Option Investor
Newsletter

Daily Newsletter, Sunday, 7/21/2013

Table of Contents

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

Leaps Trader Commentary

The S&P 500 Is Worth $15 Trillion

by James Brown

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Money continues to flow into the U.S. stock market. The most recent data showed that equity funds saw weekly inflows of $20 billion, the fastest pace since June 2008. A dovish Fed Chairman Bernanke also helped keep the rally alive with his testimony before congress this past week. Traders are ignoring the rash of high-profile earnings and revenue misses and continue to buy stocks. The major indices are now up four weeks in a row. From the June 24th low the S&P 500 is up +7.5% and the small cap Russell 2000 index ($RUT) is up more than +10%. The NASDAQ 100 index managed its longest winning streak ever of 14 days in a row. The S&P 500, the $RUT, the Dow Industrials, and the Dow Jones Transportation Average all ended the week at new all-time closing highs. For the first time in history the value of the S&P 500 has exceeded $15 trillion (with a T). The volatility index (VIX) has collapsed during the same four weeks suggesting a serious lack of fear in this market.

We are in the middle of Q2 earnings season. There have been several earnings and revenue misses. The most recent big name misses were Coca-Cola (KO), Google (GOOG), and Microsoft (MSFT). Almost 20% of the S&P 500 components have already reported their Q2 results. About 70% have beaten Wall Street's profit estimates but that's only because analysts have significantly revised their estimates lower. At the beginning of the second quarter Wall Street was expecting +4.1% earnings growth. By the time earnings season actually started those estimates had fallen to +1.5% growth. Most of that growth is coming from the banking sector. If you exclude bank earnings then profits are expected to fall -2.7%. Revenues are also slowing down significantly. Once again everyone is pointing to the second half of the year for a rebound.

Economic data last week was mixed but the latest headlines took a backseat to the Federal Reserve Chairman's testimony before congress midweek. Mr. Bernanke reiterated the Fed's official stance that their current QE3 program would be data dependent. If the U.S. economy improved then the Fed would start to reduce asset purchases. However, if the economy got worse they are prepared to raise asset purchases. The main message was that the Fed would remain accommodative for the foreseeable future. Stocks rejoiced and continued to march higher.

We did see some improvement in the regional surveys. The Philly Fed survey surged to 19.8 when economists were only expecting a move to 8. Numbers above zero are bullish for the economy. The New York Empire State survey rose to 9.4, which was above estimates of 7.8. The industrial production numbers for June rose +0.3%.

There does seem to be a disconnect between homebuilder sentiment and actual homebuilding. The latest NAHB housing market (expectations) index showed that homebuilder confidence rose to 57, which was significantly better than expected and marked its biggest two-month rally in over 20 years. Yet housing starts actually fell almost -10% and building permits also contracted. If homebuilding slows down too much it's going to be a drag on the already slowing U.S. GDP growth. It's possible that homebuilders are trying to avoid overbuilding, especially with the sudden increase in mortgage rates. The pace of weekly mortgage applications fell -2.6%. This was the fifth weekly decline and marked the ninth decline out of the last ten weeks.

June's retail sales figures were a disappointment. Economists were expecting +0.8% growth but the headline number only hit +0.4%. If you exclude automobiles and gasoline sales then June retail sales only rose +0.15%. That's the slowest gain in almost six months. Another troubling sign was the slowdown in restaurant spending. Food-service sales plunged -1.2% in June. That's the biggest drop in over five years. The Wall Street Journal noted that the sudden decrease in restaurant and bar sales could be a signal that the U.S. consumer is growing cautious. A big part of the problem is rising gasoline prices. The average price at the pump is currently $3.67 a gallon and it's expected to rise toward $3.80 a gallon. According to Deutsche Bank, every one-cent rise in the price of gasoline reduces U.S. consumer spending by $1 billion.

In other news the Chinese Q2 GDP estimate came in at +7.5% growth. At least that's the official government numbers. Plenty of analyst believe the real number is a lot lower. Even at +7.5%, which was in-line with estimates, it is China's slowest pace of growth since early 2009. China will make headlines again this week with the upcoming HSBC PMI number, which has been falling in recent months and suggesting the country is slowing down a lot faster than official government numbers.

