Option Investor
Newsletter

Daily Newsletter, Sunday, 10/13/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Surge On Misplaced Hope

by James Brown

Click here to email James Brown

Stocks produced a volatile week as the partial U.S. government shutdown continued to consume Wall Street's attention. Last Tuesday's plunge was the worst one-day drop for the S&P 500 and the NASDAQ since August. The Dow Industrials fell almost 1,000 points from their September 18th high before bouncing off technical support at its simple 200-dma. News that the republican controlled House of Representatives might pass a short-term debt ceiling increase sparked a big short covering rally on Thursday. Thursday proved to be the second best one-day gain of the year for all of the major U.S. indices. By Friday's closing bell the Dow Industrials had bounced more than +500 points and the S&P 500 index had rebounded +3.4% off its lows. Yet we still have no deal in Washington on the government shutdown or the debt ceiling so these gains could be at risk.

Economic Data

Economic data was limited last week thanks to the government shutdown. Several retailers did report same-store sales data for September. Unfortunately, a big miss by the Gap Inc. (GPS) pulled the industry's average gain to just +0.4%, well below expectations. September's same-store sales pace was the worst since August 2009. Meanwhile all of the negative headlines regarding the government shutdown and looming debt ceiling issue spooked consumer sentiment. The October reading for consumer sentiment fell from 77.5 to 75.2, which is the lowest reading since January.

We did get the minutes from the last FOMC meeting. The Fed governors were somewhat divided over when to cut back on their current QE program. Many of them expected to start tapering their QE purchases before the end of the year and end QE some time in 2014. Yet that was before the government shutdown. The fed heads did acknowledge that politics in Washington could prove to be a risk to the U.S. economy. Considering where we are now with the government shutdown in its second week odds are good that any QE taper will be postponed until December or possibly January 2014. While we're on the subject of the Federal Reserve the White House did officially announce Janet Yellen as the President's nomination for the Federal Reserve Chairman to replace Ben Bernanke in 2014. This is bullish news if you believe in the Fed's stimulus program.

Overseas Data

Economic data overseas was mostly positive. Germany said their factory orders fell -0.3% versus a -1.9% drop the prior month. Yet German industrial production rose +1.4%, which was above expectations. Spain continues to struggle and said their industrial production plunged -2.0% versus a -1.2% drop the prior month. Meanwhile in Asia a Bank of Japan official said they expect the country's economic recovery to continue. In China the HSBC services PMI slipped from 52.8 to 52.4 but numbers above 50.0 are still positive. The People's Bank of China recently said they expect China to surpass the official 2013 growth target of +7.5%.

Shutdown & Debt Ceiling

Sunday will mark the 13th day of the current government shutdown. Hope that a deal could get done to at least extend the U.S. debt ceiling sparked the big bounce on Thursday. This Thursday, October 17th, is the deadline for the U.S. debt ceiling. In addition to the deadline there is a congressional recess coming up. Both the republicans and the democrats are looking at the clock run down as they fight over the U.S. budget and the debt limit.

There was new hope on Friday that a meeting between the president and the republicans might produce a deal. The republican controlled House of Representatives has said they were willing to consider a short-term extension to the debt ceiling to "avoid a default". Of course all the threat of a default is bogus. The U.S. brings in enough tax receipts each month to pay our principal and interest payments on our debt so there is no risk of a default. Everyone threatening a default is merely using it as a scare tactic.

Unfortunately the weekend has not produced a deal between the two sides. Republican Speaker of the House John Beohner has said that President Obama has reverted back into non-negotiation mode. If we get to Monday morning without a deal it will jeopardize the market's bounce and stocks could see renewed selling pressure. There was some hope that the democrat-controlled Senate might be able to broker a deal but as of Sunday they remained gridlocked.

Major Indices:

The S&P 500 index had fallen from its September intraday high of 1729 down to last Wednesday's low of 1646 before bouncing. That was a -4.8% correction. The big bounce pushed the S&P 500 to a +0.75% gain for the week and the index is actually up since the start of the partial government shutdown (that began October 1st). Thus far the S&P 500's larger trend of higher lows and higher highs remains intact. As I just mentioned above the short-term gains could be at risk if we don't see a deal in Washington soon.

