Option Investor
Newsletter

Daily Newsletter, Monday, 9/3/2012

Table of Contents

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

Leaps Trader Commentary

Speech Fails to Spur Stocks

by James Brown

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That's it, folks. Fed Chairman Ben Bernanke just wrapped up his speech and the crowd goes wild! Oh, wait... where is everyone? The highly anticipated Jackson Hole speech by Mr. Bernanke on Friday failed to have much impact on the stock market. There was some volatility on Friday morning but equities continued to churn sideways without much fanfare.

Overall it was a pretty quiet week. There was some perceive weakness early in the week thanks to negative comments from the International Monetary Fund (IMF) on the challenges it sees in the current bailout plan for Greece. Then there was the bearish comments from the Slovak Prime Minister who said there was a 50/50 chance the Eurozone would breakup. Economic data was actually somewhat benign. German unemployment was unchanged at 6.8%. Yet Spain's unemployment has risen to 25% with those under 25 years old at 53% unemployment. Same-store (retail) sales in the U.S. were generally positive yet retail sales in Japan were weak.

We did see shares of Apple Inc. (AAPL) tag a new all-time high near $680 on Monday following news of its legal win versus rival Samsung in a huge patent infringement case. Some of the big, high-profile technology names are showing strength with Google (GOOG) and Amazon.com (AMZN) trading near all-time record highs. Yet Facebook (FB) continues to sink with the stock down another -5.3% on Friday and closing at a record low near $18. FB's IPO price was $38.

Some of the positive economic reports helped buoy the market. The U.S. Q2 GDP revision came in at +1.7% up from the prior estimate of +1.5%. The Federal Reserve's Beige Book report, with anecdotal reports from all twelve districts, suggesting the U.S. economy continues to grow at a gradual pace. The Case-Shiller 20-city home price index rose +0.5% in June compared to analysts estimates for a -0.3% decline. The pending home sales report increased +2.4% in July versus estimates for an unchanged reading. Factory orders grew +2.8% in July compared to estimates for +1.8% growth. The final look at the University of Michigan's consumer sentiment survey for August was revised up to 74.3 from 73.6. Analysts had originally projected a drop to 72.5. July's reading was 72.3.

In the worse than expected column was the Chicago PMI which came in at 53.0 versus estimates for 53.5. The prior month hit 53.7. Numbers above 50 indicate growth and under 50 indicate contraction. The initial weekly jobless claims ticked higher to 374,000 over estimates of 370,000. Personal income rose +0.3% in July, which was in-line with estimates. Yet personal spending only rose +0.4% against estimates of +0.5%.

The real headline for the week was Bernanke's speech on Friday. I'm sure you are sick of hearing about it. Yet the stock market has been rising for weeks on expectations that the Federal Reserve would announce some new form of stimulus. Sure enough after a 24-page speech Bernanke finally delivered on the last page with his comments that the Fed "will provide additional policy accommodation". He did not say when or how this new stimulus will take place. I am surprised that stocks did not sell-off. The lack of details could have been an excuse to sell. Actually after months of expectations for new stimulus the market could have seen a "sell the news" type of move. The fact that stocks did not sell-off could be seen as positive.

Bernanke remains focused on the stagnant U.S. labor market and plans further stimulus to help fuel hiring. A pessimist could argue that the Fed has been trying to use monetary policy to generate jobs for five years without much lock. How will the Fed buying more U.S. treasures to keep interest rates low generate new jobs when that tactic has not worked yet? It's a good question. Maybe Bernanke has a new strategy to deploy or maybe the market just doesn't care. The prospect of further stimulus from the U.S. central bank helped drive the U.S. dollar lower and that in turned fueled gains for some of the commodities. A weaker dollar means you have to spend more dollars to buy the same commodity. Oil, gold and silver all rallied on Friday but the metals saw the biggest moves. Silver is at a four-month high and gold is at a new five-month high. Meanwhile the yield on the 10-year U.S. treasury fell to 1.56%, a new three-week low.

Major Indices:

The S&P 500 index is down -0.3% for the week. That follows the prior week's -0.5% decline. If you look at a chart the S&P 500 has been churning sideways in the 1400-1420 range for about four weeks. The 2012 highs are about 1420 so is this a top for the market? Or is the index merely consolidating prior gains before breaking higher? That's the real question here and it might depend on what happens in Europe over the next two weeks.

On a short-term basis there is support in the 1395-1400 zone. There is resistance in the 1420-1425 area. If the market retreats I would look for additional support near 1380. If the market rallies past 1425 then I would look for resistance in the 1440-1450 area.

Daily chart of the S&P 500 index:

The NASDAQ Composite has been churning sideways in the 3050-31.00 zone for two weeks. Unlike the S&P 500 the NASDAQ has not yet tested its 2012 highs, which are in the 3130 area. A break higher probably sees a quick run to the 3130 zone. Meanwhile a breakdown should find the next level of support close by at 3,000.

