Option Investor
Newsletter

Daily Newsletter, Sunday, 11/24/2013

Table of Contents

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

Leaps Trader Commentary

Longest Winning Streak In Six Years

by James Brown

Click here to email James Brown

It was another record-setting week for the U.S. stock market. The S&P 500 bucked the odds and extended its rally to seven weeks in a row. This is now the longest winning streak since May 2007. According to Morningstar the most recent estimates suggest that stock funds have garnered $172 billion in just the first ten months of 2013. That's the healthiest inflows since the year 2000 when stock funds surged with $272 billion inflows.

Equity buyers have been resilient. Last Monday we saw the market stumble thanks to cautious comments from billionaire investor Carl Icahn who expressed concerns that stocks could see a drop. Then on Wednesday the stock market shot lower after the FOMC minutes were released that afternoon. Worries that the Federal Reserve might taper their QE program sooner than expected resurfaced as Wall Street digested the minutes. Fortunately there was no follow through lower on the Wednesday afternoon drop. FYI: Did you know that this month marks five years of the Fed's QE program? The S&P 500 has come a long way from its 666 low in 2009. It's currently up +170%.

This past week set new records with the S&P 500 index crossing the 1800 level. The Dow Jones Industrial Average closed above the 16,000 mark for the first time. The small cap Russell 2000 also hit a new all-time high. Banks and biotechs were some of the market's best performers with +2.2% and +2.79% gains for the week, respectively. Another drop in the U.S. dollar did nothing to help precious metals. Silver lost -3.6% for the week and gold plunged -4.6%.

Economic Data

Once again the U.S. economic data was mixed. The Kansas Fed manufacturing survey rose from 6.0 in October to 7.0 in November. That's not super inspiring but we did see the new orders component surge from 3.0 to 15.0. The employment component reversed from -2.0 to +6.0. The numbers were less rosy in the Philadelphia survey. The Philly Fed index plunged from 19.8 in October to 6.5 in November, marking its lowest reading since May. Its new orders component declined from 27.5 to 11.8. The Philly's employment component dropped from 15.4 to 1.1.

The Fed certainly has breathing room on the inflation front since there doesn't appear to be any. The most recent data has inflation sitting at four-year lows. The latest wholesale look at inflation showed the Producer Price Index falling -0.2%. The core-PPI, which excludes more volatile food and energy prices, rose +0.2%. The PPI is only up +0.3% in the last twelve months. Inflation at the retail level remains tame as well with the Consumer Price Index falling -0.1% thanks to a -1.7% drop in energy prices. The core-CPI rose +0.1%. If these numbers continue the worry wont' be inflation but the possibility of deflation.

In positive economic news we saw the U.S. purchasing managers index rise t 54.2, which was above expectations. Business inventories in the U.S. rose from +0.4% in August to +0.6% in September. Monthly retail sales, not counting automobiles and gas, increased +0.5% in October following a +0.3% rise in September. This good news was countered with a -3.2% month-over-month drop in the existing home sales numbers. The pace of existing home sales fell from 5.29 million to an annual pace of 5.12 million in October.

Overseas Data

One of the big stories out of Europe this past week was talk that the European Central Bank (ECB) might consider the idea of a negative deposit rate. The region is worried about disinflation and they want to spur more bank lending. Some are floating the idea of a -0.1% deposit rate versus the current ECB rate of +0.25%. At the moment this is just talk but it's a reminder that Europe still has a lot of work to do to improve the health of their economy.

The manufacturing PMI data for the Eurozone improved from 51.3 to 51.5. Yet Eurozone services PMI slipped from 51.6 to 50.9. Numbers above 50.0 indicate growth but they're not growing very fast. There was a lot of economic data out of Germany last week. Germany's manufacturing PMI increased from 51.7 to 52.5, which was better than expected. Their wholesale inflation PPI data inched down -0.2%. The latest ZEW economic sentiment survey in Germany rose from 52.8 to 54.6. Germany said their GDP came in at +0.3% quarter over quarter. The year over year GDP number hit +1.1%. Elsewhere in Europe France said their manufacturing PMI fell from 49.1 to 47.8. In this case numbers below 50.0 indicate contraction. Another disturbing headline was news that Spain's household income had fallen -10% back to 2005 levels.

In Asia the Bank of Japan left its interest rate unchanged in the 0.0-to-0.1% range. There was good news with Japan's exports in October rising +18.6% year over year. Yet this was overshadowed by Japan's trade deficit hitting its worst levels on record thanks to surging energy imports. Meanwhile Japan's larger neighbor China saw its HSBC flash manufacturing PMI decline from 50.9 to 50.4. This was less than expected and moving the wrong way. Numbers above 50.0 indicate growth. Another worry is the surging Chinese real estate market. The latest data shows Chinese home prices rising almost +10% in just a month.

