Option Investor
Newsletter

Daily Newsletter, Sunday, 5/26/2013

Table of Contents

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

Leaps Trader Commentary

Was That A Bearish Reversal?

by James Brown

Click here to email James Brown

Last week saw a spike in volatility across global equity markets. All of the major U.S. indices ended a four-week winning streak. A number of factors all collided to spark some profit taking in stocks. Federal Reserve Chairman Bernanke's comments, the FOMC minutes, a disappointing PMI report from China, and a sell-off in the Japanese market all spooked investors. Yet looking back, the profit taking has been mild so far. For the week the S&P 500 index gave back -1.0%. The NASDAQ composite slipped -1.1% and the Russell 2000 index lost -1.2%.

Economic data in the U.S. was mixed. The manufacturing purchasing managers index dropped to a multi-month low of 51.9 in May. That's down from 52.1. Numbers under 50.0 signal economic contraction so the PMI is getting close to negative. Initial jobless claims dipped again with a -23,000 decline to 340,000 for the week. The durable goods orders for April came in at +3.3% which was better than the +1.5% estimate. If you remove the more volatile transportation order component, the durable goods report comes in at +1.3%, above estimates of +0.5%.

The U.S. housing data continues to show improvement. Existing home sales rose +0.6% in April to an annual pace of 4.94 million. This is the strongest pace since November 2009. New home sales surged +2.3% to an annual pace of 454,000 in April.

It was a relatively quiet week for Europe. The Bank of England left interest rates unchanged. The second estimate on Germany's Q1 GDP remain unchanged at +0.1% (almost negative). The Markit flash Eurozone services PMI survey rose to 47.5 in May. That's a three-month high but it's still under the 50.0 level so remains recessionary.

Many of last week's market-moving events and data points were in Asia. The Bank of Japan left rates unchanged at 0.10%. The Japanese NIKKEI stock index was surging early in the week, hitting levels not seen since December 2007. Unfortunately the market was hit with some bad news and worries over China's slowing economy were renewed when the Chinese HSBC Flash manufacturing PMI index dropped to 49.6. This is a drop from 50.4 the prior month and below expectations of 50.5. Numbers under 50.0 signal economic contract and this is the first time in seven months we've seen this report under 50.0.

If the unexpected dip in China's economy wasn't bad enough there was a sudden spike in Japanese bond yields in the 10-year bonds. The combination of these events sparked a -7.3% one-day sell-off in the NIKKEI index, a loss of more than -1,000 points on Thursday.

The Japanese stock market had been one of the hottest markets on earth since the country's recent launch of a record-breaking stimulus program. The sharp pullback may have rattled some investors' nerves. From the peak on Thursday to the low on Friday the NIKKEI lost -12.5% before finally seeing an oversold bounce. The NIKKEI ended the week at 14,612.

chart of the Japanese NIKKEI index:

Another issue for the market's rally was confusing Fedspeak. It seems like Mr. Bernanke was channeling his predecessor, Mr. Greenspan, during Bernanke's testimony before congressional committee. Stocks initially rallied on Bernanke's early comments that the Fed was unlikely to tighten any time soon. A short while later he followed that up with what seemed like a contradictory answer that said the Federal Reserve "could" tighten within the next few meetings if economic conditions warrant it. Of course nobody bothered to pay attention to the "if warranted" part of this comments and instead the focus was on the "could" and "in the next few meetings".

There are a few market pundits that have suggested the Fed is intentionally trying to send mixed messages to the market in an attempt to slowdown the market's rally. The Fed does want to see asset prices rising because it helps generate a "wealth effect" for consumers who will then be inclined to spend more. Yet the Fed does not want to generate new asset bubbles, since bubbles always burst. The FOMC minutes from the last meeting added pressure to investor worries that the Fed might be poised to reduce their QE purchases sooner than anyone expects. The combination of Bernanke's comments and the Fed minutes generated new worry about the Fed's commitment to keep the market's QE addiction going.

