Option Investor
Newsletter

Daily Newsletter, Sunday, 5/5/2013

Table of Contents

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

Leaps Trader Commentary

Jobs Data Sparks New High

by James Brown

Click here to email James Brown

"Don't fight the Fed!" has been the battle cry of the bulls and so far bears remain thoroughly intimidated. The U.S. market has continued to rally and this past week saw the Dow Jones Industrial Average cross 15,000 for the first time in history. The S&P 500 index broke out past resistance at the 1,600 mark to close at all-time, historic highs. Gains were widespread with technology leading the charge higher. The trend of disappointing economic data continues but the Friday morning jobs report was a significant exception. Most were expecting a disappointing jobs number and the better than expected nonfarm payroll surprise sparked a short squeeze on Friday morning, launching stocks past resistance. The U.S. bond market reversed sharply on the jobs news and the 10-year yield surged to 1.75% on Friday.

It was a big week for central banks news with both the Fed and the ECB meeting. The U.S. Federal Reserve held a two-day meeting that concluded on Wednesday, May 1st. Ben Bernanke and crew left rates unchanged in the 0.0% to 0.25% zone. However, the Fed's statement did say they were prepared to increase or decrease QE as needed. Currently the Fed is purchasing $85 billion a month in its quantitative easing program. The fact that they're willing to increase these purchases should tell you just how weak the economy really is. Yet the sudden improvement in the jobs picture will generate concerns that the Fed may reduce purchases sooner than expected.

Economic data for the U.S. was mixed. The Chicago PMI report fell to 49.0 versus estimates for 52.5. Numbers below 50.0 indicate economic contraction. The U.S. ISM index slipped from 51.3 to 50.7. The ISM nonmanufacturing (a.k.a. services) index dipped from 54.4 to 53.1 in April. These reports suggest the economy is still slowing down. Yet we did see good news out of the real estate market and the jobs picture.

Pending U.S. home sales surged +1.5%, above estimates for +1.0%. The Case-Shiller 20-city home price index jumped +9.3% year over year. Home prices have risen to their highest levels since December 2008. Yet home ownership has fallen to levels not seen since 1995.

The ADP Employment change report came in at a disappointing +118,900 new jobs when economists were expecting +178K. This drop in the ADP number weighed on analyst estimates for the nonfarm payroll report and consensus estimates fell from +150K to +125K for April. Yet the weekly initial jobless claims numbers were actually improving. The latest initial jobless claims came in at -18,000 to 324,000. That's a four-year low.

There were plenty of traders that had positioned themselves for a miss in Friday's jobs report. March's report was a disaster and April was expected to be impacted by the government's sequestration cuts. On Friday morning when the government said April nonfarm payrolls came in at +165,000 new jobs it sparked a massive short squeeze in stocks and a sell-off in the bond market. March's jobs number was revised from +88K to +138K and February was revised from +279K to +332K. Thus April's better than expected jobs growth and the upside revisions for February and March has suddenly created a much stronger picture for the U.S.

The unemployment rate improved from 7.6% to 7.5%. Unfortunately the U.S. labor participation rate remains at 34-year lows at 63.3%. Another concern was the hours worked component. The average workweek contracted from 34.6 to 34.4 hours. Normally falling hours works is bearish for job growth. We want to see hours worked rising, which tends to lead to stronger hiring trends.

While we're on the topic of unemployment the EU's unemployment hit a record high of 12.1%. For struggling countries like Spain and Greece it is more than double that. The European region continues to struggle with growth. The EU manufacturing index fell to 46.7. Numbers under 50.0 indicate contraction. Germany is the EU's largest component and German retail sales came in at -2.8% versus estimates for -1.2%. Retail sales in Spain plunged -8.9%. Business confidence reports across the southern half of Europe are falling and the Eurozone business and consumer survey dropped as well.

The European Central Bank (ECB) reduced interest rates by 0.25% to 0.50% in a widely telegraphed move. ECB President Mario Draghi held a press conference after the ECB meeting. In his comments he suggested that the EU needs to focus on tactics for growth and not austerity. Draghi also suggested the ECB might start charging European banks on their overnight deposits. The hope here is that a negative interest rate would stimulate more lending, which would help fuel more economic activity.

