Option Investor
Newsletter

Daily Newsletter, Sunday, 7/29/2012

Table of Contents

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

Leaps Trader Commentary

Economic Overload

by Jim Brown

Click here to email Jim Brown
The economic calendar is not just full of trivial reports this week. It is peppered with some significant challenges for the market. Monday is the only day that is lacking a potentially market moving event.

On Tuesday the two day FOMC begins so market reporters will be working themselves into a frenzy trying to decide that the Fed will announce on Wednesday. Will they or won't they make any changes and what will those changes be?

Tuesday also has the ISM Chicago, which will basically be an update into the status of auto manufacturing. While the Chicago report is meaningful it is directly impacted by the activity at the automakers and not a general look at manufacturing in the region.

On Wednesday the FOMC decision at 2:15 will be the major event. Personally I think the Fed will wait until September to make any big decisions. The slightly better than expected GDP may have removed any incentive to make a change this week. However, the Fed will have an advance look at Friday's Nonfarm Payroll numbers and of course the early morning release of the ADP Employment report. If the jobs numbers are down significantly that could force the Fed off the sidelines and back into the headlines.

The national Manufacturing ISM is also Wednesday morning and it fell into contraction territory last month at 49.7. If the ISM falls further into contraction that could also stimulate the Fed.

On Thursday the ECB is expected to announce some new policy actions. The most likely will be another LTRO program to loan banks hundreds of billions of euros of cheap 1% money in an effort to force down bond yields for the weaker eurozone countries. Banks can borrow at 1% for three years and then buy shorter term sovereign bonds at 3% to 5% and it provides the banks with a revenue source to offset bad loans and the competition for those bonds drives down the interest rates those countries must pay. It is a win-win for everyone in Europe.

On Friday the Nonfarm Payrolls are expected to show 100,000 new jobs for July. At least that is the official consensus estimate. There are quite a few whisper numbers well below that number. Anything under the 75,000 average for the last three months is going to be a challenge for the market, assuming the Fed did not announce new policy on Wednesday.

The ISM Services on Friday is expected to be flat with June at 52.1. That report is a tossup because nobody knows how the delayed layoffs for retooling by the automakers impacted the service industry.

Event Calendar

Major Indices:

The markets rallied over the last two days as a result of the headlines in Europe. For some unexplained reason the comments from Mario Draghi about the ECB doing whatever is necessary to save the eurozone, caused a massive short squeeze in the USA. Merkel, Hollande and Monti followed up on Friday with similar comments.

These comments are not new. They have all made those same comments for the last two years and while they are soothing to investors afraid the eurozone is going to implode they are meaningless. Of course they are all going to do whatever is necessary. Every announcement by the EU Finance Ministers over the last two years has said the same thing.

The short squeezes just show how oversold and jittery the equity markets are going into August. They are afraid the fiscal cliff and the impending debt ceiling battle are going to push the markets back into sell off mode like we saw last August.

The S&P rallied to a two month high but it still faces stiff resistance in the 1390-1405 range and then again at 1420. If we are going high it is going to take a lot more rumors and public statements with some meat behind them.

Daily chart of the S&P 500 index:

The Nasdaq has underperformed the blue chips and Friday's remarkable +65 point spike was still a lower high on the chart. Unless the Nasdaq can push through 3,000 in the days ahead the tech rally is going to fail. How many more $20 gains in stocks like Amazon and Google are we going to have since all the big caps that matter have already reported?

Daily chart of the NASDAQ Composite index:

I view this week as potentially volatile and even if the ECB and Fed announced some action how do we know that is not already priced into the market?

We are heading into August, the third worst month of the year for the stock market. The U.S. economy appears to be sliding back into recession and the global economy is not far behind. We do have the fiscal cliff and debt ceiling to worry about and just because lawmakers are leaving for a five week vacation in an election year is not a reason to assume there will not be political problems impacting the market.

I suggest patience in initiating new trades. There is always another opportunity in your future as long as you have capital left to invest.

Jim Brown

James is on vacation this week. He will be back next weekend.


