Option Investor
Newsletter

Daily Newsletter, Sunday, 9/22/2013

Table of Contents

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

Leaps Trader Commentary

Buckle Your Seatbelt!

by James Brown

Click here to email James Brown

Federal Reserve Chairman Ben Bernanke surprised the market with no QE taper on Wednesday. The U.S. market soared on this decision and Wednesday afternoon saw the S&P 500 hit new all-time highs near 1,725. Thus far the first nine-months of 2013 have been stellar. The S&P 500 has delivered its eighth best performance since 1957. According to Bank of America/Merrill Lynch the most recent data shows the largest weekly inflow of money into the global stock market ever! Money flowing into U.S. equity funds hit their highest weekly inflow since the year 2000. While that seems like good news contrarians will point out that money inflows tend to surge at market peaks.

Unfortunately the post-FOMC meeting spike higher is fading. The Dow Jones Industrial Average has already erased its post-Fed meeting gains. The S&P 500 is close to erasing its gains with a Thursday-Friday pullback. Friday was a high-volume day thanks to the S&P 500's quarterly rebalancing. Plus, the Dow Jones Industrials removed HPQ, BAC and AA and replaced them with GS, V, and NKE. Friday was also a quadruple-witching option expiration Friday. Stock options, index options, futures, and single stock futures all expired. For the week the Dow Industrials gained +0.49%. The S&P 500 added +1.3%. The NASDAQ was up +1.4%. The Russell 2000 surged +1.79%. Transports had a good week with a +2.59% gain. Meanwhile commodities retreated. Normally when the U.S. dollar declines, like it did last week, commodities rise. That relationship didn't work as crude oil sank -3.49%, silver lost -2.2%, and gold gave up -0.1% for the week.

Economic Data

There was a lot of housing-related data last week. Existing home sales for August surged to an annual pace of 5.48 million. That's up from July's 5.39 million. August was the strongest pace since February 2007 (5.79 million). I wouldn't get too excited just yet. The recent rise in mortgage rates likely pushed buyers to rush in and close a deal. This may have pulled sales forward and could spell trouble for the rest of fall.

Homebuilders remain optimistic. The latest NAHD homebuilder sentiment survey remained unchanged at 58. These are eight-year highs. While builders are positive the housing starts and permit data was mixed. Housing starts for August rose +0.9% to an annual rate of 891,000. That's up from July's 883K. Building permits fell -3.8% to 918,000.

After a multi-week plunge in mortgage applications the MBA mortgage index finally bounced. Last week the mortgage index gained +11.2%. This was fueled by a +17.9% rebound in refinance applications. Applications to purchase a home only rose +2.5%.

Inflation remains tame with the Consumer Price Index (CPI) data for August coming in at +0.1%. The core CPI also rose just +0.1%. Over the last year the CPI is only up +1.5%.

The latest round of regional Fed surveys were mixed. The New York Empire State fed survey declined from 8.2 to 6.3. Economists were hoping for a rise to 9.1. Readings above zero are positive. The Philly Fed manufacturing survey saw a big improvement from 9.3 in August to 22.3 in September. That's the highest reading since March 2011.

The biggest economic event for the week was the two-day FOMC meeting. Most of the market was expecting Ben Bernanke to announce a $10 billion taper in the Fed's QE program. Yet the Fed said no taper due to not enough positive economic data and tightening of financial conditions (a rising 10-year bond yield). Bernanke expressed concerns over fiscal uncertainty (U.S. budget debate and debt ceiling) and worried over the unemployment picture that has only improved due to people leaving the workforce. The Fed's QE program remains unchanged at $85 billion a month in asset purchases that's split between $45 billion in U.S. treasuries and $40 billion in mortgage-backed securities.

It is worth noting that the Federal Reserve also downgraded their economic forecast for 2013 and 2014. They now expected 2013 GDP growth in the 2.0% to 2.3% range and they expected 2014 GDP growth in the 2.9% to 3.1% zone. Essentially the Fed is on hold as they await more data. At least that was the initial impression. The stock market shuddered a bit in confusion when St. Louis Fed President James Bullard came out on Friday and suggested the Fed might taper at the October meeting. That was a surprise since many had assumed that after Wednesday's announcement the next time table for the Fed to taper would be the December or January meetings.

