Option Investor
Newsletter

Daily Newsletter, Sunday, 3/10/2013

Table of Contents

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

Leaps Trader Commentary

Closing In On All-Time Highs

by James Brown

Click here to email James Brown

The current bull market in stocks turned four years old this past week. From the first week of March 2009 to March 2012 the S&P 500 index has rallied from a closing low of 683 to 1551 for a +127% gain. It's the fifth longest bull market since 1928. Investors applauded the positive economic news, ignored the not so positive economic news, and failed to react to North Korea's threat to nuke the U.S. and reignite the Korean war.

The U.S. dollar continues to rally and it's now up five weeks in a row. This is putting pressure on commodities, especially precious metals. Oil prices did manage a bounce this past week but gasoline prices have finally started to recede after a multi-week surge higher. The rotation out of bonds and into stocks, while debated, still appears to be happening with yields on the 10-year treasury surging to multi-month highs at 2.0%.

The U.S. saw a number of economic reports last week. Productivity gains fell -1.9% for its biggest drop in four years. Factory orders for January reversed with a -2.0% dip following a downwardly revised +1.3% gain in December. The ISM services index February reading improved to 56.0, up from 55.2 in January. This marks a 12-month high. The Federal Reserve released their Beige Book report, which continues to claim the 12 districts saw "modest to moderate" growth. The weekly initial jobless claims dipped to a six-week low at 340,000, down from 347K the prior week.

Investors were focused on the U.S. labor market. The ADP employment change report came in at +198,000 new private-sector jobs in February. Economists were only exiting +170K. The big number to watch was the Labor Department's nonfarm payrolls (jobs) report for February, which came out Friday morning. Analysts were expecting +160,000 new jobs. Friday's report said the U.S. gained +236,000. January's jobs number was revised lower -38K to +119K while December's was revised higher by +23K to +219K.

The unemployment rate dipped to a four-year low at 7.7% but only because there was a drop in the labor force participation rate (LFPR). The labor force lost 130,000 workers and the participation rate contracted -0.01% to 63.5%. We haven't seen a LFPR this low in more than thirty years. Four years ago the LFPR was 65.6%. Without this contraction in the LFPR the unemployment rate would be 11.4% not 7.7%.

There was plenty of economic action overseas. Japan's Q4 GDP growth was revised from -0.1% to +0.0%. Meanwhile Japan's Center for Economic Research just released their estimate that Japan's GDP improved to +0.2% in January. The Bank of Japan left their interest rate unchanged in the 0.00%-to-0.10% range and left their quantitative easing at 101 trillion yen. No surprises here but there are rumors that Japan might be poised to pick up the pace on its QE program. This past week saw the yen fall to new three-year lows.

Meanwhile across the East China Sea the Chinese held their National People's Congress and affirmed their 2013 GDP growth target of +7.5%. China's HSBC services PMI contracted from 54.0 to 52.1. Numbers above 50.0 indicate growth while numbers below 50.0 indicate contraction.

Last Tuesday the Eurozone finance ministers met in Brussels again. The meeting failed to generate any market-moving headlines. France saw its unemployment rate hit a 13-year high with a jump to 10.6%. Italy was downgraded from "A-" to "BBB+" by the Fitch Ratings agency and given a negative outlook for possible downgrades in the future.

The Eurozone reported that its retail sales rose +1.2%, which was significantly higher than expected. The Eurozone estimate on Q4 GDP came in at -0.6%, which was in-line with estimates. The ECB left their interest rate unchanged at 0.75% and warned that the Eurozone would see its economy contract by -0.5% in 2013, which is worse than its previous estimate of -0.3%.

In other news the Federal Reserve released the results of their latest CCAR report (a.k.a. bank stress tests). All but one of the 18 banks tested were given a passing grade. Ally Bank was the only one that failed as the Fed estimates that Ally's Tier 1 capital requirements would fall to 1.5% in their test simulation. If you're curious Ally Financial used to be GMAC Inc. They trade on the NYSE under symbol GKM.N. Shares of Ally didn't move that much last week compared to the rest of the financial sector, which is in rally mode.

