Option Investor
Newsletter

Daily Newsletter, Sunday, 11/3/2013

Table of Contents

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

Leaps Trader Commentary

Is It Time For A Dip?

by James Brown

Click here to email James Brown

The U.S. stock market rally looks a little tired but traders were still buying the dip on Friday, at least in the big cap names. The market digested a lot of economic news, most of it was mixed. There was also a two-day FOMC meeting which proved to be a non-event. The U.S. dollar saw a big bounce and that pressured commodities lower. Oil fell to new four-month lows. The S&P 500's gain for the week was less than two points. The market remains on track for its best yearly performance since 2009.

Economic Data

The consumer price index look at inflation rose +0.2% in September. That was slightly ahead of expectations and above the +0.1% gain in August. Most of the move was driven by a rise in energy prices. The Conference Board's Consumer Confidence index plunged from 80.2 to 71.2 thanks in large part to the two-week U.S. government shutdown. Housing data was mixed. The Case-Shiller home price index showed a +12.8% rise year over year. The weekly MBA mortgage application index rose +6.4%, reversing last week's -0.6% drop. Yet pending home sales numbers for September fell sharply with a -5.6% decline. This was significantly below expectations for a -1.3% drop and the first year over year drop in more than two years. It's also the largest month over month drop since 2001.

The ADP National Employment Report showed private-sector jobs rose +130,000 in October. That was slightly above expectations. Most of the manufacturing data was bullish. The October reading for the Chicago-area PMI surged from 55.7 to 65.9. Analysts were expecting this number to remain flat to down. It's the best Chicago PMI reading since March 2011. Numbers above 50.0 indicate growth. Another surprise was the ISM manufacturing index reading for October, which rose from 56.2 to 56.4. Economists were expecting a dip due to the partial U.S. government shutdown. Of course there was the two-day FOMC meeting but as expected the Federal Reserve left interest rates unchanged and did not alter their $85 billion a month QE program.

Overseas Data

Overseas economic data was mixed. Eurozone unemployment rose from 12.0% to 12.2%, which was worse than expected. Not surprisingly Eurozone consumer confidence inched down from -14.9 to -15.0. We could be hearing more about Greece again as the Troika officials arrived last week to negotiate new terms for Greece's next round of bailout money.

Data out of the Asia region was positive. China said their manufacturing PMI rose from 51.1 to 51.4, which was better than expected. The HSBC manufacturing PMI for China was unchanged at 50.9, which is a seven-month high. Readings above 50.0 for these reports indicate growth and economic expansion. The Bank of Japan left its interest rate unchanged and did not alter its QE program. Japan said household spending rose +3.7% year over year and retail sales surged +3.1%. Both numbers were above expectations. Japan's unemployment rate dipped from 4.1% to 4.0% and the country said their manufacturing PMI rallied from 52.5 to 54.2.

Major Indices:

The S&P 500 hit 1775 for the first time in history last week. Unfortunately the index reversed. The index did find support at its rising 10-dma but that doesn't mean the correction is over. Friday's five-point bounce left the index in positive territory for the week. The S&P 500 managed a +4.5% gain in October and is up +23.5% year to date.

After a four-week rally the S&P 500 looks overbought and due for a larger pullback. I would expect a dip toward the September high 1730. If that level fails then the S&P 500 index may find stronger support near the 1700 level. If somehow the rally resumes then look for potential resistance at 1775 and the 1800 mark.

chart of the S&P 500 index:

The NASDAQ composite tagged a new 13-year high on an intraday basis. The index posted a -0.5% decline for the week but it's up +29.9% year to date. There could be short-term support at the 3900 level but I would expect a pullback. If the NASDAQ breaks below 3900 I would look for a decline into the 3840-3800 area. Should the index bounce then 4,000 will likely be overhead resistance.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index was one of the worst performers. Wednesday's session produced a bearish reversal pattern and the $RUT continued to sink. As you can tell from the daily and weekly charts below the $RUT was already near resistance at the top of its bullish channel so a retracement was not a surprise. The 1080 and 1060 levels should offer some support. If the $RUT can bounce then look for resistance near 1120-1125 and the 1140 areas. The Russell 2000 is up +29.0% year to date.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

We have another busy week of economic data. The events and reports to watch are the U.S. Q3 GDP estimate, the ECB President's press conference, and Friday's non-farm payrolls (jobs) report.

