Option Investor
Newsletter

Daily Newsletter, Sunday, 10/28/2012

Table of Contents

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

Leaps Trader Commentary

Lowered Guidance and Revenue Misses

by James Brown

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Earnings disappointments continue to plague the stock market. Yet it seems like the sell-off is slowing down. Much of last week's losses came with the Tuesday morning plunge where the S&P 500 and the NASDAQ broke some key support levels. Investors seem to be in a wait and see mode. Stocks, bonds, commodities, and the U.S. dollar have been churning sideways the last couple of days. I warned readers last week that the market would probably be "flat to down" with traders likely stuck in neutral.

Headlines from Europe were mixed. Spain's latest reading on unemployment grew from 24.6% to 25%. It is double that for young Spaniards. The Eurozone's most recent reading on its manufacturing activity and service activity fell to their weakest levels since June 2009. In positive news it looks like the summer Olympics boosted the U.K.'s economy with their Q3 GDP coming in positive at +1%. That was ahead of expectations and officially ends the U.K. recession. Across the channel, Germany saw its latest consumer confidence survey rise to its highest level in five years. Coincidentally the U.S. consumer sentiment is at five-year highs as well.

Economic data in the U.S. this past week was generally benign. No one expected any fireworks from the two-day FOMC meeting and none were seen. The Fed said economic activity continues to grow at a "moderate pace" and that the Federal Reserve would continues its current activity including Operation Twist (buying long-term, selling short-term U.S. bonds) and buying $40 billion a month in mortgage-backed securities. In spite of the Fed's activities the interest rate on a fixed 30-year mortgage rose to 3.5%. That is a four-week high. Of course in perspective a 3.5% rate is exceptionally low. Yet these once in a lifetime mortgage rates are not fueling applications. The MBA mortgage index saw applications for new mortgages fall -12.0% last week.

New home sales for September came in at an annualized rate of 389,000. That was above the August rate of 368,000 and better than expected. This is the highest level since April 2010. While inventory of new homes fell to a 4.5 month supply, which happens to be a seven-year low. Meanwhile pending home sales in September only rose +0.3%, which was a lot less than the +2.5% economists were expecting.

It was somewhat surprising to see how stocks did not react to positive headlines regarding the U.S. GDP estimate. Economists were expecting an improvement from +1.3% growth in the second quarter to +1.7% in the third. Yet strong improvement in consumer spending and a big uptick in the housing industry helped push the Q3 GDP growth to +2.0%.

Elsewhere the durable goods data surged +9.9%, which was better than the +8.0% estimate. This follows a -13.1% drop the prior month. The University of Michigan consumer sentiment index ticked down from 83.1 to a final reading of 82.6 for October. The weekly initial jobless claims came in just below expectations at 369,000.

Right now the problem with stocks is corporate earnings. The trend of disappointing earnings results and cautious guidance continues. Apple Inc. (AAPL) was the high-profile disappointment this week with earnings coming in at $8.67 a share. That missed Wall Street's estimate and AAPL management lowered their guidance going forward. Amazon.com (AMZN) was another high-profile report where management lowered their Q4 guidance.

The challenge seems to be sales. Corporations are missing revenue estimates. According to FactSet research the historical norm is for 55% of companies to beat analysts revenue estimates. Currently this Q3 season only 36% have beaten the revenue estimate. Making matters worse has been a parade of companies that are lowering their Q4 guidance. Normally Q4 is a strong quarter for businesses and lowered guidance could be making investors nervous.

Major Indices:

It was not a good week for the S&P 500. The index lost -1.5% for the week and broke down through potential support at the 50-dma, the 1430 level and the 1420 level. After the Tuesday morning breakdown the index has been hovering inside the 1400-1420 zone. We've been talking about the 1400 level as significant support for a while now. Given the recent sideways consolidation over the last couple of days it's giving hope that the 1400 level might hold as support. The bears would point out that even with the short-term consolidation the S&P 500 still has a bearish trend of lower highs and lower lows.

I wouldn't be too exact here. We should probably use the 1400-1395 area as the support area to watch. Currently the rising 100-dma near 1395 should offer some additional support. If I had to guess what might happen I would look for a dip to 1395 and then a quick bounce. The real question is whether or not there is any follow through higher on the bounce.

If the 1400 (1395) level breaks then the S&P 500 will probably drop toward 1380 or the simple 200-dma (currently 1377).

