Option Investor
Newsletter

Daily Newsletter, Sunday, 9/29/2013

Table of Contents

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

Leaps Trader Commentary

Countdown to Shutdown

by James Brown

Click here to email James Brown

September finally posted a negative week as investors started to worry about a government shutdown. As expected headlines out of Washington D.C. overshadowed the market and traders continued to sell equities. The S&P 500 index is now down six out of the last seven trading days following the FOMC's no taper spike higher. Yet in spite of all the noise the S&P 500 is only down -1.9% from its September 18th high. Oddly enough the small cap Russell 2000 index hit new all-time highs this past week. That would suggest mutual fund managers are not truly worried about the markets yet.

Economic Data

The economic data this past week was mixed. The third estimate on U.S. Q2 GDP growth was unchanged at +2.5%. Durable goods orders inched up +0.1% after a -8.1% plunge in July. The Case-Shiller 20-city home price index rose +0.6%, which was less than expected but puts the year-over-year gain at +12.39%. New home sales for August came in at an annual pace of 412,000. Meanwhile the MBA mortgage application index rose +4.9%, its second weekly gain in a row after a huge multi-week plunge. The breakdown of the MBA index showed applications for purchases +6.6% and refi's +4.9%.

The latest reading for the consumer sentiment index fell from 81.8 in August down to 79.9 in September. Economists were expecting a the final September reading to hit 82.0. At 79.9 sentiment has fallen to the lowest level since April. Yet in spite of the falling sentiment numbers consumer spending rose +0.3% in August. You have to wonder what consumers are spending money on after a story midweek broke that suggested Wal-mart was seeing inventories pile up. On positive note AAA said gas prices fell six cents to a national average of $3.42 a gallon, which is the lowest level since January. If this trend in gas prices continues it should help boost consumer spending.

Overseas Data

Economic data overseas was also mixed. The Eurozone manufacturing PMI fell from 51.4 to 51.1. Analysts were expecting a rise to 51.8. Numbers above 50.0 indicate growth and expansion. The Eurozone Flash PMI rose to 51.5, a new two-year high. The Eurozone services PMI rallied from 50.7 to 52.1. Unfortunately consumer confidence is not improving very fast with Eurozone consumer confidence rising from -15.6 to -15.0. Meanwhile the situation in Greece is deteriorating with some claiming the Greek democracy is at stake. According to one report some Greeks are so disillusioned with the current government that they're calling for a coup. On Saturday Greek authorities arrested the leader of the neo-Nazi Golden Dawn party.

Across the Pacific Ocean there was better news with China's HSBC Flash manufacturing PMI data rising from 50.1 to 51.2. That's a six-month high and better than economists were expecting. Investors may want to note that news out of China is going to be quiet next week. Most of the nation will shut down for the week-long national "Golden Week" holiday (October 2nd through the 7th). It is estimated that over 120 million Chinese will be traveling during this holiday.

U.S. Government Shutdown

Of course the biggest story last week was the fight in Washington between democrats and republicans over the U.S. budget. The stock market knew this fight was coming, which is probably why market declines have been so mild. Thus far both parties refuse to budge and we're just hours away from what could be the next government shutdown on October 1st, 2013. There have been 18 government shutdowns since 1976 so no one thinks the world is going to end on Tuesday morning. The U.S. treasury department has talked about two separate dates as likely deadlines for when they "run out" of money. The real deadline is in the October 9th through the 17th time frame. Odds are we will see a government shutdown, which will only magnify all the political grandstanding as both sides point fingers at each other. Then sometime within the first two weeks of October the two sides will come together and get a budget bill passed.

The bad news here is that all the uncertainty about the budget could spark more selling in the stock market. The odds of a market sell-off increase if the credit-rating agencies decide to downgrade the U.S. again. The only thing we can rally count on is an increase in market volatility over the next couple of weeks.

