Option Investor
Newsletter

Daily Newsletter, Monday, 1/28/2013

Table of Contents

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

Leaps Trader Commentary

Money Flows Into Equities

by James Brown

Click here to email James Brown

The S&P 500 index is up +5.3% in 2013 and currently on track for its best January performance in a decade. Last week was full of bullish momentum and the S&P 500 marked its longest winning streak (8 days) since November 2004. Both the small cap Russell 2000 index and the Dow Transports hit new all-time highs. Even the NASDAQ composite managed a gain in spite of the massive declines in shares of Apple Inc. (AAPL). Money is flowing out of safe-haven plays like precious metals and bonds and back into equities.

The economic data last week was mostly positive. The weekly jobless claims data is slowly trending lower. The four-week moving average has fallen to its lowest level in more than four years. That could bode well for the next jobs report coming up this Friday. Housing data has been a hot topic. Existing home sales in December were slightly under expectations at an annual pace of 4.94 million. The new home sales figures came in at 369,000 for December. That proved to be a month over month decline but only because November saw a big revision higher. What could be another positive sign of future sales was the growth in mortgage applications. Last week the MBA mortgage index rose +7%.

Investors ignored the regional Federal Reserve business activity surveys. The Philly Fed, the Chicago Fed, and New York Empire State surveys all came in below expectations. On a more positive note most of the data overseas was positive. The U.K. was an exception. The preliminary GDP data for the United Kingdom is suggesting the country is slowing down and could be headed for its third recession in four years. Yet in Germany, the EU's strongest member, the German Ifo business climate index rose more than expected. The German manufacturing PMI data rose to a multi-month high. The ZEW investor confidence survey surged to a multi-year high. Even consumer confidence in Europe is on the upswing. The good news continued in China where the Chinese manufacturing PMI hit a two-year high.

Here at home we are hearing a lot more about the rotation out of bonds and back into stocks. The bond market has seen a multi-year bull rally but it's showing signs of a top. Bonds have been stair-stepping lower since early December and now they are breaking down from a multi-month consolidation near their highs. Multiple firms that track inflows and outflows are noting that 2013 has seen a significant reversal with billions of dollars flowing back into equity funds. According to Lipper the fund flows into U.S. equity funds over the first two weeks of 2013 was $11.3 billion and the biggest since April 2000. As bonds fall their yields rise. The yield on the 10-year U.S. treasury bond has risen to 1.94%. It has not closed at this level since early May 2012. This could be a long-term bullish tailwind for the market but it's not going to prevent short-term corrections in stock prices. There is always an ebb and flow to prices. What is important is that we could be seeing a major trend change in the bond market. If you're a fund manager why earn less than 2% in bonds when stocks are rising and many provide a dividend yield higher than 2%.

Speaking of rotations, you could say Apple Inc. (AAPL) has seen a significant rotation in recent days with investors rotating out of the stock. The company reported earnings on January 23rd. Investors were disappointed with AAPL's revenue number and management's Q2 guidance. This sent shares of AAPL plunging on January 24th with a $63.50 loss to close at $450 a share. AAPL's one-day loss was about $52 billion. In one day AAPL lost more than the entire market cap of companies like Starbucks, Nike, or Target. In the last four months AAPL has fallen from $700 a share to $440 this last week saw a breakdown below very significant support levels. I would consider AAPL a broken stock at this point. It could take weeks or months for it to find an equilibrium and form support. We will definitely keep an eye on it for a potential entry point down the road.