Overseas Data

Overseas data was quiet. The markets are waiting for Germany's national elections that take place on Sunday, September 22nd. It has been widely expected that German Chancellor Angela Merkel would win reelection again. Yet her lead has steadily diminished in recent days. There are a lot of Germans upset over the constant bailouts for weaker Eurozone members. Greece has been a sore subject as it's widely expected that Greece will need yet another bailout. It's probably not a coincidence that the next IMF review of Greece is scheduled for September 29th, after the German elections.

As of Saturday it looked like Merkel's lead had dwindled to a statistical dead heat with her rival. Yet as of Sunday afternoon (Sunday evening in Germany) Merkel had won a decisive victory. She will become the fourth German chancellor to ever win a third term since World War II. The global markets could rally on Monday based on this news.

Major Indices:

The S&P 500 hit new all-time highs this past week as market participants reacted to the "no taper" news. Yet after a three-week rally from the 1630 level the S&P 500 looks a little tired here. It might be time for a pullback.

The 1700 level could offer some short-term support. If that level fails then 1680 is the next likely target. On the other hand if stocks resume the rally on Monday then 1730 and 1750 are the next potential resistance levels.

chart of the S&P 500 index:

The NASDAQ has been showing relative strength. The composite index added +1.4% last week and hit new 13-year highs. The rally paused at round-number resistance at the 3800 level. It's possible that the NASDAQ might find short-term support at 3750 or 3735 but I would focus on the 3700 level. Below 3700 we're looking at potential support near the 50-dma and the 3600 area.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index closed at new all-time highs on Tuesday and the rally kept going with the post-FOMC meeting surge. The index finally found resistance at the 1080 level. If the rally continues then 1100 is the next logical (and psychological) target. If we see stocks retreat then the $RUT should find some support near 1060 and the 1040 levels.

chart of the Russell 2000 index



Economic Data & Event Calendar

There are a number of economic reports out this week. Yet they will all pale in comparison to the German elections taking place on Sunday, Sept. 22nd and the budget battle out of Washington D.C. As mentioned above, Merkel has won another term, which will help remove some uncertainty from the market. The next big deadline to watch is the September 30th/October 1st U.S. budget deadline. Officially the U.S. government faces a shutdown on October 1st. Yet the U.S. Treasury department says they can keep the government going until October 9th. The Treasury has been operating under "special rules" and creative accounting techniques for the last several weeks as they juggle accounts payable and postpone bills that they can pay later.

Economic and Event Calendar

- Monday, September 23 -
Eurozone PMI data

- Tuesday, September 24 -
Case-Shiller 20-city home price index
Consumer Confidence data

- Wednesday, September 25 -
MBA mortgage index
Durable Goods orders
new home sales data

- Thursday, September 26 -
Weekly Initial Jobless Claims
Japan's CPI data
U.S. Q2 GDP growth estimate
pending home sales data

- Friday, September 27 -
Eurozone's consumer confidence data
Eurozone industrial production
personal income and spending data
University of Michigan consumer sentiment (final reading for Sept.)

Additional Events to be aware of:

Oct. 1st: U.S. government shutdown deadline
Oct. 29-30th: next (two-day) FOMC meeting

The Week Ahead:

As we look ahead the stock market is facing a lot of cross winds. The Fed's decision to not taper could be considered bullish since it keeps the stimulus going. At the same time you could argue it's bearish since that means the Fed does not believe the U.S. economy is strong enough to survive without help from the central bank. The stock market did not like Fed President Bullard's comments on Friday that they could choose to taper in October. Thus the markets still face the uncertainty of taper and the when and how it might occur. Unfortunately, the stock market doesn't like uncertainty.

Speaking of uncertainty there is no clarity on the U.S. budget battle and debt ceiling debate. Actually, that's probably not true. The only clarity we have is that both sides are gearing up for a venomous fight with headlines that could sicken the stock market. Investors might choose to hit the sell button ahead of any looming government shutdown and then wait for the dust to settle.

President Obama has said multiple times that he will not negotiate over the debt ceiling. Meanwhile the Republican controlled congress is sending U.S. budgets to the Senate that defund Obamacare and there's no chance those are going to pass the senate (and Obama has already promised to veto any bill that defunds Obamacare). With major budget deadlines set for October 1st and most likely October 9th the rhetoric in Washington is going to heat up fast. We only have six trading days left until October 1st.