Back home in the U.S. the city of Detroit set a new record as the largest city to file for bankruptcy with over $18 billion in debt. Sadly this is likely a harbinger of things to come. Several large U.S. cities are on the path toward bankruptcy with Baltimore, Chicago, Houston, Los Angeles, Miami, Oakland, Philadelphia, and Scranton all likely contenders for the next major city to go under.

Major Indices:

The S&P 500 index managed a +0.7% gain for the week. That marks four weekly gains in a row. The large-cap index is up almost 120 points from its June 24th close and up +8.4% from its intraday low on June 24th. The index is currently at an all-time historic high and looks poised to test the 1700 level, which could be round-number, psychological resistance.

I would not be surprised to see the S&P 500 index tag 1700 and then begin to correct lower. If the index does pullback I would look for possible short-term support at 1670 and 1650. Using a Fibonacci retracement tool a pullback from the 1700 level would suggest a dip toward 1650.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ's rally made a new string of 13-year highs. The NASDAQ composite index almost hit 3625 on Thursday before paring its gains. The combination of GOOG and MSFT both missing earnings on Thursday night pretty much guaranteed some profit taking on Friday. The NASDAQ gapped down on Friday but there wasn't any follow through selling.

The 3550 level could be short-term support but if the market does see a pullback I would expect the NASDAQ to fill the gap so that means a dip to the 3525 area. A traditional 38.2% Fib retracement would suggest a dip closer to 3500.

chart of the NASDAQ Composite index:

The rally in the small cap Russell 2000 index has been very strong. The index is up +1.35% for the week after another string of record highs. The $RUT is up +11% from its intraday low on Monday, June 24th. There is no denying that the $RUT is short-term overbought here. It's also worth noting that the rally has hit the upper trend line of higher highs. That might suggest the small cap index could see a pullback soon. I would look for potential support near 1020 and the 1000 level.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

We have a relatively light calendar for economic data this week. The big reports will probably be the HSBC manufacturing PMI number for China on Tuesday and the U.S. durable goods report on Thursday. The rest of the week will be highlighted by earnings reports. This will likely be the busiest week of the Q2 earnings season with more than one third of the S&P 500 components announcing. Just a few of the big names to watch for will be Apple (AAPL), Facebook (FB), Amazon.com (AMZN), McDonald's (MCD), Boeing (BA), Caterpillar (CAT), and United Technologies (UTX).

Don't be surprised to see Japan in the headlines on Monday. The country is holding its upper house elections on Sunday, July 21st.

Economic and Event Calendar

- Monday, July 22 -
existing home sales data

- Tuesday, July 23 -
HSBC manufacturing PMI data for China
Eurozone consumer confidence

- Wednesday, July 24 -
new home sales data
Eurozone PMI

- Thursday, July 25 -
Weekly Initial Jobless Claims
durable goods orders

- Friday, July 26 -
University of Michigan Consumer Sentiment

Additional Events to be aware of:

July 31st - FOMC meeting interest rate decision
September - U.S. debt ceiling deadline

The Week Ahead:

The week ahead will be all about earnings. There will be hundreds of companies reporting. Thus far the reports have been rather dismal. Yet expectations have been so low that the market has managed to keep the rally alive. For some unknown reason market participants are swallowing the line that the second half of 2013 will be better. Yet we've seen multiple analyst firms downgrade their second half U.S. GDP growth estimates in recent weeks.

Carter Worth, the chief market technician at Oppenheimer, has made some interesting observations. The current period from March 2009 through July 2013 is almost an exact copy of the S&P 500's rally from March 2003 to July 2007. According to Mr. Worth the correlation is 95.5%. I've borrowed Oppenheimer's chart below to show you. What Carter's chart doesn't show you is what happened afterwards. By the end of 2007 the market had peaked and begun a multi-month bear market that cut stocks in half.