A bigger worry with China and Japan is the military escalation over some uninhabited islands south of Japan (near Taiwan). In Japan these islands are called the Senkakus. In China these islands are called the Diaoyus. The two nations have been sparring over these islands for months (actually years). The situation escalated with China announcing they would set up an air defense zone over the islands effective Saturady. According to one international news outlet China has warned Japan that if they shoot down any Chinese drones over the islands it would be considered "an act of war".

Major Indices:

The S&P 500 broke through the 1800 level for the first time this week. The index bounced off prior resistance near 1775 and rebounded to push through round-number resistance at 1800. Year to date the S&P 500 is now up +26.5%.

If stocks were to suddenly turn lower we can watch for support near 1775 and 1750. If the rally continues then the next likely resistance level is the 1820-1825 area. Beyond that we're looking at 1850.

chart of the S&P 500 index:

The NASDAQ composite dipped to its 30-dma before bouncing. That's twice this month we've seen the 30-dma act as support. The two-day rebound pushed the NASDAQ to a new 13-year closing high but it remains below round-number resistance at the 4,000 level. This index is up +32.2% for the year.

If the NASDAQ can breakout past 4,000, and we think it will, then the next likely resistance levels are 4,050 and 4,100. If stocks were to unexpectedly reverse lower then we can look for support near its 30-dma (currently about 3920) and probably the 3850 area.

chart of the NASDAQ Composite index:

The rally in the small caps is encouraging. A few weeks ago market pundits were concerned about the narrowing breadth of the market's rally. Strength in the small caps should alleviate those concerns. Thankfully the Russell 2000 has rebounded. This past week the $RUT gained +0.78% and closed at a new all-time high. The index looks poised for a rally toward the top of its bullish channel, currently in the 1160 area. Year to date the $RUT is up +32.4%.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's another quiet week for economic data. The U.S. stock markets will be closed on Thursday for the Thanksgiving holiday. They close early on Friday at 1:00 p.m.

Economic and Event Calendar

- Monday, November 25 -
pending home sales data for October

- Tuesday, November 26 -
Consumer Confidence
Case-Shiller 20-city home price index
building permits and housing starts

- Wednesday, November 27 -
weekly MBA mortgage application data
Weekly Initial Jobless Claims
durable goods orders
Chicago PMI
University of Michigan consumer sentiment survey

- Thursday, November 28 -
Eurozone industrial production
Eurozone unemployment data
U.S. markets are closed for Thanksgiving holiday

- Friday, November 29 -
Chinese manufacturing PMI data
"Black Friday" for U.S. retailers
U.S. markets close early.

Additional Events to be aware of:

Dec. 17th - FOMC meeting & economic forecasts update
Dec. 17th - post-FOMC meeting Ben Bernanke press conference
Dec. 24th - U.S. stock market closes early
Dec. 25th - U.S. stock market closed for Christmas




Looking Ahead:

As we look ahead the issues I mentioned last week remain. The next budget battle in Washington could impact investor sentiment. The deadline for lawmakers to come up with a new budget is Friday, December 13th. Odds are they will not have a deal in time and all of the negative headlines have the potential to sour the stock market.

The next major issue will be the Federal Reserve taping their QE program. You saw how stocks dropped following the latest FOMC minutes on Wednesday afternoon on concerns that the taper could be here sooner than expected. Yet in reality we are not likely to see taper until the first quarter of 2014 or even later. The Fed knows that we could see another government shutdown in early 2014 as the democrats and republicans battle it out. While the last shutdown didn't have much of an impact on U.S. economic growth another one might just be one shutdown too many. Thus the Federal Reserve is unlikely to taper until after we see congress settle on a new budget and readdress the debt ceiling issue again, all of which will take place in the January-February timeframe.

We will need to face the taper eventually. Everyone expects the Fed to taper some time in 2014. There has been some speculation that stocks could see a -10% to -15% drop once the Feds do announce a reduction in their QE program. However, in spite of the odds of a sharp taper-induced correction most analysts are forecasting another up year for 2014. Analysts have started rolling out their 2014 yearend targets for the S&P 500 index and we're hearing numbers like 1840, 1900, even 2000 (actually the Goldman Sachs target was 2014 in 2014).

