Option Investor
Newsletter

Daily Newsletter, Sunday, 2/10/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Snowplow Higher

by James Brown

Click here to email James Brown

A massive winter storm is blanketing much of the northeastern U.S. with snow but it failed to freeze investor sentiment for stocks. The S&P 500 index and the NASDAQ composite have extended their gains to six weeks in a row. The small cap Russell 2000 index and the Dow Jones Transportation Average have both hit new all-time highs (again). Momentum definitely seems to be in favor of the bulls. Meanwhile both the U.S. dollar and the U.S. bond market managed a little oversold bounce from their February 1st lows.

There were a number of economic reports, much of it overseas, this past week. In the U.S. the December factory orders rose +1.8%, which was below estimates for a +2.3% gain. Services count for nearly 80% of the U.S. economy and the ISM services index rose to a better than expected 55.2. Readings above 50.0 indicate growth. The ISM service index's employment component produced a reading at 57.5, its highest level in seven years. The weekly initial jobless claims came in at 366,000 versus 371,000 the week before. Meanwhile the U.S. trade gap narrowed to $38.5 billion in December thanks to a decline in oil imports and a rise in our exports.

There was a lot of activity in Europe. The Eurozone said their December retail sales fell -0.8%, which was worse than expected. The Eurozone services PMI data for the group improved to 48.6, which was slightly ahead of expectations but still in contraction territory (under the 50.0 mark). On a positive note EU leaders did agree to a budget deal. After a marathon length 25 1/2 hour negotiation they finally reached agreement on their next seven-year budget. Elsewhere the EU's largest economy, Germany, was showing improvement. German factory orders improved. The German government said exports in 2012 rose +3.4% to a record 1.1 trillion euros.

There were also a number of headlines out of Asia. Japan said their machinery orders rose for the third month in a row. Singapore saw their pace of manufacturing turn positive. India's HSBC services PMI hit 57.5, which was better than expected. It looks like China is poised to lead the world's economic rebound. Chinese imports rose +28.8% in January while their exports rose +25%. China also saw their HSBC services PMI rise to 54.0 in January, up from 51.7 the prior month. The country's crude oil consumption rose +4.9% in 2012.

Major Indices:

The S&P 500 was starting to act like it was forming a top with the choppy sideways action in the 1490-1515 zone. Technically Friday's rally to a new high (and a new 5-year high at that) is a bullish breakout. Friday's gain all came within the first 30 minutes of trading and the S&P 500 spent the rest of the day in a narrow range.

Stocks and indices tend to get frothy at tops and bottoms as buyers and sellers battle it out. Thus the recent choppiness was starting to look like a top. Yet if the index can keep this new strength alive then we could see the S&P 500 make a run at its all-time high in the 1560 area. I wouldn't get too excited just yet. I've been warning readers that the 1520 level could be overhead resistance and the index remains below this level for now. Plus, on the weekly chart below you can see how the index has stalled at a major trend line of highs. Now after a six-week rally the S&P 500 is overbought, overextended, and overdue for a correction lower. When that correction does show up I am expecting a dip back toward the 1480-1470 zone.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite has continued to rally without any help from AAPL but GOOG has broken out to a new all-time high above $785 a share. The NASDAQ index has finally rallied to what should be resistance at its 2012 highs near 3200. If the index does correct lower from here I would expect a pullback toward the 3100 level. A failure at 3200 would also spark concerns over a potential bearish double top pattern. If the NASDAQ manages a breakout past 3200 then it could spark some short covering. After a six-week rally, the NASDAQ is due for some profit taking.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index added a +0.2% gain for the week thanks to Friday's rally. This also marks a new all-time high. For 2013 the $RUT is already up +7.5%. Even more impressive is the +20% gain from its November lows. The trend is up and momentum favors the bulls yet eventually the $RUT will see a correction. It's overbought and way overextended. I've placed some Fibonacci retracement tools on the daily chart below to produce some "what if" targets if the $RUT were to correct lower from the 920 level. It looks like a correction into the 880-860 area would be a good bet. The old all-time high near 870 could offer some support.

chart of the Russell 2000 index

Economic Data & Event Calendar

We could have a relatively quiet week for economic data. Retail sales for January might disappoint on Wednesday. The Eurozone GDP estimate also comes out on Wednesday. The Chinese begin their Lunar New Year on February 10th and the Chinese markets will be closed all week long. Feb. 10th marks the beginning of the "year of the snake". President Obama will make his state of the union address on Tuesday night. The Q4 earnings season is winding down.

