Option Investor
Newsletter

Daily Newsletter, Monday, 11/5/2012

Table of Contents

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

Leaps Trader Commentary

From One Storm to Another

by James Brown

Click here to email James Brown

Hurricane Sandy is in the history books. Now we move from one storm to another with a tightly contested U.S. presidential election about to make landfall.

Fifty million people living on the east coast of the U.S. were impacted by Hurricane Sandy. That is approximately 1 out of 6 Americans as the massive storm hit some of the most heavily populated areas of the country. Almost a week later some are still without power and gas shortages have been plaguing the major metropolitan storm-hit areas. The latest estimates put Sandy's damage at $50 billion and only half of that will be covered by insurance companies.

In the wake of Hurricane Sandy it was not surprising to see a bumpy week for stocks even though the week was only three trading days long. Sandy was responsible for the U.S. market's first two-day weather closure since 1888. In spite of the market volatility stocks actually ended the week relatively flat.

U.S. economic data was generally positive last week. The latest data on home values showed prices rose toward two-year highs. The ISM report showed manufacturing activity ticked higher to 51.7, which was above estimates for 51.0. Readings above 50.0 indicate growth and expansion. Initial jobless claims ticked lower to 363,000, which was less than expected. Of course the big surprise was the nonfarm payroll report.

Economists had been expecting the nonfarm payroll (jobs) report to show growth of +120,000 jobs in October. The Bureau of Labor Statistics said the U.S. added +171,000 jobs. Furthermore they upgraded September's number from +114K to +148K and raised the August jobs report from +142K to +192K. Overall it was a positive jobs report that sent stocks higher. Unfortunately for stock market bulls the rally didn't last very long.

The latest economic data from Europe is less encouraging. The Eurozone's PMI report on manufacturing activity came in at 45.4. This was the 15th month below the 50.0 mark. Germany saw its unemployment rate rise higher than expected. Elsewhere confidence numbers are falling with the Eurozone economic confidence survey declining to levels not seen since 2009 and the U.K. consumer confidence survey dropping to a six-month low. According to many experts the economic slowdown plaguing Europe remains the biggest obstacle to global growth.

This weekend there was some positive news from China. The official Chinese PMI index rose to 50.2 in October, up from 49.8 in September. This was the first time in three months that the Chinese PMI has come in positive (above 50.0). If this is true then it's definitely a positive signal for the global economy. Unfortunately, many consider the Chinese government's "official" statistics to be misleading and likely manipulated. It is worth noting that this rise in manufacturing output is not supported by China's declining electricity consumption. If factories were humming with increased activity that would be evident in the country's power consumption.

Major Indices:

The S&P 500 index is only up +0.2% for the week or should I say the three days the market was open last week. Thursday's breakout higher past short-term resistance at 1420 didn't last very long and traders sold the news on Friday morning.

15-minute chart of the S&P 500 index:

The S&P 500 index looks a bit more ominous on the daily chart. You can see how the bounce failed at technical resistance at the 50-dma (pink line). Technically the failed rally on Friday morning is also a 50% retracement of the drop from October 18th through the end of the month. I suspect that odds are very high that we will see the S&P 500 index retest support near 1400-1395 soon. Whether that is Monday or Tuesday or later in the week I can't say. We could see stocks churn sideways for a couple of days while the market waits to see who wins the U.S. presidential election.

Bigger picture, until we see the S&P 500 close over 1470 then there was always be a concern that the rally will fail at resistance in the 1460-1470 area. If support near 1400 breaks then the S&P 500 will likely drop toward its 200-dma near 1380.

chart of the S&P 500 index:

It was another down week for the NASDAQ Composite. Friday's session saw a bearish reversal at resistance and it created a bearish engulfing candlestick pattern. I strongly suspect we will see the NASDAQ break through support near 2950 and its 200-ema and that could set up a drop toward 2850.

chart of the NASDAQ Composite index:

It is probably no coincidence that the NASDAQ is down five out of the last six weeks and shares of Apple Inc. (AAPL) are down six weeks in a row. AAPL was getting a lot of attention on Friday with the stock's relative weakness (-3.3% decline) and AAPL's breakdown under technical support at its 200-dma and 200-ema.

