Option Investor
Newsletter

Daily Newsletter, Sunday, 6/23/2013

Table of Contents

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

Leaps Trader Commentary

Bernanke Bombs The Market

by James Brown

Click here to email James Brown

Federal Reserve Chairman Ben Bernanke dropped a "taper talk" bomb on the stock market and equities erased all of their May and June gains in less than two days. It was not a good week for investors. U.S. stocks delivered their worst week of the year. European markets posted their worst week in over 12 months. Yet the bond market witnessed its worst week in 50 years. Last week I warned readers that "everything depends on the Fed statement and Bernanke's press conference... If the Fed disappoints the market we could see a painful sell-off."

The major U.S. indices lost about -2% for the week. While that might seem painful the real pain is overseas. The Stoxx Europe 600 index fell -3.7% for the week and posted its fifth weekly loss in a row. The German DAX stumbled -4.2% lower for the week. The French CAC-40 is down -3.9% for the week and the British FTSE 100 lost -3.1% for the week. China plunged -4.9% for the week. Meanwhile countries like Brazil and Turkey, which are facing widespread protests, saw their markets fall -7.7% and -8.9%, respectively, for the week. Emerging markets have crashed -15% in the last five weeks and Brazil is off -20% in four weeks.

Bernanke's comments on Wednesday sparked a rally in the U.S. dollar and that yanked the rug out from under commodities. Oil had been breaking out higher but reversed sharply. Silver lost -8.8% for the week and closed below $20 an ounce. Gold fell -6.6% for the week, losing almost $100 on Thursday alone. Gold's sell-off was probably exacerbated by news that the CME raised margin requirements on gold futures by 25%. Falling economic data out of China also played a key role in the commodity sell-off. We'll talk more about China in a moment.

Monthly chart of the GLD gold ETF:

Monthly chart of the SLV silver ETF:

It is worth noting that volume surged on the market's sell-off. Depending on your bias that's either a good thing (capitulation) or a bad thing (confirming the reversal lower). The rush of volume was likely due to a quadruple witching option and futures expiration on Friday. There was also a quarterly rebalancing for the S&P 500 large cap index, S&P 400 midcap index, and S&P 600 small cap index.

Economic data in the U.S. was mostly positive for the week, which is a nice change of pace. Consumer prices in the May CPI report showed a +0.1% increase. That's the first rise since February's reading. The core-CPI, which excludes more volatile food and fuel prices, rose +0.2%, which was in-line with expectations. Housing starts hit an annual pace of 914,000 in May. That's up from 856,000 in April. Building permits ticked lower to an annual pace of 974,000 in May, down from April's 1.0 million.

The regional Fed survey's were positive. The New York Empire State Fed manufacturing survey rose to a three-month high. Meanwhile the Philly Fed business outlook survey rebounded from -5.2 in May to +12.5 in June. That's the high reading since April 2011 and way above expectations.

Looking across the Atlantic ocean to Europe there was improvement in economic sentiment. Both the German ZEW and Eurozone ZEW economic sentiment surveys improved. Manufacturing data was mixed. The German PMI manufacturing index fell from 49.4 to 48.7. The Eurozone PMI manufacturing index rose from 48.3 to 48.7. Numbers below 50.0 indicate contraction. This isn't a surprise since most of Europe is in recession. Standard & Poor's expects the recession to last throughout the rest of 2013 and adjusted their forecast last week suggesting any European recovery may not occur until 2014.

Europe is plagued with a number of sinking EU members. The International Monetary Fund (IMF) just issued a new report on Spain that suggested the country's banking system remains fragile and likely a drag on the economy. The situation in Italy is not improving as the nation's retail association said the recession is so bad that 134 retail stores close every single day and more than 200,000 retailers have closed since the recession began.

Greece continues to flounder. The small European country just announced that they found a new 1.2 billion euro budget shortfall and they needed more help from the EU or their largest healthcare provider would go crash. Meanwhile Cyprus, another tiny EU member, appears to be in a death spiral as the country deals with the aftermath of its recent "bail in" when the Cyprus government and the EU regulators stole cash from bank depositors to help pay for a bank rescue. Cyprus businesses are going bankrupt. Unemployment is skyrocketing. Money is rushing out of the country in spite of government capital controls. The Cyprus president is asking the EU to reverse the "bail in" (a.k.a. bank robbery) before his country implodes. Good luck with that!

