Option Investor
Newsletter

Daily Newsletter, Sunday, 11/11/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Turn Sour

by James Brown

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Investor reaction to the U.S. election last week was worse than expected. I cautioned readers to expect some volatility on Wednesday but stocks sold off hard with a two-day plunge. It was the worst week for stocks since June with the S&P 500 index falling -2.4%. The NASDAQ composite was hit harder with a -2.59% decline. Believe it or not the U.S. dollar has continued to climb over the last few days but the dollar's rise has not stopped a rebound in precious metals as well. Bonds rallied as investors looked for safety and the yield on the 10-year U.S. bond fell to 1.6% and looks headed for the 2012 low near 1.4%.

As expected any economic data was completely overshadowed by the U.S. presidential election. The ISM services index saw a drop from 55.1 to 54.2 in October. That was slightly worse than expected. The real surprise was the University of Michigan preliminary reading on consumer sentiment, which rose again from 82.6 to 84.9. This is a new multi-year high for sentiment. It would seem that consumers are not concerned with the fast approaching fiscal cliff or what that might mean for their personal finances.

Europe was back in the news. Germany is the strongest economy in the Eurozone. The latest data showed that German factory orders and exports declined in September. Plus Germany's industrial production fell -1.8% in September, which was much worse than expected. The Eurozone's Autumn Forecast is suggesting the German economy will continue to slow down. The European Central Bank President Mario Draghi admitted that Europe's financial crisis was having an impact on Germany. A significant chunk of Europe is already in recession and if Germany falls into recession it's going to make things that much worse.

Speaking of "worse" the German Chancellor Angela Merkel uttered a depressing statement. Merkel confessed that solving the Eurozone crisis would take "five years or more". It's already been two years. I'm starting to wonder if the Eurozone is facing its own lost decade. The ECB and the Eurozone officials have promised a lot of solutions and very little action. Granted, I'm sure trying to get Eurozone members to agree on anything is like herding cats. Yet the lack of political will to tackle the hard issues and the "we have to look out for ourselves first" attitude could fuel more and more protests and civil unrest.

Greece was making headlines again. The country is teetering on the brink of chaos. Most analysts are still expecting Greece to leave or get kicked out of the Eurozone in the next six to twelve months. If that happens then there is no hope of the EU/IMF/ECB of getting its 240 billion bailout money back. Greece has a debt payment due this week of 4.0 billion euros (about $5 billion). They don't have the money. They are going to try and sell new debt to pay on the old debt. Now who is going to buy Greek bonds when nearly everyone thinks they will default? If the debt auction is successful it will likely be the ECB throwing more good money after bad. If the Greece situation isn't bad enough there are rumors that Spain is going to ask for a bailout soon. A year ago that was unthinkable. Spain is several times larger than Greece and it was considered too big to be bailed out. We have seen two years of pain as the EU struggles with the Greece bailout. What will a Spanish bailout do to the region?

Right now everyone is blaming the fiscal cliff for the stock market sell-off. Of course we've known about the cliff for months but with Obama's reelection on Tuesday there is suddenly a greater worry that Washington will not remedy this problem in time. We have less than 50 days before the "cliff" gets here on January 1st, 2013. The problem is that President Obama has already said that while he and congress would likely work something out it could take months. By that time we would already be over the cliff and falling into recession.

There are analysts who argue with the term "cliff" and suggest it will be more like a "slope". That may be true for the impact on the government and its citizens but the perception of going over the cliff by investors is all the reality we need to spark a major market sell-off?

Let me back up for a moment. You may have heard the term "fiscal cliff" but you don't really know what it means. It all started back in summer 2011. The U.S. was approaching its debt ceiling and a showdown between Democrats and Republicans actually pushed the U.S. to the edge of a credit default when they could not reach a compromise. The final deal was the Budget Control Act of 2011, which allowed the government to raise the U.S. debt ceiling by more than $2 trillion to about $16.3 trillion.

This 11th hour deal created a joint democratic and republican committee to agree on over a trillion in budget cuts spread out over ten years. If they did not agree by the end of 2011 then there would be a "fiscal cliff", the term was coined by Federal Reserve President Ben Bernanke, scheduled for January 2013. If no deal was reached by 2013 then the U.S. would suffer $1.2 trillion in across the board budget cuts with half coming from the defense spending and half non-defense (entitlements). To pay for this $1.2 trillion in spending cuts, taxes shoot up across the board for almost everyone. What Wall Street realizes is that one of the taxes the fiscal cliff creates is a higher tax on financial transactions, higher taxes on dividends and capital gains.