On a short-term basis I would look for support in the 1675-1680 area. If the selling resumes then we could easily see the S&P 500 retest its lows near 1650. On the other hand if the bounce continues then overhead resistance is the September highs near 1730.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite has also kept its long-term bullish trend alive. Although the index did post a loss last week (-0.4%) in spite of the big two-day bounce. The index is less than 1% away from its 13-year high from October 1st.

If the market turns lower the NASDAQ could find support near 3700 and its low last week near 3650. Expect resistance in the 3800-3820 area and then near 3850.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index produced a very volatile week. The index plunged toward support near 1040 before bouncing back. The $RUT is already up +4.4% from Wednesday's intraday low and less than five points away from a new all-time, record high.

If stocks turn south again we can look for possible support near 1060 and 1040. Otherwise the trend is up and the next significant resistance level is probably the 1100 mark.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data picks up this week. Yet there is no guarantee any of the government reports will be published due to the partial shutdown. All of them will likely be overshadowed by the drama in Washington over the debt ceiling deadline on October 17th and the deluge of Q3 earnings announcements. You can view a calendar of earnings reports by clicking here.

Economic and Event Calendar

- Monday, October 14 -
Chinese GDP data

- Tuesday, October 15 -
New York Empire State manufacturing Fed survey

- Wednesday, October 16 -
Consumer Price Index (CPI)
Federal Reserve Beige Book report
weekly MBA mortgage index

- Thursday, October 17 -
Weekly Initial Jobless Claims
housing starts and building permits
Industrial production data
U.S. Debt Ceiling deadline
Philly Fed survey

- Friday, October 18 -
leading indicators for September

Additional Events to be aware of:

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




The Week Ahead:

Monday morning could be negative for U.S. equities if we don't have a deal in Washington on the debt ceiling. We've only got three trading days between now and the October 17th deadline. Without a deal the rhetoric over a possible U.S. debt default, even though there is no threat, will hit epic proportions. Investors have been warned that both sides will play a dangerous game of brinkmanship. We might see the October 17th deadline crossed without a deal and that could definitely sour the stock market. This week could see another sharp increase in market volatility.

Speaking of volatility we will also see a big increase in individual stock movement as investors react to Q3 earnings results. Odds are good that corporate guidance might be more cautious than Wall Street wants to hear thanks to the dysfunction in Washington. Don't be surprised if traders choose to "sell the news" when it comes to earnings reports this month. I will add that expectations are relatively low and that could set up for a bullish surprise for stocks instead. The market's reaction to each earnings report will definitely be influenced by the day's tone (optimistic or pessimistic) set by Washington D.C.

A deal in Washington will eventually get done and that will be bullish for the stock market. Unfortunately, it could be a very painful ride between now and then.

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The U.S. government (partial) shutdown will soon enter its third week. The market has been able to pare its losses on hopes of a deal. Yet so far there seems to be no compromise between the two parties in Washington. Odds are equities will remain volatile for the next week or two.

KMX, MDVN, and UNP hit our stop loss.

I have updated stop losses on: NTAP, 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

No Deal Yet

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(October 13, 2013)

It's Sunday, October 13th and the democrats and republicans have been unable to compromise on a government budget or the U.S. debt ceiling. We have three trading days to go before the debt ceiling deadline on Oct. 17th. The next few days could be very volatile for the stock market as traders react to overheated rhetoric out of Washington D.C. as politicians play chicken with our economy and credit rating.

Considering these extraordinary circumstances and the potential for a market sell-off by next weekend I am not adding any new LEAPS trades tonight. Hopefully a deal will get done soon and when that occurs we can expect the market to resume its rally. Eventually a deal will get done but there is no guarantee it will get done this week.

