Option Investor
Newsletter

Daily Newsletter, Sunday, 11/25/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Rebound Sharply for Thanksgiving

by James Brown

Click here to email James Brown

After a multi-week decline in the U.S. stock market an oversold bounce showed up just in time for Thanksgiving week. The S&P 500 index is up five trading days in a row and delivered its best weekly performance since June. A handful of economic reports came in better than expected while investors ignored any that disappointed. A cease-fire between Israel and Hamas could have buoyed trader sentiment but riots in Egypt are now making headlines. Geopolitical risks remain. Meanwhile Federal Reserve Chairman Ben Bernanke warned that if the fiscal cliff issues are not solved the U.S. will fall back into recession.

There were a number of headlines out of Europe this past week. France lost its "AAA" credit rating from Moody's. This news wasn't too shocking since S&P had already downgraded France months ago. What is troubling was news that EU leaders canceled their budget talks in less than two days. They could not come to agreement as they discussed their next seven-year (2014-2020) EU budget and promised to try again in early 2013.

A week ago one of the major headlines was news that the Eurozone was officially back in recession. This past week showed that the Eurozone PMI services index fell to 45.7, that's the lowest level since July 2009. Readings under 50.0 indicate contraction and the PMI services number has been under 50.0 for ten months in a row. Deutsche Bank issued a bearish forecast for the Eurozone as well. They warned that both France and Germany, the two largest Eurozone members, might see negative GDP numbers for the fourth quarter as the region continues to slow down. Oddly enough, in spite of these negative economic headlines, the German IFO business confidence survey, of 7,000 executives, unexpectedly improved from 100 to 101.4. Economists had been expecting this confidence survey to drop to 99.5.

Europe will remain in the spotlight. Storm clouds continue to brew for Spain. The Catalonia region of Spain, with 7.5 million citizens and 19% of the country's GDP, has seen a surge of support for those wishing to leave the struggling country and form their own nation. It is very unlikely that this proposal to leave Spain will get enough support in the regional elections but it's throws doubt on Spain's internal political stability. Many are expecting Spain to ask for a full fledged bailout soon and Catalonia will probably balk at the proposed austerity cuts required for further aid from the EU and IMF.

Greece will be back in the news again soon. The small European country has been living on life support, i.e. bailout funds, since May 2010. It's a bit confusing but the next tranche of bailout money to Greece has already been approved but has not been transferred to Greece yet. Eurozone officials are waiting to see the results of an early December referendum where Greek citizens will be voting on whether or not they want to stay in the eurozone or not. If the Greeks vote no, then Europe is unlikely to forward them the next loan installment. Currently Greece is meeting with eurozone finance ministers as they try to restructure Greek debt again. The best bet is that eurozone officials will propose lower interest rates and longer debt repayment schedules to lessen the load for Greece's struggling economy. However, no deal is done yet and eurozone finance ministers meet again on Monday. The referendum is expected on December 5th.

On the other side of the world there was some good economic news out of China. I told readers last week to watch for China's HSBC PMI manufacturing report as one of the economic highlights of the week. The latest PMI data rose from 49.5 to 50.4. This is the first time it has come in above the key 50.0 mark since October 2011. Readings above 50.0 indicate growth.

Back home in the U.S. the latest housing starts data came in 50,000 better than expected at 894,000. Existing home sales rose to an annual 4.79 million pace, which was also 50K better than expected although the prior month was revised lower by 60K. The weekly initial jobless claims fell from 451K to 410K, which was actually better than expected. The University of Michigan consumer sentiment survey's final reading for November fell from 84.9 to 82.7.

Elsewhere the media was focused on Black Friday and the circus surrounding retailers trying to jump start the holiday shopping season. There were mixed reviews over the weekend. American Express said their early readings suggested consumers were spending less than last year. IBM, who handles the electronic registers for thousands of merchants, said that consumers were actually spending more than a year ago. It will be interesting to see what the general tone is come Monday after a long weekend of shopping in America.

Major Indices:

The U.S. market has surged from oversold levels to overbought in just a week. The S&P 500 added +3.6% and pushed back above technical resistance at the 200-dma, the 1380 level and the 1400 level. The bounce has been so sharp it's probably time for some profit taking.

