Option Investor
Newsletter

Daily Newsletter, Sunday, 5/20/2012

Table of Contents

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

Leaps Trader Commentary

Greek Worries Renewed, FB's IPO Fizzles

by James Brown

Click here to email James Brown

The future of Greece and the Eurozone continues to overshadow economic data. Stocks dropped for a third week in a row. Even the overhyped Facebook (FB) IPO failed to renew any excitement or positive sentiment for stocks. Worries over Greece started anew last Monday and never left us. Economic data was mixed throughout the week but had little impact on stocks.

The U.S. markets and the euro currency are both down three weeks in a row just as the U.S. dollar has rallied three weeks in a row. Gold managed an oversold bounce on Thursday and Friday thanks in part to a little profit taking in the dollar on Friday. Oil prices have plunged in the last three weeks as well. Money is flowing out of equities (and commodities) and into the safety of bonds. The yields on the U.S. ten-year note has closed at a record, all-time low of 1.7%. Yields were this low back in September 2011 but they didn't close here. After the last three weeks of pain for bullish investors the "sell in May" strategy is starting to look pretty good.

Economic data failed to have much impact on the market. The release of the FOMC minutes was a non-event. April retail sales in the U.S. were lackluster. The Consumer Price Index reading on inflation was flat at 2.3%. Housing starts in April rose to an annual pace of 717,000, up from a revised 699K reading in March. The homebuilder survey did rise to 29, its highest level in five years. The New York Empire State manufacturing survey came in better than expected with a rise from 6.6 in April to 17.1 in May. Yet the Philadelphia Fed survey dropped unexpectedly from 8.5 a month ago to -5.8 in May.

There were two main stories for the market last week. These were Greece and Facebook's IPO. Markets are very concerned about Greece. Elections were two weeks ago and the newly elected officials have been unable to form joint government. The country's parliament has been "formally dissolved" and new elections are scheduled for June 17th. Expectations are the anti-austerity crowd and those in favor of leaving the eurozone could win.

Two years ago the thought of Greece leaving the Eurozone was inconceivable. Yet now, after years of squabbling, delays, meetings, market crashes, and hundreds of billions in bailouts, nothing has been fixed and there is a growing chorus for Greece to exit the euro. The situation remains broken and this tiny country of 11 million people could herald the end of the Eurozone as we know it. (FYI: the Eurozone is the 17-nation group with a common currency, the euro. It's also called the EMU or economic and monetary union.) The Fitch rating agency recently downgraded Greece's long-term credit rating from B- to CCC, which essentially means they are expecting the country to default. A recent Bloomberg investor poll showed that the majority of investors do expect Greece to exit the euro within the next twelve months.

The situation is deteriorating fast in Greece and the flow of money out of Greek banks accelerated significantly. People have been pulling money out of the Greek banking system for months and months but it really picked up speed but the real problem is that it's spreading. Now we're starting to see consumers and investors pulling money out of the Spanish banks. This is exactly what the EU does not want, which is a run on the banks. Yet if you're a Greek citizen you'd rather pull your euros out now than wake up one day and have your account converted into new Greek drachmas, which will be instantly devalued.

A Greek exit is going to be extremely painful for everyone although in the long-run it's probably better for the country of Greece. The real trouble will be the doubt and insecurity it creates for the rest of the Eurozone. If Greece can leave then Spain, Ireland, Italy and Portugal will all consider their own exit instead of suffering under harsh austerity budgets and little to no economic growth for years to come. Significant sections of the EU are already in a recession. The unemployment rate in Spain is so high it would be considered at economic depression levels.

The lack of growth in Europe and all of the political uncertainty does not foster new business investment. Instead investors and companies will hoard cash and look elsewhere for opportunities. Europe is the largest trading partner with China and the slowdown in Europe is probably taking a toll on China's economy. Meanwhile the country of Spain is moving closer and closer to the cliff. It's been said that Spain is too big to bailout. If you're the EU and you have wasted billions of euros only to fail at bailing out the tiny country of Greece would you even want to try and bail out Spain?

French President Sarkozy just lost his job because France is unhappy with how this situation is turning out. How many other politicians are worried about their jobs and will choose to do the popular thing instead of the fiscally wise choice for their own country? Of course therein lies part of the problem. Everyone is still more concerned about their own country and not the EU as a whole.

Moody's credit rating agency just downgraded 16 Spanish banks. The timing of this announcement was probably not a coincidence as the bad-loan ratio in Spanish banks has risen to 8.37%, a 17-year high. All of this is creating more fear in Europe and bond yields in both Italy and Spain are rising again. Adding fuel to the fire was a headline out late Friday night that Spain was raising its 2011 deficit numbers from 8.5% to 8.9% of GDP. Their original target for 2011 was only 6% of GDP. Officially, to be a member of the Eurozone each country was supposed to keep their deficit at 3% of GDP. Several countries have at times broken this threshold but EU authorities never actually followed through on proposed fines for these events. When you consider all the headlines and uncertainty boiling in Europe it's not a surprise that European stock markets just produced their worst one-week drop in several months.

