Option Investor
Newsletter

Daily Newsletter, Monday, 2/18/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Inch Higher Again

by James Brown

Click here to email James Brown

Has the bull market in stocks finally stalled? That depends on where you look. There were plenty of headlines last week from President Obama's state of the union address to North Korea testing another nuclear bomb. There was a genuine mix of economic data both good and bad. The Dow Jones Industrial Average has been stuck trading near the 14,000 level. Over the last two weeks the volatility in the DJIA has collapsed to its lowest level in 26 years. The index has essentially flat-lined. For the 30-component Dow the upward momentum has definitely stalled.

The tech-heavy NASDAQ has also stalled at resistance near the 3200 level. Yet the S&P 500 index extended its gains to seven weeks in a row. Meanwhile both the small cap Russell 2000 index and the Dow Jones Transportation Average continue to set new all-time, record highs. The U.S. dollar continues to bounce from its February lows. The dollar's rise may have helped stall the rally in oil. Meanwhile precious metals, especially gold, got hammered lower.

There was plenty of foreign economic data this past week. Both the U.K. and India expressed concerns about rising inflation. India's industrial production fell -0.6%. French industrial production dipped -0.1%. The Eurozone's industrial production rose +0.7%, which was better than expected. Japan said their industrial production surged +2.4%.

One of the big surprises was the negative GDP estimate for Eurozone's Q4 GDP. Analysts were expecting -0.4% GDP growth. Yet thanks to negative GDP growth in Germany, France, Italy, Portugal and Greece, they helped weigh down the overall Eurozone GDP, which came in at -0.6% for the fourth quarter of 2012. Germany is the biggest and strongest member of the Eurozone and their -0.6% Q4 GDP estimate is troubling.

One of the hot topics right now in global economics is currencies. Many are worried that Japan has kicked off a currency war by devaluing the yen. One of the topics at the G20 meeting this weekend, that began on Friday, was whether the EU would try and weaken the euro currency. There is a growing concern that the rise in the euro could choke off the region's recovery efforts, especially for the weakest Eurozone members.

In the U.S. the economic data was mixed. Our own industrial production fell -0.1% in January from +0.4% in December. Retail sales for January came in at +0.1%, which was disappointing. On the plus side the initial weekly jobless claims fell -27,000 to 341,000. The New York Empire State manufacturing survey surged from -7.8 to +10.0. That's the first time this survey has been in positive territory since the summer of 2012. We also saw a bounce in consumer sentiment with February's reading rising from 73.8 to 76.3. This is a three-month high. Strength is consumer sentiment is surprising when you consider rising gasoline prices and higher taxes are taking a chunk out of our discretionary spending. Unfortunately we are not seeing any follow through in business owner confidence. The latest survey of small business owners shows that their confidence remains near record lows.

Another reason the bounce in consumer sentiment is a surprise was a story about Wal-Mart (WMT) on Friday. The retail titan made headlines when Bloomberg printed a story Friday morning regarding February sales. Somehow Bloomberg got a hold of an internal email from WMT's VP of finance and logistics. In his seven years with the company the VP said the first two weeks of February were the worst start to any month he had ever seen. He called February MTD sales a "total disaster." WMT executives are suggesting that the increase in payroll taxes starting January 1st, when congress let the payroll tax holiday expire, and the combination of delayed tax refunds were impacting their customers available cash. I'm sure the constant rise in gasoline prices is also impacting sales. Shares of WMT gapped open lower on Friday morning and spiked down toward $68 a share before paring their losses.

Speaking of losses, it was a rough week for gold. Gold futures plunged -$58 with a fall toward $1,610 an ounce. It was the biggest one-week drop in three years. Expectations for an improving economy and news that big investors were cutting their gold exposure were to blame. Recent SEC filings unveiled that several big investors and hedge funds had reduced or completely liquidated their gold investments. Two of the bigger names mentioned were billionaire investor George Soros and Louis Moore Bacon. Soros cut his gold ETF (GLD) exposure by 55% down to 600,000 shares. Mr. Bacon's Moore Capital Management completely closed their GLD position. This news probably hurt investor sentiment for the GLD.

The drop in gold is surprising when you think about the big picture. I don't know very many people who have positive expectations for a growing economy. UBS did lower their gold target based on potential improvement in the U.S. and Chinese economies. Yet the U.S. GDP was negative last quarter and if the sequester hits in March it will likely shave off another -1% in GDP growth. The EU area is currently in recession so we're not likely to see any growth there. Furthermore all the major central banks are exercising some form of QE or stimulus that should be inflationary, which drives their currencies lower and commodities higher.

