Option Investor
Newsletter

Daily Newsletter, Sunday, 10/27/2013

Table of Contents

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

Leaps Trader Commentary

QE Friendly Data

by James Brown

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Investors continued to buy the dip in U.S. stocks last week. Stocks popped on the delayed September jobs data since market participants saw the worse than expected jobs data as QE friendly. The very next day (Wednesday) saw gains reverse as traders worried that the Chinese central bank might tighten their monetary policy. Fortunately for the bulls there was no follow through lower and the S&P 500 index drifted to another new all-time high by Friday's closing bell.

Economic Data

U.S. economic data last week was mixed. The Kansas City Federal Reserve manufacturing index improved from a reading of 2 in September to 6 in October. Numbers above zero indicate positive economic growth. Meanwhile the PMI data for October fell from 52.5 to 51.1. That's the lowest level in a year and nearing the flat line. Numbers below 50.0 suggest a contracting economy.

Durable goods orders produced their largest gain in three months with a +3.7% surge. Railroad traffic improved to a six-month high. Both readings would suggest an improving U.S. economy. Yet the University of Michigan consumer sentiment index fell from 75.2 to 73.2 for the final reading in October. Falling consumer sentiment usually doesn't bode well for consumer spending, which is supposed to account for almost 70% of the U.S. economy.

Of course the biggest report for the week was the nonfarm payrolls (jobs) report, which was delayed from its intended October 4th announcement due to the government shutdown. The jobs report came out on Tuesday morning and economists were expecting +180,000 new jobs in September. Unfortunately the U.S. only added +148,000, at least until that number is revised. The August jobs number saw a revision higher from +169K to +193K. Stock market participants looked at the September reading of 148K as QE friendly. Lower than expected job growth should keep the U.S. Federal Reserve on the sideline. Suddenly expectations for the Fed to taper their QE program have been pushed back to the second quarter of 2014, likely in June. Given the stock market's love affair with QE the market rallied on this jobs data.

Overseas Data

Economic data overseas was mostly positive. The Eurozone said their manufacturing PMI rose from 51.1 to 51.3 While Germany's manufacturing PMI climbed from 51.1 to 51.5. Numbers above 50.0 indicate economic growth. Germany also upgraded their 2014 GDP estimate from +1.6% to +1.7%. 2013 is expected to settle with +0.5% GDP growth. Investors seem to believe the worst is behind it for Europe. European equity funds saw their largest weekly inflows ever at $5 billion.

Most of the market-moving data from Asia came out of China last week. Housing prices in China continue to climb with real estate surging +9.1% month over month. HSBC's Chinese manufacturing PMI reading improved from 50.2 to 50.9. Yet Asian markets were weak. Worries that the Chinese central bank might tighten their monetary policy to fight inflation pressures sparked selling. The global equity market's dropped on Wednesday over these concerns. Asian markets continued to fall on Friday with both the Japanese NIKKEI and Chinese Shanghai down sharply, -2.8% and -1.5% respectively.

Major Indices:

The rally in the S&P 500 index continues with another new record high on Friday. This index is now up 112 points or +6.8% from its October 9th intraday low. That was only twelve trading days ago. I'm worried that stocks are short-term overbought here. A normal retracement of this move could mean a -30 to -60 point pullback. Of course there is nothing to suggest the rally is going to stop here.

The 1760 level does look like short-term resistance on an intraday chart. A breakout here probably means a sprint toward 1780 and by that time market bulls will be eyeing the 1800 level. If stocks do see any profit taking then levels to watch are probably 1740, 1730 and the 1700 level.

Year to date the S&P 500 index is up +23.4%.

chart of the S&P 500 index:

The stock market's sell-off on Wednesday wasn't that bad for the NASDAQ. This index bounced from its morning lows. Two days later the NASDAQ was hitting new 13-year highs with a spike above the 3950 level. Currently momentum is carrying this index higher but eventually it will see a correction.

