Option Investor
Newsletter

Daily Newsletter, Sunday, 3/17/2013

Table of Contents

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

Leaps Trader Commentary

New Highs Dead Ahead

by James Brown

Click here to email James Brown

Another week of gains has pushed the S&P 500 index to within five points of a new all-time, historic high. Market participants waded through another week of mixed economic data. Europe is ignoring the political mess in Italy, which is still without any leadership following the last election. Meanwhile the situation in Greece seems to be deteriorating again but the markets don't care. Oil bounced. Gold and silver churned sideways. Bonds hovered near their recent lows. Equities pushed higher although leadership is narrowing. Worries of a potential triple top in the S&P 500 remain but the volatility index (VIX) has fallen to new multi-year lows suggesting a lack of any real fear by traders.

The economic data in the U.S. was definitely mixed. Retail sales came in at +1.1% in February, up from +0.2% in January. February's results were definitely better than expected. Another positive was the initial weekly jobless claims, which slid -10,000 to 332,000. That's a new relative low and the trend seems to be improving. The University of Michigan Consumer Sentiment survey fell from 77.6 to 71.8. That was significantly worse than expected. The sentiment index hasn't been this low since December 2011. There seems to be a divergence between falling sentiment and rising retail sales.

The Producer Price Index (PPI) for February showed a +0.7% jump in inflation at the wholesale level. That was the biggest one-month jump since last September. The Consumer Price Index (CPI) for February also came in hotter than expected with a rise from 0.0% a month ago to +0.7%. Rising inflation could be trouble. If inflation rises too fast the Federal Reserve will feel the need to cut back or end its QE programs. One month doesn't mark a trend but it's worth noting. The core-CPI, which excludes the more volatile food and energy prices, was only up +0.2%. Right now the core CPI is running at a 12-month pace of +2.0%. When the core hits 2.5% it could force the Fed to act and raise interest rates.

Elsewhere the New York Empire State manufacturing survey fell from 10.0 in February to 9.2 in March. Analysts had been expecting a drop toward 6 so the strength here was a bullish sign for the economy. Numbers above 0.0 are positive and show growth while negative numbers suggest economic contraction. Prior to February's surge to 10 the Empire State survey was negative for six months in a row.

Major Indices:

The S&P 500 index added +0.6% for the week. Year to date it's up +9.4%. That is a year's worth of gains in less than three months. It's up more than +15% from its November lows. The old high near 1565 and the old intraday high at 1576 will probably be overhead resistance. We should expect some profit taking soon. The challenge will be trying to discern between normal, short-term profit taking like we saw back in late December and mid February or an actual bearish reversal.

Normal corrections fall in the -5% to -10% range. We were lucky with the dips n December and February. Those pullbacks were only about -3%. A -5% correction from 1565 (the old closing high) would be 1486. A -10% correction would be 1408. Now there is no guarantee the market will correct lower from current levels but odds are rising. Technical oscillators are in overbought territory. On the daily chart below you can see the S&P 500 seems to be rising in a lopsided channel. If this trend continues then the next pullback might find support between the 40 and 50-dma (currently around 1520).

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 lagged behind the other major indices with a +0.14% gain on the week. It's only up +7.6% year to date. It is worth noting that the NASDAQ did hit new 12-year highs.

If the market sees a dip there is probably support near 3200 and near the rising 50-dma.

Weekly chart of the NASDAQ Composite index:

The small caps are still showing relative strength, which is a good sign for the market's rally. The Russell 2000 index added +1.0% last week and is up an impressive +12.1% year to date. The $RUT is looking short-term overbought here but it's in blue sky territory and it can always grow more overbought than you and I think it can. Odds are good that the 1,000 level could be significant round-number, psychological resistance. On a short-term basis there appears to be support near 940 and if that fails look for support near the 40-dma.

chart of the Russell 2000 index

Economic Data & Event Calendar

The economic report and event calendar slows down this week. There will be two main items to watch. First and foremost will be the Federal Reserve's FOMC meeting on Wednesday. No change is expected in policy. Fed Chairman Bernanke will follow that with a press conference. His comments and answers always have the potential to be a market-moving event. The next item to watch is probably the Philly Fed survey.

