Option Investor
Newsletter

Daily Newsletter, Sunday, 1/6/2013

Table of Contents

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

Leaps Trader Commentary

Fiscal Cliff Deal Sends Market Higher

by James Brown

Click here to email James Brown

The new year 2013 is off to a strong start for Wall Street. The major U.S. indices are soaring thanks to news of a fiscal cliff deal in Washington. On January 2nd, word of an agreement between the democrats and republicans pushed the Dow Industrials to a +308-point rally. The NASDAQ composite soared almost 93 points and the S&P 500 gained +2.5% the same day. By the end of the week the small cap Russell 2000 index had broken out to a new all-time, record high. The Dow Jones transportation average is not that far behind, only 84 points from a new record high. Gold and silver tumbled on a rally in the dollar. Oil posted its fourth weekly gain in a row. The bond market reversed sharply lower.

A few highlights of the fiscal cliff deal revealed that individuals earnings less than $400,000 a year will not see their income taxes go up. Those making more than $400K will. Yet any employee will see their payroll taxes rise as the tax holiday was allowed to expire. Your payroll taxes will rise from 4.2% to 6.2%. The $109 billion in defense spending cuts has been delayed for two months giving politicians more time to negotiate (probably about the debt ceiling, but more on that later). The economic data last week was focused on employment but the ISM data was better than expected. The national ISM index rose from 49.5 to 50.7 in December. Readings over 50.0 indicate growth and expansion. Meanwhile the ADP employment change report showed private sector jobs gaining +215,000. On Friday the non-farm payroll (jobs) report came in at +155,000. Economists were only expecting +143K. The prior month (November) was revised higher from +146K to +161K. The unemployment rate was unchanged at 7.8%. Overall it was relatively positive, showing slow and steady growth.

The "steady" part of U.S. job growth is a bit surprising. Felix Salmon, at Reuters, published an interesting piece on the jobs report's lack of volatility. According to the BLS, who produces the monthly report, they claim that their own numbers could be off by 100,000 workers at least 10% of the time. Yet we haven't see that sort of volatility in the monthly numbers. Here's a link to the article but be careful, it might fuel your inner conspiracy theorist. (link to Felix's article: click here.) Another event this past week was the FOMC minutes from the latest meeting. Market participants were surprised to read that some of the fed governors are starting to think the Federal Reserve should slow or stop their QE programs in late 2013. That's a lot sooner than we've all been led to believe and the U.S. dollar rallied on the news while U.S. bonds sank. The strength in the dollar helped push precious metals lower.

The action in the U.S. bond market is starting to look like a potential top. Yields on the ten-year note have been hovering in the 1.55 to 1.90% range for months but this past week they broke out higher (on bond weakness). If the rally in the bond market is actually over the all that money could start flowing back into equities. However, I think it might be too early to call a top in bonds. When yields spiked back in March 2012 they were probably thinking it was a top as well. This is definitely an area that investors will want to keep an eye on. I am posting a monthly chart of the 10-year yield to offer you some perspective.

Monthly chart of the 10-yr U.S. bond yield:


Major Indices:

Bingo! U.S. stocks reversed sharply higher on news of the fiscal cliff deal. I'm sure a lot of it was short covering. The S&P 500 delivered a +4.5% gain in just four days (market was closed on Tuesday). Now the index is nearing potential resistance at its 2012 highs in the 1470 area. A breakout past 1470 could push the S&P 500 to levels not seen since late 2007. On a short-term basis the index is overbought and probably needs to pullback some or consolidate sideways to digest these gains.

The 1440 and 1420 levels should now be new support. If the S&P 500 is able to keep the rally alive then the next major resistance level (past 1470-1475) is round-number, psychological resistance at the 1500 mark.

chart of the S&P 500 index:

Monthly chart of the S&P 500 index:

The tech-heavy NASDAQ composite soared +4.7% for the four-day week. Most of that was on the gap open higher from Tuesday morning. Last week I cautioned readers that 3050 and 3100 were likely resistance. There is a chance that the NASDAQ tries to fill the gap before moving higher. Or the NASDAQ could churn sideways as it tries to digest these gains and investors wait for corporate earnings news to fuel the next move.

