Option Investor
Newsletter

Daily Newsletter, Sunday, 7/15/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Snap a Six-Day Slide

by James Brown

Click here to email James Brown

Stocks ended the week on a positive note but it looked more like a short squeeze following economic news out of China and JPM's earnings report on Friday morning. The market's gain also looks more like a technical bounce after a six-day decline. The U.S. dollar tagged a new relative high on Thursday and the euro currency hit multi-year lows this past week. Silver and gold can't seem to break the multi-month trend of lower highs. Oil is still trying to bounce in spite of the dollar's strength. U.S. bonds bounced off their intraday week low with the yield on the 10-year bond rising back to 1.5% on Friday. Thanks to Friday's market gain the S&P 500 ended the week up +0.1%, the NASDAQ -0.9%, the Russell 2000 -0.7%, the Dow Industrials +0.04%.

U.S. economic data continues to disappoint. The University of Michigan consumer sentiment numbers came in at 72.0, which is a seven-month low. The Producer Price Index (PPI) for June rose +0.1%, which was higher than expected. Core-PPI prices rose +0.2% for the fourth month in a row. The big event this past week was the FOMC minutes from the last meeting. Investors were hoping for a strong hint of new QE but were disappointed with the fed's "further policy stimulus likely would be necessary to promote satisfactory growth," line.

Most of the market-moving economic data came out of China. Earlier in the week China's Consumer Price Index (CPI) reading on inflation came in at +2.2%. The big headline was Friday's Q2 GDP number and the day before Mr. Wen Jiabao, the Chinese Premier, said, it is "important to promote a reasonable growth in investment." That would suggest China will continue their current plan of trying to stimulate their economy.

The markets have been agonizing over the potential for a "hard landing" in China for a couple of years now. Prior to Friday's China Q2 GDP report there were whisper numbers that real GDP growth had fallen into the +4% to +5% range. Officially China said their economy grew at +7.6%, which was slightly less than estimates for +7.7% but much higher than the whisper numbers. Of course the communist Chinese party controls the news so we don't know how accurate these numbers are. The +7.6% GDP reading marks the weakest growth since early 2009 and the sixth quarterly decline in a row but the news sparked some short covering since it was not as bad as many had feared.

China said retail sales in June grew +13.7%, which was less than May's +13.8% but above the 13.4% June estimate. Industrial production in China came in at +9.5% versus estimates of +9.8%. The Chinese government is definitely trying to stop the slowdown. They have cut their bank reserve ratio three times since last November which increases the amount of capital banks are allowed to lend. Plus, they've cut interest rates twice this year, the most recent one a surprise cut two weeks ago.

Elsewhere in the news Europe is still worried about Spain. On Monday this past week the yield on Spain's 10-year yield was above the crucial 7.0% level. Yields have retreated since then but Spain is on the brink of a collapse and the EU finance ministers declared they would try and speed up the delivery of 30 billion euros to help stabilize Spanish banks. Meanwhile back in Asia, Japan said their machinery orders fell -14.8% in May compared to an estimated -2.6% decline.

A number of headlines last week were focused on earnings since we are in the middle of Q2 earnings season. Unfortunately almost all of the headlines were negative. Company after company is warning and/or missing estimates. A few of the high-profile warnings came from Cummins (CMI) and Applied Materials (AMAT). The exception was JPM and WFC. Investors were very worried about J.P.Morgan Chase's (JPM) earnings report on Friday. Analysts were expecting a profit of 75 cents a share. JPM delivered $1.21 a share. Revenues were down year over year. The market seemed to breathe a sigh of relief that JPM's losses on the "whale trade" were only $5.8 billion (so far). We can all agree that's a huge loss but JPM brings in about $88 billion a year in revenues and a net income of about $16.5 billion a year. The company has more than $515 billion in cash.

JPM CEO Jamie Dimon continues to dig deep into the details of this nightmare trade gone wrong. Several people have already left the company or have been fired. We are also hearing about claw backs on salaries and bonuses from some of the executives involved with this deal gone bad. For the most part this earnings report and disclosure on the whale-trade losses should put this issue behind JPM. The stock rallied +5.9% on the session. Meanwhile JPM's rival Wells Fargo (WFC) had a decent quarter with earnings of 82 cents a share versus the 81-cent estimate. This is up from 70 cents a year ago. WFC's mortgage division seems to be operating at full steam with a very strong quarter. That should be bullish anecdotal evidence for the rebounding real estate market.