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:

PCP, CNI, V, DDD, SI, ZMH, COF, CCMP, TM, UNXL, CTSH, SLB, CAH, RS, VAR, HP, CMI, SBUX, BHI, BA, ROST, LCC, COP, SNDK, BBBY, NBL, FSLR, ATI, GME, MON, CL, DFS, SIRI, WNR,



Play Updates

Stocks Recover

by James Brown

Click here to email James Brown

Editor's Note:

The Q3 earnings season is about to pick up speed in a big way. Expectations are low and investors will likely punish any company that misses or is too cautious with their guidance. More conservative investors might want to consider some sort of hedge with short-term options to protect your longer-term positions.


Closed Plays


A very volatile week for the stock market produced some sharp sell-offs on our active play list.

KMX, MDVN, and UNP were stopped out.



Play Updates


American Intl. Group - AIG - close: 50.00

Comments:
10/13/13: AIG temporarily traded below support near $48 and its 50-dma. The market's two-day bounce has pushed shares above the short-term trend of lower highs. Shares are currently hovering near round-number resistance at $50.00.

Please note that I am adjusting our exit strategy. We want to exit our 2014 calls when AIG hits $54.50. We'll plan to exit our 2015 calls when AIG hits $59.00.

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

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $2.42/2.47

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.75/3.85

10/13/13 exit strategy update: exit 2014 calls at $54.50
adjust the exit target for the 2015 calls to $59.00
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:$ exit 2014 calls @ 54.50, exit 2015 calls @ 59.00
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: 14.19

Comments:
10/13/13: BAC eked out a small gain for the week. Shares did not move much following the earnings reports from WFC and JPM on Friday. On a positive note BAC does appear to have formed a possible bullish double bottom near 13.70 over the last couple of weeks. Yet short-term the stock is still struggling with resistance at its 50-dma and the 14.25 area.

I would expect BAC to drift sideways into its earnings report on October 16th. BAC will announce before the opening bell. More conservative investors may want to raise their stop loss prior to the report.

- 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 $1.43/1.45

07/23/13 $15.00 exit target hit for the 2014 Jan. $15 calls.
07/20/13 new stop loss @ 12.75. Adjust the exit target for the 2014 calls to exit when BAC hits $15.00. Our exit for the 2015 calls is $18.00 on BAC
07/07/13 new stop loss @ 11.35
05/04/13 BAC did not participate in the market's rally this past week. Investors should turn more defensive here.

Current Target: BAC @ 15.00 for 2014 calls. BAC @ $18 for 2015 call
Current Stop loss: 12.75
Play Entered on: 03/18/13

Originally listed on the Watch List: 03/09/13


Deckers Outdoor Corp. - DECK - close: 61.12

Comments:
10/13/13: Ouch! It was a painful week for shares of DECK. Monday, October 7th, saw shares plunge from almost $68 to $63. The sell-off continued on Tuesday but DECK found support near $60.00 and its simple 50-dma. Unfortunately, DECK did not participate in the stock market's broad-based two-day bounce on Thursday and Friday and that's worrisome.

Currently our stop loss is at $57.40 but investors might want to raise their stop closer to the $60.00 level instead. I am not suggesting new positions at this time.

Earlier Comments:
Our target is $74.00. FYI: The point & figure chart is forecasting a bullish target of $87.00. We want to keep our position size small to limit our risk. DECK can be a volatile stock.

- Suggested Positions -
SEP 05, 2013 - entry price on DECK @ 61.47, option @ 4.30
symbol: DECK1418a65 2014 JAN $65 call - current bid/ask $3.90/4.10

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $8.00/ 8.30

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: 57.83

Comments:
10/13/13: Many of the retail-related names struggled last week. DG dipped to short-term support near $56 and its 50-dma before bouncing. Investors may want to wait for DG to close at a new high before considering new bullish 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 $2.50/2.70

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.55/3.20

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: 77.98

Comments:
10/13/13: It was a volatile week for EMN. The stock ricocheted from resistance near $80 back down to support near $75 before bouncing. I am not suggesting new positions at current levels.

