Option Investor
Newsletter

Daily Newsletter, Sunday, 8/4/2013

Table of Contents

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

Leaps Trader Commentary

Up +1,000% In 30 Years

by James Brown

Click here to email James Brown

It was an historic week for the U.S. stock market with the large-cap S&P 500 index closing above the 1,700 level for the first time. The market digested a flood of economic data with several reports coming in better than expected. The U.S. Q2 GDP estimate came in above estimates. The FOMC statement on Wednesday and the jobs data on Friday helped reassure investors that the Fed's QE program will remain in effect and the taper will likely be postponed. If that wasn't enough dovish comments from a fed governor on Friday helped boost equities. Widely followed shares of Facebook (FB) hit their IPO price of $38.00 a share on July 31st, which was 440 days from its IPO. The biggest milestone was the S&P 500 closing above 1,700. The index is up +1,000% in the last thirty years. It was June 19, 1983 when the S&P 500 first closed above the 170 mark. Year to date the S&P 500 is up +19.88%, the NASDAQ composite is up +22.19%, the Dow Industrials +19.49%, the Russell 2000 +24.78%, the Dow Jones Transportation average +25.3%, and the SOX semiconductor index is up +25.8%.

Housing data in the U.S. was mostly better than expected with pending home sales for June down -0.4% compared to estimates for -1%. The Case-Shiller 20-city home price index showed a +12.2% rise in May, which followed a +12.1% gain in April. Yet the weekly MBA mortgage index continues to fall with a -3.7% decline last week. This index measures mortgage applications for both purchases and refinancings and it's now at a two-year low. This past week marked its seventh weekly decline in a row and down 11 out of the last 12 weeks. Rising interest rates and thus rising mortgage rates is crimping demand for mortgages which will eventually results in fewer home sales. Currently home ownership has fallen to an 18-year low.

The Chicago PMI data improved in July with a rise from 51.6 to 52.3. This is the third month in a row we've seen this particular PMI above 50.0 (showing growth). The U.S. ISM manufacturing index surged from 50.9 in June to 55.4 in July. This was way above expectations and marked the best reading since June 2011. In the not so great category we saw the Conference Board's Consumer Confidence index slip from an upwardly revised 82.1 in June to 80.3 in July. It was the first drop in five months.

One of the biggest reports for the week was the advance Q2 U.S. GDP estimate. Analysts estimates were all over the place but overall the concentration of estimates seemed to be in the +0.5% to +1.0% growth rate. The Q2 number came in better than expected at +1.7%. Unfortunately, this bullish reading was offset by the Q1 GDP number being revised lower from +1.8% down to +1.1%. To meet the Federal Reserve's growth target for 2013 we're going to have to see Q3 and Q4 GDP growth average more than +3.0%. Odds of that happening are pretty much zero but the Fed keeps preaching that we'll see stronger growth in the second half.

Another big report was the jobs data. The ADP employment change report came out a couple of days prior to the BLS numbers and the ADP reported showed private job growth of +200,000 in July. This was above expectations for +188K. Economists had been expecting the nonfarm payroll number to come in at +185,000 but after the stronger ADP number analysts were starting to adjust their jobs estimate higher and by Friday morning many were expecting close to +200K. Unfortunately the U.S. government said nonfarm payrolls came in at +162,000 for July. They further revised May and June's job numbers down -26K. July's number was the lowest reading in four months.

Stocks initially dipped on the news but traders were ready to buy the dip since weak jobs growth means the Federal Reserve will stay on the sidelines and continue their QE3 program. With the jobs data we also saw the latest unemployment rate, which fell from 7.6% to 7.4%. Unfortunately, looking at the details behind both the nonfarm payroll data and the unemployment rate the data is bearish. The number of full time jobs is shrinking. Only a third of the new jobs created in 2013 have been full time jobs. The rest have all been part time jobs. That's because businesses are trying to prepare for Obamacare. The heavy cost of healthcare for full time employees is forcing many companies to cut hours and only hire part time workers. The only reason we saw the unemployment rate decline is because more and more Americans have stopped looking for work. That means the labor force participation rate continues to shrink. If you're not in the workforce then odds are your consumer spending is going to be hampered, which affects U.S. GDP growth.

