Option Investor
Newsletter

Daily Newsletter, Sunday, 12/9/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Consolidate Sideways As Expected

by James Brown

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Stocks delivered a very lackluster performance for the week. I cautioned readers last weekend that there would be no progress made in Washington on the fiscal cliff issue and that stocks would churn sideways while we wait. Economic data was mostly better than expected with a few exceptions. Yet we're seeing more analysts downgrading their U.S. Q4 GDP estimates. This trend could start to weigh on investor sentiment. As you know the Eurozone is currently in recession and this past week the ECB said the recession would likely continue into 2013. The European Central Bank now expects the Eurozone economy to fall -0.3% in 2013 with a potential range of -0.9% to +0.3%. That's down from September's estimate of -0.4% to +1.4%.

The big economic report this past week was the nonfarm payrolls (jobs) report. Economists were only expecting +85,000 jobs due to Hurricane Sandy yet the November report showed +146,000. This better than expected beat was tainted by news that October was revised down -33,000 and September down -16,000. At first glance the news that the U.S. unemployment rate fell to 7.7%, the lowest since December 2008, is good news. Unfortunately, the only reason the unemployment rate fell was because fewer people were looking for work. The BLS report said 350,000 people stopped looking for work so they are no longer in the official workforce and no longer counted. The Household employment survey said the labor force lost -542,000.

Overseas we saw Germany's factory orders for October rise +3.9%, which was well above estimates of just +1%. China's manufacturing PMI data came in at 50.6, this was below estimates but still above the 50.0 level. Readings under 50.0 indicate contraction. China's services PMI index dropped to 52.1. Back home in the U.S. we saw November vehicle sales surge to an annual pace of 15.5 million. That is the highest level since February 2008 thanks to consumers buying new cars to replace those destroyed or damaged by Hurricane Sandy. The U.S. ISM services index gained +0.5 points to settled at 54.7. Yet the manufacturing ISM dropped to 49.5.

One of the biggest surprises was the University of Michigan's consumer confidence number, which plunged from 82.7 to 74.5. Economists were only expecting a mild dip to 82.4. This was the sharpest drop in sentiment in months and does not bode well for the holiday shopping season. Traditionally analysts try to tie higher consumer confidence numbers with higher consumer spending so falling confidence readings are worrisome.

Major Indices:

It shouldn't be a surprise to see the S&P 500 index churning sideways. For the week the index gained +0.1%. The S&P 500 bounced when it touched round-number support at 1400 midweek. Yet it remains under short-term resistance at 1420 and its simple 50-dma. A breakout past 1420 could signal a run towards the next level of resistance in the 1440-1450 area. Beyond that are the 2012 highs in the 1470 area.

chart of the S&P 500 index:

The NASDAQ composite underperformed the other indices with a -1.0% decline for the week. Most of the blame for the NASDAQ's relative weakness was Apple's (AAPL) $50 plunge. AAPL could be headed back toward the $500 level again and that will put pressure on the NASDAQ and NASDAQ-100 indices.

I am also concerned that the pullback in the NASDAQ looks like a bearish reversal at resistance. Now the index is back under the 3,000 level and its 200-dma. If this dip continues the next support level should be 2950. If that level fails then it's the 2900 area.

chart of the NASDAQ Composite index:

The lack of movement was most evident in the small cap Russell 2000 index. The $RUT spent almost the entire week inside a 10-point range. A convincing close above 825 or 830 on the $RUT could inspire the bulls again and fuel some short covering by the bears. Should the $RUT breakout higher the next level of resistance is probably the 840-850 range. If the $RUT reverses lower then look for support in the 805-800 area.

Daily chart of the Russell 2000 index

This week will have a number of economic reports but none of them are likely to be market movers. The one event that could move the market is the FOMC meeting and Federal Reserve Chairman Ben Bernanke's press conference. The two-day meeting ends on Wednesday. No change in the interest rate is expected. However, the Fed's Operation Twist is due to conclude at the end of this year. Many are speculating that the Fed might announce some new quantitative easing program (QE4?) to replace Twist. How much and what form any new QE program will take will be the headline. Another potential headline to watch will be Greece's upcoming debt payment. The deadline is Dec. 14th.