Economic and Event Calendar

- Monday, March 18 -
(nothing significant)

- Tuesday, March 19 -
Housing Starts & Building Permits
German ZEW sentiment index

- Wednesday, March 20 -
FOMC meeting & Bernanke press conference
China's HSBC PMI manufacturing data

- Thursday, March 21 -
Weekly Initial Jobless Claims
Existing Home Sales
Philadelphia Fed survey
Eurozone PMI data

- Friday, March 22 -
(nothing significant)

Additional Events to be aware of:

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 ahead it's record-breaking time for the S&P 500 index. Will it break out or will it reverse? I do expect to see a new closing high soon (a close above 1565). The financial media will explode with cheers about the market at an all-time high. Don't get caught up in the euphoria. Stocks are overbought and due for a correction. Anybody who bought "the market" back in 2007 has been praying for this day to come so they can get out where they got in. I encourage you to back and look at a long-term chart. From the highs in 2007 it took less than two years for the market to be cut in half. It's taken four years to climb back.

It's completely possible that stocks breakout to new all-time highs and keep going. I find that possibility unlikely but it is possible. The trend is up so it's too dangerous to try and call a top and start launching bearish positions. That doesn't mean we can't scale back on some winning positions to take some money off the table. I would also encourage everyone to re-evaluate your stop loss placement. If the market produces a normal -5% or -10% correction, how will your portfolio perform?

My comments about geopolitical risk last week still apply today. Closer to home we're going to start hearing about Q1 earnings season, which is about a month away. A disappointing earnings season could kill this rally pretty quickly. Personally, with the S&P 500 sitting right below what could be significant resistance I would not be in a rush to launch new bullish positions.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market produced another week of gains. The S&P 500 is only a few points away from a new all-time historic closing high. Meanwhile the small cap Russell 2000 and the Dow Transports are hitting new record highs. Worries remain that the S&P 500 has the potential to form a triple top pattern.

MRK & ZNGA graduated from the watch list to our active trade list.

I have updated stop losses on C, CL, CVX, DLTR, and MTW.

We want to exit our JNPR trade on Monday morning at the open.

Our new BAC trade (watch list candidate) will open on Monday morning.

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

Fed Approved

by James Brown

Click here to email James Brown


- New Trades -


Bank of America - BAC - close: 12.57

Comments:
03/16/13: The financial sector rallied to new multi-year highs with BAC helping lead the way. BAC passed the Federal Reserve's bank stress tests with flying colors. BAC also got the Fed's approve to buy back up to $5 billion in common stock and redeem $5.5 billion in preferred stock. This approval for a stock buyback helped send BAC to new highs on Friday.

We had BAC on our watch list with an entry point to buy calls if BAC closed above $12.55. Shares met that entry requirement on Friday at the close. Our trade will open on Monday morning. Our long-term target is $18.00.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ --.--, option @ -.--
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.48/0.50

- or -

MAR 18, 2013 - entry price on BAC @ --.--, option @ -.--
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.26/1.29

Chart of BAC:

Current Target:$ 18.00
Current Stop loss: 10.90
Play Entered on: 03/18/13

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



Play Updates

Less Participation Than Expected

by James Brown

Click here to email James Brown

Editor's Note:

I am urging caution tonight. It was surprising to see how many stocks on our list did not participate with the market's rally to new highs.

We did see MRK and ZNGA graduate from our watch list to play list.

NOTE: We do want to exit our JNPR play at the open on Monday morning.


Closed Plays



None. No closed plays this week.



Play Updates


Analog Devices - ADI - close: 45.53

Comments:
03/16/13: ADI posted a loss for the week. I am concerned about the stock and the semiconductor sector. The SOX index rallied close to its 2012 highs and reversed with a decline on Friday. This could be a potential double top for the semis. Meanwhile ADI saw its rally reverse near $47.00 on Friday and shares underperformed both the market and the SOX on Friday with a -2.0% decline. Thursday's peak could be a new lower high.

More conservative investors will want to seriously consider raising their stop loss. On a short-term basis I am expecting ADI to dip back toward its 50-dma and likely the $44.00 level. 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

03/16/13 did ADI just create a new lower high?
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: 38.97

Comments:
03/16/13: The financial sector continued to push higher last week. Yet shares of AIG have been slowly correcting lower all week long. We suspected that $40.00 was overhead resistance but AIG's relative weakness these last few days is a potential warning signal. If the market corrects we can look for AIG to dip toward support near $37.00. 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 $ 6.05/ 6.20

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: 47.26

Comments:
03/16/13: It was another up week for shares of Citigroup. Most of the gains came on Monday after C was upgraded to a "buy". The stock has been consolidating sideways below the $48.00 level the last four days. On a positive note C did pass the government's bank stress tests (a.k.a. the CCAR).