I feel somewhat obligated to discuss the Facebook IPO although I'm sure by now you're probably sick of hearing about it. Last week in the financial media it was Facebook news all the time, 24 hours a day. The company priced its IPO at $38 a share, valuing the company at about $104 billion. This puts the value of FB at more than AOL, eBay, Groupon, IAC, LinkedIn, Netflix, Pandora, Yahoo and Zynga combined. If you compare FB's $104 billion market cap against the blue chip stocks in the Dow Jones Industrial Average, FB is worth more than the bottom 15 components (individually).

FB's founder, Mark Zuckerberg, is probably the world's richest 28-year old with a net worth of more than $17 billion. While he only owns a 28% stake in the company he controls 60% of the voting rights. Odds are his net worth is going to drop on Monday. The stock struggled to stay in positive territory on Friday. Were it not for massive support from the underwriters the stock would have probably traded in negative territory but the group of investment bankers that brought the company public placed massive bids at $38.00 a share to prevent that from happening. More than 581 million shares of FB traded, making it the most active IPO in American history. Only 440 million shares were offered on Friday but in the next six months that number is going to soar to 1.34 billion shares. There is a 90-day, 150-day, and 180-day lock up periods all due to expire allowing insiders to bring more stock to market. With that much supply on the horizon I would put odds at almost 100% that FB will trade below $38 a share in the next six months. If you're interested in being a long-term investor I wouldn't rush to buy it now. We've got time to wait for shares to find support first.

Major Indices:

It has been a rough month for the market. The S&P 500 is down 11 out of the last 13 trading days. It's off -4.3% for the week and down -8.9% from its early April highs near 1,422. This past week has sliced through potential support at 1,340, its exponential 200-dma, its 150-dma, and the 1300 level. It's very short-term oversold. The problem is that stocks and indices can always grow more oversold. A move to 1280 would be a -10% correction from this year's highs.

Even if the S&P 500 does manage a bounce soon I would not trust it. The damage is done. The bullish up trend is broken. Any bounce is probably just a relief rally that will be seen as a new opportunity to get short again. Yet that doesn't guarantee we'll see new relative lows but if I had to bet I would look for a drop toward the simple 200-dma near 1278 (remember that -10% level?) and possibly the 1250 level. The S&P 500 closed last year at 1257 so that could prove to be a support level. If the S&P 500 closes in negative territory for the year it's going to be another negative for investor sentiment.

It's always possible that the S&P 500 churns sideways for a while instead of hitting new relative lows but we're going to have to wait and find out.

Daily chart of the S&P 500 index:

The sell-off in the tech-heavy NASDAQ was even worse. The NASDAQ composite is down -5.2% for the week and the correction has been gaining speed. The breakdown under the 2830-2825 area was significant. The index looks headed for the 61.8% Fib retracement near 2755 and its 200-dma near 2740.

It would take a breakdown under 2600 to erase the NASDAQ's gains for the year but if we see a close under the 200-dma, betting on a (the eventual) decline toward 2600 might be a good bet. This index, like the S&P 500, is very short-term oversold and due for a bounce. I would expect the first rebound to reverse and the 2900 level is new overhead resistance.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index also suffered a -5% drop for the week. Unfortunately, this move broke the neckline of a bearish head-and-shoulders pattern. Broken support near 780 is now new resistance. This H&S pattern should forecast a drop toward the 710 level (the mid December lows).

Friday's close under the 200-dma is technically a bearish sell signal but we can expect an oversold bounce here too but the rebound will likely be used as a new entry point for short-term bearish positions.

Daily chart of the Russell 2000 index

The economic calendar slows down significantly this week. We'll see some home sales data but these will likely be ignored by the market unless they are way below expectations. The big report is probably the Michigan sentiment survey but it too could be ignored.

Monday the market will likely be reacting to Spain's announcement of a higher 2011 deficit target. Plus the market could react to any headlines out of the G8 summit and NATO summit held this weekend. We will continue to see some late season earnings reports. A few of the company's reporting this week are: URBN, LOW, DELL, BBY, NTAP, HPQ, COST, TIF.