2003-2007 vs. 2009-2013 S&P 500 index

Monthly chart of the S&P 500

Mr. Carter believes the market is overdone and has been suggesting that investors sell now. I can certainly understand his concern. All of the issues I mentioned last week are still here. The situation in Europe is unresolved and Greece and Portugal continue to flounder while Spain and Italy may not be that far behind. The Eurozone remains in a recession. China is slowing down and is not the engine of growth that many believed would save the global economy. The proxy war in Syria and violence in Egypt continues.

The U.S. economy is slowing down as well and will likely see its GDP growth slow to +1% in the second half of this year. Corporate results have been disappointing with sales likely to come in negative for the second quarter by the time earnings season is over. If that wasn't enough the U.S. housing market is facing headwinds from rising mortgage rates. Consumer spending is slowing down thanks to rising gasoline prices. Businesses are cutting back employee hours and only hiring part-time workers in preparation for Obamacare.

Every market is different. The issues that sparked the stock market reversal in late 2007 and the financial collapse of 2008 are not the same issues we face today. There is no guarantee that today's market is going to reverse. Currently the only thing that seems to matter is the Fed's QE program and that is unlikely to change any time soon.

The trend remains higher but on a short-term basis the market is overbought and due for some profit taking. Investors may want to take a step back and let the market deflate a little bit. Let's assume the S&P 500 does hit 1700. A minor -3% pullback from 1700 would mean a dip to 1650. That might be a good spot to re-evaluate market conditions and new trades.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Investors continue to ignore anything but the Federal Reserve. Stocks have kept the rally alive for another week and the S&P 500 and Russell 2000 both closed at new all-time highs.

CY, DIS, EMN, MNST and PETM have graduated from our watch list to our active play list.

I have updated stop losses on BAC, C, JPM, and NTAP.

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

Consumer Goods & Transports

by James Brown

Click here to email James Brown


- New Trades -


Kellogg Co. - K - close: 67.32

Comments:
07/21/13: Kellogg has been on our watch list. We've been waiting for shares to rally to new highs and close above $67.00. The stock finally met that entry point requirement on Friday. Our trade will open on Monday morning. We're starting with a stop loss at $63.75 so it's just below what should be technical support at the 100-dma.

Keep in mind that K is due to report earnings on August 1st. More conservative traders may want to wait until after we see how the market interprets K's earnings results before initiating new positions even if K meets our entry requirement.

Please note that K does not move very fast. We will definitely need some patience with this trade.

BUY the 2015 Jan $75 call (K1517a75) current ask $2.15

07/22/13 trade will open.
07/19/13 K closed above $67.00, meeting our entry point requirement

Chart of K:

Current Target:$ 74.75
Current Stop loss: 63.75
Play Entered on: 07/22/13
Originally listed on the Watch List: 06/16/13


Union Pacific Corp. - UNP - close: 163.36

Comments:
07/21/13: UNP is another watch list candidate that met our entry point requirement on Friday. The transportation stocks have been performing well and the Dow Jones transportation average just rallied to a new all-time closing high. Shares of UNP are helping lead the way with their own rally to a record high.

Our plan was to wait for shares to close above $162.00. The stock has been stuck under this resistance level for several days but finally broke out on Friday. Our trade will open on Monday morning. We will use an initial stop loss at $153.00 but that might actually be too tight. More aggressive traders may want to put their stop below the $150.00 mark.

Earlier Comments:
Our long-term target is $185.00 for the 2014 calls and $200 for the 2015 calls.

BUY the 2014 Jan $180 call (UNP1418a180) current ask $2.96

- or -

BUY the 2015 Jan $200 call (UNP1517a200) current ask $4.75

07/22/13 trade will open.
07/19/13 UNP closed above our trigger
07/14/13 adjust entry trigger to $162.00, adjust stop loss to $153.00

Chart of UNP:

Current Target:
Exit 2014 calls when UNP hits $185.00, 2015 calls @ $200
Current Stop loss: 153.00
Play Entered on: 07/22/13
Originally listed on the Watch List: 06/08/13



Play Updates

Another Week of Record Highs

by James Brown

Click here to email James Brown

Editor's Note:

We have added several new plays to the active play list.
CY, DIS, EMN, MNST, and PETM have all graduated from the watch list.