The newsletter is aiming to exit our calls at $49.00. Readers might want to consider taking profits now since our calls have effectively doubled in value. I am raising the stop loss to $41.75. 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 $ 6.00/ 6.10

03/16/13 new stop loss @ 41.75, readers may want to take profits now since our option has virtually doubled (+100%)
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: 41.75
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12


Colgate-Palmolive - CL - close: 112.08

Comments:
03/16/13: Ouch! Shares of CL fell everyday this past week. The sell-off accelerated on Thursday and again on Friday. CL was downgraded from an "overweight" to an "equal weight" on Friday morning, which sparked the gap down at the open. I cautioned readers last week that CL look poised for a pullback. What worries me is the fact that CL is plunging while the market's major indices are hitting new relative highs. I do expect the $111-110 zone to offer some support. We will raise our stop loss to $108.40. More conservative traders may want to use a stop closer to $110 instead. 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 $ 3.90/ 4.15

03/16/13 new stop loss @ 108.40

Current Target:$ 124.50
Current Stop loss: 108.40
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13


Chevron Corp. - CVX - close: 119.68

Comments:
03/16/13: Dow Industrial component CVX helped the index hit new highs when the stock broke out to all-time highs of its own on Thursday. Shares actually garnered bullish analyst comments and a higher price target on Wednesday. CVX certainly looks poised to breakout past the $120 level soon.

I am raising the stop loss to $113.25. That's just below the February low. We are currently aiming for $124.50 but more aggressive investors may want to aim higher.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 6.00/6.14

03/16/13 new stop loss @ 113.25
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: 113.25
Play Entered on: 01/14/13
Originally listed on the Watch List: 12/22/12


Dollar Tree, Inc. - DLTR - close: 44.24

Comments:
03/16/13: I have cautioned readers that DLTR could try and fill the gap from its late February surge higher. The stock has underperformed the market two weeks in a row and is back below its 200-dma and 300-dma. The recent relative weakness could just be normal profit taking but the fact that DLTR is retreating while the market is hitting new highs is troubling.

I am moving our stop loss up to $41.40. 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 $ 3.80/4.00

03/16/13 new stop loss @ 41.40
02/28/13 trade opened following gap higher, above our trigger

Current Target: $53.50
Current Stop loss: 41.40
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13


Expedia Inc. - EXPE - close: 66.22

Comments:
03/16/13: It was a relatively quiet week for shares of EXPE. The stock slowly climbed to a new five-week high. The trend of higher lows and higher highs remains intact. Our stop loss is at $59.25 but more conservative traders may want to adjust theirs so it's closer to the simple 100-dma.

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 $4.90/5.10

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: 23.44

Comments:
03/16/13: Don't look now but GE's rally could be on the verge of correcting lower. The stock did post a minor loss for the week (33 cents). Traders sold into strength on both Thursday and Friday. Now GE shares are hovering at short-term technical support on the rising 20-dma. If GE breaks support here I would expect a pullback toward the $22.50 area.

Since our call options have virtually doubled (+100%) readers might want to take profits right now. 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 $0.81/0.83

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: 20.17

Comments:
03/16/13: It's time to throw in the towel on our JNPR play. The stock just isn't working for us. Shares have essentially been correcting lower these last seven weeks while at the same time the U.S. market's major indices have been breaking out to new highs. JNPR's recent oversold bounce from support near $20.00 has failed and now it's about to test the $20 level again. Support may not hold this time.

I am suggesting an immediate exit on Monday morning at the opening bell.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.03/1.07

03/16/13 prepare to exit immediately on Monday morning (03/18/2013)
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: 38.83

Comments:
03/16/13: After a three-week rally shares of KO hit some profit taking on Tuesday and Wednesday last week. KO bounced on Thursday thanks to an analyst upgrade for the stock. Big picture we don't see any changes here. Investors may want to be patient. KO could provide a better entry point on a dip near the $38.00 level, which should be new support.