Currently AAPL is off -18% from its September highs. It's quickly approaching bear market territory (-20%). There is speculation that AAPL is nearing a capitulation sort of sell-off where shares see a huge surge lower on massive volume. Trying to catch a bottom in AAPL's decline is probably a good example of trying to catch the "falling knife" traders talk about. If you're not careful you'll likely get hurt. If you are watching AAPL then I would keep an eye on the July low near $530-528. That's where I would expect at least a short-term bounce.

Weekly chart of the Apple Inc. (AAPL):

Turning back to the NASDAQ for a second, if you look at a longer-term weekly chart, the NASDAQ has a bear-wedge sort of feel to it. A breakdown under the current trend line could definitely suggest a bigger correction ahead. Unfortunately the path of least resistance is definitely down.

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index continues to mirror the NASDAQ. The two-day bounce last week was reversed with Friday's decline. The $RUT remains in a six-week bearish channel. Plus Friday's session has created a bearish engulfing candlestick, which is a one-day bearish reversal pattern.

It is worth noting that the $RUT has not yet broken the trend line of higher lows (dotted line on the chart), at least not convincingly yet. It definitely looks poised to break this trend soon. The key area to watch is probably the 800 mark. A close under 800 would break all the major moving averages except the 300-dma. If the $RUT does breakdown under 800 then it's probably headed to 780 or the previous lows near 765.

Daily chart of the Russell 2000 index

This week's events and economic reports will be completely overshadowed by the U.S. presidential election on Tuesday, Nov. 6th. Assuming the market does not just churn sideways ahead of the election then the reports to watch are the ISM on Monday, and the ECB rate decision and Chinese inflation data on Thursday.

We've only got three weeks left until the Thanksgiving holiday (yum!) and only 50 days left until Christmas. You'd better start shopping now and do your part to help the economy.

Economic and Event Calendar

- Monday, November 5 -
ISM Services for October

- Tuesday, November 3 -
U.S. Presidential Election
Eurozone PPI

- Wednesday, November 7 -
Eurozone retail sales

- Thursday, November 8 -
Weekly Initial Jobless Claims
ECB interest rate decision
ECB President Draghi's press conference
Chinese inflation data

- Friday, November 9 -
Import/Export prices
University of Michigan consumer sentiment survey
Wholesale Inventory data
Eurozone CPI

Additional Events to be aware of:

Nov. 22nd - U.S. markets closed for Thanksgiving holiday
Dec. 12th - FOMC meeting

The Week Ahead:

Looking ahead I would not be surprised to see this week look a lot like last week. Lots of sideways churning, brief moments of volatility, and yet very little movement. If I had a crystal ball I would expect to see stocks drift sideways on Monday and Tuesday, chop wildly on Wednesday as the market reacts to the U.S. election results or lack thereof, and then more sideways churning.

Yes, it is very possible that the U.S. presidential election will not be decided by Tuesday night. There was a recent story (click here if you're interested) about how a new program in Ohio related to absentee ballots could push the results of the entire election off by several days. Essentially, if you live in Ohio and asked for an absentee ballot and then didn't turn it in they will give you a provisional ballot on Nov. 6th and hold it. This way they can double check and make sure you didn't vote twice, once with your absentee ballot and once at the polls.

President Obama and challenger Mitt Romney need 270 electoral votes to win the election and battleground state Ohio's 18 electoral votes could be crucial in determining the winner. The same 18 votes might also be several days late in being cast.

Turning back to the stock market for a moment, the action this past week was bearish in my book. The bounce from support was sold at resistance. Now we have a new lower high for nearly all the major indices. While the path of least resistance definitely seems to be lower the bulls could garner some support from the calendar.

You've probably heard of the strategy to "Sell in May and go away". This refers to the strategy of exiting the stock market in the month of May to avoid the worst six months of the year. The other side of that coin is putting your money back into stocks in November, which begins the best six months of the year. These are long-term seasonal trends that have been tracked for decades and continue to hold up for now. The difference in returns between owning stocks all twelve months and only holding them from November through April is pretty significant. This does not mean that stocks can't go down or that they will immediately rally just because we've hit November but it does provide a bit of a psychological boost for the bulls.

