Option Investor
Newsletter

Daily Newsletter, Sunday, 4/14/2013

Table of Contents

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

Leaps Trader Commentary

Stairway to Heaven

by James Brown

Click here to email James Brown

We are halfway through the month of April and the stock market rally has resumed. Traders bought the dip. Now the S&P 500 index and the Dow Jones Industrial Average are both hitting new all-time highs. Financials, transports, and small caps all participated but the transports and the Russell 2000 index have failed to breakout past recent resistance.

Meanwhile money continues to flood into safe haven investments like U.S. bonds with yields on a 10-year note down to 1.72%. Worries over the economy and the shadow of deflation have crushed commodities. Oil is down two weeks in a row. Gold and silver were both hammered last week with silver falling to multi-month lows and gold plunging to a new 52-week low.

The flow of economic data continues to show weakness. The U.S. retail sales data for March was a disappointment. Actually all of 2013 is not shaping up very well. The government revised retail sales for January from +0.2% to -0.1%. February's was revised from +1.1% to +1.0%. March came in negative at -0.4%. It was the worst drop in eight months. Many are blaming the weather with an uncommonly cold March for much of the country. It could have been worse but a six-week slide in gasoline prices is helping the consumer. I'm worried about April since it will be the first month to really begin to feel the affect of the sequestration cuts.

April's consumer sentiment reading was another disappointment. Economists were expecting a drop toward 78.0. The headline number retreated from 78.6 to 72.3. This is the lowest reading in over six months. In positive news the weekly initial jobless claims fell from 388,000 to 346,000 although this number will likely be revised as the government tries to adjust for Easter. Meanwhile the wholesale look at inflation in the U.S. with the Producer Price Index (PPI) came in at -0.6% in March. Economists were expecting -0.2%.

It is interesting to see so much strength in the U.S. market considering the weakness around the world. Unemployment is ticking higher from Europe to Australia. France unveiled some troubling figures last week with the country's trade deficit hitting 6.0 billion euros and a budget deficit of 27.1 billion euros. Economists were only expecting a trade deficit of 5.0 billion and a budget deficit of 20.0 billion euros.

Portugal could be fighting for the spotlight soon. In legal news the European Union's austerity demands forced on to Portugal have been declared unconstitutional by a Portuguese court. Meanwhile former Portuguese Prime Minister Mario Soares confessed that Portugal cannot pay its debts. He is suggesting the country choose an Argentine-style default.

Another small European country that is struggling with its own economic crisis is Slovenia. Many are concerned that Slovenia could be facing a Cyprus-like banking crisis. Speaking of Cyprus it was discovered in a leaked Debt Sustainability Report that the Troika expects Cyprus to cough up another 6 billion euros for their own bailout, or what has become known as a "bail in". Since we're on the topic of "bail ins" the EU finance ministers are considering a new proposal to levy/tax/steal from money markets and interbank deposits for troubled banks. As if the bank robbery in Cyprus didn't do enough damage to depositors' faith in the banking system now they're considering another "levy"? This will surely inspire citizens to put more of their money in the bank.

Looking at Asia it was a good week for Japan. The Japanese NIKKEI continues to soar following news of the Bank of Japan's record-breaking monetary easing announced two weeks ago. The NIKKEI index is marching toward new five-year highs. The week wasn't so great for China. While the Chinese markets held up reasonably well the economic data was disappointing. Exports to the U.S. and Europe fell for the first time in four months. Surprisingly China actually had a trade deficit of $880 million in March. Compare that to economists estimates for a trade surplus of $15.4 billion for the month. What does that tell you about slowing exports? While there has been some positive growth in domestic consumption the Chinese customs office confessed that they do not see "a stable recovery in external demand". Chinese customs officials had a rough week when they had to back track from earlier comments that China's export numbers might be falsely inflated to look better than they really are. Again, yet another warning flag that China may be slowing down a lot more than they're letting on.

