Option Investor
Newsletter

Daily Newsletter, Sunday, 5/12/2013

Table of Contents

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

Leaps Trader Commentary

A Global Rally for Stocks

by James Brown

Click here to email James Brown

The first full trading week of May was dominated by stock market bulls. Equities were in rally mode around the world with the U.S., Europe, and Asia seeing strong gains. New data this week would suggest retail investors are turning more bullish with inflows hitting new eight-week highs. Meanwhile shorts are giving up with short interest contracting. A sharp sell-off in the U.S. bond market prompted bond giant PIMCO's Bill Gross to tweet that the 30-year bull market in bonds was dead. A sudden acceleration higher in the U.S. dollar is putting pressure on commodities. The Dow Industrials was one of the market's weaker performers but still managed another high. The Industrial Average has not had a losing streak of more than two days this year. That's the longest streak of this type in 55 years. Year to date the Dow transportation average is up +20%, the banking sector is up +14%, biotechs are up +29%, the semiconductor sector is up +21%, and housing is up +19%.

It was a quiet week for U.S. economic data. The weekly initial jobless claims came in at 323,000. That's the lowest reading since January 2008.

After several weeks of negative economic data the European region finally had a few positive reports. Several countries reported positive services PMI numbers. Many are still in contraction/recession territory but they were better than expected. Germany saw its March factory orders come in at +2.2% compared to estimates for a -0.5% decline. The English FTSE index has rallied to five-year highs. The Germany DAX index has broken out to a new all-time, record high.

The economic data in China was mixed. The HSBC services PMI report slipped to 51.5, down from 54.3. Numbers above 50.0 show growth and this report is nearing negative territory. In positive news China said its exports surged. Last month China actually had a trade deficit but exports resume, which is a positive sign for the global economy. Meanwhile Japan is benefitting from the country's current policy to weaken the yen. The Japanese yen has fallen below 100 against the U.S. dollar for the first time in four years. This has helped fuel a nearly nonstop rally in the Japanese NIKKEI stock index, which just hit new five-year highs (+6.7% for the week).

Major Indices:

The large cap S&P 500 index added another +1.19% for the week and is up +14.5% year to date. Market participants were buying the dips near 1625 the last couple of days. It looks like the S&P 500 is poised to make a run towards 1650, which might be the next psychological resistance level.

It is worth noting that on a short-term basis the S&P 500 is overbought. That doesn't mean it can't grow more overbought. I recently heard one analyst's opinion that the S&P 500 is likely to see some short-term weakness but it will prove to be a buying opportunity before the index rallies to 1700 in the next couple of months. I am not saying I agree with this opinion but momentum is clearly higher.

Technically I would look for support near 1600 on a pullback. If 1600 fails then support near 1580. Overhead I would expect some resistance near 1650 and then 1675.

chart of the S&P 500 index:

The NASDAQ composite was one of the strong performers among the major indices with a +1.7% gain on the week. Year to date the NASDAQ is up +13.8% and closed on Friday at new 13-year highs. Currently the NASDAQ looks very short-term overbought with its three-week rally from 3150 to 3435 (a +9% move).

Impressive strength in the biotech and semiconductor sectors is giving the NASDAQ A nice boost. Yet nothing goes up in a straight line for very long. If the NASDAQ were to correct from current levels I would expect a dip back to 3350, which is close enough to fill the gap from Mary 3rd, or a dip to 3300. Of course it might surprise me and bounce off its 10-dma. Should the NASDAQ keep climbing then the next level of resistance is probably 3450 and then 3500. The 3500-3550 zone could prove to be a tough area to break through since 3500 was resistance back in the year 2000.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index delivered a very strong performance with a +2.17% gain for the week and another round of new all-time highs. Year to date the $RUT is up +14.8%. The breakout past resistance near 950-960 is definitely bullish and $RUT bulls are probably targeting the 1,000 mark. I would definitely expect some short-term profit taking if the $RUT can tag 1,000. Broken resistance near 960-950 could offer some support.