China

There were two major stories last week for Wall Street. One of them was the Fed meeting and Bernanke's press conference. The other was China. The Chinese economy appears to be slowing down and the banking system is freezing up. The latest HSBC manufacturing PMI reported showed activity falling from 49.2 to 48.3. That's even deeper into contraction (recession) territory and a new nine-month low. The internal components suggested a sharp drop in new orders and back orders. Officially the country's growth rate has fallen from +9% in recent years to +7.5%. Yet there seems to be a growing camp of analysts that suggest the real growth rate in China is significantly less. Some of the outliers peg Chinese growth at +4.5% instead. What really scares investors is the action in the Chinese banking sector. The band new Chinese leadership is squeezing the credit system in an effort to reduce bank leverage and stop a real estate bubble. Part of the problem is the huge "shadow banking" system. Many of China's banks are extremely leveraged. Private debt has ballooned to +168% of Chinese GDP. A number of these are non-performing loans. The banks have been unloading these into offshore entities to hide them from the government. Unfortunately, no one trusts the Chinese banks anymore and inter-bank loans are freezing up, which has produced a liquidity crunch.

The overnight interbank interest rates spiked to 25% a couple of days ago. If that happened here in the U.S. it would be Armageddon for the banking system. Unofficially there are reports that the Chinese central bank finally stepped in to inject $8 billion worth of liquidity into the system but overnight rates are still above 10%. The U.S. and Europe experienced a similar banking freeze during the 2008 Lehman Brothers crash. None of the major U.S. and European banks trusted each other so interbank leading stopped. Lehman Brothers, one of the largest and oldest U.S. banks at the time, was eventually forced into a bankruptcy that many have suggested almost brought down the entire U.S. banking system. Now we're witnessing similar stress on China's banking system. According to the Fitch credit rating agency the "shadow" banking system is "out of control" and the credit bubble in China is "unprecedented in modern history". Investors don't want to stick around to see what happens next. The China Securities Journal reported that money is rushing out of Chinese equity funds at levels not seen since 2008.

Federal Reserve & Ben Bernanke

The other big story was Federal Reserve Chairman Ben Bernanke and the FOMC meeting. For weeks the only thing Wall Street talked about was the future of QE3 and whether or not the Fed would "taper" their QE program. Everyone know that eventually the Fed would have to taper their asset purchases but expectations were for a change in the official Fed statement in September this year and maybe a slowdown in QE purchases in 2014. There were hints in the latest Fed minutes from the prior meeting that the Fed might begin tapering sooner than that, which is what started all the taper talk in the first place.


Ben Bernanke

Everyone claims that they want transparency from the Federal Reserve, especially after years of "Greenspeak" thanks to Alan Greenspan's cryptic statements. Well, Bernanke was pretty clear about the Fed's QE plans and the market didn't like what they heard. Bernanke essentially said that the risks to the U.S. economy have lessened and if the trend continues the Fed could begin tapering their QE3 program later this year and hope to completely end QE3 by the middle of 2014. He reiterated that the Fed wanted to see unemployment fall to 6.5% as a starting point to consider Fed tapering. Yet market participants continued to ignore Bernanke's conditions to begin any QE taper and instead focused on the potential time frame for any QE reduction.

There were several analysts that pointed out some trouble spots for the Fed. First of all Chairman Bernanke suggested the U.S. economy was getting better but that very same day the Fed actually lowered their U.S. growth forecast for 2013. Currently the U.S. economy is growing at about +2%. Yet the sequestration budget cuts are expected to shave off -1.5% to -1.9% off U.S. GDP in Q2 and Q3 of this year. I fail to see how the economy is "improving" when the next GDP estimate is likely to contract sharply.