Major Indices:

The S&P 500 index eked out a +0.1% gain for the week thanks to Friday's +1.6% bounce. The oversold bounce actually began on Thursday when the S&P 500 started rebounding off the 1325 level. The index had been testing technical support at its 50-dma on Tuesday and Wednesday and dipped to its 40-dma on Thursday before starting to bounce. Looking at the chart below you can see the S&P 500 is in an intermediate trend of higher lows and higher highs while still under the larger bearish trend of lower highs.

There is immediate resistance near 1360 and the 100-dma. Yet the level to watch is probably the early July high near 1375. A close over 1375 could signal a run toward its 2012 highs near 1420. I wouldn't get too excited just yet. A lot of Friday's move looks like short covering thanks to the better than expected JPM earnings report and the not as bad as we feared Chinese GDP number. I'm worried that this bounce will run out of steam and a close under the trend of higher lows will portend a drop toward the June lows near 1275-1265.

I hate to say it but you could argue this entire bounce from the June lows is nothing but a big bear flag pattern.

Daily chart of the S&P 500 index:

The action in the NASDAQ composite looks similar with a big bounce (+1.4%) on Friday. Yet even with the bounce the NASDAQ still lost -0.9% for the week. We have the same conflicting trends of higher lows (bullish) versus the larger trend of lower highs (bearish). I suspect this oversold bounce still has some gas left in the tank. The question will be whether or not the NASDAQ can get past resistance near 2950 and its 100-dma and then the July highs near 2975.

If this rebound fails, then a breakdown under this past week's low (and the exponential 200-dma) would signal a like drop toward 2800 and probably the June lows in the 2750-2725 area.

The technical picture here is very muddy and with so many high-profile tech stocks poised to report earnings this week we could see a lot of volatility in the NASDAQ and NASDAQ-100 index.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index has seen a -4.8% correction with the drop from resistance near 820 to new support near 780. Believe it or not the $RUT looks the most bullish here with the Thursday-Friday bounce. We need to see some follow through on this bounce. The level to watch remains 780. A close under 780 would look very ugly and suggest a much deeper correction to come. On a short-term basis I am expecting a bounce back to 820. A breakout past 820 should produce a rally towards the 840-850 area.

Daily chart of the Russell 2000 index

We are facing a relatively busy week of economic data. The reports to watch are the CPI on Tuesday, the Fed's Beige Book on Wednesday, and the Philly Fed survey on Thursday. We'll also see some housing data. Federal Reserve Chairman Ben Bernanke is going to be in the spotlight with his semiannual testimony on the state of the economy before lawmakers.

Bernanke speaks before the Senate on Tuesday and gets to repeat his performance on Wednesday before the House. Odds are he will continue the line that growth is too slow but it is still growth and that the Fed is ready to act should things deteriorate. Of course the real question will be just what "actions" the Fed can still take since lowering rates any further is not possible and they've already extended Operation Twist, which doesn't seem to be working very well.

The real fireworks will be earnings news. The Q2 earnings season hits full blast this week. Over 200 companies are reporting with a lot of high-profile names making announcements. Tech titans IBM, INTC, and MSFT all report. Financial giants AXP, BAC, and Citigroup (C) also report. With the exception of JPM and WFC this past week, most of the earnings reports have been disappointing and guidance has been terrible. If that trend continues then the market's current rebound won't last.

Economic and Event Calendar

- Monday, July 16 -
Retail sales for June
New York State Empire Mfg survey
business inventories for May

- Tuesday, July 17 -
CPI for June
industrial production & capacity utilization
Fed Chairman Bernanke's testimony before the Senate

- Wednesday, July 18 -
housing starts and building permits for June
Fed's Beige Book Report
Fed Chairman Bernanke's testimony before the House

- Thursday, July 19 -
Weekly Initial Jobless Claims
Existing home sales for June
Philly Fed survey

- Friday, July 20 -
(nothing significant)

The Week Ahead:

Earnings results will be the main focus this week. One year ago Wall Street was expecting Q2 2012 earnings growth to be +14%. Today consensus estimates have fallen to -2.1%. If you exclude Apple (AAPL) and Bank of America (BAC) from that calculation then current estimates are for -5% earnings decline. Almost everyone is expecting disastrous earnings results. That begs the question, has terrible Q2 earnings already been priced into the market? If they have been priced in, then any sort of good news or bad news but not as bad as expected news could actually lift the market.