The NASDAQ is quickly approaching what could be significant round-number, psychological resistance at the 4,000 mark. Until we get there the 4K level might act as a magnet, pulling the NASDAQ higher. Once the NASDAQ hits it the magnet could be turned off and the index may see a correction lower. I don't see any real support until the 3800 area.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index also hit new all-time highs. On a short-term basis the $RUT seems to be struggling with resistance in the 1120-1122 area. You'll also notice on the chart below that the $RUT is nearing resistance at the top of its bullish channel. The next week could see a test of that trend line (of higher highs) and then a correction lower.

Look for short-term support near 1100 and 1080.

chart of the Russell 2000 index



Economic Data & Event Calendar

We face a busy week of economic data. We'll get consumer confidence, some residential real estate data, wholesale and consumer level inflation numbers and a lot more. The big event for the week will be the two-day FOMC meeting. The meeting ends on Wednesday. No one expects the Fed to change interest rates so the focus will be on the Fed statement.

Economic and Event Calendar

- Monday, October 28 -
Industrial Production (for September)
Pending home sales

- Tuesday, October 29 -
Consumer confidence for October
U.S. retail sales for September
Producer Price Index (PPI)
Case-Shiller 20-city home price index
FOMC meeting begins

- Wednesday, October 30 -
ADP Employment Change report
weekly MBA mortgage index
Consumer Price Index (CPI)
FOMC meeting ends with decision and statement

- Thursday, October 31 -
Weekly Initial Jobless Claims
Bank of Japan interest rate decision
Chicago PMI data
Eurozone unemployment data

- Friday, November 01 -
ISM index
vehicle sales in the U.S.

Additional Events to be aware of:

Nov. 7th - U.S. Q3 GDP estimate
Nov. 8th - nonfarm payrolls (jobs) report data




The Week Ahead:

Looking at the week ahead of us I would be cautious when it comes to launching new positions. The trend is obviously higher. Yet U.S. equities look short-term overbought. Eventually this momentum is going to run out or at least pause. It's not uncommon for a rally to proceed in a three steps forward and then two steps back sort of pattern. We are still in the midst of Q3 earnings season. The bulk of the results have already been announced and investors seem pleased with the numbers. Unfortunately there is a trend that the deeper we get into earnings season the weaker the results. If we suddenly see a parade of disappointing earnings results it could sour investor sentiment.

Bigger picture we remain bullish. The disappointing jobs data this past week has pushed expectations for any taper to the Fed's QE program into the second quarter of 2014. That suits the stock market just fine. October is the beginning of the best six months of the year period for stocks. Thus far October is off to a good start. I would wait for a pullback before rushing into launch new bullish positions.

James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The stock market continues to climb as investors react to Q3 earnings news and hope for an improving global economy.

Last week the plan was to exit our DECK trade and the EMN 2014 calls on Monday morning (October 21st).

We added four new trades from our watch list: CRUS, DD, DIS, and JDSU.

I have updated stop losses on: INTC, ODFL, 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

Waiting For A Pullback

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(October 27, 2013)

I am not adding any new plays tonight. Our watch list had a very successful week. We added CRUS, DD, DIS, and JDSU to our active play list. I've replenished the watch list with three new candidates (HP, NOC, and SBUX). Hopefully the market will provide us a pullback so we can buy calls on a dip.



Play Updates

Another Round of Highs For Stocks

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500, the NASDAQ, and the Russell 2000 managed to hit new relative highs last week. The trend is up but the rally is starting to look a little fragile. I've updated a few stop losses tonight.

Plus we've added four new candidates from the watch list: CRUS, DD, DIS, JDSU.


Closed Plays


DECK was closed.
We also took profits on the 2014 EMN calls.



Play Updates


American Intl. Group - AIG - close: 51.85

Comments:
10/27/13: AIG looks due for a pullback. The action on Monday and Tuesday both looked like a potential bearish reversal. Shares did follow the market lower on Wednesday but there wasn't any follow through lower with AIG holding above its 10-dma. I would expect a dip toward $50.00.

Keep in mind that AIG could see increased volatility this week after the company reports earnings on October 31st (after the closing bell).

