Option Investor
Newsletter

Daily Newsletter, Sunday, 5/27/2012

Table of Contents

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

Leaps Trader Commentary

Could Be an Exciting Summer

by James Brown

Click here to email James Brown

The U.S. stock market ended a three-week losing streak with last week's widespread bounce. The S&P 500 index posted a +1.7% gain for the week in spite of rising concerns that Greece may exit the Eurozone. Europe remains the focus for market participants. Much of last week's gains came from a big oversold bounce on Monday, which may have gotten a boost from headlines out of the G8 summit last weekend where leaders expressed their desires to keep the Eurozone together (big surprise there, right?). By Friday's closing bell the NASDAQ Composite was up +2.1% for the week. The Dow Industrials were up +0.6%, the small cap Russell 2000 index +2.5%, and the Dow Jones transportation average was up +4.2%.

Concerns over the Eurozone pushed the euro currency toward a new two-year lows against the U.S. dollar, near $1.25. The greenback is nearing its January 2012 highs. Gold lost -1.2% for the week but it's hovering near support. Crude oil posted another weekly decline but it was only -0.1%. Oil looks oversold here and due for a bounce. Recent talks in Baghdad between Iran and a six-country coalition over Iran's nuclear activities didn't end well so I am surprised that oil has been so weak. Oil closed below $90 a barrel for the first time this year.

Daily chart of the Euro ETF:

Daily chart of the U.S. dollar Index:

Investors remain cautious with money still flowing toward safe haven securities. A week ago the U.S. ten-year bond saw its yield close at a record low of 1.7%. This past week saw a small pullback in bonds lifting the yield to 1.745%. Yet the German bond market saw an influx of money and the rally there pushed the yields on a German 30-year bund to under 2% for the first time in history. Speaking of Europe, EU leaders meet in Brussels again on Wednesday. The general message that most took away from that meeting was that individual nations need to prepare for a disorderly Greek exit from the euro. Not helping matters was the Organization for Economic Co-operation and Development (OECD) who adjusted their Eurozone growth forecasts lower.

Economic data in the U.S. was mixed. Weekly initial jobless claims are still coming in a little high at 370,000 last week. New home sales for April hit an annual pace of 343,000, which was slightly ahead of expectations. Existing home sales slipped to an annual pace of 4.62 million units, just under expectations. The U.S. durable goods orders rose +0.2% in April but ex-transports the report showed a -0.6% contraction. This was definitely weaker than expected.

The biggest data surprise for the week was probably the final reading on the University of Michigan's Consumer Sentiment survey for May, which rose to a four-year high at 79.3. Economists were only expecting a rise from 76.4 in April to 77.8 in May. The current conditions component and the expectations component both showed strong improvement. These individual components are at their highest levels since January 2008 and July 2007, respectively. Unfortunately we are not seeing positive data overseas. Manufacturing data out of France, Germany, the Eurozone and China all disappointed this past week. Meanwhile the World Bank cut their growth forecast for China.

Major Indices:

The market was due for a bounce after a sharp three-week plunge. The S&P 500 index had fallen toward its 300-dma a week ago Friday. Now the index is up four out of the last five days. Yet it's struggling to get past its simple 10-dma. Even if the bounce continues prior support near 1340 or 1360 should be new overhead resistance. My concern is that if stocks bounce it will trick traders into buying the bounce only to see the rebound reverse hard at one of these levels (1340, 1360).

There is no guarantee we will bounce. Stocks could churn sideways as investors wait for new data on the upcoming Greek elections in June, or the next Fed meeting, or Q2 earnings season in July.

The simple 200-dma near 1280 should offer additional support. Plus, a drop to 1280 would be a -10% correction from the 2012 highs. Naturally a close under 1280 would be seen as very bearish and would probably signal a drop toward 1250 and lower.

Daily chart of the S&P 500 index:

The NASDAQ composite produced a strong bounce last week but it too is having trouble getting past short-term resistance at its simple 10-dma. On the 60-minute chart below you can see that recent sessions have created a pennant-shaped consolidation. These are supposed to be neutral but more often than not the breakout continues with the previous trend, in this case that would be down.

