Option Investor
Newsletter

Daily Newsletter, Sunday, 4/29/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Rally Toward Month End

by James Brown

Click here to email James Brown

It was a very busy week for the stock market and bulls were in charge. Stocks managed to rally in spite of several negative headlines, including a major downgrade for Spain, disappointing U.S. Q1 GDP growth, and rising jobless claims. Fueling the market's move higher was a string of high-profile earnings beats and a positive interpretation of the FOMC's latest comments. Two weeks ago big cap tech stocks were leading the market lower. This past week that trend reversed and the same stocks powered the market higher. A huge pop higher in shares of AAPL almost overshadowed the FOMC announcement on Wednesday. Gains in GOOG, PCLN and similar stocks helped push the NASDAQ to a +2.2% weekly gain.

We are in the middle of Q1 earnings season. A week ago 82% of the S&P 500 companies that reported had beaten Wall Street's estimates. That number has dropped to 65%. The norm is for 62% of S&P 500 companies beat estimates. A major driver behind the market's gains is earnings growth. Prior to this earnings season analysts were expecting average earnings growth of -0.9%. Thus far the actual number has risen to +6.9%. We're seeing a lot of positive surprises because Wall Street had lowered the bar too much. Can this continue? Normally the second half of earnings sees a drop in the quality of earnings reports. Traders probably should not count on earnings news to keep the rally alive.

Overall economic data in the U.S. was mixed. Most of the housing data was positive with a monthly increase in the Case-Shiller home price index, snapping a nine-month decline. New home sales came in better than expecting rising to an annual pace of 328,000. Pending home sales for March surged +4.1% compared to estimates for +1% growth. The final revision to the University of Michigan consumer sentiment survey inched higher to 76.4, pushing the streak to eight months of gains.

The durable goods orders for March were a disappointment but the real surprise was the Q1 GDP number. Economists had been expecting the U.S. to grow about +2.3% with some analysts raising their estimates to +2.5%, which is a drop from Q4's +2.9%. Unfortunately the first Q1 GDP estimate came in at +2.2%. Surprisingly this lowered than expected growth number failed to stop the market's rally.

Adding to the positive mood for the market was the FOMC meeting and Ben Bernanke's comments at his press conference. As expected the Federal Reserve kept rates unchanged in the 0.0% to 0.25% range. The Fed also updated their growth forecasts and raised their 2012 estimates from the +2.2%-2.7% range to +2.4%-2.9% range. Chairman Bernanke reiterated prior comments that the FOMC is ready to take action (i.e. offer some form of QE) if conditions warrant it. Overall the Fed reaffirmed the expectation that rates will remain low through 2014.

Front and center on the Fed's collective mind is the U.S. labor market. Unfortunately the weekly initial jobless claims continue to rise. Last week claims came in at 388,000, up from 386K the week before. That's three weeks in a row claims were above 380K and the four-week moving average hit its highest level since early 2012. This doesn't bode well for the monthly nonfarm payroll report due out next Friday.

Many of the headlines last week came from Europe but we'll touch on Asia for a moment. The latest China HSBC flash PMI index came in at 49.1, which is up from 48.3 but these numbers need to be above 50 to indicate growth. Meanwhile the Bank of Japan just announced more quantitative easing for the second time in three months. Japan is trying to fuel growth and they just upped their QE asset-buying program from 30 trillion yen to 40 trillion (about $494 billion).

Now let's look at Europe. There seemed to be a lot of mixed signals between confidence surveys and growth. The United Kingdom's consumer confidence hit 10-month highs yet the U.K. economy has fallen into a double-dip recession. French consumer confidence hit 18-month highs yet French consumer spending fell more than expected in March. Germany, the largest economic powerhouse in the EU, saw its consumer confidence fall to a five-month low. Last week did see improvement with successful bond auctions in both Italy and Spain but that could change following the downgrade by Standard & Poor's.

S&P cut Spain's credit rating by two notches to BBB+. The agency is worried that the Spanish banking system will need additional support and unemployment continues to climb. This past week Spain said official unemployment hit 24.4%. Compare that to the unemployment in the U.S. during the Great Depression back in the 1930s which only hit 22%.

In Spain, unemployment for adults under 25 years old is over 50%. The Spanish real estate market has crumbled. Citizens are turning to the black market to avoid paying taxes. Their economy is in recession. Thus far the country has been successful with its debt auctions this year but now that S&P has downgraded the country it's going to put more pressure on Spanish debt and push yields higher. Ratings agencies Fitch and Moodys still have Spain rated an "A". They could follow up with downgrades of their own in the coming weeks. Believe it or not but the Spanish equities markets actually rallied in the face of this downgrade.

Both Spain and Italy have been labeled as too big to bailout but odds are we are going to see more and more talk about a bailout for Spain this year. Technically you could argue the EBC's LTRO easy money program was a backdoor bailout for EU banks to buy Spanish debt but the impact seems to have worn off. You can bet that Spain's situation will continue to make headlines the rest of the year.

Major Indices:

A week ago we were worried that the S&P 500 index was going to breakdown from a bear-flag pattern and signal a new leg lower. Sure enough the index did breakdown on Monday but there was no follow through. Stocks reversed off their Monday lows and the index has been up every day since. Now the S&P 500 is back above technical resistance at all of its key moving averages and the 1400 level. The S&P 500 is up +1.8% for the week and up +11.6% year to date.

Is the correction over? Or is this just another head fake? If the S&P 500 fails to breakout past its 2012 highs in the 1420 area there will be immediately worries about a bearish double top pattern forming. I do think the index will rise toward 1420 where it goes from there is anyone's guess. Earnings season will be slowing down and earnings quality will decay. U.S. economic data seems to be slowing down as well. Parts of Europe are in recession already. China is trying to avoid slowing down too much. There are plenty of hurdles for the bulls to overcome to keep this rally alive.

On a short-term basis the 1390 and 1360 levels are support. If somehow the S&P 500 gets past 1420 then the next resistance is probably 1440.

Daily chart of the S&P 500 index:

60-minute chart of the S&P 500 index:

A bullish reversal in big cap technology stocks helped produce a similar move in the NASDAQ. The index gapped down to new relative lows on Monday only to gap higher again on Wednesday thanks to a big pop in shares of AAPL. Now the NASDAQ is back above resistance near 3060 and looks headed for its 2012 highs.

On the weekly chart (not shown) last week's performance has created a bullish engulfing candlestick reversal pattern. On a short-term basis I would look for resistance near 3130. If stocks pullback then look for support near 3000.

Daily chart of the NASDAQ Composite index:

60-minute chart of the NASDAQ Composite index:

The small cap Russell 2000 index produced a similar bear trap pattern with the breakdown from its bear-flag consolidation and then the reversal higher off its Monday morning lows. Now the $RUT is back above resistance, pushing through a cloud of moving averages in the 810-820 area. The next challenge for the bulls is getting past the 2012 highs.

Daily chart of the Russell 2000 index

60-minute chart of the Russell 2000 index

I am not posting a chart of the transportation index tonight. It continues to churn sideways inside a neutral pattern of lower highs and higher lows. We should see this sector breakout one way or the other in the next couple of weeks. I would expect the catalyst to be a major economic report or a move in oil prices.

Below is a 90-minute chart of Apple Inc. (AAPL). When it was correcting lower AAPL was pulling the NASDAQ-100 and NASDAQ composite with it. Then the company blew away Wall Street's earnings estimates by a huge margin. The stock gapped open higher on Wednesday, lifting the NASDAQ indices higher with it. The question now is where does it go from here?