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 $ 3.20/3.40

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 5.10/5.30

08/04/13 new stop loss @ 74.40
07/18/13 Trade opened. EMN opens at $75.34
*option entry price is an estimate since the option did not trade at the time our play was opened.
07/17/13 EMN meets our entry requirement with a close above $75.25

Current Target: 2014 calls: target $84 on EMN. 2015 calls: target $95
Current Stop loss: 74.40
Play Entered on: 07/18/13
Originally listed on the Watch List: 07/14/13


Ford Motor Co. - F - close: 17.11

Comments:
10/13/13: Ford dipped to technical support at its 100-dma before bouncing. Shares closed virtually unchanged on the week. Yet the rebound does appear to have broken through the three-week trend of lower highs. I am not suggesting new positions at this time.

Ford is due to report earnings on October 24th.

- 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 $ 3.10/3.20

09/15/13 adjust exit target on 2015 calls to $19.50 (on Ford stock)
09/08/13 new stop loss @ 15.35
08/04/13 new stop loss @ 14.85
07/07/13 new stop loss @ 14.25
06/01/13 investors may want to exit our 2015 calls now with a bid at $2.34 (+91.8%)
06/01/13 adjust long-term target to $17.75
05/20/13 closed the 2014 calls at the open. Option @ +96.6%
05/18/13 prepare to exit the 2014 calls on Monday, May 20th
05/18/13 new stop loss @ 13.40

Current Target:$ 19.50
Current Stop loss: 15.35
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Fluor Corp. - FLR - close: 72.98

Comments:
10/13/13: The stock market's midweek sell-off pushed FLR below short-term support near $70.00. Fortunately FLR did participate in the market's bounce and shares are up for the week. The next level of resistance is the $74-75 area.

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: 5.70/5.90

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 8.50/8.70

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: 50.67

Comments:
10/13/13: It proved to be a bullish week for HAL. The stock market sliced through short-term support but not HAL. The stock held support near its rising 50-dma. Then when the market bounced shares outperformed and broke out to a new 52-week high.

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 $ 2.99/3.00

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 6.50/6.65

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: 65.75

Comments:
10/13/13: HOG managed to motor through the market's volatility and deliver another gain. The stock is now up eight weeks in row and poised to breakout past short-term resistance near $66.00.

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 $ 3.65/3.80

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.80/5.95

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: 86.46

Comments:
10/13/13: HON displayed relative strength with a big gain for the week. Shares held support near its 100-dma during the market's decline. When stocks bounced HON raced higher. Shares are arguably short-term overbought and I would not be surprised to see a brief dip although HON might just drift sideways until the company reports earnings on October 18th.

NOTE: Our 2015 call options have doubled in value. More conservative investors will want to seriously consider taking profits now ahead of HON's earnings report on October 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 $ 8.35/8.50

10/13/13 investors might want to take profits on our 2015 calls, which have doubled in value.
08/25/13 new stop loss @ 78.40
08/04/13 new stop loss @ 77.45
07/14/13 new stop loss at $75.75
05/20/13 closed the 2014 calls at the open. option @ +90.2%
05/18/13 prepare to exit 2014 Jan. calls immediately on Monday, May 20th
05/18/13 new stop loss @ 74.50
05/07/13 Our trade opens
05/06/13 HON meets our entry requirement with a close above $76.00

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






Intel Corp. - INTC - close: 23.25

Comments:
10/13/13: INTC managed to hold support near the $22.50 level in spite of the stock market's sharp decline last week. When the market bounced INTC followed and ended the week with a +1.9% gain.

INTC is due to report earnings on Tuesday evening, October 15th, after the closing bell. If the company disappoints we could see shares breakdown below its long-term (one-year) trend of higher lows. More conservative investors may want to raise their stop loss prior to the earnings announcement.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ 23.63, option @ 0.93
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.65/0.67

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.36/1.40

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: 52.51

Comments:
10/13/13: JPM made headlines on Friday (Oct. 11th) as the market digested the company's Q3 earnings report. Wall Street was expecting a profit of $1.29 a share. The company announced $1.42 a share but revenues were a miss at $23.12 billion for the quarter. However, if you take into account JPM's massive legal expenses of $7.2 billion then JPM actually lost $380 million or 17 cents a share. That's the first quarterly loss since 2004.