The 2750 level is the key area to watch. It's near the 61.8% Fib retracement of the NASDAQ's big rally and it's also near the simple 200-dma, which should offer technical support. Prior support near 2900 is now overhead resistance.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index is also bouncing and also struggling with its 10-dma. The sideways chop this past week looks like the S&P 500. Yet the larger pattern is clearly bearish with a head-and-shoulders pattern. Broke support near 780 should be near resistance. The H&S pattern is currently forecasting a drop toward the 710 area.

Daily chart of the Russell 2000 index

It's a holiday shortened week for the U.S. with markets closed on Monday for the Memorial Day holiday. Plus, the monthly calendar rolls over this coming week. That means a wave of economic reports. The big headlines will be the ADP employment number, U.S. Q1 GDP revisions, and Chicago PMI on Thursday. Economists are expecting the GDP number to be revised to +2.3% growth but some are hedging their bets and expecting a drop under +2.0%. Then on Friday it's the nonfarm payroll (jobs) report. Analysts are looking for +175,000 new jobs created in May. So far this year the monthly jobs report has tended to disappoint to the downside. I would not be surprised to see stocks churn sideways until we get Friday's jobs number.

FYI: The IMF's quarterly review of Greece has been postponed from the end of May until after the June 17th elections.

Economic and Event Calendar

- Monday, May 28 -
U.S. markets are closed for Memorial Day holiday

- Tuesday, May 29 -
Case-Shiller 20-city home price index
Consumer Confidence for May

- Wednesday, May 30 -
Pending Home Sales data

- Thursday, May 31 -
Weekly Initial Jobless Claims
ADP Employment report for May
Q1 GDP (U.S., 2nd estimate)
Chicago PMI

- Friday, June 1 -
Nonfarm Payrolls (jobs) report for May
Unemployment rate
Personal Income and Spending
ISM Index for May
auto and truck sales

Upcoming events:

May 31st, Irish European fiscal compact referendum
June 17th, Greek elections
June 18-19th, Iran/multi-nation talks (Russia, U.S., China, France, U.K.)
June 19th, FOMC meeting
mid June 2012, IMF quarterly review of Portugal and Ireland

The Week Ahead:

Looking ahead the challenges in Europe and the Eurozone will remain in the spotlight. The Greek tragedy might be the current headliner but Spain is getting warmed up backstage for its debut with a tap dance around the cliff's edge of economic ruin. You've probably heard that the early May elections in Greece did not solve anything. The new government was unable to come together and form any sort of working coalition. This has prompted another round of elections scheduled for June 17th.

The majority of Greek citizens interviewed have expressed their desire to stay in the euro yet the anti-austerity, "we're going to leave the euro" party Syriza is gaining support. If this group gains a majority in the next elections it's going to cause raise a lot of fears that Greek might exit the euro sooner than anyone expects. The likely scenario is that some day in the future, over a weekend, the newly elected Greek government decides to jump ship, leave the euro, and re-launch their own currency (most likely reviving the drachma). This would cause economic shockwaves around the world even though more and more people are expecting this very event to happen. A recent Bloomberg survey showed more than 50% of investors expect Greece to exit the Euro this year. Just this past week the EU meeting in Brussels ended with leaders needing to plan for a messy Greek exit.

Meanwhile Spanish banks are sinking fast. It wasn't that long ago that Spain formed the Bankia Group as a merger of seven struggling banks. The thought was they would be stronger together than as individual entities. Well now Bankia is struggling with liquidity issues and asked the Spanish government for 19 billion euros in aid. Spanish banks are already under the gun to raise capital after Spain's economic minister has demanded the banks raise tens of billions of euros worth of new capital to strengthen their balance sheets.