Don't forget that Valentine's Day is this Thursday.

Economic and Event Calendar

- Monday, February 11 -
Chinese markets are closed all week for Lunar New Year holiday

- Tuesday, February 12 -
President Obama's State of the Union Address

- Wednesday, February 13 -
MBA mortgage index
Retail Sales for January
Import/Export prices
Business Inventories (for December)
Eurozone industrial production
Eurozone GDP estimate

- Thursday, February 14 -
Weekly Initial Jobless Claims
G-20 meeting
(Valentine's Day)

- Friday, February 15 -
New York Empire State manufacturing survey
University of Michigan Consumer Sentiment

Additional Events to be aware of:

Feb. 18th - U.S. markets closed for President's Day
Mar. 1st - U.S. sequestration deadline

The Week Ahead:

Looking ahead the market does face a number of challenges. Bull markets do tend to climb the "wall of worry". One issue that could threaten the U.S. is a slowdown in consumer spending. The payroll tax holiday expired December 31st, 2012. Thus most employees have a slightly smaller paycheck this year and it could be impacting their discretionary spending. Another issue that could be curbing consumer spending is fuel prices. Gas prices at the pump have risen 21 days in a row and according to AAA the average gas price is now at $3.555 a gallon. Gas has not been this high in over three months. Unfortunately it looks poised to keep climbing.

The market also faces a potential storm on the horizon with the sequestration battle in Washington. If you recall part of the fiscal cliff was the sequestration issue (across the board cuts in spending for both defense and entitlements). Right now the deadline for sequestration cuts to take effect is March 1st, 2013. If those cuts are allowed it will push the U.S. economy into recession and could severely impact employment. The most recent Q4 GDP estimate came in at -0.1%. While that is likely to be revised higher you can see that the U.S. economy is hovering right at zero percent growth. Estimates have suggesting the spending cuts could take -1% or more off the U.S. GDP. Plus, the Bipartisan Policy Center (BPC) estimates a minimum of 1.0 million jobs lost due to sequestration cuts. The Congressional Budget Office (CBO) puts their estimate at 1.4 million jobs lost.

If that wasn't bad enough there is a growing geopolitical risk that could impact the markets. Israel has threatened to unilaterally strike at Iran's nuclear facilities for years. The next meeting between Iran and the International Atomic Energy Agency (IAEA) is on February 13th. No one expects Iran to comply with the IAEA but this meeting could bring Iran's nuclear ambitions back to the forefront.

Another hotspot issue that's even more threatening are the rising tensions in Asia. The North Korean leadership is getting more belligerent and they're planning a new nuclear weapons test. That has increased tensions with the South Koreans, who have told soldiers to be ready for any signs of aggression.

Meanwhile tensions are rising between China and Japan. The two countries are arguing over a handful of uninhabited islands. The Japanese call these islands the Senkaku. The Chinese call them Diaoyu. The Chinese claim they owned them until the Japanese took control in the late 1800s. Then in the late 1960s it was discovered that the area might have significant oil deposits. Immediately there was renewed disagreement over who owned them. This time the trouble started back in September last year when Japan "nationalized" the three islands they didn't already control.

Both countries have warships in the area. This past week a story surfaced that Chinese ships turned on their fire control radar and targeted Japanese navy ships. Fire control radar is what you would use to calculate how to aim your guns and missiles from your ship to your target. Basically this was the equivalent of the Chinese military drawing their gun and pointing it at the Japanese. Thankfully no one pulled the trigger. The Chinese government denies this event. If shooting between these two major Asian powers does breakout it could have a very negative impact on the global markets.

Looking back to the market, the trend is still undeniably up, but equities remain very overbought and due for a correction. Long-term the rotation out of bonds will be bullish for stocks but that will not prevent the stock market from seeing a normal healthy correction. Personally I would hesitate to launch new long-term bullish positions now when we might see a much better entry point two or three weeks down the road at lower levels.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The small cap Russell 2000 and the Dow Jones Transportation average both hit new all-time highs. The NASDAQ composite and S&P 500 have extended their gains to six weeks in a row. How long will this rally last? That's what traders are thinking. Now that earnings season is winding down what will be the next catalyst to drive stocks higher?

ADBE, SIRI, and TCK were closed on February 4th at planned.
AKAM was stopped out.
I am dropping APKT from the newsletter.

SOHU jumped from the watch list to active trade list.