Major Indices:

The S&P 500 is up +1.1% for the week and up +5.3% year to date. Last week I suggested that the 1500 level could act like a magnet. I am impressed that the index closed above 1500 on Friday but at 1502 I would not call it a "breakout". The index is looking overbought with a four-week rally from its late December lows. I still think odds are good it will see some profit taking. The pullback could happen this week or it could happen in early February. It's important to remember that pullbacks are normal. A dip back to 1480 or even 1450 would not derail the longer-term up trend. If somehow the rally does continue the levels to watch are the 1550-1570 region. This is the index's all-time high set back in 2007.

chart of the S&P 500 index:

The NASDAQ composite managed to eke out a +0.4% gain in spite of the large declines of its biggest component, Apple Inc. (AAPL). The trend is up with the NASDAQ up four weeks in a row. Overhead there is significant resistance near 3200. If there is a correction lower we can look for support in the 3050 area.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index continues to show strength with a +1.3% gain last week. It is up +6.5% year to date. Right now the $RUT is pushing past what should have been round-number, psychological resistance at the 900 level. I will confess the four-week rally is impressive but the $RUT is overbought here and due for some profit taking. The 880 level could be short-term support but I would focus on its old highs. Broken resistance tends to be new support so that means a dip back toward the 870-865 region. If the rally continues then look for potential resistance near 920.

chart of the Russell 2000 index

We have discussed the transports before. The rally in the transportation sector is bullish for the overall market. Dow Theory suggests that we cannot have a sustained market rally unless the transports participate. Lately this group has been leading the charge higher. Seriously, the transports are screaming. The Dow Jones Transportation Average was up +3.0% last week. It's up +10.6% in 2013 and up +20% from its November 2012 lows. These are new all-time, record highs for the average. However, you can see from the charts below that the transports are very overbought and way overdue for a pullback. The pullback will happen. It's only a matter of time.

On the daily chart below I have added two different Fibonacci retracement tools. One from the November lows to 5900 and the other from support near 5200 to 5900. There is some convergence near the 5500 level. That coincides relatively well with old resistance back in the year 2011. When the correction occurs, I would expect a dip back to the 5600-5500 area.

chart of the Dow Jones Transportation Average

Weekly chart of the Dow Jones Transportation Average

Economic Data & Event Calendar

This week in front of us brings both the end of January and the first day of February. Thus we'll see a number of economic reports. The key economic reports to watch will be the preliminary Q4 U.S. GDP estimate, the ISM index, the Chicago PMI, and of course the non-farm payroll (jobs) report. Right now estimates are for +155,000 new jobs in January. The big "event" of the week will be the FOMC meeting on Wednesday. No one expects any change in rates.

One of the biggest events of the week will be the continuation of earnings season. Right now the Q4 earnings season is in full swing. Nearly 250 companies will report earnings during the week. About 20% of the S&P 500 components will report. Thus far the earnings season has been pretty good, unless you were long AAPL or short NFLX. The bullish trend should continue but momentum will likely begin to slow down both in quality of earnings and guidance and reaction to the news.

Economic and Event Calendar

- Monday, January 28 -
Durable goods orders
Pending home sales

- Tuesday, January 29 -
Case-Shiller 20-city home price index
Consumer Confidence

- Wednesday, January 30 -
ADP employment change report
preliminary Q4 U.S. GDP estimate
FOMC interest rate decision

- Thursday, January 31 -
Weekly Initial Jobless Claims
Personal income and spending
Chicago PMI data
Chinese PMI data

- Friday, February 01 -
Non-farm payrolls (jobs) report for January
Unemployment rate
ISM index
construction spending
auto and truck sales

The Week Ahead:

As we look ahead I think it's time we turn a little more cautious here. Yes, the trend is up. However, stocks don't move in a straight line for very long and right now most of the major indices are all up four weeks in a row. The S&P 500 index and Russell 2000 are technically "above" resistance at 1500 and 900, respectively but they haven't risen enough to call it a bullish breakout past these levels.

I am not calling a top right here but if the market were to reverse here it would make sense. The rally in the transportation average, while impressive, is very worrisome. The transports are very overbought and due for some profit taking. Imagine a rubber band, the harder you pull it one direction the bigger the snap back. The pullback in the transports could look ugly. A correction across the market would be both normal and healthy. However, it may not happen. Stocks can always grow more overbought. The catalyst that finally sparks profit taking could be the FOMC interest rate decision on Wednesday (more accurately it would be the Fed's commentary that goes with their decision), or the catalyst could be the jobs report on Friday, Feb. 1st. or something else entirely.