All this worry about Spain's banks is pushing yields up on the country's bonds. Remember, that the level to watch is 7% yields on Spain's 10-year note, which is considered unsustainable. Yields are currently above 6%. Banks are the only problem for Spain. The real estate market is in shambles. Unemployment is soaring at 24% (over 50% if you're under the age of 25). If Greece leaves the euro you can bet Spain is going to consider it. The ability to print your own currency and de-value as needed might be considered a better alternative to unbearable austerity measures. The difference between Greece and Spain is significant. Greece has 11 million people and a $303 billion economy. Spain has 46 million people and $1.5 trillion economy. Unfortunately Spain's debt is already at 79% of its GDP, up from 68% in 2011.

What will the Federal Reserve do at their next June 19th meeting? Their Operation Twist is scheduled to close at the end of June. Do they extend their "Twist" program? Do they offer some form of QE3? That might depend on the jobs number this coming Friday. However, I suspect the Fed will not launch QE3 yet. They could be saving that bullet until after Greece exits the Eurozone. Then they could deploy QE3 to try and soften the blow from turmoil in Europe.

We will probably start to hear more and more about Iran as we approach the July 1st deadline. I mentioned earlier that recent talks between Iran and a multi-nation coalition to discuss Iran's nuclear activities did not fare well. Iran is already suffering significantly due to current economic sanctions. Oil exports are Iran's biggest revenue generator and the country sells about 600,000 barrels of oil a day to the EU. The EU is planning to stop buying oil from Iran with their oil embargo scheduled for July 1st. This is going to ratchet up the war rhetoric as a desperate Iranian leadership looks to rally the angry populous against the West. There have been constant rumors that Israel is considering a unilateral strike at Iran's nuclear facilities before the end of summer.

The only winner here is China who will play both sides of the Iran fence. China is part of the current multi-nation talks. They are also one of Iran's biggest customers for oil. You can bet China will wait until the very last minute prior to the July 1st EU embargo deadline and try to squeeze Iran for exceptionally cheap oil prices to take advantage of the situation. Talks between Iran, the U.S., France, U.K., China, and Russia are scheduled to resume on June 18-19th.

It's going to be an exciting summer. We could see a Greek exit, rising tensions with Iran, recessions in Europe, a slowdown in China, the upcoming U.S. presidential race, and then the looming U.S. fiscal cliff in January 2013. No wonder yields on U.S. and German bonds are near all-time lows. Investors are seeking safety. Goldman Sachs recently voiced their opinion that the S&P 500 is going to end the year near 1250, which is essentially flat for the year. That doesn't inspire a lot of confidence.

The intermediate trend is down. We could see another short-term bounce but general market trend has gone from buying dips to selling rallies. I would be very cautious when it comes to launching new bullish positions.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market ended a three-week losing streak with a widespread oversold bounce. Most of that gains was from Monday's rally and the markets consolidated sideways the rest of the week. The four-week trend is still down. There is no way to tell if the oversold bounce will continue or if stocks will resume the correction lower. Or do stocks merely churn sideways waiting for the next catalyst to move them like the upcoming jobs report or the mid-June Greek elections?

More conservative traders may to scale back their position size and double check their stop loss placement.

I have updated stop losses on: BMY, NTES, and RAI.

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

The Wall of Worry

by James Brown

Click here to email James Brown

Editor's Note:

Stocks have bounced, alleviating some of the oversold pressures. The question now is will the bounce continue or will the correction lower resume? There are a lot of high-anxiety events on the calendar this summer. We know bull markets like to climb the wall of worry but this wall is looking pretty dangerous.

Given my very cautious outlook for the market right now we are not adding any new trades tonight. I've updated the watch list with both a bullish and bearish candidate.

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

DPS, MO, AMRN, EIX, WMT, BBBY, DFS, YUM, S, DIS,


Play Updates

Stocks Consolidate Sideways

by James Brown

Click here to email James Brown

Editor's Note:

I remain cautious on the market. Readers will want to double check their stop loss placement.


Closed Plays


None. No closed plays this week.


Play Updates


Archer-Daniels-Midland Company - ADM - close: 32.25

Comments:
05/26/12 update: Traders bought the dip near ADM's rising 50-dma midweek. Optimistically this could be a new short-term bottom but if the market breaks down I would still expect ADM to dip toward $31 or possibly $30.

