Option Investor
Newsletter

Daily Newsletter, Sunday, 7/28/2013

Table of Contents

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

Leaps Trader Commentary

Investors Unfazed By Disappointing Revenues

by James Brown

Click here to email James Brown

Investors seem unfazed by the lackluster quality of Q2 earnings results. Thus far almost 50% of the S&P 500 components that have reported earnings have missed Wall Street's revenue estimates. We did see the market rally stall this past week with the S&P 500 index hovering below resistance at the 1700 level. Bullish investors shouldn't worry yet. Traders appear to be in a buy-the-dip mood as losses were pretty mild. The Dow Jones Industrial Average managed to buck the trend and post another gain and thus extending its current run to five weeks in a row.

There were a few pockets of weakness with the transports down -1.7%, semiconductors -2.6%, homebuilders -5.0%, oil services -3.4%. Crude oil also retreated with a -3.5% drop for the week while gold and silver bounced, up +2.9% and +2.3%, respectively. One analyst noted last week that we are in the strongest bull market since the end of World War II. Meanwhile JPM's chief equity strategist believes there is more upside ahead since he raised their yearend S&P 500 price target from 1715 to 1775.

Economic data in the U.S. was mixed last week. New home sales rose for the third month in a row and hit a 5-year high. Yet existing home sales dropped -1.2%, which was below expectations. Industry analysts were expecting the recent rise in mortgage rates to spur buyers off the sideline in an effort to lock in low rates. Yet we're not seeing that happen. The number of mortgage applications continue to fall. The MBA mortgage index slipped -1.2% for the sixth weekly decline in a row. The refinance applications are down ten out of the last 11 weeks and at a two-year lows. Applications to purchase a home are at a four-month low. The missing surge of buyers to lock in rates is a bit ominous for the housing sector.

The Richmond Federal Reserve manufacturing survey was a disappointment with a drop to -11. Numbers below zero indicate contraction and economists were expecting the survey to hit +9. The durable goods orders for June saw the headline number come in at +4.2%, which was above expectations. Yet if you exclude the more volatile transportation component the number comes in flat (+0%). One of the biggest surprises for the week was the University of Michigan consumer sentiment survey. Their final reading for the month of July saw sentiment rally to a six-year high at 85.1. We can probably blame record highs for the stock market and rising home values for improving consumer attitudes.

Europe

Europe finally had some good news for a change. French consumer confidence rose above expectations to 82. The German Ifo business climate index also came in above expectations at 106.2. Meanwhile Spain's unemployment levels, while still dismal, improved from 27.1% to 26.2%. The Bank of Spain raised their Q2 GDP forecast from -0.5% growth to -0.1% growth. The second quarter will still be Spain's eighth quarter in a row of negative economic activity.

The best news was probably the improvement in Eurozone PMI data, which actually came in at a positive number. The composite PMI number hit an 18-month high at 50.4 and the manufacturing PMI set a two-year high at 50.1. Numbers above 50.0 indicate growth and expansion.

Let's hope that the U.S. Federal Reserve doesn't squash this new growth in Europe. Yes, I said the U.S. Fed. That's because the International Monetary Fund (IMF) recently expressed concerns that if the Fed begins to tighten their QE program it could push the Eurozone back into its debt crisis. The idea here is if the U.S. Fed begins to tighten it will not only raise interest rates here in the U.S. but it will raise interest rates in Europe as well and that will raise borrowing costs for so many of the EU's struggling countries. According to the IMF's latest report on the Eurozone, "Recovery remains elusive. Growth has weakened further and unemployment is still rising, and the risks of prolonged stagnation and inflation undershooting are high. Mounting social and political tensions pose an increasing threat to reform momentum." Fortunately for Europe the Federal Reserve is unlikely to tighten any time soon.