Since we're looking at the end of the month it also happens to be the end of the third quarter. Normally you might expect the stock market to see some end of quarter window dressing. Yet after +20% gains in 2013 fund managers might be facing a temptation to lock in gains now before the battle in Washington gets too hot and sours investor sentiment. It's also worth noting that the last week of September is historically one of the worst weeks of the year for stocks. We are also less than three weeks away from the unofficial start to the Q3 earnings season. The next couple of weeks could be punctuated by earnings warnings, which could also lessen investor appetite for stocks.

Put it all together and we have a recipe that favors a market pullback. Longer-term (next several months) the general tone seems to be bullish for the market. Yet short-term there is so much uncertainty we could see a buyer strike as investors wait to see how the politics in Washington unfold. I would not be in a rush to launch new positions if we could see a better entry point in mid October.

Investors should buckle their seatbelt. The next couple of weeks could be bumpy.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Buckle your seatbelt because the next couple of weeks could be tumultuous as Wall Street reacts to the budget battle and debt ceiling debate in Washington D.C.

VRSN has graduated from our watch list to active trade list.

I have updated stop losses on: DG, FLR, HOG, NVDA, STZ and WFM.

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

Budget Battle Has Begun

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 22, 2013)

No new trades tonight!

The next two or three weeks could be a roller coaster for stocks. Thus far the U.S. market has been able to ignore September's historical weakness. Yet after a three-week rally the major indices look a little overbought and we're facing some major headwinds.

The budget battle and debt ceiling debate in Washington D.C. has started. Both sides are gearing up for a major fight and all the negative headlines and brinkmanship could spark some selling for the equity markets. There are some critical deadlines to avoid a government shutdown on October 1st and mid October. Thus the next couple of weeks could be volatile.

We did see VRSN graduate from our watch list to our active play list last week. Plus, we've added three new candidates to the watch list tonight.

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:

CBI, AMGN, FLS, WEN, FDO, ESI, BWA, JAH, TIBX, NILE, LVLT, TXN, AMZN, N, CMI, MA, AN, X, BHI, HAL, SLB, NKE, HP, LVS, CZR, IGT, BA, ADBE, V, SBUX, NBL, GRPN, FB, C, DNKN, ATI,



Play Updates

Stocks Push Higher Into September

by James Brown

Click here to email James Brown

Editor's Note:

VRSN has graduated from our watch list to our active play list.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 49.95

Comments:
09/22/13: AIG eked out a small gain for the week. The three-week trend is higher but momentum seems to be stalling. You could argue that Thursday's session created a bearish reversal candlestick pattern. AIG is currently testing short-term support at its 10-dma. I would not be surprised to see this stock decline toward $48.00 and its 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 $2.69/2.73

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $4.00/4.10

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: 14.44

Comments:
09/22/13: BAC garnered some bullish analyst comments on Thursday but it didn't help. The stock gave back all of its post-FOMC meeting pop from Wednesday afternoon. Shares lost five cents for the week and is flirting with a bearish breakdown below its 50-dma. If shares do breakdown below this moving average the next level of support could be the $14.00 level or its 100-dma (also nearing $14.00).

Don't forget that BAC was removed from the Dow Jones Industrial Average on Friday.

FYI: BAC is scheduled to report earnings on October 16th.

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 $1.56/1.59

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: 60.71

Comments:
09/22/13: It is a little bit surprising that DECK managed a gain for the week. Adidas issued a profit warning a couple of days ago but the news failed to really impact the rest of the footwear stocks. Nervous investors could have used that as an excuse to sell. I will point out that Friday's session for DECK does look like a bearish engulfing candlestick reversal pattern. If the market continues to slip lower I would not be surprised to see DECK slide toward $58 and its 50-dma.

I am not suggesting new positions at this time.

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 $3.50/3.70

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $7.10/7.60

*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: 57.65

Comments:
09/22/13: DG underperformed the market on Friday with a -1.4% pullback. Yet shares still poised a gain for the week. Wednesday's move was a bullish breakout from a two-week consolidation pattern but the sharp drop on Friday is troubling. If the market sees a correction we could watch DG decline back toward support near $55.00.