Investors were sanguine on the report. JPM initially rallied on the earnings news before settling almost unchanged on Friday. Investors may want to wait for JPM to close above resistance at $54.00 before considering new bullish positions.

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.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 1.17/1.19

- or -

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

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


NetApp, Inc. - NTAP - close: 41.57

Comments:
10/13/13: The correction lower in shares of NTAP continues. After peaking in mid September (with the broader market) NTAP is now down four weeks in a row. The fact that NTAP did not participate in the market's broad-based rally on Thursday and Friday is troubling. More conservative investors may want to abandon ship right now. I am not suggesting new positions.

Please note our new stop loss at $39.80.

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 $3.15/3.25

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - current bid/ask $6.05/6.20

10/13/13 new stop loss @ 39.80, more conservative investors may want to exit early right now
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: 39.80
Play Entered on: 05/17/13
Originally listed on the Watch List: 05/11/13


NVIDIA Corp. - NVDA - close: 15.26

Comments:
10/13/13: I am worried about NVDA as well. Shares are still slowly drifting lower and threatening to breakdown below their simple 50-dma. The stock did not really participate in the stock market's widespread two-day bounce this past week. I suspect we will see NVDA test round-number support near $15.00 soon. More conservative investors may want to raise their stop loss. Nimble traders might want to consider buying dips near $15.00 but I would hesitate until we see a deal in Washington D.C.

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 $0.56/0.58

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.24/1.28

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: 47.21

Comments:
10/13/13: The transportation sector helped lead the market higher during the two-day bounce. Shares of ODFL didn't quite keep pace with the bounce but then again shares didn't see as sharp of a sell-off either. ODFL is actually close to a new all-time high. More conservative investors might want to raise their stop loss. 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 $1.20/1.50

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: 62.99

Comments:
10/13/13: STZ continues to show relative strength. Traders bought the dip near short-term support at its 10-dma (and near $60). Friday's outperformance (+3.3%) left STZ at a new all-time, record high. I am raising our stop loss to $55.90.

- Suggested Positions -
SEP 06, 2013 - entry price on STZ @ 57.56, option @ 2.00
symbol: STZ1418a60 2014 JAN $60 call - current bid/ask $5.10/5.30

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $7.40/7.60

10/13/13 new stop loss @ 55.90
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: 55.90
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/25/13


VeriSign, Inc. - VRSN - close: 51.31

Comments:
10/13/13: The stock market's weakness pushed VRSN below support near $50.00 and below its 50-dma before shares bounced back. If you missed buying calls on the dip then investors might want to wait for a close above resistance near $52.00. More conservative investors may want to wait until after we see VRSN's earnings report on October 24th before considering new 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 $ 1.00/1.04

- or -

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

*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: 61.18

Comments:
10/13/13: WFM held up reasonably well last week. Traders bought the dip at recent support in the $57.70 area. The market's big two-day bounce lifted WFM to a new all-time high.

CORRECTION: WFM actually hit our exit target of $59.75 on October 2nd, 2013. The high that day was $59.99. Our plan was to exit our 2014 January $60 calls at $59.75. We still have our 2015 call position and I am adjusting our long-term exit target to $69.00.

Tonight we are raising the stop loss to $55.75.

- Suggested Positions -
(2014 calls closed on Oct. 2nd @ 59.75 target)
JUL 10, 2013 - entry price on WFM @ 54.53, option @ 2.10
symbol: WFM1418a60 2014 JAN $60 call - exit $2.85 (+35.7%)

- or -

JUL 10, 2013 - entry price on WFM @ 54.53, option @ 6.20
symbol: WFM1517a60 2015 JAN $60 call - current bid/ask $ 8.50/8.65

10/13/13 new stop loss @ 55.75,
adjust exit target for 2015 calls to $69.00
10/06/13 new stop loss @ 53.85
10/02/13 correction: WFM hit our $59.75 exit target for the 2014 calls.
exit 2014 Jan. $60 call @ 09/22/13 new stop loss @ 52.40

Current Target: $59.75 for the 2014 calls, $69.00 for the 2015 calls
Current Stop loss: 55.75
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


CLOSED Plays


CarMax Inc. - KMX - close: 47.93

Comments:
10/13/13: KMX is off less than 40 cents for the week but that doesn't tell the whole story. The stock market's sharp decline pushed KMX below support $47.50 area and below its 150-dma. Our stop loss was hit at $46.40 on October 8th.