Daily chart of the NASDAQ Composite index:

The Russell 2000 index ended the week with a -0.2% decline. The 820 level remains overhead resistance. A breakout past this level probably signals a run toward the 2012 highs near 850. Meanwhile on a short-term basis there should be support near 800 and then near 780.

Daily chart of the Russell 2000 index

The Dow Jones Transportation index continues to underperform and just posted another weekly decline. The transports are on the verge of a technical breakdown under the $TRAN's trend of higher lows. If the transports keep sinking it's going to be a brake on the wider market's rally attempts. This sector's weakness remains a caution flag for investors.

Daily chart of the Dow Jones Transportation Index

We have a very busy economic data and event month in front of us. The next two weeks could be like a roller coaster for the markets as they climb and plunge on headlines. This week is very busy in spite of the fact that the U.S. markets are closed on Monday for Labor Day. The ISM and ISM services data are both released this week. We'll also get the ADP Employment change report and the nonfarm payrolls (jobs) report. The jobs report comes out on Friday and current estimates are for a gain of +128,000 new jobs compared to last month's +163,000. One of the biggest events of the week could be the ECB meeting on Thursday.

Looking ahead there is a lot happening the following week. September 12th is a big day with the start of a two-day FOMC meeting. Plus the German courts will vote on the ESM. There is also the Dutch general elections. Plus, Apple is widely expected to unveil the new iPhone 5 on Sept. 12th.

Economic and Event Calendar

- Monday, September 3 -
Democrat convention begins
U.S. markets are closed for Labor Day holiday

- Tuesday, September 4 -
ISM Index (for August)
Construction spending (for July)
Auto and Truck sales (for August)

- Wednesday, September 5 -
(nothing significant)

- Thursday, September 6 -
Weekly Initial Jobless Claims
ECB meeting
Spanish bond auction
ADP Employment Change report
ISM Services (for August)

- Friday, September 7 -
U.S. nonfarm payrolls (jobs) report (for August)
Unemployment Rate

Additional Events to be aware of:

Sep. 12th - German courts vote on constitutionality of ESM
Sep. 12-13th - (two-day) FOMC meeting
Sep. 12th - Apple expected to unveil the iPhone 5
Sep. 12th - Dutch general elections
Sep. 15th - Eurogroup meeting

Also in September, the IMF will release their review of Greece. Plus, the U.S. will likely hits its debt ceiling again.

The Week Ahead:

Looking ahead at the first week of September the market faces a lot of different forces potentially moving stocks. It's the beginning of the month and new money coming into mutual funds could provide lift. Historically the day after Labor Day tends to be up. Yet September is seasonally the worst month of the year for all the major indices. Although September's performance is probably better (less bad) in an election year since stocks generally grind higher into an election. We need to remember that the end of October is the year-end for many mutual funds. Money managers might start flushing their losers in September when they get back from summer vacation.

This week the focus will be on ECB meeting and U.S. economic data, specifically the ISM report on Tuesday and the jobs report on Friday. However, if the jobs report is too weak it might be seen as a positive since it helps pave the way for the Federal Reserve to launch stimulus sooner rather than later.

The ECB meeting on Thursday could be the wildcard. Weeks ago the market rallied when ECB President Mario Draghi said they would do "whatever it takes" to save the Eurozone. Yet since then there has been very little news or solutions on how the ECB plans to follow through on that promise. Draghi is still fighting with Germany's Merkel on how to implement any new plans on solving the Eurozone's crisis.

Draghi was supposed to speak at the Jackson Hole event this weekend but canceled at the last minute so he could focus on his work in Europe. Many analysts expect that Draghi will delay any big announcements until after the German courts vote on the constitutionality of the ESM European bailout fund, which happens on September 12th. If the German courts vote down the ESM that could seriously alter how the ECB plans to proceed.

Compounding the issue is Spain and Italy. Both are rumored to be on the verge of asking for a bailout from the ECB/IMF/Eurozone. You may recall that over the last two years both Spain and Italy have consistently been labeled as too big to bailout. Yet Spain has already been granted a 100 billion euro rescue package for its failing banking system. That has failed to stop the capital outflow from Spain. The country is mired in a deep recession. One in four people are out of work. If you're under 25 years old in Spain the unemployment rate is 53%. A Reuters article just reported on the surge of money leaving the country has spiked by +40% in June to 56.6 billion euros ($71 billion). Compare that to May's 41.3 billion in outflows. Investors are yanking their money out as fast as they can. Over the last twelve months (ending in June) Spain has seen 315.6 billion euros leave the country (that equals about a third of their GDP). This is a huge vote of no confidence. It's rumored that the ECB President Draghi and Germany's Merkel have quietly asked Spain to wait until after September 12th before asking for any additional help.