Economic and Event Calendar

- Monday, December 10 -
Eurozone industrial production

- Tuesday, December 11 -
wholesale inventory data
FOMC meeting starts

- Wednesday, December 12 -
import/export prices
Eurozone inflation data
FOMC meeting ends (rate decision)
Fed Chairman Bernanke's press conference
Eurozone finance minister meeting

- Thursday, December 13 -
Weekly Initial Jobless Claims
retail sales for November
Producer Price Index (PPI)
business inventory data

- Friday, December 14 -
Consumer Price Index (CPI)
industrial production
Eurozone unemployment

Additional Events to be aware of:

Dec 24th - U.S. markets close early for Christmas eve.
Dec. 25th - U.S. markets are closed for Christmas

The Week Ahead:

The fiscal cliff negotiations in Washington will remain front page news for Wall Street. Last week we talked about how congress is supposed to begin its Christmas holiday on Dec. 14th. Odds are good that the holiday will get delayed while cliff talks continue. We have two weeks until Christmas. I would expect another week of posturing and debate without any results. Then in the final week before Christmas we might actually see some sort of deal come together. Of course by that time many market participants will have already called it quits for the year and volume will start to dry up. This does not mean that stocks won't move. They could move big either way if we see a fiscal cliff deal or lack of one. Unfortunately, once the politicians cobble together a deal on the cliff they could go right back to fighting over the U.S. debt ceiling.

There is a chance that this Monday could be bullish for stocks. There was positive news out of China and Greece this weekend. China said their industrial production and retail sales came in better than expected. November's industrial production surged +10.1% compared to a year ago. The country's retail sales grew +14.9%. These numbers could do a lot to help soothe fears that China was slowing down. Meanwhile Greece is said to be nearing a debt buyback deal. Once this deal is done it will allow the EU and IMF to proceed with the next tranche of bailout money for Greece. This probably needs to happen before Greece's Dec. 14th debt payment is due.

Put it altogether and I am mildly optimistic. If the S&P 500 index can deliver a convincing close above 1420, better yet 1425, it could ignite the next leg higher for stocks. This would be just in time for a Santa Claus rally on Wall Street and likely some end of year/end of quarter window dressing.

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

We were expecting stocks to churn sideways while politicians squabbled in Washington over the fiscal cliff. Sure enough Washington failed to disappoint with no progress on some sort of compromise. We could be facing another week of little to no progress before democrats and republicans finally start to give in just in time for Christmas.

ADBE and SBUX have graduated from the watch list to the play list.

New stop losses for FSLR and NOK.

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

Basic Materials

by James Brown

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- New Trades -


Teck Resources - TCK - close: 34.85

Company Info

Why We Like It:
TCK is a diversified mining, processing, smelting, and refining metals company providing products and metals including zinc, copper, molybdenum, specialty metals, precious metals like silver and gold, and coking coal. TCK even has operations in the Canadian oil sands. The stock has seen a long and painful decline from $65 in early 2011 to under $27 just a few months ago. Looking at the weekly chart it seems that TCK has found a bottom. On a short-term basis the rally this past week has produced a bullish breakout past resistance near $34.00-34.50.

I am suggesting new bullish positions at the open on Monday. More nimble traders may want to try and buy a dip near $34.00 if we see one. I am suggesting a stop loss at $31.75. Our long-term target is $44.00. More aggressive traders could aim higher. The Point & Figure chart is bullish with a $49 target. Investors should also be aware that TCK has a dividend coming up and will begin trading ex-dividend on Dec. 12th. The dividend should be about 23 cents.

- Suggested Positions -
DEC 10, 2012 - entry price on TCK @ --.--, option @ -.--
symbol: TCK1418a40 2014 JAN $40 call - current bid/ask $ 3.05/3.20

Chart of TCK:

Current Target: $43.75
Current Stop loss: 31.75
Play Entered on: 12/10/12
Originally listed in the New Plays 12/08/12



Play Updates

Software & Coffee On The Rise

by James Brown

Click here to email James Brown


Closed Plays


None. No closed plays this week.


Play Updates


Adobe Systems - ADBE - close: 35.48

Comments:
12/08/12: ADBE has produced an impressive three-week rally. The stock was on our watch list. The plan was to wait for shares to breakout of its multi-month sideways consolidation. I suggested we wait for ADBE to close over $35.25 and buy calls the next day. The stock closed at $35.30 on Dec. 4th so our trade opened on Dec. 5th with ADBE at $35.30. I would still consider new positions now. If you are more of a buy the dip sort of investor then look for a dip near $34.50. It is possible that the $36.00 level is short-term resistance so an alternative entry point would be a close above $36.00 instead. Our long-term target is $44.00.

