Option Investor
Newsletter

Daily Newsletter, Sunday, 4/21/2013

Table of Contents

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

Leaps Trader Commentary

Worst Week of 2013

by James Brown

Click here to email James Brown

Are we witnessing a stock market top? The volatility index (VIX) surged from 12.0 a week ago to over 18.0 on Thursday before reversing sharply on Friday's market rebound. The S&P 500 index went from hitting new all-time highs near the 1600 level a week ago to delivering its worst weekly performance of 2013.

Monday's sell-off was the worst one-day market slide in nine months as investors reacted to disappointing economic data out of China and the tragedy in Boston. Even though Wall Street has lowered their earnings expectations for the first quarter there is still an above average number of earnings misses. Meanwhile commodities are plunging, led by a steep drop in gold. In dollar terms gold has just witnessed its biggest one-day loss ever. Gold also experienced its worst two-day drop in the past 30 years. Oddly enough the rally in the U.S. bond market has stalled with the yield on the 10-year note still close to 1.7%.

Economist data continues to disappoint. Economists were expecting the Philly Fed manufacturing survey to rise. Instead the survey showed a drop from 2.0 to 1.2. Numbers above zero still show positive economic growth but this report is obviously getting close to negative territory. If you look behind the headline number the Philly Fed report's employment component plunged from 2.7 to -6.8. New orders came in at -1.0 and the back order component dropped to -6.8. This report doesn't bode well for the ISM due out in two weeks. The New York Empire State manufacturing survey was not much better. Economists were expecting a drop to 7.0 from March's 9.2. Unfortunately the New York survey declined to 3.1.

Homebuilders remain cautious. The NAHB homebuilder sentiment index fell for the third month in a row with a drop from 44 to 42 in April. U.S. building permits fell 3.9% when analysts were expecting a small rise. We're going to see some sales data soon with both the new home and existing home sales report coming out this week. Elsewhere the weekly initial jobless claims rose from an upwardly revised 348,000 to 352,000.

The situation in Europe continues to fester. After months of negative economic data we're finally seeing the rating agencies act. Much of the week there was speculation that we might see Germany or France receive a credit rating downgrade. Egan Jones did lower their rating on Germany from an "A+" to an "A" but this was not one of the big three agencies (Standard & Poor's, Fitch, or Moody's). The United Kingdom did get downgraded by Fitch from "AAA" to "AA+". Meanwhile the country of Italy is still without a president. There was a third vote by the Italian parliament but no clear winner on a presidency.

Looking east much of the headlines were from China. A disappointing Q1 GDP growth estimate of +7.7% last Sunday helped spark the stock market sell-off on Monday. Economists had been expecting +8.0%. China also said their industrial production came in at +8.9% when analysts were looking for +10.0%. A Goldman Sachs analysts followed this news by lowering their 2013 GDP estimates to 7.8%.

Major Indices:

The S&P 500 index gave market participants a scare with its worst weekly performance of the year (-2.1%) and a bearish breakdown under technical support at its 50-dma. The large cap index managed to bounce on Friday lifting its back above the 50-dma and paring its losses for the week. Yet the up trend remains in jeopardy.

The S&P 500 index's five-month bullish channel has been broken. The pullback looks like a normal reversal at round-number, psychological resistance at the 1600 level. I pointed out last week that the 1540-1550 area would likely be short-term support and right now the index is trying to bounce from this area. If this rebound continues then we can look for resistance near 1575 and the 1600 level. If instead this bounce attempt fails and the S&P 500 turns lower then the next major support level is probably the 1500 area, bolstered by its simple 100-dma.

chart of the S&P 500 index:

Monthly chart of the S&P 500 index:

The tech-heavy NASDAQ managed a +1.25% bounce on Friday but even with the rebound it posted a -2.7% decline for the week. The NASDAQ went from making new relative highs to new relative lows pretty quickly. Its largest component Apple Inc. (AAPL) didn't help matters with a breakdown under the $400 mark for the first time since 2011.

