Option Investor
Newsletter

Daily Newsletter, Sunday, 12/8/2013

Table of Contents

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

Leaps Trader Commentary

Taper Fears Continue To Haunt

by James Brown

Click here to email James Brown

Fears that the Federal Reserve might taper its $85 billion a month QE program sooner than expected continued to haunt the U.S. market all week long. A string of better than expected economic reports drummed up anxiety that Friday's non-farm payrolls number might be too high and push the Fed to taper in December. When the jobs number came out at +204,000 those fears vanished and stocks rebounded on Friday, nearly erasing the prior five-day decline. Speaking of declines, the S&P 500 did fall five days in a row, which hasn't happened since the year 1996. Yet in spite of the drop the S&P only lost -1.2% for that entire five days compared to the +9% rally in the prior eight weeks.

Economic Data

U.S. economic data continues to be uneven but most of last week's reports came in better than expected. Investors are still worried about this year's holiday shopping season and news from the National Retail Federation that the Black Friday weekend retail sales were down -3.0% from last year didn't help. The homebuilder stocks didn't react much to news that new home sales in October soared +25.4%. Home sales could face pressure from rising rates. Last week saw mortgage rates hit a 10-week high. Mortgage applications to purchase a home were down -4.1% while refinance applications plunged -17.5%.

The national ISM index came in better than expected with a reading of 57.3. This is the highest level since April 2011 and marked six months of growth. Economists were expecting the ISM services number to hit 55.0 but November's reading slipped to 53.9. One positive surprise last week was the University of Michigan consumer sentiment survey. December's survey reading soared from 75.1 to 82.5. That's quickly approaching July's high of 85.1. Analysts were actually expecting a small decline to 74.2.

Another big surprise last week was the U.S. Q3 GDP estimate. The latest estimate exploded from +2.85% growth to +3.6% growth. Economists had been expecting a rise to +3.1%. This new growth estimate is the strong reading since Q2 2010. Unfortunately investors should be worried about why the GDP rose so much. The reason was rising inventories. Bloomberg news probably said it best, (U.S. GDP) "...expanded more in the third quarter than initially estimated as unsold merchandise piled up at the fastest rate since 1998, setting the stage for a possible slowdown in the final three months of the year." Looking beneath the headline number of +3.6% growth we see that 1.68% of that move was due to rising inventories. At the same time inventories were rising consumer spending in the third quarter only rose +1.4%, which according to Bloomberg, is "the smallest gain since the fourth quarter of 2009." This combination of unsold merchandise and slowing consumer spending does not bode well for Q4's GDP growth.

Of course the biggest economic report for the week was the jobs report. The ADP Employment change report came out on Wednesday. Analysts were only expecting the ADP report to show +170,000 in job growth but November's number hit +215,000. This upside surprise only inflamed worries that the nonfarm payroll number would be too hot and spark the Fed to taper in December. Economists were estimating that November would see +185,000 new jobs but there were whisper numbers of +250K to +300K. When November's report only came in at +204,000 there was a sigh of relief and the news sparked some short covering in stocks. Another surprise was the unemployment rate that ticked down from 7.3% to 7.0% but that was blamed on government employees going back to work after the partial government shutdown in October. One positive data point below the headlines was a small increase in the average workweek. If we see a continued rise in the average workweek it could precede a stronger increase in actual hiring.

Overseas Data

There was plenty of economic data overseas. The European Central Bank left interest rates unchanged at 0.25%. Eurozone GDP inched higher with +0.1% growth over last quarter. Wholesale inflation (PPI) slipped -0.5% month to month, which was lower than expected. Retail sales in the Eurozone fell -0.2%. Germany said their factory orders declined -2.2% last month while German services PMI rose from 54.5 to 55.7, which was above estimates. Numbers above 50.0 indicate growth. Bundesbank increased their 2013 growth forecast for Germany from +0.3% to +0.5% and adjusted their 2014 GDP forecast from +1.5% to +1.7%.

The United Kingdom raised their 2013 GDP growth forecast from +0.6% to +1.4%. Last week saw the Bank of England left their interest rate unchanged at 0.5%. The U.K.'s construction PMI rose from 59.4 to 62.6. In the not so good news category France said their unemployment rate ticked higher from 10.8% to 10.9%. In Asia we saw China's HSBC PMI data hit 50.8. Numbers above 50.0 suggest growth. The Chinese HSBC services PMI ticked down from 52.6 to 52.5.

In other news the hedge fund industry is having a rough year. Hedge funds are underperforming the S&P 500 for the fifth year in a row. This year has been exceptionally bad with the average hedge fund trailing behind the broader market with its worst performance since 2005. The S&P 500 index is up 26% year to date while the hedge fund industry (through November) was only up +7.1%.

Major Indices:

The S&P 500 posted a five-day decline, a feat we haven't seen in 17 years. Yet Friday's bounce (+1.12%) was strong enough to almost completely erase the five-day loss. The S&P 500 closed less than one point from last Friday's close. Just a little bit higher and it would have been nine up weeks in a row.

