Option Investor
Newsletter

Daily Newsletter, Sunday, 3/31/2013

Table of Contents

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

Leaps Trader Commentary

Bulls On Parade

by James Brown

Click here to email James Brown

We should all send Mr. Bernanke and the Federal Reserve a "thank you" card. It was the Fed's QE program that helped fuel a year's worth of gains into the first three months of 2013. Then again, the U.S. has been called the "cleanest shirt" in the dirty clothes hamper because everywhere else in the world looks worse than we do. Money had to go somewhere and a lot of it went into U.S. equities in the first quarter this year. Oddly enough calls for the "great rotation" out of bonds have subsided as money rushed back into U.S. treasuries over the last three weeks. Oil is on the up swing as well. It almost seems like the only asset not performing well right now is gold. Year to date the S&P 500 is up +10%. Oil is up +5.8%. Gold is down -4.7%.

We did just mark the end of the first quarter. End of quarter window dressing helped push the S&P 500 index to a new closing all-time high, above the 2007 peak. Over the last quarter we witnessed the current bull market's fourth birthday. Many have called this the most hated rally in history. That's probably because a lot of investors and fund managers were underinvested in equities. Transportation stocks and the small caps have helped lead the market higher off the November 2012 lows. Dow Theory investors should be happy to see the leadership in the transports.

Some of the key headlines this past week remain centered on Cyprus. The small country's banks finally reopened but with very strict capital controls. Meanwhile the political situation in Italy remains unresolved and the economy is tanking in France. The Cyprus robbery of bank depositor's money has pushed investors into safe haven trades like German bonds. The yield on a 10-year German bund fell to 1.28%.

There was a lot of economic data in the U.S. this past week. Initial jobless claims rose from 341,000 the prior week to 357,000. This is the highest reading in five weeks and the first time above 350K since mid February. Consumer sentiment was a positive surprise. A pullback in gasoline prices and new highs in the stock market buoyed sentiment. The consumer sentiment readings rose from an early survey of 71.8 to 78.6 by month's end.

A bump in housing prices may have also played a role in rising sentiment. The Case-Shiller 20-city home price index revealed a +8.1% year over year rise in home prices, up from +6.8% the prior month. Although not all the residential real estate data was positive. The new home sales pace fell -4.6% month over month in February. Pending home sales dipped -0.4% versus estimates for a gain. Of course a -0.4% decline was better than January's -3.8% decline.

Durable goods orders surged +5.7% compared to -3.8% the prior month. The Kansas City Fed manufacturing survey rose to -5. That's a big improvement from February's -10 but this survey has been stuck in negative territory for six months in a row. The Chicago PMI data was a disappointment with a drop from 56.8 the prior month to the latest reading of 52.4. Readings above 50.0 indicate growth and expansion but unfortunately this survey is moving the wrong way.

The final Q4 GDP estimate came in at +0.4%. That is improvement from the initial estimate of -0.1% but still extremely weak. Q4 was the slowest quarter in almost two years. We're still about four weeks away from the first estimate on Q1 growth. Right now consensus estimates are for +2.8%. That seems pretty optimistic following the anemic Q4 growth. The first quarter had to deal with the fiscal cliff and the sequester potentially depressing the economy. Right now Goldman Sachs is forecasting +3.4% Q1 growth while Merrill Lynch is estimating +3.0% growth.

There were plenty of overseas headlines. Italian politicians have been unable to cobble together a coalition government. That means the country, which is currently in recession, could be headed for another round of elections. The Bank of Italy warned that Italy's negative 2013 GDP growth could be worse than current estimates of -1.3%. In similar news Spain warned that their 2012 budget deficit would be larger than previously thought (shocker!).