Economic and Event Calendar

- Monday, May 21 -
(nothing significant)

- Tuesday, May 22 -
existing home sales

- Wednesday, May 23 -
new home sales

- Thursday, May 24 -
Weekly Initial Jobless Claims
Durable goods orders

- Friday, May 25 -
University of Michigan consumer sentiment survey

Upcoming events:

end of May 2012: IMF's quarterly review of Greece

The Week Ahead:

I warned readers a week ago that the market outlook was stormy. Stocks did not disappoint on that front. Unfortunately, stocks and markets tend to overshoot when correcting and go lower than you expect. Not helping matters is the growing bearish sentiment. Traders forget that market corrections of -10% are normal. Yet bearish sentiment has hit multi-year levels and the S&P 500 is only down about -9% from its highs. Granted, I don't see a lot of bullish catalysts on the horizon to turn things around. We remain captive to headlines out of Europe.

Big picture, not much has changed from a week ago except the U.S. markets are -5% cheaper and Greece is one step closer to leaving the euro. I strongly suspect that we will see an oversold bounce soon but let me repeat I would not buy it. I would expect a bounce back toward resistance only to see stocks roll over again. The question is whether or not we hit new relative lows or do stocks churn sideways as investors wait for a reason to buy again? If you consider the lack of success with Europe's ability to solve the Greece issue and the growing concerns over Spain, then I would probably bet on new lows. Of course things could change if something unexpected happens. Maybe Mr. Bernanke will surprise the market with QE3. We are approaching the end of Operation Twist so they might seek to do something before it gets too close to the U.S. presidential election. My concern is that more QE would have less of an impact as the market gets desensitized to it.

Looking ahead we have new Greek elections in mid June. The Q2 earnings season will start the second week of July. There is always a chance that corporate results and guidance could override a Greece-weary market. As we move deeper into summer we will slowly drown under what will likely be a nasty political campaign between the democrats and republicans as they throw mud at each other trying to sway the undecided and independent voters that will determine the election's outcome.

Beyond the November elections is the fast approaching (and previously discussed) U.S. fiscal cliff in January. If you put that altogether we have a recipe for a monumental "wall of worry" the bulls need to climb to push stocks higher. I'm not saying they can't lift stocks higher but it could be a struggle. It's going to boil down to investor sentiment. Technicals and economic data can always be ignored if investors choose to be in a buying (or selling) mood. With that in mind, the elevated bearish sentiment in the market might actually be a good thing and could suggest we're close to a bottom than we realize. However, I have yet to see what would be considered a capitulation day so we should anticipate more volatility ahead.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

At this point 2012 is one year where "sell in May" looks like a good strategy. The market is down three weeks in a row with the S&P 500 down almost -9% from its 2012 highs. We are definitely at oversold levels. While a bounce should show up sooner rather than later it's probably not a bottom.

On Monday, May 14th the plan was to take profits in our EBAY 2013 Jan $40 calls and sell half of our KO 2014 Jan calls at the open. That proved to be a good move. Unfortunately, we lost DOW, LVS, and MMM, which were all stopped out this past week.

Investors will want to double check their stop loss placement since so many stocks look poised for more weakness.

I have updated stop losses on: MCD, a new addition from the watch list.

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

Updating our Radar Screen

by James Brown

Click here to email James Brown

Editor's Note:

A week ago the market was hovering near support and I was wary of any bounce. Now the market has continued to fall and stocks have reached oversold levels. Yet I remain cautious of any bounce as it will likely be a short-term relief rally.

The sell-off this month has done a lot of technical damage to the market and it could be weeks before stocks establish new support again. We do not want to rush into new bullish positions and with stocks oversold we don't want to launch new bearish trades either.

There are no new trades tonight but we did see three stocks graduate from our watch list to the active trade list this past week. Plus, I've added two more watch list candidates tonight.

Here is a list of stocks currently on my radar screen as potential candidates to keep an eye on:

PEP, - looking for a close over $70

WMT, - a close over $63 could launch a new up trend.

FDO, - a dip near $60 might be a new entry point.

F, - a bounce off its 2011 lows near $9.00 could be a possible entry.

GM, - a bounce near the 2011 lows near $19.00 might be a new entry point.

HSY, - a correction lower toward $62 might be an entry.

YUM, - a correction lower toward $60 or its simple 200-dma might be a bullish entry point.


Play Updates

Another Rough Week for Stocks

by James Brown

Click here to email James Brown

Editor's Note:

Stocks suffered one of their worst weekly declines of the year. The market is oversold and due for a bounce but it can always get more oversold before it finally rebounds. I don't see any changes from last week's comments. Readers may want to scale back the size of their positions or raise their stop losses or possibly exit early.

We did take profits early in both EBAY and KO last Monday. See their individual updates below.


Closed Plays


DOW, LVS, and MMM were stopped out.


Play Updates


Archer-Daniels-Midland Company - ADM - close: 31.82

Comments:
05/19/12 update: It was a rough week for the stock market and shares of ADM lost about a dollar for the week. Shares have closed under what should have been short-term support near $32.00. This is bearish and would suggest a likely correction toward the next significant support near $30.00. If ADM did break $30 it would break the longer-term bullish trend of higher lows.