Aside from the big events coming up in the next two weeks nothing else has changed. Greece is still on the verge of collapse and many think the country will eventually leave the Eurozone in spite of all the bailouts. The troika is supposedly auditing Greece's performance on the prior bailout agreements and assessing the country's health sometime in September. China's economy continues to slowdown and could become another market-moving influence later in the year and especially into 2013. Although there is a chance that the new Chinese leadership will launch some form of additional stimulus before the end of 2012. The situation with Iran and Israel remains tense and Syria is in the midst of a civil war. Let's not forget the U.S. has a presidential election in about ten weeks. There are plenty of catalysts to move the market between now and the end of the year.

Currently the market's general trend seems to be higher but until the major averages get past their 2012 highs investors are going to worry about a failed rally at resistance and a reversal lower.

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The S&P 500 index is down two weeks in a row but that follows a six-week climb. Stocks have essentially churned sideways as investors waited for Bernanke's speech in Jackson Hole and now the upcoming ECB meeting.

September is traditionally a weak month for stocks yet equities tend to climb prior to a U.S. presidential election. There are definitely a lot of cross winds in play for the market.

SWKS graduated from our watch list to our play list and our trade will open on Tuesday morning.

No stop loss adjustments.

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

The Market's Sideways Churn

by James Brown

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Editor's Note:

(September 1st, 2012)

The market's reaction to Bernanke's speech on Friday was pretty anti-climatic. After days of churning sideways with market participants on the sidelines waiting for him to talk about future stimulus the lack of action was definitely a surprise.

Now the market turns its focus back to Europe. There is an ECB meeting coming up and then the German courts vote on the ESM in two weeks. Plus, back here in the states, we have the jobs report on Friday, Sept. 7th.

The market's sideways churn has not provided a lot of new entry points so I'm not adding any new candidates tonight but we are adding three new candidates to the watch list.

Meanwhile, here's a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself:

CCL, PHM, RYL, MHO, RL, GT, PAYX, AMED, CLB, AXP, OMX, OSK, ESRX, RHT, FTR, VOD, SIRI, NVDA,


Play Updates

Another Quiet Week to Close the Summer

by James Brown

Click here to email James Brown

Editor's Note:

Stocks were very quiet ahead of Bernanke's appearance in Jackson Hole. Unfortunately the market must have slept through his speech.

We did see SWKS join the active trade list.


Closed Plays


None. No closed plays this week


Play Updates


Abbott Labs - ABT - close: 65.54

Comments:
09/01/12 update: ABT spent another week consolidating sideways in the $65-66 range. If you look closely it seems like the consolidation is narrowing with technical support at the simple 50-dma. The stock should see a breakout one way or the other soon and odds should favor ABT resuming the longer-term up trend but that will probably depend on how the broader market performs this week.

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 $ 2.54/ 2.67

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 5.05/ 5.25

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: 34.33

Comments:
09/01/12 update: AIG spent another week inside the $33-35 range. Bigger picture AIG looks like it's building up steam for a breakout higher past resistance at $35.00 but September is normally a tough month for stocks.

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 $ 5.65/ 5.75

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 6.00/ 6.20

08/18/12 new stop loss @ 29.45
06/16/12 new stop loss @ 26.95
05/18/12 triggered at $28.25
05/05/12 The U.S. government is planning to sell 164 million shares at $30.50 and AIG will probably gap down on this news.
Move the trigger down to $28.25, and move the stop loss to $25.75.
04/28/12 adjust buy-the-dip trigger to $30.00 and stop to $27.40

Current Target:$ 39.00
Current Stop loss: 29.45
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Apache Corp. - APA - close: 85.75

Comments:
09/01/12 update: many of the oil and oil service stocks have been underperforming thanks to Hurricane Isaac causing problems in the Gulf of Mexico. Now that the storm has passed the group might see a rebound. Rising oil prices thanks to a falling dollar could also help the sector. Technical traders will note that this past week does look troubling with the breakdown under the 50-dma. The bounce off Thursday's low was essentially off the three-month trend of higher lows. A breakdown there could be a warning signal (i.e. a close under $84.00).

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ 87.10, option @ 3.45
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 1.23/ 1.33

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 4.25/ 4.50

08/18/12 new stop loss @ 81.40

Current Target: $109.00
Current Stop loss: 81.40
Play Entered on: 06/18/12
Originally listed in the New Plays 06/16/12


Bank of America - BAC - close: 7.99

Comments:
09/01/12 update: BAC has produced a two-week correction after the rally failed at $8.40 on August 21st. The recent performance has been disappointing since the $8.00 level should have offer some support.

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 $ 0.17/ 0.18
(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 $ 0.17/ 0.18
(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


Caterpillar Inc. - CAT - close: 85.33

Comments:
09/01/12 update: Ouch! Shares of CAT continue to underperform. The stock is off -8% from its intraday high near $92.00 about two weeks ago. CAT has been struggling to hold support near $85.00 and its 50-dma. More conservative traders may want to consider raising their stops closer to the $84.00 level. I am not suggesting new positions at this time. Technical traders will note that CAT has produced a 50% retracement of the July-August climb.

