Option Investor
Newsletter

Daily Newsletter, Sunday, 9/15/2013

Table of Contents

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

Leaps Trader Commentary

O' September, Where Is Your Sting?

by James Brown

Click here to email James Brown

September's seasonal sting is slipping. The U.S. stock market is up two weeks in a row in what is historically the worst month of the year for equities. Thursday, September 12th was the S&P 500's first decline in September, snapping a seven-day winning streak. Meanwhile the NASDAQ composite rallied to new 13-year highs thanks to a strong Monday-Tuesday performance.

Market participants kept a wary eye on the Syria situation but a U.S. strike on Syria seems to be fading away. Lessened Syria fears combined with better than expected economic data out of China helped power stocks to one of their strongest weeks this year. Precious metals like gold and silver crumbled as geopolitical risks receded. Meanwhile the Dow Jones Industrial average added +3.0% for the week (more than 450 points). The S&P 500 added +1.98%, the NASDAQ added +1.7%, the Russell 2000 index added +2.3%. Some of the best performing industries were the transports (+2.39%), the semiconductors (+2.7%), and the housing industry (+4.1%).

Economic Data

Most of the U.S. economic data was disappointing last week. The University of Michigan consumer sentiment produced one of its biggest misses on record. Analysts were expecting a reading of 83.0 but the September reading fell from 82.1 to 76.8. That's the lowest reading in months. The expectations component is plunging with a drop from 73.7 to 67.2.

U.S. retail sales data also fell to its weakest reading in months. The headline number came in at +0.2% compared to estimates for +0.5%. Ex-autos the retail sales gain was only +0.1%. Clothing and accessories fell -0.8%, sporting goods -0.5% and general merchandise -0.2%. The Producer Price Index (PPI) rose from a +0.0% gain in July to +0.3% in August. The core-PPI rate of wholesale inflation slipped to 0.0% from +0.1% in July.

Meanwhile mortgage applications continue to plunge. The weekly MBA mortgage index dropped -13.5% to is lowest levels in almost five years. Refinance applications cratered -20%.

Overseas Data

The trend overseas continues with weak data out of Europe and improving data out of Asia. Eurozone industrial production fell from +0.6% to -1.5%, month over month. French industrial production dropped -0.6%. Italy's industrial production slipped -1.1% compared to a prior reading of +0.2%. Italy also sad its GDP was revised lower from -0.2% to -0.3%. Meanwhile unemployment in Greece hit a new all-time high of 27.9%, up from 27.6%.

It was a different story in Asia. Japan said their industrial production rose +3.4%, up from +3.2%. Japan's second-quarter GDP estimate was revised higher from +0.6% growth to +0.9%. The Japanese government raised their economic forecasts for the seventh time this year. It was data out of China that helped drive market gains. China said its pace of retail sales rose +13.4%, which was above expectations. Exports increased +7.2%, which was also above expectations. Plus China's industrial production surged +10.4%, again better than expected.

Syria

Syria remains a major topic for the market but its impact seems to be fading. There has been significant changes in the last week with Russia proposing that Syria hand over its chemical weapons the day before President Obama was due to speak to the U.S. public (last Tuesday night). Initially Russia's proposal was met with skepticism but Syria President Assad appears to be playing along. President Obama says a military strike on Syria could still happen but the U.S. is willing to try the diplomatic route first. This could just be a huge delaying tactic by Syria and Russia. The logistics and details for the international community to be able to catalog and transport Syria's weapons of mass destruction out of the country during a civil war could be daunting. As of Saturday, September 14th, it appeared that the U.S. and Russia had agreed to an initial plan on how to proceed. This news could provide a boost to stock markets around the world on Monday morning.

Major Indices:

The S&P 500 large cap index has delivered a very strong September performance with gains in eight out of the last nine sessions. For the week the S&P 500 is up +1.98% and back above its simple 50-dma. This index is also back above what could have been resistance at the 1680 level. It's now only 22 points away from a new all-time high.

The early August high near 1709-1710 is the next level of overhead resistance. A breakout there could spark new short covering. A failure there and it could look like a potential bearish double top pattern. Should stocks retreat lower we can watch for support near 1650 and the long-term up trend of higher lows.

chart of the S&P 500 index:

The NASDAQ composite had a good week with a +1.7% gain and a breakout to new 13-year highs. This tech-heavy index has spent the last five weeks churning sideways in the 3570-3700 zone. The push to new highs this past week is very bullish. The NASDAQ probably would have seen stronger gains but a sell-off in Apple Inc. (AAPL) undermined its advance.

