Option Investor
Newsletter

Daily Newsletter, Sunday, 9/9/2012

Table of Contents

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

Leaps Trader Commentary

Shorts Cover on ECB's New Deal

by James Brown

Click here to email James Brown

The U.S. stock market surged on short covering to new multi-year highs thanks to headlines regarding the European Central Bank's plans to buy bonds from the weaker Eurozone members. It was a week filled with several major headlines but the ECB news had the biggest effect on the equity markets. Another disappointing jobs report on Friday may have slowed the market's bullish momentum but news that China is launching a new one-trillion yen construction boom was seen a as positive for the market.

Normally investors would have expected market declines in a week where you have major corporate bellwethers like FedEx (FDX) and Intel (INTC) issuing earnings warnings and a worse than expected jobs report. The nonfarm payroll and unemployment reported show the labor participation rate falling to its worst levels in thirty years yet the stock market doesn't care. That's because the global markets are addicted to stimulus and the central banks are offering another round of drugs. The ECB's new plan is a form of "stimulus" as is China's new plan to launch a massive construction boom across the nation. The Fed Chairman Bernanke has already said the Federal Reserve will provide more quantitative easing. It was only a matter of when and how much? Now after the faltering jobs report on Friday many are expecting Bernanke to announce a new QE plan at the next FOMC meeting this week.

There were was a small flood of economic data this past week. In the U.S. the August ISM index came in at 49.6. Numbers under 50.0 indicate contraction and suggests a potential recession building. The July construction number fell -0.9% versus expectations for a +0.5% gain. Coming in better than expected was the latest reading on vehicle sales, which rose to a three-year high at an annual pace of 14.46 million units. The ADP Employment Report showed +210,000 new jobs in the private sector and up from the prior month's +173K jobs. The ISM services index for August was better than expected at 53.7. The weekly initial jobless claims dipped to 365,000, which was slightly under expectations. In the not-so-great column was America's achievement of seeing its debt rise past $16 trillion for the first time in history. The debt is growing at $3.5 billion a day and has now grown to more than 100% of the U.S. GDP.

Overseas we saw Germany's exports rise higher than expected yet the country's PMI reading was below estimates. The Purchasing Managers Index is a thermometer on a country's manufacturing sector. France saw its Q2 unemployment hit 10.2%, which is the highest level in more than twelve years. Meanwhile both France and Italy saw their PMI readings come in below expectations. The United Kingdom and Spain actually saw improvement in their PMI readings. In central bank news the ECB left interest rates unchanged at 0.75% but announced the new bond-buying program, more on that in a bit. The Bank of England left rates unchanged at 0.5% and left their QE asset-buying program unchanged. Bigger picture the Eurozone PMI services reading came in below estimates at 47.2. Moody's lowered their Eurozone outlook to "negative". The ECB cuts its Eurozone growth forecasts to -0.4% for 2012 and down to a range of -0.4%-1.4% for 2013.

Across the Pacific in China the news was mixed. The China HSBC services PMI fell to 52.00 compared to estimates of 53.1. Remember, readings under 50.0 are negative. The Chinese government is expected to release several economic reports this weekend. That makes the timing of their new nationwide construction plan suspect. Are they trying to soften the blow of disappointing economic data by pre-announcing a one-trillion yen ($157 billion) infrastructure stimulus plan. The economic data in China has been slowing down for months. Last week we mentioned a new problem in China with unsold inventory stacking up and they are running out of storage space. We have been speculating that the Chinese government would announce some form of stimulus by year end to turn their economy around. China is planning 60 new projects from new highways to new airport runways and similarly large construction projects. Will this construction boom be enough?

Aside from the ECB's new bond-purchase program the jobs report on Friday was one of the biggest headlines. Economists were expecting +125,000 new jobs in August. The U.S. needs about +150,000 new jobs a month just to keep up with population growth and new graduates. Yet Friday's report only showed +96,000 new jobs. The prior month's +163,000 was revised down to +141,000. June's was revised down from +64K to +45K. It was not a good report. The three-month average is a very weak +95,000 jobs. What's really disappointing is that the labor participation rate has fallen to its worst levels since the year 1981 at just 63.5 percent. The unemployment rate ticked down from 8.3% to 8.1% merely because so many people stopped looking for work. Unemployment has been above 8% for more than three years, which is the longest stretch since the Great Depression. According to one analyst if the labor participation rate was normal the unemployment rate would be over 11%.