Major Indices:

It was not a great week for the large caps. The S&P 500 continued to drift lower, down -1.0% for the week. It wasn't until a minor bounce on Thursday that the selling stalled. Yet weakness continued on Friday and as mentioned earlier the S&P 500 index is now down six out of the last seven days. Worries over the budget battle in Washington are squashing investor enthusiasm to buy stocks. The path of least resistance might be down until the politicians agree to a budget. Odds are growing significantly that we will see the S&P 500 test support near 1680. I would not be surprised to see the index dip to the next level of support near 1650 and its rising 100-dma (currently 1659).

chart of the S&P 500 index:

It is a different story for the NASDAQ composite which added +0.18% for the week and posted its fourth weekly gain in a row. Selling pressure was limited and the index continued to find support at its rising 10-dma. If I was just looking at the chart of the NASDAQ it wouldn't surprise me to see it breakout higher. However, stocks are likely to sink on news of a government shutdown. Therefore it seems more likely that the NASDAQ will retest support near the 3700 level. Stocks could always surprise us and a breakout past resistance at 3800 would indeed look bullish.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index continued to show relative strength and closed at new all-time highs this past week. There is clearly short-term resistance at the 1080 level. The $RUT has bounced multiple times at its rising 10-dma. If I were just looking at the $RUT's chart I would expect a breakout higher. A close above 1080 could signal a run toward the 1100 level.

The fact that the $RUT is showing so much strength is a sign that money managers are not panicked about the budget battle in Washington, at least not yet. If fund managers were worried about a significant market decline they would sell small caps and move to more liquid large caps or just cash.

On a short-term basis the 1060 and 1040 levels look like potential support.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's a new month and that means a boatload of new economic data. We'll see new manufacturing (PMI) data out of both the U.S. and China. Yet nearly all of the economic headlines will likely be overshadowed by the budget battle in Washington. The exception will probably be the nonfarm payrolls (jobs) report on Friday morning. Economists are expecting +180,000 new jobs in September.

Economic and Event Calendar

- Monday, September 30 -
U.S. Budget Deadline!
ISM Chicago (a.k.a. Chicago PMI)
China's manufacturing PMI

- Tuesday, October 01 -
Potential 1st day of U.S. Government Shutdown!
ISM Manufacturing data
construction spending
auto and truck sales
Eurozone unemployment

- Wednesday, October 02 -
ADP Employment Change report
European Central Bank (ECB) interest rate decision

- Thursday, October 03 -
Weekly Initial Jobless Claims
ISM non-manufacturing (services) data
Eurozone services PMI
Eurozone retail sales

- Friday, October 04 -
Non-farm payrolls (jobs) report (for September)
Unemployment rate

Additional Events to be aware of:

Oct. 29-30th: next (two-day) FOMC meeting

The Week Ahead:

If the budget battle in Washington wasn't bad enough we also have the U.S. debt ceiling issue again. Here's one possible scenario: The stock market could sell off as investors react to a U.S. government shutdown that begins on Tuesday, October 1st. Then the market could bounce when the two parties finally come together on a budget deal. Yet the market could sell-off again as politicians reengage the fight over the debt ceiling issue.

No one knows exactly how the budget and debt ceiling deal will play out but eventually a deal will get done. Unfortunately there is no way to tell how the markets will react to what will likely be a steady stream of negative headlines out of Washington. Although I will point out that at the moment the tone on Wall Street seems to be "buy the dip" or probably more accurately "buy the sell-off" if we see a budget or debt-ceiling inspired stock market sell-off. We have to remember that markets are fickle and attitudes can change. It seems like everyone is cautious short-term but bullish longer-term as they look toward the end of Q4 and into 2014.

I mentioned last week that September 30th was quarter end for the third quarter and that I didn't expect much window dressing. October 31st is the fiscal year end for a lot of mutual funds. Fund managers could be tempted to sell stocks after such a successful year (so far) to lock in gains and their yearend bonuses.

We also have to deal with the onset of Q3 earnings season, which starts with Alcoa (AA) reporting earnings on October 8th. Earnings season won't really pick up speed until the following week.

I hate to say it but there are always geopolitical and terror risks. The market ignored the massacre in Nairobi, Kenya where Islamic terrorist slaughtered about 70 people. The market's didn't budget when the Pakistani Taliban sent a pair of suicide bombers into a Christian church and killed 75 people and wounding over 100 more. The market is unlikely to react news out Sunday, September 29th, when Islamic terrorist murder at least 40 people at a college in Nigeria. Lord help us if there is another organized terrorist attack in the U.S.