The shallow pullback is not a surprise since fund managers are likely chasing performance between now and year end. Thus they're buying every dip. The 1780 level held up as support. If the S&P 500 can breakout past its recent highs near 1810 then we could witness a rally into the 1840 area before the year is out. Keep in mind that we only have 15 trading days left for 2013.

chart of the S&P 500 index:

The NASDAQ composite displayed relative strength last week with a +0.6% gain. The index found short-term support near the 4,000 level and its rising 10-dma. Friday left the index at a new 13-year closing high.

The next level of resistance is probably the 4100 level and then 4150 beyond that. Potential support levels are 4,000, 3950, and 3900 (near its 50-dma). Year to date the NASDAQ is up +34.5%.

chart of the NASDAQ Composite index:



The small cap Russell 2000 index had a rougher week. At Wednesday's intraday low the $RUT was down -2.7% from last Friday's close. It pared those losses with a two-day bounce to just -1.0% for the week.

If this bounce continues the $RUT could find resistance near 1150 and its new trend line of higher highs (see chart). If the $RUT were to reverse I'd watch for support near 1100 and its 50-dma.

chart of the Russell 2000 index



Economic Data & Event Calendar

It is a relatively quiet week for economic data. We will hear from multiple Federal Reserve members this week. The market will be listening for any hints on when the Fed might taper its QE program. We're only two weeks away from the next FOMC meeting. It is possible that Wall Street's attention might turn toward Washington again. Congress is supposed to agree to a new budget deal by Friday, December 13th.

Economic and Event Calendar

- Monday, December 09 -
multiple Federal Reserve governors speak

- Tuesday, December 10 -
wholesale inventory data
Eurozone industrial production

- Wednesday, December 11 -
weekly MBA mortgage application data

- Thursday, December 12 -
Weekly Initial Jobless Claims
U.S. retail sales data for November
business inventory data

- Friday, December 13 -
Producer Price Index (PPI)
U.S. budget deadline for congressional committee

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 there are a couple of events that could influence stocks. This Tuesday, December 10th, multiple government regulating bodies will vote on the Volcker Rule. This is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law back in 2010. It's named after former Federal Reserve Chairman Paul Volcker. The rule is supposed to limit the sort of investments that banks can make and prohibit any proprietary trading by the banks. It's taken this long for regulators and lawmakers to flesh out the rule and what form it would take. Tuesday is the final vote on the current version of the regulation. This news could influence financial stocks so don't be surprised if the sector sees a bit of volatility midweek.

The biggest event for the week is probably the Friday, December 13th deadline for the U.S. budget. It's being called a "soft" deadline because back in October, during the shutdown, lawmakers agreed to a deal to fund the government through January 15th, 2014. The bipartisan committee working on this issue says there is no deal yet. It will likely come down to the wire again. I suspect that December 13th will come and go and we'll be dealing with the budget issue when Congress returns back in January. Negative rhetoric out of Washington could dampen investor enthusiasm for stocks.

All the talk about whether or not we are in a stock market bubble seems to have subsided a bit. There are still a number of concerns the bears continue to growl about. It is true that market breadth is narrowing. The major U.S. indices are at new all-time or multi-year highs. Yet the number of stocks trading above their simple 200-dma is declining. That means the rally is getting more narrow with fewer stocks participating.

Another warning signal is Citigroup's panic/euphoria model. It's a contrarian warning signal. When stocks sell off and the model falls into "panic" levels then it's supposed to be a buy signal suggesting stocks are near a bottom. When the model rises into euphoria levels then it's suggesting the market is near a top. Currently Citigroup's model is nearing the euphoria levels at its highest reading since 2008.

Additional warning signals are the record high margin debt we discussed last week. More and more investors are buying stocks on borrowed money. When the market eventually turns this high level of debt could exacerbate the decline. There are concerns that stocks are expensive relative to their 10-year average earnings growth. Another concern are record high corporate profit margins that are due to contract. There is some worry that U.S. stocks look expensive compared to the rest of the world. There is another model suggesting that U.S. stocks are expensive when compared to U.S. GDP. Of course the stock market does not have to be in a "bubble" to actually peak. The market cycles up and down on a regular basis and the current bull market is pretty long in the tooth.

One concern that is getting a lot of play is investor sentiment. The Investors Intelligence bull/bear survey has seen the number of bullish investors rise to 57.1% and the number of bearish investors has fallen to 14.3%. These are extreme numbers. Today's low level of bearish investors is below the market peaks from the year 2000 and the year 2007. As a matter of fact we are seeing the lowest level of bearish investors since 1987. There have been a number of high-profile bears that have thrown in the towel and some have turned into outright bulls. If you put it altogether, the lack of bearish sentiment is a huge contrarian warning signal that sentiment is too positive.

Now all of these warning signals does not mean the market is going to immediately crash next week. It does suggest that sooner, not later, we could see the market top. It's been a long time since the U.S. market has produced a normal -5% to -10% correction. We could easily see the U.S. market continue to climb into January. It's January that worries me. The budget deadline on January 15th and the U.S. debt ceiling deadline in February could actually throw the U.S. government back into another shutdown if democrats and republicans refuse to work together.