Please not that we want to exit our INTC trade immediately.
We also want to exit our 2014 calls on the Citigroup trade on Monday morning.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 46.88

Comments:
07/21/13: The financial sector continues to push higher. AIG's performance was a bit disappointing. The stock did end the week at new two-year highs but AIG has been struggling with resistance near $47.00.

Our trade opened on Monday morning (July 15th) but readers might want to wait for AIG to close above $47.25 before considering new positions. Or you could wait until after AIG reports earnings on August 1st and then evaluate a potential entry point based on any post-earnings move.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.13/2.18

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.70/3.75

07/15/13 trade opens. AIG opens at $46.99
07/14/13 AIG came within a penny of hitting our new entry trigger (closing above $46.75). We are adding it as a new play tonight. Buy calls on Monday morning. Move the stop loss up to $42.40.
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.

Current Target:$ 54.75
Current Stop loss: 42.40
Play Entered on: 07/15/13
Originally listed on the Watch List: 06/01/13


Bank of America - BAC - close: 14.75

Comments:
07/21/13: BAC delivered a very strong week, gaining almost one dollar. The company reported earnings on July 17th and beat estimates by 6 cents a share. Revenues also beat estimates at $22.95 billion for the quarter. The stock has surged to new two-year highs.

Please note that I am adjusting our exit strategy. We will plan to exit our 2014 Jan $15 calls when BAC hits $15.00. That could happen soon. Currently our 2014 calls have more than doubled. We will keep the exit target for the 2015 calls at $18.00 (on BAC). I am also raising our stop loss to $12.75.

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 $0.90/0.91

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.82/1.84

07/20/13 new stop loss @ 12.75. Adjust the exit target for the 2014 calls to exit when BAC hits $15.00. Our exit for the 2015 calls is $18.00 on BAC
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: BAC @ 15.00 for 2014 calls. BAC @ $18 for 2015 call
Current Stop loss: 12.75
Play Entered on: 03/18/13

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


Citigroup, Inc. - C - close: 52.35

Comments:
07/21/13: Citigroup reported earnings on the 15th. Estimates were for $1.18 a share. C beat that with $1.25 a share. Revenues rose +11% from a year ago. More than one analyst firm raised their price target on C following the earnings results. The stock is headed for its 2013 May highs near $53.50, which could be resistance.

I am suggesting we go ahead and exit our 2014 Jan. $50 calls immediately on Monday morning to lock in gains. We will raise the stop loss to $45.75.

- Suggested Positions -
JUN 21, 2013 - entry price on C @ 46.00, option @ 2.45
symbol: C1418a50 2014 JAN $50 call - current bid/ask $ 5.00/5.10

- or -

JUN 21, 2013 - entry price on C @ 46.00, option @ 3.65
symbol: C1517a55 2015 JAN $55 call - current bid/ask $ 5.45/5.60

07/21/13 prepare to exit our 2014 calls on Monday morning (07/22/2013)
07/21/13 new stop loss @ 45.75
07/14/13 new stop loss @ 44.65
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: 45.75
Play Entered on: 06/21/13
Originally listed on the Watch List: 05/25/13


Cypres Semiconductor - CY - close: 12.57

Comments:
07/21/13: CY is a watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $12.10 and then buy calls the next day. Well CY reported earnings on July 18th that beat estimates by 7 cents. The company also beat revenue estimates. The market reacted by pushing CY sharply higher on Thursday. At Thursday's intraday high of $13.23 the stock would have been up +13.6% for the week. Shares did see some profit taking but still managed an +8% gain for the week.

Thursday's close at $12.46 met our entry point requirement. Thus our trade opened on Friday morning when shares gapped open at $12.50.

I am raising our stop loss from $10.90 to $11.35.

