Option Investor
Newsletter

Daily Newsletter, Sunday, 12/2/2012

Table of Contents

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

Leaps Trader Commentary

Stalemate on Cliff Talks

by James Brown

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The fight is back on in Washington as republicans and democrats verbally spar over how to solve the fiscal cliff issue. The back and forth all week left both sides at a stalemate. Yet in spite of this lack of progress the stock market delivered another healthy gain. That's a sign of confidence by investors that they do expect a deal to get done before the end of the year. We will have to wait and see if investors can maintain this confidence as we get closer to yearend.

Most of last week's headlines were about the ongoing battle over the fiscal cliff. However, Europe had a few headlines of its own. Early in the week there was doubt over if a deal to restructure Greece's debt would get done and approved. Then it seems a deal had been reached. By Friday the deal was in jeopardy again with the International Monetary Fund (IMF) threatening to pullout. The next batch of bailout money due to Greece remains in doubt. On top of it all there is supposed to be a Greek referendum scheduled for a vote on December 5th to see if Greek citizens want to remain in the Eurozone. If that wasn't enough the Moody's credit rating agency downgraded the ESM And EFSF bailout funds from AAA to Aa1 due to France recently losing its AAA rating. France was one of the largest backers behind these rescue funds.

Looking at the economic news last week most of it was pretty good. The durable goods data for October was unchanged versus estimates for a decline following a +9.2% jump the month before. The Case-Shiller 20-city home price index surged +3.0% following a +2.0% jump the month before. Consumer confidence continues to rise with an improvement from 72.2 to 73.7. The Federal Reserve released their Beige book report, which delivered more of the same moderate to modest growth. The weekly initial jobless claims came in better than expected at 393,000, which was down from 416K the prior week. The second estimate on the Q3 GDP jumped from +2.0% to +2.7%. The Chicago PMI data for November bounced back from a two-month dip into contraction territory and closed above the key 50.0 mark at 50.4.

Major Indices:

The S&P 500 index stretched its bounce to two weeks in a row. There was a mild two and a half day pullback Monday-Wednesday. Traders bought the dip near its 200-dma and the index rebounded back to +0.5% gain for the week. Currently the S&P 500 index sits just under resistance near 1420 and its simple 50-dma (1421).

The key levels to watch are support at 1400 and 1380 (really the 200-dma at 1385) and resistance at 1420 and 1440.

FYI: For the year the S&P 500 is up +12.6%.

chart of the S&P 500 index:

Another strong week for high-profile tech names like AMZN, GOOG, and AAPL helped fuel a +1.4% rally in the NASDAQ composite. The NASDAQ has pushed past resistance near its 200-dma and the 3,000 level. Now it sits just under technical resistance at its 100-dma (3019) and its 50-dma (3023).

The NASDAQ is already up 200 points (+7.1%) from its November lows. I would still not be surprised to see some profit taking. There should be support near the 2950-2930 zone. If this current rally continues and the index manages to push past the 50-dma then the next level of resistance to watch is 3040-3050 and then 3100.

FYI: For the year the NASDAQ is up +15.5%.

chart of the NASDAQ Composite index:

The oversold bounce in the small caps continues to surge. The Russell 2000 index delivered a +1.8% gain for the week. Traders bought the dip on Wednesday near support/resistance at the 800 level. Now the $RUT has broken through resistance near 820 and its 50-dma. This also appears to be a bullish breakout past the multi-week trend of lower highs. For the year the $RUT is up +10.9%.

The $RUT has already seen a +7.6% bounce off its November lows. While the short-term trend is up it might be time for a pullback. There should be support in the 810-800 zone. If the rally continues then look for resistance in the 840-850 range.

Daily chart of the Russell 2000 index

The first week of the month is always a busy one for economic data. Some of the highlights to watch for are the ISM and ISM services data for the U.S. The Eurozone GDP estimates and ECB rate decision. Finally on Friday the U.S. nonfarm payroll (jobs) report, which is expected to show a drop from +171,000 a month ago to +100,000. Of course all of the U.S. data could be significantly worse than expected as the reports try and factor in the impact of Hurricane Sandy on the east coast.

