Option Investor
Newsletter

Daily Newsletter, Sunday, 6/17/2012

Table of Contents

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

Leaps Trader Commentary

And the Greek Winner Is...?

by James Brown

Click here to email James Brown

Stocks continued to climb last week. The two weeks ago the S&P 500 delivered its best week of the year as it bounced from a -10% correction. This past week the market added another +1.3% as traders seem to be pricing in a Greek win for the pro-bailout (pro-euro) party. It is worth noting that last week's gains were mixed. Liquid big cap stocks in the S&P 500 were drawing more interest than the NASDAQ and Russell 2000 stocks. Expectations for the pro-euro party in Greece to win helped push the euro currency higher and the dollar lower for the last four days in a row. Meanwhile the yield on U.s. ten-year bonds inched lower, which would normally be a sign of smart money seeking safety in U.S. treasuries.

A week ago Friday stocks were rising on speculation and headlines that Spain was going to ask for a bailout for its banks. Last weekend the country did ask for a 100 billion euro rescue package for its banks. Yet investors sold the news on Monday. Spain remained in the headlines throughout the week with Moody's downgrading the country's rating on Wednesday night. This sent yields on Spain's 10-year bond above the key 7.0% level. Yields did retreat ahead of the weekend. Yields above 7% are considered unsustainable and usually precede a country asking for a bailout but thus far the general consensus is that Spain, as a whole, is too big to bailout.

Helping fuel the markets higher this past week were headlines that central banks were planning a coordinated effort to provide liquidity this week should Europe need it following the Greek elections.

Looking at the economic data last week the trend remains weak. Retail sales for May fell -0.2%, which was worse than expected. If you subtract out vehicle sales then May retail sales fell -0.4%. The University of Michigan Consumer Sentiment Survey showed a larger than expected drop. Economists were looking for a pullback from 79.3 to 77.0 but June's reading fell to 74.1. This is the lowest level for the year. The outlook on inflation data was mixed. The Producer Price Index (PPI) saw wholesale inflation drop -1.0% in May, which was bigger than expected. Core PPI prices increased +0.2%. The Consumer Price Index (CPI) fell -0.3% in May and core-CPI prices rose +0.2%. The biggest surprise for the week was the New York Empire State Manufacturing Survey, which plunged from 17.1 in May to 2.3 in June. Analysts were only expecting a drop toward 14. This doesn't bode well for the upcoming Philly Fed survey this week.

Major Indices:

The S&P 500 index spent most of the week churning sideways between 1305 and 1330. Friday's rally has produced a bullish breakout over key resistance at the 1340 level. The next challenge for the bulls is potential technical resistance at the 50-dma (1348). Beyond that is likely resistance near 1360.

Given the current trend, and assuming Greece doesn't implode over the weekend, then it looks like the S&P 500 is headed for 1360.

Daily chart of the S&P 500 index:

The NASDAQ composite is bouncing but it's not showing the same strength seen in the big cap S&P 500 index. The tech-heavy NASDAQ has been churning sideways in the 2800-2880 zone. There is additional resistance at 2900 and then its 50-dma. Last week I suggested that if the NASDAQ Can breakout past 2880 we'll probably see a run toward 2950. That's still a good bet if it can break higher.

Daily chart of the NASDAQ Composite index:

The situation looks similar for the small cap Russell 2000 index. There was no follow through on last Monday's bearish reversal lower. Now after a two-day pop the index is nearing recent resistance (compared to the S&P 500, which has already broken out). That could be a signal that money managers are cautious and putting their money in more liquid, big-cap names. The $RUT has resistance at its exponential 200-dma near 776 and at the 780 level.

A close over 780 would definitely look bullish but the $RUT will need to rally past the new trend of lower highs.

Daily chart of the Russell 2000 index

The major events this week will be the reaction to the Greek elections, the Iran-UN talks, the FOMC meeting, and probably the Philly Fed survey.

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. Odds are high we'll see the results on Monday, June 18th or Monday, June 25th.