Please note that I am raising our stop loss to $53.60, which is just below the simple 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 $2.25/2.40

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.60/3.10

09/22/13 new stop loss @ 53.60

Current Target: 64.00 for the 2014s, 69.00 for the 2015s
Current Stop loss: 53.60
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/04/13


Eastman Chemical Co. - EMN - close: 78.53

Comments:
09/22/13: It was an encouraging week for EMN bulls. Shares rebounded from the $76.00 level on Tuesday and closed the week with a two-dollar gain. If the market cooperates we could see EMN retesting its highs soon. If not, then EMN might be forced to retest support near $75.00 again. Our stop loss remains at $74.40.

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 $ 3.70/3.90

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 5.40/5.70

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: 17.39

Comments:
09/22/13: Ford briefly traded to a new two-year high following the FOMC meeting on Wednesday. The two-day market pullback erased those gains. Shares only gained four cents for the week. If Ford breaks down under short-term support near $17.25 it could portend a much deeper decline. The $16.00 level and the 100-dma is the next closest level of support.

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 $ 3.35/3.40

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: 72.01

Comments:
09/22/13: Our new play on FLR is off to a strong start with shares up +7.1% for the week. The company announced a couple of new large contracts and the news pushed shares to new two-year highs. The rally stalled at round-number resistance near $75.00 on Friday morning. I would not be surprised to see a dip back toward the $70.00 level.

We previously listed our long-term target at $74.75. The high on Friday was $74.72. I am adjusting our long-term target to $79.50. We are also adjusting the stop loss to $64.75.

- Suggested Positions -
SEP 12, 2013 - entry price on FLR @ 67.14, option @ 2.90
symbol: FLR1418a70 2014 JAN $70 call - current bid/ask: 5.20/5.30

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 7.60/7.90

09/22/13 new stop loss @ 64.75
09/22/13 adjust exit target from $74.75 to $79.50
09/20/13 high for the day was $74.72
*option entry price is an estimate since the option did not trade at the time our play was opened.

Current Target:$ 79.50
Current Stop loss: 64.75
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/11/13


Halliburton Company - HAL - close: 49.34

Comments:
09/22/13: HAL spent the week churning sideways in the $49.00-50.50 zone. If the market corrects lower we could see HAL dip toward its 50-dma (near $47.00). While the long-term trend is up we may want to wait on new positions.

FYI: HAL is scheduled to report earnings on Oct. 21st.

- Suggested Positions -
AUG 21, 2013 - entry price on HAL @ 47.22, option @ 1.82
symbol: HAL1418a50 2014 JAN $50 call - current bid/ask $ 2.46/2.48

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 5.85/6.00

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: 64.27

Comments:
09/22/13: HOG keeps the rally going with another gain for the week. Shares are now up five weeks in a row. The $65.00 level could be round-number resistance. I am not suggesting new positions at this time. If this stock does see a pullback we can watch for support near $60.00.

I am raising our stop loss to $59.00.

- 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

09/22/13 new stop loss @ 59.00
*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: 59.00
Play Entered on: 09/04/13
Originally listed on the Watch List: 08/25/13


Honeywell Intl. - HON - close: 85.48

Comments:
09/22/13: HON hit new all-time highs this past week, trading to $87.50 on Thursday. Unfortunately, the action over the last three sessions sort of looks like a bearish reversal candlestick pattern. At the very least I am expecting a pullback toward the $84.50-84.00 area and possibly lower.

I am not suggesting new positions at this time.

FYI: HON is scheduled to report earnings on Oct. 18th.

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 $ 7.75/7.90

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


Intel Corp. - INTC - close: 23.77

Comments:
09/22/13: INTC has extended its gains to three weeks in a row but the rally seems to have stalled near the $24.00 level. Shares are up 33 cents for the week. Our trade opened on Monday, Sept. 16th with INTC at $23.63. I suspect that if the market pulls back from here we could see INTC retesting the $23.00 level. Investors may want to wait for that dip (near $23.00) before considering new positions.

FYI: INTC is scheduled to report earnings on October 15th.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ 23.63, option @ 0.93
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.96/0.98

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.64/1.66

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


JPMorgan Chase & Co. - JPM - close: 52.80

Comments:
09/22/13: JPM has suffered a lot of negative headlines this past week over how much it pays in legal fees and how much it's going to pay in penalties in fines. The latest story is that JPM will pay regulators over $900 million in fines for the "London Whale" trading loss scandal. Yet in spite of all the bad news the stock really isn't suffering that much. JPM actually eked out a gain for the week. Yet the rally has stalled with overhead resistance near $54.00 and its simple 50-dma.

