Option Investor
Newsletter

Daily Newsletter, Sunday, 1/26/2014

Table of Contents

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

Leaps Trader Commentary

Emerging Market Miasma

by James Brown

Click here to email James Brown

Sharp declines across the stock market on Friday left investors wondering if this is a bearish reversal or just the long, overdue correction everyone has been expecting. There was no shortage of potential catalysts but the spark that started the two-day stock market plunge was disappointing economic data out of China. Worries that growth in China might be slowing down fueled major declines in emerging markets and their currencies. It was all about currencies on Friday. The Argentinean peso, Brazilian real, South African rand, Thailand baht, Turkish lira, Ukrainian hryvnia, plus the U.S. dollar and Japanese yen were just a few of the currencies making headlines last week.

Believe it or not but just three (trading) days ago the small cap Russell 2000 index was hitting new all-time highs. The NASDAQ composite was trading at new 13-year highs. The S&P 500 was less than 1% from a new all-time high. On Thursday the Dow Jones Transportation average hit new all-time highs. However, by Friday's closing bell, the Russell was down -2.0% for the week. The NASDAQ lost -1.65% and the S&P 500 posted -2.6% decline for the week. The Dow Transports ($TRAN) clocked in a -2.2% weekly loss thanks to a -4.1% plunge on Friday. That was the biggest one-day drop for the $TRAN in over two years. The collapse in the transports appeared to be a reaction to a disappointing earnings report from railroad company Kansas City Southern (KSU), which missed estimates by seven cents. Shares of KSU collapsed with a -$18 drop (-15%) on Friday. We are just over three weeks into January and all of the major U.S. indices are now negative for 2014.

The sharp drop in stock prices has produced a big bounce for the volatility index (a.k.a. the "fear gauge"). The VIX surged +31.7% on Friday to close at new three-month highs above 18. When the VIX spikes over 20 it can signal a potential bottom for stocks but using the VIX as a entry and exit tool can be tricky. Back in 2011 we saw the VIX spike up to 45 and during the 2008 financial crisis and market meltdown the VIX hit unheard of levels above 80.

60-minute chart of the Volatility Index:

Weekly chart of the Volatility Index:

Economic Data

U.S. economic data did not have much impact on the market last week. The Chicago Federal Reserve National Activity index was weak with a drop from 0.69 to 0.16. Numbers below above zero suggest growth but it's moving the wrong way. We also saw the existing home sales numbers for December, which came in at an annual pace of 4.87 million units. Economists were expecting 4.9 million. The prior month's reading was revised lower from 4.9 to 4.82 million. Decembers results ended a very strong year for real estate in 2013 with the sale of existing homes hitting seven-year highs. Unfortunately the momentum seems to be slowing down.

Overseas Data

Most of the economic data in Europe was relatively bullish. Yet that did not stop the various European stock markets from plunging -3% on Friday. The Greek and Spanish stock market's had really rough weeks with -5.8% and -6.7% declines, respectively. Spain is suffering from staggering unemployment with the latest data showing Spanish unemployment rising to another all-time high of 26%. Spain's trade deficit continues to worsen hitting 1.76 billion euros, up from 1.36 billion.

The news was much better for the wider Eurozone. The manufacturing PMI for the Eurozone rose from 52.7 to 53.9, which was better than expecting. The Eurozone ZEW economic sentiment survey improved from 68.3 to 73.3, another better than expected read. Germany helped drive these gains with German manufacturing PMI rising from 54.3 to 56.3. Germany's ZEW economic sentiment poll dipped slightly from 62.0 to 61.7. Economists want to see the PMI data above 50.0, which indicates growth.

The tone of economic data in Asia was also bullish except for one significant report. The Bank of Japan left interest rates unchanged in the 0.0% to 0.1% range. Comments from BoJ officials that their economy appears to be improving and that they do not see the need for more stimulus at this time would normally seem bullish. Yet these comments helped spike the Japanese yen, which saw a sharp two-day rally just as the U.S. stock market dropped and emerging market currencies plunged. A rising yen makes Japanese exports more expensive and would slow economic growth.