Economic and Event Calendar

- Monday, December 3 -
auto and truck sales
construction spending
Eurozone PMI data
ISM index

- Tuesday, December 4 -
Eurozone inflation data
Chinese HSBC Services PMI

- Wednesday, December 5 -
ADP employment change report
factory orders
ISM Services

- Thursday, December 6 -
Eurozone GDP estimate
ECB interest rate announcement
Weekly Initial Jobless Claims

- Friday, December 7 -
nonfarm payrolls (jobs) report
unemployment rate
University of Michigan consumer sentiment

Additional Events to be aware of:

Dec. 12th - FOMC meeting

The Week Ahead:

Last week's stock market performance was pretty encouraging considering the stalemate in Washington over the fiscal cliff. The policy battle over how to handle the fiscal cliff will continue for the next two or three weeks. The congress and senate are supposed to adjourn for the Christmas holiday on December 14th. Yet with the current fight over the cliff that will probably be postponed. None of the politicians will want to be working through Christmas. Many are starting to speculate that we will finally see both sides compromise and reach an agreement the week of Dec. 17th through the 21st.

Therefore we probably have another week where no progress is made while both parties practice their brinkmanship. That could leave stocks to churn sideways while we wait for improvement. Then again we are approaching the seasonal time period for a Santa Claus rally in stocks.

The Federal Reserve will start making headlines again too. Their Operation Twist is scheduled to end at the end of December. Now there are new stories surfacing that the Fed might begin yet another QE program to replace Twist even though their QE3 program is open ended and was supposed to be the "nuclear bomb" option. The closer we get to December 12th we'll hear more and more about the Fed and what it can or can't do to mitigate the fiscal cliff. Of course Bernanke already said the Fed can't save the U.S. from a recession if lawmakers let us go over the cliff.

This week we're going to hear more about Greece. The IMF's threat to pull out of the latest debt restructuring deal was definitely a surprise. Current Greek bond holders are balking at yet another hair cut proposal. There is a crucial referendum (vote) in Greece on December 5th. If the results of that vote show that Greeks suddenly want to leave the Eurozone then things are going to get a lot more exciting even though several analysts have been predicting Greece would leave for over a year.

Technically we're in an interesting spot for stocks. Traders were quick to buy the dip at technical support last week. The two-week bounce has sliced through multiple layers of overhead resistance. Yet now stocks are arguably short-term overbought. Does the rally continue and turn into a Santa Claus rally? Do investors wait and let stocks churn sideways while we wait for the jobs report on Friday?

Normally the first few days of the month tend to see an influx of mutual fund money that lifts stocks. Yet with one month to go before new capital gains taxes kick in we could see more fund outflows. One issue that could delay investors cashing out before January 1st to avoid the higher taxes is the recent outbreak of special dividends. A number of corporations are issuing special one-time dividends before the yearend. Right now a popular name investors are hoping to see a dividend from is Apple (AAPL). This rush of dividend announcements will likely end around December 14th.

Further stock market gains are a bet by market participants that a fiscal cliff deal in Washington will get done before month end. If something changes and Wall Street starts to think a deal will not get done then stocks could turn weak. In the meantime the major indices seem to be respecting all the normal support and resistance levels as they rebound higher.

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The market's oversold bounce continues. The major indices have powered their way through multiple layers of resistance. Can the rally continue or will gridlock on the fiscal cliff deal weaken investor confidence?

December tends to be a seasonally bullish time period for stocks. Will we see a Santa Claus rally this year?

EXPE and FSLR have graduated from the watch list to the play list.

New stop losses for CREE, DFS, FDO

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

Potential Headwinds

by James Brown

Click here to email James Brown

Editor's Note:

(December 02, 2012)

The market has produced an impressive two-week bounce off its mid November lows. The short-term trend is up. Yet there are a lot of potential headwinds for the market this week. I suspect stocks could see some profit taking, which could be followed up with a Santa Claus rally. That may be especially true if lawmakers come to a deal on the fiscal cliff. Unfortunately at the moment there is a stalemate on the cliff.

I am not adding any new trades tonight. We did have two watch list candidates graduate to our active trade list this past week. I've added three new watch list candidates tonight and all three have the potential to be triggered soon.