Major Indices:

The S&P 500 index has rallied six days in a row and closed at new five-year highs. For the week the large cap index is up +2.1%. The breakout past its mid February high near 1530 is technically bullish but the index is looking overbought again.

The S&P 500's all-time intraday high is 1576.09 set on October 11th, 2007. The closing high is 1565.15 from October 9th, 2007. It's only 15 points away from this closing high. Last week at the bottom of my commentary I cautioned readers that we could see the market produce a last gasp surge higher that would push the S&P 500 to tag its historic high before seeing a correction lower. Now I can't promise that the market is going to correct lower but the 1565-1575 area is now overhead resistance. I do expect the S&P 500 to hit this area. Whether or not it breaks out to new all-time highs is the real question.

We've been warning readers that until the S&P 500 does breakout past its old highs it is in danger of forming a massive triple-top (bearish) pattern. It's also worth noting that the S&P 500 has been building a widening or broadening megaphone shaped topping pattern.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

Monthly chart of the S&P 500 index:

Short-term chart of the S&P 500 index:

The NASDAQ composite delivered a +2.3% gain for the week and managed to do so without any real help from its largest component: Apple Inc. (AAPL). The NASDAQ also pushed past resistance near the 3200 level to close at new 12-year highs.

Weekly chart of the NASDAQ Composite index:

Monthly chart of the NASDAQ Composite index:

The small cap Russell 2000 index displayed relative strength last week with a +3.0% gain. The $RUT also broke out to new all-time, historic highs. It's possible that the 950 level might be round-number resistance but this is blue-sky territory. I am posting a Point & Figure chart from stockcharts.com and it is forecasting a long-term bullish target of 1,025.

chart of the Russell 2000 index

Point & Figure chart of the Russell 2000 index

Economic Data & Event Calendar

The event and economic calendar slows down this week. The U.S. will see both the PPI and CPI, which provide a wholesale and consumer level look at inflation. Italy was just downgraded on Friday so investors will be watching Italy's bond auction on Tuesday to see how the market reacts. A poor debt auction could spark trouble for the equity markets.

Economic and Event Calendar

- Monday, March 11 -
Eurozone Industrial Production data
India's interest rate decision

- Tuesday, March 12 -
Italy holds a 10-year bond auction

- Wednesday, March 13 -
Retail Sales for February
Import/Export prices

- Thursday, March 14 -
Weekly Initial Jobless Claims
Producer Price Index (PPI) for February
EU Economic Summit

- Friday, March 15 -
Consumer Price Index (CPI) for February
New York Empire State manufacturing survey
Industrial Production & Capacity Utilization
University of Michigan Consumer Sentiment

Additional Events to be aware of:

Mar. 20th - FOMC meeting & Bernanke press conference
Mar. 27th - U.S. budget resolution expires
Mar. 29th - U.S. market closed for Good Friday
Apr. 15th - U.S. new budget resolution deadline
May 18th - U.S. debt ceiling deadline

The Week Ahead:

Looking at the week ahead momentum clearly favors the bulls. The S&P 500 has broken out to new five-year highs and is only 15 points away from its all-time closing high. This old high will act as a magnet. I fully expect the S&P 500 to reach this level and likely surpass it. However, I'm worried that hitting the old high could be a trigger for traders to sell. If the market does see selling after the S&P 500 hits these levels from October 2007, the question will be is this just normal, short-term profit taking, or something worse? Are we seeing a triple top forming? Obviously a strong breakout past the old highs would be very bullish for investor sentiment and likely fuel another round of short covering.

Bears will argue that stocks are getting overbought again but we all know that stocks can always grow more overbought. The bulls have a lot going for them. The small caps are leading the way with the Russell 2000 index at all-time highs. Dow Theory investors should be happy with the strength in the transportation sector with the transportation average near an all-time high. The financials are participating with the financial sector at four-year highs. Another favorable development for the bulls is strength overseas. The Japanese NIKKEI, the British FTSE, and the German DAX indices are all at multi-year highs.

chart of the Japanese NIKKEI index

chart of the British FTSE index

chart of the German DAX index

Bears can also argue that the global economy is still weak. The U.S. economy only grew +0.1% last quarter and the combination of the fiscal cliff deal, recent tax hikes, and the sequestration budget cuts could shave off -1.5% from the GDP. That would push the U.S. back into recession. On top of that the payroll tax increase and the high price of gasoline should be a negative for consumer spending.