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 18 -
Iran nuclear talks (day 1)
Reaction to Greek elections from Sunday

- Tuesday, June 19 -
Iran nuclear talks (day 2) housing starts & building permits
FOMC meeting begins

- Wednesday, June 20 -
FOMC meeting ends (decision on interest rates)

- Thursday, June 21 -
Weekly Initial Jobless Claims
Existing home sales for May
Philadelphia Fed Survey

- Friday, June 22 -
(nothing significant)

Upcoming events:

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:

Looking ahead this week will be all about Europe again. On Monday it will be all about Greece. You've heard it a dozen times by now. This Sunday, June 17th, are run-off elections since the most recently elected government failed to form a coalition required to govern. It comes down to the pro-euro (i.e. pro-austerity) parties and the far left, anti-austerity party Syriza. If the pro-euro party wins then they have agreed to abide by the bailout agreements and austerity reforms promised by Greece's previous governments. If Syriza wins then they have promised to throw out the prior bailout agreements, which would most likely lead to a quick exit from the Eurozone.

Recent polls have the two parties running neck and neck. With so much at stake it is a bit surprising to see the U.S. stock market rising into the weekend. Here's one spin on the situation. If the pro-euro party wins then any immediate shocks to the euro will subside. We'll be back to the status quo, which isn't great but stocks could see a relief rally. Eventually, down the road, we'll be going through these challenges again with Spain (and possibly Italy) unless the Eurozone takes some drastic measures and Germany decides to commit their checkbook into saving the euro.

On the other hand if the Syriza party wins then the European Central Bank (ECB), along with other central banks, immediately provide necessary "liquidity" to prop up the region. There could be a quick announcement of more QE in Europe and possibly the U.S. to soften the blow of what will likely be a messy exit of Greece from the Eurozone. There is talk of one trillion euros worth of liquidity being made available in Europe. Who knows how much QE they would agree to if Greece decides to leave the euro. However, the stock market tends to rally on news of new QE programs so stocks could rally.

Thus it seems like a win-win for the stock market no matter what party wins in Greece. If the pro-euro party wins, then status quo, and that's a win. If the anti-euro party wins, then likely QE programs, and that's a win. At least that's the theory. We could just as easily see the market's crash. If Syriza wins, then stocks crash on an imploding euro currency and rising dollar and the threat of a domino-like fall of not just Greece leaving the euro but also Spain, Portugal, and possibly Ireland and Italy. If the pro-euro party wins, then traders could end up "selling the news" just like they did last Monday on the bank bailout news for Spain. If doesn't matter if you're bullish or bearish there is a theory that works for you.

At the moment (Sunday evening) it looks like the "New Democracy" pro-euro party has won the majority vote in Greece but it was a close race. The New Democracy party garnered 29.7% of the vote. Syriza won 26.9% and PASOK Socialists won about 12.3%. We'll have to wait and see if stocks rally on this news or if traders choose to sell the news. Overall it's a bullish event but you have to keep in mind that this new government will only have a couple of weeks to form a working coalition. If not, there will be another round of elections in 30 days. Although if that happens, Greek could go bankrupt again before the next election. Greece has another debt payment due and they're broke. They can only pay it with the next EU/IMF/ECB bailout payment. If you are the EU/IMF/ECB, would you forward Greece their next multi-billion euro rescue payment when the current government isn't strong enough to form a coalition?

Elsewhere in the world we'll see headlines about Iran as they meet with the U.N. security council early this week to discuss their nuclear program. The U.N. wants them to stop but Iran has pledged that they won't so the talks are largely a waste of time. The EU oil embargo is scheduled to go into effect on July 1st. This could cut Iran oil sales by up to one million barrels a day.

One of the key events this week will be the FOMC meeting, which concludes on Wednesday. The Fed's next move will be interesting. Normally the Federal Reserve does not like to make any policy moves during an election year for fear of being seen as helping the current administration. We only have about 140 days left before the upcoming U.S. presidential elections. Currently the Fed's Operation Twist is scheduled to close at the end of June. Many suspect the Fed will extend Operation Twist. Yet both the U.S. and global economic data are showing signs of a global slowdown. Will the Fed choose to act now and get ahead of the slowdown or will they wait until after the elections?