Economic and Event Calendar

- Monday, November 04 -
Factory Orders data
Eurozone PMI data

- Tuesday, November 05 -
ISM Services

- Wednesday, November 06 -
weekly mortgage application index
Eurozone services PMI

- Thursday, November 07 -
Weekly Initial Jobless Claims
U.S. GDP Q3 estimate
European Central Bank (ECB) interest rate decision
ECB President Mario Draghi press conference

- Friday, November 08 -
Non-farm payrolls (jobs) report
Unemployment rate
personal income & spending data
University of Michigan Consumer Sentiment survey

Additional Events to be aware of:

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




The Week Ahead:

The Q3 GDP estimate and the jobs report could both be market movers. We also need to remember that Q3 earnings season isn't over yet. Almost 80 components of the S&P 500 index will report earnings results this week. Any significant hits or misses from some high-profile names could influence investor sentiment.

Thus far about 74% of the S&P 500 have beaten earnings estimates. That's only slightly above the 73% average. Yet corporate sales are not doing so well. Only 53% of the S&P 500 who have reported thus far have beaten Wall Street's revenue estimates. Normally we see 59% of the index beat sales estimates. The quality of earnings results tends to deteriorate the deeper we get into earnings season. Each report this week could be a little landmine for the market to avoid (or endure).

My outlook hasn't changed much from last week. Longer-term we remain bullish on equities, especially now that any expectations for the Fed to taper their QE program have been pushed out to the middle of 2014. However, short-term the market indices look tired and overbought and due for a pullback. I'd rather see stocks retreat a little bit and provide us a buy-the-dip entry point than chase stocks at new highs.

James


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Traders bought the dip again on Friday but can the rally resume?

CRUS and JDSU were stopped out.

LVLT has graduated from our watch list to our active play list.

I have updated stop losses on: HAL and VRSN

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

Is The Market's Momentum Stalling?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(November 03, 2013)

The major U.S. indices managed to tag new highs last week but stocks have started to see some profit taking. After a sharp four-week rally from its early October lows the market is due for a little pullback. It would be healthy for the markets and provide a buy-the-dip entry point for us.

We are not adding new positions tonight. LVLT did graduate from our watch list to our active play list. I've added two new candidates (ATI and QCOM) to our watch list. Plus, I've updated my radar screen below.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself:

PBR, CL, AKS, CLF, JOY, KSU, CNI, DV, COP, KSS, BMY, PFE, JNJ, HAR, ALK, GE, VOD, DDD, MHK, TWX, URI, WLT, CAH, HAS, NUE, X, RIG, SLB, FRX, AMGN, NKE, PG, LTD, ROST, TJX, ADBE, SNDK, WDC, UTX, WEN, AXP, SYK, STJ, MO, SCTY, FSLR, KKD, DNKN, WYN,



Play Updates

The Rally Looks Tired

by James Brown

Click here to email James Brown

Editor's Note:

Some of our LEAPS trades are starting to see some profit taking. Double check your stop loss placement.

We did see LVLT join our play list.


Closed Plays


CRUS and JDSU were stopped out.



Play Updates


American Intl. Group - AIG - close: 48.28

Comments:
11/03/13: Friday proved to be a rough day for AIG with the stock losing -6.5%, which marked AIG as the worst performing stock in the S&P 500 on Friday. The big drop was a reaction to earnings out the night before. AIG met analyst estimates with a profit of 96 cents a share yet revenues were a miss at $8.43 billion for the quarter. Management was cautious with their guidance and suggested AIG might miss some of their 2015 goals. Wall Street pundits called AIG's results "messy".

If you look at AIG's chart you'll notice that the sell-off stalled near support at its long-term trend of higher lows and its rising 100-dma. Currently we have a stop loss at $46.40. More conservative investors may want to raise their stop loss after such a sharp drop on its earnings results.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $1.12/1.16

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $2.91/3.05

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: 14.02

Comments:
11/03/13: Financials had a down week and BAC helped lead the group lower on Thursday with a breakdown below its 100-dma. For the week BAC is off about 25 cents. If this pullback continues in the financial sector I would not be surprised to see BAC test its late September and early October lows in the $13.60-13.70 area.