China

Headlines out of China slowed down last week but the one economic report we did get was bearish. The HSBC China flash PMI survey declined to an 11-month low at 47.7. Economists were hoping to see a rise from 48.2 to 48.6. Numbers below 50.0 indicate contraction. This further reinforces the worry that China is slowing down faster than many fear. Meanwhile China's leadership continues to adjust expectations for growth. This past week another leader was suggesting that China could see GDP growth of 7.0%. Officially the Chinese government's 2013 GDP target is 7.5%. Believe it or not but at +7.5% that is the slowest pace of growth for China in the last 23 years.

Major Indices:

The S&P 500 index slipped -0.03% last week. The index failed to breakout past resistance near 1700 and began to retreat midweek. Yet traders stepped in to buy the dip near short-term support in the 1680 area. Most of the S&P 500's momentum indicators on the daily chart are about to turn bearish but that's not surprising after its four-week rally. The question is can this large-cap index breakout past 1700 or is this a near-term top for the market? The answer to that question may be determined by key events this week. We have another Fed meeting, the GDP estimate, and the July jobs report coming up in the next five trading days. Any of these could be a market-moving event.

Technically the S&P 500 has short-term resistance at 1700 and short-term support at 1680. If the index can breakout then we're looking at likely resistance near 1720 and then 1740-1750. If the index contracts then look for support at 1680 (Friday's low was 1676) and it that level breaks then the 1655-1645 zone.

chart of the S&P 500 index:

The tech-heavy NASDAQ composite is holding up pretty well and managed a +0.7% gain last week. The index is at 13-year highs and after consolidating sideways the last few days the NASDAQ looks poised to breakout higher again. There is short-term resistance near 3625. Likely targets for overhead resistance is 3650 and 3700. On the other hand if the NASDAQ retreats there is short-term support near 3575. I would also expect potential support near the July 10th high near 3520 and more likely the 3500 mark.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index tagged a new all-time high before reversing lower on Wednesday. Fortunately for the bulls there was no follow through on Wednesday's decline even though the index is overbought and due for a correction lower. If you look at the weekly chart (see below) the $RUT is near a significant trend line of resistance. Odds are good we are nearing another pullback but there is certainly no guarantee. If the $RUT were to retreat I would watch for potential support near 1020 and then the 1000 level.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

We have a very busy week for economic data. As I mentioned earlier the FOMC meeting's statement, the Q2 GDP estimate, and the jobs report could all be market moving events. The U.S. Q1 GDP growth was about +1.8%. Yet Q2 is expected to plunge into the +1.0% to +0.5% range. There are a few whisper numbers that are closer to +0.0% growth. Due to the drop in growth the Fed is unlikely to say anything that would rock the boat, not after the market's reaction to Bernanke's taper comments in May. Meanwhile economists are expecting +175,000 new jobs in July. That would be down from June's +195K. Anything less will probably be seen as more "bad news is good news" since it keeps the Fed on the sidelines. If there was a big surprise higher in jobs then it might be seen as bearish since strong job growth would mean the Fed is closer to tapering their QE program.

Economic and Event Calendar

- Monday, July 29 -
pending home sales data

- Tuesday, July 30 -
Case-Shiller 20-city home price index
Conference Board's Consumer Confidence for July
Two-day FOMC meeting begins
Eurozone consumer confidence
Eurozone CPI data

- Wednesday, July 31 -
ADP Employment Change report
U.S. Q2 GDP estimate
Chicago PMI data
Two-day FOMC meeting ends.
FOMC meeting interest rate decision
Eurozone unemployment rate
Chinese manufacturing PMI data

- Thursday, August 01 -
Weekly Initial Jobless Claims
ISM index
auto and truck sales for July
Eurozone PMI data
ECB interest rate decision

- Friday, August 02 -
unemployment rate
Non-farm payrolls (jobs) for July
factory orders
Eurozone PPI

Additional Events to be aware of:

September - U.S. debt ceiling deadline

The Week Ahead:

My crystal ball for the week is cloudy but I suspect there is a greater than 50% chance the market sees some profit taking in reaction to one of the events mentioned above (FOMC statement, Q2 GDP, or Jobs number). It could be a volatile week as stocks ricochet from event to event or it could be quiet as stocks churn sideways and then suddenly spiking one way or the other on one of the above catalysts.

