Option Investor
Newsletter

Daily Newsletter, Sunday, 7/7/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Rally Into the Third Quarter

by James Brown

Click here to email James Brown

Stocks managed another rally during the shortened holiday week in the U.S. All the major U.S. indices managed to rise with most of the gains coming on Monday, July 1st, and Friday, the 5th. News of a military coup in Egypt that ousted President Morsi after just one year in office failed to dent investor enthusiasm for stocks. Yet news of the coup did push oil prices higher with crude oil ending the week above $103 a barrel. The better than expected headline number on the U.S. jobs report Friday morning (+195,000) help fuel gains for both stocks and the U.S. dollar.

The dollar index now sits near a three-year high. This dollar strength is pushing precious metal prices lower with gold, silver, and copper prices falling. Meanwhile the U.S. bond market continues to crash with rates on the 10-year treasury surging +8.5% on Friday and the yield closing at 2.715%, almost a two-year high. The latest data now suggests a record-setting $80 billion was withdrawn from U.S. bond-related funds in June.

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

One-Paragraph Market Summary

In an effort to save you, the reader, more time, I'm providing a one-paragraph market summary and my opinion for next week. Keep reading below this paragraph for more details. Last week most of the economic data in the U.S. was actually positive, at least if we ignore the details beneath the job data numbers. Economic data in Europe last week was mixed. Meanwhile numbers out of China continue suggest the country is still slowing down too fast. What is troubling is the return of the Eurozone financial crisis with Greece and Portugal on the brink of collapse and Italy getting worse. Meanwhile the geopolitical risks in the Middle East are multiplying with the civil war/proxy war in Syria and now a coup in Egypt. Technically Friday's climb in the market looks bullish but it could be a trap given the very low volume on Friday. Further gains in the U.S. market could spark some short covering but I suspect this week stocks will move sideways as investors wait for earnings season. The Q2 earnings season starts on Monday, July 8th, but doesn't really pick up speed until Monday, July 15th. Seasonally the next ten to twelve weeks are usually weak for stocks.

The national ISM index came in at 50.9 in June. That is an improvement from May's reading of 49.0 and puts the U.S. back in "growth" mode with the close above 50.0. June's reading on the ISM services index came in at 52.2. That was down from May's 53.7. Construction spending in the U.S. rose +0.5% in May, which is improvement from the downwardly revised +0.1% gain in April. The ADP Employment Change report for June came in at +188,000 jobs, which was above expectations and set up a positive expectation for the jobs report on Friday.

The major economic report for the week was the nonfarm payroll (jobs) report on Friday morning. Economists were only expecting +165,000 new jobs for the month of June and many were actually expecting a disappointment. The government report announced +195,000 new jobs. If that wasn't good enough for you they revised the month of May's jobs number up +20K to +195,000 and they revised April's from +149K to +195K. Suddenly we have a three-month trend of +195,000 job growth. If you've been paying attention to the Federal Reserve, they said they wanted to see multiple months of +200K job growth before they act and consider tapering their QE3 program.

This could have been a case of good news is bad news. Traders could have decided to sell the jobs data because it means the Fed is likely to taper sooner than Wall Street would like. However, the flip side to that coin would suggest that the Fed will taper because the economy is getting healthier, right? Maybe, maybe not. The jobs number was better than expected but the unemployment rate was unchanged at 7.6%. That's because the labor force grew by +177,000 people who started looking for work again. The Fed said they wanted to see +200K a month job growth but they also wanted to see unemployment fall to 6.5%.

Another problem is the strength behind that jobs number. Most of the job growth (60%) was part-time service jobs (like waiters and bar tenders). These are not high-paying jobs. The number of workers in America who are "underemployed" is surging and June saw the level rise from 13.8% to 14.3%. That's the highest reading since February this year. The underemployed are those who would like to have a full-time job but they can't find one so they're working part time to help pay the bills.