Significant sections of the Eurozone are in recession. That's putting the brakes on any economic growth. The Eurozone retail PMI fell to 43.7 from the prior month's 44.5. Meanwhile the economic situation in France seems to be deteriorating quickly. A WSJ article is suggesting that France's recently raised taxes is hurting consumer spending and retail sales are plunging. France is one of the largest members of the Eurozone and analysts now expect the country's GDP to be negative for nearly all of 2013. The current recession in France could be worse than the 2008 recession and might quickly eclipse the recession in Italy.

We can't talk about Europe and the Eurozone without talking about the small Mediterranean country of Cyprus. After being closed for several days the country's banks finally reopened. The widely expected bank run failed to materialize. Armed guards at the major bank branches and extreme capital controls may have played a part in that. Cyprus citizens are only allowed to withdraw 300 euros a day and they can't leave the country with more than 5,000 euros.

We still don't know how big of a levy/tax/robbery that Cyprus bank depositors might face. It could depend on which bank people held their money. I've seen estimates for bank deposits above 100K euros facing a tax of 35%, 45% or 60%. According to Cypriot Finance Minister Michalis Saris depositors could see an 80% haircut. According to one private citizen, when the banks reopened, they looked at their account and 96% of all funds above the 100K euro limit were "blocked" and unavailable. As if that wasn't bad enough, there is a Cypriot newspaper claiming that the country's current president and his family moved "dozens of millions" of euros from Cyprus banks to London just weeks before the Cyprus banks were frozen and accounts involuntarily taxed.

Eurozone officials are desperately trying to back away from comments made by Jeroen Dijsselbloem. Mr. Dijsselbloem is the Dutch Finance Minister and president of the Eurogroup. On Monday, in a Reuters interview, Jeroen claimed that the Cyprus "restructuring" (a.k.a. stealing bank deposits from citizens) might be used as a model for future bank bailouts in the Eurozone. Of course it doesn't matter now what the Eurozone officials say. The cat is out of the bag. If the government is willing to steal money from bank deposits then citizens are not going to trust their money to the banks. Even though this entire fiasco was an attempt to "save" the banks this move may have doomed them. There will be a flood of money out of European banks, especially out of any of the weaker countries like Cyprus, Greece, Portugal, Spain, Italy, etc. That money will either find its way under the mattress or in other foreign countries. The Eurozone's blunder could be a small boon for the U.S. as Europeans move their money abroad. Unfortunately, this capital flight out of the EU will further weaken the EU banking system, which will only spark more bailouts and crises down the road.

Major Indices:

Four points! The S&P 500 has been hovering under resistance at its old all-time high of 1565 for two weeks. End of quarter window dressing finally pushed this index above resistance and settled the S&P 500 four points above the old high on the last day of the quarter. For the week the S&P 500 is up +0.79%. Year to date it's up +10.0%. From the 2012 November closing low of 1353 the index is up +15.9%. This marks the fifth monthly gain in a row for the S&P 500 index, which now has a market cap of almost $14 trillion.

So what now? The first few days of April should see new money flowing into mutual funds. Yet now that the quarter is over fund managers might do a little window undressing. Momentum clearly favors the bulls. Technically the breakout to new highs tends to fuel more new highs. The old all-time intraday high of 1576 could be overhead resistance. Some technicians don't consider any breakout a real breakout until it's +3% past resistance. If you subscribe to that philosophy then it would mean a rally to 1612 to confirm the breakout in the S&P 500.

If the market does see some profit taking the S&P 500 should see some support near 1540. Plus there should be some technical support near the 40-dma and 50-dma.

Overall I remain very concerned that the Q1 earnings season could derail the rally. Until the S&P 500 clearly moves past the old intraday high of 1576 there is still the risk of a major triple-top (seen most clearly on the monthly chart below).

chart of the S&P 500 index:

Monthly chart of the S&P 500 index:

The NASDAQ also broke out from its two-week consolidation. For the week the NASDAQ is up +0.69% and year to date it's up +8.2%. Thursday's close at 3,267 is a new 12-year high. The next level of resistance is probably the 3300 mark. Should the market retreat there appears to be short-term technical support at the 20-dma. If that fails then the 3200 level could be support, bolstered by the rising 50-dma.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index added +0.5% for the week but did not close at new all-time highs. However, it is less than two points away from a new record high. The current high was set two weeks ago at 953. Year to date the small caps are up +12.0%. From the November closing low of 769 the $RUT is up +23.6%.