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

- Suggested (small) Positions -
Aug 10, 2012 - entry price on CAT @ 88.26, option @ 3.81
symbol: CAT1319A95 2013 JAN $95 CALL - current bid/ask $ 2.34/ 2.40

- or -

Aug 10, 2012 - entry price on CAT @ 88.26, option @ 7.90
symbol: CAT1418A100 2014 JAN $100 CALL - current bid/ask $ 6.75/ 6.95

08/18/12 new stop loss at $81.75
08/10/12 trade opened on Friday morning @ $88.26
08/09/12 CAT closed above our trigger (which was 87.50)
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

Current Target: $110.00-115.00
Current Stop loss: 81.75
Play Entered on: 08/10/12
Originally listed on the Watch List: 07/07/12


CH Robinson Worldwide - CHRW - close: 56.61

This is a bearish PUT option trade.

Comments:
09/01/12 update: It has been a relatively quiet two weeks for CHRW. Traders with a bullish bias could look at CHRW and argue the stock is building a bull-flag consolidation pattern over the last few weeks. That would mean a breakout past the $57.25-57.50 area could signal the next leg higher. Bigger picture CHRW still has a very bearish long-term trend of lower highs and lower lows. We are leaving our stop at $60.75 for now. More conservative traders may want to lower their stop closer to $58.00 instead. I am not suggesting new positions at this time.

Our multi-month target is a drop to $50.50. We want to keep our position size small to limit our risk.

- Suggested (small) Positions -
May 07, 2012 - entry price on CHRW @ 60.61, option @ 3.00
symbol:CHRW1319M55 2013 JAN $55 PUT - current bid/ask $ 2.90/ 3.10

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


Discover Financial - DFS - close: 38.73

Comments:
09/01/12 update: DFS has spent the last several days consolidating sideways in the $38-39 area. However this sideways move is still inside the larger up trend. While the trend is up I am a little concerned that after several weeks of gains DFS might need a little pullback. I'm not suggesting new positions at this time.

NOTE: The $40.00 level could be round-number psychological resistance. I am suggesting we exit our 2013 calls when DFS hits $39.75. Our target to exit the 2014 calls is at $44.00.

- Suggested Positions -
JUL 05, 2012 - entry price on DFS @ 35.28, option @ 2.15
symbol: DFS1319A37 2013 JAN $37 call - current bid/ask $3.50/3.70

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $4.60/4.90

08/25/12 new stop loss @ 34.75
08/25/12 adjusted targets to $39.75 (2013 calls), $44 (2014 calls)
08/18/12 new stop loss @ 33.45
08/11/12 new stop loss @ 32.40
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: $39.75 for the 2013 call2, $44.00 for the 2014s
Current Stop loss: 33.45
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12


HollyFrontier Corp. - HFC - close: 40.29

Comments:
09/01/12 update: Hurricane Isaac has passed and no major damage was reported to the oil rigs and refineries along the Gulf. Meanwhile shares of HFC continue to churn sideways under resistance at $41.00. If you look at an intraday chart shares seem to have built an inverse head-and-shoulders pattern under the $41.00 level (the neckline). I would consider a close over $41.00 as a new entry point.

Our long-term target is $44.50 for the 2013 calls and $48.50 for the 2014 calls. NOTE (option strike adjustment): HFC recently declared a special dividend of 50 cents a share payable on September 4th, 2012 to shareholders of record on August 27th. The option exchanges have adjusted some contracts by lowering the strike price by 50 cents. Our 2013 Jan $42 call is now a $41.50 call. The 2014 $45 call is now a $44.50 strike.

- Suggested Positions -
AUG 17, 2012 - entry price on HFC @ 40.50, option @ 2.75
symbol: HFC1319A41.5* 2013 JAN $41.5 call - current bid/ask $3.00/3.20

- or -

AUG 17, 2012 - entry price on HFC @ 40.50, option @ 5.00
symbol: HFC1418A44.5* 2014 JAN $44.50 call - current bid/ask $5.30/6.10

*The 2013 call was previously a $42 strike. Adjusted to $41.50 strike. The 2014 call was a $45 strike, now adjusted to a $44.50 strike (occurred in August 2012 due to a special dividend).

Current Target: $ 44.50(2013 calls), $48.50 (2014 call)
Current Stop loss: 36.90
Play Entered on: 08/17/12
Originally listed on the Watch List: 08/06/12


Lennar Corp. - LEN - close: 32.43

Comments:
09/01/12 update: LEN lost twenty cents for the week. Shares are coiling for a breakout past resistance near $33.00. I would use a close over $33.00 as a new bullish entry point. However, readers may want to wait until after LEN reports earnings before initiating new positions. The company is expected to report in the middle of September but I don't see a confirmed date yet. LEN is currently trading at multi-year highs.

Earlier Comments:
Our long-term target is $36.00 for the 2013 calls and $39.50 for the 2014 calls. FYI: LEN is due to report earnings in mid September.