I warned you a week ago to watch the U.S. dollar. On Friday the dollar soared and it sparked a sharp sell-off in commodities. Both gold and oil plunged. Falling oil prices should be bullish for the economy. Let's hope the trend continues and that we do not see a flare up in hostilities in the Middle East after the U.S. election is over that could reverse this trend in oil.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a short week for the U.S. market thanks to Hurricane Sandy shutting down Wall Street for two days. The rally on November 1st didn't last very long with traders selling into strength on Friday morning.

I am concerned about our WFC trade and we want to close positions on Monday morning.

CREE is a watch list candidate that has graduated to our active trade list.

I have updated stop losses on DFS, JOY, SIRI, and V.

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

Breaking Through Major Resistance

by James Brown

Click here to email James Brown


- New Trades -


L-3 Communications - LLL - close: 75.85

Comments:
11/03/12: LLL was a watch list candidate. This defense contractor's stock price has been consolidating under major resistance at the $75.00 level for months. we wanted to wait and buy calls if shares could close over $75.50. Fortunately, LLL has been showing relative strength and managed to keep its gains on Friday while most of the market rolled over. This is a very bullish breakout. Friday's close at $75.85 meets our entry point requirements.

Our trade will open on Monday morning at the open. More nimble traders may want to wait and try and time an entry on a dip back to the $75.00 level, which should act as brand new support. Our long-term target is $85.00. The Point & Figure chart for LLL is bullish with an $85 target.

- Suggested Positions - (small positions @ first)
NOV 05, 2012 - entry price on LLL @ --.--, option @ -.--
symbol: LLL1418a80 2014 JAN $80 call - current bid/ask $ 4.20/ 4.60

Chart of LLL:

Current Target:$ 85.00
Current Stop loss: 71.85
Play Entered on: 11/05/12
Originally listed on the Watch List: 10/20/12



Play Updates

Visa Surges to New High

by James Brown

Click here to email James Brown

Editor's Note:

Overall our play list held up relatively well. Some of our candidates hit new relative highs. I am concerned about our WFC trade and suggest we exit immediately. Readers may want to go ahead and take profits on our remaining Visa positions.


Closed Plays


None. No closed plays this week.


Play Updates


American Intl. Group - AIG - close: 32.68

Comments:
11/03/12: Ouch! The combination of Friday's market decline and the reaction to AIG's earnings report was negative. The results came out Thursday night and AIG actually beat estimates by 12 cents. Yet the stock gapped open lower on Friday morning and plunged to a -7.1% decline. Shares are sitting on support near $32.50 and its 150-dma.

If the stock market continues to trend lower then we could see AIG drop to the next level of support near $30.00. I am not suggesting new positions at this time.

NOTE: with only three months left on our 2013 calls, readers may want to exit these calls early right now to avoid or limit any losses.

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 $ 3.35/ 3.45

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 3.65/ 3.75

11/02/12 AIG gapped down following its earnings report
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: 9.85

Comments:
11/03/12: Wow! BAC outperformed the market last week with a +8% gain and a breakout to new seven-month highs. Shares are now facing round-number resistance at the $10.00 mark. A close over $10.00 and the March 2012 high of $10.10 could inspire more buying interest.

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 $ 0.56/ 0.57
(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 $ 0.56/ 0.57
(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: 61.40

Comments:
11/03/12: COF continues to trend higher. Shares pushed past resistance near $61.00 to set new multi-year highs. While the trend in COF is bullish I am a little hesitant to launch new positions given the weakness in the major indices.

Earlier Comments:
The P&F chart is bullish with a $71 target. We are aiming for $74.00. 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 $ 5.70/ 6.00

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


Cree, Inc. - CREE - close: 30.52

Comments:
11/03/12: CREE outperformed the market last week and broke through resistance at the $30.00 level. This stock was a watch list candidate. Our plan was to wait for shares to close over $30.25. The stock closed at $30.30 on October 31st. Our trade opened on Thursday on the gap down at $29.85. Fortunately CREE surged to a new high as traders bought the dip.

