Option Investor
Newsletter

Daily Newsletter, Sunday, 9/8/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Rebound Into September

by James Brown

Click here to email James Brown

The Syria question continued to loom over the markets all week but stocks managed a bounce anyway. Economic data continues to come in mixed although the biggest report for the week, the nonfarm payrolls, was a disappointment. The U.S. ten-year bond yield tagged 3.0% after hours on Thursday night. The last time yields were as high as 3.0% was July 27th, 2011. The G-20 leadership summit in Russia was a major story with Russian President Putin reminding the U.S. that they will assist their ally Syria if Syria is targeted by an "external attack" (i.e. the U.S.). Putin's comments sparked an afternoon sell-off on Friday. Yet by Friday's closing bell the S&P 500 ended the week with a +1.3% gain. Transports had a good week with a +1.9% gain. The semiconductor sector and oil service stocks were standouts with a +3.8% and +4.1% gains, respectively. Crude oil continued to march higher with a +2.3% gain.

Economic Data

There were a number of U.S. economic reports for the first week of September. The ISM (manufacturing) index improved from 55.4 in July to 55.7 in August. The gain was driven by the new orders component, which jumped from 58.3 to 63.2. The non-manufacturing ISM index increased from 56.0 to 58.6 in August. The Federal Reserve's Beige Book report seems to be stuck on repeat with the Fed saying the U.S. "continued to expand at a modest to moderate pace."

The market's focus was on jobs data. The ADP employment change report came in with +176,000 new private sector jobs in August. This was down from July's +198,000. The weekly initial jobless claims continue to sink with the latest reading down -9,000 to 323,000. The less volatile four-week moving average has sunk to another six-year low at 328,500. The big report was the nonfarm payrolls (a.k.a. jobs report) on Friday morning. Analysts were expecting +180,000 and there were some whisper numbers for +200K. Unfortunately the U.S. government said job growth came in at +169,000 in August. That was up from July's initial reading of +162,000. The bad news is that July's reading was revised down from +162K to +104K. June's reading was revised down from +195,000 to +172,000.

Another surprise on Friday was the unemployment rate, which ticked down from 7.4% to 7.3%. Sadly the improvement was not because more Americans found jobs. Instead the drop in unemployment was because fewer Americans are looking for work and the labor force participation rate dropped to 63.2%. That's the lowest reading since August 1978 (35 years).

chart of Labor Force Participation:

Overseas Data

Economic data overseas was generally benign. The Bank of Japan left rates unchanged at +0.1% and raised their economic forecast. The European Central Bank left rates unchanged at +0.5%. The latest estimate on the EU's Q2 GDP was unchanged at +0.3%. The Eurozone saw its manufacturing PMI rise slightly from 51.3 to 51.4. Numbers above 50.0 indicate growth. China said its manufacturing PMI rose from 50.3 to 51.0. The Chinese HSBC manufacturing PMI data was unchanged at 50.1.

There was a few hiccups. India's HSBC manufacturing PMI dropped from 50.1 to 48.5. France said their unemployment rate hit a new 13-year high with a rise from 10.8% to 10.9%. Meanwhile Portugal is inching closer to the cliff with yields on Portugal's 10-year bonds surpassing 7.0%. Normally a 7.0% yield is a major warning signal. Yields can't stay this high very long or the country will be able to finance its debt. This could be a sign that Portugal will need another bailout.

Syria

One of the biggest stories of the week was Syria and whether or not the U.S. would attack Assad's regime over allegations the Syrian government used chemical weapons. Last weekend President Obama said he would ask congress to debate and vote on a resolution to attack Syria. In the last few days there has been growing opposition for Obama's plan to attack. Right now the president does not have enough votes to get approval. It's important to note that Obama has never said he needed Congress' approval but he felt it would send a stronger statement if he had congressional approval. Unfortunately for the president, Americans seem to be strongly opposed to any military strike in Syria and they're calling their representatives and letting them know.

Americans are not the only ones against a military strike. President Obama was hoping to build support at the G-20 summit. He came home without any new significant allies. Russian President Putin roiled the markets a bit on Friday with his comments that Russia would help its ally Syria if Syria suffered an external attack. Over the last couple of weeks Russia has sent several ships into the Mediterranean to be available if the conflict in Syria spreads.