There is very short-term support at 3700. If the NASDAQ were to reverse we can watch for potential support near 3640 or its 50-dma (currently 3625). Overhead resistance is probably 3750 and the 3800 level.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index outperformed the NASDAQ and S&P 500 with a +2.3% gain. Yet the rally has appeared to stall under its August highs. A reversal near the early August peak would look like a potential bearish double top.

On a short-term basis the $RUT should find support near 1040. If that level fails then look for support in the 1010 area.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week will see an uptick in economic data. Yet the only event that really matters is the two-day FOMC meeting. The FOMC meeting will end on Wednesday, September 18th. The Fed will release their decision on interest rates (no change is expected). Plus the Fed will update their economic projections. Federal Reserve Chairman Ben Bernanke will follow that with a press conference.

There are two distinct camps on Wall Street: those who think the Fed will announce a taper to their QE program on Wednesday and those who don't. The Fed has long said that any decision to scale back their QE program would be data dependent and so far the data has not been supportive of any taper. Yet a number of "insiders" and analysts have suggested that the Fed is looking for any excuse to begin the taper.

Whether the Fed does or does not taper on Wednesday will help set the tone for the rest of September. If they do announce a taper, many have speculated that the Fed will reduce their monthly QE program by $10 billion. That number has likely been priced into the market. Anything more might spark a bigger reaction in stocks. If they do not taper then that might suggest the Fed is still worried that the economy is not strong enough to stand on its own and could be viewed as bearish even though in the past anything that keeps the QE program going has been a bullish catalyst for stocks.

The Federal Reserve might choose some combination of taper now and then follow that up with dovish comments from Bernanke at the press conference or vice versa and not taper but follow that up with hawkish comments in the press conference. Now that the Syria issue is fading from the spotlight the taper question will retake center stage for Wall Street.

Economic and Event Calendar

- Monday, September 16 -
New York Empire State manufacturing survey
industrial production data
Eurozone CPI data

- Tuesday, September 17 -
Consumer Price Index (CPI) data

- Wednesday, September 18 -
housing starts and building permit data
FOMC meeting & interest rate decision
Fed Chairman Bernanke press conference

- Thursday, September 19 -
Weekly Initial Jobless Claims
existing home sales data
Philadelphia fed survey

- Friday, September 20 -
Eurozone consumer confidence data

Additional Events to be aware of:

Sept. 22nd - German elections
September - U.S. debt ceiling deadline

The Week Ahead:

Following my QE taper comments above there are a number of other headlines that could move stocks. Obviously the Syria issue could sour if Syrian President Assad decides to stop cooperating. That seems unlikely over the next few weeks. That leaves the U.S. budget battle and U.S. debt ceiling as major issues that could derail the stock market's rally.

The deadline for the U.S. budget showdown is October 1st. That is just a little more than two weeks away and any there doesn't seem to be any deal on the table for the democrats and republicans to rally behind. If the two parties can't come together on a deal then the U.S. government officially shuts down on October 1st. You can bet that the politicians in Washington will wait until the very last minute before agreeing to some sort of deal or postponing the decision again with a temporary stop-gap measure. Unfortunately, all the uncertainty surrounding this issue could be negative for stocks.

Looking beyond the U.S. another major story will be German national elections on September 22nd. German chancellor Angela Merkel is still expected to win but her margin of victory seems to be narrowing. Should Merkel lose it could cause some serious shockwaves in the equity markets. Even if Merkel wins again the financial crisis with Greece will rear its ugly head again. Greece will need an additional bailout and Italy, Spain and Portugal are all on the brink again. There has been new speculation that after the German elections the EU leaders may consider a "smaller" EU with few members. This could be an issue that plagues the market for months to come.

The U.S. stock market's trend is still higher. To keep things simple, the trend is our friend. Yet I am still worried that the next two or three weeks could still be a roller coaster for stocks due to the QE taper, U.S. budget battles, and German elections.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market continued to rally as fears over Syria faded and better than expected economic data out of China lifted investor sentiment.

FLR, NVDA, and SJM have all been added to the play list. INTC has moved from the watch list to our new play section tonight.

I have updated stop losses on: AIG.

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

Graduation Day

by James Brown

Click here to email James Brown


- New Trades -


Intel Corp. - INTC - close: 23.44

Company Info

Why We Like It:
INTC is a watch list candidate that is graduating to our active play list. The stock has spent weeks correcting lower from its June peaks. Yet shares finally found a bottom in August with support near the $22.00 area and its longer-term trend of higher lows. After underperforming its peers in the chip industry for so long this stock now looks poised to play catch up.