- Suggested Positions -
AUG 17, 2012 - entry price on LEN @ 32.72, option @ 2.07
symbol: LEN1319A35 2013 JAN $35 call - current bid/ask $2.20/2.25

- or -

AUG 17, 2012 - entry price on LEN @ 32.72, option @ 3.39
symbol: LEN1418A40 2014 JAN $40 call - current bid/ask $3.35/3.55

Current Target: $ 36.00(2013 calls), $39.50 (2014 call)
Current Stop loss: 29.75
Play Entered on: 08/17/12
Originally listed on the Watch List: 08/11/12


Eli Lilly - LLY - close: 44.91

Comments:
09/01/12 update: It was not a great week for news out of LLY. On August 24th the stock soared on relatively positive news for its Solanezumab drug treatment for Alzheimer's. Yet since then LLY has reported two disappointing reports that it's phase III trial for TRILOGY ACS failed to meet its goals plus the company was scrapping plans for a phase III trial of pomaglumetad methionil, a schizophrenia treatment.

Shares of LLY held up relatively well considering two doses of bad news. I am not suggesting new positions at this time.

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

- 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 $ 3.55/ 3.70

08/24/12 LLY spikes on news regarding Alzheimer treatment study
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: 87.11

Comments:
09/01/12 update: MON managed a bounce off the $85.00 level. On this weekly chart this failed to confirm the prior week's bearish reversal candlestick pattern but MON is not out of the woods yet. If you have a bullish bias you could argue MON is building a bull-flag pattern over the last several weeks. The $90 level remains overhead resistance.

- Suggested Positions -
Jul 17, 2012 - entry price on MON @ 85.84, option @ 4.35
symbol: MON1319A90 2013 JAN $90 call - current bid/ask $ 4.15/ 4.25

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - current bid/ask $ 6.40/ 6.70

08/25/12 adjust expectations, look for a dip toward $82
08/11/12 look for a pullback toward $84 soon
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: 43.05

Comments:
09/01/12 update: We have been expecting a correction lower in MRK for several weeks. Shares started to pullback in mid August but MRK seems to have found some support near $42.50 and its 50-dma.

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 $ 5.25/ 5.35

08/11/12 new stop loss @ 40.90
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: 40.90
Play Entered on: 06/25/12

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


Microsoft - MSFT - close: 30.82

Comments:
09/01/12 update: MSFT is still consolidating under resistance near $31.00. The current pattern of higher lows would suggest MSFT is coiling for a breakout higher. I would be tempted to launch new 2014 call positions if MSFT can close over $31.25.

- Suggested Positions -
Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 1.69
symbol:MSFT1319A30 2013 JAN $30 call - current bid/ask $ 2.13/ 2.16

- or -

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

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: 72.43

Comments:
09/01/12 update: PEP is losing upward momentum. Of course that's not very surprising given the sideways churn in the market this past month. Shares have found support at the 50-dma over the last few months so readers could look for a bounce off there (currently near 71.40).

I am not suggesting new positions at this time.

- Suggested Positions -
Jul 02, 2012 - entry price on PEP @ 70.34, option @ 2.85
symbol: PEP1418A75 2014 JAN $75 call - current bid/ask $ 3.50/ 3.60

08/18/12 new stop loss @ 68.75
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: 68.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 05/26/12


Pfizer Inc. - PFE - close: 23.86

Comments:
09/01/12 update: It looks like shares of PFE have been on summer vacation. The stock is drifting sideways in a very narrow range. PFE lost 15 cents for the week. If the stock does see a pullback we can look for support near $23.00 and at $22.00. I am not suggesting new positions at this time.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.65/ 1.69

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


QUALCOMM Inc. - QCOM - close: 61.46

Comments:
09/01/12 update: We are not surprised to see more profit taking in QCOM. After its big five-week rally I have been warning readers to expect a dip toward $60.00. The fact that QCOM has not declined very fast is encouraging. I would still expect a dip closer to $60 and the 200-dma. I am not suggesting new positions at this time.

- Suggested Positions -
Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 2.56
symbol:QCOM1319A65 2013 JAN $65 call - current bid/ask $ 2.33/ 2.38

- or -

Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 4.75
symbol:QCOM1418A70 2014 JAN $70 call - current bid/ask $ 4.75/ 4.90

Current Target: $68.50
Current Stop loss: 57.40
Play Entered on: 08/10/12
Originally listed on the Watch List: 08/06/12


Skyworks Solutions - SWKS - close: 30.46

Comments:
09/01/12 update: SWKS is a watch list candidate that just made the jump to our play list. The plan was to wait for shares to breakout past resistance at $30.00 and close over $30.25. The stock met our entry requirements on Friday with the close at $30.46. Our entry will be on Tuesday morning at the opening bell. We've got an initial stop loss at $27.40. We want to exit the 2013 calls when SWKS hits $34.00 and exit the 2014 calls when SWKS hits $37.50.

FYI: The point & figure chart is bullish with a $40 target.