Major Indices:

The S&P 500 index bounced off its trend line of support that's just below the rising 100-dma (see chart). Yet the bounce stalled on Friday at its 50-dma. For the week the S&P 500 index added +1.3%. It's currently sitting less than 55 points from its all-time high in early August (about -3.1%). If this bounce continues then the S&P 500 should find resistance near 1680. If this bounce fails and the index breaks down below the trend line then the 1600 level is likely support. If 1600 fails then we could witness a drop to the simple 200-dma.

chart of the S&P 500 index:

The NASDAQ composite was the best performer among the major indices with a +1.9% gain last week. The tech-heavy index got a boost from a strong performance in the semiconductors (+3.8%). The NASDAQ is now less than 35 points (less than 1%) from a new 13-year high. A breakout past the 3700 level could inspire new confidence for investors. On the other hand, if the NASDAQ reverses, a breakdown under the 50-dma will probably signal a drop toward the 3500 level and its 100-dma.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index has been trying to bounce but the simple 50-dma has been acting as overhead resistance. Friday's rally attempt failed near the four-week trend line of lower highs (see chart). The long-term trend is still up but the intermediate trend is down. A close above 1040 could re-ignite the rally in the small caps. Meanwhile if stocks reverse lower the $RUT will likely find some support near the 1,000 mark and its 100-dma.

chart of the Russell 2000 index



Economic Data & Event Calendar

The economic calendar slows down a bit this week. The only real events of any significant are not reports but the U.S. congress returning to Washington and President Obama's televised speech to the nation on Tuesday night. He will be trying to drum up support for a military strike on Syria.

Two weeks from now will be the FOMC meeting.

Economic and Event Calendar

- Monday, September 09 -
Congress returns to Washington.

- Tuesday, September 10 -
President Obama to speak on Syria
China's industrial production data

- Wednesday, September 11 -
MBA mortgage index data

- Thursday, September 12 -
Weekly Initial Jobless Claims
Eurozone industrial production data
import/export prices

- Friday, September 13 -
Retail sales for August
Producer Price Index (PPI)
University of Michigan consumer sentiment
business inventories for July

Additional Events to be aware of:

Sept. 18th - FOMC meeting & Bernanke press conference
Sept. 22nd - German elections
September - U.S. debt ceiling deadline

The Week Ahead:

Looking at the week ahead I would not be surprised to see stocks trading sideways. Sentiment wise the market acts like it wants to move higher. It feels like investors have convinced themselves that the QE taper might be a good thing because that would mean the Fed believes in stronger U.S. growth. Then again that could be wishful thinking. Part of the problem was Friday's jobs report. A strong number would have helped assure Wall Street that the Fed would taper in September. Yet the data was weak and the revisions made Friday's data even weaker. Weak economic data would suggest the Fed will postpone the taper since they've said multiple times the decision was data dependent. Odds are still good that the Fed will try and find an excuse to begin tapering their QE program before Ben Bernanke leaves his position in January.

Whether or not the Federal Reserve does or does not announce a taper to their QE program on September 18th will be the main story for the next several days. Competing for headline space will be the Syria issue and whether or not the U.S. will or will not strike. It's quite possible that if the Fed does announce a reduction in QE on the 18th that stocks see a knee jerk reaction lower and then recover. The same thing could happen if the U.S. does strike Syria, a short-term move lower that is quickly bought. Although the Syria issue is more complicated because market reaction will be influenced by what happens afterward.

If the U.S. does strike Syria, how will Russia respond? Will Assad make good on his threats to strike at Israel? Will Iran make good on their threats to retaliate? There has been some speculation that Iran could try and shut down the Strait of Hormuz in response to a U.S. strike on Syria. A more interesting question to ask is what happens to U.S. politics at home and on the international stage if President Obama strikes Syria without congressional approval. Currently the U.N. security council has said no. NATO has said no. Yet the whole world is watching to see if the U.S. is going to follow up on its threats to punish those who use chemical weapons. It's almost a lose-lose situation for President Obama. If he does strike Syria without any allies and hard evidence then the U.S. is going to look like a bully. If we don't strike then the U.S. will look weak, which will only foster more violence and more chemical weapon usage.