We shouldn't fear a pullback here. Instead we can look at a pullback as a potential entry point for new positions. However, we should probably take a cautiously bullish stance instead of an aggressively bullish one. My biggest concern is another political battle in Washington this September. The U.S. has already hit its debt ceiling but due to creative financial accounting and extraordinary measures the government doesn't run into trouble until September.

We could be facing another government shutdown as democrats and republicans fight over the debt ceiling and the budget. Republicans do not want to raise the debt ceiling (but they will) and President Obama wants another $1.6 trillion in taxes to help pay for more government spending. It could prove to be another epic fight on capitol hill and too much uncertainty is usually bearish for stocks.

A few more warning signals that might make a bullish investor pause are the following: The price of gasoline is on the rise. The U.S. economy tends to roll over into recession when gas nears the $3.80-4.00 a gallon level (national average). We are starting to see a slowdown in consumer spending and it's showing up in restaurant sales, which have slowed to the worst pace in years. That might be due to the fact that average hourly pay has been dropping (and the rise in gas). Another worrisome sign was identified by Bank of America who said that institutional money managers were selling stocks in June at the fastest pace in history. At the same time the retail investor was buying stocks at the highest pace since 2011. Is this another classic case of "smart" money getting out at the top and selling to "dumb" money before the market rolls over?

Geopolitical risks remain. The Middle East continues to boil with violence in Syria, Libya and Egypt. This past week saw more headlines from Egypt about clashes between pro-Morsi, pro-Muslim Brotherhood supporters versus the police and the military. Reports say thousands have been injured and dozens of pro-Morsi supporters are dead. The Egyptian military claims that 30 million people have hit the streets in protests (again). That number includes both pro-Morsi and anti-Morsi supporters but it's still incredible when the entire population of Egypt is only 85 million. It feels like the country is slipping closer and closer to civil war.

Seasonally the months of August and September are two of the worst months of the year for stocks. It would make sense for the market to retreat lower over the next several weeks. This could prove to be a pivotal week for the market. Thus investors may not want to be in a rush to launch new positions at current levels.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market rally stalled for the S&P 500 and the Russell 2000 index. Yet profit taking was relatively shallow with traders still in a buy-the-dip mood.

This week could be volatile if investors don't like what they hear from the FOMC statement, the Q2 GDP estimate, or the July jobs report. Traders may want to double check their stop loss placement or consider taking some profits off the table.

Our plan was to exit the INTC trade on Monday, July 22nd.
We also closed the 2014 Citigroup (C) calls on July 22nd.
BAC hit our exit target for the 2014 calls on July 23rd.

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

Are You Chasing New Highs?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(July 28, 2013)

I am not adding any new LEAPStrader plays tonight. The fact that traders bought last week's dip is short-term bullish. I would not be surprised to see the S&P 500 breakout past 1700 soon. However, the FOMC statement, the U.S. Q2 GDP estimate, or the jobs report this week could all sabotage the market rally. Combine that with overbought conditions and the worst two months of the year for stocks (August & September) and I'm not enthusiastic about chasing market highs at the moment.

Be patient. The market will see another correction and that will make a big difference to the success of any new LEAPS trades.

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:

HAL, FRX, WHR, CBI, COST, BHI, UTX, RRC, TSCO, RF, SCTY, CL, V, DG, MRK, MYL, TIF, LLY, JBHT, GILD, BAC, BWA, BDX, DD, GLW, ABC, COF, HAIN, PEP, GM, JNJ, SBUX, XOM, CVX, GD, NOC, CLX, LMT, LLL, DLPH, AKAM, ETFC, AMTD, SCHW, MS, CS, GRPN, DNKN, KKD, TJX, UA, HPQ, HSY, DLTR, KR, SYK,



Play Updates

Closing Some 2014 Calls With Gains

by James Brown

Click here to email James Brown

Editor's Note:

We do have a few active trades that are reporting earnings this week. Do not be surprised to see some post-earnings volatility.