We can look for potential support at 3050, 3000, and 2950. The next level of significant resistance is probably the 2012 highs near 3200. A breakout past 3200 would mean new multi-year highs. I'm including a monthly chart of the NASDAQ to provide some perspective.

chart of the NASDAQ Composite index:

Monthly chart of the NASDAQ Composite index:

The small cap Russell 2000 index was the big winner for the week with a +5.6% gain. It has also broken out past resistance to close at new all-time, record highs. The $RUT is definitely short-term overbought but it can always grow more overbought. Broken resistance near 870 might offer a little bit of support but if the market corrects I would expect a bigger pullback in the $RUT.

If the rally continues then the next level of likely resistance should be the 900 level. Once past 900 the 1,000 level could act like a magnet. I want to warn you that if the Q1 earnings season isn't very good then a lot of these gains could vanish.

The larger trend is up but short-term the $RUT is due for a dip.

chart of the Russell 2000 index

Monthly chart of the Russell 2000 index

I want to point out that the Dow Jones Transportation average is in breakout mode. After months of churning below resistance near the 5200 level these last few weeks have produced a bullish breakout higher. Now the $TRAN index has rallied to major resistance near its all-time highs in the 5500-5600 range. The all-time intraday high was 5627 back in 2011. The monthly line chart below shows the $TRAN's closing values so it looks like it's already breaking out. Following the transports is important because Dow Theory says we can't have a sustained market rally without cooperation by the transports. On a short-term basis the transports are overbought and due for some profit taking. On a long-term basis a strong close above 5630 would be very bullish.

Monthly chart of the Dow Transportation Average

Traders should also be aware that this big market rally has crushed the volatility index (VIX). Normally when the VIX is very low it indicates complacency and a lack of fear in the market. When traders get too comfortable it could spell trouble. This last week has seen the VIX collapse from above 22 to under 14 (-36%) and it's nearing the 2012 lows set this past summer.

I am not calling a top in the market based on the plunge in the VIX but it is a warning sign. Stocks can continue to rally and the VIX could hit new multi-year lows but the lower it goes the higher the risk of a bearish reversal. Think of it like a rubber band. The harder you stretch out a rubber band the faster and harder it snaps back. It's just one more thing to keep an eye on.

chart of the Volatility Index

The economic data slows down a bit this week. We will see new info on the Eurozone area with their PPI and retail sales. Plus China will release its inflation data and retail sales numbers. The ECB has an interest-rate meeting on January 10th. Yet the event to watch is the beginning of the Q4 earnings reporting season. Alcoa (AA) launches the Q4 earnings season on Tuesday, after the closing bell. The pace of earnings will pick up significantly the following week.

Economic and Event Calendar

- Monday, January 07 -
Eurozone Producer Price Index (PPI)

- Tuesday, January 08 -
Eurozone retail sales
Dow-component Alcoa (AA) kicks off Q4 earnings season

- Wednesday, January 09 -
Chinese inflation data
Chinese retail sales

- Thursday, January 10 -
Weekly Initial Jobless Claims
ECB interest rate decision
Wholesale inventories

- Friday, January 11 -
(nothing significant)

The Week Ahead:

I just mentioned how earnings season is about to begin. Corporate results and more specifically guidance will determine market direction for the next few weeks. There seems to be two very divergent camps right now. Some analysts believe that earnings estimates are still too high and we're going to see a number of misses. They are worried that the fourth quarter was a lot worse than expected. Worries over the fiscal cliff and how to handle rising taxes in 2013 may have stalled corporate investment and consumer spending. On the other hand there are those analysts that expect Q4 numbers to come in healthy. Essentially worries about the cliff and rising taxes may have actually pulled economic activity and spending from the first quarter and into the fourth quarter.