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 $ 1.76/ 1.83

05/12/12 new stop loss @ 29.45
05/01/12 ADM beat estimates by 18 cents.
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: 29.45
Play Entered on: 02/21/12
Originally listed on the Watch List: 01/28/12


Allergan Inc. - AGN - close: 88.78

Comments:
05/19/12 update: The correction in AGN picked up speed this past week, especially on Thursday with the breakdown below its 100-dma and the $90.00 level. Shares closed the week on its 150-dma. I want to warn you. The $90 level should have been significant support even though we suspected AGN might dip into the $88-87 area (mentioned in last week's update). At this point I would expect the correction to pull AGN down toward its simple 200-dma near $85 or even to the $85 level. If the stock drops any further it would hit our stop loss at $84.50. 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 $ 2.40/ 2.95

05/02/12 AGN missed earnings estimates by a penny, guided lower
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


American Intl. Group - AIG - close: 28.33

Comments:
05/19/12 update: Shares of AIG plunged -10.7% last week. The sell-off in financials is really starting to weigh on the markets. AIG plunged through the $30 level on Thursday but didn't hit our buy-the-dip trigger at $28.25 until Friday afternoon.

After reading some of the headlines regarding Europe on Friday and this weekend, I am not convinced the selling in the financials is over. Readers may want to wait for a dip into the $27.00 area before considering new bullish positions or even a drop toward potential support at the simple 200-dma near $26.00.

Our plan was to keep our initial position size small to limit our risk.

- Suggested Positions - (small positions @ first)
May 18, 2012 - entry price on AIG @ 28.25, option @ 3.40
symbol: AIG1319A30 2013 JAN $30 call - current bid/ask $ 3.35/ 3.45

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 3.90/ 4.20

05/18/12 triggered at $28.25
05/05/12 The U.S. government is planning to sell 164 million shares at $30.50 and AIG will probably gap down on this news.
Move the trigger down to $28.25, and move the stop loss to $25.75.
04/28/12 adjust buy-the-dip trigger to $30.00 and stop to $27.40

Chart of AIG:

Current Target:$ 39.00
Current Stop loss: 25.75
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Bank of America - BAC - close: 7.02

Comments:
05/19/12 update: The correction in BAC is now about eight weeks old and the stock has pulled back to the 61.8% Fibonacci retracement of its rally off the 2011 lows. Shares of BAC are very oversold and way overdue for a bounce. Yet I still expect more weakness in the financials over the next few weeks. I am not suggesting new positions at this time.

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 $ 0.28/ 0.29
(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 $ 0.28/ 0.29
(no stop loss on this position)

05/19/12 BAC has pulled back to the 61.8% retracement
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: 32.72

Comments:
05/19/12 update: The headlines for BMY this past week were not very positive. The FDA has approved a generic version of the blood thinner medication Plavix, made by BMY. Of course this is not a surprise. Wall Street knew this patent was going to expire a long time ago. Shares of BMY did not move on this news. Instead the stock has been churning sideways albeit with a slightly bearish tilt of lower highs and lower lows. If the market continues to dip I would expect BMY to fall toward support near $32 and its simple 200-dma. 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 $ 1.06/ 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


CH Robinson Worldwide - CHRW - close: 58.88

This is a bearish PUT option trade.

Comments:
05/19/12 update: CHRW broke down under support at the $60.00 level. Yet this important move didn't happen until Thursday. I'm actually a little surprised that CHRW did not see bigger declines this past week. The stock is now testing its late April lows near $58.75. More conservative traders may want to wait for CHRW to actually close under $58.75 before initiating new positions.

Our multi-month target is a drop to $50.50. We want to keep our position size small to limit our risk.

- Suggested (small) Positions -
May 07, 2012 - entry price on CHRW @ 60.61, option @ 3.00
symbol:CHRW1319M55 2013 JAN $55 PUT - current bid/ask $ 3.80/ 4.10

Current Target: $50.50
Current Stop loss: 65.25
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12


Colgate-Palmolive Co. - CL - close: 98.79

Comments:
05/19/12 update: Even some of the defensive names like CL have started to see some profit taking. Shares actually rallied to new highs earlier in the week and almost hit $102 but the market's sharp sell-off on Thursday and Friday erased the gains. Looking at the daily or weekly chart you could definitely argue that CL could be forming a short-term top.

If CL does see a correction we should expect a pullback into the $96-94 area. More conservative traders holding the 2013 calls might want to just take profits now with an early exit. 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 $5.20/5.30

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $8.45/9.05

05/19/12 CL looks poised to see a correction toward $96-94
05/05/12 new stop loss @ 91.75
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: 91.75
Play Entered on: 03/16/12
Originally listed on the Watch List: 03/10/12


eBay Inc. - EBAY - close: 38.36

Comments:
05/19/12 update: EBAY also saw a sharp move lower in the last two sessions. Friday saw a breakdown from its $39.00-42.00 trading range and the stock settled on technical support at the 50-dma. I am not expecting this level to hold. Look for a dip into the $37-36 area.

