Option Investor
Newsletter

Daily Newsletter, Sunday, 9/23/2012

Table of Contents

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

Leaps Trader Commentary

Will We See Window Dressing?

by James Brown

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The U.S. markets took some time off to rest after the QE-infinity party the prior week. We were fortunate that "resting" only meant a sideways consolidation to digest gains instead of a correction lower. That's especially true given the sell-off in the transportation sector this past week, which fell -5.8% and closed at new six-week lows. FedEx (FDX) is partly to blame with the company lowering guidance. It's usually not a good sign for an economic bellwether like FDX to issue a warning. On the other hand we did see shares of Apple (AAPL) top $700 a share on the launch of its iPhone 5.

Overall it was a low volume week but that changed on Friday with volume surging due to a quadruple witching expiration and a rebalancing of the S&P 500 index. Throughout the year there are stock buybacks, stock splits, mergers, and secondary offerings. The index rebalances to help bring the size of its components back into alignment. On Friday that meant there were 350 stocks that index funds needed to buy and 140 they needed to sell to rebalance the fund to match the adjusted index.

Gold was garnering some positive comments last week. Multiple analysts were raising or reaffirming their very bullish price targets. Currently we're in a global QE environment with multiple nations printing money. All this extra currency means it takes more dollars, euros, yen, and yuans to buy the same ounce of gold. One firm expects gold to reach $2,000 an ounce within the next nine months. Another analyst is suggesting $2,000 within six months and $2,400 by the end of 2014. One Bank of America analysts suggested gold could rally into the $3,000 to $5,000 an ounce range over the next few years. Gold ended the week around $1,790 an ounce. If you agree with these analysts and think gold is going higher let me remind you that nothing moves in a straight line for very long. There will be corrections. After a sharp multi-week rally in gold I would expect a dip sooner rather than later.

It was a relatively busy week for economic data. The New York Empire State manufacturing survey fell to its worst level since April 2009 with a reading at -10.4. That's down from -5.9 the prior month. Countering that was the Philly Fed survey for September, which came in at -1.9. That is up from last month's -7.1. The real estate market is showing improvement. The NAHB housing market index rose to 40 in September, which was above estimates and better than August' 37. Building permits were just a little better than expected coming in at an annual pace of 803,000. Housing starts came in at an annual pace of 750,000 compared to a downward revised 733,000 the prior month. Existing home sales surged to an annual pace of 4.82 million versus estimates of 4.58 million. One of the biggest positives for the real estate sector this past week was earnings from builder KB Home (KBH). KBH said their average price was improving, home deliveries improved, and they were seeing significant improvement in California, which has been a trouble spot for the industry.

In other news the situation with Iran continues to boil. This past week stories were circulating that Iran was targeting the websites of American firms like Bank of America, Citigroup, and JPMorganChase with denial of service attacks. So if you tried to log into your account and couldn't succeed now you know why. While the "attacks" are ongoing it seems the banks have managed to find a workaround to reduce the impact of Iran's aggressive actions. Iran claims this is retribution for the sanctions currently in place against their country.

Major Indices:

The S&P 500 index spent most of the week churning sideways inside the 1455-1465 zone. There was a spike down on Thursday morning but traders immediately bought the dip at the 1450 mark. Technically the S&P 500 remains inside the top half of its rising bullish channel (see chart). Can it rally from here? Of course it can but I'd rather see a pullback and a retest of 1440 as support again. That may not happen. We're about to enter the last week of September and that means it's the last week of the third quarter. Odds are good, with the major indices near multi-year highs, the markets will see some window dressing so the quarterly statements from your mutual funds will looks healthy and in the "right" stocks.

The levels to watch have not changed. There is potential resistance at 1480 but the real level to watch overhead is probably the 1500 mark, which could prove to be a tough level to crack. We just saw a bounce at 1450 but I'd still look for stronger support at 1440 and 1420.

chart of the S&P 500 index:

The NASDAQ spent the week churning sideways between 3150 and 3200. The fact that it did not see any serious profit taking is a positive, especially considering the weakness in the semiconductor sector this past week. Odds are pretty good, with what could be a week of window dressing in front of us, that the NASDAQ will breakout to new multi-year highs. The levels to watch are 3200 and 3250 as resistance. The 3150 and 3100 levels are short-term support.

chart of the NASDAQ Composite index:

The small cap Russell 2000 was the weakest of the major indices with a -1% pullback for the week. This isn't too surprising. The $RUT had rallied right to its all-time high near 868 so a pullback from resistance is common. I can't guarantee the dip is over but the general trend is still up. We can look for support near 840 and resistance at its highs near 868.