Portfolio

Portfolio

by Jim Brown

Click here to email Jim Brown
It was a good week for the LEAPS with the market closing at the top of its recent range. There were some major moves in companies like Colgate, Abbott and Coca Cola.

We exited winning positions in Ebay and Lilly but were stopped for a loss in Allergan. Drug stocks always live and die by their FDA approvals and the FDA was not kind to AGN.

There are two stop loss changes on CHRW and MSFT. The new stop losses are shaded in green.

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

Volatility Spike

by Jim Brown

Click here to email Jim Brown
This could be a very volatile week in the markets so the watch list will be key in your planning.

Editor's Note:

(July 28th, 2012)

The markets are sure to be volatile this week with the FOMC meeting, ECB meeting, ISM and payroll reports. I am filling in for James this week and I am not going to add any new plays.

The LEAPS Watch List had four plays trigger the prior week so look for more entries from there as the volatility increases.

James will be back next week to pick up where he left off. I don't want to add plays he might not want and this is probably going to be a good week to watch rather than go long.


- New Trades -


No new positions this week.


Play Updates

Ebay Goes Out a Winner

by Jim Brown

Click here to email Jim Brown

Editor's Note:

James is on vacation this week and I am only doing some housekeeping for him by updating some exits. He will be back next week and pick up where he left off. I will NOT be adding additional play commentary to his positions.

This is probably going to be a great week to be away from the market.

AGN was stopped out on Monday.

EBAY was closed on Monday as planned.

LLY was closed on Monday as planned.

CHRW has a lower stop loss.

MSFT has a higher stop loss.


Closed Plays


EBAY and LLY were closed as planned.

AGN was closed by stopping out.


Play Updates


Abbott Labs - ABT - close: 66.39

Comments:
07/21/12 update: ABT tagged another new record high earlier in the week but shares started to see some profit taking by Wednesday afternoon. ABT has been slowly slipping lower since then and closed down about 40 cents for the week. I would expect the $63 level and/or the 50-dma to offer some support if the market sees a correction.

It's worth noting that ABT reported earnings on July 18th and beat Wall Street's estimates by a penny. Revenues were in-line with estimates and ABT reaffirmed its prior guidance. 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 $ 2.52/ 2.56

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 4.55/ 4.80

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


American Intl. Group - AIG - close: 31.57

Comments:
07/21/12 update: AIG isn't making much progress. The stock tried to breakout from its $30-32.50 trading range on Tuesday but the rally reversed. Now AIG is back in the middle of this range and looks headed for support near $30 again. More conservative traders may want to raise their stops closer to $30.

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

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

- Suggested Positions - (small positions @ first)
May 18, 2012 - entry price on AIG @ 28.25, option @ 3.40
symbol: AIG1319A30 2013 JAN $30 call - current bid/ask $ 3.65/ 3.80

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.20/ 4.40

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: 13.51

Comments:
07/27/12 update: Amarin dropped nearly $2 on Friday after the FDA approved a new drug. Ordinarily that would be a good thing but the FDA placed restrictions on it that will limit the addressable market.

07/21/12 update: Shares of AMRN saw a spike on Thursday after the company's website accidentally posted a webpage showing their heart drug had been approved by the U.S. FDA. According to then news, the FDA is not scheduled to announce a decision on this drug until July 26th.

The overall trend in AMRN remains bullish and readers may want to consider new positions on a close above $15.50 or $16.00. However, keep in mind that if the FDA does not approve this new heart drug the stock could plunge on the headline.

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 $ 3.90/ 4.30

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: 87.57

Comments:
07/21/12 update: APA posted a decent gain for the week but I remain cautious here. The rally stalled on Thursday as APA filled the gap down from July 6th. Furthermore the action over the last several weeks still looks like a potential bear-flag pattern. More conservative traders may want to raise their stop loss closer to the $81.50 area. 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 $ 1.69/ 1.77

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 4.15/ 4.40

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: 7.31

Comments:
07/21/12 update: BAC reported earnings on July 18th. The company beat estimates by five cents but missed the revenue number with revenues at $22.2 billion versus the $23.2 estimate. Investors decided to sell the news. BAC's stock has produced a bearish reversal under the $8.00 level and its 300-dma and exponential 200-dma. The current three-day sell-off looks pretty ugly. More conservative traders may want to abandon ship right now!