Last week the plan was to exit our 2013 Jan $40 calls at the open on Monday. We were fortunate with the option bid opening at $4.80.

We still have the 2014 calls. 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 - exit @ $4.80 (+68.4%)

- or -

Mar 12, 2012 - entry price on EBAY @ 36.36, option @ 5.11
symbol: EBAY1418A40 2014 JAN $40 call - current bid/ask $ 6.95/ 7.25

05/14/12 closed 2013 Jan $40 calls with a bid at $4.80 (+68.4%)
05/12/12 exit the 2013 Jan $40 calls at the open on Monday. Currently the bid is $4.90
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: 48.48

Comments:
05/19/12 update: The big headlines for EPD this past week was news that the "Seaway" pipeline, a project between EPD and Enbridge Inc. would launch this weekend. This pipeline allows for oil to flow from Cushing, Oklahoma to Houston, Texas allowing U.S. oil access to the Gulf of Mexico and international shipping. Oil inventories in Cushing had reached record levels. I doubt this story had an impact on shares of EPD. Yet the stock made a dramatic move on Friday. Shares of EPD spent the week churning sideways between support near $50 and its 100-dma and overhead resistance at the 50-dma. Then suddenly the stock collapsed on Friday with a -3.7% drop to settle on its 150-dma.

This breakdown and a new relative low definitely makes the peak in February and May look like a bearish double top. More conservative traders may want to exit immediately. 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 $ 2.00/ 2.20

05/02/12 EPD beat earnings and revenue estimates
04/30/12 sold half on Monday at the open. option bid @ 2.85 (+96.5%)
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: 26.07

Comments:
05/19/12 update: Semiconductor stocks had a very rough week. The SOX index plunged -7.5% and fell through technical support at its 200-dma. A -5% drop in Intel didn't help. We have been worried that the reversal in early May was a bearish reversal for INTC and this breakdown to new relative lows confirms it. We have been expecting shares to dip toward the $26.00 level and INTC closed near $26 and its 150-dma on Friday. More conservative traders may want to raise their stop loss.

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 $ 0.83/ 0.86

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - current bid/ask $ 1.96/ 2.01

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


Coca-Cola Company - KO - close: 74.05

Comments:
05/19/12 update: KO had been a relative strength leader for weeks. Yet investors started taking profits in KO as well. Nothing was spared in the market's recent sell-off. That might be a sign we're closer to a bottom. Shares of KO lost more than three points for the week and settled on support (old resistance) near $74.00.

Fortunately, last weekend we had already planned to take some money off the table by selling half of our 2014 call position at the open on Monday (05/14/12). The bid on our option opened at $6.20 (+72.2%).

If you're looking for an entry point I would be tempted to buy calls again on a dip (or a bounce) near $72.00.

Earlier Comments:
We will plan to exit positions prior to KO's proposed 2-for-1 split scheduled for August.

- 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 $ 5.10/ 5.25

05/14/12 sold half of our 2014 Jan $75 calls on Monday at the open
the bid opened at $6.20 (+72.2%)
05/12/12 prepare to sell half at the open on Monday morning to take some money off the table. Current bid is $6.55.
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: 40.44

Comments:
05/19/12 update: LLY spent most of the week churning sideways. Yet I don't see any changes from my prior comments. Odds are LLY will dip toward $40.00 and probably the $39.00 area. 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 $ 1.68/ 1.72

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.51/ 2.52

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


Limited Brands, Inc. - LTD - close: 45.11

Comments:
05/19/12 update: LTD is a watch list candidate that has graduated to the play list. After churning sideways in the $48-49 zone for a few days the stock collapsed thanks to the market's widespread weakness and a disappointing earnings report on May 16th.

We have been expecting LTD to correct lower toward support near $45.00. The stock hit our buy-the-dip trigger at $45.50 on Friday (May 18th). The correction may not be over yet and more conservative traders might want to look for a dip toward the simple 200-dma $43.00-42.75 as their entry point instead.

Our long-term target is $59.00.

- Suggested Positions -
May 18, 2012 - entry price on LTD @ 45.50, option @ 5.10
symbol: LTD1319A45 2013 JAN $45 call - current bid/ask $ 4.80/ 5.00

05/18/12 triggered on a dip at $45.50
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

Chart of LTD:

Current Target: $59.00
Current Stop loss: 41.50
Play Entered on: 05/18/12
Originally listed on the Watch List: 03/10/12


McDonald's Corp. - MCD - close: 89.85

Comments:
05/19/12 update: The correction in MCD has also accelerated this month. Shares are down three weeks in a row and off almost ten dollars from its April close. Shares have fallen below their 200-dma and 200-ema. Now the stock is testing support near $90 and its 300-dma. We have been anticipating a dip toward $90.00. MCD hit our buy-the-dip trigger at $90.25 on Thursday.