People forget that we need about +150,000 new jobs a month just to keep pace with population growth from immigration and students graduating from school and joining the workforce. Sadly the last few years have seen job growth stagnant in the +150K to +200K range. The biggest reason our unemployment rate has fallen has been the dramatic drop off in the labor force participation rate. Friday's report also showed that the average hours worked and hourly wages both fell. That's a bearish signal for future hiring. Normally we want to see rising wages and a rising number of hours worked, which normally precedes an uptick in corporate hiring. Based on Friday's numbers there were multiple analysts who adjusted their time table for the Fed to begin tapering QE and pushed the target date farther out due to our lackluster job growth.

Speaking of the Fed we did have a two-day FOMC meeting this past week. As expected the Fed left rates unchanged in the 0.0% to 0.25% range. Their official statement was also a nonevent. The Fed believes that the U.S. continues to see moderate growth. They remain concerned about long-term unemployment in the U.S. The Fed also pointed out that disinflation remains a risk to economic growth. The problem here is that disinflation, a slowdown in the rate of inflation or rising prices, could actually lead to deflation, which is when prices actually start to fall. Inflation is easier to fight than deflation so their statement would suggest the Fed will continue to stimulate the economy with their QE program. Just in case Wednesday's statement wasn't enough we saw St. Louis Fed President Bullard speak on Friday afternoon. Bullard said the Fed needs more data before they make any decisions on tapering. He also reiterated the Fed's concerns about inflation being too low and potentially leading to deflation. Bullard's comments suggested that the Fed may not make any moves in their QE program until early 2014.

Europe

We did hear good news out of Europe. The Eurozone said their manufacturing PMI rose from 50.1 to 50.3. Numbers above 50.0 indicate growth. Improving PMI numbers in Italy, Germany, and the U.K. all helped contribute to Europe's growth. Meanwhile the European Central Bank (ECB) left their key interest rates unchanged at 0.5%. The Eurozone unemployment rate was unchanged at 12.1%. This good news was offset by disappointing retail sales figures out of Spain (-5.1%) and Germany (-1.5%). PIMCO's Mohamed A. El-Erian made an astute observation that issues in the Eurozone could come to a head in September following Germany's national elections.

Asia

Data out of Asia was mixed. Japan saw its manufacturing PMI data fall from 52.3 to 50.7. That's almost in negative (contraction) territory. Japan's NIKKEI stock market index had a volatile week with losses early in the week reversing with a big bounce on Thursday and Friday. China said its manufacturing PMI inched higher from 50.1 to 50.3. Granted this was the official state report so take it with a grain of salt. Economists had been expecting a number below 50.0, which would have meant contraction. Officially the Chinese government is still forecasting +7.5% GDP growth this year but recent comments from their commerce minister suggest exports for the second half of 2013 will come in below expectations.

Major Indices:

After nearly two weeks of consolidating sideways in the 1680-1700 zone the S&P 500 finally broke out past resistance on Thursday as investors reacted to the better than expected manufacturing PMI numbers from China, Europe and the U.S. Traders were quick to buy the dip on Friday morning with prior resistance at 1700 acting as new support. For the week the S&P 500 index added +1.0%.

Technically the index looks bullish and poised to make a run towards 1720 and likely the 1740-1750 zone. Of course it is worth mentioning that we are in blue-sky territory with no official overhead resistance. The S&P 500 should find short-term support at 1700, 1680, and its 50-dma near 1650.

chart of the S&P 500 index:

The NASDAQ composite is up four days in a row and the rally has been accelerating higher. The index managed a +2.1% gain for the week and closed at new 13-year highs. The 3700 level could be short-term round-number resistance. Prior resistance near 3625 is likely short-term support. If the market were to really correct lower than a -5% pullback would mean a dip toward the 3500 level.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index managed to rally to new all-time highs with a +1.0% gain for the week. Yet the $RUT remains below its multi-month trend line of higher highs. While the trend is certainly higher there is still a significant chance of a correction like the ones we witnessed in April and June.