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:

RYN, GIS, HSY, PCP, DDS, SLV, CRR, QCOM, MTW, PSX, CLX, F, GM, KO, PEP, TCK, LVS, APKT, GGC, JBHT, CLB, TJX, LSTR, GOOG, MA,


Play Updates

Visa Charges Our Target

by James Brown

Click here to email James Brown


Closed Plays


V hit our exit target


Play Updates


American Intl. Group - AIG - close: 33.13

Comments:
12/01/12: AIG is slowly working its way higher off the November low. Yet there is still likely resistance near $34.00 and its 50-dma. 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 $ 3.45/ 3.55

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 3.80/ 3.90

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: 9.86

Comments:
12/01/12: BAC lost four cents for the week. Yet traders bought the dip on Thursday morning and now BAC looks poised to try and breakout past resistance near 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 $ 0.39/ 0.40
(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 $ 0.39/ 0.40
(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: 31.35

Comments:
12/01/12: I am concerned over our CNX trade. The stock underperformed the market and looks ready to breakdown under the multi-month trend of higher lows. Odds are good we could see CNX testing what should be round-number support at $30.00 soon. Our stop loss is currently at $29.75. More conservative traders may want to consider an early exit now to cut their losses.

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 $ 2.10/ 2.27

12/02/12 readers may want to exit early now
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: 32.31

Comments:
12/01/12: CREE had been showing impressive relative strength with a sharp breakout higher earlier in the week. The rally was cut short with an analyst downgraded on the 29th. Fortunately traders bought the dip on Friday morning. I am raising our stop loss to $28.45.

This close above $32.00 could be used as an alternative entry point for 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 $ 4.40/ 4.70

12/02/12 new stop loss @ 28.45

Current Target:$ 39.00
Current Stop loss: 28.45
Play Entered on: 11/01/12
Originally listed on the Watch List: 10/20/12


Discover Financial - DFS - close: 41.61

Comments:
12/01/12: DFS only produced an anemic gain for the week. The stock is struggling with resistance near the $42.00 level. A breakout here would be a new all-time record high. I am raising our stop loss to $36.95.

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 $5.60/5.90

12/02/12 new stop loss @ 36.95
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: $ $44.00 for the 2014s
Current Stop loss: 36.95
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12


Expedia Inc. - EXPE - close: 61.86

Comments:
12/01/12: EXPE is a watch list candidate that has graduated to our active trade list. This online travel site has been showing relative strength. Shares had been testing resistance near $60.00 and broke out to new all-time record highs. The plan was to wait for shares to close over $61.50 and then buy calls the next day. EXPE met our entry point requirement on Nov. 28th with a close at $61.73. Our trade opened the next day. I would still consider new positions now or nimble traders could open positions on a dip near $60.00.

Earlier Comments:
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.

- Suggested Positions -
NOV 29, 2012 - entry price on EXPE @ 61.84, option @ 6.00
symbol: EXPE1418a75 2014 JAN $75 call - current bid/ask $5.70/6.00

Chart of EXPE:

Current Target: $79.00
Current Stop loss: 54.40
Play Entered on: 11/29/12
Originally listed on the Watch List: 11/24/12


Family Dollar Stores - FDO - close: 71.20

Comments:
12/01/12: FDO had been consolidating sideways under resistance near $70.00. Traders bought the dip midweek near its rising 10-dma. The follow through on this bounce has produced a bullish breakout above $70.00. The next level of resistance should be the $74.50-75.00 area. Our target is $74.50. More aggressive traders could aim higher.

Please note our new stop loss at $66.45.

- Suggested Positions -
OCT 12, 2012 - entry price on FDO @ 65.88, option @ 1.70
symbol: FDO1320d75 2013 APR $75 call - current bid/ask $2.50/2.75

12/02/12 new stop loss @ 66.45
11/24/12 new stop loss @ 64.75
10/20/12 adjust stop loss to $62.95

Current Target: $74.50
Current Stop loss: 66.45
Play Entered on: 10/12/12
Originally listed on the Watch List: 10/06/12


First Solar Inc. - FSLR - close: 26.99

Comments:
12/01/12: FSLR is another watch list candidate that has graduated to our active trade list. After a massive plunge from the $170 area back in early 2011 to under $12 in June this year it looks like FSLR has finally found a bottom. Shares had been consolidating under resistance near $26.00 for several weeks. Our plan was to wait for shares to close over $26.00 and buy calls the next day.

FSLR met our entry point requirement on Nov. 27th with a close at $26.28. Our trade opened the next day. Readers could launch new positions now or wait for a dip back to $26.00, which should be short-term support.