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The correction lower in the NASDAQ composite continues. The NASDAQ is down five out of the last six weeks. This past week saw a breakdown under psychological, round-number support at the 3000 level. The index did find some short-term support at the simple 200-dma but it looks like this support might break soon. Even as the selling has slowed down the NASDAQ still has a bearish trend of lower highs and lower lows. High profile earnings disappointments and lowered guidance from companies like AAPL and AMZN don't help this tech-heavy index.

You could definitely argue the NASDAQ is short-term oversold and due for a bounce but I would expect the 3050 area to act as new resistance. If this sell-off continues then the next levels of support to watch are 2950 with the 200-ema, the 2900 level, and the 2850 area.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index looks a lot like the NASDAQ composite. This past week saw a breakdown under key support with the $RUT breaking through the 820 level. Traders did buy the dip near its 100-dma and a long-term trend line dating back to the October 2011 low (see chart). Yet now the 820 level is acting as new short-term resistance. If this sell-off continues then the $RUT might see a bounce near the 800 mark. Otherwise it's probably headed for 780 or lower. Should the $RUT bounce from current levels then it will probably find resistance at the new six-week trend of lower highs.

Daily chart of the Russell 2000 index

We have past the high-point for Q3 earnings season. The tone has been set and it's one of disappointment. We still have a couple of busy weeks to go with hundreds of companies yet to report but investor focus will likely turn elsewhere. The October jobs report looms large on the calendar since the jobs number and the unemployment rate could potentially influence the U.S. presidential election. I think that is unlikely since most voters have already made up their minds. Economists are expecting the U.S. to show +120,000 new jobs in October. The unemployment rate is expected to stay at 7.8%.

Economic and Event Calendar

- Monday, October 29 -
personal income and spending data

- Tuesday, October 30 -
Case-Shiller 20-city home price index
Consumer Confidence (for October)

- Wednesday, October 31 -
ADP Employment change report
Chicago PMI report
Chinese manufacturing PMI data

- Thursday, November 01 -
Weekly Initial Jobless Claims
ISM Index (for October)
construction spending
auto and truck sales for October

- Friday, November 02 -
Nonfarm payrolls (jobs) report for October
unemployment rate
factory orders
Eurozone PMI data

Additional Events to be aware of:

Nov. 3rd - G-20 Finance minister meeting
Nov. 6th - U.S. Presidential Election

The Week Ahead:

As we look at the week ahead a good question to ask is what will drive stocks up or down? The end of October is the fiscal year end for many mutual funds. Thus window dressing could move stocks over the next three days especially if the market starts to bounce. Unfortunately, that is a sword that cuts both ways. If the market's major indices continue to breakdown then fund managers might feel the need to sell to lock in gains.

Here in the U.S. with less than two weeks to go the presidential election will likely consume the media's focus (as if it hasn't already). I'm sure most of us are pretty tired of all the political ads but this is the sprint to the finish line for politicians. At this point I don't see how this moves the market unless there is some new bombshell that rocks one of the presidential candidates' campaigns.

Technically you could argue stocks are oversold and could bounce from support. After what has essentially been a six-week correction, traders could be looking for a bounce. Thus, an additional breakdown from here could spark a serious sell-off as traders panic. While I would not be surprised to see a bounce I suspect there is a good chance the market merely churns sideways up until the election.

I would keep an eye on the U.S. dollar. The currency looks like it could bounce after forming what might be a bullish double bottom over the last few weeks. A rise in the dollar would be bearish for commodities.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market is sinking on another week of disappointing earnings reports. High profile companies like Apple (AAPL) and Amazon.com (AMZN) issued cautious guidance going forward and helped sour investors enthusiasm for stocks. Now the S&P 500 is hovering above support at 1400 while the NASDAQ tries to hold technical support at its 200-dma. The Russell 2000 index broke support at 820 and is also trying to hold its 200-dma. Stocks are arguably oversold with a six-week decline but there is no guarantee of a bounce.

CVX, EMN, KMB, MON, and TWX were all stoped out.

We closed our 2013 call positions on Visa last week (Oct. 22nd).

There were no stop loss changes tonight.

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

Updated Radar Screen & Potential Trade

by James Brown

Click here to email James Brown

Editor's Note:

(October 27, 2012)

The U.S. stock market peaked six weeks ago in mid September. Since then it's been a bumpy ride lower. This past week just produced a breakdown under intermediate support levels for the major indices. Now the S&P 500 is hovering above what should be stronger support at the 1400 level. Traders are trying to figure out if stocks will bounce off the 1400 level or will they breakdown?

