Option Investor
Newsletter

Daily Newsletter, Sunday, 10/20/2013

Table of Contents

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

Leaps Trader Commentary

Temporary Deal Fuels New Record Highs

by James Brown

Click here to email James Brown

Expectations for a deal in Washington to end the government shutdown and extend the debt limit continued to fuel big gains in the stock market. After a 16-day shutdown a last-minute deal was announced and the market accelerated higher. President Obama signed a bill passed by both the Senate and the House of Representatives that funds the U.S. government through January 15th, 2014 and raises the debt ceiling limit through February 7th, 2014. The stock market didn't care that our elected officials only kicked the can down the road. We might have to endure this entire ordeal over again in early 2014. The S&P 500 has risen seven out of the last eight trading days. By Friday's closing bell the S&P 500 and the small cap Russell 2000 closed at new all-time, record highs.

Economic Data

In the U.S. our economic data was mixed and really didn't matter. Everything took a back seat to the drama in Washington D.C. The National Association of Home Builders said their Housing Market Index for October fell from 58 to 55. The MBA mortgage index inched up +0.3% but the refi component rose +3.3%, up five weeks in a row. The Federal Reserve's Beige Book was a non-event with the same modest to moderate growth across the twelve districts. The Fed did publish two of their regional surveys. The Philadelphia Fed survey fell from 22.3 in September to 19.8 in October. Meanwhile the New York Empire State fed survey dropped from 6.29 in September to 1.5 in October.

Overseas Data

China released a lot of data last week. There is rising concern over the rate of inflation in China. Their CPI rose +0.8% month over month and year over year inflation hit +3.1%. Both readings were higher than expected. Retail sales in China were relatively in-line with estimates at 13.3%. Industrial production came in at +10.2%. There was also concern over China's exports, which declined for the first time in three months. China's trade surplus plunged from $28.6 billion to $15.2 billion. Overall China said their GDP grew at +2.2% for the quarter and hit a yearly pace of +7.8%, which was above the prior reading of +7.5%.

The only significant economic news out of Japan was their industrial production, which contracted -0.9%, which was worse than expected. Yet that didn't stop the Japanese NIKKEI index from climbing seven days in a row. Meanwhile economic data in Europe was mostly positive. Germany's ZEW economic sentiment poll rose from 49.6 to 52.8. The Eurozone ZEW poll slipped from 59.4 to 59.1. Eurozone industrial production rose +1.0%, up from a -1.0% reading the prior month. The major European stock markets rallied seven days in a row.

Major Indices:

The movement in the S&P 500 index has been dramatic. The large cap index is up almost 100 points from its October 9th low, just eight trading days ago. That's worth a +5.9% bounce and the index closed the week up +2.4% and at a new all-time record high. Year to date the S&P 500 is up +22.3%.

On a short-term basis you could easily argue that the S&P 500 is overbought but that doesn't guarantee a pullback any time soon. The 1750 level could be round-number resistance. Beyond that level the 1770 and 1800 levels are good spots to look for resistance.

If the market sees some profit taking then 1730, 1700 and 1680 could all act as possible support.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite delivered an outstanding week with a +3.2% gain and new 13-year highs. The index is up almost 250 points or +7.2% from its mid October low. It is definitely short-term overbought and we should not be surprised to see a pullback. Year to date the NASDAQ is up +29.6%.

The 3900 level should have been resistance but the NASDAQ closed above it on Friday. 3950 and 4,000 are likely overhead resistance levels. If the NASDAQ can close over 3950 then the 4,000 mark will act like a magnet. The recent highs near 3815 and the 3800 level should be short-term support. Below that the 3700 level should be support.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index is also racing higher. This index added +2.8% and has produced a 76-point bounce off its October low worth a +7.3% gain. This is a new all-time high for the $RUT. As you can see from my charts below the $RUT is nearing potential resistance at its trend line of higher highs (in this case the top of its bullish channel).

I would expect resistance somewhere in the 1120-1140 zone. Look for support at 1085-1080 or 1060 if we see a sharp correction. Year to date the Russell 2000 is up +31.3%.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

Now that the government is back up and running we will start to receive all the delayed reports. First and foremost will be the non-farm payrolls (jobs) report for September, which will be release on Tuesday morning, October 22nd. Economists are expecting 160,000 new jobs, down from 169,000 in August. Everything else on the calendar will likely be overshadowed by Q3 earnings reports of which there will be dozens. I would keep an eye on HSBC's China manufacturing PMI data, which tends to vary from the official Chinese PMI data.

