Option Investor
Newsletter

Daily Newsletter, Sunday, 8/11/2013

Table of Contents

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

Leaps Trader Commentary

Stock Market Rally Stalls

by James Brown

Click here to email James Brown

Seasonally August is one of the worst months of the year for stocks. Thus far the first full week of August is following historical trends with all the major U.S. indices posting losses. That's a bit disappointing when just one week ago the S&P 500 had closed at historic highs with a breakout past the 1700 mark. Overall it was a relatively quiet news week. The J. C. Penney Company (JCP) was a popular topic with a very public spat between major shareholders and management. Amazon.com founder and CEO Jeff Bezos made headlines after personally buying the Washington Post newspaper for $250 million. I was hoping for a slowdown in the taper talk regarding the Federal Reserve's QE program. Yet Dallas Fed President Richard Fisher rekindled taper fears on Monday with his comments that the Fed might taper later this year if the economy continues to improve. Taper fears continued to plague the market the rest of the week.

U.S. economic news was relatively quiet and the headlines we did see were positive. Two weeks ago the ISM manufacturing number came in way above expectations. This past week the ISM services index surged from 52.2 to 56.0, marking its best reading in five months. The rise was fueled by a big improvement in the new orders component. U.S. trade deficit numbers for June delivered the small trade deficit in almost four years at $34.2 billion. That's down from May's $44.1 billion. Meanwhile weekly initial jobless claims continue to improve and the four-week average slipped to the lowest level since November 2007.

Europe

Economic data out of Europe was mixed. The Eurozone services PMI ticked higher from 49.6 to 49.8, which happens to be an 18-month high. Yet it remains below the 50.0 mark so it's still showing contraction. Eurozone retail sales were disappointing with a -0.5% decline versus a +1.1% reading the prior month. Germany's industrial production came in way above expectations at +2.4% and well above the prior month's -0.8% reading. Yet Spain and France saw declines with Spain's industrial production falling from -1.5% to -1.9%. France's industrial production came in at -1.4%. France is also suffering from a very sharp decline in hotel and restaurant business. One industry expert has labeled the drop off in restaurant business as "catastrophic".

Asia

There was a parade of economic data out of China this past week. The official PMI services index rose from 53.9 to 54.1. The HSBC Chinese PMI services index was unchanged at 51.3. Readings above 50.0 indicate growth. Inflation data was relatively in-line with estimates with China's CPI rising +2.7% and its PPI falling -2.3%. Retail sales in China rose +13.2% year over year. Industrial production improved from 8.9% to +9.7%. The monthly trade surplus numbers were a surprise at $17.8 billion when analysts were expecting $27 billion. Chinese exports rose +5.1% but imports rose +10.9%.

Meanwhile in Japan the country made history with their national debt exceeding one quadrillion yen. That's more than 1,000 trillion yen. Japan's debt is now more than 200% of its GDP. Analysts are worried that eventually the country's debt burden will grow so large that investors will doubt Japan's ability to pay it back. It's probably worth noting that more than one market pundit already believes that Japan has passed the point of no return. If investors lose faith in Japan's creditworthiness then interest rates on their debt will soar and the country will have to default or devalue their currency (again).

Major Indices:

The large-cap S&P 500 index lost -1.0% for the week. After a three-day (Monday-Wednesday) decline it managed a bounce on Thursday but failed at the 1700 level. There is short-term support in the 1685-1680 zone. If that level fails I would look for support near 1650 and its 50-dma.

The closing high on August 2nd was 1709. A -3% correction would be 1657. A -5% pullback would be 1623.

chart of the S&P 500 index:

60-minute chart of the S&P 500 index:

The NASDAQ looks a bit healthier than the S&P 500. The NASDAQ composite only lost -0.8% last week and is still trading above short-term technical support at its rising 10-dma. On a short-term basis I would look for support at 3625, 3600, and 3575. If the 3575 level breaks then the NASDAQ is probably headed for the 3500 level near its 50-dma. Should the rally continue there is round-number resistance at 3700. Beyond that the next resistance level is probably 3750.

