Option Investor
Newsletter

Daily Newsletter, Sunday, 8/18/2013

Table of Contents

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

Leaps Trader Commentary

A No-Win Situation

by James Brown

Click here to email James Brown

It was a rough week for stocks. The markets were sinking under a barrage of economic data, earnings warnings, and renewed taper fears. Stocks retreated lower while precious metals soared and the bond market crashed to new two-year lows. The yield on the 10-year note hit 2.8%, its highest level since August 2011. Crude oil rose +1.3%. Gold rallied +4.7% while silver prices surged +13.1% for the week. Warnings and bearish guidance from major companies like Wal-Mart (WMT) and Cisco Systems (CSCO) weighed heavily on investor sentiment. After CSCO reported earnings this past week management said they were cutting 4,000 jobs and lowering their revenue guidance. Meanwhile an uptick in inflation and falling jobless claims fanned the flames for fears that the Federal Reserve will begin tapering their QE program in September.

It was a no-win situation for the stock market as it digested a busy week of economic data. Bad economic news was bad news while good economic news was also seen as bad news since it means the Fed should be closer to tapering. There were two regional Fed surveys last week. The Philly Fed survey plunged from 19.8 in July to 9.3 in August. The New York Empire State manufacturing survey declined from 9.5 to 8.2 with the new orders component falling toward the flat line. U.S. industrial production for July came in flat after a +0.2% gain in June. Economists were expecting July to rise +0.4%.

Inflation at the wholesale level (the PPI report) was flat but the core PPI was up +0.1%. Inflation at the consumer level (the CPI) rose +2.0%. U.S. retail sales in July rose +0.2% but this was down from June's upwardly revised +0.6% reading. Weekly initial jobless claims slipped to their lowest level since October 2007 with a reading of 320,000.

There is an interesting divergence in economic data for the housing industry. Housing permits for single-family home dropped -1.9% while multi-family permits rose +12.6%. Meanwhile housing starts rose +5.9% to an annual pace of 896,000 in July but that was below analysts estimates for 925,000. Housing starts for single family homes actually fell -13,000 to a 591,000 pace, which is the slowest reading since November 2012.

The MBA mortgage application index plunged another -4.4% last week. This was the 13th decline out of the last 14 weeks and marked a new two-year low. Falling mortgage applications should mean falling sales. Yet homebuilder confidence continues to rise. The latest NAHB homebuilder sentiment survey hit 59, which is an eight-year high. Economists were expecting a drop from 56 to 55. Readings above 50 are considered healthy. It is worth noting that there has been a dramatic rise in home sales where the buyer is actually paying cash for the property instead of financing it with a mortgage.

One of the biggest surprises last week was the latest University of Michigan consumer sentiment survey. Last month the consumer sentiment survey hit a six-year high at 85.1 in July. Economists were expecting a small uptick to 85.5 but the August reading actually reversed dropped to 80.0. That was the first "miss" in 2013 and one of the biggest drops on record. Both the current conditions component and the future conditions component of the index fell to four-month lows. I have mentioned before how there appeared to be a disconnect between consumer sentiment and actual consumer spending and that was very apparent in the retail sector this past week.

It was a very bad week for retailers. Macy's (M), Kohl's (KSS), Jos A. Banks (JOSB), Nordstrom (JWN), and Walmart (WMT) all delivered bad news and lowered their guidance. Walmart is the world's largest retailer. The company reported earnings a few days ago and missed analysts estimates on both the top and bottom line. WMT's same-store sales fell -0.3% compared to estimates for +0.7% gain. WMT then lowered their sales forecast from 5-6% down to 2-3% for 2013 on top of lowering their earnings per share guidance. In a recent interview WMT's chief financial officer said that consumers were "reluctant" to spend on discretionary items. Investors might have been able to ignore one or two retailers lowering their guidance but when several major players are all adjusting their forecasts lower it becomes an alarming trend.

This parade of disappointing guidance from the retail sector actually might be a key factor in the Federal Reserve not tapering in September. For months we've heard the Fed talk about a stronger second half growth story. Yet according to these retailers the second half is looking a lot weaker. When you consider that consumer spending accounts for almost 70% of the U.S. economy it does not paint a very strong picture of growth.