Strength in the small caps is a good thing. Normally when fund managers get nervous they sell the small caps and move their money into more liquid large cap stocks. Right now the $RUT looks poised to breakout from its two-week sideways consolidation. If the $RUT does breakout we could see it surge toward the 965-975 area. Bigger picture the 1,000 mark could become a nice big round-number target. However, I seriously doubt the $RUT could get there before Q1 earnings season begins.

On a short-term basis there appears to be support near 940, 930, the 40-dma near 925, and if that fails then the 900 mark.

chart of the Russell 2000 index

Economic Data & Event Calendar

It's a new month and that means another round of monthly economic data. We'll see the U.S. ISM index, vehicle sales, and a number of Eurozone reports. Of course a new month also means an update on the labor market in the U.S. The jobs report is due out Friday morning and analysts are expecting a dip from +236,000 in February to +190,000 in March. If the number comes in too hot the market will worry about the Fed cutting back on QE earlier than expected. If the number comes in too cold the market will worry we're headed for another recession.

Economic and Event Calendar

- Monday, April 01 -
ISM index for March

- Tuesday, April 02 -
Factory Orders for February
auto & truck sales for March
Eurozone manufacturing PMI
Eurozone unemployment
China's non-manufacturing PMI

- Wednesday, April 03 -
ADP employment change report

- Thursday, April 04 -
Weekly Initial Jobless Claims
Bank of England's interest rate decision
European Central Bank (ECB) interest rate decision
ECB President Draghi press conference
Bank of Japan interest rate decision
Eurozone Services PMI

- Friday, April 05 -
Nonfarm payrolls (jobs) report for March
Unemployment rate
Eurozone retail sales

Additional Events to be aware of:

April 10th - FOMC minutes
April 19th - April option expiration
May 1st - FOMC meeting
May 18th - U.S. debt ceiling deadline

The Week Ahead:

Looking ahead the wall of worry for the bulls to climb continues to grow. Europe is in trouble. Much of the Eurozone is already in recession and the recession seems to be getting worse in Italy and France. The radioactive fallout from EU regulators using the nuclear option to seize depositors money in Cyprus will be a deadly plague for the region. The already struggling southern hemisphere of Europe will suffer a capital flight out of the region, which will only further weaken the already struggling banks. Consumer spending, which is already on the decline will likely worsen as consumers turn defensive. This will make the current recession worse. Since Europe is China's biggest buyer of goods a growing slowdown in Europe means a slowdown for China. The U.S. is already hovering at no growth (+0.4%). How will the U.S. grow if Europe and China start to sink again?

The U.S. markets will quickly turn their focus to Q1 earnings season. Dow-component Alcoa (AA) kicks off the season on April 8th. Yet earnings season won't really pick up until the following week. Last week I warned you that analysts current estimates for Q1 earnings growth is a very anemic +0.58%. That's almost negative. We've already seen a wave of negative earnings warnings. According to FactSet Research Q1 2013 is shaping up to have the highest level of negative earnings guidance since they began keeping track of this data back in 2006. Now Q1 earnings season could go one of two ways. Wall Street analysts may have set the bar so low that corporate America will be able to meet or exceed expectations. On the other hand analysts have not have adjusted their expectations low enough and the current parade of earnings warnings might be foreshadowing a season of disappointments. With the market at all-time highs and up significantly for the year already, the temptation for investors to sell and lock in gains will be too much and the sell-off could be sharp.