Closed Plays


INTC was closed on Monday, July 22nd as planned.

We also closed the 2014 call position for the Citigroup (C) trade.
Plus, shares of BAC hit our exit target ($15.00) for the 2014 call trade.



Play Updates


American Intl. Group - AIG - close: 46.54

Comments:
07/28/13: AIG had a rough couple of days on Tuesday and Wednesday last week but shares have started to recover. I would be tempted to buy this bounce but AIG is due to report earnings on August 1st. Investors may want to wait and see how the market reacts to AIG's results before considering new positions.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.04/2.08

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.65/3.80

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: 14.73

Comments:
07/28/13: It was a quiet week for BAC. The stock struggled with round-number resistance at the $15.00 level. Traders bought the dip on Thursday near its 10-dma. Shares closed virtually unchanged for the week.

We did see shares hit our exit target at $15.00 for the 2014 Jan. $15.00 calls. That leaves just the 2015 calls and our exit target is $18.00 on BAC.

- Suggested Positions -
(exit target hit on 07/23/13 @ $15.00)
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - exit $1.04 (+136.3%)

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.88/1.89

07/23/13 $15.00 exit target hit for the 2014 Jan. $15 calls.
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: 52.21

Comments:
07/28/13: We suspected that the May 2013 highs near $53.00 might be resistance for Citigroup. That's why we adjusted our plan to exit the 2014 calls on Monday, July 22nd, at the opening bell. The stock has since started to retreat for resistance near $53.00, which could form a potential bearish double top.

I am not suggesting new positions at this time.

- Suggested Positions -
(exited the 2014 calls on July 22nd, 2013 at the open)
JUN 21, 2013 - entry price on C @ 46.00, option @ 2.45
symbol: C1418a50 2014 JAN $50 call - exit $5.00 (+104.0%)

- or -

JUN 21, 2013 - entry price on C @ 46.00, option @ 3.65
symbol: C1517a55 2015 JAN $55 call - current bid/ask $ 5.50/5.60

07/22/13 scheduled exit for the 2014 Jan. $46 calls at the open.
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:
07/28/13: Believe it or not but after churning sideways in the $12.40-13.00 zone all week long shares of CY closed unchanged for the week at $12.57. If you're looking for a bullish entry point I would consider waiting for a dip back towards the $12.00 level.

- 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

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: 64.98

Comments:
07/28/13: Shares of DIS were little changed for the week after churning sideways in the $64-65 zone. If the stock market continues to cooperate I would expect DIS to pick up the pace and rally from current levels. Investors may want to wait for DIS to close above $65.50 before initiating new positions. However, it might pay off to just wait and see how the market reacts to DIS' earnings reports first before initiating positions. DIS is scheduled to announce earnings on August 6th.

- Suggested Positions -
JUL 16, 2013 - entry price on DIS @ 65.00, option @ 1.82
symbol: DIS1418a70 2014 JAN $70 call - current bid/ask $ 1.48/1.51

- or -

JUL 16, 2013 - entry price on DIS @ 65.00, option @ 4.70
symbol: DIS1517a70 2015 JAN $70 call - current bid/ask $ 4.35/4.45

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

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: 74.16

Comments:
07/28/13: EMN was looking pretty good about two weeks ago with the breakout past major resistance at the $75.00 level. Yet there has been no follow through. I blame EMN's up coming earnings report. Investors could be in a wait and see mood as the earnings announcement approaches. EMN is scheduled to report on July 29th, after the closing bell. We can expect EMN to move on July 30th.

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 $ 2.85/2.95

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 4.20/4.50

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

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: 17.02

Comments:
07/28/13: Automobile giant Ford tagged a new high this past week, trading above $17.50 for the first time in over two years. That move on Wednesday was a reaction to better than expected earnings. Ford beat estimates by eight cents and their quarterly revenue came in at $36 billion, which was better than expected.