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 $ 1.78/ 1.84

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: 90.53

Comments:
05/26/12 update: AGN found support near its simple 150-dma this past week. Yet now it has to get past new resistance at its 100-dma. The long-term trend is still bullish but I would hesitate to launch new positions here. If the market sees further weakness AGN could dip toward its simple 200-dma near $86.50ish. I am not suggesting new positions at this time.

FYI: The spread on AGN's options have widened again.

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 $ 2.55/ 3.50

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: 28.99

Comments:
05/26/12 update: The past week in AIG has formed a pennant-shaped consolidation of lower highs and higher lows. These are supposed to be neutral patterns but more often than not they breakout into the prevailing trend and for AIG the intermediate trend is down. More aggressive traders could entertain buying calls if AIG closes over $30.00 or its 50-dma. I am suggesting readers wait for a dip near $27.00 or its simple 200-dma near $26 before considering new positions.

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 $ 3.50/ 3.60

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.00/ 4.30

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

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: 7.15

Comments:
05/26/12 update: After a -30% correction lower it looks like BAC may have found a new short-term bottom. The current trend is still down but BAC is trying to breakout past its 200-dma and it is above its simple 10-dma. This stock hasn't closed above its simple 10-dma in almost two months.

If the market does find support here then we could see BAC bounce back toward the $8.00 area, which should be new resistance. If the market does not find support then BAC could be headed for $6.00.

Worries over the real estate market (foreclosures) in the U.S. and worries over exposure to European banks could keep pressure on BAC. 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 $ 0.30/ 0.31
(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 $ 0.30/ 0.31
(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: 33.09

Comments:
05/26/12 update: BMY's correction during the month of May has been pretty mild. Shares have faded from the $33.50 area to just under $32.50 this past week. Now the stock is bouncing although the bounce did stall at its 50-dma on Friday.

If you wanted to get nitpicky you could argue that BMY has formed an ugly looking bearish head-and-shoulders pattern over the last nine months with an upward slanting neckline. A breakdown under support near $32.00 and its 200-dma would be very ugly indeed. I am raising our stop loss up to $31.45. 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

05/26/12 new stop loss @ 31.45
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: 31.45
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


CH Robinson Worldwide - CHRW - close: 59.69

This is a bearish PUT option trade.

Comments:
05/26/12 update: CHRW is not seeing much movement either direction but shares are still building on a bearish trend of lower highs. Readers may want to wait for CHRW to close under $58.75 or $58.50 before initiating new put 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 $ 3.50/ 3.70

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: 98.80

Comments:
05/26/12 update: CL is virtually unchanged for the week but the options contracted anyway. Shares did temporarily dip underneath their simple 50-dma on Wednesday. The bounce has been struggling with short-term resistance at the 10 and 20-dma overhead. This would suggest that the action two weeks ago is indeed a bearish reversal pattern.

I am expecting CL to correct lower into the $96-94 zone. We will wait for a bounce in that area before considering new bullish positions. More conservative traders may want to take profits now, especially if you're holding the 2013 calls.

- Suggested Positions -
MAR 16, 2012 - entry price on CL @ 95.48, option @ 2.92
symbol: CL1319A100 2013 JAN $100 call - current bid/ask $4.85/5.05

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $8.20/9.00

05/26/12 Still expecting a correction into the 96-94 zone.
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: 40.35

Comments:
05/26/12 update: EBAY continues to bounce following the May 18th test of technical support at the 50-dma. Yet shares have not quite broken out past its four-week trend of lower highs. You could argue that EBAY is forming a bull-flag consolidation pattern but it still needs to breakout. If the market breaks down again I would expect a dip into the $38-36 zone.

We have previously closed our 2013 position. We still have the 2014 calls. I am not suggesting new positions at this time.

- Suggested Positions -
(previously closed 2013 position)
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 $ 8.10/ 8.25

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: 49.44

Comments:
05/26/12 update: I am growing more and more worried about EPD. On the positive side traders did buy the dip twice near $48.30 this past week. On the negative side the bounce has been unable to breakout past its simple 10-dma. The four-week trend is currently down following a bearish double top pattern.

