Option Investor
Newsletter

Daily Newsletter, Sunday, 6/9/2013

Table of Contents

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

Leaps Trader Commentary

S&P 500 Rebounds Off Support Near 1600

by James Brown

Click here to email James Brown

It was a volatile week for stocks. The U.S. market was shaping up for its third weekly decline but traders bought the dip on Thursday near technical support. Friday's jobs report helped spur the rebound higher and the major indices posted a gain for the week, ending a two-week decline. The Dow Industrials did snap a record-breaking 20 positive Tuesdays in a row. However, the DJIA is still building a trend of 160 days in a row without a three-day pullback. This feat has not occurred in more than 60 years.

Meanwhile it was a rough week for the U.S. dollar, which plunged on economic data and crashed against the Japanese yen. This move in the dollar helped fuel gains in commodities like oil but precious metals turned lower. Gold was weak on Friday and silver has fallen to new multi-year lows. Speaking of lows, in spite of the jobs data on Friday, the U.S. employment rate (number of workers) remains near a 30-year low at 58.6%.

The U.S. economic data last week was mixed. April saw American home prices rise +12.1% year over year. That's the biggest one-month gain since February 2006 (during the housing bubble). Unfortunately, the rise of real estate might stall because mortgage rates are rising. This last week saw mortgage rates surge from 3.81% to 4.0%, which is a new one-year high. Mortgage applications fell -11.5% for the week.

Automobile sales came in strong with Chrysler reporting their best sales growth since mid 2007. Ford was a winner with +14% growth. GM missed expectations with only +3.1% growth. The ISM manufacturing data was a big disappointment with a drop from 50.7 in April to 49.0 in May. Economists had been expecting a small improvement. May's reading below 50.0 is the first contraction-level report since November 2012 and it's the lowest ISM manufacturing report since June 2009. The ISM services (non-manufacturing) report went the opposite direction with a rise from 53.1 in April to 53.7 in May. The Federal Reserve's Beige Book report was a non-event with no real change. The 12 fed districts said growth remains modest.

The big report for the week was the non-farm payrolls (jobs) report on Friday morning. Economists were expecting +169,000 new jobs in May (the prior week's estimate was +165K). The government said the U.S. gained +175,000 jobs, which was up from the prior month's downwardly revised 149,000. The unemployment rate ticked up +0.1% to 7.6% as more than 400,000 people re-joined the labor force and started looking for work. Somehow the market decided that Friday's jobs number was a "goldilocks" number. It wasn't too hot or too cold and keeps the Federal Reserve's QE program intact. The markets had already started rebounding from Thursday's intraday low and the jobs number spurred the rebound higher.

A few thoughts on the jobs number. The market is a little too preoccupied with a monthly estimate that is full of errors. This number is constantly revised by tens of thousands and subject to massive seasonal adjustments. Instead market participants should note that the trend, while relatively steady, actually seems to show shrinking job growth. We're only averaging +133,000 a month.

This past year saw +1,596,000 new jobs created. Yet -1,741,000 people dropped out of the work force. This is not improvement! I mentioned earlier that the U.S. employment rate is near a 30-year low of 58.6%. It certainly looks like the Federal Reserve is getting ripped off by spending trillions of dollars in its multiple QE programs and receiving stagnant (actually negative) job growth. It's widely believed that we need at least +150,000 new jobs a month just to keep up with population growth in this country thanks to new graduates and new immigrants. A recent CNN article suggested this number is closer to 200,000. If the U.S. is only averaging +133,000 new jobs a month then we're not keeping pace with population growth and we're definitely not helping the tens of millions of people who are unemployed.

On the topic of the Fed's QE program, all this talk about the Fed tapering seems very premature. The Fed has said very clearly that they want to see +200K job growth for several months before they would consider slowing down. They also want to see the unemployment rate at 6.5%. Remember, it just ticked higher to 7.6%. The condition that might prompt the Fed to move early and cut back on their QE program would be inflation at 2.5% or more and we're not even close. Inflation is actually decreasing. If you believe that stocks are rising on a Fed-fueled stimulus inspired rally then nothing has changed and the trend remains higher.

