Option Investor
Newsletter

Daily Newsletter, Sunday, 2/3/2013

Table of Contents

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

Leaps Trader Commentary

Best January Since 1997

by James Brown

Click here to email James Brown

January 2013 will go down in the books as the best January the S&P 500 has seen since the year 1997. The big cap index rallied +5.2% and closed at levels not seen since December 2007. The Dow Jones Industrial Average has crossed the 14,000 mark and delivered its best January performance since 1989. Fueling the gains for stocks has been a rotation out of bonds and huge inflows into equity funds. According to one report money flows into equity funds in January were the highest since 1996. The small cap Russell 2000 index has soared to new all-time highs past the 900 mark. A +6.2% surge in oil for the month of January helped fuel a +10% gain in the OIX oil index. Helping fuel this rally in oil is a plunge in the U.S. dollar. A rising euro has pushed the dollar to new 52-week lows.

Most of the economic data this past week was bullish. The Case-Shiller home price index rallied to new five-year highs. Construction spending bounced from -0.3% in November to +0.9% in December, which was well above estimates. The ISM manufacturing index rose from 50.2% in December to 53.1% in January. Readers above 50.0 indicate growth and expansion. Vehicle sales in January came in at a healthy 15.3 million annual pace. This is up +10% from a year ago. The consumer sentiment numbers are not cooperating. The University of Michigan Consumer Sentiment figures saw a bounce from 71.3 to 73.8. Yet the Conference Board's Consumer Confidence numbers plunged in January to their lowest levels in more than a year. This is the third monthly decline for the confidence numbers.

Another negative surprise was the U.S. Q4 GDP estimate. Economists were expecting +1.0% growth but the report came in at -0.1%. That's the first negative GDP number since Q2 of 2009. Most of the decline was fueled by lower government spending. The Federal Reserve blamed the miss on the weather. The biggest surprise was the lack of reaction in the stock market. Traders just ignored the GDP estimate. Yet if the next quarter (Q1 2013) comes in negative then the U.S. will officially be back in recession. The Congressional Budget Office (CBO) has already warned that the higher taxes implemented in 2013 could knock 1.5% off the GDP.

One of the biggest reports for the week was the non-farm payrolls (jobs) report on Friday. Two days earlier the ADP employment change report came in positive and showed that corporate America was adding workers at its best pace in months. The jobs report came in at +157,000 new jobs in January. That compares to estimates for just +155K. Yet the big surprise was in the revisions. December's jobs number was revised from +155K to +196K and November's was revised from +161K to +247K. Thus January's numbers were not that impressive but given the trend it seems that January will likely be revised higher next month. News that the unemployment rate ticked up +0.1% to 7.9% was ignored because the rise was blamed on an uptick in the number of people returning to the workforce and looking for work. The labor participation rate was unchanged at 63.6%.

The Q4 earnings season continues. Thus far of the S&P 500 components that have already reported the percentage of companies that have beaten estimates is at 73%. About 63% of those reporting have beaten the revenue estimates as well. These numbers have been better than expected and have definitely played a part in driving the market higher. Unfortunately guidance has been cautious. That's not too surprising given the cloud of uncertainties for 2013 and market participants have been generally ignoring corporate guidance that isn't too bearish. We will see another 17% of the S&P 500 report earnings this week. As always, be prepared for individual stock volatility based on their earnings results.

Major Indices:

The S&P 500 index bounced off a test of short-term support at its rising 10-dma. Friday's session pushed it to a new high not seen since 2007. Currently the S&P 500 is already up +6.1% for the year. After a five-week rally this index is overbought and due for a correction lower. However, we all know that stocks and markets can always grow more overbought.

Odds are still good we'll see the S&P 500 hit 1520. On the daily chart below I've added a Fibonacci retracement tool. This tool suggests that a normal 38.2% retracement from 1520 would mean a dip toward 1475. A 50% retracement of the current rally would mean a pullback to 1460.

There is certainly a chance that the S&P 500 rallies toward its all-time high around 1560 before correcting lower.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ has managed to keep the rally alive without any help from shares of Apple (AAPL). For the week the NASDAQ composite added +0.9% and is up +5.2% for the year. It is fast approaching what is likely resistance at the 3200 level. Do not be surprised to see this index correct lower once it touches the 3200 mark. If it does pullback you might hear market watchers warning of a possible double top pattern.