I have updated stop losses on: ADI, HON, LLL, MSI, NOK

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

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

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




New Plays

Odds Are Rising

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 9, 2013)

No new trades tonight. We did not want to chase the market last week. We still do not want to chase it this week. The S&P 500 and NASDAQ are both up six weeks in a row. Both indices are facing resistance directly overhead. Odds of a pullback are growing every day.

I did add a more defensive candidate to the watch list tonight with Coca-Cola (KO). Plus, I've added a few more candidates to my radar screen list below.

Right now is a good time to identify 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:

AXP, BHI, DECK, HPQ, NBR, TXT, ROST, JPM, WAG, HAL, TM, NAV, NUE, LAMR, CCL, XLNX, ATI, SJM, NBL, DIS, FDX, WLT, SHOO, FLIR, TRMB, HD, LOW, RIG, BAC, CHE, DE, CAT, QCOM, RS, EA, GS, KMB, WFM, V, MRVL, PXD,



Play Updates

Trimming Our Active Plays

by James Brown

Click here to email James Brown


Closed Plays


ADBE, SIRI, and TCK were all closed early as planned.
AKAM was stopped out.
We're dropping APKT.


Play Updates


Analog Devices - ADI - close: 45.70

Comments:
02/09/13: ADI displayed relative strength on Friday with a breakout past resistance at the $45.00 level and a +2.9% gain on the session. This is a new multi-year high for the stock. I am raising our stop loss to $41.90. FYI: ADI is scheduled to report earnings on Feb. 19th.

NOTE: I am adjusting our exit target down to $49.00.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 3.50/3.70

02/09/13 new stop loss @ 41.90
adjust exit target to $49.00

Current Target:$ 49.00
Current Stop loss: 41.90
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/22/12


American Intl. Group - AIG - close: 38.79

Comments:
02/09/13: AIG spent this past week churning sideways in the $38-39 range. Even if AIG does breakout from here I am concerned the $40.00 level will be round-number resistance. I would expect a correction lower toward the $37-35 zone. The correction may not show up until after AIG reports 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 $ 6.30/ 6.45

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


Citigroup - C - close: 42.68

Comments:
02/09/13: Citigroup tried to breakout past resistance in the $43.25 area but the rally reversed. Currently the overall trend still has a bullish pattern of higher lows but I am concerned C will see a correction lower. Look for a pullback toward $40.00. I am not suggesting new positions.

- 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 $ 3.60/ 3.70

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: 115.64

Comments:
02/09/13: CVX has spent the last week and a half drifting lower with a trend of lower highs. Twice traders bought the dip near $114.00. I am concerned that CVX could see a correction lower toward the $112-110 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 $ 4.40/4.50

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: 65.65

Comments:
02/09/13: EXPE reported earnings on Feb. 5th. The headline number missed estimates by two cents with a profit of 63 cents a share. Yet revenues came in well above estimates at $975 million compared to expectations of $928 million. The gains were driven by strong increases in hotel bookings and international business.

Looking at EXPE's chart I am concerned the stock could be forming a top. Shares have been struggling with resistance near the $68.00 level. I would not be surprised to see a correction lower back toward the $62-60 area. 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 $5.60/5.80

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: 22.50

Comments:
02/09/13: GE spent the week consolidating sideways. Shares lost 12 cents for the week. There is likely short-term support near $22.00 but if the market corrects lower I would expect a dip toward the $21.50-21.00 zone. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.48/0.51

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: 161.57

Comments:
02/09/13: The GLD moved less than 20 cents for the week. I was surprised the GLD did not see increased weakness given the rebound in the U.S. dollar. Shares of this gold ETF churned sideways in a range between very short-term support near $161.00 and overhead resistance at its descending 50-dma. Shares should see a breakout one way or the other pretty soon. Unfortunately, the bearish trend of lower highs dates back to the October peak. That would suggest odds favor a break out lower not higher.

More conservative traders may want to raise their stop loss. I would wait for a close above $164.50 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 $1.77/1.90

02/09/13 the sideways consolidation is narrowing. Expect a breakout one way or the other soon.
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: 70.53

Comments:
02/09/13: Shares of HON continue to soar. The stock broke through potential round-number resistance at $70.00 and hit new all-time highs. While the relative strength is encouraging HON is clearly overbought, overextended, and overdue for some profit taking. Investors will want to seriously consider taking profits right now. I am lowering our exit target down go $72.00. I am raising our stop loss up to $67.40.