Economic data overseas was also mixed. The European Central Bank (ECB) left rates unchanged at 0.5%. The Bank of England also left rates unchanged at 0.5%. This was in-line with expectations. What was surprising was the improvement in Eurozone manufacturing PMI data, which came in better than expected. Countries like Germany, France, and even Italy and Spain said their manufacturing PMI numbers all improved. This is good news if this is signaling a turnaround. Meanwhile the Eurozone's Q1 GDP estimate was left unchanged at -0.2%, thus reminding investors that most of Europe is in recession. Unemployment remains high. France said their unemployment rate hit a 15-year high at 10.8% and Greece unemployment hit another record at 26.8%.

China said their official manufacturing PMI number was 50.8. That was up from 50.6 and definitely better than the 50.1 estimate but it's still awfully close to zero growth (a reading of 50.0). The official numbers do not line up with the HSBC's Chinese manufacturing PMI data, which dropped from 49.6 to 49.2, slightly deeper into economic contraction territory.

Meanwhile in Japan the stock market sell-off continues. The NIKKEI has hit bear market territory with a -20% plunge from its May 22nd close. The weakness would have been worse but supposedly the Bank of Japan stepped in and bought equity ETFs on Friday, which buoyed the market and Japanese equities pared their losses.

Major Indices:

The S&P 500 managed a +0.7% gain for the week and ended a two-week pullback. From the index's intraday high on May 22nd (1687) to the intraday low on Thursday (1598) we have witnessed a -5% pullback. Traders bought the dip at technical support near the 1600 level and the S&P 500's rising 50-dma. I cautioned readers last week to look for a bounce from the 1600 level.

The S&P 500's rebound from 1600 is encouraging albeit somewhat predictable. The rebound has not yet broken the three-week trend of lower highs. Now if you're bullish you could argue that the S&P 500 has been building a bull-flag pattern but it has yet to actually breakout of the flag consolidation.

On a short-term basis look for overhead resistance near 1650, 1685, and 1700. We can watch for support near 1600. If 1600 breaks down then the S&P 500 will likely fall toward 1540 or its 100-dma (currently at 1565).

chart of the S&P 500 index:

The NASDAQ composite rebounded off its 40-dma from Thursday's lows and eked out a +0.39% gain for the week. This index also appears to be building a bull-flag pattern. A close above the three-week trend of lower highs would be bullish and could spark more short covering.

On a short-term basis, if stocks pull back, look for support near Thursday's low (3378) and if that fails then possibly the 50-dma, and below that 3300. On the other hand a breakout from the flag pattern could signal a run towards 3600 or higher.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index has produced a similar rebound with traders buying the dip on Thursday. The $RUT underperformed its larger cap peers on Friday with just a +0.8% gain. For the week the $RUT is only up +0.3%.

The $RUT also has three-week trend of lower highs. The potential bull-flag pattern is not so clean cut as the one seen on the SP500 or the NASDAQ.

The 1,000-1,008 area is still overhead resistance. A breakout higher could signal a run toward the 1,040-1,050 area. Meanwhile the $RUT should have support in the 960-950 zone and its 100-dma.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week will see a bit of a lull in the pace of economic data. I don't see any market-moving reports.

Economic and Event Calendar

- Monday, June 10 -
Italy's GDP estimate

- Tuesday, June 11 -
wholesale inventory data
Bank of Japan interest rate decision

- Wednesday, June 12 -
U.S. 10-year bond auction
USDA Crop report
Eurozone's industrial production

- Thursday, June 13 -
Weekly Initial Jobless Claims
U.S. retail sales data
import/export price data

- Friday, June 14 -
Producer Price Index (PPI)
industrial production and capacity utilization
University of Michigan Consumer Sentiment for June

Additional Events to be aware of:

June 15th - G-8 meeting
September - U.S. debt ceiling deadline

The Week Ahead:

On a short-term basis the U.S. market's two-day bounce from support looks bullish. The longer-term trend still has a bullish pattern of higher lows. If the major indices can breakout from their bull-flag patterns we could see a positive surge in momentum. It is worth noting that volume has not really confirmed this rally but then again volume has been weak for months and summer time usually sees volume slow down even more.