If the $RUT can breakout to new record highs above 868 I would not be surprised to see it run towards the 890-900 area.

Daily chart of the Russell 2000 index

The Dow Jones Transportation average is not helping the bulls. The sector index has reversed sharply this past week. Another earnings warnings from FedEx (FDX) and a new one from Norfolk Southern (NSC) certainly didn't help the industry. Now the index is at a new six-week low. The $TRAN is short-term oversold at this point but it can always go lower.

Daily chart of the Dow Jones Transportation Average

This week we will get another look at consumer confidence and sentiment. We'll also see more reports on the real estate sector. Nothing is really very market moving but the next estimate on Q2 GDP and the Chicago PMI could influence the market if they are too far off the estimate. ECB President Mario Draghi could make headlines when he speaks in Germany on the 25th.

Previously we were expecting the IMF to release their next review on the country of Greece. Yet there are now reports that the U.S. has actually asked the IMF to postpone releasing their review until after the U.S. presidential election to avoid any unnecessary economic distress the report might cause.

Economic and Event Calendar

- Monday, September 24 -
(nothing significant)

- Tuesday, September 25 -
Case-Shiller 20-city home price index
Consumer Confidence
ECB President speech

- Wednesday, September 26 -
New Home Sales

- Thursday, September 27 -
Weekly Initial Jobless Claims
Durable Goods Orders
Second Quarter (U.S.) GDP (3rd) estimate
Pending Home sales

- Friday, September 28 -
Personal Income & Spending
Chicago PMI
Michigan (consumer) Sentiment (final reading for September)

The Week Ahead:

Looking ahead we could see a lot more headlines out of Europe. Spain was making news late last week as they work on potential reforms. Spain is trying to get things in order before asking the ECB/IMF for additional bailout help. That's pretty amazing just by itself. For the last two years we've heard that Spain and its $1.5 trillion economy is just too big to bailout. Yet it seems like Spain is about to ask for one.

Shorter-term I would not be surprised to see a dip on Monday. The Dow Industrials have been negative 14 out of the last 15 Mondays. Yet I would expect traders to buy that dip. I mentioned window dressing early. Not only could the markets see window dressing before the third quarter ends on Friday, September 28th but the end of October is also yearend for many mutual funds, that could also fuel more window dressing.

In summary, the market's trend is up. The major indices are relatively close to multi-year or all-time highs. They could see a dip but odds are smart money will be buying any dips this week. Window dressing could drive new highs. Potential catalysts for the bears would be negative news out of Spain and disappointing Q3 earnings results. The Q3 earnings season should start in about three weeks.

We will see another jobs report in about two weeks. The presidential election in the U.S. is just six weeks away. Don't forget to register to vote!

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The stock market spent a week churning sideways as it digested the QE-inspired rally the week before. Stocks could easily continue this sideways churn but odds are good the market will see some window dressing as we enter the last week of the third quarter.

SWKS hit our stop loss.

I am suggesting we take profits on part of our ABT and TWX trades. Please see our play updates for details.

MDR has graduated from the watch list to active trades.

I have adjusted stop losses on: ABT, CHRW, LEN, LLY, MON, MRK, MSFT, PEP, PFE, TWX

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

Make the Market Work

by James Brown

Click here to email James Brown

Editor's Note:

(September 22, 2012)

We are bullish on the market. There is a good chance that stocks will march higher this week thanks to end of quarter window dressing. Yet stocks are starting to look overbought here with a big rally from its early September lows.

Instead of adding new trades tonight I'd rather make the market work for us and use the watch list to trigger new trades this week. We added two new candidates to the watch list with GE and JPM.

I was tempted to add CVLT as a new bullish play with its breakout past resistance near $55.00. More aggressive traders may want to consider new positions now. I've also got my eye on SIRI and a close over $2.65 as a possible entry point.

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:

SIRI, KMB, RCL, LEN, CL, OMX, OSK, FTR, LUK, BRK.B, OPEN, WMT, FCX, PBR, DIS, FDO, JPM, WFM, T, VZ, HAL, VLO, PAYX, CVLT


Play Updates

Raising Stop Losses Again

by James Brown

Click here to email James Brown

Editor's Note:

I am suggesting an early exit for part of our positions in ABT and TWX. See play updates for details. I've also updated several stop losses tonight.