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 $ 0.14/ 0.15
(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 $ 0.14/ 0.15
(no stop loss on this position)

07/21/12 BAC reported earnings this past week and investors have decided to sell the news. The stock looks vulnerable here and readers may want to exit early!
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.
...look for earlier comments in prior updates...

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: 36.05

Comments:
07/21/12 update: Hmm... BMY eked out a gain for the week in spite of Friday's -2.0% decline. I am worried that this past week may have produced the second peak to a bearish double top pattern. Readers may want to just take profits now and exit early. I would expect a drop back toward $35.00 on a short-term basis and if the market starts to sink then we could see BMY retesting the $34 area. I am not suggesting new positions at this time.

This company is due o report earnings on July 25th.

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - current bid/ask $ 1.75/ 1.79

07/21/12 Uh-oh! BMY may be forming a bearish double top pattern.
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%)
...(I have deleted earlier 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: 53.35 (New stop)

This is a bearish PUT option trade.

Comments:
07/28/12 update: Please lower the stop loss on CHRW to $60.75

07/21/12 update: The oversold bounce in CHRW has reversed with a sharp -4.3% plunge on Friday. The stock looks poised for more weakness but shares might churn sideways until the company reports earnings. CHRW is scheduled to report earnings on July 24th, after the closing bell. Meanwhile UPS reports earnings on July 24th, before the opening bell, and could influence trading in CHRW. 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 $ 3.30/ 3.60

07/28/12 lowering the stop loss to $60.75.
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

Current Target: $50.50
Current Stop loss: 60.75
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12


Colgate-Palmolive Co. - CL - close: 107.17

Comments:
07/21/12 update: CL just spent the last few days churning sideways. That is until Friday's -1% decline. I would expect CL to continue moving sideways until they report earnings on July 26th. Readers may want to seriously consider taking profits ahead of the earnings report instead of holding over the announcement.

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 $6.70/6.85

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - current bid/ask $10.45/11.45

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


CVS Caremark Corp. - CVS - close: 44.94

Comments:
07/21/12 update: Ouch! It was a bad week for CVS. The stock gapped down sharply on Thursday on news that its rival Walgreens (WAG) had finally worked out a deal with Express Scripts (ESRX). The two companies had been arguing over contracts and CVS was picking up business in the meantime.

Our plan was to buy calls the day after CVS closed above $48.50. It just so happens that CVS closed above our trigger on July 18th. So our entry was the gap down on July 19th at $45.98. We are adjusting our stop loss down to $42.45. I am not suggesting new positions at this time. We will re-evaluate next week.

Our long-term target is $57.50 for the 2014 calls.

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

- Suggested Positions -
Jul 19, 2012 - entry price on CVS @ 45.98, option @ 0.93
symbol: CVS1319A50 2013 JAN $50 call - current bid/ask $0.70/0.75

- or -

Jul 19, 2012 - entry price on CVS @ 45.98, option @ 1.70*
symbol: CVS1418A55 2014 JAN $55 call - current bid/ask $1.32/1.46

07/21/12 adjust stop loss to $42.45
*entry price on the 2014 option is an estimate since the option didn't trade on the 19th.
07/19/12 trade opens as CVS gaps lower at $45.98 on news
07/18/12 CVS closed above our trigger at $48.50

Current Target: $57.50
Current Stop loss: 42.45
Play Entered on: 07/19/12
Originally listed on the Watch List: 07/14/12


Discover Financial - DFS - close: 36.41

Comments:
07/21/12 update: Trading in DFS was a little bit bumpy but shares only lost about five cents for the week. The stock should have short-term support near $34.00 and then again near its 50 and 100-dma in the $33 area. Readers may want to wait for DFS to test and then bounce off these levels before considering new bullish positions.

NOTE: Rivals Visa (V) reports earnings on July 25th and MasterCard (MA) reports earnings on Aug. 1st. These results could have a big influence on DFS.

