Option Investor
Newsletter

Daily Newsletter, Sunday, 4/7/2013

Table of Contents

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

Leaps Trader Commentary

U.S. Stocks Slide Into Q2

by James Brown

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It was no surprise to see some profit taking the first week of April. After a stellar Q1 performance the market was overbought and due for a pullback. I cautioned investors that stocks could see some window undressing after the prior week's quarter end window dressing. Traders had plenty of excuses to do some profit taking because the trend of economic data has definitely taken a turn for the worse. While the first quarter witnessed a significant inflow of money into stocks the money flow turned defensive this past week. Safe haven sectors like utilities and bonds were the big winners.

The economic data flow in the U.S. had its normal new month reports. Vehicle sales in March hit an annual pace of 15.22 million. While that was slightly less than expected it's still a healthy pace. Ford had a good month with U.S. sales up +6% versus estimates of just +3.8%. The U.S. national ISM data was a disappointment with the March reading coming in at 51.3 compared to estimates of 54.0. This was the lowest ISM reading since December and illustrates how the economy is slowing down. Readings below 50.0 indicate recession and contraction. For the moment the ISM is still positive but it's moving the wrong way.

The big report for the week was the U.S. nonfarm payroll report (jobs report). The weekly initial jobless claims have been trending higher. The most recent week showed initial claims up to 385,000, which is the highest level in months. That should have been a warning that the jobs data would disappoint. Economists were expecting March to show +190,000 to +200,000 new job growth. Unfortunately the report came in at +88,000, obviously a significant miss. Add that to what is becoming a trend of disappointing economic reports and investors have reason to worry about the economy.

Another issue is the unemployment rate. The unemployment rate fell to 7.6%. How can the unemployment rate fall if we are not adding jobs? Easy, just reduce the number of workers in the workforce. March saw almost 500,000 people drop out of the workforce. They have given up looking for a job. We only have 314 million people in the U.S. About 143.2 million of them have a job. The labor force participation rate has plummeted over the last few years and fell to 63.3% in March. That's the lowest level since 1979. If that wasn't bad enough news the household survey unveiled that the country lost -206,000 jobs.

There were plenty of headlines overseas. One of the biggest stories was a new QE program in Japan. It was widely expected that the new Governor of the Bank of Japan was going to increase monetary easing. Yet the market was surprised by just how much QE the central bank will do. The BoJ plans to generate $1.4 trillion worth of money into the economy (about 270 trillion yen). They plan to do it within the next two years to try and shock the country out of a 20-year span of deflation and stagnant growth. The BoJ's target is a +2% inflation rate. Essentially the BoJ will be buying $75 billion a month in bonds and securities for the next two years. The U.S. is spending $85 billion a month in its QE program but the U.S. is three times larger than Japan. There are serious concerns that Japan's efforts could spark a global currency war as other nations devalue their currencies to remain competitive.

Meanwhile in Europe the region continues to slide deeper into recession. The Eurozone has been in recession since the third quarter of 2011 and it's not getting any better. Eurozone retail sales fell -0.3% month over month. Eurozone unemployment hit an all-time high of 12% and it's significantly worse for young people in Europe. The Eurozone manufacturing PMI came in at 46.8. That was actually slightly ahead of expectations but still below the 50.0 mark. Readings under 50.0 indicate contraction and recession. France, Germany, Italy, Spain, and the U.K. all reported PMI's below 50.0. Investors are looking for safety and they're putting their money into German bonds. Yields on German 10-year bunds fell to their lowest level of 2013 and they are quickly approaching the all-time low of 1.13% hit last summer.

The beleaguered country of Cyprus had some good news with an improvement in its recent capital controls and the EU granting the country and extension to 2018 to meet its fiscal targets. Yet the threat remains that other countries could use the Cypress model to steal from bank depositors to bailout the banking system. Italy could be the next one on the list. The CEO of Italy's largest bank, Unicredit, just warned people that he thinks the "levy" on bank deposits is an acceptable "model" for future emergencies. Italians are already moving money out of the country to protect their assets.