The wild card could be geopolitical risk. Syria continues to burn in a civil war and the U.S. is getting more involved by funding the rebels. Egypt seems to be growing more volatile. We will likely see a showdown between Israel and Iran before summer is over. China and Japan are gearing up for a fight over some disputed islands. Now North Korea has canceled the 1953 armistice agreement (ceasefire) with South Korea, which means the two countries are officially back in a state of war. It would appear that the Korean peninsula is preparing for war. Everyone is hoping this is just another N. Korean bluff and praying that the N. Korean leader Kim Jong-un doesn't pull the trigger.

If geopolitical issues don't scare the market then we have the U.S. budget fight resuming in late March and the U.S. debt ceiling fiasco returns in May. Believe it or not the Q1 earnings season is only about a month away. Corporate earnings results will either keep the rally alive or kill it. Thus far every concern has proved to be another brick in the wall of worry that bulls continue to climb. Until the U.S. Federal Reserve decides to slow down their QE programs, they will be a tailwind pushing equities higher.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The upward momentum continues and the U.S. market is hitting new highs. The Dow Industrials, Russell 2000 small cap index, and Dow transportation average are hitting all-time highs. The S&P 500 index broke out to new five-year highs.

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

I have updated stop losses on CVX, C, MSI, MTW, SBUX, and SCHW.

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

Trend Is Your Friend

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(March 09, 2013)

The trend is your friend, right? That's the old market maxim. Right now the trend is clearly higher with stocks pushing to new highs. You could argue that the U.S. market is short-term overbought here but I am expecting it to grow more overbought with the S&P 500 racing to tag its all-time high near 1565 set back in October 2007.

I am not adding any new plays tonight. I remain concerned that we're due for a correction and the risk of a triple top in the S&P 500 index. However, we are still adding candidates to the watch list. This past week saw Wal-Mart (WMT) hit our entry point and jump from the watch list to our active trade list. Tonight I am adding three new candidates to the watch list just in case the market keeps on going. Readers may want to limit any new positions and start small to reduce our risk.

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:

DNKN, HOG, SNDK, SJM, GMCR, TAP, SYY, CNQ, CSCO, ATI, S, CAM, VIP, CY, V, AXP, BAC, BHI, ROVI, TXT, EOG, SYK,




Play Updates

Time To Update Stops

by James Brown

Click here to email James Brown

Editor's Note:

The stock market delivered another week of gains. Several of our candidates produced big moves. We are updating several stop losses on these stocks: C, CVX, MSI, MTW, SBUX, and SCHW. Readers may want to think about taking profits in some of our positions now.


Closed Plays



None. No closed plays this week.



Play Updates


Analog Devices - ADI - close: 46.05

Comments:
03/09/13: ADI rallied Tuesday and Wednesday and spent the remainder of the week chopping sideways. Technically Thursday's session created a bearish engulfing candlestick reversal pattern but there has not been any confirmation yet.

The stock is lagging behind its peers in the semiconductor sector with the SOX index breaking out to new relative highs. There seems to be short-term resistance near $46.25. 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 $ 3.70/3.90

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: 39.58

Comments:
03/09/13: It was a bullish week for the financial sector. AIG rallied toward round-number resistance near the $40.00 level. Currently we are aiming for $42.50 but we may want to adjust our exit target higher, possibly the $44.00 level. I am not suggesting new positions at this time.

More conservative investors might want to adjust their stop closer to the $36.00 area.

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 $ 6.60/ 6.75

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: 46.68

Comments:
03/09/13: It was a very bullish week for Citigroup. Shares surged +10% with a five-day rally. The stock has broken out to new 52-week highs. C is arguably short-term overbought here so don't be surprised to see a dip.

