Option Investor
Newsletter

Daily Newsletter, Sunday, 10/14/2012

Table of Contents

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

Leaps Trader Commentary

Q3 Earnings Season Is About To Hit Full Steam

by James Brown

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Stocks turned lower across the board for the second week of October. It was their worst weekly performance in months. The combination of lowered growth estimates and disappointing earnings results overshadowed somewhat benign and even positive economic data. The major U.S. stock market indices all turned lower with most down -2% for the week or more.

Early in the week the market suffered from lowered growth forecasts from the World Bank and the IMF. The World Bank lowered their 2012 and 2013 growth forecasts for Asia. The IMF adjusted their Chinese 2012 GDP forecasts and global growth forecasts lower. Meanwhile in Europe we saw protests for German Chancellor Merkel's visit to Greece but that was expected.

The economic data was mixed. The Producer Price Index (PPI) is a look at inflation at the wholesale level. September's reading came in at +1.1% versus estimates of +0.8%. This follows a +1.7% rise in August. Normally the PPI only moves a few tenths of a percent. This sudden rise in inflation is a bit alarming. Most of the headline inflation was in food and fuel prices. The core rate, which doesn't count food and gas, came in at +0.0% in September, which was lower than the +0.2% estimate.

There were plenty of headlines regarding the weekly initial jobless claims on Thursday. Last week's report showed a drop to 339,000 new claims. That's the lowest level since early 2008. Unfortunately what the average citizen may not know is that one large, unidentified state was not included in the totals so it's not a clear reading on claims.

Another economic surprise was the University of Michigan's preliminary reading on consumer sentiment for October. Economists were expecting a small decline to 78.5 yet it jumped to 83.1. That's the highest reading for consumer sentiment in five years. Traditionally analysts try to draw a correlation between positive consumer sentiment numbers and higher consumer spending, which is bullish for the U.S. economy.

Countering this positive outlook for consumers was a drop in business confidence. Moody's does a global survey of business confidence every week. The most recent report showed that business owner confidence fell to a 52-week low. That's not too surprising when you consider that China, India, and Europe are all slowing down and U.S. is showing very little growth.

Major Indices:

The S&P 500 is correcting lower again. This index is down six days in a row and lost -2.2% for the week. It broke support at 1440 and possible support at 1430. Friday saw the S&P 500 briefly trade under technical support at the simple 50-dma.

If this decline continues we can look for possible support at 1420 and at the 1400 level. What's is unfortunate is that the current sell-off has broken the bullish channel that started back in June. Plus, the peak in October is looking like a bearish double top.

chart of the S&P 500 index:

The NASDAQ Composite underperformed its big cap peers with a -2.9% decline for the week. The index broke down under 3100, 3080, and its 50-dma. I suggested readers look for potential support at 3040 and that's exactly where the NASDAQ found support on Friday. There is no guarantee the NASDAQ will bounce here and if the sell-off continues we can look for the next likely support level at the 3,000 mark.

We will want to keep an eye on the semiconductor sector index (SOX). The chip stocks are a big component of the NASDAQ and the SOX turned in a terrible -4.3% decline last week. There doesn't seem to be any support nearby for the SOX.

chart of the NASDAQ Composite index:

chart of the Semiconductor Index (SOX):

The small cap Russell 2000 index gave up -2.3% for the week. I cautioned readers to look for a drop to 820 if the correction continued. The $RUT broke through its 50-dma on Friday and the 820 level will probably be tested on Monday. I would honestly expect some sort of bounce at 820 but no one can say how long the bounce might last. If the 820 level fails then the 200-dma and the 800 level are the next spot to look for potential support.

The dotted trend line on the chart below dates back to the October 2011 low.

Daily chart of the Russell 2000 index

This week the economic data will be focused on housing and a couple of Fed surveys (New York and Philadelphia). The real economic headliner will probably be the data out of China, which is released on Thursday. If the Chinese figures come in slower than expected it could spark further selling pressure across the globe.

We will probably see fireworks on Tuesday night's second presidential debate between Obama and Romney. Plus, there is a chance we'll see more fireworks in Europe prior to Greece's next vote on new austerity measures.