Our stop loss is currently at $27.45. Our long-term target is $39.00.

- Suggested Positions - (small positions)
NOV 01, 2012 - entry price on CREE @ 29.85, option @ 3.80
symbol:CREE1418a35 2014 JAN $35 call - current bid/ask $ 3.75/ 3.90

Chart of CREE:

Current Target:$ 39.00
Current Stop loss: 27.45
Play Entered on: 11/01/12
Originally listed on the Watch List: 10/20/12


Discover Financial - DFS - close: 40.98

Comments:
11/03/12: DFS tagged another record high on Friday morning, hitting $41.77 intraday. Shares did reverse from its Friday morning gains and technically Friday's session looks like a bearish reversal pattern. I would look for a dip back toward $40.00 or the 40-dma near $39.50. I am not suggesting new positions.

Please note our new stop loss at $36.45.

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 $5.40/5.80

11/03/12 new stop loss @ 36.45
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: 36.45
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12


Family Dollar Stores - FDO - close: 65.93

Comments:
11/03/12: FDO managed to eke out another gain for the week yet shares seemed to be struggling with resistance at the $67.00 level over the last couple of days. I would wait for a close over $67.00 before considering new bullish positions.

- Suggested Positions -
OCT 12, 2012 - entry price on FDO @ 65.88, option @ 1.70
symbol: FDO1320d75 2013 APR $75 call - current bid/ask $1.25/1.45

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: 63.99

Comments:
11/03/12: JOY outperformed the market with a sharp two-day gain on Wednesday and Thursday thanks in part to some bullish analyst comments. Yet shares reversed on Friday (as did most of the market). The Friday's reversal does look pretty ugly and I would expect a dip back toward the $61-60 zone.

I am raising our stop loss to $55.75 but more conservative traders may want to raise their stop closer to the $58.00 level instead.

- Suggested Positions -
SEP 25, 2012 - entry price on JOY @ 57.50, option @ 7.50
symbol: JOY1418A70 2014 JAN $70 call - current bid/ask $8.95/9.35

11/03/12 new stop loss @ 55.75
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: 55.75
Play Entered on: 09/25/12
Originally listed on the Watch List: 09/15/12


Lennar Corp. - LEN - close: 37.31

Comments:
11/03/12: LEN managed a gain for the week yet Friday's session was bearish. The stock reversed near its recent highs and produced a clearly defined bearish engulfing candlestick reversal pattern. These patterns normally need to see confirmation but I am expecting a pullback. More conservative traders may want to raise their stops so it's closer to the 50-dma. Currently our stop is at $33.90.

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 $5.20/5.45

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: 24.55

Comments:
11/03/12: Ouch! PFE hit some profit taking this past week. I warned readers that the company's earnings report could spark some volatility. PFE announced earnings on November 1st. Earnings of 53 cents a share was a penny above estimates. Revenues were a miss at $13.9 billion for the quarter. PFE's management lowered their 2012 guidance and tried to soften the blow of this bearish news by announcing another $10 billion stock buyback program.

PFE found support near $24.40 on the selling but I am not convinced the correction is over. Odds are good we'll see PFE test the $24.00 level and its 100-dma. If the stock drops any further it will hit our stop loss at $23.90.

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 $ 1.48/ 1.51

11/01/12 PFE reported earnings
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: 2.90

Comments:
11/03/12: SIRI reported earnings on November 1st. The results missed Wall Street estimates by a penny. Revenues were in-line with estimates and management issued guidance that was in-line with prior estimates. SIRI said their total paid subscribers hit a record high of 23.4 million.

Shares of SIRI held up well and appear to be breaking out from a bull-flag type of consolidation. I am raising our stop loss to $2.45. 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 $ 0.43/ 0.48

- or -

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

11/03/12 new stop loss @ 2.45
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: 2.45
Play Entered on: 10/04/12
Originally listed on the Watch List: 09/29/12


Spreadtrum Communications - SPRD - close: 21.49

Comments:
11/03/12: SPRD had rallied to new 2012 highs last week before giving it all back with Friday's -6.0% plunge. I could not find any news to account for SPRD's relative weakness on Friday. It just looks like profit taking after a three-week rally higher. The stock should find some technical support at its 50-dma near $20.60. The question now is how will SPRD fare after its earnings report. The company is due to report earnings on November 8th.