If the market were to see a stronger pullback we could see JPM retesting support near $50.00 and its simple 200-dma. Bears could argue that JPM is actually forming a bearish head-and-shoulders pattern (easiest to see on the weekly chart). A decline from current levels would be the right shoulder on an H&S pattern. Therefore I would not be in a rush to launch new positions. We might see a better (lower) entry point near $50.00 soon.

FYI: JPM is scheduled to report earnings on October 11th.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 1.25/1.28

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.80/3.90

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: 16.36

Comments:
09/22/13: MAKO shot higher last Monday and spent the rest of the week trimming those gains. The stock is back to testing short-term technical support at its 10-dma. I am not suggesting new positions at this time. More conservative investors may want to raise their stop loss.

Earlier Comments:
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 $ 2.50/2.65

- or -

SEP 04, 2013 - entry price on MAKO @ 15.66, option @ 2.40
symbol:MAKO1517a20 2015 JAN $20 call - current bid/ask $ 2.45/2.75

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: 58.51

Comments:
09/22/13: Hmm... two down weeks in a row doesn't really bode well for our MDVN trade. The stock's attempt at a bounce didn't get very far and MDVN was accelerating lower into the closing bell on Friday. I am concerned that we could see this stock correct back toward support near $55.00. Currently our stop loss is at $54.90. More conservative investors may want to move their stop closer to $57.00 since the 50-dma is near $57.40.

I am not suggesting new positions at this time.

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.

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 $ 5.25/6.25

*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: 43.20

Comments:
09/22/13: NTAP was hitting new 18-month highs on Thursday and would have posted a gain for the week. Unfortunately, the stock garnered some bearish analyst comments on Friday and shares plunged -2.5% and broke down below its simple 10-dma.

It's disappointing since the intraday high on Thursday was $44.65. Our exit target for the 2014 $40 calls is $44.75. Ouch! NTAP should find support near $42.00 and its rising 50-dma.

Earlier Comments:
The target to exit our 2014 calls is $44.75. The target to exit our 2015 calls will be $49.50. 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 $4.35/4.45

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $7.05/7.20

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:
09/22/13: The big headline for NVDA this past week was news the company announced their own tablet PC. The Tegra Note is a 7-inch tablet that runs the Android operating system. Priced at $199 the tablet will compete with Google's Nexus 7 tablet. The news failed to have much impact on NVDA's stock. Shares struggled with resistance near the $16.00 level all week long.

Upward momentum has stalled and NVDA looks poised for a pullback. The first level of support should be $15.50. If that level fails then the $15.00 area should be much stronger support. I am raising our stop loss to $14.45. More conservative investors might want to raise their stop closer to $15.00 instead.

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 $0.83/0.86

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.52/1.56

09/22/13 new stop loss @ 14.45

Current Target: exit for 2014 calls is $18.00, exit for 2015s is $19.75
Current Stop loss: 14.45
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/18/13


Old Dominion Freight Line - ODFL - close: 46.12

Comments:
09/22/13: The transportation sector was one of the market's best performers last week thanks in part to a strong post-earnings rally in FedEx (FDX). Meanwhile ODFL rallied off of its Monday morning lows but closed virtually unchanged for the week. Investors may want to wait for ODFL to close above $46.50 before considering new bullish positions.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $0.95/1.30

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: 107.14

Comments:
09/22/13: I am turning cautious on our SJM trade. The stock's rebound has stalled at resistance near its 30-dma and 50-dma. The last few days have developed a bearish trend of lower highs. I suspect we are going to see SJM retest support near $105 soon. At this point I would wait for another dip to $105.00 or wait for a close above $110 as alternative entry points.

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 $1.25/1.50

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

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: 57.24

Comments:
09/22/13: STZ hit another round of new all-time highs this past week. Unfortunately the stock market's two-day pullback on Thursday and Friday coincided with STZ hitting round-number resistance at $60.00. Shares of STZ hit some profit taking and the stock has produced a bearish reversal at the $60 mark. This pullback has also created a bearish engulfing candlestick reversal pattern on STZ's weekly chart.