I feel obligated to discuss the ECB's new bond-purchasing program. Officially called "Outright Monetary Transactions" (OMT) the program will buy short-term bonds maturing within the next three years. This program is targeting weak Eurozone nations like Spain and Italy. You may recall that over the past two years as the EU struggled with the Greece debt problem they kept looking over their shoulders at Spain and Italy, which are many times larger than Greece and would be a nightmare to deal with if they were insolvent. How many times have we heard that Spain and Italy are too big to bail out and yet that's what the ECB is trying to do without officially calling it a bailout.

This new OMT program is fraught with problems. If the ECB, through the new EFSF or ESM bailout funds, is going to buy sovereign debt from a Eurozone nation, the nation they are buying them from has to ask for help. If a nation asks for help they have to agree to a list of fiscal and economic austerity measures. Not only does applying these austerity measures going to shrink government spending and thus shrink their economies but it's also going to force these nations to give up some of their sovereignty (autonomous control over their finances). That's something neither the individual governments or their populations really want.

Furthermore the ECB has said this program can be "open ended", which means there is no limit to how debt they can buy. Yet at the same time they are planning to "sterilize" this debt. How they can do both remains to be seen. The ECB wants this to be unlimited so bond investors don't try and game the system, which would only provide a temporary relief to countries involved. If the ECB threatens an open-ended program then bond yields on the troubled countries that participate should remain low(er) and prevent a debt crisis. On top of all of that the rest of the Eurozone has to agree to the new program and will likely to have approve the list of austerity measures the requesting country has to endure. If a country asks for help and then does not follow through on their austerity targets (e.g. like Greece has) the ECB can immediately stop buying bonds, which of course would send bond yields skyrocketing for the offending country and likely spark a meltdown.

Major Indices:

The S&P 500 has rallied to new four-year highs following Thursday's short covering. The breakout past resistance in the 1420-1425 area is technically very bullish although we can argue the index is short-term overbought and could easily see a pullback. Now broken resistance in the 1420 area should be new support. I suspect the 1440-1450 area could be new resistance but momentum favors the bulls right now. We could see the S&P 500 testing round-number resistance at 1500 by yearend.

FYI: The S&P 500 is up +2.2% for the week and +14.3% for the year.

chart of the S&P 500 index:

The market's widespread rally has produced a big move in the NASDAQ composite, which tagged levels not seen since the year 2000. Technically the NASDAQ is above its March 2012 highs but it's not convincingly past this level. Bears could argue the NASDAQ is merely testing this level of resistance at the March highs near 3135. However, momentum favors the bulls. Can the NASDAQ see a pullback? Of course it can but broken resistance near 3100 is probably new support.

Looking back at the fourth quarter of the year 2000 the NASDAQ was pretty volatile. It's not easy to determine any specific support or resistance. I suspect the 3200 is probably the NASDAQ's next resistance level. FYI: The NASDAQ composite is up +20.3% for the year.

I know a lot of traders like to follow the QQQ, which is the ETF for the NASDAQ-100 index. The Qs are nearing potential round-number resistance at the $70.00 mark. A breakout here could lead to the next level of resistance at $72.00 and near $74.00. Broken resistance near $68.50 should be new short-term support.

chart of the NASDAQ Composite index:

chart of the QQQ (NASDAQ-100 ETF):

The small cap Russell 2000 index outperformed its big cap rivals with a +3.7% gain for the week. The $RUT is currently up +13.6% for the year. Yet while the S&P 500 and the NASDAQ are breaking out to new multi-year highs the $RUT still has work to do just to reach its highs.

The recent breakout past resistance near 820 is bullish and now the $RUT is testing its 2012 highs near 850. If the small caps pullback I would look for support near 825-820. On the other hand if the rally continues and the $RUT pushes past 850 then the next level of resistance is the index's all-time high set in 2011 near the 868 level.

You'll notice on the chart below that the $RUT has broken the bearish trend of lower highs.

Daily chart of the Russell 2000 index

Last week was a busy one for economic data. This week there is a two-day lull and then it starts up again. The big events for the market is the German court's decision on the ESM due out September 12th. Then the end of a two-day FOMC meeting on the 13th where Bernanke could announce a new QE3 program. Elsewhere we could see shares of AAPL moving on its new product announcement September 12th. Typically shares of AAPL see a "sell-the-news" type of move after their event. This week could also bring an update from Moody's credit rating agency on the country of Spain.