All this "taper" talk about the Fed's QE program seems out of place. Unfortunately it probably isn't going away. There is a two-day FOMC meeting on June 18th-19th. Thus the future of the Fed's QE program will remain front and center until the Fed-heads put this taper turmoil to rest. Then again they could be intentionally trying to slow down the stock market by discussing the eventually tapering of the Fed's QE program. If the Federal Reserve does announce something at the June meeting it could rock the market since no one expects any changes for several more quarters.

I do not see any changes from my comments last week about Japan and its Catch 22 predicament given Japanese markets and its QE program. I also don't see any changes from my comments about a growing proxy war in Syria between the west (U.S. & U.K.) and Syria's allies Russia and Iran. You can read my comments here.

I remain cautiously bullish on stocks. I'd like to see a deeper correction lower but we may not get it. Trade cautiously.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market ended a two-week decline thanks to a sharp rebound off its Thursday lows and further gains spurred on by the jobs report.

We closed our BBBY, DLTR, and MRVL trades on Monday, June 3rd. Our KO trade was stopped out the same day.

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

The Trend is Still Your Friend

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(June 08, 2013)

The S&P 500's rebound off of technical support near 1600 and its 50-dma is certainly bullish from a technical perspective. Yet the rebound has not yet broken past the three-week trend of lower highs. Therefore I remain cautiously bullish on the market. The trend is up but we just saw two weeks of declines based on fear the Fed might taper its QE program.

The Fed's next FOMC meeting is less than two weeks away. If Ben Bernanke surprises the market, investors may choose to sell first and ask questions later. In spite of my cautiousness we can only trade the market we see and right now the trend is still our friend. Thus we're adding three new bullish candidates to the watch list tonight.

I have also added a few new symbols to my radar screen below. A few of them actually look like potential trades right now.


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:

DNKN, FRX, WHR, CBI, BA, NOC, LLL, RTN, M, TJX, PNRA, SBUX, GRPN, CY, NKE, UA, WFR, GS, ODFL, JNJ, BIDU, HD, TM, AXP, AMZN, GOOG,


Play Updates

Closing With Gains

by James Brown

Click here to email James Brown

Editor's Note:

Four of our trades were closed or stopped out this week. Three of them with significant gains.


Closed Plays


The plan was to close our BBBY, DLTR, and MRVL trades on Monday, June 3rd.

KO was stopped out.



Play Updates


Bank of America - BAC - close: 13.38

Comments:
06/08/13: BAC posted a loss for the week but the decline was minor after traders bought the dip on Thursday near its mid-May low. I am a little bit concerned that if the current bounce rolls over in the $13.50-13.70 zone it will look like the right shoulder to a bearish head-and-shoulders pattern.

I am not suggesting new positions at this time.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.55/0.59

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.42/1.45

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


Ford Motor Co. - F - close: 15.73

Comments:
06/08/13: It was a volatile week for shares of Ford. Traders bought the dip near support at $15.00 and its rising 20-dma on Thursday. It didn't hurt that Ford announced its American sales for the month of May rose +14% from a year ago.

The $16.00 level remains short-term resistance.

- 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 $ 2.38/2.42

06/01/13 investors may want to exit our 2015 calls now with a bid at $2.34 (+91.8%)
06/01/13 adjust long-term target to $17.75
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:$ 17.75
Current Stop loss: 13.40
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Honeywell Intl. - HON - close: 79.08

Comments:
06/08/13: HON managed to eke out a small gain for the week thanks to a sharp, two-day rebound. Traders bought the dip near support around $76 and its rising 40-dma and 50-dma. HON was showing relative strength on Friday with a +1.8% gain.

Currently our stop loss is at $74.50. More conservative investors may want to adjust theirs closer to $76.00 instead.