Another issue with the Fed's eventual taper will be its affect on treasury yields. The yield on the U.S. 10-year bond traded above 2.8% this past week. Quite honestly the chart of the 10-year yield seems to be forecasting a rise back toward the 3.0% area. The current 52-week high was 2.979% on September 5th. Many are worried that a 3.0% yield is a line in the sand for the markets. At 3.0% or higher the yield on bonds may be too tempting for money managers to resist and it could pull money out of equities and back into bonds, at least that is the theory. The taper issue could come down to perspective. If the market chooses to interpret the Fed tapering their QE program because the U.S. economy is healthy again then maybe any taper correction will be short lived.

Looking at the next couple of weeks the trend should remain higher. Historically the week after Black Friday is up and has been up seven out of the last seven years. December is also a seasonally strong time period for stocks. The Stock Trader's Almanac lists December as the best month of the year for the S&P 500, the Russell 2000, and the second best month of the year for the NASDAQ and has been this way for decades.

Next week the financial media will likely focus on retailers and the impact for "Black Friday" and "Cyber Monday". The sentiment for retailers seems to have soured a bit in recent days. Analysts are worried that this could be one of the worst holiday shopping seasons in years. They will be analyzing the Black Friday traffic trends for any insight into this year's consumer spending. This is probably all noise for the market. Technically stocks are breaking out and the market's major indices are poised to keep climbing. I saw an interesting tidbit this weekend. In the last 22 years the S&P 500 has rallied +20% or more in a year seven times. Every time the market was higher the next year.

Don't forget that the U.S. stock market will be closed on Thursday for Thanksgiving and they close early at 1:00 p.m. on Friday.

Have a wonderful Thanksgiving. We have much to be thankful for!

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market continues to melt higher as fund managers chase performance. We have a little more than five weeks left before 2013 is over.

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

We want to exit our EMN and INTC trades on Monday morning.

I have updated stop losses on: BAC, DIS, FLR, HON, JPM, LVLT, ODFL, VRSN, and WYN.

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

Need To Be Choosy

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(November 24, 2013)

The market continues to rally. The S&P 500, the Dow Industrials, and the Russell 2000 all ended the week at new record highs. The path of least resistance is definitely up. Plus we are moving into a seasonally bullish period for stocks.

I am concerned about how overbought the market is at the moment. The last time the S&P 500 was up seven weeks in a row was 2007. Of course that doesn't mean the market can't continue to climb from here. I expect that it will keep climbing but we need to be choosy with our entry points.

I am not adding any new trades tonight. We are adding three new candidates to our watch list (C, COP, and HFC). Plus, I've updated some entry points on our prior watch list candidates. I expect some of them to be triggered this week.

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

MET, HD, FBHS, FL, WOOF, WMT, PCP, DE, HAS, XLF, TRV, MCD, V, DNKN, KKD, PFE, BMY, MRK, PHM, SLB, SYK, TRV , CSX, PBR, YUM



Play Updates

Raising Stops As Stocks Climb

by James Brown

Click here to email James Brown

Editor's Note:

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

I have updated several stop losses tonight.

Prepare to exit our EMN and INTC trades on Monday morning.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 49.59

Comments:
11/24/13: It was a relatively quiet week for AIG. Shares are still hovering below technical resistance at their 50-dma and the $50.00 level. I am not suggesting new positions at this time.

NOTE: We only have about eight weeks left on our 2014 January calls.

- Suggested Positions -
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - current bid/ask $1.30/1.33

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $3.20/3.35

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


Avago Technologies - AVGO - close: 43.30

Comments:
11/24/13: AVGO continues to disappoint. The stock is not participating in the market's widespread rally and that's a warning signal. The correction from its peak is now five weeks old. Honestly shares look poised to keep falling. I would seriously consider an early exit right here to cut losses early but I'd like to give AVGO another couple of weeks. I am not suggesting new positions. I repeat more conservative investors might want to just abandon ship now. The company is scheduled to report earnings on Dec. 4th.

- Suggested Positions -
NOV 11, 2013 - entry price on AVGO @ 44.44, option @ 3.60
symbol: AVGO1517a50 2015 JAN $50 call - current bid/ask $2.75/3.10

11/24/13 AVGO is not participating in the market rally.
investors may want to exit early now to cut their losses.
11/11/13 trade opens.
11/10/13 promoted from watch list to new play.
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

Current Target: $55.00
Current Stop loss: 39.40
Play Entered on: 11/11/13
Originally listed on the Watch List: 09/22/13


Bank of America - BAC - close: 15.64

Comments:
11/24/13: The banking stocks continue to show relative strength. BAC has almost gone straight up from November 8th. The breakout past round-number resistance at $15.00 is very bullish but on a short-term basis the stock is overbought and due for a dip. Look for $15.00 to offer new support. I am raising our stop loss to $13.70, which is just below the November low.