Economic and Event Calendar

- Monday, September 10 -
Italy's GDP estimate

- Tuesday, September 11 -
(nothing significant)

- Wednesday, September 12 -
German courts vote on constitutionality of ESM
FOMC meeting begins
Apple expected to unveil the iPhone 5
Dutch general elections
Import/Export prices
Wholesale inventories

- Thursday, September 13 -
Weekly Initial Jobless Claims
FOMC meeting ends (possible QE3 announcement)
Fed Chairman Bernanke holds post-meeting press conference
Producer Price Index (PPI) for August
G-20 meeting

- Friday, September 14 -
U.S. Retail sales for August
Consumer Price Index (CPI) for August
University of Michigan (consumer) sentiment
Eurozone CPI data

Additional Events to be aware of:

Sep. 15th - Eurogroup meeting
Sep. 16th - EU Finance minister meeting

Also in September, the IMF will release their review of Greece. Plus, the U.S. will likely hits its debt ceiling again (this time over $16 trillion).

The Week Ahead:

Looking ahead the path of least resistance for stocks seems to be up. Equities have been rising on expectations for new stimulus from the world's major central banks for several weeks now. So far market participants are getting exactly what they wanted. Bernanke has suggested the Fed "will provide" new stimulus. While we don't know when and how the Fed might do that there is growing speculation he may announce something this Wednesday, especially after the disappointing jobs report on Friday. ECB President Draghi is giving the markets what they want with this new bond-buying program. Of course the market is completely ignoring all the details that could make this program a dud. Plus, China's new construction program is bullish for the market and investor sentiment since it shows the government trying to help their slowing economy.

The week ahead could see some pitfalls. China is due to release several economic reports this weekend and there is speculation that the results will be much worse than expected, which is why they announced the big infrastructure plans on Friday to soften the blow. The German courts could rule against the constitutionality of the ESM bailout program. It is unlikely but it is definitely a possibility and a no vote for the ESM could spark a lot of volatility in the global equity markets. Bernanke could fail to deliver on growing expectations for some form of QE3 this week. There has been some analysts speculation that if he does not announce something this week then he will announce it in December. New money printing from the major central banks should be bullish for commodities. That's why we're seeing gold shoot higher this past week.

In the U.S. investors have lost focus on the coming fiscal cliff on January 1st. Instead the focus is on whether or not the Fed will announce some new form of stimulus whether we need it or not. Pretty soon the focus will turn to the upcoming presidential election just two months away. Other issues currently being ignored by the market are rising tensions with Israel and Iran, the civil war in Syria, the worst drought in the U.S. in 50 years, and Greece could still get kicked out of the Eurozone although for many that's already an assumption. Plus, we could see the U.S. debt ceiling issue hit Washington again.

In spite of all the potential land mines in the market we almost half to be bullish with the S&P 500 and the NASDAQ hitting new multi-year highs. There has been no indication that this is some sort of last-gasp top in the market. However, I would remain cautious. We can launch new positions if we see an entry point but I would keep our position size small to start.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

News that ECB President Mario Draghi is planning a bond-buying program to help save the Eurozone sparked serious short covering on Thursday. The major U.S. indices are hitting new multi-year highs or in the Russell 2000's case, it's hitting new relative highs.

Be forewarned that this week could see some volatility of Bernanke does not announce some form of QE3 at the end of the two-day FOMC meeting.

EMN, SCHW, and SPRD have graduated from the watch list to active trades.

I have adjusted stop losses on: APA, CHRW, LLY, MON, PFE, SCHW, TJX, URBN.

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

Bullish but Watch for Potholes Ahead

by James Brown

Click here to email James Brown

Editor's Note:

(September 8th, 2012)

You've probably heard it a dozen times by now. The stock market rallied on the ECB's new plan to buy bonds from its troubled Eurozone members. There are a lot of challenges to this new approach but the market doesn't care at the moment.

We are bullish with the major indices breaking out to new multi-year highs but there are still a lot of potential potholes in the market's way. I urge investors to stay cautious and not get overly confident.

I'm not adding any new trades tonight. We just had three watch list candidates (EMN, SCHW, and SPRD) jump to the play list. Plus, it looks like CVX and WFC are about to join the play list soon.

Here is 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:

OPEN, BRCM, EXPE, GD, CCJ, FBHS, T, RCL, PHM, RYL, RL, PAYX, CLB, OSK, RHT, SLV, ADP, JJC, BTU, ANR, CMP,


Play Updates

New Multi-Year Highs

by James Brown

Click here to email James Brown

Editor's Note:

Stocks rallied on news regarding the ECB's new bond-buying program. Several of our trades are at new multi-year or all-time highs.

