Option Investor
Newsletter

Daily Newsletter, Monday, 12/31/2012

Table of Contents

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

Leaps Trader Commentary

Stocks Surge on Hope of a Deal

by James Brown

Click here to email James Brown

The last day of 2012 ended on an up note. Stocks have been down for several days as investors worried the U.S. would go plunging over the fiscal cliff. Yet now, here at the very last moment, it seems that politicians in both the House and the Senate are finally finding compromise. There has been a flurry of activity in Washington. The market rallied this morning on positive comments that a deal was close to getting done.

Looking back at the economic data last week, most of the news was positive but investors didn't care since the market's focus was on the cliff. Housing data was better than expected. The pending home sales index rose +1.7% in November to 106.4. This is a new two-year high. The November new home sales figures hit an annualized rate of 377,000, which is up from October's 361K. Over the last twelve months home sales are up +9.8%. The Case-Shiller 20-city home price index rallied +4.3% in October, up from a +3.0% gain the month before.

The Chicago ISM index, previously known as the PMI, showed an improvement from 50.4 to 51.6 in December. Readings above 50 indicate growth and expansion. At 51.6 this is the highest reading since August. Meanwhile one of the only bearish data point last week was the consumer confidence reading. The latest consumer confidence reading fell from 71.5 in November to 65.1 in December, which was significantly worse than expected.

Of course the real story last week and today remains the fiscal cliff negotiations in Washington. Last week we saw market volatility pick up as stocks ricocheted from one news headline to the next. Late Friday afternoon we saw stocks accelerate lower in a rush on disappointing news that the fiscal cliff talks were still at a stalemate.

The situation seems to have changed over the weekend. Now that we're down to the last few hours before the deadline expires on January 1st we're hearing that the House and the Senate are working together to patch over some of the biggest holes in the fiscal cliff. This morning it was widely reported that President Obama claimed a deal to avoid a tax hike on middle class Americans was "in sight". The latest story is that both sides seem to have agreed on a $400,000 income threshold as the key level. Those making more than $400K a year will see their taxes go up. Washington is also trying to solve a problem with the Alternative Minimum Tax (or AMT) that is projected to hit up to 25 million Americans if Washington doesn't do something about it. Another tax issue is the payroll tax holiday. At the moment it does not look like the payroll tax holiday will survive. About 160 million U.S. workers only pay 4.2% in payroll taxes. That is set to go up to 6.2% on January 1st.

Another story that made headlines over the weekend was the Dairy "cliff". The latest U.S. farm bill expired back in October. The farming industry is riddled with a convoluted web of federal subsidies and guidelines that impact how farmers manage their business and how much you and I pay for products in the story. Currently the average cost for a gallon of milk is about $3.65. Yet now that the last farm bill expired all the programs that affected the dairy industry would revert back to some arcane formula set 50 plus years ago that would lift the cost of milk to about $7.00 a gallon. You can probably imagine the urgency in Washington to do something before such an American staple as milk were to suddenly double overnight. Instead of tackling such a complicated issue like updating the farm bill the democrats and republicans have agreed on a one-year extension for the milk provision in the 2008 farm bill.

Major Indices:

Last week the S&P 500 index gave up -1.9% but for the year the S&P 500 was still up +11.5% (as of Friday's closing bell). The index has corrected lower toward round-number, psychological support at the 1400 level. This morning (Monday) the S&P 500 briefly dipped below this support level (1398) and then immediately reversed higher.

I don't see any changes from my prior comments on the S&P 500. The main levels to watch are still support at 1400 and most likely support at 1380 and 1350. It's possible the 200-dma near 1390 could offer support. On the upside the S&P 500 faces potential resistance near 1420 and the 1440-1450 area. A breakout past 1450 could signal a run towards the 2012 highs near 1470.

chart of the S&P 500 index:

The NASDAQ composite index fell -2.0% last week with a pullback toward support near the 2950 level. For the year the NASDAQ is up +13.6% as of Friday's closing bell. The market's big rally on Monday is pushing the NASDAQ up through resistance near its 200-dma and the 3,000 level. The main levels to watch remain unchanged. There should be support near 2950, 2900, and 2850. Overhead the most likely areas to look for resistance are 3050 and 3100. If the NASDAQ can close above 3100 we have a pretty good shot at seeing it rally toward is 2012 highs near 3200.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) plunged five days in a row on fiscal cliff fears. The $RUT fell -1.8% last week. Yet it managed to recoup all of those losses with a +2.0% rebound on Monday. Strength in the small cap Russell is a good sign for the health of the broader market. If a cliff deal gets done we could see the $RUT rally toward its all time highs near 870.