In summary the path of least resistance is still up but we do see storm clouds on the horizon. The trend remains our friend (until it doesn't) but investors may want to scale back their position size to limit risk and keep some capital in reserve so we can take advantage of any market pullback that is likely to appear in the first quarter of 2014.

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 index snapped an eight-week winning streak but the index's loss for the week was less than one point. The path of least resistance is still higher.

Our plan was to exit our ODFL calls and the 2014 VRSN calls on Monday, Dec. 2nd.

CZR, HP, SBUX and YUM have graduated from our watch list to our active play list.

We want to exit the HOG 2014 calls on Monday morning, December 9th.

I have updated stop losses on: AVGO, DD, DIS, DLTR, HOG, LVLT, and QCOM.

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

A Very Successful Week

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(December 08, 2013)

We just witnessed the S&P 500 produce a five-day decline. That has happened in over 15 years. Yet in spite of this "weakness" the index only lost about -1.2%. That doesn't scream fear. It was barely any profit taking at all. That's because fund managers have been trailing the performance of the major indices and they need to chase stocks higher by year end. Thus every dip should be bought. The wild card here could be the U.S. budget deadline on Friday, December 13th and the FOMC meeting on December 17th and 18th.

If there is no budget deal it could negatively impact the market but investors know that Friday is a "soft" deadline and Washington will likely push the issue right down to the wire on January 15th. That means the FOMC meeting is the real landmine we need to avoid. If the Fed does announce any taper to their QE program then stocks could see a knee-jerk reaction lower. That's especially true since most market participants do not expect any taper until March so an announcement in December would be a big surprise. The stock market does not like surprises.

Tonight I am not adding any new trades. We just had a very successful week for our watch list. Four of our watch list candidates met our entry point requirements and graduated to our active play section (those were: CZR, HP, SBUX, and YUM ). Tonight I've added three new candidates to our watch list (DE, MSI, and WFC) and all three of them could 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:

GRMN, CTSH, NKE, DNKN, GM, DPZ, WYNN, JBHT, CAT, XOM, CLX, GLW, ABBV, NWL, V, COF, GE, VOD, MDLZ, NUE, PSX, LVS, AXP, FL, JNPR,



Play Updates

Locking In Gains

by James Brown

Click here to email James Brown

Editor's Note:

Lots of new plays in our update tonight.
CZR, HP, SBUX, and YUM all graduated from our watch list.

We also locked in potential gains on ODFL and VRSN last Monday.

Please note that we do want to exit our 2014 calls on HOG this coming Monday, December 9th.


Closed Plays


ODFL was closed as planned on Monday, Dec. 2nd.
We also closed the 2014 January calls on VRSN last Monday.



Play Updates


American Intl. Group - AIG - close: 49.55

Comments:
12/08/13: The market's five-day decline saw AIG fade from resistance near $50 to short-term support near $48.00. The big bounce on Friday pared its losses to just 20 cents for the week. Once again AIG is testing the $50 area. If this stock does not breakout above $50 soon we might want to consider an early exit. I am not suggesting new positions at this time. More conservative traders may want to raise their stops.

NOTE: We only have about six 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 $1.15/1.18

- 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: 46.96

Comments:
12/08/13: It was a big week for AVGO thanks to a huge rally on Thursday as investors reacted to the company's earnings report. AVGO beat bottom line estimates by six cents per share. Management then raised their guidance. The stock soared to new all-time highs on Thursday. Friday saw some profit taking.

Tonight I am raising our stop loss to $42.40. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 11, 2013 - entry price on AVGO @ 44.44, option @ 3.60
symbol: AVGO1517a50 2015 JAN $50 call - current bid/ask $4.00/4.70

12/08/13 new stop loss @ 42.40
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: 42.40
Play Entered on: 11/11/13
Originally listed on the Watch List: 09/22/13


Bank of America - BAC - close: 15.56

Comments:
12/08/13: The financial sector saw some profit taking last week and BAC was no exception. I was a little surprised to see BAC find new short-term support near $15.35. I would not be surprised to see BAC decline into the $15.00-15.20 zone before moving higher. I'm not suggesting new positions.

- 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 $2.10/2.13

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


Capital One Financial - COF - close: 72.60

Comments:
12/08/13: COF outperformed its peers in the financial sector last week. Shares hovered in the $71-73 zone and look poised to breakout past resistance near $73.00 soon. Friday's high was $73.19. I would be tempted to launch new positions on a rally above $73.25.

- Suggested Positions -
NOV 29, 2013 - entry price on COF @ 71.69, option @ 5.80*
symbol: COF1517a75 2015 JAN $75 call - current bid/ask $6.05/6.30

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

Current Target: COF @ 84.00 for 2015 calls
Current Stop loss: 66.95
Play Entered on: 11/29/13
Originally listed on the Watch List: 11/17/13


Caesars Entertainment - CZR - close: 19.50

Comments:
12/08/13: CZR has graduated from our watch list to our active play list. The plan was to wait for shares to close above $21.00 and then buy calls the next day. The stock closed at $21.01 on December 2nd. It wasn't the most convincing rally but it qualifies. Our traded opened the next day. CZR has been hugging its 50-dma the last few days. I would wait for a new rally above $20.25 before initiating new positions.

