Option Investor
Newsletter

Daily Newsletter, Monday, 10/7/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Ignore Government Shutdown

by James Brown

Click here to email James Brown

Last week saw the U.S. government begin its 19th shutdown since 1976. Fortunately in spite of the naysayers the world didn't end and the stock market didn't crash. Overall it seems that stock market participants are very complacent over the shutdown. The prevailing attitude still seems to be use any weakness on the shutdown or debt ceiling fight as a new buy-the-dip entry point. Of course we did see some increased volatility as traders reacted to political rhetoric out of Washington D.C. For the week ending October 4th the S&P 500 index only lost -0.07%. The NASDAQ gained +0.69% and the small cap Russell 2000 index rose +0.38%. Both the NASDAQ and the Russell are up five weeks in a row. There is definitely no fear of the government shutdown - at least not yet.

Economic Data

The U.S. economic data is sending mixed signals again. The Dallas regional fed survey came in better than expected at 12.8 when economists were looking for a reading closer to 6. The Chicago PMI report's September reading rose from 53.0 to 55.7, which is the best number since February. U.S. vehicle sales in September slowed a bit with the annual pace coming in at 15.21 million. That was lower than expected and the slowest pace since April.

The national ISM manufacturing index improved from 55.7 to 56.2, which is the highest level since April 2011. Yet the national ISM non-manufacturing (a.k.a. services) index plunged from 58.6 to 54.4. The August reading was a multi-year high so many analysts were expecting a pullback in September. Yet the size of the pullback was surprising. The -4.2 point drop in the services index was the biggest one-month drop in almost five years. Fortunately, for these ISM reports number above 50.0 indicate economic growth.

The ADP Employment Change report came out last Wednesday with +166,000 new private sector jobs in September. That was below estimates of +180K. The August reading was revised lower from +179,000 to +159,000. Meanwhile, due to the government shutdown, the Bureau of Labor Statistics did not issue their monthly non-farm payrolls (jobs) report. Their website says their department "will not collect data, issue reports or respond to public inquiries". Thus for the first time in 17 years the jobs report has been postponed. Yet the "no jobs report" headline is bogus. The BLS compiles the report the Monday prior to its normal Friday release. Last Monday was September 30th, before the government shutdown. The decision to not release it is pure political theater by the White House.

Overseas Data

The trend of mixed economic data continued overseas as well. Last week the Eurozone said retail sales rose +0.7% month over month. The EU consumer is still holding in there. Yet Eurozone manufacturing PMI data slipped from 57.1 to 56.7. Analysts had been expecting an improvement. German manufacturing PMI also slipped with a drop from 51.3 to 51.1. Remember, numbers above 50.0 display growth and the German one is close to flat. Germany also said there was a surge of +25,000 new unemployed last month and their unemployment rate rose from 6.8% to 6.9%. Elsewhere in Europe there was plenty of press regarding the political turmoil in Italy but it doesn't seem to be having much impact on the stock markets.

Across the Pacific Ocean there was more mixed data out of Asia. China's HSBC manufacturing PMI data fell from 51.2 to 50.2, which is awfully close to negative territory (below 50.0). The official Chinese government manufacturing PMI actually rose from 51.0 to 51.1. China's official non-manufacturing PMI also rose with a gain from 53.9 to 55.4. Meanwhile Japan said their industrial production fell -0.7% month over month, which is down from the prior month's +3.4% reading. Japanese manufacturing PMI data inched higher from 52.2 to 52.5, which is the highest reading since February 2011. The unemployment rate in Japan rose from 3.8% to 4.1%, which was worse than expected. The Japanese government also announced plans to raise their sales tax from 5.0% to 8.0%, which sparked a -2.2% sell-off in the Japanese NIKKEI stock index.

Major Indices:

Last week the S&P 500 index flirted with support near 1680 and its simple 50-dma. There were some intraday declines below this level. Thursday, October 3rd actually closed below this support level but stocks rebounded on Friday. This large cap index is only down -2.0% from its mid September high of 1725. Believe it or not but the S&P 500 is actually up nine points since the government shutdown began.