Major Indices:

The S&P 500 index hit new record highs with a spike past 1,680 midweek. Unfortunately that same day the index reversed (thanks to Bernanke). This looks like a failure near its trend line of higher highs (resistance). While there hasn't been much follow through lower the S&P 500 does look vulnerable.

Technically the index might see a dip back toward short-term support near 1625. If that level fails then we'll probably see a dip to round-number support at 1600, which will soon be bolstered by the rising 50-dma. Until we see a close below the 50-dma we can assume the intermediate trend remains higher.

A drop from the intraday high (1687) to 1600 would be a -5% correction. From the closing high for the week (1669) a drop to 1600 would be a -4% pullback.

If somehow the rally continues then resistance is probably the 1700 mark.

chart of the S&P 500 index:

The NASDAQ composite produced a similar bearish reversal on Wednesday after spiking to new 12 1/2 year highs. The breakdown under its simple 10-dma is short-term bearish. If this pullback turns into a correction the levels I would watch for possible support are 3365, 3325, and the 3300 level.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index crossed the 1,000 mark for the first time in history this past week. I have been warning readers for weeks that the 1,000 mark would be psychological, round-number resistance. Sure enough the $RUT is reversing here. There is a chance that the $RUT actually rallies back toward 1,000 again and then rolls over.

I am short-term bearish but it's worth noting that the prior highs near 950 are likely support. Unless something changes I expect this to be a mild correction lower before investors rush back into to buy the dip.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's going to be a short trading week for the U.S. with the markets closed on Monday for Memorial day. Tuesday brings the latest consumer confidence numbers. Thursday will see the second estimate on U.S. Q1 GDP. Unless the GDP number comes in significantly below estimates I don't see any real market-moving events here.

Economic and Event Calendar

- Monday, May 27 -
U.S. market closed for Memorial day

- Tuesday, May 28 -
Consumer Confidence (for May)
Case-Shiller 20-city home price index

- Wednesday, May 29 -
German unemployment data

- Thursday, May 30 -
Weekly Initial Jobless Claims
U.S. GDP Estimate for Q1
Pending Home Sales
Japan's CPI data
Chinese manufacturing PMI

- Friday, May 31 -
University of Michigan consumer sentiment (final reading for May)
Chicago PMI
Personal Income & Spending
G8 meeting

Additional Events to be aware of:

June 7th - nonfarm payrolls (jobs) report for May
September - U.S. debt ceiling deadline

The Week Ahead:

Looking to the week ahead it's unclear if the market pullback continues or if traders rush in to buy this dip. Stocks remain overbought so I would like to see a stronger, healthier correction lower. This would allow us a much better entry point for our longer-term LEAPS positions.

The combination of a slowing Chinese economy, volatility in what seemed like a non-stop rally in Japan, and questions over the Federal Reserve's timeline for its QE program could all generate some investor cautiousness.

Two weeks ago the economic data for the U.S. was bearish. If both China and the U.S. are slowing then the rest of the world could definitely be in trouble. Yet in spite of all the bearish economic data Goldman Sachs raised their yearend price target on the S&P 500 to 1,750. That's another 100 points over the next seven months from current levels.

Enjoy your Memorial Day weekend!

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It would appear that the rally in the stock market's major indices has finally run out of fuel, at least temporarily. We are hoping for a pullback.

We closed our MRK trade as planned on Monday, May 20th.
We also closed the 2014 call positions in Ford (F) and HON on Monday, May 20th.

VOD was stopped out.

There are no stop loss changes tonight.

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

Don't Chase

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(May 25, 2013)

After a multi-week rally it looks like the U.S. market may have finally run out of gas, at least temporarily. We do not want to chase this market. Let the market come to us. Hopefully the pullback continues, which would provide a much better entry point for longer-term traders like ourselves.

I am not suggesting any new positions tonight with the major indices potentially on the verge of a correction. We did add two new candidates to our watch list. Plus, I have scrubbed the radar list below. Most of the candidates on my radar screen are buy-the-dip candidates. We'll have to wait and see if any entry points show up.