The main event this week will be Q3 earnings season, which hits full steam. We'll hear from several large technology and financial firms that could set the tone for the rest of earnings season.

Economic and Event Calendar

- Monday, October 15 -
Retail sales for September
New York Empire State manufacturing survey

- Tuesday, October 16 -
2nd presidential debate (Obama vs. Romney)
Consumer Price Index (CPI) for September
Germany's ZEW economist sentiment reading
Eurozone inflation data

- Wednesday, October 17 -
Housing Starts & Building Permits
Chinese Retail Sales data
Chinese production data
Chinese GDP estimate

- Thursday, October 18 -
Weekly Initial Jobless Claims
Philly Fed survey
Greek Parliament vote on new austerity measures

- Friday, October 19 -
Existing Home Sales for September

Additional Events to be aware of:

Oct. 21st - Spain's regional elections
Oct. 22nd - 3rd presidential debate
Oct. 23rd - FOMC meeting begins two-day meeting

The Week Ahead:

I don't mean to repeat myself but the focus this week should be Q3 earnings results. We're going to hear from a lot of corporations. Right now analysts estimates are dropping. A week ago Wall Street was expecting a -1.9% drop in quarterly earnings. Now that estimate has fallen to -2.1%. Analysts are racing to lower their Q4 earnings estimates as well with consensus Q4 estimates down to +9.6% from +14%. We can probably blame that on the upcoming fiscal cliff, which has yet to be solved and or kicked down the road.

A week ago I warned you that low expectations for earnings results could actually lower the bar so low that corporations might be able to beat estimates and spark a rally. That might be wishful thinking on my part but it has happened before. The key will be corporate guidance and whether it's positive or negative. Executives might turn more cautious on guidance considering the unknowns regarding who might be in the White House and the previously mentioned fiscal cliff.

Background issues that could flare up at any time is the economic meltdown in Greece and Spain, the open warfare in Syria and its escalating tensions with Turkey, and the ongoing drama with Iran and Israel.

Short-term I am expecting more weakness. I looked at a hundreds and hundreds of stocks this weekend and it looks pretty ugly right now with a lot of bearish breakdowns and failed rallies. I suspect that after another week or two of selling the market will find support again. That could be our next entry point for bullish LEAPS positions.

Be patient.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was the worst week in months for the U.S. stock market. Lack of follow through on the early October rebound looks very short-term bearish for the market.

Q3 earnings season is about to hit full swing this week and corporate results are going to produce a lot of volatility for individual names and will definitely influence market direction.

We want to close our PEP trade immediately on Monday morning.

HFC, QCOM, and TJX were all stopped out.

FDO jumped from the watch list to an active trade.

I have adjusted stop losses on: KMB

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

Plenty of Short-term Bearish Trades

by James Brown

Click here to email James Brown

Editor's Note:

(October 13, 2012)

There was no follow through on the early October rebound in stocks. Instead the market has reversed. We're seeing some of the major indices like the S&P 500 and the Russell 2000 index flirt with breakdowns below support. The NASDAQ is also testing support at 3,040. Considering that Q3 earnings results are likely to disappoint investors we could see the sell-off continue.

I looked at nearly 1,500 stocks this weekend. Nothing looks very attractive right now. Honestly, it looks pretty ugly. There are plenty of short-term bearish candidates. Yet nothing I would buy a dip yet. That is probably the upside of this market pullback and any weakness inspired by the Q3 earnings season, is that we should see a better entry point brought about by this decline. Unfortunately, the decline is not over yet.

I suspect we will see stocks trend lower for another week, maybe a week and a half. Then as we approach the end of October and the end of the fiscal year for many mutual funds, the market will likely rebound higher. Thus, tonight I do not see any new trades. We did add two new candidates to our watch list. I have also updated my radar screen with a number of new stock symbols.

I would keep an eye on FAST and MNST. FAST might be a buy on a close above $46.50 or $47.00. MNST might be a higher-risk buy on a close above $60 or its 200-dma. I would also keep an eye on the coal stocks. Many of them have formed what appears to be a significant bottom over the last few months.