The all-time highs for the Dow Jones Industrials are less than 300 points away. The all-time highs for the S&P 500 index are less than 75 points away. These levels could act like new targets for the market but the profit taking could begin before we actually get there. If you look at a long-term chart you'll notice the S&P 500 peaked in the year 2000, the year 2007, and now we're nearing these levels again. That is raising concern of a potential triple top. We'll have to wait and see.

Outside of the market there are some geo-political issues to be aware of. Concerns over Iran's nuclear ambitions could come to the forefront again. Meanwhile Israel said they might be forced to use a pre-emptive strike to stop Syria's chemical weapons from falling (or being given) to terrorist organizations like Lebanon's Hezbollah or Al Qaeda (source: CBSnews). A move by Israel into Syrian airspace could raise tensions in the area and provoke other third parties to get involved with Syria's civil war. These could be potentially bearish developments for the financial markets.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks are starting to look overbought. The S&P 500 has closed just inches above potential resistance at 1500. The small cap Russell 2000 is also dancing just above potential resistance at 900. After a four-week rally there are a growing number of equities that are overextended and past due for some profit taking.

CREE hit our bullish exit target.

MTW and SCHW both graduated from our watch list to our play list.

I have updated stop losses on: AIG, JNPR, 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

Sooner or Later

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(January 26, 2013)

No new trades tonight. I'm not adding any new watch list candidates either. Most of the market is up four weeks in a row. A lot of stocks and many of the major indices are overbought and due for a pullback. Since the pullback hasn't happened yet we don't know if it's going to be a minor bout of profit taking that merely lets the rally pause and catch its breath before resuming the up trend or if the pullback turns into something more painful - like a full-fledged correction.

Another reason I am not adding anything tonight is that we have a couple of key events this week. The Federal Reserve's comments when they release their FOMC statement on Wednesday this week could be a market mover. Plus there is both the Q4 GDP estimate and the jobs report, either of which could be a catalyst to hit the sell button if the market doesn't like the result.

Bigger picture the trend is up. That means we can look for the pullback, which will probably show up sooner rather than later, as a new bullish entry point to buy the dip. Map out strong stocks that pique your interest and wait for them to dip toward support.

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:

BMC, DTE, WLT, SHOO, FLIR, TRMB, TIF, HD, CLB, BAC, SLB, MHP, XOM, NAV, CHE, MYL, DE, QCOM, TJX, RS, AMD, EA, GS, KMB, FLR, CAT, CMI, WFM, PHM, TOL, BZH, RCL,



Play Updates

CREE Hits Our Target

by James Brown

Click here to email James Brown

Editor's Note:

The stock market looks overbought. That means we're due for some profit taking. Readers might want to consider taking some money off the table.

Please note that we want to go ahead and exit early in our ANR and JBHT trades.


Closed Plays


CREE hit our bullish target.


Play Updates


Adobe Systems - ADBE - close: 38.32

Comments:
01/26/13: ADBE slowly drifted higher this past week. It was definitely underperforming the S&P 500. Shares seem to be consolidating inside the $37.50-38.50 zone. If and when the market corrects I am expecting ADBE to correct toward $36.00. More conservative traders may want to raise their stop loss.

- Suggested Positions -
DEC 05, 2012 - entry price on ADBE @ 35.30, option @ 2.32
symbol:ADBE1418a40 2014 JAN $40 call - current bid/ask $ 2.88/2.98

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: 43.80

Comments:
01/26/13: ADI added about 75 cents for the week. Shares did rally toward their early January high and what appears to be new resistance at the $44.00 mark. Earnings are expected on February 19th.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 2.50/2.65

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: 36.70

Comments:
01/26/13: It was a bullish week for AIG with the stock rising to new three-month highs. The 2012 October highs are probably the next level of resistance for this stock. I am raising our stop loss up to $32.75.

