Option Investor
Newsletter

Daily Newsletter, Sunday, 7/1/2012

Table of Contents

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

Leaps Trader Commentary

Q2 Ends with a Bang!

by James Brown

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Ding! Ding! Ding.. and that's the end of the first half. The bear team managed to make headway in the second quarter but the bulls have done a good job moving the market up the field in the last few weeks. It's been an exciting game so far with a few dramatic reversals that definitely changed the momentum of the game. Currently the bull team controls the market but we'll have to see if they can follow through on Friday's big play!

Friday marked the end of the second quarter and the first half of 2012. It was the best June for the markets in over ten years. Friday's +2.5% rally in the S&P 500 was the best one-day percentage gain year to date. The S&P 500 lost -3.2% in the second quarter but it was down -9.2% at its early June closing lows. The huge +6.5% bounce from its June lows helped significantly (and Friday was a big part of that move). Year to date the S&P 500 is up +9.2%. The Dow Industrials are up +5.4% YTD, the NASDAQ composite is up +12.6%, the small cap Russell 2000 index is up +7.7%, the Dow Transportation average is up +3.7%, gold is only up +2.0% and crude oil is down -14.3% for the year.

The week started off with a big decline thanks to news that Spain was asking for 100 billion euros to recapitalize its failing banks. Yet recent support near 1310 on the S&P 500 held and stocks started to rebound. The EU summit loomed at week's end and all week long German Chancellor Merkel was adamant that Germany would not take on extra liabilities for its struggling Eurozone peers. Rising bond yields for Spain's 10-year bond were once again near 7% as we approached the two-day EU summit.

Meanwhile here in the U.S. the big event for the week was the U.S. Supreme Court's decision on President Obama's Affordable Care Act. Chief Justice Roberts played the key role and sided with the more liberal half of the court to uphold the individual mandate clause. While the court's decision is finally out the conversation continues over is it a penalty or is it a tax? Healthcare will be a big issue for the upcoming presidential election. However, the implications of the court's decision on the healthcare act are beyond the scope of this column. I was a bit surprised to see the biotech stocks producing a bigger move (down) on Thursday than the healthcare stocks. Then on Friday both the BTK biotech index and DRG drug index surged higher while the HMO healthcare index closed in the red.

The biggest event of the week was the two-day EU summit. This was the 20th summit on the region's sovereign debt crisis. I believe we've been discussing the EU debt problem since early 2010 if not earlier. After multiple bailouts and hundreds of billions of euros in aid and "rescue" funds, not to mention all the QE programs, have they actually solved anything? This latest EU summit ended with regional leaders agreeing on a "long-term union." Really? Aren't they already in a long-term union? The Eurozone was created in 1999. Have they just been dating all this time? Now they are agreeing to get engaged, let's not even talk about marriage yet.

I'll boil the latest EU summit down to its main points. First, they have agreed on a plan to make a better plan down the road. How many times have we heard that one? Second, they are going to allow EU bailout funds from the EFSF and ESM to loan money directly to struggling banks instead of loaning it to the bank's government who would then loan it to the banks. Third, they have agreed to do away with many of the strict austerity measures required for any new bailout money. Fourth, they have agreed to a joint banking supervisor over the entire Eurozone. Fifth, they agreed to a "general" long-term plan for tighter budgetary controls and political union. Sixth, they also agreed to a 120 billion euro "growth" package for the region.

There are a plethora of problems with this new "plan". Some of the bigger challenges are removing the austerity requirements for aid. Does that sound like a good idea to anyone? The reason they are going to start loaning money directly to banks is because it will avoid raising the amount of debt to the struggling governments supposedly governing those banks! Rising debt levels would push interest rates up. Spain's 10-year bond yields are still flirting with the 7% area. Another detail is the ESM's ability to buy government bonds to keep interest rates low. Those are just a couple of the highlights. This big new "plan" is going to have to be ratified by the 17 Eurozone member nations. We may not actually see any implementation of these changes until early 2013.

I will point out that Barclays did some research on the prior 18 EU summits. According to their research, whenever a new "plan" was announced (about ten times) the markets saw a short-term pop for a day or two that was eventually erased. I wouldn't put too much faith in this EU-summit fueled short covering rally we saw on Friday - at least not with the S&P 500 closing right at resistance.