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $3.20/3.30

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $4.40/4.50

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: 14.26

Comments:
10/27/13: Shares of BAC struggled last week. The market's sell-off on Wednesday hit shares of BAC hard. The stock is back to testing suport near $14.00 and its 100-dma. The company said they plan to cut up to 4,000 mortgage-related jobs, which might suggest their mortgage business is slowing down.

I am not suggesting new positions. More conservative investors may want to raise their stop closer to the $13.50 area.

- 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 $1.33/1.34

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


Cirrus Logic - CRUS - close: 25.04

Comments:
10/27/13: CRUS is a watch list candidate that has graduated to our active play list. The stock rallied through resistance last Monday and hit our suggested entry point to open bullish positions at $25.50. Unfortunately there wasn't any follow through higher. The semiconductor industry was crushed on Wednesday during the market's pullback. Shares of CRUS followed its peers lower with a drop back toward $24.00. Fortunately, investors have been buying the dip.

This stock could see more volatility after the company reports earnings on October 29th, after the closing bell. Readers may want to wait and see how shares perform on the 30th before considering new positions.

- Suggested Positions -
OCT 21, 2013 - entry price on CRUS @ 22.50, option @ 4.15
symbol: CRUS1517a30 2015 JAN $30 call - current bid/ask 3.90/4.20

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

Chart of CRUS:

Current Target: CRUS @ 32.50
Current Stop loss: 22.40
Play Entered on: 10/21/13
Originally listed on the Watch List: 10/20/13


E.I. du Pont - DD - close: 61.90

Comments:
10/27/13: DD is another watch list candidate that has graduated to our play list. The company reported better than expected earnings results last Tuesday and continued to rally the rest of the week. Our plan was to wait for shares to close above $60.75 and then buy calls the next day. DD closed at $61.38 on Thursday. Shares gapped open higher on Friday morning at $62.57 (our entry point) before paring its gains. Investors will want to consider waiting for a dip back into the $61.00-60.00 zone as an alternative entry point.

- Suggested Positions -
OCT 25, 2013 - entry price on DD @ 62.57, option @ 0.74
symbol: DD1418a65 2014 JAN $65 call - current bid/ask $0.66/0.68

- or -

OCT 25, 2013 - entry price on DD @ 62.57, option @ 3.15
symbol: DD1517a65 2015 JAN $65 call - current bid/ask $3.20/3.30

10/25/13 trade opens. DD gaps higher a $62.57
10/24/13 DD closed above our trigger @ 60.75
09/22/13 adjust entry: wait for a close above $60.75
instead of a close above $60.50

Chart of DD:

Current Target: DD @ 69.00
Current Stop loss: 57.90
Play Entered on: 10/25/13
Originally listed on the Watch List: 08/11/13


Dollar General Corp. - DG - close: 59.50

Comments:
10/27/13: DG kept the up trend alive with another gain for the week. Shares hit new all-time highs as they approach potential round-number resistance at the $60.00 level. We can look for support near the 50-dma if shares see any profit taking.

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 $2.70/2.85

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.90/3.30

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


The Walt Disney Co. - DIS - close: 69.26

Comments:
10/27/13: DIS displayed relative strength last week with a bullish breakout past major resistance. This stock was on our watch list. The plan was to wait for shares to close above $68.05 and then buy calls the next morning. DIS closed at $69.00 on October 22nd. Our trade opened on the 23rd. Shares retested broken resistance near $68.00 as new support and then rebounded.

Nimble traders could look for another dip near $68.00 as an entry point. Keep in mind that DIS could see some volatility following its earnings report due out on November 7th.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $3.90/4.00

Chart of DIS:

Current Target: DIS @ 84.00
Current Stop loss: 62.90
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Eastman Chemical Co. - EMN - close: 77.94

Comments:
10/27/13: By midweek EMN had rallied to resistance near its early August peak in the $83 area. The company reported earnings on Thursday night and beat estimates. Unfortunately EMN lowered their full-year guidance. Traders sold the news and shares gapped open lower on Friday morning and eventually closed with a -5.1% decline.