- Suggested Positions -
SEP 23, 2013 - entry price on KMX @ 50.00, option @ 1.40
symbol: KMX1418a55 2014 JAN $55 call - exit $0.45 (-67.8%)

10/08/13 stopped out
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: 50.97

Comments:
10/13/13: It was an exceptionally ugly week for MDVN with shares falling almost -14%. The stock collapsed on Monday, October 8th and continued to plunge on Tuesday. Our stop loss at $54.90 was hit on Monday. Unfortunately, I could not find any specific news to account for the sudden drop in MDVN.

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

- Suggested Positions -
SEP 06, 2013 - entry price on MDVN @ 61.00, option @ 7.80*
symbol:MDVN1418a65 2014 JAN $65 call - exit $3.10** (-60.2%)

10/08/13 stopped out @ 54.90
**option exit price is an estimate since the option did not trade at the time our play was closed.
*option entry price is an estimate since the option did not trade at the time our play was opened.

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


Union Pacific Corp. - UNP - close: 153.90

Comments:
10/13/13: UNP has been a troubled trade for us. The market's sell-off from its September peak helped push UNP back down toward its August lows. Then the market weakness this past week actually dragged UNP to a new relative low and shares tagged our stop loss at $152.00. Naturally UNP rallied the very next day as the market rebounded.

If you are interested in a bullish play in the railroad industry I would look more closely at shares of CP or CNI, both of which have been showing more relative strength.

- Suggested Positions -
JUL 22, 2013 - entry price on UNP @ 163.80, option @ 3.10
symbol: UNP1418a180 2014 JAN $180 call - exit $0.29 (-90.6%)

- or -

JUL 22, 2013 - entry price on UNP @ 163.80, option @ 4.75
symbol: UNP1517a200 2015 JAN $200 call - exit $2.05 (-56.8%)

10/08/13 stopped out
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

Chart of UNP:

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



Watch

Entertainment & Oil Services

by James Brown

Click here to email James Brown


New Watch List Entries

DIS - The Walt Disney Co

NOV - National Oilwell Varco


Active Watch List Candidates

AVGO - Avago Technologies

CBI - Chicago Bridge & Iron

DD - E.I. du Pont

DKS - Dick's Sporting Goods

DLTR - Dollar Tree Inc.

FCX - Freeport McMoRan

WAG - Walgreen Co.


Dropped Watch List Entries

HAS has been removed.



New Watch List Candidates:


The Walt Disney Co. - DIS - close: 66.21

Company Info

DIS is a media giant with TV networks, movie studios, resorts and amusement parks. Right now content is king. 2013 has seen shares of DIS rally to new all-time highs. Yet the rally peaked in May. DIS has been stuck under resistance at the $68.00 level. The last few weeks have produced a sideways consolidation but now DIS is on the rebound.

We want to be ready if DIS can breakout past $68.00. I am suggesting we launch bullish positions if DIS can close above $68.05 but do not open positions if we see DIS close above $70.00 (we want to avoid buying a big spike higher or a gap open that's too high). If triggered with a close above $68.05 we'll start with a stop loss at $62.90. Our long-term target is $84.00.

FYI: DIS is due to report earnings on November 7th.

Breakout trigger: Wait for DIS to close above $68.05
buy calls the next day. use an initial stop at $62.90

BUY the 2015 Jan $75 call (DIS1517a75) current ask $3.15

Chart of DIS:

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


National Oilwell Varco - NOV - close: 79.32

Company Info

NOV is in the oil services industry. They manufacture components for oil and gas drilling, supply oilfield services, and more. Shares have been somewhat resilient during the market's recent sell-off. NOV is essentially consolidating sideways in the $77-80 zone. A breakout past $80 could set up for a run towards resistance in the $90 area.