This EU-inspired rally pushed the euro currency sharply higher. This move pushed the dollar lower and commodities soared (because most commodities are traded in dollars, a weaker dollar means you need more dollars to buy the commodity). The CRB commodity index exploded +4.6% on Friday for its best one-day gain in years. Crude oil was a big part of that gain. Of course crude oil could have gotten a boost from the fast approaching July 1st EU oil embargo deadline set to begin on Sunday. Oil traders probably wanted to cover their shorts before the embargo begins in case Iran decides to do something stupid and try and close the Straits of Hormuz. Crude oil closed the week at $85 a barrel.

The general trend in economic data over the last few months has been negative. This past week actually produced a few pleasant surprises. Pending home sales for May rose +5.9%, which was way above expectations of just +0.5% and significantly better than the -5.5% plunge the month before. New home sales for May came in at an annualized pace of 369,000, which is up from April's 343K. The durable goods orders rose +1.1% in May, which was better than the +0.5% estimate. Personal income in May rose +0.2% versus the +0.1% estimate. Spending was flat (+0.0%) compared to the +0.1% estimate. The final Q1 GDP estimate was unchanged at +1.9%.

Meanwhile the weekly initial jobless claims number was in-line with estimates at 386,000. The Chicago ISM (PMI) report saw an rise from 52.7 to 52.9. Unfortunately economists were expecting a rise to 53.5. This report might hint at trouble for the May vehicle sales numbers, due out next week. The University of Michigan Consumer Sentiment survey plunged from 79.3 to 73.2. Big declines in the present conditions and expectations components fueled the drop. This consumer sentiment report snaps a multi-month string of gains in sentiment.

Major Indices:

Eight trading days ago the S&P 500 failed at resistance near 1360 and its 100-dma. Here we are again with the S&P 500's rally closing at resistance near 1360. Friday's move was mostly short covering and window dressing. The surprising improvements, if we want to call them that from the EU summit, pushed bears to cover positions. Add in some last minute end of quarter window dressing and we had a big day.

If the S&P 500 continues to rally then it could see a run toward the new trend line of lower highs or possibly the 1400 area. On the other hand if the market reverses then we're back to watching support near 1310 and the 1300 level along with the simple 200-dma.

Daily chart of the S&P 500 index:

The NASDAQ composite produced a pretty strong +3.0% move on Friday. This index is down -5.0% for the second quarter but still up +12.6% for the year. Friday's close above its simple 50-dma is short-term bullish but there is still overhead resistance near the 2950 level. If this rally continues and the NASDAQ manages to breakout past 2950 then the next level of resistance is the 3,000 mark. There is probably short-term support near 2880 and the 2825-2800 area.

Daily chart of the NASDAQ Composite index:

Believe it or not the small cap Russell 2000 looks the strongest of the three. Granted Friday's move was mostly short covering and the rally stalled at resistance near its 100-dma, but the $RUT did break through some resistance levels. Broken resistance near 780 could be new support. I would expect a pullback after Friday's big pop but short-term the trend has a higher low, higher high feel.

Daily chart of the Russell 2000 index

It's a brand new month and a new quarter this week. We'll see the newest ISM data. The markets will be focused on the employment data. The question is who will be paying attention. It's the fourth of July holiday on Wednesday. Many market participants will be taking a long weekend. Volume will likely be very low all week.

The report to watch is the jobs report on Friday morning. Estimates are for +90,000 new jobs in June compared to +69,000 in May but there are whisper numbers suggesting only +25,000 new jobs created.

Economic and Event Calendar

- Monday, July 02 -
ISM index for June
construction spending

- Tuesday, July 03 -
auto & truck sales for June
factory orders

- Wednesday, July 04 -
U.S. markets are closed for Fourth of July holiday

- Thursday, July 05 -
Weekly Initial Jobless Claims
ADP Employment report
ISM Services for June

- Friday, July 06 -
Non-farm payrolls (jobs) report for June

The Week Ahead:

Looking ahead the focus is going to turn toward the Q2 earnings season. The EU summit is over. Hopefully we can ignore Europe for a week or two and by then earnings season will be here. The problem is that we've had several weeks of slowing economic data suggesting a global slowdown. We've already seen several major multi-national corporations warn that the situation in Europe was impacting sales. Just this past week we got bad news from the likes of Nike (NKE) and Ford (F). Currently analysts are expecting Q2 earnings results to only show +1.5% earnings growth and +2% revenue growth.