One issue that worries me about earnings season is where stocks are currently at. The market has already seen a significant rally. The major indices are at their highs or making new ones. Better than expected earnings numbers could already be priced in and traders could use the earnings announcement to sell the news and lock in gains. Whether or not anyone buys the post-earnings dip will likely depend on guidance. If there is an outbreak of disappointing guidance we could see the market reverse lower in a hurry.

Another issue to be aware of is the upcoming political fight in Washington over the U.S. debt ceiling. This country has already hit the debt ceiling, which means we've maxed out our credit card. Since we borrow about 40 cents of every dollar we spend, we're not going to get very far into 2013 unless we raise the limit on our credit card. Eventually our creditors are going to stop loaning us money unless we change our spending habits but that's another discussion for another time.

The deadline to solve our debt ceiling issue is in February. The media is calling it the "debt threat" so if you see that term bandied about you know what they're talking about. The debt ceiling issue was a big deal back in 2011. Lack of cooperation between politicians led to a stalemate and the U.S. went past the debt ceiling in the summer of 2011. In reaction S&P downgraded the U.S. credit rating and the stock market plunged.

Now we're hearing more analysts express concerns about the debt threat. One Bank of America analyst is forecasting a -10% to -20% drop in the stock market due to the debt ceiling issue. The "debt threat" will consume the market and the financial media for days on end. Fortunately, that's a few weeks away. Wall Street is going to focus on corporate earnings first. We'll have to wait and see if focusing on corporate earnings is a good thing or a bad thing.

The market's trend is up but some of the major indices have major resistance in front of them. Corporate earnings results, guidance and the debt threat are all potential land mines that could explode and send the market lower.

Trade cautiously.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market is up big for the holiday-shortened week. Relative strength in the small caps is bullish. Yet the large-cap S&P 500 index is hovering just below resistance at its 2012 highs.

We have added ADI, AKAM, ANR, and URBN from our watch list to our active portfolio.

NOTE: Our ANR trade will start on Monday morning.

I have updated stop losses on: C, CNX, EXPE, FSLR, HON, LEN, LLL, SBUX, SCCO, SIRI, and VLO.

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

A Rip-Roaring Start

by James Brown

Click here to email James Brown

Editor's Note:

(January 05, 2012)

The U.S. market is off to a rip-roaring start to our brand new year. Now the S&P 500 is hovering just below major resistance at its 2012 highs but the small cap Russell 2000 index has broken out to new all-time highs. Will the rally continue or will stocks see profit taking on earnings news?

We are about to enter the Q4 earnings reporting season. Disappointing results or guidance could be a spark for profit taking. On the other hand, better than expected earnings news could definitely push the market to new relative highs. A major concern is the upcoming debt ceiling fight in Washington that will happen in February.

The trend is up but earnings and the debt ceiling issue could be major landmines. I am not adding new trades tonight. Our watch list was very successful and had four candidates graduate to our active play list this past week.

I've added one new watch list candidate and updated our radar screen below.

NOTE: ANR actually met our entry point requirement at Friday's close so our trade will open on Monday morning.

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:

SYK, LSTR, X, EA, AMD, MU, CRR, BTU, GS, KMB, JNJ, AXP, OMX, KO, FLR, CAT, DE, OPEN, ORCL, WSM, PFE, T, WAG, PHM, RS, RCL, HSY, JBHT



Play Updates

Lots of New Highs and New Stops

by James Brown

Click here to email James Brown

Editor's Note:

The stock market reacted very positively to news that our politicians in Washington managed to put together a deal to address the fiscal cliff. Stocks saw widespread gains.

You may want to consider taking some profits off the table and/or adjusting your stop losses on current positions.

Our watch list was very successful with four stocks graduating to our active trade list (ADI, AKAM, ANR, and URBN).


Closed Plays



None. No closed plays this week.



Play Updates


Adobe Systems - ADBE - close: 38.13

Comments:
01/05/13: I found the action in ADBE this past week a bit disappointing. The stock did tag new multi-year highs but it didn't keep them. Shares do look poised for more gains. Investors may want to raise their stops toward the $35 area.