We knew that holding over the earnings report was a potential risk, which is why we had planned to exit our 2014 January $80 calls on Monday, October 21st, at the opening bell. We still have the 2015 call position but I am not suggesting new positions. Our stop loss remains at $74.40.

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 - exit $4.90 (+36.1%)

- or -

JUL 18, 2013 - entry price on EMN @ 75.34, option @ 4.90*
symbol: EMN1517a90 2015 JAN $90 call - current bid/ask $ 4.50/4.90

10/21/13 planned exit for the 2014 calls. $4.90 (+36.1%)
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: 17.60

Comments:
10/27/13: Ford reported earnings last week. The company beat bottom line estimates and raised its full-year guidance. Yet gains were limited as traders sold the post-earnings pop. Ford did hit new multi-year highs near $18.00 before paring its gains. I am not suggesting new positions at this time.

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

- or -

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

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: 76.31

Comments:
10/27/13: After a string of weekly gains shares of FLR hit some profit taking. The stock peaked near $78 and spent much of the week chopping sideways. The stock appears to have found some short-term support near $75.25. However, if the market declines I would expect a dip closer to $70.00.

Investors should be aware that FLR could see extra volatility this week following its earnings report, which is due out on October 31st, after the closing bell. More conservative investors holding the 2014 calls will want to seriously consider exiting prior to the earnings announcement to lock in gains.

Earlier Comments:
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.

- Suggested Positions -
SEP 12, 2013 - entry price on FLR @ 67.14, option @ 2.90
symbol: FLR1418a70 2014 JAN $70 call - current bid/ask: 7.60/7.80

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 9.70/ 9.90

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: 51.69

Comments:
10/27/13: HAL experienced some profit taking last week. The company reported earnings last Monday and the results were mostly in-line with expectations. Traders sold the news but losses were mild. HAL was actually upgraded a couple of times following the earnings report. Shares have spent the last few days consolidating sideways in the $50-52 zone.

- 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 $ 6.65/6.75

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 call, $56.00 for the 2015 call
Current Stop loss: 45.75
Play Entered on: 08/21/13
Originally listed on the Watch List: 08/18/13


Harley-Davidson - HOG - close: 64.98

Comments:
10/27/13: Not surprisingly HOG saw some volatility surrounding its earnings report last week. Results were in-line with expectations. The stock initially popped higher only to see traders sell into strength. There wasn't much follow through lower either with HOG finding support near its rising 40-dma.

Looking at the weekly chart it seems HOG's upward momentum may have stalled. I would not be surprised to see a dip back into the $62-60 zone. If you're holding the 2014 calls you may want to take some money off the table.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 2.63/2.66

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.05/5.25

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: 87.50

Comments:
10/27/13: HON resumed its rally with a display of relative strength last week. The stock added almost three points. Friday's close marks a new all-time closing high. The next obstacle is pushing past the intraday high from mid September.

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 $ 8.50/8.65

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: 24.24

Comments:
10/27/13: The semiconductor industry underperformed when the market tumbled lower on Wednesday. INTC was no exception with shares piercing short-term technical support at the 10-dma. Fortunately, traders bought the dip and INTC ended the week at a new three-month high.

Tonight I am raising our stop loss to $22.40.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ 23.63, option @ 0.93
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.89/0.91

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.59/1.60

10/27/13 new stop loss @ 22.40

Current Target: $26-29 zone
Current Stop loss: 22.40
Play Entered on: 09/16/13
Originally listed on the Watch List: 09/08/13


JDS Uniphase - JDSU - close: 15.30

Comments:
10/27/13: Buckle your seatbelt. Last week was a volatile one for JDSU and it may not be over. Shares surged past resistance in the $15.50 area and hit new multi-year highs above $16.50 by Tuesday. JDSU was a watch list candidate. Our plan was to wait for the stock to close above $15.75 and open positions the next day. Shares closed at $16.27 on October 21st. Our trade opened the next day at $16.36. Unfortunately Tuesday through Thursday was nothing but profit taking that erased a large chunk of JDSU's recent gains. The stock found support near $15.00 on Friday but it's back below resistance.