Washington's failure to solve the U.S. debt ceiling issue on time back in July 2011 sparked a 250-point sell off in the S&P 500 index (a -18% plunge) in less than a month. A few days later the Standard & Poor's rating agency downgraded the U.S. rating for the first time in history. Now we are facing the potent combination of both the fiscal cliff deadline on January 1st, 2013 and another battle over raising the U.S. debt ceiling again.

FYI: Curious about the "fiscal cliff"? Check out this Wall Street Journal video on the fiscal cliff (click here).

Many economists have estimated the impact of the fiscal cliff on the U.S. economy to be about -3% to -4.5% on the U.S. GDP in 2013. There does seem to be a growing camp of analysts who believe that some sort of compromise will be reached and the adjusted fiscal "slope" will only cut -1.5% off the U.S. economy in 2013. Unfortunately the U.S. economy only grew at +2% in the third quarter of 2012. If there is no compromise then we are guaranteed to fall into a recession next year. Even if there is a compromise then we are still at risk of seeing the U.S. slip toward a new recession. If the U.S. hits a recession it impacts the entire globe. A few market watchers are already predicting that Washington's gridlock on the fiscal cliff will push stocks lower and we could see the S&P 500 index trading back under 1250 by year end.

Major Indices:

Technically last week was bearish for the S&P 500 index. The -2.4% drop produced a bearish breakdown below what should have been support at the 1400 level and its 100-dma and 200-dma. I warned readers that if the S&P 500 broke down under 1400 it was headed for 1380 or its 200-dma. That's exactly what happened.

Stocks are arguably short-term oversold here. Yet if equities do see a bounce the broken support at 1400 is now new resistance. If the sell-off continues then the next likely support level is the 1350 area.

chart of the S&P 500 index:

The tech-heavy NASDAQ continues to underperform with a -2.59% decline last week. The breakdown under support at the simple 200-dma, the exponential 200-dma and the 2950 level is definitely bearish. The NASDAQ managed to end the week hugging the 2900 level. This index is short-term oversold with a five-week decline. Yet any oversold bounce could encounter new resistance at 2950, 3000, and all of its major moving averages. If this sell-off continues then the next support levels to watch are probably the 2850 level and the 2800 level.

FYI: The NASDAQ is about -9% off its 2012 highs.

chart of the NASDAQ Composite index:

Side note: Last week I warned readers that Apple Inc.'s (AAPL) sell-off was probably not over yet. I suggested readers look for a drop towards the $530-528 area. The stock hit a low near $535 on Thursday and traded under $534 on Friday. Shares are definitely looking oversold here but there is no guarantee the correction lower is over. Honestly I would not be surprised to see AAPL spike down to $525 before bouncing.

The small cap Russell 2000 index ($RUT) also looks pretty ugly with a sharp bearish breakdown through several major moving averages (100-dma, 200-dma, 200-ema, 150-dma) and round-number support at the 800 level. Aside from a couple of oversold bounces the $RUT has fallen over the last eight weeks with a -8% correction from its closing high.

Can the $RUT see another oversold bounce? Absolutely! Yet now broken support should be new resistance. If the selling continues the next likely support area is probably 780.

Daily chart of the Russell 2000 index

Now that the U.S. election is over the market's attention will focus on the fast approaching fiscal cliff and the deteriorating situation in Europe. We have less than 50 days left before 2012 ends and the U.S. economy runs off the cliff. Stocks could react to headlines out of Europe this week over the health of the Eurozone economy. Plus, we'll also get another look at the U.S. economy with the New York and Philadelphia Fed surveys.

Economic and Event Calendar

- Monday, November 12 -
(nothing significant)

- Tuesday, November 13 -
Eurozone jobs data
Italy debt auction

- Wednesday, November 14 -
U.S. retail sales (for October)
PPI (for October)
FOMC minutes
Eurozone Industrial Production
Eurozone CPI data
Eurozone GDP

- Thursday, November 15 -
Weekly Initial Jobless Claims
CPI for October
New York Empire State manufacturing survey
Philly Fed survey

- Friday, November 16 -
Industrial Production and Capacity Utilization
Debt deadline for Greece to make a $5 billion payment

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 suspect we are in for a bumpy ride lower. You could argue that the U.S. market major indices are short-term overbought. My concern is that any bounce is going to be used as an opportunity to sell. What reason do investors have to buy stocks? There will be more pressure to sell stocks now before we hit 2013 to avoid higher taxes on capital gains and dividends.