Shares had resistance near $23.00 and its 50-dma. Our entry point strategy was to wait for INTC to close above $23.15 and buy calls the next day. INTC met that entry requirement with Friday's close at $23.44. We want to buy calls at the open on Monday. Nimble traders could choose to wait and try and jump in on a dip near $23.00 or the 50-dma instead. I'm suggesting a stop loss at $21.75. Our long-term target is the $26-29 zone.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ --.--, option @ -.--
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.86/0.88

- or -

SEP 16, 2013 - entry price on INTC @ --.--, option @ -.--
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.58/1.60

Chart of INTC:

Current Target: $26-29 zone
Current Stop loss: 21.75
Play Entered on: 09/16/13
Originally listed on the Watch List: 09/08/13



Play Updates

No September Swoon (Yet)

by James Brown

Click here to email James Brown

Editor's Note:

Stocks continued to rally in September's first full, five-day trading week. What I find worrisome is that a number of our active plays actually posted declines for the week.

We added three new plays to the newsletter with FLR, NVDA, and SJM graduating from our watch list.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 49.70

Comments:
09/15/13: The financial sector lagged behind the rally in the major indices. Most of the gain in the financial stocks came on Tuesday's rally. Shares of AIG have spent the last few days consolidating sideways under round-number resistance at the $50.00 level. A breakout past $50 probably signals a move toward the $54-55 zone. A reversal probably means a dip back toward the $47-46 area.

Please note our new stop loss at $44.65.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.64/2.69

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $4.05/4.20

09/15/13 new stop loss @ 44.65
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: 44.65
Play Entered on: 07/15/13
Originally listed on the Watch List: 06/01/13


Bank of America - BAC - close: 14.49

Comments:
09/15/13: There were big headlines for BAC this past week. On September 10th it was announced that BAC was going to be removed from the Dow Jones Industrial Average. The move will take place after the market close on September 20th. That could put some short-term pressure on the stock as any mutual funds that track the DJIA will need to sell their shares of BAC and replace them with the new components. Altogether the Dow Jones Industrials will replace AA, BAC, and HPQ with GS, NKE, and V.

Performance wise BAC managed its second weekly gain in a row. Yet the rally stalled at late August resistance near $14.70. Currently BAC has technical support near the 50-dma but if that level breaks BAC should find additional support near the $14.00 mark. More conservative investors might want to adjust their stop loss closer to the $13.25-13.50 zone.

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 $1.61/1.65

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: 59.79

Comments:
09/15/13: DECK delivered a disappointing performance last week. Shares saw a midweek, three-day decline and the stock closed below what should have been support at the $60.00 level. Traders did buy the dip on Friday morning but the relative weakness is worrisome. I warned readers last weekend that we might see DECK slide back into the $60-58 zone, which is exactly what happened. I would wait for a new rise above $60.25 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 $3.20/3.40

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $6.60/7.30

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

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: 56.83

Comments:
09/15/13: DG failed to see any follow through on its early September rally to new highs. Shares spent last week consolidating sideways, which is a bit disappointing given the market's widespread rally. DG looks poised to dip back toward the $56-55 zone. I would wait for a new bounce from $55.00 before considering new positions.

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 $2.05/2.20

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.40/3.20

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: 76.50

Comments:
09/15/13: Warning! EMN's performance last week is troubling. In mid-August the stock found technical support at its simple 30-dma. Now in September the 30-dma has been acting as new overhead resistance. EMN just failed at the 30-dma on Thursday and has produced a two-day decline. Bears could argue that the action over the last two weeks is a bear-flag consolidation pattern (a pause before the down trend continues). If EMN does continue to slide the stock should find support in the $74-75 zone. Currently our stop loss is 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 $ 3.00/3.20

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 4.90/5.10

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: 17.35

Comments:
09/15/13: It looks like Ford's rally has stalled at resistance. The July 24th high was $17.68. This past week the rally stopped at $17.68. So far profit taking has been pretty minor but if the pullback picks up any speed then it's going to look like a bearish double top for shares of Ford. I am not suggesting new positions at this time.

Please note that currently the only position we have left with Ford is the 2015 Jan $15 calls. I am adjusting our exit target from $17.75 to $19.50.