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 $1.17/1.18

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


E.I. du Pont - DD - close: 61.09

Comments:
11/03/13: DD spent last week slowly fading lower. By Friday's close the stock was off about -80 cents for the week. I remain bullish here but investors may want to wait for a dip closer to $60.00 before considering new bullish positions.

- Suggested Positions -
OCT 25, 2013 - entry price on DD @ 62.57, option @ 0.74
symbol: DD1418a65 2014 JAN $65 call - current bid/ask $0.42/0.44

- or -

OCT 25, 2013 - entry price on DD @ 62.57, option @ 3.15
symbol: DD1517a65 2015 JAN $65 call - current bid/ask $2.85/2.92

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

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: 57.77

Comments:
11/03/13: Shares of DG retreated from round-number resistance at $60.00. Shares experienced a midweek pullback before retesting support at its rising 50-dma on Friday. There is no guarantee the pullback is over but the 50-dma has been consistent support in the past. I would be tempted to buy calls on a bounce here or you could wait for a breakout past the $60.00 level. More conservative investors might want to raise their stop closer to the $56.00 level, which should offer some additional support.

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 $1.70/1.85

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $2.40/2.75

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: 69.01

Comments:
11/03/13: DIS spent the week consolidating sideways and testing new support at the $68.00 level. Shares look poised to rally but that could depend on the company's earnings report. DIS is scheduled to report earnings on November 7th and the stock could be volatile on the 8th as traders react to the news. I would still consider new positions here but more conservative investors may want to wait until November 8th or the 11th to see how the market reacts to DIS' results before initiating positions.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $3.80/3.90

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: 78.22

Comments:
11/03/13: Last week was relatively quiet for EMN. Shares eked out a small gain as the stock seemed to struggle with new resistance in the $79.50-80.00 zone. I am not suggesting new positions at this time.

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 -
(2014 call position closed on Oct. 21st)
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 $ 4.70/4.90

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: 16.89

Comments:
11/03/13: Ford said their sales of cars and light trucks surged +14% in October. That was actually below analyst estimates of +16%. The stock continued to see profit taking that began with the failed rally at $18.00 on October 24th. Shares of Ford are down almost -4% for the week. If the stock closes below technical support at its simple 100-dma (near Friday's low of $16.76) then it could signal bigger trouble for Ford's up trend. 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 $ 2.88/2.93

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: 74.90

Comments:
11/03/13: The profit taking in FLR continued last week and shares are now down two weeks in a row. This past week FLR saw a spike in volatility as traders reacted to the company's earnings report. FLR announced on October 31st and beat bottom line estimates by two cents but missed the revenue number. Unfortunately management also lowered their 2013 guidance. I am surprised that FLR managed to post a gain on Friday considering the earnings warning. I would not be surprised to see FLR correct lower toward the $71-70 zone.

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: 6.10/6.30

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 8.70/ 8.90

10/31/13 FLR reported earnings and management lowered guidance
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: 53.23

Comments:
11/03/13: HAL managed to post gains last week thanks to a rally on Monday and Tuesday. The last few days the stock has just been drifting sideways. I don't see any big changes from my previous comments. If the market corrects lower we can watch HAL to find support near $50.00.

NOTE: We will raise the stop loss to $47.25.

- 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 $ 7.65/7.75

11/03/13 new stop loss @ 47.25
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: 47.25
Play Entered on: 08/21/13
Originally listed on the Watch List: 08/18/13


Harley-Davidson - HOG - close: 64.76

Comments:
11/03/13: HOG just sat there and idled all week inside the $64-65 zone. I am concerned that if HOG breaks down below $64 and its 50-dma that it could signal a drop toward support near $60.00. I am not suggesting new positions at this time.

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 $ 2.36/2.41

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 4.90/5.05

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: 86.91

Comments:
11/03/13: Shares of HON also delivered a quiet week with the stock churning sideways inside the $86.50-88.00 zone. Wednesday's session looks like a bearish reversal pattern but there has not been any follow through lower. I would not be surprised to see a pullback toward $85.00.