Depending on which analyst you choose to listen to the number of full-time jobs in America has fallen between -240,000 to -326,000. They're being replaced by part time jobs. According to an Investor's Business Daily article, we've only seen +130,000 full-time jobs added in the U.S. for the first six months of 2013. The rest of all the jobs added this year (about 557,000) have been part-time. One potential culprit for this is businesses trying to prepare for Obamacare and the burden of healthcare costs for full time employees.

China

This past week saw the official Chinese manufacturing PMI data come in at 50.1. That was down from 50.8. Numbers above 50.0 indicate growth and below that indicate contraction. The HSBC manufacturing PMI report on China has been below the 50.0 level for months. HSBC's latest PMI reading showed China tick lower from 48.3 to 48.2. Plenty of market watchers have long distrusted the official Chinese numbers. China is a communist country and they have been caught lying about their economic data in the past. What makes the latest official PMI report so important is that data on several of the components that make up the national PMI report were missing. The Chinese government decided to not provide this data. Why would they do that? Naturally some analysts believe the Chinese government is deliberately trying to hide or mislead economists on the actual health of their economy. One could infer that their economy is slowing down a lot faster than they want us to believe. That doesn't bode well for the global economy.

Europe

Most of Europe remain in a recession but some of the economic data is improving. The Eurozone manufacturing PMI report came in better than expected at 48.8, up from 48.7. The Eurozone services PMI slipped from 48.6 to 48.3. Numbers below 50.0 indicate contraction. One area that is not improving is unemployment which tagged a new all-time high at 12.1%. Car sales are another indication of their slow economy with EU car sales at a 20-year low. A few days ago the European Central Bank (ECB) left its interest rate unchanged at 0.5%. ECB President Mario Draghi said that this rate would remain low for "an extended period".

More importantly the EU financial crisis is back after months of simmering in the background. This past week EU officials gave Greece a three-day deadline to prove their reforms were on track. Otherwise the EU and IMF would deny Greece their next tranche of bailout money. Of course it is widely believe that Greece will eventually default again and get kicked out or leave the Eurozone. You could easily argue that the EU is merely throwing good money after bad money.

The big surprise this past week was the breakdown in Portugal. Again, it's another small EU country with a population and GDP slightly less than Greece. Unfortunately the recent turn of events has led Portugal's finance minister and foreign minister to resign. The country's prime minister has not accepted their resignations but it's definitely throwing doubt on Portugal's ability to pay its debts and raises fears about the future of its 78 billion euro bailout it received back in 2011. This financial instability in Portugal has pushed the yield on its 10-year bonds to 7.72%. Usually when the yield on a country's 10-year bond rises past 7% it's a major warning sign of a potential collapse. It's assumed that rates above 7% for any prolonged period of time means the country can't afford to pay the interest on its debt. This sudden weakness in Portugal is fueling worries about Spain and Italy and pushing their bond yields higher as well.

The situation in Italy is getting scarier. Italy's population is more than five times larger than Greece or Portugal and Italy's GDP is about eight times larger at $2.0 trillion. Italy is the Eurozone's third biggest economy and they have a massive debt load that's more than 100% of their GDP. There were new stories out this past week suggesting that Italy may be forced to ask for an EU/IMF bailout within the next six months. The IMF just downgraded their 2013 GDP estimates on Italy from -1.5% growth to -1.8%. I recently mentioned how there are dozens of retail outlets in Italy that are shutting down every single day. The economic burden is so bad that there has been a surge in suicides across the country. If Italy breaks down and comes to the EU looking for help it's going to wreak havoc on investor confidence.

Egypt

I am not going to go into too many details on Egypt. The developments in Egypt have not had much impact on the U.S. stock market so far. The country of Egypt was swept up in the "Arab Spring" that engulfed the Middle East back in 2011. Massive protests led to President Mubarak's resignation. Several months later the Muslim Brotherhood candidate Mohammed Morsi was elected President in summer 2012. It would appear that the majority of Egyptians were unhappy with Morsi. Many claim that Morsi was no better than Mubarak and Morsi failed to follow through on his promises. Others were concerned that Morsi and his Muslim Brotherhood allies were taking the country too far toward an Islamic state. Many of the complaints against Morsi were the crumbling economy, power outages, food shortages, and rising crime.

