Option Investor
Newsletter

Daily Newsletter, Sunday, 8/25/2013

Table of Contents

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

Leaps Trader Commentary

Taper Fears Fade

by James Brown

Click here to email James Brown

Is the correction already over? Stocks continued to throw a "taper tantrum" Monday through Wednesday last week. Then better than expected economic data out of China and Europe helped spark an oversold bounce. After the Federal Reserve's summer retreat in Jackson Hole there was also a grown sense that maybe the Fed will postpone their QE taper and instead of starting in September it could be pushed back to later in the year or even January. That helped fuel gains for equities. The NASDAQ and the small cap Russell 2000 led the bounce with help from the transportation average (+1.6% for the week). Precious metals continued to climb and oil bounced with stocks late in the week. A three-hour trading outage at the NASDAQ on Thursday failed to dampen investor spirits.

Housing data was the biggest event on the economic calendar in the U.S. Existing home sales rose +6.5% in July to an annual pace of 5.39 million. This followed a downwardly revised 5.06 million pace in June. This is approaching a four-year high for existing home sales. The news wasn't so hot for new home sales, which plunged to 394,000 in July from 497,000 in June. The big drop in new home sales threw cold water on the QE taper crowd and gave renewed hope that the Fed might postpone the beginning of any reduction in QE. Wells Fargo said their housing opportunity index dropped from 73.7% to 69.3%. Rising mortgage rates were putting pressure on buyers. This was the first time this index has bee under 70% since 2008. The bad news kept coming with the weekly MBA mortgage application index, which dropped another -4.6% following last week's -4.7%. This is the 13th decline in the last fifteen weeks for the mortgage index.

Europe

We continue to see improving economic data out of Europe. Two weeks ago the Eurozone officially ended their recession with a positive GDP reading. This past week the Eurozone manufacturing PMI rose from 50.3 to 51.3. That was better than expected and numbers above 50.0 indicate growth and expansion. The improvement was driving by Germany's manufacturing PMI, which rose from 50.7 to 52.0. Germany also unveiled that their Q2 GDP growth estimate came in at +0.7%. The focus will remain on Germany through the end of September due to Germany's national elections. The current German Chancellor Merkel is facing grief over its stance on Greece. This past week there were new headlines that Greece would likely need a third bailout. Meanwhile France continues to struggle. Its manufacturing PMI was unchanged at 49.7. French officials also suggested that it could take ten years before the country reaches full employment again.

Asia

China helped fuel the market's bounce with a positive reading on the HSBC manufacturing PMI index, which came in at 50.1, up from 47.7. That was better than expected and numbers above 50.0 indicate growth. Nearby there were a number of headlines out of Japan. Japan said their trade deficit grew to 1.02 trillion yen and their all industries activity index fell -0.6%. There is a growing expectation that Japan will implement a new sales tax increase in spite of worries that it might encumber their stimulus efforts.

Major Indices:

The S&P 500 index closed at 1642 on Wednesday. That's a -3.9% correction from its early August high. It almost deep enough to test technical support at the rising 100-dma. Traders stepped in buy stocks on Thursday and by Friday's closing bell the S&P 500 was up +0.4% for the week and back above its simple 50-dma.

If the bounce continues the next level of significant resistance is probably the 1680 level and then the 1700 level. If the bounce reverses we can look for support near 1640 and its 100-dma (currently 1635). If those levels fail then a drop to 1600 is likely.

chart of the S&P 500 index:

The NASDAQ was a major story on Thursday with a three-hour trading outage. Normally an event like that would weigh on investor sentiment and spark a "sell first, ask questions later" mood but that didn't seem to happen. The NASDAQ managed a +1.5% gain for the week. The top of its recent gap down near 3670 could be short-term resistance. If the NASDAQ can rise past that level then the 13-year highs near 3690 are the next level of resistance. If the bounce reverses then the 3600-3590 zone is short-term support.

chart of the NASDAQ Composite index:

The small caps started to bounce on Tuesday after the Russell 2000 broke down below its 50-dma the day before. The index managed a +1.3% gain for the week but the rally stalled near short-term resistance at the 1040 level. We can expect resistance at 1040 and 1060. If the index reverses I would look for support in the 1010-1000 area. The 100-dma, currently near 990, could also be support.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data in the U.S. picks up a bit this week. We'll see both the consumer confidence and consumer sentiment numbers. The big report for the week is probably the next estimate on U.S. Q2 GDP growth. The first Q2 estimate was +1.67%.