The Fibonacci retracement tool would suggest a correction back toward 3100 or possibly 3050.

chart of the NASDAQ Composite index:

The rally in the small cap Russell 2000 index continues. The $RUT is now up about +19% from its November lows near 765 and up +7.2% year to date. Odds of a correction are rising every day. On the daily chart below I've added a couple of Fibonacci tools showing a potential pullback from the 920 level. These would suggest a pullback into the 880-860 level might be a good bet, once the reversal actually occurs. Until then the trend is up, up and away.

chart of the Russell 2000 index

Economic Data & Event Calendar

It is a quiet week for the economic calendar. Many of the big reports were last week. The reports to watch this week are the CPI/PPI and trade data from overseas. Plus, the ECB's interest rate decision and commentary on Thursday.

Economic and Event Calendar

- Monday, February 4 -
factory orders
Eurozone PPI data (wholesale inflation gauge)
China HSBC services PMI data

- Tuesday, February 5 -
ISM services index
Eurozone Retail Sales
Eurozone services PMI

- Wednesday, February 6 -
(nothing significant)

- Thursday, February 7 -
Weekly Initial Jobless Claims
ECB interest rate decision
Bank of England interest rate decision
EU finance summit

- Friday, February 8 -
wholesale inventories
Chinese trade data
Eurozone CPI (consumer level inflation gauge)
Eurozone trade data

The Week Ahead:

As we look ahead I am urging caution. A month ago the nation was panicked about the fiscal cliff. When Washington managed to avert and delay the fiscal cliff issues and postpone the debt ceiling debate it sounded the "all clear" signal for market bulls and stocks have raced higher. Yet stocks don't move in a straight line for very long and currently the major market indices are up five weeks in a row.

We are starting to hear more and more concerns that the equity markets are in a "QE bubble". Just as like the Internet bubble of the late 1990s that burst in the year 2000 and the housing bubble that burst in 2007, now there are concerns that the market's current rise is nothing but a QE-fueled bubble. That is certainly a possibility and if that's the case it's not slowing down (yet). There have been some murmurs among the Federal Reserve governors that the Fed might need to slow down later in 2013. At the moment, it's full speed ahead for the Fed's QE purchases.

History would suggest that an up January bodes well for the rest of the year. These historical trends are not 100% accurate but they are right often enough to create the market maxim "so goes January, so goes the year".

Another major issue for the stock market is the potential top in the bond market. We've talked about the "great rotation" out of bonds before. Bonds could be seeing the end of a 30-year bull market. As money gets pulled out of the bond market it has to go somewhere and a lot of it could end up in equities. Bear in mind that the big bond funds are not likely to reverse on a dime. They're more like large ocean liners that are so big they take a long time to turn. Thus the great rotation could be a multi-month or even multi-year factor for the markets.

One thing that does concern a lot of market analysts is the high level of investor complacency. Bullish sentiment has surged to two-year highs. The volatility index (VIX) is at multi-year lows. When everyone is bullish it creates an unhealthy dynamic that tends to produce tops and sharp reversals lower.

Another positive for the market has been its ability to ignore the violence in the middle east. News of bombings at the U.S. embassy in Ankara, Turkey and news of protests, violence and more than 70+people dead in Egypt are not having an impact. Even news that Israel has bombed two targets in Syria has not sparked any concerns. The Israelis bombed two targets to prevent chemical weapons from being transferred to terrorist organizations like Hezbollah and Al Qaeda.

We talked about the Israel issue last week. The Syrian government is distracted and weakened from fighting a civil war. There are reports the struggling Syrian regime is being supported by Iran and possibly Russia. If Israel pursues any more airstrikes into Syria it could provoke Iran or Russia to get more involved. That could definitely cause alarm for global markets.

Additional issues to be aware of are worries about a currency war breaking out with so many countries trying to devalue their currency. The rising price of oil (now approaching $100 a barrel) is lifting prices at the pump. High gasoline prices put pressure on consumer spending, which could drag down the U.S. GDP. The reversal in the bond market is lifting mortgage rates and that could crimp the revival in the housing market.