Some have suggested that Bernanke's taper bomb may have been a good bye gift to his boss, President Obama. In a recent interview Obama all but fired Bernanke suggesting Obama would not renew Bernanke's term when it expires January 2014. There was also speculation that Bernanke's strategy to end QE is part of his legacy planning before he leaves office. Whatever your beliefs about Bernanke and the taper talk his comments ignited a firestorm in the equity markets but it was nuclear bomb for the bond market with the worst week in decades for U.S. bonds.

chart of the 10-year U.S. bond Yield:

Major Indices:

It was a rocky week for the S&P 500 index with a -2.1% loss by Friday's close. The pre-FOMC meeting breakout higher proved to be a bull trap. The index reversed sharply and broke down below technical support at its simple 50-dma and below its multi-month trend line of higher lows (see chart).

You will notice that the index managed a bounce off its simple 100-dma on Friday (near 1577). This also happens to coincide relatively closely with the market's prior all-time high from 2007 (near 1576).

On a short-term basis the S&P 500 index looks poised to bounce. I am expecting the index to rebound back to the 1620 area. Unfortunately the 50-dma, which was prior support, is now new resistance. It is very common for an index or a stock to bounce back just enough to "kiss" the prior supporting trend line and then reverse lower again.

Look for overhead resistance at 1620 and 1650. Watch for possible support in the 1550-1540 zone. If that level fails then look for possible support at the 200-dma (currently 1506) or the 1500 level.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite lost -1.9% for the week and also broke down below its 50-dma. The breakdown below 3400 is bearish the NASDAQ may still find support near its 100-dma, which coincides with the trend line of higher lows dating back to November. Don't be surprised to see a bounce near 3300. At the same time I would not be surprised to see any rally fail near 3450.

chart of the NASDAQ Composite index:

The reversal in the small cap Russell 2000 index ($RUT) was dramatic with a failed rally at round-number resistance near the 1000 mark. The $RUT broke down below its 50-dma but bounce near its trend line of higher lows (see dotted line on the chart). This also coincides relatively closely with its prior highs from March earlier this year.

I do expect a short-term bounce. If you're feeling optimistic you could argue the $RUT is still building a potential bull-flag consolidation pattern but we would need to see a confirmation breakout past the 1,000 level. If the weakness continues and we see the $RUT break support then the next significant support level is probably the 900 area, which will soon be bolstered by the simple 200-dma.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows down this week. The highlights will probably be the durable goods and consumer confidence numbers. The real estate sector might move on the home sales reports.

We're less than a month away from the launch of Q2 earnings season.

Economic and Event Calendar

- Monday, June 24 -
(nothing significant)

- Tuesday, June 25 -
Consumer Confidence
Durable goods orders
Case-Shiller 20-city home price index
new home sales

- Wednesday, June 26 -
Q1 GDP estimate

- Thursday, June 27 -
Weekly Initial Jobless Claims
EU Economic summit
personal income and spending
pending home sales

- Friday, June 28 -
Chicago PMI
University of Michigan consumer sentiment (final June reading)

Additional Events to be aware of:

July 4th, U.S. markets closed for holiday
September - U.S. debt ceiling deadline

The Week Ahead:

Technically the stock market looks short-term oversold. I am expecting a short-term bounce. Odds are good the S&P 500 may find resistance near its 50-dma and the 1620 area. It's also worth noting that we've hit the last week of June. That means it is the last week of the quarter and last week of the first half of the year. Stocks could see some window dressing. Yet the last twelve years there has been a pattern of weakness the last week of June. It's sort of a post-Fed meeting depression followed by a small rebound the first week of July.

It's also worth pointing out that in spite of all the damage done last week the longer-term, multi-month trend for stocks is still up. At the same time, we've been overbought for a while and way overdue for a correction. The U.S. market has finally seen a -5% correction. History will tell us that normally the correction doesn't stop at just -5%. Typically a market correction is in the -8% to -12% range. That would suggest the selling isn't over yet. While I expect a bounce traders could use it as a new entry point to reload shorts. A -8% correction from the S&P 500's close of 1669 would be about 1535. That's pretty close to support near 1540. Meanwhile a -10% correction would be a drop to about the 1500 mark.

Most of this year the driving force behind the stock market's rally has been the Fed. Now that the market thinks the Fed could be out of the QE business 12 months from now (most likely an incorrect assumption) then bulls will need to find a new catalyst to drive stocks higher. I suspect that we could see stocks trend lower or chop sideways until the Q2 earnings season begins in mid July. Investors will be looking for corporate results and guidance to provide a new reason to buy stocks (or sell them).