After a three-week rally the S&P 500 is now down two weeks in a row. If the pullback continues the index should also find additional support near 1660, which is bolstered by its 100-dma and a trend line of higher lows dating back to November 2012. On the other hand if the S&P 500 can rally there is likely resistance at 1700 and 1725.

chart of the S&P 500 index:

The NASDAQ composite actually posted a gain last week and stretched its rally to five weeks in a row. It's not very convincing but the NASDAQ has technically produced a bullish breakout above round-number resistance at the 3800 level. The NASDAQ also tested support near its rising 20-dma twice last week.

On a short-term basis the trend here is positive and the NASDAQ looks poised to hit new multi-year highs. The next likely resistance levels are 3850 and then 3900. Pretty soon the 4,000 level could start to act like a magnet. The index should find support near 3750 and 3700 with 3700 being underpinned by the rising 50-dma.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index added +0.38% last week and extending its gains to five weeks in a row. The index did spend a couple of days above resistance at the 1080 level but pulled back by Friday's close. The bears could argue that momentum indicators are falling for the $RUT which suggest the rally is tired. After a five-week run it could be time for a pullback. Yet so far the $RUT has been able to hold support near the 1060 level. If the $RUT were to see a correction it should find additional support near 1040 and then the bottom of its multi-month bullish channel is near the rising 100-dma. If the up trend continues then the 1100 level is most likely round-number resistance.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's going to be a relatively quiet week for economic reports. Not only that but we don't know which U.S. government reports will be released and which ones might be delayed due to the government shutdown. The biggest event on the calendar will be the FOMC minutes from the last meeting. Since everyone was expecting the Fed to announce some sort of QE taper at the last meeting there were definitely be some interest in these minutes.

Economic and Event Calendar

- Monday, October 07 -
consumer credit data
German trade data

- Tuesday, October 08 -
U.S. trade balance data

- Wednesday, October 09 -
wholesale inventories
FOMC minutes
Eurozone industrial production

- Thursday, October 10 -
Weekly Initial Jobless Claims
U.S. import/export prices

- Friday, October 11 -
U.S. retail sales for September
Producer Price Index (PPI)
University of Michigan consumer sentiment

Additional Events to be aware of:

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

The Week Ahead:

As we look at the week ahead the stock market is going to be focused on two things. First will be the government shutdown. Second will be corporate earnings with the Q3 earnings season about to start. Alcoa (AA) typically kicks off earnings season and they report on October 8th. Yet the pace of earnings reports doesn't really pick up speed until the following week. That means the market's focus will be fixated on the shutdown due to the budget battle and the debt ceiling.

It is worth noting that everyone keeps using the word "shutdown" for what's going on with the U.S. government. Yet according to estimates we've only "shutdown" between 13% to maybe 18% of the federal government. Let's round it off to about 15% of the U.S. government is shuttered. That is expected to have an impact on U.S. GDP and each week the government is "shutdown" could shave off -0.01% from our GDP growth (some estimates put that number a bit higher). This also means that the Federal Reserve is not going to taper any time soon. They saw the threat of the government shutdown coming and chose to postpone any taper. If the past is our guide then no taper is usually bullish for stocks. That pushes the next possible QE taper worry into December and possibly January.

The bad news regarding the shutdown is the impact it could have on the U.S. consumer. All the acrimony in Washington is eroding any confidence in our economy. A recent Gallup poll showed that American confidence in the economy plunged to -32. If this trend continues it could influence consumer spending. Fortunately, at the moment, consumers are getting a tiny boost from falling gasoline prices. AAA said the average price for gas has fallen thirty days in a row. We need to keep in mind that there are less than 80 days until Christmas and the November and December time frame is crucial for retailers. Traditional thought would suggest that low-confidence (nervous) consumers don't spend much money.

Currently both sides of Washington continue to dig in their heels over the U.S. budget. More and more the fight seems to be merging both the budget battle and the U.S. debt ceiling issue. Instead of two fights it could turn into one big huge melee. Right now the U.S. treasury says they can keep paying bills until October 17th. Odds are the government shutdown will last until the 17th and I wouldn't be surprised if we crossed that deadline. With the U.S. government operating at 85% that could mean the Treasury will have a little bit more wiggle room as far as money in the bank. That might mean the drop dead date is the 18th or 19th.