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)
(closed on Dec. 24th)
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 $ 4.80/ 4.95

01/26/13 new stop loss at $32.75
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
..for prior updates, check older newsletters

Current Target:$ 2013 call: $37.00, 2014 calls: $42.50
Current Stop loss: 32.75
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Akamai Technology - AKAM - close: 41.15

Comments:
01/26/13: AKAM delivered a nice bounce last week after flirting with a breakdown below the $40.00 level for several days. Shares look poised to test their early January highs. The company is due to report earnings on February 6th.

- Suggested Positions -
JAN 03, 2013 - entry price on AKAM @ 41.89, option @ 3.60
symbol:AKAM1418a50 2014 JAN $50 call - current bid/ask $ 2.66/2.76

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: 9.21

Comments:
01/26/13: It looked like ANR might rebound off support near the $9.00 level but gains are fading. Over the past six weeks ANR has created a bearish head-and-shoulders pattern. The stock has not broken down below support at the neckline near $9.00 yet but the breakdown certainly looks imminent.

I am throwing in the towel on ANR. We are suggesting an early exit now on Monday (Jan 28th) morning at the open. Readers can keep ANR on their watch list for a close above $11.00 or a new bounce off the fragile trend of higher lows.

- Suggested Positions -
JAN 07, 2013 - entry price on ANR @ 10.34, option @ 2.49
symbol: ANR1418a10 2014 JAN $10 call - current bid/ask $ 1.65/1.69

01/26/13 prepare to exit on Monday, Jan. 28th
01/07/13 Trade opened with ANR at $10.34
01/04/13 ANR meets our entry requirement with a close "above" $10.15. Our trade will open on Monday morning (Jan. 7th)

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


Acme Packet - APKT - close: 23.97

Comments:
01/26/13: APKT eked out a 20-cent gain for the week. Shares seem to be stuck hovering to resistance near $24.00 and its 300-dma. Considering the market's rally APKT's failure to participate is something of a warning signal. I am not suggesting new positions at this time. The company is scheduled to report earnings on February 4th. More conservative traders may want to wait until after we see how the market reacts to this earnings report before launching new bullish positions.

Earlier Comments:
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.

- Suggested Positions -
JAN 14, 2013 - entry price on APKT @ 22.83, option @ 2.60
symbol:APKT1418a30 2014 JAN $30 call - current bid/ask $ 2.30/2.60

01/12/13 plan on opening positions on Monday morning (Jan 14th)

Current Target:$ 34.00
Current Stop loss: 19.75
Play Entered on: 01/14/13
Originally listed on the Watch List: 01/05/13


Citigroup - C - close: 42.91

Comments:
01/26/13: Citigroup rallied back toward its early January highs. The stock looks poised to breakout higher but that will probably depend on if the major indices can keep the momentum alive. I do see potential resistance in the $43-44 zone dating back to the late Q1 and early Q2 of 2011. If there is a correction then look for support near $40.00 or $38.00.

- 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 $ 4.15/ 4.25

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


Chevron Corp. - CVX - close: 116.20

Comments:
01/26/13: The rally continues in CVX with the stock up four weeks in a row. The company is due to report earnings on Friday, Feb. 1st, before the opening bell. After a multi-week rally I suspect odds are good that CVX could see some profit taking on the earnings news. Look for a dip or a bounce in the $112-110 zone as a new entry point. The $117.50-118.00 zone could be tough resistance for CVX.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 4.25/4.40

Current Target:$124.50
Current Stop loss: 104.75
Play Entered on: 01/14/13
Originally listed on the Watch List: 12/22/12


Expedia Inc. - EXPE - close: 66.49

Comments:
01/26/13: It was a bullish week for EXPE all thanks to the +4.8% rally on Friday. The stock has broken through resistance at the $65.00 level. This is a new all-time high for the stock. With earnings coming up soon in early February I am not suggesting new positions at this time. More conservative traders may want to tighten their stop loss.