chart of the Russell 2000 index

It's the first of the month again and that means a lot of economic data. With the markets closed on Tuesday everything is going to be crammed into the last three days of the week. The reports to watch are the ISM on Wednesday, the ADP Employment change report on Thursday, and the non-farm payrolls (jobs) report on Friday. Economists are expecting +143,000 new jobs in December.

Economic and Event Calendar

- Monday, December 31 -
Last day before the fiscal cliff deadline!

- Tuesday, January 01 -
U.S. markets closed for New Year's Day

- Wednesday, January 02 -
ISM index
construction spending
auto and truck sales
Eurozone PMI data

- Thursday, January 03 -
Weekly Initial Jobless Claims
ADP Employment change report

- Friday, January 04 -
non-farm payrolls (jobs) report for December
unemployment rate
Factory Orders
ISM Services index

Additional Events to be aware of:

Jan 10th, 2013 - ECB interest rate decision

The Week Ahead:

Looking ahead it is still all about the fiscal cliff. The market rallied sharply on Monday thanks to positive news about progress towards a deal. Yet no deal has been completed and we only have a few hours to go before the deadline passes. It is possible that some sort of short-term deal or extension gets done. Technically we could actually go over the cliff and then see our legislators pass a bill that would retroactively stop that from happening.

Another twist on the negotiations could be the U.S. debt ceiling issue. The U.S. is scheduled to hit its debt ceiling on Monday (today). That means the U.S. has essentially hit its limit on the country's credit card. The U.S. Treasury will have to rely on accounting tricks to avoid the U.S. from not paying its bills. This could be a major factor in getting some sort of deal done.

Everything comes down to "the deal". Do we get a deal or not? What kind of deal will it be? Will it be a short-term fix or a bigger compromise? On Friday option trading guru and former market maker Jon Najarian surprised many by confessing that he was completely out of the markets. The potential volatility over the fiscal deal made it too dangerous to trade. I am paraphrasing. Jon actually said, "For the first time in 31 years in the market, I am completely out of everything. I see no reason to stick with longs and no reason to get short either." He may have a point. If a "deal" does get done then the market could rally sharply or we could see a sell the news reaction instead. The problem is that we don't know the details of any deal yet. If congresses rushes to pass some sort of deal to avoid disaster the quality of the deal will be questioned. Najarian is expecting the first two or three weeks of January to be weak and hopes to get back into the market on this weakness after some of the dust from any fiscal cliff deal settles.

Bigger picture 2013 will remain hostage to Washington. PIMCO's co-CEO Mohamed El-Erian was quoted on Monday saying that the "dysfunction and polarization" of our politics in Washington would be a major drag on the U.S. economy. El-Erian expects more of the "new normal" with a very slow-growth economy and constant highly unemployment.

Short-term, the big bounce on Monday is encouraging but these gains could all be erased just as quick if there isn't a deal by Wednesday morning. It may be safer for investors to just take a step back, away from the market for a few days to wait for this fiscal cliff deal business to shake out before committing new capital.

Happy New Year!

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Monday's broad-based rally helped the market recoup a good chunk of last week's fiscal cliff sell-off. We only have a few hours left for 2012 and there is no final cliff deal yet. Success or failure on a deal could generate a lot of volatility for stocks the rest of this week.

NOTE: We did close our 2013 Jan $30 AIG calls on Monday, Dec. 24th with a +47% move.

Looking at our portfolio, we added HON from our watch list.

No new stop losses tonight.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Uncertainty Surrounds the Cliff

by James Brown

Click here to email James Brown

Editor's Note:

(December 31, 2012)

Last week the stock market pulled back on rising worries over the fiscal cliff. Today stocks delivered a widespread bounce as congress rushed to cobble together a last-minute deal. No deal has been finalized and that means the rest of the week could be very volatile. If we don't see a solid deal by Wednesday morning then Monday's gains could vanish.