- Suggested Positions -
JUL 05, 2012 - entry price on DFS @ 35.28, option @ 2.15
symbol: DFS1319A37 2013 JAN $37 call - current bid/ask $1.65/1.80

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $2.55/3.10

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


Coca-Cola Company - KO - close: 80.01

Comments:
07/21/12 update: KO reported earnings on the 17th. The company beat estimates by three cents with $1.22 a share. Revenues also beat with $13.09 billion for the quarter. The stock saw an initial pop higher above $78 but spent the rest of the week drifting lower. There is no change from my prior comments.

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.

Earlier Comments:
We will plan to exit positions prior to KO's proposed 2-for-1 split scheduled for August.

- Suggested Positions (start with small positions) -
Mar 29, 2012 - entry price on KO @ 72.35, option @ 3.60
symbol: KO1418A75 2014 JAN $75 call - current bid/ask $ 6.00/ 6.15

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


Monsanto Co. - MON - close: 86.88

Comments:
07/21/12 update: It was a bullish week for MON with the stock surging almost four points to a new two-year high. Our plan was to open positions after MON closed above $85.25. Shares closed at $85.50 on July 16th. Our trade opened the next morning with MON at $85.84. At this point MON looks a little short-term overbought. Readers may want to wait for a dip near $85.00 again before initiating new positions.

Current stop loss is $79.90.

- Suggested Positions -
Jul 17, 2012 - entry price on MON @ 85.84, option @ 4.35
symbol: MON1319A90 2013 JAN $90 call - current bid/ask $ 5.10/ 5.20

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - current bid/ask $ 6.60/ 7.00

07/17/12 trade opens with MON at $85.84
07/16/12 MON closes above our entry requirement ($85.25)

Current Target: $99.50
Current Stop loss: 79.90
Play Entered on: 07/17/12
Originally listed on the Watch List: 07/14/12


Merck & Co - MRK - close: 45.10

Comments:
07/21/12 update: MRK hit another new multi-year high on Tuesday, trading over $44.00. Shares have since started to retreat. The stock is overbought and due for a correction. Thus, readers may want to consider an early exit now to lock in gains. MRK is going to report earnings soon on July 27th and the announcement might be an excuse to sell the stock to take profits.

I am not suggesting new positions at this time.

- Suggested Positions -
Jun 25, 2012 - entry price on MRK @ 39.91, option @ 3.14
symbol: MRK1418A40 2014 JAN $40 call - current bid/ask $ 5.20/ 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: 29.76 (New stop)

Comments:
07/28/12 update: Please raise the stop loss to $28.45

07/21/12 update: MSFT managed a gain for the week but the action on Friday looks bearish. The company delivered a strong earnings report on July 19th. Wall Street was looking for earnings of 62 cents on revenues of $18.2 billion. MSFT delivered 73 cents with revenues coming in at $18.6 billion. This report came out on Thursday afternoon, after the close. Shares gapped open higher on Friday morning near $31.00 and promptly fell. The move on Friday is a failed rally near resistance at $31 and a bearish engulfing candlestick reversal pattern. I would expect a new short-term correction back to $29. 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 $ 1.84/ 1.87

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.45/ 3.50

07/28/12 raise stop loss to $28.45
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: 28.45
Play Entered on: 06/01/12
Originally listed on the Watch List: 04/14/12


Pepsico, Inc. - PEP - close: 72.26

Comments:
07/21/12 update: PEP has continued to consolidate sideways in the $69.50-71.00 range. I am expecting the stock to break out one way or the other following its earnings report on July 25th. I would wait to see how investors react to the earnings news before considering new bullish positions. Earnings estimates are at $1.09 a share.

- Suggested Positions -
Jul 02, 2012 - entry price on PEP @ 70.34, option @ 2.85
symbol: PEP1418A75 2014 JAN $75 call - current bid/ask $ 2.27/ 2.40

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


Pfizer Inc. - PFE - close: 23.83

Comments:
07/21/12 update: PFE is another watch list candidate that has graduated to our play list. The plan was to wait for PFE to close over $23.40 and then buy calls the next day. Shares met our requirement on the 17th with a close at $23.62. Our trade opened on the 18th with PFE at $23.53. The stock has been pretty strong the last seven days. Readers may want to wait for a dip back toward the $23.25-23.00 zone and buy calls there or wait until after the company reports earnings on July 31st and see how investors react to the news before initiating positions.