We are quickly approaching the earnings-warning season, which is just prior to earnings-announcement season. Given the worldwide slowdown you might expect that we'll see a larger number of earnings warnings, which could dampen market sentiment and send stocks lower. In mid July we'll kick off the Q2 earnings season. Corporate guidance and earnings results could play a huge part in which direction stocks move for the third quarter.

On a short-term basis I am encouraged by the bounce in stocks and the Greek vote. However, I'd like to see some follow through in equities. The NASDAQ and the Russell 2000 index have yet to breakout past key resistance levels. Stay cautious. It could be a volatile Monday morning.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 index is up another +1.3% on top of the prior week's +3.7% bounce. Investors are obviously not concerned about the key Greek election on Sunday. Economic data continues to disappoint.

There are a couple of plays below where the stock has bounced to resistance. Investors might want to take profits early.

I have updated stop losses on: AIG.

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

Biggest Gas Field Ever

by James Brown

Click here to email James Brown


- New Trades -


Apache Corp. - APA - close: 87.80

Company Info

Why We Like It:
Oil and energy stocks have gotten crushed over the last few months. Yet it looks like APA has finally found a bottom. The stock declined toward support near $80 back in May. There was a brief dip to $78.00 in early June but this breakdown proved to be a bear-trap pattern. Now shares are breaking out past resistance near $85.00.

The recent strength is being fueled by new headlines about APA's latest find up in Canada. The company announced that it may have found one of the world's largest shale-gas fields ever! This reservoir could contain up to 48 trillion (with a T) cubic feet of recoverable natural gas.

I am suggesting we go ahead and buy calls on APA immediately. More nimble traders might want to consider waiting for a dip to what should be short-term support near $85.00. We'll start with a stop loss at $79.75. Our long-term target is $109.

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ --.--, option @ -.--
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 3.65/ 3.85

- or -

Jun 18, 2012 - entry price on APA @ --.--, option @ -.--
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 6.35/ 6.70

Chart of APA:

Weekly Chart of APA:

Current Target: $109.00
Current Stop loss: 79.75
Play Entered on: 06/18/12
Originally listed in the New Plays 06/16/12



Play Updates

The Rebound Continues

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Archer-Daniels-Midland Company - ADM - close: 31.45

Comments:
06/16/12 update: It was a disappointing week for ADM. The stock continues to slip follow the failed rally on June 7th. Although you could argue that Friday's intraday bounce could be signaling a short-term bottom and ADM still has a 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 $ 1.21/ 1.26

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: 92.45

Comments:
06/16/12 update: The rebound in AGN continues and shares added almost a dollar for the week. Friday saw AGN breakout past short-term resistance near $92.00 and shares are almost past its simple 50-dma. If the market cooperates we should see AGN making a run at its April highs. 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 $ 3.10/ 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: 31.48

Comments:
06/16/12 update: It was a bullish week for the financial sector with the group rebounding off their Monday lows. AIG added a dollar for the week and managed to breakout over technical resistance at its 50-dma.

While the trend is up I remain cautious regarding the financials and any fallout that might occur if the Greek vote on Sunday goes poorly. I am not suggesting new positions at this time.

Please note our new stop loss at $26.95.

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 $ 4.80/ 4.95

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.15/ 5.45

06/16/12 new stop loss @ 26.95
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: 26.95
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Bank of America - BAC - close: 7.90

Comments:
06/16/12 update: Believe it or not BAC looks like it may have found a bottom. The stock is breaking out higher from its recent sideways consolidation and Friday saw a bullish breakout above its 50-dma. I would be tempted to launch new bullish positions but the Greek vote on Sunday carries to much risk for the financials so I would wait. A close over $8.00 or a close over its simple 300-dma (currently $8.30) could be alternative entry points for bullish positions.