Plenty of analysts will argue that AAPL remains cheap on a valuation basis. Plus, they are growing like crazy in Asia and still have a long way to go to saturate its current markets. At the same time all of this news is already known. The earnings news is out. What's left to drive AAPL higher? Do shares slowly consolidate gains and melt lower? Or do investors looking for earnings growth continue to drive this stock, with the biggest market cap in the world, even higher? If I had to guess I would bet on a choppy sideways consolidation but don't quote me on that.

chart of the Apple Inc. (AAPL)

One more chart I want to mention is the GLD gold ETF. Gold could be near the bottom of its right shoulder on the inverse head-and-shoulders pattern. This past week produced a bullish engulfing candlestick reversal pattern. On the daily chart (not shown) the GLD bounced from technical support at its rising 300-dma. The precious metal certainly looks poised to move higher but this has been a widely telegraphed move and anyone who cares already knows about it. We already have the GLD on our watch list if price moves higher. Either way gold and the GLD could see some big moves over the next several weeks.

chart of the GLD gold ETF

Looking ahead we have another busy week ahead of us. Q1 earnings season is still in full swing. Plus we have all the normal first of the month economic reports. The ISM indices will give us a glimpse at the U.S. economic picture. Yet the focus this week will be jobs. The ADP employment report comes out on Wednesday. The big event will be the nonfarm payroll report on Friday. Economists are estimating the U.S. added 170,000 new jobs in April. Last month we only added +120K, which was a huge miss and down significantly from +246K the prior month. The market will definitely move on this report but direction will depend on the spin. If the jobs number is too low, stocks could see a kneejerk reaction lower and then reverse because a weak jobs number means the Fed is closer to adding QE3. If the jobs number is too high then stocks initially rally but that means the Fed is farther away from adding any more stimulus to a slow, unhealthy economy. Either way next Friday could be a volatile session.

Economic and Event Calendar

- Monday, April 30 -
Personal Income and Spending
Chicago PMI

- Tuesday, May 1 -
automobile sales
ISM (manufacturing) Index for April
construction spending

- Wednesday, May 2 -
ADP Employment report

- Thursday, May 3 -
Weekly Initial Jobless Claims
ISM services index

- Friday, May 4 -
nonfarm Payrolls report for April
Unemployment rate

Upcoming events:

May 6th - Greece national elections
May 6th, - 2nd round of French elections

The Week Ahead:

A week from now the focus will be on the French presidential election. The second round of elections is scheduled for May 6th. At the moment French unemployment is nearing 10% and the country's AAA credit rating is at risk. Some are predicting France could get downgraded to an A- rating. That would really shake the EU. However, the real news will be who wins the election? Right now the incumbent Sarkozy is likely to lose. His rival, Hollande, is a socialist. If Hollande wins then the cooperation between France and Germany, which has been crucial to saving the Eurozone thus far, could be in jeopardy. With Spain and Italy inching closer and closer to the cliff's edge, not having a united France and Germany could spell trouble.

Another key election next weekend is the Greek national elections, also scheduled for May 6th. While it's not expected to be a market mover you never know what could act as a catalyst for stocks. If the new Greek government starts talking about leaving the euro and not honoring its prior obligations it might cause problems for the markets.

We are also approaching the seasonal "sell in May" phenomenon. You've probably heard it before. Historically if you were only invested from November through April your market returns are astronomically better than if you were invested May through October. This seasonality has been widely publicized for years and years and there is a segment of the investor population that actually follows it. If you're sitting on significant Q1 gains I could definitely see the temptation to cash out and wait for fall, especially with a rising wall of worry for the market to climb.

As of this moment the short-term trend for stocks is up. However, I am going to remain cautious until we see the indices convincingly breakout past their 2012 highs. Otherwise there is too much risk that the market does see a bearish double top and we sink (or churn sideways) into the May-June time frame. I do believe there is always an opportunity somewhere but sometimes the market environment is more "friendly" than others.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market's major indices rallied off their Monday morning lows. The S&P 500 index is up four days in a row and the NASDAQ is up three. Furthermore this past week has produced a bullish breakout over short-term resistance for the major indices. Now they look poised to challenge their 2012 highs set a few weeks ago. The question is, will the market be able to breakout to new highs? Or will stocks reverse and form a bearish double top?

We are still in the midst of Q1 earnings season, which means increased volatility for individual equities. This past week we closed our BRK.B trade early. Plus, our QCOM trade was stopped out.

I am now suggesting we sell at least half of our EPD trade to take some money off the table on Monday morning. Plus, we want to exit completely from our KFT and KMB trades on Monday morning to lock in gains.

I have updated stop losses on: KO

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

Market is Showing Resilience

by James Brown

Click here to email James Brown

Editor's Note:

This past week has created a bullish reversal. Stocks initially broke down from their bear-flag pattern on Monday only to reverse higher. This caught bears off guard and produced some short covering. Now the S&P 500 is sitting at three-week highs and looks poised to rally toward its 2012 highs set in early April.

I remain concerned that the market could see another drop in May due to seasonal trends and rising concerns over Europe, etc. However, this market has shown resilience and the ability to climb the wall of worry. We are not adding any new trades tonight but I did add four new candidate to the watch list. We now have a mix of buy the breakout and buy the dip candidates to trade from.


Play Updates

Take Some Money Off the Table

by James Brown

Click here to email James Brown

Editor's Note:

We are still in the midst of Q1 earnings season. Unfortunately earnings results tend to worsen as we move deeper into earnings season. That means we are likely to see more bearish reactions to the news. Investors will want to stay defensive, especially as we move into the "sell in May" time frame.

Please note that we do want to take some profits here in a few trades. I am suggesting we sell at least half of our EPD trade on Monday morning. We want to exit both the KFT and KMB trades completely on Monday at the opening bell to lock in gains.


Closed Plays


BRK.B was closed as planned. QCOM was stopped out.


Play Updates


Archer-Daniels-Midland Company - ADM - close: 31.08

Comments:
04/28/12 update: Investors bought the dip on Monday morning when ADM slipped toward support near $30.00 and its 100-dma and 200-ema. The stock looks poised to breakout over short-term resistance near $31.25 but I'm not expecting a lot of movement on Monday. ADM will likely drift sideways until it reports earnings on Tuesday morning. It's the earnings news on Tuesday that will determine ADM's direction this week. More conservative traders might want to adjust their stop loss higher but if ADM disappoints I would expect a dip toward its 200-dma near $29.25.

I am not suggesting new positions at this time.

Earlier Comments:
We want to keep our new position size small to limit our exposure here. Start with half your normal position size or less.

- Suggested (small) Positions -
Feb 21, 2011 - entry price on ADM @ 31.31, option @ 1.74
symbol: ADM1319A35 2013 JAN $35 call - current bid/ask $ 1.10/ 1.15

04/28/12 ADM is scheduled to report earnings on May 1st.
02/21/12 trade opened on Tuesday @ 31.31
02/18/12 start with small positions to limit our exposure.
02/17/12 ADM meets our entry point requirements with a close over $31.25. Open positions the next day (Feb. 21st).
02/11/12 adjust entry trigger to wait for close over $31.25
FYI: 2014 calls are also available.

Current Target: $37.75
Current Stop loss: 28.40
Play Entered on: 02/21/12
Originally listed on the Watch List: 01/28/12


Allergan Inc. - AGN - close: 96.61

Comments:
04/28/12 update: Attention! I am adjusting our exit strategy. AGN is less than three points from our $99 target to sell half and the option is only at breakeven. I am removing the $99 target. We'll stick to the $109.00 target to exit positions. However, I do want to warn you that the $100.00 level could be round-number, psychological resistance. Plus, the AGN is due to report earnings on May 2nd, before the opening bell. Traders could choose to sell the news. Thus, more conservative traders will want to either exit in the $99-100 zone - or - exit prior to the May 2nd earnings report.

The newsletter has a multi-month time frame so we're going to hold over the report. If shares do see a sell-off I would look for support at the 50-dma or at the $90.00 level. I am not suggesting new positions at this time.