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 $ 5.75/5.95

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: 24.59

Comments:
06/08/13: Wow! It was a very volatile week for shares of INTC. From Friday, May 31st's close of $24.28 to the intraday high on Tuesday ($25.98), INTC was up +7.0%. The move appeared to be sparked by an analyst upgrade for INTC. Unfortunately profit taking pulled INTC back down to fill the Monday morning gap.

Bears could argue we just saw a topping formation in INTC. I would be cautious here. More conservative investors may want to take profits now.

Please note that I am adjusting our exit strategy. We want to exit our 2014 calls when INTC hits $26.50. We will plan to exit our 2015 calls at $28.00.

- Suggested Positions -
APR 24, 2013 - entry price on INTC @ 23.28, option @ 0.89
symbol:INTC1418a25 2014 JAN $25 call - current bid/ask $ 1.44/1.47

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 2.32/2.38

06/08/13 adjust exit strategy:
plan to exit the 2014 calls when INTC hits $26.50
plan to exit the 2015 calls when INTC hits $28.00
05/18/13 The rally has stalled. INTC might correct lower soon
05/11/13 new stop loss @ 21.90

Current Target: $26.50 & $28.00 (see above)
Current Stop loss: 21.90
Play Entered on: 04/24/13
Originally listed on the Watch List: 04/20/13


Lowe's Companies - LOW - close: 41.60

Comments:
06/08/13: The stock market was weak on Tuesday and Wednesday. Shares of LOW followed the market lower on those two sessions. Unfortunately, it felt like LOW was underperforming with a steep sell-off from $42.36 to $39.60. Wednesday's close below $40.00, which should have been support, looked pretty ugly. Thankfully this stock bounced and was outperforming the market on Friday with a +2.2% gain. Given the rebound, LOW's long-term up trend of higher lows remains intact. I remain bullish. Yet short-term LOW should see resistance near $42.00 and near $43.50.

- Suggested Positions -
MAY 07, 2013 - entry price on LOW @ 40.87, option @ 1.57
symbol: LOW1418a45 2014 JAN $45 call - current bid/ask $ 1.73/1.76

- or -

MAY 07, 2013 - entry price on LOW @ 40.87, option @ 3.52
symbol: LOW1517a45 2015 JAN $45 call - current bid/ask $ 3.95/4.10

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


NetApp, Inc. - NTAP - close: 37.97

Comments:
06/08/13: NTAP managed to ignore most of the market's volatility. Shares quietly consolidated sideways in the $37-38 zone and now shares look poised to breakout past resistance near $38.25.

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 $2.62/2.66

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $4.40/4.55

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: 34.16

Comments:
06/08/13: The price of oil is not cooperating with our bearish play. After two down weeks in a row the USO surged higher last week thanks to a falling U.S. dollar.

The USO has closed above technical resistance at its simple 300-dma. More conservative investors may want to exit immediately. Tonight I am adjusting our stop loss strategy. Instead of waiting for the USO to close above $34.50 I am adjusting our stop loss to $34.75 and we'll exit on an intraday trade at this level.

I am concerned that the USO is forming an inverse head-and-shoulders pattern. A breakout past the trend of lower highs would signal a rallied toward $37.50 or higher.

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.

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 $ 0.42/ 0.43

06/08/13 adjust the stop loss strategy to $34.75, exit on an intraday trade at this level or higher
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: 34.75
Play Entered on: 04/15/13
Originally listed on the Watch List: 04/06/13


Wal-Mart Stores - WMT - close: 76.33

Comments:
06/08/13: Wal-Mart has nothing better to do with its money so it has announced another massive stock buyback. Shares are up on the week but I am worried this is just an oversold bounce. Most of the gains for last week came on Friday and Friday's +0.9% advance was a reaction to news that WMT will buy back another $15 billion worth of its own stock. This plan replaces the prior $15 billion stock buy back program that started in 2011.

I have been expecting WMT to bounce in the $74-75 zone and so far WMT is following the script. Yet the stock remains in a bearish trend of lower highs starting from the mid-May peak near $80.00.