Another issue facing the U.S. market is the seasonal trend to "sell in May". April 30th marks the end of the best six months in the stock market. The market is also technically overbought. The S&P 500 and NASDAQ are both up five months in a row. The number of S&P 500 components above their simple 200-dma is 89.8%. Usually when this reading gets too high traders use it as a contrarian sell signal suggesting the market is overbought and due for a correction. Depending on your trading style that might be above 65%, above 80% or above 90%. The problem is at 89.8% it can't get much higher.

Another issue is investor sentiment. The Investor Intelligence bearish percent levels has fallen below 20%. This suggest investor complacency and is another contrarian sell signal that too many investors are bullish. There seem to be a number of warning signs that the market is in danger territory. Yet we all know that stocks can remain at unreasonable levels a lot longer than anyone anticipates. If everyone is expecting a correction the correct tends to get postponed.

My comments from last week remain true today. Can the market hit new highs from here? Absolutely. Could Q1 earnings season be a crucial turning point for the market? Absolutely. While my bias is for a market correction in the next two to four weeks there is no guarantee it's going to show up. We can only trade what the market provides and right now the trend is up. However, you do have a choice when and how you apply your money to the market. Sometimes the best trade is no trade. If you feel compelled to trade then consider limiting your position size to reduce your risk and tighten your stop losses.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 index has finally broken out to a new all-time closing high, surpassing its 2007 peak. The next obstacle is the 2007 all-time intraday high of 1576. After a two-week consolidation sideways the market looks poised to keep running. Let's hope Q1 earnings results don't derail the rally.

The plan was to exit our MSI and URBN trades on Monday, March 25th.

EXPE was stopped out on Thursday.

I have updated stop losses on CL, DLTR, KO, and WMT.

We want to exit our KO 2014 calls and exit our ZNGA trade on Monday morning at the open.

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

Cautiously Bullish

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(March 30, 2013)

I remain cautious on the market. The S&P 500's breakout to a new all-time closing high is certainly a bullish development. Technically, after a two-week consolidation sideways, the S&P 500 and the small cap Russell 2000 index, both look poised to rally further. I am concerned that stocks are overbought and Q1 earnings season could be the perfect excuse for investors to sell stocks. After such an impressive Q1 performance the profit taking could be painful.

My long-term bias is bullish but short-term I am expecting a correction in the next two to four weeks. Thus I am reluctant to launch new bullish positions now at current levels. However, there is no guarantee the market is poised for an imminent correction lower. It will correction eventually but that could be next week or next quarter.

I am not adding new plays tonight but we did add two new bullish candidates to the watch list.



Play Updates

Ending At New Highs

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market ended the first quarter of 2013 on a high note with the S&P 500 at a new all-time closing high. Equities look overbought here. Readers will want to seriously consider taking profits now to lock in gains.


Closed Plays


EXPE was stopped out.
MSI and URBN were closed as planned.



Play Updates


Analog Devices - ADI - close: 46.49

Comments:
03/30/13: It was a pretty good week for ADI. Shares are back above their 50-dma and they're nearing the short-term trend of lower highs. The stock looks poised to breakout higher. However, any breakout might be delayed. On Friday ADI's CEO suddenly died of what appears to be a heart attack. Since the market was closed on Friday there was no reaction to this news in the stock price. There is a good chance that ADI could see some knee-jerk reaction selling on Monday morning.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 3.90/4.10

03/29/13 ADI's CEO dies of a heart attack.
03/23/13 ADI still looks poised to retreat lower.
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: 38.82

Comments:
03/30/13: Some of the headlines this past week included news that AIG has adopted a "clawback policy" to foster sound risk management and accountability among its executives. Meanwhile the stock is slowly rebounding from its March 25th lows. I remain cautious here.

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 $ 6.10/ 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


Bank of America - BAC - close: 12.18

Comments:
03/30/13: It was not a good week for shares of BAC, which gave back -3% in the last four days. BAC is actually down six days in a row. The financial sector has essentially churned sideways the last two weeks. The pullback in BAC may just be normal profit taking although it's worrisome to see BAC slipping lower while the S&P 500 is hitting new highs.