Overall the trend for stocks are up but the market is overextended and due for a correction. I would be cautious about launching new positions now when we might see a better entry point two or three weeks down the road after the market has pulled back.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

If stocks looked overbought last week they look even more overbought now. I would hesitate to chase the market if you're looking for a long-term bullish entry point. Equities will see a correction. It's only a matter of time.

VLO gapped open above our exit target
ANR and JBHT were closed on Monday, Jan. 28th as planned.
FSLR hit our stop loss.

Please note that we want to exit our ADBE, SIRI, and TCK trades on Monday. See the play update section for details.

I have updated stop losses on: AIG, APKT, GE, HON, SIRI

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

Another Week of Gains

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 3, 2013)

No new trades tonight. The market's major indices managed to extend their gains another week. Many are at new multi-year highs. Yet neither stocks nor markets run in a straight line for very long. I am hesitant to chase the rally at this point.

I have added two new candidates to our watch list and I've updated the radar screen list of potential candidates below. Many of the stocks on the radar screen need to see a correction lower.

Right now is a good time to choose strong stocks/companies that you'd be willing to buy on a pullback and then wait for the pullback.

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:

HAL, TM, NAV, NUE, LAMR, AKAM, CCL, XLNX, ATI, TM* PXD, ORLY, SJM, NBL, WMT* DIS, FDX, BMC, WLT, SHOO, FLIR, TRMB, TIF, HD, LOW, RIG, BP, MHP, BAC, CHE, MYL, DE, CAT, QCOM, RS, EA, GS, KMB, WFM, V, MRVL,




Play Updates

VLO Exceeds Our Target

by James Brown

Click here to email James Brown

Editor's Note:

It was a bullish week for shares of Valero (VLO) and the stock exceeded our bullish exit target. We also closed JBHT with gains.

Please note that we are planning an early exit for the ADBE, SIRI, and TCK trades on Monday, Feb. 4th.


Closed Plays


VLO exceeded our target.
ANR and JBHT were closed early as planned.
FSLR hit our stop loss.


Play Updates


Adobe Systems - ADBE - close: 38.34

Comments:
02/02/13: I am growing more and more worried about our ADBE trade. The market's major indices are climbing to new highs and yet ADBE remains stuck inside this $37-39 trading range. The stock closed virtually unchanged on the week.

There is still a decent chance that ADBE will breakout higher from this trading range. However, I am suggesting we abandon ship. The newsletter will close this trade on Monday morning at the open. We might revisit ADBE again if it breaks out down the road.

- Suggested Positions -
DEC 05, 2012 - entry price on ADBE @ 35.30, option @ 2.32
symbol:ADBE1418a40 2014 JAN $40 call - current bid/ask $ 2.87/2.96

02/02/13 ADBE is not participating in the market's rally. Prepare to exit positions on Monday morning (02/04/13)
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: 44.67

Comments:
02/02/13: ADI found support near the $43.50 multiple times this past week. By Friday's closing bell the stock was breaking out to levels not seen since the year 2004. More conservative investors may want to move their stops closer to the $42.00 level.
FYI: ADI is scheduled to report earnings on Feb. 19th.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 2.90/3.10

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: 38.86

Comments:
02/02/13: The financial sector is hitting new multi-year highs. This has helped push AIG to new 52-week highs. The stock was stuck under resistance at the $38.00 level for a few days but broke out in a big way on Friday. Odds are good the $40.00 level could act as round-number resistance. More conservative investors may want to take profits early when AIG trades into the $39.50-40.00 zone since I would expect a pullback on the initial test of this level. We are raising our stop loss to $34.40.

FYI: AIG is scheduled to report earnings on Feb. 21st.

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 $ 6.25/ 6.40

02/02/13 new stop loss @ 34.40
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: 34.40
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Akamai Technology - AKAM - close: 41.81

Comments:
02/02/13: Without Friday's gain AKAM would have posted a loss for the week. The stock is currently testing resistance near $42.00. While shares look ready to breakout the stock could see a bumpy ride. AKAM is scheduled to report earnings on Feb. 6th, after the closing bell. Wall Street is looking for a profit of 49 cents a share.

I am not suggesting new positions at this time.