- 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 $ 3.40/3.45

09/15/13 adjust exit target on 2015 calls to $19.50 (on Ford stock)
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:$ 19.50
Current Stop loss: 15.35
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Fluor Corp. - FLR - close: 67.21

Comments:
09/15/13: It was a strong week for shares of FLR. The stock broke out past major resistance near $67.00 to hit new two-year highs. We had FLR on the watch list and the trigger was to wait for a close above $67.00. On September 11th, FLR closed at $67.15. Our trade opened on the 12th with FLR at $67.14. It does look like the rally ran into some profit taking on Friday. Normally I would expect broken resistance (at 67.00) to be new support but FLR might dip a little lower.

Investors may want to just watch FLR for a couple of days. If the stock declines under $67.00 I would wait for a bounce back before initiating new positions. Currently our stop loss is at $63.75. Our long-term target is $74.75.

The Point & Figure chart is even more bullish with an $82 target.

- Suggested Positions -
SEP 12, 2013 - entry price on FLR @ 67.14, option @ 2.90
symbol: FLR1418a70 2014 JAN $70 call - current bid/ask: 2.90/3.00

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 5.50/5.80

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

Chart of FLR:

Current Target:$ 74.75
Current Stop loss: 63.75
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/11/13


Halliburton Company - HAL - close: 49.69

Comments:
09/15/13: HAL hit new highs above resistance at the $50 level last week. Unfortunately the stock couldn't hold that level. HAL is currently retesting short-term technical support near its 10-dma. If the stock actually reverses here it could see a drop toward its 50-dma or the $46.00 level. Overall the path of least resistance looks higher. I am not suggesting new positions at this time.

- Suggested Positions -
AUG 21, 2013 - entry price on HAL @ 47.22, option @ 1.82
symbol: HAL1418a50 2014 JAN $50 call - current bid/ask $ 2.89/2.93

- 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: 63.30

Comments:
09/15/13: HOG managed another weekly gain thanks in large part to an analyst upgrade and a new $74 price target that hit the wires last Monday. The midweek pullback was pretty mild. I would wait for a deeper pullback before considering new bullish positions.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 2.70/2.78

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.00/5.15

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

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: 84.05

Comments:
09/15/13: HON delivered a strong performance last week but nearly all of its gains were on Monday and Tuesday. Shares have been consolidating sideways near $84 the last couple of days. HON is also facing overhead resistance near the $85.00 level. 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 $ 7.15/7.30

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: 52.59

Comments:
09/15/13: JPM closed virtually unchanged for the week due to its Wednesday-Thursday pullback. The stock's rally reversed at resistance near its 50-dma (currently near $54.00). Traders bought the dip on Friday but that doesn't mean the pullback is over. More conservative investors might want to raise their stop loss closer to $50.00 and its 200-dma. I am not suggesting new positions at this time.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 1.31/1.33

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.85/3.95

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: 16.22

Comments:
09/15/13: It was kind of a rocky week for MAKO with shares churning inside the $15.50-16.50 zone. Traders bought the dip at its 10-dma and surged +2.7% on Friday. This helped MAKO post its fourth weekly gain in a row.

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 $ 2.40/2.55

- or -

SEP 04, 2013 - entry price on MAKO @ 15.66, option @ 2.40
symbol:MAKO1517a20 2015 JAN $20 call - current bid/ask $ 2.35/2.80

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: 59.74

Comments:
09/15/13: MDVN has struggled to see any follow through on its early September breakout to new highs. Shares spent the last week consolidating gains with a very slow drift lower. Investors might want to wait for MDVN to close above $61.00 before initiating new positions.

Earlier Comments:
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 $ 6.10/6.95

*option entry price is an estimate since the option did not trade at the time our play was opened.
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: 43.77

Comments:
09/15/13: NTAP displayed relative strength with gains every day last week. The stock has broken out to a new 18-month high. The next level of resistance is probably the $45.00 level.

Please note that I am adjusting our exit target strategy. The target to exit our 2014 calls is $44.75. The target to exit our 2015 calls will be $49.50.

Earlier Comments:
FYI: NTAP's point & figure chart is bullish with a $64 target.