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 $1.32/1.36

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $2.50/2.59

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


Merck & Co. - MRK - close: 44.09

Comments:
03/16/13: MRK is a new trade. We had MRK on our watch list. The stock had resistance near the $44.00 level. The plan was to wait for shares to close above $44.25 and then buy calls the next day. MRK surprised us with a big gap open higher on March 12th where share opened at $45.42 and closed at $45.04. The big move higher was fueled by MRK's press release that the "Data Safety Monitoring Board (DSMB) of the IMPROVE-IT trial has completed its planned review of study data and recommended that the study continue." IMPROVE-IT is an 18,000 patient trial that's focused on MRK's cholesterol drug ezetimibe.

Our trade opened on March 13th with shares of MRK gapping down at $44.54. Since then MRK has filled the gap with a dip to what should be new support near the $44.00 level. I would use this pullback to $44.00 as a new bullish entry point to buy calls.

- Suggested Positions -
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 2.06
symbol: MRK1418a45 2014 JAN $45 call - current bid/ask $1.88/1.91

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $3.30/3.40

03/16/13 use the dip to $44.00 as another entry point to buy calls
03/13/13 trade opens with MRK gapping down at $44.54
03/12/13 MRK gaps open higher and closed at $45.04, above our suggested entry (close above $44.25).

Chart of MRK:

Current Target: $49.50
Current Stop loss: 41.45
Play Entered on: 03/13/13
Originally listed on the Watch List: 02/23/13


Motorola Solutions - MSI - close: 62.07

Comments:
03/16/13: MSI posted a small loss for the week. Shares have dipped to short-term support near $62 and its rising 20-dma. I don't see any changes from my prior comments. Our exit target is $64.00 but more conservative investors may want to take profits now. 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 $ 5.25/ 5.35

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: 20.80

Comments:
03/16/13: MTW is one of our best performers for the week. Shares rallied past round-number resistance at the $20.00 level and closed at new 52-week highs. Our exit target is $21.50. More aggressive traders may want to aim higher. Since our call option has doubled (+100%) more conservative investors might want to take profits now. I am raising our stop loss to $17.85.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 3.20/ 3.40

03/16/13 new stop loss @ 17.85
03/09/13 new stop loss @ 16.85
02/16/13 new stop loss @ 16.30

Current Target:$21.50
Current Stop loss: 17.85
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13


Starbucks Corp. - SBUX - close: 57.66

Comments:
03/16/13: SBUX failed to follow the market higher. Shares spent most of the week churning sideways but spiked lower on Thursday morning. I cautioned readers a week ago to expect a pullback soon. I am not suggesting 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 $ 3.85/ 3.95

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: 17.86

Comments:
03/16/13: It was a volatile week for shares of SCHW and the stock managed to eke out a 20-cent gain. SCHW did hit new 52-week highs midweek but shares were downgraded to a "sell" on Friday morning. Shares do look short-term overbought here. Look for short-term support near $17.00. Investors might want to take profits now.

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 $ 1.85/ 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: 40.65

Comments:
03/16/13: URBN reported earnings on March 11th. The results were 56 cents a share on revenues of $857 million for the quarter. Wall Street was expecting 57 cents on revenues of $841.4 million. The bottom line was a miss but revenues were a beat. Plus URBN's gross margins improved. The stock rallied the next day (March 12th) but the rally ran out of gas the very next session. Positive analyst comments were not enough to reignite the rally and URBN faded lower the rest of the week.

This could be normal post-earnings profit taking. At the same time this past week is starting to look like a new lower high for shares of URBN, which is troubling. Currently our stop loss is at $37.85. More conservative traders may want to exit early now or raise their stop toward $39.00 near the late February low. 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 $ 2.85/3.00

03/16/13 no follow through on the earnings bounce. URBN looks vulnerable here.
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: 72.50

Comments:
03/16/13: Technically it was a bearish week for WMT. The stock briefly tagged a new relative high just above resistance near $74.00 but the rally didn't last. Now with Friday's underperformance suddenly WMT appears to have formed a short-term bearish double top. I would expect a dip back to the $72.00-71.50 zone and if the market rolls over then we could see WMT retreat toward $70.00. Use a bounce near $72.00 as a new bullish entry point.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 2.38/2.44

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 2.59/2.72

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


Zynga, Inc. - ZNGA - close: 3.62

Comments:
03/16/13: It was a volatile week for shares of ZNGA. Monday saw the stock breakout to new multi-month highs and tag the $4.00 intraday. Our plan was to wait for ZNGA to close above $3.80 since the stock had resistance near $3.70. Monday's rally met our entry point requirement. The stock opened at $4.02 on Tuesday morning and immediately reversed. ZNGA appears to have found support again near $3.60 but shares have been trading sideways in the $3.60-3.80 zone the last few days.