Long-term gold should be going higher. The central banks know this and that's why they have been buying gold. Gold purchases by central banks surged +17% in 2012 over the prior year, hitting 534 tons. That's the highest level of gold purchases since the year 1964. In the fourth quarter of 2012 central banks pushed their gold buying to 145 metric tons. That was the eighth quarter in a row of increased gold buying by banks.

South Korea, Turkey, Brazil, Iraq, the Philippines, and China have been buying gold for months. Last week there were big headlines about how Russia has been buying so much gold over the last several years that the country's gold reserve has hit 570 tons. That's three times the weight of the statue of liberty. If these countries thought gold was going lower they would not be buying it. The recent sell-off just looks like a knee-jerk reaction to some short-term headlines.

Major Indices:

The S&P 500 index posted its seventh weekly gain in a row. Yet momentum has definitely slowed. Last week's gain was less than two points (+0.1%). Traders sold the rally twice near 1524 but they also bought the dip at the rising 10-dma. Thus the trend is still up but the index has failed to breakout past the long-term trend line on the weekly chart below.

I am urging caution here. The combination of slowing momentum and the quickly approaching sequestration deadline in Washington on March 1st could provoke a correction lower in stocks. Odds are good than when the correction does hit we could see this index dip into the 1480-1450 zone.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

Monthly chart of the S&P 500 index:

The NASDAQ composite saw its rally stall right at resistance near the 3200 level. A pullback here would spark concerns of a bearish double top pattern. Any correction lower would likely produce a pullback toward the 3100-3000 area.

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index continues to show relative strength. This index hit another round of new all-time highs. While strength in the small caps is very bullish for the broader market the index cannot go straight up forever. It will see a correction sooner or later. After a +20% rally from its November low it's way overdue for a pullback.

I have adjusted the Fibonacci retracement tools on the daily chart below to show you some what if scenarios. If the $RUT were to pullback from the 930 level what levels might offer support? The 900 level could offer some round-number support but I would probably look for a dip near the 880-860 zone.

chart of the Russell 2000 index

Economic Data & Event Calendar

The economic and event calendar slows down this week. The U.S. markets are closed on Monday, Feb. 18th for President's day. The big event for the week could be the release of the FOMC minutes. Fed president Bernanke claims they will keep using QE until unemployment comes down to 6.5% but there seems to be plenty of dissenters on the Federal Reserve's board. This week will also provide a look at inflation on both a wholesale and consumer level with the PPI and CPI reports. We'll also get another look at the Eurozone GDP estimate.

Economic and Event Calendar

- Monday, February 18 -
U.S. markets are closed for President's Day

- Tuesday, February 19 -
Germany's ZEW sentiment survey

- Wednesday, February 20 -
Housing Starts & Building Permits
Producer Price Index (PPI)
FOMC Minutes

- Thursday, February 21 -
Weekly Initial Jobless Claims
Consumer Price Index (CPI)
Existing Home Sales
Philadelphia Fed Survey
Eurozone manufacturing data

- Friday, February 22 -
Eurozone GDP estimate

Additional Events to be aware of:

Feb. 24th - Italian elections
Mar. 1st - U.S. sequestration deadline
Mar. 20th - FOMC meeting & Bernanke press conference

The Week Ahead:

The Q4 earnings season is finally over. Overall earnings season was pretty good thanks to low expectations. The challenge now is finding the next catalyst to drive stocks higher? Unfortunately, the next big event is likely to drive the market lower. March 1st, 2013 is the sequestration deadline for the across the board government spending cuts to kick in. That's going to cut $90 billion in government spending for 2013. Estimates are projecting a -1% drop in U.S. GDP and between -1.0 million to -1.4 million lost jobs.

The Q4 U.S. GDP number was negative at -0.1%. A negative Q1 GDP estimate would officially put the U.S. back into a recession. I suspect that the Q4 GDP number will get revised higher. However, it does illustrate how weak the U.S. economy is. If we let the sequestration cut another -1% off the GDP then odds are very high the U.S. will fall back into recession.

Another issue that appears to be putting pressure on the economy is lower consumer spending. Best estimates suggest that consumer spending accounts for 70% of the U.S. economy. When congress let the payroll tax holiday expire on January 1st, 2013, that raised taxes on most employees. Combine that with a multi-week rise in gasoline prices and it creates a painful headwind for consumers. Right now analysts expect the up trend in gasoline to continue.