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 $6.50/6.90

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: 30.21

Comments:
01/26/13: The action in FSLR this past week was disappointing. The stock really didn't move much. It just bounced around the $30-32 zone. There was some drama surrounding TRC Capital Corp's "mini-tender" offer to buy up to two million shares at $30 each. A mini-tender offer is an attempt to buy up to 5% of a company's stock, which avoids some of the regulatory filings if they were to purchase more than 5%. At two-million shares it would have been about 2.3% of FSLR's stock. FSLR management suggested shareholders reject this offer, which at the time was actually 5% below the trading price.

On a short-term basis FSLR looks weak and poised to breakdown below support near $30.00. Consider the market's recent strength, I see this as relative weakness in FSLR. More conservative traders will want to seriously consider an early exit right now. 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 $5.75/6.00

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: 22.29

Comments:
01/26/13: Traders bought the dip on Wednesday this past week and GE rallied to a new three-month high. Readers might want to start inching up their stop loss.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.45/0.46

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: 160.65

Comments:
01/26/13: The GLD lost about two and a half points for the week. This is probably a reaction to the breakout higher in stocks. Many people see gold as a defensive play to own gold when stocks go down. If stocks are in rally mode why buy gold? Technically the drop in the GLD happens to be a bearish reversal at technical resistance at its 50-dma near $164.00. I suspect we could see the GLD dip toward its December lows near $158.50ish. I am not suggesting new positions at this time.

Don't forget that when stocks correct lower we'll likely see gold rally.

Earlier Comments:
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.

- Suggested Positions -
DEC 20, 2012 - entry price on GLD @ 159.87, option @ 2.60
symbol: GLD1418a200 2014 JAN $200 call - current bid/ask $1.89/2.00

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: 68.33

Comments:
01/26/13: HON rallied right up to its earnings report on Jan. 25th. The company beat by a penny and reaffirmed its guidance. The stock tagged new multi-year highs on Friday morning but traders sold the news. After a multi-week rally it's time for HON to see a pullback. I would not be surprised to see a dip back toward the $65.00 area.

Earlier Comments:
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 $6.50/6.85

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


JB Hunt Transport - JBHT - close: 67.56

Comments:
01/26/13: JBHT reported earnings on the 24th and beat estimates by three cents. The stock soared from $63.50 toward $68.00 on the news. Both JBHT and the transportation averages are overbought and due for profit taking. I am suggesting we go ahead and take profits now.

Prepare to exit this position on Monday morning at the opening bell. Currently our 2013 August $65 call has a bid at $5.60 (+60.0%).

- Suggested Positions -
JAN 18, 2013 - entry price on JBHT @ 62.72, option @ 3.50
symbol: JBHT1317H65 2013 AUG $65 call - current bid/ask 5.60/5.80

01/26/13 Prepare to exit on Monday morning, Jan. 28th

Current Target: $69.75
Current Stop loss: 57.75
Play Entered on: 01/18/13
Originally listed on the Watch List: 01/12/13


Juniper Networks - JNPR - close: 22.57

Comments:
01/26/13: After bouncing around the $21-22 zone for a while JNPR finally broke out higher with a +4.9% gain on Friday. The move was a reaction to the company's earnings report on Jan. 24th. JNPR beat both the profit estimate and the revenue estimate. This is a new multi-month high for the stock. I am raising our stop loss up to $19.45.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $2.08/2.15

01/26/13 new stop loss @ 19.45

Current Target: $24.75
Current Stop loss: 19.45
Play Entered on: 12/19/12
Originally listed on the Watch List: 12/15/12


Lennar Corp. - LEN - close: 43.07

Comments:
01/26/13: The rebound story for the housing industry continues to fuel gains for the homebuilders. LEN added about a dollar for the week and set another multi-year high. More conservative traders may want to take profits now. Currently we are aiming for $46.00. I am not suggesting new positions.