On a technical note last week has created a bearish engulfing candlestick reversal pattern on BAC's weekly chart. These patterns need to see confirmation first but it is a caution flag to be aware of.

You may want to wait for a bounce off the $12 level or a new close above $12.50 before considering new positions.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.43/0.44

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.18/1.21

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

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


Bed Bath & Beyond - BBBY - close: 64.42

Comments:
03/30/13: Profit taking on Thursday erased all of BBBY's gains for the week and shares posted a minor weekly loss. The rally looks tired here. There is a very good chance we are going to see BBBY correct lower back into the $62.50-62.00 zone. Nimble traders could actually sell their call options right now and look for a new entry point on a pullback.

I am not suggesting new positions at this time.

BBBY is due to report earnings on April 10th.

Earlier Comments:
More conservative investors will want to wait until after we see how the market reacts to BBBY's earnings results before initiating new positions, regardless if BBBY meets our entry requirement before then.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $5.80/5.90

03/30/13 Nimble traders could exit now (for a small profit) and re-enter positions on a pullback.
03/21/13 trade opens with BBBY opening at $63.06
03/20/13 BBBY meets our entry requirement (close over $62.50) with a close at $63.34

Current Target:$ 74.50
Current Stop loss: 58.25
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/16/13


Citigroup - C - close: 44.24

Comments:
03/30/13: The financial sector has been churning sideways the last two weeks while the rest of the market edged higher. Unfortunately Citigroup has been underperforming both the wider market and its peers in the financial sector. The stock has been correcting lower two weeks in a row. Shares are now testing what should be support near $44 and its 50-dma. Yet instead of buying the dip, I would wait. Citigroup is scheduled to report earnings on April 15th. It may pay to wait and see how the market reacts to C's earnings results before considering new positions.

Nimble traders could exit now (for a profit) and re-enter positions on a dip.

- Suggested Positions - (small positions)
DEC 18, 2012 - entry price on C @ 39.21, option @ 3.02
symbol: C1418a45 2014 JAN $45 call - current bid/ask $ 4.35/ 4.40

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: 118.03

Comments:
03/30/13: The final week of the first quarter was bullish for CL with the stock adding three and a half points. Shares have broken out to new all-time, historic highs. The next level of resistance is likely the $120 mark. More conservative traders may want to take profits in the $119-120 area. Our long-term target remains $124.50. I am not suggesting new positions at this time.

Please note our new stop loss at $109.90.

- 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 $ 6.95/ 7.25

03/30/13 new stop loss @ 109.90
03/16/13 new stop loss @ 108.40

Current Target:$ 124.50
Current Stop loss: 109.90
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13


Chevron Corp. - CVX - close: 118.82

Comments:
03/30/13: Shares of CVX stumbled across the end of the quarter finish line. Shares peaked on Monday, March 25th and have been slipping lower since. For some reason I can't identify, a number of the energy sector stocks turned lower on Thursday. CVX was definitely showing relative weakness on Thursday with a -1.1% decline and a close below its 20-dma.

Technically CVX created a bearish reversal pattern on March 25th and has since confirmed the reversal. The question now is how deep will the reversal lower be? There is plenty of potential support between $118 and $114. If CVX trades below $114 then we're in danger of being stopped out.

I am not suggesting new positions at this time.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 5.45/5.60

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: 48.43

Comments:
03/30/13: DLTR delivered another decent gain last week with shares rising toward new six-month highs. A quick glance at an intraday chart and you'll see how traders have been consistently buying the dips. There is a good chance that the $50.00 level could be round-number, psychological resistance for DLTR so don't be surprised to see a pullback. More conservative traders might want to consider exiting early and taking profits when DLTR rises into the $49-50 zone.