Investors should also be concerned about market sentiment. Right now the CBOE volatility index, the VIX, has fallen to lows not seen since 2007. Extreme levels of complacency are a warning signal that the equity market could be nearing a top. Now how are investors going to react when we see another heated battle in Washington as we approach the March 1st sequestration deadline. Just a few weeks after that will be the political battle over the U.S. debt ceiling (again).

Right now the market's trend is up but stocks are overbought. Of course they can always grow more overbought. I strongly suspect that equities will see a correction within the next two or three weeks. Therefore I would hesitate to launch new long-term bullish LEAPS positions when we will see a much better entry point a few weeks down the road.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Last week looks a lot like the week before. The small cap Russell 2000 index and the Dow Jones Transportation index continue to hit new all-time highs. The S&P 500 index extended its gains to seven weeks in a row. Yet bullish momentum in equities is fading fast. Leadership is also narrowing. The VIX is trading near multi-year lows. Stocks are overbought and due for a correction.

Readers will want to double check their stop loss placement and make adjustments based on your personal risk tolerance.

KO and SLB graduated from the watch list to active trade list.

I have updated stop losses on: GE, MSI, and MTW.

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

Sequestration Looms

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 16, 2013)

No new trades tonight. The S&P 500 and Russell 2000 index continue to post gains but momentum is slowing down, especially for the big cap stocks. Now that earnings season is over the next catalyst to drive stocks higher is a mystery. Soon the market could face trouble from Washington with the sequestration deadline on March 1st.

I would strongly hesitate to launch new bullish positions now when we have a very good chance of seeing lower prices two or three weeks from now.

Our watch list has been successful in spite of the market's slow down. Two watch list candidates graduated to the play list last week in KO and SLB. I have added two new watch list candidates tonight.

Plus, I've added a few more names to the radar screen list below.

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:

DECK, SODA, TIF, DDS, CRR, FLS, HSY, KSU, UNP, WSM, OPEN, FSLR, WFR, AXP, BHI, DECK, HPQ, NBR, TXT, ROST, JPM, WAG, HAL, TM, NAV, NUE, LAMR, XLNX, ATI, SJM, NBL, DIS, FDX, SHOO, FLIR, TRMB, HD, LOW, RIG, BAC, CHE, DE, CAT, QCOM, RS, EA, GS, KMB, V, MRVL, PXD,



Play Updates

Momentum is Slowing

by James Brown

Click here to email James Brown

Editor's Note:

The market's upward momentum is definitely slowing down. We are certainly seeing a slowdown in several of our bullish candidates. Investors will want to re-evaluate their stop loss placement and make sure you're comfortable with the risk for each trade. The market will correct and I suspect it will be sooner rather than later.


Closed Plays



None. No closed plays this week.



Play Updates


Analog Devices - ADI - close: 46.18

Comments:
02/16/13: ADI delivered another week of gains. Yet shares didn't make it very far past the $46.00 level. This week could be volatile as ADI reports earnings on Feb. 19th, after the closing bell. Analysts are expecting a profit of 45 cents a share. Earnings news could push it to our target at $49.00 or it could produce a correction back toward support near $44.00. I am not suggesting new positions at this time.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 3.70/4.00

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: 38.35

Comments:
02/16/13: It looks like the rally in AIG has reversed at round-number resistance at the $40.00 level. The stock is headed for short-term support at $38.00. If that level fails we could see AIG dip back toward $35.00.

AIG is scheduled to report earnings on Feb. 21st, after the closing bell. Wall Street is looking for a loss of two cents per share from AIG.

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 $ 5.75/ 5.90

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: 43.84

Comments:
02/16/13: Citigroup saw a strong rally on Feb. 12th but momentum stalled the rest of the week. The $44-45 zone has been support and resistance in the past so I'm not too surprised. If C does see a pullback we can watch for support near $42.50 and then near $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 $ 4.10/ 4.20

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: 114.96

Comments:
02/16/13: CVX saw a minor pullback last week and most of that was on Friday. Shares bounced near $114 and its 30-dma but I am not convinced the pullback is over yet. If the market corrects I would watch for a dip into the $111.00-110.00 zone.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 4.30/4.50

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: 64.58

Comments:
02/16/13: EXPE gave back about a dollar for the week and posted its second weekly decline in a row. Yet shares continue to trade inside the $64-66 zone. EXPE still has a long-term bullish trend of higher lows. 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.

