Option Investor
Newsletter

Daily Newsletter, Sunday, 2/24/2013

Table of Contents

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

Leaps Trader Commentary

Stock Market's 2013 Rally Stalls

by James Brown

Click here to email James Brown

The S&P 500 index has snapped a seven-week winning streak. The large cap index only lost four points thanks to a big rebound on Friday. The sell-off started on Wednesday following the FOMC minutes. The market was overbought and traders were looking for an excuse to sell. The FOMC minutes hinted that the Fed might end its QE program sooner than expected and that was blamed as the catalyst to sell stocks. On Friday, St. Louis Fed President James Bullard, a voting member of the FOMC, squashed any rumors that the Fed would end QE early when he stated, "The Fed's very aggressive easy money policy is going to stay that way for a long time." His comments helped fuel the sharp rebound in stocks on Friday. By the end of the week the U.S. dollar was up sharply and that fueled sharp losses in precious metals for the week.

We had a lot of economic data both here and abroad. In the U.S. there were a number of reports on the housing industry. Building permits came in at 925,000, which was better than expected. Housing starts were a disappointing at an 890,000 annual pace. The January existing home sales numbers only hit a annual pace of 4.92 million, which was below estimates. Another disappointment was the NAHB housing market (confidence) index, which showed a drop from 47 in January to 46 in February. This was the first decline in 11 months. If that wasn't bad enough homebuilder Toll Brothers (TOL) reported earnings that missed both the top and bottom line estimates. This depressed most of the homebuilder stocks.

Elsewhere in the U.S. the wholesale inflation data in the Producer Price Index (PPI) increased +0.2% in January. The consumer-level inflation data in the CPI was flat at +0.0% but the core-CPI rose +0.3%, which was hotter than expected. Weekly jobless claims rose +20,000 to 362,000. The February reading for the Philadelphia Fed manufacturing survey was a big disappointment. Economists were expecting the Philly Fed to bounce from -5.8 into positive territory but it declined to -12.5.

There were plenty of headlines overseas. Germany is the biggest and strongest economic member of the Eurozone. This last week the latest GDP Q4 growth estimates was released but Germany's Q4 GDP was left unchanged at a negative -0.6%. Germany's manufacturing PMI data came in at 50.1, which was below estimates of 50.5 and awfully close to falling negative under the 50.0 level. Numbers under 50.0 indicate contraction. Yet in spite of the negative data Germany's IFO business climate index rallied three points to 107.4. That is a 10-month high and the best one-month gain since July 2010.

France is another large Eurozone member and its GDP is expected to be revised lower by half a point. The French manufacturing PMI shrank to 43.6. The combination of both France and Germany struggling weighed on the Eurozone as a whole. Eurozone manufacturing PMI slipped to 47.8, which was below expectations. The European Commission has downgraded their growth forecasts and believe that the eurozone GDP will fall -0.3% in 2013. That will be the second eurozone-wide recession since 2009. They are currently forecasting very weak growth of +1.4% for all of 2014.

Another big headline out of Europe was Moody's Investor Service downgrading the U.K.'s credit rating from AAA to AA1 on Friday. Analysts are concerned that rising debt and subpar growth prospects will hamper the economy in the U.K. Greece is also starting to make headlines again. There was another massive worker strike. Greece will likely make headlines again next week when the struggling country meets with the "troika". Across the globe China was having an impact on materials and industrial metals. The communist country is trying to slow down rising home prices. If China is successful it would likely slow down construction of new homes and thus weaken demand for materials.

In other news the world's biggest retailer, Wal-Mart (WMT), reported earnings on Feb. 21st. They reported their Q4 results, which beat Wall Street estimates by 10 cents with a profit of $1.67 a share. Revenues were up almost +4% to $127.9 billion for the quarter. The massive company said its Q4 same-store sales were up +1.0%. You may recall WMT recently made headlines when Bloomberg reported on an internal Wal-Mart email with company executives bemoaning that February's month-to-date sales were a "disaster". The combination of the increase payroll tax and rising gasoline prices were taking a toll on WMT's customers. The most recent data shows that gasoline prices in the U.S. are now up 36 days in a row and averaging $3.78 a gallon across the nation. Prices are above $4.00 a gallon along much of the east and west coast. This doesn't bode well for Wal-Mart or the retail sector in general. WMT management said they expect Q1 same-store sales to be flat (+0.0%).