More conservative traders may want to exit right now or exit on any bounce near the 50-dma. If the market continues to sink we could see EPD correct back toward what should be significant support near $44.00. The simple 200-dma has risen to $46.85. We have a stop loss at $46.75. 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 $ 2.35/ 2.55

05/26/12 I am repeating my suggestion that cautious traders exit early now!
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: 25.74

Comments:
05/26/12 update: Semiconductor stocks have gotten hammered this month with the SOX index falling from 415 to 364, a -12.2% decline. INTC has not helped the industry with a plunged from $29.25 in early May to almost $24.90 this past week. That's a -14.8% correction. Thankfully investors bought the dip near $25 and its rising 200-dma. Intel remains oversold given its four-week plunge.

At this time I would wait for INTC to close above $26.25 before considering new bullish positions but nimble traders could buy another dip near $25.00 instead. We are keeping our stop loss at $24.75 for now.

- 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 $ 0.60/ 0.62

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - current bid/ask $ 1.71/ 1.75

05/23/12 INTC dipped to $24.92 intraday before rebounding
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: 75.23

Comments:
05/26/12 update: KO is currently bouncing from its recent test of short-term support near $74 and its rising 50-dma. Shares still have overhead resistance at the $76 and $78 levels. I'm not convinced the market's correction is over yet. Even though KO is a defensive stock it will still decline in a market sell-off.

I am not suggesting new positions at this time.

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 $ 5.60/ 5.70

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: 41.11

Comments:
05/26/12 update: LLY continues to hold up reasonably well. The stock has spent most of the last two weeks consolidating sideways in the $40.35-41.00 zone. Its larger trend still looks bullish but 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 $ 1.70/ 1.77

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.58/ 2.73

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: 46.41

Comments:
05/26/12 update: Just as we expected shares of LTD are finding support near $45.00. Now shares are challenging short-term resistance at their 10-dma. The next hurdle for the bulls will be resistance near $48 and its 50-dma. However, if the market breaks down again we could see LTD drop toward its simple 200-dma near $43.00. While I am bullish on LTD readers may want to wait on launching positions.

- Suggested Positions -
May 18, 2012 - entry price on LTD @ 45.50, option @ 5.10
symbol: LTD1319A45 2013 JAN $45 call - current bid/ask $ 5.30/ 5.60

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

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: 91.05

Comments:
05/26/12 update: The oversold bounce in shares of MCD has been underwhelming. The rebound has stalled at resistance near $92.00. Currently we have a stop loss at $86.75. More conservative traders may want to raise theirs toward the May low near $89.50. I would wait for a close over $92.00 before considering new positions. Nimble traders could still try to buy dips near $90 and its 300-dma.

FYI: Don't look now but we're going to see the 50-dma cross under its 200-dma in the next week or two if MCD doesn't show some upward momentum soon. Technically that would be called the "death cross" because it's a bearish signal. I remain bullish. After an -11% correction from its high it's time for MCD to resume the long-term up trend.

- Suggested Positions -
May 17, 2012 - entry price on MCD @ 90.25, option @ 3.20
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 3.25/ 3.35

- or -

May 17, 2012 - entry price on MCD @ 90.25, option @ 4.75
symbol: MCD1418A100 2014 JAN $100 call - current bid/ask $ 4.85/ 5.05

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.

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: 48.02

Comments:
05/26/12 update: Hmm... MSI spent the week in a $1.30 range with support near $47.00 and resistance at its 10-dma. The four-week trend is down and you could argue the peaks in March and May might be considered a bearish double top. Over the last several months investors have bought dips to MSI's rising 200-dma. If the market drops again I would expect MSI to test that moving average near 46.50 (and probably dip to $46.00). 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 $ 1.36/ 1.49

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: 57.26

Comments:
05/26/12 update: I am growing concerned over NTES' recent volatility. Better than expected earnings news failed to push shares out of the current trading range. Percentage wise NTES has held up better than many tech stocks over the last four weeks. Yet I'm worried the stock could be forming a top. If shares breakdown under the $55 level I would expect a correction down to $50.00.