- 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 $ 4.45/4.60

06/07/13 WMT announces another $15 billion stock buyback program
06/01/13 WMT has pulled back just as expected.
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


Bed Bath & Beyond - BBBY - close: 69.36

Comments:
06/08/13: Last weekend we had decided to close our BBBY trade on Monday, June 3rd. BBBY saw a small gap higher on Monday at $68.70. Tuesday's session was ugly but BBBY has recovered. More aggressive traders may want to reconsider new bullish positions if BBBY can close above the $70.50 area.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - exit $7.60 (+46.1%)

06/03/13 planned exit on Monday morning
06/01/13 prepare to exit immediately on Monday, June 3rd
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

Chart of BBBY:

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: 49.69

Comments:
06/08/13: Two weeks ago DLTR was underperforming and shares had created a bearish reversal pattern on its weekly chart. We decided to close positions on Monday, June 3rd at the open. Shares of DLTR saw a gap open higher on Monday at $48.50. FYI: There was no follow through on DLTR's bearish reversal pattern.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - exit $6.25 (+31.3%)

06/03/13 planned exit at the opening bell
06/01/13 prepare to exit immediately on Monday morning
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

Chart of DLTR:

Current Target: $53.50
Current Stop loss: 44.75
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13


The Coca-Cola Company - KO - close: 41.41

Comments:
06/08/13: Shares of KO have been volatile the last couple of weeks. The stock broke down below support near $40.00 on an intraday basis, Monday, June 3rd, and then rocked higher. Our stop loss was hit at $39.65. It was probably not a coincidence that the intraday low on Monday was $39.63.

We still closed this play in positive territory with the 2015 Jan. $40 call at $3.35 (+91.4%).

- 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 - exit $3.35 (+91.4%)

06/03/13 stopped out
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

Chart of KO:

Current Target: $46.00
Current Stop loss: 39.65
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13


Marvell Technology - MRVL - close: 11.24

Comments:
06/08/13: Shares of MRVL have not been cooperating in the last couple of weeks. We decided last weekend to exit positions on Monday, June 3rd at the opening bell. MRVL opened Monday at $10.86.

- Suggested *Small* Positions -
MAY 13, 2013 - entry price on MRVL @ 11.25, option @ 0.78
symbol: MRVL1418a13 2014 JAN $13 call - exit @ $0.57 (-26.9%)

- or -

MAY 13, 2013 - entry price on MRVL @ 11.25, option @ 0.97
symbol: MRVL1517a15 2015 JAN $15 call - exit @ $0.75 (-22.6%)

06/03/13 planned exit this morning
06/01/13 MRVL is not cooperating. Prepare to exit immediately on Monday morning, June 3rd.

Chart of MRVL:

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



Watch

Aerospace, Apparel, & Railroads

by James Brown

Click here to email James Brown


New Watch List Entries

BEAV - B/E Aerospace

LULU - Lululemon Athletica

UNP - Union Pacific


Active Watch List Candidates

AIG - Amer. Intl. Group

C - Citigroup Inc

CS - Credit Suisse

DIS - Walt Disney

EL - The Est

GM - General Motors

JPM - JPMorgan Chase & Co

V - Visa

WDC - Western Digital Corp


Dropped Watch List Entries



New Watch List Candidates:


B/E Aerospace Inc. - BEAV - close: 65.24

Company Info

As the name implies, BEAV is in the aerospace industry. The stock has been a consistent winner with investors buying dips to the rising 40-dma. Traders just did it again and bought the dip this past week. It seems investors do not care that BEAV guided its 2013 earnings forecast below consensus estimates when they reported earnings back in April.

Currently shares appear to be breaking out past resistance near the $65.00 level. This is a new all-time high but I'd like to see a little more confirmation. Friday's high was $65.55. Wait for a close above $65.75 and then buy calls the next day. We will start with a stop loss at $61.70. Our long-term target is $74.00.

Breakout trigger: Wait for a close above $65.75, then buy calls the next day.