The market will be closed on Monday, September 2nd. The next jobs report is due Friday, September 6th. Congress returns to Washington from their August recess on September 9th.

Economic and Event Calendar

- Monday, August 26 -
Durable Goods Orders
German import/export data

- Tuesday, August 27 -
Case-Shiller 20-city home price index
Consumer Confidence

- Wednesday, August 28 -
pending home sales
Japan retail sales data

- Thursday, August 29 -
Weekly Initial Jobless Claims
Q2 GDP estimate
Japan inflation data

- Friday, August 30 -
personal income and personal spending data
Chicago PMI
University of Michigan consumer sentiment survey

Additional Events to be aware of:

August 31st - Chinese PMI data
September 2nd, - U.S. market closed for Labor Day
September - U.S. debt ceiling deadline
September - German elections

The Week Ahead:

You've probably heard it a hundred times already but September is historically the worst month of the year for U.S. equities. Seasonal trends are not guarantees. There are exceptions but the patterns happen often enough that market participants take notice. This September the odds are against the bulls. Some are still expecting it to be "Septaper" with the possibility that the Fed Chairman Bernanke might announce a reduction in their QE program. As I mentioned last week there is a growing camp of analysts and traders who suspect that the Fed will not taper in September but it remains a possibility. Another major event that could impact the markets will be the epic battle in Washington over the budget and debt ceiling. Odds of a rise in volatility seem almost a sure thing for September.

On a side note there was an interesting article by Investors Business Daily this past week that reinforced why the market is worried about the Federal Reserve moving too fast. According to the IBD every single recession since World War II has been preceded by the Fed raising interest rates. We should make the distinction that there is a significant difference between the Fed raising rates and the Fed reducing their QE program. They're going to reduce QE first and it could be another year or more before the Fed starts raising rates.

I am concerned about the GDP estimate due out on Thursday. I'm worried it's going to come in less than expected. The bigger problem could be Q3 GDP growth, which could be abysmal. In the last two weeks we've heard from several major retailers who all lowered their guidance due to softer sales numbers. We're also seeing a drop in consumer spending at restaurants too. If the consumer is cutting back on their discretionary spending it could indicate the economy is slowing faster than expected. If that's true then everyone expected a big rebound in the second half of 2013 are going to be terribly disappointed.

Another interesting tidbit was the fact that equity funds saw their largest outflows in five years last week, according to Bank of America's Merrill Lynch. Investors seem to be pulling their money out of everything. Bonds hit new lows last week. Stocks were down until the Thursday-Friday bounce. Emerging markets are getting crushed. Gold and silver seemed to be the exception with decent gains for the week.

We have two weeks before the fight in Washington D.C. over the U.S. budget and the U.S. debt ceiling begins. We have just over three weeks before the mid September FOMC meeting. It doesn't make sense to see investors buying stocks ahead of these potential market moving events but then market often doesn't make sense. It's quite possible that the recent bounce in stocks is just that, only a bounce, before the market continues lower. I would be cautious on launching new positions between now and the end of September.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Better than expected economic data out of China and Europe combined with a reduction in fears of a Fed QE taper helped spark a bounce in stocks.

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

DIS was stopped out last week.

I have updated stop losses on: HON

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

Historically the Weakest

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 25, 2013)

No new trades tonight.

Last week we saw Halliburton (HAL) graduate from our watch list to our active play list. In spite of the market's recent pullback there are some stocks still making new highs.