Additional landmines that could influence market behavior are the upcoming U.S. budget and U.S. debt ceiling debates and deadlines. That could be two or three weeks away. Overall the combination of the taper, Syria, and the debt ceiling present a number of hurdles for the market. The next few weeks could be a roller coaster for the market.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market managed a bounce last week in spite of all the unanswered questions that remain with regards to Syria, the QE taper, the next Fed chairman, and the U.S. debt ceiling.

DECK, DG, HOG, MAKO, MDVN and STZ have all been added to the play list.

PETM was stopped out last week.

I have updated stop losses on: F and HAL.

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

Concerns Remain

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 08, 2013)

No new trades tonight.

We just added six new trades over the past week with our watch list. DECK, DG, HOG, MAKO, MDVN, and STZ all graduated to our active play list.

All of my concerns over the last couple of weeks remain. Syria will be a major topic that could threaten to derail investor sentiment. The next several days will also see the Fed QE taper question come to a boil with the FOMC meeting on September 18th. Overall the next two or three weeks could be very volatile. I am urging caution when it comes to current positions and new plays.

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:

AMZN, N, CMI, JCI, FUN, AVT, MA, RDC, X, AN, ESRX, SLB, UA, NKE, BWA, C, SBUX, CBI, INTC, WEN, DDD, FCX, TJX, BA, COST, DNKN, BHI, UTX, TYC,



Play Updates

Stocks Bounce But Stay Cautious

by James Brown

Click here to email James Brown

Editor's Note:

Our play list is growing. We had six watch list candidates graduate to our active play list.


Closed Plays


PETM was stopped out.



Play Updates


American Intl. Group - AIG - close: 48.18

Comments:
09/08/13: AIG rallied last week. Shares are less than two points from a new two-year high. Yet Friday's session has created a bearish engulfing candlestick reversal pattern. Don't be surprised to see another dip toward the rising 50-dma.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.15/2.20

- or -

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

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: 14.36

Comments:
09/08/13: BAC eked out a minor gain for the week. Shares found support near the rising 50-dma yet BAC has been unable to breakthrough the four-week trend of lower highs. I am not suggesting new positions at this time.

- 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 $1.58/1.61

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


Deckers Outdoor Corp. - DECK - close: 61.24

Comments:
09/08/13: The rally in DECK continues. This stock was a watch list candidate. Our plan was to wait for DECK to breakout past resistance near $60.00 and close above $60.50. Shares met that requirement on September 4th with a close at 61.13. Our trade opened on September 5th with DECK at $61.47. I will point out that Friday's session is technically a bearish engulfing candlestick reversal pattern. We might see DECK dip back into the $60-58 zone again. Thus investors might want to wait for a bounce near the $60 area before considering new bullish positions.

Earlier Comments:
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.

- Suggested Positions -
SEP 05, 2013 - entry price on DECK @ 61.47, option @ 4.30
symbol: DECK1418a65 2014 JAN $65 call - current bid/ask $4.00/4.20

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $7.40/8.10

*entry price on the 2015 call is an estimate as it did not trade at the time our play was opened.

Chart of DECK:

Current Target: 74.00
Current Stop loss: 55.75
Play Entered on: 09/05/13
Originally listed on the Watch List: 08/25/13


Dollar General Corp. - DG - close: 56.96

Comments:
09/08/13: DG delivered a strong performance last week with the stock climbing to new all-time highs. DG was a watch list candidate. The plan was to wait for a breakout past resistance and for the stock to close above $56.50. DG almost met that requirement on Wednesday with a close at $56.39. The rally continued on Thursday and DG closed at $57.38. Our trade opened on Friday morning at $57.61. Broken resistance near $56.00 should be new support. More nimble investors might want to wait and try and launch positions on a dip near the $56.00 area as an alternative entry point.

Last week's rally got a boost from DG's earnings report. The company delivered better than expected top and bottom line numbers.