I would not be surprised to see the S&P 500 dip back into the 1385-1380 zone again. If it breaks down under 1380 then it could foreshadow a retest of the November lows near 1350-1340. Should the rally continue the next level of resistance is probably 1420 and the 50-dma, currently near 1425.

chart of the S&P 500 index:

The NASDAQ composite was one of the worst performers among the major indices so it's not surprising it saw one of the biggest bounces. The index surged to a +3.9% gain and pushed back above resistance near 2950 and its exponential 200-dma. I warned readers last week to expect the bounce to sharp and fast.

The simple 200-dma near 2985 and the 3,000 level remain overhead resistance. After such a big bounce I would expect some profit taking. Do not be surprised to see a dip back toward 2900 or the simple 10-dma.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) also rebounded with a +3.9% gain on the week. The close above resistance at 800 is positive and it's currently testing the simple 200-dma. Yet after such a big move higher I would expect a pullback. Do not be surprised to see a dip back toward 790 and the 10-dma. There is still overhead resistance at 820 and the $RUT still has a trend of lower highs. I would remain cautious until we see a strong close above 820.

Daily chart of the Russell 2000 index

The economic calendar this week is a little quiet. We'll see more housing data and the next consumer confidence number. The Beige Book report is probably a non-event although Bernanke speaks on the 27th and that will probably make headlines. The second estimate on the U.S. Q3 GDP is actually expected to be revised higher. That could help the market.

Economic and Event Calendar

- Monday, November 26 -
(nothing significant)

- Tuesday, November 27 -
Durable Goods Orders
Case-Shiller 20-city home price index
Consumer Confidence

- Wednesday, November 28 -
New Home Sales (for October)
Federal Reserve Beige Book report

- Thursday, November 29 -
Weekly Initial Jobless Claims
Q3 GDP (second estimate)
Pending home sales

- Friday, November 30 -
Personal Income and Spending
Chicago PMI
China's PMI manufacturing data

Additional Events to be aware of:

Dec. 7th - nonfarm payrolls (jobs) report
Dec. 12th - FOMC meeting

The Week Ahead:

Thankfully we had a week without headlines out of Washington regarding the fiscal cliff. I hope you enjoyed it because now it's going to become all about the fiscal cliff all the time (as if it wasn't before Thanksgiving). The key will be whether or not the tone changes on Wall Street.

Previously stocks were sinking on worries that Republicans and Democrats would not be able to find any middle ground and the U.S. would go careening off the fiscal cliff. Now it seems the tone might be changing. Investor sentiment could improve on hopes that some sort of deal might get done before the end of the year. Granted any deal will likely be of the "kick the can down the road" variety but in Wall Street's mind it's still a deal.

The back and forth between leaders in Washington could provide for a bumpy, volatile ride for the stock market. Until a deal actually gets done we could see investors selling the rallies. Something that is not helping inspire investor sentiment was the latest forecast from Morgan Stanley. Last week MS said that the global economy was probably headed for another recession in 2013 as the major governments and central banks fumble the economic ball.

Another challenge for investor sentiment is continued violence in the Mideast. Protestors are rioting in Egypt again as the new Egyptian president grants himself several new powers and immunities. Elsewhere in the world we're going to start hearing more about a technical default for Argentina. Credit default swaps on Argentine debt are soaring. The issue stems from a debt restructuring back in 2001 where some of the bond holders chose not to take the new deal. Now it looks like Argentina is losing the battle in court although there are growing suspicions that Argentina will not cough up the $1.3 billion necessary to solve this issue. That is the barest of explanations. I'm not sure how this is going to have any effect on the U.S. market.

Looking ahead I would expect a short-term pullback. Where we bounce or if we bounce is the question. Some are saying the November low is probably the fourth quarter low and we should start buying dips again. I'm not so convinced. I suggest investors stay in a wait and see mode. We could see stocks chop wildly over the next few weeks as we approach the end of the year and the January 1st fiscal cliff deadline.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 index has rallied five days in a row and surged past resistance on a low-volume Thanksgiving week. Does the rally continue or do traders sell the rally as fiscal cliff fears resume?

Short-term the trend is up but stocks will likely see some profit taking after last week's big rebound.