We have updated several stop losses. Plus, EMN, SCHW, and SPRD have moved from the watch list to active trades.


Closed Plays


None. No closed plays this week.


Play Updates


Abbott Labs - ABT - close: 66.69

Comments:
09/08/12 update: ABT is challenging its highs set in early August but has yet to breakout. I would not launch new positions here. Nimble traders might want to consider buying a new bounce on a retest of what should be short-term support near $66.00 or its 50-dma.

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 $ 3.05/ 3.15

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 5.35/ 5.65

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: 33.99

Comments:
09/08/12 update: Most of the major financial stocks posted gains last week. AIG was an exception. Investors were digesting news of AIG's plans to only sell $2 billion worth of its stake in Hong Kong-based insurer AIA Group. Many analysts had been expecting a bigger sale. For the week AIG has continued to churn sideways under resistance near the $35.00 level.

I would expect some more volatility on Monday morning. After the closing bell on Friday the U.S. Treasury announced another sale to sell off part of its stake in AIG. After the financial crash of 2008 the U.S. government bailed out AIG and bought up to 92% of the company's stock. Slowly the U.S. government has been selling off its stake in the company. On Friday the U.S. announced plans to sell another $18 billion of AIG stock. This should reduce the Treasury's stake from 53% of AIG to under 20%, reducing its position as a majority shareholder. AIG has promised to buy $5 billion worth of this sale but no price has been set for the sale but if I had to guess it will be in the $30-35 range.

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 $ 5.10/ 5.25

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.40/ 5.55

09/08/12 Treasury has announced an $18 billion sale of AIG stock
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: 89.90

Comments:
09/08/12 update: Many of the oil stocks were surging higher this past week. APA broke through short-term at its two-week trend of lower highs. Now the stock is testing stronger resistance at the $90.00 level.

I am not suggesting new positions at this time. Please note our new stop loss at $82.90.

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ 87.10, option @ 3.45
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 1.90/ 1.95

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 5.20/ 5.45

09/08/12 new stop loss @ 82.90
08/18/12 new stop loss @ 81.40

Current Target: $109.00
Current Stop loss: 82.90
Play Entered on: 06/18/12
Originally listed in the New Plays 06/16/12


Bank of America - BAC - close: 8.80

Comments:
09/08/12 update: Financial stocks soared on the ECB news this past week. Shares of BAC are exploding higher with a +10% move in just the last two days. This breakout past the $8.00-8.25 level looks pretty bullish. So much so that I would consider buying 2014 calls on a dip back to the $8.50-8.40 area.

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 $ 0.30/ 0.31
(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 $ 0.30/ 0.31
(no stop loss on this position)

09/08/12 BAC is breaking out. Consider buying 2014 calls on a dip near the $8.50-8.40 area
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: 88.10

Comments:
09/08/12 update: CAT came super close to hitting our stop loss on September 5th with a dip to $81.78 before bouncing. Shares have since rebounded sharply higher but there is still resistance in the $90.00 area. I am not suggesting new positions at this time.

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 $ 2.82/ 2.87

- or -

Aug 10, 2012 - entry price on CAT @ 88.26, option @ 7.90
symbol: CAT1418A100 2014 JAN $100 CALL - current bid/ask $ 7.50/ 7.75

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: 57.45

This is a bearish PUT option trade.

Comments:
09/08/12 update: Last week I mentioned my concerns that CHRW could be building a bull-flag consolidation pattern. Well this week's rise past the two-week trend of lower highs doesn't help. On a short-term basis the trend is up. CHRW still has a long-term down trend and I do see potential resistance near $58 and $60. However, most conservative traders will want to seriously consider an early exit right now. I am tweaking our stop loss down to $60.25. I am not suggesting new positions at this time.

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

- Suggested (small) Positions -
May 07, 2012 - entry price on CHRW @ 60.61, option @ 3.00
symbol:CHRW1319M55 2013 JAN $55 PUT - current bid/ask $ 2.30/ 2.45

09/08/12 adjust stop loss to $60.25
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: 60.25
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12


Discover Financial - DFS - close: 38.47

Comments:
09/08/12 update: DFS must be one of the few financial stocks that did not rally this past week. The action on September 5th has produced a short-term bearish reversal. I could not find any news behind the relative weakness. Thus far the stock has not confirmed the bearish reversal pattern. The larger trend is up but momentum has definitely stalled with a two-week move sideways.