The 1060 level seems to be immediate resistance. If that level breaks then 1080 and 1100 are the next likely resistance areas. Look for support at 1040, 1020 and the 1,000 mark.

chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is a quiet one for economic data. The ISM services number will likely come in better than expected. If the trend for mortgage applications continues then the MBA mortgage index should decline again. We're in the last remaining days of the Q2 earnings season but the impact from earnings will likely remain stock specific.

Economic and Event Calendar

- Monday, August 05 -
ISM services
Eurozone services PMI

- Tuesday, August 06 -
(nothing significant)

- Wednesday, August 07 -
MBA mortgage index

- Thursday, August 08 -
Weekly Initial Jobless Claims
Bank of Japan's press conference

- Friday, August 09 -
wholesale inventory data

Additional Events to be aware of:

September - U.S. debt ceiling deadline
September - German elections

The Week Ahead:

Looking at the week ahead the path of least resistance is higher. Technically the situation is bullish. The major U.S. indices have all broken out from a multi-day consolidation phase. New highs for the large caps and small caps have been reaffirmed with new highs in the transports. Dow Theory investors should be happy.

Investors don't care about bearish seasonal norms or the lackluster earnings results and the disappointing trend for corporate revenues. The Federal Reserve remains on the sidelines. Worries about the Fed tapering their QE program should subside a bit. Instead of concerns about the Fed tapering in September the consensus seems to think it will be early 2014 now.

The fact that gasoline prices are up +12% in July, the fourth biggest increase in July on record, and the biggest rise in gas prices in July in eight years, does not seem to be causing any concerns about consumer spending.

The fact that mortgage applications have been plunging for several weeks in a row has not yet filtered through to slowing home sales. Logically fewer applications means fewer purchases. The problem here is the lag time between mortgage applications and actually closings and then reporting home sales data.

The fact that "smart money" has been selling stocks does not seem to be ringing any alarm bells for investors. Multiple sources have now reported that hedge funds and institutional traders have been selling stocks the last few weeks while retail traders (i.e. "dumb money") have been buying stocks.

The fact that the volatility index (the VIX) has fallen close to multi-year lows does not seem to be waving any warning flags for investors. Normally when the VIX gets exceptionally low it's a caution signal that traders are too complacent and that stocks could be near a top.

We had a relatively quiet week when it came to geopolitical risks. There seemed to be a slowdown in the headlines from Egypt, Syria, and the rest of the Middle East. Yet on Friday the White House said they were closing over 20 embassies in 18 countries across the Middle East and north Africa beginning today (Sunday, August 4th) due to a significant security threat. The embassies would be closed until further notice. The State Department issued a travel warning for Americans across the same area and the Arabian peninsula for the entire month of August. New information suggests that Al Qaeda and similar organizations are planning a new wave of attacks across the region. One would have imagined that Wall Street might react cautiously to these headlines regarding potential attacks, but no, the markets ignored them.

It would appear that the "there is no other alternative" investing strategy for stocks is all that matters on Wall Street right now. New highs tend to beget more new highs. We are in the second half of the year and most mutual funds have underperformed the market. That's going to put pressure on fund managers to chase stocks higher. Yet this justification doesn't seem to mesh well with the recent reports I just mentioned about institutional traders selling the highs.

Looking out past this week the market could find trouble in September. Right now congress is in recess but they'll be back in September and the fight will be on to raise the U.S. debt ceiling again. If history is any guide then both the democrats and the republicans will push their brinkmanship to the edge of collapse before a deal gets done.

James



“There is only one side of the market and it's not the bull side or the bear side, but the right side.”– Jesse Livermore




Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Better than expected economic data and a goldilocks jobs report that should keep the Federal Reserve's QE program untapered helped push the U.S. market to new highs.