NOK and VLO have graduated from the watch list to the play list.

MSI will be a new addition to the play list on Monday.

New stop losses for FDO, GE, SCCO, 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

Communication Equipment

by James Brown

Click here to email James Brown


- New Trades -


Motorola Solutions - MSI - close: 54.76

Comments:
11/24/12: MSI was a recent addition to our watch list. The stock had been consolidating sideways above support near $52 and resistance at $54. Our plan was to wait for shares to close over $54.00 and then buy calls the next day. MSI drifted higher toward resistance at $54 last week and finally broke out on Friday. The stock is nearing new four-year highs.

Friday's close above $54.00 met our entry point requirements. The plan is to buy calls on Monday morning. More nimble traders may want to wait and look for a dip back to $54.00 as your entry point instead. The $54.00 level should be new short-term support.

Our long-term target is $65.00. Currently the Point & Figure chart is bullish and is forecasting at $70 target.

- Suggested Positions -
NOV 26, 2012 - entry price on MSI @ --.--, option @ -.--
symbol: MSI1418a60 2014 JAN $60 call - current bid/ask $ 2.86/ 3.10

Chart of MSI:

Current Target:$65.00
Current Stop loss: 49.75
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12



Play Updates

Stocks Surge Thanksgiving Week

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


American Intl. Group - AIG - close: 32.83

Comments:
11/24/12: AIG spent the week consolidating sideways inside the $32-33 range. A breakout past $33 might portend a run towards the next level of resistance at $35.00. I am not suggesting new positions at this time.

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

- Suggested Positions - (small positions @ first)
May 18, 2012 - entry price on AIG @ 28.25, option @ 3.40
symbol: AIG1319A30 2013 JAN $30 call - current bid/ask $ 3.25/ 3.35

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 3.65/ 3.85

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: 9.90

Comments:
11/24/12: It was a big week for BAC with a move from $9.12 to $9.90. Shares are once again nearing major resistance at the $10.00 mark. A strong close above $10.00 could be used as a new bullish entry point but you'll want to consider the 2014 calls. We only have a couple of months less on our 2013 calls.

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 $ 0.42/ 0.43
(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 $ 0.42/ 0.43
(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: 32.69

Comments:
11/24/12: The performance in CNX last week was disappointing. The market is surging higher and yet shares of CNX were stuck sideways in the $32-33 zone. This relative weakness is worrisome. I am not suggesting new positions at this time.

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 $ 2.63/ 2.81

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

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


Cree, Inc. - CREE - close: 31.37

Comments:
11/24/12: The action in CREE last week looked a lot like the SOX semiconductor index. Both went sideways until both saw a sharp spike higher on Friday's half day of trading. On a positive note the bounce does not confirm the prior week's bearish reversal pattern. Yet CREE remains under resistance at the $32.00 level. Readers may want to wait for a new close over $32.00 before initiating 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 $ 4.10/ 4.40

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: 41.46

Comments:
11/24/12: DFS rallied two dollars last week but most of that was on Monday and Tuesday. The stock's upward momentum is slowing as it approaches resistance in the $41.50-42.00 zone.

More conservative traders might want to consider taking profits now. I am not suggesting new positions at this time.

We still have the 2014 calls and we're aiming for $44.00. Aggressive traders could aim higher.

- 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 $5.50/5.90

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: 70.10

Comments:
11/24/12: It was a strong week for FDO. The stock added more than three points and is testing resistance at the $70.00 level. I breakout past $70 would be bullish but I wouldn't chase it here, not for a long-term position. Broken resistance near the $67 area should be support so if you're looking for a LEAPS entry point consider waiting for a bounce there.

Please note our new stop loss at $64.75.

- Suggested Positions -
OCT 12, 2012 - entry price on FDO @ 65.88, option @ 1.70
symbol: FDO1320d75 2013 APR $75 call - current bid/ask $2.10/2.30

11/24/12 new stop loss @ 64.75
10/20/12 adjust stop loss to $62.95

Current Target: $74.50
Current Stop loss: 64.75
Play Entered on: 10/12/12
Originally listed on the Watch List: 10/06/12


General Electric - GE - close: 21.04

Comments:
11/24/12: The oversold bounce in shares of GE continues. Shares were showing relative strength on Friday with a +1.7% gain. The close over potential resistance at $21.00 is bullish but I would not be surprised to see a pullback soon.