Major Indices:

The rally in the S&P 500 index continued with a +2.29% gain last week. The index broke out past its 2007 highs to hit new all-time highs. For the year the S&P 500 is up +11.4%. On the daily chart below you can see the S&P 500 is rising in a bullish channel but now it faces potential round-number resistance at the 1600 level.

The future of this rally should depend on corporate earnings. Earnings season hits full speed this week. If somehow the rally continues then the next level of resistance, past 1600, is probably 1620 and 1640. On the other hand if stocks pullback then the S&P 500 index should have support near its 30-dma (currently near 1560) and then the 1550-1540 zone. A close below its simple 40-dma (currently 1545) might be seen as a signal that the up trend is broken.

One potential outcome is a sideways consolidation for the next week or two with traders buying the dips near the bottom of the bullish channel.

chart of the S&P 500 index:

The NASDAQ composite has rallied to new multi-year highs with a dramatic rebound off last Friday's lows. The breakout past resistance 3270 pushed the NASDAQ to multi-year highs. You can already see how broken resistance is acting as new support with Friday's intraday bounce at 3271. Coincidentally this also matched up with a dip toward the prior trend line of resistance.

The NASDAQ gained +2.8% for the week and is up +9.1% year to date. If this rally continues then the next likely resistance level is 3350. On the other hand if the NASDAQ reverses then look for support near 3200 and 3100.

Daily chart of the NASDAQ Composite index:

The small caps look weaker than the big caps and that could be a caution signal. Money managers favor big caps for their liquidity when they're worried about the market. The bounce in the small cap Russell 2000 index ($RUT) produced a +2.1% gain last week. Yet the $RUT failed at prior resistance. Until we see the $RUT deliver a convincing close above the 955 level then this bounce may end up producing a new lower high and could be warning for future weakness.

If the market can keep this rally alive then the $RUT might see potential resistance near 980 and definitely at the 1,000 mark. If the market reverses lower then we can look for potential support near the 900 level and the old all-time highs near 870.

chart of the Russell 2000 index

Economic Data & Event Calendar

The flow of economic data slows down a bit this week. On Sunday, April 14th, the Chinese government will release their latest readings on GDP growth, industrial production, and retail sales. Any disappointments could influence the market on Monday morning. The big event for the week could be in North Korea. Monday, April 15th, is Kim Il-sung's birthday. He was the founder of the current North Korean government and he would have been 100 years old on Monday. Many are expecting North Korea to do a missile test on Monday as part of a national celebration for their country's founder. Unfortunately tensions in the region are high and any missile launch could make matters worse.

As far as economic data goes the Federal Reserve will release their Beige Book on Wednesday. The Philly Fed manufacturing survey comes out on Thursday. Q1 earnings season announcements will likely overshadow any economic news. We're going to hear from several high-profile technology names this week. A few to look for are: Ebay (EBAY), Google (GOOG), IBM, Intel (INTC), Microsoft (MSFT), SanDisk (SNDK), and Yahoo (YHOO).

Economic and Event Calendar

- Monday, April 15 -
New York Empire State manufacturing survey
N. Korean missile launch?
Eurozone industrial production

- Tuesday, April 16 -
Consumer Price Index (CPI)
Housing Starts and Building Permits
Eurozone inflation data

- Wednesday, April 17 -
Federal Reserve's Beige Book for April

- Thursday, April 18 -
Weekly Initial Jobless Claims
Philadelphia Fed survey

- Friday, April 19 -
April option expiration

Additional Events to be aware of:

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

The Week Ahead:

I was pondering what to title tonight's market commentary and the first thing that popped into my head was "Stairway to Heaven". Yes, I am referring to Led Zeppelin's 1971 hit of the same name. The main line of the song is "and she's buying a stairway to Heaven". I feel like the "she" in that sentence is the U.S. Federal Reserve.

This past week several fed governors assured the market that they would not turn off or even reduce their QE programs for the foreseeable future. Most of the fed governors would like to see six months of positive economic growth and job growth before they consider reducing their QE purchases. Given the current state of the economy and lack of jobs in the U.S. we are pretty much guaranteed that the FOMC will not change their stance on monetary easing throughout the rest of 2013.