A -5% correction would produce a dip toward the 3500 level.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index slipped -1.0% for the week. The index is still trading near the top of its channel. If the $RUT breaks down below support near 1040 then the next level to watch would be potential support at 1020 or the 1000 mark.

chart of the Russell 2000 index



Economic Data & Event Calendar

The Q2 earnings season is essentially over. The next FOMC meeting is mid-September. Congress is in recess. Millions of children are enjoying their last few days of summer before school starts in a couple of weeks. The event calendar is relatively quiet. We'll get the latest inflation data with the CPI and PPI numbers. The New York and Philadelphia regional Federal Reserve surveys will be released on Thursday.

Economic and Event Calendar

- Monday, August 12 -
(nothing significant)

- Tuesday, August 13 -
U.S. retail sales for July
import/export data
business inventory data

- Wednesday, August 14 -
Producer Price Index (PPI)
MBA mortgage index

- Thursday, August 15 -
Weekly Initial Jobless Claims
Consumer Price Index (CPI)
New York Empire State manufacturing survey
U.S. industrial production
Philly Fed survey

- Friday, August 16 -
Housing starts & building permits
University of Michigan consumer sentiment survey

Additional Events to be aware of:

September 2nd, - U.S. market closed for Labor Day
September - U.S. debt ceiling deadline
September - German elections

The Week Ahead:

I was actually hoping that the QE taper talk would fade last week. Instead taper fears overshadowed the markets all week long. If we continue to see improving economic data in the U.S. then taper fears will likely continue even though the Fed has said they want to see several months worth of improvement before making any changes. In the mean time we're kind of in a slow spot for the stock market. Many market participants are away on vacation before the new school year starts up again in late August. That will likely keep trading volumes low.

Seasonally August and September are the worst two months of the year for stocks. The middle of August definitely has a pattern of weakness. Yet I am especially worried about September this year. When Congress comes back from their August recess they will immediately engage in a battle over the U.S. debt ceiling. The last big battle was August 2011 and the S&P 500 lost more than 15% while politicians played chicken with the U.S. credit rating. September will also bring major elections in Germany. The latter half of September could be volatile as the market reacts to headlines.

Overall recent improvements in U.S. economic data are encouraging but we need to see a trend of improving data. Right now estimates for GDP growth in the second half are still too low. Wall Street needs to change their perspective and replace their dependence on the Fed's QE with a more bullish outlook on U.S. growth. Until that happens then continued talk of tapering QE will make the markets squeamish.

Currently the stock market's larger trend is higher but we are still overbought and likely due for a correction lower. As LEAPS traders we can look at the next correction as a new entry point for bullish positions but the key is being patient and waiting for that entry point.

James

"Those who don't study history are doomed to repeat it. Yet those who do study history are doomed to stand by helplessly while everyone else repeats it."



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Taper talk continues to be a dark cloud hovering over the market. Yet selling pressure has not been that bad. Traders still seem to be in a buy-the-dip mood, at least for now.

I have updated stop losses on: MNST, NTAP, 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

Taper Worries Remain

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 11, 2013)

No new trades tonight.

I remain cautiously bullish on the market. The larger trend is clearly higher. Yet short-term the market is starting to see a little profit taking. Seasonally we're inside the worst two months of the year (August & September). Q2 earnings season is over. Investors are still worried about the Fed tapering their QE program too early. Add it all together and stocks could be lacking a catalyst to move higher. Now consider that we're still close to all-time highs and it might be time for a pullback.

We are adding two new candidates to our watch list tonight (DD, FLR).

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:

EBAY, SCHN, KMX, CS, HD, GS, SINA, BIDU, NKE, PAYX, MMM, UPL, GM, JNJ, SBUX, GD, NOC, LMT, ATK, RTN, LLL, CLX, AMTD, SCHW, NVDA, KKD, TJX, TIF, KORS, COF, UA, KR, SYK, COST, BHI, UTX, LLY, JBHT, COF, HAL, DNKN.




Play Updates

Stocks See Widespread Profit Taking

by James Brown

Click here to email James Brown

Editor's Note:

Equities experienced widespread profit taking but the selling pressure was pretty mild. In many cases traders are still buying the dip.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 48.03

Comments:
08/11/13: AIG spent the week churning sideways and closed on Friday down 30 cents for the week. Lack of any real profit taking is encouraging. I do expect shares to fill the gap with a dip to $47.00 and possibly a dip to its 50-dma near $46.00.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.33/2.37

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.70/3.85

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: 14.45

Comments:
08/11/13: Upward momentum in the banking sector has stalled. Shares of BAC look poised to correct lower. At a minimum I would expect a dip to $14.00. If stocks do pullback we could see BAC slip into the $13.50-13.00 zone.