JDSU could see more volatility this week. The company reports earnings on October 30th with results coming out after the closing bell. Wall Street expects a profit of 12 cents a share. I would hesitate to launch new positions until after we see how the market reacts to JDSU's report.

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

- Suggested Positions -
OCT 22, 2013 - entry price on JDSU @ 16.36, option @ 1.62*
symbol: JDSU1517a20 2015 JAN $20 call - current bid/ask $1.20/1.27

10/22/13 trade opens. JDSU @ 16.36
10/21/13 JDSU graduates from our watch list, closing above $15.75
*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of JDSU:

Current Target: $20 zone
Current Stop loss: 14.40
Play Entered on: 10/22/13
Originally listed on the Watch List: 10/20/13


JPMorgan Chase & Co. - JPM - close: 52.77

Comments:
10/27/13: It was a down week for JPM. The stock produced a bearish reversal pattern on Tuesday and continued to slip until traders started buying the dip near $52.00 on Thursday and Friday. While we remain long-term bullish on JPM the parade of negative headlines regarding the number and amount of potential settlements that JPM is negotiating with regulators could be hurting investor enthusiasm.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 0.99/1.00

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.65/3.75

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: 82.72

Comments:
10/27/13: NOV delivered a volatile week. The stock plunged on Wednesday, below what should have been support near $80.00. Fortunately shares rebounded thanks to earnings. The company reported on October 25th and beat estimates. NOV also said their backlog of orders hit a new record high. The stock gapped higher on Friday and closed at a new 52-week high.

Investors may want to give NOV a couple of days before considering new 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 $ 5.20/5.50

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: 15.24

Comments:
10/27/13: Ouch! What happened to NVDA. Shares are definitely underperforming the market. The stock produced a bearish failed rally at resistance near $16.00 on Monday and has been down every day since. Investors may want to raise their stop loss closer to the $15.00 level. I am not suggesting new positions.

FYI: NVDA is scheduled to report earnings on November 7th.

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 $0.46/0.48

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.16/1.21

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:
10/27/13: ODFL gave up 60 cents for the week but that doesn't tell the whole story. Shares underperformed the transportation sector index, which has been up almost every single day from its October 8th low. ODFL peaked on the 22nd of October and produced a sharp spike lower on Thursday as traders reacted to its earnings report. The company managed to beat estimates on both the top and bottom line. Traders did buy the dip on Thursday and the move reinforces the $45.00 level as support. I am raising our stop loss up to $44.75.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $0.90/1.10

10/27/13 new stop loss @ 44.75
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: 44.75
Play Entered on: 08/14/13
Originally listed on the Watch List: 07/28/13


Constellation Brands - STZ - close: 63.91

Comments:
10/27/13: The rally in STZ stalled at round-number resistance near $65.00. Shares have been slowly drifting lower but they have still managed to cling to the simple 10-dma for now. I would not be surprised to see a dip into the $62-60 zone, which should offer some support. We will raise our stop loss to $59.00.

- 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 $7.40/7.70

10/27/13 new stop loss @ 59.00
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: 59.00
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/25/13


VeriSign, Inc. - VRSN - close: 53.76

Comments:
10/27/13: VRSN spent the week consolidating sideways as investors wait for the earnings report. VRSN announced earnings on Thursday night and beat estimates on both the top and bottom line. Shares reacted with a spike higher on Friday morning. I would be tempted to launch new bullish positions here but investors may want to wait and see if there is any follow through higher.

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 $ 1.49/1.54

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 5.15/5.40

*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: 65.24

Comments:
10/27/13: WFM continues to march higher and ended the week with another string of new highs. Shares look overbought, extended and due for some profit taking. We are raising the stop loss to $59.00. More conservative traders may want to take profits now. I am tempted to exit our remaining 2015 call position prior to WFM's earnings report, which is due out on November 6th.