Major Indices:

The large cap S&P 500 index had a good week with a +2.0% gain. The breakout past round-number, psychological resistance at the 1,600 mark is significant. Year to date the S&P 500 is up +13.2%.

Last week I suggested that if the rally continues the next level of resistance is probably 1620. The rally stalled at 1618.46 on Friday. The better than expected jobs number sparked a short squeeze on Friday morning. The rest of Friday was spent drifting lower. Odds are good the S&P 500 is going to retrace the Friday morning climb. Bulls will want to see the S&P 500 test 1,600 as new support.

Intraday chart of the S&P 500 index:

There is no denying that the trend is up. Should the rally continue we can expect potential resistance in the 1640-1650 zone. On the other hand if the market reverses there are several levels for potential support including 1600, 1580 and 1540. Odds are good that this breakout to new highs may have silenced concerns over a massive triple top for the S&P 500 index.

chart of the S&P 500 index:

The tech-heavy NASDAQ was a big winner with a +3.0% gain last week. Year to date the NASDAQ is up +11.8%. The index has broken out past resistance near 3300 and is quickly approaching likely round-number resistance at 3400. These are twelve and a half year highs. The NASDAQ has only seen two down sessions since it reversed from the mid April lows. On a short-term basis the index is overbought and due for a pullback. Broken resistance near 3300 should be new support.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) managed to keep pace with the S&P 500 and post a +2.0% gain last week. Also noteworthy was the lack of follow through on Wednesday's bearish reversal and Friday's breakout to new all-time highs. You could probably still argue that the $RUT is hovering near resistance at its 2013 highs. I'd like to see a close above 960 to really confirm the bullish breakout. If we do see the $RUT continue higher it will be a bullish sentiment indicator. I suspect that 1,000 level will be significant resistance but until the $RUT gets there the 1,000 level could also act like a magnet.

chart of the Russell 2000 index



Economic Data & Event Calendar

The calendar just rolled over from April to May and all of the end of month and beginning of month reports are now out. This has created a lull on the economic calendar. The Q1 earnings season is also over as well.

Economic and Event Calendar

- Monday, May 06 -
Eurozone Retail Sales data

- Tuesday, May 07 -
Eurozone Industrial Production

- Wednesday, May 08 -
Chinese CPI

- Thursday, May 09 -
Weekly Initial Jobless Claims
wholesale inventory data

- Friday, May 10 -
Chinese new loan data

Additional Events to be aware of:

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

The Week Ahead:

Anyone paying attention already knows that the U.S., European, and Chinese economies are slowing down. Yet the market doesn't seem to notice or care. Eventually economic data is going to matter but for now we're living in a fantasyland. All that matters is the Federal Reserve, ECB, Bank of Japan and Bank of England continue to pump money with their various QE programs. This is driving asset prices higher.

One analyst has tried to explain the rise in stocks suggesting investors see no other alternatives. Do investors want to buy U.S. or German treasuries that yield less than 2% or would they rather buy equities that offer both capital appreciation and a yield? The bond market has its own problems. After a 30-year bull market in bonds investors are wondering if there is any upside still left. Plus, long-term, when the Federal Reserve tries to unwind all of these asset purchases it's going to cause inflation. That's going to hurt the bond market. One firm, Edward Jones, has gone so far as to warn all of its 7.5 million clients with a letter from management warning them about the risk associated with the bond market.

Last week I shared the adage "It's okay to be wrong; it is not okay to stay wrong." I have been suggesting that the market would peak and begin a normal correction lower sometime in the mid-April to early May time frame. I'm almost out of time on that forecast. If market participants are going to ignore all the negative economic data it's hard to be bearish.

I am still concerned with some of the geopolitical risks that could affect the market. This past week South Korea pulled the last of its remaining workers at the jointly run Kaesong industrial complex. This is the first time since the factory opened in 2004 that it has been completely shut down. This quiet escalation between North and South Korea doesn't bode well.

Another hot spot garnering more headlines is Syria. Just a couple of days ago Israel has hit multiple targets in Syria. Israel denies the story but sources suggest that Israel has struck at several key weapon sites. Four months ago Israel hit a weapon convoy in Syria to prevent weapons between transferred to the terrorist organization Hezbollah. It looks like the new strikes this past week were more of the same as the Jewish state tries to prevent Hezbollah from gaining more sophisticated and more accurate weaponry.