Overall we still expect the next couple of weeks (maybe three) to be volatile. It is surprising to see so much relative strength in the NASDAQ and the Russell 2000 as both indices look ready to move higher. However, I would expect the broader market to correct lower over the next couple of weeks. Thus I would not rush into new positions now when we might see a lower entry point in mid October if we're patient.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. government will likely shutdown on October 1st while the democrats and republicans beat each other up over the U.S. budget. Stocks may not react well to all the negative headlines.

MAKO exceeded our bullish exit target after news hit the company would be acquired by Stryker (SYK) for close to $30 a share.

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

I have updated stop losses on: DECK and STZ

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

Take Advantage

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 29, 2013)

No new trades tonight!

The S&P 500 is down six out of the last seven trading days as market participants prepare for a U.S. government shutdown. Thus far the profit taking has been pretty mild. Only the S&P 500 and the Dow Industrials seem to be affected. The NASDAQ and the small cap Russell 2000 index actually look relatively strong. However, if the political turmoil in Washington heats up this week or if the U.S. credit rating gets downgraded again, it could accelerate the market sell-off.

The U.S. budget battle and the U.S. debt ceiling issue will eventually be solved. However, until then investors should stay defensive. We want to use any market weakness to our advantage but we'll have to be patient. Until we see a deal in Washington the best strategy might be to sit on the sidelines and wait for the dust to settle. Odds are good we will get a chance to buy LEAPS options on stocks at lower levels in the next two or three weeks.

I would focus on strong stocks and look to buy a correction near support. A few stocks that caught my eye are symbols like: AMZN, FB, FLS, LVS, N, BA, NKE, TJX, CMI, CBI, SWY, RGR, and SBUX.



Play Updates

MAKO Exceeded Our Target

by James Brown

Click here to email James Brown

Editor's Note:

Investors may want to double-check their stop loss placement. The next couple of weeks could be challenging for the stock market due to the political battle in Washington over the budget and the debt ceiling.


Closed Plays


MAKO exceeded our exit target.



Play Updates


American Intl. Group - AIG - close: 49.15

Comments:
09/29/13: Financials had a down week but selling pressure in AIG was mild. The stock churned sideways inside the $49-50 zone. The short-term trend does look down and I would expect a dip toward $48 and its 50-dma. It the market really accelerates lower we could see AIG fall toward $46 or its 100-dma.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.23/2.26

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.55/3.70

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: 13.90

Comments:
09/29/13: Many of the big banks struggled this past week as analysts voiced concerns over their trading revenues for the third quarter. BAC wasn't singled out but shares broke down anyway. BAC spent most of the week testing support near $14.00. Friday's decline (-1.2%) is technically a breakdown below support at $14.00 and does not bode well for the bulls. Currently BAC is hovering just above its 100-dma. Unfortunately, my market bias is bearish for the next couple of weeks and we could see BAC slip toward its 150-dma near $13.30 or even its 200-dma, which is approaching $13.00.

Currently our stop loss is at $12.75. More conservative investors may want to raise their stop loss. I am not suggesting new positions at this time.

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

- 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 $1.34/1.35

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: 65.20

Comments:
09/29/13: DECK was a standout performer for the bulls last week. An analyst upgrade helped boost the stock higher. Shares advanced +7.3% by Friday's closing bell and hit new one-year highs. Broken resistance near $62 and $60 should be new levels of support.

I am adjusting our stop loss to $57.40.

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 $5.60/5.90

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $9.40/9.90

09/29/13 new stop loss @ 57.40
*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: 57.40
Play Entered on: 09/05/13
Originally listed on the Watch List: 08/25/13


Dollar General Corp. - DG - close: 56.59

Comments:
09/29/13: DG gave up just over a dollar for the week. Some of the retailers sold off in reaction to news that Wal-mart might be seeing a build up in its inventories. Previously I cautioned investors that we might see DG dip back toward the $55.00 level, which should be support. I still think there is a good possibly that DG will hit $55.00. I would wait for the dip or a bounce near the $55 level 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 $2.20/2.35

- 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: 77.70

Comments:
09/29/13: EMN reduced its weekly loss to less than a dollar thanks to a bounce on Thursday. The stock really hasn't done much this month and if the market retreats over the next two weeks I fear this play could be stopped out.