PFE is due to report earnings on July 31st.

Our long-term target is $28.00.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.24/ 1.32

07/18/12 trade opens. PFE @ 23.53
07/17/12 PFE meets our entry requirements (close over $23.40)
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.

Current Target: $28.00
Current Stop loss: 20.95
Play Entered on: 07/18/12
Originally listed on the Watch List: 04/21/12


The TJX Companies - TJX - close: 44.70

Comments:
07/21/12 update: It was a quiet week for TJX with the stock churning sideways. Shares have drifted back to the $44.00 level. If the market starts to dip we can expect TJX to fall back toward technical support near its 50-dma around $42.50ish. Wait for a dip to the 50-dma before considering new positions. 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 $ 2.60/ 2.70

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 5.10/ 5.30

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


Union Pacific Corp. - UNP - close: 122.48

Comments:
07/21/12 update: The last couple of days have been volatile for UNP. The company reported earnings on July 19th, before the opening bell. UNP delivered a profit of $2.10 a share on revenues of $5.22 billion. Analysts were expecting $1.96 on revenues of $5.23 billion. Shares rallied to new record highs with a breakout past resistance near $120 on this news. Our plan was to wait for UNP to close over $121.00 and then buy calls the next day. Our trade opened on Friday morning with UNP's gap open lower at $122.10. Friday's decline in UNP looks like it was a combination of the market's decline and a downgrade on the stock.

I would still consider new positions now or you could wait for a new bounce back above $121.00 again.

- Suggested Positions -
Jul 20, 2012 - entry price on UNP @ 122.10, option @ 3.80
symbol: UNP1319A130 2013 JAN $130 call - current bid/ask $ 3.00/ 3.25

- or -

Jul 20, 2012 - entry price on UNP @ 122.10, option @ 6.40
symbol: UNP1418A140 2014 JAN $140 call - current bid/ask $ 5.30/ 5.95

Current Target: $139.00
Current Stop loss: 111.75
Play Entered on: 07/20/12
Originally listed on the Watch List: 06/30/12


U.S. Bancorp - USB - close: 33.92

Comments:
07/21/12 update: This U.S. banking stock has rallied to new multi-year highs. The company reported earnings on July 18th and beat estimates by a penny. Revenues also came in above expectations. Our plan was to wait for USB to close over $33.50, which happened on Thursday. Our trade opened Friday morning. I would still consider new positions now or you can wait for a dip into the $33.00-32.50 zone. Our long-term target is $39.50.

- Suggested Positions -
Jul 20, 2012 - entry price on USB @ 33.62, option @ 1.39
symbol: USB1319A35 2013 JAN $35 call - current bid/ask $ 1.34/ 1.39

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 3.05/ 3.25

07/20/12 trade opens Friday morning
07/19/12 USB closes above our trigger <33.50
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

Current Target: $39.50
Current Stop loss: 29.90
Play Entered on: 07/20/12
Originally listed on the Watch List: 05/19/12


Visa, Inc. - V - close: 129.14

Comments:
07/21/12 update: Both Visa and MasterCard rallied on Monday morning in reaction to news that the two companies had settled a seven-year lawsuit with U.S. merchants. The stock spent the rest of the week consolidating sideways and filled the gap with the Thursday-Friday dip. Now we are approaching Visa's earnings report coming up on July 25th. I would wait until after we see how the market reacts to Visa's earnings before considering new bullish positions.

