Option Investor
Newsletter

Daily Newsletter, Sunday, 6/10/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Bounce, Spain Gets a Bailout

by James Brown

Click here to email James Brown

The S&P 500 just delivered one of its best weeks of the year with a +3.7% gain after touching a -10% correction the week before. The trend in currencies saw a brief reversal with the euro ending a five-week slide and the dollar snapping a five-week rally. The overall trend for both remains unchanged at the moment. Gold and silver failed to see much progress and oil's oversold bounce for the week gave back most of its gains by Friday's close. Yields on the U.S. ten-year note bounced from record lows to end the week at 1.6%.

Much of the market's focus remains on Europe and China. Two weeks ago China denied that they would add any new stimulus to their slowing economy but on Thursday the Chinese central bank announced a surprise rate cut to interest rates. This is the first cut since 2008 and suggests that May's economic data might be worse than expected.

Meanwhile in Europe the ECB left rates unchanged at 1.0% due to worries about rising inflation. German factory orders and exports came in worse than expected. Eurozone retail sales also disappointed. Spain was making headlines with its successful 2.1 billion euro debt auction. Shortly after this successful debt sale the country's credit rating was downgraded from A to BBB. We'll talk more about Spain in a bit.

At home in the U.S. the economic data was relatively anemic. The weekly initial jobless claims were virtually in-line with estimates at 377,000 yet continuing claims ticked up from 3.25 million to 3.29 million. The ISM services index improved from 53.5 to 53.7 in May, which was better than expected. The Federal Reserve's Beige Book was a non-event with the report suggesting the same modest to moderate economic activity across the 12 districts. There was some hope that Fed Chairman Bernanke might hint at further stimulus during his testimony this past week but he failed to offer any new signs of further QE other than "being prepared to act".

Major Indices:

Two weeks ago the S&P 500 index plunged -3.0%. The weakness continued on Monday until the index managed a little double bottom near 1266. The index reversed into a 4-1/2 day bounce posting a +3.7% gain on the week. After hitting a -10% correction from its 2012 highs an oversold bounce isn't a surprise. Unfortunately the gains last week have the sharp, volatile characteristics of a bear-market rally.

The S&P 500 is back above key levels at 1280, 1300, 1320 and its 200-dma. The next hurdle for the bulls is likely resistance at the 1340 level. Beyond that is technical resistance at the 50-dma and 100-dma just under 1360.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite produced a very strong +4.0% gain, helped in large part by a +5.5% surge in the SOX semiconductor index. The NASDAQ is back above key levels like its 200-dma, 2750 and 2850. If this index can rally past 2880 it could signal further gains although technically 2900 should be resistance. I'd watch for a rebound to 2950 and its 50-dma if the NASDAQ can close over 2880.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small caps tend to be more volatile than the big caps and this week was no different. The Russell 2000 index delivered a +4.3% gain. It is back above its 200-dma. Yet the rebound has failed to breakout past key resistance at the 780 level. Thus the bearish head-and-shoulders pattern is still in effect and suggesting a drop toward the 710 area.

One thing you'll notice on the weekly charts is that on the S&P 500 and NASDAQ the big bounce almost created a bullish engulfing candlestick reversal pattern. Yet on the $RUT's weekly chart it did not.

Daily chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

There are a number of headlines to watch for this week. On Monday the markets will be reacting to generally disappointing economic data out of China. Plus, the EU bailout for Spanish banks. Once we get past Monday the focus will turn to the upcoming Greek elections on June 17th. The OPEC meeting on Thursday could produce headlines. Meanwhile in the U.S. the major reports will be the PPI and CPI readings on inflation.

It's not on the calendar this week but some time during the month of June we are expecting the U.S. Supreme Court's decision on Obamacare.

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, June 11 -
(nothing significant)
except reaction to Chinese economic data and Spain's request for help with their banks.