As if Europe didn't have enough to worry about Greece could be back in the headlines. There is speculation that the troika might delay the next installment of bailout aid to Greece because regulators are unhappy with Greece's progress (or lack thereof) on making any significant reforms.

Major Indices:

The S&P 500 index pared its losses to just -1.0% for the week. The disappointing jobs data sparked a new round of weakness on Friday morning. Yet traders bought the dip near support. The trend of higher lows remains intact for now. I told readers last week to watch for support near 1540.

I would not be surprised to see the S&P 500 bounce back toward its recent highs near 1570-1575 before rolling over again. Of course that is my bearish bias talking. I do expect a deeper correction but I could be wrong and we could see the S&P 500 burst through its 2013 high and hit new all-time, historic highs above 1576 instead.

Just in case we do not see a breakout to new highs the levels to watch for support are 1540 and probably the 1500 level. A typical -5% to -10% correction from 1570 would be a pullback into the 1491-1413 region.

chart of the S&P 500 index:

The NASDAQ composite gave up -1.95% for the week. It would have been worse but the index rallied off its Friday morning lows and just barely closed back above technical support at its 50-dma and the 3200 level. I really don't expect this bounce to continue but if it does the 3270 level is overhead resistance. On the other hand if the NASDAQ does correct then we can watch for potential support near 3100 and the 3000 area.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index suffered a -2.9% drop. The $RUT pierced short-term support near 940, 920 and its 50-dma. You might consider it short-term oversold but it is still longer-term overbought from its November-March rally. My worry here is that the $RUT will likely bounce from current levels only to fail near 940 and then resume the down trend in earnest.

If fund managers are selling the small caps it could mean they've lost faith in the rally. The first pullback in December found support at the 20-dma. The second pullback in February found support at the 40-dma. Now the RUT has broken through its 50-dma. Each pullback is getting deeper. If the $RUT does see a correction a -10% pullback from the 950 level would be a decline towards 855. The old all-time highs near 865-870 might offer some support.

chart of the Russell 2000 index

Economic Data & Event Calendar

The pace of economic data slows down a bit this week. Reports to watch are the EU industrial production, U.S. PPI, University of Michigan Consumer Sentiment. Plus the FOMC minutes from the last meeting could move stocks. This week also heralds the beginning of Q1 earnings season. Dow-component Alcoa (AA) starts on April 8th. Big banks JPM and WFC will report on April 12th. Earnings season starts off slow but will pick up speed next week.

Economic and Event Calendar

- Monday, April 08 -
Alcoa (AA) kicks off Q1 earnings season
German industrial production
Chinese inflation data

- Tuesday, April 09 -
wholesale inventory data

- Wednesday, April 10 -
FOMC minutes
Eurozone industrial production

- Thursday, April 11 -
Weekly Initial Jobless Claims
Italian 10-year bond auction

- Friday, April 12 -
U.S. Retail sales data for March
Producer Price Index (PPI)
University of Michigan Consumer Sentiment
EU finance minister meeting

Additional Events to be aware of:

April 19th - April option expiration
April 26th - Q1 GDP estimate
May 1st - FOMC meeting
May 18th - U.S. debt ceiling deadline

The Week Ahead:

What can I say about the week ahead of us? It would be nice if all we had to worry about were earnings announcements. Unfortunately the saber rattling from North Korea is getting worse. The isolated nuclear power has issued an April 10th deadline for diplomats to leave the area for their own safety. The fear here is that this young North Korean leader might feel compelled to shoot at somebody to save face. Hopefully cooler heads prevail. Any aggressive action by North Korea would be a suicidal move, especially with its only potential friend China starting to lose patience. That doesn't mean an attack by North Korea wouldn't have consequences for the rest of us. Fortunately most of the experts on the region do not believe conflict is imminent in spite of the threats. What the stock market should be worried about is the economic slowdown. Manufacturing PMIs around the major economic players are moving the wrong direction. Europe is struggling as citizens lose faith in the banking system and move money to safety after the Cyprus incident. That's going to make the current recession in Europe even worse. Eurozone employment is hitting all-time highs. Consumers have no job and no faith in their banks or governments.