- Suggested Positions -
DEC 05, 2012 - entry price on ADBE @ 35.30, option @ 2.32
symbol:ADBE1418a40 2014 JAN $40 call - current bid/ask $ 3.35/3.50

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


Analog Devices - ADI - close: 42.52

Comments:
01/05/13: ADI is a watch list candidate that has graduated to our active trade list. The plan was to wait for a close above $42.80 and then buy calls the next day. ADI surprised us on Wednesday with a big move from $42 to $44 and the stock closed at the $44.00 level. Our trade opened on Thursday morning with ADI's gap down at $43.60. At this point ADI looks poised to test the $42 level again. Readers could use a dip near $42.00 or wait for a bounce off the $42 level as our next bullish entry point.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 2.45/2.60

Chart of ADI:

Current Target:$ 49.75
Current Stop loss: 39.80
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/22/12


American Intl. Group - AIG - close: 36.30

Comments:
01/05/13: AIG added a dollar for the week. Most of that was on the gap open higher on Wednesday morning. I would not be surprised to see AIG fill the gap with a dip back to $35.50 before moving higher again.

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


Akamai Technology - AKAM - close: 40.43

Comments:
01/05/13: AKAM is another watch list candidate that has graduated to our play list. The plan was to wait for shares to close above resistance at $42.00. The market's huge rally on Wednesday left AKAM at $42.16. Our trade opened the next day with the stock's gap down at $41.89. AKAM's performance these last two days has been disappointing. Broken resistance at $40.00 is holding up as support for now but if AKAM is sinking with the market in rally mode what will the stock do when the market corrects?

Nimble traders could buy calls on a bounce off the $40.00 level. More conservative traders may want to wait for a new close above $42.00 before considering new positions.

- Suggested Positions -
JAN 03, 2013 - entry price on AKAM @ 41.89, option @ 3.60
symbol:AKAM1418a50 2014 JAN $50 call - current bid/ask $ 2.91/3.00

Chart of AKAM:

Current Target:$ 52.50
Current Stop loss: 37.75
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/31/12


Alpha Natural Resources - ANR - close: 10.38

Comments:
01/05/13: ANR is another watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $10.15 and then buy calls the next day. ANR closed exactly at $10.15 on Thursday. Previously I said "above" $10.15 so technically the trade did not open on Friday morning. However, Friday's close at $10.38 meets our requirement for "above $10.15". That means the newsletter's official entry will be Monday morning.

After months of consolidating sideways ANR has finally built a bottom and is now breaking through major resistance near the $10.00 level. Our long-term target is $18.00.

- Suggested Positions -
JAN 07, 2013 - entry price on ANR @ --.--, option @ -.--
symbol: ANR1418a10 2014 JAN $10 call - current bid/ask $ 2.52/2.53

01/04/13 ANR meets our entry requirement with a close "above" $10.15. Our trade will open on Monday morning (Jan. 7th)

Chart of ANR:

Current Target:$ 18.00
Current Stop loss: 8.90
Play Entered on: 01/07/13
Originally listed on the Watch List: 12/31/12


Citigroup - C - close: 42.43

Comments:
01/05/13: Citigroup was added to the "conviction buy list" at Goldman Sachs this past week. That along with strength in the financial sector helped push C to a new 52-week high. The breakout past resistance at $40.00 is good news. I am raising our stop loss to $37.35.

- 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 $ 4.35/ 4.45

01/05/13 new stop loss @ 37.35

Current Target:$ 47.50-50.00range
Current Stop loss: 37.35
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12


CONSOL Energy Inc. - CNX - close: 32.43

Comments:
01/05/13: The stock market was exploding higher on Wednesday thanks to the fiscal cliff deal. Yet natural gas stocks were floundering. CNX really underperformed. That was likely due to a drop in natural gas prices. The stock recovered with a bounce on Thursday and Friday but CNX continues to look troubled.