Corporate guidance has been less than inspiring. Of those companies that issued guidance with their Q3 earnings results over 70% have warned on the fourth quarter. Right now analysts estimates on fourth quarter earnings growth have fallen from +11.1% to +5.6%. The uncertainty over the fiscal cliff, the U.S. debt ceiling, and how Obamacare might impact their bottom line in addition to weakness in Europe is likely to keep businesses cautious on guidance, spending, and hiring.

I mentioned earlier how the debt ceiling battle in Washington back in 2011 produced a -18% drop in the S&P 500. We're about to see another battle over the debt ceiling. The democrats are going to feel empowered by the election while republicans are likely to dig in deeper in an effort to hold on. Thus we're likely to see another brutal fight that could fuel more weakness for stocks.

Meanwhile issues overseas continue to simmer. Greece is marching closer to another default. Spain could be on the verge of asking for a bailout. The Syrian civil war is escalating. Syria just fired mortars into Israel this weekend and Israel retaliated. It wasn't that long ago that Syria was firing into Turkey. The situation there could get a lot worse really quick. The tension in Iran remains. There was a news story this weekend that Iran was shooting at a U.S. drone. Thankfully that is an unmanned aircraft but if they are shooting at U.S. vehicles it underscores the tense emotions in Iran as they suffer skyrocketing inflation and the U.N.'s current economic sanctions.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks delivered one of the worst weeks in months as investors sold the election night news. Renewed worries over the fiscal cliff and Europe have undermined investor confidence again.

The market looks weak. Readers will want to take a defensive posture on any bullish trades.

The plan was to exit our WFC trade on Monday, Nov. 5th.
SPRD was stopped out.

CNX and SCCO have graduated from our watch list to the active trade list.

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

The Market's Challenge

by James Brown

Click here to email James Brown

Editor's Note:

(November 10, 2012)

I am not adding any new trades tonight. The market looks pretty weak given the bearish breakdown below significant support this past week. The market's challenge right now is presenting investors a reason to buy stocks, especially between now and the end of the year.

The fiscal cliff is coming and I do not have much hope that Washington will kick the can down the road in time before stocks sell-off ahead of the January 1st, 2013 starting line for the fiscal cliff cuts to take place. Investors will feel pressure to sell stocks to avoid higher taxes on capital gains in 2013 and beyond.

That doesn't mean the market is going to crash but the path of least resistance is down. I suspect traders will be selling into strength until the fiscal cliff issue is dealt with. Meanwhile we did find a couple of bullish candidates to add to the watch list and replace those watch list candidates that graduated to our active trade list this past week.

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:

HON, MMR, TSM, BTU, CREE, ANR, CCL, RYL, OMX, CIEN, HFC, NOK, VMC, SBUX, TXN, MA, VCLK, MYL, APKT,


Play Updates

Widespread Losses After Election

by James Brown

Click here to email James Brown

Editor's Note:

The market has turned south following the U.S. election. Concerns over the upcoming fiscal cliff and Europe persist.

Investors should take a defensive posture with any bullish positions. The market could see consistent selling pressure until the fiscal cliff issue is resolved. That could be scaling back positions, exiting early, or raising your stop loss.


Closed Plays


SPRD and WFC


Play Updates


American Intl. Group - AIG - close: 32.17

Comments:
11/10/12: AIG has seen a tough three-week decline but traders bought the dip on Friday near $31 and its 200-dma. Friday's session actually looks like a bullish engulfing candlestick reversal pattern. However, if the market continues to sink we should expect AIG to follow. 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 $ 3.05/ 3.15

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 3.50/ 3.70

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: 9.43

Comments:
11/10/12: The financial sector displayed significant relative weakness on Wednesday following the U.S. election. Fortunately there was no follow through for shares of BAC. Where it goes from here is tough to decipher. The early November rally now looks like a failed rally at resistance near $10.00. Yet BAC still has a positive trend of higher lows - at least for now. I am not suggesting new positions at this time.

Earlier Comments:
Currently we do not have a specific exit target. The plan has been to exit in the $12.00-15.00 zone.

- Suggested Positions -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.35/ 0.36
(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 $ 0.35/ 0.36
(no stop loss on this position)

11/10/12 no new positions at this time.
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


CONSOL Energy Inc. - CNX - close: 32.95

Comments:
11/10/12: Coal stocks were hammered lowered following the U.S. elections. Wall Street's reaction is suggesting they expect President Obama to remain unfriendly to the coal industry.