- Suggested Positions -
JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.02*
symbol: CY1418a13 2014 JAN $13 call - current bid/ask $ 0.90/1.00

- or -

JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.20*
symbol: CY1517a15 2015 JAN $15 call - current bid/ask $ 1.10/1.20

07/21/13 new stop loss @ 11.35
07/19/13 trade opened. CY opens at $12.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
07/18/13 CY meets our entry requirement with a close above $12.10

Chart of CY:

Current Target: $14.75 for the 2014 calls, 16.00 for the 2015 calls
Current Stop loss: 11.35
Play Entered on: 06/21/13
Originally listed on the Watch List: 07/14/13


Walt Disney - DIS - close: 65.16

Comments:
07/21/13: DIS was a watch list candidate. The plan was to buy calls on a dip at $65.00. Shares hit our trigger on July 16th. If you missed the entry point DIS has provided another dip to $65.00 on Friday. Or more conservative traders might want to wait until after DIS reports earnings on August 6th and see how the market reacts to DIS' results first.

- Suggested Positions -
JUL 16, 2013 - entry price on DIS @ 65.00, option @ 1.82
symbol: DIS1418a70 2014 JAN $70 call - current bid/ask $ 1.68/1.71

- or -

JUL 16, 2013 - entry price on DIS @ 65.00, option @ 4.70
symbol: DIS1517a70 2015 JAN $70 call - current bid/ask $ 4.50/4.65

07/16/13 buy-the-dip trigger hit at $65.00
07/14/13 new entry strategy: adjust buy-the-dip trigger to $65.00
move the stop loss to $61.45. Move the target to $79.00
adjust the option strikes
07/07/13 adjust entry trigger from $57.00 to $58.00

Chart of DIS:

Current Target:$ 79.00
Current Stop loss: 61.45
Play Entered on: 07/16/13
Originally listed on the Watch List: 06/01/13


Eastman Chemical Co. - EMN - close: 75.71

Comments:
07/21/13: EMN is another watch list candidate that has graduated to our active play list. The stock has been consolidating sideways below resistance at the $75.00 level for several months. Our plan was to wait for shares to close above $75.25. EMN met that requirement on July 17th. Our trade opened the next day with EMN at $75.34. I would still consider new positions now at current levels. However, more conservative investors might want to wait and see how the market reacts to EMN's earnings report when they announce on July 29th.

Our long-term target for the 2014 call is $84. Our long-term target for the 2015 call is $95.00. FYI: The Point & Figure chart is bullish with a $91 target.

- Suggested Positions -
JUL 18, 2013 - entry price on EMN @ 75.34, option @ 3.60*
symbol: EMN1418a80 2014 JAN $80 call - current bid/ask $ 3.50/3.60

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 4.70/5.00

07/18/13 Trade opened. EMN opens at $75.34
*option entry price is an estimate since the option did not trade at the time our play was opened.
07/17/13 EMN meets our entry requirement with a close above $75.25

Chart of EMN:

Current Target: 2014 calls: target $84 on EMN. 2015 calls: target $95
Current Stop loss: 69.75
Play Entered on: 07/18/13
Originally listed on the Watch List: 07/14/13


Ford Motor Co. - F - close: 16.76

Comments:
07/21/13: Ford hit some profit taking on Tuesday. The stock managed to bounce from its Tuesday lows but its weekly performance could be signaling a short-term top. If you look at Ford's weekly chart the newest candlestick has created a bearish engulfing candle reversal pattern. Shares are probably due for a pullback so I'm not surprised. However, the stock might drift sideways until Ford's earnings report on July 24th. I am not suggesting new positions.

Currently our stop loss is below the June low but more conservative investors will want to seriously consider raising their stop prior to the earnings announcement.

- 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 $ 2.90/2.94

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: 83.57

Comments:
07/21/13: HON spent most of the week consolidating sideways as traders waited for the company's earnings announcement. HON reported on Friday morning and the company beat estimates by 7 cents. Management relatively bullish guidance for 2013. Shares saw an initial spike higher but gains faded on Friday. HON is still at a new all-time high. There should be short-term support near $82.00. I am not suggesting new positions at this time.

Our initial plan was to keep our position size small to limit risk.

- 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 $ 7.10/7.35

07/14/13 new stop loss at $75.75
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: 75.75
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


Intel Corp. - INTC - close: 23.04

Comments:
07/21/13: INTC has continued to underperform its peers in the SOX index. The company reported earnings July 17th that were in-line with estimates. Yet management lowered their guidance. Naturally investors were unhappy to hear that. INTC and MSFT are suffering from the slowdown in computer sales. Desktop and laptop sales are slowing sharply. A slowdown in PC sales isn't a surprise but the rate of the slowdown might faster than some had anticipated.