- Suggested Positions -
JAN 03, 2013 - entry price on AKAM @ 41.89, option @ 3.60
symbol:AKAM1418a50 2014 JAN $50 call - current bid/ask $ 2.99/3.10

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


Acme Packet - APKT - close: 23.93

Comments:
02/02/13: Caution! APKT is not participating in the market's rally. It's possible that the traders are just waiting for the company's earnings report, which is due out on Feb. 4th, after the close. I do find the stock's failure to join the market's climb a troubling sign.

I am raising our stop loss up to $21.75. More conservative investors may want to just exit immediately on Monday before APKT reports earnings. I am not suggesting new positions.

- Suggested Positions -
JAN 14, 2013 - entry price on APKT @ 22.83, option @ 2.60
symbol:APKT1418a30 2014 JAN $30 call - current bid/ask $ 2.25/2.85

02/02/13 new stop loss @ $21.75
02/02/13 APKT is not participating in the market's rally. Readers may want to exit early immediately before the company reports earnings on Feb. 4th after the closing bell.
01/12/13 plan on opening positions on Monday morning (Jan 14th)

Current Target:$ 34.00
Current Stop loss: 21.75
Play Entered on: 01/14/13
Originally listed on the Watch List: 01/05/13


Citigroup - C - close: 43.02

Comments:
02/02/13: Citigroup has not kept pace with the rally in the financials. However, the stock does look poised to breakout from its recent sideways churn under the $43.50 level. More conservative investors may want to raise their stop loss here.

- 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 $ 3.90/ 3.95

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: 116.50

Comments:
02/02/13: CVX barely eked out a gain for the week and would have closed in the red if not for Friday's bounce. The company reported earnings on Friday morning. CVX said its Q4 earnings surged +41% to $7.25 billion. Per share that comes out to $3.70 compared to $2.58 a year ago. That looks like a huge beat above the estimates of $3.05 a share but the stock didn't act like CVX blew away the earnings estimates.

Traders bought the dip on Friday at short-term support near $115.00. That's a positive sign but I am worried that after a five-week rally that it's time for CVX to correct lower. I would not be surprised to see a pullback into the $112.00-110.00 zone. We can use such a pullback as a new bullish entry point but wait for a bounce.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 4.70/4.90

02/02/13 do not be surprised to see a pullback now that earnings have been announced.

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: 67.27

Comments:
02/02/13: EXPE spent most of the week consolidating sideways. Traders bought the dip on Thursday and the widespread market rally on Friday pushed the stock to a new high. I suspect that odds are pretty high EXPE will see some profit taking on its earnings report so do not be surprised to see a pullback toward its 50-dma again. The company is scheduled to report earnings on Feb. 5th (Tuesday) after the closing bell. Analysts estimates are for 65 cents a share. 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 $6.90/7.10

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


General Electric - GE - close: 22.62

Comments:
02/02/13: Shares of GE saw a dip to short-term technical support at its 10-dma. Then shares rebounded sharply higher and closed at a new three-month high. The stock is arguably overbought with its five-week rally. I am raising our stop loss to $20.40. More conservative investors may want to raise theirs even higher.

The $23.00-23.15 area is the next area of potential resistance. Don't be surprised to see a pullback once GE tags $23.

- 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

02/02/13 new stop loss @ 20.40
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: 20.40
Play Entered on: 11/14/12
Originally listed on the Watch List: 09/22/12


SPDR Gold ETF - GLD - close: 161.45

Comments:
02/02/13: Gold prices saw a pop on the unexpected decline in U.S. Q4 GDP. Yet there was no follow through on the bounce. The GLD continues to churn sideways underneath bearish technical resistance at its descending 50-dma.

I would wait for a close above $164.50 (a technical breakout) before considering new bullish positions on the GLD.

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 $1.89/1.99

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: 69.15

Comments:
02/02/13: HON spent most of the week consolidating sideways in the $68-69 zone. Traders did buy the dip at short-term support near the 10-dma and the $68 level on Thursday. Friday's market rally helped lift HON to a new intraday high but gains faded by the close. The $70.00 level is likely round-number resistance and after an impressive multi-week rally higher the advance is probably tired. I would expect a correction soon. Look for support in the $66-65 area.