- 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 $10.80/10.95

10/27/13 new stop loss @ 59.00
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: 59.00
Play Entered on: 07/10/13
Originally listed on the Watch List: 07/07/13


CLOSED Plays


Deckers Outdoor Corp. - DECK - close: 69.99

Comments:
10/27/13: DECK has been seriously underperforming the stock market since its early October highs. We decided last weekend to exit positions Monday morning, October 21st to cut our losses. Shares eventually dipped into the area around its 100-dma and 150-dma.

Our play was closed on Oct. 21st with DECK gapping down at $59.19 from $59.51.

The company reported earnings on Thursday night (Oct. 24th) and beat estimates by 23 cents a share. Management lowered their Q4 guidance but raised its full-year outlook. The combination of an earnings beat and the higher long-term guidance sent shares soaring on Friday (+20.4%).

- Suggested Positions -
SEP 05, 2013 - entry price on DECK @ 61.47, option @ 4.30
symbol: DECK1418a65 2014 JAN $65 call - exit $3.00 (-30.2%)

- or -

SEP 05, 2013 - entry price on DECK @ 61.47, option @ 8.15*
symbol: DECK1517a70 2015 JAN $70 call - exit $7.40* (-9.2%)

10/21/13 planned exit on Oct. 21st.
*option exit price is an estimate since the option did not trade at the time our play was closed.
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.

Chart of DECK:

Current Target: 74.00
Current Stop loss: 57.40
Play Entered on: 09/05/13
Originally listed on the Watch List: 08/25/13




Watch

Oil, Defense, & Coffee

by James Brown

Click here to email James Brown

Editor's Note:

Our watch list had a successful week. CRUS, DD, DIS, and JDSU all graduated to our play list.



New Watch List Entries

HP - Helmerich & Payne

NOC - Northrop Grumman

SBUX - Starbucks


Active Watch List Candidates

AVGO - Avago Technologies

CBI - Chicago Bridge & Iron

DKS - Dick's Sporting Goods

DLTR - Dollar Tree Inc.

FCX - Freeport McMoRan

LVLT - Level 3 Communications

WAG - Walgreen Co.


Dropped Watch List Entries

CRUS, DD, DIS, and JDSU all graduated to the active play list.



New Watch List Candidates:


Helmerich & Payne, Inc. - HP - close: 76.57

Company Info

HP is in the oil and gas drilling and exploration industry. As the global economy tries to recover it should mean stronger demand for energy. That is lifting the oil stocks. HP is trading near multi-year highs. More aggressive investors might want to consider buying calls on a breakout past short-term resistance near $78.00. I am suggesting we wait and buy calls on a dip at the $72.25 mark. if triggered we'll start with a stop loss at $67.75. Our long-term target is $85.00.

NOTE: HP is scheduled to report earnings on November 14th.

Buy-the-Dip trigger: $72.25, stop loss 67.75

BUY the 2015 Jan $80 call (HP1517a80) current ask $7.40

Chart of HP:

Originally listed on the Watch List: 10/27/13


Northrop Grumman - NOC - close: 108.37

Company Info

Many of the large defense contractors have been standout performers this year. The sequestration cuts did not curb their share price appreciation and investors seem very bullish on the industry. Stocks like BA, GD, and NOC are all hitting new all-time or multi-year highs.

NOC looks interesting as shares recently broke through round-number resistance at the $100 level. On a short-term basis the stock is overbought so we would not chase it here. Tonight we're listing a buy-the-dip trigger at $102.25. If triggered I am suggesting a stop loss at $97.75. Our long-term target is $118.00. FYI: The Point & Figure chart is bullish with a $160 target.

Buy-the-Dip trigger: $102.25, stop @ 97.75

BUY the 2015 Jan $110 call (NOC1517a110) current ask $7.60

Chart of NOC:

Originally listed on the Watch List: 10/27/13


Starbucks - SBUX - close: 79.96

Company Info

The ubiquitous coffee giant SBUX has been a consistent winner for bullish investors over most of 2013. Shares hit new all-time highs this past week before the stock hit some profit taking. On a short-term basis SBUX looks poised to rally from current levels. However, the company is due to report earnings on October 30th. Shares could see some post-earnings profit taking. If that occurs then we want to be ready to take advantage of it and buy SBUX near support. The rising 50-dma has been support for several months.