Keep in mind that while the $RUT is outperforming on the way up it will also underperform on the way down with exaggerated losses. In the meantime, strength in the small caps is a positive sentiment indicator for the market as a whole. If money managers were nervous about the market they tend to pull money out of small caps and put it into more liquid large caps.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data picks up a bit this week. Chinese industrial production might make headlines on Monday. EU finance leaders will be meeting on Monday. On Wednesday we'll see GDP growth estimates from both the Eurozone and Japan.

Previously the U.S. debt ceiling deadline was May 18th but changes in policy and a bump in tax receipts have allowed politicians in Washington to push back the deadline to September.

Economic and Event Calendar

- Monday, May 13 -
Chinese industrial production
Chinese retail sales data
U.S. April retail sales data
Business inventories
Eurogroup meeting
EU Finance ministers meeting

- Tuesday, May 14 -
German ZEW (sentiment) index

- Wednesday, May 15 -
Eurozone GDP estimate
Japan GDP estimate
Producer Price Index (PPI)
New York Empire State manufacturing survey
U.S. industrial production

- Thursday, May 16 -
Weekly Initial Jobless Claims
Eurozone inflation data
Consumer Price Index (CPI)
housing starts and building permits
Philly Fed survey

- Friday, May 17 -
University of Michigan Consumer Sentiment

Additional Events to be aware of:

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

The Week Ahead:

As we look ahead we appear to be in a four-year old bull market that is not showing any signs of slowing down. The "average" bull market tends to last about four to five years. Who knows how long this one will last. Currently market participants are ignoring economic data. We did see a little bit of improving economic data from China and Europe this past week but the overall trend for economic growth is still down. The stock market doesn't care because the Federal Reserve and most of the major central banks continue to pump money into the system.

Investors are faced with a lack of alternatives. There seems to be no attraction to putting your money in the bond market, which is currently yielding less than 2% for a 10-year bond and according to Mr. Bill Gross, has just peaked. It's certainly possible that the overly hyped "great rotation" out of bonds and into stocks might actually be starting. If this is true then the rotation out of bonds could be a long-term tailwind for equities. Investors are also facing the powerful psychological urge that they need to get into the market or they'll miss out on further gains.

I will point out that U.S. margin debt is hitting extremes. We've mentioned this before in the last couple of weeks. We will likely see margin debt hit an all-time high, nearing $400 billion, by the end of May. The last time margin debt was this extreme was back in 2007 just prior to the market meltdown. As a contrarian indicator this might be considered bearish.

Doing my research for tonight's commentary there seemed to be a trend in analysts opinions. Essentially, the opinion I read over and over again was, the stock market trend is up but when it breaks down it's going to be bad. Geez, thanks a lot! Of course it's going to be bad. Anyone who has suffered through a market correction or a bear market thinks it's bad. You could use the rubber band theory. The harder and longer you stretch a rubber band the quicker and more powerfully it snaps back. Bears could argue the market is over-stretched to the upside.

Long-term the market does face significant issues. Europe has not fixed its problems. I am still concerned that the Cypriot bank robbery of depositor assets may have been the death knell for the Eurozone. There was another article out this past week suggesting the EU may have to use that tactic again. I can't see how citizens are going to let that occur. Back here at home, when the U.S. Federal Reserve decides to unload its bloated balance sheet this country will likely see painful inflation. Yet these issues are not going to affect us next week.

Right now this market is all about the Fed and its current QE program. Any hint that the Fed might lower its QE purchases and the market stumbles. That's why Monday could be a down day for the U.S. market. On Friday night, after the closing bell, the Wall Street Journal posted an article by Jon Hilsenrath discussing the Fed's potential strategy to slow down their QE program. Of course the time frame is likely to be Q4 2013 or some time in 2014. Odds are good there is a virtual crowd of traders just hoping for a market pullback so they can buy the dip.