- Suggested Positions -
DEC 31, 2012 - entry price on HON @ 62.50, option @ 4.40
symbol: HON1418a65 2014 JAN $65 call - current bid/ask $8.05/8.20

02/09/13 new stop loss @ 67.40, adjust exit target to $72.00,
investors may want to book profits now with the option bid @ $8.05
02/02/13 new stop loss @ 63.75
01/05/13 new stop loss @ 59.90

Current Target: $72.00
Current Stop loss: 67.40
Play Entered on: 12/31/12
Originally listed on the Watch List: 12/22/12


Juniper Networks - JNPR - close: 21.84

Comments:
02/09/13: I am urging caution here. JNPR has underperformed the market two weeks in a row. The action this past week could be seen as a potential bearish reversal pattern. I would expect a correction lower toward $20.00, especially if the market shows any weakness. 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 $1.77/1.82

02/09/13 JNPR is showing relative weakness
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: 39.96

Comments:
02/09/13: LEN continues to correct lower. The stock has posted losses two weeks in a row. Now shares are testing round-number support at $40.00 and technical support at the 50-dma. I am not suggesting new positions. Readers may want to just book profits now with an early exit.

- 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 $5.20/5.35

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: 77.67

Comments:
02/09/13: The threat of spending cuts for the U.S. defense budget has not stopped a rebound in shares of LLL. The stock started to bounce on Tuesday following news LLL was raising their quarterly dividend by a nickel to 55 cents a share. Plus the company has authorized a $1.5 billion stock buyback program.

The rebound in LLL is encouraging but I am still concerned about how the sequestration issue (U.S. budget cuts) will impact the defense sector. Therefore I am raising our stop loss up to $75.75. More conservative investors may want to just abandon ship right now.

- 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 $ 3.40/ 3.60

02/09/13 new stop loss @ 75.75
01/05/13 new stop loss @ 73.75. readers may want to just exit early now!

Current Target:$ 85.00
Current Stop loss: 75.75
Play Entered on: 11/05/12
Originally listed on the Watch List: 10/20/12


Motorola Solutions - MSI - close: 60.30

Comments:
02/09/13: MSI continues to rally. Traders were buying the dips at the rising 10-dma. By the closing bell on Friday MSI had broken out past round-number resistance at $60.00. I am raising our stop loss to $55.75. 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 $ 4.10/ 4.30

02/09/13 new stop loss @ 55.75
01/19/13 new stop loss @ 54.75
01/12/13 new stop loss @ 53.75

Current Target:$65.00
Current Stop loss: 55.75
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12


The Manitowoc Co - MTW - close: 18.65

Comments:
02/09/13: The rally in MTW slowed down this past week. Shares were struggling with resistance near the $18.80 level. The trend is still up but if the market corrects lower I would expect MTW to see a pullback toward $17 or its 50-dma.

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/ 2.35

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: 4.07

Comments:
02/09/13: NOK managed a bounce off the $3.80 level but the rebound has been struggling with technical resistance at its 40-dma. After a three-week pullback I am not surprised to see NOK bouncing. Yet that doesn't mean the correction is over. Readers may want to just close this trade now and lock in gains. I am raising our stop loss to $3.75.

Earlier Comments:
The plan was to buy NOK the stock or the 2014 calls.

- Suggested Positions - (small positions)
NOV 20, 2012 - entry price on NOK @ 2.97, option @ 0.78
symbol: NOK1418a3 2014 JAN $3 call - current bid/ask $ 1.40/ 1.44

- or -

Buy NOK stock: entry @ 2.97

02/09/13 new stop loss @ 3.75
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: 3.75
Play Entered on: 11/20/12
Originally listed on the Watch List: 11/17/12


Starbucks Corp. - SBUX - close: 56.37

Comments:
02/09/13: Two weeks ago SBUX looked ready to rally but there was no follow through. Shares turned lower instead. The stock dipped to technical support at its rising 30-dma before bouncing. Bigger picture the trend is still up but I would hesitate to launch new positions here. We might get a better entry point on a dip near $54 or its 50-dma.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 3.60/ 3.70

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: 40.86

Comments:
02/09/13: SCCO continued to bounce and has now effectively filled the gap from the late January gap down. That also means the stock is sitting right at short-term resistance at the $41.00 level. More conservative investors may want to abandon ship right now and lock in gains.