The latest jobs report was a big miss at just +88,000 jobs and the Q4 GDP growth was almost negative at +0.4%. That was down from +3.1% in Q3 2012. Right now estimates for the first quarter of 2013 are all over the place from +1.4% to +3.5%. We could see those numbers retreat. Goldman Sachs, with one of the more optimistic forecasts, just lowered their Q1 estimate down to +3.2%. The government's first Q1 estimate comes out on April 26th.

The IMF is also lowering their U.S. growth estimates. A leaked draft found its way to Bloomberg who reported that the IMF is concerned with weak consumer sentiment, slowing consumer spending, and the U.S. budget deficits. The report showed that the IMF would lower their 2013 growth forecasts from +2% down to +1.7% for the whole year. Honestly, I am surprised the estimate isn't lower. Has the market forgotten that Obama's new tax increase from January and the sequestration budget cuts are going to cut GDP growth by up to -1.75%. The sequestration cuts are expected to generate 700,000 to 1.5 million job losses this year.

It seems like market participants don't care because the Fed is pumping a record-setting amount of money and one of their goals is rising asset prices. Yet Q1 earnings results and guidance could alter investor opinions. The next few weeks could be very important for the market and investor sentiment as we hear from hundreds of corporations. If businesses are too cautious or issue earnings warnings it could be tough for market bulls to keep the rally alive. Fortunately, Wall Street has lowered earnings expectations so low that it's going to be hard to miss.

What would you think if I had previously warned you that 80% of the S&P 500 companies to issue earnings guidance would warn and guided their Q1 estimates lower? Would you expect the S&P 500 index to be hitting new all-time, record highs in this sort of environment? That's exactly where we are today. On a positive note analyst estimates for Q1 earnings season have risen from +0.4% earnings growth a week ago to +1.0% growth today. We face the real risk that a slowing Europe, slowing China, slowing U.S. and the sequestration cuts will weigh significantly on corporate America's guidance.

Longer-term investors should be seriously concerned with the financially deadly morass that is currently Europe. Suddenly there is this new concept that anyone with more than $100,000 in the bank is rich. Or in Europe's case, anyone with more than 100,000 euros. The concept of taxing the rich has seen a serious adjustment over the last five years from those making one million dollars a year, to $400K a year, to $250K a year, and now it's down to anyone with more than $100K in the bank.

The EU government's bank robbery in Cyprus from anyone with more than 100K euros in the bank has become the new "template", especially in Europe. Now Australia just launched news rules to tax retirement accounts. Without getting bogged down in the details essentially, Australians were previously taxed putting money into their retirement accounts. Now they will also be taxed again as they draw money out of their retirement accounts, if you have more than $100K.

In summary Europe is a mess and it's getting worse. Cyprus, Greece, Spain, Portugal, Italy, and now it appears Slovenia are all in serious trouble. U.K. is printing money (buying debt) to pump up their economy. France's economy is in recession. Germany is slowing down. Japan is trying to shock their economy out of deflation with a mind-blowing amount of monetary easing that many claim could spark a currency war. China is lying to us about the health of their exports and they don't see any external demand. The U.S. has seen a parade of slowing economic data and faltering labor market while our government spending is out of control. Yet the U.S. equity market is hitting new all-time highs. Yes, the Federal Reserve definitely seems to be "buying a stairway to Heaven".

Last week my expectations for the market were for stocks to see a top in the middle to latter half of April, maybe early May. Then the market would reverse lower and experience a normal, healthy correction that we could use as a new entry point to launch bullish positions. Following what might be a volatile summer I expected stocks to resume their up trend and close the year at new highs. However, now I'm not so bullish for 2013 year end.