The mid-March low was $43.68. I am raising our stop loss to $43.45. 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 $ 6.50/6.70

03/30/13 new stop loss @ 43.45
More conservative investors might want to take profits as DLTR moves into the $49-50 zone.
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


General Electric - GE - close: 23.12

Comments:
03/30/13: GE is such a huge company it has long been considered a market bellwether. The fact that GE is not participating with the market's rise to new highs does not bode well for the market or GE. Shares dipped to technical support near its 50-dma and its late February low. Thus far the bounce has been pretty meager. Odds are pretty good we're going to see GE correct toward the next level of support, which is near $22.00.

More conservative investors may want to just take profits right now. I am not suggesting new positions.

FYI: GE is scheduled to report earnings on April 19th.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.70/0.72

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


The Coca-Cola Company - KO - close: 40.44

Comments:
03/30/13: KO is at a potential turning point. The stock has rallied toward its 2012 July-August highs near $40.60. This past Tuesday actually saw KO close at a new multi-year high at $40.70. Since then shares have been consolidating sideways. I have to warn you that a pullback here would start to look like a big, bearish double top pattern.

Our 2014 calls have more than doubled in value. Since KO is sitting just below resistance, I am suggesting we go ahead and exit our 2014 calls immediately on Monday morning to lock in gains. We will leave the 2015 calls alone. Although I am raising the stop loss to $38.25.

FYI: KO is scheduled to report earnings on April 16th.

- Suggested Positions -
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - current bid/ask $2.09/2.15

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $3.25/3.35

03/30/13 prepare to exit our 2014 Jan $40 calls on Monday, April 1st, 2013 at the opening bell to lock in gains. Current bid is $2.09.
03/30/13 new stop loss @ 38.25
03/23/13 new stop loss @ 37.65
Our 2014 calls have almost doubled and readers may want to take profits early right now

Current Target: $44.00
Current Stop loss: 38.25
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13


Macy's Inc. - M - close: 41.84

Comments:
03/30/13: A decline in consumer confidence on Tuesday sapped the energy out of the retail stocks. Shares of Macy's turned lower and then spent the rest of the week churning sideways. Overall M's performance was rather disappointing. The stock remains near its recent multi-year highs but failed to follow the market's major indices higher.

Investors may want to wait for a new closing high above $42.75 before considering bullish positions.

The old all-time highs near $46.50 could be resistance but at the moment we are aiming for $48.50. FYI: The Point & Figure chart is bullish with a $53 target.

- Suggested Positions -
MAR 21, 2013 - entry price on M @ 42.22, option @ 2.85
symbol: M1418a45 2014 JAN $45 call - current bid/ask $2.31/2.38

Current Target: $48.50
Current Stop loss: 39.25
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/09/13


Merck & Co. - MRK - close: 44.20

Comments:
03/30/13: MRK also delivered a disappointing performance last week. The DRG drug index is surging to new ten-year highs and yet MRK is just sitting there churning sideways near $44.00. That is not very encouraging. I am not suggesting new positions at this time. Investors may want to scale back on their position size to limit their exposure.

- Suggested Positions -
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 2.06
symbol: MRK1418a45 2014 JAN $45 call - current bid/ask $1.98/2.03

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $3.40/3.55

03/30/13 MRK is not participating in the market's rally or drug sector rally. Investors will want to turn more defensive here.
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).

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


The Manitowoc Co - MTW - close: 20.56

Comments:
03/30/13: MTW lost nine cents for the week. Traders did buy the dip at support near $20.00 on Wednesday. If the market continues to rally there is a good chance we could see MTW hitting our exit target at $21.50 soon. On the other hand if stocks retreat following the amazing Q1 performance we could see MTW dropping toward $19 and its 50-dma.