- Suggested Positions -
Sep 04, 2012 - entry price on SWKS @ --.--, option @ -.--
symbol:SWKS1319A32 2013 JAN $32 call - current bid/ask $ 3.20/ 3.40

- or -

Sep 04, 2012 - entry price on SWKS @ --.--, option @ -.--
symbol:SWKS1418a35 2014 JAN $35 call - current bid/ask $ 5.60/ 6.00

09/01/12 SWKS hit our entry conditions on Friday 08/31/12, open positions on Tuesday morning (09/04/12).

Chart of SWKS:

Current Target: $34.00 (2013 calls) & 37.50 (2014 calls)
Current Stop loss: 27.40
Play Entered on: 09/04/12
Originally listed on the Watch List: 08/11/12


The TJX Companies - TJX - close: 45.79

Comments:
09/01/12 update: TJX tagged a new all-time high on Wednesday with a rally past $46.50. Unfortunately the rally didn't last. Several major retailers reported their August same-store sales figures on Thursday. TJX showed +8.0% same-store sales growth versus analysts estimates of +6.3%. That should have been a bullish mover for the stock but management also guided earnings toward the upper end of its prior guidance range but Wall Street has higher expectations for TJX and this guidance remains below analysts expectations.

I would not be surprised to see TJX dip toward technical support at its 50-dma again (currently near $44.50).

I am not suggesting new positions at this time.

- Suggested Positions -
Jun 20, 2012 - entry price on TJX @ 43.62, option @ 2.53
symbol: TJX1319A45 2013 JAN $45 call - current bid/ask $ 3.10/ 3.30

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 6.00/ 6.20

08/18/12 new stop loss @ 40.85
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: 40.85
Play Entered on: 06/20/12

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


Time Warner - TWX - close: 41.55

Comments:
09/01/12 update: Readers should not be surprised about the pullback in TWX. We've been expecting it after the early August explosion higher. We can look for support near $40 or possibly the $39 levels. I would consider buying a dip or a bounce near the $40.00 mark.

- Suggested Positions -
Aug 03, 2012 - entry price on TWX @ 40.66, option @ 1.79
symbol: TWX1319A42 2013 JAN $42 call - current bid/ask $ 2.02/ 2.08

- or -

Aug 03, 2012 - entry price on TWX @ 40.66, option @ 2.85
symbol: TWX1419A45 2014 JAN $45 call - current bid/ask $ 3.15/ 3.30

08/11/12 readers might want to lock in gains now (+49% on the 2013 calls) in just two weeks and then jump back in on a correction in the stock.
08/03/12 TWX opens at $40.66 (trade opens)
08/02/12 TWX meets our entry requirement with a close over $40.50

Current Target: $49.00
Current Stop loss: 38.75
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12


Union Pacific Corp. - UNP - close: 121.44

Comments:
09/01/12 update: The Dow Jones Transportation Average continues to underperform the broader market. Dow Theory investors see that as a warning sign for the market. The weakness in UNP has not been that bad. Shares of UNP are nearing what should be short-term support near $120 and its 50-dma. If this level fails then we're probably looking at a decline toward the next level of support near $115. The long-term trend is still higher. I am not suggesting new positions at the moment.

- Suggested Positions -
Jul 20, 2012 - entry price on UNP @ 122.10, option @ 3.80
symbol: UNP1319A130 2013 JAN $130 call - current bid/ask $ 3.20/ 3.35

- or -

Jul 20, 2012 - entry price on UNP @ 122.10, option @ 6.40
symbol: UNP1418A140 2014 JAN $140 call - current bid/ask $ 6.65/ 7.30

08/18/12 new stop loss at $114.75
08/11/12 that looks like a brand new bearish engulfing candlestick reversal pattern on the weekly chart today. Let's see if there is any follow through.

Current Target: $139.00
Current Stop loss: 114.75
Play Entered on: 07/20/12
Originally listed on the Watch List: 06/30/12


Urban Outfitters - URBN - close: 37.54

Comments:
09/01/12 update: Believe it or not URBN continues to defy gravity. Normally after such a big move higher you would expect some profit taking. Yet URBN is levitating above the gap open price from mid August. Shares actually hit new 52-week highs on Wednesday and Thursday this past week. We currently have a stop at $35.80 but more conservative traders may want to use a stop closer to $36.50 instead. I am not suggesting new positions at this time.

- Suggested Positions -
Aug 21, 2012 - entry price on URBN @ 36.82, option @ 4.25*
symbol:URBN1319A35 2013 JAN $35 call - current bid/ask $ 4.70/ 4.80

- or -

Aug 21, 2012 - entry price on URBN @ 36.82, option @ 5.20*
symbol:URBN1319C35 2013 MAR $35 call - current bid/ask $ 5.30/ 5.60

08/25/12 adjusted our entry, stop, and exit target
stop loss 35.80, exit target 39.50
*option entry prices are an estimate. neither traded at the time of our entry

Originally listed on the Watch List: 08/18/12


U.S. Bancorp - USB - close: 33.41

Comments:
09/01/12 update: USB managed a gain for the week but overall the stock remains inside a $32.50-33.60 trading range for the month of August. USB does look poised to move higher. The next obstacle are the three-year highs from late July near $34.00. I would be tempted to use a close over $34.00 as a new entry point.

