Option Investor
Newsletter

Daily Newsletter, Monday, 8/6/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Rising Into August

by James Brown

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Stocks continued to climb on Monday. The better than expected nonfarm payroll number on Friday produced a short squeeze. The echoes of that bullish surprise helped lift European stocks today and that helped keep the rebound alive in the U.S. markets. Stocks are also reacting to strength in the euro. This is pushing the dollar lower, which in turn is fueling strength in commodities. Most believe the euro strength is just a short squeeze. Being short the euro was (still is) an extremely crowded trade.

After last week's parade of economic data this week looks pretty barren. We're still in the midst of Q2 earnings season but the results are going to be more company specific instead of market moving.

Major Indices:

The S&P 500 rallied straight to round-number resistance at the 1400 level and stalled on Monday. The index danced under this area all day long but couldn't break through. On a short-term basis I would expect a dip tomorrow. Yet the intermediate trend is still a bullish one of higher lows and higher highs. A close over 1400 would likely signal a run towards the next resistance level at 1420.

Daily chart of the S&P 500 index:

The NASDAQ suddenly looks bullish after underperforming its peers in recent days. Today's close over short-term resistance near 2975 is positive but the real level to watch is the 3,000 mark. The rally stalled at the 3,000 level today but a close over it could inspire the bulls to make a stronger push higher. Honestly I would be cautious until we saw the NASDAQ composite close over 3,025.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index outperformed the S&P 500 and the Dow Industrials today. Yet Monday's rally seemed to stall under resistance near the 800 level and the four-week trend of lower highs. A close over the 800-805 area would definitely be a bullish signal for the market but there is still resistance at 820. It looks like support is the 780 and 765 level.

Daily chart of the Russell 2000 index

Last week was very busy for the economic calendar. This week the calendar looks bare. None of these report listed below are market movers. Investor focus will remain on Europe. Meanwhile Q2 earnings will continue to pour in but the reaction will most likely be stock specific.

Economic and Event Calendar

- Monday, August 06 -
(nothing significant)

- Tuesday, August 07 -
(nothing significant)

- Wednesday, August 08 -
Q2 productivity and Unit Labor costs

- Thursday, August 09 -
Weekly Initial Jobless Claims
June Trade Balance
June Wholesale Inventory data

- Friday, August 10 -
Import/export prices

The Week Ahead:

I have mentioned earnings season a couple of times now. That's because it's the only show in town at the moment. Investors seem to be ignoring the problems in Europe, which has produced a short squeeze in the euro. This is temporary but no one knows how many days it might last. The euro could reverse tomorrow or it could rally for days. Spanish 10-year bond yields are back under the 7% level for now and that's a good sign. Yet Spain is still feeling the pressure. This reprieve may not last very long. Germany and Italy are still at odds on how to solve the Eurozone's problems and tempers are starting to heat up.

Meanwhile here at home there will still be hundreds of companies reporting earnings. Thus far the Q2 earnings results have been positive with about two thirds of the S&P 500 companies that have reported have beat Wall Street's estimates. Yet over half of the companies reporting have missed the revenue estimate. That means they are beating estimates by cost cutting, not new business. That is not a sign of a healthy economy. I'm not saying cost cutting is bad but there is only so many costs you can cut to drive earnings. I am hearing some chatter about how the market's earnings cycle might be nearing a top.

The same issues I discussed two weeks ago remain. The calendar could be a challenge with August being the third worst month and September the worst month of the year. The issues in Europe remain unsolved and so far they continue to kick the can down the road. It's a game EU officials have perfected over the last couple of years. The situation in Iran remains a potential tinderbox, ready to explode. Meanwhile the situation in Syria is escalating and the Syrian government is said to be on the verge of collapse. The global powers are worried about who will try to make a play for Syria's chemical weapons. The U.S. is worried Al-Qaeda will get them. Russia is worried the Chechen terrorists might get them. Israel is worried Hezbollah will try and grab them.