Weekly chart of the Japanese Yen ETF:

It was Chinese economic data moving the market. Last week the Chinese government said December retail sales rose +13.6% over a year ago, which was in-line with forecasts. Industrial production improved +9.7%, which was also near expectations. Their Q4 GDP estimate came in at +1.8%. That was slightly below expectations but their full-year GDP growth estimate rose to +7.7%, which should have been bullish for the equity markets.

The problem is that analysts are worried the Chinese economy is slowing down. A Bloomberg survey of fifty analysts expects Chinese GDP growth to slow down to a 24-year low of +7.4% this year. On Thursday the global stock markets dropped following the HSBC Markit PMI report on Chinese PMI, which fell to a six-month low at 49.6. Numbers below 50.0 suggest economic contraction. If the Chinese economy is contracting then that could mean less demand for imported raw materials from many of the emerging markets that China buys from. Thus the already weak emerging market currencies were kicked in the gut with this recessionary PMI number from China. The official Chinese PMI data will not be released until February 1st. While most market pundits believe the official numbers are massaged to look better than reality the trend has been down with the official PMI for November at 51.4 and December's at 51.0.

Yet another problem for China are stories that the government is struggling to contain its $4.8 trillion "shadow banking" system. A Financial Times story this past week discussed the Chinese government dealing with a $500 million high-yield investment trust that was on the verge of defaulting. If this defaults it would seriously damage investor sentiment. If that wasn't enough there are also reports that China is suffering from a shortage of cash in its financial system.

Emerging Markets

The recessionary economic PMI data from China on Thursday yanked the rug out from under the already weak emerging markets. Many emerging market currencies started to weaken back in May 2013 when the U.S. Federal Reserve hinted at tapering their QE program. When the Fed actually began its taper last month this accelerated some of the weakness overseas. Argentina made headlines as it devalued its currency for the second time since 2002. The Argentina economy is struggling with inflation. Officially inflation is only at +10% a year but outside the Argentine government inflation estimates are in the +25% to +28% range. Their currency reserves plunged 30% last year and currently sit at seven-year lows. After the devaluation the Argentine peso was worth about 8 pesos per U.S. dollar but on the black market they were down to 13 pesos per dollar. In what seems like an act of desperation the Argentine government just launched a +50% tax on Internet purchases. Citizens can buy up to $25 worth tax free per year. Above $25 you have to pay a 50% tax on each item. Argentineans now have to go to their local customs office to pick up packages from Amazon.com or Ebay.

Argentina is not the only country with a sinking currency. Brazil, Venezuela, India, Ukraine, Turkey, and Thailand continued to see their currencies accelerate lower. The situation in Ukraine, Turkey, and Thailand is exacerbated by civil unrest. There are massive anti-government protests in Ukraine and Thailand and they're starting to turn violent. Turkey has seen major protests recently and its prime minister has been unable to soothe the ongoing corruption scandal. Speaking of violent protests we're seeing renewed violence in Egypt as well. There was no shortage of reasons for investors to worry on Friday. The approaching weekend was another impetus for traders to hit the sell button. Countries tend to devalue their currencies over a weekend when their financial markets are closed. You can read more about what Bloomberg is calling the worst emerging market currency crisis in five years here.

Major Indices:

The S&P 500 index ended 2013 at all-time highs just below potential round-number resistance at the 1850 level. The 1850 level has continued to be overhead resistance. The market's sell-off this past week has left the S&P 500 with its first close below the rising 50-dma in over three months.

It's possible the 1800 level could hold as round-number support. However, we suspect that there is more selling to come. The S&P 500 is likely headed for the December lows near 1770-1775. If that level doesn't hold then the 1750 level has a good shot at being support since it is underpinned by a trend line of higher lows.

Last week I cautioned investors that a normal -3% to -5% pullback would mean a drop toward the 1795-1757 range. A -10% correction would be 1665.

chart of the S&P 500 index:

The NASDAQ composite tagged a new 13-year high on Wednesday. Unfortunately Thursday's drop turned that into a candlestick island reversal pattern. The next level of support appears to be the 4100 level and below that the simple 50-dma near 4080.