We had been expecting a pullback and shares of CNX hit our buy-the-dip trigger at $32.50 on Friday morning. Fortunately traders bought the dip and CNX reversed into positive territory. I suspect we could see shares retest the $32.00 level again before moving higher so readers may want to wait for a new bounce off $32 before initiating new positions or you could wait for a close over $34.00 as an alternative entry point. On a short-term basis the trend is down but CNX is holding near technical support at its 50-dma and 200-dma for now.

Earlier Comments:
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.

- Suggested Positions - (small positions)
NOV 09, 2012 - entry price on CNX @ 32.50, option @ 3.24
symbol: CNX1418a40 2014 JAN $40 call - current bid/ask $ 3.20/ 3.30

11/09/12 triggered on a dip at $32.50
11/03/12 adjust the trigger down to $32.50, stop to $29.75
10/27/12 adjust the trigger down to $33.00

Chart of CNX:

Current Target: $42.50
Current Stop loss: 29.75
Play Entered on: 11/09/12
Originally listed on the Watch List: 10/13/12


Capital One Financial Corp. - COF - close: 58.37

Comments:
11/10/12: COF lost about three points for the week. Shares have retreated toward support near its trend of higher lows. Any further weakness from here definitely puts our trade in danger with our stop loss at $56.85. I'd probably wait for a new close back above $60.00 before considering new bullish positions.

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 $ 4.40/ 4.65

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: 31.18

Comments:
11/10/12: CREE displayed relative strength by posting a gain for the week. However, I will point out that Thursday's session has created a one-day bearish reversal pattern. There hasn't been any follow through yet but CREE is arguably short-term overbought following a four-week rally higher. Readers will want to seriously consider waiting for a dip back toward $30 or the $29.00 level before considering new bullish positions.

- 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 $ 4.05/ 4.20

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: 41.08

Comments:
11/10/12: Shares of DFS managed to eke out a small gain for the week. Shares are essentially consolidating sideways. I would expect shares to correct lower and breakdown under technical support at its 50-dma if the market continues to sink. DFS will likely find support near $38.00. I am not suggesting new positions at this time.

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 $5.50/5.80

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: 66.50

Comments:
11/10/12: FDO is still churning sideways but it's churning sideways with a bullish bias. The stock managed a half point gain for the week. Readers may want to 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: 57.56

Comments:
11/10/12: Ouch! Shares of JOY lost -10% for the week. The stock was down hard the two days following the U.S. election and almost managed a gain on Friday. Unfortunately the sell-off this past week has broken likely support at $60 and the 50-dma.

I didn't see anything specific in the news to account for the relative weakness. JOY just tends to be more volatile. If there is any follow through lower this week then JOY will most likely hit our stop loss at $55.75.

- Suggested Positions -
SEP 25, 2012 - entry price on JOY @ 57.50, option @ 7.50
symbol: JOY1418A70 2014 JAN $70 call - current bid/ask $6.50/6.75

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: 38.11

Comments:
11/10/12: LEN produced a gain for the week. Yet bigger picture the stock and the housing sector is just churning sideways. Both are losing upward momentum. Traders did buy the dip in LEN on Friday morning but I am concerned that the stock could see a larger correction soon. More conservative traders may want to raise their stop so it's closer to the 50-dma or even take profits now.

I am not suggesting new positions at this time. Our stop remains 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 $5.70/5.90

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


L-3 Communications - LLL - close: 74.47

Comments:
11/10/12: LLL is a defense contractor and President Obama's reelection sparked some serious profit taking on Wednesday. Shares of LLL plunged from about $77.50 to $72.25 before paring its gains on Wednesday afternoon. The stock has since churned sideways. If Washington fails to come up with a solution to the fast approaching fiscal cliff it could impact LLL. Half of the $1.2 trillion in spending cuts imposed by the cliff will be directed at defense spending. While LLL may fare better than some of its peers in the defense business it could still be affected negatively. Thus, I am not suggesting new positions at this time. More conservative traders may want to abandon ship.

- Suggested Positions - (small positions @ first)
NOV 05, 2012 - entry price on LLL @ 75.64, option @ 4.40
symbol: LLL1418a80 2014 JAN $80 call - current bid/ask $ 3.90/ 4.10

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


Pfizer Inc. - PFE - close: 24.17

Comments:
11/10/12: Odds are very high that PFE will hit our stop loss soon. The three-week correction lower has pulled shares down toward support near $24.00 and its 100-dma. Our stop loss is at $23.90. More aggressive traders might want to widen their stop and give PFE more room to maneuver. Shares have dipped to and bounce twice from their 150-dma in the last six months. That might be a good spot to look for support (150-dma near $23.50). Or you could place your stop loss under the 200-dma near $23.00 instead.