Wall Street isn't blind. They've seen the same parade slowing economic data and warnings. Many firms have been lowering their earnings estimates. There is the chance that they've lowered the bar too low and businesses could actually beat estimates. Yet even if corporations beat the estimate the real challenge will be guidance. If corporate guidance is too cautious and too many firms lower their estimates it could spark a serious sell-off in stocks. The Q2 earnings season starts on July 9th.

Given the market's history of short-term rallies following any significant EU summit I am cautious here. The short-term trend for stocks is up but the larger trend is still questionable with a Q2 pattern of lower highs and lower lows. We might have to see stocks retest their June lows or even tag a new lower low like we saw in August-October of 2011 before stocks find a real bottom again.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

Headlines out of the EU summit helped lift stocks into the weekend and close the first half of 2012 on a positive note.

Our FDO trade was closed after the company missed earnings and the stock gapped open lower, under our stop loss.

We've added three new trades from the watch list: ABT, AMRN, and PEP. ABT and PEP don't actually open until Monday morning (that's why the data below for those two are blank).

I have updated stop losses on: CL, KO, 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

On A High Note!

by James Brown

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Editor's Note:

The market ended the second quarter on a high note. Short covering probably played a big part of Friday's rally so I wouldn't be too optimistic here. Yet if the market's major indices can keep the momentum alive and breakout past resistance then it might inspire some real buying interest.

Unfortunately the EU's newest plan to make a plan to solve their problems doesn't really fix anything. It could be six months before these new proposals are ratified and implemented (if not longer). Thus the situation in the Eurozone hasn't changed much and remains a significant risk for the markets.

Closer to home we're nearing the Q2 earnings season. Corporate guidance will set the tone for the rest of our summer. If you consider the recent trend of disappointing economic data it does not bode well for corporate earnings. Thus I am cautious when it comes to launching new positions in the LEAPS newsletter.

I will point out that we had three watch list candidates graduate to our active trade list this past week. I just added three more new watch list candidates.

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

BRK.B, WFM, SODA, CSX, GE, MDR, SHLD, CREE, SHAW, PHM, CIEN, JDSU, EMC, SCHW, JBHT


Play Updates

New Highs & New Trades

by James Brown

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Editor's Note:

Last week produced a lot of new highs on our active trade list below. We also saw ABT, AMRN and PEP make the jump from our watch list to active trades. Unfortunately FDO was stopped out in reaction to its earnings report miss.


Closed Plays


FDO was stopped out.


Play Updates


Abbott Labs - ABT - close: 64.47

Comments:
06/30/12 update: Many of the drug and biotech names soared on Friday as if there was a delayed reaction to the Supreme Court's decision on Obamacare. Shares of ABT had been churning under resistance near $63.00. We wanted to wait for ABT to close over $63.50 and then buy calls the next day. Well ABT rallied +2.4% on Friday to close above our trigger. We'll enter positions on Monday morning at the open. Patient traders may want to wait for a dip back toward $63.00 since broken resistance tends to become new support. There is a good chance ABT will see a dip back into the $63.50-63.00 zone.

Earlier Comments:
Before we continue I want to warn you that trading the drug makers or biotech stocks has an industry-specific danger. You never know when an FDA approval might get denied or delayed. Or some clinical trial data might disappoint. Headlines like these can send a stock gapping down. On the other hand positive news could send it soaring.

- Suggested Positions -
JUL 02, 2012 - entry price on ABT @ --.--, option @ -.--
symbol: ABT1319A65 2013 JAN $65 call - current bid/ask $ 1.93/ 2.00

- or -

JUL 02, 2012 - entry price on ABT @ --.--, option @ -.--
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 4.05/ 4.30

06/29/12 ABT closed @ 64.47. Plan was to wait for a close over $63.50 and buy calls the next day. We will open positions on Monday, July 2nd.