Personally, it's tough to be bullish on the market given the state of economic growth but it's hard to fight the trend. This seems to be a buy-the-dip sort of market. I suggest investors enter positions cautiously. Start small and slowly build up your position size. Don't forget to monitor your stop losses on a regular basis.

We don't know what the next catalyst will be that sparks a reversal in stocks. Considering the current investor mood of ignoring economic data it's unlikely to be a normal monthly data report. That means the catalyst might be a geopolitical event. North Korea, Syria, and Iran could all be potential trouble makers down the road.

If you believe in Murphy's law, then my capitulation that the stock market is not going to reverse lower in the April-May time frame might just be the perfect contrarian sell signal.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stock markets rallied across the globe. There appears to be no fear with investors chasing stocks higher. The VIX remains low and the bond market might have peaked. Momentum remains higher although stocks look short-term overbought and probably due for a dip.

We closed our CVX trade as planned on Monday, May 6th.

Tonight I am suggesting we exit our Macy's (M) trade immediately on Monday morning (May 13th).

I have updated stop losses on: BBBY, INTC, MRK, and VOD.

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

Buy The Dip?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(May 11, 2013)

In tonight's market commentary I have turned more bullish on the market. It's hard to fight the up trend when investors don't care about the economic data and only pay attention to the Fed's QE program. On a short-term basis the market is overbought and due for a dip. I am suggesting we use the next dip as an entry point. Search for strong stocks you'd like to trade and look for a dip toward support.

While I am giving up on a market top in the April-May time frame there is still a good chance that stocks could see a short-term pullback soon. Therefore I am not adding any new trades tonight. We are adding two new watch list candidates. Last week we had two watch list candidates graduate to the active play list. I am also adding a few more symbols to my radar screen list below.


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:

HOG, GS, JPM, KSU, SODA, ODFL, WSM, UNP, RRC, UPS, GRPN, JNJ, ORLY, TSCO, LVS, CAT, RF, SOHU, NVDA, FSLR, DIS, TGT, PNRA, KMB, CL, SBUX, WFM, CLX, UA, SJM, K, TJX, GLW, COST, DNKN, PAYX, LULU, BHI, CBI, SIRI, EA,


Play Updates

Booking Gains in the Oil Sector

by James Brown

Click here to email James Brown


Closed Plays


CVX was closed as planned.



Play Updates


Bank of America - BAC - close: 12.24

Comments:
05/11/13: It was another strong week for shares of BAC with a +6.3% gain. The stock has rallied to new 52-week highs. Part of the rally was fueled by news that BAC had settled a legal battle with MBIA. Investors seemed to ignore news that the U.S. government was considering legal action against BAC for selling bad home loans to Fannie Mae and Freddie Mac.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.44/0.45

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.19/1.22

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: 69.83

Comments:
05/11/13: BBBY tagged a new multi-month high on May 7th but spent the rest of the week churning sideways. The trend is still higher with traders consistently buying the dips at BBBY's simple 10-dma. However, once that technical support breaks it could spark a larger correction. After five up weeks in a row BBBY is looking overbought here. I am raising our stop loss to $64.65.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $8.45/8.55

05/11/13 new stop loss @ 64.65
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: 64.65
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/16/13


Dollar Tree, Inc. - DLTR - close: 49.28

Comments:
05/11/13: DLTR's gains were limited thanks to some minor profit taking on Wednesday and Thursday. The trend is still higher but DLTR has to make it through round-number, psychological resistance at the $50.00 level. DLTR may be due for another pullback soon.

NOTE: DLTR is scheduled to report earnings on May 23rd. More conservative traders may want to take profits prior to the announcement to avoid any bearish surprises.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 6.80/7.00

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: 14.11

Comments:
05/11/13: Ford's rally ran out of steam on Wednesday. The stock has been drifting sideways the last three days. That's not too surprising with Ford nearing resistance at its January 2013 highs. If F does see a pullback we can watch for support near broken resistance at $13.50.