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 $ 5.10/ 5.40

04/28/12 Exit strategy adjustment! We are not selling half at $99.00. Instead we'll aim for $109.00 to exit positions. See tonight's note for details on alternative exits
03/31/12 adjusted exit strategy. Sell half at $99.00 and sell the remainder at $109.00
03/10/12 new stop loss at $84.50
02/02/12 earnings in-line but guided lower for 2012
01/28/12 earnings are due on Feb. 2nd. Readers might want to raise their stop or consider some sort of hedge prior to the report.
12/24/11 new stop loss @ 81.60
12/10/11 spreads on our 2013 calls are getting wider!
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:$109.00
Current Stop loss: 84.50
Play Entered on: 10/17/11
Originally listed on the Watch List: 09/24/11


Akamai Technologies - AKAM - close: 33.18

Comments:
04/28/12 update: AKAM does not look healthy. The stock had rallied to multi-week highs on April 25th. Then the company reported that evening and beat earnings estimates by three cents with 41 cents a share. Revenues were also a beat at $319 million for the quarter. Unfortunately the company warned that gross margins and earnings could sink in the second quarter and the CEO said he was planning to leave. The stock was crushed on the warning news and plunged from $39 to $33 on Thursday. Shares found support at its exponential 200-dma. This move down breaks several layers of support and the trend of higher lows. Currently our trade is still open with a stop loss at $31.75. More conservative traders may want to exit early now. I am not suggesting new positions at this time.

- Suggested Positions -
FEB 10, 2012 - entry price on AKAM @ 37.60, option @ 5.40
symbol:AKAM1319A40 2013 JAN $40 call - current bid/ask $ 2.18/ 2.24

2nd Position (enter on Monday, March 12th)
MAR 12, 2012 - entry price on AKAM @ 36.80, option @ 4.45
symbol:AKAM1319A40 2013 JAN $40 call - current bid/ask $ 2.18/ 2.24

04/25/12 AKAM reported earnings after the close, and warned that Q2 earnings and margins could contract. Shares plunged the next day
03/12/12 2nd position opened. AKAM @ 36.80. option @ $4.45
03/10/12 new stop loss @ 31.75
03/10/12 consider adding a second position on Monday morning,
let's keep our position size small.
02/10/12 trade is opened on Friday morning
02/09/12 AKAM gapped higher in reaction to strong earnings news. The stock closed above our trigger at $35.25.

Current Target: $44.00
Current Stop loss: 31.75
Play Entered on: 02/10/12
Originally listed on the Watch List: 02/04/12


Bank of America - BAC - close: 8.24

Comments:
04/28/12 update: I am concerned with BAC. The stock has been underperforming its peers in the financial sector this past week. Shares dipped to support near $8.00 on Monday and spent the rest of the week drifting sideways. The stock has seen a five-week correction lower. There is overhead resistance at $8.50 now. I am not suggesting new positions at this time.

Our concerns that BAC would see a pullback from the $10 level have come true.

Earlier Comments:
Currently we do not have a specific exit target. The plan has been to exit in the $12.00-15.00 zone. We still have months left on our 2013 calls so we're not in a rush to exit just yet. However, more conservative traders may want to take some money off the table early since odds of a pullback are pretty high. You could exit now and buy calls again on a dip.

- Suggested Positions -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.54/ 0.55
(No stop loss on this position)

(2nd Position, bought the dip at $5.15)

NOV 23, 2011 - entry price on BAC @ 5.15, option @ 0.35
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.54/ 0.55
(no stop loss on this position)

03/17/12 BAC has broken out from its multi-week trading range. Broken resistance near $8.30 should be new support.
01/28/12 financials seem a bit overbought here.
01/21/12 2012 Jan. $10 calls have expired (-100%)
01/14/12 earnings are due out on Jan. 19th
01/07/12 BAC broke out past its 50-dma and the $6.00 this past week
12/17/11 expect BAC to retest the $5.10-5.00 zone.
11/23/11 BAC hits new trigger @ 5.15 to buy calls.
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: 33.31

Comments:
04/28/12 update: Hmm... technical indicators on BMY's daily chart are starting to turn bearish. The company reported earnings on April 26th and traders have been selling the news. Earnings and revenues were in-line with Wall Street estimates. Just reporting "in-line" is not normally good enough to inspire new buying interest. We should expect a dip back toward technical support at the 150-dma (approaching $33) and possibly a dip toward $32.00. I am not suggesting new positions at this time.

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.07/ 1.10

02/11/12 adjust stop loss to $30.90
01/03/12 planned exit, sell half, bid on 2013 Jan $35 call @ 2.58 (+115%)
12/31/11 new stop loss @ 31.45.
12/31/11 Prepare to lock in gains and sell half of our position on Tuesday morning (Jan 3rd, 2012). The 2013 Jan $35 call currently has a bid at $2.60 (a +116.6% gain).
12/16/11 BMY hit our previous exit target at $34.50, more conservative traders may want to take profits now and exit early.
12/10/11 adjust exit target to $37.50
12/03/11 reduce our two exit targets to just one at $34.50
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: $37.50
Current Stop loss: 30.90
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


Colgate-Palmolive Co. - CL - close: 98.41

Comments:
04/28/12 update: We were expecting the $100 level to act as round-number resistance. Sure enough the stock struggled to get past this level. The company reported earnings on the 26th. Results were in-line with expectations and the stock did see a little profit taking on the news but nothing out of the ordinary. More conservative traders may want to take profits now. I would not be surprised to see CL correction toward $96 or even $94 on a market drop. Our long-term target remains $109.

I am not suggesting new positions at this time.

- Suggested Positions -
MAR 16, 2012 - entry price on CL @ 95.48, option @ 2.92
symbol: CL1319A100 2013 JAN $100 call - current bid/ask $3.90/4.05

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $6.40/7.00

04/26/12 CL reports earnings that are in-line with estimates.
03/31/12 CL is performing well but expect resistance at the $100 level and a possible pullback.

Current Target: $109.00
Current Stop loss: 89.00
Play Entered on: 03/16/12
Originally listed on the Watch List: 03/10/12


Cisco Systems - CSCO - close: 19.98

Comments:
04/28/12 update: CSCO's rival Juniper Networks (JNPR) reported earnings last week. JNPR's results were three cents better than expected but the company issued weak guidance going forward. This weighed on both stocks. CSCO tagged a new relative low on the 25th before bouncing back. Now CSCO is testing round-number resistance at $20 and could see technical resistance at its 50-dma. I remain very cautious on CSCO the stock is likely to meander sideways until it reports earnings on May 9th.

I am not suggesting new positions at this time.

- Suggested Positions -
OCT 28, 2011 - entry price on CSCO @ 18.28, option @ 1.68
symbol: CSCO1319A20 2013 JAN $20 call - current bid/ask $1.68/1.70

03/31/12 adjust exit target to $23.00
02/04/12 new stop loss @ 17.75
01/21/12 new stop loss @ 17.20
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: $23.00
Current Stop loss: 17.75
Play Entered on: 10/28/11
Originally listed on the Watch List: 10/08/11


The Dow Chemical Co. - DOW - close: 34.72

Comments:
04/28/12 update: Shares of DOW had broken out to a new multi-month high on the 25th. The next morning DOW reported earnings that beat by a penny but revenues were a miss. Guidance was generally positive but traders sold the news anyway and DOW gapped down on Thursday morning. You could argue that shares of DOW are seeing a bearish divergence between price and the daily chart's MACD indicator. On the weekly chart the action last week looks like a failed rally at the $36.00 level. I'm not suggesting new positions at this time.