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:

AIG, CSCO, M, WFC, UNP, SODA, DIS, TJX, PNRA, SBUX, SJM, COST, PAYX, BHI, CBI, UPL, CNQR, EEP, GRPN


Play Updates

Stocks Limp Into Holiday Weekend

by James Brown

Click here to email James Brown


Closed Plays


We closed MRK on Monday. We also exited the 2014 Ford calls and 2014 HON calls on Monday, May 20th.

VOD was stopped out.



Play Updates


Bank of America - BAC - close: 13.24

Comments:
05/25/13: BAC only lost about 20 cents for the week thanks to the rebound off its Thursday morning lows. The stock seems to be retreating from its five-month trend line of higher highs. I would look for support near $12.50 or its 100-dma.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.53/0.54

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.34/1.35

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: 68.72

Comments:
05/25/13: BBBY's loss for the week was relatively minor. Shares appeared to be in rally mode again after its mid-May pullback but the market's slide weighed on BBBY's momentum. If the market does see a deeper pullback I still expect BBBY to decline toward $65.00. Our stop loss remains at $64.65.

More conservative investors might want to just take profits right now instead of enduring the decline.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $7.80/7.90

05/18/13 BBBY could be poised for a painful pullback here.
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: 50.24

Comments:
05/25/13: DLTR is up about half a point for the week thanks to a bullish reaction to its earnings news. The company reported on May 23rd. Results were 2 cents better than the 57-cent estimate. Revenues were in-line with estimates. Management raised their fiscal 2014 guidance, which is what probably fueled the rally.

I am sorely tempted to just exit now to lock in gains on this trade but the overall trend remains higher. Currently our stop loss is at $44.75. More conservative traders may want to raise their stop closer to the simple 50-dma (near 47.90).

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 7.40/7.60

05/18/13 Readers may want to take profits prior to the earnings report
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: 14.79

Comments:
05/25/13: It looks like Ford's upward momentum was beginning to stall prior to the market's reversal this past week. Traders did buy the dip on Thursday but I am not convinced the pullback is over.

Our plan was to exit our 2014 calls on Monday, May 20th. We still have the 2015 calls listed. I am not suggesting new positions at this time.

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 -
(closed the 2014 calls on May 20th, at the open)
APR 29, 2013 - entry price on F @ 13.73, option @ 0.60
symbol: F1418a15 2014 JAN $15 call - exit $1.18 (+96.6%)

- or -

APR 29, 2013 - entry price on F @ 13.73, option @ 1.22
symbol: F1517a15 2015 JAN $15 call - current bid/ask $ 1.76/1.81

05/20/13 closed the 2014 calls at the open. Option @ +96.6%
05/18/13 prepare to exit the 2014 calls on Monday, May 20th
05/18/13 new stop loss @ 13.40

Current Target:$ 16.50
Current Stop loss: 13.40
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Honeywell Intl. - HON - close: 79.29

Comments:
05/25/13: After an impressive three-week rally in May shares of HON are finally seeing some profit taking. The pullback may not be over yet. Nimble traders could buy dips near $76 and its 50-dma.

Our plan was to exit the 2014 calls on Monday, May 20th. We still have the 2015 calls.

Earlier Comments:
Let's keep our position size small to start.

- Suggested Positions -
(closed the 2014 calls on May 20th at the open)
MAY 07, 2013 - entry price on HON @ 76.20, option @ 2.68
symbol: HON1418a80 2014 JAN $80 call - exit $5.10 (+90.2%)

- or -

MAY 07, 2013 - entry price on HON @ 76.20, option @ 4.10
symbol: HON1517a85 2015 JAN $85 call - current bid/ask $ 5.75/6.05

05/20/13 closed the 2014 calls at the open. option @ +90.2%
05/18/13 prepare to exit 2014 Jan. calls immediately on Monday, May 20th
05/18/13 new stop loss @ 74.50
05/07/13 Our trade opens
05/06/13 HON meets our entry requirement with a close above $76.00

Current Target:$ 95.00
Current Stop loss: 74.50
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


Intel Corp. - INTC - close: 23.92

Comments:
05/25/13: INTC weathered the market's volatility this past week relatively well. Shares are only down a few cents for the week. Yet it does look like INTC may have created a short-term bearish double top at resistance near $24.50. Traders bought the dip on Friday morning near its rising 30-dma but I am not convinced the pullback is over. Odds are good we will see INTC pullback into the $23.00-22.50 area.