NOTE: You can view a calendar of earnings reports by clicking here.

Economic and Event Calendar

- Monday, October 21 -
existing home sales data

- Tuesday, October 22 -
non-farm payrolls (jobs) report for September.
Unemployment rate for September

- Wednesday, October 23 -
MBA mortgage index (weekly data)
China's HSBC manufacturing PMI data

- Thursday, October 24 -
Weekly Initial Jobless Claims
Eurozone PMI data
new home sales data

- Friday, October 25 -
durable goods orders
University of Michigan consumer sentiment (final reading for October)
G7 meeting begins

Additional Events to be aware of:

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




The Week Ahead:

Now that the government shutdown is over and the debt ceiling fight has been rescheduled for February 2014 we will see Wall Street's attention turn back to Q3 earnings season. Thus far earnings season has been pretty good. Almost 100 of the S&P 500 components have reported their Q3 earnings and almost 61% have beat analysts' estimates. In comparison 66.5% beat bottom line estimates in the second quarter. Unfortunately, only 38% of those 100 companies have beat the top line revenue estimate, compared to 45% in the second quarter.

There are concerns that we could be at an earnings peak. Profit growth has been slowing. Currently Wall Street's forecast for the fourth quarter and 2014 remain very optimistic. If corporate guidance is too soft this season it could sour the rally. We could certainly see corporate America try to lower expectations and blame it on the government shutdown.

Speaking of the government shutdown we could actually see it happen all over again in January 2014. Economists are already trying to figure out how much the 16-day shutdown hurt the U.S. economy. Our economy was already inching along in the +2% growth area. The shutdown could shave off -0.2% to -0.5% from the GDP. Fortunately for bullish investors the market seems to have a short memory. Eventually the U.S. debt is going to hit some unforeseen wall where creditors finally stop and notice. The U.S. debt has exceeded $17 trillion. The U.S. GDP is only $15.68 trillion. Check out some of these numbers on the U.S. Debt Clock website. The Fitch credit rating agency put the U.S. credit rating on negative watch for a potential downgrade. The Chinese Dagong rating agency downgraded U.S. debt from "A" to "A-" last week and reaffirmed their negative outlook.

The path of least resistance for stocks is up. The already weak economy combined with the shutdown should almost guarantee that the Federal Reserve will not taper their QE program until 2014. Since Janet Yellen will likely succeed Bernanke as Federal Reserve Chairman that adds an extra level of comfort for a stock market that is addicted to QE stimulus.

I will mention that October 31st is traditionally year end for many mutual funds. Most funds are drastically underperforming the market, a market that has been exceptionally bullish this year. Will fund managers be tempted to sell into this strength to lock in gains or will they try and squeeze out a few more percentage points and chase stocks higher before November 1st?

Unless we see some extremely negative jobs numbers or a sudden turn lower in Q3 earnings results then odds are we can count on the trend higher. There will be pullbacks along the way but each dip will probably be shallower than you might expect. I would prefer to buy stocks on a dip if we can get one.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

After 16 days lawmakers in Washington D.C. finally ended the government shutdown and extended the debt ceiling limit. Unfortunately the bill passed by both the Senate and the House is temporary. We could see more fireworks in Washington early next year.

HAL and STZ hit our bullish targets to exit our 2014 calls.

NTAP was stopped out. NOV has graduated from the watch list to our play list.

We want to exit our DECK trade immediately.

I have updated stop losses on: AIG, F, FLR, HAL, HON, ODFL, 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

Short-Term Overbought

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(October 20, 2013)

The democrats and the republicans finally came together with a last minute deal which in all honesty is not that surprising. I've been saying that a deal would get done. It was only a matter of time (and timing). This does clear away a lot of uncertainty for the stock market. You might consider it the "all clear" signal for investors.

We are bullish on stocks. However, the S&P 500 is up +5.9% from its October low. During that same period the NASDAQ is up +7.2% and the Russell 2000 is up +7.3%. We are short-term overbought here. I hesitate to chase stocks at new highs since a dip is in our future.