I am concerned that the NASDAQ's peak near 3300 might be a short-term top and the current pullback is the start of a larger correction. On a short-term basis I would not be surprised to see a bounce back toward 3250 but we'll likely see a drop toward the 3100-3000 area in the relatively near future.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index underperformed its large-cap rivals with a -3.2% drop for the week. Last weekend I suggested investors watch for likely support near 900. That's where market participants stepped in to buy the dip. Unfortunately, this is a new short-term relative low. If the $RUT can bounce the 50-dma near 930 and the 940 and 950 levels are all potential overhead resistance.

If the correction lower continues a normal retracement would suggest a pullback toward 880 or 860. Of course the prior all-time highs near 870 could offer some support.

chart of the Russell 2000 index

Economic Data & Event Calendar

We have a relatively quiet week ahead of us for economic reports. The big event will be the first look at U.S. Q1 GDP growth, which should be released on Friday morning. Economists are expecting (hoping) for growth of +3% in the first quarter. Nearly everything else will likely be overshadowed by earnings season.

Economic and Event Calendar

- Monday, April 22 -
CFNAI (Chicago Fed) report
existing home sales data
Eurozone consumer confidence
Chinese HSBC PMI data

- Tuesday, April 23 -
new home sales data
Eurozone PMI data

- Wednesday, April 24 -
durable goods orders

- Thursday, April 25 -
Weekly Initial Jobless Claims
Spain's unemployment report
Japan's CPI index

- Friday, April 26 -
U.S. Q1 GDP estimate University of Michigan consumer sentiment (final reading for April)
Bank of Japan interest rate decision

Additional Events to be aware of:

May 1st - FOMC meeting
May 18th - U.S. debt ceiling deadline
May 27th - U.S. market closed for Memorial day

The Week Ahead:

Looking at the week ahead of us the market's focus will likely remain on earnings results. Thus far almost 100 of the S&P 500's components have reported earnings and the results are disappointing. Wall Street had very low expectations going into this earnings season and yet only 37% of those reporting have beaten estimates. The historical average is closer to 47% of companies beat estimates. This will be the second full week of earnings reports. April 26th will mark the halfway point for earnings season and results tend to decay the deeper we get into earnings season. The biggest earnings report of the week will probably be Apple Inc. (AAPL), which reports on April 23rd, after the closing bell. Odds are good AAPL shares will see a big move, one way or the other, on the news.

If we look beyond the next five trading days there are a number of big picture issues facing the market. It's widely believed that consumer spending accounts for nearly 70% of the U.S. economy. The chief economists at Goldman Sachs recently expressed concerns that the U.S. consumer is struggling, which will likely impact growth in the second quarter. Speaking of the second quarter, we are quickly approaching the "sell in May" phenomenon. May 1st begins the worst six months of the year.

Seasonally we are approaching a weak part of the year for stocks. Compounding the problem for the bulls is a parade of slowing economic data. The recent sell-off in commodities has been painted as another warning signal for global growth concerns. The fact that the economy is slowing down in spite of the Federal Reserve's infinite QE program doesn't bode well either. What more can the Fed do at this point?

Looking ahead the April nonfarm payrolls (jobs) report will be the first jobs report that should be impacted by the U.S. government sequestration cuts. A sharply lower jobs report could be another blow to investor sentiment. That's two weeks away. The U.S. debt ceiling fight in Washington will resume in about four weeks. Now add slowing economic growth in Europe, China and the U.S., a number of potential geopolitical risks, and we're facing what could be a tough summer for stocks.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The tug-of-war between the bulls and the bears has increased its intensity this past week. After surging to new highs just two weeks ago the S&P 500 reversed with its worst week of the year. Now the up trend appears to be in jeopardy.

This past week we closed ADI and UA early. GE was stopped out. We also took profits on the MRK 2014 calls.

This week I am suggesting we exit our CL positions early ahead of the earnings report.

I have updated stop losses on CL and KO.