Overall our trade is working as planned. We will adjust our stop loss higher to $19.75.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.47/0.49

11/24/12 new stop loss @ 19.75
11/14/12 triggered at $20.25
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

Current Target: $27.50
Current Stop loss: 19.75
Play Entered on: 11/14/12
Originally listed on the Watch List: 09/22/12


Lennar Corp. - LEN - close: 38.68

Comments:
11/24/12: The big bounce in the homebuilders continues although momentum seems to be slowing. LEN is nearing prior resistance in the $39.00-39.50 area. I am not suggesting new positions with the stock sitting just under resistance.

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 $5.75/5.95

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: 76.33

Comments:
11/24/12: It was a good week for LLL. The stock added more than two points and closed back above resistance at the $75.00 level. Readers may want to use the next dip or bounce from $75.00 as a new entry point.

- Suggested Positions - (small positions)
NOV 05, 2012 - entry price on LLL @ 75.64, option @ 4.40
symbol: LLL1418a80 2014 JAN $80 call - current bid/ask $ 4.20/ 4.70

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


Nokia Corp. - NOK - close: 3.56

Comments:
11/24/12: Thanksgiving week proved to be very bullish for NOK. The stock soared more than +28% in the last four trading days. NOK was on our watch list. The plan was to wait for shares to close over $2.85 and then open bullish positions the next day. The stock met our entry requirement on Nov. 19th with a close at $2.94. Our trade opened the next day when NOK opened at $2.97 and the option opened at $0.78.

At this point I would wait for a pullback. A dip back toward $3.20 might be our next entry point but I suggest patience.

Earlier Comments:
The plan was to buy NOK the stock or the 2014 calls.

- Suggested Positions - (small positions)
NOV 20, 2012 - entry price on NOK @ 2.97, option @ 0.78
symbol: NOK1418a3 2014 JAN $3 call - current bid/ask $ 1.16/ 1.17

- or -

Buy NOK stock: entry @ 2.97

Chart of NOK:

Current Target:$ 4.95
Current Stop loss: 2.49
Play Entered on: 11/20/12
Originally listed on the Watch List: 11/17/12


Southern Copper Corp - SCCO - close: 36.35

Comments:
11/24/12: The rebound continues with gusto in shares of SCCO. The stock is up six days in a row and up almost +8% in just the past week. The breakout past $36.00 and its 50-dma is technically bullish but shares look short-term overbought. Odds are good SCCO will see a pullback soon.

Please note that I am raising our stop loss up to $33.25.

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 $ 2.00/ 2.35

11/24/12 new stop loss @ 33.25
11/06/12 trade opened on gap down at $35.78, below our trigger.
(gap down was due to SCCO trading ex-dividend)

Current Target: $44.75
Current Stop loss: 33.25
Play Entered on: 11/06/12
Originally listed on the Watch List: 10/20/12


SIRIUS XM Radio - SIRI - close: 2.78

Comments:
11/24/12: Gains in SIRI were pretty mild last week. Shares have yet to break the short-term bearish trend of lower highs. Although it's worth noting that the pullback from its October-November highs looks like a bull-flag consolidation pattern. 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/ 0.45

- 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


Visa, Inc. - V - close: 148.12

Comments:
11/24/12: Investors have a big decision to make. We have 2014 January calls. That's over a year away. The stock is fast approaching our $149.00 target. Do you exit at $149.00 or do you hold on for what will probably be a volatile year. I am not advising you hold these calls for another year. You'll need to see a new target if you choose to hold on. This newsletter will plan on exiting at $149.00, which could be hit as early as Monday morning. The trend in Visa is definitely higher but shares are near the top of their bullish channel and the $150 level could prove to be round-number, psychological resistance.

We will raise our stop loss up to $137.00.