All of the uncertainty surrounding a fiscal cliff deal does not generate confidence to launch new long-term positions. News of a deal could send stocks soaring and word that the deal has fallen through could send stocks plunging. On the other hand we could actually see a spike higher on news of a deal only to see the rally reverse and investors sell the news. There is no way to know what direction the markets are headed. Therefore I am not adding any new positions tonight.

I did add a few new candidates to the radar screen. Some of them look like potential plays right now but I would not launch positions given the uncertain future of the fiscal cliff.

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:

LULU, DDD, XLF, ETN, DE, CLB, BAC, RJF, MS, GS, SCHW, PHM, RYL, MHO, HP, APKT, CDE, X, RS, CMI,


Play Updates

Relatively Quiet

by James Brown

Click here to email James Brown

Editor's Note:

In spite of all the volatility surrounding the fiscal cliff it has been a relatively quiet week for our play list. Monday's big bounce helped erased most if not all of last week's pullback.


Closed Plays


None. No closed plays this week.


Play Updates


Adobe Systems - ADBE - close: 37.68

Comments:
12/31/12: ADBE has been consolidating in what looks like a bull-flag consolidation pattern. Traders bought the dip this morning and Monday's move looks like a potential bullish engulfing candlestick reversal pattern. This might signal that ADBE is ready to begin the next leg higher but that will probably depend on how the market reacts to all the fiscal cliff news.

- Suggested Positions -
DEC 05, 2012 - entry price on ADBE @ 35.30, option @ 2.32
symbol:ADBE1418a40 2014 JAN $40 call - current bid/ask $ 3.25/3.35

12/15/12 new stop loss @ 33.75
12/13/12 ADBE reports earnings.

Current Target:$ 44.00
Current Stop loss: 33.75
Play Entered on: 12/05/12
Originally listed on the Watch List: 11/03/12


American Intl. Group - AIG - close: 35.30

Comments:
12/31/12: AIG has continued to consolidate sideways. It looks like the stock is poised to breakout through resistance near $36.00 soon. Readers looking for a new bullish position could use a close above $36.00 as an entry point.

Last weekend we announced plans to exit our 2013 Jan $30 calls at the open on Monday, Dec. 24th. That position was closed with the option at $5.00 (+47.0%). We still have our 2014 position.

Earlier Comments:
Our plan was to keep our initial position size small to limit our risk. 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 - exit @ $5.00 (+47.0%)

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.20/ 5.35

12/24/12 closed our 2013 call position at the open.
Our exit was at $5.00 (+47.0%)
12/22/12 Exit the 2013 calls immediately on Monday morning
current bid is at $4.80
12/15/12 readers may want to exit our 2013 calls now.
12/08/12 move the target for the 2013 calls to $37.00
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:$ 2013 call: $37.00, 2014 calls: $42.50
Current Stop loss: 29.45
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Citigroup - C - close: 39.56

Comments:
12/31/12: Citigroup has been consolidating sideways in the $38.50-40.00 zone these last two weeks. The stock looks ready to breakout higher but that will depend on the market. Readers may want to start raising their stop loss.

- Suggested Positions - (small positions)
DEC 18, 2012 - entry price on C @ 39.21, option @ 3.02
symbol: C1418a45 2014 JAN $45 call - current bid/ask $ 3.55/ 3.70

Current Target:$ 47.50-50.00range
Current Stop loss: 34.65
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12


CONSOL Energy Inc. - CNX - close: 32.10

Comments:
12/31/12: CNX is currently hovering near support at its 200-dma and its multi-month trend line of higher lows. A breakdown here would be very bearish. More conservative traders may want to raise their stop loss. 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.

- 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 $ 2.15/ 2.29

12/22/12 action this past week is potentially bearish. stay cautious!
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: 33.98

Comments:
12/31/12: Traders have bought the dip in CREE twice near short-term support at $33.00. I am not convinced the correction lower is over yet but the larger pattern remains higher. I am not suggesting new positions at this time.

- 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 $ 5.45/ 5.65

12/15/12 new stop loss @ 29.45
12/15/12 bid/ask spread on our 2014 calls is too wide!
12/02/12 new stop loss @ 28.45

Current Target:$ 39.00
Current Stop loss: 29.45
Play Entered on: 11/01/12
Originally listed on the Watch List: 10/20/12


Expedia Inc. - EXPE - close: 61.44

Comments:
12/31/12: EXPE continues to bounce from its recent test of the 50-dma. The stock is nearing resistance near $62 and its all-time high. If the market cooperates we could see EXPE launch into its next leg higher. At the moment I would wait for a close above $62.00 before considering new bullish positions.