The U.S. is slowing down thanks to an uncertain climate for businesses and the sequestration cuts that will pick up speed in April. Analysts expect the sequester to cut about 1% from the U.S. GDP and eliminate between 700,000 to 1.5 million jobs. Since the U.S. was already slowing down the sequestration almost guarantees we will fall back into recession. The U.S. and Europe are China's biggest customers. If the former are slowing down the China will slow down as well.

Since Q1 earnings season is about to start we'll hear from corporate America on their forecasts for Q2 and the rest of 2013. Guidance for the rest of the year could shape market direction. Given all the uncertainties in U.S. government spending and the slowdown in Europe many of the big multi-national American companies are likely to issue cautious guidance.

I'm going to say it again. The S&P 500's trend is still up for now but odds are Q1 earnings season will be a perfect excuse for investors to sell stocks and lock in gains, especially for anyone who subscribes to the seasonal sell-in-May theory of investing. I could be wrong but I'd rather sit on the sidelines and watch for the next two or three weeks than buy at current levels. Stock market corrections are normal. We can just wait for the next correction and have a much better entry point -5% to -10% lower from current levels. As LEAP option investors we need to be patient. That means we also need to be patient when it comes to our entry point as well.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Small caps suffer the worst of the profit taking as funds unwind some of their quarter end window dressing. The fact that traders bought the dip on the jobs number is impressive but Q1 earnings season is about to start.

The plan was to exit our ZNGA trade and the 2014 KO calls on Monday, April 1st.

C & MTW were stopped out

I have updated stop losses on WMT.

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

Short-Term Up, Then What?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 06, 2013)

Market participants bought the dip on Friday. That's pretty impressive given the jobs number miss. Short-term I would not be surprised to see stocks bounce for the next few days. Yet over the next two or three weeks I am expecting the market to reverse lower again.

Therefore, why launch new bullish LEAPS positions now when we should see a much better entry point at the end of April or early May. I am not adding new candidates tonight but I am listing two new watch list candidates that should benefit from central bank moves and any geopolitical risks.


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:

REGN, LLY, COST, TGT, KMB, TJX, S, PCS, V, DNKN, TIF, TM, DIS,


Play Updates

Stocks Rebound From Ugly Q2 Start

by James Brown

Click here to email James Brown

Editor's Note:

In addition to closing our ZNGA play, we also closed the 2014 January calls on KO to lock in gains on April 1st.


Closed Plays


C and MTW were stopped out.
ZNGA was closed as planned.



Play Updates


Analog Devices - ADI - close: 43.61

Comments:
04/06/13: It was not a good week for semiconductor stocks and ADI was no exception. Shares plunged almost three points and broke down through several layers of support. Technically this past week was very bearish with a breakdown from a large pennant-shaped consolidation. More conservative traders may want to consider exiting on any bounce back into the $44-45 zone. Now the 50-dma and the $44.50-45.00 area are probably short-term overhead resistance. 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 $ 2.45/2.60

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: 38.62

Comments:
04/06/13: It was a bumpy week for AIG but the big intraday bounce off its Friday lows helped reduce its losses to just 20 cents for the week.

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/ 6.15

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: 11.97

Comments:
04/06/13: BAC also gave up about 20 cents for the week. It's worth noting that Friday's rebound off the morning lows looks like a bullish engulfing candlestick reversal pattern. A close back above the $12.00 level (and its 10-dma) would be short-term bullish.

BAC is due to report earnings on April 17th. Yet the stock could move on news from any of its major rivals when they report earnings. JPM and WFC report earnings on April 12th. Citigroup (C) on the 15th. USB on the 16th.

Earlier Comments:
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 $0.36/0.38

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.10/1.11

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: 63.76

Comments:
04/06/13: The disappointing jobs report illustrates a potential pitfall for the retailers. If the U.S. labor market is deteriorating it's not going to bode well for retail sales. Yet overall shares of BBBY didn't react that poorly. I am still expecting a pullback toward $62.00 and shares might see some profit taking following its earnings report (maybe back toward $60 again).