Radar Screen:
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:

FAST, GS, ANR, RYL, ESRX, HAS, SCCO, WYNN, PM, MCK, WMT, LLL, MNST, EFX, MAT, WAG, BTU, BRK.B, XCO, OPEN, VLO, NWL, CVC, CL, AON,


Play Updates

Stocks See Widespread Declines

by James Brown

Click here to email James Brown

Editor's Note:

It was a rough week for the market with stocks experiencing a widespread decline. Financials, technology and energy stocks really underperformed.

We saw three trades get stopped out. FDO hit our buy-the-dip trigger on our watch list. I am suggesting an early exit from our PEP trade on Monday morning.


Closed Plays


HFC, QCOM and TJX were stopped out.


Play Updates


Abbott Labs - ABT - close: 69.28

Comments:
10/13/12: ABT was not immune to the market's widespread decline this past week. The first week of October saw shares rally to new highs. The last few days have been a slow correction lower. The company's earnings report is coming up and our risk now is that the stock drops on a disappointing earnings report.

ABT is scheduled to report earnings on Wednesday, Oct. 17th, before the opening bell. More conservative investors will want to consider taking profits prior to the announcement.

I am not suggesting new positions at this time. Our stop loss remains at $67.75. Our exit target for the 2014 LEAPS is $73.00.

- Suggested Positions -
(closed on Sept. 24th)
JUL 02, 2012 - entry price on ABT @ 64.22, option @ 1.91
symbol: ABT1319A65 2013 JAN $65 call - exit $5.10 (+167.0%)

- or -

JUL 02, 2012 - entry price on ABT @ 64.22, option @ 4.28
symbol: ABT1418A65 2014 JAN $65 call - current bid/ask $ 6.70/ 6.90

10/13/12 Readers may want to take profits prior to earnings on Oct. 17th
10/06/12 Strategy update: Plan to exit at $73.00. If that does not happen, plan to exit prior to earnings on Oct. 17th. We are raising the stop loss to $67.75
09/24/12 closed 2013 calls @ $5.10 (+167%)
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:$73.00
Current Stop loss: 67.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 06/23/12


American Intl. Group - AIG - close: 35.46

Comments:
10/13/12: AIG managed another gain for the week but gains were trimmed due to widespread profit taking in the financial sector on Friday. At the moment AIG is consolidating sideways between prior resistance and new support at $35.00 and new short-term resistance at $36.00.

I am not suggesting new positions at this time.

Earlier Comments:
Our plan was to keep our initial position size small to limit our risk. We want to exit our 2013 calls when AIG hits $39.00. We will plan on exiting our 2014 calls when shares hit $42.50.

- 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 $ 5.85/ 5.95

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.25/ 5.45

10/06/12 adjusting our exit targets. Plan on exiting our 2013 calls when AIG hits $39.00. We'll exit our 2014 calls when AIG hits $42.50
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


Bank of America - BAC - close: 9.12

Comments:
10/13/12: BAC delivered a choppy week with the stock churning between $9.00 and $9.40. Investors were disappointed with the earnings reports from rivals JPM and WFC who reported on Friday. BAC is due to report this coming Wednesday, Oct. 17th, before the opening bell. Wall Street is looking for earnings of 13 cents a share.

If BAC disappoints we could see the stock drop back toward the $8.00 level. A breakout higher would likely encounter resistance at $10.00. I am not suggesting new positions at this time.

NOTE: This is a risky earnings report for us this close to the 2013 January option expiration. Readers might want to consider exiting our 2013 call positions prior to the announcement to avoid a disappointment and potential pullback in the stock price.

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 $ 0.34/ 0.35
(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 $ 0.34/ 0.35
(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


Chevron Corp. - CVX - close: 112.07

Comments:
10/13/12: Ouch! CVX lost over five points for the week. On October 9th, after the closing bell, CVX issued an earnings update and investors were unhappy with the news. The company warned that Q3 earnings would be significantly less than Q2 results. The stock gapped open lower on Oct. 10th and fell toward the $112 level. That move also broke down under what should have been short-term support near $115 and its rising 50-dma. Now CVX is headed for the next level of support at $110. Our stop is at $109.75 and we're at risk of getting stopped out if this sell-off continues.