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: EXPE1418a74.48 '14 JAN $74.48 call - current bid/ask $5.60/6.00

12/13/12 EXPE began trading ex-dividend (52cents). The option strike on our 2014 calls moved from $75.00 to $74.48.

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


First Solar Inc. - FSLR - close: 30.86

Comments:
12/31/12: FSLR has spent the last few days consolidating sideways near what should be round-number support at the $30 level. Monday's big bounce (+3.5%) is encouraging but many of the short-term technicals remain bearish. I am not suggesting new positions at this time.

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 $6.50/6.80

12/22/12 new stop loss @ 25.75, FSLR looks poised for more profit taking
12/15/12 readers may want to take profits early. The bid on our call is up to $8.15.
12/08/12 new stop loss @ 24.40

Current Target: $39.75
Current Stop loss: 25.75
Play Entered on: 11/28/12
Originally listed on the Watch List: 11/10/12


General Electric - GE - close: 20.99

Comments:
12/31/12: GE had been flirting with a breakdown below technical support at its 200-dma. Monday's big bounce (+2.6%) looks like a bullish reversal but we need to see confirmation. Readers may want to wait for a close above $21.40 before considering new positions.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.53/0.54

12/14/12 GE increased its dividend to 19 cents
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


SPDR Gold ETF - GLD - close: 162.02

Comments:
12/31/12: Normally the U.S. dollar and gold prices move in opposite directions. Yet this past week they have both been trending higher. The GLD is now back above its simple 200-dma but there is still additional resistance in the $162-165 area.

Our long-term target is the $190-200 zone.

- Suggested Positions -
DEC 20, 2012 - entry price on GLD @ 159.87, option @ 2.60
symbol: GLD1418a200 2014 JAN $200 call - current bid/ask $2.88/3.00

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)

Current Target: $190.00-200.00 zone
Current Stop loss: 154.40
Play Entered on: 12/20/12
Originally listed on the Watch List: 09/01/12


Honeywell Intl. - HON - close: 63.47

Comments:
12/31/12: The market's weakness on fiscal cliff fears played to our advantage. HON was a watch list candidate and the plan was to buy calls on a dip at $62.50. Shares hit that entry trigger this morning before revering higher. I would still consider new positions now but given all the uncertainty surrounding a fiscal cliff deal readers may want to wait and see what the headlines are on Wednesday morning and if the market opens positive or not before considering new bullish positions in HON.

Our stop loss is at $58.40. Our long-term target is $74.50. FYI: The Point & Figure chart is bullish with a long-term $86 target.

- Suggested Positions -
DEC 31, 2012 - entry price on HON @ 62.50, option @ 4.40
symbol: HON1418a65 2014 JAN $65 call - current bid/ask $4.80/5.00

Chart of HON:

Current Target: $74.50
Current Stop loss: 58.40
Play Entered on: 12/31/12
Originally listed on the Watch List: 12/22/12


Juniper Networks - JNPR - close: 19.67

Comments:
12/31/12: Both the NASDAQ and JNPR spiked lower on Monday morning but both reversed sharply higher. JNPR managed a +1.5% gain. Readers may want to wait for a new close back above the $20.00 mark before initiating new positions.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.44/1.45

Current Target: $24.75
Current Stop loss: 18.75
Play Entered on: 12/19/12
Originally listed on the Watch List: 12/15/12


Lennar Corp. - LEN - close: 38.67

Comments:
12/31/12: After almost two weeks of slowly consolidating lower shares of LEN delivered a strong +2.8% rebound today. The $40.00 level remains overhead resistance. I am not suggesting new positions with LEN sitting just beneath resistance.

Currently our stop loss is at $33.90. More conservative traders may want to move theirs closer to $35.00 instead.

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 $5.30/5.50

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: 76.62

Comments:
12/31/12: If you consider what the fiscal cliff means for major defensive contractors shares of LLL have been holding up very well. Last week the stock did see a four-day decline but shares reversed off its Monday morning lows today.

The cliff issue remains a big risk for LLL and the defense sector. More conservative traders may want to raise their stops. I am not suggesting new positions.