Major Indices:

The S&P 500 index rallied to a new multi-year high on Tuesday. It looked like the index had finally escaped the gravitational pull of the 1520 level. Yet the Wednesday-Thursday sell-off erased about nine days worth of gains. Traders bought the dip near the 1500 level and its rising 30-dma thanks to Fed President Bullard's comments. A lot of short-term support remains broken even with the big bounce on Friday. Optimistic traders might be tempted to buy Friday's bounce. I am more cautious here. The 1520 level and the 1530 level both overhead resistance. The S&P 500 remains overbought. I have adjusted the Fibonacci retracement tool on the daily chart below. A dip to 1480 or 1460 could be a healthy-sized correction. The weekly chart still shows resistance near a long-term trend line and there is still a risk that the S&P 500 could form a bearish triple top (displayed on the long-term monthly chart).

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 briefly broke through resistance near the 3200 level. Unfortunately the sharp two-day sell-off erased all of February's gains. I have adjusted the Fib retracement tool on the daily chart below and you can see how the NASDAQ composite almost hit the 38.2% retracement level.

The 3200 level remains overhead resistance as does short-term technicals like the 10-dma and 20-dma.

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index tagged a new high on Tuesday. Then the two-day sell-off erased all of February's gains with a plunge to round-number support at the 900 level. The index did bounce and outperform its large-cap rivals on Friday but some of its up trend support remains broken. The 930 level is still resistance. A pullback toward the 880-870 region would be a much healthier correction.

chart of the Russell 2000 index

Economic Data & Event Calendar

We have a relatively busy week for economic data and events. The Chicago PMI and national ISM data will be an important look at Q1 activity. We'll see the second estimate on Q4 GDP growth in the U.S. That could get revised higher. Federal Reserve Chairman Ben Bernanke will be speaking before the U.S. Senate on Tuesday and the House on Wednesday. If he says anything new it could be a market mover.

This Sunday, Feb. 24th will be the China HSBC PMI (manufacturing) data. The official Chinese PMI comes out on Feb. 28th. A potentially bigger event could be the Italian elections on Sunday (24th). If any of the anti-euro candidates get elected in Italy it could cause a lot of trouble for the region's recovery efforts and the markets would most likely start to sell-off on Monday.

Economic and Event Calendar

- Monday, February 25 -
(nothing significant)

- Tuesday, February 26 -
Case-Shiller 20-city home price index
New Homes Sales data for January
Consumer Confidence
Fed Chairman Bernanke addresses the Senate

- Wednesday, February 27 -
Durable Goods Orders for January
Pending Home Sales for January
Fed Chairman Bernanke addresses the House

- Thursday, February 28 -
Weekly Initial Jobless Claims
U.S. Q4 GDP (second estimate)
Chicago PMI data

- Friday, March 01 -
U.S. sequestration deadline
Personal Income & Spending data
ISM index for February
construction spending
vehicle sales for February
Eurozone PMI data
Eurozone unemployment data

Additional Events to be aware of:

Mar. 8th - non-farm payrolls (jobs) report
Mar. 20th - FOMC meeting & Bernanke press conference

The Week Ahead:

Drowning out most of the headlines will be the upcoming U.S. sequestration deadline on March 1st. As if we haven't heard enough about this event so far the financial media will focus on sequestration 24/7. The funny thing is, as much as President Obama whines about sequestration and how bad it will be for the country, it was his idea to begin with back in 2011. The White House acts like a $90 billion spending cut for 2013 will kill the country but he just got a $160 billion tax increase (some would say $264 billion) and no one even batted an eye when congresses passed a $50 billion aid package to help rebuild from superstorm Sandy.

The markets do not seem that concerned about the sequestration with the major indices trading near multi-year or all-time highs. The next hurdle will be the battle over a budget at the end of March and after that it will be the debt ceiling debate, which returns in the middle of May. We just saw Moody's downgrade the U.K. If U.S. politicians don't do something serious about the budget, debt ceiling, and spending we could see the U.S. get downgraded again.

Currently the markets are in a state of flux. The upward momentum has been challenged. It's possible traders buy the dip and the up trend resumes. It's also possible that this bounce fails and we see a normal, healthy correction of -5% to -10%. That would mean a drop to 1450 (-5%) to 1375 (-10%) on the S&P 500 index. I would actually be surprised if we saw a drop below 1450 unless economic data really turned sour.

Sometimes the best trade is no trade. Why buy now when we might see a better entry point two or three weeks down the road.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market's rally could be in jeopardy. The S&P 500 index just ended a seven-week winning streak. In spite of the midweek sell-off stocks remain overbought and due for a correction.