We are starting this trade with a stop loss at $52.45. More conservative investors may want to tighten their stop closer to the 50-dma or 100-dma.

Earlier Comments:
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.

- Suggested Positions -
SEP 06, 2013 - entry price on DG @ 57.61, option @ 2.58
symbol: DG1418a60 2014 JAN $60 call - current bid/ask $2.45/2.60

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.75/3.30

Chart of DG

Current Target: 64.00 for the 2014s, 69.00 for the 2015s
Current Stop loss: 52.45
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/04/13


Eastman Chemical Co. - EMN - close: 76.88

Comments:
09/08/13: It was a very quiet week for shares of EMN. The stock has been churning sideways in the $76-77 area. The stock garnered some bullish analyst comments and an $88 price target but this failed to move EMN. Shares are coiling between the longer-term trend of higher lows and the shorter-term four-week trend of lower highs.

I am not suggesting new positions at this time. Our stop remains at $74.40. More aggressive traders may want to adjust their stop lower and give EMN more room to maneuver.

Earlier Comments:
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 $ 3.40/3.60

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 5.00/5.30

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: 17.00

Comments:
09/08/13: It was a good week for the American automakers. Ford said its vehicle sales in August rose +12.2%. This company sold an F-series pickup truck every 42 seconds in August. Industry-wide auto sales hit their strongest pace since November 2007.

Shares of Ford broke out above their 50-dma but Friday's session saw some profit taking. Technically Friday's session has created a bearish engulfing candlestick reversal pattern but it needs to see confirmation. I am not suggesting new positions at this time.

Please note our new stop loss at $15.35.

- 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 $ 3.20/3.30

09/08/13 new stop loss @ 15.35
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: 15.35
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Halliburton Company - HAL - close: 48.00

Comments:
09/08/13: Strength in crude oil continues to boost the oil service stocks. HAL hit new two-year highs this past week. Keep in mind that the $50.00 level could be round-number, psychological resistance. I would not be surprised to see HAL retreat a little bit here. I am not suggesting new positions at this time.

We are adjusting the stop loss to $44.75.

- Suggested Positions -
AUG 21, 2013 - entry price on HAL @ 47.22, option @ 1.82
symbol: HAL1418a50 2014 JAN $50 call - current bid/ask $ 2.99/3.05

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 6.20/6.35

09/08/13 new stop loss @ 44.75

Current Target:$ 52.50 for the 2014 calls, $56.0 for the 2015 calls
Current Stop loss: 44.75
Play Entered on: 08/21/13
Originally listed on the Watch List: 08/18/13


Harley-Davidson - HOG - close: 61.97

Comments:
09/08/13: HOG is another watch list candidate that has graduated to our play list. We wanted to see HOG breakout past key resistance near the $60.00 level. Our trigger was a close above $60.50. HOG met that requirement on September 3rd with a close at $61.07. The stock's rally has pushed shares to new six-year highs. Nimble investors may want to consider trying to buy calls on a dip near $60.00, which should be new short-term support.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 2.27/2.32

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 4.50/4.70

*note the entry price on our 2015 call is an estimate since the option did not trade at the time our play opened.

Chart of HOG:

Current Target: 69.00
Current Stop loss: 56.75
Play Entered on: 09/04/13
Originally listed on the Watch List: 08/25/13


Honeywell Intl. - HON - close: 81.66

Comments:
09/08/13: HON continues to bounce after testing its 100-dma two weeks ago. On a short-term basis HON seems to be struggling with resistance near $82.00 and its 30-dma and 50-dma. If shares reverse and breakthrough the 100-dma I would expect HON to hit our stop loss at $78.40. I am not suggesting new positions at this time.