- Tuesday, June 12 -
import/export prices for May

- Wednesday, June 13 -
U.S. retail sales for May
PPI for May

- Thursday, June 14 -
Weekly Initial Jobless Claims
OPEC meeting
CPI for May

- Friday, June 15 -
New York Empire Manufacturing survey
industrial production and capacity utilization
University of Michigan Sentiment for June

- Sunday, June 17 -
Greek Elections

Upcoming events:

June 18-19th, Iran/multi-nation talks (Russia, U.S., China, France, U.K.)
June 19th, FOMC meeting
June 28-29th, EU summit
mid June 2012, IMF quarterly review of Portugal and Ireland
Supreme Court ruling on Obamacare (in June)

The Week Ahead:

This weekend (June 9-10) one of the major events is new economic data out of China. Economists were estimating that China's factory output would rise to +9.9% growth, up from +9.3%. On Saturday May's report only showed a +9.6% growth, which lends weight to the idea that the world economy is slowing. Another disappointment was China's retail sales growth in May, which came in at +13.8%, worse than the +14.3% estimate. Economists are estimating that China's 2012 GDP growth will slow to +8.2%, the lowest reading in 13 years. India and Brazil are also seeing their GDP growth slow, which reinforces the worry of a global slowdown.

The really big event this weekend was a bank bailout for Spain. I mentioned earlier that Spain held a successful debt auction of 2.1 billion euros. Unfortunately Spain sold most of that debt to the country's own banks, all of which are struggling. The rumor on Friday night was that Spain would officially ask for help to recapitalize their major banks. The country is struggling with massive unemployment and a busted real estate market. Their banks are sinking under a flood of bad real estate loans. Spain has already spent 15 billion euros trying to save their banks. There has been a monumental exit of money leaving the country over the last several weeks.

The rumors were true. Spain did ask for help. A conference call on Saturday with the 17 EU finance ministers concluded with the group promising a 100 billion euro ($125 billion) bailout for Spain's banks. Since the IMF can't loan money directly to individual banks the money will likely come from the Emergency Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM), which is scheduled to be active a month from now.

The question is will this bailout news soothe worries over Spain or will it merely fan the flames that Spain is inching closer to the financial abyss? There have been worries hovering over Spain for a while now and speculation was growing that Spain's banks needed help. The EU leaders wanted to do something about Spain prior to the upcoming Greek elections on the 17th. We'll have to wait to see how the market reacts on Monday. Fortunately Asian markets and European markets will get to react first so by the time the U.S. markets open the reaction might be muted. It will be interesting to see how the Spanish bond market reacts. Will yields on Spain's 10-year notes rise or fall on this news? A rise toward 7% yields would signal more trouble.

Looking ahead the economic storm on the horizon isn't going away. J.P.Morgan issued some concerns that the three-month trend in the economic reports (mainly PMI reports) has turned negative. Euro-area PMIs could fall toward 40 by this fall. Numbers under 50 indicate contraction. Goldman Sachs says their global leading indicator is already suggesting the world's economy is contracting. Echoing this sentiment were a number of revisions for U.S. GDP growth where Barclays, Deutsche Bank, and Goldman all lowered their estimates. With the global economy slowing there is going to be little incentive for U.S. corporations to increase hiring. Meanwhile we still have an ugly U.S. presidential race ahead of us and the looming "fiscal cliff" for January 2013 that has not been addressed by U.S. lawmakers.

The focus this week will be the Sunday, June 17th, Greek elections and if the anti-austerity Syriza party wins or not. If Syriza wins it will signal a Greek exit from the eurozone. How soon an exit we don't know but the market reaction will likely be swift and ugly since a Greek exit could pave the way for additional countries to exit the euro.

I would not be surprised to see stocks churn sideways (to down) as we wait for the Greek elections. The results from this vote could determine market direction for the rest of the summer.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market managed an impressive oversold bounce with the S&P 500 index gaining +3.7% last week. It was the best week for 2012 to date. Unfortunately the markets remain hostage to the situation in Europe. The upcoming Greek elections on June 17th could be a major catalyst to propel stocks one way or the other.

Looking at our play list we saw NTES hit our bullish exit target.