I warned readers last weekend that we were facing a tough earnings season for the energy sector. Given this new information about its earnings results, readers may want to consider an early exit. I suspect we'll see CVX rebound near $110 but I am not suggesting new positions at this time.

- Suggested (small) Positions -
Sep 12, 2012 - entry price on CVX @ 114.23, option @ 5.60
symbol: CVX1418a125 2014 JAN $125 Call - current bid/ask $ 3.80/ 4.00

10/10/12 CVX gaps down following lowered guidance
10/09/12 CVX lowers earnings guidance
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: 38.79

Comments:
10/13/12: DFS spent the week drifting lower. Shares are nearing technical support at its rising 40 and 50-dma. The close under $39.00 is a little bit disappointing since that was short-term support. If DFS closes under the 50-dma (currently @ 38.37) then we're probably looking at a drop toward the late September low near $37.00. I am not suggesting new positions.

We still have the 2014 calls and we're aiming for $44.00.

- Suggested Positions -
(Closed on Sept. 27th)
JUL 05, 2012 - entry price on DFS @ 35.28, option @ 2.15
symbol: DFS1319A37 2013 JAN $37 call - exit $3.70 (+72.0%)

- or -

JUL 05, 2012 - entry price on DFS @ 35.28, option @ 3.40
symbol: DFS1418A40 2014 JAN $40 call - current bid/ask $4.30/4.50

09/29/12 new stop loss @ 35.75
09/27/12 hits our $39.75 target to exit 2013 calls (option @ $3.70)
09/27/12 DFS beats Wall Street's earnings estimates
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
...see prior updates for early comments.

Current Target: $39.75 for the 2013 call2, $44.00 for the 2014s
Current Stop loss: 35.75
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12


Eastman Chemical Co. - EMN - close: 54.25

Comments:
10/13/12: It was a rough week for shares of EMN. The stock lost about five points with declines five days in a row. That is really painful for our 2013 calls. There was nothing specific behind the sell-off. Unfortunately we did see EMN close under its 50-dma. Suddenly the peak in September and the peak in October look like a potential bearish double top pattern.

If EMN breaks down under $54.00 then odds are good we will see the stock fall toward its 200-dma in the $51-52 area. That would mean shares will hit our stop loss at $52.40. More conservative traders may want to tighten their stops instead. I am not suggesting new positions at this time. EMN is due to report earnings on Oct. 25th.

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 $0.90/1.00

- or -

SEP 07, 2012 - entry price on EMN @ 56.64, option @ 5.55
symbol: EMN1418a65 2014 JAN $65 call - current bid/ask $3.50/3.70

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


Family Dollar Stores - FDO - close: 66.40

Comments:
10/13/12: FDO is a watch list candidate that has graduated to our play list. We have been expecting a pullback. The plan was to buy calls on a dip at $66.00. Shares came close to hitting our trigger on Thursday. Then on Friday morning the stock gapped open lower at $65.88, immediately triggering our play. FDO bounced at $65.55 to close up on the session. If you're looking for an entry point then Friday's bounce will work as well. More conservative traders could wait and see if shares dip toward their 50-dma as a possible entry point.

The option bid/ask spreads on the 2014 calls are way too wide to trade so we're using the April 2013 calls. Our target is $74.50.

I have corrected the option symbol (FDO1320a75)

- Suggested Positions -
OCT 12, 2012 - entry price on FDO @ 65.88, option @ 1.70
symbol: FDO1320d75 2013 APR $75 call - current bid/ask $1.55/1.80

Chart of FDO:

Current Target: $74.50
Current Stop loss: 63.45
Play Entered on: 10/12/12
Originally listed on the Watch List: 10/06/12


Joy Global, Inc - JOY - close: 58.44

Comments:
10/13/12: JOY actually posted a gain for the week. Shares retested technical support at the rising 50-dma. Now JOY is trying to push past round-number resistance at $60.00. Given the market's recent weakness I am not suggesting new positions at this time.