NOTE: Investors should be aware that ADBE is due to report earnings on Dec. 13th, after the closing bell. A disappointment could send the stock crashing.

- Suggested Positions -
DEC 05, 2012 - entry price on ADBE @ 35.30, option @ 2.32
symbol:ADBE1418a40 2014 JAN $40 call - current bid/ask $ 2.32/ 2.47

Chart of ADBE:

Current Target:$ 44.00
Current Stop loss: 32.25
Play Entered on: 12/05/12
Originally listed on the Watch List: 11/03/12


American Intl. Group - AIG - close: 34.13

Comments:
12/08/12: AIG garnered some bullish analyst comments this past week. That helped the stock add one dollar for the week. Shares are approaching prior resistance at the $35.00 level. After a three-week bounce it might be time for a dip. I am not suggesting new positions at this time.

NOTE: With less than two months to go on our 2013 calls we may adjust our exit down to $37.00.

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 $ 4.30/ 4.40

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 4.20/ 4.35

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: 10.64

Comments:
12/08/12: It was a bullish week for BAC. The stock rallied nearly +8%. The breakout past resistance at $10.00 is very bullish. Broken resistance at $10 should now be new support. A bounce off this $10 level could prove to be a new bullish entry point to buy 2014 calls.

Right now we have two positions, both with the 2013 Jan $10 calls. With less than two months to go we need to start looking for an exit. I am assigning a $10.90 exit target for our Nov. 2011 position.

Earlier Comments:
Currently we do not have a specific exit target for our August 2011 position.

- Suggested Positions -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 0.84/ 0.85
(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 $ 0.84/ 0.85
(no stop loss on this position)

12/08/12 assigning a $10.90 exit target for the Nov. 2011 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: *see play details
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: 33.04

Comments:
12/08/12: Good news, it looks like CNX is starting to bounce off its multi-month trend of higher lows. This past week has produced a bullish breakout over the multi-week trend of lower highs. I remain cautious on this trade and I'm 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 $ 2.65/ 2.81

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: 32.74

Comments:
12/08/12: The SOX semiconductor index is up three weeks in a row and nearing resistance at the 380 level. A breakout here would be good news for the sector. CREE is also up three weeks in a row. The stock is trying to push through resistance in the $33-34 range.

- 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 $ 4.70/ 4.95

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: 41.15

Comments:
12/08/12: DFS spent most of the week consolidating lower. The stock has failed at resistance near $42.00 yet again. Although on a positive note traders did buy the dip near its 50-dma this past week. It is possible that we might see DFS consolidate sideways until the company reports earnings on December 20th. More conservative traders may want to tighten their stops. 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 $5.30/5.80

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: 59.88

Comments:
12/08/12: After hitting new record highs during Thanksgiving week shares of EXPE hit some profit taking. The stock gave up about two points but spent most of the week hovering on either side of the $60 level. On Friday EXPE joined the special dividend parade on Wall Street. They announced a special cash dividend of 52 cents a share payable on December 28th, 2012 to shareholders on record as of Dec. 17th.

If you were looking for a dip near $60 as your entry point you got it. I don't see any changes from my prior comments.

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 $4.90/5.20

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: 71.00

Comments:
12/08/12: FDO only lost 20 cents for the week. Shares are on the rebound after traders started buying the dip on Thursday morning. Readers might want to inch up their stop loss. I don't see any changes from my prior comments. The next level of resistance should be the $74.50-75.00 area. Our target is $74.50. More aggressive traders could aim higher.

FYI: In the news this past week FDO moved its next quarterly cash dividend payment to be payable on Dec. 27th for shareholders on record as of Dec. 14th. The dividend is 21 cents a share.

- Suggested Positions -
OCT 12, 2012 - entry price on FDO @ 65.88, option @ 1.70
symbol: FDO1320d75 2013 APR $75 call - current bid/ask $2.25/2.45

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: 29.91

Comments:
12/08/12: Our FSLR trade is off to a strong start. Shares rallied +10.8% this past week. It would have been higher but the stock gave back -2.6% on Friday. Technically Friday's pullback is a bearish engulfing candlestick reversal pattern. I suspect there is a good chance we might see FSLR dip toward $28.00. I am not suggesting new positions at current levels. Please note our new stop loss at $24.40.