Europe

Believe it or not but we actually got some good news out of Europe. The Eurozone just ended its longest recession in the history of the single currency. After six quarters of contraction the Eurozone GDP grew +0.3% in the second quarter of 2013. The move was fueled by +0.5% GDP growth in France and +0.7% growth in Germany. Investors may want to keep their excitement in check. After a Q1 GDP decline of -0.3% the Eurozone is currently sitting at +0% growth for the year. There is always the chance that the Q2 number could be revised lower. Several countries remain in recession and Eurozone unemployment is still at a record high of 12.1%.

Asia

While we're on the subject of GDP growth both Japan and China were making headlines. Japan's Q2 GDP came in at +0.6%. That was below Q1's +0.9% and below estimates for Q2 growth of +0.9% but it is still positive growth. Meanwhile China's GDP growth is likely a lot less than the official number of +7.5%. It has long been suspected that the Communist Chinese government was not telling the truth when it came to their economic numbers.

A new study is suggesting that China could be exaggerating the size of its economy by $1 trillion. By analyzing inflation data over the last several years there appeared to be a pattern of "willfully fraudulent" manipulation with "significant and systematic irregularities". In summary it looks like the Chinese government has inflated their GDP growth numbers by about +10%. Currently instead of +7.5% growth the real number today is closer to +6%.

Major Indices:

The big cap S&P 500 index lost -2.1% for the week. I warned readers last weekend that the levels to watch were 1685-1680 and the 1650 level near its 50-dma. Thursday's market sell-off pushed the S&P 500 below the 1680 level. The index ended the week sitting on support near 1650 and its 50-dma. Over the last two weeks the S&P 500 has produced a -3% correction.

If this profit taking continues then the next likely support levels are the 100-dma near 1630 and the 1600 level. Coincidentally the 100-dma near 1630 also lines up with a 50% retracement of the S&P 500's rally from its June lows. A 61.8% Fibonacci retracement would be a drop toward 1617.

Should the market decide to bounce then broken support near 1680 will become new overhead resistance.

chart of the S&P 500 index:

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

The NASDAQ composite was holding up relatively well until the plunge on Thursday. This index posted a -1.5% decline for the week and closed on Friday sitting on round-number, psychological support at the 3600 level. If the correction lower continues it is possible the NASDAQ finds support near 3575 but I suspect odds are better that we'll see it drop toward 3550 and its rising 50-dma. If the selling accelerates then we could see the NASDAQ testing its 100-dma (near the dashed line on the chart) within the next few weeks.

A -5% correction from the recent highs would produce a pullback toward the 3500 level.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index has also begun to correct lower with a -2.3% decline for the week. I have been warning investors that a breakdown below support near 1040 will probably lead to a drop towards 1020 and the 1,000 level. The $RUT might be able to bounce near 1020 thanks to its rising 50-dma but broken support at 1040 should be new resistance. Odds are pretty good that over the next two to four weeks we could see the $RUT test the 1000 level or even its simple 100-dma.

chart of the Russell 2000 index



Economic Data & Event Calendar

We have a relatively quiet week for economic news and events. The FOMC minutes is probably the biggest report. The annual Federal Reserve summit held in Jackson Hole, Wyoming will keep the market's attention focused on clues about when the Fed might begin to taper its $85 billion a month QE program.

Economic and Event Calendar

- Monday, August 19 -
(nothing significant)

- Tuesday, August 20 -
(nothing significant)

- Wednesday, August 21 -
MBA mortgage application index
Existing home sales data
FOMC minutes
China HSBC flash manufacturing PMI

- Thursday, August 22 -
Weekly Initial Jobless Claims
Eurozone manufacturing PMI
Federal Reserve Jackson Hole, WY conference starts
Kansas Fed manufacturing survey

- Friday, August 23 -
New home sales data

Additional Events to be aware of:

August 24th - G-20 meetings
September 2nd, - U.S. market closed for Labor Day
September - U.S. debt ceiling deadline
September - German elections

The Week Ahead:

Looking ahead I fear the market's focus will remain fixated on if and when the Federal Reserve will begin to taper their QE program. More and more analysts seem to be backing away from the Fed actually starting to taper in September. Many puts the odds at 50/50 or less. Yet PIMCO's Bill Gross said he still puts the odds at 80% the Fed will taper in September. The majority of pundits speculating on the taper do expect the Fed to begin by yearend.