Chart of ABT:

Current Target:$74.00
Current Stop loss: 59.40
Play Entered on: 07/02/12
Originally listed on the Watch List: 06/23/12


Allergan Inc. - AGN - close: 92.57

Comments:
06/30/12 update: AGN saw some volatility on Thursday thanks to the Supreme Court news but shares recovered on Friday with a +2.8% gain. The stock is back above potential resistance at $92 and its 50-dma and 100-dma. Shares have yet to break the current intermediate trend of lower 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 $ 2.45/ 3.00

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: 32.09

Comments:
06/30/12 update: Friday was a big day for AIG. The stock has been sinking under a short-term trend of lower highs. Traders bought the dip at support near $30.00. Friday saw a +4.0% gain and a bullish breakout. Investors could use a close over $32.50 as a new bullish entry point but keep positions small. Financials could still see a volatile summer.

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 $ 4.70/ 4.80

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.20/ 5.40

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


Amarin Corp. - AMRN - close: 14.46

Comments:
06/30/12 update: AMRN has graduated from the watch list to an active trade. The plan was to wait for a close over $13.25 and then buy calls the next day. AMRN has been flirting with resistance in the $13.00-13.25 zone for days. It finally closed at $13.39 on June 25th. We opened positions the next day when AMRN opened at $13.52. Then on Wednesday the stock gapped higher.

The big move higher on Wednesday appears to be a reaction to potentially good news on AMRN's attempt to patent its AMR101 drug. AMR101 is a fish-oil prescription designed to treat patients with unhealthy levels of triglycerides. The company doesn't have the patent yet but signs seem to be improving that they'll get it, which will provide years of patent protection for this treatment.

On a short-term basis there is a good chance AMRN will try and fill the gap. That means readers could wait for a dip back toward the $13.50-13.00 zone as a bullish entry point to buy calls.

Earlier 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. 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.

- Suggested Positions - (small positions)
Jun 26, 2012 - entry price on AMRN @ 13.52, option @ 3.36
symbol:AMRN1319A15 2013 JAN $15 call - current bid/ask $ 2.90/ 3.40

06/26/12 trade opened: option @ 3.36
06/25/12 closed over our trigger (13.25) AMRN closed @ 13.39
06/23/12 adjust entry. wait for AMRN to close over $13.25 (instead of $13.00)

Chart of AMRN:

Current Target:$ 17.50
Current Stop loss: 11.40
Play Entered on: 06/26/12
Originally listed on the Watch List: 06/09/12


Apache Corp. - APA - close: 87.89

Comments:
06/30/12 update: Whew! APA gave us a scare on Monday with a dip toward support at $80.00 but support held. Shares are now up four days in a row with a big bounce toward resistance at $88.00. The stock has managed to breakout past technical resistance at its 50-dma along the way.

Crude oil acts like it may have found a bottom but we can't be sure yet. Friday's big rally in oil was partially due to the big drop in the U.S. dollar.

I remain bullish on APA. Readers can choose to wait for a close over the $88.00 level or wait for a dip back to what should be short-term support near $85.00 as a new entry point to buy calls.

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ 87.10, option @ 3.45
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 3.00/ 3.15

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 5.55/ 5.85

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


Bank of America - BAC - close: 8.18

Comments:
06/30/12 update: BAC spent most of the week hovering above support near $7.50. Friday's widespread market rally produced a +5.6% gain for this banking stock. Shares are now testing resistance near $8.20 and its 100-dma and 300-dma. The four-week trend looks bullish but I would hesitate to launch positions. BAC is scheduled to report earnings around July 18th. Investors may want to wait and see how the market reacts to their earnings report first before considering new 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/ 0.45
(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/ 0.45
(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: 35.95

Comments:
06/30/12 update: Drug stocks outperformed on Friday and BMY delivered a strong, one-day rally (+2.4%) to close at new multi-year highs. I would not chase it here. Please note I'm adjusting our exit target from $37.50 to $38.50.

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.87/ 1.92

06/30/12 adjusted exit target to $38.50
06/23/12 there was no follow through on the bearish reversal. BMY has rallied toward its 2011/2012 highs.
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: $38.50
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: 58.53

This is a bearish PUT option trade.

Comments:
06/30/12 update: The market-wide rally on Friday helped produce a +3.3% oversold bounce in CHRW. The larger trend remains bearish. A slowing economy and the potential for rising oil (fuel) prices should be a bearish combination. I am 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 $ 2.90/ 3.10

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: 104.10

Comments:
06/30/12 update: CL continues to show relative strength. The stock has broken out past resistance near $102 and closed at new record, all-time highs. More conservative traders may want to take profits now. I am raising our stop loss up to $95.75.