Geopolitical risks seem to be growing. I pray that all of the saber rattling in N. Korea is nothing more than a charade. Maybe it's all a build up for a new round of negotiations with the U.S. and the west or maybe it is a way for the young N. Korean leader to solidify his power within his own country. I really don't know I just hope no one "accidentally" sparks a new Korean war. The world will also face a likely showdown between Israel and Iran later this summer, which will probably drive oil prices higher.

If the world is lucky enough to avoid any new major military conflicts in 2013 we still have to deal with a slowing global economy. A slow down that will be made worse by the self-inflicted wound that is the U.S. sequestration budget cuts. If the U.S. somehow manages to avoid a recession it will still be a year of very slow growth.

I did not intend for this market commentary to be so gloomy. If you're the optimistic type then I've just laid out what could be a massive wall of worry for the bull market to climb. I find the surge of money into U.S. treasuries over the last five weeks to be a potential warning signal but maybe that is just foreign money looking for a safe haven after what happened in Cyprus. Here's a bit to cheer you up. Goldman Sachs just unveiled their long-term forecast where they expect the S&P 500 to hit 1,900 by the end of 2015. That's a +18% rally from current levels over the next two and a half years.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Big cap indices charge to new highs as bullish momentum continues. Yet the small caps have failed to breakout past recent resistance.

We are updating several stop losses tonight. Readers may want to consider taking profits early.

NOTE: We want to exit ADI, GE, UA, and the 2014 MRK calls soon. Please see details in the play updates section.

I have updated stop losses on AIG, BBBY, CL, DLTR, GE, SBUX, UA, and 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

Worried About Demand

by James Brown

Click here to email James Brown


- New Trades -


U.S. Oil (ETF) - USO - close: 32.53

Comments:
04/13/13: The looming threat of a potential conflict with North Korea has lost any influence on commodities. Even traditional safe-haven plays like gold and silver are collapsing. Oil tumbled lower on Friday as well as investors worry over a slowing economy and what that means for oil demand.

Last week I listed the USO as a potential bullish LEAPS candidate if the oil ETF could break out past resistance and close above $35.50. Last week I also cautioned investors that the bearish case was a slowing global economy, which would reduce demand for oil. It appears that the markets are growing increasingly concerned about the slowing global economy. The growing parade of disappointing economic data is definitely giving cause for concern.

There is still a significant risk that Israel and Iran eventually start shooting at each other as Israel tries to stop Iran's nuclear weapons program. If that happens oil will definitely skyrocket higher. However, no one expects any Israel/Iran conflict until late summer. Oil could plunge to new relative lows before that happens.

Here's the plan. We will buy put options now at current levels. We can aim for a drop into the $30-29 zone. The USO has what appears to be significant support near $29.00. If and when the USO nears this support level we can exit our USO puts for a potential profit and switch to buying calls in anticipation of any rising geopolitical risk in the Mideast.

Buy puts now

BUY the 2013 SEP $30 PUT (USO1321i30) current ask $0.91

Chart of USO:

Current Target:$ 29.50
Current Stop loss: 35.05
Play Entered on: 04/15/13
Originally listed on the Watch List: 04/06/13



Play Updates

Raising Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index is breaking out to new record highs. We are using this strength to raise stop losses on several of our active candidates.

I am also suggesting an early exit on ADI, GE, UA, and the 2014 MRK calls. Please see the individual play updates below for details.


Closed Plays



None. No closed plays this week.




Play Updates


Analog Devices - ADI - close: 44.59

Comments:
04/13/13: The rebound in the semiconductor sector stalled on Thursday and Friday. This was also evident in shares of ADI. Unfortunately the action in ADI looks worse than the SOX index. The rebound in ADI failed at its simple 40 and 50-dma. This now looks like a lower high. This looks even worse when you consider that the S&P 500 is at a new record high and even the NASDAQ is at a new multi-year high.

I am suggesting we abandon this trade and exit immediately on Monday morning at the opening bell. I am concerned that ADI is likely headed for the $40.00 level.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 2.85/3.00

04/13/13 exit immediately, prepare to exit on Monday morning at the open
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: 40.13

Comments:
04/13/13: The financial sector is participating in the market's rally and AIG is helping lead the charge. The rebound continues with AIG breaking out past resistance near $40.00 and hitting new two-year highs. Although you could argue with AIG at $40.13 the breakout is not very convincing (yet).