- Suggested Positions -
Jan 09, 2012 - entry price on DOW @ 30.46, option @ 2.40
symbol: DOW1319A35 2013 JAN $35 call - current bid/ask $ 2.98/ 3.05

- or -

Jan 09, 2012 - entry price on DOW @ 30.46, option @ 2.54
symbol: DOW1418A40 2014 JAN $40 call - current bid/ask $ 2.71/ 2.80

04/26/12 DOW reported earnings one cent above expectations but revenues were a miss.
04/14/12 DOW produced a new lower low, last week. The correction may not be over yet.
02/11/12 adjust stop loss to $29.45. Readers may want to take profits now.
02/02/12 missed earnings estimates by five cents
01/28/12 Readers will want to seriously consider taking profits right now, prior to the earnings report on Feb. 2nd.
01/28/12 new stop loss @ 29.75
01/21/12 new stop loss @ 28.40
01/14/12 new stop loss @ 27.75
01/06/12 DOW meets our entry requirement with a close over $30.25. Plan is to buy calls on Monday morning (01/09/12).

Current Target: $39.50
Current Stop loss: 29.45
Play Entered on: 01/09/12

Originally listed on the Watch List: 12/31/11


eBay Inc. - EBAY - close: 41.23

Comments:
04/28/12 update: EBAY managed to hold support at the top of its gap near $39.00 last week. As the market bounced EBAY climbed back toward its 2012 highs. If the market does correct we should expect EBAY to fill the gap. Since our exit target is $44.50 readers may want to go ahead and start taking profits now. I am not suggesting new positions at this time.

- Suggested Positions -
Mar 12, 2012 - entry price on EBAY @ 36.36, option @ 2.85
symbol: EBAY1319A40 2013 JAN $40 call - current bid/ask $ 5.10/ 5.20

- or -

Mar 12, 2012 - entry price on EBAY @ 36.36, option @ 5.11
symbol: EBAY1418A40 2014 JAN $40 call - current bid/ask $ 7.95/ 8.10

04/28/12 EBAY closed near its highs. Readers may want to take profits now. The bid on the 2013 call is at $5.10 (+78.9%), and the bid on the 2014 call is at $7.95 (+55.5%)
04/21/12 new stop loss at $34.90
04/18/12 EBAY reports better than expected earnings and provides stronger 2012 earnings guidance. The stock spikes higher.
04/07/12 EBAY could see a dip toward $34.00
03/31/12 action this past week looks short-term bearish. Look for a pullback

Current Target: $44.50
Current Stop loss: 34.90
Play Entered on: 03/12/12
Originally listed in the New Plays 03/10/12


Enterprise Products Partners - EPD - close: 51.34

Comments:
04/28/12 update: EPD underperformed the market this past week. Shares appear to be correcting after an eight-day bounce. I'm concerned this could be a double top in EPD. Earnings are coming up on May 2nd and might offer traders a chance to sell the news. Thus, I'm suggesting we act defensively and go ahead and sell half or our position at the open on Monday morning. Currently the bid on our call is at $2.95 (+103%). More conservative traders may want to exit entirely right here.

I am not suggesting new positions at this time.

Earlier Comments:
Our long-term target is $59.00 but bear in mind that EPD doesn't normally move very fast.

- Suggested Positions -
Nov 21, 2011 - entry price on EPD @ 45.17, option @ 1.45
symbol: EPD1319A50 2013 JAN $50 call - current bid/ask $ 2.95/ 3.10

04/28/12 plan to sell half of our position on Monday morning. Current option bid is $2.95 (+103%)
04/21/12 readers may want to take profits now. The bid on our call option is at $3.10 (+113%)
02/18/12 new stop loss @ 46.75
02/04/12 new stop loss @ 44.75
01/28/12 new stop loss @ 43.75
01/21/12 new stop loss @ 43.40
01/06/12 EPD (and PAA) both see sharp intraday dips (-5% or more)
12/31/11 2013 Jan $50 call spreads have improved significant.
12/24/11 spreads on the 2013 Jan $50 calls have widened significantly.
12/08/11 EPD gapped down on news of a 9 million share secondary price at $44.68.

Current Target: $59.00
Current Stop loss: 46.75
Play Entered on: 11/21/11
Originally listed in the New Plays 11/19/11


Intel Corp. - INTC - close: 28.38

Comments:
04/28/12 update: The SOX semiconductor sector index delivered a nice bounce last week but the SOX remains in a bearish trend of lower highs and lower lows at least for now. INTC looks a lot healthier but it's worth noting that the three-day bounce in INTC stalled at the top of its gap down from the 17th-18th (a.k.a. overhead resistance).

I am not suggesting new positions at this time.

- Suggested (small, half-sized) Positions -
Feb 21, 2011 - entry price on INTC @ 27.34, option @ 1.30
symbol: INTC1319A30 2013 JAN $30 call - current bid/ask $ 1.22/ 1.23

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - current bid/ask $ 2.40/ 2.47

02/21/12 INTC opened at $27.34.
02/18/12 start with small positions to limit our exposure.

Current Target: $34.00
Current Stop loss: 24.75
Play Entered on: 02/21/12

Originally listed on the Watch List: 02/11/12


Kraft Foods Inc. - KFT - close: 39.40

Comments:
04/28/12 update: Investors have a couple of big decisions to make. Do you exit now, exit ahead of earnings, or raise your exit target and aim higher?

KFT has seen a big bounce off its April lows. This past week produced a breakout past resistance near $39.00. Big picture shares look poised to keep climbing even though the $40.00 level should be round-number resistance (and has been resistance in the past). Further complicating matters is KFT's earnings report is coming up on May 3rd. Will investors sell the news or will the results fuel more gains?

Aggressive traders may want to stay long and adjust their exit target to somewhere in the $42-44 zone. I am suggesting we go ahead and exit early now on Monday morning to lock in a gain.

- Suggested (SMALL) Positions -
Sep 22, 2011 - entry price on KFT @ 32.71, option @ 2.35
symbol: KFT1319A35 2013 JAN $35 call - current bid/ask $ 4.90/ 5.05

04/28/12 prepare to exit early on Monday morning to lock in a gain. Current bid on our call is at $4.90 (+108.5%)
03/31/12 short-term action is bearish. readers may want to exit early
02/04/12 new stop loss @ 35.90
01/21/12 new stop loss @ 35.40
Readers may want to exit now with the call +102%
12/31/11 Investors may want to take profits now.
12/28/11 begins trading ex-dividend
12/24/11 new stop loss @ 34.25
12/03/11 new stop loss @ 33.85, adjusted exit target to $40.00
11/12/11 new stop loss @ 32.40

Current Target: $40.00
Current Stop loss: 35.90
Play Entered on: 09/22/11
Originally listed on the Watch List: 09/17/11


Kimberly-Clark Corp. - KMB - close: 78.72

Comments:
04/28/12 update: We have been aiming for the $79.75 mark. KMB almost made it there last week but the stock stalled twice near $79.20. There is still a good chance that KMB will spike toward $80.00. however, I am suggesting we go ahead and exit positions on Monday morning to lock in a gain. We can reconsider new bullish positions if we see KMB bounce from support in the $74-75 area again.

- 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 $ 5.00/ 5.20

04/28/12 prepare to exit on Monday morning. current bid on our call is at $5.00 (+143.9%)
04/21/12 new stop loss @ 69.95
03/31/12 KMB is testing major resistance near $74.00
12/24/11 New stops loss @ 68.25. KMB has broken out to all-time highs.

Current Target: $79.75
Current Stop loss: 69.95
Play Entered on: 11/07/11
Originally listed in the New Plays 11/05/11


Coca-Cola Company - KO - close: 76.63

Comments:
04/28/12 update: KO delivered another very bullish week with shares surging to new multi-year highs. Helping fuel this rally was news that KO's Board of Directors voted to recommend a two-for-one stock split. KO began trading back in 1919 and has split its stock ten times since then. This would be the 11th stock split and the first split in sixteen years. The split is subject to shareholder approval to increase the number of authorized shares from 5.6 billion to 11.2 billion. Normally firms split their stock when they feel it's gotten too expensive for average investors to purchase it. It's also consider a sign of confidence by management. The vote by shareholders will take place on July 10th and the split will occur in August.

We will plan to exit positions prior to the actual split taking place. More conservative traders may want to go ahead and take profits now given the big run up in our option values. KO is currently short-term overbought. I would expect a dip back toward prior resistance in the $74.50 area, which should be new support.