I have updated stop losses on: BMY, CL, LLY, and VZ.

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

Greek Elections Could Spark

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's bounce is encouraging but I'm worried it could be a trap and just a relief rally before the down trend continues. Economic data around the world is suggesting we are moving closer and closer to a global slowdown. The upcoming Greek elections on June 17th could speed up the process if a Greek exit from the Eurozone suddenly looks closer than people expect.

With the Greek elections scheduled for next Sunday, I would suggest investors wait on launching new long-term bullish positions. If the anti-austerity party wins it could spark another significant market sell-off.

We are not adding new trades tonight but I did add two new watch list candidates.

In addition, this is a list of stocks currently on my radar screen as potential candidates to keep an eye on:

MO, FDO, TJX, EIX, TGT, S, DIS, HSY, ROST,


Play Updates

NTES Hits Our Target

by James Brown

Click here to email James Brown


Closed Plays


NTES hit our exit target.


Play Updates


Archer-Daniels-Midland Company - ADM - close: 31.85

Comments:
06/09/12 update: ADM found support and bounced at its exponential 200-dma for the second time in six weeks. Shares did see a big rebound but stalled at its late May highs. Looking at ADM's weekly chart the long-term trend of higher lows and higher highs remains in effect.

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 $ 1.47/ 1.51

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: 91.48

Comments:
06/09/12 update: AGN held support near the $88 level. The big bounce this past week pushed it toward $92. A close back above the simple 50-dma would reaffirm the bullish trend. Thankfully the option spreads on our 2013 Jan. $100 call has normalized (they were ridiculously wide). 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 $ 2.50/ 2.90

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: 30.48

Comments:
06/09/12 update: Financial stocks saw a big bounce last week. AIG surged off its 150-dma and broke out back above resistance at the $30.00 mark. Shares are up +12% for the week. While the big rebound is encouraging I am cautious on the financials. If the Greek vote doesn't go well then financial stocks could sink sharply on EU worries again.

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 $ 4.20/ 4.30

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.85/ 6.25

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: 7.56

Comments:
06/09/12 update: Believe it or not it looks like BAC may have found a bottom. You could argue that together the lows near May 21 and the lows near June 4th could be a double bottom. BAC's bounce on Friday off its 200-dma is short-term bullish. Short-term traders could buy calls here. However, I am worried about the upcoming Greek vote and what the financials might due if the anti-austerity party wins.

The 50-dma near $8.00 could be resistance.

Earlier Comments:
Currently we do not have a specific exit target. The plan has been to exit in the $12.00-15.00 zone.

- Suggested Positions -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.33/ 0.34
(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 $ 0.33/ 0.34
(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: 34.37

Comments:
06/09/12 update: BMY has extended its gains to three weeks in a row. The next level of significant resistance is the $35.00 area. We are going to raise our stop loss up to $31.90. 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 $ 1.38/ 1.42

06/09/12 new stop loss @ 31.90
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: 31.90
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


CH Robinson Worldwide - CHRW - close: 57.92

This is a bearish PUT option trade.

Comments:
06/09/12 update: Signs of a global economic slowdown are bearish for the transports.

The bounce in CHRW failed right where it was supposed to near prior support in the $59.00 area. Readers can use this move as a new entry point to launch bearish 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 $ 3.60/ 3.80

06/02/12 new stop loss @ 62.25

Current Target: $50.50
Current Stop loss: 62.25
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12


Colgate-Palmolive Co. - CL - close: 100.17

Comments:
06/09/12 update: The stock market's big bounce has produced a five-day rebound in CL. Shares have broken out back above the $100 mark. Readers may want to go ahead and take profits on our 2013 calls (currently up +76%).

We are adjusting our stop loss to $92.45. More conservative traders may want to raise their stop closer to $95 instead. 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 $5.15/5.40

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $8.65/9.00

06/09/12 new stop loss @ 92.45
06/02/12 correction continues. look for a dip toward $94
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: 92.45
Play Entered on: 03/16/12
Originally listed on the Watch List: 03/10/12


eBay Inc. - EBAY - close: 41.05

Comments:
06/09/12 update: EBAY bounced off the bottom of its $38-42 trading range and is now poised to test the top of this range. Traders looking for a new entry point could use a close over resistance at $42 as an entry although you'll probably want to use a higher option strike than the ones listed below.