It took 18 days for massive protests to bring down President Mubarak. This time it took about three days before the military stepped in and said Morsi was removed as president. The protests last week were some of the largest the planet has ever seen with millions taking to the streets. Estimates suggest between 15% to 20% of Egypt's 85 million people were in the streets protesting. The challenge now is which direction does Egypt go? Removing a democratically elected president from power does not set a very good precedent. An interim president has been appointed but Morsi supporters have not given up. There have been deadly clashes between pro-Morsi and anti-Morsi supporters. Many of the pro-Morsi (pro-Muslim Brotherhood) supporters have promised to use suicide bombings if Morsi is not reinstated soon. It's a tense situation. Approximately four percent of the world's oil trade flows through the Suez canal. This political unrest has helped drive up the price of oil as investors worry about who controls the canal.

Major Indices:

The S&P 500 index produced a +1.59% bounce last week. After failing at the simple 50-dma multiple times the index actually broke through this technical resistance on Friday. I am advising caution here. Yes, it's a bullish move higher but volume on Friday was very light. A lot of people were on vacation for the day. It is no coincidence that the S&P 500's rally stalled right at its down trend line of resistance (see chart) and resistance at the prior trend line of support.

If the S&P 500 can build on Friday's rally then stocks might see some short covering. However, a failure here at this level might signal a drop back toward its June 24th lows.

Intraday chart of the S&P 500 index:

chart of the S&P 500 index:

The NASDAQ's bounce (+2.2% last week) has produced a bullish breakout past resistance near 3450 and the trend of lower highs. Now the challenge for the bulls is the mid June high and the May peak. If the market sees a pullback we can look for support near the 3400 level.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index probably has one of the strongest looking charts among the major indices. The $RUT added +2.8% last week and closed above round-number resistance at the 1,000 level. This is a new all-time closing high. The intraday high is 1008 from six weeks ago. If this rally in the $RUT continues it could actually pull the rest of the market higher.

A breakout to new highs probably leads to the 1020 level. If you believe the recent consolidation looks like a bull-flag then a good multi-week target would be the 1050 level. Meanwhile a failure here probably means a dip back toward 980 and if that fails then the 100-dma.

chart of the Russell 2000 index



Economic Data & Event Calendar

The economic data and event calendar this week is relatively quiet. Monday is the start to Q2 earnings season although the pace of reports won't pick up until Friday. The FOMC minutes on Wednesday could be a market mover if it reveals any surprises. The wild card could be the Greek bond auction on Tuesday. If the bond auction fails it could hasten the country's collapse and the exacerbate the EU financial crisis.

Economic and Event Calendar

- Monday, July 08 -
Chinese CPI data
Eurozone finance minister meeting
Q2 earnings season begins

- Tuesday, July 09 -
Greek bond auction

- Wednesday, July 10 -
Wholesale inventory data
FOMC minutes

- Thursday, July 11 -
Weekly Initial Jobless Claims
import/export prices
Bank of Japan interest rate decision

- Friday, July 12 -
Producer Price Index (PPI)
University of Michigan Consumer Sentiment
Eurozone industrial production

Additional Events to be aware of:

July 17th - Fed Chairman Bernanke before congress
September - U.S. debt ceiling deadline

The Week Ahead:

Looking ahead to the next five trading days it is tough to say with any certainty where stocks are going. Last weekend I was expecting the market to pullback and potentially retest the June 24th lows. Now with the S&P 500 index up for the week and testing another level of resistance that could still happen. On the other hand a breakout here could definitely spark some short covering. Although I would not be surprised to see the market churn sideways as investors wait for earnings season to pick up speed.