Please note our new stop loss at $69.75. More conservative traders may want to consider a stop closer to $73.00 instead.

- Suggested Positions (start with small positions) -
Mar 29, 2012 - entry price on KO @ 72.35, option @ 3.60
symbol: KO1418A75 2014 JAN $75 call - current bid/ask $ 5.90/ 6.00

04/28/12 new stop loss @ 69.75
More conservative traders may want to take profits now, bid @ $5.90
04/25/12 KO's BoD has recommended a 2-for-1 split subject to shareholder approval in July. Split to occur in August.

Current Target: $87.00
Current Stop loss: 69.75
Play Entered on: 03/29/12
Originally listed on the Watch List: 03/17/12


Eli Lilly - LLY - close: 41.31

Comments:
04/28/12 update: Shares of LLY have surged higher following its earnings report on the 25th. The company beat Wall Street's estimates by 12 cents and raised guidance. This has powered a rally past resistance in the $40.50 area. The stock is headed for resistance near $42.00. I am not suggesting new positions at this time.

- Suggested (SMALL) Positions -
Jan 05, 2012 - entry price on LLY @ 39.50, option @ 1.19
symbol: LLY1319A45 2013 JAN $45 call - current bid/ask $ 1.50/ 1.54

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 1.95/ 2.09

04/25/12 LLY beat earnings estimates by 12c and raised guidance
03/17/12 LLY's close over $40.00 looks like a new bullish entry point
01/28/12 new stop loss @ 37.75

Current Target: $44.75 & 48.00
Current Stop loss: 37.75
Play Entered on: 01/05/12

Originally listed on the Watch List: 12/17/11


Las Vegas Sands - LVS - close: 55.87

Comments:
04/28/12 update: LVS reported on the 25th. The company beat estimates by 12 cents. Revenues also came in better than expected. Investors decided to sell the news on Thursday. The stock is down two weeks in a row and the close under the 50-dma is bearish. I am expecting a correction lower into the $52.50-50.00 zone.

I am not suggesting new positions at this time.

- Suggested Positions -
Feb 06, 2012 - entry price on LVS @ 51.35, option @ 4.40
symbol: LVS1319A60 2013 JAN $60 call - current bid/ask $ 5.50/ 5.60

04/28/12 expecting a correction lower into the $52.50-50.00 zone
04/16/12 Sold half of our position. Bid opened at $7.45 (+69.3%)
04/14/12 Prepare to sell half on Monday morning at the open. Current bid on the 2013 Jan $60 call is $8.30 (+88.6%).
02/06/12 LVS gapped open lower at $51.35
02/04/12 LVS met our entry point requirement at the close on Friday. Open positions on Monday, Feb. 6th.

Current Target: $69.00
Current Stop loss: 49.75
Play Entered on: 02/06/12

Originally listed on the Watch List: 01/28/12


3M Co. - MMM - close: 89.39

Comments:
04/28/12 update: MMM reported earnings on the 24th. The company beat estimates and raised its guidance. This news produced a spike higher but shares spent the rest of the week moving sideways and consolidating gains. MMM is now hovering under resistance at the $90.00 level. A breakout past this level should signal a run towards its 2011 highs in the $95-97 area.

I am not suggesting new positions at this time.

- Suggested Positions -
Jan 19, 2012 - entry price on MMM @ 85.10, option @ 3.30
symbol: MMM1319A95 2013 JAN $95 call - current bid/ask $ 2.75/ 2.82

04/14/12 Readers will want to seriously consider an early exit right now. The short-term trend for MMM is down.
03/17/12 new stop loss @ 83.75
02/04/12 new stop loss @ 81.75

Current Target: $97.00
Current Stop loss: 83.75
Play Entered on: 01/19/12
Originally listed on the Watch List: 12/03/11


Motorola Solutions, Inc. - MSI - close: 50.76

Comments:
04/28/12 update: MSI reported earnings on the 25th and beat on both the top and bottom line. Guidance was in-line with prior numbers. The stock soared on the earnings news with a rally back above resistance at $50.00 and its 50-dma. Now shares are retreating from the next level of resistance near $52. More conservative traders may want to move their stop loss closer to the $48 level. I am not suggesting new positions at this time.

- Suggested Positions -
Feb 17, 2012 - entry price on MSI @ 49.35, option @ 2.27
symbol: MSI1319A55 2013 JAN $55 call - current bid/ask $ 1.89/ 1.87

02/18/12 new stop loss @ 45.75
02/17/12 trades opens on Friday morning at $49.35
02/16/12 MSI meets our requirement to open positions
02/04/12 if triggered, use a stop loss at $43.95
01/28/12 MSI underperformed as investors sold the stock following its earnings report. If MSI doesn't improve this week we'll drop it as a candidate.

Current Target: $64.50
Current Stop loss: 45.75
Play Entered on: 02/17/12

Originally listed on the Watch List: 12/10/11


NetEase.com - NTES - close: 60.00

Comments:
04/28/12 update: NTES managed to tag a new all-time high on Thursday morning with the rally to $61.45. Currently shares are hovering near resistance at the $60.00 level. The stock looks poised to move higher. Earnings should be coming up in a couple of weeks but we do not have a confirmed date yet. The unconfirmed date is May 16th.

More conservative traders might want to consider moving their stops closer to the $54-55 area. I am not suggesting new positions at this time.

Earlier Comments:
Our long-term target is $64.00. Currently the Point & Figure chart is bullish with a $68 target. I want to remind readers that NTES can be volatile so we want to start with small positions (at least half your normal trade or smaller).

- Suggested (Small) Positions -
Feb 29, 2012 - entry price on NTES @ 52.74, option @ 4.70
symbol:NTES1319A60 2013 JAN $60 call - current bid/ask $ 7.50/ 7.80

03/24/12 new stop loss @ 49.40
Nimble traders may want to take profits now (current bid $7.80, +66%) and they re-enter positions on a correction.

Current Target: $ 64.50
Current Stop loss: 49.40
Play Entered on: 02/29/12

Originally listed on the Watch List: 02/25/12


Reynolds American Inc. - RAI - close: 40.58

Comments:
04/28/12 update: We were not expecting RAI to report earnings until the 25th but the company announced on the 24th instead. RAI missed estimates by two cents and revenues came in below expectations. This earnings miss sparked the sell-off down toward its exponential 200-dma. Fortunately there was no follow through on the breakdown but now broken support near $41.00 and its 100-dma is new overhead resistance.

Looking at RAI's weekly chart you could argue the up trend is breaking or at least very fragile. More conservative traders may want to start scaling back positions, especially if RAI rolls over under the $41 level soon. I would have thought RAI was a safe-haven for investors given its 5.4% annual dividend yield but nothing is bullet-proof. I am not suggesting new positions at this time.

- 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 $ 1.00/ 1.10

04/24/12 RAI reports earnings and misses. Shares spike lower!
03/10/12 another close over $42.50 could be used as a bullish entry point.
01/28/12 RAI and the rest of the tobacco stocks are underperforming. Readers might want to exit early now given RAI's relative weakness.

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


Teva Pharmaceuticals - TEVA - close: 45.63

Comments:
04/28/12 update: TEVA is still consolidating sideways under resistance near $46.00. Fortunately shares have a bullish trend of higher lows and look poised to breakout higher soon. Everything could change depending on TEVA's earnings results. The company is set to report on May 9th. I am not suggesting new positions prior to earnings.