I am trying to use traditional ideas of paying bills but it's not like the U.S. government is going to run out of dollars, not when they can print more. Plus, the U.S. government receives about $250 billion a month in tax receipts and the debt service on our current debt is about $35-40 billion a month. There is no real threat of a debt default but we could see the U.S. credit rating get downgraded again.

Big picture nothing has changed much from last weekend. We can expect the political wrangling to last another couple of weeks. The stock market will be susceptible to short-term spikes (up or down) based on the latest sound bite out of Washington. There has been some suggestion that it will take a sharp, painful sell-off in the stock market to finally shock the democrats and republicans into finally compromising on a deal. In the mean time I would focus on the small cap Russell 2000 and the NASDAQ composite since both have more components than the Dow Industrials or the S&P 500 and both the $RUT and the NASDAQ are showing more strength.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market has managed to shrug off the U.S. government shutdown for now. Investors remain unperturbed by all of the rhetoric coming out of Washington D.C. Results from the Q3 earnings season remain an entirely different story and could definitely move the market.

SJM hit our stop loss.

I have updated stop losses on: 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

Truly Worried

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(October 06, 2013)

It has been an interesting week for the stock market. It feels like the large cap S&P 500 index has been slowly drifting lower since the post-FOMC meeting peak in mid September. Yet would you believe that the S&P 500 has actually posted gains since the U.S. government shutdown began? It closed at 1681 on September 30th and closed at 1690 on October 4th (Friday). There is still a short-term bearish pattern of lower highs and lower lows and I suspect we will see the S&P 500 dip toward its 100-dma near 1662.

Meanwhile we continue to see relative strength in the NASDAQ composite and the small cap Russell 2000 index. If investors were truly worried about the government shutdown or all of the political turmoil in Washington then the Russell 2000 would likely be underperforming but instead it's outperforming. The strength in these two indices is actually very encouraging. However, I am suggesting we remain cautious until after the debt ceiling issue has been addressed in Washington.

It is the debt ceiling and the alleged risk of a U.S. debt default that could seriously rattle global stock markets. Odds of a true default are virtually zero but that won't stop the politicians from threatening we could see a default as they try and pressure their rivals to compromise.

Thus the next two to three weeks have the potential to be very volatile even though the overall trend for stocks remains bullish. I'm not adding any new trades tonight but we are adding two new candidates to the watch list. Plus, I've updated my radar screen below.

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:

UNXL, TWX, DDD, CTSH, NOV, CAH, JAH, TIBX, LVLT, CMI, BWA, X, BHI, SLB, UA, HP, BA, URI, ROST, TJX, LTD, FB, SBUX, AKAM, DIS, LVS, LCC, LUV, COP,



Play Updates

Stocks Shrug Off Shutdown

by James Brown

Click here to email James Brown

Editor's Note:

*option prices are from Monday morning.


Closed Plays


SJM hit our stop loss.



Play Updates


American Intl. Group - AIG - close: 49.53

Comments:
10/06/13: AIG ended last week with a bounce as investors bought the dip near its simple 40-dma. I don't see any changes from my comments last week. The larger trend is up but if 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 $2.14/2.19

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.60/3.70

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: 14.05

Comments:
10/06/13: BAC dipped to $13.60 last week before bouncing. Shares eventually managed a +1.0% gain for the week ending October 4th. I would be tempted to buy calls on a dip near BAC's long-term up trend (of higher lows) but investors may want to wait until after we see BAC's earnings report (about 10 days away). I would expect BAC to find support in the $13.00-13.50 zone should stocks continue to sink.

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 $1.38/1.39

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: 67.93

Comments:
10/06/13: Last week saw DECK surge +4% and close at new 18-month highs. After a three-week climb shares might be due for a little pullback. Look for short-term support in the $62-63 area.