Here at home we are quickly approaching the U.S. debt ceiling issue again, which is due to run out in September. That's just in time for it to be an even bigger political hot potato with the elections in November. You may remember last year when officials failed to raise the debt ceiling in time and it sparked a multi-week sell-off in the U.S. markets.

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The U.S. market is up sharply in the last two days. Can the upward momentum last?

CL hit our exit target at $109.00 on August 1st. AMRN and BMY have been stopped out. LLY was mistakenly listed as closed, when in reality our 2014 call position is still in play. We have added TWX as an active trade.

Please note that we want to take profits on our 2013 VLO calls tomorrow. Plus we want to exit our KO calls on August 9th. See the play updates section for details.

We have adjusted the stop losses on: KO, PEP, PFE, V, and VLO.

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

Lack of Faith

by James Brown

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Editor's Note:

(August 6th, 2012)

Looking at the stock market over the last several weeks all the gains seem to be from short covering. While that may not inspire much confidence the S&P 500 index is actually producing a bullish trend of higher lows and higher highs.

I'll be honest, I do not have a lot of faith in this "rally". August and September are historically bearish months for the market. With the unsolved issues in Europe, the geopolitical tensions in the middle east, the U.S. fiscal cliff and a presidential election coming, I don't see a lot of catalysts to drive stocks higher.

If I had to guess the market will most likely be lower by mid to late September. Thus I'm not in a rush to launch new positions here. Now that doesn't mean we won't open new plays but we just need to be more selective. I have added three new candidates to the watch list this evening.

In addition to the watch list, here is a list of stocks on my radar screen as possibles to keep an eye on:

FTR, XHB, MMM, CVX, RIG, TGT, ROST, CP, SCHW, NVDA, VOD, XOM


Play Updates

CL Hits Our Target

by James Brown

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Editor's Note:

Shares of CL tagged our bullish target. We are also planning to take profits on our KO and VLO trades soon.


Closed Plays


AMRN, BMY, CL


Play Updates


Abbott Labs - ABT - close: 66.37

Comments:
08/06/12 update: ABT has been hovering near its highs in the $66-67 area the last several days. Lack of participation in the market's recent rally is something of a short-term concern. The $63-64 area still looks like support along with its rising 50-dma. 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 $ 3.20/ 3.30

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 5.35/ 5.50

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: 32.09

Comments:
08/06/12 update: Once again the U.S. Treasury is selling more AIG stock. This time it's $5.75 billion in stock at $30.50 a share (about 24.6 million shares). This news initially came out on Friday. To be honest, looking at several articles on this event I can't tell if this already happened last week or it will happen (different reports suggested it had happened or would happen). However, with shares of AIG up strongly on Monday I suspect this government sale has already occurred. AIG bought approximately $3 billion of this deal. Altogether AIG still owes the U.S. government about $24 billion but they are consistently whittling down this stake.

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

- Suggested Positions - (small positions @ first)
May 18, 2012 - entry price on AIG @ 28.25, option @ 3.40
symbol: AIG1319A30 2013 JAN $30 call - current bid/ask $ 3.85/ 4.00

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.35/ 4.60

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


Apache Corp. - APA - close: 86.02

Comments:
08/06/12 update: APA reported earnings on August 2nd. The company missed both the earnings and the revenue estimates. Yet traders bought the dip near support in the $82 area. Shares are currently stuck in the $82-87 range. I remain concerned that APA may be in a big bear-flag pattern. I am not suggesting new positions.

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ 87.10, option @ 3.45
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 1.59/ 1.66

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 4.00/ 4.20

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: 7.64

Comments:
08/06/12 update: BAC is producing a nice bounce in the last few days. Shares are currently back above their 200-dma and now their 50-dma. There is still resistance at the trend line of lower highs so I wouldn't get too excited yet. The $7.80-8.20 zone could be a tough area for BAC to push through.