The recent outbreak of retail companies all downgrading their 2013 guidance due to lowered second half sales estimates could be a factor in the Fed delaying their taper. Yet the steady drop off in weekly jobless claims would be a factor in favor of the Fed tapering early. It does seem a bit odd that so many on Wall Street do expect the Fed to begin tapering when multiple Fed governors have said that they want to see more data before they make that decision. The suggestion has been that the Fed wants to see multiple months worth of improving data before they cut back on their QE program. As one analysts suggested, the Fed has spent $2 trillion trying to stimulate the U.S. economy. Why would they want to undo all their work by ending the program too early? In the end it doesn't really matter if you believe the Fed will taper in September or not. What matters for next week is that the market will remain focused on the topic for the foreseeable future.

If worries about the taper were not enough to cool off the stock market's summer rally we also have some major events in September. The debt ceiling debate will be front and center when congress returns from their August recess. Some congressman are willing to threaten a federal government shutdown in an attempt to leverage stronger budget cuts and to negotiate the U.S. debt ceiling issue. The negative headlines this political battle will generate are likely to sour investor sentiment toward the market.

September will also bring the next FOMC meeting, which is scheduled for September 17th. Plus, the global markets will also react to the German national elections set for September 22nd. Angela Merkel, the current German chancellor, is the favorite to win the upcoming vote. Any upset in Germany could ripple through Europe and generate market volatility.

We also need to keep an eye on violence in the middle east. The situation in Egypt is deteriorating. This past week has seen hundreds killed as police and the army clash with pro-Morsi, pro-Muslim Brotherhood protestors. The official number is upwards of 800 killed but it could be worse since officials only count bodies in the morgue. The violence has intensified as the interim government tries to stop Muslim Brotherhood supporters who have been attacking government buildings, police stations, foreign journalists, Christians and Christian churches. There is a growing fear that Egypt's conflict could turn into a full fledge civil war. This feels a lot like Syria when the fighting began and worries were Syria would slip into civil war, which it has. The difference is that Syria had a population of about 20 million people while Egypt's population is about 85 million. Rising violence will continue to keep oil prices elevated, which is an unseen tax on the consumer.

On a short-term basis the market's trend is down. I wouldn't be surprised to see a little oversold bounce but I do expect that we'll see new relative lows before August is over. September could be very volatile. Investors may want to take a step back and just wait to see where the market is a month from now before considering new long-term LEAPS positions.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The buy-the-dip crowd must be on summer vacation because stocks continued to sink last week. It feels like we're in the middle of summer reruns and it's nothing but taper talk all the time.

ODFL has graduated from the watch list to our play list.

K, M, and MNST were stopped out last week.

I have updated stop losses on: UNP

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

Preserve Capital

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 18, 2013)

No new trades tonight.

The stock market's short-term momentum has turned bearish. Concerns over if and when the Fed might taper their QE program persists. Meanwhile we are in the worst two months of the year (August and September) and so far seasonal weakness has been right on cue. Given the big events coming up in September the next few weeks could be volatile. Investors might choose to sell now and move to the sidelines while they wait for the dust to settle in Washington.

We're bullish between now and the end of the year but that doesn't mean stocks can't see a painful correction between now and mid October first. I suggest investors preserve their capital now since we will likely see a better (lower) entry point over the next few weeks.

We are adding four new candidates to our watch list tonight (HAL, KORS, NVDA, VRSN).



Play Updates

August Profit Taking Continues

by James Brown

Click here to email James Brown

Editor's Note:

ODFL has graduated from the watch list to our play list.


Closed Plays


K, M, and MNST were stopped out.



Play Updates


American Intl. Group - AIG - close: 47.10

Comments:
08/18/13: There were no surprises from AIG. We've been expecting a dip toward $47.00 and I suspect shares will decline toward the 50-dma near $46.00. If we see AIG hold support near $46.00 then we can re-evaluate adding or starting 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 $1.87/1.91

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.40/3.50

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: 14.42

Comments:
08/18/13: Shares of BAC are only down three cents for the week thanks to investors buying the dip on Friday morning. I am still expecting shares to retest what should be support near the $14.00 level. If the market sell-off gets too violent we could see BAC test its 100-dma near $13.25.

FYI: Bank analyst Dick Bove told CNBC this past week that he thought BAC and Citigroup (C) shares could double over the next couple of years.

- 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 $1.69/1.70

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: 50.35

Comments:
08/18/13: The pullback in Citigroup has been mild. The stock is testing what should be support near $50.00 and its 50-dma. If the profit taking continues the next level of support is likely the $48.00 level.