I am raising our stop loss to $63.75.

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 $7.00/7.20

02/02/13 new stop loss @ 63.75
01/05/13 new stop loss @ 59.90

Current Target: $74.50
Current Stop loss: 63.75
Play Entered on: 12/31/12
Originally listed on the Watch List: 12/22/12


Juniper Networks - JNPR - close: 22.32

Comments:
02/02/13: JNPR tagged a new relative high on Monday and then spent the rest of the week consolidating. Traders bought the dip at short-term support on its 10-dma. The trend is still up but I would not be surprised to see a correction back toward the $21 area. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.99/2.05

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: 41.07

Comments:
02/02/13: After a big rally to new multi-year highs LEN is finally starting to correct lower. Shares gave up exactly $2.00 for the week. I would expect a dip into the $40-38 zone. More conservative investors may want to just take profits now. 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 $5.85/6.05

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: 75.22

Comments:
02/02/13: Sometimes the market doesn't make sense. LLL reported earnings on Jan. 30th. The company beat estimates by 13 cents. Revenues beat the estimate as well. If that wasn't enough management raised their 2013 guidance. The stock should have been soaring on this positive news. Instead LLL spikes down toward $76.00 on Wednesday but recovers. Then it rolls over and plunges right back to $76 on Thursday. The sell-off continues on Friday.

Readers will want to seriously consider an early exit out of this trade right now. 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 $ 2.40/ 2.65

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: 58.87

Comments:
02/02/13: Hmm... I am a little bit worried about MSI. The stock failed to follow the market higher. Shares are just churning sideways. Granted they are consolidating sideways at multi-year highs. I suspect MSI might see another correction back toward $56 and its 50-dma, especially if the market sees a pullback. 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 $ 3.35/ 3.50

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: 18.48

Comments:
02/02/13: MTW spent most of the week consolidating sideways in a narrow range beneath the $18 level as investors waited on the company to report earnings. MTW reported on Thursday night and delivered a bullish report. Shares spiked to a new 52-week high on Friday and hit $19.36 intraday. I am not suggesting new positions at this time.

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 $ 2.15/ 2.30

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: 4.00

Comments:
02/02/13: Ouch! NOK fell almost 5% last week. The stock has been consolidating lower for about three weeks now. This past week the stock could have been reacting to headlines. NOK's rival RIMM unveiled two new smart phones to compete with NOK and the rest of the market. Plus, investors were unhappy that NOK has decided to not pay a dividend for the year 2012.

The pullback in NOK has pulled the stock down to round-number support at $4.00 and technical support at the 50-dma. Right now our stop loss ($3.65) sits just below the January low. More conservative traders may want to up their stop so it's closer to the $3.80 level instead.

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 $ 1.38/ 1.40

- 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: 56.86

Comments:
02/02/13: SBUX spent much of the week digesting its gains from the prior Friday. I cautioned readers last weekend to expect SBUX o fill the gap. The stock has effectively done so and looks poised to breakout to new multi-month highs. I am not suggesting new positions at current levels.

- 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/ 3.95

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: 39.84

Comments:
02/02/13: Last Monday was a tough day for SCCO. Not one but three firms downgraded the stock on Jan. 28th. Shares naturally turned lower and fell below the $40.00 level. Yet SCCO didn't see a lot of follow through. Traders were buying the dips near $39.00. The company reported earnings on Jan. 31st and beat by a penny. Revenues were in-line with estimates. SCCO looks like it is ready to rally back above the $40.00 mark but I would hesitate to launch 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 $ 2.80/ 3.00

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: 16.75

Comments:
02/02/13: It was another bullish week for SCHW. The stock is actually up 10 out of the last 11 trading days. Shares are definitely short-term overbought and due for a pullback. We can watch for likely support near the $15.50 level. I am not suggesting new positions at current levels.

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 $ 1.15/ 1.30

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: 3.23

Comments:
02/02/13: After almost four weeks of churning sideways under resistance at the $3.20 level SIRI has finally broken out. Friday's session saw a +2.8% gain and a close above this key level. The stock is less than 25 cents away from our target at $3.45. There is one potential hurdle that could short circuit SIRI's rally and that is the company's earnings report. SIRI is scheduled to report on February 5th. These results could send the stock soaring either direction. I am suggesting we take the cautious choice and go ahead and take profits now. More aggressive traders can hold over the announcement and you may want to raise your exit target toward the $3.80-4.00 zone.