Thus I am not adding any new plays tonight. We did see NOV graduate from our watch list to our play list this past week. I am adding three new candidates to the watch list (CRUS, JDSU, and LVLT). Plus I have updated my radar screen and added several new symbols.

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:

URI, BBY, PFE, KSS, CS, WYN, BA, GD, NOC, ADBE, SBUX, FSLR, MSFT, JNPR, AKAM, NAV, PII, WDC, SIRI, AKS, VZ, GE, PCP, V, DDD, SI, ZMH, COF, CRR, AMZN, GS, UNXL, TWX, WLT, BTU, CTSH, CAH, TXN, CMI, X, SLB, JOY, FRX, NKE, UA, BWA, HP, CS, WYN, BA, GD, NOC, ADBE, SBUX, FSLR, MSFT, JNPR, AKAM, NAV, PII, WDC



Play Updates

Targets Hit

by James Brown

Click here to email James Brown

Editor's Note:

Both HAL and STZ hit our bullish targets to exit our 2014 January calls. Elsewhere NTAP was stopped out.

I have updated several stop losses tonight. Plus, NOV joined the active play list.

We want to exit our DECK trade immediately.


Closed Plays


NTAP hit our stop loss.



Play Updates


American Intl. Group - AIG - close: 52.30

Comments:
10/20/13: The stock market's rally has fueled big gains for AIG. The stock added +4.6% last week and closed at new multi-year highs. AIG is due to report earnings on October 31st. More conservative traders might want to exit our 2014 calls prior to the earnings report to avoid the risk of a post-earnings sell-off.

I am raising our stop loss to $46.40.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $3.60/3.70

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $4.65/4.75

10/20/13 new stop loss @ 46.40
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
...please see earlier updates for more history...

Current Target:$ exit 2014 calls @ 54.50, exit 2015 calls @ 59.00
Current Stop loss: 46.40
Play Entered on: 07/15/13
Originally listed on the Watch List: 06/01/13


Bank of America - BAC - close: 14.63

Comments:
10/20/13: BAC reported earnings on the 16th. The company beat estimates by one cent on revenues that were in-line with expectations. Traders bought the news and shares closed up +3.1% for the week. The next level of resistance is the $14.80-15.00 zone.

- 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 $1.52/1.55

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

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

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


Deckers Outdoor Corp. - DECK - close: 59.51

Comments:
10/20/13: Warning! Danger, Will Robinson! Shares of DECK are clearly not participating in the stock market's widespread rally. This past week has seen shares breakdown below technical support at their 50-dma and the $60.00 level.

I am suggesting we abandon ship and exit immediately on Monday morning.

- Suggested Positions -
SEP 05, 2013 - entry price on DECK @ 61.47, option @ 4.30
symbol: DECK1418a65 2014 JAN $65 call - current bid/ask $3.10/3.30

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - current bid/ask $7.50/ 8.00

10/20/13 Exit immediately on Monday morning, October 21st
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: 58.89

Comments:
10/20/13: DG managed to hit a new all-time high by the end of the week. Depending on your investing style we can use this new high as an entry point or use another bounce from the 50-dma as an entry point.

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 $2.40/2.60

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.65/3.30

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: 81.61

Comments:
10/20/13: It was a strong week for EMN with shares finally breaking out past resistance near the $80.00 level. We've only got a few days before EMN reports earnings on October 24th. I am suggesting we immediately exit our 2014 January $80 calls to lock in a gain by exiting the positions on Monday morning, October 21st. You could hold over the earnings report but you risk EMN disappointing and seeing the stock plunge and crush our option. We still have the 2015 call as well, which we will leave unchanged.

Earlier Comments:
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 $ 4.80/5.00

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 6.60/6.80

10/20/13 prepare to exit the 2014 calls on Monday. Oct. 21st at the opening bell
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: 17.53

Comments:
10/20/13: So far so good. Ford added +2.4% last week. Shares are nearing resistance at their September highs in the 17.65-17.75 area. I would expect F to drift sideways or slowly drift toward this resistance level until its earnings report. Ford reports on October 24th. Shares could see a big move either way on its results.

The late August low was $15.71. I am raising our stop loss to $15.65.