FYI: Bank analyst Dick Bove told CNBC this past week that he thought BAC and Citigroup (C) shares could double over the next couple of years.

- 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 $ 4.35/4.45

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: 11.97

Comments:
08/18/13: The stock market sell-off on Thursday seemed to hit the semiconductor sector and shares of CY especially hard. CY broke down under short-term support near $12.40 and fell to the $11.80 level on Thursday. I cautioned readers last week that we could see CY correct lower into the $11.85-11.65 zone. Now I'm wondering if we're going to see CY retest the $11.50 level. More conservative investors might want to raise their stop loss.

- Suggested Positions -
JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.02*
symbol: CY1418a13 2014 JAN $13 call - current bid/ask $ 0.55/0.65

- or -

JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.20*
symbol: CY1517a15 2015 JAN $15 call - current bid/ask $ 0.85/1.00

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: 62.17

Comments:
08/18/13: After failing near its July highs (around $67) DIS has produced a two-week correction lower. The stock's breakdown below its 100-dma is technically bearish. Shares are now testing support near their June lows around the $62 level. I would be tempted to buy a bounce from here but investors may want to wait for a new close above the 50-dma. If there is any follow through lower this week then we'll likely see DIS hit our stop loss at $61.45. The low on Friday was $61.71.

- Suggested Positions -
JUL 16, 2013 - entry price on DIS @ 65.00, option @ 1.82
symbol: DIS1418a70 2014 JAN $70 call - current bid/ask $ 0.73/0.76

- or -

JUL 16, 2013 - entry price on DIS @ 65.00, option @ 4.70
symbol: DIS1517a70 2015 JAN $70 call - current bid/ask $ 3.30/3.40

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: 77.85

Comments:
08/18/13: The profit taking in EMN continues with shares giving back more than two dollars for the week. Prior resistance in the $75-76 zone should be new support. I would be tempted to buy calls on a dip or a bounce in the $75.50 area.

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 $ 4.10/4.20

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 5.30/5.60

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: 16.30

Comments:
08/18/13: Ford is down four days in a row and shares gave up about 70 cents for the week. The stock found support near the 50-dma back in June and Ford ended the week sitting on this technical support at its 50-dma.

Should the correction in Ford continue there is potential support near $16.00 and if the $16 level fails then it could signal a decline toward the $15.00 area.

I am not suggesting new positions at this time.

- 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 $ 2.68/2.71

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: 81.96

Comments:
08/18/13: HON has produced a -3% correction from its early August closing high. Shares should find support in the $81-80 zone. More conservative investors might want to raise their stop closer to $80.00. 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 $ 6.25/6.40

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: 53.29

Comments:
08/18/13: Banking giant JPM was not immune to the market's correction. The stock is down two weeks in a row and inching closer to support near its 100-dma. On the chart below you can see that investors bought the dip at the 100-dma in April, Mary, and June. If we see JPM close below its 100-dma (and the $52.00 level) it would be very as a very bearish development. Traders may want to consider buying calls on a dip at this key moving average.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 1.87/1.90

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 4.25/4.35

07/21/13 new stop loss @ 49.65
07/14/13 new stop loss @ 48.75

Chart of JPM:
Current Target: $64.00
Current Stop loss: 49.65
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


NetApp, Inc. - NTAP - close: 42.20

Comments:
08/18/13: NTAP only lost 32 cents for the week but it was a volatile week. The company reported earnings on August 14th. The bottom line results were four cents better than expected but NTAP missed the revenue estimate.

The stock gapped down by almost $2.00 on Thursday morning as investors reacted to the news. Yet multiple analysts defended the stock and suggested traders buy NTAP on weakness. Shares managed to rebound pretty quickly and pared its post-earnings losses.

Currently we have a stop loss at $39.25. More conservative investors may want to raise their stop closer to the $40.00 level.

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 $3.90/4.00

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $6.40/6.55

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: 39.25
Play Entered on: 05/17/13
Originally listed on the Watch List: 05/11/13


Old Dominion Freight Line - ODFL - close: 44.63

Comments:
08/18/13: ODFL was a watch list candidate. The plan was to wait for shares to close above $45.50 and then buy calls the next day. ODFL is in the transportation sector and shares have continued to outperform most of its peers in the transports. The stock met our entry point requirement on August 13th with a close at $45.65. Our trade opened on the 14th. Since then shares have drifted lower toward their 20 and 30-dma. Investors might want to consider buying calls on a dip near the 50-dma (currently near $43.60) or as an alternative wait for a new high above $45.70.