If analysts have lowered their estimates too much then corporate America might be able to surprise to the upside. We have already seen a lot of warnings about how Europe's slowdown impacted sales. There could be a parade of companies blaming Europe. That's nothing new so it shouldn't be a negative surprise for anyone. That leaves room for a positive surprise. I am not saying that we should bet on stocks to rally because of the possibility of better than expected earnings (correction: not as bad as expected earnings) but it remains a possibility.

I do keep coming back to the concept that everyone is so negative already the contrarian would be betting on the market to rally. Investors pretty much hate stocks right now. You wouldn't know it by the action in the major indices with the S&P 500 less than 5% from its 2012 highs but the latest investor sentiment survey puts bullish sentiment at only 30% versus the long-term average of 39%. Bullish sentiment has been under the average for 15 weeks in a row. That hasn't happened in almost 20 years.

I suspect we are going to be inside a volatile trading range for the next week or two while investors digest the flood of corporate earnings news. It's possible that Q2 earnings headlines will distract us from the almost constant barrage of worries about a slowing China, a slowing U.S. economy, the troubles in Europe, and the fast approaching "fiscal cliff" in the U.S. Until we see the market close at a new relative high, I am expecting this bounce to fail.

I would be cautious when it comes to new bullish trades.

- James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Friday's rally looks more like short covering but it may have included some opportunistic bulls buying the bounce off technical support.

INTC and MSI were stopped out.

We want to exit our UNH trade at the open on Monday!

I have updated stop losses on: BMY, CL, MRK, and RAI

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.





New Plays

Will Earnings Disappoint?

by James Brown

Click here to email James Brown

Editor's Note:

Little has changed for us in a week. Technically the market is bouncing from an intermediate trend of higher lows after a multi-day slide. The economic data in the U.S. is still disappointing. The Chinese government is trying to stop the slowdown but just announced the slowest GDP growth in three years. The situation in Europe and the EU is unchanged with Spain in the spotlight.

The only thing new is Q2 earnings season here in the U.S. and thus far most of the results and guidance has been bearish. JPM and WFC's reports on Friday were an exception. Investors will continue to focus on earnings results. While expectations are low there is still a good chance that corporations will disappoint.

We have seen nine of our watch list candidates graduate to the active trade list in just the last three weeks. Given my cautious outlook I am not adding any new trades tonight. Although I did add a few more candidates to the watch list this evening.

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

HCP, DLTR, CCJ, TGT, OXY, MDR, RGR, WFC, KSU, CSX, COST


Play Updates

Drug Names Outperform

by James Brown

Click here to email James Brown

Editor's Note:

Drug names continue to perform well. CL acts like it could hit our exit target soon.

We want to exit our UNH trade early!


Closed Plays


INTC, MSI were stopped out.


Play Updates


Abbott Labs - ABT - close: 65.45

Comments:
07/14/12 update: ABT posted a gain for the week. Shares managed to hit new all-time highs above $66 on Tuesday. The company is due to report earnings on Wednesday, July 18th, before the opening bell. With the stock at new highs there is a good chance that ABT will see a sell-the-new type of move no matter what they report. We should expect ABT to post a loss this week. I am not suggesting new positions at this time.

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 @ 64.22, option @ 1.91
symbol: ABT1319A65 2013 JAN $65 call - current bid/ask $ 2.79/ 2.87

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 4.65/ 4.85

07/14/12 ABT is due to report earnings on July 18th
07/02/12 ABT opened at $64.22
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.

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: 90.75

Comments:
07/14/12 update: Trading in AGN has been very volatile the last few weeks. The rally from $89 toward $96 has completely reversed. Shares tagged support near $88 and its 200-dma again. This pullback is also another test of AGN's long-term trend line of higher lows dating back about three years. Short-term I would expect AGN to bounce further. If not, a close under $88.00 would look very bearish.

More conservative traders may want to seriously consider raising their stop loss toward the $86-87 area. I am not suggesting new positions at this time.

FYI: AGN is due to report earnings on August 1st.

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 $ 1.95/ 2.20

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: 31.44

Comments:
07/14/12 update: It's been relatively quiet for AIG. The stock followed the market's six-day decline lower. Yet AIG held support near the $30.00 level. You could say AIG is inside a $30-32.50 trading range. AIG and JPM may not be in the same business but JPM's earnings report on Friday helped alleviate some pressure on the financial stocks.

I don't see any changes from my prior comments. Investors could use a close over $32.50 as a new bullish entry point but keep positions small.

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

FYI: AIG is due to report earnings in early August.