I would seriously consider an early exit right now and just focus elsewhere. I'm going to give CNX one more week to improve or we'll drop it. Please note our new stop loss at $30.45. 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 $ 1.89/ 1.97

01/05/13 new stop loss @ $30.45, if CNX doesn't improve we'll likely drop it next weekend
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: 30.45
Play Entered on: 11/09/12
Originally listed on the Watch List: 10/13/12


Cree, Inc. - CREE - close: 34.36

Comments:
01/05/13: The market's widespread rally lifted CREE straight to resistance at $35.00 and the stock stalled. Investors may want to raise their stop loss closer to the $32 level. 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/ 5.60

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: 64.46

Comments:
01/05/13: It was a good week for EXPE with a rally to new all-time, record highs. Shares are nearing what could be round-number resistance at $65.00. I would not be surprised to see a little pullback here. Please note our new stop loss at $57.40.

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 $6.20/6.70

01/05/13 new stop loss @ 57.40
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: 33.59

Comments:
01/05/13: FSLR shined last week with a surge to new multi-month highs. The stock hit some profit taking on Friday. We are raising our stop loss to $27.75. More conservative traders might want to adjust your stop closer to 429.00 instead. 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 $8.00/8.55

01/05/13 new stop loss @ 27.75
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: 27.75
Play Entered on: 11/28/12
Originally listed on the Watch List: 11/10/12


General Electric - GE - close: 21.20

Comments:
01/05/13: GE posted a gain for the week but I would be cautious here. It looks like the rally failed near $21.50 and a trend of lower highs. I would expect shares to churn sideways until the company reports earnings on January 18th.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.44/0.45

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: 160.44

Comments:
01/05/13: It was a volatile week for gold prices and the GLD. Midweek there was news in the FOMC minutes. The minutes from the last meeting revealed that some of the fed governors are starting to think that maybe the Federal Reserve should slow down or halt some of its QE programs in late 2013. That's a lot sooner than previously expected. The U.S. dollar rallied on this news and that sparked selling in gold prices.

The GLD is still hovering near its long-term supporting trend line of higher lows. However, a close under $158.00 would look like a bearish breakdown. Currently our stop loss is at $154.40. More conservative traders may want to raise their stop. I am not suggesting new positions at this time. The GLD has developed a multi-week trend of lower highs. A close above the 50-dma might be the bullish signal for new positions.

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 $2.28/2.39

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: 66.33

Comments:
01/05/13: HON produced a strong week with a rally to new 12-year highs. The all-time high was set back in 1999 when HON was trading in the $68.00-68.65 area. That level could be short-term resistance for the stock. I am not suggesting new positions at this time. We will raise our stop loss up to $59.90.

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 $5.90/6.05

01/05/13 new stop loss @ 59.90

Current Target: $74.50
Current Stop loss: 59.90
Play Entered on: 12/31/12
Originally listed on the Watch List: 12/22/12


Juniper Networks - JNPR - close: 20.38

Comments:
01/05/13: The rally in JNPR stalled at resistance near $20.70. A failure here might look like a short-term bearish double top. On the other hand a breakout could spark more short covering. I would wait for a close above $20.75 before initiating new bullish positions.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.53/1.58

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: 40.23

Comments:
01/05/13: Good news! The market's rally has lifted LEN past major resistance at the $40.00 level. This is a new multi-year high for the stock. Unfortunately, it's not a very convincing breakout yet. LEN struggled with $40 most of the week.

The company is scheduled to report earnings on January 15th, before the opening bell. Wall Street is expecting a profit of 45 cents a share. More conservative traders may want to take profits before LEN announces just in case they disappoint.

I am not suggesting new positions at this time. We will raise our stop loss to $35.75.

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 $5.85/6.05

01/05/13 new stop loss @ 35.75
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: 35.75
Play Entered on: 08/17/12
Originally listed on the Watch List: 08/11/12


L-3 Communications - LLL - close: 77.71

Comments:
01/05/13: LLL continues to hold up very well considering the risk that Congress might pass new defense spending cuts. For the moment business is safe with the sequestration spending cuts postponed until March. However, the fact that this issue is looming above the defense sector could limit further gains. Shares of LLL are currently hovering just beneath resistance near $78.00.