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks rallied up into the Fed meeting and then Bernanke yanked the rug out from beneath the market.

BEAV and C have graduated from the watch list to our play list.

Our WMT trade was stopped out on Thursday.

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

Correction Not Likely Over

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(June 23, 2013)

I cautioned readers last week that volatility could likely continue as investors reacted to the FOMC statement and Bernanke. Market participants were not happy to hear that the Federal Reserve would begin tapering their QE program somewhat sooner than expected. That sparked a sharp sell-off in the bond market and stocks followed.

Big picture we have a Europe that is in recession and not improving. China appears to be slowing down and its banking system appears to be in jeopardy. Emerging markets are plunging with a -15% decline in the last few weeks. Meanwhile the U.S. is inching along at +2% growth but that could change with sequestration cuts expected to hit Q2 and Q3 this year.

Many have blamed the stock market's 2013 rally on the Fed's easy money. Yet now the Federal Reserve has outlined some of their requirements to end their QE3 program and what a potential time frame might be. Naturally the stock market is ignoring any of the Fed's conditions for when it might begin tapering its asset purchases and traders are focused on the time frame. It is likely that Bernanke's comments may have removed the Fed as a bullish catalyst for stocks and investors will have to find another catalyst.

On a short-term basis I expect a stock market bounce but over the next few weeks I think we'll see new relative lows. That could change depending on how markets interpret Q2 earnings season, which begins soon.

There are no new trades tonight. We just saw BEAV and Citigroup (C) jump to from our watch list to our active play list. If the market correction continues then we'll see more of our buy-the-dip watch list candidates get triggered.

I'm not providing a list of "radar screen" candidates tonight. The next couple of weeks could be volatile. It's time to protect our capital and wait for the market to provide the next entry point.



Play Updates

Stocks See A Post-Bernanke Slide

by James Brown

Click here to email James Brown

Editor's Note:

BEAV and C have joined the play list form our watch list.


Closed Plays


WMT was stopped out.



Play Updates


Bank of America - BAC - close: 12.69

Comments:
06/23/13: BAC lost about -3% for the week and most of that was in the last two days. Shares really underperformed on Friday with a sharp spike down from $13.00 to $12.40 before bouncing off its rising 100-dma. It's possible that a new story concerning capital requirements sparked the sell-off. Bloomberg ran an article about U.S. regulators mulling an idea to double the amount of minimum capital requirements for the nation's largest banks.

I am not convinced the correction in BAC is over and we could see shares fall into the $12.00-11.00 zone.

FYI: BAC is due to report earnings on July 17th.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.36/0.38

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.16/1.19

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


B/E Aerospace Inc. - BEAV - close: 62.26

Comments:
06/23/13: BEAV is a watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $65.75 and then buy calls the next day. Thus we could be catching BEAV at new all-time highs. Shares complied and closed at $66.11 on June 18th. Our play opened the next day on June 19th at $66.09. Unfortunately later that afternoon the market sold off following Bernanke's press conference. The profit taking continued on Thursday.

Friday's performance was even more disappointing with a -2.7% decline and a close below technical support at its 50-dma. BEAV hasn't closed below this moving average in months. If the sell-off continues we will see BEAV hit our stop loss at $61.70 soon. More aggressive traders might want to consider moving their stop so it's below the 100-dma instead.

I am not suggesting new positions at this time.

- Suggested Positions -
JUN 19, 2013 - entry price on BEAV @ 66.09, option @ 3.50
symbol:BEAV1418a70 2014 JAN $70 call - current bid/ask $2.00/2.20

06/19/13 trade opens. BEAV opens at $66.09
06/18/13 BEAV meets our entry requirement (close above $65.75) with a close at $66.11

Chart of BEAV:

Current Target:$ 74.00
Current Stop loss: 61.70
Play Entered on: 06/19/13
Originally listed on the Watch List: 06/08/13


Citigroup, Inc. - C - close: 46.87

Comments:
06/23/13: The correction in Citigroup continued last week. Friday saw shares pierce its long-term up trend line of support and breakdown below its simple 100-dma. Yet traders bought the dip and shares pared their losses on Friday to close back above the 100-dma. Our buy-the-dip trigger was hit at $46.00.