- 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 $ 4.00/ 4.15

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.45/ 4.70

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: 14.56

Comments:
07/14/12 update: It looks like something happened on Tuesday afternoon (July 10th) with AMRN seeing a sudden drop on rising volume. Yet I can't find any headlines to explain the relative weakness. AMRN seems to have found some short-term support near $13.75. There is still a good chance that AMRN will fill the gap from late June and that would mean a dip to $13.50.

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 $ 4.00/ 4.20

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)

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: 83.58

Comments:
07/14/12 update: The energy sector seemed to find some support on Wednesday and Thursday but APA underperformed its peers. APA's bounce on Friday also underperformed its peers. I am concerned that APA might be building a bear-flag pattern (see chart). More conservative traders may want to raise their stop loss toward this past week's low. I am not suggesting new positions.

FYI: APA is due to report earnings on August 2nd.

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ 87.10, option @ 3.45
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 1.61/ 1.69

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 3.90/ 4.10

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


Bank of America - BAC - close: 7.82

Comments:
07/14/12 update: BAC spent the week trying to hold support in the $7.50-7.40 area. The better than expected earnings report from rival JPM helped spark some short covering in BAC. Shares of BAC surged +4.5% on Friday. There is still overhead resistance in the $8.00-8.20 area. I would expect BAC to churn sideways until Wednesday. The company reports earnings on Wednesday morning (July 18th) before the opening bell. Right now expectations are for BAC to beat estimates and see a significant improvement from a year ago. These results should either push BAC past the $8.20 area or push it past support near $7.40ish. I am not suggesting new positions at this time.

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

- Suggested Positions -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.25/ 0.26
(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 $ 0.25/ 0.26
(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: 35.37

Comments:
07/14/12 update: BMY displayed some relative strength this past week. Shares managed to breakout past short-term resistance near $35.00. Overall big drug names are trending higher (as are some of the biotech names). It could be investors seeking traditional safe havens like BMY.

This company is due o report earnings on July 25th, which is a week from Wednesday. More conservative traders might want to take profits now to lock in a gain. I am not suggesting new positions at this time.

Please note our new stop loss at $32.75.

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.73/ 1.77

07/14/12 new stop loss @ 32.75
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: 32.75
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


CH Robinson Worldwide - CHRW - close: 60.30

This is a bearish PUT option trade.

Comments:
07/14/12 update: Short-term I am concerned about CHRW. This stock saw a six-day decline, just like the S&P 500. Yet the bounce on Friday near its 30-dma and 50-dma leaves CHRW poised to rally toward resistance near $62 again. Combine that with what might be a bullish double bottom in June and we have to wonder if CHRW is turning around. The long-term trend is still very bearish and CHRW should have major resistance in the $62-63 area. I am raising the risk on this trade and adjusting the stop loss to $63.25. 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 $ 2.30/ 2.45

07/14/12 raising the risk on this trade by adjusting the stop loss to $63.25.
06/02/12 new stop loss @ 62.25

Chart of CHRW:

Current Target: $50.50
Current Stop loss: 63.25
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12


Colgate-Palmolive Co. - CL - close: 105.46

Comments:
07/14/12 update: CL weathered the market's recent decline very well. Shares produced a strong gain on Friday to close at new record highs. CL could hit our exit target at $109.00 soon. More aggressive traders could aim higher while more conservative traders may want to take profits right now. I am definitely tempted to exit prior to the earnings report on July 26th if CL has not hit our target by then.

Please note our new stop loss at $99.00. 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 $7.45/7.75

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $11.05/12.00

07/14/12 new stop loss @ 99.00, readers may want to take profits now.
options are at +155% and +98%
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: 99.00
Play Entered on: 03/16/12
Originally listed on the Watch List: 03/10/12


Discover Financial - DFS - close: 34.96

Comments:
07/14/12 update: Traders were buying the dip near $34.00 this past week. Overall DFS is holding up pretty well and the stock looks poised to rally higher. I would be tempted to buy this bounce. Last week I suggested readers buy dips near $34.00.

Currently our long-term target is $42.50.

- Suggested Positions -
JUL 05, 2012 - entry price on DFS @ 35.28, option @ 2.15
symbol: DFS1319A37 2013 JAN $37 call - current bid/ask $1.80/1.95

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $2.60/3.20

07/05/12 trade opens with DFS at $35.28
07/03/12 DFS closes at $35.45, above our trigger @ 35.00
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.

Current Target: $ 42.50
Current Stop loss: 31.75
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12


eBay Inc. - EBAY - close: 39.95

Comments:
07/14/12 update: EBAY is down less than 50 cents for the week but I remain worried. Shares fell to technical support at their 100-dma before bouncing. The stock remains under the 50-dma, which as broken support should be new resistance. EBAY also has a sharp four-week trend of lower highs it has yet to break.