Keep in mind that ODFL's long-term trend is still higher but if the broader market accelerates lower we would expect ODFL to see some profit taking.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $0.75/1.20

08/14/13 trade opens. ODFL opens at $45.62.
08/13/13 ODFL meets our entry requirement with close at $45.65
08/11/13 adjust the entry trigger. Wait for ODFL to close above $45.50 instead of $45.25.

Chart of ODFL:

Current Target: $54.00
Current Stop loss: 41.95
Play Entered on: 08/14/13
Originally listed on the Watch List: 07/28/13


PetSmart, Inc. - PETM - close: 73.46

Comments:
08/18/13: It was a quiet week for shares of PETM. The stock has spent the last two weeks churning sideways in the $73-75 zone. PETM tagged $75.00 on August 5th making it an all-time high. If the market continues to sink we could see PETM correct lower toward the $72-70 zone. Of course this could be a volatile week for PETM no matter what the market does. The company is scheduled to report earnings on August 21st. The announcement is before the opening bell. Wall Street expects a profit of 86 cents a share.

I am not suggesting new positions at this time. This past week was not a good one for retailers with several companies lowering guidance for the rest of the year. That could be a warning signal that consumers also cut back on spending for their pets.

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

- 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

08/11/13 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: 157.93

Comments:
08/18/13: Our UNP trade could be in trouble. The month of August has seen UNP sink under a short-term trend of lower highs and lower lows. This past week saw UNP breakdown below its simple 50-dma. I suspect that if the market continues to sink we will watch UNP dip toward its rising 100-dma currently near $153.50.

I am adjusting our stop loss from $153.00 to $152.00. More aggressive traders might want to adjust their stop so it's below the $150.00 level while more conservative investors may just want to abandon ship right now and exit early. 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 $ 1.19/1.24

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 2.97/3.15

08/18/13 adjust stop loss to $152.00.
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: 152.00
Play Entered on: 07/22/13
Originally listed on the Watch List: 06/08/13


Whole Foods Market - WFM - close: 52.96

Comments:
08/18/13: All the bad news we got out of the retail sector this past week does not bode well for WFM. If consumers are cutting back on their discretionary spending are they also cutting back on their high-end groceries? Or like so many believe, the high-end consumer is still doing just fine and thus WFM will not suffer as badly as other firms affected by consumer spending?

The stock id breakdown below support near $54 and its 50-dma. If WFM doesn't bounce from Friday's close then the next level of support could be the $50.00 level.

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 $ 1.02/1.05

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 4.60/4.80

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


Kellogg Co. - K - close: 62.95

Comments:
08/18/13: Our Kellogg play has been stopped out. The market's current sell-off has been painful for high-dividend yielding stocks. The rising yield on the 10-year treasury makes these stocks less attractive. Shares of K produced a sharp, three-day plunge. Friday's session saw K underperform with a -2.3% loss and hit our stop loss at $63.75 in the process. It didn't help that K's main rival General Mills (GIS) was downgraded on Friday.

- Suggested Positions -
JUL 22, 2013 - entry price on K @ 67.21, option @ 2.10
symbol: K1517a75 2015 JAN $75 call - exit $0.85 (-59.5%)

08/16/13 stopped out
07/22/13 trade will open.
07/19/13 K closed above $67.00, meeting our entry point requirement

Chart of K:

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


Macy's Inc. - M - close: 44.99

Comments:
08/18/13: It was a terrible week for retail names. Kohl's (KSS), Jos A. Banks (JOSB), Nordstrom (JWN), Wal-mart (WMT) and Macy's all lowered their guidance due to soft sales. Macy's reported earnings on August 14th and missed estimates by six cents. They missed the revenue number as well. Shares of M gapped down on the 14th at $46.69. That was below our stop loss at $47.25 so our trade closed that morning. Congratulations to anyone who took my suggestion to buy puts prior to the earnings announcement.

- Suggested Positions -
JUL 09, 2013 - entry price on M @ 50.50, option @ 1.85
symbol: M1418a55 2014 JAN $55 call - exit $0.55 (-70.2%)

- or -

JUL 09, 2013 - entry price on M @ 50.50, option @ 4.40
symbol: M1517a55 2015 JAN $55 call - exit $2.70 (-38.6%)

08/14/13 stopped out on gap down at $46.69. Stop loss was $47.25.
sell-off a reaction to Macy's disappointing earnings results and guidance.