Earlier Comments:
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 $ 0.70/0.72

- or -

APR 29, 2013 - entry price on F @ 13.73, option @ 1.22
symbol: F1517a15 2015 JAN $15 call - current bid/ask $ 1.39/1.41

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


Honeywell Intl. - HON - close: 77.74

Comments:
05/11/13: Our new trade on HON is off to a good start. We added HON to the watch list last week with a plan to buy calls after HON closed above $76.00. Shares met that requirement on May 6th with a close at $76.08. Our traded opened on the 7th with HON opening at $76.20. HON has continued to rally and is currently trading at new all-time highs.

After a multi-day surge higher odds are good we will see HON pullback a bit. Look for a dip near $76.00 as another entry point to launch positions.

Earlier Comments:
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.

- Suggested Positions -
MAY 07, 2013 - entry price on HON @ 76.20, option @ 2.68
symbol: HON1418a80 2014 JAN $80 call - current bid/ask $ 3.25/3.35

- or -

MAY 07, 2013 - entry price on HON @ 76.20, option @ 4.10
symbol: HON1517a85 2015 JAN $85 call - current bid/ask $ 4.40/4.60

05/07/13 Our trade opens
05/06/13 HON meets our entry requirement with a close above $76.00

Chart of HON:

Current Target:$ 95.00
Current Stop loss: 72.00
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


Intel Corp. - INTC - close: 24.50

Comments:
05/11/13: The semiconductor sector and Intel have managed to extend their gains another week. INTC got a boost thanks to a couple of analyst upgrades. This stock is up significantly with a five-week rally and is definitely overbought and due for some profit taking. I suspect that the $25.00 level will likely be psychological resistance. If you're looking for an entry point I suggest waiting for a multi-day correction.

I am raising the stop loss to $21.90. More conservative investors might want to consider a stop; closer to $23.00 instead.

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 $ 1.31/1.32

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 2.13/2.18

05/11/13 new stop loss @ 21.90

Current Target: $26.50
Current Stop loss: 21.90
Play Entered on: 04/24/13
Originally listed on the Watch List: 04/20/13


The Coca-Cola Company - KO - close: 42.15

Comments:
05/11/13: The upward momentum in shares of KO have stalled with the stock failing to make any progress for the last three weeks in a row. It looks like closing the 2014 calls early to lock in gains may have been the right move. I suspect KO could be setting up for a pullback into the $41-40 zone. I am not suggesting new positions.

Earlier Comments:
KO's all-time high is $44.47 from July 1998. We are leaving the long-term exit target at $44.00.

- 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 $4.40/4.50

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


Lowe's Companies - LOW - close: 42.07

Comments:
05/11/13: Shares of LOW were a strong outperformer last week thanks to a +6% gain. We added LOW as a watch list candidate last weekend with plans to buy calls if shares could close above $40.25. LOW met that requirement on May 6th with a close at $40.81. Our trade opened on the 7th. The breakout past resistance at $40.00 is very bullish leaving shares of LOW at new all-time highs.

If you missed our entry point I would wait for a pullback. Broken resistance at $40.00 should be new support. There is always the chance that LOW sees a pullback after it reports earnings on May 22nd.

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

- Suggested Positions -
MAY 07, 2013 - entry price on LOW @ 40.87, option @ 1.57
symbol: LOW1418a45 2014 JAN $45 call - current bid/ask $ 1.99/2.03

- or -

MAY 07, 2013 - entry price on LOW @ 40.87, option @ 3.52
symbol: LOW1517a45 2015 JAN $45 call - current bid/ask $ 4.05/4.15

05/07/13 Our trade opens.
05/06/13 LOW meets our entry requirement with a close above $40.25

Chart of LOW:

Current Target: $49.50
Current Stop loss: 36.90
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


Macy's Inc. - M - close: 47.23

Comments:
05/11/13: It was an impressive week for shares of Macy's. The stock has broken out past resistance near $46.70 from its prior highs back in 2007. The relative strength in M has been great for the bulls but the company's earnings report could be a catalyst for profit taking. M is scheduled to report earnings on May 15th, before the opening bell.