- Suggested Positions -
SEP 25, 2012 - entry price on JOY @ 57.50, option @ 7.50
symbol: JOY1418A70 2014 JAN $70 call - current bid/ask $7.20/7.40

09/25/12 triggered on a dip at $57.50
09/22/12 adjust entry to buy a dip at $57.50, stop to $53.90

Current Target: $78.50
Current Stop loss: 53.90
Play Entered on: 09/25/12
Originally listed on the Watch List: 09/15/12


Kimberly-Clark - KMB - close: 85.65

Comments:
10/13/12: KMB, like most of the market, trended lower last week. Shares are back below the $86.00 level. Odds are good, given the market's current down trend, we could see KMB dip toward the $84.50-84.00 area. I would look for a bounce near $84 as a new bullish entry point.

Please note that I am adjusting our stop loss to $82.90. I don't want to see KMB stopped out on an intraday spike lower.

Our long-term target is $99.00.

- Suggested Positions -
OCT 02, 2012 - entry price on KMB @ 86.71, option @ 3.95
symbol: KMB1418A90 2014 JAN $90 call - current bid/ask $3.10/3.40

10/13/12 adjust stop loss to $82.90

Current Target: $99.00
Current Stop loss: 82.90
Play Entered on: 10/02/12
Originally listed on the Watch List: 09/29/12


Lennar Corp. - LEN - close: 35.76

Comments:
10/13/12: It was definitely a down week for LEN with shares falling five days in a row. Traders started buying the dips near its rising 30-dma on Thursday and Friday.

Readers might want to consider raising their stops toward the $34 level. Currently our stop is at $33.40.

I am not suggesting new positions at this time. Our target for the 2014 calls is still $39.50.

- 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 $4.60/4.80

09/24/12 LEN reported earnings, investors sell the news
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%)
...

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


Monsanto Co. - MON - close: 88.57

Comments:
10/13/12: MON retreated from multi-year highs to rest recent support near $88.00. If MON closes under $88 it's going to put the current up trend in jeopardy. The next level of support is $85.00.

I am not suggesting new positions at this time.

- Suggested Positions -
Jul 17, 2012 - entry price on MON @ 85.84, option @ 4.35
symbol: MON1319A90 2013 JAN $90 call - current bid/ask $ 3.40/ 3.45

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - current bid/ask $ 5.55/ 5.70

10/03/12 MON reported earnings
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: 45.62

Comments:
10/13/12: After three weeks of gains MRK pulled back a bit. There is some short-term support near $45.00 and then lower at the 50-dma.

Our exit target remains $47.50. More aggressive traders may want to raise their target.

- Suggested Positions -
Jun 25, 2012 - entry price on MRK @ 39.91, option @ 3.14
symbol: MRK1418A40 2014 JAN $40 call - current bid/ask $ 6.60/ 6.70

10/06/12 readers may want to take profits now with the bid on our call at $7.10. New stop loss @ 42.75
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: 42.75
Play Entered on: 06/25/12

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


Pepsico, Inc. - PEP - close: 70.05

Comments:
10/13/12: I think it's time we abandon ship. PEP has broken down under support at its 100-dma. The bounce failed at this moving average on Friday. Shares look poised to breakdown further.

I am suggesting an immediate exit on Monday morning.

- Suggested Positions -
Jul 02, 2012 - entry price on PEP @ 70.34, option @ 2.85
symbol: PEP1418A75 2014 JAN $75 call - current bid/ask $ 2.10/ 2.18

10/13/12 prepare to exit on Monday morning
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.

Chart of PEP:

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: 25.12

Comments:
10/13/12: The pullback in PFE has been mild. Shares are testing short-term support at the $25.00 mark. If this level breaks the next support level is the 50-dma.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.74/ 1.79

10/06/12 new stop loss @ 23.40
09/29/12 new stop loss @ 22.75
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: 23.40
Play Entered on: 07/18/12
Originally listed on the Watch List: 04/21/12


SIRIUS XM Radio - SIRI - close: 2.78

Comments:
10/13/12: SIRI delivered a strong performance last week. The move was partially fueled by news that SIRI has added 445,000 new subscribers in the third quarter. Analysts were only expecting +336K. SIRI rallied to new multi-year highs. I would be tempted to launch new positions now but it's worth noting that the stock is up four weeks in a row so it might be time for some profit taking. Look for support near $2.60.

Our long-term target is $3.90.