STRATEGY NOTE: I think it is important that investors re-evaluate this trade. Initially the market was bullish about the impact and opportunity that online gaming might offer CZR. Yet on Thursday morning CZR came out with a warning that said online gaming could actually hurt their business. The company said that online gaming is not only additional competition but CZR's own online business could cannibalize its traditional revenue sources. This new disclosure changes the impetus for the stock to climb. More conservative investors may just want to abandon ship and exit positions now.

If this stock does not recover soon I will consider dropping it.

- Suggested Positions -
DEC 03, 2013 - entry price on CZR @ 20.91, option @ 4.70*
symbol: CZR1517a25 2015 JAN $25 call - current bid/ask $3.30/4.10

12/05/13 CZR warns that online gaming could negatively impact its business. Investors should re-evaluate their strategy
12/03/13 trade opens. CZR @ $20.91
12/02/13 CZR closes at $21.01, above our close above $21.00 trigger

Chart of CZR:

Current Target: CZR @ 26.00
Current Stop loss: 18.75
Play Entered on: 12/03/13
Originally listed on the Watch List: 12/01/13


E.I. du Pont - DD - close: 61.34

Comments:
12/08/13: It was a bit of a rocky week for DD. The stock broke down from its neutral consolidation pattern but there was no follow through on the bearish breakdown. DD found support near $60.00. Friday's bounce trimmed its weekly loss to just four cents.

I am suggesting that investors stay cautious. We will raise our stop loss to $58.90.

We only have about six weeks left on our 2014 January calls.

- Suggested Positions -
OCT 25, 2013 - entry price on DD @ 62.57, option @ 0.74
symbol: DD1418a65 2014 JAN $65 call - current bid/ask $0.29/0.31

- or -

OCT 25, 2013 - entry price on DD @ 62.57, option @ 3.15
symbol: DD1517a65 2015 JAN $65 call - current bid/ask $3.05/3.20

12/08/13 new stop loss @ 58.90
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: 58.90
Play Entered on: 10/25/13
Originally listed on the Watch List: 08/11/13


Dollar General Corp. - DG - close: 60.20

Comments:
12/08/13: It was an important week for DG. The stock was sinking and shares hit new two-month lows on Wednesday following a breakdown below its 100-dma on Monday. Everything changed with DG's earnings report. The company reported earnings on Thursday morning, December 5th. DG beat bottom line estimates by two cents and then issued bullish guidance. Shares soared +6.1% on Thursday and closed near its 2013 highs. The rally continued on Friday with a bullish breakout past round-number resistance at $60.00. The better than expected earnings results has sparked three new analyst upgrades in the last two days.

Shares of DG are short-term overbought. After such a big move it would be normal to see a little bit of profit taking. I am not suggesting new positions. Please note that we only have about six weeks left on our 2014 calls.

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 $2.10/2.20

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - current bid/ask $3.20/3.90

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: 71.46

Comments:
12/08/13: DIS shares found support near their rising 30-dma again. The stock has bounced and shares ended Friday at a new all-time closing high. The company did make some headlines this past week. DIS raised its annual dividend from 75 cents to 86 cents. DIS also secured the rights to any future Indiana Jones movies.

We are moving the stop loss higher to $65.75.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $4.60/4.90

12/08/13 new stop loss @ 65.75
11/24/13 new stop loss @ 64.75

Current Target: DIS @ 84.00
Current Stop loss: 65.75
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Dick's Sporting Goods - DKS - close: 55.21

Comments:
12/08/13: DKS saw a sharp, two-day drop on Monday and Tuesday. Yet the stock found support right where it was supposed near the $54.00 level. DKS is now bouncing from support and investors could use this rebound as a new bullish entry point to buy calls.

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 $3.80/4.00

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: 55.17

Comments:
12/08/13: I am growing more and more concerned about our DLTR trade. More conservative investors may want to exit immediately. The big rally on DG's better than expected earnings report should have had a bigger impact on DLTR. This stock did rally on Thursday but it failed at resistance near its 10-dma and 100-dma near the $56.00 level. DLTR also underperformed the broader market on Friday. All of this relative weakness is worrisome.

The low for the week was $54.67. I am raising our stop loss to $54.45. I am not suggesting new positions.

- Suggested Positions -
NOV 21, 2013 - entry price on DLTR @ 55.50, option @ 2.75*
symbol: DLTR1517a65 2015 JAN $65 call - current bid/ask $2.25/2.45

12/08/13 DLTR is not performing. Investors may want to exit early now. I am raising the stop loss to $54.45
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

Current Target: DLTR @ 65.00
Current Stop loss: 54.45
Play Entered on: 11/21/13
Originally listed on the Watch List: 09/22/13


Ford Motor Co. - F - close: 16.70

Comments:
12/08/13: This past week Ford announced its monthly sales numbers with U.S. November sales up +7.2% from a year ago. Ford also unveiled a new version of their Mustang celebrate the 50th anniversary of the car (which is April 17, 2014). In spite of all the (good) news shares of Ford are not performing and that could be due to its CEO. There has been rampant speculation that Ford's CEO Alan Mulally could be Microsoft's (MSFT) next CEO to replace CEO Steve Ballmer, who retires next year. Mulally and other Ford insiders deny these rumors but the thought of him leaving Ford could actually be depressing the stock price.