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 $ 0.43/ 0.44
(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 $ 0.43/ 0.44
(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: 34.23

Comments:
06/16/12 update: Hmm... I want to warn you that the action in BMY on Friday is troubling. The stock posted a strong gain on Thursday but shares failed under the new trend line of lower highs (you can see the trend line from the January 2012 high, across April's high and now to June's high). Friday's reversal lower has created a bearish engulfing candlestick reversal pattern. I am expecting BMY to retreat back toward $33.50-33.00. I am not suggesting new positions at this time.

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.15/ 1.21

06/16/12 BMY has created a bearish reversal under resistance
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).
(I have deleted previous 2011 comments on BMY, you can see them in older updates)

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: 58.56

This is a bearish PUT option trade.

Comments:
06/16/12 update: CHRW is up for the week but shares are essentially still in their sideways consolidation. The larger trend is still down but that doesn't mean CHRW can't bounce up toward resistance near $60 or its 50-dma before rolling over again. I'm not suggesting new positions at this time.

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 $ 3.30/ 3.60

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: 101.53

Comments:
06/16/12 update: CL has rallied back toward its 2012 highs. Shares are sitting just under resistance at the $102 level. A failure here would look like a bearish double top. That's why readers will want to seriously consider taking profits right now. The 2013 Jan $100 call is up +98% and the 2014 Jan $100 call is up +78%.

More conservative traders may want to raise their stop closer to $95 or $96. 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 $5.80/6.05

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $ 9.95/11.00

06/16/12 readers may want to take profits now. options @ +98%, +78%
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: 40.67

Comments:
06/16/12 update: EBAY underperformed the market's major indices last week. Shares remain inside their $38-42 trading range. I don't see any changes from my prior comments. 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.

Earlier Comments:
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 $ 8.15/ 8.45

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: 27.34

Comments:
06/16/12 update: Our INTC call options have staged a nice comeback thanks to the stock's big bounce from support near $25.00. This past week INTC has rallied past potential resistance near $27.00, its 100-dma and its 50-dma. I remain somewhat cautious here. I'd like to see INTC digest these gains and close over $27.50 or $28.00 before considering new positions. 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 $ 0.93/ 0.96

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - current bid/ask $ 2.19/ 2.24

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: 76.09

Comments:
06/16/12 update: KO has rallied to new four-week highs and closed above potential resistance in the $75.50-76.00 zone. You could almost argue that shares of KO have built an inverse head-and-shoulders pattern over the last four or five weeks. Friday's gain would be a breakout past the neckline on this pattern.

If the market opens positive on Monday then I would be tempted to launch new positions here although readers may want to use a higher strike price and raise their stops toward $72.

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 $ 6.00/ 6.25

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: 41.99

Comments:
06/16/12 update: Drug maker LLY continues to drift higher. The stock is flirting with a breakout past resistance near $42.00. Shares hit new multi-year highs on Friday. More conservative trades might want to raise their stops closer to $40. 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 $ 1.66/ 1.72

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.46/ 2.69

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: 42.65

Comments:
06/16/12 update: LTD is little changed for the week and I remain worried about this trade. The stock market has been rising and yet LTD refuses to participate. The stock is just sitting on support near $42, near its 300-dma, and near its long-term trend line of higher lows.

We have a stop loss at $41.50 so if LTD breaks down from this consolidation we'll get stopped out quickly. However, readers may just want to abandon ship right now anyway.

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 $ 3.00/ 3.20

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: 30.02

Comments:
06/16/12 update: MSFT has seen a strong two-week bounce. Friday's gain of +2.3% outperformed the major indices and left MSFT sitting on round-number resistance at the $30.00 mark. There have been some rumors surrounding MSFT this past week. One comes from a WSJ story that MSFT might be Yammer Inc for $1 billion. Yammer provides enterprise social networking services. That's not all. MSFT has planned a "major announcement" for Monday in Los Angeles. Many believe that MSFT plans to unveil a new tablet PC to compete with Apple's iPad.

If we see MSFT close above its 50-dma (near 30.40), then investors can use it as a new entry point for bullish positions.