Earnings season has peaked but we still have two or three busy weeks of corporate reports yet to announce. Meanwhile investor focus will turn back to economic data, the troubles in Europe, and the fast approaching U.S. presidential election. I suspect there is a good chance we see stocks churn sideways this week but the current trend, both short-term and intermediate, is down for stocks.

Thus with stocks on the decline and poised to potentially break support I am not eager to launch new positions now. We did add two new candidates to our watch list (CREE & SCCO). I am also updating my radar screen tonight (see below).

I would keep an eye on coal stock, ANR. It looks like ANR may have bottomed but I am reluctant to open positions ahead of its earnings report on November 2nd, which might produce some unexpected volatility. I've also got my eye on CLB because odds are most of the bad news has been priced in with the big drop from early October. I'm waiting to see what sort of entry point CLB might provide. Another stock I noticed this weekend was AMCX. Shares of AMCX hit new all-time highs this week. Unfortunately, AMCX does not have LEAPS options. Investors might want to speculate on some 2013 June $50 calls although I might wait for a close over $47.50.

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:

ANR, CLB, RYL, BTU, OPEN, VMC, KSU, JNJ, RCL, FSLR, HFC, ARLP, EMN, TGT, TXN, CI, AKAM, LRCX, F, ODFL


Play Updates

Market Declines Triggering Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

It was a rough week for some of our bullish candidates. Market volatility and investor reaction to earnings news is pushing stocks lower. We saw multiple trades get stopped out this past week.

We also closed our 2013 calls on Visa (see play update for details).


Closed Plays


CVX, EMN, KMB, MON, TWX were stopped out.


Play Updates


American Intl. Group - AIG - close: 34.14

Comments:
10/27/12: Shares of AIG followed the financial sector lower. The stock spent much of the week consolidating sideways in the $34.50-35.00 zone. I would expect AIG to continue moving sideways until its earnings report. AIG is scheduled to announce earnings on November 1st, after the closing bell. Wall Street is looking for earnings of 87 cents a share.

I am not suggesting new positions in front of earnings.

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 $ 5.25/ 5.30

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.75/ 4.90

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:
10/27/12: We only have about three more months on our BAC trade if you're holding the 2013 January calls. On a short-term basis the stock is breaking down from a sideways consolidation. I would not be surprised to see a correction lower toward the $8.50 level but it's possible the stock finds support at the rising 50-dma.

I am not suggesting new positions at this time. With the 2013 January calls, any decline is going to hurt the calls pretty hard.

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 $ 0.28/ 0.29
(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 $ 0.28/ 0.29
(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


Capital One Financial Corp. - COF - close: 60.00

Comments:
10/27/12: COF delivered a choppy week with a sideways consolidation in the $59-60.50 area. COF might try and fill the gap with a dip to $58.00. Nimble traders could buy a dip or a bounce off the $58.00 level.

Earlier Comments:
The P&F chart is bullish with a $71 target. We are aiming for $74.00.

Earlier Comments:
COF can be somewhat volatile so we want to keep our position size small. We'll have to keep an eye on potential resistance at $70.00.

- Suggested Positions - (small positions)
OCT 22, 2012 - entry price on COF @ 61.14, option @ 5.65
symbol: COF1418a65 2014 JAN $65 call - current bid/ask $ 5.20/ 5.45

Current Target:$ 74.00
Current Stop loss: 56.85
Play Entered on: 10/22/12
Originally listed on the Watch List: 10/06/12


Discover Financial - DFS - close: 40.25

Comments:
10/27/12: DFS eked out a gain for the week. Yet for the most part shares are just churning sideways. DFS still has a bullish trend of higher lows for now. If the market's descent accelerates I would expect DFS to eventually breakdown. There is likely short-term support at $38.00 and $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 $5.10/5.40

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


Family Dollar Stores - FDO - close: 65.60

Comments:
10/27/12: FDO briefly traded under the $64.00 level this past week before reversing higher. While the stock is bouncing off its lows there is still technical resistance directly overhead with the 100-dma and 150-dma in the $66-67 area. The larger, longer-term trend of higher lows remains intact for now. I am not suggesting new positions at this time.