Speaking of breaking, EBAY could break sharply one way or the other this week. The company reports earnings on July 18th, after the closing bell. If EBAY disappoints I would expect the stock to hit our stop loss at $37.75. Since our 2014 position is currently profitable, more conservative traders may want to exit prior to the earnings announcement. I am not suggesting new positions at this time.

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 $ 7.20/ 7.35

07/14/12 cautious traders may want to exit prior to earnings
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


Coca-Cola Company - KO - close: 77.28

Comments:
07/14/12 update: After peaking near $79 on July 3rd, KO has been correcting lower. Shares finally bounced on Friday, which produced a bullish engulfing candlestick reversal pattern. The pullback has allowed KO to fill the gap from June 29th. We remain long-term bullish here but I am not suggesting new positions at this time. More conservative traders may want to raise their stop loss.

FYI: This past week KO shareholders approved the 2-for-1 stock split, which is now scheduled for August 10th. The company will report earnings on July 17th before the opening bell.

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 $ 6.15/ 6.40

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: 43.26

Comments:
07/14/12 update: LLY has weathered the market's recent decline very well. Shares consolidated sideways and Friday's market rally allowed LLY to breakout to new highs. The trend is up and LLY looks ready to outperform. More conservative traders may want to raise their stop loss. The company is due to report earnings on July 25th.

Don't forget that we have two targets. Our first target is $44.75, where we will exit completely from our 2013 Jan. calls and sell part of our 2014 Jan. calls.

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 $ 1.99/ 2.05

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.63/ 2.82

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: 43.47

Comments:
07/14/12 update: MRK continues to surge to new multi-year highs following positive phase 3 drug trial data. This stock is up big with gains in five out of the last six weeks (from $37 to $43.50). Readers will want to seriously consider taking profits right now. Even though our time frame is still another 18 months, even I am tempted to take profits now. Odds are MRK will correct eventually and fill the gap with a drop back toward $42.50. That may or may not happen until after MRK reports earnings on July 27th.

I am not suggesting new positions at this time.

Please note our new stop loss at $39.49.

- Suggested Positions -
Jun 25, 2012 - entry price on MRK @ 39.91, option @ 3.14
symbol: MRK1418A40 2014 JAN $40 call - current bid/ask $ 5.15/ 5.30

07/14/12 new stop loss @ 39.49
07/14/12 Readers will want to seriously consider taking profits now.
MRK is at $43.47, option @ 5.15 (+93.9%)
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: 39.49
Play Entered on: 06/25/12

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


Microsoft - MSFT - close: 29.39

Comments:
07/14/12 update: Ouch! Last week looked pretty ugly for MSFT with a plunge under $30 and then a drop under its 200-dma. Investors seem to have lost any excitement for the upcoming Windows 8 upgrade cycle. Instead shares of MSFT have a three-month trend of lower highs. The company is due to report earnings on Thursday, July 19th after the closing bell. MSFT's results could send the stock moving sharply either direction. More conservative traders may want to raise their stop toward $28 or toward the June lows. I am not suggesting new positions at this time.

- Suggested Positions -
Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 1.69
symbol:MSFT1319A30 2013 JAN $30 call - current bid/ask $ 1.47/ 1.50

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.10/ 3.25

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


Pepsico, Inc. - PEP - close: 70.41

Comments:
07/14/12 update: PEP is holding up pretty well. Shares managed a gain for the week. The profit taking was pretty minimal during the market's six-day slide. PEP now looks poised to rally. I would be tempted to launch new positions here. However, investors may want to wait until after PEP reports earnings on July 25th and see how the market reacts.

- Suggested Positions -
Jul 02, 2012 - entry price on PEP @ 70.34, option @ 2.85
symbol: PEP1418A75 2014 JAN $75 call - current bid/ask $ 2.50/ 2.66

07/02/12 PEP opened at $70.34
07/02/12 launch positions at the open
06/29/12 PEP meets our entry requirement with a close above $70.25.

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: 46.10

Comments:
07/14/12 update: RAI continues to show strength. The stock churned sideways for a few days. Then the market's bounce on Friday allowed RAI to rally to new highs. I am seriously tempted to take profits now and doubly so to exit prior to earnings on July 24th.

Please note our new exit strategy. We will raise our stop loss up to $44.90. We will plan to exit this Friday, 20th at the closing bell to lock in gains. More aggressive traders could let it run and just manage their stops.