After a two-week correction lower the S&P 500 and the Russell 2000 index managed a bounce. Yet I would be cautious here. September is historically the weakest month of the year for stocks and the potential for the Fed to announce a reduction in their QE program and the potential for negative headlines out of Washington D.C. could spook the market again. Therefore I would not be in a rush to launch new bullish positions when we might see a better (lower) entry point by the end of September of mid October.

Of course there are exceptions and some of our new watch list candidates are showing relative strength.

We are adding three new candidates to our watch list tonight (DECK, HOG, and STZ).

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:

SLB, WFT, JOY, OPEN, UA, SCHN, SWKS, BWA, CS, WYNN, AMZN, LOW, SBUX, PRU, FDX, CBI, WDC, NOK, EL, SWY, WEN, DDD, ANR, FCX, CLF, TJX, ROST, LMT, RTN,



Play Updates

Stocks Manage A Rebound

by James Brown

Click here to email James Brown

Editor's Note:

HAL graduated from the watch list to our active play list.


Closed Plays


DIS was stopped out.



Play Updates


American Intl. Group - AIG - close: 47.39

Comments:
08/25/13: AIG bounced off of technical support at its rising 50-dma this past week. If AIG can breakout past the short-term three-week trend of lower highs then investors may want to consider new bullish positions.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $1.93/1.97

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.50/3.60

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: 14.57

Comments:
08/25/13: I cautioned readers last week that BAC should see support near $14.00. Sure enough the stock rebounded from the $14 level on Tuesday and now looks poised to breakout from a three-week consolidation pattern.

- 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 $1.72/1.73

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: 49.83

Comments:
08/25/13: C managed to bounce off its intra-week lows but the rebound failed to lift shares back above technical resistance at the 50-dma. I am concerned that C might still be headed for the $48.00 level. Nimble traders may want to consider buying calls on a bounce from $48.00. Our stop loss remains at $47.75.

- 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 $ 4.00/4.10

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: 11.79

Comments:
08/25/13: Investors were ready and waiting to buy the dip in CY as it tested support near $11.50 on Friday morning. The stock rebounded to close unchanged on Friday. This bounce from support can be used as a new bullish entry point. More conservative investors might want to wait for a close above $11.85 or a close above $12.05 before launching new positions.

- Suggested Positions -
JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.02*
symbol: CY1418a13 2014 JAN $13 call - current bid/ask $ 0.45/0.55

- or -

JUL 19, 2013 - entry price on CY @ 12.50, option @ 1.20*
symbol: CY1517a15 2015 JAN $15 call - current bid/ask $ 0.75/0.90

08/23/13 CY is bouncing from support near $11.50
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


Eastman Chemical Co. - EMN - close: 79.67

Comments:
08/25/13: EMN has been showing some relative strength with a decent gain for the week. The stock is poised to breakout past the $80 level again. The daily chart shows new short-term support at the rising 30-dma.

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 $ 4.80/5.00

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 6.00/6.30

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: 16.45

Comments:
08/25/13: Ford pierced support near the $16.00 level on Tuesday but the stock rebounded. Shares managed a minor gain for the week but Ford seems to be struggling with its 50-dma.

If you look closely Ford bounced near its trend line of higher lows dating back to the April low (and crossing the June low). More conservative traders may want to raise their stops.

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 $ 2.74/2.78

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


Halliburton Company - HAL - close: 48.71

Comments:
08/25/13: A bounce in oil prices, a rebound in the energy sector, and news of a $3 billion stock buyback helped HAL surge to new 52-week highs. HAL was a watch list candidate. Our plan was to wait for shares to close above $47.25 and then buy calls the next morning. HAL met our entry requirement on August 20th with a close at $47.35. Our trade opened on the 21st at $47.22. Investors may want to raise their stop loss. If you are looking for a new entry point then consider waiting for a dip near the rising 10-dma.