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 $ 8.05/8.20

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: 24.33

Comments:
11/03/13: INTC tagged new four-month highs last week. Yet the rally stalled about Wednesday. The stock should find some short-term support near $24.00. If the $24 level fails then the $23.50-23.00 zone should also offer some support.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ 23.63, option @ 0.93
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.93/0.95

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.64/1.68

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


JPMorgan Chase & Co. - JPM - close: 52.24

Comments:
11/03/13: The financial sector posted a loss for the week but JPM was trying to reverse that with a bounce on Friday. New headlines that JPM and Citigroup are facing new federal investigations into their international operations failed to deter buy-the-dip investors on Friday. Shares of JPM rebounded +1.8% after testing technical support at their rising 200-dma. I am not suggesting new positions at this time.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 0.82/0.84

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 3.45/3.55

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


Level 3 Communications - LVLT - close: 30.02

Comments:
11/03/13: LVLT is a watch list candidate that has graduated to our play list. Shares were a big outperformer with the stock gaining more than +11% for the week. The big move higher was a reaction to earnings. Analysts were expecting LVLT to post a loss of 14 cents for the third quarter. LVLT surprised the market with a loss of just 9 cents a share. That's down from a loss of 76 cents a share a year ago. Combine these figures with growth in LVLT's core network services business and shorts rushed to cover their positions.

Our plan was to wait for LVLT to close above $29.00, which happened on October 30th with a close at $29.46. Our trade opened the next day on October 31st at $29.39.

- Suggested Positions -
OCT 31, 2013 - entry price on LVLT @ 29.39, option @ 4.40*
symbol:LVLT1517a30 2015 JAN $30 call - current bid/ask $ 4.40/4.80

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

Chart of LVLT:
Current Target: $39.00
Current Stop loss: 25.75
Play Entered on: 10/31/13
Originally listed on the Watch List: 10/20/13


National Oilwell Varco - NOV - close: 80.83

Comments:
11/03/13: NOV hit some profit taking last week. After a four-day decline traders did buy the dip on Friday near round-number support at the $80.00 level. Investors could use Friday's intraday bounce as a new bullish entry point to launch positions.

Earlier Comments:
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 $ 4.60/4.75

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: 15.26

Comments:
11/03/13: NVDA closed almost unchanged for the week. Shares drifted sideways as investors wait for the earnings report. The company is scheduled to announce earnings on November 7th, after the closing bell. That means NVDA could be exceptionally volatile on the 8th as the market reacts to the news. I am not suggesting new positions prior to earnings.

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 $0.42/0.44

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.11/1.19

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: 46.91

Comments:
11/03/13: ODFL seems to be underperforming the Dow Jones Transportation index. Both saw some profit taking on Wednesday and Thursday and both bounced on Friday. Yet ODFL's bounce on Friday couldn't be any smaller. The stock did retest its trend of higher lows on Thursday before paring its losses. In spite of all the intraday volatility the larger trend is still up but I am not suggesting new positions.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $0.75/0.90

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: 65.60

Comments:
11/03/13: STZ continues to show relative strength. Investors bought the dip and shares hit new record highs. The simple 10-dma has been acting as short-term support. More conservative investors may want to raise their stop loss.

- 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 $8.40/8.70

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: 54.19

Comments:
11/03/13: VRSN managed to eke out another gain for the week putting its winning streak at three weeks in a row. Shares still appear to have some short-term resistance near $55.00. If the market sees any serious pullback I would expect VRSN to retreat toward support near $52.00. Tonight we will raise our stop loss to $48.40.

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 $ 1.60/1.64

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 5.40/5.60

11/03/13 new stop loss @ 48.40
*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: 48.40
Play Entered on: 09/19/13
Originally listed on the Watch List: 08/18/13


Whole Foods Market - WFM - close: 63.30

Comments:
11/03/13: Profit taking shaved off about two points from WFM last week. The stock was due for a pullback after a multi-week rally. The profit taking may not be over yet. WFM is due to report earnings on November 6th, after the closing bell. Traders could use the earnings news as an excuse to sell. Look for support near $60.00.