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 $ 0.15/ 0.16
(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 $ 0.15/ 0.16
(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


CH Robinson Worldwide - CHRW - close: 53.63

This is a bearish PUT option trade.

Comments:
08/06/12 update: CHRW has been relatively quiet since the big drop in late July. Shares have been churning sideways in the $52-54 area. If CHRW can break through the bottom of the gap down the next level of resistance is near the top of the gap near $56.00.

I want to reiterate Jim's comments from last week where we adjusted our stop loss down to $60.75.

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 $ 4.50/ 4.70

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


CVS Caremark Corp. - CVS - close: 44.90

Comments:
08/06/12 update: Shares of CVS have been very quiet since the July 19th plunge. The stock has been consolidating sideways in the $44-45.50ish range. There looks like some short-term technical support near the rising 150-dma but it's not very strong. Of course broken support near $46 is now overhead resistance. Investors are probably waiting for the company's earnings report.

CVS is scheduled to report earnings on August 7th (tomorrow) before the opening bell. Analysts are expecting a profit of 80 cents. The company's results will push this stock one way or the other. We'll either see a spike down toward the 200-dma near $43.00 or we'll see a spike toward resistance and possibly a breakout past $46.00.

I am not suggesting new positions at this time.

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

- Suggested Positions -
Jul 19, 2012 - entry price on CVS @ 45.98, option @ 0.93
symbol: CVS1319A50 2013 JAN $50 call - current bid/ask $0.63/0.68

- or -

Jul 19, 2012 - entry price on CVS @ 45.98, option @ 1.70*
symbol: CVS1418A55 2014 JAN $55 call - current bid/ask $1.34/1.44

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: 36.61

Comments:
08/06/12 update: DFS has been showing some relative strength and the stock is flirting with a new all-time high just under the $37 mark. The bullish trend of higher lows and higher highs remains intact. More conservative traders may want to start inching up their stops a bit.

- Suggested Positions -
JUL 05, 2012 - entry price on DFS @ 35.28, option @ 2.15
symbol: DFS1319A37 2013 JAN $37 call - current bid/ask $2.30/2.45

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $3.30/3.60

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: 80.64

Comments:
08/06/12 update: Here we are in the month of August. Our time for this KO trade is about over. We do not want to hold over the 2-for-1 split scheduled for Monday, August 13th. We remain longer-term bullish on KO and will re-consider new positions post-split but we'd rather exit now prior to the split as volume in the pre-split options is likely to drop off.

Readers may want to exit right now. I am suggesting we exit this position on Thursday, August 9th at the closing bell. We are raising our stop loss up to $77.75.

- 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 $ 8.35/ 8.50

08/06/12 new stop loss @ 77.75
08/06/12 prepare to exit on Aug. 9th at the closing bell
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: 43.71

Comments:
08/06/12 update: We need to make a correction here. Last week I was on vacation and Jim was filling in for me. I told him we had exited the 2013 Jan. $45 calls on Monday, July 23rd. He thought that meant we had exited the entire trade. That's not true.

LLY gapped down to open at $43.89 on July 23rd. Our 2013 Jan $45 calls also gapped lower so our exit was $2.09 (+75.6%). We still have the 2014 Jan $45 calls.

Now shares have LLY have been volatile the last several days. The stock saw a big gap down on July 24th. It seems several large drug makers saw their stocks fall on news that Pfizer and JNJ's potential treatment for Alzheimer's (their bapineuzumab drug) failed to show enough results. Shares of LLY were unfairly sold probably due to the fact that LLY is also working on a treatment for Alzheimer's with their solanezumab drug, which is still in development.

The very next day (July 25th) LLY reported earnings and beat estimates by 7 cents. LLY actually raised its 2012 earnings guidance. Since then the stock has been consolidating sideways. We currently have a stop loss at $39.75 but more conservative traders may want to raise theirs toward the late July low ($41.59).

Currently we want to exit our 2014 calls when LLY hits $48.50.

I am not suggesting new positions at this time.