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 $ 5.00/ 5.15

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $10.40/11.10

07/16/12 V pops on news of a settlement in 7-year lawsuit
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: 26.10

Comments:
07/21/12 update: VLO continues to march higher and is now up seven weeks in a row. The breakout past resistance near $25.00 is bullish. However, I would not be surprised to see VLO churn sideways for a few days while investors wait for the company 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 $ 2.78/ 2.83

- or -

JUL 05, 2012 - entry price on VLO @ 24.90, option @ 2.60
symbol: VLO1418A30 2014 JAN $30 call - current bid/ask $ 2.73/ 2.95

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


Allergan Inc. - AGN - close: 84.50 (Stopped)

Comments:
07/21/12 update: Ouch! What happened to AGN? The stock lost more than $5 on the week. Shares are down about 10 points from its July highs. The problem is I don't see any specific news behind this sell-off!

In the last two weeks AGN has broke down under support near $88, near its 200-dma, and now its 300-dma. The stock closed on Friday near potential support at $85.00. If there is any follow through lower on Monday we will see AGN hit our stop loss at $84.50.

The stock tried to bounce on Thursday but it just collapsed on Friday. 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 - exit $0.65 (-87.2%)

07/23/12 stopped out
07/21/12 AGN has plunged lower in the last two weeks and sits just above our stop loss at $84.50
05/02/12 AGN missed earnings estimates by a penny, guided lower
04/28/12 Exit strategy adjustment! We are not selling half at $99.00. Instead we'll aim for $109.00 to exit positions. See tonight's note for details on alternative exits
03/31/12 adjusted exit strategy. Sell half at $99.00 and sell the remainder at $109.00
03/10/12 new stop loss at $84.50
02/02/12 earnings in-line but guided lower for 2012
01/28/12 earnings are due on Feb. 2nd. Readers might want to raise their stop or consider some sort of hedge prior to the report.
12/24/11 new stop loss @ 81.60
12/10/11 spreads on our 2013 calls are getting wider!
11/19/11 Taking an aggressive stance on our stop loss and moving it down to $77.45
10/22/11 Earnings are coming up. Readers might want to consider raising their stop loss. We are keeping ours at $79.45.

Chart of AGN:

Current Target:$109.00
Current Stop loss: 84.50
Play Entered on: 10/17/11
Originally listed on the Watch List: 09/24/11


eBay Inc. - EBAY - close: 45.28 (Closed 7/23)

Comments:
07/21/12 update: It was a good week for EBAY thanks to the earnings report. EBAY reported earnings on July 18th. Wall Street was expecting 55 cents on $3.36 billion in revenue. EBAY delivered a profit of 56 cents a share on $3.4 billion. The company reaffirmed prior guidance. The Paypal unit continues to shine but investors were impressed with growth in the Ebay marketplace division. Their mobile business is surging.

The stock gapped open higher on Thursday with a rally from about $40.50 to almost $44.00. The intraday high on Friday was $45.48.

NOTE: I am suggesting we go ahead and take profits now! We were aiming for $46.50 but I'd rather lock in a gain now. We'll close positions on Monday morning. Current bid on our 2014 Jan $40 calls is $10.40.

- Suggested Positions -
Mar 12, 2012 - entry price on EBAY @ 36.36, option @ 5.11
symbol: EBAY1418A40 2014 JAN $40 call - exit $9.35 (+82.9%)

07/23/12 closed at the open on Monday
07/21/12 Prepare to exit our remaining positions on Monday morning
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
(I have removed prior comments. You can find them on older updates)

Chart of EBAY:

Current Target: $46.50
Current Stop loss: 37.75
Play Entered on: 03/12/12
Originally listed in the New Plays 03/10/12


Eli Lilly - LLY - close: 44.37 (Closed 7/23)

Comments:
07/21/12 update: LLY managed to hit another new multi-year high this past week. The stock has already started to see some profit taking. The $43 level should offer some short-term support. This coming week could actually spark more profit taking when LLY reports earnings on July 25th.

NOTE: I am suggesting we exit our 2013 Jan $45 calls at the open on Monday. Their current bid is $2.26.

We will adjust our exit strategy on the 2014 calls to exit when LLY hits $48.50.