- Suggested Positions -
(closed the 2014 calls on May 20th, at the open)
APR 29, 2013 - entry price on F @ 13.73, option @ 0.60
symbol: F1418a15 2014 JAN $15 call - exit $1.18 (+96.6%)

- or -

APR 29, 2013 - entry price on F @ 13.73, option @ 1.22
symbol: F1517a15 2015 JAN $15 call - current bid/ask $ 3.35/3.40

10/20/13 new stop loss @ 15.65
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
...please see earlier updates for more history...

Current Target:$ 19.50
Current Stop loss: 15.65
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13


Fluor Corp. - FLR - close: 77.19

Comments:
10/20/13: It was a very bullish week for FLR. The stock added +5.7% and surged to new multi-year highs. The breakout past resistance in the $74-75 zone is definitely bullish but now shares look short-term overbought. This broken resistance should be new support. We are raising our stop loss to $68.80, which is just below the October low.

Please note that I am adjusting our exit strategy. We want to exit our 2014 calls when FLR trades at $79.00. We will plan to exit our 2015 calls when FLR trades at $88.00.

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: 8.40/8.60

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 10.30/10.60

10/20/13 new stop loss @ 68.80
adjust exit targets: Target for 2014 call is $79.00
target for 2015 call is $88.00
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:$ Target for 2014 call is $79.00, Target for 2015 is $88.00
Current Stop loss: 68.80
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/11/13


Halliburton Company - HAL - close: 52.47

Comments:
10/20/13: Target achieved. HAL hit $52.93 on Friday. Our target to exit the 2014 calls was $52.50.

These are new two-year highs for the stock. The company is due to report earnings on Monday morning, October 21st. I would not be surprised to see some profit taking. Prior resistance near $50.00 should be new support. If that level fails then look for support at the 50-dma near $49.00.

I am raising our stop loss to $45.75.

- Suggested Positions -
AUG 21, 2013 - entry price on HAL @ 47.22, option @ 1.82
symbol: HAL1418a50 2014 JAN $50 call - exit @ $4.00 (+119.7%)

- or -

AUG 21, 2013 - entry price on HAL @ 47.22, option @ 4.80
symbol: HAL1517a50 2015 JAN $50 call - current bid/ask $ 7.40/7.50

10/20/13 new stop loss @ 45.75
10/18/13 target hit to exit our 2014 calls at $52.50
2014 Jan. $50 call exit @ $4.00 (+119.7%)
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: 45.75
Play Entered on: 08/21/13
Originally listed on the Watch List: 08/18/13


Harley-Davidson - HOG - close: 65.75

Comments:
10/20/13: HOG tried to rally last week but the stock has been stuck under resistance near $66.00. Investors are likely waiting for HOG's earnings report. The company is scheduled to announce on Tuesday morning, October 22nd. Wall Street expect a profit of 73 cents a share.

This past week HOG closed unchanged. Previously shares were up eight weeks in a row. I suspect that it will not matter what HOG reports and that traders will sell the news whatever it is. Look for a dip into the $62-60 zone if the profit taking gets really bad.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 3.45/3.55

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.65/5.85

10/20/13 do not be surprised to see some profit taking after HOG reports earnings on Oct. 22nd.
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: 84.58

Comments:
10/20/13: HON spent most of the week churning sideways as investors waiting for HON's earnings report. By Thursday's close the stock was up on the week. Traders sold the news when the company reported on Friday morning. HON's results bested estimates by one cent. Yet revenues were a miss at $9.65 billion versus analysts estimates of $9.91 billion. HON narrowed their 2013 guidance to the top end of its range but did not raise its guidance. That could have fueled the profit taking on Friday.

I am raising our stop loss to $79.40.

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 $ 6.90/7.05

10/20/13 new stop loss @ 79.40
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: 79.40
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Intel Corp. - INTC - close: 23.88

Comments:
10/20/13: INTC reported earnings on the 15th. The company beat estimates by 5 cents with 58 cents a share. Revenues also beat at $13.48 billion for the quarter. The stock initially gapped down on the news but quickly recovered. INTC is now testing resistance near the $24.00 level and its September high. I am not suggesting new positions at this time.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ 23.63, option @ 0.93
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.73/0.75

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.46/1.49

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: 54.30

Comments:
10/20/13: JPM helped lead the financial sector higher. After churning sideways in the $50-54 zone for a few weeks we are finally seeing JPM breakout past resistance.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 1.77/1.81

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 4.15/4.60

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


National Oilwell Varco - NOV - close: 82.16

Comments:
10/20/13: NOV is a watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $80.25 and then buy calls the next day. Shares closed at $81.15 on Oct. 16th. Our trade opened the next day at $81.00. Since then NOV has continued to climb and shares ended the week at new highs for the year. If you missed our entry point consider waiting for a dip back toward $80.00, which should be new support.