- 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 $19.40/19.80

11/24/12 new stop loss @ 137.00, planning to exit at $149.00
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: 137.00
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12


Valero Energy - VLO - close: 31.92

Comments:
11/24/12: It turned out to be a very bullish week for VLO. Shares rallied from $29.36 to almost $32 in the last four trading days. VLO was on our watch list and the plan was to wait for shares to close over $30.60 and then buy calls the next day. VLO closed at $30.55 on Nov. 20th. Wednesday saw the stock close at $31.00. Our trade opened on Friday morning with the gap higher at $31.25. If you missed it, then I would wait. After a four-day rally I would expect a pullback. Readers will probably see a better entry point on a dip back to the $31.00 level.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - current bid/ask $ 3.40/ 3.60

11/23/12 trade opened on gap open higher at $31.25
*Entry price is an estimate since the option did not trade at the time our play opened.

Chart of VLO:

Current Target: $39.75
Current Stop loss: 27.75
Play Entered on: 11/23/12
Originally listed on the Watch List: 11/10/12


Watch

Online Travel & Department Stores

by James Brown

Click here to email James Brown


New Watch List Entries

EXPE - Expedia

M - Macy's Inc.


Active Watch List Candidates

ADBE - Adobe Systems

FSLR - First Solar Inc.

GLD - Gold ETF

RCL - Royal Caribbean Cruises

SWN - Southwestern Energy


Dropped Watch List Entries

MSI - moved to new plays.

NOK and VLO graduated to our play list.



New Watch List Candidates:


Expedia Inc. - EXPE - close: 60.59

Company Info

EXPE seems to be firing on all cylinders. The recent earnings report (late October) was better than expected. The company seems to be gaining market share and continues to see strong revenue growth. The stock weathered the market's November sell-off pretty well. Now shares are testing resistance near $60 and are poised to hit new highs.

I would consider this a more aggressive, higher-risk trade because EXPE can be so volatile. We will want to keep our position size small to limit our risk.

The recent high was $61.38. I am suggesting we wait for EXPE to close over $61.50 and then buy calls the next day. If triggered we'll start with a stop loss at $54.40. Our long-term target is $79.00.

Breakout trigger: Wait for a close over $61.50 (stop 54.40)

*Small Positions*

BUY the 2014 Jan $75 call (EXPE1418a75) current ask $5.70

Chart of EXPE:

Originally listed on the Watch List: 11/24/12


Macy's Inc. - M - close: 41.73

Company Info

Macy's recent earnings report was somewhat disappointing as management lowered their Q4 guidance. Yet investors bought the dip at M's bullish trend of higher lows and its 200-dma. Now the stock is poised to breakout to new multi-year highs.

The $42.00 level is resistance. I am suggesting we wait for M to close over $42.25 and then buy calls the next day. Our long-term target is $54.50.

Breakout trigger: Wait for a close over $42.25 (stop 37.90)

BUY the 2014 Jan $50 call (M1418a50) current ask $1.97

Chart of M:

Originally listed on the Watch List: 11/24/12


Active Watch List Candidates:



Adobe Systems - ADBE - close: 33.40

Comments:
11/24/12: ADBE is bouncing as expected. The rally past its 50-dma is technically bullish. Yet it could be a while before the stock pushes past resistance near $35.00. 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


First Solar Inc. - FSLR - close: 24.45

Comments:
11/24/12: FSLR has made some progress as it continues to bounce from its 50-dma. We are still waiting for a breakout through resistance.

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)

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


SPDR Gold ETF - GLD - close: 169.61

Comments:
11/24/12: I am honestly starting to wonder if we missed our entry point in the GLD. Gold saw a sharp spike lower in early November and since then it has been working its way higher. Friday's rally past its 50-dma is technically bullish but I don't want to chase it here. We'll see how things fare over the next couple of weeks. If the situation in Europe worsens it could push the dollar higher and that would weigh on gold.

At the moment our entry point is to buy a dip at $160.00.

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 June $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: 34.93

Comments:
11/24/12: RCL was showing relative strength on Friday with a +3.1% gain. The stock looks poised to breakout past resistance near $35.00 soon. More aggressive traders may want to consider a close above $35.00 as an alternative entry point.

Currently our plan is to buy a dip at $32.25 but that may not happen any time soon. 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: 36.60

Comments:
11/24/12: SWN is up two weeks in a row. The stock looks poised to breakout from its multi-month trading range. Our entry point could be hit soon.

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