Given INTC's poor performance and management's warning I am suggesting we abandon ship and exit this trade immediately on Monday morning.

- Suggested Positions -
APR 24, 2013 - entry price on INTC @ 23.28, option @ 0.89
symbol:INTC1418a25 2014 JAN $25 call - current bid/ask $ 0.65/0.66

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 1.49/1.53

07/21/13 prepare to exit immediately on Monday morning
07/14/13 new stop loss @ 22.45. Consider exiting early prior to the earnings report
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: 22.45
Play Entered on: 04/24/13
Originally listed on the Watch List: 04/20/13


JPMorgan Chase & Co. - JPM - close: 56.16

Comments:
07/21/13: Strength in the financials continues to lift JPM. The stock rallied to a new multi-year high. The breakout above resistance at $56.00 should help eliminate worries of a bearish double top. I am raising our stop loss up to $49.65. More conservative investors might want to raise their stop closer to the simple 100-dma (currently near $51.00).

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 3.60/3.65

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 5.85/5.95

07/21/13 new stop loss @ 49.65
07/14/13 new stop loss @ 48.75
Current Target: $64.00
Current Stop loss: 49.65
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


Macy's Inc. - M - close: 49.03

Comments:
07/21/13: Investors may want to re-evaluate our Macy's trade. The retail sector spent the week drifting sideways, albeit at new record highs. Yet shares of M underperformed its peers and the broader market with a four-day pullback. Traders did buy the dip near its 50-dma on Friday but the relative weakness is somewhat surprising. I couldn't discern any specific news to account for M's weakness although I'm sure the rising price of gasoline doesn't help any of the retailers.

Big picture the trend is still higher and we have a stop loss at $47.25. More conservative traders might want to raise their stop. I would hesitate to launch new positions here although a close back above $50.50 or $51.00 might change my mind.

Investors should note that M is scheduled to report earnings on August 14th.

Earlier Comments:
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.

- Suggested Positions -
JUL 09, 2013 - entry price on M @ 50.50, option @ 1.85
symbol: M1418a55 2014 JAN $55 call - current bid/ask $ 1.11/1.15

- or -

JUL 09, 2013 - entry price on M @ 50.50, option @ 4.40
symbol: M1517a55 2015 JAN $55 call - current bid/ask $ 3.50/3.65

Current Target: $59.00
Current Stop loss: 47.25
Play Entered on: 07/09/13
Originally listed on the Watch List: 07/07/13


Monster Beverage Corp. - MNST - close: 63.39

Comments:
07/21/13: Bullish analyst comments on Wednesday helped push shares of MNST past resistance near the $62.50 level. MNST was a watch list candidate and the plan was to wait for shares to close above $63.00 and then buy calls the next day. MNST met that requirement on Thursday. Our traded opened on Friday with MNST at $63.40. I would still consider new positions now or you could wait for some confirmation and look for a rally past $64.00.

Earlier Comments:
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.

- Suggested Positions -
JUL 19, 2013 - entry price on MNST @ 63.40, option @ 3.95*
symbol:MNST1418a70 2014 JAN $70 call - current bid/ask $ 3.60/3.90

- or -

JUL 19, 2013 - entry price on MNST @ 63.40, option @ 8.70
symbol:MNST1517a70 2015 JAN $70 call - current bid/ask $ 8.60/8.60

07/19/13 Trade opened. MNST opens at $63.40
*option entry price is an estimate since the option did not trade at the time our play was opened.
07/18/13 MNST meets our entry requirement with a close above $63.00
07/17/13 MNST breaks out past resistance near $62.50

Chart of MNST:
Current Target: $74.00
Current Stop loss: 57.90
Play Entered on: 07/19/13
Originally listed on the Watch List: 07/07/13


NetApp, Inc. - NTAP - close: 41.33

Comments:
07/21/13: Shares of NTAP got a boost on Monday thanks to some bullish analyst comments. The rally continued the rest of the week. Shares have now broken out past significant resistance and closed at new 52-week highs. The stock is short-term overbought and likely due for some profit taking. We can look for new support in the $40.00-39.50 zone. If you're looking for an entry point I would consider waiting for a dip back towards $40.00.