- 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 $ 3.70/ 4.30

07/14/12 new exit strategy: stop loss @ 44.90. We will plan to exit on Friday, July 20th at the closing bell
07/07/12 new stop loss @ 41.40, readers may want to take profits now!
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: 44.90
Play Entered on: 11/18/11
Originally listed on the Watch List: 10/22/11


The TJX Companies - TJX - close: 44.79

Comments:
07/14/12 update: TJX continues to work its way higher. Shares endured the market's recent pullback very well. Now TJX is sitting near new highs. I would be tempted to launch new positions here but I am concerned about the broader market over the next few weeks. TJX is due to report earnings on August 14th.

- Suggested Positions -
Jun 20, 2012 - entry price on TJX @ 43.62, option @ 2.53
symbol: TJX1319A45 2013 JAN $45 call - current bid/ask $ 3.00/ 3.10

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 5.40/ 5.70

07/05/12 TJX beats June same-store sales estimates and raises guidance
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: 55.20

Comments:
07/14/12 update: Attention!

I am suggesting we abandon ship. UNH didn't trade that poorly this past week considering the market's multi-day plunge. However, the stock remains under resistance at the 50-dma and 100-dma. UNH is due to report earnings on July 19th. I don't want to risk holding over this report.

We will exit positions at the open on Monday!

- Suggested Positions -
Feb 15, 2012 - entry price on UNH @ 54.53, option @ 3.25
symbol: UNH1319A60 2013 JAN $60 call - current bid/ask $ 2.17/ 2.26

- or -

Feb 15, 2012 - entry price on UNH @ 54.53, option @ 5.00
symbol: UNH1418A60 2014 JAN $60 call - current bid/ask $ 5.35/ 5.60

07/14/12 exit at the open on Monday
07/07/12 UNH is acting weak. Readers may want to exit early
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


Visa, Inc. - V - close: 124.09

Comments:
07/14/12 update: Shares of Visa have been a little bit volatile. The stock spiked down toward support near $120 and its 50-dma and 100-dma. Actually the intraday low was $119.10 on Thursday morning. At this point I would wait for Visa to close back above the $125.00 level before considering new bullish positions. Or you could wait and see how the market reacts to Visa's earnings results before launching positions. V is due to report earnings on July 25th, after the closing bell.

Earlier Comments:
Our long-term target is $149.00 (although we'll likely exit our 2013 calls before V reaches our target).

- Suggested Positions -
JUL 03, 2012 - entry price on V @ 126.49, option @ 5.85
symbol: V1319A135 2013 JAN $135 call - current bid/ask $ 4.30/ 4.55

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $10.00/10.55

07/03/12 trade opens with Visa at $126.49
07/02/12 Visa closes above our trigger @ 125.50

Current Target: $149.00
Current Stop loss: 117.45
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12


Valero Energy - VLO - close: 24.86

Comments:
07/14/12 update: Traders started buying the dip in VLO on Wednesday this past week. Now the stock is testing its July highs. I would be tempted to buy this bounce or you could wait for a close over $25.10 as your entry point. Bear in mind that VLO is due to report earnings on July 31st.

- Suggested Positions -
JUL 05, 2012 - entry price on VLO @ 24.90, option @ 2.54
symbol: VLO1319A25 2013 JAN $25 call - current bid/ask $ 2.43/ 2.49

- or -

JUL 05, 2012 - entry price on VLO @ 24.90, option @ 2.60
symbol: VLO1418A30 2014 JAN $30 call - current bid/ask $ 2.51/ 2.64

07/05/12 trade opened with VLO gapping down at $24.90
07/03/12 VLO closed at $25.01, above our trigger (24.50)
06/30/12 adjust entry strategy: wait for close over $24.50, stop 22.45

Current Target: $29.75
Current Stop loss: 22.45
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/23/12


CLOSED Plays


Intel Corp. - INTC - close: 25.25

Comments:
07/14/12 update: It was an ugly week for semiconductor stocks. The SOX index lost -5% for the week with a plunge toward its June lows. Intel succumbed to sector weakness (maybe that should say led sector weakness) and fell to new relative lows. Our stop loss was hit at $24.75 on July 12th. At this point INTC looks like it will work its way lower toward $24.00 but that could change depending on what they say when the company reports earnings on July 17th.