- 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 $1.68/1.70

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: 51.32

Comments:
08/11/13: Citigroup is another financial stock that is pulling back from its July and August highs. You could argue that the stock has created a bearish double top pattern. The $50.00 level should be support but I would expect a dip into the $50-48 zone.

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 $ 4.75/4.85

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: 12.55

Comments:
08/11/13: CY closed below its simple 10-dma for the first time in weeks. If this turns into a real correction lower we could witness CY decline into the $11.85-11.65 zone. I am not suggesting new positions at this time.

- Suggested Positions -
JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.02*
symbol: CY1418a13 2014 JAN $13 call - current bid/ask $ 0.80/0.90

- or -

JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.20*
symbol: CY1517a15 2015 JAN $15 call - current bid/ask $ 1.05/1.20

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: 64.73

Comments:
08/11/13: As expected shares of DIS produced a volatile week as the market reacted to earnings news. Analysts were expecting $1.01 a share. DIS beat estimates by two cents with $1.03 a share. Revenues were a miss at $11.54 billion. There was a lot of focus about DIS' losses on the Lone Ranger film.

On a short-term basis DIS should still have support near $64.00. If the $64 level were to fail then the next level of support should be $62 near its June 2013 lows.

- Suggested Positions -
JUL 16, 2013 - entry price on DIS @ 65.00, option @ 1.82
symbol: DIS1418a70 2014 JAN $70 call - current bid/ask $ 1.25/1.29

- or -

JUL 16, 2013 - entry price on DIS @ 65.00, option @ 4.70
symbol: DIS1517a70 2015 JAN $70 call - current bid/ask $ 4.20/4.30

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: 80.07

Comments:
08/11/13: EMN spent most of the week churning sideways inside the $80-82 zone. If the stock does breakdown below $80.00 then prior resistance in the $75 area should be new support. More conservative investors with the 2014 calls might want to take profits now.

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 $ 5.30/5.40

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 6.30/6.60

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: 17.02

Comments:
08/11/13: Ford gave up 48 cents for the week (-2.7%). Given the tone of trading last week I suspect that we're going to see the pullback continue. Look for F to dip into the $16.50-16.00 zone.

- 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 $ 3.15/3.20

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: 83.32

Comments:
08/11/13: Profit taking has pulled HON back below short-term support at the $84.00 level. If this market pullback continues I would expect HON to dip into the $82-81 zone. I'm 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 $ 6.70/6.90

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: 54.52

Comments:
08/11/13: JPM was not immune to the profit taking in the financial sector. As a matter of fact the stock is now down six days in a row. Shares ended the week sitting on technical support at the rising 50-dma. If this correction continues we could see JPM dip toward its next major moving average at the 100-dma, currently near $52.00. Meanwhile most of the headlines for JPM were all negative last week with new government investigations or cases ranging from Florida to California. None of them seemed to be too earth shaking for the company. Nimble traders may want to consider buying calls on a dip near the $52 level.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 2.46/2.48

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 4.80/4.90

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: 65.68

Comments:
08/11/13: It proved to be a quiet week for K. The stock slowly drifted higher but failed to breakout past its 10-dma or the $66.00 level. I remain cautious here.

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 $ 1.35/1.55

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: 48.52

Comments:
08/11/13: Most of the retail names were underperformers last week. Shares of Macy's were hammered on Tuesday. The stock almost hit our stop loss on Thursday but bounced at $47.32 (our stop is $47.25). Macy's is due to report earnings on Wednesday morning, August 14th. Analysts are expecting 78 cents a share. I would not be surprised to see M drift sideways on Monday and Tuesday as investors wait for the results.

More conservative traders may want to consider buying some short-term puts on Tuesday afternoon before the closing bell just in case M disappoints and plunged on Wednesday morning.

I am not suggesting new long-term positions at this time.