I am not suggesting new positions at this time. We are raising our stop loss to $35.75. FYI: AIG is scheduled to report earnings on May 2nd.

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 $ 6.95/ 7.00

04/13/13 new stop loss @ 35.75
02/02/13 new stop loss @ 34.40
01/26/13 new stop loss at $32.75
12/24/12 closed our 2013 call position at the open.
Our exit was at $5.00 (+47.0%)
12/22/12 Exit the 2013 calls immediately on Monday morning
current bid is at $4.80
..for prior updates, check older newsletters

Current Target:$ 2013 call: $37.00, 2014 calls: $42.50
Current Stop loss: 35.75
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12


Bank of America - BAC - close: 12.17

Comments:
04/13/13: The rally BAC has stalled. The XLF financial index is hitting new relative highs but BAC remains well below its 2013 high set in mid March. Earnings results from rivals JPM and WFC on April 12th did not have much influence. Both JPM and WFC beat estimates but Wall Street seems worried about the mortgage banking business for both banks. The number of mortgages is up but profit margins in the mortgage business are not what Wall Street was expecting. JPM's record earnings are also questionable considering that $1.15 billion of the bank's $6.5 billion net income for the quarter came from a release of its loan loss reserves.

BAC is scheduled to report earnings on April 17th, before the opening bell. Analysts expect a profit of 22 cents a share. The stock has support near $11.00, which is why our stop loss is at $10.90. More conservative traders may want to raise their stops toward $11.50 or its 100-dma. I am not suggesting new positions on BAC.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.35/0.36

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.06/1.07

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: 66.76

Comments:
04/13/13: BBBY is up exactly three dollars for the week thanks to the big bounce on Friday. The stock was quite volatile as investors reacted to the company's earnings report out on April 10th. Bottom line results were in-line with expectations at $1.68 a share. Revenues were up 24.5% to $3.4 billion, which was better than expected. Yet same-store sales growth plunged to +2.5%. If that wasn't bad enough management lowered their earnings estimates. The results were good enough to spark several price target upgrades from various analysts. Shares of BBBY gapped open higher and spiked to $68.30 on Thursday before plunging toward $64.00 and its 20-dma by Thursday's closing bell.

Thursday's session looked like a huge bearish engulfing candlestick reversal pattern. Thankfully there was no follow through and Friday saw a big rebound off its 20-dma.

I am not suggesting new positions at this time. We are raising the stop loss to $62.25.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $6.90/7.05

04/13/13 new stop loss @ 62.25
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: 62.25
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/16/13


Colgate-Palmolive - CL - close: 118.37

Comments:
04/13/13: CL bounced back toward its record highs set the prior week. Shares briefly tagged a new all-time high on an intraday basis. The trend is up but a failure here would look like a short-term bearish double top. Earnings are coming up on April 25th and the stock is scheduled for a stock split in May. Readers may want to consider just taking profits now to lock in gains. I am raising our stop loss to $114.35.

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 $ 7.15/ 7.40

04/13/13 new stop loss @ 114.35
Investors may want to just take profits now with the bid on our call at $7.15.
03/30/13 new stop loss @ 109.90
03/16/13 new stop loss @ 108.40

Current Target:$ 124.50
Current Stop loss: 114.35
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13


Chevron Corp. - CVX - close: 119.94

Comments:
04/13/13: CVX delivered a strong four-day rebound. The stock followed the energy sector lower on Friday likely due to the big drop in crude oil prices on Friday. More conservative investors may want to raise their stop closer to the $116.00 level. Or you could take profits now with the bid on our call at $6.00.