Our call option has doubled in value. Readers may want to lock in profits now.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 3.10/ 3.30

03/23/13 new stop loss @ 18.40
Readers may want to exit early now to lock in gains
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: 18.40
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13


Starbucks Corp. - SBUX - close: 56.95

Comments:
03/30/13: SBUX slipped about 40 cents for the week. Traders bought the dip twice near short-term support around $56.00 and its 30 and 40-dma. Unfortunately, SBUX still has a two-week trend of lower highs.

I am not suggesting new positions at this time. More conservative investors may want to raise their stops.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 3.40/ 3.50

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: 17.69

Comments:
03/30/13: SCHW managed to eke out a small 15-cent gain for the week. Shares did spike lower on Wednesday morning but traders bought the dip near $17 and its rising 30-dma and 40-dma. Our option has more than doubled in value and more conservative 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 $ 1.75/ 1.85

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


Wal-Mart Stores - WMT - close: 74.83

Comments:
03/30/13: Wal-Mart shares spent the week hovering below round-number resistance at the $75.00 level. The stock looks poised to breakout higher if the market continues to move up. In other news WMT unveiled plans where they are considering the idea to have Wal-Mart customers deliver packages to online customers. It seems a bit out there and would face several legal challenges if they choose to pursue it. Right now they're in the early planning stages.

I am raising our stop loss to $69.45.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 3.45/3.55

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 3.40/3.60

Current Target: $85.00-90.00 range
Current Stop loss: 69.45
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


Zynga, Inc. - ZNGA - close: 3.36

Comments:
03/30/13: I am sorry to say it but I think our ZNGA trade is a dud. Shares reversed at the $4.00 level and are now down two weeks in a row. That's not a good sign when the market's major indices are breaking out to new highs.

I am suggesting an immediate exit on Monday, April 1st, at the opening bell.

Earlier Comments:
I cautioned readers that ZNGA was a higher-risk, more aggressive trade. The stock's volatility could make this a challenging trade.

- Suggested Positions -
MAR 12, 2013 - entry price on ZNGA @ 4.02, option @ 0.73
symbol:ZNGA1418a5 2014 JAN $5 call - current bid/ask $ 0.43/0.46

- or -

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

03/30/13 prepare to exit on Monday, April 1st at the opening bell
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

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


CLOSED Plays


Expedia Inc. - EXPE - close: 60.02

Comments:
03/30/13: I cautioned readers last week that EXPE appeared to be in trouble. Instead of rebounding off technical support at its 100-dma the stock has broken down to new three-month lows. The longer-term up trend also appears to have been broken. That's not a good sign with the market hitting new highs. Thursday saw EXPE pierce support near $60.00 and its 150-dma, plus shares hit our stop loss at $59.75.

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 - exit $2.65 (-55.8%)

03/28/13 stopped out @ 59.75
03/23/13 new stop loss @ 59.75, you may want to raise yours higher
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.

Chart of EXPE:

Current Target: $79.00
Current Stop loss: 59.75
Play Entered on: 11/29/12
Originally listed on the Watch List: 11/24/12


Motorola Solutions - MSI - close: 64.03

Comments:
03/30/13: A week ago (Friday, March 22nd) MSI had rallied to a new multi-year high but not quite to our exit target of $64.00. We decided to go ahead and exit positions on Monday, March 25th. MSI was kind enough to gap open higher on Monday at $63.71. Our option exit was $6.30 (bid). If you chose to wait and exit at $64.00, which MSI hit on Thursday, the exit would have been $6.45.