SCCO has a 24-cent dividend coming up soon. Shares will begin trading ex-dividend on Monday morning so expect a gap down of about 24 cents. 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/ 3.60

02/09/13 SCCO will begin trading ex-dividend on Monday (24 cents)
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: 16.89

Comments:
02/09/13: SCHW spiked to a new 52-week high of $17.41 on Thursday. The rally continues but SCHW is growing more and more overbought. I would expect a correction lower soon. I would not be surprised to see a dip back toward the $15.50 area. Thus, more nimble investors may want to just take profits right now and consider jumping back in on a pullback. 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 $ 1.30/ 1.50

02/09/13 investors may want to consider exiting now to book a profit and then jump back in on a correction.

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


Sohu.com - SOHU - close: 45.93

Comments:
02/09/13: SOHU was a watch list candidate. We were expecting a pullback in the stock price. We cautioned readers to expect some volatility on Monday, Feb. 4th following the earnings report. Sure enough SOHU spiked down toward $46.00 on Monday. The weakness continued on Tuesday and shares hit our buy-the-dip trigger at $45.50 on Feb. 5th.

It is possible the correction is not over yet. Readers may want to wait. SOHU could see a new drop toward its 50-dma or the $44.00 level.

- Suggested Positions -
FEB 05, 2013 - entry price on SOHU @ 45.50, option @ 4.40
symbol:SOHU1418a50 2014 JAN $50 call - current bid/ask $ 4.10/ 4.50

Chart of SOHU:

Current Target: $58.50
Current Stop loss: 42.40
Play Entered on: 02/05/13
Originally listed on the Watch List: 12/31/12


Urban Outfitters - URBN - close: 42.58

Comments:
02/09/13: Warning! The rally in URBN appears to be losing steam. I am concerned the stock may be topping out. The company issued good news on Thursday, Feb. 7th. URBN issued a press release saying they had record net sales for the quarter and the year ending January 31, 2013. Their Q4 sales came in at $857 million. That was +17% from the same quarter a year ago and well above analysts estimates. The stock spiked up toward $44.00 and then reversed.

We can now expect shares of URBN to correct lower toward $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 $ 4.10/4.40

02/07/13 URBN pre-warning better than expected sales numbers

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: 56.08

Comments:
02/09/13: VMC drifted lower until traders bought the dip on Thursday near its rising 30-dma. For the week shares lost 80 cents. The action in the second half of January is starting to look like a bearish double top pattern. I am expecting a dip towards $54.00 and possibly lower. This week could be volatile as VMC reports earnings on February 14th, before the opening bell. Wall Street expects a loss of 9 cents per share.

In other news VMC announced a one cent dividend payable on March 11, 2013 to shareholders of record on Feb. 25th.

Earlier Comments:
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 $ 4.00/4.90

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


Adobe Systems - ADBE - close: 39.12

Comments:
02/09/13: Shares of ADBE had been underperforming the market for several weeks in a row. Last weekend we decided to close this play early on Monday, February 4th at the opening bell. Naturally, ADBE finally decided to move higher albeit on Friday, Feb. 8th.

Our trade closed on the 4th with ADBE at $38.19.

- Suggested Positions -
DEC 05, 2012 - entry price on ADBE @ 35.30, option @ 2.32
symbol:ADBE1418a40 2014 JAN $40 call - exit $2.84 (+22.4%)

02/04/13 earl exit at the open.
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.

Chart of ADBE:

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


Akamai Technology - AKAM - close: 35.42

Comments:
02/09/13: Our AKAM trade has been stopped out. The stock was a big loser for the week. The company reported earnings on Feb. 6th and beat the profit estimate by 5 cents with 54 cents a share. Yet the revenue number was a big miss. The stock gapped open lower on Feb. 7th at $33.80. Since our stop loss was at $37.75, our trade was immediately closed.

- Suggested Positions -
JAN 03, 2013 - entry price on AKAM @ 41.89, option @ 3.60
symbol:AKAM1418a50 2014 JAN $50 call - exit $0.70 (-80.5%)

02/07/13 Stopped out! AKAM gaps open lower at $33.80
02/06/13 AKAM reports earnings after the closing bell and disappoints

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


Acme Packet - APKT - close: 29.58

Comments:
02/09/13: APKT was a huge winner for the week with a surge from $24 to $29.50. The stock gapped open higher on Monday, Feb. 4th on news that Oracle would buy APKT for $2.1 billion ($29.25 a share). Unfortunately, the big gap higher has actually killed our option trade. We were betting that APKT would rally past the $30.00 level by the time our 2014 January $30 calls would expire. Now APKT will never trade above $30.00 given the $29.25 buyout price. Our option values collapsed. Unless someone else suddenly decides they want to out bid ORCL for this company this option trade is dead. We are suggesting an early exit now. The bid on our call has been stuck at 25 cents all week long.