Earlier Comments:
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 $ 6.15/6.35

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: 52.56

Comments:
09/08/13: Investors were in a buying mood with JPM last week. Shares rebounded from round-number support near $50.00 and the stock added two points (almost +4%). JPM is now sitting just below potential technical resistance at its simple 100-dma. The simple 200-dma has risen to $49.57 and more conservative investors may want to adjust their stop loss closer to this long-term 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 $ 1.44/1.46

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.95/4.10

09/01/13 adjust stop loss to $48.99
07/21/13 new stop loss @ 49.65
07/14/13 new stop loss @ 48.75
Current Target: $64.00
Current Stop loss: 48.99
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


MAKO Surgical Corp. - MAKO - close: 15.50

Comments:
09/08/13: MAKO is yet another watch list candidate that has graduated to our active play list. We wanted to wait for shares to close above $15.25 and then buy calls the next day. Our trade opened on September 4th with MAKO at $15.66. Currently shares are hovering below the next level of resistance around the $16.00 level. Previously I suggested that more conservative investors wait for MAKO to close above $16.25 as an alternative entry point.

On a short-term basis Friday's move looks like a bearish reversal so I would not be surprised to see MAKO dip back toward the $15.00 level.

Earlier Comments:
More conservative investors may want to wait for MAKO to close above $16.25 as an alternative entry point since the $16.00 level has been resistance in the past. Our long-term target is $19.50. FYI: The point & figure chart is bullish with a $24 target.

- Suggested Positions -
SEP 04, 2013 - entry price on MAKO @ 15.66, option @ 2.20
symbol:MAKO1418a15 2014 JAN $15 call - current bid/ask $ 2.00/2.20

- or -

SEP 04, 2013 - entry price on MAKO @ 15.66, option @ 2.40
symbol:MAKO1517a20 2015 JAN $20 call - current bid/ask $ 2.25/2.50

Chart of MAKO:
Current Target: $19.50
Current Stop loss: 13.95
Play Entered on: 09/04/13
Originally listed on the Watch List: 09/01/13


Medivation - MDVN - close: 60.66

Comments:
09/08/13: MDVN was a strong performer with gains every day for the holiday-shortened week. MDVN has broken out past resistance near $60.00. Our plan was to buy calls with an intraday trigger at $61.00. MDVN hit our trigger on Friday. The intraday high was $61.46. More conservative investors may want to wait for MDVN to actually close above $61.0 before initiating positions.

Big picture MDVN has spent many months consolidating sideways below the $60 level so the breakout should signal the next leg higher for the stock. Our long-term target is $75.00 but we may have to adjust it since we're only using the 2014 calls. MDVN does have 2015s but the option spreads are too wide.

Earlier Comments:
MDVN's options look a little expensive. I am suggesting smaller positions to limit our exposure.

- Suggested Positions -
SEP 06, 2013 - entry price on MDVN @ 61.00, option @ 7.80*
symbol:MDVN1418a65 2014 JAN $65 call - current bid/ask $ 7.05/7.70

*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of MDVN:
Current Target: $75.00
Current Stop loss: 54.90
Play Entered on: 09/06/13
Originally listed on the Watch List: 09/01/13


NetApp, Inc. - NTAP - close: 42.24

Comments:
09/08/13: NTAP has snapped a three-week decline. There does appear to be some short-term resistance near $42.50 but the longer-term trend of higher lows remains intact. More conservative traders may want to consider raising their stops toward the simple 50-dma (currently near 40.90).

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 $6.55/6.75

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: 44.62

Comments:
09/08/13: The transportation sector managed a bounce for the week in spite of a new one-year high for crude oil prices. ODFL's gains were limited. I am suggesting caution here. Investors may want to wait for ODFL to close above $46.00 before considering new bullish positions.

I am concerned that if oil accelerates too quickly it's going to have a negative influence on the transportation stocks. If the U.S. strikes at Syria it could push oil higher (even though Syria doesn't produce a lot of oil).

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $0.70/1.00

09/01/13 conservative traders may want to cut their losses now
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


Constellation Brands - STZ - close: 57.68

Comments:
09/08/13: The rally in STZ seems to be picking up speed. This is our fifth and final watch list candidate to graduate to the active play list this past week. We wanted to see STZ breakout to new highs and close above $56.25. Shares met that requirement on Thursday with a close at $56.52. Then on Friday morning, before the opening bell, Bank of America upgraded STZ. The stock reacted by gapping open higher at $57.56 (our new entry price). Personally, I would wait for STZ to dip back toward $56.00 before initiating new positions.