- Suggested (SMALL) Positions -
(exited on July 23rd at the open)
Jan 05, 2012 - entry price on LLY @ 39.50, option @ 1.19
symbol: LLY1319A45 2013 JAN $45 call - exit $2.09 (+75.6%)

- or -

(still active)
Jan 05, 2012 - entry price on LLY @ 39.50, option @ 2.75
symbol: LLY1418A45 2014 JAN $45 call - current bid/ask $ 2.66/ 2.76

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

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


Monsanto Co. - MON - close: 88.46

Comments:
08/06/12 update: MON has rallied to a new multi-year high as traders continue to buy the dips. While shares are showing relative strength, I'm not suggesting new positions at this time.

- Suggested Positions -
Jul 17, 2012 - entry price on MON @ 85.84, option @ 4.35
symbol: MON1319A90 2013 JAN $90 call - current bid/ask $ 5.05/ 5.15

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - current bid/ask $ 6.70/ 6.95

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: 44.49

Comments:
08/06/12 update: MRK reported earnings on July 27th. The results beat on both the top and bottom line. This news produced the rally higher on the 27th shares have been consolidating sideways ever since.

Readers may want to exit now or raise their stop loss. I am not suggesting new positions at this time. Our long-term target remains the $47.50 level since we have the 2014 options.

- Suggested Positions -
Jun 25, 2012 - entry price on MRK @ 39.91, option @ 3.14
symbol: MRK1418A40 2014 JAN $40 call - current bid/ask $ 5.85/ 5.95

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: 29.95

Comments:
08/06/12 update: MSFT has rallied back toward round-number resistance near $30.00. Shares are essentially chopping sideways within the $28.50-31.00 trading range. Last week we raised our stop loss up to $28.45. 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 $ 1.58/ 1.61

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.10/ 3.20

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: 72.48

Comments:
08/06/12 update: After churning sideways in the $71-73 zone the last few days PEP closed Monday near $73. These are multi-year highs for the stock. I am raising our stop loss from $65.75 to $67.75.

Readers could use a close over short-term resistance at $73.00 as a new entry point or nimble traders could buy dips in the $71-70 area.

- Suggested Positions -
Jul 02, 2012 - entry price on PEP @ 70.34, option @ 2.85
symbol: PEP1418A75 2014 JAN $75 call - current bid/ask $ 3.15/ 3.40

08/06/12 new stop loss @ 67.75
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: 67.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 05/26/12


Pfizer Inc. - PFE - close: 24.26

Comments:
08/06/12 update: Some of the major drug company stocks have been seeing some volatility. PFE has avoided most of it while maintaining its bullish trend higher. The company reported earnings on July 31st that beat Wall Street's estimates by 8 cents.

I would not chase it here with PFE trading at multi-year highs. Please note our new stop loss at $21.35.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.50/ 1.56

08/06/12 new stop loss @ 21.35
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: 21.35
Play Entered on: 07/18/12
Originally listed on the Watch List: 04/21/12


The TJX Companies - TJX - close: 45.25

Comments:
08/06/12 update: TJX has been quietly drifting higher and is trading near record highs. While I would be tempted to buy calls on a new close over $45.50 I am suggesting readers wait. TJX is due to report earnings on August 14th and short-term traders might use the news as an excuse to take profits.

- 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/ 3.20

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 5.50/ 5.80

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


Time Warner - TWX - close: 41.61

Comments:
08/06/12 update: TWX is a watch list candidate that has graduated to the play list. The plan was to wait for TWX to close over $40.50 and then buy calls the next day. Shares had rallied toward $40 on August 1st in spite of an earnings report that morning that was only in-line with estimates and revenues were a miss. The next day (Aug. 2nd) the stock rallied again and closed at $40.67, meeting our requirement. Our trade opened on the 3rd at $40.66. If you're looking for a new entry point I would consider new positions now but the better entry point is probably waiting for a new dip into the $40.50-40.00 zone.