- Suggested Positions -
OCT 12, 2012 - entry price on FDO @ 65.88, option @ 1.70
symbol: FDO1320d75 2013 APR $75 call - current bid/ask $1.15/1.40

10/20/12 adjust stop loss to $62.95

Current Target: $74.50
Current Stop loss: 62.95
Play Entered on: 10/12/12
Originally listed on the Watch List: 10/06/12


Joy Global, Inc - JOY - close: 61.55

Comments:
10/27/12: JOY posted a loss for the week. Yet shares are bouncing off its intraweek lows. Friday saw some volatility with JOY surging higher on rumors the company was a takeover target.

If the market decline continues we can look for likely support at the 50-dma. We still have the stop loss at $54.75 but more conservative traders may want to adjust their stop higher.

- Suggested Positions -
SEP 25, 2012 - entry price on JOY @ 57.50, option @ 7.50
symbol: JOY1418A70 2014 JAN $70 call - current bid/ask $7.65/8.00

10/26/12 JOY seeing volatility on rumors it is a takeover target
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: 54.75
Play Entered on: 09/25/12
Originally listed on the Watch List: 09/15/12


Lennar Corp. - LEN - close: 37.02

Comments:
10/27/12: Homebuilders were not immune to the market's decline this past week. LEN did pull back but the long-term up trend is still in place. Look for short-term support near $36.00. I don't see any changes from my prior comments.

Earlier Comments:
I do think the $40.00 level is likely resistance and LEN will probably see a pullback on its initial test of $40.00. Keep in mind that we also have more than a year for our 2014 calls to work.

- 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 $5.15/5.40

10/20/12 new stop loss @ 33.90, adjust exit target on 2014 calls to $44.00
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), $44.00 (2014 call)
Current Stop loss: 33.90
Play Entered on: 08/17/12
Originally listed on the Watch List: 08/11/12


Pfizer Inc. - PFE - close: 25.43

Comments:
10/27/12: PFE saw a pullback to support near $25.00 before traders bought the dip. Shares are likely to see more volatility this week. PFE is due to report earnings on October 30th, before the opening bell. Analysts are expecting a profit of 52 cents a share. I suspect that if PFE disappoints the stock could drop back toward support near $24.00.

I am not suggesting new positions at this time.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.95/ 2.01

10/20/12 new stop loss @ 23.90
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: 23.90
Play Entered on: 07/18/12
Originally listed on the Watch List: 04/21/12


SIRIUS XM Radio - SIRI - close: 2.82

Comments:
10/27/12: Shares of SIRI are holding up pretty well considering some major headlines last week. The company's CEO Mel Karmazin announced he was stepping down early next year. That could have sparked a major sell-off in SIRI. Yet the stock held up well, which may have been due to an increase in rumors that Liberty Media (LMCA) is planning to take a majority stake in SIRI soon. We might get more news when SIRI reports earnings on October 30th, before the opening bell.

After such a dramatic rally off its June lows, I suspect the earnings report could be an excuse to sell and take profits unless SIRI really blows away the estimate. I am not suggesting new positions at this time. 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 $ 0.41/ 0.42

- or -

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

10/20/12 warning! SIRI is up five weeks in a row and growing overbought. The stock could see a sell-off on its earnings report

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: 22.70

Comments:
10/27/12: SPRD is showing relative strength. While most of the market is down over the last few weeks SPRD is actually up three weeks in a row. This last week saw a breakout past resistance at $22.00.

I am not suggesting new positions at this time. Earnings are expected on November 8th.

- Suggested Positions -
Sep 07, 2012 - entry price on SPRD @ 20.59, option @ 1.95
symbol:SPRD1319a22.5 2013 JAN $22.5 call - current bid/ask $ 2.15/ 2.30

10/27/12 SPRD has reversed higher and broken through resistance
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


U.S. Bancorp - USB - close: 33.15

Comments:
10/27/12: USB gave back more than a dollar last week. I warned investors to expect a dip toward the $33-32 zone. Shares are testing $33.00 now. Currently I am expecting the 200-dma and 200-ema, which are nearing $32, to act as support. 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 $ 0.52/ 0.54

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 2.27/ 2.34

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: 138.31

Comments:
10/27/12: Visa found new short-term support near the $136.00 level. The stock has been trying to bounce from its Tuesday lows but the 20-dma is now acting as short-term resistance. I will confess it looks like a potential bear-flag pattern and if that's true then Visa could be headed for the $133-132 area. The stock could definitely see some volatility when Visa announces earnings on Oct. 31st, after the closing bell. Wall Street is looking for a profit of $1.50 a share.