More conservative traders may want to wait for a close above its simple 10-dma before considering new bullish positions. I am adjusting our stop loss from $87.75 to $86.75.

- Suggested Positions -
May 17, 2012 - entry price on MCD @ 90.25, option @ 3.20
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 3.15/ 3.20

- or -

May 17, 2012 - entry price on MCD @ 90.25, option @ 4.75
symbol: MCD1418A100 2014 JAN $100 call - current bid/ask $ 4.60/ 4.80

05/19/12 new stop loss at $86.75
05/17/12 triggered on a dip at $90.25
05/12/12 move the trigger to $90.25, stop loss to $87.75
05/05/12 another adjustment. move the trigger to $91.00, stop to $88.40, adjusted the option strikes.
04/28/12 adjust the buy-the-dip trigger to $95.00
04/14/12 adjust buy-the-dip trigger to $94.00.

Chart of MCD:

Current Target: $109.00
Current Stop loss: 86.75
Play Entered on: 05/17/12
Originally listed on the Watch List: 11/05/11


Motorola Solutions, Inc. - MSI - close: 46.97

Comments:
05/19/12 update: It was an ugly week for MSI with shares losing about three points and sinking to new relative lows. The stock's breakdown under $48.00, which should have been support is definitely bearish. MSI ended the week sitting on its exponential 200-dma. At this point I am expecting a dip toward the next level of support near $46 and its simple 200-dma. 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 $ 1.41/ 1.48

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: 58.84

Comments:
05/19/12 update: NTES spent Monday-Wednesday churning sideways just under its 50-dma. The stock appeared to be building a bear-flag pattern. Then NTES reported earnings. The company beat earnings estimates by 13 cents with a profit of $1.14 a share. Revenues came in +35.5% and above expectations. This news sent the stock spiking higher and NTES traded above $63.00 on Thursday intraday. Unfortunately the wider market was in sell-off mode Thursday and Friday so NTES pared its gains.

More conservative traders may want to raise their stop loss closer to the $55 level. 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 $ 7.90/ 8.40

05/16/12 NTES reports better than expected earnings
05/05/12 readers may want to take profits now or raise their stop loss prior to the earnings report on May 16th. Option bid @ 7.20 (+53.1%)
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: 40.69

Comments:
05/19/12 update: RAI is little changed for the week but that is something of a victory considering the market's big declines. RAI is still trading under short-term resistance near $41.00 and its 100-dma and 50-dma near $41.00. I remain cautious here and readers may want to tighten their stops toward $39. 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 $ 1.20/ 1.35

05/05/12 the oversold bounce is reversing. readers may want to exit lower
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


UnitedHealth Group - UNH - close: 53.99

Comments:
05/19/12 update: UNH spent most of the last two weeks churning sideways in a narrow range between technical support at its 100-dma and a short-term trend of lower highs (near the 10-dma). This changed with Friday's breakdown to new relative lows.

Aggressive traders might want to consider lowering their stops to it's under the $50.00 level. If the market continues to drop I would expect UNH to fall toward round-number support near $50.00.

I am not suggesting new positions at this time. We'll keep our stop loss at $52.75 for now.

- Suggested Positions -
Feb 15, 2012 - entry price on UNH @ 54.53, option @ 3.25
symbol: UNH1319A60 2013 JAN $60 call - current bid/ask $ 2.61/ 2.68

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 5.70/ 5.95

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: 41.53

Comments:
05/19/12 update: Big cap telecom stocks like VZ and T continue to show relative strength. VZ spiked to a new multi-year high on Friday. Even though VZ is showing strength I remain cautious and would not launch new positions here. More conservative traders may want to raise their stop loss even higher. Last week we raised the stop loss to $37.75. I am not suggesting new positions at this time.

- Suggested Positions -
Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.17
symbol: VZ1319A40 2013 JAN $40 call - current bid/ask $ 3.20/ 3.25

- or -

Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.87
symbol: VZ1418A40 2014 JAN $40 call - current bid/ask $ 4.15/ 4.25

05/12/12 new stop loss @ 37.75
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: 37.75
Play Entered on: 12/23/11

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


Exxon Mobil - XOM - close: 81.47

Comments:
05/19/12 update: Our XOM trade is in jeopardy. The oil and energy sector has been crushed this month with big declines in the last three weeks. XOM has been struggling to hold support near its April lows in the $82 area the last few days. Friday saw a drop to new four-month lows. If this market trend continues we could see XOM hit our stop under $80 soon. I am not suggesting new positions at this time.