- 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 $ 3.10/ 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: 55.68

Comments:
12/31/12: MSI spent almost all of December consolidating sideways between $55 and $54. Today the stock explodes higher with a +2.9% gain and a bullish breakout to new highs. If both MSI and the S&P 500 index open positive on Wednesday, readers may want to consider new bullish positions.

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 $ 2.89/ 3.10

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: 3.95

Comments:
12/31/12: The correction in NOK continued until shares found support near $3.80. The market's widespread rebound today helped NOK produce a +3.6% gain. The next hurdle for the bulls is short-term resistance at $4.00 and the $4.10 area. I am not suggesting new positions at this time.

Our long-term target remains $4.95 but readers may want to seriously consider taking some money off the table now.

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 $ 1.40/ 1.43

- or -

Buy NOK stock: entry @ 2.97

12/22/12 new stop loss @ 3.40
12/15/12 new stop loss @ 3.25
12/08/12 new stop loss @ $2.95

Current Target:$ 4.95
Current Stop loss: 3.40
Play Entered on: 11/20/12
Originally listed on the Watch List: 11/17/12


Starbucks Corp. - SBUX - close: 53.63

Comments:
12/31/12: SBUX has been moving sideways to down the last few days. That changed with Monday's +1.8% bounce but SBUX remains under short-term resistance at its 10-dma and the $54.00 level. I am not suggesting new positions at the moment.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 3.70/ 3.80

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: 37.86

Comments:
12/31/12: SCCO produced a +1.6% gain on Monday but the stock remains inside the $37-39 range. The stock has been stuck in this range for three weeks in a row. Upward momentum has stalled. 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 $ 2.35/ 2.70

12/22/12 SCCO looks poised to correct lower toward $36.00
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: 2.89

Comments:
12/31/12: Shares of SIRI have been slowly drifting lower since our last update. The stock's failure to bounce higher with the rest of the market on Monday is a bit alarming and a warning signal. I am not suggesting new positions at current levels.

- Suggested Positions -
OCT 04, 2012 - entry price on SIRI @ 2.75, option @ 0.38
symbol:SIRI1418A3 2014 JAN $3.00 call - current bid/ask $ 0.42/ 0.45

- or -

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

12/15/12 new stop loss @ 2.57
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: 2.57
Play Entered on: 10/04/12
Originally listed on the Watch List: 09/29/12


Teck Resources - TCK - close: 36.35

Comments:
12/31/12: Resource and material names were showing relative strength on Monday. TCK produced a +3.2% gain. Yet shares have not escaped its $35-37 trading range from the last three weeks. I am not suggesting new positions at the moment.

- Suggested Positions -
DEC 10, 2012 - entry price on TCK @ 35.19, option @ 3.40
symbol: TCK1418a40 2014 JAN $40 call - current bid/ask $ 3.70/3.90

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


Valero Energy - VLO - close: 34.12

Comments:
12/31/12: VLO was showing some relative strength on Monday with a +3.0% gain. The stock has closed just beneath its 2012 highs set in mid December. A breakout past the $34.50 level would be bullish. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - current bid/ask $ 4.20/ 4.35

12/15/12 new stop loss @ 29.75
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: 29.75
Play Entered on: 11/23/12
Originally listed on the Watch List: 11/10/12


Watch

Internet & Coal

by James Brown

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New Watch List Entries

AKAM - Akamai Tech

ANR - Alpha Nat. Res.

SOHU - Sohu.com


Active Watch List Candidates

ADI - Analog Devices Inc.

CVX - Chevron Corp.

URBN - Urban Outfitters

VMC - Vulcan Materials Co


Dropped Watch List Entries

HON graduated to the play list.
KO was removed.



New Watch List Candidates:


Akamai Technology - AKAM - close: 40.91

Company Info

I mentioned AKAM as a bullish candidate in my editor's note for the new plays section last weekend. The stock has weathered last week's market decline very well. Shares remain inside the $40-42 zone. Broken resistance at $40.00 is holding as new support. More aggressive traders may want to buy calls now.

I am worried about the market reaction to any fiscal cliff resolution or failure. Thus I'd like to see more strength. We'll wait for AKAM to close above $42.00 and then launch positions the next day with a stop at $37.75. Our target is $52.50.