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 $ 0.84/0.88

- or -

JUL 09, 2013 - entry price on M @ 50.50, option @ 4.40
symbol: M1517a55 2015 JAN $55 call - current bid/ask $ 3.10/3.30

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: 63.70

Comments:
08/11/13: MNST reported earnings on Thursday evening. The results were 62 cents a share, which missed estimates by two cents. Revenues were also a miss at $630.9 million for the quarter. The company said rising distribution costs and legal expenses impacted its bottom line. MNST has come under fire for potential safety issues regarding their highly caffeinated beverages and marketing to children. There seems to be a difference of opinion among analysts. Some express concerns that the legal and safety issues are not going away. Other firms have raised their price targets on MNST.

The stock did rally on Friday morning in spite of the top and bottom line misses. Although it's worth noting that MNST gave back nearly all of its Friday gains by the closing bell.

I am not suggesting new positions at this time. We will raise our stop loss up to $59.40.

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 $ 3.20/3.40

- or -

JUL 19, 2013 - entry price on MNST @ 63.40, option @ 8.70
symbol:MNST1517a70 2015 JAN $70 call - current bid/ask $ 8.10/8.50

08/11/13 new stop loss @ 59.40
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: 59.40
Play Entered on: 07/19/13
Originally listed on the Watch List: 07/07/13


NetApp, Inc. - NTAP - close: 42.52

Comments:
08/11/13: NTAP managed to buck the market's down trend and move higher. Shares broke out past resistance near $42 on Thursday and closed at new 52-week highs. The company is due to report earnings on August 14th. Don't be surprised to see NTAP move sideways from here as traders wait for the report. More conservative investors might want to take profits on their 2014 calls before NTAP reports earnings on Wednesday.

The simple 50-dma has risen to $39.41. I am adjusting our stop loss up to $39.25.

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 $4.40/4.50

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $6.75/6.95

08/11/13 new stop loss @ 39.25
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: 74.02

Comments:
08/11/13: PETM tagged a new all-time high near $75.00 on Monday. After a multi-day rally the stock finally succumbed to profit taking. Shares are trading technically with investors stepping in to buy the dip near $73.00, which was prior resistance. The trend is up and I would be tempted to buy the bounce from $73.00. However, investors may want to wait until after PETM's earnings report. There's one challenge with that. I can't find an accurate date. One source says earnings are due out on August 14th and another source says August 21st.

Tonight we're raising the stop loss to $69.40.

- 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 $ 4.90/5.60

08/11/13 new stop loss @ 69.40
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: 69.40
Play Entered on: 07/16/13
Originally listed on the Watch List: 07/14/13


Union Pacific Corp. - UNP - close: 159.79

Comments:
08/11/13: The transportation sector was one of the worst performers of the week. UNP was no exception with a four dollar drop. If this market decline continues then we'll likely see UNP testing its 50-dma near $157.60 soon. I am not suggesting new positions at this time.

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 $ 1.53/1.60

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 3.35/3.50

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: 55.42

Comments:
08/11/13: WFM managed to eke out a small gain for the week. The stock appears to be inside a $54-57 trading range. Although if you look hard enough the consolidation seems to be narrowing with a trend of lower highs and a trend of higher lows. Traders just bought the dip on Friday at the rising 30-dma.

I am not suggesting new positions at this time.

- Suggested Positions -
JUL 10, 2013 - entry price on WFM @ 54.53, option @ 2.10
symbol: WFM1418a60 2014 JAN $60 call - current bid/ask $ 1.71/1.76

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 5.70/5.90

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

Basic Materials & Industrials

by James Brown

Click here to email James Brown


New Watch List Entries

DD - E.I. du Pont

FLR - Fluor Corp.


Active Watch List Candidates

DG - Dollar General

GE - General Electric

KMB - Kimberly-Clark

ODFL - Old Dominion Freight Lines

PFE - Pfizer Inc.

PG - Procter & Gamble

YUM - Yum! Brands Inc.


Dropped Watch List Entries

None.



New Watch List Candidates:


E.I. du Pont - DD - close: 59.74

Company Info

Dow Jones Industrial component DD has rallied to levels not seen since the year 2000. The stock's bullish trend has pushed shares to resistance near $60.00 and DD looks poised to breakout soon. If investors really expect the U.S. economy to expand in the second half then that should mean higher depend for basic materials.

