limit our risk. I would wait for a strong bounce from $25 or $24 before considering new positions.

- Suggested (SMALL) Positions -
Nov 09, 2011 - entry price on X @ 25.50, option @ 5.00
symbol: X1319A30 2013 JAN $30 call - current bid/ask $ 4.95/ 5.20

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

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


CB Richard Ellis - CBG - close: 15.11

Comments:
11/19 update: We almost saw CBG hit our stop loss two weeks ago. This past week's market-wide sell-off ensured that CBG finally hit our stop closing the play at $15.75. November 15th saw CBG gap open at $15.77 and quickly hit our stop loss before rebounding back into positive territory. The bounce didn't hold. Shares are now flirting with a breakdown under $15.00 and its 50-dma.

The bid on our 2012 March calls was near $1.00.

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 - exit $1.00 (-44.4%)

11/15/11 stopped out at $15.75
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

Chart of CBG:

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



Watch

Entertainment Blockbuster

by James Brown

Click here to email James Brown

Editor's Note:

The market's drop this past week has rough on a lot of our watch list candidates. We have a few where we're waiting for a breakout over resistance. That is unlikely to happen any time soon. Readers may want to consider some alternative entry points listed below.

Meanwhile I have adjusted our entry points for MCD and QCOM.

- James



New Watch List Entries

ATVI - Activision/Blizzard, Inc.


Active Watch List Candidates

APC - Anadarko Petroleum

EBAY - eBay Inc.

ERTS - Electronic Arts

MCD - McDonald's Corp

MSFT - Microsoft Corp.

NVDA - NVIDIA Corp

QCOM - QUALCOMM

TJX - TJX Cos. Inc.

USO - U.S. Oil ETF


Dropped Watch List Entries

INTC and RAI jumped from our watch list to the play list.



New Watch List Candidates:


Activition/Blizzard, Inc. - ATVI - close: 12.05

Company Info

The merger between Activision and Blizzard created a monster in the video game space. The company has made headlines in recent days with the largest entertainment launch in world history with its "Call of Duty: Modern Warfare 3" title. On its first day ATVI racked up $400 million in sales and in the first five days the total hit $775 million, setting new records for any entertainment title (movies, books, video games, etc.). I suspect that sales will continue to soar as we move closer to the Christmas.

Why are shares down so sharply in the last two weeks? It looks like a simple sell-the news reaction. The stock soared prior to the release of CoD:MW3 and sold off on the actual launch. Now shares are testing support near $12.00. This could be an entry point.

Aggressive traders may want to go ahead and buy calls now. However, I want to be a little cautious here. There was a gap down this past week from $12.80. I am suggesting we wait for ATVI to close above $13.00 and then we'll initiate call positions the next morning with a stop loss at $11.75. Our long-term target is $15.75.

Wait for a close over $13.00

BUY the 2013 Jan $15 call (ATVI1319A15)

Chart of ATVI:

Originally listed on the Watch List: 11/19/11


Active Watch List Candidates:



Anadarko Petroleum - APC - close: 76.70

Comments:
11/19 update: crude oil surged to new relative highs and yet the oil stocks were hammered lower along with everything else. APC is flirting with a breakdown under its 200-dma and the $75.00 level. Currently our plan is to buy calls if APC can close over $85.25. More nimble traders may want to consider buying a bounce off the $70.00 level with a tight stop as an alternative entry point.

If triggered with the close over $85.25, we'll buy calls the next morning with a stop loss at $77.00. Our long-term target is $109.

Wait for a close over $85.25

BUY the 2013 Jan $110 call (APC1319A110)

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


eBay Inc. - EBAY - close: 29.81

Comments:
11/19 update: EBAY also delivered a terrible week. Shares broke down under support in the $31.00-30.50 zone. The stock looks headed for the bottom of its trading range in the $28.00-27.00 area. Nimble traders might want to consider buying a dip or a bounce in that zone. Currently our plan is to wait for a close over resistance at $35.00. We'll probably adjust our entry strategy in the next week or two.

Earlier Comments:
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: 21.99

Comments:
11/19 update: ERTS has broken down to new relative lows. Shares will be testing their 200-dma soon. Currently our plan is to buy calls if ERTS can close over $26.00. However, we might adjust our entry point strategy if we can see ERTS bounce from the $20.00 level.

Earlier Comments:
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: 92.74

Comments:
11/19 update: I am not convinced the market's pull back is over yet. Therefore I am adjusting our buy-the-dip entry point on MCD from $91.00 down to $90.00 but we will leave the stop loss at $86.75. We will set our long-term target at $108.00.

Buy-the-Dip trigger: $90.00

BUY the 2013 Jan $100 call (MCD1319A100)

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


Microsoft Corp. - MSFT - close: 25.30

Comments:
11/19 update: It was an ugly week for tech stocks and MSFT fell to new multi-week lows. Shares also broke down under their 200-dma. Currently our plan is to wait for a close over resistance at $27.50. However, that may not happen any time soon. We might want to consider an alternative entry point and look for a bounce from what should be support near $24.00 instead. Nimble traders may want to buy a dip or a bounce at $24.00 with a tight stop at $23.40.

Earlier Comments:
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)

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


NVIDIA Corp. - NVDA - close: 13.93

Comments:
11/19 update: It's the same story here. Weakness in technology stocks has pushed NVDA lower. Yet shares have not broken down to new relative lows yet. Currently our plan is to wait for a close over $16.00. That's probably not going to happen any time soon. We'll give NVDA another week or two and then re-evaluate our entry point strategy or remove it from the watch list. If NVDA breaks down under $13.50 I would expect a drop toward the $12.50-12.00 zone.

Earlier Comments:
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: 55.67

Comments:
11/19 update: Hmm... after two and a half weeks of churning sideways I am starting to think QCOM could see a deeper correction than I initially expected. Shares could fill the gap, which means a drop toward $52.25. I am adjusting our entry point. We'll use a buy-the-dip trigger at $52.50 with a stop loss at $49.40. 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: $52.50

BUY the 2013 Jan $60 call (QCOM1319A60)

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


TJX Cos. Inc. - TJX - close: 59.54

Comments:
11/19 update: I was hoping that TJX might see some profit taking after its earnings report on November 15th. The company reported numbers that were in-line with Wall Street estimates. Guidance was also in-line with prior numbers. It is a bit surprising that TJX didn't sell-off more since the results failed to surprise. There is a still a chance the stock corrects since the market's major indices look vulnerable here. We will leave our buy-the-dip entry point at $56.25 for now. If triggered we'll use a stop loss at $52.40.

Buy-the-Dip trigger: $56.25

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


U.S. Oil ETF - USO - close: 37.82

Comments:
11/19 update: Oil surged to new multi-month highs this past week. After a huge move off its October lows the rally could be losing steam. I don't see any changes from my prior comments about the potential for the situation in Iran to send oil sharply higher but there is no serious time frame for that to occur, at least I hope it's not soon. The bigger threat to oil might be growing worries that China's economy is not as healthy as it seems. If China's growth is slowing and Europe's growth is slowing then oil demand should drop.

Longer-term we are still very bullish on oil. 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)

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