I am surprised that DFS didn't hit new highs since there was speculation chatter that Wells Fargo (WFC) might decided to acquire DFS. 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 $3.20/3.40

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $4.40/4.70

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: 34.75
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12


Eastman Chemical Co. - EMN - close: 57.37

Comments:
09/08/12 update: EMN is a watch list candidate that has graduated to our active trade list. EMN had major resistance in the $55-56 area. Our plan was to wait for EMN to close over $56.00 and then buy calls the next day. Shares met our requirement on Thursday thanks to the market-wide rally. EMN closed at $56.68 on Sept. 6th. Our trade opened on Friday morning with EMN at $56.64. I would still consider new positions now or you could wait for a new dip near $56.00 as your entry point. EMN is currently trading at record, all-time highs.

Our long-term target is to exit our 2014 calls when EMN hits $69.00.

- Suggested Positions -
SEP 07, 2012 - entry price on EMN @ 56.64, option @ 2.50
symbol: EMN1319a60 2013 JAN $60 call - current bid/ask $2.45/2.60

- or -

SEP 07, 2012 - entry price on EMN @ 56.64, option @ 5.55
symbol: EMN1418a65 2014 JAN $65 call - current bid/ask $5.20/5.70

Chart of EMN:

Current Target: $69.00
Current Stop loss: 52.40
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/18/12


HollyFrontier Corp. - HFC - close: 39.53

Comments:
09/08/12 update: HFC underperformed the broader market and the energy sector with a slow fade lower this past week. Shares look poised to correct. I would expect a dip to short-term support near $38 and its 50-dma. If that level fails then we could see HFC hit our stop loss at $36.90. I am not suggesting new positions at this time.

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 $2.50/2.60

- or -

AUG 17, 2012 - entry price on HFC @ 40.50, option @ 5.00
symbol: HFC1418A44.5* 2014 JAN $44.50 call - current bid/ask $4.70/5.60

*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: 33.93

Comments:
09/08/12 update: Homebuilding stocks were showing relative strength this past week. LEN rallied to new multi-year highs and broke through resistance near $33.00. I am not suggesting new positions at this time. Readers may want to take profits early ahead of the company's earnings report. Unfortunately, I don't see a confirmed earnings date but LEN should announce within the next two weeks.

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 $2.72/2.78

- or -

AUG 17, 2012 - entry price on LEN @ 32.72, option @ 3.39
symbol: LEN1418A40 2014 JAN $40 call - current bid/ask $3.90/4.10

09/08/12 readers may want to take profits early ahead of LEN's upcoming earnings report (which is expected some time in the next two weeks)

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: 46.65

Comments:
09/08/12 update: LLY has been rushing higher these last three weeks with a surge to new three-year highs. The stock is very short-term overbought and due for a correction. Readers will want to seriously consider taking profits right here!

I am not suggesting new positions. We will raise our stop loss to $42.75.

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 $ 4.35/ 4.55

09/08/12 readers may want to take profits right here after another strong week
09/08/12 new stop loss @ 42.75
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: 42.75
Play Entered on: 01/05/12

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


Monsanto Co. - MON - close: 89.39

Comments:
09/08/12 update: The broad-based market rally helped push MON past its three-week trend line of lower highs. This is a bullish breakout but MON is still facing resistance at the $90.00 level. I am not suggesting new positions at this time. We will raise our stop loss to $83.75.

- Suggested Positions -
Jul 17, 2012 - entry price on MON @ 85.84, option @ 4.35
symbol: MON1319A90 2013 JAN $90 call - current bid/ask $ 4.80/ 4.90

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - current bid/ask $ 6.95/ 7.05

09/08/12 new stop loss @ 83.75
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: 83.75
Play Entered on: 07/17/12
Originally listed on the Watch List: 07/14/12


Merck & Co - MRK - close: 44.05

Comments:
09/08/12 update: The pullback on Friday left MRK to settle with a one-dollar gain for the week. Traders have been buying the dip near MRK's rising 50-dma. The breakout on Thursday is definitely short-term bullish but I would not launch new long-term positions here. 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 $ 5.70/ 5.80

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: 30.95

Comments:
09/08/12 update: MSFT saw a bullish breakout past resistance at $31.00 on Thursday. Unfortunately the stock gave back -1.2% on Friday thanks in part to an earnings warning from Intel (INTC). Intel said PC sales are not meeting expectations and that could foreshadow trouble for MSFT. Of course investors have been betting on the new Windows 8 operating system, set to be released later this year, to start the next upgrade cycle for MSFT's revenues.