I am not suggesting new positions at this time. Last week the plan was to close our 2013 calls on Monday, October 22nd at the opening bell. Unfortunately for us the call gapped down on the 22nd with a drop from $8.90 to open at $8.15 (minus the spread our exit was $7.95).

FYI: Visa is scheduled to report earnings on Oct. 31st.

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

- Suggested Positions -
(Closed the 2013 calls on Oct. 22nd at the open)
JUL 03, 2012 - entry price on V @ 126.49, option @ 5.85
symbol: V1319A135 2013 JAN $135 call - exit @ $7.95 (+35.8%)

- or -

JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - current bid/ask $16.30/16.65

10/22/12 closed 2013 Jan call at the open
10/20/12 prepare to exit our 2013 calls at the open on Monday
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: 33.97

Comments:
10/27/12: WFC looks a lot like the other big banks with a new trend of lower highs developing. I have been warning readers to expect a drop toward $33.00, which should act as likely support with help from the simple 200-dma. I am still expecting that dip. More aggressive traders may want to widen their stop loss. 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 $ 1.44/ 1.48

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


Chevron Corp. - CVX - close: 111.18

Comments:
10/27/12: Weakness in the oil stocks continued early last week. CVX produced a sharp two-day plunge on Monday and Tuesday. Shares hit our stop loss at $109.75 on Tuesday, Oct. 23rd. Since then CVX has started to bounce but I would wait for a new close over $115 before considering new positions.

FYI: CVX is due to report earnings on Nov. 2nd.

- Suggested (small) Positions -
Sep 12, 2012 - entry price on CVX @ 114.23, option @ 5.60
symbol: CVX1418a125 2014 JAN $125 Call - exit $3.00 (-46.4%)

10/23/12 stopped out at $109.75,
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.

Chart of CVX:

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


Eastman Chemical Co. - EMN - close: 60.19

Comments:
10/27/12: It was a volatile week for EMN. Monday-through-Thursday saw a drop from $56.00 to $53.00. Yet EMN soared +12% on Friday following its better than expected earnings report on Thursday night after the closing bell. The company beat estimates by 15 cents and raised their guidance. That news was enough to push EMN to a new all-time high. Unfortunately, the breakdown under support at $54.00 on Thursday hit our stop loss at $53.75.

- Suggested Positions -
SEP 07, 2012 - entry price on EMN @ 56.64, option @ 2.50
symbol: EMN1319a60 2013 JAN $60 call - exit $1.00 (-60.0%)

- or -

SEP 07, 2012 - entry price on EMN @ 56.64, option @ 5.55
symbol: EMN1418a65 2014 JAN $65 call - exit $3.40 (-38.7%)

10/25/12 stopped out at $53.75
10/20/12 new stop loss @ 53.75

Chart of EMN:

Current Target: $69.00
Current Stop loss: 53.75
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/18/12


Kimberly-Clark - KMB - close: 82.75

Comments:
10/27/12: Ouch! KMB lost four dollars last week. The stock is now down six days in a row. The company reported earnings on October 24th, before the opening bell. KMB beat estimates by two cents, but missed the revenue estimate. Management's guidance was actually bullish but the stock sold off anyway. Our stop loss was hit at $82.90 on Oct. 25th. KMB is now nearing the next level of support at the $82.00 level.

- Suggested Positions -
OCT 02, 2012 - entry price on KMB @ 86.71, option @ 3.95
symbol: KMB1418A90 2014 JAN $90 call - exit $1.90 (-51.8%)

10/25/12 stopped out at $82.90
10/13/12 adjust stop loss to $82.90

Chart of KMB:

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


Monsanto Co. - MON - close: 86.60

Comments:
10/27/12: I've been cautious on MON for a while. Last week I warned readers that MON would likely hit our stop. We actually raised our stop last week to $87.45. It seemed better to get stopped out early and consider buying a bounce near $80 or its 200-dma versus moving the stop loss lower and giving MON room too much room to maneuver and risk seeing the decline accelerate.

MON broke short-term support near $88 and its 50-dma. Before the week was over MON hit our new stop at $87.45 on Oct. 23rd.