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 $ 1.05/1.07

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 1.88/1.90

05/18/13 The rally has stalled. INTC might correct lower soon
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: 42.24

Comments:
05/25/13: Hmm... investors bought the dip in KO right where you could expect them to - near prior support at its early May low and technical support at its rising 50-dma. This past week those two levels happen to be the same, near $41.50. While Friday's bounce is bullish, bigger picture it seems that KO's upward momentum could be in trouble. I would not be surprised to see KO correct lower toward the $41-40 zone.

NOTE: We closed the 2014 calls back in April. All we have left right now are the 2015 calls. I am adjusting our long-term target to $46.00.

- 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 $4.80/4.90

05/25/13 adjust long-term target to $46.00
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: $46.00
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: 42.64

Comments:
05/25/13: Shares of LOW are holding up pretty well with a three-cent loss for the week. The company reported earnings on May 22nd. The company missed Wall Street's estimate of 51 cents with an EPS of $0.49. Q1 revenues were also a miss at $13.09 billion.

The stock actually rallied on the news but quickly reversed after tagging a new high. At the moment LOW is holding short-term support near $42.00 yet I would expect a correction back toward what should be stronger support near $40.00. We can look for a new entry point on a bounce from the $40 level.

- Suggested Positions -
MAY 07, 2013 - entry price on LOW @ 40.87, option @ 1.57
symbol: LOW1418a45 2014 JAN $45 call - current bid/ask $ 2.11/2.15

- or -

MAY 07, 2013 - entry price on LOW @ 40.87, option @ 3.52
symbol: LOW1517a45 2015 JAN $45 call - current bid/ask $ 4.30/4.50

05/22/13 LOW reported earnings and missed estimates.
05/18/13 new stop loss @ 39.00, LOW could see a pullback after its earnings report
05/07/13 Our trade opens.
05/06/13 LOW meets our entry requirement with a close above $40.25

Current Target: $49.50
Current Stop loss: 39.00
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


Marvell Technology - MRVL - close: 11.34

Comments:
05/25/13: It was a volatile week for shares of MRVL with the market's movement and then MRVL's earnings report on Thursday night. Analysts were expecting a profit of 14 cents a share. MRVL delivered 19 cents with revenues coming in above expectations. That earnings beat might be a little exaggerated thanks to MRVL buying back 20 million shares in the first quarter.

The stock gapped open higher on Friday in reaction to earnings but traders sold the rally and MRVL gave back almost all of its gains. Analysts reaction to the earnings report has been mixed.

I am not suggesting new positions at this time but traders could use a bounce off its 50-dma as a new entry point.

- Suggested *Small* Positions -
MAY 13, 2013 - entry price on MRVL @ 11.25, option @ 0.78
symbol: MRVL1418a13 2014 JAN $13 call - current bid/ask $0.76/0.79

- or -

MAY 13, 2013 - entry price on MRVL @ 11.25, option @ 0.97
symbol: MRVL1517a15 2015 JAN $15 call - current bid/ask $0.92/1.04

Current Target: $15.00
Current Stop loss: 10.25
Play Entered on: 05/13/13
Originally listed on the Watch List: 05/04/13


NetApp, Inc. - NTAP - close: 36.45

Comments:
05/25/13: It has been a volatile two weeks for NTAP with the stock ricocheting between short-term support near $36.00 and resistance near $39.00. On May 21st the company reported earnings of 69 cents per share. That was one cent above estimates. Revenues were a miss at $1.72 billion for the quarter. The company issued an earnings warning for the current quarter and guiding below consensus estimates. Oddly enough NTAP garnered bullish analyst comments following its report in spite of the warning.