Please note that I am raising our exit target for our remaining positions to $46.50.

We have previously closed our 2013 position. We still have the 2014 calls.

- 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 $ 8.50/ 8.60

06/09/12 adjusted target to $46.50
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: $46.50
Current Stop loss: 34.90
Play Entered on: 03/12/12
Originally listed in the New Plays 03/10/12


Intel Corp. - INTC - close: 26.41

Comments:
06/09/12 update: Semiconductor stocks were big performers last week. INTC gained +5% with a bounce off support near $25 and its 200-dma. On a short-term basis the stock looks poised to rally toward its 50-dma near $27. 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 $ 0.66/ 0.69

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - current bid/ask $ 1.80/ 1.85

06/02/12 INTC is testing support near $25 and its 200-dma again
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: 75.24

Comments:
06/09/12 update: KO produced a healthy bounce and shares are back above potential resistance at their 50-dma. More conservative traders might want to raise their stops toward the $72 area. I do see short-term resistance near $76.00.

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 $ 5.10/ 5.35

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: 41.53

Comments:
06/09/12 update: LLY rallied off of round-number support near $40.00. The stock is now testing its early May highs. There is additional resistance near $42.00 at its 2012 highs. We are raising our stop loss to $38.75. 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 $ 1.61/ 1.69

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.15/ 2.39

06/09/12 new stop loss @ 38.75
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: 38.75
Play Entered on: 01/05/12

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


Limited Brands, Inc. - LTD - close: 42.80

Comments:
06/09/12 update: Hmm... the market just delivered its best week of the year and LTD barely moved. The stock is churning just above support near $42 and its simple 300-dma. More conservative traders may want to abandon ship. LTD has immediate resistance at its 200-dma near $43.50.

I am not suggesting new positions at this time.

- Suggested Positions -
May 18, 2012 - entry price on LTD @ 45.50, option @ 5.10
symbol: LTD1319A45 2013 JAN $45 call - current bid/ask $ 3.10/ 3.30

06/09/12 LTD did not participate in the market's big bounce. readers may want to exit early now
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


Microsoft - MSFT - close: 28.45

Comments:
06/09/12 update: We're starting to hear positive things about the upcoming release for Windows 8. Shares of MSFT could pick up speed as we get closer to this software's launch date later this year (probably Q4). Meanwhile MSFT delivered a decent bounce of technical support at its 200-dma. The next hurdle is the $30 level and then its 50-dma.

Cautious traders might want to raise their stop closer to $28.

- Suggested Positions -
Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 1.69
symbol:MSFT1319A30 2013 JAN $30 call - current bid/ask $ 2.01/ 2.03

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.35/ 3.45

06/01/12 triggered at $28.50
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

Current Target: $32.75 & 34.75
Current Stop loss: 26.45
Play Entered on: 06/01/12
Originally listed on the Watch List: 04/14/12


Motorola Solutions, Inc. - MSI - close: 48.60

Comments:
06/09/12 update: Shares of MSI are getting sandwiched between technical support at their 200-dma near $47 and technical resistance at the 50-dma near $49.25. The big reversal on Thursday at the 50-dma is worrisome. Readers may want to raise their stops toward last week's low. 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 $ 1.31/ 1.42

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


Reynolds American Inc. - RAI - close: 41.13

Comments:
06/09/12 update: The action in RAI this past week was disappointing. The bounced stalled and shares have been hovering near $41. RAI currently have a dividend yield of 5.7% if stocks turn lower again the stock should be considered a safe haven although that doesn't guarantee RAI won't go down.