Right now Wall Street expects the average earnings report to show +3.3% earnings growth but just +0.5% revenue growth. Investors and analysts will want to know if the U.S. sequestration cuts are hurting business. They will want to know if the slowdown in Europe and China is hurting business. We will also want to hear positive corporate guidance. Is business truly poised to improve in the second half? If the revenue numbers disappoint and/or if guidance is too cautious it could undermine the market's longer-term up trend.

Another issue is the calendar. The second half of summer is historically a weak period for stocks. The market tends to peak in June or July and then slide lower through August and September, and then bottom in October. Obviously every year is different but that's the pattern.

The Q1 earnings season saw the market rally because Wall Street had lowered and re-lowered their estimates. Finally estimates were so low that they were too easy to beat. Estimates for the Q2 season have been lowered in recent months but it doesn't have the same tone as Q1. That could set the market up for disappointment and thus another pullback.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market continues to rebound. The S&P 500 index has managed to close above its 50-dma. The small cap Russell 2000 index set a new all-time closing high.

I have updated stop losses on BAC and F.

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

Small Cap Strength Is Promising

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(July 07, 2013)

I am not adding any new LEAPStrader plays tonight. I do find the rally in the small cap Russell 2000 index to be encouraging. Yet I don't trust the bullish breakout in the S&P 500 index above its simple 50-dma. The low-volume, Friday session after the July 4th holiday may not reflect reality with so many market participants gone.

The Q2 earnings season will start soon and corporate results and guidance will help determine the market's direction. I would take a cautious "wait and see" approach to new trades over the next few weeks.

We are adding three new watch list candidates tonight and I've updated some entry point strategies just in case the market continues to climb.

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:

AMZN, GD, NBL, PRU, WDC, DLPH, ADBE, ROST, AKAM, WSM, ETFC, AMTD, BBRY, ORLY, GRPN, DNKN, NOC, , ATK, TJX, CY, NKE, UA, CSCO, JDSU, CNQR, SJM, HSY, EA, EXPE, AXP, ANN, STX, CR, HPQ, DLTR, MRVL, MAT, UNH, WLP, CI,



Play Updates

A Strong Start to Q3

by James Brown

Click here to email James Brown

Editor's Note:

Almost all of our LEAPS candidates posted gains last week.
We are updating stop losses on BAC and F.


Closed Plays



None. No closed plays this week.




Play Updates


Bank of America - BAC - close: 13.06

Comments:
07/07/13: Financials were some of the market's best performers last week. BAC did lag behind its peers but it is up two weeks in a row. There appears to be some short-term resistance near the $13.10 level. Please note our new stop loss at $11.35.

I am not suggesting new positions at this time. 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 $0.37/0.38

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.18/1.21

07/07/13 new stop loss @ 11.35
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: 11.35
Play Entered on: 03/18/13

Originally listed on the Watch List: 03/09/13


Citigroup, Inc. - C - close: 48.53

Comments:
07/07/13: Citigroup added just over half a point for the week. Shares remain below technical resistance at its 20, 30, 40, and 50-dma. I would not be surprised to see Citigroup move sideways between here and its earnings report on Monday, July 15th. The company is due to report before the opening bell on the 15th. If you're feeling cautious you could buy some short-term puts on Friday in case Citigroup disappoints and the stock moves lower.

I am not suggesting new positions at this time. More conservative traders may want to raise their stop loss closer to the $45.00 level.

- Suggested Positions -
JUN 21, 2013 - entry price on C @ 46.00, option @ 2.45
symbol: C1418a50 2014 JAN $50 call - current bid/ask $ 3.30/3.35

- or -

JUN 21, 2013 - entry price on C @ 46.00, option @ 3.65
symbol: C1517a55 2015 JAN $55 call - current bid/ask $ 4.25/4.40

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

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: 16.70

Comments:
07/07/13: Ford displayed some relative strength last week with a +7.9% gain. U.S. auto sales have continued to come in strong this year. The first half of 2013 saw the industry's auto sales hit 7.8 million. That's the best performance since 2007. The annual pace is coming in at 15.5 million cars. Pick ups have helped lead the rebound. Ford said its June sales rose +14% year over year.