CL graduated from the watch list to our active trade list.

I have updated stop losses on: EXPE, SCHW, and SOHU.

GLD, LEN, NOK, SCCO were stopped out.

We took profits on SCHW by selling half our positions on Feb. 19th.

I am suggesting we exit our HON trades on Monday morning, Feb. 25th.

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

Longer-term Time Frame

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 23, 2013)

No new trades tonight. As investors who choose to use LEAPS options we need a longer-term time frame. That's important for when we have active trades but it's also important when we're looking for an entry point. We do not want to launch positions now when the market's rally looks vulnerable and could be poised to correct lower, especially with the major indices still overbought following a multi-week rally.

Sometimes the best trade is no trade at all. Stocks seem to be ignoring the sequestration issue but the political battle in Washington is going to heat up as we approach the March 1st deadline.

Our watch list has been successful with CL jumping to the active trade list last week. I've added two new watch list candidates tonight.



Play Updates

Has The Correction Begun?

by James Brown

Click here to email James Brown

Editor's Note:

Last week was a rocky one for stocks. We've been expecting a pullback and some of our trades have been closed.

CL jumped from the watch list to our active play list.
We sold half of our SCHW position on Feb. 19th.
I am suggesting we exit our HON trade come Monday


Closed Plays


GLD, LEN, NOK, SCCO were stopped out.
We sold half of our SCHW play.


Play Updates


Analog Devices - ADI - close: 45.52

Comments:
02/23/13: ADI tagged new multi-year highs on Tuesday and then sank from $47 to $45 on the midweek pullback. Technically last week's decline has created a bearish engulfing candlestick (reversal) pattern on the weekly chart. Do not be surprised to see ADI correct lower toward short-term 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 $ 3.40/3.60

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: 38.45

Comments:
02/23/13: It was a volatile week for AIG as the stock dipped with the market and then popped following its earnings report on the 21st. The company delivered earnings of $0.27 a share. That was 20 cents better than expected. The stock gapped open higher on Friday following the earnings news but traders did sell the pop and AIG pared its gains to just +3.1% on the session.

Overall AIG could be stuck in the $37-40 zone for a while. Right now we have a stop loss at $34.40. More conservative traders may want to raise their stop loss.

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 $ 5.90/ 5.05

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: 42.79

Comments:
02/23/13: The pullback in shares of Citigroup wasn't that bad. A dip from $44.50 to $42.00 isn't too shocking. The correction in financials or C may not be over yet. I would still look for a pullback closer to $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 $ 3.70/ 3.80

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


Colgate-Palmolive - CL - close: 113.97

Comments:
02/23/13: Shares of CL ignored the market's midweek decline and the stock soared to new all-time highs. CL was a watch list candidate. Our plan was to wait for shares to close over $111.50 and then buy calls the next day. CL met our entry requirement on Feb. 19th with a close at $111.91 and opened on Feb. 20th at $112.00. Shares are short-term overbought here. I would wait for a dip back into the $112.00-110.00 region before launching new positions.

- Suggested Positions - (small positions)
FEB 20, 2013 - entry price on CL @ 112.00, option @ 4.20
symbol: CL1418a115 2014 JAN $115 call - current bid/ask $ 5.10/ 5.50

Chart of CL:

Current Target:$ 124.50
Current Stop loss: 106.75
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13


Chevron Corp. - CVX - close: 115.96

Comments:
02/23/13: CVX held up pretty well last week. The stock garnered some positive analyst comments. Plus, a Brazilian court dismissed criminal charges against CVX for a 2011 oil spill off the Brazilian coast (source: associated press). Shares of CVX have been consolidating sideways in the $114-116 zone. If the market corrects lower we could see still CVX dip into the $112-110 range but so far it's holding up well.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 4.70/4.85

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: 64.49

Comments:
02/23/13: EXPE trimmed its losses to just 10 cents for the week. Traders bought the dip at its rising 50-dma. While the larger trend is bullish with a pattern of higher lows and higher highs the short-term trend is still bearish with a two-week pattern of lower highs. I am raising our stop loss to $59.25. More conservative investors may want to consider a stop closer to the $62 level. I am not suggesting new positions at this time.