- Suggested Positions -
Dec 22, 2011 - entry price on XOM @ 83.56, option @ 4.63
symbol: XOM1319A90 2013 JAN $90 call - current bid/ask $ 2.07/ 2.11

- or -

Dec 22, 2011 - entry price on XOM @ 83.56, option @ 6.25
symbol: XOM1418A95 2014 JAN $95 call - current bid/ask $ 3.45/ 3.55

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


The Dow Chemical Co. - DOW - close: 29.45

Comments:
05/19/12 update: We have been concerned about the trading in shares of DOW this month. The correction accelerated sharply the last few days and DOW sliced through multiple layers of potential support. Our stop loss was hit on Thursday at $29.45.

- Suggested Positions -
Jan 09, 2012 - entry price on DOW @ 30.46, option @ 2.40
symbol: DOW1319A35 2013 JAN $35 call - exit $1.15 (-52.0%)

- or -

Jan 09, 2012 - entry price on DOW @ 30.46, option @ 2.54
symbol: DOW1418A40 2014 JAN $40 call - exit $1.35 (-46.8%)

05/17/12 stopped out at $29.45
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).

Chart of DOW:

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

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


Las Vegas Sands - LVS - close: 46.38

Comments:
05/19/12 update: When LVS was rising toward $60 back in March we were expecting a potential reversal lower, especially late March with the dip toward the 20-dma. Then shares of LVS rallied to 462 in April. We decided to take profits and sell half of our position on April 16th (+69.3%).

After such a big rally off the December lows we were expecting a correction lower. What we were not expecting was a five-week, -25% correction lower. LVS fell through multiple layers of support and hit our stop loss at $48.95 on May 15th.

- Suggested Positions -
Feb 06, 2012 - entry price on LVS @ 51.35, option @ 4.40
symbol: LVS1319A60 2013 JAN $60 call - exit $2.88 (-35.5%)

05/16/12 stopped out at $48.95
05/12/12 tweak our stop loss down to $48.95
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.

Chart of LVS:

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: 83.51

Comments:
05/19/12 update: The market's three-week correction definitely took its toll on MMM. The stock was trading just under resistance near $90 at the end of April. since then shares have plunged to new relative lows. Friday saw the stock hit our stop loss at $83.75.

- Suggested Positions -
Jan 19, 2012 - entry price on MMM @ 85.10, option @ 3.30
symbol: MMM1319A95 2013 JAN $95 call - exit $1.90 (-42.4%)

05/18/12 stopped out at $83.75
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

Chart of MMM:

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



Watch

More Financial Weakness Ahead

by James Brown

Click here to email James Brown


New Watch List Entries

JPM - JPMorgan Chase

USB - U.S. Bancorp


Active Watch List Candidates

ATVI - Activision Blizzard

CREE - Cree, Inc.

ECA - Encana Corp.

HNZ - H.J. Heinz Co.

MRK - Merck & Co

MSFT - Microsoft Corp.

PFE - Pfizer Inc.

SBUX - Starbucks Corp.


Dropped Watch List Entries

AIG, LTD, and MCD all graduated to our play list.



New Watch List Candidates:


JPMorgan Chase - JPM - close: 33.49

Company Info

JPM has traditionally been considered the "best in breed" among the major banks. That reputation was tarnished this month with the disclosure of $2 billion in trading losses for one of their credit portfolios. The news sparked a significant sell-off. Shares are slicing through support as investors worry about how much risk JPM really has.

This company is so big that even with the $2 billion in losses they will still turn a profit this quarter. This overreaction will probably turn out to be a great entry point for new long-term positions. However, the correction in the financials is probably not over yet. That's why we want to buy calls on a dip near the $30.00 level.

We'll use a trigger to buy calls at $30.25 and we'll use a stop loss at $27.75, which is just under the 2011 low. I would prefer the 2014 calls but more aggressive traders could use the 2013 calls instead.

Buy-the-Dip trigger: $30.25 (stop loss @ 27.75)

BUY the 2013 Jan $33 call (JPM1319a33)

- or -

BUY the 2014 Jan $35 call (JPM1418A35)

Chart of JPM:

Originally listed on the Watch List: 05/19/12


U.S. Bancorp - USB - close: 30.27

Company Info

USB is a large regional U.S. bank that has actually held up pretty well until this last week. The stock finally gave into profit taking and broke its bullish channel that started back in mid 2011.

I am expecting more weakness in the financials but we can use this to our advantage. USB should find support near the $28.00 level. I am suggesting a trigger to buy calls at $28.25. We'll use a stop loss at $25.90. Our long-term target is $34.00. I prefer the 2014 calls but we'll list the 2013s as well.