Closed Plays


SWKS hit our stop loss.


Play Updates


Abbott Labs - ABT - close: 69.62

Comments:
09/22/12: Another week, another new high for ABT. Shares are nearing potential round-number resistance at $70.00. After three weeks of gains I suspect this stock is due for a pullback but that may not happen if window dressing keeps the rally going. I am raising our stop loss to $63.75.

The 2013 Jan 65 call has a bid/ask spread of $5.15/5.25. I am suggesting we go ahead and exit our 2013 calls at the opening bell on Monday.

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 $ 5.15/ 5.25

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 6.85/ 7.15

09/22/12 new stop loss @ 63.75
Prepare to exit our 2013 calls on Monday. current bid is $5.15
09/15/12 new stop loss @ 62.75
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: 62.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 06/23/12


Analog Devices, Inc. - ADI - close: 40.32

Comments:
09/22/12: ADI is our new trade from last weekend. Unfortunately the semiconductor stocks underperformed all week and ADI followed the sector lower. Shares of ADI are nearing what should be round number support at $40.00. I would wait for a new bounce off the $40 area before considering new bullish positions.

- Suggested Positions -
SEP 17, 2012 - entry price on ADI @ 41.46, option @ 2.80
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 2.30/ 2.50

Current Target: $49.75
Current Stop loss: 38.75
Play Entered on: 09/17/12
Originally listed in the New Plays 09/15/12


American Intl. Group - AIG - close: 33.63

Comments:
09/22/12: It was not a good week for AIG. The stock is down five days in a row with a move toward the bottom of its prior trading range. The stock should have some support near $31. I am not suggesting new positions at this time. The key level to watch is a breakout and close past the $35.00-35.50 area.

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 $ 4.55/ 4.70

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.80/ 5.00

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: 88.59

Comments:
09/22/12: Ouch! Shares of APA lost almost four points for the week. The stock reversed at the $95 level and the recent close back under $90.00 is bearish. The $90.00 level should have been new support. A sell-off in the price of crude oil probably played a part in APA's pullback. I warned readers to expect some profit taking but this was more than I was expecting.

I am not suggesting new positions at this time.

- Suggested Positions -
Jun 18, 2012 - entry price on APA @ 87.10, option @ 3.45
symbol: APA1319A100 2013 JAN $100 call - current bid/ask $ 1.25/ 1.29

- or -

Jun 18, 2012 - entry price on APA @ 87.10, option @ 6.43
symbol: APA1418A100 2014 JAN $110 call - current bid/ask $ 4.30/ 4.45

09/15/12 new stop loss @ 84.90
09/08/12 new stop loss @ 82.90
08/18/12 new stop loss @ 81.40

Current Target: $109.00
Current Stop loss: 84.90
Play Entered on: 06/18/12
Originally listed in the New Plays 06/16/12


Bank of America - BAC - close: 9.11

Comments:
09/22/12: After a very sharp, two-week, +22% rally, shares of BAC hit some profit taking. I'd say that's pretty normal and told readers to expect a pullback last week. The dip may not be over yet. 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 $ 0.39/ 0.40
(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 $ 0.39/ 0.40
(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: 91.72

Comments:
09/22/12: CAT spent the week churning sideways in a $3 range and closed near the bottom of that range on Friday. I suspect the stock is poised to dip back toward the $90-89 area again. 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 $ 3.85/ 3.95

- or -

Aug 10, 2012 - entry price on CAT @ 88.26, option @ 7.90
symbol: CAT1418A100 2014 JAN $100 CALL - current bid/ask $ 8.45/ 8.65

09/15/12 new stop loss @ 84.75
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: 84.75
Play Entered on: 08/10/12
Originally listed on the Watch List: 07/07/12


CH Robinson Worldwide - CHRW - close: 57.62

This is a bearish PUT option trade.

Comments:
09/22/12: Hmm... CHRW added about 35 cents for the week. While the gain is not very much CHRW should not be gaining at all. The transportation sector is plunging with the Dow Jones transportation average down more than -5% for the week. If CHRW is not going to decline with the sector on the way down then when is CHRW going to decline?

More conservative traders may want to exit early right now. I am not suggesting new positions. We will try and limit our risk by moving the stop loss down to $58.50.