NOTE: More conservative investors might want to wait until after NOV reports earnings on October 25th before initiating positions.

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

- Suggested Positions -
OCT 17, 2013 - entry price on NOV @ 81.00, option @ 5.00
symbol: NOV1517a90 2015 JAN $90 call - current bid/ask $ 5.25/5.40

Chart of NOV:

Current Target: $89.75
Current Stop loss: 76.75
Play Entered on: 10/17/13
Originally listed on the Watch List: 10/13/13


NVIDIA Corp. - NVDA - close: 15.81

Comments:
10/20/13: Hmm... did we just witness a new higher low for NVDA. I was expecting a dip closer to the $15.00 mark but shares rallied four out of the last five days. Last week's bounce erased most of the prior three-week decline. I remain bullish here and would be tempted to launch new positions.

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 $0.71/0.73

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.40/1.46

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: 47.81

Comments:
10/20/13: The action in ODFL last week was a bit underwhelming. Shares did hit new all-time highs but the stock only gained 60 cents for the week. It's another reminder that ODFL moves slowly and we will need patience for this trade to work.

ODFL could see some volatility this week as the company reports earnings on October 24th. The announcement should come out before the opening bell.

NOTE: I am raising our stop loss to $43.75.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $1.30/1.45

10/20/13 new stop loss @ 43.75
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: 43.75
Play Entered on: 08/14/13
Originally listed on the Watch List: 07/28/13


Constellation Brands - STZ - close: 64.33

Comments:
10/20/13: Target hit.

The slow and steady march higher in STZ continues with another weekly gain and another new all-time high. The stock hit our $64.00 target to exit the 2014 Jan $60 calls. This occurred on October 17th. We still have the 2015 call position.

- Suggested Positions -
SEP 06, 2013 - entry price on STZ @ 57.56, option @ 2.00
symbol: STZ1418a60 2014 JAN $60 call - exit $5.55 (+177.5%)

- or -

SEP 06, 2013 - entry price on STZ @ 57.56, option @ 4.35*
symbol: STZ1517a65 2015 JAN $65 call - current bid/ask $7.90/8.20

10/17/13 target hit @ 64.00 to exit the 2014 calls
2014 January $60 call exit @ $5.55 (+177.5%)
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: 53.08

Comments:
10/20/13: The bounce in VRSN has turned into a rally. Shares broke through resistance near $52.00. The stock displayed relative strength on Friday with a +1.88% gain and a close at new multi-year highs. More conservative traders may want to raise their stop loss. VRSN could see some volatility this week. The company is due to report earnings on October 24th, after the closing bell. Wall Street expects a profit of 57 cents a share.

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 $ 1.46/1.50

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 4.85/5.05

*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: 63.85

Comments:
10/20/13: Shares of WFM are in turbo mode with the stock racing higher. WFM is up six out of the last seven sessions and shares closed at a new all-time high on Friday. The stock is also up seven weeks in a row. That means WFM is overbought and likely due for some profit taking. I would expect some round-number resistance at $65.00. We will raise our stop loss to $57.40.

- 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 $ 9.90/10.10

10/20/13 new stop loss @ 57.40
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: 57.40
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


CLOSED Plays


NetApp, Inc. - NTAP - close: 41.37

Comments:
10/20/13: Unfortunately NTAP has been in correction mode. The stock has posted declines five weeks in a row. Just a slow and steady slide lower that broke through multiple layers of support. Shares finally hit our stop loss at $39.80 this past week with an intraday spike below round-number support at $40.00. Naturally shares have since rebounded but the intermediate trend is still down.