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 $6.30/6.90

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $9.70/11.30

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: 58.77

Comments:
10/06/13: DG tested technical support near $56 and the stock surged higher as investors bought the dip. The stock managed a +3.8% gain for the week and closed at a new all-time high.

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 $2.65/2.90

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.30/4.10

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: 80.01

Comments:
10/06/13: EMN has spent the last five weeks consolidating sideways inside the $76-80 zone. Friday saw the stock close right at resistance near the $80.00 mark. A breakout past $80 could signal the next leg higher but I remain cautiously bullish here and would hesitate to launch new positions.

FYI: EMN is due to report earnings on October 24th.

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: 17.09

Comments:
10/06/13: Ford delivered a quiet performance last week with shares churning on either side of $17.00 and its 50-dma. There is a short-term trend of lower highs and I would not be surprised to see a dip toward its 100-dma near $16.40.

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 $ 3.00/3.05

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: 71.87

Comments:
10/06/13: FLR saw some volatility last week. Last Wednesday produced a new 52-week closing high but shares immediately reversed lower on Thursday. If FLR breaks below the $70 level the next support area should be in the $67 area. A new bounce from $67.00 could be an attractive entry point to buy calls.

FYI: FLR is scheduled to report earnings on October 31st.

- Suggested Positions -
SEP 12, 2013 - entry price on FLR @ 67.14, option @ 2.90
symbol: FLR1418a70 2014 JAN $70 call - current bid/ask: 4.60/4.80

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 7.40/7.60

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: 49.06

Comments:
10/06/13: HAL spent the week churning sideways between short-term support near $48.00 and its 50-dma and short-term resistance at its simple 10-dma (around 49.25).

Investors may want to wait on new positions since a market sell-off could pull HAL down towards the $46 area.

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 $ 2.16/2.19

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 5.65/5.75

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: 65.30

Comments:
10/06/13: HOG traded one trading range for another. After churning sideways in the $63.50-65.00 zone the stock spent most of last week inside the $64.00-66.00 zone. HOG is up seven weeks in a row and probably due for a pullback.

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 $ 3.20/3.30

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.35/5.55

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: 82.24

Comments:
10/06/13: HON lost over a dollar last week. Shares fell sharply with the market decline on Thursday. Yet investors bought the dip at technical support on its simple 100-dma again. If you were looking for a new entry point this could work but more conservative investors will want to seriously consider waiting until after we see how the market reacts to HON's earnings report.

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 $ 6.20/6.35

08/25/13 new stop loss @ 78.40
08/04/13 new stop loss @ 77.45
07/14/13 new stop loss at $75.75
05/20/13 closed the 2014 calls at the open. option @ +90.2%
05/18/13 prepare to exit 2014 Jan. calls immediately on Monday, May 20th
05/18/13 new stop loss @ 74.50
05/07/13 Our trade opens
05/06/13 HON meets our entry requirement with a close above $76.00

Current Target:$ 95.00
Current Stop loss: 78.40
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Intel Corp. - INTC - close: 22.81

Comments:
10/06/13: INTC continued to drift lower until it found support near $22.50 and its simple 200-dma. I would be tempted to buy calls here but investors may want to wait until either after we see INTC's earnings report on October 15th or until after the government shutdown is over.

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 $0.57/0.58

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.26/1.30

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: 52.67

Comments:
10/06/13: JPM spent most of last week inside a 50-cent range. Friday's rally did break through some short-term resistance I remain cautious here. I would still consider buying calls on a dips at the $50.00 mark.

Keep in mind that JPM could be volatile on Friday (the 11th) as investors react to its earnings report.

Earlier Comments:
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.

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 $ 1.34/1.35

- or -

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

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: 48.31

Comments:
10/06/13: KMX spent most of the week chopping sideways inside the $47.50-49.00 zone. At this point I would wait for a new close above round-number resistance at $50.00 before considering 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 $ 0.90/0.95

09/23/13 KMX hit our buy-the-dip entry at $50.00
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: 59.21

Comments:
10/06/13: MDVN did not make any progress last week with shares still coiling sideways. The trend of higher lows and lower highs will eventually produce a breakout, one way or the other!