I have updated stop losses on: AIG, C, EMN, F, HON, NTAP, and PETM.

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

Breakout To New Highs

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 04, 2013)

I am not adding any new trades this evening. Many of the stocks that look like tempting bullish trades have already moved and now they're short-term overbought. Fortunately, the broader market does look bullish with a breakout to new highs after its recent sideways consolidation.

We are adding four new candidates to our watch list tonight (DG, GE, PG, and YUM). Plus, I've added new symbols to my radar screen below.

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:

MDVN, GWW, KMX, FL, ESI, HD, GS, SINA, BIDU, NKE, PAYX, MMM, ANN, CAR, WFC, UPL, WMT, TGT, SLB, GM, JNJ, SBUX, GD, NOC, CLX, LMT, LLL, DLPH, AKAM, ETFC, AMTD, SCHW, MS, CS, GRPN, DNKN, KKD, TJX, UA, HPQ, HSY, DLTR, KR, SYK, HAL, FRX, WHR, CBI, COST, BHI, UTX, RRC, TSCO, RF, SCTY, CL, V, MRK, MYL, TIF, LLY, JBHT, GILD, BWA, BDX, DD, GLW, ABC, COF, HAIN, PEP,



Play Updates

New Stop Losses Tonight

by James Brown

Click here to email James Brown

Editor's Note:

We are updating several stop losses tonight.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 48.33

Comments:
08/04/13: AIG reported earnings on Thursday night and beat estimates by a wide margin. The stock gapped open higher on Friday morning in reaction but shares pared their gains by the closing bell.

I am raising our stop loss up to $43.75.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.49/2.53

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $4.00/4.15

08/04/13 new stop loss @ 43.75
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: 43.75
Play Entered on: 07/15/13
Originally listed on the Watch List: 06/01/13


Bank of America - BAC - close: 14.84

Comments:
08/04/13: News out last week may have held shares of BAC back. The company disclosed in its quarterly filing that the U.S. Justice Department and the S.E.C. might file civil charges against BAC for its involvement in the mortgage backed securities scandal that rocked the financial world during the 2008 financial crisis. Bigger picture, shares of BAC didn't really react that much to the news but shares are hovering just below round-number resistance at the $15.00 level.

- 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 $1.91/1.93

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: 53.00

Comments:
08/04/13: Citigroup bounced back toward its recent highs. Yet the stock remains below resistance in the $53.00-53.50 zone. A close above $54.00 would help alleviate concerns that C might be forming a bearish double top.

Please note our new stop loss at $47.75.

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 $ 5.70/5.85

08/04/13 new stop loss @ 47.75
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: 47.75
Play Entered on: 06/21/13
Originally listed on the Watch List: 05/25/13


Cypres Semiconductor - CY - close: 12.90

Comments:
08/04/13: CY found support at its rising 10-dma this past week. The stock's rebound pushed shares back toward its mid July highs. The stock is facing resistance near $13.15. Investors could use a close above $13.15 as a new bullish entry point.

- Suggested Positions -
JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.02*
symbol: CY1418a13 2014 JAN $13 call - current bid/ask $ 1.05/1.10

- or -

JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.20*
symbol: CY1517a15 2015 JAN $15 call - current bid/ask $ 1.20/1.35

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: 66.51

Comments:
08/04/13: DIS added about a point and a half for the week. The $64.00 level continued to hold as support so more conservative traders may want to raise their stop loss. DIS could see some volatility this week thanks to earnings. The company is due to report its Q2 earnings on August 6th, after the closing bell. Wall Street expects a profit of $1.01 a share.