- Suggested *Small* Positions -
MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 3.35
symbol: NTAP1418a40 2014 JAN $40 call - current bid/ask $4.85/5.00

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $7.50/7.65

09/15/13 Exit strategy update:
target to exit the 2014 calls is $44.75.
target to exit the 2015 calls is $49.50.
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: exit for 2014 calls is $44.75, exit for 2015s is $49.50
Current Stop loss: 39.25
Play Entered on: 05/17/13
Originally listed on the Watch List: 05/11/13


NVIDIA Corp. - NVDA - close: 15.80

Comments:
09/15/13: The semiconductor industry had a strong week thanks to a big two-day pop in the SOX index on Monday and Tuesday. Shares of NVDA managed to outperform its peers and the broader market with a +6.1% gain for the week. NVDA also broke out past resistance near $15.50 to hit new one-year highs.

We had NVDA on the watch list. Our plan was to wait for shares to close above $15.50 and then buy calls the next day. Shares closed at $15.71 on September 11th. Our trade opened at $15.63 on the 12th. Broken resistance at $15.50 and $15.00 should offer new support for NVDA.

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. 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.

- Suggested *Small* Positions -
SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 0.88
symbol: NVDA1418a16 2014 JAN $16 call - current bid/ask $0.92/0.94

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.57/1.64

Chart of NVDA:

Current Target: exit for 2014 calls is $18.00, exit for 2015s is $19.75
Current Stop loss: 14.25
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/18/13


Old Dominion Freight Line - ODFL - close: 46.13

Comments:
09/15/13: The transportation sector had a good week even though the pullback in oil prices was not very significant. Meanwhile ODFL accelerated higher and hit new all-time highs. The breakout past its August highs and the $46.00 level is good news for the bulls. I would keep a wary eye on oil. Crude oil is likely to pullback as Russia and the U.S. agree on a deal over Syrian chemical weapons, which should reduce any potential for a U.S. strike on Syria. However, the trend in oil is still higher (at least for now).

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $1.05/1.35

09/15/13 What a difference two weeks can make.
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


The J. M. Smucker Company - SJM - close: 107.87

Comments:
09/15/13: SJM is another watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $108.50 and buy calls the next day. SJM closed at $108.91 on September 10th. Our play opened on the 11th at $108.83. I cannot find any news to explain the sharp drop in SJM on the 11th. Fortunately traders have been buying the dips near SJM's rising 10-dma.

The reversal under the $110 level last Tuesday might be a warning signal and cautious investors may want to wait for SJM to close above $110 before initiating new positions.

Earlier Comments:
I do expect some resistance near $115.00 but we're aiming for $119.00.

- Suggested Positions -
SEP 11, 2013 - entry price on SJM @ 108.83, option @ 2.10*
symbol: SJM1418a115 2014 JAN $115 call - current bid/ask $1.55/1.75

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

Chart of SJM:

Current Target: $119.00
Current Stop loss: 104.25
Play Entered on: 09/11/13
Originally listed on the Watch List: 09/01/13


Constellation Brands - STZ - close: 58.70

Comments:
09/15/13: STZ added a dollar for the week but that was enough to set another new all-time high. Shares are arguably short-term overbought here. The closest thing to any support is probably the $56.00 level. Odds are good that the $60.00 level could be round-number, psychological resistance. We should not be surprise to see STZ near $60.00 and then see a pullback.

FYI: STZ is scheduled to report earnings on October 3rd.

- Suggested Positions -
SEP 06, 2013 - entry price on STZ @ 57.56, option @ 2.00
symbol: STZ1418a60 2014 JAN $60 call - current bid/ask $2.60/2.80

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $4.30/5.30

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.

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: 154.75

Comments:
09/15/13: Railroad stocks underperformed the rest of the transports thanks to a sell-off on Thursday. UNP closed almost unchanged for the week (down 17 cents) and that's disappointing giving the market's recent gains. The stock has failed near its 50-dma and bears could argue that UNP has created a bear-flag consolidation pattern over the last two weeks.

Once again I am urging caution on UNP and more conservative investors may want to abandon ship and just exit early. 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 $ 0.50/0.77

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 2.33/2.77

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: 57.11

Comments:
09/15/13: We can't complain with WFM's performance. The stock has been up every day this month so far. WFM is actually up 11 days in a row if we count the last two days of August. This past week has seen WFM rally to new all-time highs. While that is encouraging the stock is short-term overbought and way overdue for a pullback. The $54-55 area could offer some short-term support. 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 $ 1.95/2.01

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 6.40/6.65

Current Target: $59.75 for the 2014 calls, $64.00 for the 2015 calls
Current Stop loss: 49.75
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


Watch

Buying The Dip

by James Brown

Click here to email James Brown

Editor's Note:

Our watch list continues to work well with three more candidates graduating to the active play list last week (FLR, NVDA, and SJM). You will also notice that Intel (INTC) is missing. INTC met our entry requirement on Friday at the close so we're moving to the new plays section.