- Suggested Positions -
Jan 19, 2012 - entry price on TEVA @ 45.40, option @ 2.49
symbol: TEVA1319A50 2013 JAN $50 call - current bid/ask $ 1.49/ 1.55

- or -

Jan 19, 2012 - entry price on TEVA @ 45.40, option @ 4.40
symbol: TEVA1418A50 2014 JAN $50 call - current bid/ask $ 3.60/ 3.65

03/24/12 new stop loss @ 41.80
03/24/12 TEVA is still underperforming. Consider an early exit
03/17/12 TEVA is underperforming. Readers may want to exit early or raise their stop loss.
02/04/12 new stop loss @ 41.40

Current Target: $54.00
Current Stop loss: 41.80
Play Entered on: 01/19/12

Originally listed on the Watch List: 01/14/12


UnitedHealth Group - UNH - close: 57.92

Comments:
04/28/12 update: It was a volatile week for UNH. Shares gapped down on Thursday possibly due to news that healthcare companies will pay out over $1 billion in rebates to consumers due to current healthcare law. I suspect the gap down is a reaction to a disappointing earnings report from rival Aetna (AET) who missed earnings due to rising costs. Fortunately traders bought the dip in UNH near its 50-dma (yet again) but you could argue UNH has formed a bearish double top with the two peaks under $60 this month. A close under support near $56.00 would add some weight to the double top idea. I am not suggesting new positions at this time.

- Suggested Positions -
Feb 15, 2012 - entry price on UNH @ 54.53, option @ 3.25
symbol: UNH1319A60 2013 JAN $60 call - current bid/ask $ 3.85/ 3.95

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 7.05/ 7.25

04/19/12 UNH reported earnings that beat estimates and raised guidance
03/31/12 new stop loss @ 52.75. Adjust exit to $64.00
03/24/12 action this past week has turned bearish. expecting a correction toward the $50 area.

Current Target: $64.00
Current Stop loss: 52.75
Play Entered on: 02/15/12

Originally listed on the Watch List: 02/11/12


Verizon Communications - VZ - close: 40.24

Comments:
04/28/12 update: Shares of VZ have produced a very impressive two-week rally. Now investors have a decision to make. The stock has closed the week right at resistance and it looks very short-term overbought. Odds of a pullback are probably pretty high but long-term the trend is still higher. If you're feeling cautious on stocks then I suggest you consider taking some money off the table here or exiting early to minimize any losses. VZ has seen a lot more volatility than I expected over the last several months.

I'm still longer-term bullish here but I would not be surprised to see VZ give up half of its recent gains. I am not suggesting new positions at this time.

Don't forget that on April 30th VZ should see a gap down of about 50 cents as it begins trading ex-dividend.

- Suggested Positions -
Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.17
symbol: VZ1319A40 2013 JAN $40 call - current bid/ask $ 1.90/ 1.91

- or -

Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.87
symbol: VZ1418A40 2014 JAN $40 call - current bid/ask $ 2.84/ 2.89

04/05/12 VZ began trading ex-div for its upcoming April 30th dividend
03/10/12 VZ is starting to see some positive momentum higher
01/28/12 readers may want to consider an early exit immediately
01/24/12 VZ reported earnings and missed by a penny. Shares broke down on this news.

Current Target: $45.00
Current Stop loss: 36.75
Play Entered on: 12/23/11

Originally listed on the Watch List: 12/17/11


Exxon Mobil - XOM - close: 86.12

Comments:
04/28/12 update: XOM reported earnings on the 26th and missed estimates by nine cents. Revenues also came in lighter than expected. Yet in spite of the miss shares of XOM did not see much reaction. There was a gap down Thursday morning but shares have bouncing off that low.

Bigger picture you could argue that XOM is forming a very large bull-flag consolidation pattern over the last four months. A breakout past resistance near $88.00 would be very bullish. I am not suggesting new positions at this time but a close over $88.00 might change my mind.

- Suggested Positions -
Dec 22, 2011 - entry price on XOM @ 83.56, option @ 4.63
symbol: XOM1319A90 2013 JAN $90 call - current bid/ask $ 2.83/ 2.89

- or -

Dec 22, 2011 - entry price on XOM @ 83.56, option @ 6.25
symbol: XOM1418A95 2014 JAN $95 call - current bid/ask $ 4.00/ 4.15

04/26/12 XOM missed earnings estimates by 9 cents
04/14/12 XOM has broken down from its 3-month trading range.
03/17/12 XOM has bounced off the bottom of its bullish channel.
03/03/12 bears could argue that XOM is forming a potential double top pattern with the peak in late January and late February
02/11/12 recent action looks like a bearish H&S pattern with an $80 target.
01/28/12 readers may want to raise their stop prior to earnings
01/21/12 new stop loss at $79.40
01/07/12 new stop loss @ 77.90

Current Target: $94.00
Current Stop loss: 79.40
Play Entered on: 12/22/11

Originally listed on the Watch List: 12/03/11


CLOSED Plays


Berkshire Hathaway (B shares) - BRK.B - close: 80.56

Comments:
04/28/12 update: A week ago Friday BRK.B looked ominously poised to breakdown after reversing at $81 a few days earlier. The market's widespread drop on Monday pushed BRK.B toward $78.00 but it didn't break this support. Since then both the S&P 500 and BRK.B have bounced four days in a row. We had already decided last weekend to exit early on Monday morning at the open. The gap down was just bad luck.

- Suggested (Small) Positions -
MAR 14, 2012 - entry price on BRK.B @ 80.69, option @ 3.90
symbol: BRKB1319A85 2013 JAN $85 call - exit early @ 2.65 (-32.0%)

04/23/12 early exit at the open
04/21/12 prepare to exit this position on Monday at the open.
04/14/12 The breakdown under $80.00 is bearish. Readers may want to exit early right now to cut our losses.

Chart of BRK.B:

Current Target: $94-98
Current Stop loss: 77.25
Play Entered on: 03/14/12
Originally listed on the Watch List: 03/03/12


QUALCOMM Inc. - QCOM - close: 64.22

Comments:
04/28/12 update: It's a good thing we took some money off the table a couple of weeks ago. The post-earnings sell-off in QCOM pushed shares to our stop loss at $61.50 this past week. Of course as Murphy's law would have it Monday was the low for the week and QCOM is up four days in a row.

I would keep QCOM on your personal watch list. Longer-term I remain bullish on this stock. I'd like to see a new base or a bounce from support near $60.00 but we'll have to wait and see how QCOM reacts. Right now there is short-term overhead resistance in the $65-66 area.

- Suggested (SMALL) Positions -
NOV 23, 2011 - entry price on QCOM @ 52.50, option @ 4.90
symbol: QCOM1319A60 2013 JAN $60 call - exit $6.15 (+25.5%)

04/23/12 stopped out @ 61.50, option @ 6.15 (+25.5%)
04/18/12 QCOM reported earnings. Traders sold the news
04/16/12 sold half at the open. bid on calls @ 9.60 (+95.9%)
04/14/12 scrap plans to take profits at $69.50. Instead sell half of our calls at the open on Monday morning. current bid is $10.05 (+105%). We will adjust our final target for the remaining position to $79.00.
03/31/12 new stop loss @ 61.50
03/24/12 prepare to sell half (exit) at $69.50
03/17/12 new stop loss @ 58.50
02/18/12 new stop loss @ 55.75
02/11/12 new stop loss @ 54.75
02/04/12 new stop loss @ 53.75
01/07/12 new stop loss @ 51.45. Investors may want to exit early. The worry of potential accounting risks have cast a shadow over QCOM.
11/23/11 QCOM hits our trigger @ 52.50

Chart of QCOM:

Current Target: $79.00
Current Stop loss: 61.50
Play Entered on: 11/23/11
Originally listed on the Watch List: 11/05/11



Watch

E-commerce, Oil Services, Financials, and Retail

by James Brown

Click here to email James Brown


New Watch List Entries

DANG - DangDang Inc.

RIG - Transocean Ltd.

SCHW - Charles Schwab

WSM - Williams-Sonoma Inc.


Active Watch List Candidates

ATVI - Activision Blizzard

AIG - American Intl. Group

AXP - American Express

CI - Cigna Corp.

CREE - Cree, Inc.