Chart of M:
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: 58.24

Comments:
08/18/13: The Friday, August 9th intraday reversal proved to be a top for the stock. Shares of MNST have been down every day since. The stock broke down below support at its 50-dma and the $60 level. Our stop loss was hit at $59.40 on Thursday.

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 - exit $2.00** (-49.3%)

- or -

JUL 19, 2013 - entry price on MNST @ 63.40, option @ 8.70
symbol:MNST1517a70 2015 JAN $70 call - exit $6.50** (-25.2%)

08/15/13 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart of MNST:
Current Target: $74.00
Current Stop loss: 59.40
Play Entered on: 07/19/13
Originally listed on the Watch List: 07/07/13



Watch

Oil Service, Specialty Retail, Semiconductors & More

by James Brown

Click here to email James Brown


New Watch List Entries

HAL - Halliburton Co.

KORS - Michael Kors Holdings

NVDA - NVIDIA Corp.

VRSN - VeriSign, Inc.


Active Watch List Candidates

DD - E.I. du Pont

DG - Dollar General

FLR - Fluor Corp.

GE - General Electric

PFE - Pfizer Inc.

PG - Procter & Gamble

YUM - Yum! Brands Inc.


Dropped Watch List Entries

ODFL graduated to the play list.
KMB has been removed.



New Watch List Candidates:


Halliburton Company - HAL - close: 46.95

Company Info

HAL is in the oil services industry. The stock has been very resilient. While most of the market has been in sell-off mode HAL has been quietly consolidating sideways near two-year highs. Traders have continued to buy the dips and HAL now looks poised to breakout past resistance near $47.00.

I am suggesting we wait for HAL to close above $47.25 and then buy calls the next day with a stop; loss at $43.75. If triggered our target for the 2014 calls is $52.50. Our target for the 2015 calls is $56.50. Currently the Point & Figure chart is bullish with a $62 target.

Breakout trigger: Wait for a close above $47.25, then buy calls the next day.
start with a stop loss at $43.75.

BUY the 2014 Jan $50 call (HAL1418a50) current ask $1.79

- or -

BUY the 2015 Jan $50 call (HAL1517a50) current ask $4.75

Chart of HAL:

Originally listed on the Watch List: 08/18/13


Michael Kors Holdings - KORS - close: 70.20

Company Info

KORS is a specialty retailer that sells luxury goods including apparel, handbags and accessories. Sales are booming with the latest earnings report showing net profits up +79%, same-store sales up +27% and top line revenues up +52%. Clearly the high-end consumer shopping at KORS is doing just fine. The stock hit new all-time highs earlier this week but the rash of negative retail news has sparked some profit taking. We want to be ready to buy the dip if the profit taking continues.

Broken resistance near $65.00 should be new support. I am suggesting we buy calls if KORS can trade down to $66.00. We'll start with a stop loss at $62.00 but more aggressive traders may want to put their stop below the $60.00 mark instead. Our bullish target to exit the 2014 calls is $74.50. Our target to exit the 2015 calls is $84.50. Currently the point & figure chart is bullish with an $82 target.

Buy-the-Dip trigger: $66.00

BUY the 2014 Jan $70 call (KORS1418a70)

- or -

BUY the 2015 Jan $75 call (KORS1517a75)

Chart of KORS:

Originally listed on the Watch List: 08/18/13


NVIDIA Corp. - NVDA - close: 15.19

Company Info

The last couple of weeks have been volatile for NVDA as investors react to the latest earnings report. NVDA reported bottom line earnings of 16 cents a share for the second quarter. That was four cents better than expected. Yet management lowered their Q3 guidance. The company is doing well with their graphic processors for the higher-end gaming PCs and graphic heavy users yet slowing PC sales remain a big picture issue. Bears are also worried about disappointing growth in NVDA's Tegra line of chips for the smartphone and tablet market.

If study the stock's recent performance then investors are buying the news following its earnings report. Volume has been surging on the post-earnings really. NVDA has been stuck inside the $14-15 trading range for almost three months and looks poised to breakout. There was an intraday spike in June near $15.50 and the stock traded up to $15.40 on Friday. We suspect a breakout past $15.50 could be a new entry point.