- 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 $2.11/2.13

11/24/13 new stop loss @ 13.70
11/17/13 new stop loss @ 13.35
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: 13.70
Play Entered on: 03/18/13

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


E.I. du Pont - DD - close: 61.70

Comments:
11/24/13: DD sparked a few headlines last week with news they are selling its glass-laminating and vinyls business Japanese company called Kurarary Co for $543 million. Shares of DD really didn't move much on the news. Shares are still building on their bullish trend of higher lows although I'm disappointed that DD hasn't been performing better. The $62 area remains short-term resistance. Investors may want to wait for a new close above the $62.50 level before considering new positions.

- Suggested Positions -
OCT 25, 2013 - entry price on DD @ 62.57, option @ 0.74
symbol: DD1418a65 2014 JAN $65 call - current bid/ask $0.45/0.47

- or -

OCT 25, 2013 - entry price on DD @ 62.57, option @ 3.15
symbol: DD1517a65 2015 JAN $65 call - current bid/ask $3.25/3.35

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: 58.40

Comments:
11/24/13: It was a rough week for some of the discount stories. DLTR reported earnings and lowered guidance. Shares of DLTR plunged on the news and it dragged shares of DG lower with it. DG's spike down on Thursday morning was the reaction to DLTR's report. I am not suggesting new positions at this time.

The news few weeks are going to focus on the retailers as we get closer to Christmas. Shares of DG could be volatile, especially after they report earnings. DG is scheduled to announce earnings on December 5th.

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 $2.20/2.25

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $3.20/3.50

11/17/13 new stop loss @ 54.75
09/22/13 new stop loss @ 53.60

Current Target: 64.00 for the 2014s, 69.00 for the 2015s
Current Stop loss: 54.75
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/04/13


The Walt Disney Co. - DIS - close: 70.20

Comments:
11/24/13: Traders bought the dip near $69.00 this past week. The rebound has pushed DIS shares to a new all-time high. I would launch new positions at current levels. Please note our new stop loss at $64.75.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $4.05/4.20

11/24/13 new stop loss @ 64.75

Current Target: DIS @ 84.00
Current Stop loss: 64.75
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Dick's Sporting Goods - DKS - close: 55.44

Comments:
11/24/13: DKS reported earnings on November 19th. It was a positive report. DKS beat the bottom line by a penny and beat the revenue estimate. Management guided in-line with estimates. The stock spiked higher following its results but the gains didn't last. Shares have since corrected lower and retested support at the $54.00 level. Since its earnings announcement the stock has garnered some new, higher price targets from analysts.

Last week I was suggesting we look for a dip to buy calls and we got one.

Our long-term target is $65.00. More aggressive traders could aim higher. The point & figure chart is already bullish and forecasting at $71 target.

- Suggested Positions -
NOV 12, 2013 - entry price on DKS @ 54.73, option @ 4.00*
symbol: DKS1517a60 2015 JAN $60 call - current bid/ask $3.90/4.10

11/12/13 trade opens. DKS opens at $54.73
*option entry price is an estimate since the option did not trade at the time our play was opened.
11/11/13 closed about our suggested entry trigger (above 54.50)
10/27/13 removed the 2014 call.

Current Target: DKS @ 65.00
Current Stop loss: 49.95
Play Entered on: 11/12/13
Originally listed on the Watch List: 10/06/13


Dollar Tree, Inc. - DLTR - close: 56.86

Comments:
11/24/13: DLTR is a watch list candidate that has graduated to our play list.

We were hoping for a correction in DLTR. Last week I cautioned readers that the stock could see a post-earnings decline. Sure enough it did. DLTR reported earnings on November 21st. The company missed estimates by two cents and missed the revenue number. Management then guided lower for the fourth quarter. The guidance is a bit disappointing. Management did say that their same-store sales grew thanks to rising customer traffic. The results didn't scare everyone away. The stock did garner some positive analyst comments.

Our plan was to buy calls on a dip at $56.25. The stock gapped open lower on November 21st at $55.50 and dipped to $55.15 before bouncing. The bounce continued on Friday. I will point out that on a short-term basis the $58.00 level is probably overhead resistance. There is no guarantee the post-earnings correction is over yet. Investors may want to take a step back and see if DLTR dips closer to $55.00 again. I would be tempted to buy calls on another dip or a bounce from the $55.00 level.