- Suggested (small, half-sized) Positions -
Feb 21, 2011 - entry price on INTC @ 27.34, option @ 1.30
symbol: INTC1319A30 2013 JAN $30 call - exit $0.21 (-83.8%)

- or -

Feb 21, 2011 - entry price on INTC @ 27.34, option @ 2.11
symbol: INTC1418a30 2014 JAN $30 call - exit $1.08 (-48.8%)

07/12/12 stopped out at $24.75
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.

Chart of INTC:

Current Target: $34.00
Current Stop loss: 24.75
Play Entered on: 02/21/12

Originally listed on the Watch List: 02/11/12


Motorola Solutions, Inc. - MSI - close: 45.95

Comments:
07/14/12 update: We have been worried about MSI for a while now with its bearish trend of lower highs. This past week saw MSI accelerate lower and breakdown through significant support near $46.00 and its 300-dma. Our stop loss at $45.75 was hit on July 10th. This drop breaks MSI's long-term bullish trend of higher lows.

- Suggested Positions -
Feb 17, 2012 - entry price on MSI @ 49.35, option @ 2.27
symbol: MSI1319A55 2013 JAN $55 call - exit $0.45 (-80.1%)

07/10/12 stopped out
07/07/12 more conservative traders may want to exit now.
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.

Chart of MSI:

Current Target: $64.50
Current Stop loss: 45.75
Play Entered on: 02/17/12
Originally listed on the Watch List: 12/10/11



Watch

Consumer Goods, Drugstores, & Agriculture

by James Brown

Click here to email James Brown


New Watch List Entries

CLX - The Clorox Co.

CVS - CVS Caremark Corp.

MON - Monsanto Co.


Active Watch List Candidates

CAT - Caterpillar Inc.

DIS - Walt Disney Co.

JPM - JPMorgan Chase

PFE - Pfizer Inc.

SYK - Stryker Corp

UNP - Union Pacific Corp

USB - U.S. Bancorp


Dropped Watch List Entries

SHLD was removed from the watch list.



New Watch List Candidates:


The Clorox Co. - CLX - close: 73.08

Company Info

CLX is a large consumer goods company. Shares managed to consolidate sideways while the market dropped in recent days. The longer-term trends look bullish. The point & figure chart is bullish with an $87.00 target.

There is short-term resistance near $73.50 and then longer-term resistance near $75.00. I am suggesting we wait for CLX to close over $75.50 and then buy calls the next day.

FYI: CLX has a strong 3.5% dividend yield. The next dividend payment is August 9th with the stock trading ex-dividend on July 23rd, 2012. It should be about 64 cents.

NOTE: CLX is due to report earnings on Aug. 2nd.

Breakout trigger: Wait for a close over $75.50 (stop 71.75)

BUY the 2013 Jan $75 call (CLX1319A75) current ask $1.95

- or -

BUY the 2014 Jan $80 call (CLX1418A80) current ask $2.35

Chart of CLX:

Originally listed on the Watch List: 07/14/12


CVS Caremark Corp. - CVS - close: 48.05

Company Info

CVS runs a national drugstore chain. The stock recently broke out past major resistance near $46.00. Now shares are sitting near record highs. The P&F chart is very bullish with a long-term target of $81.00.

I am suggesting we wait for CVS to close over $48.50 and then buy calls the next day with a stop loss at $44.40. Our long-term target is $57.50 for the 2014 calls.

FYI: CVS is due to report earnings on Aug. 7th.

Breakout trigger: Wait for a close over $48.50 (stop 44.40)

BUY the 2013 Jan $50 call (CVS1319A50) current ask $1.75

- or -

BUY the 2014 Jan $55 call (CVS1418A55) current ask $2.36

Chart of CVS:

Originally listed on the Watch List: 07/14/12


Monsanto Co. - MON - close: 83.86

Company Info

MON is in the agricultural chemicals industry. The stock has been stair-stepping higher and held up very well during the market's recent swoon. Now shares are testing resistance in the $84-85 area.

I am suggesting readers wait for a close over $85.25 and then buy calls the next day. The point & figure chart has a bullish $104 target. We will aim for $99.50.

Breakout trigger: Wait for a close over $85.25 (stop 79.75)

BUY the 2013 Jan $90 call (MON1319A90) current ask $3.60

- or -

BUY the 2014 Jan $100 call (MON1418a100) current ask $5.60

Chart of MON:

Originally listed on the Watch List: 07/14/12


Active Watch List Candidates:



Caterpillar Inc. - CAT - close: 82.07

Comments:
07/14/12 update: It was not a good week for CAT. Shares continue to sink under a bearish trend of lower highs and lower lows. The company is due to report earnings on July 25th. I would hesitate to launch positions until after we see how the market reacts to earnings.