Shares of Ford did find support near $16.50 and its 150-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 $ 2.66/2.70

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: 34.69

Comments:
12/08/13: Copper prices saw a big bounce off their lows last week. Gold and silver did too but the rebound was smaller. The correction lower in shares of FCX seems to have stalled last week. Has the stock finally found a bottom near $34.00 support? It's possible but I am not suggesting new positions at this time. More conservative investors may want to raise their stop loss.

- Suggested Positions -
NOV 13, 2013 - entry price on FCX @ 35.25, option @ 2.60*
symbol: FCX1517a39 2015 JAN $39 call - current bid/ask $1.95/2.00

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: 77.41

Comments:
12/08/13: FLR's bounce on Friday trimmed its weekly loss to just 40 cents. Shares retested support near $76.00 but the stock has also formed a short-term, about two-week old, trend of lower highs. I am not suggesting new positions at this time.

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: 9.80/10.10

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


HollyFrontier Corp. - HFC - close: 46.91

Comments:
12/08/13: The volatility in shares of HFC is getting worse. Last Monday saw the stock hit a new six-month high but the rally reversed near the $50 level. Then on Tuesday shares plunged through what should have been support near $47.00 and its 200-dma. The drop on Tuesday was a reaction to news from HFC that due to waste water constraints at its Navajo refinery the company would have to lower its crude throughput for the first quarter by up to 10,000 barrels per day. The company's total Q4 throughput is about 370,000 bpd. The stock spiked down to $45.21 on Tuesday and shares saw a big bounce (+2.8%) on Friday. All of this volatility could make an investor seasick. More conservative investors may want to just exit early and look for something a little less tumultuous. I am not suggesting new positions at the moment. Let's wait and see if there is any follow through on Friday's bounce.

NOTE: The options for HFC have changed. Due to a 50-cent special dividend the option strikes have all been adjusted down by 50 cents. Our listed option strike 2015 January $49.50 has become $49.00.

- Suggested Positions -
NOV 26, 2013 - entry price on HFC @ 47.17, option @ 5.00*
symbol: HFC1517a49 2015 JAN $49 call - current bid/ask $5.20/5.70

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

Current Target: HFC @ 59.00
Current Stop loss: 43.25
Play Entered on: 11/26/13
Originally listed on the Watch List: 11/24/13


Harley-Davidson - HOG - close: 68.53

Comments:
12/08/13: HOG was showing some relative strength last week. The stock started bouncing on Wednesday and managed to breakout to new multi-year highs by Friday's closing bell. I am raising our stop loss to $62.75.

The intraday high on Friday was $68.56. We've been planning to exit our 2014 calls when HOG hits $69.00. I am suggesting we go ahead and exit our 2014 January $65 calls immediately on Monday morning to lock in gains. More aggressive traders may want to aim higher instead. Just keep in mind that you only have about six weeks left before they expire. Our exit target for the 2015 calls remains $74.50 for now.

- Suggested Positions -
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - current bid/ask $ 4.00/4.15

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - current bid/ask $ 6.30/6.50

12/08/13 prepare to exit 2014 calls immediate on Monday morning
12/08/13 new stop loss @ 62.75
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: 62.75
Play Entered on: 09/04/13
Originally listed on the Watch List: 08/25/13


Honeywell Intl. - HON - close: 88.32

Comments:
12/08/13: HON's big bounce on Friday significantly pared its losses for the week. The stock found support near $86.00 and its 50-dma midweek. Now shares look poised to retest overhead resistance in the $89-90 zone. I am not suggesting new positions at this time.

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 $ 8.85/9.10

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



Helmerich & Payne, Inc. - HP - close: 77.00

Comments:
12/08/13: HP is a watch list candidate that has graduated to active trade. The plan was to wait for shares to close above $80.25 and then buy calls the next day. The stock closed at $80.97 on December 4th. Our trade opened the next morning at $81.00. The overall trend is bullish but HP's action on Friday is a little troubling. The stock did not participate in the market's widespread rally on Friday. Instead HP gapped open higher and then reversed. Technically Friday's move is a bearish engulfing candlestick reversal pattern. More conservative investors might want to wait for a new high above $81.50 before initiating new bullish positions.

- Suggested Positions -
DEC 05, 2013 - entry price on HP @ 81.00, option @ 5.60*
symbol: HP1517a90 2015 JAN $90 call - current bid/ask $ 4.80/5.30

12/05/13 trade opens with HP opening at $81.00
*option entry price is an estimate since the option did not trade at the time our play was opened.
12/04/13 HP closes at $80.97, above our suggested trigger @ 80.25
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

Chart of HP:

Current Target:$ 95.00
Current Stop loss: 74.75
Play Entered on: 12/05/13
Originally listed on the Watch List: 10/27/13


JPMorgan Chase & Co. - JPM - close: 56.06

Comments:
12/08/13: The financial sector hit some profit taking last week and JPM was no exception. After a sturdy three-week rally it's not surprising to see a little pullback.