Earlier Comments:
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 $6.75/7.15

12/08/12 new stop loss @ 24.40

Current Target: $39.75
Current Stop loss: 24.40
Play Entered on: 11/28/12
Originally listed on the Watch List: 11/10/12


General Electric - GE - close: 21.46

Comments:
12/08/12: GE continues to march higher. The stock is up three weeks in a row. Shares are nearing potential resistance at $22 and its 50-dma. It might be time for a dip but look for support near the new short-term trend of higher lows.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.52/0.55

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: 36.69

Comments:
12/08/12: Hmm... something happened to the homebuilders on Wednesday morning. The group spiked lower. The day before TOL reported earnings but shares of LEN really didn't move on TOL's report. I don't see an explanation for the industry weakness. Traders did buy the dip on Thursday morning.

Currently our stop loss is at $33.90. More conservative traders may want to move theirs closer to $35.00 instead. I am not suggesting new positions.

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 $4.60/4.70

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: 76.65

Comments:
12/08/12: LLL spent the week consolidating sideways in the $75-77 zone. The stock looks poised to rebound higher but it has to get past resistance near $77.75.

- 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/ 4.60

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: 54.60

Comments:
12/08/12: Hmm... MSI didn't make that much progress. Shares broke out higher on Wednesday and hit new multi-year highs. Yet there was no follow through and the stock faded lower. I would not be surprised to see another dip toward short-term support near $54.00. I am not suggesting new positions at the moment.

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 $ 2.68/ 2.84

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: 3.85

Comments:
12/08/12: It was another big week for NOK. The stock soared +18%. Fueling gains was a combination of bullish analyst comments and news that NOK struck a deal in China. NOK inked a deal to sell its flagship phone, the new Lumia 920T, with China's largest carrier, China Mobile, who has about 700 million subscribers.

Shares of NOK remain short-term overbought here. The next hurdle is short-term resistance at $3.90 and probably round-number resistance at $4.00 and its 300-dma (also near $4.00).

Please note our new stop loss at $2.95.

I am not suggesting new positions at the moment.

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 $ 1.35/ 1.41

- or -

Buy NOK stock: entry @ 2.97

12/08/12 new stop loss @ $2.95

Current Target:$ 4.95
Current Stop loss: 2.95
Play Entered on: 11/20/12
Originally listed on the Watch List: 11/17/12


Starbucks Corp. - SBUX - close: 53.64

Comments:
12/08/12: It was somewhat of a volatile week for SBUX. We had this stock on our watch list. The plan was to wait for shares to close above $52.50 and launch positions the next day. SBUX held an investor day conference this past week and announced its new growth plans for thousands of new stores. The stock initially sold off sharply but traders bought the dip near $50 and its 50-dma. The next day SBUX soared higher and broke out past resistance to hit new multi-month highs. A number of positive analyst comments helped fuel the gains. Thursday's close at $53.70 also qualified for our new entry point. The trade opened on Friday morning with SBUX gapping down at $53.43.

I would still consider new positions here but you'll probably get a better entry point if you want and buy calls on a dip into the $52.50-52.00 zone. 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.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 3.75/ 3.85

Chart of SBUX:

Current Target:$ 62.00
Current Stop loss: 47.75
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12


Southern Copper Corp - SCCO - close: 38.18

Comments:
12/08/12: A sharp three-day surge higher helped SCCO add almost two dollars for the week. The stock has now filled the gap from early November. I would expect a short-term pullback soon but $37.00 could be new short-term support. I am not suggesting new positions at this time.

Earlier Comments:
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 $ 2.55/ 3.00

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: 2.76

Comments:
12/08/12: SIRI spent most of the week consolidating sideways inside a 15-cent range. The stock eventually closed almost unchanged for the week. Shares gapped higher on Thursday morning in reaction to news that SIRI would launch a $2 billion stock buy back program and a special dividend yet traders sold the news. The special dividend is five cents a share payable on Dec. 28th to shareholders on record as of Dec. 18th.

At this point I would wait for a close over $2.85 before considering new bullish positions.