The tablet PC is having a big impact on computer use both at work and at home. MSFT has not launched its Surface (tablet pc) product yet but the company is betting on a surge for tablet sales. A recent article on the subject said MSFT believes tablets will outsell desktop PCs in 2013.

I would be tempted to buy 2014 calls if MSFT can close over $31.35 again.

- Suggested Positions -
Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 1.69
symbol:MSFT1319A30 2013 JAN $30 call - current bid/ask $ 2.09/ 2.12

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.85/ 3.90

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: 72.10

Comments:
09/08/12 update: PEP underperformed the market this past week but traders bought the dip at technical support. The stock has been bouncing at its rising 50-dma for months now and investors just bought the dip again. I do see very short-term resistance near the $72.50 level.

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 $ 3.40/ 3.55

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: 24.24

Comments:
09/08/12 update: The stock market's breakout on Thursday helped PFE breakout from its four-week consolidation pattern. The stock is closing in on its multi-year high set in late July near $24.50.

I am raising our stop loss to $21.90. More conservative traders may want to use a stop closer to $22.50 or even $23.00 instead. 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 $ 1.69/ 1.73

09/08/12 new stop loss @ 21.90
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: 61.93

Comments:
09/08/12 update: Thursday's big bounce in QCOM helped snap a two-week losing streak. Yet QCOM underperformed on Friday, possibly in reaction to Intel's earnings warning. QCOM could see some volatility following Apple's event (AAPL) on Sept. 12th. Shares of AAPL typically see a sell-off after a big product launch and QCOM could follow it lower. Look for support near $60.00. 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 $ 2.44/ 2.48

- or -

Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 4.75
symbol:QCOM1418A70 2014 JAN $70 call - current bid/ask $ 4.95/ 5.10

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


Charles Schwab Corp. - SCHW - close: 14.03

Comments:
09/08/12 update: SCHW is a watch list candidate that has made the leap to our active trade list. We have been waiting for shares to close over $13.60. The plan was to buy calls the next day. SCHW had been consolidating sideways under resistance near $13.50 and was building up steam for a breakout higher. Then the market exploded higher on the ECB news this Thursday and SCHW shot a lot higher than we expected. The stock closed at $13.96 on the 6th. Our trade opened on Sept. 7th at $13.97. SCHW looks bullish here but I would wait for a dip back toward the $13.65 area before launching new positions.

I am raising our stop loss to $12.90. Our long-term target is $15.50 (exit the 2014 calls when SCHW hits $15.50).

- Suggested Positions -
Sep 07, 2012 - entry price on SCHW @ 13.97, option @ 1.90
symbol:SCHW1319a12.5 2013 JAN $12.5 call - current bid/ask $ 1.85/ 1.95

- or -

Sep 07, 2012 - entry price on SCHW @ 13.97, option @ 1.60
symbol:SCHW1418a15 2014 JAN $15 call - current bid/ask $ 1.35/ 1.55

Chart of SCHW:

Current Target: $15.50
Current Stop loss: 12.90
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/18/12


Spreadtrum Communications - SPRD - close: 21.78

Comments:
09/08/12 update: SPRD was a big move this past week with a breakthrough key resistance near $20.00. SPRD was a watch list candidate that met our entry requirements with Thursday's close above $20.50 (actual close was $20.59). Our trade opened on Friday morning when shares opened at $20.59 and surged another +5.7%.

I am not suggesting new positions after Friday's rally. Wait for a dip back toward $21.00 or $20.50 before considering new positions.

Our stop loss is still at $18.90. Our target is $24.00.

- Suggested Positions -
Sep 07, 2012 - entry price on SPRD @ 20.59, option @ 1.95
symbol:SPRD1319a22.5 2013 JAN $22.5 call - current bid/ask $ 2.15/ 2.50

Chart of SPRD:

Current Target: $24.00
Current Stop loss: 18.90
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/25/12


Skyworks Solutions - SWKS - close: 31.16

Comments:
09/08/12 update: SWKS rallied to another new 52-week high and confirmed the breakout past resistance at $30.00. Our trade opened on Tuesday morning when SWKS gapped down at $29.85. Traders bought the dip twice near its rising 30-dma and then SWKS rallied with the market on Thursday. I would still consider new positions on a dip near $30.50.

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 @ 29.85, option @ 3.10
symbol:SWKS1319A32 2013 JAN $32 call - current bid/ask $ 3.30/ 3.40

- or -

Sep 04, 2012 - entry price on SWKS @ 29.85, option @ 5.85*
symbol:SWKS1418a35 2014 JAN $35 call - current bid/ask $ 5.80/ 6.10

09/04/12 trade opened with SWKS' gap down at $29.85
09/01/12 SWKS hit our entry conditions on Friday 08/31/12, open positions on Tuesday morning (09/04/12).