- Suggested Positions -
Aug 03, 2012 - entry price on TWX @ 40.66, option @ 1.79
symbol: TWX1319A42 2013 JAN $42 call - current bid/ask $ 2.06/ 2.12

- or -

Aug 03, 2012 - entry price on TWX @ 40.66, option @ 2.85
symbol: TWX1419A45 2014 JAN $45 call - current bid/ask $ 2.95/ 3.10

08/03/12 TWX opens at $40.66 (trade opens)
08/02/12 TWX meets our entry requirement with a close over $40.50

Chart of TWX:

Current Target: $49.00
Current Stop loss: 37.25
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12


Union Pacific Corp. - UNP - close: 123.39

Comments:
08/06/12 update: UNP's stock continues to produce a rocky ride but the trend is higher. Shares hit new record highs on Friday with a move over $126. I would expect another dip toward the rising 10-dma soon. Nimble traders could buy calls on a dip near the $120 area.

- Suggested Positions -
Jul 20, 2012 - entry price on UNP @ 122.10, option @ 3.80
symbol: UNP1319A130 2013 JAN $130 call - current bid/ask $ 4.40/ 4.60

- or -

Jul 20, 2012 - entry price on UNP @ 122.10, option @ 6.40
symbol: UNP1418A140 2014 JAN $140 call - current bid/ask $ 7.20/ 7.60

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: 33.01

Comments:
08/06/12 update: On a short-term basis USB looks vulnerable. The stock did not participate in the financial sector's strength today. I suspect we will see this stock pull back toward the $32-31 area again. Wait for a dip near this area before considering new positions.

- Suggested Positions -
Jul 20, 2012 - entry price on USB @ 33.62, option @ 1.39
symbol: USB1319A35 2013 JAN $35 call - current bid/ask $ 0.97/ 1.00

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 2.73/ 2.86

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: 131.03

Comments:
08/06/12 update: Traders bought the dip on Thursday last week and Visa has bounced back to new record highs. While the trend is up I am not suggesting new positions at this time. We will raise our stop loss to $119.75.

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 $ 6.65/ 6.85

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $12.55/13.10

08/06/12 new stop loss @ 119.75
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: 119.75
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12


Valero Energy - VLO - close: 28.14

Comments:
08/06/12 update: The rally continues for VLO. The company reported earnings on July 31st that beat both the top and bottom line estimates. The surprise announcement was news from the Board of Directors that the company would plan to spin off its retail business from the rest of the corporation. There is no word yet on how that spin-off would take place or what time frame. VLO currently runs 6,800 retail locations under the Valero, Diamond Shamrock, Shamrock, Beacon, Ultramar, and Texaco. This is on top of the 16 petroleum refineries, 10 ethanol plants, and a massive wind farm (source: San Antonio Business Journals).

It's very encouraging to see the rally but VLO is nearing likely resistance at its 2012 highs in the $28.50 area. After ten straight weeks of gains I am suggesting we go ahead and exit our 2013 Jan $25 calls now at the opening bell tomorrow morning (current bid $4.35). We will keep the 2014 calls active. I am also raising our stop loss to $24.40.

- Suggested Positions -
JUL 05, 2012 - entry price on VLO @ 24.90, option @ 2.54
symbol: VLO1319A25 2013 JAN $25 call - current bid/ask $ 4.35/ 4.45

- or -

JUL 05, 2012 - entry price on VLO @ 24.90, option @ 2.60
symbol: VLO1418A30 2014 JAN $30 call - current bid/ask $ 4.05/ 4.20

08/06/12 Exit 2013 Jan $25 calls on Aug 7th at the open
08/06/12 new stop loss @ 24.40
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


Amarin Corp. - AMRN - close: 11.18

Comments:
08/06/12 update: AMRN started to plunge in late July with a drop from above $15 to almost $11 in three days. It looks like the sell-off may have been sparked by news of heavy insider selling. The stock gapped down at $12.10 on July 31st and hit our stop loss at $11.40 that morning.