Please note our new stop loss at $36.85.

FYI: NTAP is scheduled to report earnings on August 14th.

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 $3.75/3.85

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $5.95/6.10

07/21/13 new stop loss @ 36.85
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: 36.85
Play Entered on: 05/17/13
Originally listed on the Watch List: 05/11/13


PetSmart, Inc. - PETM - close: 71.55

Comments:
07/21/13: We didn't have to wait very long for PETM to meet our entry requirements. The stock was a new watch list candidate. Our plan was to wait for shares to close above $72.50 then buy calls the next day. PETM closed at $72.51 on July 15th. Our traded opened the next morning with PETM at $72.70. Unfortunately that was near the high for the week and PETM has been pulling back since then. Shares did manage a bounce on Friday with traders buying the dip at its rising 10-dma. I do find the recent relative weakness somewhat worrisome. Investors may want to wait for a new close above $73.00 before considering new bullish positions.

FYI: The bullish price target on the P&F chart has risen from $85 to $88. PETM will likely report earnings in mid August.

NOTE: PETM will begin trading ex-dividend on July 31st. The quarterly cash dividend should be 16.5 cents.

- Suggested Positions -
JUL 16, 2013 - entry price on PETM @ 72.70, option @ 3.40
symbol:PETM1418a75 2014 JAN $75 call - current bid/ask $ 3.60/3.90

- or -

JUL 16, 2013 - entry price on PETM @ 72.70, option @ 5.15*
symbol:PETM1517a80 2015 JAN $80 call - current bid/ask $ 3.60/3.90

07/16/13 trade opened. PETM opens at $72.70
*option entry price is an estimate since the option did not trade at the time our play was opened.
07/15/13 PETM meets our entry requirements with a close above $72.50

Chart of PETM:

Current Target: Target for 2014 calls: PETM @ 79.00, 2015 target @ 84
Current Stop loss: 67.90
Play Entered on: 07/16/13
Originally listed on the Watch List: 07/14/13


Whole Foods Market - WFM - close: 55.93

Comments:
07/21/13: WFM broke out from a trading range and rallied to new highs in July. Yet the rally stalled this past week. Shares were slowly drifting lower. I warned readers last week that WFM would likely see some profit taking. Traders did buy the dip at the 10-dma on Friday but that doesn't mean the pullback is over. If you're looking for a new entry point investors might want to wait for a dip near $54.00.

FYI: WFM is due to report earnings on July 31st.

- Suggested Positions -
JUL 10, 2013 - entry price on WFM @ 54.53, option @ 2.10
symbol: WFM1418a60 2014 JAN $60 call - current bid/ask $ 2.47/2.53

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 6.50/6.70

Current Target: $59.75 for the 2014 calls, $64.00 for the 2015 calls
Current Stop loss: 49.75
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


Watch

A Super Successful Week

by James Brown

Click here to email James Brown


New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

None. See below.


Dropped Watch List Entries

CY, DIS, EMN, MNST, and PETM have all graduated to our active play list.

K and UNP met our entry requirements on Friday and have been moved to the new play section.



New Watch List Candidates:


I am not adding any new watch list candidates tonight.

The stock market looks short-term overbought here and likely overdue for some profit taking.

Our watch list was incredibly successful this past week with all of our active candidates being triggered. I suggest we take a step back and see how the market performs during the biggest week of Q2 earnings season.

I am providing a list of stocks on my radar screen. Most of these either need to see a pullback or breakout past resistance before we would consider them potential candidates:

GM, JNJ, SBUX, RIG, SNE, BG, XOM, CVX, AMZN, GD, NBL, PRU, WDC, DLPH, ADBE, ROST, AKAM, WSM, ETFC, AMTD, BBRY, ORLY, GRPN, DNKN, NOC, , ATK, TJX, NKE, UA, CSCO, JDSU, CNQR, SJM, HSY, EA, EXPE, ANN, STX, CR, HPQ, DLTR, MRVL, UNH, WLP, CI, BZH,