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 $ 1.35/ 1.50

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: 58.00

Comments:
06/09/12 update: UNH has broken out past resistance near $56.50 and its 50-dma. The short-term trend is bullish. Yet all of that could change depending on how the market wants to interpret the upcoming Supreme court decision. The U.S. Supreme Court is due to announce their decision on the constitutionality of the Affordable Health Care Act (Obamacare) this month. We've got three weeks left in June. Investors might want to consider some short-term July puts just in case the healthcare sector sinks on the decision. Or you could significantly raise your stop loss.

- Suggested Positions -
Feb 15, 2012 - entry price on UNH @ 54.53, option @ 3.25
symbol: UNH1319A60 2013 JAN $60 call - current bid/ask $ 3.90/ 4.00

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 7.20/ 7.45

06/09/12 Investors might want to consider buying short-term July puts to protect yourself from a negative reaction to the upcoming Court decision.
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: 42.44

Comments:
06/09/12 update: VZ has broken out to new multi-year highs, pushing past resistance near the $42.00 level. I am raising our stop loss up to $39.75. 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 $ 3.35/ 3.45

- or -

Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.87
symbol: VZ1418A40 2014 JAN $40 call - current bid/ask $ 4.30/ 4.45

06/09/12 new stop loss @ 39.75
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


CLOSED Plays


NetEase.com - NTES - close: 62.62

Comments:
06/09/12 update: Target achieved. NTES spiked above $65.00 on Friday. Our exit target was hit at $64.50.

- Suggested (Small) Positions -
Feb 29, 2012 - entry price on NTES @ 52.74, option @ 4.70
symbol:NTES1319A60 2013 JAN $60 call - exit $9.50 (+102.1%)

06/07/12 exit target hit at $64.50
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.

Chart of NTES:

Current Target: $ 64.50
Current Stop loss: 54.90
Play Entered on: 02/29/12

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



Watch

Drug Maker & Communication Technology

by James Brown

Click here to email James Brown


New Watch List Entries

AMRN - Amarin Corp.

QCOM - QUALCOMM Inc.


Active Watch List Candidates

DFS - Discover Financial

HNZ - H.J. Heinz Co.

JPM - JPMorgan Chase

MRK - Merck & Co

PEP - Pepsico Inc.

PFE - Pfizer Inc.

SBUX - Starbucks Corp.

USB - U.S. Bancorp

WMT - Wal-Mart Stores


Dropped Watch List Entries

None.



New Watch List Candidates:


Amarin Corp. - AMRN - close: 11.66

Company Info

Shares of drug maker AMRN continue to improve. The stock is building on a bullish trend of higher lows against resistance near $12.75. There has been some speculation that AMRN is a takeover target, which has fueled some of the sharp rallies higher. Currently the Point & Figure chart is bullish with a $15.00 target.

I am suggesting we wait for AMRN to close above $13.00 and buy calls the next day with a stop loss at $11.40. Our long-term target is $17.50.

FYI: We want to keep our position size small. AMRN can be a volatile stock. There are 2014 options available but the spreads are too wide.

Breakout trigger: Wait for a close over $13.00, stop @ 11.40

BUY the 2013 Jan $15 call (AMRN1319A15)

! Small positions !

Chart of AMRN:

Originally listed on the Watch List: 06/09/12


QUALCOMM Inc. - QCOM - close: 58.76

Company Info

QCOM is a major manufacturer of communication components, many of them found inside your smartphone. After surging to 12-year highs in March the stock has seen a significant correction. Now it's bouncing off a long-term trend line of higher lows. If this rebound continues we want to hop on board.

I am suggesting we wait for QCOM to close above $62.00 and then buy calls the next day with a stop loss at $57.45. Our long-term target is $74.00. We will probably exit the 2013 calls prior to hitting our final target.

Breakout trigger: Wait for close over $62.00, stop 57.45

BUY the 2013 Jan $70 call (QCOM1319A70)

- or -

BUY the 2014 Jan $75 call (QCOM1418A75)

Chart of QCOM:

Originally listed on the Watch List: 06/09/12


Active Watch List Candidates:



Discover Financial - DFS - close: 32.82

Comments:
06/09/12 update: Financial stocks delivered a strong week. Yet DFS has stalled under technical resistance at its 50-dma. It almost looks like shares have paused at the top of its new bearish channel. I don't see any changes from my prior comments. The financials could be extremely weak if the Greek vote goes wrong for the Eurozone.