- Suggested Positions -
OCT 04, 2012 - entry price on SIRI @ 2.75, option @ 0.38
symbol:SIRI1418A3 2014 JAN $3.00 call - current bid/ask $ 0.36/ 0.40

- or -

Buy the Stock: Entry @ $2.75 on Oct. 4th, 2012

Current Target: $ 3.90
Current Stop loss: 2.29
Play Entered on: 10/04/12
Originally listed on the Watch List: 09/29/12


Spreadtrum Communications - SPRD - close: 20.48

Comments:
10/13/12: SPRD ended a two-week losing streak thanks to a big bounce on Friday. Shares are on the verge of breaking through the four-week trend of lower highs. At this point I would wait for a close over $21.00 before considering new positions.

- 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 $ 1.35/ 1.55

10/06/12 SPRD looks vulnerable. Investors may want to exit early

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


Time Warner - TWX - close: 45.06

Comments:
10/13/12: I am urging caution on TWX. The sharp pullback this past week has created what might be the second half to a bearish double top. On top of that last week's decline has create what almost looks like a bearish engulfing candlestick reversal pattern on the weekly chart. Odds of further weakness are probably pretty high. The question is where will TWX find support? The $44 level or the 50-dma could offer some support. Prior resistance near $43.00 from August could offer support. Readers may want to consider an early exit now to lock in gains. I am not suggesting new positions at this time.

- Suggested Positions -
(closed 2013 call on Sep 24th)
Aug 03, 2012 - entry price on TWX @ 40.66, option @ 1.79
symbol: TWX1319A42 2013 JAN $42 call - exit $4.55 (+154.1%)

- or -

Aug 03, 2012 - entry price on TWX @ 40.66, option @ 2.85
symbol: TWX1419A45 2014 JAN $45 call - current bid/ask $ 4.40/ 4.55

10/06/12 new stop loss @ 42.45
09/24/12 closed 2013 calls at the open ($4.55, +154.1%)
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: 42.45
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12


U.S. Bancorp - USB - close: 33.72

Comments:
10/13/12: Financials were showing weakness last week. Friday was a bad day for the sector. Investors were unhappy with earnings results from JPM and WFC, who both reported Q3 results on Friday. That helped send shares of USB to new four-week lows and its 50-dma.

USB is scheduled to report earnings on Oct. 17th, announcing before the opening bell. Wall Street expects a profit of 74 cents a share. If USB disappoints we could see this stock dip to the $32 level. 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 $ 0.77/ 0.79

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 2.56/ 2.64

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: 139.12

Comments:
10/13/12: Shares of Visa are holding up pretty well. Two weeks ago the stock had surged to new highs. V could have seen significant profit taking this past week but traders bought the dip near $136.00 and V trimmed its losses for the week.

More conservative traders may want to adjust their stop loss higher or consider taking profits early if you have the 2013 calls. 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 $ 8.60/ 8.75

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $15.95/16.65

10/13/12 readers may want to take profits early if you're holding the 2013 calls.
10/06/12 new stop loss @ 129.00
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: 129.00
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12


Wells Fargo & Co - WFC - close: 34.25

Comments:
10/13/12: Financials were pulling the market lower most of the week but the decline accelerated on Friday as investors reacted to earnings news. WFC reported before the opening bell on Friday. The company actually beat the 87-cent estimate by one cent yet revenues missed expectations. Investors decided to sell the news. WFC gapped open lower on Friday at $33.84 but closed up off its worst levels of the day after testing the 100-dma.

On a short-term basis I would expect WFC to try and fill the gap down. I am not suggesting new positions at this time.

- Suggested Positions -
SEP 14, 2012 - entry price on WFC @ 35.60, option @ 2.26
symbol: WFC1418a40 2014 JAN $40 call - current bid/ask $ 1.49/ 1.54

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


HollyFrontier Corp. - HFC - close: 37.37

Comments:
10/13/12: The sell-off in the energy sector this past week has been brutal. HFC was not spared. The stock plunged from above $40 to under support at $38.00. Shares dipped to their 100-dma on Friday and slipped to $36.86. Our stop loss was hit at $36.90.