- Suggested Positions -
AUG 21, 2013 - entry price on HAL @ 47.22, option @ 1.82
symbol: HAL1418a50 2014 JAN $50 call - current bid/ask $ 2.34/2.41

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 5.35/5.50

Chart of HAL:

Current Target:$ 52.50 for the 2014 calls, $56.0 for the 2015 calls
Current Stop loss: 43.75
Play Entered on: 08/21/13
Originally listed on the Watch List: 08/18/13


Honeywell Intl. - HON - close: 81.40

Comments:
08/25/13: Last week saw HON breakdown below its simple 50-dma. Yet traders bought the dip near $80.40 twice. The current move is starting to look like the four prior breakdowns below HON's 50-dma, where each time the stock reversed and continued higher.

The simple 100-dma has risen to $79.01. We are raising our stop loss to $78.40.

If you were looking for an entry point then a close above $82.00 could work as an alternative entry.

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 $ 5.80/6.00

08/25/13 new stop loss @ 78.40
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: 78.40
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13


JPMorgan Chase & Co. - JPM - close: 52.32

Comments:
08/25/13: JPM has had a rough three week slide. Yet the sell-off has stalled near support in the $51 area and its rising 150-dma. If you look at JPM's weekly chart you'll notice that shares are starting to bounce from the long-term trend line of higher lows. Readers can use the pullback as a new entry point to buy calls. More conservative traders may want to wait for a new close above $52.50 or its 50-dma before initiating positions.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 1.46/1.48

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.75/3.85

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


NetApp, Inc. - NTAP - close: 41.95

Comments:
08/25/13: Last week was a quiet one for NTAP. The stock found support at its rising 30-dma but it's been struggling with the $42.00 level as overhead resistance.

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 $3.70/3.80

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $6.20/6.35

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: 45.20

Comments:
08/25/13: ODFL bounced back toward its recent August highs. Investors might want to wait for ODFL to close at a new high above $45.70 before initiating new positions.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $0.75/1.35

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.

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: 70.95

Comments:
08/25/13: Ouch! PETM lost about 2 1/2 points for the week. The stock was trading at all-time highs prior to its earnings report. The company beat bottom line estimates and then raised its guidance. Yet traders sold the news anyway. What's more troubling was the relative weakness on Friday.

More conservative investors might want to consider scaling back positions or exiting early given the sharp drop on good news. I'm not willing to give up yet. The $70.00 level should be support for PETM. We will keep our stop loss at $69.40 for now.

I am not suggesting new positions at this time.

- Suggested Positions -
JUL 16, 2013 - entry price on PETM @ 72.70, option @ 3.40
symbol:PETM1418a75 2014 JAN $75 call - current bid/ask $ 2.00/2.15

- or -

JUL 16, 2013 - entry price on PETM @ 72.70, option @ 5.15*
symbol:PETM1517a80 2015 JAN $80 call - current bid/ask $ 3.50/4.50

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: 158.06

Comments:
08/25/13: UNP bounced from a test of support near $155 and its 100-dma. Yet shares underperformed the major indices and the transportation average on Friday with a -0.3% decline. Traders may want to wait for UNP to close above $160.00 or close above $165.00 before considering new bullish positions.

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 $ 1.05/1.11

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 2.93/3.05

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: 52.88

Comments:
08/25/13: WFM spent most of the week churning sideways in the $52-53 zone. I remain cautious here. August has not been a good month for stocks with exposure to consumer spending.

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 $ 0.88/0.92

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 4.45/4.60

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


Walt Disney - DIS - close: 61.73

Comments:
08/25/13: DIS continued to weaken and the stock broke down below support near its June lows. Shares hit our stop loss at $61.45 on August 21st. Since then DIS is trying to bounce from its rising 150-dma.