Technically the gain this past week is positive since the prior week had painted a bearish reversal pattern on the weekly chart. Yet the gap move on Wednesday followed by the move down on Thursday also paints a bearish reversal type of pattern. I would be cautious here. Do not be surprised to see Ford correct lower toward $16.00 or its simple 50-dma.

- 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: 82.88

Comments:
07/28/13: HON spent the week consolidating sideways. Odds are good we will see shares dip into the $81-80 zone, which should be new support. If you are looking for a new entry point I would consider buying a dip or a bounce near the $80.00 level.

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 $ 6.75/6.95

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


JPMorgan Chase & Co. - JPM - close: 56.05

Comments:
07/28/13: Looking at JPM's stock price it was a quiet week. Shares have seen some minor profit taking, down a meager 11 cents. In the news JPM has been making headlines with the latest regarding its commodity trading unit. The company has built the biggest commodity trading business on Wall Street over the last few years. Yet growing government regulation and a legal battle with U.S. regulators over alleged manipulation in the California electricity markets has JPM exiting the commodity business. That means no more physical commodity trading including electricity, oil, and aluminum.

It does not help that there has been a parade of gold manipulation conspiracy theories making the rounds in recent months. The New York Times got on board this past week and speculated that maybe the big banks were not telling us the whole truth about their gold stores and that caused a big spike in gold prices. The conspiracy theory suggests that big banks like JPM own their own gold and they also store gold for other investors and institutions. The banks then make money by "loaning" out gold from their stockpile to other investors or buyers. The system works as long as there is not a run on gold with owners demanding the physical commodity. The rumor is that banks like JPM may have sold double or triple their actual inventory. Some of the conspiracy theories get complicated. The worry here is that why would JPM, the largest commodity trader on Wall Street, a company that made $1.5 billion in profits from their commodity trading last year, suddenly decide to exit the business. Is there another scandal to be uncovered? Since this has all been rumor there has not been any impact on JPM's stock price but the fact that JPM is leaving the commodity business is raising some eyebrows. It is conceivable that if another scandal does break it will send JPM shares lower.

JPM hasn't decided how it plans to exit commodity trading. They could sell their business, do a spinoff or something else. There will be no immediate impact on the bank or its commodity business. JPM claims they want to focus on more traditional banking business.

Overall I don't see any changes on our current LEAPS trade. I suspect we will see JPM dip toward its 50-dma near $54. Or if the market were to correct lower we could see JPM retreat to its rising 100-dma, which would be a great entry point for new call positions.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 3.50/3.55

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 5.80/5.90

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


Kellogg Co. - K - close: 66.98

Comments:
07/28/13: Our new trade on Kellogg is off to a slow start thanks to the market churning sideways this past week. I would still consider new positions now but investors might be better off waiting until after earnings. K is scheduled to report earnings on August 1st, before the opening bell. You could wait to see how the market reacts to K's Q2 results before initiating positions.

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

- Suggested Positions -
JUL 22, 2013 - entry price on K @ 67.21, option @ 2.10
symbol: K1517a75 2015 JAN $75 call - current bid/ask $ 1.80/2.00

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

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


Macy's Inc. - M - close: 48.17

Comments:
07/28/13: Our Macy's play is not looking very healthy. The stock peaked in mid July and has been drifting lower the last two and a half weeks. The breakdown below its simple 50-dma this past week is definitely a warning signal. If this trend continues then we'll likely see M hit our stop loss at $47.25 in the next few days. More conservative traders may want to abandon ship now. I am not suggesting new positions at this time.