Earlier Comments:
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 - exit @ $1.80 (-46.4%)

07/31/12 stopped out at $11.40
06/26/12 trade opened: option @ 3.36
06/25/12 closed over our trigger (13.25) AMRN closed @ 13.39
06/23/12 adjust entry. wait for AMRN to close over $13.25 (instead of $13.00)

Chart:

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


Bristol Meyers Squibb - BMY - close: 32.59

Comments:
08/06/12 update: Investors were very unhappy with BMY's disclosures last week. Very early Thursday morning (August 2nd) the company disclosed that it was halting Phase II clinical trials of its BMS-094 (also known as INX-189) drug to treat hepatitis C. One of the reasons that BMY bought Inhibitix earlier this year was for this very drug (source:Marketwatch). Investors punished shares of BMY with a big gap down and sent shares of BMY's rivals higher.

Developing new drugs is an extremely expensive and long, drawn out process. The fact that BMY is scrapping this drug in Phase II trials due to a serious safety issue is a huge set back. The stock opened beneath its 200-dma and hit our stop loss at $32.75 on Thursday, August 2nd.

- Suggested Positions -
SEP 19, 2011 - entry price on BMY @ 30.53, option @ 1.20
symbol: BMY1319A35 2013 JAN $35 call - exit @ $0.71 (-40.8%)

08/02/12 stopped out on bad news from BMY
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)

Chart:

Current Target: $38.50
Current Stop loss: 32.75
Play Entered on: 09/19/11
Originally listed on the Watch List: 09/10/11


Colgate-Palmolive Co. - CL - close: 106.35

Comments:
08/06/12 update: Target achieved.

Last Wednesday, August 1st, CL produced an intraday rally toward $110. That was enough to hit our exit target at $109.00 and close this trade.

CL's long-term trend is still up but you could argue that last week's performance looks like a potential top and it might be time for a pull back.

- Suggested Positions -
MAR 16, 2012 - entry price on CL @ 95.48, option @ 2.92
symbol: CL1319A100 2013 JAN $100 call - exit $9.25* (+216.7%)

- or -

MAR 16, 2012 - entry price on CL @ 95.48, option @ 5.57
symbol: CL1418A100 2014 JAN $100 call - exit $12.30* (+120.8%)

*exit price is an estimate. actual exit was probably higher.
08/01/12 target hit @ 109.00
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.

Chart:

Current Target: $109.00
Current Stop loss: 99.00
Play Entered on: 03/16/12
Originally listed on the Watch List: 03/10/12



Watch

Oil, Technology, & Financials

by James Brown

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New Watch List Entries

HFC - HollyFrontier

QCOM - QUALCOMM Inc.

WFC - Wells Fargo


Active Watch List Candidates

CAT - Caterpillar Inc.

CLX - The Clorox Co.

DIS - Walt Disney Co.

HCP - HCP, Inc.


Dropped Watch List Entries

TWX graduated to the play list.

I have removed JPM and SBUX.



New Watch List Candidates:


HollyFrontier Corp. - HFC - close: 39.40

Company Info

HFC is a major U.S. oil and gas refiner. The stock has been showing strength and just closed at new multi-year highs. The all-time high is $40.28 from 2007. HFC is likely to hover here, just under resistance near $40, until it reports earnings on August 8th (before the opening bell).

I am suggesting an entry if HFC can close over $40.50. We'll buy calls the next day with a stop loss at $36.90. Our long-term target is $44.50 for the 2013 calls and $48.50 for the 2014 calls.

Breakout trigger: close over $40.50 (stop 36.90)

BUY the 2013 Jan $42 call (HFC1319A42) current ask $2.95

- or -

BUY the 2014 Jan $45 call (HFC1418A45) current ask $5.50

Chart of HFC:

Originally listed on the Watch List: 08/06/12


QUALCOMM Inc. - QCOM - close: 60.13

Company Info

QCOM makes some of the crucial chip sets inside your smart phone. The stock has produced a double bottom with the lows in June and July. Now the stock is testing resistance near $60 and its 100-dma and its 150-dma.