I am not suggesting new positions at this time.

- 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 $ 1.60/ 1.75

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: 33.43

Comments:
11/03/12: I don't see anything new in USB. Traders bought the dip near support at $33.00 but the bounce failed at resistance near $34 and its 50-dma. I am expecting a pullback lower toward its 200-dma near $32.00. 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 $ 0.55/ 0.58

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 2.31/ 2.41

09/15/12 new stop loss @ 31.40
07/20/12 trade opened 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: 143.40

Comments:
11/03/12: It was a bullish week for Visa with shares soaring to new highs following its earnings report. Visa reported on October 31st. The company beat estimates by four cents with a profit of $1.54 a share. Revenues also exceeded estimates at $2.73 billion. If that wasn't good enough management raised their quarterly cash dividend by +50% and announced a $1.5 billion stock buyback program.

Shares of Visa broke out to new highs following this report and then spiked to $146.41 on Friday morning before succumbing to the market's widespread declines on Friday. Readers may want to seriously consider an early exit now to lock in gains. While more aggressive traders may want to raise their exit target since we still have over a year on our 2014 calls. Currently our exit target is $149.00 for the 2014 calls. I am raising our stop loss to $134.00.

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 $17.55/18.20

11/03/12 New stop loss @ 134.00
10/31/12 Visa delivers a bullish earnings report
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: 134.00
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12


Wells Fargo & Co - WFC - close: 33.74

Comments:
11/03/12: I am growing concerned with our WFC trade. The stock is underperforming many of its peers in the financial sector. Shares look poised to breakdown under support near $33.50 soon. While the $33.00 level and its simple 200-dma could offer some support I think odds are growing that WFC is going to hit our stop loss at $32.75.

I am suggesting we exit all positions on Monday morning to avoid further losses. We can look at WFC again down the road if shares find new strength.

- Suggested Positions -
SEP 14, 2012 - entry price on WFC @ 35.60, option @ 2.26
symbol: WFC1418a40 2014 JAN $40 call - current bid/ask $ 1.31/ 1.36

11/03/12 prepare to exit positions on Monday morning at the open

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


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Software and Leisure Activities

by James Brown

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Editor's Note:

The market looks weak here and could see further declines. I have adjusted a couple of our entry triggers in response.



New Watch List Entries

ADBE - Adobe Systems

RCL - Royal Caribbean Cruises


Active Watch List Candidates

CNX - CONSOL Energy

DE - Deere & Co.

GE - General Electric

GLD - Gold ETF

SCCO - Southern Copper

SWN - Southwestern Energy


Dropped Watch List Entries

CREE graduated to our play list.
FTR and HAS have been removed.
LLL has been moved to our new plays section tonight



New Watch List Candidates:


Adobe Systems - ADBE - close: 34.39

Company Info

ADBE is in the software industry. Shares appear to be building a major basing pattern with its sideways consolidation in the $30-35 zone over the last several months. A breakout higher could be the beginning of its next major up move.

I am suggesting we wait for ADBE to close over $35.25 and then buy calls the next day. Our long-term target is $44.00.

Breakout trigger: Wait for a close over $35.25 (stop @ 32.25)

BUY the 2014 Jan $40 call (ADBE1418a40) current ask $2.41

Chart of ADBE:

Originally listed on the Watch List: 11/03/12


Royal Caribbean Cruises - RCL - close: 34.74

Company Info

Normally when a company issues an earnings warning the stock goes down. Yet shares of RCL are hitting new 2012 highs. The company reported earnings back on October 25th. Wall Street was expecting a profit of $1.46 a share. RCL delivered $1.68. It was a strong beat but RCL then lowered their Q4 guidance. This should have sank the stock. Yet shares spiked higher most likely due to management's positive comments about their 2013 outlook. Even more impressive is that shares of RCL have been able to build on those gains.