I would still consider new positions now. However, the market's correction may not be over yet. Readers may want to wait and week and see how stocks perform before initiating new positions. We are adjusting our stop loss down to $41.60 so it's just below the simple 200-dma. More conservative investors may want to move the opposite direction and adjust their stop loss closer to Friday's low (45.51).

FYI: earnings are expected on July 15th.

- Suggested Positions -
JUN 21, 2013 - entry price on C @ 46.00, option @ 2.45
symbol: C1418a50 2014 JAN $50 call - current bid/ask $ 2.83/2.86

- or -

JUN 21, 2013 - entry price on C @ 46.00, option @ 3.65
symbol: C1517a55 2015 JAN $55 call - current bid/ask $ 4.00/4.05

06/23/13 adjust stop loss to $41.60
06/21/13 triggered on a dip at $46.00

Chart of C:

Current Target:$ 59.00
Current Stop loss: 41.60
Play Entered on: 06/21/13
Originally listed on the Watch List: 05/25/13


Ford Motor Co. - F - close: 15.00

Comments:
06/23/13: Ford is down two weeks in a row. Most of last week's loss was the Wednesday-Thursday market sell-off. Traders bought the dip on Friday just above Ford's 50-dma and shares managed to reverse into a gain. I remain longer-term bullish on Ford but I'm not suggesting new positions at this time. Nimble investors may want to consider buying calls on a dip near $14.25 as an alternative entry point.

- 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 $ 1.97/2.00

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: 78.25

Comments:
06/23/13: Believe it or not HON posted a gain for the week. It wasn't much, less than 10 cents. The stock rallied up toward its May highs and then reversed with the market's sell-off. Unfortunately this move has created what appears to be a bearish double top pattern. So now HON has a bearish top battling against the longer-term up trend of higher lows. A breakdown below its 50-dma or the $76.00 level could be a warning signal that shares will see a deeper correction. I am not suggesting new positions.

FYI: earnings are due on July 19th.

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 $ 5.35/5.55

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: 24.20

Comments:
06/23/13: Ouch! INTC lost less than 75 cents for the week but it's down almost double that from the Wednesday highs. Technically INTC's performance this past week has created a bearish engulfing candlestick reversal pattern on the weekly chart. I do expect shares to continue lower. We can look for support near $23.00.

FYI: INTC earnings are expected on July 17th.

Earlier Comments:
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 $ 1.28/1.29

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 2.17/2.22

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: 39.55

Comments:
06/23/13: The homebuilders and anything related to the real estate industry, like LOW, was hammered this week. Concerns that rising interest rates will kill the housing recovery helped fuel the sell-off. Shares of LOW broke down below their 50-dma and below the $40.00 mark. The stock is currently flirting with a breakdown below its 100-dma. If there is any follow through lower this week then we will see LOW hit our stop loss at $39.00. I am not suggesting new positions.

In other news LOW has offered $205 million in cash to buy Orchard Supply Hardware stores in California. Orchard Supply was a Sears spinoff and the company has filed for bankruptcy.

- Suggested Positions -
MAY 07, 2013 - entry price on LOW @ 40.87, option @ 1.57
symbol: LOW1418a45 2014 JAN $45 call - current bid/ask $ 0.99/1.02

- or -

MAY 07, 2013 - entry price on LOW @ 40.87, option @ 3.52
symbol: LOW1517a45 2015 JAN $45 call - current bid/ask $ 3.05/3.15

06/23/13 If there is any follow through lower we'll see LOW hit our stop
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:
06/23/13: NTAP rallied to a new 52-week high prior to the Fed meeting conclusion. The profit taking over the last three days is in danger of breaking the six-week up trend of higher lows. If the market deteriorates we can watch for support near $36.00. I am not suggesting new positions.

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 $2.57/2.62

- 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


CLOSED Plays


Wal-Mart Stores - WMT - close: 73.51

Comments:
06/23/13: The stock market's post-Bernanke sell-off hit shares of WMT pretty hard. The stock collapsed from $76.00 to $73.00 in less than two days. Shares broke down under support near $74.00 and its 200-dma. Our stop loss was hit at $73.45 on June 20th.