- 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 $7.15/7.35

01/19/13 new stop loss @ 37.75, adjust exit target on 2014 calls to $46
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), $46.00 (2014 call)
Current Stop loss: 37.75
Play Entered on: 08/17/12
Originally listed on the Watch List: 08/11/12


L-3 Communications - LLL - close: 78.71

Comments:
01/26/13: LLL delivered a disappointing performance for the week. The stock churned sideways in a relatively narrow range. I remain cautious here. More conservative traders may want to abandon ship given LLL's failure to participate in the market's rally. If you choose to exit I would probably exit prior to LLL's earnings report. The company is scheduled to report on January 30th, before the opening bell. Analysts are expecting a profit of $2.12 a share.

Earlier Comments:
I am not suggesting new positions now. Readers may want to exit early due to the political fight on the sequestration (on defense spending), which has not been solved, merely delayed. LLL is scheduled to report earnings on January 30th.

- 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 $ 3.90/ 4.20

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: 58.60

Comments:
01/26/13: It proved to be a volatile week for shares of MSI. The company reported earnings on the 23rd. They beat estimates by eight cents. Yet management lowered their Q1 revenues estimates. That's probably what sparked the intraday plunge to $56.00 on Wednesday. Thankfully traders bought the dip and MSI closed the week near its highs just under $59.

The long-term trend is still up but MSI might be due for a consolidation or another pullback toward its 50-dma. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 26, 2012 - entry price on MSI @ 54.11, option @ 2.93
symbol: MSI1418a60 2014 JAN $60 call - current bid/ask $ 3.25/ 3.40

01/19/13 new stop loss @ 54.75
01/12/13 new stop loss @ 53.75

Current Target:$65.00
Current Stop loss: 54.75
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12


The Manitowoc Co - MTW - close: 17.71

Comments:
01/26/13: MTW is a new play. The stock was on our watch list with a plan to buy calls if MTW closed above $17.10. Shares closed at $17.12 on Jan. 23rd. Our trade opened the next morning with MTW at $17.10. The stock displayed relative strength on Friday with a +4.4% gain and a new 52-week high.

I will reiterate my prior caution about earnings. MTW is scheduled to report earnings on January 31st. More conservative traders may want to wait until after we see how the market reacts to MTW's earnings before initiating new positions.

Earlier Comments:
The Point & Figure chart is bullish with a $21 target.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 1.85/ 2.00

Chart of MTW:

Current Target:$21.50
Current Stop loss: 15.75
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13


Nokia Corp. - NOK - close: 4.20

Comments:
01/26/13: I warned readers last week that NOK might see some profit taking on its earnings report. The company reported on the 24th and essentially beat by a penny. Management did warn that Q1 is a seasonally weak period for its business. There seemed to be some concern that its new Lumia smartphone may not be selling as well as expected. There was a negative reaction to news that NOK would not pay a 2012 dividend. Thursday morning saw the stock gap open lower on this news. For the moment I would expect support near $4.00. More conservative traders may want to raise their stop loss.

I am not suggesting new positions at this time.

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 $ 1.48/ 1.59

- or -

Buy NOK stock: entry @ 2.97

01/19/13 readers may want to take profits now, prior to the earnings announcement.
01/12/13 new stop loss @ 3.65
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: 3.65
Play Entered on: 11/20/12
Originally listed on the Watch List: 11/17/12


Starbucks Corp. - SBUX - close: 56.81

Comments:
01/26/13: SBUX rallied two dollars for the week and all of that was on Friday. I cautioned readers last weekend that SBUX might just churn sideways until its earnings report. The company reported on Thursday night. Earnings were in-line with estimates but revenues were a miss at $3.8 billion versus the $3.84 billion estimate. Maybe investors were expecting a disappointment because the stock popped higher on Friday morning and closed with a +4.1% gain. Or possibly traders were bullish on the company's growth plans or overseas sales growth. Whatever the case SBUX is at a new multi-month high. I would expect it to fill the gap so there's no need to buy calls now. We can wait for a dip.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 3.80/ 4.00