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

Right On Schedule

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 20, 2013)

I am running the risk of repeating myself but we've been warning investors that the market might peak in mid April through early May for a while now. Sure enough the S&P 500 has rolled over, under round-number resistance at 1600, and is now in jeopardy of breaking the bullish up trend.

Stocks are overdue for a correction. We would rather wait for the -5% to -10% correction to happen and then buy calls than suffer through the sell-off. Of course there is no guarantee the pullback would stop at -10%. We are seeing a parade of disappointing economic data and worries over a global economic slowdown are growing.

I am not adding any new candidates tonight. We've been trying to take profits on our current, active play list. So far it's working well. This week I am suggesting we take profits in our CL trade soon (see update for details).

We are adding three new watch list candidates that could be triggered soon (F, INTC, and VOD).


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:

UNP, FSLR, ROST, V, DIS, CS, NVDA, EL, REGN, PNRA, TGT, KMB, SYY, PFE, AXP, WSM, GLD, CLX, GM, TAP, UA, SOHU, HSY, SJM, HFC,


Play Updates

Working Well

by James Brown

Click here to email James Brown


Closed Plays


ADI and UA were closed early as planned.
GE was stopped out. We also exited our MRK 2014 calls to lock in gains.



Play Updates


American Intl. Group - AIG - close: 38.88

Comments:
04/20/13: The stock market's pullback last week pushed AIG toward $38 before shares rebound. If this market weakness continues we could see AIG dip toward the next level of support near $37.00.

I am not suggesting new positions at this time. 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 $ 6.15/ 6.25

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: 11.66

Comments:
04/20/13: BAC suffered a -4% loss on the week as investors reacted to the company's earnings repot. BAC reported on April 17th and delivered a profit of 20 cents a share. That was two cents worse than expected . Revenues appear to have beaten estimates at $23.7 billion for the quarter. Investors decided to sell the news and shares dropped sharply on the 17th and 18th. Yet two analyst firms upgraded their price targets on BAC's stock following the earnings results.

On a short-term basis BAC appears to be a four-week trend of lower highs and lower lows (a.k.a. a bearish trend). The next level of support is $11.00 and we have our stop loss at $10.90.

I am not suggesting new positions at this time.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.24/0.25

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $0.83/0.86

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: 66.77

Comments:
04/20/13: Believe it or not BBBY is virtually unchanged for the week. That's impressive when the S&P 500 just suffered its worst week for the year. Traders continue to buy the dips in BBBY and the stock is marching higher.

I am not suggesting new positions at this time.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $6.95/7.10

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: 119.72

Comments:
04/20/13: CL continues to show relative strength. The stock ignored the market's weakness and rallied to another new high. Shares look poised to breakout past the $120.00 level. Our 2014 call option has hit a bid of $8.90 (+111%). Readers will want to seriously consider an early exit now to lock in profits.

CL is scheduled to report earnings on April 25th, before the opening bell. I am suggesting we plan on an early exit and close positions on April 23rd (Tuesday) at the closing bell. I am raising our stop loss to $115.90.

- 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 $ 8.90/ 9.15

04/20/13 new stop loss @ 115.90, readers may want to exit immediately!
Plan on exiting positions April 23rd at the closing bell
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: 115.90
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13


Chevron Corp. - CVX - close: 115.90

Comments:
04/20/13: It was definitely a rough week for the energy sector. A plunge in commodities, including crude oil, helped pull the energy stocks lower. CVX crashed from $120 toward $114 before bouncing on Thursday. Currently our stop loss is $113.25. More conservative traders may want to inch their stop higher.

Don't forget that CVX is scheduled to report earnings on April 26th, before the opening bell. Wall Street expects a profit of $3.08 a share.

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 $ 4.40/4.50

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: 47.47

Comments:
04/20/13: DLTR managed to weather the market's recent volatility relatively well. Shares lost less than half a point for the week. The stock appears to be consolidating sideways in a neutral pattern of higher lows and lower highs.