Broken resistance near $55.00 should be new support. I would wait for a dip to or a bounce from the $55.00 level before considering new positions. I am adjusting our stop loss to $52.45. More conservative investors may want to raise theirs higher.

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 $2.00/2.15

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $4.20/4.80

09/22/13 new stop loss @ 52.45
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: 52.45
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/25/13


Union Pacific Corp. - UNP - close: 159.55

Comments:
09/22/13: A pullback in oil prices helped fuel a strong move in the transportation stocks. The railroad specific index (DJUSRR) rallied toward its all-time highs this past week before paring its gains on Friday. Shares of UNP managed to breakthrough short-term resistance near $158 and its 50-dma.

While the move last week was positive for UNP I remain cautious here. We're not suggesting new positions.

FYI: UNP is scheduled to report earnings on October 17th.

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 $ 0.73/0.79

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 2.90/3.05

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


VeriSign, Inc. - VRSN - close: 51.70

Comments:
09/22/13: VRSN is a watch list candidate that has graduated to our active play list. Shares had been consolidating under major resistance near the $50.00 level. Our plan was to wait for shares to close above $50.50 and then buy calls the next morning. VRSN almost met that requirement on Sept. 17th with a close at $50.44. It wasn't until the next day (the 18th) that shares closed at $51.30. Our trade opened on the 19th with VRSN opening at $51.40. More nimble investors might want to try and launch new positions on a dip back into the $51.00-50.00 zone. Broken resistance near $50.00 should new support.

Earlier Comments:
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.

- Suggested Positions -
SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 1.16
symbol:VRSN1418a55 2014 JAN $55 call - current bid/ask $ 1.10/1.16

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 4.20/4.30

*option entry price is an estimate since the option did not trade at the time our play was opened.
09/15/13 adjust entry trigger: wait for a close over $50.50 instead of $50.25

Chart of VRSN:

Current Target:
Exit 2014 calls when VRSN hits $57.50, 2015 calls @ $64.50
Current Stop loss: 47.40
Play Entered on: 09/19/13
Originally listed on the Watch List: 08/18/13


Whole Foods Market - WFM - close: 57.85

Comments:
09/22/13: The sprint higher in WFM appears to be over. The stock posted gains 14 trading days in a row. The market's surge higher on Wednesday afternoon, after the FOMC meeting's no taper announcement, saw WFM close at $59.32. That was almost enough to hit our $59.75 target for the 2014 calls. Unfortunately the stock market's two-day pullback has produced a sharp reversal in WFM.

I suspect that we will see WFM experience more profit taking and likely pullback into the $56-55 area. Please note that I am raising our stop loss to $52.40. 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 $ 2.14/2.19

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 6.65/6.80

09/22/13 new stop loss @ 52.40

Current Target: $59.75 for the 2014 calls, $64.00 for the 2015 calls
Current Stop loss: 52.40
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


Watch

Technology, Discount Stores, & Toys

by James Brown

Click here to email James Brown


New Watch List Entries

AVGO - Avago Technologies

DLTR - Dollar Tree Inc.

HAS - Hasbro Inc.


Active Watch List Candidates

DD - E.I. du Pont

FCX - Freeport McMoRan

KMX - CarMax Inc.

WAG - Walgreen Co.


Dropped Watch List Entries

VRSN graduated to our active play list.



New Watch List Candidates:


Avago Technologies - AVGO - close: 41.62

Company Info

Apple Inc. (AAPL) has had a rough month as investors sold the news of its latest iPhone announcement a couple of weeks ago. It's a different story for some of AAPL's parts suppliers. AVGO is in the semiconductor industry and they make a number of chips, RF devices and equipment. AVGO happens to be a parts supplier for AAPL's new iPhone 5.

This past week has seen AVGO breakout past major resistance near the $40.00 level and hit new all-time highs. We want to be ready to buy the dip when shares pullback and retest the $40 area. I am suggesting a buy-the-dip entry point at $40.00 with a stop loss at $37.75. If triggered our long-term target is $45.00 for the 2014 January calls and $48.50 for the 2015 calls. FYI: The point & figure chart is bullish with a $49 target.