- Suggested *Small* Positions -
MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 3.35
symbol: NTAP1418a40 2014 JAN $40 call - exit $2.50 (-25.3%)

- or -

MAY 17, 2013 - entry price on NTAP @ 38.93, option @ 5.20
symbol: NTAP1517a40 2015 JAN $40 call - exit $5.25 (+0.9%)

10/17/13 stopped out at $39.80
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

Chart of NTAP:

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



Watch

Technology Times Three

by James Brown

Click here to email James Brown

Editor's Note:

We are adding three new candidates tonight. Plus I have adjusted the entry point strategy on multiple candidates.



New Watch List Entries

CRUS - Cirrus Logic

JDSU - JDS Uniphase

LVLT - Level 3 Communications


Active Watch List Candidates

AVGO - Avago Technologies

CBI - Chicago Bridge & Iron

DD - E.I. du Pont

DIS - The Walt Disney Co

DKS - Dick's Sporting Goods

DLTR - Dollar Tree Inc.

FCX - Freeport McMoRan

WAG - Walgreen Co.


Dropped Watch List Entries

NOV graduated to our active play list.



New Watch List Candidates:


Cirrus Logic - CRUS - close: 24.70

Company Info

CRUS is in the technology sector. They are a fabless semiconductor company. If you're looking for a way to play Apple Inc. (AAPL) but don't want to trade a $500 stock then consider CRUS. They make parts for smartphones. CRUS recently disclosed that AAPL accounted for 82% of its sales in 2013.

Shares of CRUS have been consistently building on a bullish trend of higher lows. Now the stock is poised to breakout past significant resistance at the $25.00 level. I am suggesting a trigger to buy calls at $25.50. This is an intraday trigger, not an end of day (wait for it to close above) trigger.

If triggered at $25.50 then we'll start with a stop loss at $22.40. Please note that CRUS is scheduled to report earnings on October 29th. More conservative investors may want to wait and see the results and how the market reacts to CRUS' report before initiating positions. If triggered our long-term target is $32.50.

Breakout trigger: $25.50, stop loss @ 22.40

BUY the 2015 Jan $30 call (CRUS1517a30) current ask $3.90

Chart of CRUS:

Originally listed on the Watch List: 10/20/13


JDS Uniphase - JDSU - close: 15.55

Company Info

JDSU is another technology-sector stock. The company manufactures communication equipment and optical products for networking gear. The stock has been stuck in the $12.50-15.50 zone for months. Recently shares have started picking up steam and now JDSU is poised for a major breakout higher.

Wait for JDSU to close above $15.75. If that occurs we can buy calls the next day with a stop loss at $14.40. Our long-term target is $20.00.

Please note that JDSU is scheduled to report earnings on October 30th. More conservative investors may want to wait and see the results and how the market reacts to JDSU's report before initiating positions.

FYI: The point & figure chart is bullish with a $20 target.

Breakout trigger: Wait for JDSU to close above $15.75,
then buy calls the next day with a stop at $14.40

BUY the 2015 Jan $20 call (JDSU1517a20) current ask $1.28

Chart of JDSU:

Originally listed on the Watch List: 10/20/13


Level 3 Communications - LVLT - close: 28.05

Company Info

LVLT is also in the technology sector. The company provides integrated communication services. The latest earnings report back in July was a disappointment but the stock barely reacted. Since then shares have accelerated higher. It seems all the bad news has been priced in. Investors are betting on some improvement. LVLT has built a huge base over the last couple of years. Now the stock is trying to breakout past resistance near the $28.00 level. The October 4th high was $28.72. I am suggesting we wait for LVLT to close above $29.00 and buy calls the next day with a stop loss at $25.75. If triggered our long-term target is $39.00. Coincidentally the point & figure chart is forecasting at $39 target.

Please note that LVLT is scheduled to report earnings on October 30th. More conservative investors may want to wait and see the results and how the market reacts to LVLT's report before initiating positions.

Breakout trigger: Wait for LVLT to close above $29.00,
then buy calls the next day with a stop at $25.75

BUY the 2015 Jan $30 call (LVLT1517a30) current ask $3.90

Chart of LVLT:

Originally listed on the Watch List: 10/20/13


Active Watch List Candidates:



Avago Technologies - AVGO - close: 46.06

Comments:
10/20/13: A runaway stock market has lifted AVGO to new all-time highs. It is unlikely that we're going see this stock correct back toward $40 any time soon. I remain bullish on it. We will raise our buy-the-dip trigger to $43.50 and raise our stop loss to $39.40. I'm also raising the exit target for the 2014 calls to $49.50. The exit target on our 2015 call will be $54.00.