The stock has broken out past its late May, early June highs near $16.00. Ford ended the week at new two-year highs. On a short-term basis the stock looks overbought and due for some profit taking. Broken resistance at $16.00 could offer some short-term support.

I am raising the stop loss to $14.25.

- 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 $ 2.99/3.05

07/07/13 new stop loss @ 14.25
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: 14.25
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Honeywell Intl. - HON - close: 80.06

Comments:
07/07/13: Investors bought the dip in HON near its 50-dma on Wednesday morning. The stock is rebounding back toward the top of its trading range near $81.00. A close above the $81.00 level could be used as a new bullish entry point (but you'll want to use a tighter stop loss). Actually I would hesitate to launch new positions prior to HON's earnings report 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 $ 6.05/6.25

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: 24.06

Comments:
07/07/13: INTC posted a loss for the week. We've been expecting shares to correct lower but this past week saw INTC underperform the rest of the semiconductor sector. Monday, July 1st actually saw shares produce a bearish reversal pattern. Traders bought the dip on Wednesday but the short-term direction is unclear. INTC may continue to churn sideways until its earnings report 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 $ 1.05/1.07

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 1.97/2.03

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


JPMorgan Chase & Co. - JPM - close: 53.99

Comments:
07/07/13: Banking stocks were some of the market's best performers last week. JPM produced a bullish breakout past its 30-dma and past the four-week trend of lower highs. The trend is bullish. However, the stock could see some profit taking on Friday.

The company is due to report earnings on Friday, July 12th, before the opening bell. Wall Street expects a profit of $1.42 a share. I would be tempted to buy calls here but if JPM disappoints we could see the stock retesting support near $50.00 again. You may want to wait until Friday before considering new positions.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 2.83/2.87

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 5.20/5.30

Current Target: $64.00
Current Stop loss: 47.40
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


NetApp, Inc. - NTAP - close: 38.77

Comments:
07/07/13: NTAP added about one dollar last week. Shares are once again testing resistance near $38.00 I also anticipate the mid-June high at $39.50 and the $40.00 level will act as short-term resistance. We're not suggesting new positions at this time.

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 $2.70/2.74

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $4.65/4.75

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


Watch

Retail, Energy Drinks, & Grocery

by James Brown

Click here to email James Brown


New Watch List Entries

M - Macy's Inc.

MNST - Monster Beverage

WFM - Whole Foods Market


Active Watch List Candidates

AIG - Amer. Intl. Group

BZH - Beazer Homes

DIS - Walt Disney

GM - General Motors

JNJ - Johnson & Johnson

K - Kellogg Co.

SBUX - Starbucks Corp.

UNP - Union Pacific

V - Visa


Dropped Watch List Entries

Removed WDC.



New Watch List Candidates:


Macy's Inc. - M - close: 49.18

Company Info

Macy's operates a chain of department stores. Considering the slow pace of consumer spending it's somewhat surprising to see shares of Macy's performing so well. One could argue that the rising price of oil and thus gasoline could put a crimp on consumer spending. Yet shares of M continue to climb. The stock's recent consolidation almost looks like a bull-flag pattern. This past week shares have rallied toward resistance in the $50.00 area.

I am suggesting we wait for M to close above $50.25 and then buy calls the next day with a stop loss at $47.25. If triggered our long-term target is $59.00. More aggressive investors may want to aim higher since the point & figure chart is forecasting a $76 target.

Breakout trigger:
Wait for M to close above $50.25, then buy calls the next day
stop loss at $47.25

BUY the 2014 Jan $55 call (M1418a55) current ask $1.44

- or -

BUY the 2015 Jan $55 call (M1517a55) current ask $3.90

Chart of M:

Originally listed on the Watch List: 07/07/13


Monster Beverage Corp. - MNST - close: 60.59

Company Info

MNST is best known for its Monster energy drinks. The company actually makes a number of different beverages and drink supplements. The stock has been volatile but the trend is up. One reason the stock is volatile is the controversy surrounding some of its energy drinks. There have been allegations that MNST's highly caffeinated drinks are dangerous and contributed to some deaths in recent years. Thus far there has been little evidence to support these claims.