The newsletter will plan on closing positions on Monday (Feb. 4th) at the closing bell. I am raising our stop loss to $3.10.

- Suggested Positions -
OCT 04, 2012 - entry price on SIRI @ 2.75, option @ 0.38
symbol:SIRI1418A3 2014 JAN $3.00 call - current bid/ask $ 0.53/ 0.57

- or -

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

02/02/13 prepare to exit positions on Monday, Feb.4th at the close
new stop loss @ 3.10
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: 3.10
Play Entered on: 10/04/12
Originally listed on the Watch List: 09/29/12


Teck Resources - TCK - close: 37.10

Comments:
02/02/13: I am concerned about our TCK trade. The stock has been underperforming the market these last few weeks. The larger trend still looks like TCK is moving higher but the stock's lack of participation in the market's rally is troubling.

I am suggesting we exit positions on Monday, Feb. 4th at the closing bell. More aggressive investors may want to keep their position active but I would expect a likely pullback toward support near $35.00 or $34.00. We may revisit TCK on a bounce from the $34.00 region.

- Suggested Positions -
DEC 10, 2012 - entry price on TCK @ 35.19, option @ 3.40
symbol: TCK1418a40 2014 JAN $40 call - current bid/ask $ 3.25/3.40

02/02/13 prepare to exit on Monday, Feb. 4th at the closing bell
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: 43.35

Comments:
02/02/13: URBN's performance this past week was a bit disappointing. The stock posted a minor decline. Yet after a four-week rally the stock was probably due for a rest. If this stock does see a pullback I would look for 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 $ 4.60/4.80

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


Vulcan Materials Co. - VMC - close: 56.88

Comments:
02/02/13: It was a volatile week for VMC. The stock looks like it could be forming a short-term top. I would not be surprised to see a correction back to $54.00 or lower. Let's wait for the dip and then we can look for a new entry point on the rebound.

FYI: VMC is scheduled to report earnings on Feb. 14th.

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 $ 4.70/5.20

02/02/13 expecting a pullback in VMC.
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


Alpha Natural Resources - ANR - close: 8.73

Comments:
02/02/13: The coal industry stocks have continued to underperform the rest of the market and ANR is no exception. Last weekend we decided to exit this trade early and close positions on Monday, Jan. 28th at the opening bell.

ANR opened that morning at $9.29. Our option was closed at $1.62

- Suggested Positions -
JAN 07, 2013 - entry price on ANR @ 10.34, option @ 2.49
symbol: ANR1418a10 2014 JAN $10 call - exit $1.62 (-34.9%)

01/28/13 exited positions at the open
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)

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


First Solar Inc. - FSLR - close: 28.33

Comments:
02/02/13: I cautioned readers last weekend that FSLR looked weak and poised to turn lower. Sure enough the stock broke down below round-number support at $30.00 on Monday and then spiked lower on Tuesday morning. Our stop loss was hit at $27.75 on Jan. 29th.

- Suggested Positions -
NOV 28, 2012 - entry price on FSLR @ 26.20, option @ 5.00
symbol: FSLR1418a30 2014 JAN $30 call - exit $4.40 (-12.0%)

01/29/13 stopped out at $27.75
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

Chart of FSLR:

Current Target: $39.75
Current Stop loss: 27.75
Play Entered on: 11/28/12
Originally listed on the Watch List: 11/10/12


JB Hunt Transport - JBHT - close: 67.84

Comments:
02/02/13: JBHT is up less than 30 cents for the week after churning sideways the last few days. Last weekend we decided the best move was to go ahead and exit early on Monday (Jan. 28th) and take profits. JBHT opened at $67.50 on the 28th.

- Suggested Positions -
JAN 18, 2013 - entry price on JBHT @ 62.72, option @ 3.50
symbol: JBHT1317H65 2013 AUG $65 call - exit $5.60 (+60.0%)

02/02/13 closed early on Monday, Jan. 28th.
01/26/13 Prepare to exit on Monday morning, Jan. 28th

Chart of JBHT:

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


Valero Energy - VLO - close: 44.85

Comments:
02/02/13: Target exceeded.