- Suggested Positions -
NOV 26, 2012 - entry price on MSI @ 54.11, option @ 2.93
symbol: MSI1418a60 2014 JAN $60 call - exit $6.30 (+115.0%)

03/25/13 planned exit at the open
03/23/13 Prepare to exit on Monday morning (Mar. 25th)
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

Chart of MSI,

Current Target:$64.00
Current Stop loss: 59.75
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12


Urban Outfitters - URBN - close: 38.74

Comments:
03/30/13: URBN is almost unchanged for the week. The stock tried to bounce and reversed lower again. Last weekend we decided it was time to throw in the towel on URBN. Our plan was to exit positions on Monday morning, March 25th. We were fortunate that URBN gapped open higher on March 25th at $38.88.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - exit $2.15 (-48.8%)

03/25/13 scheduled exit at the opening bell
03/23/13 prepare to exit on Monday, Mar. 25th at the open
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

Chart of URBN:

Current Target: $48.00
Current Stop loss: 37.85
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/15/12



Watch

Precious Metals & Sports Apparel

by James Brown

Click here to email James Brown


New Watch List Entries

GG - Goldcorp Inc.

UA - Under Armour


Active Watch List Candidates

CY - Cypress Semiconductor


Dropped Watch List Entries

I am removing EL tonight.



New Watch List Candidates:


Editor's Note:

I remain very cautious on the market. Yes, the trend is up but stocks are overbought and way overdue for a correction. My bias is for a market pullback in the next two to four weeks but the market hasn't called me yet to ask for my opinion.

We have to trade the opportunities we see. I am urging caution. If you choose to trade right now I am suggesting small positions and tighter stops.


Goldcorp. Inc. - GG - close: 33.63

Company Info

Gold mining stocks have been significant underperformers over the last six months. Yet it appear the industry and shares of GG have found major support. I suspect that if the broader market does see a pullback then gold and gold miners might outperform as more defensive trades.

Right now GG is trying to form a bottom along support near the $32.00 level. Shares are consolidating sideways in the $32-34 zone and there is additional overhead resistance near its 50-dma. Before we continue I want to caution you. This should be considered a more aggressive trade.

I am suggesting we wait for GG to close above $34.25. If the stock closes above $34.25 we'll buy call the next day. Use a stop loss at $31.80. Our long-term target is $42.00.

Breakout trigger: Wait for a close above $34.25
Use a stop loss at $31.80, keep position size small to limit risk.

BUY the 2014 Jan $40 call (GG1418a40) current ask $1.50

- or -

BUY the 2015 Jan $40 call (GG1517a40) current ask $3.60

Chart of GG:

Originally listed on the Watch List: 03/30/13


Under Armour, Inc. - UA - close: 51.20

Company Info

UA's much larger rival Nike (NKE) recently surged to new highs on better than expected earnings. Meanwhile shares of UA are consolidating sideways under resistance near $52.00 and its simple 200-dma. If you look you'll notice that traders have been buying the dips. UA is coiling for a bullish breakout past resistance. A move past $52.00 would create a brand new triple-top breakout buy signal on UA's point & figure chart. It's also worth noting that UA has relatively high short interest at 18% of the 79.8 million share float. A breakout past resistance could also fuel some short covering.

Normally I would wait for UA to close above resistance, in this case $52.00, before initiating positions (actually more like $52.50). Yet because of the high short interest I am suggesting an intraday trigger to buy calls if UA trades at $52.50 or higher. If triggered we'll use a stop loss at $47.45. Our long-term target is $59.75.

Breakout trigger: $52.50 (intraday trigger, small positions)

BUY the 2014 Jan $60 call (UA1418A60) current ask $2.85

Chart of UA:

Originally listed on the Watch List: 03/30/13


Active Watch List Candidates:



Cypress Semiconductor - CY - close: 11.03

Comments:
03/30/13: It was a quiet week for CY with the stock hovering near $11 and its 200-dma. We are still waiting on a big move higher.

Earlier Comments:
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)

BUY the 2015 Jan $15 call (CY1517a15)

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


The Estee Lauder Companies - EL - close: 64.03

Comments:
03/30/13: EL failed to impress last week. Shares churned sideways in the $63-64 zone. I am removing EL as a watch list candidate. The trigger was a close over $66.55. Our trade did not open.

Trade did not open.

03/30/13 removed from the watch list
03/09/13 keep positions small to start!

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