Why does this matter to us? It matters because Syria is calling the latest move a "declaration of war" by Israel. I seriously doubt Syria, currently embroiled in a civil war, could also mount a successful offensive against Israel but then I'm not a mid-east policy analyst. Part of the problem are Syria's allies. Both Iran and Russia are major allies and if Syria claims it is at war with Israel then things could get complicated.

At the same time the U.S. is still investigating whether or not Syrian chemical weapons have been deployed and by whom. Obama has claimed in the past that if chemical weapons are used then we'll get involved. I'm not sure how much political currency the White House wants to spend on launching new military actions in the mid east. Washington seems to be dragging its feet on the issue.

As I look ahead at the week in front of us the path of least resistance for stocks is up. Yet the market might be facing a lack of catalysts to keep the rally going. I would not be surprised to see the market consolidate sideways first to work off some of its overbought conditions.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market is breaking out to new all-time highs. The Dow Jones Industrial Average crossed 15,000 for the first time in history. The S&P 500 has closed above 1600 for a new historic high. The small cap Russell 2000 index tagged a new all-time high on Friday.

The path of least resistance for stocks is still higher.

This past week we took profits on our SCHW trade on Monday and closed our 2014 calls on the WMT trade to lock in gains.

SBUX hit our bullish exit target on Friday.

Tonight I am suggesting we exit our CVX trade immediately to take some money off the table.

I have updated stop losses on: BBBY and M.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Cautiously Optimistic

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(May 04, 2013)

I am cautiously bullish on the market here. Seasonally May is a weak time of year. One could certainly argue that stocks are overbought and due for a correction. Yet market participants don't seem to care. They are ignoring economic data and equities continue to rally. Friday's breakout past 1600 by the S&P 500 is technically bullish.

I am not adding any new trades tonight but we are reloading the watch list with multiple investment candidates.


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:

CAT, RF, SOHU, TSO, WNR, NVDA, FSLR, V, DIS, TGT, PNRA, KMB, CL, SBUX, WFM, CLX, UA, SJM, K, TJX, GLW, COST, DNKN, PAYX, LULU, BHI, CBI, SIRI, EA,


Play Updates

SBUX Hits Our Target

by James Brown

Click here to email James Brown


Closed Plays


SBUX hit our target.
SCHW was closed on April 29th.
The 2014 WMT calls were closed on April 29th.



Play Updates


Bank of America - BAC - close: 12.24

Comments:
05/04/13: We have reason to be concerned with our BAC trade. The major indices and the financial sector are both breaking out to new highs. Yet BAC is not participating. The stock posted a loss for the week.

I would turn more defensive here and investors may want to scale back positions. I am not suggesting new BAC trades 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 $0.25/0.26

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $0.92/0.94

05/04/13 BAC did not participate in the market's rally this past week. Investors should turn more defensive here.

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: 68.57

Comments:
05/04/13: BBBY stretched its gains to four weeks in a row. The stock had neared round-number resistance at $70.00 on Thursday. Shares failed to participate in the market rally on Friday thanks to an analyst downgrade on Friday morning. BBBY is arguably overbought here and due for a correction lower.

More conservative traders may want to take profits early right here. I would expect a correction toward the $66-65 zone. I am raising our stop loss to $63.75.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $7.70/7.85

05/04/13 new stop loss @ 63.75
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: 63.75
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/16/13


Chevron Corp. - CVX - close: 123.49

Comments:
05/04/13: Another rebound in oil prices and a bullish environment for stocks helped CVX breakout to new all-time highs. Shares nearly hit $124.00 on Friday. Our option has more than doubled. We have been aiming for $124.50. However, I am suggesting we go ahead and take profits now. Exit positions on Monday morning to lock in gains. More aggressive traders could let it ride and just raise your stop loss.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 7.35/7.50

05/04/13 prepare to exit on Monday morning to lock in gains
04/27/13 more conservative investors may want to take profits now.
03/16/13 new stop loss @ 113.25
03/09/13 new stop loss @ 109.50
02/02/13 do not be surprised to see a pullback now that earnings have been announced.