GLD - Gold ETF

HAS - Hasbro

LTD - Limited Brands

MCD - McDonald's Corp

MSFT - Microsoft Corp.

PFE - Pfizer Inc.

URBN - Urban Outfitters

WMT - Wal-Mart Stores


Dropped Watch List Entries



New Watch List Candidates:


DangDang Inc. - DANG - close: 8.17

Company Info

E-commerce China DangDang Inc. is a Chinese Internet company similar to Amazon.com. Shares have been trending lower as investors reacted to news that the company's CFO announced his resignation for personal reasons. This correction looks overdone and represents a buying opportunity. However, I want to see some follow through on the bounce that began this past week.

Keep in mind that DANG is a volatile stock. I do consider this an aggressive trade. Readers will want to consider keeping position size small to limit risk. Another reason to be cautious is DANG's earnings report is coming up in a couple of weeks (date not yet confirmed).

I am suggesting we wait for DANG to close over $9.25 and then buy call LEAPS the next day with a wide stop loss at $7.25. Our long-term target is $14.50.

Breakout trigger: close over $9.25, stop $7.25

BUY the 2013 Jan $10 call (DANG1319A10)

Chart of DANG:

Weekly Chart of DANG:

Originally listed on the Watch List: 04/28/12


Transocean Ltd. - RIG - close: 49.80

Company Info

The oil service sector appears to have formed a bottom over the last couple of weeks. We see a similar pattern in RIG. You could argue that RIG is forming the right shoulder to a very large, inverse H&S pattern built over the last year.

I am suggesting that we wait for RIG to close over $53.00 and then buy calls the next day. I do see potential short-term resistance at $55.00, and there is clear resistance at $60.00, but our long-term target is the $65-70 zone. Investors should note that RIG is due to report earnings on May 2nd, after the closing bell. Readers may not want to open positions until after we see how the market reacts to their earnings news first.

Breakout trigger: wait for close over $53.00, stop loss at $47.25

BUY the 2013 Jan $60 call (RIG1319A60)

- or -

BUY the 2014 Jan $60 call (RIG1419A60)

Chart of RIG:

Originally listed on the Watch List: 04/28/12


Charles Schwab Corp. - SCHW - close: 14.32

Company Info

SCHW is a nationwide brokerage firm. The stock built a significant bottom last year. The recent correction from the Q1 rally has found support near $13.50 and its exponential 200-dma. Now shares are starting to rebound again. This past week has created a bullish engulfing candlestick pattern on the weekly chart.

I am suggesting we wait for SCHW to close above $14.75 and then launch positions the next morning with a stop loss at $13.35. Our long-term target is the $17.50-19.50 zone.

Breakout trigger: Wait for a close over $14.75, stop 13.35

BUY the 2013 Jan $15 call (SCHW1319A15)

- or -

BUY the 2014 Jan $20 call (SCHW1418A20)

Chart of SCHW:

Originally listed on the Watch List: 04/28/12


Williams-Sonoma Inc. - WSM - close: 39.50

Company Info

Shares of this specialty retailer have been consolidating under resistance at the $40.00 level for several months. You'll also notice on the weekly chart that shares have developed a bullish trend of higher lows. Thus we should see WSM breakout past resistance soon as this consolidation narrows. If WSM does rally past $40.00 it would create a new quadruple top breakout buy signal on the Point & Figure chart.

I am suggesting we wait for WSM to close over $40.25 and then buy calls the next day. We'll start with a stop loss at $36.90. FYI: Investors should note that WSM is due to report earnings in a couple of weeks but the May 17th date is not yet confirmed.

Breakout trigger: Wait for close over $40.25, stop 36.90

BUY the 2013 Jan $45 call (WSM1319A45)

Chart of WSM:

Originally listed on the Watch List: 04/28/12


Active Watch List Candidates:



American Intl. Group - AIG - close: 34.46

Comments:
04/28/12 update: AIG has performed better than expected. The stock broke out past resistance in the $33.00-33.50 zone and closed at new multi-month highs. Shares certainly look bullish here but I would not launch positions prior to earnings, which are coming up on May 3rd. There is always a chance the stock spikes lower on earnings news. However, we will adjust our buy-the-dip trigger from $29.00 to $30.00 and move the stop loss to $27.40. Our long-term target is $39.00.

Buy-the-Dip trigger: $30.00, stop $27.40

(Small Positions)

BUY the 2013 Jan $35 call (AIG1319A35)

- or -

BUY the 2014 Jan $35 call (AIG1418A35)

04/28/12 adjust buy-the-dip trigger to $30.00 and stop to $27.40

Originally listed on the Watch List: 04/07/12


Activision Blizzard, Inc. - ATVI - close: 12.83

Comments:
04/28/12 update: ATVI has bounced back toward resistance near $13.00. I am anticipating a breakout soon. The company should start seeing more press with its new Diablo 3 game launching soon. Plus, its World of Warcraft franchise has a new expansion coming out later this year.

I am suggesting we wait for ATVI to close over $13.25. We will buy calls the next day with a stop loss at $12.25. Our long-term target is the $16-18 range.

FYI: ATVI is due to report earnings on May 9th.

Breakout trigger: Wait for ATVI to close over $13.25, buy calls the next day with a stop at $12.25

BUY the 2013 Jan $15 call (ATVI1319A15)

- or -

BUY the 2014 Jan $15 call (ATVI1418A15)

Originally listed on the Watch List: 03/24/12


American Express - AXP - close: 60.17

Comments:
04/28/12 update: Strength in the financial sector has helped fuel bullish breakouts in both AIG and AXP. I hesitate to chase the rally in AXP. We will adjust our buy-the-dip trigger from $52.50 to $57.50 and move our stop loss higher to $53.40. However, I consider this a more aggressive entry point and we want to start with small positions to limit our risk. I have adjusted our strike prices.

I am suggesting small bullish positions if AXP dips to $57.50. We'll use a stop loss at $53.40. Our long-term target is $64.00.

Buy-the-Dip trigger: $57.50 (stop $53.40) (small positions)

BUY the 2013 Jan $60 call (AXP1319A60)

- or -

BUY the 2014 Jan $65 call (AXP1418A65)

04/28/12 adjust buy-the-dip trigger to $57.50, stop to $53.40, adjusted strike prices.

Originally listed on the Watch List: 04/14/12


Cigna Corp. - CI - close: 46.87

Comments:
04/28/12 update: A disappointing earnings report from rival Aetna (AET) on Thursday sparked a sell-off across the healthcare sector. CI will be reporting earnings this week on May 3rd. I suggesting we continue to wait for a breakout past resistance near $50.00.

I am suggesting we open bullish positions when CI closes above $50.25. We'll buy calls the next day with a stop loss at $46.40.

There is some long-term resistance near $57.00 but we'll set our target at $64.00. Currently the P&F chart is forecasting at $60 target.

Breakout trigger: Close over $50.25, stop loss 46.40

BUY the 2013 $55 call (CI1319A55)

- or -

BUY the 2014 $55 call (CI1418A55)

Originally listed on the Watch List: 04/21/12


Cree, Inc. - CREE - close: 30.97

Comments:
04/28/12 update: Hmm.... CREE spent the week churning sideways while volume faded lower and lower. I suspect we're going to see CREE breakout one way or the other soon. Shares are currently right in the middle of its $28-33 trading range.

I am suggesting we launch small bullish positions if CREE can close over $34.50. We'll buy calls the next morning with a stop loss at $29.45. Our long-term target is $44.50.

Breakout trigger: a close over $34.50 (small positions)

BUY the 2013 Jan $40 call (CREE1319A40)

Originally listed on the Watch List: 04/14/12


Gold ETF - GLD - close: 161.38

Comments:
04/28/12 update: The GLD managed a bounce off technical support at its rising 300-dma. Thus the long-term trend of higher lows is still intact. Plus, the large, inverse head-and-shoulders pattern is still working. I suspect that April is the low for the "right shoulder" of this pattern. However, instead of jumping in early we will stick to our original plan and wait for a close above resistance.