Tonight we're adding a couple of candidates with a buy-the-dip entry point strategy.



New Watch List Entries

FCX - Freeport McMoRan

WAG - Walgreen Co.


Active Watch List Candidates

DD - E.I. du Pont

KMX - CarMax Inc.

VRSN - VeriSign, Inc.


Dropped Watch List Entries

FLR, NVDA, and SJM have graduated to the active play list.
INTC met our entry point on Friday and has been moved to the new plays section.



New Watch List Candidates:


Freeport-McMoRan - FCX - close: 33.04

Company Info

FCX is a miner. The company producers copper and gold and a number of other precious and industrial metals. The recent pullback in gold and copper prices has not stopped the rally in FCX shares. Investors could be betting on improving economic data out of China as a precursor to stronger demand for copper.

This past week has seen FCX breakout past resistance near $32.00 and both its simple and exponential 200-dma. FCX has also broken one of its long-term trend lines of resistance (see weekly chart). I suspect FCX is going to see a pullback and retest the $32 level. Tonight I am suggesting we launch small bullish positions if FCX trades at $32.00 again. We'll try and limit our risk with a stop loss at $29.45. Our long-term target is the $38-40 zone but we'll adjust it as the play progresses.

Buy-the-Dip trigger: $32.00, small positions!
start with a stop loss at $29.45.

BUY the 2014 Jan $35 call (FCX1418a35) current ask $1.44

- or -

BUY the 2015 Jan $34 call (FCX1517a34) current ask $3.85

Chart of FCX:

Weekly Chart of FCX:

Originally listed on the Watch List: 09/15/13


Walgreen Co. - WAG - close: 53.46

Company Info

Walgreens currently operates over 8,000 drugstores across the U.S. and they're growing after last week's announcement it was buying privately held Kerr Drug, a regional pharmacy chain in North Carolina. Shares of WAG also garnered some bullish analyst comments that helped lift shares past resistance to new all-time highs. The company's latest same-store sales came in at +4.8%, which was way above estimates of +3.4%.

We do not want to chase WAG here. Odds are good that we could see WAG retest prior resistance as new support. Therefore I am suggesting we buy calls on a dip at $51.50. If triggered I am suggesting a stop loss at $47.40, just below technical support at the rising 150-dma. Our target to exit the 2014 calls is $59.50. Target to be determined for the 2015 calls.

Please note that more conservative investors may want to wait a couple of weeks before considering new positions. WAG is scheduled to report earnings on October 1st. You might want to wait and see how the market chooses to interpret WAG's results before initiating positions.

Buy-the-Dip trigger: $51.50, use a stop at $47.40

BUY the 2014 Jan $55 call (WAG1418a55) current ask $2.40

- or -

BUY the 2015 Jan $60 call (WAG1517a60) current ask $3.70

Chart of WAG:

Originally listed on the Watch List: 09/15/13


Active Watch List Candidates:



E.I. du Pont - DD - close: 58.88

Comments:
09/15/13: After a four-week correction lower shares of DD have managed a two-week bounce. This past week saw the rebound accelerate higher. More aggressive investors could buy this bounce with a stop under $56.00. I am suggesting we stick to our plan and wait for a breakout past $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


CarMax Inc. - KMX - close: 51.08

Comments:
09/15/13: KMX has seen profit taking three days in a row. Yet the actually selling has been pretty mild, which is encouraging. I don't see any changes from my earlier comments.

NOTE: KMX is scheduled to report earnings on September 24th. Cautious investors may want to wait until after we see how the market reacts to KMX's results before launching positions, regardless of if this stock hits our suggested entry trigger.

Earlier Comments:
More aggressive investors may want to buy calls 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 $1.90

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


VeriSign, Inc. - VRSN - close: 49.85

Comments:
09/15/13: The two-week rebound has lifted VRSN back toward major resistance at the $50.00 level. The rally has clearly stalled over the last couple of days. I do want to make one change to our strategy. Wait for VRSN to close above $50.50 before initiating positions.

Earlier Comments:
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 $50.50
then buy calls the next morning. Start with a stop at $47.40.

BUY the 2014 Jan $55 call (NVDA1418a55) current ask $0.79

- or -

BUY the 2015 Jan $55 call (NVDA1517a55) current ask $3.75

09/15/13 adjust entry trigger: wait for a close over $50.50 instead of $50.25

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