I remain cautiously optimistic here but we are not suggesting new positions.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 5.80/6.10

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


The Coca-Cola Company - KO - close: 42.66

Comments:
04/20/13: It's tough to feel bad booking a +95% jump in an option but suddenly I wish we still had those 2014 January $40 calls. They are significantly higher now following KO's rally.

KO reported earnings on April 16th and beat estimates by one cent at 46 cents a share. Revenues came in better than expected at $11.04 billion for the quarter. These better than expected results sparked a rally in KO that ushed shares to new 15-year highs.

KO's all-time high is $44.47 from July 1998. We are leaving the long-term exit target at $44.00 but readers may want to seriously consider taking profits right now with the bid on our 2015 call at $4.70.

I am raising the stop loss to $39.65.

- 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 $4.70/4.80

04/20/13 new stop loss @ 39.65, readers may want to take profits now.
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: 39.65
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13


Macy's Inc. - M - close: 43.54

Comments:
04/20/13: There was some drama in the retail world this past week. Macy's was granted a restraining order to prevent J.C. Penney(JCP) from selling certain Martha Steward (MSO) products. Macy's is arguing that they have an exclusive to sell certain Martha Steward products. Meanwhile outside the court room shares of Macy's were not immune to the market sell-off. Yet traders bought the dip near $43.

If the market weakness continues I would expect shares of M to trade to $42. 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 $3.20/3.30

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: 47.49

Comments:
04/20/13: MRK displayed relative strength by posting a gain for the week. A week ago MRK looked short-term overbought. We adjusted the plan to exit our 2014 Jan. $45 calls on Monday, April 15th at the opening bell. Fortunately for the bulls there was no big profit taking in MRK. Traders were buying the dip near $46.50 all week. By Friday's closing bell the stock was once again testing short-term resistance at $47.50.

I remain concerned that the 2012 high near $48.00 could be resistance. Plus, MRK could see some profit taking after they report earnings on May 1st, which is just a few days away. Currently our stop; loss is at $43.40. More conservative traders may want to raise their stops.

- Suggested Positions -
(closed 2014 call position on April 15, 2013)
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 2.06
symbol: MRK1418a45 2014 JAN $45 call - exit $3.60 (+74.7%)

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $5.30/5.45

04/15/13 closed 2014 calls
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: 58.40

Comments:
04/20/13: It was a relatively quiet week for shares of SBUX. Of course considering the week we just had that's probably a good thing. SBUX only suffered a minor decline for the week. I strongly suspect the stock is going to see more volatility later this week following its earnings report. SBUX is scheduled to report on April 25th. Wall Street expects a profit of 48 cents a share. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 4.05/ 4.15

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: 16.39

Comments:
04/20/13: SCHW fell more than -4% for the week as investors reacted to earnings news. The company reported on April 15th and missed estimates by a penny although revenues were better than expected at $1.29 billion. The company said trading activity was lower than expected.

I am concerned that the recent sell-off almost looks like the right shoulder to a bearish head-and-shoulders pattern. The $16.00 level has been support in the past and that's why we have a stop loss at $15.90 although more conservative investors might want to just exit early right now to avoid any losses.

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 $ 0.95/ 1.10

04/20/13 SCHW looks vulnerable following its earnings report and investors may want to exit early.
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


U.S. Oil (ETF) - USO - close: 31.39

Comments:
04/20/13: As expected the oil ETF traded lower. Shares actually gapped down on Monday morning at $31.94. The gap down did impact our entry point but sometimes the market doesn't cooperate. The USO briefly traded below potential support near $31.00 (near the November lows) before bouncing. Given the collapse in commodity prices this past you can easily argue that oil and the USO are short-term oversold. I would not be surprised to see a bounce and a failed rally in the $32.25-32.50 zone could be used as a new bearish entry point.

Earlier Comments:
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 can aim for a drop into the $30-29 zone (target 29.50). 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.