- Suggested Positions -
Jul 20, 2012 - entry price on USB @ 33.62, option @ 1.39
symbol: USB1319A35 2013 JAN $35 call - current bid/ask $ 1.06/ 1.10

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 3.05/ 3.20

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: 128.25

Comments:
09/01/12 update: After a mild three-week correction lower shares of V finally bounced. The stock spent the last few days testing technical support at its rising 50-dma. I would consider a close above $128.50 as a new bullish entry point.

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 $ 4.90/ 5.05

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $11.85/12.40

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


Watch

Oil, Gold, and Retail

by James Brown

Click here to email James Brown


New Watch List Entries

CVX - Chevron Corp.

GLD - Gold ETF

WMT - Wal-Mart Stores


Active Watch List Candidates

EMN - Eastman Chemical

ROST - Ross Stores

SCHW - Charles Schwab

SPRD - Spreadtrum Communications

UIS - Unisys Corp.

WFC - Wells Fargo


Dropped Watch List Entries

SWKS graduated to the play list.

I am pruning ATI and BBY off the list.



New Watch List Candidates:


Chevron Corp. - CVX - close: 112.16

Company Info

CVX is a major oil and gas company. The stock broke out to new all-time highs above the $110-111 area a few weeks ago. Since then it has consolidated sideways in the $110-114 range. The breakout past $110 is significant. Aggressive traders may want to go ahead and buy calls now.

I am suggesting we wait for CVX to close over $114.00 and then we'll buy calls the next day with a stop loss at $108.75. Our long-term target is $129.00.

Breakout trigger: Wait for a close over $114.00 (stop 108.75)

BUY the 2014 Jan $125 call (CVX1418a125) current ask $5.85

Chart of CVX:

Originally listed on the Watch List: 09/01/12


SPDR Gold ETF - GLD - close: 164.22

Company Info

The GLD is a popular exchange traded fund (ETF) that moves with the price of gold bullion. If you doing any reading in the financial blogosphere the whole world seems to be talking about the sideways consolidation in gold (a.k.a. the GLD) and the impending breakout. Well the breakout just happened. With another traders following this ETF it could be a self-fulfilling prophesy.

It's not all about technicals, which happen to look bullish with the breakout past resistance at $160, at the 200-dma, and the trend line of lower highs. It's also about Ben Bernanke's speech and his comments that the Federal Reserve "will provide" new stimulus. Now we don't know when or how the Fed will launch any new QE but money printing should fundamentally drive gold prices higher.

Aggressive traders could buy calls now. I think the GLD will see a dip so I am suggesting we buy calls on a dip at $162.00. More conservative traders may want to wait for a dip closer to $160 instead. We will use a stop loss at $154.40.

NOTE: I am listing the 2013 calls even though they only have a few months left. We will aim to exit these when the GLD hits $174.00. Our target on the 2014 calls is the $185-200 range.

Buy-the-Dip trigger: $162.00

BUY the 2013 Jan $175 call (GLD1319a175) current ask $3.95

- or -

BUY the 2014 Jan $200 call (GLD1418a200) current ask $8.50

Chart of GLD:

Originally listed on the Watch List: 09/01/12


Wal-Mart Stores - WMT - close: 72.60

Company Info

The retailing titan Walmart is both the largest retailers in the world and the largest private employer in the world (2.2 million employees). After years of being dead money shares of WMT started climbing in late 2011. There was a choppy sideways consolidation in the first half of 2012 and then - boom - the stock exploded higher.

WMT is currently digesting its Q2-Q3 gains with a correction lower. On a short-term basis the stock is trying to hold the 50-dma. I suspect the correction continues. I might be early listing WMT as a watch list candidate but we want to be ready when shares do see a pullback.

I am suggesting we buy calls on WMT when the stock dips to $68.00. We'll start with a stop loss at $63.45. I am listing the 2013 calls but would prefer the 2014s. Our target to exit the 2013 calls is at $74.75. Our target to exit the 2014 calls is when WMT hits $84.00. FYI: The Point & Figure chart is currently bullish with a long-term $106 target.

Buy-the-Dip trigger: $68.00

BUY the 2013 Jan $70 call (WMT1319a70) current ask $4.50

- or -

BUY the 2014 Jan $70 call (WMT1418a70) current ask $7.45

Chart of WMT:

Originally listed on the Watch List: 09/01/12


Active Watch List Candidates:



Allegheny Technologies - ATI - close: 29.64

Comments:
09/01/12 update: Shares of ATI are underperforming. The breakout reversed at its 100-dma several days ago. Now ATI is headed for its 2012 lows near $27.65. I am giving up on ATI as a candidate. A close under $27.50 might be considered a bearish entry point for short-term trades.