- Suggested Positions -
Jul 17, 2012 - entry price on MON @ 85.84, option @ 4.35
symbol: MON1319A90 2013 JAN $90 call - exit $2.72 (-37.4%)

- or -

Jul 17, 2012 - entry price on MON @ 85.84, option @ 6.50
symbol: MON1418A100 2014 JAN $100 call - exit $5.20 (-20.0%)

10/23/12 stopped out at $87.45
10/20/12 new stop loss @ 87.45
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)

Chart of MON:

Current Target: $99.50
Current Stop loss: 87.45
Play Entered on: 07/17/12
Originally listed on the Watch List: 07/14/12


Time Warner - TWX - close: 43.64

Comments:
10/27/12: I expressed my concern a week ago that TWX might have been forming a top. That's why we raised the stop loss to $43.75 last weekend. The market's big drop on Tuesday morning produced a gap down in TWX. The stock was holding support near $44.00 but TWX eventually hit our stop loss at $43.75 on Oct. 25th.

Long-term I suspect TWX has additional upside but shares might correct lower toward $40.00 before revering higher again. I'd keep TWX on your radar screen.

- 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 - exit $3.55 (+24.5%)

10/25/12 stopped out at $43.75
10/20/12 new stop loss @ 43.75
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

Chart of TWX:

Current Target: $49.00
Current Stop loss: 43.75
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12



Watch

Technology & Mining

by James Brown

Click here to email James Brown

Editor's Note:

I have adjusted a few of our entry triggers below.



New Watch List Entries

CREE - Cree, Inc.

SCCO - Southern Copper


Active Watch List Candidates

CNX - CONSOL Energy

DE - Deere & Co.

FTR - Frontier Telecom

GE - General Electric

GLD - Gold ETF

HAS - Hasbro Inc.

LLL - L-3 Communications

SWN - Southwestern Energy


Dropped Watch List Entries

None



New Watch List Candidates:


Cree, Inc. - CREE - close: 29.89

Company Info

CREE is in the semiconductor industry. The company reported earnings a couple of weeks ago. The better than expected results fueled the gap higher. Now CREE is testing round-number resistance at $30.00. If this strength continues we want to hop on board.

I am suggesting we wait for CREE to close over $30.25 and then buy calls the next day. If that occurs we will start with a stop loss at $27.45. More aggressive traders may want to put their stop below the bottom of the Oct. 17th gap, under the $26.00 level instead. Our long-term target is $39.00.

Breakout trigger: Wait for a close over $30.25 (stop 27.45)

BUY the 2014 Jan $35 call (CREE1418a35) current ask $3.75

Chart of CREE:

Originally listed on the Watch List: 10/20/12


Southern Copper Corp - SCCO - close: 37.97

Company Info

SCCO is an American company that operates mines in Chile, Mexico, and Peru. Its major product is copper ore but SCCO produces other metals as well. While the company's latest earnings report wasn't that great, a large part of the drop in income was due to higher legal fees. Those fees should subside now that a shareholder lawsuit is over regarding are recent merger.

Technically shares of SCCO have been showing significant relative strength with gains in four of the last five weeks. SCCO closed at new 52-week highs. Aggressive traders may want to buy calls now. I am suggesting we buy a dip at $36.50 with a stop loss at $31.95. Our long-term target is $44.75.

We want to keep our position size small to start.

Buy-the-Dip trigger: $36.50 (stop 31.95, small positions)

BUY the 2014 Jan $40 call (SCCO1418a40) current ask $2.20

Chart of SCCO:

Originally listed on the Watch List: 10/20/12


Active Watch List Candidates:



CONSOL Energy Inc. - CNX - close: 35.19

Comments:
10/27/12: CNX only lost two cents for the week but that doesn't describe the swings this stock saw over the last five days. The breakout past $36 failed and shares traded under $34.00 on Thursday. I still think shares will see a small correction lower. We are adjusting our buy-the-dip trigger down from $33.50 to $33.00.

We want to keep our position size small. 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: $33.00 (Small Positions, stop 29.90)

BUY the 2014 Jan $40 call (CNX1418a40)

10/27/12 adjust the trigger down to $33.00

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


Deere & Co. - DE - close: 85.47

Comments:
10/27/12: DE almost hit our buy-the-dip trigger on Thursday. The intraday low was $83.62. The following bounce and Friday's show of relative strength actually looks like a potential entry point. I would be tempted to buy calls here but the broad market indices still look weak. We'll keep our strategy unchanged for now.

Earlier Comments:
I am adjusting our buy-the-dip trigger up to $83.50 and we'll move the stop loss to $79.45. I would start with small positions to limit our risk. I am adjusting our target to $97.50.