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: 41.25

Comments:
01/26/13: Gold and silver prices suffered declines for the week. Copper did too but to a lesser extent. All the bullishness surrounding the homebuilding industry should be positive for copper demand. Copper actually looks ready to breakout from a long-term sideways consolidation. Unfortunately the breakout could be either direction. There is no quibbling about the direction in SCCO. The stock hit another new multi-month high this past week. Although shares did see a little profit taking on Thursday and the stock closed virtually unchanged for the week.

I would not be surprised to see some profit taking in SCCO soon. Look for a drop back into the $38-40 zone. 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 $ 3.40/ 3.70

01/19/13 new stop loss @ 36.75
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: 36.75
Play Entered on: 11/06/12
Originally listed on the Watch List: 10/20/12


The Charles Schwab Corp. - SCHW - close: 16.05

Comments:
01/26/13: SCHW was a watch list candidate that has graduated to the active play list. The plan was to wait for shares to close over $15.65 and then buy calls the next day. It was a bullish week for financial stocks and SCHW really outperformed. SCHW closed at $15.71 on Jan. 22nd. Our trade opened on the 23rd with SCHW at $15.74. If you missed our entry point I would wait for a dip.

Earlier Comments:
Our long-term target is $18.75. More aggressive traders can aim higher. The Point & Figure chart is bullish with a $24 target.

- Suggested *SMALL* Positions -
JAN 23, 2012 - entry price on SCHW @ 15.74, option @ 0.80
symbol:SCHW1418a17 2014 JAN $17 call - current bid/ask $ 0.85/ 1.00

Chart of SCHW:

Current Target: $18.75
Current Stop loss: 14.70
Play Entered on: 01/23/13
Originally listed on the Watch List: 01/19/13


SIRIUS XM Radio - SIRI - close: 3.15

Comments:
01/26/13: SIRI has spent the last couple of weeks consolidating sideways below the $3.20 level. Shares were definitely underperforming the market this past week but traders bought the dip on Friday and the stock closed virtually unchanged on a weekly basis.

The company is scheduled to report earnings on February 5th. Readers might want to take profits and exit early prior to the announcement. I am not suggesting new 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 $ 0.46/ 0.52

- 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: 37.52

Comments:
01/26/13: TCK delivered a rather quiet performance last week. Shares are still churning sideways under the $38 level. Upward momentum seems to be waning a bit. It might be time for a correction lower. Look for support near $35.00. I am not suggesting new positions at the moment.

UPDATE: TCK plans to release its earnings report on Thursday, Feb. 7th.

- Suggested Positions -
DEC 10, 2012 - entry price on TCK @ 35.19, option @ 3.40
symbol: TCK1418a40 2014 JAN $40 call - current bid/ask $ 3.45/3.60

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: 43.62

Comments:
01/26/13: URBN is still marching higher. The stock displayed relative strength on Friday with a +2.1% gain. If the market does see a correction soon I would look for URBN to find support near $40.00. I am not suggesting new positions at current levels.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - current bid/ask $ 4.70/5.00

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: 38.10

Comments:
01/26/13: VLO has extended its gains and risen to new four-year highs. The stock looks a bit short-term overbought. Readers may want to just take profits now, especially before VLO reports earnings. The company reports on Jan. 29th, before the opening bell. Market participants might use the earnings report as an excuse to take some money off the table. I am not suggesting new positions at this time. I am raising our stop loss up to $33.75.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - current bid/ask $ 5.75/ 5.90

01/26/13 new stop loss @ 33.75
01/19/13 new stop loss @ 32.45
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: 33.75
Play Entered on: 11/23/12
Originally listed on the Watch List: 11/10/12


Vulcan Materials Co. - VMC - close: 57.20

Comments:
01/26/13: Hmm... VMC posted another weekly gain. Yet the action this past week looks like a potential top or bearish reversal. Shares spiked toward likely round-number resistance at $60.00 on Tuesday and then spent the rest of the week fading lower. I would not be surprised to see a pullback toward the $55-54 zone. I am not suggesting new positions at this time.