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 $5.45/5.55

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


Colgate-Palmolive - CL - close: 116.72

Comments:
04/06/13: The market action last week showed investors putting money to work in defensive names like U.S. bonds, utilities stocks and REITs. I am somewhat surprised to see CL turning lower. Of course with the market retreating and CL at new highs it was a big target for traders to take some money off the table.

Shares did hit new highs on Monday but Tuesday's pullback created a bearish reversal pattern. Right now CL is testing short-term support near $116.00. If the market turns lower again we could see CL drop toward its 40 or 50-dma. I am not suggesting new positions at this time.

FYI: CL is due to report earnings on April 25th.

- 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 $ 6.30/ 6.55

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: 117.52

Comments:
04/06/13: Energy stocks were not exempt from the market's sell-off this past week. Shares of CVX broke down under short-term support near $118.00 and its 50-dma. If CVX fails to rebound from current levels then the next support level should be the $114.00 area.

I am not suggesting new positions at this time.

FYI: CVX is due to report earnings on April 26th.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 4.90/5.05

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: 46.97

Comments:
04/06/13: DLTR garnered some bullish analyst comments midweek but the "news" failed to lift the stock past resistance. DLTR has been struggling with resistance in the $48.50 level the last couple of weeks. The pullback this past week has created what appears to be a bearish reversal pattern on its weekly chart. There is potential support in the $46-44 zone but 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 $ 5.50/5.70

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: 43.45
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13


General Electric - GE - close: 22.93

Comments:
04/06/13: GE was upgraded on Monday but the bounce quickly failed. The stock seems to be suffering from a new, three-week trend of lower highs and lower lows. There is potential support near $22.50 but I would expect shares to drift lower toward the $22.00 area. Keep in mind that GE is scheduled to report earnings on April 19th and a disappointment could send shares lower.

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 $0.66/0.69

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: 40.08

Comments:
04/06/13: KO's losses for the week were relatively mild. Yet Wednesday's session did create a bearish reversal pattern. I would expect KO to pullback toward the $39.00-38.50 zone. If it pulls back any further it could hit our stop at $38.25.

Our plan was to exit our 2014 Jan. $40 calls on Monday, April 1st at the opening bell to lock in gains.

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

- Suggested Positions -
(closed 2014 calls on April 1st, 2013 at the open)
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - exit $1.97 (+95.0%)

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $3.15/3.25

04/01/13 exited 2014 calls at the open. Option @ $1.97 (+95.0%)
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: 43.39

Comments:
04/06/13: Market sell-off? Profit taking? Shares of Macy's are ignoring any bad news. The rally continues for this department story giant and shares hit new multi-year highs on Thursday. While the relative strength is great to see I would be somewhat cautious about launching new positions. In a helium balloon (rising stock) will go down if it's stuck inside a descending elevator (the market).

Earlier Comments:
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 $3.00/3.10

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: 45.13

Comments:
04/06/13: The drug sector managed to tag a new high this past week before paring its gains. MRK rallied to a new five-month high before paring its gains. Shares are likely to show relative strength given the flow of money toward defensive names. Of course sometimes relative strength just means a stock declines less than its peers. MRK can still decline if the market turns lower again.

I am not suggesting new positions at this time.
The company is due to report earnings on May 1st.

- Suggested Positions -
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 2.06
symbol: MRK1418a45 2014 JAN $45 call - current bid/ask $2.53/2.56

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $4.05/4.15

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


Starbucks Corp. - SBUX - close: 57.80

Comments:
04/06/13: Believe it or not but SBUX posted a gain for the week. Shares have been finding consistent support near its rising 30-dma. If this trend continues we could see SBUX testing resistance near $59.00 again soon. On the other hand a close below its 30-dma could signal a sharp drop toward the $53-52 area.

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 $ 3.75/ 3.85

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: 16.55

Comments:
04/06/13: it was a painful week of profit taking for SCHW. The stock is now down five days in a row. Traders did buy the dip on Friday morning near $16.15 but the short-term trend remains lower. Broken support near $17.00 and its 50-dma should be new short-term resistance. I am not suggesting new positions at this time.