- Suggested Positions -
JUL 16, 2013 - entry price on DIS @ 65.00, option @ 1.82
symbol: DIS1418a70 2014 JAN $70 call - current bid/ask $ 1.90/1.94

- or -

JUL 16, 2013 - entry price on DIS @ 65.00, option @ 4.70
symbol: DIS1517a70 2015 JAN $70 call - current bid/ask $ 4.95/5.10

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: 82.41

Comments:
08/04/13: EMN added more than eight dollars for the week. The company reported earnings on July 29th and beat expectations on both the top and bottom line. If that wasn't good enough management then raised their 2013 guidance. The stock soared to new all-time highs. More conservative investors with the 2014 calls might want to take profits now. I am raising our stop loss to $74.40.

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 $ 6.70/6.90

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 7.40/7.70

08/04/13 new stop loss @ 74.40
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: 74.40
Play Entered on: 07/18/13
Originally listed on the Watch List: 07/14/13


Ford Motor Co. - F - close: 17.50

Comments:
08/04/13: Rising monthly sales numbers helped fuel the rally in Ford last week. The company's F-series pick up trucks saw a +23% increase from a year ago. The stock set a new closing high for the year on Friday.

I am raising our stop loss to $14.85.

- 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 $ 3.50/3.55

08/04/13 new stop loss @ 14.85
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: 14.85
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Honeywell Intl. - HON - close: 84.68

Comments:
08/04/13: Bears probably find it surprising that shares of HON are not reacting to any news regarding the 787 emergency beacon issue. Last month there was a highly publicized fire in a Boeing 787 Dreamliner in London. It was discovered that the fire started with an emergency beacon made by HON. Since then there have been additional reports of airlines finding potential issues like damaged wiring to the beacons. The FAA is now requesting airlines with 787s to inspect or remove these beacons from the plane. Meanwhile shares of HON continue to climb. Granted we're only talking about one product and HON is a huge company manufacturer with several different businesses.

Technically HON does look bullish. The stock is poised to breakout past resistance near the $85.00 level soon. If you were looking for a new entry point or planning to add to positions then a close above $85.00 could be that entry.

We are raising the stop loss to $77.45.

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 $ 7.55/7.70

08/04/13 new stop loss @ 77.45
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: 77.45
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


JPMorgan Chase & Co. - JPM - close: 56.49

Comments:
08/04/13: JPM has spent the last couple of weeks churning sideways inside the $55-57 zone. Currently the stock has rebounded back to the top of this range and looks poised for a breakout higher.

More conservative investors might want to raise their stop loss.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 3.60/3.70

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 5.90/6.00

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: 65.23

Comments:
08/04/13: Shares of K stumbled lower through the week. The stock is down five days in a row. Earnings on August 1st were disappointing. The company beat the bottom line estimates by two cents but missed the revenue number. Guidance was in-line with prior estimates. Shares faded lower and pierced the 50-dma and 100-dma on Friday before paring its losses.

The long-term trend is still up but it looks like it's in jeopardy. Our stop loss is at $63.75 but more conservative investors may want to raise their stop closer to Friday's low (64.26).

I am not suggesting new positions at this time.

Earlier Comments:
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 $ 1.20/1.45

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: 49.46

Comments:
08/04/13: Shares of Macy's are starting to look healthier. The rebound this past week has lifted M back above its 50-dma. The bounce has kept the trend of higher lows alive. While the larger trend is up I would not be surprised to see M churn sideways for the next several days. The company is due 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 $ 1.05/1.10

- 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: 63.37

Comments:
08/04/13: Traders bought the dip last week near the $60 level. MNST looks poised to challenge the mid August highs near $65.00. The company's earnings results could be the catalyst that sends MNST to a new 52-week high or back down through support. MNST is scheduled to report on August 8th. Wall Street expects a profit of 63 cents a share.

More conservative investors may want to raise their stop closer to the $60.00 level.

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 $ 7.70/8.20

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: 41.24

Comments:
08/04/13: I found NTAP's performance last week to be disappointing. The market's major indices broke out to new highs but NTAP merely drifted sideways. The stock might be stuck moving sideways until its earnings report. NTAP is due to report on August 14th. Wall Street expects a profit of 49 cents a share.