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 $ 2.05/ 2.20

09/22/12 new stop loss @ $58.50, readers may want to just exit early now
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: 58.50
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12


Chevron Corp. - CVX - close: 117.80

Comments:
09/22/12: CVX held up pretty well for the week and closed at another new high. It is worth noting that $118.50 was resistance twice last week. Even though CVX displayed relative strength compared to the rest of the oil sector I am a little cautious on launching new positions. Nimble traders could try buying calls on a new bounce off the $114 level, which should be support.

Our long-term target is $129.00.

- Suggested (small) Positions -
Sep 12, 2012 - entry price on CVX @ 114.23, option @ 5.60
symbol: CVX1418a125 2014 JAN $125 Call - current bid/ask $ 6.25/ 6.50

09/15/12 new stop loss at $109.75
09/12/12 trade opened with CVX at $114.23
09/11/12 CVX closed over $114.00
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.

Current Target: $129.00
Current Stop loss: 109.75
Play Entered on: 09/12/12
Originally listed on the Watch List: 09/01/12


Discover Financial - DFS - close: 38.62

Comments:
09/22/12: Uh-oh! There was no follow through on DFS' breakout higher two weeks ago. Instead shares faded lower and moved back into the $38-39 trading range. I am worried DFS is setting up for a larger correction lower.

More conservative traders may want to take profits now or consider an early exit prior to DFS' earnings announcement on September 27th. The company is due to announce before the opening bell. Wall Street expects a profit of $1.03 a share.

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 $3.00/3.10

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $4.10/4.40

09/22/12 more conservative traders may want to exit right now or before DFS reports earnings on Sep 27th.
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: 57.18

Comments:
09/22/12: EMN retreated from its new high set two weeks ago. I will repeat my prior comments that broken resistance in the $55-56 area should be new support. A dip into this area should be a new entry point to buy calls. More conservative traders could wait for a bounce off this level before initiating positions.

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 $2.20/2.30

- or -

SEP 07, 2012 - entry price on EMN @ 56.64, option @ 5.55
symbol: EMN1418a65 2014 JAN $65 call - current bid/ask $4.90/5.20

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: 41.62

Comments:
09/22/12: HFC lost about 35 cents for the week. I would expect another dip toward the $41 or $40 levels. A bounce off either level can be used as a new bullish entry point.

Earlier Comments:
In the news HFC recently announced a special dividend of 50 cents a share payable on October 2nd to shareholders of record on September 25th. The ex-dividend date was Friday, Sept. 21st, 2012. Once again, the option exchanges have adjusted the strike prices again. They have decreased the strike price by 50 cents. Our 2013 Jan $41.50s are now $41.00s. The 2014 $44.50s are now $44.00s.

Our target is $44.50 for the 2013 calls and $48.50 for the 2014 calls.

- Suggested Positions -
AUG 17, 2012 - entry price on HFC @ 40.50, option @ 2.75
symbol: HFC1319A41** 2013 JAN $41.00 call - current bid/ask $3.50/4.00

- or -

AUG 17, 2012 - entry price on HFC @ 40.50, option @ 5.00
symbol: HFC1418A44** 2014 JAN $44.00 call - current bid/ask $5.50/6.70

** 09/22/12 this past week the option exchanges have adjusted the strike prices again by lowering them another 50 cents to account for HFC's special dividend.
Our 2013 Jan $41.50s are now $41.00s and the 2014 $44.50 calls are now $44.00s.
*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: 37.51

Comments:
09/22/12: LEN's rival KB Home (KBH) just reported earnings. Bullish comments and a better than expected report from KBH helped fuel gains across the sector. LEN has rallied to new multi-year highs. Now the pressure is on for LEN to deliver a bullish report. Lennar is due to announce earnings on Sept. 24th, before the opening bell. Wall Street expects a profit of 27 cents a share. If LEN disappoints we can expect this stock to correct lower.

I am not suggesting new positions at this time. Please note that I am raising the stop loss on this play to $33.40.

Our target for the 2014 calls is still $39.50.

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 -
(target for 2013 calls was hit at $36.00 on 09/14/2012)
AUG 17, 2012 - entry price on LEN @ 32.72, option @ 2.07
symbol: LEN1319A35 2013 JAN $35 call - exit $3.70 (+78.7%)

- or -

AUG 17, 2012 - entry price on LEN @ 32.72, option @ 3.39
symbol: LEN1418A40 2014 JAN $40 call - current bid/ask $5.65/5.85

09/22/12 new stop loss @ 33.40
09/15/12 new stop loss @ 31.40
09/14/12 2013 call target hit at $36.00, option @ 3.70 (+78.7%)
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: 33.40
Play Entered on: 08/17/12
Originally listed on the Watch List: 08/11/12


Eli Lilly - LLY - close: 47.46

Comments:
09/22/12: LLY is still marching higher and shares hit another multi-year high on Friday at $47.76. More conservative traders may want to exit now. Currently our final target for the 2014 calls is $48.50.