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 $ 6.00/6.15

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: 47.82

Comments:
04/13/13: Hmm... I am surprised that DLTR is bouncing. Shares displayed some volatility midweek as investors reacted to earnings from rival Family Dollar stores (FDO). FDO missed the earnings estimate and guided lower. Yet traders bought the dip in both FDO and DLTR. The rebound in DLTR helps negate the bearish reversal pattern created a week ago on its weekly chart.

I am cautiously bullish here but I am not suggesting new positions. We will raise the stop loss to $44.75.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 6.10/6.30

04/13/13 new stop loss @ 44.75
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: 44.75
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13


General Electric - GE - close: 23.46

Comments:
04/13/13: It was an up week for GE, which isn't surprising given the strength in big caps. The company is scheduled to report earnings on April 19th, which is Friday. I am growing cautious on the market even though the trend is up for the S&P 500. Therefore I am suggesting we go ahead and exit our GE positions on Thursday, April 18th at the closing bell to avoid holding over GE's earnings announcement. More conservative traders could just exit now since the bid has hit $0.79 (+88%).

I am raising our stop loss to $22.65, which is just under the recent low.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.79/0.81

04/13/13 prepare to exit on Thursday, April 18th at the closing bell
new stop loss @ 22.65
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: 22.65
Play Entered on: 11/14/12
Originally listed on the Watch List: 09/22/12


The Coca-Cola Company - KO - close: 41.08

Comments:
04/13/13: KO tagged new highs on Thursday before paring gains on Friday. The trend is up but shares of KO could be volatile this week. Investors might be tempted to sell the earnings news. KO is scheduled to report earnings on April 16th before the opening bell. Wall Street expects a profit of 45 cents a share. Our 2015 call options have already doubled (+108%) and investors may want to take profits now ahead of the report. I am not suggesting new positions.

- 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 $3.65/3.80

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: 44.43

Comments:
04/13/13: Macy's rallied more than a dollar for the week to close at new multi-year highs. Short-term I would expect a pullback. The last couple of days have seen traders selling the rallies. Broken resistance near $42.00 should be support. I am not suggesting new positions at this time.

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 $3.65/3.75

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: 47.11

Comments:
04/13/13: MRK was a strong performer last week, gaining almost two dollars. Shares are nearing what should be resistance near $48.00 and its 2012 high. I am adjusting our exit strategy. We will go ahead and exit our 2014 Jan. $45 calls now, on Monday, April 15th at the opening bell to lock in gains. We will keep the 2015 call position open but I am moving our stop loss to $43.40 and moving the exit target to $53.50. I fully expect MRK to see significant volatility over the next several weeks. Not only is the $48 level resistance but the $50 level will likely be resistance as well. If you're holding the 2015 calls you'll need to be patient.

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 $3.65/3.70

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $5.10/5.20

04/13/13 prepare to exit 2014 calls on Monday, April 15th at the opening bell.
new stop loss @ 43.40 and new target of $53.50 for 2015 calls.
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: $53.50
Current Stop loss: 43.40
Play Entered on: 03/13/13
Originally listed on the Watch List: 02/23/13


Starbucks Corp. - SBUX - close: 59.09

Comments:
04/13/13: The dip buying in SBUX has finally produced a bullish breakout. Shares hit new 11-month highs but stalled at round-number resistance near $60.00. I am expecting SBUX to push past potential resistance at $60.00 but the all-time high near $62.00 could be another matter. I am adjusting our exit target down to $61.50. I am adjusting the stop loss to $54.75.

FYI: SBUX is scheduled to report earnings on April 25th.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 4.30/ 4.40

04/13/13 new stop loss @ 54.75, adjust target to $61.50
03/09/13 new stop loss @ 52.75
01/05/13 new stop loss @ 49.85

Current Target:$ 61.50
Current Stop loss: 54.75
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12


The Charles Schwab Corp. - SCHW - close: 17.28

Comments:
04/13/13: SCHW delivered a nice four-day rally before succumbing to profit taking on Friday. Shares are likely to be volatile on Monday. The company is scheduled to report earnings on April 15th. The announcement is before the opening bell. Analysts are looking for a profit of 16 cents a share. 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 $ 1.45/ 1.65

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: 57.00

Comments:
04/13/13: Wow! UA was a bright spot in the market with a $4.00 gain for the week (about +7.5%). The stock is up several days in a row and definitely looks short-term overbought here. Investors may want to take profits immediately to lock in gains.