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: 45.85

Comments:
09/08/12 update: TJX's performance this past week was pretty disappointing. The market is surging higher and TJX did not participate. Shares just continued to drift sideways. That doesn't bode well. Granted the stock is at all-time highs. It's probably due for a correction. Due to TJX's lack of movement this past week more conservative traders with the 2013 calls may want to seriously consider an early exit right now.

I am raising our stop loss up to $42.40. 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 $ 2.95/ 3.10

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 5.80/ 6.10

09/08/12 new stop loss @ 42.40, readers with the 2013 calls may want to exit early now
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: 43.64

Comments:
09/08/12 update: Shares of TWX are sprinting higher again. This past week the stock garnered an upgrade. Combine that with the market's rally and TWX has advanced to a new multi-year high. I am raising our stop loss to $39.85. More conservative traders may want to adjust their stop closer to $41.00 instead. I am not suggesting new positions.

- Suggested Positions -
Aug 03, 2012 - entry price on TWX @ 40.66, option @ 1.79
symbol: TWX1319A42 2013 JAN $42 call - current bid/ask $ 3.05/ 3.15

- or -

Aug 03, 2012 - entry price on TWX @ 40.66, option @ 2.85
symbol: TWX1419A45 2014 JAN $45 call - current bid/ask $ 4.05/ 4.20

09/08/12 new stop loss @ 39.85
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: 39.85
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12


Union Pacific Corp. - UNP - close: 122.25

Comments:
09/08/12 update: The transportation sector is still underperforming the market but the group did see a big bounce Thursday and Friday. UNP broke down under support near $120 and its 50-dma on Wednesday only to reverse higher with the market's rally. UNP still has a short-term, three-week bearish trend of lower highs. 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 $ 2.91/ 3.05

- or -

Jul 20, 2012 - entry price on UNP @ 122.10, option @ 6.40
symbol: UNP1418A140 2014 JAN $140 call - current bid/ask $ 6.45/ 7.00

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: 38.73

Comments:
09/08/12 update: URBN continues to show strength. The stock is nearing its February 2011 highs and hit $39.08 on Friday. Readers may want to go ahead and take profits now. Our exit target is $39.50. I am raising our stop loss to $36.40. 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 $ 5.30/ 5.50

- or -

Aug 21, 2012 - entry price on URBN @ 36.82, option @ 5.20*
symbol:URBN1319C35 2013 MAR $35 call - current bid/ask $ 6.00/ 6.20

09/08/12 new stop loss @ 36.40. readers may want to exit now to lock in a gain
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

Current Target: $39.50
Current Stop loss: 36.40
Play Entered on: 08/21/12
Originally listed on the Watch List: 08/18/12


U.S. Bancorp - USB - close: 33.98

Comments:
09/08/12 update: The rally in financials last week pushed USB toward resistance near $34.00 and its July 2012 highs. The stock looks poised to breakout. I would be tempted to use a close over $34.00 as a new entry point to buy the 2014 calls.

- Suggested Positions -
Jul 20, 2012 - entry price on USB @ 33.62, option @ 1.39
symbol: USB1319A35 2013 JAN $35 call - current bid/ask $ 1.08/ 1.11

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 3.15/ 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: 129.71

Comments:
09/08/12 update: Visa suffered a slow, three-week correction in August. Then traders started buying the dips at its rising 50-dma. Now Visa appears to be on the advance again. This recent move higher looks like 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 $ 4.80/ 4.95

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $12.25/12.75

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

Healthcare, Cruises, and Specialty Retail

by James Brown

Click here to email James Brown

Editor's Note:

We had three watch list candidates jump to the play list. It looks like CVX and WFC are about to meet our entry point requirements and could be new plays soon.



New Watch List Entries

AMED - Amedisys Inc.

CCL - Carnival Corp.

OMX - OfficeMax


Active Watch List Candidates

CVX - Chevron Corp.

GLD - Gold ETF

ROST - Ross Stores

UIS - Unisys Corp.

WFC - Wells Fargo

WMT - Wal-Mart Stores


Dropped Watch List Entries

EMN, SCHW, SPRD all graduated to the play list.



New Watch List Candidates:


Amedisys Inc. - AMED - close: 15.84

Company Info

AMED provides home healthcare and hospice services. The stock has spent months building a base in the $10-15 zone. More recently the consolidation narrow into the $14-15 zone. The recent breakout looks bullish. I'd rather buy calls on a dip.