Current Target:$124.50
Current Stop loss: 113.25
Play Entered on: 01/14/13
Originally listed on the Watch List: 12/22/12


Dollar Tree, Inc. - DLTR - close: 48.66

Comments:
05/04/13: Traders continue to buy the dips in DLTR and the stock has rallied back toward its recent highs near $49.00. While the trend of higher lows is bullish I am not suggesting new positions. DLTR might see round-number resistance at $50.00. Do not be surprised to see a pullback.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 6.50/6.70

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


Ford Motor Co. - F - close: 13.83

Comments:
05/04/13: I am surprised that Ford did not deliver a stronger week. However, U.S. auto sales fell below the 15.0 million unit pace in April, breaking a multi-month string of healthy auto sales. March came in at an annual pace of 14.9 million. Ford delivered strong numbers with a +18% jump in April sales over a year ago.

Traders bought the dip at its rising 10-dma. The stock closed at new three-month highs on Friday. I would still consider new bullish positions at current levels.

Earlier Comments:
Keep in mind that shares of Ford will begin trading ex-dividend on May 1st. The stock is currently yielding 3.1%. Our long-term target is $16.50. You could certainly aim higher. Currently the Point & Figure chart is forecasting a $24.50 target.

- Suggested Positions -
APR 29, 2013 - entry price on F @ 13.73, option @ 0.60
symbol: F1418a15 2014 JAN $15 call - current bid/ask $ 0.61/0.62

- or -

APR 29, 2013 - entry price on F @ 13.73, option @ 1.22
symbol: F1517a15 2015 JAN $15 call - current bid/ask $ 1.27/1.30

Current Target:$ 16.50
Current Stop loss: 12.40
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Intel Corp. - INTC - close: 23.96

Comments:
05/04/13: Semiconductor stocks continued to climb last week. The group was actually showing relative strength and INTC has extended its gains to four weeks in a row. There were plenty of articles about INTC choosing a new CEO, Mr. Brian Krzancih.

The trend in INTC is up but shares are overbought with its four-week move from $21 to $24. I would expect a correction. If you're looking for an entry point wait for the pullback.

Earlier Comments:
Our long-term target is $26.50 but we may have to exit our 2014 calls before then.

- Suggested Positions -
APR 24, 2013 - entry price on INTC @ 23.28, option @ 0.89
symbol:INTC1418a25 2014 JAN $25 call - current bid/ask $ 1.10/1.11

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 1.95/2.00

Current Target: $26.50
Current Stop loss: 21.40
Play Entered on: 04/24/13
Originally listed on the Watch List: 04/20/13


The Coca-Cola Company - KO - close: 42.24

Comments:
05/04/13: My comments last week still apply. The market's rally made boring, defensive, strong dividend plays like KO less attractive. The stock churned sideways and managed to eke out a small gain.

Earlier Comments:
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 early.

- 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 $4.40/4.55

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: 46.23

Comments:
05/04/13: The stock market's breakout rally on Friday sparked a similar move in Macy's. The stock shot past resistance in the $45.00-45.50 zone and closed at new five-year highs. We have about seven trading days left until Macy's reports earnings. Investors might want to take profits now. I am raising our stop loss to $42.75. 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 $4.30/4.40

05/04/13 new stop loss @ 42.75, investors may want to just take profits now.

Current Target: $48.50
Current Stop loss: 42.75
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/09/13


Merck & Co. - MRK - close: 45.67

Comments:
05/04/13: I warned readers that MRK might see some profit taking on its earnings report on May 1st. Sure enough the stock plunged following its results. MRK reported earnings of 85 cents a share, which was six cents better than expected. Revenues were a miss at $10.67 billion for the quarter. More importantly the company issued lower guidance for 2013.

Readers may want to use the company's earnings warning as an excuse to exit bullish positions. I am not suggesting new trades. Although it's worth noting we still have more than 18 months on our 2015 calls. I am leaving our stop loss at $43.40 for now.

- 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 $4.10/4.25

05/01/13 MRK lowered its 2013 guidance
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


U.S. Oil (ETF) - USO - close: 34.01

Comments:
05/04/13: It seems that oil prices have disconnected from reality. Week after week we are seeing declining economic data suggesting a weak and getting weaker U.S., Europe and China. So why are oil prices bouncing? At the same time the latest oil inventory report shows U.S. oil inventories at all-time highs. There is no shortage of oil at the moment. Why would oil prices be rising with so much excess supply?

I suspect this is just a technical bounce. The USO is nearing what should be resistance at its trend of lower highs and its 300-dma. Look for a failed rally near $34.50 as a potential entry point to buy puts.