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 $4.70/4.90

02/23/13 new stop loss @ 59.25
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: 59.25
Play Entered on: 11/29/12
Originally listed on the Watch List: 11/24/12


General Electric - GE - close: 23.39

Comments:
02/23/13: GE was breaking out to new multi-year highs above $23.50 before the midweek market sell-off began. Traders did buy the dip near its rising 10-dma, which is a show of strength. I'm not convinced the pullback is over. GE remains overbought at current levels. I am not suggesting new positions. More conservative investors may want to raise their stop loss.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.80/0.81

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


Honeywell Intl. - HON - close: 70.11

Comments:
02/23/13: We have been aiming for $72.00 and HON almost hit our target on Wednesday with a spike to $71.40. The stock is currently hovering near the $70.00 level. While the long-term trend is up I am expecting a correction.

Tonight I am suggesting we exit early now on Monday morning to lock in gains. We'll give HON a couple of weeks to cool off and look at it again. Investors may want to look for a pullback into the $65 area as a potential entry point to buy calls again.

- Suggested Positions -
DEC 31, 2012 - entry price on HON @ 62.50, option @ 4.40
symbol: HON1418a65 2014 JAN $65 call - current bid/ask $7.75/7.90

02/23/13 Exit now on Monday morning to lock in gains.
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: 21.45

Comments:
02/23/13: It was a choppy week for JNPR. The $21 level is holding up as support for now but I expect a correction toward $20.00 if the broader market sees any significant pullback. 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 $1.50/1.55

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: 38.52

Comments:
02/23/13: It was a bullish week for shares of KO. The stock ignored the market's midweek weakness. Shares surged on Friday breaking out past resistance near its 200-dma and the $38 level. Helping fuel the move was news that KO's board of directors had announced a dividend increase with a +10% bump from 25.5 cents per shares to 28 cents per share. This is equivalent to an annual dividend of $1.12 per share. The quarterly dividend is payable on April 1st, 2013 to shareholders on record as of March 15th.

I would use this rally past $38.00 as a new entry point or nimble traders could wait and buy a dip near $38.00, which is probably a good bet.

- Suggested Positions -
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - current bid/ask $1.19/1.23

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $2.02/2.13

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


L-3 Communications - LLL - close: 76.88

Comments:
02/23/13: Shares of LLL were downgraded on Wednesday morning and the stock gapped down on the news but quickly recovered and trimmed its losses. Overall LLL held up well during the market's midweek plunge. We have a tight stop loss on the stock at $75.75 because I'm worried the sequestration issue could negatively impact investor sentiment on the defense stocks. More conservative traders may want to abandon ship now and just exit early. 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 $ 3.00/ 3.20

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: 61.90

Comments:
02/23/13: MSI continues to show relative strength with traders buying the dip on Thursday. The stock is poised to breakout past new resistance at the $62 level soon. We are currently aiming for $64.00. More aggressive investors may want to aim higher. Readers may want to consider taking profits early and/or raising their stop loss. 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 $ 5.15/ 5.30

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: 18.65

Comments:
02/23/13: I have been warning readers that with MTW hovering below resistance at $20.00 that the stock could see a correction. When the market reversed midweek MTW produced a sharp pullback. Traders bought the dip at the simple 30-dma, which was support a couple of months ago. I am not convinced the correction is over and more conservative investors may want to tighten their stop loss. I would look for support near $17 and the 50-dma.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 2.20/ 2.30

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


Starbucks Corp. - SBUX - close: 54.17

Comments:
02/23/13: It was a rocky week for shares of SBUX. The stock did pare its losses to just 17 cents for the week. Most of the short-term moving averages are directly overhead and could act as technical resistance. I would hesitate to launch new positions at this time.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 2.64/ 2.69

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


The Charles Schwab Corp. - SCHW - close: 16.73

Comments:
02/23/13: Last weekend I suggested we take some money off the table and sell half of our position on Tuesday, Feb. 19th. We were fortunate that shares of SCHW gapped open higher on the 19th at $16.94. The stock closed above $17 but reversed sharply with the financial sector when the market pulled back midweek. SCHW outperformed most of the market with a +2.1% gain on Friday but I am not convinced the correction is over. I am raising our stop loss to $15.20 since the $15.50 level should be support.

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 $ 1.15/ 1.30

02/23/13 new stop loss @ $15.20
02/19/13 sold half at the open: option bid @ $1.25 (+56.2%)
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: 15.20
Play Entered on: 01/23/13
Originally listed on the Watch List: 01/19/13


Schlumberger Ltd. - SLB - close: 77.79

Comments:
02/23/13: Our new SLB trade could be in trouble. The bullish breakout past resistance at $80.00 has reversed. Both shares of SLB and the OSX oil services index produced a bearish engulfing candlestick (reversal) pattern on the weekly charts. This reversal pattern needs to see confirmation first but SLB came awfully close to hitting our stop loss at $76.40 on Thursday this past week. I am not suggesting new positions at this time.