I do consider this an aggressive, higher-risk trade because of the volatility and the risk that another headline regarding the safety of MNST's drinks could send shares lower. Therefore I am suggesting we keep our position size small to limit risk.

Currently MNST has resistance in the $62.50-63.00 area. I am suggesting we wait for MNST to close above $63.00 and then buy calls the next day with a stop loss at $57.90. Our target is $74.00.

Breakout trigger:
Wait for MNST to close above $63.00, then buy calls the next day
stop loss at $57.90 *Small Positions*

BUY the 2014 Jan $70 call (MNST1418a70) current ask $3.30

- or -

BUY the 2015 Jan $70 call (MNST1517a70) current ask $7.80

Chart of MNST:

Originally listed on the Watch List: 07/07/13


Whole Foods Market - WFM - close: 53.23

Company Info

WFM is a high-end grocery chain. My comments in the Macy's description above also apply here. Slowing consumer spending and rising fuel costs could hurt WFM sales but so far the stock is not reflecting any investors worry. In early May shares of WFM gapped higher after a better than expected earnings report and management guiding earnings higher. Since then the stock has been consolidating sideways in the $50-53.25 zone.

At the moment WFM looks poised to breakout from this trading range. I am suggesting we wait for WFM to close above $54.00 and then buy calls the next day. Use a stop loss at $49.75. If triggered our long-term target is $59.75 for the 2014 calls and $64.00 for the 2015 calls.

Breakout trigger:
Wait for WFM to close above $54.00, then buy calls the next day
stop loss at $49.75

BUY the 2014 Jan $60 call (WFM1418a60) current ask $1.86

- or -

BUY the 2015 Jan $60 call (WFM1517a60) current ask $5.65

Chart of WFM:

Originally listed on the Watch List: 07/07/13


Active Watch List Candidates:



American Intl. Group - AIG - close: 45.19

Comments:
07/07/13: AIG posted a gain for the week but the momentum of its rebound seemed to stall a bit. We've been waiting for a correction toward support near $40.00 but that may not happen. Tonight I am adjusting our entry strategy.

AIG has resistance near $46.50. We will move the trigger to $46.75. Wait for AIG to close above $46.75 and then buy calls the next day with a stop loss at $41.40. We will move our long-term target to $55.00. I am adjusting our option strikes tonight as well.

Breakout trigger: wait for close above $46.75
stop loss at $41.40 to start.

BUY the 2014 Jan $50 call (AIG1418a50) current ask $2.21

- or -

BUY the 2015 Jan $55 call (AIG1517a55) current ask $3.90

07/07/13 adjust entry strategy: wait for shares to close above $46.75 and then buy calls the next day. Stop loss at $41.40. Target 55.00.
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: 17.22

Comments:
07/07/13: BZH lost 30 cents for the week. Shares produced a decent rebound off its intraday low on Friday. It almost looks like a bullish double bottom with the late June low. We need to either adjust our entry strategy or drop BZH as a candidate. I am suggesting we watch it one more week and then make that decision.

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)

- or -

BUY the 2015 Jan $25 call (BZH1517a25)

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


Walt Disney - DIS - close: 63.82

Comments:
07/07/13: DIS posted a gain for the week but it was rather anemic. Shares are still stuck under the six-week trend of lower highs and technical resistance at its 50-dma. More aggressive traders may want to consider buying calls if DIS can close above $65.00. For the moment we are going to stick to our buy-the-dip strategy. However, I am moving our entry trigger from $57.00 to $58.00.

Earlier Comments:
If triggered we'll use a stop loss at $53.75. Our long-term target is the $75-80 zone.