- Suggested Positions -
NOV 21, 2013 - entry price on DLTR @ 55.50, option @ 2.75*
symbol: DLTR1517a65 2015 JAN $65 call - current bid/ask $2.90/3.10

11/21/13 trade opened on gap down at $55.50. Trigger was $56.25.
gap down was a reaction to earnings news
10/27/13 removed the 2014 call
10/20/13 adjust the trigger to $56.25 and the stop to $52.40

Chart of DLTR:

Current Target: DLTR @ 65.00
Current Stop loss: 52.40
Play Entered on: 11/21/13
Originally listed on the Watch List: 09/22/13


Eastman Chemical Co. - EMN - close: 76.43

Comments:
11/24/13: I am growing more and more concerned with our EMN trade. The stock is clearly not participating in the market's rally. Shares have been underperforming since its latest failed rally at $80.00 mid November.

I am suggesting we throw in the towel and exit any remaining positions immediately on Monday morning.

- 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 $ 3.70/3.90

11/24/13 prepare to exit positions on Monday, Nov. 25th
11/17/13 the action this past week is worrisome!
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: 17.01

Comments:
11/24/13: Shares of Ford delivered another quiet week. The stock is consolidating sideways with a bullish pattern of higher lows but unable to breakout past technical resistance at its 50-dma. More conservative investors may want to raise their stop loss. 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 $ 2.92/2.96

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


Freeport-McMoRan - FCX - close: 36.10

Comments:
11/24/13: FCX struggled this past week. The rally failed at the three-week trend of lower highs. Shares drifted lower. That might suggest we may get another chance to buy the dip near the $35.00 level again. Look for support near $35.00 and its simple 50-dma (currently near $35.15).

- Suggested Positions -
NOV 13, 2013 - entry price on FCX @ 35.25, option @ 2.60*
symbol: FCX1517a39 2015 JAN $39 call - current bid/ask $2.74/2.79

11/13/13 FCX hits our buy-the-dip entry point at $35.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
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

Current Target:$ 42.50
Current Stop loss: 32.25
Play Entered on: 11/13/13
Originally listed on the Watch List: 09/15/13


Fluor Corp. - FLR - close: 78.63

Comments:
11/24/13: FLR rebounded from short-term support near $76.00. The stock looks poised to retest resistance near the $80.00 level soon. The bounce reaffirms the bullish trend of higher lows. I am raising our stop loss to $72.75.

Earlier Comments:
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 - exit $9.30 (+220.6%)

- or -

SEP 12, 2013 - entry price on FLR @ 67.14, option @ 5.70*
symbol: FLR1517a75 2015 JAN $75 call - current bid/ask: 10.70/10.90

11/24/13 new stop loss @ 72.75
11/13/13 exit target hit for 2014 Jan. $70 calls
11/10/13 new stop loss @ 71.40
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: 72.75
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/11/13


Harley-Davidson - HOG - close: 67.22

Comments:
11/24/13: HOG shot higher on Wednesday morning but the rally essentially failed. Shares still managed to post a gain for the week. If the market dips we can watch for short-term support in the $65-66 zone. I am not suggesting new positions at this time.

Earlier Comments:
I am adjusting our exit target for the 2015 calls to $74.50. We will still plan to exit our 2014 calls when HOG hits $69.00.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 3.35/3.40

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 5.85/6.05

11/17/13 new stop loss @ 61.45
adjust the exit target for 2015 calls to $74.50
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: exit 2014 calls @ 69.00, exit 2015 calls @ 74.50
Current Stop loss: 61.45
Play Entered on: 09/04/13
Originally listed on the Watch List: 08/25/13


Honeywell Intl. - HON - close: 88.80

Comments:
11/24/13: It was somewhat of a choppy week for shares of HON. The late-week bounce helped HON eke out a small gain. Friday's close is technically a new all-time high. I am raising the stop loss to $83.75.

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 $ 9.25/9.40

11/24/13 new stop loss @ 83.75
11/17/13 new stop loss @ 82.75
11/10/13 new stop loss @ 81.75
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.
...please see earlier newsletter for prior comments...

Current Target:$ 95.00
Current Stop loss: 83.75
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Intel Corp. - INTC - close: 23.87

Comments:
11/24/13: Ouch! INTC was crushed on Friday with a -5.39% plunge. Shares had just broken out past round-number resistance at the $25.00 level the day before. Everything was looking up for INTC. Then the company had its annual analyst meeting. INTC's CFO said the company's outlook for 2014 forecasted flat revenue growth. The market is worried that INTC is having trouble replacing revenue from the industry's falling PC sales.

The big drop on Friday was ugly. Our 2014 January $24 call closed at $1.57 on Thursday and closed at $0.73 on Friday. The 2015 January $25 call closed at $2.18 on Thursday and closed at $1.60 on Friday.