I am suggesting we wait for NOV to close above $80.25 and buy calls the next day with a stop loss at $76.75. We do not want to open positions if NOV closes above $82.00. If triggered our target is $89.75. The point & figure chart is bullish with a $91 target.

Bear in mind that NOV is scheduled to report earnings on October 25th. The stock could see profit taking on a disappointing report.

FYI: NOV is planning a spinoff of its oilfield production equipment business by late 2014. We will likely exit positions prior to the spinoff.

Breakout trigger: Wait for NOV to close above $80.25
buy calls the next day. use an initial stop at $76.75

BUY the 2015 Jan $90 call (NOV1517a90) current ask $4.75

Chart of NOV:

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


Active Watch List Candidates:



Avago Technologies - AVGO - close: 43.29

Comments:
10/13/13: AVGO weathered the market's volatility last week pretty well. Traders bought the dip near $42.00 and now shares look poised to breakout to new highs. More aggressive investors might want to consider buying calls if AVGO can closed above $44.00. I am suggesting we wait for a deeper correction lower since there is still a risk of a market sell-off if our elected officials can't come to a deal on the U.S. debt ceiling.

Tonight we will adjust our buy-the-dip trigger to $40.50.

Earlier Comments:
I am suggesting a buy-the-dip entry point 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: $40.50, stop loss @ 37.75

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

- or -

BUY the 2015 Jan $45 call (AVGO1517a45) 10/13/13 adjust the buy-the-dip trigger from $40.00 to $40.50

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


Chicago Bridge & Iron - CBI - close: 71.05

Comments:
10/13/13: CBI continues to show relative strength. Traders bought the dip near its rising 20-dma during the market's recent sell-off. The rebound has pushed CBI to a new all-time high. We still do not want to chase it.

FYI: CBI is due to report earnings on October 29th.

Earlier Comments:
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)

- or -

BUY the 2016 Jan $80 call (CBI1615a80)

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


E.I. du Pont - DD - close: 57.93

Comments:
10/13/13: DD underperformed the market and posted another weekly loss, its third in a row. Traders did buy the dip near its 100-dma. DD has earnings coming up on October 22nd. If shares can't breakout past resistance near $60.00 between now and October 25th then we'll likely drop it as a watch list candidate.

Earlier Comments:
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


Dick's Sporting Goods - DKS - close: 52.57

Comments:
10/13/13: DKS hit some profit taking last week. Shares remain relatively close to major resistance at the $54.00 level. We just need to be patient. There is no change from my prior comments.

Earlier Comments:
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)

- or -

BUY the 2015 Jan $60 call (DKS1517a60)

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


Dollar Tree, Inc. - DLTR - close: 58.69

Comments:
10/13/13: Many of the retail-related stocks suffered last week. Yet profit taking in DLTR was relatively minor. We do not want to chase DLTR yet. I'd rather wait for a dip toward $55.00, which should be significant support.

Earlier Comments:
Shares of DLTR recently broke out past resistance near $55.00 and tagged new all-time highs. 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: 33.44

Comments:
10/13/13: Hmm... we may want to adjust our entry trigger. In the last two weeks we have seen traders buy the dip in FCX three times in the $32.35 area. That's close to our suggested trigger at $32.00 but not close enough. I'm not making any changes tonight but more nimble traders may want to adjust their entry plans.

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: 46.72

Comments:
10/13/13: I am removing HAS as a watch list candidate. The stock continued to sink last week. Shares did find support near $46 and its rising 150-dma but I would not launch positions here.

Trade did not open.

10/13/13 removed from the watch list.
trade did not open.

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


Walgreen Co. - WAG - close: 55.96

Comments:
10/13/13: WAG endured the market's volatility very well. Profit taking was minimal. Shares mostly drifted sideways in spite of the market's big moves. I am suggesting we stick to our buy-the-dip strategy for now. Let's give it another week and then re-evaluate.

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