I am not suggesting new positions. If NTAP breaks support at $36.00 it will likely fall quickly to the next support level at $35.00. Beyond that NTAP will hit our stop loss at $34.90.

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

- Suggested *Small* Positions -
MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 3.35
symbol: NTAP1418a40 2014 JAN $40 call - current bid/ask $1.99/2.00

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $3.55/3.70

05/18/13 adjust stop loss to $34.90
05/17/13 trade opens on NTAP's gap open higher at $38.93
05/16/13 NTAP met our entry requirement with a close above $37.15

Current Target: $44.75
Current Stop loss: 34.90
Play Entered on: 05/17/13
Originally listed on the Watch List: 05/11/13


U.S. Oil (ETF) - USO - close: 33.37

Comments:
05/25/13: The rising dollar should be putting more pressure on oil prices. At the same time we have record levels of oil inventory in the U.S. which is another reason we should see oil prices slipping lower. The USO did see a pullback this past week but I'm not convinced enough to suggest new bearish positions.

The USO almost met our exit (stop loss) requirements this past week. I recently changed the requirement to exit as a close above $34.50. Shares briefly traded above $34.50 this past week before reversing lower.

If we see the USO break down under the $32.75 level again then it might signal a drop back toward $31.00.

NOTE: Right now this is a put play with 2013 September puts.

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.

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 $ 0.65/ 0.66

05/18/13 adjust stop loss strategy to: if we see the USO close above $34.50, then exit immediately the next day!

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


Wal-Mart Stores - WMT - close: 77.31

Comments:
05/25/13: WMT has been down every day since its earnings report on May 16th. That changed on Friday with a +1.28% rebound. I do believe that this is just a short-term bounce and that WMT will most likely correct into the $75-74 zone. Wait for that pullback before considering new bullish positions.

- 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 $ 4.85/5.00

05/16/13 WMT reports earnings that miss estimates, miss revenues, and guides lower.
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


Merck & Co. - MRK - close: 47.16

Comments:
05/25/13: Murphy's law is alive and well in the stock market. MRK had been underperforming the market and last weekend we decided to exit positions on Monday, May 20th, to lock in gains and avoid any potential losses on a breakdown.

MRK did not see any follow through on the bearish reversal from two weeks ago. Instead shares reversed again, higher, and rallied to new four-week highs.

- 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 -


(closed on Monday, May 20th)
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - exit @ $4.25 (+18.0%)

05/20/13 closed the 2015 calls
05/18/13 prepare to exit immediately on May 20th at the open
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).

Chart of MRK:

Current Target: $53.50
Current Stop loss: 43.90
Play Entered on: 03/13/13
Originally listed on the Watch List: 02/23/13


Vodafone Group - VOD - close: 29.61

Comments:
05/25/13: VOD has not cooperated with us. The market's weakness on Wednesday and Thursday was strong enough to push shares below their 50-dma and below the $29.00 mark. Our stop loss, at $28.90, was hit on Thursday.

- Suggested Positions -
APR 26, 2013 - entry price on VOD @ 30.63, option @ 2.07
symbol: VOD1418a30 2014 JAN $30 CALL - exit $1.10 (-46.8%)

- or -

APR 26, 2013 - entry price on VOD @ 30.63, option @ 1.00
symbol: VOD1517a35 2015 JAN $35 CALL - exit $0.85*(-15.0%)

05/23/13 stopped out at $28.90
*option exit price is an estimate since the option did not trade at the time our play was closed.
05/11/13 new stop loss @ 28.90

Chart of VOD:

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



Watch

Time for Banks to Dip?

by James Brown

Click here to email James Brown


New Watch List Entries

C - Citigroup Inc

JPM - JPMorgan Chase & Co


Active Watch List Candidates

CS - Credit Suisse

EL - The Est

V - Visa

WDC - Western Digital Corp


Dropped Watch List Entries



New Watch List Candidates:


Citigroup, Inc. - C - close: 50.52

Company Info

The financial sector has helped lead this market higher. This past week looks like a bearish reversal for many of the banking stocks. Yet it's probably just a short-term correction lower. We want to take advantage of any profit taking and be ready to buy the dip.