This could just be a one-day event and INTC could bounce back. It might not. I am suggesting we exit immediately. There are better candidates out there for our money than a company warning about its 2014 sales outlook. Plan to exit positions on Monday morning, November 25th.

- Suggested Positions -
SEP 16, 2013 - entry price on INTC @ 23.63, option @ 0.93
symbol: INTC1418a24 2014 JAN $24 call - current bid/ask $0.71/0.73

- or -

SEP 16, 2013 - entry price on INTC @ 23.63, option @ 1.75
symbol: INTC1517a25 2015 JAN $25 call - current bid/ask $1.55/1.60

11/24/13 prepare to exit on Monday morning, Nov. 25th.
11/22/13 INTC plunged following its analyst meeting
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: 57.46

Comments:
11/24/13: It was a big week for JPM with a +4.7% gain. Once shares broke out past resistance at $55.00 shares raced higher. The rally past its July 2013 highs is also bullish and JPM ended the week at new multi-year highs. Yet on a short-term basis the stock is now overbought and due for a dip.

I am raising our stop loss to $51.95. If you own the 2014 January $55 calls I would consider an early exit now to lock in gains.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 3.15/3.20

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 6.20/6.35

11/24/13 new stop loss @ 51.95
Consider taking profits on the 2014 calls now
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: 51.95
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


Level 3 Communications - LVLT - close: 29.50

Comments:
11/24/13: The Tuesday-Wednesday decline in LVLT was rough but shares found support at their 30-dma. Unfortunately I am not convinced the correction is over yet. LVLT might see another dip near the $28.50 area soon. Please note that I am raising our stop loss to $26.75.

I am not suggesting new positions at this time.

- Suggested Positions -
OCT 31, 2013 - entry price on LVLT @ 29.39, option @ 4.40*
symbol:LVLT1517a30 2015 JAN $30 call - current bid/ask $ 4.00/4.40

11/24/13 new stop loss @ 26.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Current Target: $39.00
Current Stop loss: 26.75
Play Entered on: 10/31/13
Originally listed on the Watch List: 10/20/13


National Oilwell Varco - NOV - close: 83.66

Comments:
11/24/13: NOV spent the week consolidating sideways. The stock is less than two points away from a new 52-week high. Looking at the energy industry the group looks poised to climb higher. More conservative traders may want to raise their stop loss. I am not suggesting new positions at this time.

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 $ 5.55/5.70

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: 15.18

Comments:
11/24/13: Ouch! It was a rough week for NVDA with shares falling about -6%. The stock was downgraded on Monday morning. With the exception of Thursday's bounce NVDA has been down every day this week. The sharp reversal after just breaking out to new highs the week before is a bit jarring but NVDA was short-term overbought and due for some profit taking. If NVDA does not bounce soon we might decide on an early exit.

We're not suggesting new positions. Readers may want to move their stop closer to the $15.00 level.

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 $0.25/0.26

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.09/1.13

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: 50.64

Comments:
11/24/13: ODFL does not move very fast but the trend has been consistently higher. The stock rallied to new all-time highs this past week. We only have about eight weeks left on our 2014 January calls. More conservative investors may want to take profits now. I am raising our stop loss to $46.75.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - current bid/ask $1.85/2.05

11/24/13 new stop loss @ 46.75
11/17/13 investors may want to consider an early exit now to lock in a small gain.
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: 46.75
Play Entered on: 08/14/13
Originally listed on the Watch List: 07/28/13


QUALCOMM Inc. - QCOM - close: 72.96

Comments:
11/24/13: QCOM held an analyst day last week. As a result there has been a lot of analyst activity on the stock. Some of them downgraded QCOM. Others upgraded QCOM. The price action remains bullish. Last week I suggested investors buy a dip in the $70-71 zone and you got your chance. The stock quickly rebounded when QCOM retested the $70.00 level. Shares have produced a strong bounce since then. Friday's breakout is a new multi-year high. More conservative traders may want to start raising their stops.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $5.35/5.45

11/15/13 trade opens. QCOM @ 71.34
11/14/13 QCOM closes above entry trigger (above 70.50)

Current Target: $85.00
Current Stop loss: 66.75
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


VeriSign, Inc. - VRSN - close: 56.72

Comments:
11/24/13: VRSN ended the week on an up note. Shares broke out past short-term resistance near the $56.00 level to close at new multi-year highs. I am raising our stop loss to $52.40.

Our suggested exit for the 2014 calls is VRSN at $57.50. Readers may want to take profits now with our 2014 call up +127%.