Breakout trigger: Wait for a close above $42.00 (stop 37.75)

BUY the 2014 Jan $50 call (AKAM1418a50) current ask $3.35

Chart of AKAM:

Originally listed on the Watch List: 12/31/12


Alpha Natural Resources - ANR - close: 9.74

Company Info

Investors were worried that if President Obama won re-election it would be bad news for the coal industry. You can see the post-election sell-off in ANR's charts. Yet those worries seem to have vanished. The stock has recovered and is once again challenging major resistance near the $10.00 level. ANR has spent months building a bottom and looks ready to begin a new up trend.

I am suggesting we wait for ANR to close above $10.15 and then buy calls the next day. If triggered we'll use a stop loss at $8.90. Our long-term target is $18.00.

Breakout trigger: Wait for a close above $10.15 (stop 8.90)

BUY the 2014 Jan $10 call (ANR1418a10) current ask $2.25

Chart of ANR:

Originally listed on the Watch List: 12/31/12


Sohu.com - SOHU - close: 47.34

Company Info

SOHU is in the Chinese Internet industry. The Chinese market has produced a dramatic turnaround higher. The stock has held up very well in spite of news that the Chinese government has passed an Internet identity law that requires web users to register their real names. Naturally the markets were worried that this law might impact web use and commerce on the Internet. So far there doesn't seem to be any bearish reaction in SOHU's stock price.

SOHU appears to have formed a significant bullish double bottom with its low in July and November of 2012. Now the recent breakout has created a bullish buy signal on the P&F chart, which is forecasting a long-term $72 target.

I don't want to chase SOHU here. We'll wait for some profit taking. Broken resistance at $45.00 should be new support. I am suggesting we buy calls on a dip a t $45.50. Our long-term target is $58.50.

Buy-the-Dip trigger: $45.50 (stop loss: 42.40)

BUY the 2014 Jan $50 call (SOHU1418a50) current ask $6.70

Chart of SOHU:

Originally listed on the Watch List: 12/31/12


Active Watch List Candidates:



Analog Devices - ADI - close: 42.06

Comments:
12/31/12: ADI held up pretty well during the market's pullback last week. Today saw a +1.4% gain. Shares still look poised to move higher.

I am suggesting we wait for ADI to close above $42.80 and then buy calls the next day. If triggered we'll use a stop loss at $39.80 to start. Our long-term target is $49.75. FYI: The Point & Figure chart is bullish with a $49 target.

Breakout trigger: Wait for a close above $42.80 (stop: 39.80)

BUY the 2014 Jan $45 call (ADI1418a45)

Originally listed on the Watch List: 12/22/12


Chevron Corp. - CVX - close: 108.14

Comments:
12/31/12: The correction in CVX continued last week but today's big intraday bounce allowed CVX to recoup a good chunk of its losses. We are still waiting. The next hurdle for CVX is resistance in the $110-111 area and its 100-dma.

I am suggesting we wait for CVX to close above $111.50 and then buy calls the next day with a stop loss at $104.75. Our long-term target is $124.50.

Breakout trigger: Wait for a close above $111.50 (stop: 104.75)

BUY the 2014 Jan $120 call (CVX1418a120)

Originally listed on the Watch List: 12/22/12


The Coca-Cola Company - KO - close: 36.25

Comments:
12/31/12: Shares of KO have continued to show weakness. The stock is flirting with a breakdown below support near the $36.00 level. Our plan was to buy calls if KO could close above $38.25 but that is unlikely to happen any time soon. Therefore we are dropping KO as a candidate.

Trade did not open.

12/31/12 removed KO from the newsletter

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


Urban Outfitters - URBN - close: 39.36

Comments:
12/31/12: Traders bought the dip near $38.00 several times last week. The stock displayed some relative strength today with a +2.9% gain. Our plan has not changed. We are waiting for a breakout.

I am suggesting we wait for URBN to close above $40.75 and then buy calls the next day. If triggered our long-term target is $48.00.

Breakout trigger: Wait for a close above $40.75, (stop @ 37.85)

buy the 2014 Jan $45 call (URBN1418a45)

Originally listed on the Watch List: 12/15/12


Vulcan Materials Co. - VMC - close: 52.05

Comments:
12/31/12: VMC came close but did not hit our buy-the-dip trigger at $50.25. If there is no fiscal cliff deal then I expect VMC to drop toward support near $50.00. If there is a deal then VMC will likely rally with the market and we may want to buy calls on a close above the $54.00 level instead.

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