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 $ 1.10/ 1.25

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


Under Armour, Inc. - UA - close: 53.04

Comments:
04/06/13: UA was a watch list candidate. The plan was to buy calls if shares hit our trigger at $52.50 (on an intraday basis). The stock has managed to ignore the market's sell-off this past week and continue to climb. The breakout past resistance near $52.00 and its 150-dma and 200-dma is bullish. Traders bought the dip on Friday morning helping reaffirm this area as new support. I would still consider new bullish positions now at current levels. However, if the market retreats on a disappointing Q1 earnings season UA could follow the market lower. Thus investors will want to consider keeping their position size small to limit their exposure.

UA's rise past $52.00 has created a brand new triple-top breakout buy signal that is currently forecasting at $66 target.

NOTE: UA is scheduled to report earnings on April 19th.

Earlier Comments:
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.

- Suggested *SMALL* Positions -
APR 02, 2013 - entry price on UA @ 52.50, option @ 3.15
symbol: UA1418a60 2014 JAN $60 call - current bid/ask $ 3.50/ 3.70

04/02/13 triggered at $52.50

Chart of UA:

Current Target: $59.75
Current Stop loss: 47.45
Play Entered on: 04/02/13
Originally listed on the Watch List: 03/30/13


Wal-Mart Stores - WMT - close: 76.39

Comments:
04/06/13: Investors turned defensive this past week. While most of the retail sector turned lower shares of WMT bucked the trend. Shares rallied past resistance near $75.00 and closed at new five-month highs. Traders bought the dip on Friday at its short-term technical support on its 10-dma. The stock looks poised to test what is likely resistance at its October 2012 highs near $77.50. I would expect WMT to pullback from its initial test of this level.

I am not suggesting new positions at this time. We will raise the stop loss up to $71.40.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 4.40/4.55

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 4.15/4.30

04/06/13 new stop loss @ 71.40
03/30/13 new stop loss @ 69.45

Current Target: $85.00-90.00 range
Current Stop loss: 71.40
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


CLOSED Plays


Citigroup - C - close: 43.01

Comments:
04/06/13: Shares of Citigroup has extended their correction lower to three weeks in a row. We almost survived it with Citigroup finding support near $42.00 midweek. Yet the market's gap down on Friday morning thanks to the terrible jobs number sparked a gap down in C. Shares opened at $41.75 and dipped to $41.60 before bouncing. Our stop loss happens to be $41.75 so the play was closed immediately.

On a short-term basis C's bounce on Friday has created a bullish engulfing candlestick reversal pattern. Nimble traders could use a rally past $43.50 or $44.00 as a new bullish entry point with a stop below Friday's low.

- Suggested Positions - (small positions)
DEC 18, 2012 - entry price on C @ 39.21, option @ 3.02
symbol: C1418a45 2014 JAN $45 call - exit $2.90 (-3.9%)

04/05/13 stopped out on gap down at $41.75
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

Chart of C:

Current Target:$ 49.00
Current Stop loss: 41.75
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12


The Manitowoc Co - MTW - close: 20.56

Comments:
04/06/13: Ouch! It was a terrible week for shares of MTW. Last week I suggested readers take profits because our option had doubled in value. I certainly wish we had done that now. MTW gave up -10.6% for the week and at its low on Friday the stock was down -15% for the week. Of course our stop loss was $18.40 and shares of MTW hit our stop on Thursday afternoon with the dip to $18.33.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - exit $2.05* (+32.2%)

04/04/13 stopped out at $18.40
*NOTE the option exit price is an estimate since the option did not trade on Thursday when the trade was stopped out.
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

Chart of MTW:

Current Target:$21.50
Current Stop loss: 18.40
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13


Zynga, Inc. - ZNGA - close: 3.55

Comments:
04/06/13: ZNGA was not working for us and last weekend we decided to close positions on Monday, April 1st at the opening bell. Shares opened at $3.37. The market's sell-off early in the week pulled ZNGA down to $3.05 on Tuesday. The stock managed a pretty decent bounce on Wednesday.