- Suggested Positions -
OCT 04, 2012 - entry price on SIRI @ 2.75, option @ 0.38
symbol:SIRI1418A3 2014 JAN $3.00 call - current bid/ask $ 0.36/ 0.38

- or -

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

12/06/12 SIRI announces a stock buyback program and 5-cent dividend
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: 31.86

Comments:
12/08/12: It was a consolidation week for VLO. Shares pulled back to test the $31 level before bouncing. The dip may not be over yet. I would not be surprised to see a dip toward $30 or the 50-dma. I am not suggesting new positions at current levels but a bounce from the $30.50-30.00 zone could be used as a new entry point.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - current bid/ask $ 3.25/ 3.40

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


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Financials & Beverages

by James Brown

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New Watch List Entries

C - Citigroup

KO - The Coca-Cola Co.


Active Watch List Candidates

GLD - Gold ETF

HFC - HollyFrontier Corp

M - Macy's Inc.

VMC - Vulcan Materials Co


Dropped Watch List Entries

ADBE and SBUX have graduated to our play list.

RCL and SWN have been removed.



New Watch List Candidates:


Citigroup - C - close: 37.64

Company Info

The financial sector has been showing some strength the last three weeks. Shares of Citigroup are starting to catch up with their peers. The stock outperformed this past week with a rally off support near $34.00. Now Citigroup is nearing resistance in the $38.00-38.50 zone. A breakout here would be a new 2012 high.

I am suggesting we wait for C to close above $38.50 and then buy calls the next day. Our long-term target is the $47.50-50.00 range.

Breakout trigger: wait for a close over $38.50 (stop 34.65)

BUY the 2014 Jan $45 call (C1418a45) current ask $2.40

Chart of C:

Originally listed on the Watch List: 12/08/12


The Coca-Cola Company - KO - close: 37.71

Company Info

KO is famous for having the most valuable brand in the world. The company held a stock split earlier this year making shares more "affordable" for the average investor. The stock saw a correction from $40.50 down to $36.00 but it looks like KO has bottomed. The stock has rebounded back to resistance near $38.00 and its 100-dma.

The 100-dma is currently at $38.11. I am suggesting we wait for KO to close above $38.25 and then buy calls the next day. If triggered our long-term target is $44.00.

Breakout trigger: wait for a close over $38.25 (stop 35.75)

BUY the 2014 $40 call (KO1418a40) current ask $1.36

Chart of KO:

Originally listed on the Watch List: 12/08/12


Active Watch List Candidates:



SPDR Gold ETF - GLD - close: 165.17

Comments:
12/08/12: The GLD saw another decline this past week but traders were buying the dip on Wednesday and Thursday. I am not convinced the correction is over yet. We are still waiting for a dip to $160.00 but readers may want to jump in early and consider buying a dip or a bounce at $162.00 instead.

I am eliminating the 2013 call. We will focus on the 2014 Jan $200 call.

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

BUY the 2014 Jan $200 call (GLD1418a200)

12/08/12 removed the 2013 call. Only use the 2014 call
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


HollyFrontier - HFC - close: 43.64

Comments:
12/08/12: We were expecting a pullback in HFC. Hopefully it's not over yet.

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.

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

BUY the 2014 Jan $50 call (1418a50)

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


Macy's Inc. - M - close: 39.41

Comments:
12/08/12: The news on Friday was Macy's decision to raise its stock buyback program by another $1.5 billion. The stock is bouncing from the $38 level. We are still waiting for a breakout past resistance at $42.00.

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: 35.01

Comments:
12/08/12: RCL saw a minor pullback last week but traders bought the dip at $34.00. The trend is up but I don't want to chase it. We've been waiting for a dip to $32.25 but it seems unlikely to happen soon. Therefore I am removing RCL as a candidate. More aggressive traders may want to consider buying a breakout to new highs.

trade did not open.

12/08/12 Trade did not open. removed RCL as a candidate.

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


Southwestern Energy - SWN - close: 34.38

Comments:
12/08/12: SWN continues to churn sideways. There appears to be support at the multi-week trend of higher lows. Yet SWN is just not moving very fast. We've been waiting for a breakout above $37.00 but it's unlikely to happen any time soon. Therefore I am removing SWN as a candidate.

trade did not open.

12/08/12 removed SWN as a candidate. trade did not open.

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


Vulcan Materials Co. - VMC - close: 52.00

Comments:
12/08/12: We have been expecting a pullback in VMC. Shares dipped to their rising 10-dma this past week before bouncing. Hopefully the pullback is not over yet.

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)

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