I am not suggesting new positions at this time.

- Suggested Positions -
Jul 18, 2012 - entry price on PFE @ 23.53, option @ 1.30
symbol: PFE1418A25 2014 JAN $25 call - current bid/ask $ 1.40/ 1.45

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


Southern Copper Corp - SCCO - close: 34.70

Comments:
11/10/12: We were expecting a pullback in SCCO but the sharp correction in lower in the stock this week was a lot worse than expected. Copper prices actually rallied on Tuesday before the election results were known. So it's could be bit challenging to explain the huge gap down in shares of SCCO on Tuesday morning. The stock went from $38.50 on Monday to gap open lower at $35.78 on Tuesday morning. Fortunately, the answer is easy. SCCO began trading ex-dividend on November 6th. The stock has a HUGE dividend yield of 31% a year. The gap down was an adjustment for the big dividend.

We had SCCO on our watch list with a buy-the-dip entry point at $36.50. The gap open lower at $35.78 immediately opened our trade. Readers may want to wait for SCCO to close back above $36.00 before considering new bullish positions. We currently have a stop loss at $31.95. More conservative traders may want to raise that.

The plan was to keep our position size small to start.

- Suggested *SMALL* Positions -
NOV 06, 2012 - entry price on SCCO @ 35.78, option @ 2.30
symbol:SCCO1418a40 2014 JAN $40 call - current bid/ask $ 1.70/ 2.05

11/06/12 trade opened on gap down at $35.78, below our trigger.
(gap down was due to SCCO trading ex-dividend)

Chart of SCCO:

Current Target: $44.75
Current Stop loss: 31.95
Play Entered on: 11/06/12
Originally listed on the Watch List: 10/20/12


SIRIUS XM Radio - SIRI - close: 2.75

Comments:
11/10/12: The stock market's widespread declines has produced a correction lower in SIRI as well. Shares fell four days in a row before bouncing off technical support at its 50-dma. The short-term trend is still down so we may see SIRI retest its 50-dma or what should be support near $2.60 soon. I am not suggesting new positions at this time.

- Suggested Positions -
OCT 04, 2012 - entry price on SIRI @ 2.75, option @ 0.38
symbol:SIRI1418A3 2014 JAN $3.00 call - current bid/ask $ 0.40/ 0.42

- 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


U.S. Bancorp - USB - close: 32.10

Comments:
11/10/12: Financial stocks sank following the election results and USB broke down under support at the $33.00 level. As expected shares dipped toward the next level of support near $32 and its simple 200-dma. 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 $ 0.21/ 0.23

- or -

Jul 20, 2012 - entry price on USB @ 33.62, option @ 3.10
symbol: USB1418A35 2014 JAN $35 call - current bid/ask $ 1.74/ 1.80

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: 142.93

Comments:
11/10/12: Shares of Visa held up pretty well with traders buying the dip most morning. The stock remains near its all-time high set in early November. I don't see any changes from my prior comments.

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.

- 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 $16.25/18.65

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


CLOSED Plays


Spreadtrum Communications - SPRD - close: 19.44

Comments:
11/10/12: Our SPRD trade has been stopped out.

SPRD reported earnings on November 8th. One source reported that SPRD beat estimates by 7 cents while a different report said SPRD missed by two cents. Management issued relative bullish guidance so why did the stock get killed on Friday with an -8.8% plunge (it was a -14.7% plunge intraday)? It seems that investors were unhappy with the results and guidance was not bullish enough. Plus, multiple analysts downgraded the stock following the earnings report. There are concerns that profit margins could be pressured and SPRD could lose market share to competitors.

Our stop loss was at $18.90. SPRD gapped open lower at $19.20 and quickly hit our stop loss as it spiked down to $18.18 before paring its losses.

- Suggested Positions -
Sep 07, 2012 - entry price on SPRD @ 20.59, option @ 1.95
symbol:SPRD1319a22.5 2013 JAN $22.5 call - exit $0.55 (-71.9%)

11/09/12 SPRD gaps down in reaction to earnings and hits our stop
11/08/12 SPRD reports earnings
10/27/12 SPRD has reversed higher and broken through resistance
10/06/12 SPRD looks vulnerable. Investors may want to exit early

Chart of SPRD:

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


Wells Fargo & Co - WFC - close: 32.35

Comments:
11/10/12: A week ago we decided it would be best to exit our WFC trade early. The plan was to exit on Monday morning at the open to cut our losses. WFC opened at $33.56 on Nov 5th. The option opened at $1.27.