FYI: DFS is due to report earnings on June 19th.

I am suggesting we buy calls on a dip at $28.00 with a stop loss at $26.40. More conservative traders may want to wait for DFS to actually bounce off $28 before considering new positions first.

Buy-the-Dip trigger: $28.00

BUY the 2013 Jan $30 call (DFS1319A30)

- or -

BUY the 2014 Jan $35 call (DFS1418A35)

Originally listed on the Watch List: 06/02/12


H.J. Heinz Co. - HNZ - close: 53.59

Comments:
06/09/12 update: HNZ bounced off technical support at its rising 300-dma. Shares don't move that fast. We'll have to be patient.

We are currently waiting for HNZ to breakout to new highs. The plan is to launch positions after HNZ closes above $55.50. 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: 33.68

Comments:
06/09/12 update: JPM spiked down under the $31.00 level this past week before bouncing. Aggressive traders might want to buy this rebound but I would wait. If the Greeks vote for the anti-austerity party it's going to cause trouble in Europe and big banks with potential exposure overseas will sink.

Right now the plan is to buy calls when JPM dips to $30.25. More conservative traders might want to wait for a JPM to dip to $29.00 instead.

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: 38.46

Comments:
06/09/12 update: MRK held support at $37.00 again and now shares are bouncing back toward resistance in the $39.50 area. The stock's rally past a cloud of moving averages this past week is bullish.

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


Pepsico, Inc. - PEP - close: 68.31

Comments:
06/09/12 update: PEP found support right where it should have near prior resistance at $67.00 and its rising 50-dma. Aggressive traders may want to 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)

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


Pfizer Inc. - PFE - close: 22.14

Comments:
06/09/12 update: PFE looks poised to breakout past the five-week trend of lower highs. A move past $22.50 could be used as a new bullish entry point but I am suggesting we wait for this stock to close over $23.20 (and 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. (We'll exit the 2013 calls before shares hit our target)

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: 53.59

Comments:
06/09/12 update: SBUX has not yet broken the trend of lower highs. That would suggest the correction is not over yet.

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. More conservative traders may want to wait for a dip to $48.50 as their entry point instead.

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: 30.10

Comments:
06/09/12 update: Financials saw a big bounce this past week. USB is testing round-number resistance at $30.00. If the rebound continues then there is resistance at the 50-dma. I remain concerned that the banking stocks could sink as the situation deteriorates in Europe.

The plan is to buy calls on a dip at $28.00 with a stop at $25.90. The $28 level should still be support for USB but readers may want to use a tighter stop loss to reduce risk. Our long-term target is $34.00. I prefer the 2014 calls but we'll list the 2013s as well.

Buy-the-Dip trigger: $28.00 (stop loss 25.90)

BUY the 2013 Jan $30 call (USB1319A30)

- or -

BUY the 2014 Jan $30 call (USB1418A30)

06/02/12 adjust entry trigger to $28.00

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


Wal-Mart Stores - WMT - close: 68.22

Comments:
06/09/12 update: For a stock with 3.38 billion shares outstanding a $2.35 move (+3.5%) is pretty big. WMT hasn't seen a move like Friday's in a very long time. After churning sideways the last several days the stock's big run on Friday has pushed it to 12-1/2 year highs.

We do not want to chase it here. If the stock continues to rally then we might drop it or adjust our entry strategy. We'll give WMT one more week and then re-evaluate.

Currently I am suggesting we buy calls on a dip at $62.00 with a stop loss at $57.90, just under the simple 200-dma. More conservative traders could use a stop loss closer to $60 instead.

Buy-the-Dip trigger: $62.00

BUY the 2013 Jan $65 call (WMT1319A65)

- or -

BUY the 2014 Jan $70 call (WMT1418A70)

Originally listed on the Watch List: 06/02/12