FYI: Readers will be interested to hear that there seem to be rumors that FSLR might be a takeover candidate and that could be helping fuel gains.

- Suggested Positions -
NOV 28, 2012 - entry price on FSLR @ 26.20, option @ 5.00
symbol: FSLR1418a30 2014 JAN $30 call - current bid/ask $5.05/5.55

Chart of FSLR:

Current Target: $39.75
Current Stop loss: 21.90
Play Entered on: 11/28/12
Originally listed on the Watch List: 11/10/12


General Electric - GE - close: 21.13

Comments:
12/01/12: Gains in GE slowed last week but it still managed gains. The stock seems to be struggling with technical resistance at its 100-dma. I would still consider new positions now or on another bounce off the $20.50 level.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.49/0.52

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: 38.04

Comments:
12/01/12: Shares of LEN actually lost ground last week. The stock failed at resistance in the $39.00 area (yet again). More conservative traders may want to take profits now. 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 $5.40/5.60

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: 76.85

Comments:
12/01/12: LLL only added about half a point for the week. Shares had rallied right to resistance at its early November high and started to pull back. If the decline gets too steep it will start to look like a bearish double top. Broken resistance near $75.00 should still offer support. I am not suggesting new positions at current levels.

- 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 $ 3.50/ 4.80

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


Motorola Solutions - MSI - close: 54.45

Comments:
12/01/12: MSI didn't make any progress. Shares spent most of the week consolidating sideways inside the $54-55 zone. If you were waiting for a dip to $54.00 you definitely got it. I remain long-term bullish here but I am starting to wonder if MSI won't see a dip to $53.00 first before moving higher. Right now there is short-term resistance near $55.00. Readers may want to wait for the next dip and buy a bounce.

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 @ 54.11, option @ 2.93
symbol: MSI1418a60 2014 JAN $60 call - current bid/ask $ 2.76/ 2.91

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


Nokia Corp. - NOK - close: 3.26

Comments:
12/01/12: I warned readers a week ago that after NOK's +28% surge the stock would see a pullback. Monday and Tuesday last week produced a -10.9% correction. Shares have spent the last few days hovering around the 200-dma. One of the major headlines last week was news that NOK won a key ruling in its patent infringement suit against Research in Motion (RIMM).

I am not suggesting new positions at the moment. Broken resistance near $3.00 should offer some support.

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 $ 0.95/ 0.99

- or -

Buy NOK stock: entry @ 2.97

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: 36.30

Comments:
12/01/12: A rally in metal prices, especially copper, has helped fuel a rally in shares of SCCO. Yet SCCO actually lost five cents for the week (although the option grew in value, slightly). Technically Friday's pullback in SCCO is a bearish reversal pattern. Readers may want to wait for a dip back toward $35.00 and then buy calls on a bounce.

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 $ 2.10/ 2.45

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: 2.77

Comments:
12/01/12: It was a quiet week for SIRI and the stock closed virtually unchanged for the week. Shares are coiling between a trend of higher lows and a short-term trend of lower highs. I would expect a breakout higher past recent resistance near $2.80 soon. Readers may want to launch new positions on a close above $2.83 again.

- 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


Valero Energy - VLO - close: 32.26

Comments:
12/01/12: Natural gas prices saw some profit taking last week while crude oil prices churned sideways. That didn't stop the rally in VLO, which hit new four-week highs. Traders bought the dip near its rising 10-dma on Wednesday. I am not suggesting new positions at current levels.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - current bid/ask $ 3.55/ 3.70

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.

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


CLOSED Plays


Visa, Inc. - V - close: 149.71

Comments:
12/01/12: Target achieved.

Visa managed to breakout past resistance near $148.00 and rallied toward psychological round-number resistance at $150.00. Our exit target at $149.00 was hit on Friday.

The long-term trend for Visa is up but the stock is near the top of its bullish channel. Nimble traders may want to wait for a pullback toward its trend of higher lows before considering new positions.

- Suggested Positions -
JUL 03, 2012 - entry price on V @ 126.49, option @ 11.95
symbol: V1418A140 2014 JAN $140 call - exit @ $19.70 (+64.8%)

11/30/12 target hit at $149.00
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

Chart of V:

Current Target: $149.00
Current Stop loss: 137.00
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12



Watch

Refining, Coffee, and Materials

by James Brown

Click here to email James Brown


New Watch List Entries

HFC - HollyFrontier Corp

SBUX - Starbucks Corp

VMC - Vulcan Materials Co


Active Watch List Candidates

ADBE - Adobe Systems

GLD - Gold ETF

M - Macy's Inc.