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

Buy-the-Dip trigger: $83.50 (stop loss 79.45) *Small Positions*

BUY the 2014 Jan $90 call (DE1418a90)

10/20/12 adjust the buy-the-dip trigger to $83.50, move the stop to $79.45, move the target to $97.50
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: 4.74

Comments:
10/27/12: FTR lost two cents for the week. Traders bought the dip near support at $4.50 but FTR seems to have developed a bearish trend of lower highs. The company is due to report earnings on November 6th. If FTR doesn't see a move after the earnings report I'll probably remove it as a candidate.

Earlier Comments:
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.

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: 21.11

Comments:
10/27/12: Hmm... GE almost hit our entry point at $21.00 this past week. The intraday low on Thursday was $21.03. There was no follow through on the bounce off Thursday's low. Combined with weakness in the major indices I am starting to think the correction in GE is not done yet.

Since our trade is not open yet I am moving our buy-the-dip trigger down to $20.50. Our long-term target is $27.50.

Buy-the-Dip trigger: $20.50 (stop 19.45)

BUY the 2014 Jan $25 call (GE1418a25)

10/27/12 move the buy-the-dip trigger down to $20.50
10/20/12 adjust the buy-the-dip trigger to $21.00 and our stop to $19.45

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


SPDR Gold ETF - GLD - close: 165.93

Comments:
10/27/12: The GLD just produced its third weekly decline in a row. Yet this ETF only lost about a dollar for the week. Traders bought the dip below $165.00. The short-term trend lower is still in effect. Plus the U.S. dollar looks poised to bounce and a rebound in the dollar should be bearish for commodities, including gold prices.

Currently the simple 200-dma is at $161.50. I am moving our buy-the-dip trigger to $162.00 and moving our stop loss to $154.90.

Plan to exit the 2013 June calls at $174.50. Exit the 2014 calls in the $185-200 range.

Buy-the-Dip trigger: $162.00 (stop loss @ 154.90)

BUY the 2013 Jun $175 call (GLD1322a175)

- or -

BUY the 2014 Jan $200 call (GLD1418a200)

10/27/12 adjust the entry trigger to $162.00 and the stop to $154.90
10/20/12 adjust the buy-the-dip trigger to $163.00, stop to $157.75
adjust the 2013 call from Jan. $175 to June $175
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


Hasbro Inc. - HAS - close: 36.35

Comments:
10/27/12: Ouch! HAS spiked to resistance near $40.00 on Monday, Oct. 22nd and immediately reversed. The volatility was a reaction to the company's earnings report. HAS beat earnings estimates by four cents but missed the revenue number. Shares have since broken down to new three-month lows. HAS is now testing technical support near its 200-dma. If shares do not see a rebound soon I'll likely drop it as a candidate.

Earlier Comments:
I am suggesting we wait for HAS to close over $40.25 and open bullish positions the next day with a stop loss at $37.25. Our long-term target is $45.00.

FYI: HAS is due to report earnings on Oct. 22nd.

Breakout trigger: Wait for a close over $40.25 (stop 37.25)

BUY the 2014 Jan $40 call (HAS1418a40)

Originally listed on the Watch List: 10/20/12


L-3 Communications - LLL - close: 73.42

Comments:
10/27/12: LLL recovered from its Monday-Tuesday decline with traders buying the dip near short-term support at $72.00. Currently we are waiting for a breakout past resistance and LLL's earnings report could be the catalyst for that move. I am adjusting our stop loss, if the trade is trigger, to $71.85.

I am suggesting we buy calls the day after LLL closes above $75.50. Our long-term target is $85.00. The Point & Figure chart for LLL is bullish with an $85 target. FYI: LLL is scheduled to report earnings on Oct. 30th.

NOTE: We will not open positions if LLL gaps open above $76.50 or sees a one-day surge where the stock closes above $76.50. This is an effort to try to avoid any post-earnings volatility.

Breakout trigger: Wait for a close over $75.50 (stop 71.85)

BUY the 2014 Jan $80 call (1418a80)

Originally listed on the Watch List: 10/20/12


Southwestern Energy - SWN - close: 34.14

Comments:
10/27/12: Profit taking has pulled SWN down to technical support near its 50-dma. It looks like investors are starting to buy this dip but I would not launch new positions yet. SWN is scheduled to report earnings on November 1st. The company's results will likely launch the stock one direction or the other.

Earlier Comments:
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)

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