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 $ 2.64/2.70

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 6.70/6.85

11/24/13 new stop loss @ 52.40
11/17/13 new stop loss @ 49.75
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: 52.40
Play Entered on: 09/19/13
Originally listed on the Watch List: 08/18/13


Wyndham Worldwide - WYN - close: 70.95

Comments:
11/24/13: It was another bullish week for WYN. Shares did not really participate in the market's weakness last week but they did participate in the rally. WYN has broken out past the $70.00 level to hit new record highs. I am raising our stop loss to $64.75.

Earlier Comments:
The point & figure chart is bullish and currently forecasting a $93.00 target.

- Suggested Positions -
NOV 18, 2013 - entry price on WYN @ 68.97, option @ 4.20
symbol: WYN1517a75 2015 JAN $75 call - current bid/ask $ 4.80/5.10

11/24/13 new stop loss @ 64.75
11/18/13 trade opens. WYN opens @ 68.97

Current Target: 85.00
Current Stop loss: 64.75
Play Entered on: 11/18/13
Originally listed on the Watch List: 11/10/13




Watch

Financials, Energy, & Oil

by James Brown

Click here to email James Brown


New Watch List Entries

C - Citigroup, Inc.

COP - ConocoPhillips

HFC - HollyFrontier


Active Watch List Candidates

ATI - Allegheny Tech.

COF - Capital One Financial

HP - Helmerich & Payne

SBUX - Starbucks

WAG - Walgreen Co.

WDC - Western Digital Corp.


Dropped Watch List Entries

DLTR graduated to the play list.

CL and NOC have been removed tonight.



New Watch List Candidates:


Citigroup Inc. - C - close: 52.41

Company Info

Citigroup is in the financial sector. They are a massive, global financial giant. After years of being dead money the investor outlook for C has improved significantly. Shares have spent the last few months consolidating sideways below resistance near $53.00. I am suggesting we wait for C to close above $53.50 and then buy calls the next day with a stop loss at $47.25. Our long-term target is the $70.00 area.

Breakout trigger: Wait for C to close above $53.50
buy calls the next morning with a stop loss at $47.25

BUY the 2015 Jan $60 call (C1517a60) current ask $2.99

Chart of C:

Originally listed on the Watch List: 11/24/13


ConocoPhillips - COP - close: 74.02

Company Info

COP is an energy giant. They produce, transport, and sell oil, natural gas, and refined products. The oil stocks have managed to completely ignore the weakness in crude oil prices. The group actually looks poised to breakout higher. COP is one of them. Shares of COP have long-term resistance near the $74.00 level dating back to 2008. The stock has just spent the better part of four weeks consolidating below this resistance area.

I am suggesting we wait for COP to close above $75.00 and then buy calls the next morning with a stop loss at $69.75. More conservative investors might want to use a stop closer to $72 instead. If triggered our long-term target is $95.00.

Breakout trigger: Wait for COP to close above $75.00
then buy calls the next day with a stop at $69.75

BUY the 2015 Jan $80 call (COP1517a80) current ask $2.51

Chart of COP:

Originally listed on the Watch List: 11/24/13


HollyFrontier Corp. - HFC - close: 46.39

Company Info

HFC is another energy-related stock. The company is a petroleum refiner. They produce gasoline, diesel fuel, jet fuel, and more. The stock plunged on November 6th following its earnings report. HFC missed by 23 cents but revenues were significantly above analyst expectations. The earnings miss fueled by a big drop in gross margins. You'll notice that there was no follow through on the post-earnings sell off. HFC has bounced back. Now shares are trying to breakout past technical resistance at its simple 200-dma near $47.00.

I am suggesting we wait for HFC to close above $47.50 and then buy calls the next day with a stop loss at $43.25. Our long-term target is $59.00. FYI: A move past $48.00 would create a new triple-top breakout buy signal on HFC's point & figure chart.

Breakout trigger: Wait for HFC to close above $47.50
then buy calls the next day with a stop at $43.25

BUY the 2015 Jan $49.50 call (HFC1517a49.5) current ask $4.60

Chart of HFC:

Originally listed on the Watch List: 11/24/13


Active Watch List Candidates:



Allegheny Technologies - ATI - close: 33.93

Comments:
11/24/13: ATI is still consolidating sideways below resistance in the $34.00-34.50 area. I don't see any changes from my earlier comments.

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)

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


Colgate-Palmolive - CL - close: 66.26

Comments:
11/24/13: We were hoping to buy calls on a dip in CL. The stock is not cooperating. Shares have actually broken out past resistance near $66.00, which is bullish. However, we don't want to chase it here. More aggressive traders may want to consider buying calls now. Tonight we are temporarily removing CL from our watch list. We'll look at it again in a couple of weeks.