RCL - Royal Caribbean Cruises

SWN - Southwestern Energy


Dropped Watch List Entries

EXPE and FSLR graduated to the active play list.



New Watch List Candidates:


HollyFrontier - HFC - close: 45.33

Company Info

The $40.00 level was major resistance for this oil refining stock. The stock is now trading at all-time highs. Recent action would suggest momentum has stalled and HFC might see a correction. We want to be ready to buy a dip.

I am suggesting we buy calls when HFC dips to $42.00. We'll start with a stop loss at $39.40. Our long-term target is $49.75.

FYI: HFC has a dividend coming up. The stock should begin trading ex-dividend on Dec. 6th. The dividend should only be about 20 cents.

Buy-the-Dip trigger: $42.00 (stop loss @ 39.40)

BUY the 2014 Jan $50 call (1418a50) current ask $4.80

Chart of HFC:

Originally listed on the Watch List: 12/02/12


Starbucks Corp. - SBUX - close: 51.87

Company Info

It has taken several months but SBUX has finally recovered from the major bearish breakdown back in July 2012. Now shares are testing resistance near $52.00 and its simple 200-dma. A breakout here could signal the next leg higher.

I am suggesting we wait for a close over $52.50 and then buy calls the next day. If triggered we'll start with a stop loss at $47.75. Our initial target is the all-time high at $62.00.

Breakout trigger: Wait for a close over $52.50 (stop 47.75)

BUY the 2014 Jan $60 call (SBUX1418a60) current ask $3.15

Chart of SBUX:

Originally listed on the Watch List: 12/02/12


Vulcan Materials Co. - VMC - close: 52.84

Company Info

VMC is in the industrial goods sector. The company makes building materials like asphalt and concrete. The stock spent more than two months consolidating sideways under resistance at $50.00. Shares managed a bullish breakout past this level a couple of days ago. We want to buy a dip.

I am suggesting we open bullish positions on a dip at $50.25. If triggered we'll use a stop loss at $46.40. Our long-term target is $64.00 although I would expect some resistance at $60.00. FYI: The Point & Figure chart is bullish and is forecasting at $70 target.

Buy-the-Dip trigger: $50.25 (stop loss 46.40)

BUY the 2014 Jan $55 call (VMC1418a55) current ask $6.90

Chart of VMC:

Originally listed on the Watch List: 12/02/12


Active Watch List Candidates:



Adobe Systems - ADBE - close: 34.61

Comments:
12/01/12: The bounce in ADBE is accelerating. Shares surged toward resistance in the $34.50-35.00 zone. Kudos to anyone who bought the bounce when I suggested it two weeks ago. Now ADBE is on the verge of a bullish breakout.

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


SPDR Gold ETF - GLD - close: 166.05

Comments:
12/01/12: Gold prices took an unexpected plunge on Wednesday morning. There didn't seem to be any good explanations for the sell-off and so far the bounce is failing. I suspect shares of the GLD are headed back to the $162.00 level again. Currently we have a buy-the-dip trigger at $160.00 but readers may want to consider buying a bounce at $162.00 if we see one.

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


Macy's Inc. - M - close: 38.70

Comments:
12/01/12: Ouch! What happened to Macy's? Did the stock just get crushed with a Black Friday hangover? Shares plunged on Monday and then sold off again on Thursday thanks to disappointing same-store sales. M blamed the disappointment on Hurricane Sandy. Now shares of Macy's are back to support near $38 and its rising 100-dma and 200-dma. We are still on the sidelines.

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)

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


Royal Caribbean Cruises - RCL - close: 35.25

Comments:
12/01/12: Hmm... RCL is still inching higher. I am starting to think that we may want to buy calls on a breakout past resistance near $35.00 (which would mean now!). However, I'm not ready to switch strategies just yet.

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: 34.71

Comments:
12/01/12: SWN underperformed this past week with a multi-day pullback. This could have been a reflection of the sell-off in natural gas prices. Shares of SWN remain inside its consolidation range for now.

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