I am suggesting a buy-the-dip trigger at $76.00. If triggered we'll start with a stop loss at $73.75. Our long-term target is $98.00.

Buy-the-Dip trigger: $76.00, stop loss @ 73.75

BUY the 2015 Jan $85 call (SBUX1517a85) current ask $6.65

Chart of SBUX:

Originally listed on the Watch List: 10/27/13


Active Watch List Candidates:



Avago Technologies - AVGO - close: 45.63

Comments:
10/27/13: AVGO tagged new all-time highs on Monday but profit taking knocked off a couple of points midweek. The overall trend is still higher although last week's performance might suggest a potential top. We do not want to chase it here. I don't see any changes from my earlier comments.

Use a buy-the-dip trigger at $43.50. If triggered we're suggesting a stop loss at $39.40. Please note that I am eliminating the 2014 calls. We'll only use the 2015s.

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

BUY the 2015 Jan $50 call (AVGO1517a50) 10/27/13 removed the 2014 call
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: 74.52

Comments:
10/27/13: CBI continues to show strength and eked out another gain for the week. That ups the stock's winning streak to seven weeks in a row. I suspect that CBI is going to see some profit taking after they announce earnings on October 29th. We're crossing our fingers for a post-earnings pullback.

We're suggesting a trigger to buy calls at $68.50. 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


Dick's Sporting Goods - DKS - close: 52.46

Comments:
10/27/13: DKS briefly traded below short-term support near $51.00 before bouncing back. Currently we are on the sidelines and waiting for DKS to breakout and close above major resistance. There is no change from my prior comments although I have eliminated the 2014 call.

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 2015 Jan $60 call (DKS1517a60)

10/27/13 removed the 2014 call.

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


Dollar Tree, Inc. - DLTR - close: 59.70

Comments:
10/27/13: DLTR spent the week consolidating sideways below resistance at the $60.00 level. More aggressive investors may want to consider buying calls on a breakout. I am suggesting we wait for a correction. Currently the plan is to buy calls on a dip at $56.25 with a stop loss at $52.40.

NOTE: I am removing the 2014 call.

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 2015 Jan $65 call (DLTR1517a65)

10/27/13 removed the 2014 call
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: 37.44

Comments:
10/27/13: Wow! It was a bullish week for FCX with shares adding +7.3% and breaking through resistance near $35.00. The rally was fueled by its earnings news. FCX reported earnings on October 22nd and beat both the top and bottom line estimates. Management their raised their guidance.

The stock looks short-term overbought. Broken resistance at $35.00 should be new support. We will adjust our entry point strategy. First, I am removing the 2014 calls. Next we will adjust our buy-the-dip trigger to $35.25 and adjust the stop loss to $32.25. Finally we'll adjust the option strike to the 2015 January $39 call ($40s are not available). If triggered our long-term target is $42.50.

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: $35.25, small positions!
start with a stop loss at $32.25.

BUY the 2015 Jan $39 call (FCX1517a39)

10/27/13 strategy update: removed the 2014 calls
adjust the buy-the-dip trigger to $35.25 and the stop to $32.25.
adjust the option strike to the 2015 Jan $39 call

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


Level 3 Communications - LVLT - close: 26.91

Comments:
10/27/13: It was a down week for LVLT. The stock failed near $28.00 on Monday and traders were selling the bounce on Friday. We're going to wait and see how the market reacts to LVLT's earnings before adjusting our strategy or removing LVLT as a candidate. The company is scheduled to report earnings on October 30th.

Earlier Comments:
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.

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)

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


Walgreen Co. - WAG - close: 59.19

Comments:
10/27/13: WAG slowly drifted higher all week. I don't see any changes from my prior comments except that I am removing the 2014 calls.

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

BUY the 2015 Jan $65 call (WAG1517a65)

10/27/13 removed the 2014 calls
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