Big picture this stock's breakout past resistance in the $55-56 area could signal the next big leg higher in the stock's advance. Our long-term target is the $65-70 zone.

Please note our new stop loss at $51.75.

- Suggested Positions -
SEP 06, 2013 - entry price on STZ @ 57.56, option @ 2.00
symbol: STZ1418a60 2014 JAN $60 call - current bid/ask $2.40/2.55

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $4.30/4.80

09/08/13 new stop loss @ 51.75
*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of STZ:

Current Target: $65-70 zone
Current Stop loss: 51.75
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/25/13


Union Pacific Corp. - UNP - close: 154.92

Comments:
09/08/13: Warning! I am urging caution here. The transportation sector did produce a bounce last week in spite of the rally in oil prices. Yet shares of UNP have produced a bearish reversal candlestick pattern with Friday's decline. At the very least I am concerned we will see UNP retest the $152.00 level. That means we could see UNP hit our stop loss (which is at the $152.00 mark) in the very near future. More conservative traders may want to abandon ship immediately. I am not suggesting new 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 $ 0.76/0.81

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 2.64/2.90

09/08/13 warning! UNP looks like the bounce is reversing!
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: 54.52

Comments:
09/08/13: Shares of WFM are on a roll with the stock up six days in a row. Friday's gain was significant because it marks a bullish breakout over short-term resistance near $54.35 and its 50-dma. The current bounce is encouraging but I am not suggesting new positions.

- Suggested Positions -
JUL 10, 2013 - entry price on WFM @ 54.53, option @ 2.10
symbol: WFM1418a60 2014 JAN $60 call - current bid/ask $ 1.24/1.29

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 5.25/5.45

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


PetSmart, Inc. - PETM - close: 69.65

Comments:
09/08/13: Our PETM trade did not pan out. The stock has continued to struggle since its post-earnings sell-off. This past week saw PETM struggling to hold support near $70 and its 100-dma. Traders were selling every rally near its 10-dma. The stock market's volatility on Friday morning pushed PETM to an intraday low of $69.18. Our stop loss was hit at $69.40.

- Suggested Positions -
JUL 16, 2013 - entry price on PETM @ 72.70, option @ 3.40
symbol:PETM1418a75 2014 JAN $75 call - exit $1.40 (-58.8%)

- or -

JUL 16, 2013 - entry price on PETM @ 72.70, option @ 5.15*
symbol:PETM1517a80 2015 JAN $80 call - exit $3.40 (-33.9%)

09/06/13 stopped out
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

Chart of PETM

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



Watch

Semiconductors & Car Sales

by James Brown

Click here to email James Brown

Editor's Note:

Last week was very successful for our watch list. We saw six candidates graduate to active plays.



New Watch List Entries

INTC - Intel Corp.

KMX - CarMax Inc.


Active Watch List Candidates

DD - E.I. du Pont

FLR - Fluor Corp.

NVDA - NVIDIA Corp.

SJM - The J. M. Smucker Co.

VRSN - VeriSign, Inc.


Dropped Watch List Entries

MAKO, DECK, DG, HOG, MDVN and STZ all graduated to the play list.
KORS and PFE have been removed.



New Watch List Candidates:


Intel Corp. - INTC - close: 22.67

Company Info

Semiconductor giant Intel has been underperforming its peers in the chip sector and the broader NASDAQ for months. Yet it looks like INTC has finally found support near $22.00 and its long-term trend of higher lows. More importantly this past week has seen INTC breakout past its three-month trend of lower highs (bullish breakout). We don't want to jump in just yet. INTC still has some resistance near $23 and its 50-dma.

I am suggesting we wait for INTC to close above $23.15. If that occurs we can buy calls the next morning with a stop loss at $21.75 (just under the August low). Our long-term target is the $26-29 zone.