I cautioned readers that ZNGA was a higher-risk, more aggressive trade. The stock's volatility could make this a challenging trade. Readers may want to wait for shares to close above $3.80 or even the $4.00 level before initiating new positions. The plan was to buy the 2014 $5.00 call or buy the stock itself instead.

- Suggested Positions -
MAR 12, 2013 - entry price on ZNGA @ 4.02, option @ 0.73
symbol:ZNGA1418a5 2014 JAN $5 call - current bid/ask $ 0.52/0.56

- or -

MAR 05, 2013 - entry price on ZNGA stock @ 4.02

03/12/13 ZNGA opens at $4.02 (entry point)
03/11/13 ZNGA closed at $3.93, above our entry requirement of 3.80

Chart of ZNGA:

Current Target: $5.75
Current Stop loss: 3.25
Play Entered on: 03/12/13
Originally listed on the Watch List: 03/02/13


Watch

Home Furnishings & Semiconductors

by James Brown

Click here to email James Brown

Editor's Note:

Our watch list continues to generate new trades. This past week saw MRK and ZNGA graduate to the active trade list.



New Watch List Entries

BBBY - Bed Bath & Beyond

CY - Cypress Semiconductor


Active Watch List Candidates

EL - The Estee Lauder Cos

M - Macy's Inc

TIF - Tiffany & Co


Dropped Watch List Entries

MRK & ZNGA graduated to our active play list. BAC met our entry point requirement on Friday so we're moving it to the new plays section.



New Watch List Candidates:


Bed Bath & Beyond - BBBY - close: 60.93

Company Info

Shares of BBBY have spent the last four and a half months building a bottom in the $55-60 zone. Shares have actually created an inverse (bullish) head-and-shoulders pattern. BBBY is currently in the process of breaking out through resistance in the $60 area along with some significant moving averages. I am suggesting we wait for BBBY to close above $62.50 and then buy calls the next morning. We'll start with a stop loss at $58.25. Our long-term target is $74.50.

NOTE: BBBY's next earnings report is expected in early April. More conservative investors will want to wait until after we see how the market reacts to the earnings results before initiating new positions, regardless if BBBY meets our entry requirement.

Breakout trigger: Wait for BBBY to close above $62.50,
then buy calls the next day, stop loss @ 58.25

BUY the 2014 Jan $65 call (BBBY1418a65) current ask $3.95

Chart of BBBY:

Originally listed on the Watch List: 03/16/13


Cypress Semiconductor - CY - close: 11.30

Company Info

CY is in the semiconductor industry. The stock underperformed its peers for the first couple of months of 2013 but shares have started to rally. CY is up three weeks in a row and pushing past technical resistance at its simple 200-dma. After months and months of lower highs CY is on the verge of a new higher high. More aggressive traders might want to consider bullish positions on a breakout past the $11.50 mark. I am suggesting we wait for CY to close above $12.00 and then buy calls the next day. If triggered our target is $16.00.

Breakout trigger: Wait for CY to close above $12.00,
then buy calls the next day, stop loss @ 10.45

BUY the 2014 Jan $13 call (CY1418a13) current ask $0.75

BUY the 2015 Jan $15 call (CY1517a15) current ask $0.95

Chart of CY:

Originally listed on the Watch List: 03/16/13


Active Watch List Candidates:



The Estee Lauder Companies - EL - close: 63.34

Comments:
03/16/13: Estee Lauder retreated lower this past week. Shares are now back below their 50-dma. If the sell-off continues EL could be testing technical support near its 100-dma soon. Right now we are waiting for a breakout to new highs.

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)

03/09/13 keep positions small to start!

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


Macy's Inc. - M - close: 41.78

Comments:
03/16/13: Macy's came very close to meeting our entry point requirements. The stock flirted with a bullish breakout past resistance near $42.00 most of the week. Then Friday saw some profit taking with a dip toward its 10-dma. Macy's still looks poised to rally. Overall our strategy is unchanged.

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)

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


Tiffany & Co. - TIF - close: 69.42

Comments:
03/16/13: The correction in shares of TIF has stalled with a three-day bounce. The stock will begin trading ex-dividend on Monday. The quarterly cash dividend is 32 cents. We're still waiting for a correction toward $66.00. Actually our suggested entry point is $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