Please note our new stop loss at $38.75

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 $3.55/3.65

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $5.85/6.00

08/04/13 new stop loss @ 38.75
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: 38.75
Play Entered on: 05/17/13
Originally listed on the Watch List: 05/11/13


PetSmart, Inc. - PETM - close: 74.66

Comments:
08/04/13: Last week was bullish for shares of PETM. The stock rallied five days in a row and broke out past resistance to close at new all-time highs. Shares are arguably short-term overbought here. Look for support near $72.00. I am raising our stop loss to $68.90.

FYI: PETM will likely report earnings in mid August. No date yet.

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 $ 3.90/4.10

- or -

JUL 16, 2013 - entry price on PETM @ 72.70, option @ 5.15*
symbol:PETM1517a80 2015 JAN $80 call - current bid/ask $ 5.10/5.80

08/04/13 new stop loss @ 68.90
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

Current Target: Target for 2014 calls: PETM @ 79.00, 2015 target @ 84
Current Stop loss: 68.90
Play Entered on: 07/16/13
Originally listed on the Watch List: 07/14/13


Union Pacific Corp. - UNP - close: 163.37

Comments:
08/04/13: The transportation sector produced a strong move higher on Thursday. The Dow Jones Transportation Average has rallied to a new all-time high. Shares of UNP also rebounded and they are trading just below the highs near $165. Fortunately the technical picture for UNP has improved with last week's rebound. More conservative investors might want to adjust their stop loss closer to the $157 level.

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 $ 2.30/2.38

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 4.15/4.35

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: 54.85

Comments:
08/04/13: WFM reported earnings on July 31st. The bottom line results beat estimates by a penny. Revenues were slight miss. Management's guidance was only in-line with estimates. The stock was volatile on Thursday morning following the results. WFM seems to be trading inside the $54-57 range. Investors could buy calls now given Friday's late-day bounce. More conservative investors may want to give WFM more time to let the post-earnings dust settle and then re-evaluate an entry next week.

- Suggested Positions -
JUL 10, 2013 - entry price on WFM @ 54.53, option @ 2.10
symbol: WFM1418a60 2014 JAN $60 call - current bid/ask $ 1.58/1.65

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 5.55/5.75

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

Discount Stores, Industrials, Consumer Goods & Fast Food

by James Brown

Click here to email James Brown


New Watch List Entries

DG - Dollar General

GE - General Electric

PG - Procter & Gamble

YUM - Yum! Brands Inc.


Active Watch List Candidates

KMB - Kimberly-Clark

ODFL - Old Dominion Freight Lines

PFE - Pfizer Inc.


Dropped Watch List Entries

None.



New Watch List Candidates:


Dollar General Corp. - DG - close: 55.79

Company Info

DG is in the discount, variety store industry. They are up to more than 10,600 stores in over 40 states. The stock saw a painful gap down in early June after management lowered their guidance. Shares have since managed to recoup all of its losses and more. Investors could be betting on higher gas prices and lower wages and fewer full time jobs to cut into consumer spending. That could drive consumers to discount stores like DG.

The current rally has pushed shares toward major resistance near $56.00. The all-time high was hit last summer (2012) at $56.04. I am suggesting we wait for DG to close above $56.50. If that entry requirement is met then we can buy calls the next morning with a stop loss at $52.45. Our long-term target is $64.00 for the 2014 calls. Our target is $69.00 for the 2015 calls.

FYI: The point & figure chart is bullish with a $78.00 target.
DG is due to report earnings in early September.

Breakout trigger: Wait for DG to close above $56.50
Then buy calls the next day. Stop loss @ 52.45.

BUY the 2014 Jan $60 call (DG1418a60) current ask $3.40

- or -

BUY the 2015 Jan $70 call (DG1517a70) current ask $3.60

Chart of DG:

Originally listed on the Watch List: 08/04/13


General Electric - GE - close: 24.70

Company Info

GE used to be considered a proxy for the market because it had its hands in so many different industries. The stock remains a bellwether and right now the long-term up trend is bullish. If Wall Street really believes that growth is going to pick up in the second half of 2013 then GE should benefit.