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 $ 2.20/ 2.24

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.65/ 3.75

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: 48.70

Comments:
06/16/12 update: MSI saw a big gain of +2.8% on Friday but shares are only up 10 cents for the week. Trading in MSI has been rocky the past few weeks. It looks like investors are applauding the news on Friday morning that MSI is buying Psion Plc. for $200 million in cash. According to the press release Psion is a "pioneer" in mobile computing and designs "rugged, handheld and vehicle-mounted devices".

Meanwhile shares of MSI still have overhead resistance near $49 and near $50. 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 $ 1.32/ 1.40

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: 42.68

Comments:
06/16/12 update: RAI has definitely been showing some relative strength these last few days. Shares have soared from under $41.50 to over $42.50 and the stock has set a new all-time closing high on Friday.

Investors could choose to buy calls on this bullish breakout. I suspect we will see RAI dip back toward the $42 area and that's where I'd look to launch new positions - on a dip or better yet a new bounce near $42.00. If you do launch positions I'd probably use the 2014 calls.

- 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 $ 2.05/ 2.20

06/16/12 RAI has broken out to new all-time highs. It could be time to look for new bullish positions. Consider the 2014 calls.
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: 58.90

Comments:
06/16/12 update: UNH has rallied toward its 2012 highs near $59.00. The stock also has older resistance near $60.00. I am expecting some big moves, one way or the other, in healthcare stocks soon. The U.S. Supreme Court's decision on Obamacare should be coming out in the next week or two. I would not be surprised to see UNH churn sideways near $60 as investors wait for the decision.

Investors might want to consider some short-term July puts as some sort of hedge 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 $ 4.25/ 4.40

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 7.55/ 7.90

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: 43.55

Comments:
06/16/12 update: VZ continues to soar. The stock hit new multi-year highs last week and Friday saw an intraday spike to $44.14. Our exit target is $45.00 but readers might want to go ahead and take profits now! More aggressive traders could aim for the $46.00 level instead (near the 2007 highs). 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 $ 4.20/ 4.30

- or -

Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.87
symbol: VZ1418A40 2014 JAN $40 call - current bid/ask $ 5.10/ 5.25

06/16/12 readers may want to take profits now!
2013 jan $40 call is +93%, 2014 jan $40 call is +77%
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: 39.75
Play Entered on: 12/23/11

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


Watch

Focused on Relative Strength

by James Brown

Click here to email James Brown


New Watch List Entries

DIS - Walt Disney Co.

FDO - Family Dollar Stores

TJX - TJX Companies


Active Watch List Candidates

AMRN - Amarin Corp.

DFS - Discover Financial

HNZ - H.J. Heinz Co.

JPM - JPMorgan Chase

MRK - Merck & Co

PEP - Pepsico Inc.

PFE - Pfizer Inc.

QCOM - QUALCOMM Inc.

SBUX - Starbucks Corp.

USB - U.S. Bancorp

WMT - Wal-Mart Stores


Dropped Watch List Entries

None.



New Watch List Candidates:


Walt Disney Co. - DIS - close: $47.09

Company Info

DIS is a media giant from movies, television networks, and its theme parks. The stock has been showing relative strength and is currently trading at all-time record highs. The $44.00 level was major resistance and should now be new support.

I am suggesting we buy call LEAPS on a dip at $45.00 with a stop loss at $41.75. Our long-term target is $54.50.

Buy-the-Dip trigger: $45.00 (stop 41.75)

BUY the 2014 Jan $50 call (DIS1418A50)

Chart of DIS:

Originally listed on the Watch List: 06/16/12


Family Dollar Stores - FDO - close: 73.26

Company Info

FDO operates a chain of discount retail stores. The stock has been showing relative strength. The $70.00 level was major resistance and FDO broke out past this level a couple of days ago. $70 should now be support.

I am suggesting we wait and buy calls on a dip at $70.25 with a stop loss at $65.75. Our long-term target is $84.50.

Note: FDO is due to report earnings on June 28th. More conservative traders will want to wait and see how the market reacts to FDO's earnings before initiating positions.

FYI: FDO's point and figure chart is bullish with a $102 target.