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 $ 0.84/0.89

- or -

JUL 09, 2013 - entry price on M @ 50.50, option @ 4.40
symbol: M1517a55 2015 JAN $55 call - current bid/ask $ 3.10/3.25

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: 62.88

Comments:
07/28/13: After struggling with resistance near $65.00 for a couple of days shares reversed lower on Wednesday. MNST is now testing short-term support near $62.00. If the market pulls back again we could see MNST dip toward the $60.00 level and its rising 50-dma. I would be tempted to buy calls on a dip or a bounce near $60.00. However, investors will want to take note that MNST will likely report earnings in the next two weeks. So far there is no confirmed date. Cautious traders could wait until after we see how the market reacts to MNST's earnings results before initiating positions.

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 $ 3.20/3.50

- or -

JUL 19, 2013 - entry price on MNST @ 63.40, option @ 8.70
symbol:MNST1517a70 2015 JAN $70 call - current bid/ask $ 7.70/8.10

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
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: 41.35

Comments:
07/28/13: NTAP spent the week churning sideways. It looks like the $41.75 region has become new resistance for the stock. Investors may want to wait on launching new positions. I would not be surprised to see NTAP pullback into the $40.00-39.00 zone again. A bounce from the $39-40 area could be used as our next entry point. Keep in mind that 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 $5.95/6.15

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: 71.96

Comments:
07/28/13: PETM seemed to peak on July 15th and it looked like the stock might retrace back toward the $70.00 level. Yet this past week PETM found support near the $71 level. Shares have been consolidating sideways in the $71-72 zone and the stock is poised for a breakout. I would be tempted to buy calls on a move past $72.25 but a better entry point might be waiting for a close above the $73.00 mark.

FYI: 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 $ 2.65/2.80

- or -

JUL 16, 2013 - entry price on PETM @ 72.70, option @ 5.15*
symbol:PETM1517a80 2015 JAN $80 call - current bid/ask $ 4.10/4.60

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

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


Union Pacific Corp. - UNP - close: 159.40

Comments:
07/28/13: Warning! The railroad industry ETF took a dramatic turn lower this past week and shares of UNP followed (or led the way) it lower. Shares of UNP tagged a new all-time high on Monday, July 22nd and then quickly reversed with a multi-day decline. The stock has closed below the $160 level but traders did buy the dip near its rising 50-dma on Friday.

Technically the action last week has created a bearish engulfing candlestick reversal pattern on the weekly chart. Obviously that's not a healthy signal but it does need to see confirmation. Unfortunately, UNP's recent decline has also produced a new bearish crossover in the stock's MACD indicator on its daily chart. I hate to say there is a bearish divergence on the MACD indicator (a lower high) and the stock's price (recent higher high).

Currently our stop loss is at $153.00. More conservative traders might want to raise their stop loss. I am somewhat encouraged by the Friday rebound in the broader Dow Jones Transportation Average. If the transports as a sector can rally it should help buoy the railroads. Readers may want to hesitate before launching new positions in UNP.

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

- Suggested Positions -
JUL 22, 2013 - entry price on UNP @ 163.80, option @ 3.10
symbol: UNP1418a180 2014 JAN $180 call - current bid/ask $ 1.69/1.78

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 3.50/3.70

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

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


Whole Foods Market - WFM - close: 55.97

Comments:
07/28/13: Investors remain in a buy-the-dip mood and traders bought the dip in WFM near is rising 20-dma. The stock's rebound on Thursday and Friday helped shares eke out a very minor gain for the week. WFM looks poised to keep pushing higher but I would hesitate to launch positions here. The company is scheduled to report earnings on July 31st. Investors may want to wait until after we see how the market reacts to WFM's results before putting new money to work. The stock could be volatile on August 1st as it reacts to the earnings news.

- Suggested Positions -
JUL 10, 2013 - entry price on WFM @ 54.53, option @ 2.10
symbol: WFM1418a60 2014 JAN $60 call - current bid/ask $ 2.38/2.44

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 6.45/6.65

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


CLOSED Plays


Intel Corp. - INTC - close: 23.26

Comments:
07/28/13: Semiconductor titan INTC's stock has not been performing very well. The stock has been underperforming both its peers and the major indices for weeks. We decided last week to exit positions on Monday, July 22nd and cut our losses.