The $35.00 level could be resistance and given the market's weakness I would not be surprised to see a little profit taking in RCL. I am suggesting we wait and buy calls on a dip at $32.25 with a stop loss at $29.25. Our long-term target is $39.50. More aggressive traders could aim higher. The Point & Figure chart is forecasting at $57 target.

Buy-the-Dip trigger: $32.25 (stop loss @ 29.25)

BUY the 2014 Jan $35 call (RCL1418a35) current ask $5.45

Chart of RCL:

Originally listed on the Watch List: 11/03/12


Active Watch List Candidates:



CONSOL Energy Inc. - CNX - close: 35.20

Comments:
11/03/12: CNX is virtually unchanged for the week. Unfortunately, Friday's session produced a bearish reversal just under the October high. This now looks like a bearish double top pattern. I am expecting a dip back toward the simple 200-dma. We will adjust our buy-the-dip trigger to $32.50 and our stop loss to $29.75.

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: $32.50 (Small Positions, stop 29.75)

BUY the 2014 Jan $40 call (CNX1418a40)

11/03/12 adjust the trigger down to $32.50, stop to $29.75
10/27/12 adjust the trigger down to $33.00

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


Deere & Co. - DE - close: 85.60

Comments:
11/03/12: DE eked out a small gain for the week yet Friday's session also looks like a bearish reversal pattern. If shares do correct DE will probably decline into the $82-80 zone. I am moving our trigger again, this time to $82.00.

Earlier Comments:
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: $82.00 (stop loss 79.45) *Small Positions*

BUY the 2014 Jan $90 call (DE1418a90)

11/03/12 DE appears to have reversed, use a trigger @ 82.00
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: 4.51

Comments:
11/03/12: Shares of FTR have continued to fail at technical resistance at its 300-dma. Now shares look poised to break support near $4.50. If that happens then FTR could easily see a correction down toward the $4.00 level. Nimble traders may want to consider short-term bearish trades. However, keep in mind that FTR is due to report earnings on Nov. 6th.

Given FTR's recent weakness it is unlikely that shares will hit our trigger (a close over $5.20) any time soon so I am removing FTR as a candidate.

Trade did not open.

11/03/12 removed FTR as a candidate. Trade did not open.

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


General Electric - GE - close: 21.31

Comments:
11/03/12: Traders bought the dip near $21.00 again but the bounce on Friday failed near its 10-dma. I am still expecting a correction into the $20.50-20.00 zone. Nimble traders may want to try and time an entry point on a dip near the simple 200-dma. 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: 162.60

Comments:
11/03/12: We have been expecting gold and the GLD to correct lower. Yet Friday's big drop was a surprise. The GLD gapped open lower and then plunged to a -2.0% decline thanks to a big rally in the U.S. dollar. The low on Friday for the GLD was $162.30 so our trade is not open yet. Given the bullish breakout in the dollar we could see gold's current correction lower last a while.

I am moving our buy-the-dip trigger to $160.00. More conservative traders could use a trigger near $158.00 instead. We'll adjust our stop loss to $154.40.

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

Buy-the-Dip trigger: $160.00 (stop loss @ 154.40)

BUY the 2013 Jun $175 call (GLD1322a175)

- or -

BUY the 2014 Jan $200 call (GLD1418a200)

11/03/12 Adjust the entry trigger down to $160.00 and the stop to $154.40
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: 35.58

Comments:
11/03/12: HAS has been underperforming since its earnings report and the stock is breaking down through multiple layers of support. It is unlikely that shares will hit our entry trigger (a close over $40.25) any time soon so I am dropping HAS as a watch list candidate.

Trade did not open.

11/03/12 remove HAS as a candidate. trade did not open.

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


Southern Copper Corp - SCCO - close: 38.54

Comments:
11/03/12: SCCO tagged new highs for 2012 this past week. I am still expecting a correction so we will wait for a pullback. 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)

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


Southwestern Energy - SWN - close: 35.91

Comments:
11/03/12: SWN displayed some relative strength this past week thanks in part to a better than expected earnings report. Shares have rallied back to their 2012 highs. We are waiting for a breakout past resistance.

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