This is a PUT play

- Suggested Positions -
APR 15, 2013 - entry price on USO @ 31.94, option @ 1.39
symbol: USO1321u30 2013 SEP $30 PUT - current bid/ask $ 1.37/ 1.41

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


Wal-Mart Stores - WMT - close: 78.29

Comments:
04/20/13: Shares of WMT were doing a pretty good job of ignoring the market weakness. That changed on Thursday when the stock unexpectedly turned lower following analyst comments voicing concern that WMT's grocery and apparel sales might be weak (source: Bloomberg). Fortunately for the bulls there was no follow through on Thursday's session, which had created a bearish engulfing candlestick reversal pattern. While shares remain near their new all-time highs I would expect WMT to turn lower if the broader market continues to show weakness.

We've got about three weeks before WMT reports earnings on May 16th. More conservative investors may want to take profits now, especially if you're holding the 2014 calls.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 5.75/5.90

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 5.25/5.45

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


CLOSED Plays


Analog Devices - ADI - close: 42.36

Comments:
04/20/13: ADI suffered a rough week. Fortunately we had decided last weekend to exit positions on Monday morning (April 15th). The stock opened at $44.41 on the 15th.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - exit $2.75 (-11.3%)

04/15/13 planned exit
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

Chart of ADI:

Current Target:$ 49.00
Current Stop loss: 41.90
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/22/12


General Electric - GE - close: 21.75

Comments:
04/20/13: We were planning to exit our GE positions on April 18th to avoid holding over the company's earnings report. Yet the stock hit our new stop loss at $22.65 on Wednesday, April 17th.

The gap down on Friday morning was a reaction to GE's earnings results and guidance.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - exit $0.58 (+38.0%)

04/17/13 stopped out at $22.65
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

Chart of GE:

Current Target: $27.50
Current Stop loss: 22.65
Play Entered on: 11/14/12
Originally listed on the Watch List: 09/22/12


Under Armour, Inc. - UA - close: 56.41

Comments:
04/20/13: UA was slowly drifting lower all week with traders buying the dips near its 10-dma. Then on Friday shares gapped open higher following the earnings report. UA reported Friday morning with a profit of 7 cents a share. That was four cents better than expected. Revenues were also a beat at $472 million for the quarter. Gross margins also improved and management expects the trend to continue. Overall it was a good report. Yet reaction to the news was met with selling after the initial pop higher. I am concerned that UA could see a correction back toward the $53-52 zone. Fortunately, our trade is closed. The plan was to exit positions on April 18th at the closing bell to avoid holding over the earnings announcement.

I remain longer-term bullish on UA and we can look at buying a dip or a bounce near $52 and its 200-dma if shares correct that low.

- Suggested *SMALL* Positions -
APR 02, 2013 - entry price on UA @ 52.50, option @ 3.15
symbol: UA1418a60 2014 JAN $60 call - exit $4.30 (+36.5%)

04/18/13 planned exit at the close, prior to earnings
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

Chart of UA:

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



Watch

Autos, Semiconductors, & Telecom

by James Brown

Click here to email James Brown


New Watch List Entries

F - Ford Motor Co

INTC - Intel Corp

VOD - Vodafone


Active Watch List Candidates

Currently none. See the new watch list candidates section.


Dropped Watch List Entries

I have removed CY as a watch list candidate.



New Watch List Candidates:


Ford Motor Co. - F - close: 12.93

Company Info

Ford is an American auto maker. The stock was not immune to the market's recent weakness. The stock pulled back from resistance near the $13.50 level. I suspect pullback in Ford will might end soon and it will see a rebound.

Nationwide the flow of vehicle sales for all automakers has been healthy at a 15.3 million unit annual pace. Actually it's been hovering in the 15.3 to 15.4 levels for the last four months. Ford has seen some very healthy year over year sales gains. The company said sales in January 2013 were up +22%. February showed a +9% gain. March was only +6%. Although the trend does seem to be slowing it is outpacing many of its peers.

I want investors to be ready in case Ford surprises Wall Street with a better than expected earnings report. The company reports on April 24th. Analysts are expecting a profit of 38 cents a share.