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 $6.80/7.00

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $11.00/12.25

06/30/12 new stop loss @ 95.75
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: 42.01

Comments:
06/30/12 update: EBAY posted a loss for the week but the bullish trend remains intact. Traders bought the dip at EBAY's rising 50-dma, which has been a consistent pattern over the last few months. The company should be poised to report earnings in a couple of weeks (near July 18th).

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 $ 8.85/ 9.00

06/23/12 new stop loss @ 37.75
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: 37.75
Play Entered on: 03/12/12
Originally listed in the New Plays 03/10/12


Intel Corp. - INTC - close: 26.65

Comments:
06/30/12 update: It was a rocky week for INTC. Yet investors bought the dip at technical support near its rising 200-dma for the second time this month (June). Intel is trading in a wide pattern of higher lows and lower highs, which is neutral. I would expect shares to continue this sideways churn until its earnings report on July 17th. 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 $ 0.52/ 0.55

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - current bid/ask $ 1.68/ 1.76

06/23/12 looks like the oversold bounce may have reversed
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: 78.19

Comments:
06/30/12 update: Shares of KO have produced a very strong four-day bounce off its Monday lows. Friday's big rally is a bullish breakout past its May highs and leaves the stock at 14-year highs. On a short-term basis the stock is overbought and due for some profit taking.

We are upping the stop loss to $71.80. More conservative traders may want to consider a stop closer to $74 instead. 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 $ 6.85/ 7.00

06/30/12 new stop loss @ 71.80
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: 71.80
Play Entered on: 03/29/12
Originally listed on the Watch List: 03/17/12


Eli Lilly - LLY - close: 42.91

Comments:
06/30/12 update: Drug stocks were showing relative strength this past week. Friday's big rally in LLY (+1.9%) left the stock at new 3 1/2 year highs. We are raising our stop loss to $39.75 so it's just under the June low. 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 $ 1.69/ 1.77

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.34/ 2.50

06/30/12 new stop loss @ 39.75
06/23/12 LLY is hitting new multi-year highs.
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: 39.75
Play Entered on: 01/05/12

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


Merck & Co - MRK - close: 41.75

Comments:
06/30/12 update: MRK is another great example of the strength in drug stocks. After testing $37 in early June the stock has gone almost straight up. This non-stop rally will pause and correct eventually. I am not suggesting new positions at this time. More conservative traders may want to start raising their stops.

If the market (and drug stocks) correct lower I would expect a likely pullback toward the $40 level. FYI: The Point & Figure chart has a long-term target of $60.00.

- Suggested Positions -
Jun 25, 2012 - entry price on MRK @ 39.91, option @ 3.14
symbol: MRK1418A40 2014 JAN $40 call - current bid/ask $ 4.00/ 4.10

06/25/12 MRK gap down at $39.91
06/22/12 MRK met our entry point requirement with a close over $40.00. Launch positions on Monday morning (conservative traders can wait for a dip to the 10-dma instead).

Current Target: $47.50
Current Stop loss: 37.75
Play Entered on: 06/25/12

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


Microsoft - MSFT - close: 30.59

Comments:
06/30/12 update: MSFT underperformed the market's major indices for the week. It's worth noting that shares broke through some resistance with Friday's rally. Investors might want to wait for a close over $31.20 before considering new bullish positions. MSFT will report earnings on July 19th.

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 $ 2.27/ 2.31

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.85/ 3.95

06/18/12 MSFT announces the "surface" line of tablets
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: 48.11

Comments:
06/30/12 update: I am worried about MSI. The stock retested support near $46.50 and its 300-dma this past week. Yet the intermediate, two-month trend is still bearish. If the market can continue its current run higher then MSI has a chance to recover. If not then MSI will likely hit our stop loss at $45.75 soon.

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 $ 0.91/ 1.00

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


Pepsico, Inc. - PEP - close: 70.66

Comments:
06/30/12 update: PEP is a watch list candidate that has graduated to our active trade list. The plan was to wait for shares to close over $70.25 and then buy calls the next day. Well the market's big rally on Friday finally pushed PEP past resistance at the $70.00 mark. Shares closed at $70.66. We will open positions on Monday morning with a stop loss at $65.75.