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 - exit $2.09 (+75.6%)

- or -

Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 3.05/ 3.20

07/23/12 closed the 2013 calls @ the open (+75.6%)
07/21/12 prepare to exit the 2013 Jan $45 calls on Monday morning
07/21/12 adjust exit target for 2014 calls to $48.50
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

Chart of LLY:

Current Target: $48.50 (2014)
Current Stop loss: 39.75
Play Entered on: 01/05/12

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


Watch

Close But No Cigar

by Jim Brown

Click here to email Jim Brown

Editor's Note:

I am filling in for James this week and I am not going to be adding any new plays because of my expectations for a volatile week.

Nothing was triggered on the watch list last week so the same targets are valid for this week.

I am leaving the comments from last week rather than try to jump into the thought stream James has in progress on each candidate.



New Watch List Entries

None, no new watch list candidates


Active Watch List Candidates

CAT - Caterpillar Inc.

CLX - The Clorox Co.

DIS - Walt Disney Co.

HCP - HCP, Inc.

JPM - JPMorgan Chase

SBUX - Starbucks Corp.

TWX - Time Warner


Dropped Watch List Entries

SBUX - Starbucks was dropped after the earnings miss.



New Watch List Candidates:


None. No new candidates this week.


Active Watch List Candidates:



Caterpillar Inc. - CAT - close: 80.95

Comments:
07/21/12 update: CAT managed an oversold bounce off its July 12th lows but shares remain in a down trend. That might change if the company beats the earnings estimate or raises guidance. CAT is due to report earnings on July 25th, before the opening bell.

The stock currently has technical resistance at its 50-dma near $86.40. I am adjusting our entry point requirements. Instead of waiting for a close over $90.50 we will launch positions if CAT can close over $88.00 instead. We'll adjust the stop loss to $79.90.

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 $88.00, stop loss @ 79.90

BUY the 2013 Jan $95 call (CAT1319A95)

- or -

BUY the 2014 Jan $100 call (CAT1418A100)

07/21/12 adjusted entry point to wait for a close over $88.00, stop loss 79.90

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


The Clorox Co. - CLX - close: 72.74

Comments:
07/21/12 update: CLX has been consolidating sideways all week as it flirts with short-term resistance in the $73.50 area. I don't see any changes from my prior comments. 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)

- or -

BUY the 2014 Jan $80 call (CLX1418A80)

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


Walt Disney Co. - DIS - close: $48.59

Comments:
07/21/12 update: Media giant DIS continues to march higher. Shares rallied toward resistance near $50 this past week. If you look at the weekly chart this pullback from $50 looks like a potential top. Since my market outlook is still bearish I would expect DIS to correct soon.

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: 33.90

Comments:
07/21/12 update: There was no follow through on the July 13th rally. JPM has been slowly slipping lower all week. It looks like shares might resume their down trend. We are going to reinstate the buy-the-dip entry near $30 plan.

Buy calls on a dip at $30.25 with a stop loss at $27.75. I 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


HCP, Inc. - HCP - close: 45.19

Company Info

HCP is a REIT focused on the healthcare industry. Many of the REITs have been showing relative strength. HCP has rallied to new record highs. We don't want to chase it here. I am suggesting we buy calls on a dip at $42.00. The pullback may not happen immediately but HCP is due to report earnings on July 31st and the news could spark some profit taking.

If triggered on a dip at $42.00 we'll use a stop loss at $39.45. Our long-term target is 48.50 but that might be too optimistic since HCP does not have 2014 calls.

Buy-the-Dip trigger: $42.00 (stop loss 39.45)

BUY the 2013 Jan $45 call (HCP1319a45) current ask $2.35

Originally listed on the Watch List: 07/21/12


Time Warner - TWX - close: 38.86

Company Info

Shares of this media giant have rallied to new multi-year highs. Yet TWX remains under resistance near $40.00. I am suggesting we wait for TWX to close over $40.50 and then buy calls the next day. I prefer the 2014 calls over the 2013 ones.

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

Breakout trigger: Wait for a close over $40.50 (stop 37.25)

BUY the 2013 Jan $42 call (TWX1319A42) current ask $0.97

- or -

BUY the 2014 Jan $45 call (TWX1418A45) current ask $2.06

Originally listed on the Watch List: 07/21/12