I am suggesting we wait for QCOM to close over $61.50 and then buy calls the next day. Our long-term target is $68.50 (for now).

Breakout trigger: wait for close over $61.50 (stop 57.40)

BUY the 2013 Jan $65 call (QCOM1319A65) current ask $2.09

- or -

BUY the 2014 Jan $70 call (QCOM1418A70) current ask $4.20

Chart of QCOM:

Originally listed on the Watch List: 08/06/12


Wells Fargo & Co - WFC - close: 34.00

Company Info

WFC is a large American bank that has rallied to resistance near its multi-year highs in the $34-35 area. A breakthrough resistance here could signal a new run towards the $40-45 area.

I am suggesting we buy calls if WFC Can close over $35.00. We'll buy calls the next day. Our starting target is $39.85. We'll use a stop loss at $32.75. FYI: The point & figure chart is bullish with a $57 target.

Breakout trigger: wait for close over $35.00 (stop 32.75)

BUY the 2014 $40 call (WFC1418A40) current ask $1.85

Chart of WFC:

Originally listed on the Watch List: 08/06/12


Active Watch List Candidates:



Caterpillar Inc. - CAT - close: 86.35

Comments:
08/06/12 update: CAT has continued to work its way higher. Now shares are testing short-term resistance near $87.00. I am adjusting our plan to buy calls if CAT can close over $87.50.

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 $87.50, stop loss @ 79.90

BUY the 2013 Jan $95 call (CAT1319A95)

- or -

BUY the 2014 Jan $100 call (CAT1418A100)

08/06/12 adjust entry trigger to a close over $87.50
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: 71.48

Comments:
08/06/12 update: Shares of CLX have taken a turn for the worse in the last couple of weeks. If the stock doesn't improve soon it may not survive on our watch list. CLX is trading near the bottom of its $71-74 trading range.

I am suggesting we wait for CLX to close over $75.50 and then buy calls the next day.

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: $49.65

Comments:
08/06/12 update: DIS continues to grind its way higher. While the trend is up we don't want to open positions yet. The company is due to report earnings tomorrow on August 7th. I suspect DIS could see some profit taking on the report. That's why we're waiting to buy a dip at $45.00. If we don't get triggered this week then we'll re-evaluate this weekend.

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


HCP, Inc. - HCP - close: 46.28

Comments:
08/06/12 update: After trading at all-time highs near $47.50 for a few days it looks like HCP is starting to correct. I will adjust our buy the dip entry trigger to $43.00. We'll give HCP another couple of weeks before we consider dropping it.

Buy-the-Dip trigger: $43.00 (stop loss 39.45)

BUY the 2013 Jan $45 call (HCP1319a45)

08/06/12 adjust trigger dip to $43.00

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


JPMorgan Chase - JPM - close: 36.30

Comments:
08/06/12 update: JPM continues to chop sideways. However, it is worth noting that the stock seems to be building a bullish trend of higher lows. A breakout past resistance in the $37-38 area would definitely look bullish. Yet there is additional resistance at $40.00.

I am removing JPM from the watch list. We've been waiting a long time for shares to move and it's not happening. I'm removing it from the watch list and putting it on my radar screen for a close over $38.50 or a drop toward $31.

Trade did not open

08/06/12 we're giving up on JPM producing an entry point soon.

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


Starbucks Corp. - SBUX - close: 43.48

Comments:
08/06/12 update: Ouch! It's been an ugly two weeks for SBUX. The stock has broken down from its multi-week trading range. I suspect the sell-off is not over yet. Aggressive traders could look for a bounce near $40 as a potential entry point but we are removing SBUX from the watch list for now.

Trade did not open.

08/06/12 removed from the watch list.
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