We are also adjust the option strikes to 2014 Jan $45 and 2015 Jan $50.

Buy-the-Dip trigger: $43.50, stop loss @ 39.40

BUY the 2014 Jan $45 call (AVGO1418a45)

- or -

BUY the 2015 Jan $50 call (AVGO1517a50) 10/20/13 adjust the buy-the-dip trigger to $43.50
adjust the stop loss to $39.40 & adjust the option strikes
adjust the 2014 exit target to $49.50
adjust the 2015 exit target to $54.00
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: 74.44

Comments:
10/20/13: CBI also happens to be a runaway momentum stock. The stock is up six weeks in a row and very unlikely to hit our buy-the-dip trigger at $66.00 any time soon. I am raising our buy-the-dip trigger to $68.50. We'll adjust our stop loss to $62.40. CBI is due to report earnings on October 29th. If shares do not see a post-earnings pullback then we'll re-adjust our entry strategy again.

More aggressive traders may want to consider buying calls on a dip in the $70-71 zone instead.

Our long-term target for the 2015 calls is $84. Our long-term target for the 2016 calls $94.

Buy-the-Dip trigger: $68.50

BUY the 2015 Jan $75 call (CBI1517a75)

- or -

BUY the 2016 Jan $80 call (CBI1615a80)

10/20/13 adjust the buy-the-dip trigger to $68.50 from $66.00.
adjust the stop loss to $62.40

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


E.I. du Pont - DD - close: 59.62

Comments:
10/20/13: This could be an important week for shares of DD. The company reports earnings on October 22nd. If the stock doesn't show some improvement soon then we will 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


The Walt Disney Co. - DIS - close: 67.15

Comments:
10/20/13: DIS spent most of the week bouncing along support at the $66.00 level. Shares closed Friday poised to test resistance near $68.00. There is no change from my earlier comments.

Earlier Comments:
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 $3.20

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


Dick's Sporting Goods - DKS - close: 52.57

Comments:
10/20/13: Believe it or not DKS ended unchanged for the week. Traders bought the dip twice. It's a bit disappointing to see DKS not participate more with the market's rally but we're not giving up yet. 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: 59.24

Comments:
10/20/13: DLTR managed to tag new all-time highs this past week. Overall I don't see a lot of changes from my prior comments. However, we will adjust our buy-the-dip trigger from $55.25 to $56.25. We'll move the stop loss to $52.40.

Earlier Comments:
Our long-term target is the $65 area. FYI: The point & figure chart is bullish with a $78 target.

Buy-the-Dip trigger: $56.25, stop loss @ 52.40

BUY the 2014 Jan $60 call (DLTR1418a60)

- or -

BUY the 2015 Jan $65 call (DLTR1517a65)

10/20/13 adjust the trigger to $56.25 and the stop to $52.40

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


Freeport-McMoRan - FCX - close: 34.89

Comments:
10/20/13: FCX has rallied to resistance near $35.00. While a breakout past $35.00 could be used as a potential entry point I am unwilling to chase it. Not when FCX could sell-off on a disappointing earnings report. The company is due to report earnings on Tuesday morning, October 22nd. If shares do not see a correction lower then we will re-evaluate our entry point strategy next weekend.

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


Walgreen Co. - WAG - close: 58.59

Comments:
10/20/13: The bullish market environment has allowed WAG to soar to new all-time highs. I am still unwilling to chase it but we will adjust our entry point. Use a buy-the-dip trigger at $55.00 and we'll raise our suggested stop loss to $49.75. We will also adjust our option strikes higher and our exit targets.

I am suggesting a target to exit the 2014 calls is $64.50. Target to be determined for the 2015 calls.

Buy-the-Dip trigger: $55.00, use a stop at $49.75

BUY the 2014 Jan $60 call (WAG1418a60)

- or -

BUY the 2015 Jan $65 call (WAG1517a65)

10/20/13 adjust the buy-the-dip trigger to $55.00 and move the stop loss to $49.75. Plus we will adjust our option strikes higher.
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