Trade did not open.

09/01/12 removed from the watch list. trade did not open.

Originally listed on the Watch List: 08/11/12


Best Buy Co. - BBY - close: 17.74

Comments:
09/01/12 update: We added BBY last week as a bearish candidate to buy puts, betting on the long-term decline in the stock and the company's market share. I warned readers that our biggest risk was probably a buyout offer to take the company private. That risk remains. The number of call options has exploded as traders speculate on some sort of buyout down the road. There has been some analyst discussion about BBY suggesting a buyout is possible but unlikely.

I am suggesting we drop BBY as a candidate. If we owned puts there would be a constant worry that BBY might gap open higher on news and stop us out for a loss. As of now our trade has not opened yet.

trade did not open.

09/01/12 removed from the watch list. trade did not open.

Originally listed on the Watch List: 08/25/12


Eastman Chemical Co. - EMN - close: 55.26

Comments:
09/01/12 update: EMN closed virtually unchanged for the week as the stock churns sideways. I don't see any changes from my prior comments.

Earlier Comments:
EMN is a major chemical company. Normally you might that with a slowing global economy and rising oil prices (a major input cost for chemicals) that shares of EMN would be suffering. This stock is actually setting new all-time record highs. The $55-56 level has been major resistance for years.

I am suggesting readers wait for EMN to close over $56.00 and then buy calls the next day with a stop loss at $52.40. Our long-term target is to exit our 2014 calls when EMN hits $69.00.

Breakout trigger: Wait for EMN to close over $56.00, buy calls the next day (stop loss 52.40)

BUY the 2013 Jan $60 call (EMN1319A60)

- or -

BUY the 2014 Jan $65 call (EMN1418A65)

Originally listed on the Watch List: 08/18/12


Ross Stores, Inc. - ROST - close: 69.19

Comments:
09/01/12 update: It looks like the back-to-school shopping season has been a strong one for retailers like ROST. The company just reported its August same-store sales this past week. Analysts were expecting +5.8% growth but ROST announced +8.0% same-store sales. Surprisingly shares didn't move much on this news and continued to churn sideways just under round-number resistance at the $70.00 level. ROST is currently forecasting same-store sales for September to rise +2%-3% and a +3%-4% in October.

I am suggesting we wait for ROST to close over $70.50 and then buy calls the next day with a stop loss at $66.45. Our long-term target is $84.50. FYI: The P&F chart is bullish with a $92 target.

We do want to limit our position size and keep them small to reduce our risk.

Breakout trigger: Wait for a close over $70.50 (stop: 66.45)

*Small Positions*

BUY the 2013 Jan $75 call (ROST1319A75)

- or -

BUY the 2014 Jan $80 call (ROST1418A80)

Originally listed on the Watch List: 08/18/12


Charles Schwab Corp. - SCHW - close: 13.49

Comments:
09/01/12 update: SCHW has been showing some relative strength. The stock has managed a slow three-week climb and now SCHW is testing resistance near $13.50.

I am suggesting investors wait for SCHW to close over $13.60 and then buy calls the next day. We will start with a stop loss at $12.45. Our long-term target is $15.50 (exit the 2014 calls when SCHW hits $15.50).

Breakout trigger: Wait for SCHW to close over $13.60

BUY the 2013 Jan $12.50 call (SCHW1319A12.5)

- or -

BUY the 2014 Jan $15 call (SCHW1418A15)

Originally listed on the Watch List: 08/18/12


Spreadtrum Communications - SPRD - close: 19.76

Comments:
09/01/12 update: SPRD spent the week drifting higher. I don't see any changes from my prior comments. Shares are currently chewing through overhead supply near resistance at $20.00.

I am suggesting a trigger to buy calls when SPRD closes above $20.50. We will aim for $24.00 since I'm only listing the 2013 calls. SPRD does have 2014s but the spreads are too wide.

Breakout trigger: Wait for a close over $20.50 (stop: 18.90)

BUY the 2013 Jan $22.50 call (SPRD1319a22.5)

Originally listed on the Watch List: 08/25/12


Unisys Corp. - UIS - close: 21.13

Comments:
09/01/12 update: UIS only lost three cents for the week. I am still expecting a dip toward $20.00.

I am suggesting we buy calls on a dip at $20.25. We'll use a stop loss at $18.75. Our target is $24.50. I am only suggesting the 2013 calls because the spread on the 2014 calls is too wide.

Buy-the-Dip trigger: $20.25 (stop 18.75)

BUY the 2013 Jan $20 call (UIS1319A20)

Originally listed on the Watch List: 08/18/12


Wells Fargo & Co - WFC - close: 34.03

Comments:
09/01/12 update: Shares of WFC appear to be hibernating. The stock closed virtually unchanged for the week. I don't see any changes from my prior comments.

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)

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