Our stop loss is at $57.40. More conservative traders may want to adjust theirs higher.

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 $5.00/5.20

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: 57.40
Play Entered on: 11/29/12
Originally listed on the Watch List: 11/24/12


General Electric - GE - close: 23.29

Comments:
02/16/13: GE saw big gains last week, most of it on Feb. 13th. The stock popped higher as investors applauded the company's deal to sell its stake in NBCUniversal to Comcast for $16.7 billion. GE's management said they would spend up to $10 billion of the proceeds to buy back GE stock. The rally last week pushed GE to levels not seen since 2008.

I am raising our stop loss to $21.40.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.68/0.69

02/16/13 new stop loss @ 21.40
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: 21.40
Play Entered on: 11/14/12
Originally listed on the Watch List: 09/22/12


SPDR Gold ETF - GLD - close: 155.76

Comments:
02/16/13: Ouch! The GLD plunged -3.6% for the week. I discussed the action in gold and the GLD in tonight's market commentary. Essentially gold prices dropped on news that some big investors were reducing their gold positions or selling them off entirely. Yet big picture central banks continue to buy gold at levels not seen since the mid 1960s.

The GLD was hit hard on Friday with a gap down and a dip to $154.56. It just so happens that our stop loss is $154.40 so the trade is on. Traders could use a bounce from here, maybe a bounce over $156.50, as a new bullish entry point to buy GLD call LEAPS.

- Suggested Positions -
DEC 20, 2012 - entry price on GLD @ 159.87, option @ 2.60
symbol: GLD1418a200 2014 JAN $200 call - current bid/ask $1.26/1.37

02/15/13 the GLD almost hit our stop loss at $154.40
02/09/13 the sideways consolidation is narrowing. Expect a breakout one way or the other soon.
...look for older comments in prior updates

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: 70.11

Comments:
02/16/13: HON spent last week hovering near $70.00 near its recent highs. The lack of profit taking is a good sign but shares remain overbought and due for a dip. Readers will want to seriously consider taking profits right now. I am not suggesting new positions.

- Suggested Positions -
DEC 31, 2012 - entry price on HON @ 62.50, option @ 4.40
symbol: HON1418a65 2014 JAN $65 call - current bid/ask $7.65/7.85

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: 21.86

Comments:
02/16/13: Traders bought the dip in JNPR last week near $21 and its 40-dma. The stock rebounded to end the week almost unchanged. The stock does look poised to rally past $22.00. Yet if the market corrects we can watch for JNPR to dip toward support near $20.00.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.67/1.73

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


The Coca-Cola Company - KO - close: 37.42

Comments:
02/16/13: KO was a watch list candidate. Shares had broken out through resistance near $38 and its 200-dma and 150-dma a couple of weeks ago. We wanted to wait and buy a dip near $38.00. The stock gapped open lower on Feb. 12th at $38.11 and quickly hit our entry trigger to buy calls at $38.05 as shares plunged through the $38.00 mark. The sell-off continued for two more days. Traders finally bought the dip at $36.54 on Friday morning. Our stop loss happens to be at $36.40.

The sell-off on Feb. 12th was a reaction to the company's earnings report. KO delivered a profit of 45 cents a share, which was one cent above estimates. Revenues were a miss at $11.46 billion for the quarter. Investors may have been unhappy with KO's cautious stance on growth in Europe and Asia. I cautioned readers that conservative traders might have wanted to wait to see how the market reacted to earnings before initiating positions.

At this point I would wait for shares to close above $38.15 before initiating new bullish positions.

- Suggested Positions -
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - current bid/ask $0.83/0.87

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $1.58/1.69

Chart of KO:

Current Target: $44.00
Current Stop loss: 36.40
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13


Lennar Corp. - LEN - close: 40.20

Comments:
02/16/13: Many of the homebuilders saw a big bounce the middle of last week. Unfortunately for LEN the rebound is already starting to fade. The long-term trend is still up but 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:
02/16/13: That's not a typo. Shares of LLL closed unchanged for the week. I remain concerned about how the sequestration defense cuts might impact the defense sector stocks. Investors may want to abandon ship early 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 $ 3.30/ 3.50