I am suggesting we take profits immediately and exit positions on Monday morning, May 13th to lock in gains. More aggressive traders might want to consider keeping the trade open and holding over Macy's earnings announcement.

- Suggested Positions -
MAR 21, 2013 - entry price on M @ 42.22, option @ 2.85
symbol: M1418a45 2014 JAN $45 call - current bid/ask $4.80/4.90

05/11/13 prepare to exit positions immediately to lock in gains.
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: 45.95

Comments:
05/11/13: It looks like the post-earnings sell-off in shares of MRK is over. Traders bought the dip near $45.00 several times last week and MRK is starting to rebound. I am raising our stop loss up to $43.90. More conservative traders may want to raise theirs closer to the May 1st low of $44.60.

- 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 $4.20/4.35

05/11/13 new stop loss @ 43.90
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: 43.90
Play Entered on: 03/13/13
Originally listed on the Watch List: 02/23/13


U.S. Oil (ETF) - USO - close: 34.14

Comments:
05/11/13: The USO just refuses to cooperate with us. This oil ETF has continued to rally even though oil inventories in the U.S are extremely high. There is no shortage of oil at the moment. You'll notice on the chart below that the rally has stalled at resistance near its 300-dma and trend of lower highs. Currently we have a stop loss at $35.05. More conservative traders may want to lower their stop closer to $34.50 instead.

It is definitely worth noting the sudden strength in the U.S. dollar over the last couple of days. If the dollar continues to climb it will put downward pressure on commodities. I am not suggesting new positions at this time.

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 $ 0.52/ 0.55

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: 30.12

Comments:
05/11/13: I am growing disappointed with VOD's performance lately. Shares are now down two weeks in a row as excitement over a potential deal with Verizon seems to be cooling. Verizon wants to buy VOD's stake in their joint venture, Verizon Wireless. VZ has already offered $100 billion that VOD has rejected as being too low. The two companies seem to be at a standstill for now. If such a deal does get done it will probably be at a higher premium, which should be bullish for shares of VOD. Meanwhile on a technical basis VOD is flirting with a breakdown below what should be round-number support at $30.00. This is short-term bearish.

I am raising our stop loss up to $28.90. More conservative traders may want to raise their stop closer to $29.50 instead. I am not suggesting new positions at this time.

- Suggested Positions -
APR 26, 2013 - entry price on VOD @ 30.63, option @ 2.07
symbol: VOD1418a30 2014 JAN $30 PUT - current bid/ask $ 1.75/ 1.85

- or -

APR 26, 2013 - entry price on VOD @ 30.63, option @ 1.00
symbol: VOD1517a35 2015 JAN $35 PUT - current bid/ask $ 0.80/ 1.25

05/11/13 new stop loss @ 28.90

Current Target:$36.00
Current Stop loss: 28.90
Play Entered on: 04/26/13
Originally listed on the Watch List: 04/20/13


Wal-Mart Stores - WMT - close: 78.89

Comments:
05/11/13: Shares of WMT have essentially churned sideways for the last four weeks. Traders have continued to buy the dips, which is bullish, but WMT can't seem to get past resistance in the $79.50 area. I suspect that investors are waiting to hear from WMT's earnings report and management's guidance.

WMT is scheduled to report earnings on Thursday, May 16th, before the opening bell. Wall Street expects a profit of $1.15 a share. If there is any disappointment in the report we could see shares fall back toward the $75-74 zone. On the other hand a strong report could be the catalyst WMT needs to get past the $80.00 level.

NOTE: Since we've already closed the 2014 calls, I am raising our exit target to $89.00.