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 - exit $ 0.36 (-50.6%)

- or -

MAR 05, 2013 - entry ZNGA stock @ 4.02, exit $3.37 (-16.1%)

04/01/13 planned exit
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

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

Commodity Countdown

by James Brown

Click here to email James Brown


New Watch List Entries

GLD - Gold ETF

USO - Oil ETF


Active Watch List Candidates

CY - Cypress Semiconductor


Dropped Watch List Entries

GG has been removed.

UA has graduated to the active play list.



New Watch List Candidates:


SPDR Gold ETF - GLD - close: 152.81

Company Info

The jobs report on Friday was a disaster and all but assures that the Federal Reserve with continue with its open-ended QE program. A couple of days ago the Bank of Japan announced a colossal QE program double its money supply. Japan's move has sparked fears of a currency war as every country races to devalue their currency to stay competitive. That would put upward pressure on commodities like gold.

Plus, we have slowing economic data and Europe seems to be moving quickly back toward the cliff of ruin. This will also put a bid under gold. Coincidentally the GLD is bouncing from support near the $150 level. Currently the ETF is suffering from a multi-month down trend. Therefore we will wait for the GLD to close above resistance.

I am suggesting we wait for the GLD to close above $156.50. Then buy calls the next day. If that happens we'll use a stop loss at $149.00, which is just under Thursday's low. Our long-term target is $200 but the 175.00 area will be overhead resistance. Note, we'll probably close the 2014 calls well before the GLD hits our long-term target.

Breakout trigger: Wait for a close over $156.50
buy calls the next day, stop loss @ 149.00

BUY the 2014 Jan $160 call (GLD1418a160) current ask $5.20

- or -

BUY the 2015 Jan $170 call (GLD1517a170) current ask $7.95

Chart of GLD:

Originally listed on the Watch List: 04/06/13


U.S. Oil (ETF) - USO - close: 33.28

Company Info

Oil is likely to go a lot higher in the next 12 to 18 months. While no one expects North Korea to actually pull the trigger, if a fight does break out, we will see oil prices rise merely due to heightened geopolitical tensions. If Japan and China start fighting over some disputed islands, we'll see oil rise. If the U.S. or Israel decides to strike at Iran to stall the country's nuclear weapon program we will definitely see oil spike. Many are worried that the time frame for a strike on Iran could be late this summer. Plus, we are quickly approaching summer when oil and gas prices tend to rise with seasonal trends of demand.

If that wasn't enough, global QE programs should create a bid underneath commodities. A weaker currency means you have to use more of them to buy commodities, which creates higher commodity prices.

Bears will argue that a slowing U.S. economy, the significantly slowing European economy, both of which will also slow down the Chinese economy. Altogether a global economic slowdown will reduce demand for oil and thus keep prices from rising significantly. Without any geopolitical events to spark the rally, they could be right.

Right now the USO oil ETF is churning sideways inside a large, pennant shaped formation of lower highs and higher lows. A breakout is imminent. I am suggesting we wait for a breakout higher. Specifically, wait for a close above $35.50 and then buy calls the next day. If triggered we'll set our long-term target at $45.00. Unfortunately, USO does have 2015 calls available but the spreads are obscenely wide and make those options untradeable.

Breakout trigger: Wait for a close over $35.50
buy calls the next day, stop loss @ 32.75

BUY the 2014 Jan $35 call (USO1418a35) current ask $1.89

Chart of USO:

Originally listed on the Watch List: 04/06/13


Active Watch List Candidates:



Cypress Semiconductor - CY - close: 10.80

Comments:
04/06/13: Semiconductor stocks had a rough time last week but traders are buying the pullback in CY near its 100-dma. Aggressive traders could buy a breakout past $11.00 or the March high near $11.50. I am suggesting less risk tolerant investors (and the newsletter) wait for a close above $12.00.

FYI: CY is due to report earnings on April 18th.

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


Goldcorp. Inc. - GG - close: 31.79

Comments:
04/06/13: Gold prices managed a bounce from support. Not so for shares of GG. The stock broke down under key support near $32.00 and hit new multi-year lows. I am removing GG as a watch list candidate. Our trigger, a close above $34.25, was not met.

Trade did not open.

04/06/13 removed from the newsletter.

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