I am raising our stop loss to $43.75.

- 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 $ 4.50/ 4.65

09/22/12 new stop loss @ 43.75
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: 43.75
Play Entered on: 01/05/12

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


McDermott Intl. - MDR - close: 12.70

Comments:
09/22/12: As expected shares of MDR produced a pullback. The stock retreated to the $12.50 level and its simple 10-dma. Our trigger to buy calls was hit at $12.55. I would still consider new positions now or you could wait for a new rally past Friday's high at $12.86.

Currently we have a stop loss at $11.45. More conservative traders may want to use a stop loss closer to the $12.00 mark, which should also provide some support. Our target is $14.90. More aggressive traders could aim higher.

- Suggested Positions -
SEP 20, 2012 - entry price on MDR @ 12.55, option @ 2.00
symbol: MDR1418A15 2014 JAN $15 call - current bid/ask $1.80/2.00

Chart of MDR:

Current Target: $14.90
Current Stop loss: 11.45
Play Entered on: 09/20/12
Originally listed on the Watch List: 09/15/12


Monsanto Co. - MON - close: 90.92

Comments:
09/22/12: It was a bullish week for MON. If you were waiting for MON to break through resistance at $90.00 then you got your wish. The move could be used as a new bullish entry point. I am raising our stop loss to $84.75.

FYI: MON is due to report earnings on October 3rd.

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

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - current bid/ask $ 6.90/ 7.15

09/22/12 new stop loss @ 84.75
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: 84.75
Play Entered on: 07/17/12
Originally listed on the Watch List: 07/14/12


Merck & Co - MRK - close: 44.91

Comments:
09/22/12: Traders have continued to buy the dips at MRK's 50-dma. Now the stock is testing its 2012 highs near $45.00. Will MRK breakout or will it reverse into a bearish double top pattern? We don't know yet and more conservative traders may want to go ahead and take profits right now, especially with the bid on our call at $6.25 (+99%).

I am raising our stop loss to $41.85.

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 $ 6.25/ 6.35

09/22/12 new stop loss @ 41.85
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: 41.85
Play Entered on: 06/25/12

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


Microsoft - MSFT - close: 31.19

Comments:
09/22/12: MSFT is virtually unchanged for the week. Thursday's rally to new relative highs was followed with Friday's reversal lower. I am not suggesting new positions at this time. Please note our new stop loss at $29.45.

- Suggested Positions -
Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 1.69
symbol:MSFT1319A30 2013 JAN $30 call - current bid/ask $ 2.10/ 2.12

- or -

Jun 01, 2012 - entry price on MSFT @ 28.50, option @ 3.05
symbol:MSFT1418A30 2014 JAN $30 call - current bid/ask $ 3.75/ 3.85

09/22/12 new stop loss @ 29.45
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: 29.45
Play Entered on: 06/01/12
Originally listed on the Watch List: 04/14/12


Pepsico, Inc. - PEP - close: 70.55

Comments:
09/22/12: PEP is up fractionally for the week. Unfortunately, Friday's performance looks like another bearish reversal on the stock. Actually the recent sideways move and bounce attempt looks like a bear-flag pattern. I am worried about PEP and more conservative traders may want to exit early now.

Please note that I am raising our stop loss to $69.40. 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 $ 2.46/ 2.58

09/22/12 new stop loss @ 69.40, more conservative traders may want to exit early now.
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: 69.40
Play Entered on: 07/02/12
Originally listed on the Watch List: 05/26/12


Pfizer Inc. - PFE - close: 24.51

Comments:
09/22/12: PFE is still bouncing after rebounding off technical support at its 50-dma a few days ago. Shares appear to be breaking out past resistance near $24.50 and its July highs. The long-term trend is up but I would not chase the stock here. I am raising our stop loss to $22.45.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.61/ 1.66

09/22/12 new stop loss @ 22.45
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: 22.45
Play Entered on: 07/18/12
Originally listed on the Watch List: 04/21/12


QUALCOMM Inc. - QCOM - close: 64.26

Comments:
09/22/12: QCOM followed shares of AAPL higher on the iPhone 5 excitement. Now they are following AAPL sideways. Traders were quick to buy the dip on Thursday. If QCOM can breakout past resistance near $65.50 the next challenge is probably the 2012 highs near $68.75. Our exit target is $68.50.