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 $ 3.20/3.40

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 4.90/5.20

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: 17.05

Comments:
09/29/13: Last week's decline ended a three-week winning streak for Ford. Shares gave up -1.9% by Friday's closing bell. Traders bought the dip near $17.00 on Monday and F was retesting this level by Friday afternoon. If the stock breaks down here the next support level should be near $16 and its 100-dma.

NOTE: national auto and truck sales data comes out this week.

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 $ 3.10/3.15

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: 71.05

Comments:
09/29/13: After a big three-week rally FLR hit some profit taking. Yet the pullback was pretty mild with FLR down less than a dollar for the week. If FLR breaks below the $70 level the next support area should be in the $67 area.

- Suggested Positions -
SEP 12, 2013 - entry price on FLR @ 67.14, option @ 2.90
symbol: FLR1418a70 2014 JAN $70 call - current bid/ask: 4.50/4.70

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 7.10/7.30

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: 48.39

Comments:
09/29/13: Profit taking in shares of HAL continued for a second week in a row. Losses were actually pretty mild. Shares are testing short-term support near $48 now. The 50-dma near $47.50 could also help but if that level breaks then we'll likely see HAL pullback toward the $45.00 level. Currently our stop loss is at $44.75. A bounce from $45.00 could be used as a new bullish entry point to buy calls.

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 $ 1.93/1.96

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 5.35/5.45

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: 64.65

Comments:
09/29/13: If Wall Street has any concerns about consumer spending it's not showing up in shares of HOG. The stock eked out another gain for the week making it six weeks in a row. Shares are consolidating sideways under resistance near $65.00. The stock looks poised to breakout but that probably depends on if the market drops on the budget battle in Washington.

FYI: HOG is scheduled to report earnings on October 22nd.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 3.15/3.25

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.25/5.45

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: 83.58

Comments:
09/29/13: I warned readers last weekend that shares of HON appeared to have reversed. The stock gave up about $2.00 for the week and is now testing its 50-dma. If the pullback continues I would expect a dip toward its 100-dma near $81.00.

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 $ 6.65/6.75

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: 22.98

Comments:
09/29/13: INTC was holding up reasonably well, hovering above technical support at its 100-dma, until a sudden sell-off on Thursday and Friday. The stock lost -3.3% for the week. I have been cautioning readers to wait for a dip near $23.00 before considering new positions. Well now we have the dip! Considering the potential for further market declines between now and whenever politicians in Washington get a budget deal done it might pay off to take a step back and wait before initiating new positions in INTC.

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 $0.62/0.63

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.30/1.34

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: 52.24

Comments:
09/29/13: It was a rocky week for JPM. I warned readers that we could see JPM test support near $50.00 and its 200-dma. Another week of negative headlines did push the stock lower. There seems to be a never ending stream of news regarding the billions and billions of fees and penalties that JPM is negotiating to pay to regulators and authorities for a number of legal cases and scandals.

Fortunately, traders did buy the dip at support and JPM pared its losses for the week to less than a dollar. I will point out that bears could argue JPM has created a bearish head-and-shoulders pattern with the neckline (support) at the $50 level. A breakdown under $50.00 would suggest a correction lower toward the $44-43 area.

We need to remember that JPM is a massive bank with $95 billion a year in revenues and over $22 billion a year in net profits. They can survive some pretty steep penalties with the government. I remain long-term bullish but I would hesitate to launch new positions at this time.

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 $ 1.08/1.11

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.50/3.60

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


CarMax Inc. - KMX - close: 49.22

Comments:
09/29/13: It was a bumpy week for KMX. This stock was on our watch list and the plan was to buy calls if KMX dipped to $50.00. Shares hit $50.00 on Tuesday, Sept. 23rd. The very next day the stock gapped open higher and hit a new all-time high following a better than expected earnings report. Wall Street was expecting a net profit of 56 cents a share on revenues of $3.16 billion. KMX beat estimates with a profit of 62 cents on revenues of $3.25 billion. Total sales for the company surged +21%. Unfortunately the very next day the stock reversed lower thanks to a downgrade by a Goldman Sachs analyst who voiced concerns that KMX could see a tighter credit environment in 2014 that might impact its earnings growth. Share continued to slip on Thursday and by Friday's closing bell the stock was down -3.8% for the week and testing its 50-dma.

Nimble investors might want to consider buying calls on a dip near $48.00 and its 100-dma. I am suggesting readers wait for KMX to close above $50.25 before initiating new bullish positions.