- 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 - exit $3.20 (+7.7%)

06/20/13 stopped out
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

Chart of WMT:

Current Target: $89.00
Current Stop loss: 73.45
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


Watch

Healthcare & Specialty Services

by James Brown

Click here to email James Brown


New Watch List Entries

JNJ - Johnson & Johnson

SBUX - Starbucks Corp.


Active Watch List Candidates

AIG - Amer. Intl. Group

BZH - Beazer Homes

DIS - Walt Disney

GM - General Motors

HOV - Hovnanian Enter.

JPM - JPMorgan Chase & Co

K - Kellogg Co.

UNP - Union Pacific

V - Visa

WDC - Western Digital Corp


Dropped Watch List Entries

BEAV and C have graduated to our active play list.



New Watch List Candidates:


Johnson & Johnson - JNJ - close: 83.20

Company Info

JNJ delivered one of the most impressive rallies in 2013. That rally peaked in mid May with the failure at the $90.00 level. Since then JNJ has been correcting lower. I suspect the correction continues but we want to use the pullback to our advantage.

Tonight I am suggesting buy calls on a dip at $77.50. If triggered we'll start with a stop loss at $74.45. Our long-term target is the $85-90 zone.

Buy-the-Dip trigger: $77.50

BUY the 2014 Jan $80 call (JNJ1418a80) current ask $5.85

- or -

BUY the 2015 Jan $85 call (JNJ1517a85) current ask $5.70

Chart of JNJ:

Originally listed on the Watch List: 06/23/13


Starbucks Corp. - SBUX - close: 64.69

Company Info

SBUX has been a strong performer this year with a breakout to new record highs this spring. The market's recent weakness has created a bearish reversal in shares of SBUX. We want to be ready to buy the dip when SBUX nears support.

I am suggesting a buy-the-dip trigger at $60.25. If triggered we'll start with a stop loss at $55.65.

Buy-the-Dip trigger: $60.25

BUY the 2014 Jan $65 call (SBUX1418a65) current ask $4.85

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BUY the 2015 Jan $70 call (SBUX1517a70) current ask $6.20

Chart of SBUX:

Originally listed on the Watch List: 06/23/13


Active Watch List Candidates:



American Intl. Group - AIG - close: 43.69

Comments:
06/23/13: AIG has retreated toward the bottom of its $43-46.50 trading range. The stock is now testing technical support at its 50-dma. I am still anticipating a correction toward $40.00.

The plan is to buy calls on a dip at $40.00. Our long-term target is the $45-50 zone.

Buy-the-Dip trigger: $40.00, stop loss @ 36.35

BUY the 2014 Jan $45 call (AIG1418a45)

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BUY the 2015 Jan $50 call (AIG1517a50)

06/16/13 adjust entry strategy: move the buy-the-dip trigger to $40.00, from 38.50. Move the stop loss to $36.35 from 34.75.

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


Beazer Homes - BZH - close: 17.83

Comments:
06/23/13: Many of the homebuilders were crushed this past week on worries that rising interest rates would kill the housing recovery. BZH was a significant underperformer. Traders did buy the dip near its 200-dma on Friday morning.

Currently our plan is to wait for BZH to close above $20.50 and then buy calls the next day. However, given the sell-off we may have to reconsider our strategy. Let's give BZH another week to see how it performs.

Earlier Comments:
I am suggesting investors wait for BZH to close above $20.50 and then buy calls the next day. If triggered we will start with a stop loss at $18.45. Our long-term target is $26.00.

Please note that I am suggesting we keep our position size small to limit our risk.

Breakout trigger: Wait for a close above $20.50, stop $18.45

BUY the 2014 Jan $22 call (BZH1418a22)

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BUY the 2015 Jan $25 call (BZH1517a25)

Originally listed on the Watch List: 06/16/13


Walt Disney - DIS - close: 62.73

Comments:
06/23/13: We've been hoping for a correction lower in shares of DIS. The best it could do was a pullback to short-term support near $62.00. We're not giving up yet.