Please note that we are adjusting our exit target to $49.00. I am also adjusting our stop loss to $39.75. 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 $ 5.60/ 5.70

03/09/13 new stop loss @ 39.75, adjust target to $49.00
01/05/13 new stop loss @ 37.35

Current Target:$ 49.00
Current Stop loss: 39.75
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12


Colgate-Palmolive - CL - close: 115.74

Comments:
03/09/13: It was another up week for shares of CL. The big news for Colgate was the company raising its cash dividend by +10% and announcing a 2-for-1 stock split. The stock split announcement hit on Thursday morning and shares gapped open higher but quickly pared its gains. CL will begin trading split adjusted on May 16th.

If you look at CL's intraday chart you'll notice that the stock has been struggling with resistance near the $116.00 mark. Momentum oscillators are looking top heavy. It might be time for a pullback. I am not suggesting new positions at this time.

- 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 $ 5.85/ 6.10

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: 118.57

Comments:
03/09/13: CVX rose every day last week although Friday's gain was so small (one cent) that shares were virtually unchanged. CVX managed to hit new all-time highs, surpassing its 2012 peak but momentum slowed once the stock moved into the $118-119 zone. I suspect the $120 level might be round-number resistance. We will raise our stop loss to $109.50. More conservative investors might want to adjust their stops toward the late February lows near $113.50ish instead.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 5.55/5.70

03/09/13 new stop loss @ 109.50
02/02/13 do not be surprised to see a pullback now that earnings have been announced.

Current Target:$124.50
Current Stop loss: 109.50
Play Entered on: 01/14/13
Originally listed on the Watch List: 12/22/12


Dollar Tree, Inc. - DLTR - close: 45.03

Comments:
03/09/13: Not surprisingly shares of DLTR are seeing some profit taking. The stock was short-term overbought following the late February surge. This past week saw the rally lose steam. There is a chance DLTR might try and fill the gap, which would mean a dip back toward the $42.00 area. I am not suggesting new positions at this time.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 4.40/4.60

02/28/13 trade opened following gap higher, above our trigger

Current Target: $53.50
Current Stop loss: 39.50
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13


Expedia Inc. - EXPE - close: 64.72

Comments:
03/09/13: It was a bumpy week for EXPE. Early gains faded midweek but traders bought the dip on Friday. If you were looking for a new bullish entry point then Friday's afternoon bounce could definitely work for you.

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: 23.77

Comments:
03/09/13: GE rallied to new four-year highs. Yet shares spent the last three days stuck inside the $23.65-23.85 range. If the market sees any profit taking I would expect GE to retest the $23 level. If the market actually sees a correction then GE could dip toward $22.00. Our option has already doubled so more conservative investors might want to take some money off the table. I am not suggesting new positions.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.91/0.92

03/09/13 our 2014 Jan $25 call option has doubled. Readers might want to consider taking some money off the table.
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


Juniper Networks - JNPR - close: 20.69

Comments:
03/09/13: It was a volatile week for JNPR. Thursday saw shares rebound sharply as the market reacted to a bullish earnings report from rival Ciena (CIEN). Unfortunately for JNPR these gains faded on Friday with a -2% pullback. I suspected that JNPR might bounce from the $20.00 level but Friday's relative weakness is troubling. More conservative traders may want to scale back their positions or exit early. I am not suggesting new positions at this time. Right now JNPR has a four-week bearish trend of lower highs and lower lows.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.21/1.25

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: 39.22

Comments:
03/09/13: KO slowly drifted higher all week. By Friday's closing bell the stock added about half a point from the prior Friday. KO also closed at new multi-month highs. I am not suggesting new positions at this time.

Earlier Comments:
KO's next quarterly dividend is payable on April 1st, 2013 to shareholders on record as of March 15th.

- Suggested Positions -
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - current bid/ask $1.40/1.43

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $2.44/2.50

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


Motorola Solutions - MSI - close: 62.75

Comments:
03/09/13: MSI is now up six weeks in a row and up nine out of the last ten weeks. The stock is only $1.25 from our exit target of $64.00 and more conservative investors may want to take profits now. I am not suggesting new positions at this time.

Please note our new stop loss at $59.75.