More conservative traders may want to exit now! I am raising our stop loss to $54.95. 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 $ 6.70/ 7.10

05/26/12 new stop loss @ 54.90. Cautious investors may want to exit early now!
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: 54.90
Play Entered on: 02/29/12

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


Reynolds American Inc. - RAI - close: 41.97

Comments:
05/26/12 update: It proved to be a good week for RAI with shares showing relative strength and a breakout past resistance near $41.00. Now RAI is testing the next level of resistance at $42.00.

The late April low was $39.45. I am raising our stop loss up to $39.35. Readers could use a close over $42.50 as a new bullish entry point.

- 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 $ 1.50/ 1.70

05/26/12 new stop loss @ 39.35
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: 39.35
Play Entered on: 11/18/11
Originally listed on the Watch List: 10/22/11


UnitedHealth Group - UNH - close: 56.12

Comments:
05/26/12 update: UNH's bounce from $54 to $56 has definitely given our options a boost but the stock is struggling with resistance near the simple 50-dma. It's failed to breakout past this level three days in a row. Aggressive traders might want to consider buying calls on a close above $57.00. I am not suggesting new positions at this time. The $59.60-60.00 area remains overhead resistance.

Investors should keep in mind that the U.S. Supreme Court is going to present a ruling on the constitutionality of the Affordable Health Care Act (a.k.a. Obamacare). The results of this ruling could have a profound impact on the healthcare stocks.

- Suggested Positions -
Feb 15, 2012 - entry price on UNH @ 54.53, option @ 3.25
symbol: UNH1319A60 2013 JAN $60 call - current bid/ask $ 3.35/ 3.60

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 6.60/ 6.90

05/26/12 Don't forget - the Supreme Court ruling on Obamacare is in June
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: 41.45

Comments:
05/26/12 update: Shares of VZ are still holding up pretty well. The stock consolidated sideways this past week. If you study the intraday chart VZ looks poised to move higher.

More conservative investors may want to raise their stop loss. 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 $ 2.92/ 2.96

- or -

Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.87
symbol: VZ1418A40 2014 JAN $40 call - current bid/ask $ 3.90/ 4.00

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: 82.08

Comments:
05/26/12 update: XOM managed a gain for the week but our options contracted again. Traders did buy the dip near round-number support at $80.00 on Wednesday. A close above short-term resistance near $83.00 would be encouraging. Crude oil has seen a huge sell-off thanks in part to strength in the U.S. dollar. Oil is now due for a bounce. Plus, we have rising tensions with Iran as we approach the July 1st due date for the EU oil embargo to begin. This could lift oil prices, which should be bullish for the oil stocks.

I am not suggesting new positions on XOM 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 $ 1.94/ 1.99

- or -

Dec 22, 2011 - entry price on XOM @ 83.56, option @ 6.25
symbol: XOM1418A95 2014 JAN $95 call - current bid/ask $ 3.25/ 3.40

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


Watch

Oil Services & Beverages

by James Brown

Click here to email James Brown


New Watch List Entries

HAL - Halliburton

PEP - Pepsico Inc.


Active Watch List Candidates

ATVI - Activision Blizzard

ECA - Encana Corp.

HNZ - H.J. Heinz Co.

JPM - JPMorgan Chase

MRK - Merck & Co

MSFT - Microsoft Corp.

PFE - Pfizer Inc.

SBUX - Starbucks Corp.

USB - U.S. Bancorp


Dropped Watch List Entries

CREE was removed.



New Watch List Candidates:


Halliburton Co. - HAL - close: 31.37

Company Info

This is a PUT trade

HAL is an oil services company that is almost 100 years old. Unfortunately for current shareholders both the stock and the OSX oil services index are in a bearish trend of lower highs and lower lows. Shares of HAL have fallen to key support near $30.00 and a long-term trend line of higher lows that dates back to 2009. If HAL breaks this trend line it could signal a much deeper correction to come.

I am suggesting we buy put options on HAL if the stock closes under $29.50. If triggered we'll use a stop loss at $32.55. Our initial long-term target will be $21.50. Currently the Point & Figure chart is bearish with a $24 target.