A normal -3% to -5% correction for the NASDAQ would mean a drop into the 4115 to 4030 range. A typical -10% correction would mean a drop toward 3818. At the moment the overall pattern is still bullish and the NASDAQ has not yet broken its bullish trend of higher lows. I will point out that the weekly chart for the NASDAQ has created a bearish engulfing candlestick reversal pattern but it needs to see confirmation.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index settled with a -2.0% drop for the week thanks to a -2.4% plunge on Friday. The 1135-1140 area could be support since it is underpinned by the 50-dma and a trend line of higher lows. If this level fails then the next likely support area is probably 1100.

A normal -3% to -5% correction would mean a pullback into the 1145 to 1122 zone. A breakdown below 1120 would mean the long-term up trend is in jeopardy. A normal -10% correction would mean a drop toward 1063.

chart of the Russell 2000 index



Economic Data & Event Calendar

We have a relatively busy week of economic reports and events. The ones to watch are probably President Obama's State of the Union speech on Tuesday, the FOMC decision on Wednesday, and the U.S. GDP number on Thursday. This will be Ben Bernanke's last FOMC meeting as Fed Chairman. Most believe that the Fed will taper another $10 billion at this meeting. If they alter the taper to something other than $10 billion it could be market moving and likely negative.

Economic and Event Calendar

- Monday, January 27 -
Moody's Business Confidence survey
New Home Sales

- Tuesday, January 28 -
Durable Goods Orders
Case-Shiller 20-city home price index
Richmond Federal Reserve manufacturing survey
State of the Union speech by President Obama
Consumer Confidence for January
FOMC meeting begins

- Wednesday, January 29 -
FOMC policy update

- Thursday, January 30 -
Weekly Initial Jobless Claims
Eurozone consumer confidence data
U.S. GDP estimate for Q4
pending home sales data

- Friday, January 31 -
Eurozone unemployment data
China manufacturing PMI data
Personal income & spending data from December
Chicago ISM/PMI data

Additional Events to be aware of:

Feb. 7th - U.S. debt ceiling is reached
Mar. 19th - FOMC policy update and economic projections
Mar. 19th - new Fed Chairman Yellen's first press conference




Looking Ahead:

As we look ahead the question on everyone's mind will be, "is this a bearish reversal or just a normal correction?" The U.S. stock market has been way overdue for a correction and we should probably treat it as such until we have more data. If we see the major U.S. indices break down below their long-term trend lines of higher lows then we'll probably hear more talk about any potential reversal.

Bespoke Investment Group pointed out that in spite of the market's recent volatility we are on track for a normal January performance with the low for the month occurring last week. If this year holds true to the 20-year average then stocks should post gains by next Friday.

Odds are good that the market will see more selling on Monday morning. I've mentioned multiple times over the last month or two how margin debt has been at or near record highs. The sharp sell-off last week may have sparked some margin calls. Monday could see some margin call selling. The question becomes where will traders step in and buy this "dip"?

We are still in the middle of Q4 earnings season. Thus far the results appear to be in-line with the averages. There are always stand out winners and losers every earnings season but according to the S&P we've seen 63% of companies beat estimates, 12% reported in-line, and 25% have missed. Compare that to the prior four quarters of 67% beating, 10% hitting estimates, and 23% missing (editor's note: last week I listed the average beat at 69%). Last week's results actually improved the Q4 average since a week ago only 50% of companies reporting had beat estimates.

If you missed last week's letter then I want to repeat the observations about how much we are overdue for a correction. The U.S. stock market has not seen a 20% correction in over 840 days. Stocks haven't seen a -10% correction since August 2011. The closest thing to a correction was a -9.9% drop in May 2012. A normal market will see a -10% correction about twice a year.

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Worries about a slowing Chinese economy helped fuel a sell-off in emerging market currencies and the equity markets followed them lower.

Several of our candidates were stopped out during the two-day market plunge. (C, CAT, COF, DG, FCX, GE, HOG)

Last week our plan was to exit our DKS and WDC trades on Tuesday, January 21st.

This week I am suggesting we exit our JNPR trade on Monday, January 27th.

I have updated stop losses on: HP.

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

Buy The Dip Strategy

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(January 26, 2014)

It has been a rough couple of days for stocks. This could be the beginning of a significant correction lower. A hefty pullback would actually be longer-term healthy for the stock market. With the stock market poised for further declines I am not adding any new trades tonight. Last week saw two of our watch list candidates, DLPH and ITW, both graduate to our active play list. Tonight I am adding three new candidates to the watch list, all of them with buy-the-dip entry points. That way we can take advantage of any further market declines.