Investors should be aware that financial stocks, especially the big banks, could be volatile on Tuesday and Wednesday as the market reacts to the Volcker rule. Several government agencies will be voting on the Volcker rule this coming Tuesday (see tonight's market commentary for details on the Volcker rule).

Note: We only have about six weeks left before our 2014 calls expire.

Earlier Comments:
Plan to exit the 2014 calls when JPM hits $59.50.
Our target to exit the 2015 calls is $64.00.

- Suggested Positions -
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - current bid/ask $ 2.15/2.18

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 5.50/5.60

12/01/13 adjust exit target for the 2014 calls to exit when JPM hits $59.50
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: exit 2014 calls when JPM hits $59.50
exit 2015 calls when JPM hits $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: 30.15

Comments:
12/08/13: LVLT's performance on Friday was a bit disappointing but overall the stock held up pretty well last week. The S&P 500 fell for five days in a row yet LVLT was holding above support at the $30.00 level. The stock acts like it's trying to breakout past resistance at $31.00. Investors may want to consider launching new bullish positions if we see LVLT close above $31.00.

Please note our new stop loss at $27.75.

- Suggested Positions -
OCT 31, 2013 - entry price on LVLT @ 29.39, option @ 4.40*
symbol:LVLT1517a30 2015 JAN $30 call - current bid/ask $ 4.30/4.70

12/08/13 new stop loss @ 27.75
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: 27.75
Play Entered on: 10/31/13
Originally listed on the Watch List: 10/20/13


National Oilwell Varco - NOV - close: 81.59

Comments:
12/08/13: It was not a very exciting week for shares of NOV but the stock weathered the market's five-day sell off pretty well. Shares continue to hold above technical support at its 50-dma. 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 $ 4.70/4.85

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: 15.47

Comments:
12/08/13: It was a bit of a choppy week for shares of NVDA. The stock's bounce failed at the $16.00 level (again). The Thursday-Friday reversal left shares sitting near the 50-dma. The weakness on Friday, with the market in rally mode, is worrisome. More conservative traders may want to raise their stops again. I'm not suggesting new positions.

Don't forget that we only have about six weeks left on the 2014 January options.

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 $0.17/0.19

- or -

SEP 12, 2013 - entry price on NVDA @ 15.63, option @ 1.54
symbol: NVDA1517a17 2015 JAN $17 call - current bid/ask $1.19/1.25

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


QUALCOMM Inc. - QCOM - close: 73.76

Comments:
12/08/13: QCOM ended the week at a new multi-year high. Shares did not see much profit taking during the market's decline. Currently QCOM looks poised to breakout past short-term resistance at the $74.00 level.

I want to remind readers that QCOM does a lot of business with Apple (AAPL), and if AAPL encounters any bad news (example: lower iPhone sales) it could influence trading in shares of QCOM.

Tonight we are adjusting the stop loss to $67.75.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $5.95/6.10

12/08/13 new stop loss @ 67.75
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: 67.75
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


Starbucks - SBUX - close: 79.94

Comments:
12/08/13: SBUX is another watch list candidate that has graduated to our active play list. The plan was to buy calls on a dip at $80.00. Thanks to the market's recent sell off SBUX hit our suggested entry point on December 4th. The stock did bounce from technical support at its 50-dma. Yet I am disappointed with the stock's performance on Friday with a failure at its simple 10-dma directly overhead. Investors may want to wait for a rally or a close above $80.50 before initiating new bullish positions.

- Suggested Positions -
DEC 04, 2013 - entry price on SBUX @ 80.00, option @ 4.70
symbol: SBUX1517a90 2015 JAN $90 call - current bid/ask $4.55/4.75

12/04/13 triggered on a dip at $80.00
12/01/13 adjust the trigger to $80.00
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

Chart of SBUX:

Current Target: exit calls when SBUX hits $98.00
Current Stop loss: 74.75
Play Entered on: 12/04/13
Originally listed on the Watch List: 10/27/13


VeriSign, Inc. - VRSN - close: 57.20

Comments:
12/08/13: VRSN continues to show relative strength. Shares ended the week at a new multi-year high. Our plan was to exit our 2014 January $55 calls last Monday, December 2nd, at the opening bell.

We will still have the 2015 calls and our exit target remains $64.50 for this position.

- Suggested Positions -
(option exit on December 2nd, 2013)
SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 1.16
symbol:VRSN1418a55 2014 JAN $55 call - exit @ $2.80** (+141.3%)

- or -

SEP 19, 2013 - entry price on VRSN @ 51.40, option @ 4.25*
symbol:VRSN1517a55 2015 JAN $55 call - current bid/ask $ 6.90/7.10

12/02/13 planned exit for the 2014 calls, option @ +141.3%
**option exit price is an estimate since the option did not trade at the time our play was closed.
12/01/13 prepare to exit our 2014 Jan. $55 calls on Monday, Dec. 2nd.
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: 72.40

Comments:
12/08/13: WYN held up pretty well during the market's multi-day slide. Shares dipped to their 10-dma and bounced. The stock managed a gain for the week. I am not suggesting new positions at this time. More conservative investors may want to raise their stop loss again.