Earlier Comments:
More aggressive investors could jump in on a dip or a bounce near $60.00. 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)

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BUY the 2015 Jan $65 call (DIS1418a65)

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


General Motors - GM - close: 32.21

Comments:
06/23/13: GM's correction is now two weeks old and shares are testing their 50-dma. We are expecting a decline toward round-number support at $30.00.

Earlier Comments:
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


Hovnanian Enterprises - HOV - close: 5.59

Comments:
06/23/13: My comments on BZH also apply to HOV. This is another homebuilder that was crushed as investors worry over rising interest rates. Shares erased almost all of its May-June gains in just three days. We're going to give HOV another week and then re-evaluate.

Earlier Comments:
I am suggesting we buy calls on HOV (or buy HOV stock) if shares hit $6.61. No waiting for a close above a certain level. If HOV hits our trigger at $6.61 our long-term target is $8.75. However, I will point out that HOV could have significant resistance in the $7.00 region. Therefore I am suggesting we keep our position size small to limit our risk.

Breakout trigger: $6.61, stop loss @ 5.98

BUY the 2014 Jan $7.00 call (HOV1418a7)

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BUY the 2015 Jan $7.00 call (HOV1517a7)

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BUY HOV stock @ $6.61

Originally listed on the Watch List: 06/16/13


JPMorgan Chase & Co. - JPM - close: 51.96

Comments:
06/23/13: So far so good. We just need to be patient. The plan is to buy calls on a dip at near $50.00.

Earlier Comments:
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.

FYI: JPM is due to report earnings on July 12th.

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)

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


Kellogg Co. - K - close: 63.25

Comments:
06/23/13: There is no change from my prior comments on K. We're waiting for a new high. It's worth noting that last week's performance did create a new bearish engulfing candlestick reversal pattern. We could see K hit a new relative low before reversing higher.

Earlier Comments:
This newsletter is suggesting investors wait for shares of K to close above $67.00 and then buy calls the next morning.

Breakout trigger: Wait for a close above $67.00, stop loss $63.75.

BUY the 2015 Jan $75 call (K1517a75)

Originally listed on the Watch List: 06/16/13


Union Pacific Corp. - UNP - close: 152.69

Comments:
06/23/13: Transportation stocks were underperforming on Friday. UNP was no exception. Shares are testing technical support at their 50-dma. Right now we are waiting for a breakout higher but we will reconsider our entry strategy if UNP drops toward the $145-140 zone.

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

FYI: UNP is scheduled to report earnings on July 18th.

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

BUY the 2014 Jan $180 call (UNP1418a180)

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BUY the 2015 Jan $200 call (UNP1517a200)

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


Visa Inc. - V - close: 179.50

Comments:
06/23/13: Believe it or not but Visa hit a new all-time high this past week. It was on an intraday basis with shares peeking above resistance at the $185.00 level. The pullback over the last few days has suddenly created what is starting to look like a bearish double top pattern.

We are still waiting for a correction lower.

Earlier Comments:
The newsletter is suggesting investors buy calls on a dip at $171.00. Our long-term target is $198.50.

Buy-the-Dip trigger: $171.00, stop loss $164.50.

BUY the 2014 Jan $180 call (V1418A180)

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BUY the 2015 Jan $200 call (V1517A200)

06/16/13 I am adjusting the stop loss to $164.50 from 164.75.

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


Western Digital Corp. - WDC - close: 60.19

Comments:
06/23/13: We have been patiently waiting for WDC to see a correction. The stock had produced a seven-week rally high but that rally stalled two weeks ago. Last week saw shares fail near resistance in the $65.00 region again. Then the market's sell-off began and WDC gave up nearly five points.

So far this year WDC has found support at its rising 50-dma. That could happen again with the 50-dma near $59.00. However, I suspect it will break this time. Maybe not on the first test. Big picture we're waiting for a dip to $55.00.

Earlier Comments:
I am suggesting we wait and buy a dip at $55.00. The Point & Figure chart is currently forecasting a long-term target of $82.00. We'll start with a stop loss at $52.25.
If triggered our target to exit the 2014 calls is $65.
If triggered our target to exit the 2015 calls is $75 on WDC.

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