Readers may want to seriously consider an early exit now. I am not suggesting new positions. We are raising our stop loss up to $73.85.

- 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 $ 4.10/ 4.50

01/05/13 new stop loss @ 73.75. readers may want to just exit early now!

Current Target:$ 85.00
Current Stop loss: 73.85
Play Entered on: 11/05/12
Originally listed on the Watch List: 10/20/12


Motorola Solutions - MSI - close: 56.28

Comments:
01/05/13: MSI rallied to new multi-year highs. Yet if the market stalls or dips I would not be surprised to see MSI dip toward the $55.00 level. Nimble traders could wait for a bounce off $55.00 again before considering new positions.

FYI: MSI is scheduled to report earnings on January 23rd.

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 $ 2.97/ 3.15

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: 4.18

Comments:
01/05/13: NOK made some progress with a decent rebound these last few days. Currently there is short-term resistance near $4.20 and the December high at $4.35. There is no change from my prior comments. 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 $ 1.55/ 1.56

- 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: 55.69

Comments:
01/05/13: SBUX is up four days in a row and hitting new multi-month highs. The relative strength is encouraging but SBUX is now testing resistance at the $56.00 level. I would not be surprised to see a pullback here. Look for new short-term support near $54.00.

We are raising our stop loss to $49.85. More conservative traders may want to place their stop loss closer to $52.00 instead.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 4.20/ 4.30

01/05/13 new stop loss @ 49.85

Current Target:$ 62.00
Current Stop loss: 49.85
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12


Southern Copper Corp - SCCO - close: 39.08

Comments:
01/05/13: SCCO is hovering just beneath resistance near the $39.00 level. The stock looks pretty good considering headlines this past week that some of its miners in Peru are threatening to go on strike if negotiations don't go well on January 15th.

The $39-40 area is resistance so I am not suggesting new positions at this time. We will raise our stop loss to $34.75.

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 $ 2.70/ 3.00

01/05/13 new stop loss @ 34.75
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: 34.75
Play Entered on: 11/06/12
Originally listed on the Watch List: 10/20/12


SIRIUS XM Radio - SIRI - close: 3.10

Comments:
01/05/13: Hmm... investors have a decision to make. Do you hold on or do you sell now and book gains? This past week saw news that Liberty Media Corp (LMCA) received permission from the FCC to purchase a majority stake in SIRI. That means LMCA is now in control with more than 50% ownership of SIRI stock. What does that mean for SIRI? There has been some speculation that LMCA might try some sort of spinoff to help book its profits in SIRI's stock price. Shares of SIRI are hitting new four-year highs. The trend for SIRI is definitely up and the breakout above resistance at $3.00 is bullish.

You may want to exit early now. The newsletter is going to hold on and see what happens. However, we will take a more defensive approach. I am moving our stop loss up to $2.75. We will move our exit target down to $3.45. 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 $ 0.52/ 0.54

- or -

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

01/05/13 new stop loss on SIRI at $2.75, adjust target to $3.45
01/04/13 LMCA gets permission to take a majority stake in SIRI
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: $ 3.45
Current Stop loss: 2.75
Play Entered on: 10/04/12
Originally listed on the Watch List: 09/29/12


Teck Resources - TCK - close: 37.74

Comments:
01/05/13: TCK has rallied to new eight-month highs. I would hesitate to chase it. The $35.00 level remains decent support. We are raising our stop loss up to $33.85. 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 $ 4.00/4.15

01/05/13 new stop loss @ 33.85

Current Target: $43.75
Current Stop loss: 33.85
Play Entered on: 12/10/12
Originally listed in the New Plays 12/08/12


Urban Outfitters - URBN - close: 41.39

Comments:
01/05/13: Many of the retail names have been suffering due to worries that the holiday shopping season may not have been as strong as hoped for. That doesn't seem to be the case for URBN. The stock has rallied to new all-time, record highs. We had URBN on our watch list. The plan was to wait for shares to close above $40.75 and then buy calls the next day. URBN closed at $40.98 on January 2nd. Our trade opened on the 3rd with URBN at $41.22.