- 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 $ 9.40/ 9.55

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


Cirrus Logic - CRUS - close: 22.40

Comments:
11/03/13: It was a painful week for CRUS. The stock plunged -14% on Wednesday as the market reacted to its earnings out the night before. Shares sliced through multiple layers of support. Our stop loss was hit at $22.40. I had cautioned readers that CRUS could be volatile following its earnings report but the sharp sell-off was worse than expected.

Believe it or not but CRUS' earnings report was actually bullish with the company beating Wall Street's top and bottom line estimates. Yet a couple of analysts issued cautious comments and suggested that AAPL was too much of CRUS' business and posed a potential risk. Several other analysts came out and defended CRUS but it was too late for us. Our trade was already stopped out.

- Suggested Positions -
OCT 21, 2013 - entry price on CRUS @ 22.50, option @ 4.15
symbol: CRUS1517a30 2015 JAN $30 call - exit $3.00 (-27.7%)

10/30/13 stopped out on -13.75% plunge lower, stop was 22.40
10/29/13 CRUS reports earnings after the closing bell
*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


JDS Uniphase - JDSU - close: 13.00

Comments:
11/03/13: Ouch! It was a terrible week for JDSU. The company reported earnings and management guided lower. Shares of JDSU fell -11% on the 31st in reaction to the earnings warning. Shares continued to slip on Friday pushing its loss for the week toward -15%. Our stop loss was $14.40 but the gap down on Thursday immediately stopped out trade. It would appear that the rally and bullish breakout above resistance in mid October was a bull-trap pattern.

- Suggested Positions -
OCT 22, 2013 - entry price on JDSU @ 16.36, option @ 1.62*
symbol: JDSU1517a20 2015 JAN $20 call - exit $0.53 (-67.2%)

10/31/13 stopped out on gap down at $13.84
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



Watch

Industrial Goods & Technology

by James Brown

Click here to email James Brown


New Watch List Entries

ATI - Allegheny Tech.

QCOM - QUALCOMM Inc.


Active Watch List Candidates

AVGO - Avago Technologies

CBI - Chicago Bridge & Iron

DKS - Dick's Sporting Goods

DLTR - Dollar Tree Inc.

FCX - Freeport McMoRan

HP - Helmerich & Payne

NOC - Northrop Grumman

SBUX - Starbucks

WAG - Walgreen Co.


Dropped Watch List Entries

LVLT graduated to our active play list.



New Watch List Candidates:


Allegheny Technologies - ATI - close: 33.36

Company Info

ATI is in the industrial goods sector. The company manufactures specialty metals. The company last reported earnings on October 23rd and missed Wall Street's estimates for both the top and bottom line numbers. Management offered cautious guidance going forward but that didn't really spook the stock price. Shares of ATI appear to have built a very significant bottom over the last year. Investors might be assuming that all the bad news is priced in and the worst is behind it for ATI. The point and figure chart has turned bullish and is forecasting a long-term target of $51.00.

Currently ATI is hovering below major resistance at the $34.00 level. I am suggesting we buy calls if ATI can close above $34.50. Wait for it to close above this level and buy calls the next day with a stop loss at $30.40. Our long-term target is $44.00.

Breakout trigger: Wait for a close above $34.50
then buy calls the next morning with a stop loss @ 30.40

BUY the 2015 Jan $40 call (ATI1517a40) current ask $2.45

Chart of ATI:

Originally listed on the Watch List: 11/03/13


QUALCOMM Inc. - QCOM - close: 69.90

Company Info

QCOM is in the technology sector. The company manufactures digital telecommunications equipment. Part of their product line are chips for smartphones. The stock peaked in September with shares struggling with resistance near the $70 level. Since then QCOM has already seen a correction back toward $65.00 and rebounded. The point and figure chart is bullish and is forecasting a long-term target of $93.00.