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 $ 4.55/5.50

*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: 42.27

Comments:
10/06/13: NTAP slowly faded lower. Shares still held short-term support near $42.00. Unfortunately the stock did close below technical support at its simple 50-dma for the first time in about five months. That's not a good sign. NTAP has seen a three-week pullback. It's time for investors to step in and buy the dip otherwise its up trend could be in jeopardy.

I am not suggesting new positions at this time. 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 $3.45/3.50

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $6.30/6.45

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: 15.59

Comments:
10/06/13: NVDA is virtually unchanged for the week. Chares have been consolidating sideways inside the $15.30-15.70 zone. Investors could use a close above $15.75 as a new bullish entry point. Of if you're worried about a market sell-off due to headlines out of Washington then consider waiting for a dip near $15.00 as an alternative entry point.

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 $0.75/0.77

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.44/1.49

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: 47.16

Comments:
10/06/13: ODFL displayed some relative strength, gaining almost two points last week. Shares ended Friday at a new all-time closing high. The strength is encouraging but shares are near the top of their channel. I am not suggesting new positions at this time.

FYI: ODFL is scheduled to report earnings on October 24th.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $1.10/1.45

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


Constellation Brands - STZ - close: 61.97

Comments:
10/06/13: Traders bought the dip on Monday morning (Sep. 30th) and STZ has been up every day since. Shares surged past resistance near $60.00 and closed at a new all-time high thanks to a +8.7% gain for the week.

Most of the move was driven by STZ's earnings results. They reported on October 3rd and beat the EPS estimate by 8 cents. The revenue number was a miss but management raised their 2014 guidance, which helped fuel buying interest in the stock.

The stock is arguably short-term overbought here. I would expect a dip back toward $60.00, which should be new support.

I am raising our stop loss to $54.90.

NOTE: I am adjusting our exit strategy. We'll use an exit target at $64.00 to close the 2014 calls. We'll aim for $69.00 to exit the 2015 calls.

- Suggested Positions -
SEP 06, 2013 - entry price on STZ @ 57.56, option @ 2.00
symbol: STZ1418a60 2014 JAN $60 call - current bid/ask $4.20/4.40

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $6.30/6.70

10/06/13 new stop loss @ 54.90
adjust exit target to 64.00 for the 2014 calls
adjust exit target to 69.00 for the 2015 calls
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: Exit 2014 calls @ 64.00, exit 2015 calls @ 69.00
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: 153.90

Comments:
10/06/13: Look out below! UNP issued an earnings warning on Thursday night. Shares gapped down on Friday morning and then spent the rest of Friday hugging the $154.00 level. It's certainly possible that UNP might find technical support at its 150-dma (near 152.75) but I am worried we will see UNP breakdown below its late August lows and hit our stop loss at $152.00. More conservative investors may want to abandon ship and exit immediately. Most of the damage has already been done to our 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 $ 0.27/0.34

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - current bid/ask $ 1.98/2.11

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: 51.61

Comments:
10/06/13: VRSN spent the week bouncing off its rising 20-dma. I remain bullish here but traders may want to wait on launching new positions. Nimble traders could try and buy calls on a dip near $50.00, which should be support. Otherwise it might pay off to wait for VRSN to close above resistance near $52.00 before initiating positions.

FYI: VRSN is due to report earnings on October 24th.

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 $ 1.04/1.09

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 4.15/4.30

*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

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: 59.55

Comments:
10/06/13: It was a relatively quiet week for WFM. The stock did hit a new all-time high but the stock failed to breakout past round-number resistance at $60.00. The last few days have seen shares consolidating sideways between short-term support at its 10-dma and the $60 level.

I am raising our stop loss up to $53.85. 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 $ 2.74/2.79

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 7.30/7.50

10/06/13 new stop loss @ 53.85
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: 53.85
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


CLOSED Plays


The J. M. Smucker Company - SJM - close: 105.93

Comments:
10/06/13: Our SJM trade has been stopped out. We've been worried about the stock's recent weakness. A midweek dip toward $104 and its 150-dma was enough to hit our stop loss at $104.25. We were expecting SJM to find stronger support at the $105 level. Traders actually bought the dip near $104. Readers may want to keep SJM on their watch list to see if the stock can build on last week's bounce.