We want to keep our position size small!

- Suggested Positions -
Jan 22, 2013 - entry price on VMC @ 56.81, option @ 5.60
symbol: VMC1418a60 2014 JAN $60 call - current bid/ask $ 4.70/5.40

01/22/13 trade opens
01/19/13 moved to the new plays section
01/18/13 VMC rallies past resistance, meets our entry requirements
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.

Current Target:$ 68.50
Current Stop loss: 49.75
Play Entered on: 01/22/13
Originally listed on the Watch List: 12/02/12


CLOSED Plays


Cree, Inc. - CREE - close: 41.97

Comments:
01/26/13: Target achieved.

A better than expected earnings report and bullish guidance launched shares of CREE higher. The stock gapped open on January 23rd at $38.38 and hit our exit target at $39.00 shortly thereafter.

- Suggested Positions - (small positions)
NOV 01, 2012 - entry price on CREE @ 29.85, option @ 3.80
symbol:CREE1418a35 2014 JAN $35 call - exit $7.80 (+105.2%)

01/23/13 target hit
01/07/13 CREE drops on a downgrade
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

Chart of CREE

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



Watch

Two More Graduations

by James Brown

Click here to email James Brown



New Watch List Entries

None, no new watch list candidates


Active Watch List Candidates

CSCO - Cisco Systems

SOHU - Sohu.com


Dropped Watch List Entries

MTW, SCHW have graduated to the play list.
SYK - removed from the watch list



New Watch List Candidates:



None, no new watch list candidates tonight. Please see my update in the new plays section.


Active Watch List Candidates:



Cisco Systems - CSCO - close: 21.15

Comments:
01/26/13: CSCO could be a play very soon. Shares are starting to breakout past resistance near $21.00. Right now the plan is to wait for shares to close above $21.25 and then buy calls the next day. We'll start with a stop loss at $19.25. Our long-term target is $27.00.

FYI: CSCO is due to report earnings in early February.

Breakout trigger: Wait for a close above $21.25, buy calls the next day, stop loss at $19.25.

BUY the 2014 Jan $22 call (CSCO1418a22) current ask $1.43

- or -

BUY the 2015 Jan $25 call (CSCO1517a25) current ask $1.25

Originally listed on the Watch List: 01/12/13


Sohu.com - SOHU - close: 49.29

Comments:
01/26/13: It looked like SOHU was going to breakout past resistance at the $50.00 level. Yet there was no follow through on Friday and shares produced a bearish engulfing candlestick reversal pattern. There is no change from my prior comments. We are waiting on a correction. That may not happen until SOHH reports earnings on Feb. 4th.

Earlier Comments:
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.

NOTE: SOHU's earnings are expected in early February.

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


Stryker - SYK - close: 63.55

Comments:
01/26/13: It looks like we have missed the move in SYK. There was no way to know that the stock was going to turn into a bottle rocket and scream higher without any pullbacks. Equities don't run in a straight line for very long but SYK has almost gone straight up since the bounce on December 31st, 2012. The stock is nearing what should be resistance in the $64-65 zone. I would expect a pullback soon. Aggressive and nimble traders could look for a short-term bearish put play on a reversal.

I am dropping SYK as a long-term bullish candidate. The stock did not hit our entry point to launch positions (which was a dip to $58.25).

Trade did not open.

01/26/13 removed from the newsletter.
01/19/13 adjust the buy-the-dip trigger up to $58.25

Originally listed on the Watch List: 01/12/13