NOTE: Right now this is a put play with 2013 September puts. I am having second thoughts about the USO as viable long-term bullish trading vehicle. The USO should still work as a short-term or intermediate trade but longer-term we may need to find another way to play oil.

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 $ 0.58/ 0.61

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


Vodafone Group - VOD - close: 30.34

Comments:
05/04/13: VOD delivered a disappointing performance last week. Shares retreated back toward $30.00, which should be support. The rest of the market was in rally mode. The drama with Verizon (VZ) wanting to buy VOD's stake in Verizon Wireless continues. Two weeks ago the story was VZ offered $100 billion to buy VOD's stake and VOD rejected the offer. Now the rumor mill is suggesting that VZ, since they own the majority stake in Verizon wireless, may decided to not pay any dividends this year and instead pay down debt. This would "rob" VOD of any dividend income from the joint venture. It's an interesting tactic. Currently analysts estimate that VOD's stake should be worth about $120 billion.

VOD's bullish breakout past resistance at $30.00 is still intact. I would still be tempted to buy calls here at current levels.

- Suggested Positions -
APR 26, 2013 - entry price on VOD @ 30.63, option @ 2.07
symbol: VOD1418a30 2014 JAN $30 PUT - current bid/ask $ 1.90/ 1.95

- or -

APR 26, 2013 - entry price on VOD @ 30.63, option @ 1.00
symbol: VOD1517a35 2015 JAN $35 PUT - current bid/ask $ 0.85/ 1.10

Current Target:$36.00
Current Stop loss: 28.45
Play Entered on: 04/26/13
Originally listed on the Watch List: 04/20/13


Wal-Mart Stores - WMT - close: 79.25

Comments:
05/04/13: It was a relatively quiet week for WMT. Traders bought the dip on Tuesday and the stock is up three days in a row. Yet even with the market's big rally on Friday WMT failed to break out to new highs.

After a three-week churn sideways WMT is no longer overbought but it's upward momentum has slowed as well. A rally past round-number resistance at $80.00 could re-ignite the up trend. We need to keep in mind that WMT is scheduled to report earnings on May 16th. Market participants may want to wait for the earnings results before putting any new money to work. I am not suggesting new positions.

NOTE: Last week we decided to exit our 2014 Jan $75 calls on Monday, April 29th to lock in gains.

- Suggested Positions -
(exited 2014 Jan. $75 calls on Monday, April 29th, 2013)
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - exit $6.05*(+95.1%)

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 5.55/5.70

04/29/13 planned exit for 2014 calls
*exit price is an estimate. The option did not trade when we closed this part of the play.
04/27/13 prepare to exit our 2014 calls immediately on Monday morning (04/29/13)
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


Starbucks Corp. - SBUX - close: 61.87

Comments:
05/04/13: Target achieved.

The stock market's rally on Friday was strong enough to push SBUX toward its 2012 highs near $62.00. Our exit target was hit at $61.50.

We will likely play SBUX again but we'll need to wait for a new entry point. Right now shares are hovering just below likely resistance at $62.00.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - exit $5.30 (+39.4%)

05/03/13 target hit @ 61.50
04/27/13 the earnings news is out. investors may want to exit early now
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

Chart of SBUX:

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: 17.47

Comments:
05/04/13: Shares of SCHW had been underperforming the market in recent weeks. Our plan was to exit positions on Monday, April 29th, at the opening bell. The stock opened on Monday at $16.76. Our option exit was $1.05.

The stock market's big rally on Friday sparked a big move in SCHW with a +6.2% gain on Friday and a breakout above its 50-dma.

- Suggested *SMALL* Positions -
JAN 23, 2013 - entry price on SCHW @ 15.74, option @ 0.80
symbol:SCHW1418a17 2014 JAN $17 call - exit $1.05 (+31.2%)

04/29/13 scheduled exit
04/27/13 prepare to exit immediately on Monday morning (04/29/13)
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.

Chart of SCHW:

Current Target: $18.75
Current Stop loss: 15.90
Play Entered on: 01/23/13
Originally listed on the Watch List: 01/19/13



Watch

Watch List: Reloaded

by James Brown

Click here to email James Brown


New Watch List Entries

EL - The Est

HON - Honeywell Intl.