FYI: Aggressive traders might want to consider bearish trades if we see the GLD close under $155.

Earlier Comments:
Currently I am suggesting we wait for the GLD to close over $165.50 and we'll buy calls the next morning with a stop loss at $154.90. This is an aggressive entry point since the inverse H&S pattern would not be complete until shares breakout past the $175 area. The U.S. dollar is likely to see a lot of movement over the next several months, which could cause volatility in gold. Therefore we want to keep our position size small. Our long-term target is $195.

Breakout trigger: A close over $165.50 (small positions)

BUY the 2013 Jan $190 call (GLD1319A190)

- or -

BUY the 2014 Jan $190 call (GLD1418A190)

Originally listed on the Watch List: 04/14/12


Hasbro Inc. - HAS - close: 36.68

Comments:
04/28/12 update: HAS reported earnings on the 23rd. The company missed both the revenue and earnings estimates. This news sparked a sell-off to new relative lows under $34.00. Yet HAS has managed to bounce back sharply. I don't see any changes from my earlier comments.

Earlier Comments:
I am suggesting we launch bullish positions when HAS closes above $39.25. More aggressive traders might want to jump in early when HAS closes over $38.00 instead. Our long-term target is $44.75.

HAS does not move very fast so we'll need to be patient.

Breakout trigger: wait for a close over $39.25, stop 36.25

BUY the 2013 Jan $40 call (HAS1319A40)

- or -

buy the 2014 Jan $45 call (HAS1418A45)

Originally listed on the Watch List: 04/07/12


JPMorgan Chase & Co - JPM - close: 43.34

Comments:
04/28/12 update: JPM managed to rebound off its Monday morning lows near the rising 50-dma. Yet the stock is still trading with a four-week bearish trend of lower highs and lower lows. A close over $44 or $45 might signal a change in trend. However, for the moment, we will continue to wait for a correction toward support.

I am suggesting we buy calls on a dip at $40.25 with a stop loss at $37.25. Our long-term target is $49.75.

Buy-the-Dip trigger: $40.25, stop loss 37.25

BUY the 2013 Jan $45 call (JPM1319A45)

- or -

BUY the 2014 Jan $45 call (JPM1418A45)

Originally listed on the Watch List: 04/07/12


Limited Brands, Inc. - LTD - close: 50.96

Comments:
04/28/12 update: Aggressive traders may want to buy calls on LTD now. The stock has continued to show strength and this past week has produced a bullish breakout past resistance near $50.00 to close at new record highs. Personally, I am unwilling to chase it with LTD's earnings report coming up in a couple of weeks. I will adjust our buy-the-dip entry point from $44.00 to $45.50 and move our stop loss up to $41.50. We will re-evaluate our entry point following the earnings report.

Buy-the-Dip trigger: $45.50 (stop loss @ 41.50)

BUY the 2013 Jan $45 call (LTD1319A45)

04/28/12 adjust entry point to buy a dip at $45.50, stop $41.50
03/24/12 adjusted buy-the-dip trigger to $44.00 with a stop at $39.75

Originally listed on the Watch List: 03/10/12


McDonald's Corp. - MCD - close: 97.38

Comments:
04/28/12 update: Hmm... we need to make some decisions here. MCD has bounced two weeks in a row on dips near $94.15. That means we're still sitting on the sidelines with our buy-the-dip trigger at $94.00. Do we leave our trigger here at $94.00 or do we make an adjustment? Currently MCD has a bearish three-month trend of lower highs and lower lows (this is inside the much larger, longer-term up trend higher). If you think MCD will make a new lower low then consider moving your buy-the-dip trigger into the $92.50-90.00 zone. Alternatively you could look for MCD to break the trend of lower highs with a close over $98.50 and then launch bullish positions. I suspect that we will see MCD dip toward the $95 area again so we will adjust the newsletter's buy-the-dip trigger to $95.00 and leave our stop loss at $88.50 for now. If triggered our long-term target is $109.00.

Buy-the-Dip trigger: $95.00, stop 88.50

BUY the 2013 Jan $100 call (MCD1319A100)

- or - BUY the 2014 Jan $105 call (MCD1418A105)

04/28/12 adjust the buy-the-dip trigger to $95.00
04/14/12 adjust buy-the-dip trigger to $94.00.

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


Microsoft - MSFT - close: 31.98

Comments:
04/28/12 update: MSFT spent the week consolidating gains from the prior week's earnings-inspired surge higher. Currently shares remain under resistance at the $33.00 level. Readers might want to consider buying calls on a close above $33.00. I have not given up yet on a buy-the-dip strategy but we will adjust our buy-the-dip entry point to $29.50 and move our stop loss up to $26.75.

Buy-the-Dip trigger: $29.50 (stop @ $26.75)

BUY the 2013 Jan $30 call (MSFT1319A30)

- or -

BUY the 2014 Jan $30 call (MSFT1418A30)

04/28/12 adjust buy-the-dip trigger to $29.50, stop to $26.75

Originally listed on the Watch List: 04/14/12


Pfizer Inc. - PFE - close: 23.08

Comments:
04/28/12 update: Attention! I am making an adjustment to our entry strategy. PFE has rallied to new multi-year highs but has not yet closed above our trigger at $23.20. The company is due to report earnings on Tuesday morning, May 1st. We do not want to open positions prior to the earnings report. We will wait and see how the stock reacts to earnings. If shares close above $23.20 after it reports earnings, then we'll launch positions.

Our long-term target is $28.00. I will list the 2013 calls but I prefer the 2014 because PFE does not move very fast.

Breakout trigger: Wait for a close over $23.20, use a stop at $20.65

BUY the 2013 Jan $22.50 call (PFE1319A22.5)

- or -

BUY the 2014 Jan $25 call (PFE1418A25)

04/28/12 do not launch positions prior to the earnings report on May 1st.

Originally listed on the Watch List: 04/21/12


Urban Outfitters Inc. - URBN - close: 29.21

Comments:
04/28/12 update: Traders bought the dip at URBN's 100-dma this past week. The bounce has pushed shares past all of its key moving averages. If this rebound continues we should see URBN testing resistance at $30.00 soon. Our plan is to wait for URBN to close above $30.50 and then buy call LEAPS the next day.

If the stock can breakout it could see a short squeeze with the most recent data listing short interest at more than 10% of the float. I am suggesting a trigger to launch small bullish positions when URBN closes over $30.50. We'll use a stop at $27.75. Our long-term target is $35.75.

Breakout trigger: Wait for URBN to close over $30.50 (stop 27.75)

BUY the 2013 Jan $35 call (URBN1319A35)

04/07/12 URBN broke out above resistance at $30.00 this past week but it has yet to close over our trigger at $30.50.

Originally listed on the Watch List: 03/31/12


Wal-Mart Stores - WMT - close: 59.03

Comments:
04/28/12 update: It looks like the bribery story had a bigger impact than previously thought. Shares of WMT plunged on Monday, Tuesday, and Wednesday but have since pared their losses. The $60 level and the 50-dma and 100-dma are all now overhead resistance. I'm not giving up just yet. We'll give WMT a couple of more weeks and re-evaluate. I want to wait to see how the market reacts to its earnings report on May 17th. Our plan remains unchanged.

I am suggesting we wait and buy calls when WMT closes over $64.00. We'll use a stop loss at $56.95 to start. Our long-term target is the $74.75 mark although we may adjust it higher. Currently the Point & Figure chart is forecasting a $91 target.

WMT does not move very fast so we'll need patience. I am listing the 2013 calls but I prefer the 2014 calls instead.

Breakout trigger: Wait for a close over $64.00, stop @ 56.95

BUY the 2013 Jan $65 call (WMT1319A65)

- or -

BUY the 2014 Jan $65 call (WMT1418A65)

Originally listed on the Watch List: 04/21/12