Due to NVDA's recent volatility I am labeling this a more aggressive, higher-risk trade and thus suggest we use smaller positions to limit our risk. The suggested entry point is to wait for NVDA to close above $15.50 and then buy calls the next day with a stop loss at $14.25. Our target to exit the 2014 calls is $18.00. Our target to exit the 2015 calls is $19.75. Currently the point & figure chart is bullish and forecasting at $23 target.

Breakout trigger: Wait for a close above $15.50
then buy calls the next morning. Start with a stop at $14.25.

BUY the 2014 Jan $16 call (NVDA1418a16) current ask $0.83

- or -

BUY the 2015 Jan $17 call (NVDA1517a17) current ask $1.46

Chart of NVDA:

Originally listed on the Watch List: 08/18/13


VeriSign, Inc. - VRSN - close: 48.72

Company Info

VRSN provides Internet infrastructure services including domain name services. The stock has been showing relative strength since its earnings report in late July where VRSN beat estimates and raised their revenue guidance. VRSN is now approaching major resistance near the $50.00 level. A breakout could signal a significant move higher.

I am suggesting we wait for VRSN to close above $50.25 and then buy calls the next day. More aggressive traders may want to jump in on an intraday trade at $50.25 because VRSN has above average short interest and a breakout past $50.00 could spark some short covering. If VRSN meets our entry requirement I am suggesting a stop loss at $47.40. Our target to exit the 2014 calls is $57.50. Our target to exit the 2015 calls is $64.50. Currently the point & figure chart is bullish with a $76 target.

Breakout trigger: Wait for a close above $50.25
then buy calls the next morning. Start with a stop at $47.40.

BUY the 2014 Jan $55 call (NVDA1418a55) current ask $0.76

- or -

BUY the 2015 Jan $55 call (NVDA1517a55) current ask $3.35

Chart of VRSN:

Originally listed on the Watch List: 08/18/13


Active Watch List Candidates:



E.I. du Pont - DD - close: 58.28

Comments:
08/18/13: DD gave up less than two points for the week. I don't see any changes from my comments last weekend. If the correction continues then we'll re-evaluate our entry point strategy next weekend. For now 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.

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)

- or -

BUY the 2015 Jan $65 call (DG1517a65)

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


Dollar General Corp. - DG - close: 52.47

Comments:
08/18/13: Shares of DG also fell less than $2.00 for the week although the sell-off here looks a bit uglier. DG has broken down below its 50-dma and closed Friday sitting on its 100-dma. If DG can test support near $50.00 we will re-evaluate our entry point strategy. In the meantime our plan is unchanged.

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


Fluor Corp. - FLR - close: 66.19

Comments:
08/18/13: FLR still looks encouraging. Shares have managed to ignore most of the market's recent weakness. Instead FLR continues to consolidate sideways. We suspect shares are coiling for a breakout higher. There is no change from last week's comments.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $75 call (FLR1517a75)

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


General Electric - GE - close: 23.95

Comments:
08/18/13: The slow fade lower in GE continues. The stock is down three out of the last four weeks. If this trend continues we could see GE retest the $23 area. We will re-evaluate our entry strategy if GE does near $23 or its 200-dma. Otherwise our plan is unchanged.

Earlier Comments:
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: 94.94

Comments:
08/18/13: KMB has displayed relative weakness with a sharp four-day decline. It is possible that shares will find support near $94 and their 200-dma. Yet I wouldn't buy calls at this time. Tonight we are removing KMB as a watch list candidate.

Trade did not open.

08/18/13 removed from the watch list

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


Pfizer Inc. - PFE - close: 28.37

Comments:
08/18/13: PFE is correcting lower after breaking down from a two-week consolidation near $29 and its 100-dma. The stock's long-term up trend should coincide with a dip near $28.00 (or possibly the 200-dma near $27.65). We will re-evaluate our entry point strategy if we see PFE hold that level of support. Until then we're waiting for PFE to move higher.

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.

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: 79.90

Comments:
08/18/13: Higher-dividend defensive names were targets for sellers last week. PG was no exception. Shares tested their 50 and 100-dma on Friday. If PG closes below $78.00 we'll likely drop the stock as a bullish candidate. In the meantime we are waiting for a new high.

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: 72.16

Comments:
08/18/13: Disappointing same-store sales from its Chinese stores sent shares of YUM lower last week. Yet traders bought the dip near its rising 50-dma. At the moment our plan has not changed.

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)

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