If QCOM can breakout past resistance at $70.00 it will look like a buy. The intraday high on September 10th was $70.37. I am suggesting we wait for QCOM to close above $70.50 and buy calls the next day. However, I am putting a limit on this trade. We do not want to open positions if we see QCOM close above $72.00. That could happen. QCOM is due to report earnings on Wednesday, November 6th, after the closing bell. Shares could spike higher on a better than expected earnings announcement. We want to see QCOM close inside the $70.50-72.00 zone and buy calls the next morning with a stop loss at $66.75. If triggered our long-term target is $85.00.

More conservative traders may just want to wait until Thursday or Friday and see how QCOM fares after its earnings results come out.

Breakout trigger: Wait for QCOM to close above $70.50 (see details)
if triggered start with a stop loss at $66.75

BUY the 2015 Jan $75 call (QCOM1517a75) current ask $4.45

Chart of QCOM

Originally listed on the Watch List: 11/03/13


Active Watch List Candidates:



Avago Technologies - AVGO - close: 44.72

Comments:
11/03/13: We have been expecting AVGO to correct lower and it definitely looks like the correction has started. Shares are now down two weeks in a row. Tonight I am adjusting our entry trigger again. We want to buy calls on a dip at $43.00. If triggered we're suggesting a stop loss at $39.40.

Buy-the-Dip trigger: $43.00, stop loss @ 39.40

BUY the 2015 Jan $50 call (AVGO1517a50) 11/03/13 adjust trigger to $43.00
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: 73.83

Comments:
11/03/13: We were expecting CBI to see some profit taking after the company reported earnings. The company reported bottom line results that were in-line with estimates while revenues beat expectations. Shares initially spiked higher but there was no follow through. I am still expecting CBI to see some profit taking.

We're suggesting a trigger to buy calls at $68.50. If triggered use a stop loss at $63.75. 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)

11/03/13 adjust the stop loss to $63.75
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: 53.56

Comments:
11/03/13: We were about to give up on DKS but shares finally started moving higher. DKS actually displayed some relative strength last week and once again looks poised to breakout past major resistance near the $54.00 level.

NOTE: More conservative investors may want to wait until after we see how the market reacts to DKS' earnings results before initiating positions. There is no date set but DKS will likely announce in mid November.

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: 58.17

Comments:
11/03/13: No surprises here. DLTR retreated from resistance near $60.00. Currently the plan is to buy calls on a dip at $56.25 with a stop loss at $52.40. More conservative investors could wait and hope for a dip closer to $55.00 before initiating positions.

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: 36.78

Comments:
11/03/13: FCX also hit some profit taking last week. I don't see any changes from my previous comments.

Broken resistance at $35.00 should be new support. We want to buy calls on a dip at $35.25. If triggered our long-term target is $42.50.

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


Helmerich & Payne, Inc. - HP - close: 77.43

Comments:
11/03/13: HP hit new all-time highs last week but Wednesday's session could be a short-term top. We are still expecting a pullback. 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)

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


Northrop Grumman - NOC - close: 108.12

Comments:
11/03/13: NOC spent the week consolidating sideways. It is interesting that shares broke out to a new high on Friday morning and then reversed. This could signal a short-term top. There is no change from my prior comments.

We want to wait for a correction and buy calls on a dip 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)

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


Starbucks - SBUX - close: 80.37

Comments:
11/03/13: We were hoping that SBUX would see some post-earnings report profit taking and fall toward its 50-dma. That didn't happen. Earnings results were in-line with expectations. Shares initially spiked down on the news but traders quickly bought the dip. SBUX actually tagged a new all-time high on an intraday basis.

We do not want to chase it here but I will adjust our buy-the-dip entry point from $76.00 to $77.00.

Our long-term target is $98.00.

Buy-the-Dip trigger: $77.00, stop loss @ 73.75

BUY the 2015 Jan $85 call (SBUX1517a85)

11/03/13 adjust buy-the-dip entry from $76 to $77.00

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


Walgreen Co. - WAG - close: 60.52

Comments:
11/03/13: WAG has continued to show relative strength. Friday's session outperformed the market with a +2.1% gain and a bullish breakout over potential round-number resistance at $60.00. This is also a new all-time closing high for WAG. I still don't want to chase the stock here, not after a five-week rally. Let's give WAG another week and then re-evaluate our entry plan.

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