- Suggested Positions -
Jul 02, 2012 - entry price on PEP @ --.--, option @ -.--
symbol: PEP1418A75 2014 JAN $75 call - current bid/ask $ 2.73/ 2.85

07/02/12 launch positions at the open
06/29/12 PEP meets our entry requirement with a close above $70.25.

Chart of PEP:

Current Target: $79.00
Current Stop loss: 65.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 05/26/12


Reynolds American Inc. - RAI - close: 44.87

Comments:
06/30/12 update: RAI is a defensive name that's been showing significant relative strength. The stock is up four days in a row and shares closed at new record highs. I would not chase it here. More conservative traders might want to adjust their stop loss closer to the $41 or $42 levels. 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 $ 3.20/ 3.40

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


The TJX Companies - TJX - close: 42.93

Comments:
06/30/12 update: TJX displayed some volatility on Thursday with a temporary breakdown under technical support at the 50-dma. Shares have since recovered but they still posted a loss for the week. It almost looks like TJX has been building a bull-flag style consolidation pattern over the last two weeks.

Previously I suggested a dip to $42 as an entry point. At this point I would wait for a close over $43.75 before considering new positions.

- Suggested Positions -
Jun 20, 2012 - entry price on TJX @ 43.62, option @ 2.53
symbol: TJX1319A45 2013 JAN $45 call - current bid/ask $ 2.15/ 2.30

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 4.50/ 4.80

06/20/12 trade opens
06/19/12 TJX closed above our entry requirement (above $43.25)

Current Target: $49.75
Current Stop loss: 39.75
Play Entered on: 06/20/12

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


UnitedHealth Group - UNH - close: 58.50

Comments:
06/30/12 update: Investors aren't sure yet on how the Obama administration's Affordable Care Act and its massive amounts of new regulations will impact the health insurers like UNH. That's why UNH experienced so much volatility on Thursday. Looks like investors were more in a sell the news mood on Friday and the stock underperformed.

UNH currently has resistance near $60.50 and support near $55.00. More conservative traders may want to raise their stops closer to $55.

I am not suggesting new positions at this time.

- Suggested Positions -
Feb 15, 2012 - entry price on UNH @ 54.53, option @ 3.25
symbol: UNH1319A60 2013 JAN $60 call - current bid/ask $ 3.70/ 3.80

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 7.00/ 7.30

06/28/12 The U.S. Supreme Court upheld Obamacare's new healthcare law. UNH experienced some sharp intraday volatility
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: 44.44

Comments:
06/30/12 update: VZ has broken out past resistance at the $44.00 level. Shares look poised to hit our exit target at $45.00 soon. The high on Friday was $44.77. We will raise our stop loss to $41.75. 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 $ 4.60/ 4.70

- or -

Dec 23, 2011 - entry price on VZ @ 39.42, option @ 2.87
symbol: VZ1418A40 2014 JAN $40 call - current bid/ask $ 5.55/ 5.65

06/30/12 new stop loss @ 41.75
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: 41.75
Play Entered on: 12/23/11

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


CLOSED Plays


Family Dollar Stores - FDO - close: 66.48

Comments:
06/30/12 update: Ouch! FDO really underperformed this past week. It was an odd week for retail stocks. They were not moving as a group. Some retail stocks were showing strength while others, like FDO, were breaking down.

FDO reported earnings on June 28th. They missed by a penny and guidance was a little light. The stock gapped open lower on Thursday morning at $65.28 and since our stop loss was $65.75 the play was closed immediately.

The long-term trend for FDO remains bullish but investors may want to wait for a dip or a bounce likely support at $60 before considering new positions.

- Suggested Position -
Jun 21, 2012 - entry price on FDO @ 70.25, option @ 3.00*
symbol: FDO1319A80 2013 JAN $80 call - exit $1.15 (-61.6%)

06/28/12 FDO reports earnings and misses by a penny.
Stock gaps open lower, under our stop loss.
06/21/12 triggered @ 70.25
*entry price on the 2013 $80 call at $3.00 is an estimate since the option did not trade at the time our trade was triggered.

Chart of FDO:

Current Target: $84.50
Current Stop loss: 65.75
Play Entered on: 06/21/12

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



Watch

Medical Tech, Rails, and Credit Cards

by James Brown

Click here to email James Brown


New Watch List Entries

SYK - Stryker Corp

UNP - Union Pacific Corp

V - Visa Inc.


Active Watch List Candidates

DFS - Discover Financial

DIS - Walt Disney Co.