BUY the 2014 Jan $70 call (BEAV1418a70) current ask $3.30

Chart of BEAV:

Originally listed on the Watch List: 06/08/13


Lululemon Athletica - LULU - close: 81.43

Company Info

LULU is a premium brand name for yoga apparel. The company suffered a little bit of an embarrassment when they had to remove their popular black yoga pants because the fabric was too sheer. According to the company the new black pants will be back in stores this month.

The stock has been hovering in the $78-82 zone and shares look poised to breakout higher. That will depend on the company's earnings results. LULU is scheduled to report earnings on June 10th (Monday), after the closing bell. Wall Street expects an estimate of 30 cents a share.

I am suggesting we wait for LULU to close above $82.50 and buy calls the next day. However, I have to put some conditions on this entry point. The most recent data listed short interest at 19% of the float. We don't want to launch positions on some huge rally higher. So, the plan is to wait for a close above $82.50 but we will not open positions if LULU closes above $84.00 (it needs to close inside the $82.50-84.00 zone, otherwise, no trade). If LULU were to suddenly surge a lot higher than expected and the stock were to close above $84.00 then we will abort this trade. I repeat, if LULU closes above $84.00 prior to a successful entry in the $82.50-84.00 zone then we will not open positions.

If triggered we'll start with a stop loss at $77.75. Our long-term target is $98.00.

Breakout trigger: Wait for a close in the $82.50-84.00 zone, then buy calls the next day
stop loss @ 77.75

BUY the 2014 Jan $90 call (LULU1418a90) current ask $5.90

- or -

BUY the 2015 Jan $100 call (LULU1517a100) current ask $8.35

Chart of LULU:

Originally listed on the Watch List: 06/08/13


Union Pacific Corp. - UNP - close: 158.13

Company Info

UNP is in the transportation sector. More specifically UNP is a railroad. The stock has been in a long-term up trend but shares seemed to get ahead of themselves. UNP had trouble near $160. Traders bought the dip this past week at its rising 40-dma. The bounce has ended the two-week decline. If this rally continues we want to be ready for a breakout higher.

I am suggesting investors wait for UNP to close above $161.00 and then buy calls the next morning. If triggered we wills tart with a stop loss at $151.00. Our long-term target is $185.00 for the 2014 calls and $200 for the 2015 calls.

Breakout trigger: Wait for a close above $161.00
stop loss @ 151.00

BUY the 2014 Jan $180 call (UNP1418a180) current ask $3.25

- or -

BUY the 2015 Jan $200 call (UNP1517a200) current ask $3.65

Chart of UNP:

Originally listed on the Watch List: 06/08/13


Active Watch List Candidates:



American Intl. Group - AIG - close: 45.28

Comments:
06/08/13: The stock market's reversal higher this past week may have postponed the correction in shares of AIG. More aggressive investors might want to consider buying calls if AIG can closed above $46.50. We will wait for a correction for now. Currently the plan is to buy calls on a dip at $38.50. If triggered at $38.50 we'll use a stop loss at $34.75. Our long-term target is the $45-50 zone.

Buy-the-Dip trigger: $38.50, stop loss @ 34.75

BUY the 2014 Jan $45 call (AIG1418a45)

- or -

BUY the 2015 Jan $50 call (AIG1517a50)

Originally listed on the Watch List: 06/01/13


Citigroup, Inc. - C - close: 51.60

Comments:
06/08/13: Just like the S&P 500, shares of C are bouncing from round-number support. Citigroup rebound near the $50.00 level but we do not want to chase it here.

Currently the plan is to wait for a correction lower and buy calls on a dip at $46.00. 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)

- or -

BUY the 2015 Jan $55 call (C1517a55)

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


Credit Suisse Group - CS - close: 29.19

Comments:
06/08/13: Shares of CS briefly traded below technical support at its 50-dma and 100-dma on Thursday. The stock rebounded with the market on Friday. We are still waiting for a breakout to new 52-week highs. Wait for CS to close above $30.75 before initiating positions the next morning.