- Suggested Positions -
SEP 23, 2013 - entry price on KMX @ 50.00, option @ 1.40
symbol: KMX1418a55 2014 JAN $55 call - current bid/ask $ 0.85/0.95

09/23/13 KMX hit our buy-the-dip entry at $50.00

Chart of KMX:
Current Target: $59.00
Current Stop loss: 46.40
Play Entered on: 09/23/13
Originally listed on the Watch List: 09/08/13


Medivation - MDVN - close: 59.55

Comments:
09/29/13: Good news! MDVN found support near $57.00 midweek. The stock managed a rebound and closed up about a dollar for the week by Friday's closing bell. I would be tempted to launch positions on a rise above $60.50 but the September high was $61.46 and more conservative investors may want to wait for a rally or a close above $61.50 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.

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 $ 5.55/6.20

*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: 42.58

Comments:
09/29/13: NTAP gapped down on Tuesday in reaction to an analyst downgrade. Yet there was no follow through lower. Shares remain in a longer-term up trend but after a two-week decline NTAP's momentum is now in question. The stock should find support near $42.00. If the $42 level breaks then the next support level is $40.00. More conservative traders may want to abandon their 2014 calls if NTAP closes below $42.00.

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 $3.85/3.95

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $6.60/6.80

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: 15.58

Comments:
09/29/13: The stock market's pullback last week weighed on NVDA. Shares fell toward short-term support near $15.50. If the correction continues we will likely see NVDA testing round-number support near $15.00. I am suggesting investors wait for a dip or better yet a bounce from the $15.00 level before considering new bullish positions in 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 $0.74/0.76

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.41/1.46

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: 45.31

Comments:
09/29/13: ODFL delivered a relatively quiet week. On a short-term basis the stock is building a bearish pattern of lower highs. I would expect a dip toward $44.00 and its 100-dma if the market continues to slip lower. More conservative investors might want to consider a stop loss closer to the $43.00 area. I am not suggesting new positions at this time.

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

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: 104.79

Comments:
09/29/13: Our SJM trade is in trouble. The stock underperformed the broader market with a -2.1% decline for the week. Shares broke down below their 100-dma and closed below what should have been round-number support at the $105 level. Friday's intraday low was $104.37. If there is any follow through lower on Monday we will likely see SJM hit our stop loss at $104.25. I am not suggesting new positions at this time.

- Suggested Positions -
SEP 11, 2013 - entry price on SJM @ 108.83, option @ 2.10*
symbol: SJM1418a115 2014 JAN $115 call - current bid/ask $0.70/1.00

09/29/13 SJM looks poised to hit our stop loss at $104.25 soon.
*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: 56.98

Comments:
09/29/13: It was a boring week for STZ. The stock churned sideways under new resistance near the $58.00 level. Profit taking for the week amounted to a little more than a quarter. Shares are likely to continue drifting sideways until STZ reports earnings on October 3rd. The results come out before the opening bell and analysts are expecting a profit of 88 cents a share.

I am not suggesting new positions ahead of the earnings report. We will adjust our stop loss to $52.90. More conservative traders may want to raise their stop even higher or exit their 2014 calls prior to the earnings announcement.

- Suggested Positions -
SEP 06, 2013 - entry price on STZ @ 57.56, option @ 2.00
symbol: STZ1418a60 2014 JAN $60 call - current bid/ask $1.95/2.10

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $4.10/4.50

09/29/13 new stop loss @ 52.90
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: 52.90
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/25/13


Union Pacific Corp. - UNP - close: 156.59

Comments:
09/29/13: I am growing concerned with the railroad stocks. The DJUSRR railroad index reversed at resistance near 1100 on September 20th and now after last week's pullback it is starting to look like a triple top. Meanwhile UNP's pullback last week is starting to look like the right shoulder on a bearish head-and-shoulders pattern.

I am not suggesting new positions and more conservative traders want to raise their stops or exit their 2014 calls.

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 $ 0.44/0.50

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 2.32/2.45

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: 51.18

Comments:
09/29/13: VRSN's rally stalled last week with shares consolidating sideways inside the $51-52 zone. If the broader market continues to slip lower I would expect VRSN to dip toward stronger support near $50.00. Investors could use a rebound off the $50.00 level as a new bullish entry point.