It was a huge week for VLO with a +17.7% gain. The company reported earnings on the 29th of January. Wall Street was expecting a profit of $1.23 on revenues of $32.49 billion. VLO delivered $1.82 a share on revenues of $34.7 billion. The stock exploded higher on the 29th with a gap open at $42.19. Since our target was only $39.75 our trade was closed immediately.

- Suggested Positions -
NOV 23, 2012 - entry price on VLO @ 31.25, option @ 3.30*
symbol: VLO1418a35 2014 JAN $35 call - exit $8.58 (+160.0%)

01/29/13 target exceeded on gap open at $42.19.
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.

Chart of VLO:

Current Target: $39.75
Current Stop loss: 33.75
Play Entered on: 11/23/12
Originally listed on the Watch List: 11/10/12



Watch

Oil Services & Retail

by James Brown

Click here to email James Brown


New Watch List Entries

SLB - Schlumberger Ltd.

WMT - Wal-Mart Stores


Active Watch List Candidates

CSCO - Cisco Systems

SOHU - Sohu.com


Dropped Watch List Entries

None.



New Watch List Candidates:


Schlumberger Ltd. - SLB - close: 79.70

Company Info

The oil services industry has been outpacing the market's rally. Shares of SLB are helping lead the way. The stock is currently testing resistance near the $80.00 level. A breakout here could signal the next run higher.

I am suggesting we wait for SLB to close above $81.00 a share. If triggered our long-term targets is $94.75. We'll start with a stop loss at $76.40. We do want to start this trade with small positions. You could argue SLB is overbought and due for a correction given the rally off its late December lows.

FYI: The stock will begin trading ev-dividend on Feb. 15th. The next quarterly dividend is about 31 cents. The Point & Figure chart is bullish with a long-term target of $102.

Trigger: Wait for SLB to close above $81.00, then buy calls the next day. Stop loss @ 76.40

BUY the 2014 Jan $90 call (SLB1418a90) current ask $3.20

Chart of SLB:

Originally listed on the Watch List: 02/02/13


Wal-Mart Stores - WMT - close: 70.49

Company Info

WMT is the biggest retailer in the world and the largest private employer in the world. It looks like the correction from its 2012 highs is about over. I still see some resistance in the $72.00 area.

I am suggesting investors wait for shares of WMT to close above $73.00 a share. Then buy calls the next day with a stop loss at $67.25. Our long-term target is the $85-90 range.

NOTE: WMT is scheduled to report earnings on Feb. 21st.

Trigger: Wait for WMT to close above $73.00, then buy calls the next day. Stop loss @ 67.25

BUY the 2014 Jan $75 call (WMT1418a75) current ask $1.80

- or -

BUY the 2015 Jan $80 call (WMT1517a80) current ask $2.16

Chart of WMT:

Originally listed on the Watch List: 02/02/13


Active Watch List Candidates:



Cisco Systems - CSCO - close: 20.83

Comments:
02/02/13: CSCO retreated this past week to test technical support at its rising 30-dma again. The stock might be stuck in a sideways consolidation pattern until the company reports earnings. CSCO is scheduled to report on Feb. 13th. If the market corrects lower by then we might consider buying a dip or a bounce in the $19 area. Meanwhile I am adjusting our entry strategy. We want to wait for CSCO to close above $21.50 before initiating bullish positions. We'll start with a stop loss at $19.25. Our long-term target is $27.00.

Breakout trigger: Wait for a close above $21.50, buy calls the next day, stop loss at $19.25.

BUY the 2014 Jan $22 call (CSCO1418a22)

- or -

BUY the 2015 Jan $25 call (CSCO1517a25)

02/02/13 adjust entry trigger to wait for a close above $21.50

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


Sohu.com - SOHU - close: 49.22

Comments:
02/02/13: SOHU is still struggling with resistance near the $50 level. Monday could be a volatile session for SOHU. The company is scheduled to report earnings on Feb. 4th, before the opening bell. I am still suggesting a buy-the-dip trigger at $45.50.

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.

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