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 - exit $1.16 (-57.8%)

- or -

AUG 17, 2012 - entry price on HFC @ 40.50, option @ 5.00
symbol: HFC1418A44** 2014 JAN $44.00 call - exit $3.50 (-30.0%)

10/12/12 stopped out at $36.90
** 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).

Chart of HFC:

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


QUALCOMM Inc. - QCOM - close: 58.89

Comments:
10/13/12: As one of AAPL's suppliers for iPhone components, QCOM tends to be influenced by trading in shares of AAPL. Unfortunately it was a down week for AAPL. Actually AAPL is down three weeks in a row and broke below support near 650. Meanwhile shares of QCOM broke down under its 200-dma, under the $60 level as well as a the 150-dma, 200-ema, and 100-dma.

Our stop loss was hit at $59.40 on Oct. 11th.

- Suggested Positions -
Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 2.56
symbol:QCOM1319A65 2013 JAN $65 call - exit $1.05 (-58.9%)

- or -

Aug 10, 2012 - entry price on QCOM @ 61.71, option @ 4.75
symbol:QCOM1418A70 2014 JAN $70 call - exit $3.75 (-21.0%)

10/11/12 stopped out at $59.40
09/15/12 new stop loss @ 59.40

Chart of QCOM:

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


The TJX Companies - TJX - close: 42.83

Comments:
10/13/12: Investors don't seem to care that consumer sentiment hit five-year highs this past week. Traders are selling consumer-related stocks and TJX accelerated lower. The stock broke through support near $44 and its 100-dma. Our stop loss at $43.40 was hit on Friday.

- Suggested Positions -
(Closed on Oct. 1st)
Jun 20, 2012 - entry price on TJX @ 43.62, option @ 2.53
symbol: TJX1319A45 2013 JAN $45 call - exit $2.10 (-16.9%) exit Oct.1st

- or -

Jun 20, 2012 - entry price on TJX @ 43.62, option @ 5.10
symbol: TJX1418A45 2014 JAN $45 call - exit $3.75 (-26.4%)

10/12/12 stopped out at $43.40
10/01/12 closed the 2013 calls at the open.
09/29/12 prepare to exit the 2013 calls on Monday morning
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)

Chart of TJX:

Current Target: $49.75
Current Stop loss: 43.40
Play Entered on: 06/20/12

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



Watch

Coal, Oil & Nat Gas

by James Brown

Click here to email James Brown


New Watch List Entries

CNX - CONSOL Energy

SWN - Southwestern Energy


Active Watch List Candidates

CCL - Carnival Corp.

COF - Capital One Financial

DE - Deere & Co.

FTR - Frontier Telecom

GE - General Electric

GLD - Gold ETF

JPM - JPMorgan Chase


Dropped Watch List Entries

FDO graduated to our active play list.



New Watch List Candidates:


CONSOL Energy Inc. - CNX - close: 35.14

Company Info

CNX is a coal and natural gas company. Several stocks in the coal industry appear to have built a significant bottom over the last few months. CNX is one of them. Shares were showing relative strength this past week in spite of new bearish comments from analysts.

I do want to warn you that CNX is scheduled to report earnings in late October. Right now the best date I can find is October 25th but that is not yet confirmed. More conservative investors will not want to open positions prior to the earnings announcement.

I am suggesting we open small bullish positions on a dip at $33.50 with a stop loss at $29.90. Our long-term target is $42.50. The Point & Figure chart for CNX is bullish with a long-term $47 target.

Buy-the-Dip trigger: $33.50 (Small Positions, stop 29.90)

BUY the 2014 Jan $40 call (CNX1418a40) current ask $4.45

Chart of CNX:

Originally listed on the Watch List: 10/13/12


Southwestern Energy - SWN - close: 36.11

Company Info

SWN is an oil and natural gas company that is slowly making its way higher. Shares ignored the market's recent weakness. Now SWN is on the verge of breaking out to new multi-month highs.

I am suggesting we wait for SWN to close over $37.00 and then buy calls the next day with a stop loss at $33.40. Our long-term target is $44.00. The Point & Figure chart for SWN is bullish with a long-term $51 target.