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 $ 5.20/6.30

12/01/13 new stop loss @ 65.40
11/24/13 new stop loss @ 64.75
11/18/13 trade opens. WYN opens @ 68.97

Current Target: 85.00
Current Stop loss: 65.40
Play Entered on: 11/18/13
Originally listed on the Watch List: 11/10/13



Yum! Brands - YUM - close: 74.37

Comments:
12/08/13: YUM is trying to revive its KFC business in China after last year's food scare. The company ran a big promotion in the first half of November that produced a significant up tick in traffic. Yet overall YUM's China same-store sales remain disappointing. The company expects a big bounce back in 2014 and shares of YUM were upgraded with an $85 price target this past week.

The stock was a watch list candidate. Our plan was to buy calls on a dip at $75.25. The stock hit our buy-the-dip trigger on December 3rd. The profit taking continued on Thursday but YUM found support near the $74.00 level the past two trading sessions. I would still consider new positions now at current levels but more conservative traders may want to wait for a bounce back above $76.00 before initiating new positions.

- Suggested Positions -
DEC 03, 2013 - entry price on YUM @ 75.25, option @ 3.75
symbol: YUM1517a85 2015 JAN $85 call - current bid/ask $ 3.15/3.30

- or -

DEC 03, 2013 - entry price on YUM @ 75.25, option @ 6.65*
symbol: YUM1615a85 2016 JAN $85 call - current bid/ask $ 5.25/5.80

12/03/13 trade opened on buy-the-dip trigger at $75.25
*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of YUM:

Current Target: 95.00
Current Stop loss: 71.90
Play Entered on: 12/03/13
Originally listed on the Watch List: 12/01/13



CLOSED Plays


Old Dominion Freight Line - ODFL - close: 51.33

Comments:
12/08/13: Shares of ODFL also held up pretty well during the market's multi-day decline. Shares bounced back to re-challenge resistance near $52.00. Last weekend we adjusted our strategy to exit positions on Monday, December 2nd at the opening bell. Shares opened at $51.54 last Monday.

- Suggested Positions -
AUG 14, 2013 - entry price on ODFL @ 45.62, option @ 1.25
symbol: ODFL1418a50 2014 JAN $50 call - exit $2.35* (+88.0%)

12/02/13 planned exit
*option exit price is an estimate since the option did not trade at the time our play was closed.
12/01/13 prepare to exit on Monday, Dec. 2nd
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.

Chart of ODFL:

Current Target: $54.00
Current Stop loss: 46.75
Play Entered on: 08/14/13
Originally listed on the Watch List: 07/28/13



Watch

Industrials, Tech, & Financials

by James Brown

Click here to email James Brown

Editor's Note:

Our watch list was very successful last week with four candidates graduating to our active play list.



New Watch List Entries

DE - Deer & Co

MSI - Motorola Solutions

WFC - Wells Fargo & Co


Active Watch List Candidates

ATI - Allegheny Tech.

C - Citigroup, Inc.

HD - Home Depot, Inc.

WDC - Western Digital


Dropped Watch List Entries

CZR, HP, SBUX, WDC, and YUM all graduated to our active play list.

COP and WAG have been removed.



New Watch List Candidates:


Deer & Co - DE - close: 85.32

Company Info

DE is in the industrial goods sector. The company manufacturers agriculture, turf, construction, and forestry equipment. Shares of DE, much like its rival CAT, have been stuck in a trading range for the last several months. Fortunately for DE this limbo could be coming to an end. This past week DE exploded higher after its board of directors approved an $8 billion stock buyback program. That's on top of the $1 billion they had left in their existing buyback program.

The last couple of days have seen DE hovering just below major resistance near $86.00. A breakout could signal the next leg higher. I am suggesting we wait for DE to close above $86.25 and then buy calls the next morning with a stop loss at $81.75. If triggered our long-term target is $98.50.

Breakout trigger: Wait for DE to close above $86.25
then buy calls the next day with a stop at $81.75

BUY the 2015 Jan $90 call (DE1517a90) current ask $4.85

Chart of DE:

Originally listed on the Watch List: 12/08/13


Motorola Solutions - MSI - close: 66.18

Company Info

MSI is in the technology sector. The company makes communication equipment. The company's latest earnings report back in October was bullish. MSI beat by a wide margin and guided higher. The stock has been trying to breakout past resistance near $66.00 the last couple of weeks. MSI really didn't see much of a pullback during the market's recent five-day decline. Friday left shares at a new all-time high.

I am suggesting a trigger to buy calls at $66.75. If triggered our long-term target is the $80-90 zone but we will adjust this as needed. The point & figure chart is bullish with a long-term target at $91.00.

Breakout trigger: $66.75, start with a stop loss at $61.90.