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: 61.43

Comments:
02/16/13: MSI is still showing relative strength. The stock surged to new multi-year highs last week. Investors may want to take profits early right now since MSI is looking overbought here. I am raising the stop loss to $57.25. I am also adjusting our exit target down to $64.00. 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 $ 4.85/ 5.00

02/16/13 new stop loss @ 57.25, adjust exit to $64.00
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:$64.00
Current Stop loss: 57.25
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12


The Manitowoc Co - MTW - close: 19.50

Comments:
02/16/13: MTW delivered a bullish performance with strong gains on Monday and Tuesday last week. The stock's rally has stalled right below round-number resistance at the $20.00 mark. Investors might want to consider taking an early profit right here. Odds are good MTW is going to see a pullback from here. Look for short-term support at the 10-dma and then near the $18.00 level.

I am raising our stop loss to $16.30.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 2.60/ 2.75

02/16/13 new stop loss @ 16.30

Current Target:$21.50
Current Stop loss: 16.30
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13


Nokia Corp. - NOK - close: 3.99

Comments:
02/16/13: I remain worried about NOK. Technically the stock looks weak. Shares were unable to rally past their 40-dma and midweek the stock reversed lower. At this point I would expect NOK to retest short-term support at $3.80 on any market weakness. More conservative traders may want to just exit now to lock in a gain. I am not suggesting new positions.

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 $ 1.30/ 1.35

- 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: 54.34

Comments:
02/16/13: SBUX underperformed the market last week but shares really turned weak on Friday. It was right around the 2:00 p.m. mark that SBUX suddenly plunged lower on Friday. I still haven't identified what the catalyst was for the sudden weakness. The breakdown below its 50-dma is technically bearish. Odds just jumped that SBUX will see a correction lower toward the next level of support near $52.00. If that level fails then $50 is the next support. More conservative traders may want to adjust their stop loss higher. I am not suggesting new positions.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 2.68/ 2.72

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: 39.67

Comments:
02/16/13: Precious metals like silver and gold were hammered lower late last week. Yet copper prices were relatively steady. That probably kept the pullback in shares of SCCO to a minimum. I suspect that if the market produces a pullback then we'll see SCCO retest the $38 level or the 100-dma. I am not suggesting new positions at this time.

Earlier Comments:
The plan was to keep our position size small to start.

- Suggested *SMALL* Positions -
NOV 06, 2012 - entry price on SCCO @ 35.78, option @ 2.30
symbol:SCCO1418a40 2014 JAN $40 call - current bid/ask $ 2.90/ 3.10

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: 16.90

Comments:
02/16/13: SCHW's performance last week was encouraging. The prior week looked bearish with a potential top forming on Feb. 7th and 8th. The stock was downgraded on the 11th but traders bought the dip near $16.50. Shares slowly drifted higher the rest of the week.

The trend is still up but SCHW remains very overbought and definitely overdue for a correction lower. I am suggesting that we go ahead and sell half of our position now to lock in a partial gain. More nimble traders could exit completely right here and consider jumping back in on a correction.

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, 2013 - entry price on SCHW @ 15.74, option @ 0.80
symbol:SCHW1418a17 2014 JAN $17 call - current bid/ask $ 1.25/ 1.40

02/16/13 prepare to sell half of our position on Tuesday morning, Feb. 19th at the opening bell
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


Schlumberger Ltd. - SLB - close: 80.03

Comments:
02/16/13: The sideways consolidation in SLB narrowed last week until shares exploded higher on the 14th. SLB was a watch list candidate. The plan was to wait for shares to close above $81.00 and then buy calls the next day. Shares settled at 81.56 on Thursday and opened on Friday morning at $81.03. We can use this dip near $80.00 as another entry point. FYI: The Point & Figure chart is bullish with a long-term target of $102.

- Suggested Positions -
FEB 15, 2013 - entry price on SLB @ 81.03, option @ 3.37
symbol: SLB1418a90 2014 JAN $90 call - current bid/ask $ 3.20/ 3.30

Chart of SLB:

Current Target: $94.75
Current Stop loss: 76.40
Play Entered on: 02/15/13
Originally listed on the Watch List: 02/02/13


Sohu.com - SOHU - close: 46.81

Comments:
02/16/13: The oversold bounce in SOHU continues with shares finding short-term support at the 300-dma and 50-dma last week. The next hurdle for the bulls is likely short-term resistance at the $48.00 level. I am not suggesting new positions at current levels.