- Suggested Positions -
JAN 14, 2013 - entry price on APKT @ 22.83, option @ 2.60
symbol:APKT1418a30 2014 JAN $30 call - exit $0.25 (-90.3%)

02/09/13 removed from the newsletter
02/04/13 announcement ORCL will buy APKT for $29.25/share
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)

Chart of APKT:

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


SIRIUS XM Radio - SIRI - close: 3.12

Comments:
02/09/13: Last weekend we decided to close our SIRI trade prior to the company's earnings report. The plan was to exit on Monday, Feb. 4th at the closing bell. SIRI ended that session at $3.17 and the option closed with a bid of $0.48.

- Suggested Positions -
OCT 04, 2012 - entry price on SIRI @ 2.75, option @ 0.38
symbol:SIRI1418A3 2014 JAN $3.00 call - exit $0.48 (+26.3%)

- or -

Buy the Stock: Entry @ $2.75 on 10/04/2012, exit @ $3.17 (+15.2%)

02/04/13 closed positions at the closing bell
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

Chart of SIRI:

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: 33.21

Comments:
02/09/13: Last weekend we decided that the best move was to exit our TCK positions. The plan was to exit on Monday, Feb. 4th at the closing bell. Thank goodness we did. The stock plunged on Thursday and Friday. TCK closed Feb. 4th at $36.57. Our option closed with a bid of $3.05.

- Suggested Positions -
DEC 10, 2012 - entry price on TCK @ 35.19, option @ 3.40
symbol: TCK1418a40 2014 JAN $40 call - closed @ $3.05 (-10.2%)

02/04/13 closed on Monday
02/02/13 prepare to exit on Monday, Feb. 4th at the closing bell
01/05/13 new stop loss @ 33.85

Chart of TCK:

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



Watch

Bubbling Higher

by James Brown

Click here to email James Brown


New Watch List Entries

KO - Coca-Cola Co.


Active Watch List Candidates

CSCO - Cisco Systems

SLB - Schlumberger Ltd.

WMT - Wal-Mart Stores


Dropped Watch List Entries

SOHU graduated to our play list.



New Watch List Candidates:


The Coca-Cola Company - KO - close: 38.77

Company Info

Shares of this beverage titan were showing relative strength this past week. The stock broke through resistance at its 200-dma, 150-dma, and the $38.00 level on Feb. 5th. I'd like to buy this bullish breakout but odds are good KO will see a dip back toward $38.00, which should be support.

I am suggesting a buy-the-dip entry point at $38.05. If triggered we'll use a stop loss at $36.40. Our long-term target is $44.00. Please note that KO is scheduled to report earnings on Feb. 12th, before the opening bell. Investors may want to wait until after we see how the market interprets the earnings results before considering new positions.

FYI: The point & figure chart is bullish with a long-term $47 target.

Buy-the-Dip trigger: $38.05

BUY the 2014 Jan $40 call (KO1418a40) current ask $1.38

- or -

BUY the 2015 Jan $40 call (KO1517a40) current ask $2.23

Chart of KO:

Originally listed on the Watch List: 02/09/13


Active Watch List Candidates:



Cisco Systems - CSCO - close: 21.16

Comments:
02/09/13: This could be a volatile week for shares of CSCO. The company is scheduled to report earnings on Feb. 13th, after the closing bell. Analysts expect a profit of 48 cents a share. More conservative investors may want to wait until after we see how the market reacts to CSCO's earnings results before considering new positions even if the stock meets our entry trigger requirements prior to earnings.

Currently the plan is to wait for CSCO to close above $21.50 and then buy calls the next day. 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


Schlumberger Ltd. - SLB - close: 79.07

Comments:
02/09/13: The last couple of weeks have seen shares of SLB consolidating sideways in the $78-80 range. A breakout past resistance at $80.00 would be bullish.

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)

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


Wal-Mart Stores - WMT - close: 71.48

Comments:
02/09/13: As expected shares of WMT trended higher. The rally did stall at its 100-dma. I don't see any changes from my prior comments.

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)

- or -

BUY the 2015 Jan $80 call (WMT1517a80)

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