- Suggested Positions -
Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 2.56
symbol:QCOM1319A65 2013 JAN $65 call - current bid/ask $ 3.20/ 3.30

- or -

Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 4.75
symbol:QCOM1418A70 2014 JAN $70 call - current bid/ask $ 5.80/ 5.90

09/15/12 new stop loss @ 59.40

Current Target: $68.50
Current Stop loss: 59.40
Play Entered on: 08/10/12
Originally listed on the Watch List: 08/06/12


Charles Schwab Corp. - SCHW - close: 13.58

Comments:
09/22/12: Ouch! SCHW produced a sharp, four-day plunge that ended with a bounce on Friday. The stock was downgraded twice throughout the week. Short-term the trend is down but bigger picture this just looks like a correction following a multi-week rally.

I am not suggesting new positions at this time.

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 $ 1.45/ 1.55

- or -

Sep 07, 2012 - entry price on SCHW @ 13.97, option @ 1.60
symbol:SCHW1418a15 2014 JAN $15 call - current bid/ask $ 1.10/ 1.35

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: 21.25

Comments:
09/22/12: Traders bought the dip near support at $20.00 again. Yet SPRD is starting to see a trend of lower highs over the last couple of weeks. I am cautiously bullish here.

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 $ 1.70/ 2.10

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


The TJX Companies - TJX - close: 44.55

Comments:
09/22/12: Warning! Investors need to buckle their seat belts and more conservative traders may want to hit the eject button. TJX has been in a long-term up trend since 2011. The stock has not spent more than one day under its simple 50-dma over the past several months. TJX just broke that trend this week. It flirted with technical support at the 50-dma on Wednesday. It closed under it on Thursday and then failed at this moving average on Friday.

More conservative traders will want to exit early on Monday. We will leave our stop loss at $43.40 for now. 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 $ 2.00/ 2.10

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - current bid/ask $ 4.70/ 4.90

09/22/12 TJX looks vulnerable with a close under the 50-dma
09/15/12 new stop loss @ 43.40
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: 43.40
Play Entered on: 06/20/12

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


Time Warner - TWX - close: 45.90

Comments:
09/22/12: TWX rallied to another multi-year high this week. Shares did pullback from their intraday high on Friday of $46.56. It's possible that TWX is starting to get short-term overbought here after a strong three-week rally. I would anticipate a pullback soon. We will raise our stop loss to $40.75.

Plus, we will exit our 2013 Jan $42.00 calls on Monday morning at the open. They currently have a bid of $4.65.

- Suggested Positions -
Aug 03, 2012 - entry price on TWX @ 40.66, option @ 1.79
symbol: TWX1319A42 2013 JAN $42 call - current bid/ask $ 4.65/ 4.75

- or -

Aug 03, 2012 - entry price on TWX @ 40.66, option @ 2.85
symbol: TWX1419A45 2014 JAN $45 call - current bid/ask $ 5.10/ 5.25

09/22/12 new stop loss @ 40.75.
Plan on exiting our 2013 calls on Monday morning at the open
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: 40.75
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12


Union Pacific Corp. - UNP - close: 119.37

Comments:
09/22/12: Transportation stocks crumbled this week. The Dow Jones Transportation average lost more than -5%. UNP is down five days in a row and off -7.0% for the week. Fueling this sell-off is another earnings warning from FDX and a new warning from railroad company Norfolk Southern (NSC).

If there is any follow through lower then UNP will likely hit our stop loss at $117.75 pretty soon. More conservative traders may want to just abandon ship right now. I am not suggesting new positions at current levels.

- Suggested Positions -
Jul 20, 2012 - entry price on UNP @ 122.10, option @ 3.80
symbol: UNP1319A130 2013 JAN $130 call - current bid/ask $ 1.74/ 1.83

- or -

Jul 20, 2012 - entry price on UNP @ 122.10, option @ 6.40
symbol: UNP1418A140 2014 JAN $140 call - current bid/ask $ 5.15/ 5.60

09/15/12 new stop loss @ 117.75
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: 117.75
Play Entered on: 07/20/12
Originally listed on the Watch List: 06/30/12


U.S. Bancorp - USB - close: 33.85

Comments:
09/22/12: Many of the financial stocks corrected lower this week following a three-week rally and USB was no exception. The stock is currently breaking through what should be short-term support at $34.00. If this level fails then the next level of support is the $32.50 area. I will point out that USB's performance on September 13th, 14th and the 17th has created a bearish three-candlestick reversal pattern.