Buy-the-Dip trigger: $28.25 (stop loss 25.90)

BUY the 2013 Jan $30 call (USB1319A30)

- or -

BUY the 2014 Jan $30 call (USB1418A30)

Chart of USB:

Originally listed on the Watch List: 05/19/12


Active Watch List Candidates:



Activision Blizzard, Inc. - ATVI - close: 11.97

Comments:
05/19/12 update: Shares of ATVI saw a spike higher on the release date of its new Diablo 3 game (May 15th) but the rally failed at resistance near $13.00. Now shares are testing support near $12.00 and its 300-dma. If this stock does not show improvement soon then we'll drop it as a candidate. Currently we are waiting for a breakout over resistance near $13.00.

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.

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


Cree, Inc. - CREE - close: 28.49

Comments:
05/19/12 update: It was an ugly week for technology stocks and semiconductor stocks were hammered harder than most. CREE has corrected from the $33 level to technical support at its simple 200-dma near $28.50. If we see CREE close under $28.00 a week from now we'll likely drop it as a candidate (and short-term traders could buy puts and target a move toward the $22-20 zone).

At the moment we're waiting for a breakout over resistance. 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


Encana Corp. - ECA - close: 19.63

Comments:
05/19/12 update: Energy stocks were also big underperformers last week. ECA has fallen back below the $20 mark and several key moving averages. If this stock does not show improvement soon we will likely drop it as a candidate.

I am suggesting we wait for ECA to close over $22.50. We'll buy calls the next day with a stop loss at $18.75. Our long-term targets is 29.00 (although we'll probably exit the 2013 calls before ECA hits $29).

Breakout trigger: close over $22.50, stop loss @ 18.75

BUY the 2013 Jan $25 call (ECA1319A25)

- or -

BUY the 2014 Jan $25 call (ECA1418A25)

Originally listed on the Watch List: 05/12/12


H.J. Heinz Co. - HNZ - close: 54.10

Comments:
05/19/12 update: HNZ held up reasonably well only losing about 70 cents for the week. This coming week the stock could see some volatility. The company is scheduled to report earnings on May 24th. Wall Street expects a profit of 79 cents a share.

I am suggesting we wait for HNZ to close over $55.50 and then buy calls the next day with a stop loss at $51.85 (just under the April low). Our long-term target is $64.00.

Breakout trigger: close over $55.50, stop loss @ 51.85

BUY the 2013 Jan $55 call (HNZ1319A55)

- or -

BUY the 2014 Jan $60 call (HNZ1418A60)

Originally listed on the Watch List: 05/12/12


Merck & Co - MRK - close: 37.82

Comments:
05/19/12 update: MRK spent the week churning sideways inside a $1.00 range. I don't see any changes from my prior comments.

Currently we are waiting to launch positions until MRK can close over $40.00 and then buy calls the next day. Our long-term target is $47.50. FYI: The Point & Figure chart has a long-term target of $60.00.

Breakout trigger: Wait for close over $40.00, stop loss @ 37.75

BUY the 2014 Jan $40 call (MRK1418A40)

Originally listed on the Watch List: 05/05/12


Microsoft - MSFT - close: 29.27

Comments:
05/19/12 update: MSFT was down every day last week. Shares look poised to hit $29.00 and its 150-dma and 200-ema on Monday. I suspect we will see MSFT actually fall toward its simple 200-dma near $28.25. Therefore, we will adjust our buy-the-dip trigger to buy calls at $28.50 and move our stop loss down to $26.45.

Buy-the-Dip trigger: $28.50 (stop @ $26.45)

BUY the 2013 Jan $30 call (MSFT1319A30)

- or -

BUY the 2014 Jan $30 call (MSFT1418A30)

05/19/12 adjust the trigger to $28.50, stop to $26.45
05/05/12 adjust the trigger to $29.00
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: 22.57

Comments:
05/19/12 update: PFE is still holding up reasonably well. The stock is only down a few cents for the week.

I am suggesting we wait for PFE to close over $23.20 and then launch positions the next morning. 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


Starbucks Corp. - SBUX - close: 51.53

Comments:
05/19/12 update: Ouch! It was a rough week for SBUX with the stock down five days in a row. We've been expecting a correction toward $50. I am adjusting our stop loss to $45.75 so it's under the 200-dma. FYI: more conservative traders may want to wait for SBUX to close over its simple 10-dma before initiating positions.

I am suggesting we buy calls if SBUX trades down to $50.25. The $50.00 level should be round-number support. We'll use a stop loss at $47.00. Our long-term target is $64.00.

Buy-the-Dip trigger: $50.25 (stop loss @ 45.75)

BUY the 2013 Jan $55 call (SBUX1319A55)

- or -

BUY the 2014 Jan $60 call (SBUX1418A60)

05/19/12 adjust stop loss to $45.75

Originally listed on the Watch List: 05/05/12