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 $ 0.94/0.98

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 4.00/4.10

*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

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: 58.33

Comments:
09/29/13: WFM also produced a quiet week. Shares consolidating sideways along the $58.00 level. News of an analyst upgrade and a new $70 price target failed to have much impact on the share price.

Big picture we're bullish but short-term, given my broader concerns for the market and how the political battle in Washington might affect stocks, I am worried we could see WFM dip back toward the $56-55 zone.

Investors may want to consider raising their stop loss. 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 $ 2.27/2.33

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 6.70/6.90

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


CLOSED Plays


MAKO Surgical Corp. - MAKO - close: 29.48

Comments:
09/29/13: MAKO has exceeded our target!

We hit the jackpot with MAKO surging +80% for the week after news surfaced on Wednesday morning that Stryker (SYK) would acquire MAKO for $30.00 a share (approximately $1.65 billion). The stock gapped open higher at $29.49, closing our play since our target was only $19.50.

The 2014 January $15 call gapped open at $14.50 and the 2015 January $20 call gapped open at $9.50.

- Suggested Positions -
SEP 04, 2013 - entry price on MAKO @ 15.66, option @ 2.20
symbol:MAKO1418a15 2014 JAN $15 call - exit $14.40 (+554.5%)

- or -

SEP 04, 2013 - entry price on MAKO @ 15.66, option @ 2.40
symbol:MAKO1517a20 2015 JAN $20 call - exit $9.30 (+287.5%)

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



Watch

Buy-the-Dip?

by James Brown

Click here to email James Brown


New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

AVGO - Avago Technologies

DD - E.I. du Pont

DLTR - Dollar Tree Inc.

FCX - Freeport McMoRan

HAS - Hasbro Inc.

WAG - Walgreen Co.


Dropped Watch List Entries

KMX has graduated to our active play list.



New Watch List Candidates:


I am not adding any new watch list candidates tonight.

We have already added eleven watch list candidates this month (September) to our active play list. The next couple of weeks could be rough for the broader market.

I would focus on buy-the-dip entry strategies on strong stocks and just be patient.


Active Watch List Candidates:



Avago Technologies - AVGO - close: 42.70

Comments:
09/29/13: Apple (AAPL) announced better than expected sales for its new iPhones and the news helped boost some of AAPL's part suppliers. Shares of AVGO avoided the market's recent sell-off and instead consolidated sideways at its all-time high.

If we were looking at AVGO in a vacuum I would be tempted to buy it here. However, my short-term market view is bearish. We would much rather buy calls on a dip near $40.00, which should be support.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $45 call (AVGO1517a45)

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


E.I. du Pont - DD - close: 59.01

Comments:
09/29/13: Profit taking in DD only amounted to about 40 cents. Yet the very short-term trend is down with a pattern of lower highs. I would expected a dip to $58.00. If we see DD closed below $58.00 we might drop it as an active candidates. Currently our entry strategy is unchanged.

We want to wait for DD to close above $60.75 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 $60.75
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


Dollar Tree, Inc. - DLTR - close: 57.52

Comments:
09/29/13: DLTR survived last week's market decline pretty well. Profit taking was limited to about 50 cents. Even news that Goldman Sachs had removed DLTR from its conviction buy list on valuation concerns failed to spark any real selling.

I do not see any changes from my prior comments.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $65 call (DLTR1517a65)

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


Freeport-McMoRan - FCX - close: 33.42

Comments:
09/29/13: FCX snapped a three-week rally with a pullback last week but profit taking was relatively mild. I don't see any changes from my earlier comments.

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


Hasbro Inc. - HAS - close: 47.38

Comments:
09/29/13: HAS doesn't look so hot with a six-day decline. Shares have not yet broken the six-week trend of higher lows so we're not giving up yet. Our plan is unchanged.

Earlier Comments:
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)

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


Walgreen Co. - WAG - close: 54.51

Comments:
09/29/13: WAG tagged a new all-time high on Monday and has been down every day since. Shares could be volatile this week. The company is due to report earnings on October 1st, before the opening bell. Wall Street expects a profit of 73 cents a share. I don't see any changes from my earlier comments.

Earlier Comments:
Our target to exit the 2014 calls is $59.50. Target to be determined for the 2015 calls.

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