- Suggested Positions -
JUL 16, 2013 - entry price on DIS @ 65.00, option @ 1.82
symbol: DIS1418a70 2014 JAN $70 call - exit $0.55 (-69.7%)

- or -

JUL 16, 2013 - entry price on DIS @ 65.00, option @ 4.70
symbol: DIS1517a70 2015 JAN $70 call - exit $3.05 (-35.1%)

08/21/13 stopped out
07/16/13 buy-the-dip trigger hit at $65.00
07/14/13 new entry strategy: adjust buy-the-dip trigger to $65.00
move the stop loss to $61.45. Move the target to $79.00
adjust the option strikes
07/07/13 adjust entry trigger from $57.00 to $58.00

Chart of DIS:

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



Watch

Footwear, Iconic Brands, & Alcohol

by James Brown

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New Watch List Entries

DECK - Deckers Outdoor Corp.

HOG - Harley Davidson

STZ - Constellation Brands


Active Watch List Candidates

DD - E.I. du Pont

DG - Dollar General

FLR - Fluor Corp.

GE - General Electric

KORS - Michael Kors Holdings

NVDA - NVIDIA Corp.

PFE - Pfizer Inc.

PG - Procter & Gamble

VRSN - VeriSign, Inc.

YUM - Yum! Brands Inc.


Dropped Watch List Entries

HAL graduated from our watch list to our active play list.



New Watch List Candidates:


Deckers Outdoor Corp. - DECK - close: 59.56

Company Info

DECK makes footwear and apparel for outdoor activities. The stock has been volatile the last few weeks but the trend is higher with traders buying the dips. Recently DECK has been showing relative strength and is on the verge of a bullish breakout past major resistance near $60.00.

I am suggesting we wait for DECK to close above $60.50 and then buy calls the next day with a stop loss at $55.75. However, I am putting a limit on this entry point. Do not open positions if DECK closes above $62.00. More aggressive traders could an intraday trigger instead waiting for a close above $60.50. If triggered our target is $74.00. FYI: The point & figure chart is forecasting a bullish target of $87.00.

We want to keep our position size small to limit our risk. DECK can be a volatile stock.

Breakout trigger: Wait for DECK to close above $60.50
Then buy calls the next day. Stop loss @ 55.75.
* do NOT launch positions if DECK closes above $62.00. *

BUY the 2014 Jan $65 call (DECK1418a65) current ask $3.70

- or -

BUY the 2015 Jan $70 call (DECK1517a70) current ask $7.40

Chart of DECK:

Originally listed on the Watch List: 08/25/13


Harley-Davidson - HOG - close: 59.84

Company Info

The iconic American brand of motorcycles has seen a strong performance in its stock price. This past week has seen HOG breakout from a three-week trading range and close near multi-year highs. This is somewhat surprising given Wall Street's worries over a slowing U.S. consumer. The story lately would suggest that consumers are not spending money on apparel but instead are buying cars and electronics. Maybe the "buying cars" part also applies to vehicles like motorcycles.

I am suggesting we wait for HOG to close above $60.50 and then buy calls the next day with a stop loss at $56.75. However, I am putting a limit on this entry point. Do not open positions if HOG closes above $62.00. More aggressive traders could an intraday trigger instead waiting for a close above $60.50. If triggered our target is $69.00.

Breakout trigger: Wait for HOG to close above $60.50
Then buy calls the next day. Stop loss @ 56.75.
* do NOT launch positions if HOG closes above $62.00. *

BUY the 2014 Jan $65 call (HOG1418a65) current ask $1.73

- or -

BUY the 2015 Jan $70 call (HOG1517a70) current ask $3.80

Chart of HOG:

Originally listed on the Watch List: 08/25/13


Constellation Brands - STZ - close: 55.86

Company Info

STZ is an American manufacturer of wine and spirits. The company's latest earnings report was early July. They missed the estimate but raised their 2014 guidance. Since then investors bought the dip near $50 and its 100-dma. Now STZ is breaking out past resistance near $55 and hitting new all-time highs.

I am suggesting we wait for STZ to close above $56.25 a share. If that trigger is met we can buy calls the next day. There is a good chance STZ will meet that trigger on Monday or Tuesday this week. More nimble traders could try and wait for a dip near $55.00 instead, since broken resistance near $55.00 should be new support. I am suggesting a wide stop loss at $49.95 but more conservative types may want to use a stop closer to the $53.00 level. Our long-term target is the $65-70 zone.