- Suggested Positions -
FEB 05, 2013 - entry price on SOHU @ 45.50, option @ 4.40
symbol:SOHU1418a50 2014 JAN $50 call - current bid/ask $ 4.20/ 4.50

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: 41.29

Comments:
02/16/13: I cautioned readers a week ago that URBN was likely to correct lower toward the $40.00 level. Shares are more than half way there with a dip to the 50-dma. I am still expecting a dip 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 $ 3.40/3.70

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: 55.03

Comments:
02/16/13: I warned readers that VMC might see some volatility surrounding its earnings report. The company announced earnings on the 14th. Results were 13 cents better than expected, which is bullish. Yet revenues were a miss at $608 million for the quarter. The stock initially spiked lower toward $53.00 as traders reacted to the earnings news but the stock quickly recovered. I'm not convinced the correction is over. I'm not suggesting new positions at this time.

Earlier Comments:
VMC has a one cent dividend payable on March 11, 2013 to shareholders of record on Feb. 25th.

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 $ 3.40/3.90

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


Watch

Consumer Goods & Coal

by James Brown

Click here to email James Brown


New Watch List Entries

CL - Colgate-Palmolive

WLT - Walter Energy


Active Watch List Candidates

CSCO - Cisco Systems

WMT - Wal-Mart Stores


Dropped Watch List Entries

KO and SLB graduated to the play list.



New Watch List Candidates:


Colgate-Palmolive - CL - close: 110.02

Company Info

CL is a stock that marches to the beat of its own drum. The long-term trend is up but it's been a rocky ride. On the plus side the market seems to be ignoring any negative impacts that the recent de-valuation of the Venezuelan bolivar (local currency) might have on CL's sales and profit estimates. Traders are still buying the dips in CL stock and shares look poised to breakout to new all-time highs.

The January high was $111.37. I am suggesting we wait for shares of CL to close above $111.50 and then buy calls the next day. We'll use a stop loss at $106.75. Our long-term target is $124.50.

Breakout trigger: Wait for a close above $111.50, buy calls the next day
stop loss @ 106.75

BUY the 2014 Jan $115 call (CL1418a115) current ask $3.45

Chart of CL:

Originally listed on the Watch List: 02/16/13


Walter Energy - WLT - close: 37.92

Company Info

It has been a rough couple of years for the coal industry. Yet it looks like some of the coal names are starting to find a bottom. When WLT's rival CLF reported earnings this past week shares of CLF were crushed for a significant loss. Yet shares of WLT held its ground. That's a good sign.

Bigger picture WLT has spent almost nine months building a bottom below the $40.00 level. Now shares are poised to breakout past this resistance in addition to resistance at its simple 200-dma. If the global economy does manage to improve it would be bullish for WLT's metallurgical coal business.

WLT is scheduled to report earnings on Feb. 20th. Wall Street is expecting a loss of 90 cents a share. A better than expected earnings report could produce a breakout.

I am suggesting we wait for WLT to close above $41.00 a share and then buy calls the next day with a stop loss at $36.75. We do want to keep our position size small because WLT can be a volatile stock.

Breakout trigger: Wait for a close above $41.00, buy calls the next day
stop loss @ 36.75 *Small Positions*

BUY the 2014 Jan $50 call (WLT1418a50) current ask $2.85

Chart of WLT:

Originally listed on the Watch List: 02/16/13


Active Watch List Candidates:



Cisco Systems - CSCO - close: 20.99

Comments:
02/16/13: CSCO reported earnings on the 13th. The company beat estimates by three cents with a profit of 51 cents a share. Revenues also beat estimates at $12.1 billion. This was record high revenue for the eighth quarter in a row. Traders initially sold the news on Thursday morning but the stock rebounded. There is no change from my prior comments.

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


Wal-Mart Stores - WMT - close: 69.30

Comments:
02/16/13: It was a rough week for shares of Wal-Mart (WMT). The stock had been struggling with technical resistance at its simple 100-dma. On Friday the stock was clobbered for a -2% loss thanks to bad news. A Bloomberg reporter got a hold of an internal Wal-Mart email. In this email WMT executives were bemoaning what a disaster February's month-to-date sales were. According to one executive it was the worst start to a month in his seven years in the business. WMT's customers seem to be suffering from the increase in the payroll tax (when the payroll tax holiday expired) and rising gas prices at the pump.

The stock did bounce off its Friday lows. We'll have to see if there is any follow through lower. 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