UA is scheduled to report earnings on April 19th. I strongly suspect that after such a sharp run up higher we will see shares give into profit taking following its report. Therefore I am suggesting we plan on exiting our UA positions on Thursday, April 18th at the closing bell to avoid holding over the announcement. Furthermore I am lowering our exit target down to $59.00 just in case the rally continues, we might be able to exit prior to Thursday. I am also raising our stop loss to $53.75.

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 $ 5.40/ 5.60

04/13/13 new stop loss at $53.75, adjust target to $59.00,
prepare to exit on Thursday, April 18th if UA does not hit our target by then.
04/02/13 triggered at $52.50

Current Target: $59.00
Current Stop loss: 53.75
Play Entered on: 04/02/13
Originally listed on the Watch List: 03/30/13


Wal-Mart Stores - WMT - close: 78.56

Comments:
04/13/13: There seems to be no slowing the rally in WMT. Shares of this retail titan have broken out to new all-time, record highs. The stock is actually looking overbought here. WMT is up four weeks in a row and up seven out of the last eight week. I suspect the $80.00 level will be round-number resistance and the stock will see a correction lower. More conservative investors may want to take profits now, especially if you're holding the 2014 calls.

I am not suggesting new positions at this time. I am raising the stop loss to $73.45.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 5.85/5.95

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 5.25/5.40

04/13/13 new stop loss @ 73.45
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: 73.45
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


Watch

Gold Collapses, Oil Slides

by James Brown

Click here to email James Brown

Editor's Note:

I am not adding any new watch list candidates tonight.

We can't deny that the trend is up, at least for large cap stock indices like the S&P 500 and the Dow Industrials. Yet the small cap Russell 2000 index has failed to break out higher. The lack of participation in the Russell could be a warning signal. Plus there has been a surge of money into the U.S. bond market, which could also be a warning signal. Money goes into bonds when investors are looking for safety. That is definitely a risk off sort of move. Rising stocks are a risk on move.

We are also about to hit our first full week of Q1 earnings season. Corporate guidance could have a big impact on market direction.

I am suggesting we wait and see where stocks are a week from now before making any decisions on new positions (the exception being our new play tonight on the USO). Odds are good that the stock market could hit a top in the next two or three weeks. Thus I'm not in a rush to open new bullish positions.


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:

K, TJX, V, DIS, IBM, CSCO, SODA, SYK, CSX, LOW, NVDA, GLW, MON, TXN, EL, SKX,



New Watch List Entries

None, no new watch list candidates


Active Watch List Candidates

CY - Cypress Semiconductor


Dropped Watch List Entries

GLD has been removed.
USO has been moved to the new plays section


Active Watch List Candidates:



Cypress Semiconductor - CY - close: 11.23

Comments:
04/13/13: CY followed the semiconductor sector higher this past week. Although shares of CY stalled at resistance near $11.50. That's not too surprising. We are still waiting on a bullish breakout higher.

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


SPDR Gold ETF - GLD - close: 143.95

Comments:
04/13/13: It was an ugly week for gold and the GLD gold ETF. The bearish trend of lower highs remains in place. Then the floor collapsed on Friday and the GLD broke down below key support near the $150 level. Traders were blaming news that the EU wants Cyprus to sell its 13.9 metric tons of gold to help pay for the country's recent bail out. One metric ton is 35,274 ounces of gold. Whatever the reason Friday's breakdown in gold is bearish with the commodity falling to 15-month lows.

It is very unlikely that GLD will hit our suggested entry point (a close over $156.50) any time soon so we are removing GLD as a watch list candidate.

trade did not open.

04/13/13 removed from the watch list

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