Buy-the-Dip trigger: $40.00, stop loss @ 37.75

BUY the 2014 Jan $42.50 call (AVGO1418a42.5) current ask $2.35

- or -

BUY the 2015 Jan $45 call (AVGO1517a45) current ask $4.40

Chart of AVGO:

Originally listed on the Watch List: 09/22/13


Dollar Tree, Inc. - DLTR - close: 58.00

Company Info

As the U.S. economy creeps along in the +2% growth range there has been growing concerns over the American consumer. Fortunately for DLTR, consumers seem to be flocking to the deep discount stores. Wall Street seems optimistic on DLTR's growth and DLTR management just recently announced a new $2 billion stock buyback program.

Shares of DLTR recently broke out past resistance near $55.00 and tagged new all-time highs. We do not want to chase it here. I suspect we will see DLTR retest $55 as support. I am suggesting a buy-the-dip trigger at $55.25 with a stop loss at $51.50. Our long-term target is the $65 area. FYI: The point & figure chart is bullish with a $78 target.

Buy-the-Dip trigger: $55.25, stop loss @ 51.50

BUY the 2014 Jan $60 call (DLTR1418a60) current ask $2.25

- or -

BUY the 2015 Jan $65 call (DLTR1517a65) current ask $3.90

Chart of DLTR:

Originally listed on the Watch List: 09/22/13


Hasbro Inc. - HAS - close: 48.79

Company Info

Hasbro has been making toys and games for kids since 1923. While many are worried about a weaker U.S. consumer there doesn't seem to be any fears that parents will stop buying stuff for their kids. That has helped push HAS toward its all-time highs near resistance at the $50.00 level (the December 2010 high is $50.17).

HAS looks like it has been consolidating for a breakout for the last five months. I am suggesting we wait for HAS to close above $50.25 and then buy calls the next morning with a stop loss at $46.75. However, I am putting a condition on this entry point. HAS could surge on a breakout past $50.00. We do not want to open positions if we see HAS close above $51.25. Our long-term target is $59.00.

Breakout trigger: Wait for a close above $50.25
then buy calls the next day. Yet do not open positions if HAS closes above $51.25.

BUY the 2015 Jan $55 call (HAS1517a55) current ask $2.30

Chart of HAS:

Originally listed on the Watch List: 09/22/13


Active Watch List Candidates:



E.I. du Pont - DD - close: 59.42

Comments:
09/22/13: Our DD trade almost opened this past week. The stock managed to breakout past resistance at $60.00 but it closed at $60.44 on Wednesday, following the FOMC meeting. That didn't qualify as an entry point. Shares hit a new ten-year high on Thursday but the market's widespread profit taking pulled DD back below $60 by week's end.

Looking more closely at the action in DD this past week I want to adjust our entry point strategy. Wait for DD to close above $60.75 instead of $60.50.

If DD does close above $60.75 we can 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 $60.75
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)

09/22/13 adjust entry: wait for a close above $60.75
instead of a close above $60.50

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


Freeport-McMoRan - FCX - close: 33.87

Comments:
09/22/13: Thus far FCX has seen strong gains in September with a rally from $30 to $35. Yet the three-week run might be over. This stock reversed at resistance near $35.00 on Thursday. I am still expecting a pullback toward $32.00, which should be new support.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $34 call (FCX1517a34)

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


CarMax Inc. - KMX - close: 51.19

Comments:
09/22/13: KMX almost hit our entry point on Wednesday but the stock bounced near $50.30. We're not giving up yet. KMX managed a small gain for the week but the market's rally looks tired and we could see KMX retesting the $50.00 level soon. 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:
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)

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


Walgreen Co. - WAG - close: 55.52

Comments:
09/22/13: WAG continues to show relative strength. The stock posted nine gains in a row until Friday's pullback ended the streak. We still do not want to chase it higher. However, we will adjust our buy-the-dip entry point from $51.50 to $52.25. We'll adjust the stop loss up to $48.40.

Earlier Comments:
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: $52.25, use a stop at $48.40

BUY the 2014 Jan $55 call (WAG1418a55)

- or -

BUY the 2015 Jan $60 call (WAG1517a60)

09/22/13 adjust entry strategy: move the trigger to $52.25
adjust the stop loss to $48.40
(previous trigger and stop was $51.50 & 47.40)

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