Breakout trigger: Wait for STZ to close above $56.25
Then buy calls the next day. Stop loss @ 49.95.

BUY the 2014 Jan $60 call (STZ1418a60) current ask $1.80

- or -

BUY the 2015 Jan $65 call (STZ1517a65) current ask $4.10

Chart of STZ:

Originally listed on the Watch List: 08/25/13


Active Watch List Candidates:



E.I. du Pont - DD - close: 57.90

Comments:
08/25/13: Hmm... after dipping toward prior resistance (now new support) near $57.00, shares of DD are starting to bounce. More aggressive investors might want to consider launching small bullish positions here and adjust your stop loss. Officially the newsletter is waiting for a breakout past resistance near $60.00.

Earlier Comments:
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: 55.05

Comments:
08/25/13: DG displayed relative strength last week with a rally back toward its highs. The $56.00 area is major resistance and we're waiting for a breakout. Investors should note that DG is scheduled to report earnings on September 4th. More conservative traders may want to wait until after we see how the market reacts to DG's earnings before considering new positions, regardless of our suggested entry point below.

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


Fluor Corp. - FLR - close: 66.08

Comments:
08/25/13: FLR is still hovering inside the $64-67 trading range. There is no change from my earlier comments.

Earlier Comments:
Shares are currently hovering below resistance near the $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: 23.78

Comments:
08/25/13: The correction lower in shares of GE continues with the stock down three weeks in a row. We will re-evaluate our entry strategy if GE nears $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


Michael Kors Holdings - KORS - close: 72.57

Comments:
08/25/13: KORS is not cooperating with our buy-the-dip strategy. The stock has been showing relative strength and rallied back toward its highs set two weeks ago. More aggressive traders might want to consider buying calls if KORS can close above the $73.00 level. We are unwilling to chase it at this time and we will re-evaluate our entry point strategy next weekend.

Earlier Comments:
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)

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


NVIDIA Corp. - NVDA - close: 14.96

Comments:
08/25/13: Wow! I am surprised by the action in NVDA. The market saw an increase in volatility last week. Yet shares of NVDA were very quiet with the stock hovering on either side of the $15.00 level. On one hand NVDA's failure to follow the market lower is positive. Yet its failure to rally with the market is also a challenge.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $17 call (NVDA1517a17)

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


Pfizer Inc. - PFE - close: 28.37

Comments:
08/25/13: I warned readers last week that PFE might be headed toward the $28.00 level. I am actually tempted to buy calls on this pullback in PFE. Yet shares underperformed the broader market last week and that could be a warning sign. I'm starting to wonder if PFE is going to test its 200-dma near $27.75 soon. We will re-evaluate our entry point strategy again next weekend. Until then we're waiting for a move above $30.00.

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

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

BUY the 2014 Jan $30 call (PFE1418a30)

- or -

BUY the 2015 Jan $30 call (PFE1517a30)

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


Procter & Gamble Co. - PG - close: 80.01

Comments:
08/25/13: PG spent the week consolidating sideways. The takeaway here is that PG appears to have found new support near the $79.00 level.

Earlier Comments:
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


VeriSign, Inc. - VRSN - close: 49.50

Comments:
08/25/13: VRSN continues to inch higher. Friday's display of relative strength (+0.6%) was also a breakout from a multi-day consolidation in the $48.50-49.00 zone.

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 $0.83

- or -

BUY the 2015 Jan $55 call (NVDA1517a55) current ask $3.55

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


Yum! Brands - YUM - close: 72.57

Comments:
08/25/13: YUM didn't move much last week but I am encouraged. Shares have found support near $72.00 for the last week and a half. That could be a new short-term bottom of the stock. The next challenge for the bulls is a breakout past short-term resistance in the $73.00-73.25 zone.

Earlier Comments:
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