- 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 $ 5.55/5.65

05/11/13 adjust exit target to $89.00.
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: $89.00
Current Stop loss: 73.45
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


CLOSED Plays


Chevron Corp. - CVX - close: 123.23

Comments:
05/11/13: CVX is actually down about 30 cents for the week. Shares failed to follow the rest of the sector higher. The stock is churning sideways below short-term resistance near $124.00. We made the decision last weekend to close all CVX positions on Monday morning, May 6th. CVX opened May 6th at $123.32.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - exit $7.20 (+111.7%)

05/06/13 planned exit on May 6th
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.

Chart of CVX:

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



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Technology & Financials

by James Brown

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New Watch List Entries

NTAP - NetApp, Inc.

V - Visa


Active Watch List Candidates

EL - The Est

MRVL - Marvell Technology


Dropped Watch List Entries

HON & LOW graduated to the active play list.



New Watch List Candidates:


NetApp, Inc. - NTAP - close: 36.15

Company Info

NTAP is in the networked storage solutions business. The stock has been underperforming the rest of the technology sector. Yet it looks like NTAP has finally found a bottom. The stock's recent strength has lifted NTAP toward resistance in the $36-37 area. We want to be ready for the stock's breakout to new 52-week highs.

I am suggesting we wait for NTAP to close above $37.15. If that occurs we'll buy calls the next morning with a stop loss at $34.45. Our long-term target is $44.75.

NOTE: Cisco Systems (CSCO) is a major player in the networking and technology space and CSCO's earnings on May 15th could influence trading in NTAP.
Furthermore NTAP is scheduled to report earnings on May 21st. More conservative investors may want to wait until after we see how the market reacts to NTAP's results before initiating any new positions.

FYI: NTAP's point & figure chart is bullish with a $58 target.

Breakout trigger: Wait for a close above $37.15, buy calls the next day.
stop loss @ 34.45.

BUY the 2014 Jan $40 call (NTAP1418A40) current ask $1.46

- or -

BUY the 2015 Jan $40 call (NTAP1517A40) current ask $2.99

Chart of NTAP:

Originally listed on the Watch List: 05/11/13


Visa Inc. - V - close: 178.75

Company Info

Visa is a giant in the realm of retail electronic payments, whether that be on a credit card or debit card. When the company reported earnings on May 1st they beat estimates by 11 cents. Management raised their 2013 earnings forecast. Shares surged on the news to $180 but since then the stock has stalled. I suspect Visa is about to see some profit taking and we want to be ready to buy the dip.

I am suggesting we buy calls on a dip at $171.00. More nimble traders could try and target an entry point on a dip near the 30, 40, or 50-dma instead. If we are triggered at $171.00 I am suggesting a stop loss at $164.75. Our long-term target is $198.50.

FYI: Visa will begin trading ex-dividend on May 15th. The quarterly dividend should be about 33 cents.

Buy-the-Dip trigger: $171.00

BUY the 2014 Jan $180 call (V1418A180) current ask $5.70

- or -

BUY the 2015 Jan $200 call (V1517A200) current ask $7.40

Chart of V:

Originally listed on the Watch List: 05/11/13


Active Watch List Candidates:



The Est - EL - close: 71.05

Comments:
05/11/13: It was a quiet news week for EL. The stock was underperforming the market with a slow drift lower. That changed on Friday with a big bounce off its rising 20-dma. Once again EL looks poised to rally towards $72.00.

Earlier Comments:
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. 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

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


Marvell Technology - MRVL - close: 10.93

Comments:
05/11/13: MRVL eked out a gain for the week thanks to a +1.2% advance on Friday. I am concerned that MRVL is underperforming its peers in the semiconductor sector. Furthermore the semis look very overbought and due for a correction. How will shares of MRVL perform if its sector is retreating? On a positive note Friday's session did see MRVL closed above technical resistance at its simple 300-dma and the stock looks poised to break out past resistance near $11.00.

I am leaving our strategy unchanged but I am suggesting that we keep our position size small to limit our risk. 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.

*Small 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

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