The intraday high in mid July was $60.50. I am suggesting we wait for DD to close above $60.50 and then buy calls the next morning with a stop loss at $57.90. Our long-term target is $69.00.

FYI: DD is due to begin trading ex-dividend on August 13th. The quarterly cash dividend is 45 cents.

Breakout trigger: Wait for DD to close above $60.50
Then buy calls the next day. Stop loss @ 57.90.

BUY the 2014 Jan $65 call (DD1418a65) current ask $0.79

- or -

BUY the 2015 Jan $65 call (DG1517a65) current ask $2.85

Chart of DD:

Originally listed on the Watch List: 08/11/13


Fluor Corp. - FLR - close: 65.98

Company Info

FLR is in the industrial goods sector. The company provides heavy construction services. The company reported earnings on August 1st. FLR missed both the top and bottom line estimates. If that wasn't bad enough management lowered their 2013 guidance. Yet in spite of a trifecta of bearish news the stock rallied anyway.

Shares are currently hovering below resistance in the $66-67 level. This also happens to be the neckline of an inverse or bullish reversion of a head-and-shoulders pattern. A breakout past this level would forecast a rally toward the 2011 highs. The Point & Figure chart is even more bullish with an $82 target.

I am suggesting we wait for FLR to close above $67.00 and then buy calls the next morning. If triggered we'll start with a stop loss at $63.75. Our long-term target is $74.75.

Breakout trigger: Wait for FLR to close above $67.00
Then buy calls the next day. Stop loss @ 63.75.

BUY the 2014 Jan $70 call (FLR1418a70) current ask $2.85

- or -

BUY the 2015 Jan $75 call (FLR1517a75) current ask $5.30

Chart of FLR:

Originally listed on the Watch List: 08/11/13


Active Watch List Candidates:



Dollar General Corp. - DG - close: 54.25

Comments:
08/11/13: DG retreated from resistance near $56 last week. Shares did see a bounce on Thursday thanks to merger speculation. A Credit Suisse analyst suggested that DG and Family Dollar Stores (FDO) would make a good combo.

I don't see any changes from my earlier comments. 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)

- or -

BUY the 2015 Jan $70 call (DG1517a70)

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


General Electric - GE - close: 24.25

Comments:
08/11/13: GE spent the week consolidating lower. More aggressive investors might want to consider buying calls near the $24 level, which should offer some support. I am suggesting readers stick to our initial plan and wait for a breakout. We want to 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)

- or -

BUY the 2015 Jan $30 call (GE1517a30)

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


Kimberly-Clark - KMB - close: 98.53

Comments:
08/11/13: KMB spent the week drifting from resistance near $100 to short-term support near $98.00. I don't see any changes from my earlier 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)

- or -

BUY the 2015 Jan $110 call (KMB1517a110)

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


Old Dominion Freight Line - ODFL - close: 45.12

Comments:
08/11/13: As a group the transports were showing relative weakness last week. Yet ODFL bucked the trend and managed another weekly gain. The stock has been flirting with a rally past the $45.25 level but can't quite close above it. The intraday high on August 6th was $45.50. Tonight we're adjusting our entry trigger from $45.25 to $45.50. Wait for ODFL to close above $45.50 and then buy calls the next day.

Earlier Comments:
We want to start with a stop loss at $41.95. Our long-term target is $54.00.

Breakout trigger: Wait for ODFL to close above $45.50
buy calls the next day. Start with a stop loss at $41.95

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

08/11/13 adjust the entry trigger. Wait for ODFL to close above $45.50 instead of $45.25.

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


Pfizer Inc. - PFE - close: 29.21

Comments:
08/11/13: It turned out to be a quiet week for PFE. The stock drifted sideways inside the $29.00-29.50 zone.

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


Procter & Gamble Co. - PG - close: 81.64

Comments:
08/11/13: PG displayed some relative strength with a gain for the week. Yet shares remain below resistance 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)

- or -

BUY the 2015 Jan $90 call (PG1517a90)

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


Yum! Brands - YUM - close: 74.40

Comments:
08/11/13: Shares of YUM closed virtually unchanged for the week. When you consider the rest of the market was sinking then YUM's lack of movement is a win for the bulls. The stock looks poised to breakout past resistance near $75.00 soon.

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 $4.20

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