Breakout trigger: Wait for a close above $37.00 (stop 33.40)

BUY the 2014 Jan $40 call (SWN1418a40) current ask $4.45

Chart of SWN:

Originally listed on the Watch List: 10/13/12


Active Watch List Candidates:



Carnival Corp. - CCL - close: 36.76

Comments:
10/13/12: CCL spent this past churning sideways. It's trying to hold technical support at the 30-dma. I am still expecting a correction lower. Right now I am suggesting we open small bullish positions on a dip at $35.25 with a stop at $32.75.

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


Capital One Financial Corp. - COF - close: 58.21

Comments:
10/13/12: Financial stocks underperformed the market this past week but the pullback in COF wasn't that bad. Shares spent most of the week inside the $59-58 zone. The company is scheduled to report earnings soon on October 18th. More conservative traders will want to postpone launching any positions until after we see how the market reacts to earnings.

Earlier Comments:
COF can be somewhat volatile so we want to keep our position size small. I am suggesting we wait for COF to close above $60.50 and then buy calls the next day. We'll use a stop loss at $57.25. Our long-term target is $74.00 but we'll have to keep an eye on potential resistance at $70.00.

Breakout trigger: Wait for a close over $60.50 (stop 57.25)

BUY the 2014 Jan $65 call (COF1418a65)

Originally listed on the Watch List: 10/06/12


Deere & Co. - DE - close: 82.44

Comments:
10/13/12: DE displayed some weakness on Wednesday with a spike down toward support near $80 and its 200-dma. Shares quickly recovered. The stock remains under resistance near $84.00. Considering the broader market's recent weakness and new short-term trend lower I am not giving up on buying a dip in DE. Right now the plan is to buy calls on a dip at $79.00. More conservative traders could hold out for a dip near $78.00 instead. There is the possibility that DE turns higher and a close above $84.00 could be used as an alternative entry point.

We want to keep our position size small to limit our risk. Our long-term target is $94.00.

FYI: DE is not scheduled to report earnings until late November.

Buy-the-Dip trigger: $79.00 (stop loss 74.90) *Small Positions*

BUY the 2014 Jan $90 call (DE1418a90)

09/29/12 adjust our entry point to buy a dip at $79.00, adjust the stop loss to $74.90

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


Frontier Comm. - FTR - close: 4.81

Comments:
10/13/12: FTR managed a minor bounce for the week. Shares are still struggling with the simple 300-dma as overhead resistance. More aggressive traders could use a close over $5.00 as their entry point. I am suggesting we buy calls after FTR closes above $5.20. Wait for FTR to close above our trigger and buy calls the next day with a stop at $4.65. Our long-term target is $6.90. More aggressive traders could aim higher.

FYI: FTR is due to report earnings on Nov. 6th.

Breakout trigger: Wait for a close over $5.20 (stop 4.65)

BUY the 2014 Jan $5 call (FTR1418a5)

Originally listed on the Watch List: 09/29/12


General Electric - GE - close: 22.48

Comments:
10/13/12: After a five-week rally we have been expecting a correction in shares of GE. It looks like that correction finally started last week. Right now the plan is to buy a dip but more conservative traders may want to postpone any new positions until after we see how the market reacts to earnings. GE is scheduled to announce Q3 earnings on Oct. 19th, before the opening bell.

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)

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


SPDR Gold ETF - GLD - close: 170.06

Comments:
10/13/12: It looks like the rally in the GLD is finally starting to falter. The recent bounce attempt failed at short-term resistance near the 10-dma. I am expecting a correction lower soon.

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


JPMorgan Chase - JPM - close: 41.62

Comments:
10/13/12: JPM is only down nine cents for the week (-0.2%). That's not bad when most of the market is down -2.0% or more. The company reported earnings on Friday morning. Analysts were expecting $1.21 a share. JPM beat that by 19 cents. They also beat the revenue estimate with $25.15 billion in revenue for the quarter.

Even though the results were positive investors did not send the stock higher. I suspect JPM could see a deeper correction lower so I am not willing to chase it here. Readers could use a close over $42.50 as an alternative entry point to launch bullish positions. I am suggesting we stay patient and wait for a pullback.

We will keep our strategy to buy a dip at $38.50. Our long-term target is $45.00.

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

BUY the 2014 Jan $45 call (JPM1418a45)

10/12/12 JPM reported earnings

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