LOW - Lowe's Companies

MRVL - Marvell Technology


Active Watch List Candidates

Currently, we have no active watch list candidates.


Dropped Watch List Entries

None. No dropped watch list candidates.



New Watch List Candidates:


The Est - EL - close: 71.23

Company Info

EL recently changed its corporate name from Estee Lauder Companies to "The Est". They manufacture, market, and sell a variety of skin care, make up, fragrance, and hair care products. The company recently reported earnings. EL beat estimates by 12 cents. Revenues were a miss but management raised their guidance.

EL initially gapped down on the revenue miss but quickly recovered. Shares have bounced back to new all-time closing highs. I want to see more follow through. I'm suggesting we wait for EL to close above $72.00. If EL can close above $72.00 we'll initiate positions the next morning with a stop loss at $65.90, just below last week's low. Our long-term target is $90.00. Currently the point & figure chart is bullish with a $93 target. We want to keep our position size small to limit our risk.

NOTE: 2015 calls are available but the spreads are significantly wider.

Breakout trigger: Wait for a close above $72.00, buy calls the next day.
stop loss @ 65.90.

BUY the 2014 Jan $80 call (EL1418A80) current ask $1.95

Chart of EL:

Originally listed on the Watch List: 05/04/13


Honeywell Intl. - HON - close: 75.24

Company Info

Large cap industrial names have been showing relative strength. The Dow Jones Industrial Average just crossed 15,000 for the first time in history. HON is not a member of the DJIA but it has followed the index with a rally back toward all-time highs near $75.00.

HON's all-time intraday high is $75.76. I am suggesting we wait for HON to close above $76.00 then buy calls the next day. Let's keep our position size small to start. We'll initiate the trade with a stop loss at $72.00. Our long-term target is $95.00.

Breakout trigger: Wait for a close above $76.00, buy calls the next day.
stop loss @ 72.00.

BUY the 2014 Jan $80 call (HON1418A80) current ask $2.22

- or -

BUY the 2015 Jan $85 call (HON1517A85) current ask $3.60

Chart of HON:

Originally listed on the Watch List: 05/04/13


Lowe's Companies - LOW - close: 39.59

Company Info

The recovery in the residential real estate industry should be good news for shares of home improvement retailer like LOW. Shares rallied to new all-time highs back in January 2013. LOW has spent the last three months consolidating sideways. Now shares look poised to break out past resistance near $40.00.

I am suggesting we wait for LOW to close above $40.25. Once our entry requirement is met we can buy calls the next day. I am suggesting a stop loss at $36.90. Our long-term target is $49.50.

NOTE: LOW is scheduled to report earnings on May 22nd, 2013. LOW's main rival Home Depot (HD) reports earnings on May 21st.

Breakout trigger: Wait for a close above $40.25, buy calls the next day.
stop loss @ 36.90.

BUY the 2014 Jan $45 call (LOW1418A45) current ask $0.96

- or -

BUY the 2015 Jan $45 call (LOW1517A45) current ask $2.65

Chart of LOW:

Originally listed on the Watch List: 05/04/13


Marvell Technology - MRVL - close: 10.71

Company Info

MRVL is in the semiconductor sector. The stock's long-term trend has been underperforming its peers. That might be about to change. The breakdown in mid-April has reversed sharply. Shares are now testing resistance near $11.00. This resistance is significant because it's both price resistance over the last few weeks plus it's also near the long-term trend line of lower highs dating back to the very early 2011 peak (near $22.00). A breakout here could signal the next leg higher.

I am suggesting a trigger to buy calls at $11.25. No waiting for a close above resistance. I'm suggesting calls on an intraday move to $11.25 or higher. If triggered our long-term target is $15.00.

NOTE: MRVL is due to report earnings on May 23rd. More conservative traders will want to seriously consider waiting until after we see MRVL's results and how the market reacts to them before initiating any positions.

Breakout trigger: $11.25, stop loss @ 10.25

BUY the 2014 Jan $13 call (MRVL1418A13) current ask $0.43

- or -

BUY the 2015 Jan $15 call (MRVL1517A15) current ask $0.68

Chart of MRVL:

Originally listed on the Watch List: 05/04/13


Active Watch List Candidates:




None: Currently we do not have any active watch list candidates.


Please see our newly added watch list candidates above.