- Suggested Positions -
SEP 14, 2012 - entry price on WFC @ 35.60, option @ 2.26
symbol: WFC1418a40 2014 JAN $40 call - exit $1.27 (-43.8%)

11/05/12 planned exit on Monday morning
11/03/12 prepare to exit positions on Monday morning at the open

Chart of WFC:

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


Watch

Solar Energy & Oil

by James Brown

Click here to email James Brown


New Watch List Entries

FSLR - First Solar Inc.

VLO - Valero Energy


Active Watch List Candidates

ADBE - Adobe Systems

GE - General Electric

GLD - Gold ETF

RCL - Royal Caribbean Cruises

SWN - Southwestern Energy


Dropped Watch List Entries

CNX and SCCO have graduated to the play list.
DE was removed.



New Watch List Candidates:


First Solar Inc. - FSLR - close: 24.55

Company Info

Shares of solar energy stock FSLR actually managed a gain for the week. Traders bought the sell-off from Nov. 2nd and now FSLR is nearing resistance in the $25-26 zone. The stock has been consolidating in a bullish pattern for over two months. A breakout should herald the next leg higher.

I am suggesting we wait for FSLR to close above $26.00 and then buy calls the next morning with a stop loss at $21.90. Our long-term target is $39.75.

Breakout trigger: Wait for a close over $26.00 (stop @ 21.90)

BUY the 2014 Jan $30 call (FSLR1418a30) current ask $4.90

Chart of FSLR:

Originally listed on the Watch List: 11/10/12


Valero Energy - VLO - close: 29.59

Company Info

VLO looks like it has found a bottom. Most of the market was selling off last week. Yet VLO was bouncing from support near $28 and its 100-dma. Shares look poised to breakout past resistance near $30.50 and its 50-dma.

I am suggesting we wait for VLO to close over $30.60 and then buy calls the next day with a stop loss at $27.75. Our long-term target is $39.75.

Breakout trigger: Wait for a close over $30.60 (stop @ 27.75)

BUY the 2014 Jan $35 call (VLO1418a35) current ask $2.73

Chart of VLO:

Originally listed on the Watch List: 11/10/12


Active Watch List Candidates:



Adobe Systems - ADBE - close: 32.90

Comments:
11/10/12: Shares of ADBE were not immune to the market's widespread declines. The stock has reversed back toward short-term support near $33 and its 50-dma. We will give ADBE a couple of more weeks to recover. Right now we are waiting for a bullish breakout higher.

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)

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


Deere & Co. - DE - close: 84.29

Comments:
11/10/12: The stock market's current trend is down and DE is due to report earnings on November 21st. Considering the recent trend of earnings results and the market's reaction to earnings news there is a good chance that DE will move lower on the report. I am removing DE as a watch list candidate for now and we'll look at it again after its earnings report.

Trade did not open.

11/10/12 removed DE as a watch list candidate.
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


General Electric - GE - close: 21.00

Comments:
11/10/12: GE is breaking down past support near $21.00 as expected. Given the market's current trend I suspect GE will test its 200-dma near $20.20. We will move our buy-the-dip trigger down to $20.25 and adjust our stop loss to $19.25. Our long-term target is $27.50.

Buy-the-Dip trigger: $20.25 (stop 19.25)

BUY the 2014 Jan $25 call (GE1418a25)

11/10/12 adjust the trigger down to $20.25, just above the 200-dma, stop to $19.25
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: 167.82

Comments:
11/10/12: Normally when the dollar rallies, commodities retreat. Yet this week we have seen both the dollar and gold rise together. I can't explain the rise in the dollar but gold is rising due to Obama's reelection. If Romney was elected he was planning to fire Fed Chairman Ben Bernanke. Now Bernanke can keep his position and the Fed's current QE programs will remain in effect, which should devalue the dollar, making gold more expensive.

Currently our buy-the-dip trigger is at $160.00 with a stop loss at $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


Royal Caribbean Cruises - RCL - close: 34.44

Comments:
11/10/12: Shares of RCL have held up pretty well considering the market's decline this past week. We are still waiting for a correction lower.

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)

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


Southwestern Energy - SWN - close: 34.20

Comments:
11/10/12: SWN has pulled back toward short-term support. If shares close under $33.50 we'll likely drop it as a candidate. 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