- Suggested Positions -
NOV 26, 2012 - entry price on MSI @ 54.11, option @ 2.93
symbol: MSI1418a60 2014 JAN $60 call - current bid/ask $ 5.70/ 5.80

03/09/13 new stop loss @ 59.75
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: 59.75
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12


The Manitowoc Co - MTW - close: 19.72

Comments:
03/09/13: MTW is showing relative strength. The stock rallied +8.7% for the week. Now shares are nearing prior resistance at the $20.00 mark. A breakout here could definitely spark more gains. A failure here and it could start to look like a bearish double top pattern. More conservative investors might want to adjust their stops closer to the $17.50 area. I am moving our stop to $16.85. Our option is up +74%. Readers could choose to exit early now.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 2.70/ 2.85

03/09/13 new stop loss @ 16.85
02/16/13 new stop loss @ 16.30

Current Target:$21.50
Current Stop loss: 16.85
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13


Starbucks Corp. - SBUX - close: 58.67

Comments:
03/09/13: Wow! It was a strong week for SBUX. The stock rallied almost four points and broke out to new multi-month highs. Multiple analysts issued bullish comments on SBUX helping give shares a boost. Now SBUX looks short-term overbought and nearing what is probably round-number resistance at the $60.00 level. I would not be surprised in the least to see SBUX pullback soon.

Please note our new stop loss at $52.75.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 4.45/ 4.55

03/09/13 new stop loss @ 52.75
01/05/13 new stop loss @ 49.85

Current Target:$ 62.00
Current Stop loss: 52.75
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12


The Charles Schwab Corp. - SCHW - close: 17.66

Comments:
03/09/13: A bullish week for the financial sector helped shares of SCHW surge to a +7.6% on the week. The stock has broken out to new 52-week highs. It's also nearing what could be resistance at the $18.00 mark. Do not be surprised to see a correction back toward the $17.00 area. Our 2014 Jan $17 call option has more than doubled in value. More conservative investors might want to take profits right now. I am adjusting our stop loss to $15.90.

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 $ 1.80/ 2.00

03/09/13 new stop loss @ 15.90, our call option has more than doubled and readers may want to take profits now.
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: 15.90
Play Entered on: 01/23/13
Originally listed on the Watch List: 01/19/13


Urban Outfitters - URBN - close: 41.31

Comments:
03/09/13: URBN churned sideways in a choppy fashion but managed to post a half point gain by Friday's close. The stock looks ready to rally past short-term resistance near $42.00. The stock's direction this week is going to depend on URBN's earnings. Please note that URBN is scheduled to report earnings on March 11th. That's Monday! The results are due out right at the closing bell. More conservative traders may want to raise their stop loss or even consider hedging their positions by purchasing short-term put options. URBN could gap open on Tuesday morning up or down in reaction to the earnings news.

I am not suggesting new positions.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - current bid/ask $ 3.40/3.60

03/09/13 Get ready for earnings. URBN is scheduled to report earnings on March 11th.
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


Wal-Mart Stores - WMT - close: 73.03

Comments:
03/09/13: WMT delivered strong gains on Monday and Tuesday last week. This stock was on our watch list and the plan was to wait for shares to close above $73.00 and then buy calls the next day. The stock closed at $73.25 on Monday and opened at $73.47 on Tuesday morning (our entry point). Since then WMT has began to see a little profit taking. Broken resistance near $72.00 should be new short-term support. A dip near $72.00 could be a new entry point to buy calls on WMT.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 2.66/2.71

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 2.69/2.82

Chart of WMT:

Current Target: $85.00-90.00 range
Current Stop loss: 67.25
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


Watch

Banks, Consumer Goods, Retail

by James Brown

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New Watch List Entries

BAC - Bank of America

EL - The Estee Lauder Cos

M - Macy's Inc


Active Watch List Candidates

MRK - Merck & Co

TIF - Tiffany & Co

ZNGA - Zynga Inc.


Dropped Watch List Entries

WMT graduated to our play list.



New Watch List Candidates:


Bank of America - BAC - close: 12.07

Company Info

The financial sector has been showing relative strength and the financial sector indices and ETFs are hitting new four-year highs. BAC is trading near its 52-week high and looks poised to breakout from its two-month trading range. If a breakout does occur shares of BAC could outperform as it tries to catch up with its peers.