I would keep an eye on INTC. The stock has seen huge volume two days in a row. If we see INTC close back above $24.50 I might be tempted to buy calls again.

- Suggested Positions -
APR 24, 2013 - entry price on INTC @ 23.28, option @ 0.89
symbol:INTC1418a25 2014 JAN $25 call - exit $0.65 (-26.9%)

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - exit $1.45 (-16.6%)

07/22/13 scheduled exit at the opening bell
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

Chart of INTC:

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



Watch

Consumer Goods, Transports, Drugs

by James Brown

Click here to email James Brown


New Watch List Entries

KMB - Kimberly-Clark

ODFL - Old Dominion Freight Lines

PFE - Pfizer Inc.


Active Watch List Candidates

None. See below.


Dropped Watch List Entries

None.



New Watch List Candidates:


Kimberly-Clark - KMB - close: 98.39

Company Info

KMB is in the consumer goods sector. The company makes a wide number of personal care products including diapers and paper products. Traditionally it is considered a more defensive play. Shares currently offer a 3.1% dividend yield.

The stock broke down in late May but the correction found a bottom at its rising 150-dma near $94. Since then the stock has bounced. If shares can breakout past its mid July high from two weeks ago and the trend of lower highs (see chart) then I would expect the longer-term up trend to resume.

I am suggesting a trigger to buy calls if KMB can close above $102.00. Once it closes above $102.00 we'll buy calls the next day. Our long-term target is $115.00.

Breakout trigger: Wait for KMB to close above $102.00
buy calls the next day. Start with a stop loss at $95.75

BUY the 2014 Jan $105 call (KMB1418a105) current ask $1.60

- or -

BUY the 2015 Jan $110 call (KMB1517a110) current ask $3.30

Chart of KMB:

Originally listed on the Watch List: 07/28/13


Old Dominion Freight Line - ODFL - close: 44.39

Company Info

ODFL is in the trucking industry. They focus on "less than truckload" services. They are one of the few companies that actually beat Wall Street's revenue estimates when they reported Q2 earnings this past week. The stock has been a relatively consistent performer. Right now traders are buying the recent dip near its 50-dma.

Shares have resistance in the $44.50 area. I am suggesting investors wait for ODL to close above $45.25 then buy calls the next day with a stop loss at $41.95. Our long-term target is $54.00.

Breakout trigger: Wait for ODFL to close above $45.25
buy calls the next day. Start with a stop loss at $41.95

BUY the 2014 Jan $50 call (ODFL1418a50) current ask $1.25

Chart of ODFL:

Originally listed on the Watch List: 07/28/13


Pfizer Inc. - PFE - close: 29.37

Company Info

Pfizer is a major drug manufacturer. Traditionally the big drug names were considered more safe-haven plays. The stock currently provides a 3.2% dividend yield. The stock got ahead of itself in April and PFE saw a multi-week correction lower. PFE found support in late May at its rising 150-dma. The last few weeks have been bullish with a new short-term trend higher. I am almost tempted to buy Friday's bounce from the $29.00 level. However, PFE is scheduled to report earnings on July 30th. The announcement comes out before the opening bell and Wall Street expects a profit of 55 cents a share. The smart move will be to wait and see how the market reacts to PFE's earnings results before considering new positions.

I am suggesting investors wait for PFE to close above $30.25. If that occurs we can launch positions the next morning. We'll start with a stop loss at $28.45. Our long-term target is $35.00.

Breakout trigger: Wait for PFE to close above $30.25
buy calls the next day. Start with a stop loss at $28.45

BUY the 2014 Jan $30 call (PFE1418a30) current ask $0.93

- or -

BUY the 2015 Jan $30 call (PFE1517a30) current ask $2.08

Chart of PFE:

Originally listed on the Watch List: 07/28/13


Active Watch List Candidates:





Currently we do not have any active watch list candidates (other than the new ones listed tonight). All of our prior watch list candidates were all triggered two weeks ago and added to the active play list.