I am not suggesting new positions at this time.

- Suggested Positions -
Jul 20, 2012 - entry price on USB @ 33.62, option @ 1.39
symbol: USB1319A35 2013 JAN $35 call - current bid/ask $ 0.82/ 0.85

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 2.69/ 2.78

09/15/12 new stop loss @ 31.40
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: 31.40
Play Entered on: 07/20/12
Originally listed on the Watch List: 05/19/12


Visa, Inc. - V - close: 135.00

Comments:
09/22/12: It was a quiet week for Visa with the stock only gaining 75 cents but shares remain near their all-time highs. There is short-term support near $132.50 and near $130.00. I am not suggesting new positions at current levels.

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

- Suggested Positions -
JUL 03, 2012 - entry price on V @ 126.49, option @ 5.85
symbol: V1319A135 2013 JAN $135 call - current bid/ask $ 6.50/ 6.70

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $14.35/14.65

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


Wells Fargo & Co - WFC - close: 34.97

Comments:
09/22/12: WFC is another banking stock that is seeing a pullback following the QE-inspired spike higher. Broken resistance in the $34-35 area should be new support. Readers can use this pullback now as an entry point. More conservative traders may want to use a dip near $34.00 or a bounce off the $34 level as a new entry point to buy calls.

FYI: The point & figure chart is bullish with a $57 target.

- Suggested Positions -
SEP 14, 2012 - entry price on WFC @ 35.60, option @ 2.26
symbol: WFC1418a40 2014 JAN $40 call - current bid/ask $ 1.79/ 1.85

Current Target: $44.00
Current Stop loss: 32.75
Play Entered on: 09/14/12
Originally listed on the Watch List: 08/06/12


CLOSED Plays


Skyworks Solutions - SWKS - close: 24.81

Comments:
09/22/12: SWKS is the big disappointment for the week. The company updated its earnings guidance and actually raised it to the high-end of its previous range near $420 million for the quarter. That should have been good news but investors were obviously expecting more. SWKS gapped open lower on Thursday and then plunged all the way from $29.50 (the prior day's close) to $23.27. That's a -21% drop on positive earnings guidance.

Our trade was stopped out on Thursday at $27.40.

- Suggested Positions -
Sep 04, 2012 - entry price on SWKS @ 29.85, option @ 3.10
symbol:SWKS1319A32 2013 JAN $32 call - exit $1.20 (-61.2%)

- or -

Sep 04, 2012 - entry price on SWKS @ 29.85, option @ 5.85*
symbol:SWKS1418a35 2014 JAN $35 call - exit $3.30 (-43.5%)

09/15/12 SWKS's recent performance looks bearish. Investors should turn defensive on SWKS
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).

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



Watch

Industrials & Banking

by James Brown

Click here to email James Brown


New Watch List Entries

GE - General Electric

JPM - JPMorgan Chase


Active Watch List Candidates

AMED - Amedisys Inc.

CCL - Carnival Corp.

DE - Deere & Co.

GLD - Gold ETF

JOY - Joy Global, Inc.


Dropped Watch List Entries

MDR graduated to the play list.



New Watch List Candidates:


General Electric - GE - close: 22.53

Company Info

I was very surprised to see the relative strength in GE considering all of the uncertainty around the health of the global economy. Europe is slowing down. China is slowing down. India is slowing down. The U.S. is improving at a glacial pace. Yet shares of GE, a huge multi-national conglomerate, is climbing to new multi-year highs. Granted most of these nations are all trying to stimulate their economy to improve things.

After a three-week rally we don't want to buy GE now. I am suggesting we wait for a pullback. I am listing a buy-the-dip entry point at $21.50 with a stop loss at $19.75. Our long-term target is $27.50.

Buy-the-Dip trigger: $21.50 (stop 19.75)

BUY the 2014 Jan $25 call (GE1418a25) current ask $1.02

Chart of GE:

Originally listed on the Watch List: 09/22/12


JPMorgan Chase - JPM - close: 40.88

Company Info

JPM is a banking titan. The market's recent rally has pushed shares through significant resistance in the $38 area. We don't want to chase it here. I am suggesting we buy calls on a dip at $38.50 with a stop loss at $35.75. Our long-term target is $45.00.