Buy-the-Dip trigger: $58.00, stop @ 53.75

BUY the 2014 Jan $65 call (DIS1418a65)

- or -

BUY the 2015 Jan $65 call (DIS1418a65)

07/07/13 adjust entry trigger from $57.00 to $58.00

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


General Motors - GM - close: 34.67

Comments:
07/07/13: The bounce in GM continued last week. The auto industry got a boost from strong June sales numbers. U.S. car sales are on pace for 15.5 million units this year. We've seen the best pace for car sales in the first six months of the year since 2007.

I do not want to chase GM at current levels yet it may not correct toward support near $30.00. We will give GM another week or two and then re-evaluate our entry point strategy.

FYI: GM is due to report earnings on July 25th.

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: $30.50, stop @ 27.75

BUY the 2014 Jan $35 call (GM1418a35)

BUY the 2015 Jan $35 call (GM1517a35)

06/30/13 adjust buy-the-dip entry trigger to $30.50, from $30.00.

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


Johnson & Johnson - JNJ - close: 87.87

Comments:
07/07/13: JNJ is not cooperating with our buy-the-dip strategy. Instead the stock has produced a strong two-week bounce. After consolidating sideways the last few days JNJ looks poised to breakout past the $88 level and challenge its recent highs near $90.00.

Nimble traders may want to consider buying calls if JNJ can close above $90.00. I am willing to readjust our entry point strategy but JNJ reports earnings on July 16th. We will wait until after JNJ reports earnings and then re-evaluate this trade set up.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $85 call (JNJ1517a85)

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


Kellogg Co. - K - close: 65.34

Comments:
07/07/13: There is no change from my earlier comments on Kellogg. The stock appears to be breaking out from a bull-flag pattern. More aggressive traders could buy calls now. I am suggesting investors wait for 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


Starbucks Corp. - SBUX - close: 67.72

Comments:
07/07/13: SBUX is racing higher without us. Shares just closed at a new all-time high on Friday. The stock remains inside its bullish channel. Right now the bottom of that channel (support) is near the simple 40-dma. It is unlikely that SBUX is going to hit our current entry trigger at $60.25. However, I do not want to chase it here. Let's give SBUX another week to see how it performs and then we will re-evaluate.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $70 call (SBUX1517a70)

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


Union Pacific Corp. - UNP - close: 157.48

Comments:
07/07/13: So far so good. UNP is still bouncing. The stock is on the verge of breaking through the six-week trend of lower highs. I don't see any changes from my previous comments. More aggressive investors may want to consider buying calls if UNP can close above $158.

NOTE: Conservative investors will want to consider waiting until after UNP's earnings report on July 18th before initiating any positions (regardless of where UNP's stock price is).

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)

- or -

BUY the 2015 Jan $200 call (UNP1517a200)

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


Visa Inc. - V - close: 190.79

Comments:
07/07/13: Up, up and away! Visa continues to show strength and the stock broke out from its $175-185 trading range this past week. Shares are now at all-time highs. Nimble traders could try and buy calls on a dip in the $187-185 zone since $185 should be new support. I am concerned that Visa could see some profit taking after the company reports earnings on July 24th.

It does seem unlikely that shares will hit our buy-the-dip trigger at $171 now. Tonight I am updating our entry point strategy. move the buy-the-dip trigger to $180.50. We will move the stop loss to $174.40. I am also raising the option strikes. Our long-term target is $199.00.

Buy-the-Dip trigger: $180.50, stop loss $174.40.

BUY the 2014 Jan $200 call (V1418A200)

- or -

BUY the 2015 Jan $220 call (V1517A220)

07/07/13 updated the buy-the-dip entry trigger to $180.50.
Moved the stop loss to $174.40.
Updated the option strikes
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: 64.51

Comments:
07/07/13: WDC has continued to bounce and shares are once again testing resistance near $65.00. More aggressive traders may want to buy calls on a breakout past $65.25. The company is due to report earnings in about two weeks. We do not want to chase it at new highs just prior to earnings. Therefore, tonight I am removing WDC as a candidate. We can look at it again after it reports earnings in late July.

Trade did not open.

07/07/13 removed WDC as a candidate. Look at it again after its earnings report in late July.

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