Breakout trigger: Wait for INTC to close above $23.15
then buy calls the next morning, stop loss @ 21.75

BUY the 2014 Jan $24 call (INTC1418a24) current ask $0.67

- or -

BUY the 2015 Jan $25 call (INTC1517a25) current ask $1.37

Chart of INTC:

Originally listed on the Watch List: 09/08/13


CarMax Inc. - KMX - close: 51.21

Company Info

KMX is in the auto dealership business. If you haven't heard, car sales are on fire. Auto sales are surging as Americans replace older vehicles that they have been holding on to. Big picture it can be seen as a vote of confidence by consumers to upgrade their car (which probably raises their car payment). The latest data showed that U.S. sales of new cars hit an annual pace of 16.09 million. That's almost a six-year high.

What you may find interesting here is that KMX focuses on used cars, not new cars. The good news is that based on KMX's latest earnings report, the pace of used car sales is picking up as well. Shares have spent the last few weeks consolidating below resistance at the $50.00 level. This past week KMX broke out resistance at $50 to hit new all-time highs.

More aggressive investors may want to buy puts now. I am suggesting we wait and buy calls on a dip at $50.00. If triggered we'll try and limit our risk with a stop loss at $46.40. Our long-term target is $59.00

Buy-the-Dip trigger: $50.00

BUY the 2014 Jan $55 call (KMB1418a55) current ask $2.05

Chart of KMX:

Originally listed on the Watch List: 09/08/13


Active Watch List Candidates:



E.I. du Pont - DD - close: 56.62

Comments:
09/08/13: Shares of DD finally bounce after a four-week correction lower. If the rebound does not continue this week then we'll likely drop it as a candidate.

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


Fluor Corp. - FLR - close: 64.58

Comments:
09/08/13: FLR managed a little bit of an oversold bounce this past week. I am concerned that Friday's performance looks like a short-term bearish reversal and potentially a new lower high. I'm willing to wait and see if FLR moves lower (and we'll drop it) or if it rallies back toward resistance near $67.

Earlier Comments:
Shares were 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


Michael Kors Holdings - KORS - close: 75.70

Comments:
09/08/13: KORS is still defying gravity with another weekly gain. This stock is up three weeks in a row and up six out of the last seven weeks. We have been waiting for a correction. Shares are currently hovering near long-term resistance (see chart below). Thus we'd rather not chase it here. I am removing KORS from the watch list tonight but I would definitely keep it on your radar screen. We'll certainly keep an eye on it for a potential entry point.

Trade did not open

09/08/13 removed from the newsletter, trigger was a dip to $66.00.

Chart of KORS

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


NVIDIA Corp. - NVDA - close: 14.88

Comments:
09/08/13: NVDA is quietly churning sideways in the $14.75-15.00 zone. We are still on the sidelines and waiting for a breakout higher.

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: 28.28

Comments:
09/08/13: I am giving up on PFE. Shares continue to trade near their long-term up trend of higher lows. More aggressive investors could buy calls now and just use a stop loss under the 200-dma (or probably better to use a stop under $27.50 or even under $27.00). Given the potential volatility for the market in September we're going to remove PFE as a candidate. I would keep it on your radar screen. A rally back above $30.00 could be interesting.

Trade did not open.

09/08/13 removed from the watch list. trade did not open.

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


The J. M. Smucker Company - SJM - close: 105.99

Comments:
09/08/13: Shares of SJM are virtually unchanged for the week (about 15 cents). The stock is hovering between technical support at its 100-dma (and the $105 level) and resistance near $108. We're expecting a rebound from support at $105 but shares really didn't move last week when the rest of the market did. That's troubling. At the moment our plan is unchanged.

Earlier Comments:
I am suggesting we wait for SJM to close above $108.50. If that occurs we can buy calls the next day with a stop loss at $104.25, just below Thursday's lows (Aug. 29th). I do expect some resistance near $115.00 but we're aiming for $119.00.

trigger: Wait for SJM to close above $108.50
then buy calls the next day. Stop loss @ 104.25

BUY the 2014 Jan $115 call (SJM1418a115) current ask $1.60

Originally listed on the Watch List: 09/01/13


VeriSign, Inc. - VRSN - close: 49.31

Comments:
09/08/13: VRSN was up every day last week. Shares are once again approaching significant resistance near the $50.00 level.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $55 call (NVDA1517a55)

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