- Suggested Positions -
FEB 15, 2013 - entry price on SLB @ 81.03, option @ 3.37
symbol: SLB1418a90 2014 JAN $90 call - current bid/ask $ 2.58/ 2.66

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: 45.93

Comments:
02/23/13: Our new trade on SOHU is not working. The rally reversed on Wednesday and shares are back to testing support near $45.00 and its exponential 200-dma. This move looks like a new lower high. I suspect we could see SOHU correct lower toward $42.00. If that's the case then we either need to readjust our stop loss under $42.00 or tighten our stop loss to reduce our risk. I am raising the stop to $44.75. More conservative investors will want to seriously consider an early exit right now to cut their losses. 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 $ 3.90/ 4.10

02/23/13 new stop loss @ 44.75, readers may want to exit early right now to cut their losses

Current Target: $58.50
Current Stop loss: 44.75
Play Entered on: 02/05/13
Originally listed on the Watch List: 12/31/12


Urban Outfitters - URBN - close: 39.54

Comments:
02/23/13: Be careful here with URBN. Conservative investors may want to exit early now. Two weeks ago there were new worries about retailers thanks to Wal-Mart's disappointing February sales (via the executive email story). This past week URBN's rival Abercrombie (ANF) issued bearish earnings guidance. The combination of the increase payroll tax and rising gasoline prices could be taking a big chunk out of consumers wallets. Shares of URBN have been weak three days in a row and they have broken down below their 50-dma and below what should have been support at $40.00.

We already have a stop loss at $37.85 and if the broader market turns lower again we could definitely see URBN hit our stop loss. Again, readers may want to consider scaling back their positions or exiting early.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - current bid/ask $ 2.65/2.80

02/23/13 readers may want to consider scaling back positions or exiting early now.
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: 51.96

Comments:
02/23/13: Ouch! Material-related stocks had a rough week and VMC gave up about $3.00. The correction in this stock is now four weeks old. I am expecting VMC to find support near $50.00 but there is no guarantee. The stock is actually nearing oversold levels on its momentum oscillators.

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 $ 2.25/2.70

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


SPDR Gold ETF - GLD - close: 152.97

Comments:
02/23/13: The rally in the U.S. dollar continued last week and that fueled the profit taking in gold and silver and other precious metals. The GLD gold ETF fell to new multi-month lows and hit our stop loss on the 20th. Well, it would have, except shares of the GLD gapped open lower on Feb. 20th at $153.90. Our stop was $154.40.

Our trade is closed but I wouldn't give up on gold. Multiple QE programs around the world and the rising U.S. debt will eventually helped lift the value of gold. The GLD appears to have what looks like significant support in the $148-150 zone. I would keep an eye on this ETF for a new entry point down the road. On the other hand, a close below $148.00 would look very bearish technically.

- Suggested Positions -
DEC 20, 2012 - entry price on GLD @ 159.87, option @ 2.60
symbol: GLD1418a200 2014 JAN $200 call - exit $0.97 (-62.6%)

02/20/13 stopped out on the gap open lower at $153.90
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

Chart of GLD:

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


Lennar Corp. - LEN - close: 37.88

Comments:
02/23/13: It was not a good week for homebuilders. The homebuilder confidence survey declined for the first time in ten months. Plus, homebuilder Toll Brothers (TOL) delivered a disappointing earnings report. Add on top of this a sharp midweek market decline and LEN broke down through support. Shares hit our stop loss at $37.75 on Feb. 20th.

- 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 - exit $ 3.80 (+12.0%)

02/20/13 stopped out at $37.75
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%)
...

Chart of LEN:

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


Nokia Corp. - NOK - close: 3.99

Comments:
02/23/13: The pullback in NOK continued and shares dipped to technical support near their exponential 200-dma and the simple 300-dma around $3.70. Unfortunately our stop loss was hit at $3.75 on Feb. 21st.