Breakdown trigger: Wait for a close under $29.50, buy PUTs the next day, stop loss at $32.55

BUY the 2013 Jan $25 PUT (HAL1319M25) current ask $1.79

- or -

BUY the 2014 Jan $25 PUT (HAL1418M25) current ask $3.75

Chart of HAL:

Originally listed on the Watch List: 05/26/12


Pepsico, Inc. - PEP - close: 68.64

Company Info

Coca-cola's long-term archenemy is Pepsi. Both stocks have been showing relative strength in recent months. Shares of PEP broke through resistance near $67.00 a couple of weeks ago. Aggressive traders could buy calls now. I am suggesting we wait for PEP to close above $70.25. We'll buy calls the next day with a stop loss at $65.75. Our long-term target is $79.00. FYI: The Point & Figure chart is currently forecasting an $80 target.

Breakout trigger: Wait for a close over $70.25, stop loss @ 65.75

BUY the 2014 Jan $75 call (PEP1418A75) current ask $2.54

Chart of PEP:

Originally listed on the Watch List: 05/26/12


Active Watch List Candidates:



Activision Blizzard, Inc. - ATVI - close: 12.24

Comments:
05/26/12 update: ATVI is still holding near support at the bottom of its range near $12.00 so we are not giving up yet. We will have to be patient. Currently we are waiting for a breakout over resistance near $13.00.

If ATVI closes under $11.90 we'll probably drop it as a candidate.

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: 26.11

Comments:
05/26/12 update: A terrible plunge in the semiconductor sector has helped fuel a big sell-off in CREE. Shares have broken down below several layers of support. Our plan was to buy calls on a close over $34.50. That's unlikely to happen any time soon. We are dropping CREE as a candidate.

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

Trade did not open.

05/26/12 removed CREE from the watch list.

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


Encana Corp. - ECA - close: 20.50

Comments:
05/26/12 update: ECA is holding up reasonably well with a short-term bullish trend of higher lows. We still need to be patient and wait for the breakout.

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: 53.50

Comments:
05/26/12 update: The correction lower in HNZ stopped at technical support near $52.50 and its simple 200-dma on Thursday. Aggressive traders could buy calls now with a tight stop (maybe near $52.00). However, 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


JPMorgan Chase - JPM - close: 33.50

Comments:
05/26/12 update: The oversold bounce in JPM seems to be losing steam. Shares could be poised to continue the correction lower. I am suggesting we take advantage of investors worry and confusion over JPM's risk and liabilities and buy calls on a dip at $30.25. We'll use a stop loss at $27.75. 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)

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


Merck & Co - MRK - close: 37.55

Comments:
05/26/12 update: MRK lost about -1% for the week. If this stock doesn't show some improvement soon we'll probably drop it as a bullish candidate.

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: 29.06

Comments:
05/26/12 update: MSFT almost hit our buy-the-dip entry point at $28.50 on Wednesday but shares bounced at $28.64. The intermediate trend is still down so odds are good we will see MSFT hit our entry point soon. More conservative traders may want to wait for a dip near $28.00 instead or even wait for MSFT to close above its simple 10-dma as an alternative entry point.

If we are triggered at $28.50 we'll start with a stop loss at $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: 22.13

Comments:
05/26/12 update: PFE lost about 40 cents for the week. The close under its 50-dma is bearish and on a short-term basis the stock looks poised to correct lower. I suspect we could see PFE dip toward $21.00 or its 200-dma.

At the moment we are leaving our strategy unchanged with plans to buy calls when PFE closes above $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: 54.56

Comments:
05/26/12 update: SBUX saw a big oversold bounce this past week but you'll notice the bounce reversed at technical resistance at the 50-dma. I am still expecting a dip toward $50.00.

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


U.S. Bancorp - USB - close: 30.93

Comments:
05/26/12 update: USB did produce a gain for the week but the rally has stalled under new resistance near $31.40 (and its 50-dma). Our strategy remains unchanged.

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)

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