I am suggesting investors wait for BAC to close above $12.55 and then buy calls the next morning with a stop loss at $10.90. Our long-term target is $18.00.

Breakout trigger: Wait for BAC to close above $12.55,
then buy calls the next day, stop loss @ 10.90

BUY the 2014 Jan $15 call (BAC1418a15) current ask $0.44

- or -

BUY the 2015 Jan $15 call (BAC1517a15) current ask $1.13

Chart of BAC:

Originally listed on the Watch List: 03/09/13


The Estee Lauder Companies - EL - close: 65.70

Company Info

Shares of this cosmetics giant are trading near all-time highs. Investors have been buying the dips for years and now EL is poised to breakout into new historic highs. The $65-66 area has been resistance for months. I am suggesting we wait for EL to close above $66.55 and then buy calls the next day. I am suggesting that we start with small positions (half your normal trade size) to limit our risk. Our long-term target is $74.50.

Breakout trigger: Wait for EL to close above $66.55,
then buy calls the next day, stop loss @ 61.90

BUY the 2014 Jan $70 call (EL1418a70) current ask $3.90

03/09/13 keep positions small to start!

Chart of EL:

Originally listed on the Watch List: 03/09/13


Macy's Inc. - M - close: 41.67

Company Info

Shares of this department store (retail) giant are poised for a bullish breakout past major resistance. Investors do not seem to be concerned about the effects that higher gasoline prices and the recent payroll tax increase might have on consumer spending. Macy's could be a safer bet in the retail sector since the last time the company reported earnings management raised their full year guidance.

Currently shares of M are hovering just below major resistance near the $42.00 level. I am suggesting we wait for Macy's to close above $42.50 and then buy calls the next morning with a stop loss at $39.25. If triggered our long-term target is $48.50. FYI: The Point & Figure chart is bullish with a $53 target.

Breakout trigger: Wait for M to close above $42.50,
then buy calls the next day, stop loss @ 39.25

BUY the 2014 Jan $45 call (M1418a45) current ask $2.37

Chart of M:

Originally listed on the Watch List: 03/09/13


Active Watch List Candidates:



Merck & Co. - MRK - close: 42.97

Comments:
03/09/13: Shares of MRK did see an upgrade this past week but the rally ran out of steam. The stock reversed near resistance at its 150-dma and the $44 level. I don't see any changes from my prior comments.

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)

- or -

BUY the 2015 Jan $45 call (MRK1517a45)

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


Tiffany & Co. - TIF - close: 70.25

Comments:
03/09/13: TIF continues to push higher but the rally did stall just past the $70.00 level. I am still expecting a correction lower. Broken resistance near $66.00 should be new support. We will adjust our buy-the-dip entry point to $66.50.

If triggered we'll start with a stop loss at $63.40. Our long-term target is $74.00 but readers could definitely aim higher.

NOTE: TIF is scheduled to report earnings on March 22nd.

Buy-the-Dip trigger: $66.50, stop loss 63.40

BUY the 2014 Jan $75 call (TIF1418a75)

03/09/13 adjust buy-the-dip trigger to $66.50

Originally listed on the Watch List: 03/02/13


Zynga, Inc. - ZNGA - close: 3.57

Comments:
03/09/13: ZNGA surged on Monday but there was no follow through higher. Shares spent the rest of the week drifting sideways. The consolidation is narrowing, which would suggest ZNGA is poised for a breakout, one way or the other. I don't see any changes from my prior comments.

I do consider this a higher-risk, more aggressive trade. Thus we will want to limit our position size. I am suggesting we wait for ZNGA to close above $3.80 and then buy calls the next day (or buy the stock itself). If triggered we'll start with a stop loss at $3.25. Our long-term target is $5.75 but we'll adjust that target as the play progresses.

Breakout trigger: Wait for a close above $3.80
Stop loss @ 3.25

BUY the 2014 Jan $5.00 call (ZNGA1418a5)

- or -

BUY ZNGA the stock

Originally listed on the Watch List: 03/02/13