Buy-the-Dip trigger: $38.50 (stop 35.75)

BUY the 2014 Jan $45 call (JPM1418a45) current ask $2.91

Chart of JPM:

Originally listed on the Watch List: 09/22/12


Active Watch List Candidates:



Amedisys Inc. - AMED - close: 15.11

Comments:
09/22/12: Aside from a very brief spike down on Thursday morning it was a very quiet week for shares of AMED. I am still suggesting we wait for the stock to close over $16.10 before launching positions the following day. If triggered we'll use a stop loss at $13.90 and our target is $19.90. I am also changing the strike to the March 16 call.

Please note that AMED does have the January 2013 calls but I am suggesting the March 2013 calls instead.

Trigger: Wait for a close over $16.10 (stop 13.90)

BUY the 2013 Mar $16 call (AMED1316c16)

09/15/12 strategy change: wait for AMED to close over $16.10, then buy calls the next day. Use the March 2013 $16 call. Raise the stop to $13.90. Move the exit target to $19.90.

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


Carnival Corp. - CCL - close: 37.39

Comments:
09/22/12: Shares of CCL are holding up pretty well. There hasn't been much profit taking. The stock is consolidating sideways in the $37-38 zone. This week I expect CCL to see a lot more volatility. The company is due to report earnings on September 25th, before the opening bell. Analysts are expecting a profit of $1.46 a share. CCL's results and management's guidance could produce big moves on Tuesday.

Due to this potential for volatility following the earnings report I am tweaking our buy-the-dip trigger to $35.25 and adjusting our stop loss to $32.75. Short-term traders might want to consider buying a breakout past $38.00 instead.

Our long-term target is $42.00. FYI: The point and figure chart is bullish with a $48 target.

Buy-the-Dip trigger: $35.25 (stop loss @ 32.75) *Small Positions*

BUY the 2014 Jan $40 call (CCL1418a40)

09/22/12 earnings are due on Sep. 25th. We are adjusting our entry trigger to $35.25 and our stop loss to $32.75
09/15/12 move the trigger to $36.00 and the stop to $33.75

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


Deere & Co. - DE - close: 82.70

Comments:
09/22/12: Deere is still slowing drifting higher. The relative strength is encouraging but we don't want to chase it. I am suggesting we buy calls on a dip at $80.00 with a stop loss at $76.45. Our long-term target is $94.00.

Buy-the-Dip trigger: $80.00 (stop loss 76.45)

BUY the 2014 Jan $90 call (DE1418a90)

Originally listed on the Watch List: 09/15/12


SPDR Gold ETF - GLD - close: 171.96

Comments:
09/22/12: Gold as an investment garnered a lot of bullish analysts comments this past week. Multiple analysts are forecasting gold prices to rally $2,000 an ounce and beyond. One analysts suggested gold could rise into the $3,000 to $5,000 range. The main culprit was our global QE environment with multiple nations printing money, which makes commodities more expensive. Considering all the bullish comments I am surprised that the GLD didn't move very much. After a four-week rally higher a one-week pause isn't a surprise.

I still don't want to chase it. Gold will see a correction eventually and I'd rather buy a pullback. Currently I am suggesting we buy calls on a dip at $165.50. Plan to exit the 2013 calls at $174.50. Exit the 2014 calls in the $185-200 range.

Buy-the-Dip trigger: $165.50 (stop loss @ 159.00)

BUY the 2013 Jan $175 call (GLD1319a175)

- or -

BUY the 2014 Jan $200 call (GLD1418a200)

09/15/12 adjust the trigger to $165.50, stop to $159.00.
09/08/12 adjust the buy-the-dip trigger to $164.00 (up from $162)

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


Joy Global, Inc - JOY - close: 59.41

Comments:
09/22/12: I want to remind readers that JOY can be a volatile stock. Shares have been consolidating sideways near $60.00. I am adjusting our buy-the-dip entry point from $58.50 down to $57.50. We will move the stop loss to $53.90.

More aggressive traders could buy the 2013 calls. I am listing the January 2014 calls. Our long-term target is $78.50.

Buy-the-Dip trigger: $57.50 (stop loss: 53.90)

BUY the 2014 Jan $70 call (JOY1418a70)

09/22/12 adjust entry to buy a dip at $57.50, stop to $53.90

Originally listed on the Watch List: 09/15/12