I am suggesting we wait and buy calls on a dip at $15.05. We'll use a stop loss at $13.45. Our target is $19.50. Please note that AMED does have the January 2013 calls but I am suggesting the March 2013 calls instead.

Buy-the-Dip trigger: $15.05 *Small Positions* (stop 13.45)

BUY the 2013 Mar $15 call (AMED1316c15) current ask $2.83

Chart of AMED:

Originally listed on the Watch List: 09/08/12


Carnival Corp. - CCL - close: 37.05

Company Info

CCL operates several cruise lines, notably the Carnival Cruise line brand. After spending months and months churning sideways it looks like all the bad news about a slowing global economy has been priced in because shares are breaking out. CCL has seen a big two-day move so we don't want to chase it here.

I am suggesting we wait and buy calls on a dip at $35.50 with a stop loss at $32.75. Our long-term target is $42.00. FYI: The point and figure chart is bullish with a $48 target.

NOTE: Readers may also want to check out shares of RCL, which have a similar pattern.

Buy-the-Dip trigger: $35.50 (stop loss @ 32.75) *Small Positions*

BUY the 2014 Jan $40 call (CCL1418a40) current ask $3.70

Chart of CCL:

Originally listed on the Watch List: 09/08/12


OfficeMax Inc. - OMX - close: 6.57

Company Info

Shares of this specialty retailer appear to be rising out of limbo. The stock has been basing in the $4.00-6.00 zone for over a year. The recent breakout looks like a new buy signal. However, after a several-day run we don't want to chase it.

I am suggesting we wait and buy a dip at $6.05 with a stop loss at $5.45. Our long-term target is $9.50.

Buy-the-Dip trigger: $6.05 (stop 5.45) *Small Positions*

BUY the 2014 Jan $7 call (OMX1418a7) current ask $1.55

Chart of OMX:

Originally listed on the Watch List: 09/08/12


Active Watch List Candidates:



Chevron Corp. - CVX - close: 114.00

Comments:
09/08/12 update: It looks like CVX will soon be a new play. The market's rally has lifted CVX to a new high, right to $114.00. Yet not over $114.00. Our plan says wait for CVX to close over $114.00 and then buy calls the next day. Aggressive traders could go ahead and jump in. We will wait.

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)

09/07/12 CVX closed at $114.00. Wait for a close over $114.00.
Current bid/ask on our option is $5.75/5.90.

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


SPDR Gold ETF - GLD - close: 168.44

Comments:
09/08/12 update: The potential for both QE and stimulus from both the U.S. and Europe is sending gold higher. The GLD did not see the pullback we were hoping for. Instead the ETF has continued to march higher. I still don't want to chase it. However, we will raise our buy-the-dip trigger from $162.00 to $164.00.

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: $164.00 (stop loss @ 154.40)

BUY the 2013 Jan $175 call (GLD1319a175)

- or -

BUY the 2014 Jan $200 call (GLD1418a200)

09/08/12 adjust the buy-the-dip trigger to $164.00 (up from $162)

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


Ross Stores, Inc. - ROST - close: 68.13

Comments:
09/08/12 update: ROST may not survive another week on our watch list. Not only did shares fail to rally with the market but ROST is actually showing relative weakness. The long-term trend is still up but ROST looks poised to break technical support at the rising 50-dma.

If ROST doesn't improve soon we'll drop it. 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


Unisys Corp. - UIS - close: 22.37

Comments:
09/08/12 update: The market's widespread gains have helped lift UIS toward its mid August highs but quite past its August highs. I am willing to wait for a pull back toward likely support at $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: 35.00

Comments:
09/08/12 update: WFC could soon be a new trade for us. Financials rallied sharply last week. WFC traded to $35.19 intraday on Friday but settled at $35.00. Our plan says to wait for WFC to close above $35.00 and then buy calls the next day with a stop loss at $32.75. Obviously more aggressive traders could jump in now.

Our starting target is $39.85. 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


Wal-Mart Stores - WMT - close: 73.82

Comments:
09/08/12 update: The market's broad-based gains have lifted WMT back toward its recent resistance near $75.00. You'll notice that WMT shot lower on Friday. I am not willing to chase it here. I told readers that this was probably too early to put WMT on our watch list since we're waiting for a significant correction lower.

If WMT can close over $75.00 we'll re-evaluate our plan.

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)

- or -

BUY the 2014 Jan $70 call (WMT1418a70)

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