Currently the plan is to wait for CAT to close over $90.50 and buy calls the next day. I would be tempted to adjust that to waiting for CAT to close over its simple 50-dma but for now we are leaving the entry strategy unchanged.

Our long-term target is the $110-115 zone (although we'll exit the 2013 calls before CAT hits our final target).

Breakout trigger: Close over $90.50, stop loss @ 84.75

BUY the 2013 Jan $95 call (CAT1319A95)

- or -

BUY the 2014 Jan $100 call (CAT1418A100)

Originally listed on the Watch List: 07/07/12


Walt Disney Co. - DIS - close: $48.19

Comments:
07/14/12 update: DIS continues to hold up well with traders buying the stock near its trend line of higher lows. I am still reluctant to chase it here even though the trend is bullish. The company is due to report earnings on August 7th.

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: 36.07

Comments:
07/14/12 update: Hmm... so what do we do with JPM now? Earnings were much better than anticipated. Wall Street was looking for 75 cents a share and JPM delivered $1.21. Details put losses on the "whale trade" at $5.8 billion (thus far) which seemed to soothe investors worries (it could have been worse). The stock rallied on its earnings news with a +5.9% pop and a breakout above its 50-dma.

We have been waiting for a dip toward $30 but suddenly that seems less likely to happen. JPM does have resistance in the $37-38 zone. I could see waiting for JPM to close over $38.00 and then buy calls. However, we will put this watch list candidate on hold for a week and see if there is any follow through on Friday's rally.

We're keeping JPM as a candidate but we're temporarily removing any entry point strategy. This week we will just wait and watch and re-evaluate an entry point next weekend.

I would prefer the 2014 calls but more aggressive traders could use the 2013 calls instead.

No entry point this week!

Just wait and watch!

We will re-evaluate an entry next weekend.

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


Pfizer Inc. - PFE - close: 22.81

Comments:
07/14/12 update: PFE held up reasonably well this past week but the stock is still lagging some of its drug sector peers. We're still waiting for a breakout higher. Currently we want to wait for PFE to close above $23.40 and then buy calls the next day.

PFE is due to report earnings on July 31st.

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


Starbucks Corp. - SBUX - close: 53.61

Comments:
07/14/12 update: SBUX held support near the $51.50 level in spite of the market's six-day slide. Now the bounce has pushed SBUX above short-term resistance near $53.00. Aggressive traders may want to go ahead and buy calls now and just use a stop loss just under $51.00. I am suggesting the rest of us go ahead and wait for SBUX to breakout through the top of its trading range near $56.00.

Wait for a close over $56.25 and then buy calls the next day with a stop loss at $50.75. Our long-term target is $69.00.

FYI: Earnings are July 26th.

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


Sears Holding Corp. - SHLD - close: 53.58

Comments:
07/14/12 update: Sears failed to participate in the market's oversold bounce on Friday. That doesn't bode well for this stock.

I am giving up on SHLD and removing it from the watch list.

Our trade did not open.

07/14/12 SHLD is not cooperating.

Originally listed on the Watch List: 07/07/12


Stryker Corp. - SYK - close: 53.05

Comments:
07/14/12 update: SYK spent most of the week churning on either side of the $53 level and its 50-dma. The company is due to report earnings on July 18th and the results should help propel the stock one way or the other.

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)

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


Union Pacific Corp. - UNP - close: 118.15

Comments:
07/14/12 update: UNP is holding up well. The stock managed a gain for the week. Shares ar trading in a range between support (prior resistance near $116) and resistance near $120. 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).

FYI: UNP is due to report earnings on July 19th.

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)

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


U.S. Bancorp - USB - close: 32.01

Comments:
07/14/12 update: I am adjusting our entry point strategy. USB held up very well this past week with a sideways consolidation instead of following the market lower. Friday saw USB gain +2.1% to close at new multi-week highs. There is some resistance at $33.00. I am suggesting we buy calls if USB can close over $33.50 and we'll use a stop loss at $29.90. However, I have one condition. We will not open positions prior to the earnings report on July 18th. Our long-term target is $39.50.

I have adjusted our option strikes.

Buy-the-breakout: Wait for a close over $33.50 (stop loss 29.90)

BUY the 2013 Jan $35 call (USB1319A35)

- or -

BUY the 2014 Jan $35 call (USB1418A35)

07/14/12 adjusted strategy: wait for a close over $33.50, stop 29.90
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