Earlier Comments:
If the stock closes above our trigger 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 $30.75, then buy calls the next day
Use a stop loss at $27.75

BUY the 2014 Jan $33 call (CS1418a33)

- or -

BUY the 2015 Jan $35 call (CS1517a35)

06/01/13 adjust entry point: wait for a close above $30.75

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


Walt Disney - DIS - close: 64.85

Comments:
06/08/13: The market's rebound produced a big bounce in DIS with shares ricocheting off $62 and closing just below short-term resistance at $65.00 by Friday. More aggressive investors could buy a breakout past $65 with a stop under Thursday's low. I would rather wait for a larger correction lower. The newsletter is suggesting readers use an entry trigger to buy calls on a dip at $57.00. If triggered we'll use a stop loss at $53.75. Our long-term target is the $75-80 zone.

Buy-the-Dip trigger: $57.00, stop @ 53.75

BUY the 2014 Jan $65 call (DIS1418a65)

- or -

BUY the 2015 Jan $65 call (DIS1418a65)

Originally listed on the Watch List: 06/01/13


The Est - EL - close: 68.12

Comments:
06/08/13: Wow! I have to confess that we may have just missed the entry point in our EL trade. Last weekend I adjusted our entry trigger from $65.50 to $65.00. This past week saw shares of EL correct down to $65.23 on Thursday and bounce. The market's rally on Friday helped lift EL to a +3.2% gain. If the current bounce continues we may have to adjust our strategy or drop EL as a candidate. For now the plan is unchanged.

Earlier Comments:
We want to keep our position size small to limit our risk.

Buy-the-dip strategy at $65.00, stop loss at $62.25

BUY the 2014 Jan $75 call (EL1418A75)

- or - BUY the 2015 Jan $75 call (EL1517A75)

06/06/13 EL dips to $65.23 and bounces
06/01/13 adjust the entry trigger to $65.00 (from 65.50)
add the 2015 calls options
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


General Motors - GM - close: 35.03

Comments:
06/08/13: Auto sales in the U.S. continue to improve. This past week saw the pace of motor vehicle sales in May hit 15.3 million. GM said sales were up +3% in May, year over year. Traders have been buying the dips in GM stock and shares are climbing in a narrow bullish channel. The stock may have had a little extra strength this past week as GM was added to the S&P 500 index again.

We don't want to chase GM here. If the stock doesn't correct soon we will have to re-evaluate our entry strategy. Currently I am suggesting investors use a buy-the-dip trigger at $30.00 to launch call positions on GM. If triggered we'll use a stop loss at $27.75. Our long-term target is the $36-40 zone.

Buy-the-Dip trigger: $30.00, stop @ 27.75

BUY the 2014 Jan $35 call (GM1418a35)

BUY the 2015 Jan $35 call (GM1517a35)

Originally listed on the Watch List: 06/01/13


JPMorgan Chase & Co. - JPM - close: 54.27

Comments:
06/08/13: With JPM's bearish reversal on May 31st it looked the stock was correcting lower. Yet traders bought the dip when the market bounced midday Thursday. I don't see any changes from my prior comments. I am expecting a correction back toward $50.00, which should be significant support.

We want to be ready to buy calls on a dip near 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)

- or -

BUY the 2015 Jan $55 call (JPM1517a55)

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


Visa Inc. - V - close: 179.94

Comments:
06/08/13: Visa is still consolidating sideways. The stock did post a gain for the week so shares ended a two-week decline. Yet Visa still has a three-week bearish pattern of lower highs. There is no change from my prior comments.

We want to buy 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)

- or -

BUY the 2015 Jan $200 call (V1517A200)

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


Western Digital Corp. - WDC - close: 64.15

Comments:
06/08/13: WDC continues to look strong. The stock did not react much to the market's recent volatility. Traders continue to buy the dips and WDC looks poised to breakout higher from its short-term sideways consolidation. I still don't want to chase it here.

WDC is up seven weeks in a row. Let's be patient and wait for a correction lower.

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)

- or -

BUY the 2015 Jan $70 call (WDC1517a70)

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