JPM - JPMorgan Chase

PFE - Pfizer Inc.

SBUX - Starbucks Corp.

USB - U.S. Bancorp

VLO - Valero Energy


Dropped Watch List Entries

ABT, AMRN, and PEP all graduated to the play list.

I have removed QCOM and WMT as a candidate.



New Watch List Candidates:


Stryker Corp. - SYK - close: 55.10

Company Info

SYK is a medical technology company. Thursday's decision by the Supreme Court on healthcare didn't seem to have much impact on SYK. The stock has been consolidating under resistance near $56.00 for months. It finally looks like shares are ready to breakout.

I am suggesting we wait for SYK to close over $56.50 and then buy calls the next day with a stop loss at $50.75. We will set our targets at $64.50 and $69.50.

Breakout trigger: Wait for close over $56.50 (stop 50.75)

BUY the 2013 Jan $60 call (SYK1319A60)

- or -

BUY the 2014 Jan $60 call (SYK1418A60)

Chart of SYK:

Originally listed on the Watch List: 06/30/12


Union Pacific Corp. - UNP - close: 119.31

Company Info

Shares of UNP are looking pretty strong when you consider the U.S. economy seems to be slowing down. Normally a slowing economy would be bearish for a transport (railroad) company like UNP. Yet shares of UNP have broken out from a major trading range and now they're testing their record highs.

I am suggesting we wait for UNP to close over $121.00 and then buy calls the next day. We will start with a stop loss at $111.75. Our long-term target is $139 (although we'll probably exit our 2013 calls way before UNP hits our target).

Breakout trigger: Wait for a close over $121 (stop loss 111.75)

BUY the 2013 Jan $130 call (UNP1319A130)

- or -

BUY the 2014 Jan $140 call (UNP1418A140)

Chart of UNP:

Originally listed on the Watch List: 06/30/12


Visa, Inc. - V - close: 123.63

Company Info

Shares of Visa have rallied toward their all-time highs. A breakout past resistance near $125.00 could signal the beginning of its next leg higher. The Point & Figure chart is bullish with a $150 target.

I am suggesting we wait for Visa to close over $125.50 and then buy calls the next day with a stop loss at $117.45. Our long-term target is $149.00 (although we'll likely exit our 2013 calls before V reaches our target).

Breakout trigger: $xx

BUY the 2013 Jan $135 call (V1319A135)

- or -

BUY the 2014 Jan $140 call (V1418A140)

Chart of V:

Originally listed on the Watch List: 06/30/12


Active Watch List Candidates:



Abbott Labs - ABT - close: 64.47

ABT hit our entry point requirements on Friday. I've moved it to the current plays section of the newsletter.

Originally listed on the Watch List: 06/23/12


Discover Financial - DFS - close: 34.58

Comments:
06/30/12 update: DFS might be in play soon. Traders bought the dip on Thursday and DFS has rallied back toward its highs. The stock is poised to breakout to new all-time highs soon.

We currently have an entry point strategy to buy calls if DFS can close over $35.00 (buy calls the next day).

Breakout trigger: close above $35.00, stop 31.75

buy the 2013 Jan $37 call (DFS1319a37)
- or -
buy the 2014 Jan $40 call (DFS1418a40)

06/30/12 removed the buy-the-dip trigger.
06/23/12 adjusted entry point strategy to two different entries
06/16/12 DFS is scheduled to report earnings on June 19th.

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


Walt Disney Co. - DIS - close: $48.50

Comments:
06/30/12 update: DIS continues to rally and broke out past resistance near $48.00 on Friday. The stock is at new record highs. We're still not willing to chase it just yet.

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)

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


JPMorgan Chase - JPM - close: 35.73

Comments:
06/30/12 update: JPM has been churning sideways between $37.00 and $34.50 the last two weeks. If the stock breaks down from this range I would expect a dip to the $30-28 zone. If it breaks higher then shares will likely challenge round-number resistance at $40.00. Since the situation in Europe remains unsolved I'm still expecting further weakness in some of the financials.

Given the rumors surrounding JPM's potential losses this quarter the stock could also see some volatility surrounding its earnings report in July.

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


Pepsico, Inc. - PEP - close: 70.66

PEP met our entry point requirement on Friday. I've moved it to the active trade, play updates section.