BUY the 2015 Jan $70 call (MSI1517a70) current ask $4.05

- or -

BUY the 2016 Jan $75 call (MSI1615a75) current ask $4.80

Chart of MSI:

Originally listed on the Watch List: 12/08/13


Wells Fargo & Co. - WFC - close: 44.11

Company Info

WFC is in the financial sector. The company operates one of the largest U.S. banks. The company currently has over 9,000 locations in 35 countries and revenues of more than $81 billion. Of the major banks WFC seems to have escaped the negative spotlight that seems to constantly be shining on BAC and JPM as they deal with government investigations and MBS settlements from the housing boom. That's not to say WFC is innocent or not at risk for the same issues but the extent of the taint doesn't seem to be as bad on WFC.

The stock has been holding up pretty well and shares tested resistance near its all-time highs just two weeks ago. The $44.50-45.00 zone appears to be major resistance. A reversal here would look like a potential bearish double top pattern. Yet a breakout could signal the next major leg higher.

I am suggesting we wait for WFC to close above $45.25 and then buy calls the next day with a stop loss at $41.90. Our long-term target is $54.50.

Breakout trigger: Wait for WFC to close above $45.25
then buy calls the next day with a stop at $41.90

BUY the 2015 Jan $50 call (WFC1517a50) current ask $1.25

- or -

BUY the 2016 Jan $50 call (WFC1615a50) current ask $2.50

Chart of WFC:

Originally listed on the Watch List: 12/08/13


Active Watch List Candidates:



Allegheny Technologies - ATI - close: 32.77

Comments:
12/08/13: ATI made a new relative low last Tuesday near $32.00 and was bouncing Wednesday and Thursday while the market slipped lower. Unfortunately the relative strength vanished on Friday with ATI failed near some short-term moving averages.

If this stock doesn't show some significant improvement next week I will likely drop ATI as a watch list candidate.

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


Citigroup Inc. - C - close: 51.49

Comments:
12/08/13: Financial stocks ran into some profit taking last week. After a four-week bounce shares of C were due for a pullback anyway. I don't see any changes from my prior comments.

We want to wait for C to close above $53.60 and then buy calls the next morning. I am adjusting our stop loss to $47.90. Our long-term target is the $70.00 area.

Breakout trigger: Wait for C to close above $53.60
buy calls the next morning with a stop loss at $47.90

BUY the 2015 Jan $60 call (C1517a60)

- or -

BUY the 2016 Jan $60 call (C1615a60)

12/08/13 if triggered start with a stop loss at $47.90
12/01/13 adjust the entry trigger: wait for a close above $53.60 instead of a close above $53.50

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


ConocoPhillips - COP - close: 70.77

Comments:
12/08/13: It was not a good week for shares of COP. The stock had been consolidating sideways in the $72-74 zone for weeks. The breakdown this past week below $72 and its 50-dma is bearish.

Our trade has not opened yet. The suggested trigger was a close above $75.00. Tonight we are removing COP as a watch list candidate.

Trade did not open.

12/08/13 removed from the watch list

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


Home Depot, Inc. - HD - close: 79.84

Comments:
12/08/13: It was a bumpy week for shares of HD but traders started buying the dip on Wednesday. I do not see any changes from last week's new watch list entry for HD.

I am suggesting we wait for HD to close above $81.50 and buy calls the next morning with an initial stop loss at $76.75. Our long-term target is $99.00. FYI: The point & figure chart is bullish with a $97 target.

Breakout trigger: Wait for HD to close above $81.50
then buy calls the next morning.

BUY the 2015 Jan $90 call (HD1517a90)

- or -

BUY the 2016 Jan $90 call (HD1615a90)

Originally listed on the Watch List: 12/01/13


Walgreen Co. - WAG - close: 56.71

Comments:
12/08/13: We are removing WAG as a watch list candidate. The stock really underperformed last week. Our trade has not opened yet. The suggested entry was a close above $61.00.

Trade did not open.

12/08/13 removed from the watch list
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: 78.91

Comments:
12/08/13: The best laid plans of mice and men oft go astray. We were waiting for a breakout higher in WDC. The plan was to buy calls if shares closed above $76.50. Yet I put a limitation on this entry point to not open positions if WDC closed above $77.50. I wanted to try and protect us from a big spike higher. Shares jumped last Wednesday thanks to bullish analyst comments from Morgan Stanley and WDC closed at $77.57. Yup, seven cents above my limit. Nimble traders could have bought the dip on Thursday. The market's big bounce on Friday sent WDC to new highs.

Thus our trade is not open. Tonight I am adjusting our entry point strategy to buy calls on a dip at $77.00.

Our long-term target is $94.00. FYI: The Point & Figure chart is bullish with a $91 target.

Buy-the-dip trigger at $77.00
use a stop loss at $69.75

BUY the 2015 Jan $90 call (WDC1517a90)

12/08/13 adjust the entry point strategy to buy calls on a dip at $77.00 since we missed the breakout (see the December 8th, watch list update)
12/01/13 adjust entry point to a close above $76.50 instead of 76.25
adjust the stop loss to $69.75

Chart of WDC:

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