(FDO does have 2014 options available but the spreads are way too wide)

Buy-the-Dip trigger: $70.25 (stop 65.75)

BUY the 2013 $80 call (FDO1319A80) current ask $4.50

Chart of FDO:

Originally listed on the Watch List: 06/16/12


The TJX Companies - TJX - close: 42.46

Company Info

TJX operates a number of apparel and home fashion stores. The last couple of months have seen the stock digesting its prior gains in a sideways consolidation. TJX has resistance at the $43.00 level and the consolidation is narrowing suggesting shares are about to break out higher.

I am suggesting we wait for TJX to close above $43.25 and then buy calls the next morning with a stop loss at $39.75. Our long-term target is $49.75.

Breakout trigger: wait for a close over $43.25 (stop 39.75)

BUY the 2013 Jan $45 call (TJX1319A45) current ask $2.35

- or -

BUY the 2014 Jan $45 call (TJX1418A45) current ask $4.70

Chart of TJX:

Originally listed on the Watch List: 06/16/12


Active Watch List Candidates:



Amarin Corp. - AMRN - close: 11.84

Comments:
06/16/12 update: It was a quiet week for AMRN. Shares traded sideways under the $12.00 level. Actually this is disappointing since both the DRG drug index and BTK biotech index are both rising. Overall I don't see any changes from last week's comments.

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 !

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


Discover Financial - DFS - close: 32.99

Comments:
06/16/12 update: We may have to adjust our entry point for DFS soon. If the Greek vote does not crash the financials then we'll wait for DFS to report earnings on June 19th (before the opening bell). If DFS doesn't correct on its earnings report then we'll re-evaluate our entry point strategy. A close above $34.50 might be an alternative entry point.

Currently, 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)

06/16/12 DFS is scheduled to report earnings on June 19th.

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


H.J. Heinz Co. - HNZ - close: 54.55

Comments:
06/16/12 update: HNZ has been making progress with a strong four-day rally this past week. We still want to see shares breakout past resistance.

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: 35.03

Comments:
06/16/12 update: We may have to adjust our entry point strategy on JPM as well. This could be a volatile week for the financial sector. The Greek vote on Sunday and the aftermath of its results could push financial stocks either direction. If the market interprets the Greek vote positively then we'll reconsider our strategy.

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: 38.94

Comments:
06/16/12 update: MRK has been showing improvement. Both the drug and biotech sectors have been rising. MRK is nearing the top of its $37-39.50 trading range. We want to be patient and wait for the bullish breakout.

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: 69.48

Comments:
06/16/12 update: PEP continues to rally following its test of support two weeks ago. Shares appear to have closed at new 52-week highs on Friday. Aggressive traders could launch positions 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: 22.61

Comments:
06/16/12 update: PFE has been showing strength this past week with a breakout past resistance at its five-week trend line of lower highs. PFE has also rallied past its 50-dma. I don't see any changes from my prior comments.

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


QUALCOMM Inc. - QCOM - close: 56.50

Comments:
06/16/12 update: Disappointing earnings guidance from Nokia (NOK), one of the largest mobile phone makers in the world, weighed on shares of QCOM. That's because QCOM makes a high-margin chipset in some of NOK's phones. If NOK's sales are slowing then that should mean less demand for chips from QCOM.

Shares of QCOM are churning in the $55-60 range. 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)

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


Starbucks Corp. - SBUX - close: 52.54

Comments:
06/16/12 update: SBUX underperformed this past week with shares hitting new relative lows on Wednesday. We have been expecting a dip toward round-number support at $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. 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: 31.58

Comments:
06/16/12 update: USB has produced a dramatic reversal higher following its dip toward the 200-ema, just two weeks ago. Now the stock is back above resistance at its 50-dma. If the financials do not sink on the Greek vote this Sunday then we'll re-evaluate our entry point strategy on USB next week.

Currently, 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: 67.75

Comments:
06/16/12 update: It looks like the rally in WMT may be losing steam. Shares have been churning sideways the last few days. We do not want to chase it here but if WMT does not start to correct lower soon then I'll drop it as a candidate. I want to give WMT one more week to start correcting lower. If not, we'll drop it.

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