The plan is to wait for Ford to close above $13.60 a share. We'll buy calls the next morning with a stop loss at $12.40. Our long-term target is $16.50. You could certainly aim higher. Currently the Point & Figure chart is forecasting a $24.50 target.

FYI: shares of Ford will begin trading ex-dividend on May 1st. The stock is currently yielding 3.1%.

Breakout trigger: Wait for a close above $13.60, buy calls the next day
stop loss @ $12.40

BUY the 2014 Jan $15 call (F1418A15) current ask $0.45

- or -

BUY the 2015 Jan $15 call (F1517A15) current ask $1.09

Chart of F:

Originally listed on the Watch List: 04/20/13


Intel Corp. - INTC - close: 22.44

Company Info

The semiconductor sector index, the SOX, appears to have peaked in mid March. Yet INTC is bucking the trend. Shares of INTC have been underperforming their peers for several months but it looks like INTC has finally found a bottom. Investors have been buying the sell-offs and now shares have formed a bullish pattern of higher lows.

The company recently reported earnings that were in-line with analyst estimates. Honestly I am surprised that INTC did not sell-off given the drop in its gross margins and the significant pullback in PC sales in the first quarter. It would appear that the market has finally priced in all the bad news.

The stock has broken out past resistance near $22.00 and is currently testing technical resistance at its simple and exponential 200-dma(s). The stock does have a 2013 high near $23.00. I would like to see INTC breakout past this level before we initiate positions.

Wait for INTC to close above $23.10. We'll buy calls the next day with a stop loss at $21.40. Our long-term target is $26.50 but we may have to exit our 2014 calls before then.

Breakout trigger: Wait for a close above $23.10, buy calls the next day
stop loss @ $21.40

BUY the 2014 Jan $25 call (INTC1418A25) current ask $0.65

- or -

BUY the 2015 Jan $25 call (INTC1517A25) current ask $1.48

Chart of INTC:

Originally listed on the Watch List: 04/20/13


Vodafone Group - VOD - close: 29.59

Company Info

Large telecom stocks have been a bright spot for market bulls in recent weeks. Maybe it's the perception that these are big safe-haven plays. It might be due to their high yields. VOD currently has a dividend yield of 3.4%. Whatever the case VOD managed to ignore most of the market volatility this past week. Now the stock is testing major resistance near the $30.00 level. A breakout here would be very bullish.

I am suggesting we wait for VOD to close above $30.25 and then buy calls the next day. If triggered we'll use a stop loss at $28.45. Our long-term target is $36.00. Please note, we do not want to open positions if VOD happens to gap open higher above $31.00. What might make shares gap higher? The stock actually gaps open almost every morning as trading in the U.S. adjusts for trading back home in London. However, what I am concerned about is a large gap higher. There has been growing speculation that VOD is a takeover target. The latest rumor is suggesting that AT&T and Verizon might team up to buy VOD. If that happens, and VOD sees a big gap higher, we do not want to buy calls on that gap open. It would be great news if we're already in the trade.

Breakout trigger: Wait for a close above $30.25, buy calls the next day
stop loss @ $28.45

BUY the 2014 Jan $30 call (VOD1418A30) current ask $1.75

- or -

BUY the 2015 Jan $35 call (VOD1517A35) current ask $1.00

Chart of VOD:

Long-term Chart of VOD:

Originally listed on the Watch List: 04/20/13


Active Watch List Candidates:



Cypress Semiconductor - CY - close: 9.66

Comments:
04/20/13: Shares of CY collapsed this past week following the company's earnings report on April 18th. CY actually beat analysts' earnings estimates and their revenue expectations. This should have been a bullish report. Yet management's cautious Q2 guidance and the fact that CY's margins retreated significantly sparked a sharp sell-off in the stock price.

It is very unlikely that CY will meet our entry point requirement (a close above $12.00) any time soon so I am removing the stock as a watch list candidate.

Trade did not open.

04/20/13 removed CY as a watch list candidate.

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