On a short-term basis GE has been consolidating sideways since its post-earnings spike higher about two weeks ago. There is overhead resistance at the $25.00 level. I am suggesting we wait for GE to close above $25.25 and then buy calls the next day with a stop loss at $22.90. More conservative investors might want to use a stop closer to $24 instead. Our long-term target is $30.00.

Breakout trigger: Wait for GE to close above $25.25
Then buy calls the next day. Stop loss @ 22.90.

BUY the 2014 Jan $25 call (GE1418a25) current ask $0.91

- or -

BUY the 2015 Jan $30 call (GE1517a30) current ask $0.52

Chart of GE:

Originally listed on the Watch List: 08/04/13


Procter & Gamble Co. - PG - close: 81.29

Company Info

PG is a major company in the consumer goods sector. If investors really believe the global economy is going to see improvement then PG should benefit. They sell their merchandise in 180 countries.

After consolidating sideways for almost three weeks, PG looks poised to breakout past resistance and its all-time highs near $82.50. I am suggesting we wait for PG to close above $83.00 and then buy calls the next day with a stop loss at $79.25. Our target to exit the 2014 calls is at $89.00. Our target to exit the 2015 calls is $98.00.

FYI: PG's point & figure chart is bullish and is forecasting a $97 target.

Breakout trigger: Wait for PG to close above $83.00
Then buy calls the next day. Stop loss @ 79.25.

BUY the 2014 Jan $85 call (PG1418a85) current ask $1.50

- or -

BUY the 2015 Jan $90 call (PG1517a90) current ask $2.81

Chart of PG:

Originally listed on the Watch List: 08/04/13


Yum! Brands - YUM - close: 74.39

Company Info

YUM runs a global fast-food empire with major brands like Taco Bell, KFC, and Pizza Hut. They have 39,000 locations in 125 countries. The stock has been relatively volatile this year but the overall trend is bullish with investors buying on weakness. This trend has finally pushed YUM up against major resistance at the $75.00 level. A breakout here could signal the next major move higher.

I am suggesting we wait for YUM to close above $75.25. Once that occurs we'll buy calls the next morning with a stop loss at $69.75. You may want to use a tighter stop. Our long-term target is $89.00. FYI: The P&F chart is bullish with a $94 target.

Breakout trigger: Wait for YUM to close above $75.25
Then buy calls the next day. Stop loss @ 69.75.

BUY the 2015 Jan $85 call (YUM1517a85) current ask $4.05

Chart of YUM:

Originally listed on the Watch List: 08/04/13


Active Watch List Candidates:



Kimberly-Clark - KMB - close: 99.61

Comments:
08/04/13: It was a relatively quiet week for KMB. Shares did test resistance at the $100 level on Thursday. The stock is inching closer to a bullish breakout past this level. There is no change from last week's comments.

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 $1.65

- or -

BUY the 2015 Jan $110 call (KMB1517a110) current ask $3.50

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


Old Dominion Freight Line - ODFL - close: 44.71

Comments:
08/04/13: ODFL hit new all-time highs this past week but failed to meet our entry point requirements. Thursday's rally left ODFL sitting at $45.21. Yet our entry trigger is a close above $45.25. If ODFL sees any follow through higher this week we will likely be triggered.

Earlier Comments:
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 $1.35

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


Pfizer Inc. - PFE - close: 29.37

Comments:
08/04/13: PFE reported earnings on July 30th that beat estimates by a penny. Revenues were a miss. The stock reacted with a spike above resistance at the $30.00 level. Yet shares failed to close above the $30 mark. More aggressive investors might want to buy calls on a dip near the 150-dma. I am still 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.

FYI: That's not a typo. At $29.37, PFE is unchanged for the week.

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)

- or -

BUY the 2015 Jan $30 call (PFE1517a30)

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