- Suggested Positions -
SEP 11, 2013 - entry price on SJM @ 108.83, option @ 2.10*
symbol: SJM1418a115 2014 JAN $115 call - exit $0.50 (-76.1%)

10/02/13 stopped out
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.

Chart of SJM

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





Watch

Construction & Sporting Goods

by James Brown

Click here to email James Brown



New Watch List Entries

CBI - Chicago Bridge & Iron

DKS - Dick's Sporting Goods


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

..None..



New Watch List Candidates:


Chicago Bridge & Iron - CBI - close: 70.47

Company Info

As a company, CBI is almost 125 years old. Through the decades they have grown into a global giant for energy infrastructure construction projects. The stock spent most of the summer consolidating sideways inside a huge pennant pattern. Shares broke out from this consolidation in early September. A recent string of positive headlines regarding new contract wins has helped fuel CBI to new all-time highs.

We do not want to chase it here. I am suggesting a buy-the-dip trigger to buy calls at $66.00 since broken resistance near $65.00 should be support. Now there's no guarantee that CBI is going to produce this desired pullback but if it does, we want to be ready to take advantage of it.

If triggered at $66.00, we will start with a stop loss at $59.50. Our long-term target for the 2015 calls is $84. Our long-term target for the 2016 calls $94.

Buy-the-Dip trigger: $66.00

BUY the 2015 Jan $75 call (CBI1517a75) current ask $7.20

- or -

BUY the 2016 Jan $80 call (CBI1615a80) current ask $9.60

Chart of CBI:

Originally listed on the Watch List: 10/06/13


Dick's Sporting Goods - DKS - close: 53.27

Company Info

DKS is a sporting goods chain with over 525 stores in 44 states. The stock has been consolidating sideways inside the $45-54 trading range for about a year and a half. The most recent bounce off the bottom of the range has produced a five-week rally. Now DKS is sitting just below major resistance. A breakout here could launch a significant move higher. The point & figure chart is already bullish and forecasting at $71 target.

DKS has failed at $54.25 more than once. I am suggesting we wait for DKS to close above $54.50 and then buy calls the next day with a stop loss at $49.95. Please note that I am putting a limit on this entry point. We do not want to initiate positions if we see DKS close above $56.50 so I'm giving the stock a $2.00 window for us to launch positions.

Buy-the-Dip trigger: Wait for DKS to close above $54.50
then buy calls the next day. use an initial stop at $49.95.

BUY the 2014 Jan $55.50 call (DKS1418a55.5) current ask $1.85

- or -

BUY the 2015 Jan $60 call (DKS1517a60) current ask $3.60

Chart of DKS:

Originally listed on the Watch List: 10/06/13


Active Watch List Candidates:



Avago Technologies - AVGO - close: 43.50

Comments:
10/06/13: Gains were limited but AVGO did close at a new all-time high on Friday. The stock is up four weeks in a row and up six out of the last seven weeks. I would rather not chase it here.

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: 58.65

Comments:
10/06/13: DD posted a minor decline for the week thanks to a big bounce on Friday. The stock is less than two points from its 52-week high so we're not giving up yet. 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: 59.21

Comments:
10/06/13: It was a bullish week for DLTR. Investors bought the dip on Monday, Sept. 30th and shares rebounded to a new all-time high.

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: 33.49

Comments:
10/06/13: FCX hit $32.33 last Monday at its lows. Traders bought the dip again last Tuesday at $32.39. We may need to rethink our buy-the-dip trigger at $32.00 but we're not giving up yet. For now the strategy is unchanged.

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: 47.43

Comments:
10/06/13: HAS spent most of the week consolidating sideways above short-term technical support at its simple 50-dma. If the stock doesn't improve soon we are likely to drop it as a candidate.

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: 55.79

Comments:
10/06/13: WAG hit new all-time highs on Thursday last week but we do not want to chase it. I don't see any changes from my earlier comments. We want to wait and buy calls on a dip at $52.25.

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