Trade did not open.

11/24/13 removed from the watch list.

Originally listed on the Watch List: 11/10/13


Capital One Financial - COF - close: 69.61

Comments:
11/24/13: Hmm... I am starting to wonder about COF. Financial stocks continue to show relative strength but COF is not really participating. The stock is just churning sideways. Let's give COF another week and then we'll decide to either drop it or adjust our strategy.

I am suggesting we wait for COF to close above $71.00 and buy calls the next morning with a stop loss at $66.95. Our long-term target is $84.00.

Breakout trigger: Wait for COF to close above $71.00
buy calls the next day with a stop loss at $66.95

BUY the 2015 Jan $75 call (COF1517a75)

Originally listed on the Watch List: 11/17/13


Helmerich & Payne, Inc. - HP - close: 78.97

Comments:
11/24/13: HP spent the week drifting sideways. Shares didn't decline much during the market's three-day pullback. At the same time HP didn't rally much with the market's bounce. We're still waiting for a breakout past $80.00.

Earlier Comments:
Wait for HP to close above $80.25 and then buy calls the next day with a stop loss at $74.75. If triggered our long-term target is $95.00.

Wait for a close above $80.25, stop loss @ 74.75

BUY the 2015 Jan $90 call (HP1517a90) current ask $5.10

11/17/13 strategy change: Wait for HP to close above $80.25 and then buy calls the next day with a stop loss at $74.75. Our new long-term target is $95.00. New option strike at 2015 $90 call

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


Northrop Grumman - NOC - close: 112.01

Comments:
11/24/13: NOC continues to drift higher and shares ended the week at a new record high. Yet we don't want to chase it here. The plan was to buy calls on a dip but NOC is not cooperating.

Tonight we are removing NOC from the watch list. I would check it out again on any significant pullback.

Trade did not open.

11/24/13 removed from the watch list
11/17/13 new buy-the-dip trigger at $103.50. old one was $102.25.

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


Starbucks - SBUX - close: 81.35

Comments:
11/24/13: Shares of SBUX continue to drift sideways less than a dollar from its all-time high. Readers may want to consider buying calls on a breakout past $82.00 or the intraday high at $82.50. We're still trying to buy calls on a dip. The simple 50-dma has risen to $78.70. We will raise our buy-the-dip trigger to $79.25. I am also adjusting the option strike to the 2015 January $90 call.

Our long-term target is $98.00.

Buy-the-Dip trigger: $79.25, stop loss @ 74.75

BUY the 2015 Jan $90 call (SBUX1517a90)

11/24/13 adjust the trigger to $79.25
adjust the option strike to the 2015 January $90 call
11/17/13 adjust the trigger to $78.25
11/10/13 adjust the buy-the-dip entry to $78.00 and stop to $74.75
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: 60.50

Comments:
11/24/13: We've been waiting for WAG to see some profit taking hoping we could buy calls on a dip. So far it's not happening. Shares were downgraded on Tuesday morning and the stock spiked down to the $58.50 area. Traders immediately bought the dip the next day. WAG looks poised to breakout soon. I am adjusting our entry strategy. Instead of trying to buy a dip we will buy a breakout. Wait for WAG to close above $61.00 and then buy calls the next day. We'll move the stop loss to $56.75. Our long-term target is the $75 area.

FYI: WAG is scheduled to report earnings on December 20th.

Wait for WAG to close above $61.00,
then buy calls the next day with a stop at $56.75

BUY the 2015 Jan $65 call (WAG1517a65) current ask $3.75

11/24/13 Strategy Update: new entry point to buy calls when WAG closes above $61.00. New stop loss @ 56.75.
11/17/13 new trigger at $56.00, up from $55.00
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


Western Digital Corp. - WDC - close: 75.13

Comments:
11/24/13: After hitting new all-time highs shares of WDC suffered a little profit taking. Traders have been consistently buying the dips at its rising 10-dma. More aggressive traders may want to buy calls now. I am suggesting we wait for WDC To close above $76.25 and launch positions the next morning with a stop loss at $69.45. If triggered our long-term target is $94.00. FYI: The Point & Figure chart is bullish with a $91 target.

NOTE: I am putting a condition on this entry point. We want to wait for a close above $76.25 but we do not want to launch positions if WDC closes above $77.50.

Breakout trigger: Wait for a close above $76.25
buy calls the next morning with a stop loss at $69.45

BUY the 2015 Jan $90 call (WDC1517a90) current ask $5.25

Originally listed on the Watch List: 11/17/13