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


Pfizer Inc. - PFE - close: 23.00

Comments:
06/30/12 update: Shares of PFE seem to be lagging the rally in some of its peers but the stock is trading near multi-year highs. PFE ended the week right at resistance near $23.00. The April high was $23.30. I am adjusting our entry point strategy. We will wait for PFE to close over $23.40 and then buy calls the next day. We'll up the stop loss to $20.95.

Our long-term target is $28.00.

Breakout trigger: Wait for a close over $23.40, use a stop at $20.95

BUY the 2014 Jan $25 call (PFE1418A25)

06/23/12 removed the 2013 call. We'll only play the 2014s
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: 55.68

Comments:
06/30/12 update: QCOM is virtually flat for the week with a four-cent gain. The stock's three-month bearish trend of lower highs and lower lows remains in effect.

I am removing QCOM from the watch list but we'll reconsider the stock as a potential trader if shares can close over the $60.00 level.

Our trade did not open.

06/30/12 removed QCOM from the watch list
06/23/12 adjust entry requirement to a close over $60.00 (instead of $62.00), if QCOM closes under $55.00 we'll drop it as a candidate.

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


Starbucks Corp. - SBUX - close: 53.32

Comments:
06/30/12 update: I am adjusting our strategy on SBUX.

The stock has been churning sideways in the $51-56 zone for almost two months. Shares just bounced off the bottom of the range and more aggressive traders might want to buy this bounce with a tight stop near $51.00. I suspect that if SBUX breaks down from this trading range that it will see a drop toward $45.00. On the other hand if SBUX can breakout from this range it should reaffirm the long-term up trend.

I am suggesting we wait for SBUX to close above $56.25 and then buy calls the next day with a stop loss at $50.75. Our long-term target is $69.00.

I have adjusted our option strike prices.

Breakout Trigger: wait for a close over $56.25, stop loss 50.75

BUY the 2013 Jan $60 call (SBUX1319A60)

- or -

BUY the 2014 Jan $65 call (SBUX1418A65)

06/30/12 adjust strategy to wait for a close over $56.25, new stop @ 50.75, adjust option strikes.
05/19/12 adjust stop loss to $45.75

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


U.S. Bancorp - USB - close: 32.16

Comments:
06/30/12 update: Hmm... we may have to reconsider our strategy on USB. The stock has been holding up pretty well. Now USB is close to breaking out to new multi-year highs.

Tonight we're going to leave our strategy unchanged with a buy-the-dip plan to buy calls at $29.00. However, readers may want to consider buying calls if USB can close over the $33.00 mark instead (and adjust your stop loss and target appropriately).

Buy-the-Dip trigger: $29.00 (stop loss 26.40)

BUY the 2013 Jan $30 call (USB1319A30)

- or -

BUY the 2014 Jan $30 call (USB1418A30)

06/30/12 readers might want to consider an alternative entry point
06/23/12 adjust entry trigger to $29.00, stop to 26.40
06/02/12 adjust entry trigger to $28.00

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


Valero Energy - VLO - close: 24.15

Comments:
06/30/12 update: VLO has been making progress. This past week saw VLO rally past potential resistance at its 200-dma, 150-dma, 300-dma, and 100-dma. Now VLO is flirting with a breakout past resistance near $24.00.

I am adjusting our entry strategy. Instead of $24.25 we will wait for VLO to close above $24.50 and then buy calls the next day (stop loss 22.45). Our long-term target is $29.75.

Breakout trigger: Wait for a close over $24.50 (stop 22.45)

BUY the 2013 Jan $25 call (VLO1319A25)

- or -

BUY the 2014 Jan $30 call (VLO1418A30)

06/30/12 adjust entry strategy: wait for close over $24.50, stop 22.45

Originally listed on the Watch List: 06/23/12


Wal-Mart Stores - WMT - close: 69.72

Comments:
06/30/12 update: WMT continues to show relative strength. After churning sideways for three weeks the stock is now breaking out to new multi-year highs. Short-term traders might want to consider bullish positions here. With our long-term time frame I do not want to chase WMT here. Yet it's unlikely that shares will hit our buy-the-dip trigger at $63.00 any time soon so we are removing WMT as a candidate.

Our trade did not open.

06/30/12 removed WMT from the watch list
06/23/12 adjust trigger to $63.00, from $62.00

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