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 - exit @ $1.11 (+42.3%)

- or -

Buy NOK stock: entry @ 2.97, exit $3.75 (+26.2%)

02/21/13 stopped out at $3.75
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

Chart of NOK:

Current Target:$ 4.95
Current Stop loss: 3.75
Play Entered on: 11/20/12
Originally listed on the Watch List: 11/17/12


Southern Copper Corp - SCCO - close: 36.75

Comments:
02/23/13: It was not a great week for material or mining-related stocks. The rising in the U.S. dollar usually pushes commodity prices lower. Plus, news that China was trying to slow down house prices, which would likely dampen construction and thus lessen demand for materials probably played a role in SCCO's decline. Shares plunged four days in a row and hit our stop loss at $36.75.

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

- Suggested *SMALL* Positions -
NOV 06, 2012 - entry price on SCCO @ 35.78, option @ 2.30
symbol:SCCO1418a40 2014 JAN $40 call - exit $1.75 (-23.9%)

02/21/13 stopped out @ 36.75
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)

Chart of SCCO:

Current Target: $44.75
Current Stop loss: 36.75
Play Entered on: 11/06/12
Originally listed on the Watch List: 10/20/12



Watch

Discount Stores & Drugs

by James Brown

Click here to email James Brown


New Watch List Entries

DLTR - Dollar Tree

MRK - Merck & Co


Active Watch List Candidates

CSCO - Cisco Systems

WMT - Wal-Mart Stores


Dropped Watch List Entries

CL graduated to the play list.
WLT was removed.



New Watch List Candidates:


Dollar Tree, Inc. - DLTR - close: 41.89

Company Info

DLTR operates a chain of discount variety store where everything is priced at a dollar. Right now many analysts are worried that the recent raise in the payroll tax and rising gas prices are hurting retail sales. Yet at the same time, these two factors might actually push consumers to frequent stores like DLTR more often. We'll find out soon. DLTR is scheduled to report earnings on Feb. 27th. Wall Street expects earnings of 99 cents a share. More important than last quarters results will be management's guidance.

Shares of DLTR have spent the last four months building a bottom in the $37.50-42.00 zone. I am suggesting we wait for shares of DLTR to close above $42.75 and then buy calls the next day. If triggered we will aim for $49.50. Please note that the $45.00 level and the 200-dma could be overhead resistance. Don't be surprised to see DLTR pullback from its initial test of the $45 level.

Breakout trigger: Wait for DLTR to close above $42.75,
then buy calls the next day, stop loss @ 39.50

BUY the 2014 Jan $45 call (DLTR1418a45) current ask $3.10

Chart of DLTR:

Originally listed on the Watch List: 02/23/13


Merck & Co. - MRK - close: 42.97

Company Info

Drug giant MRK has seen its stock show relative strength this past week. The stock is breaking out past its 50-dma and 200-dma and nearing a significant trend line of lower highs. Investors could be looking for defensive trades if they're anticipating market uncertainty or weakness.

Right now there is additional resistance near $44.00. I am suggesting we wait for MRK to close above $44.25 and then buy calls the next day. Our long-term target is $49.50 although the $48.00 level could be resistance.

Breakout trigger: Wait for MRK to close above $44.25,
then buy calls the next day, stop loss @ 41.45

BUY the 2014 Jan $45 call (MRK1418a45) current ask $1.49

- or -

BUY the 2015 Jan $45 call (MRK1517a45) current ask $2.77

Chart of MRK:

Originally listed on the Watch List: 02/23/13


Active Watch List Candidates:



Cisco Systems - CSCO - close: 20.90

Comments:
02/23/13: CSCO came close to hitting our entry point requirements but the stock reversed intraday on Wednesday. Shares ended the week with a nine-cent loss. I don't see any changes from my prior comments. Right now we are waiting for CSCO to close above $21.50 and then buy calls the next day. As an alternative entry point, if the market does see a correction, readers could look for CSCO to dip toward the $19.50-19.00 zone and then buy a bounce. We'll re-evaluate our entry point if CSCO corrects. For now we're waiting for a close above $21.50. 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: 70.40

Comments:
02/23/13: WMT is already bouncing from its February sales "disaster" email story. The company reported earnings a few days ago that beat estimates by 10 cents. Revenues also beat Wall Street estimates. However, management did say they expect Q1 same-store sales to be flat. Technically the stock's bounce has stalled at the simple 100-dma, which was resistance in early February. 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.

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


Walter Energy - WLT - close: 33.25

Comments:
02/23/13: The sell-off in WLT has gotten worse with the stock accelerating lower. Shares have broken below support and fallen to new six-week lows. Our trade has not opened and I am removing WLT as a watch list candidate.

Trade did not open.

02/23/13 removed from the watch list.

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