Readers might want to wait for a dip back into the $40.75-40.00 zone as their entry point. We have a stop loss at $37.85. Our long-term target is $48.00.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - current bid/ask $ 4.10/4.40

Chart of URBN:

Current Target: $48.00
Current Stop loss: 37.85
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/15/12


Valero Energy - VLO - close: 35.31

Comments:
01/05/13: Strength in oil, the energy sector, and positive analyst comments helped push VLO to new four-year highs. Last week's action is definitely bullish but I am not suggesting new positions. Oil could see a pullback in the next few weeks. VLO should have support near $32 and its 100-dma. I am raising our stop loss to $30.85.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - current bid/ask $ 4.60/ 4.70

01/05/13 new stop loss @ 30.85
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: 30.85
Play Entered on: 11/23/12
Originally listed on the Watch List: 11/10/12


Watch

Rising off the Bottom

by James Brown

Click here to email James Brown

Editor's Note:

Our watch list was very successful last week with four candidates graduating to the play list.

Tonight I'm only adding one new watch list candidate. Look for more trading ideas on the radar screen in our new play section tonight.



New Watch List Entries

APKT - Acme Packet


Active Watch List Candidates

CVX - Chevron Corp.

SOHU - Sohu.com

VMC - Vulcan Materials Co


Dropped Watch List Entries

ADI, AKAM, ANR, and URBN all graduated to the active play list.



New Watch List Candidates:


Acme Packet - APKT - close: 23.94

Company Info

APKT is in the networking business that enable voice, video, data and more across the Internet. The stock has been crushed from its 2011 highs above $80 a share. The last couple of quarters have seen APKT building a bottom beneath the $20 level. Now shares are breaking out past major resistance. APKT was outperforming the market on Friday with a +11% gain on an analyst upgrade.

We don't want to chase it here. I am suggesting we wait and buy calls on a dip at $22.50. If triggered we'll use a stop loss at $19.75. Our long-term target is $34.00. I do expect the $30.00 level to offer significant resistance. FYI: The Point & Figure chart is bullish and forecasting a long-term target of $41.

Buy-the-Dip trigger: $22.50

BUY the 2014 Jan $30 call (APKT1418a30) current ask $3.20

Chart of APKT:

Originally listed on the Watch List: 01/05/13


Active Watch List Candidates:



Chevron Corp. - CVX - close: 110.50

Comments:
01/05/13: A big bounce in the energy sector and strength in oil prices helped fuel the gain for CVX. This stock has bounced back toward technical resistance at its simple 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.

FYI: Earnings are expected in the last week of January.

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


Sohu.com - SOHU - close: 47.90

Comments:
01/05/13: SOHU posted a gain for the week but the action actually looks bearish. SOHU is up four weeks in a row and up six out of the last seven weeks. Shares are overbought at the moment and the action on Wednesday looks like a failed rally at resistance near $50.00. I am still expecting a correction lower.

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)

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


Vulcan Materials Co. - VMC - close: 53.85

Comments:
01/05/13: We have been patiently waiting for VMC to dip towards support near $50.00. The stock is not cooperating. I am suggesting we adjust our strategy and look for more of a momentum trade. VMC has rallied to new multi-year highs. The $55.00 level looks like resistance.

Our new plan will be to wait for VMC to close above $55.25 and then buy calls the next day with a stop loss at $49.75. Our long-term target is $68.50 but I do expect the $60.00 level to be resistance for a while.

I am adjusting our strike price to the 2014 Jan $60 call.

We want to keep our position size small!

Buy-a-Breakout trigger: Wait for a close above $55.25, then buy calls the next day (stop loss 49.75)

BUY the 2014 Jan $60 call (VMC1418a60)

01/05/12 new strategy. Wait for a close above $55.25 with a stop at $49.75. Our long-term target is $68.50. Small positions.

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