I suspect that Citigroup will find support near $45.00 and its 100-dma. I am suggesting a buy-the-dip trigger at $46.00 and we'll use a stop loss at $42.40. If triggered we want to start with small positions. Our long-term target is $59.00.

Buy-the-Dip trigger: $46.00, stop loss @ 42.40

BUY the 2014 Jan $50 call (C1418a50)

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BUY the 2015 Jan $55 call (C1517a55)

Chart of C:

Originally listed on the Watch List: 05/25/13


JPMorgan Chase & Co. - JPM - close: 53.66

Company Info

JPM is another major bank that has shown relative strength in the month of May. This past week may have been a bearish reversal in the stock. We want to be ready to buy calls on a dip near support. The $50.00 level should offer some round-number support. I am suggesting a buy-the-dip trigger at $50.25. If triggered we will use a stop loss at $47.40. Our long-term target is $64.00.

Buy-the-Dip trigger: $50.25, stop 47.40

BUY the 2014 Jan $55 call (JPM1418a55)

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BUY the 2015 Jan $55 call (JPM1517a55)

Chart of JPM:

Originally listed on the Watch List: 05/25/13


Active Watch List Candidates:



Credit Suisse Group - CS - close: 29.27

Comments:
05/25/13: It was not a surprised to see CS retreat from resistance near $30 thanks to the broader market's pullback. Shares could bounce near their 50-dma and 100-dma at the $28 level. Yet I am suggesting we wait for a clear breakout higher.

Earlier Comments:
I am suggesting we wait for CS to close above $30.65. If the stock closes above this level we can buy calls the next day with a stop loss at $27.75. More conservative investors may want to use a stop closer to $29.00 instead. We do want to keep our position size small since I consider this a more aggressive entry point given the market's major indices look over extended.

If triggered our long-term target is the $37.50-40.00 zone. The Point & Figure chart has a long-term target of $57.50.

Breakout trigger: Wait for a close above $30.65, then buy calls the next day
Use a stop loss at $27.75

BUY the 2014 Jan $33 call (CS1418a33)

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BUY the 2015 Jan $35 call (CS1517a35)

Originally listed on the Watch List: 05/18/13


The Est - EL - close: 70.95

Comments:
05/25/13: EL is holding up reasonably well but momentum seems to be slowing down. Overall I do not see any changes from my prior comments. I am suggesting we wait for a dip and buy calls on a pullback at $65.50.

Earlier Comments:
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.

Buy-the-dip strategy at $65.50, stop loss at $62.25

BUY the 2014 Jan $75 call (EL1418A75) current ask $3.50

05/18/13 strategy change: switch entry point to buy-the-dip at $65.50, move the stop loss to $62.25. Move the option strike to 2014 Jan $75 call

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


Visa Inc. - V - close: 180.45

Comments:
05/25/13: Visa was not immune to the market's pullback this past week. Shares almost appear to have formed a short-term bearish double to near $185.00. Overall I don't see any changes from my prior comments.

I am suggesting we buy calls on a dip at $171.00. If we are triggered at $171.00 I am suggesting a stop loss at $164.75. Our long-term target is $198.50.

Buy-the-Dip trigger: $171.00

BUY the 2014 Jan $180 call (V1418A180)

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BUY the 2015 Jan $200 call (V1517A200)

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


Western Digital Corp. - WDC - close: 62.30

Comments:
05/25/13: WDC continues to show impressive relative strength with another surge to all-time highs. We still do not want to chase it.

I am suggesting we wait and buy a dip at $55.00. If WDC hits our buy-the-dip trigger at $55.00 our long-term target is $70.00. The Point & Figure chart is currently forecasting a long-term target of $82.00. We'll start with a stop loss at $52.25.

Buy-the-Dip trigger: $55.00, stop loss @ 52.25

BUY the 2014 Jan $65 call (WDC1418a65)

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BUY the 2015 Jan $70 call (WDC1517a70)

Originally listed on the Watch List: 05/18/13