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. In no particular order:

MA, NTGR, STX, LUV, DAL, HPQ, CR, WHR, URI, ESRX, CTSH, VLO, TIF, KORS, BA, LMT, NOC, ADBE, SCTY, HAIN,



Play Updates

Widespread Profit Taking

by James Brown

Click here to email James Brown

Editor's Note:

It was a rough week for equities. The U.S. market produced a very sharp, two-day plunge and we saw several trades get stopped out.


Closed Plays


We closed DKS and WDC on Tuesday morning.

C, CAT, COF, DG, FCX, GE, and HOG all hit our stop loss.



Play Updates


American Intl. Group - AIG - close: 47.86

Comments:
01/26/14: Ouch! The correction in AIG is accelerating. The stock is down two weeks in a row and the last few days the selling has picked up speed. The recent weakness has put AIG's long-term up trend in jeopardy. The low on Friday was $47.85. Our stop loss is at $47.75. I strongly suspect that we will see AIG hit our stop loss on Monday morning if not gap down below it.

- Suggested Positions -
(exit 2014 calls on January 9, 2014)
JUL 15, 2013 - entry price on AIG @ 46.99, option @ 2.50
symbol: AIG1418a50 2014 JAN $50 call - exit $2.04 (-18.4%)

- or -

JUL 15, 2013 - entry price on AIG @ 46.99, option @ 4.05
symbol: AIG1517a55 2015 JAN $55 call - current bid/ask $2.15/2.27

01/26/14 AIG is plunging and poised to hit our stop loss at 47.75
01/09/14 AIG hit our $52.00 exit target for the 2014 calls
01/05/14 adjust the exit for the 2014 calls down to $52.00
12/29/13 new stop loss @ 47.75
10/20/13 new stop loss @ 46.40
10/13/13 exit strategy update: exit 2014 calls at $54.50
adjust the exit target for the 2015 calls to $59.00
09/15/13 new stop loss @ 44.65
08/04/13 new stop loss @ 43.75
...please see earlier updates for more history...

Current Target:$ exit 2014 calls @ 52.00, exit 2015 calls @ 59.00
Current Stop loss: 47.75
Play Entered on: 07/15/13
Originally listed on the Watch List: 06/01/13


Avago Technologies - AVGO - close: 54.49

Comments:
01/26/14: Shares of AVGO have held up reasonably well considering the market's recent weakness. The stock did see some relative weakness on Friday with a -2.78% decline. On a short-term basis AVGO could find support about every $2.00 ($54, $52, $50, etc.). Currently our stop is at $49.75. More conservative traders may want to raise their stop loss or just exit now to lock in gains. 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 $8.40/ 9.30

01/19/14 new stop loss @ 49.75
More conservative investors may want to lock in profits now with the bid on our option at $9.30
01/12/14 new stop loss @ 47.25
12/29/13 new stop loss @ 45.90
12/22/13 new stop loss @ 44.90, adjust exit target to $58.50
12/08/13 new stop loss @ 42.40
...see earlier updates for older comments...

Current Target: $58.50
Current Stop loss: 49.75
Play Entered on: 11/11/13
Originally listed on the Watch List: 09/22/13


Bank of America - BAC - close: 16.45

Comments:
01/26/14: After a five-week rally to new multi-year highs I am not surprised to see some profit taking in BAC. I cautioned readers about this last weekend. This stock should find some support near $16.00. If not there then at $15.00.

- 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 $2.56/2.57

01/19/14 adjust exit target to $19.50 (from 18.00)
01/12/14 don't be surprised to see some post-earnings profit taking
01/05/14 new stop loss @ 14.75
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 @ $19.50 for 2015 call
Current Stop loss: 14.75
Play Entered on: 03/18/13

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


BB&T Corp. - BBT - close: 38.26

Comments:
01/26/14: BBT closed at new multi-year highs last Tuesday. Thus far the three-day dip has shaved off about -2.6%. I suspect that this correction is not over yet. Watch for a pullback into the $37.00 area. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 17, 2013 - entry price on BBT @ 35.81, option @ 0.99
symbol: BBT1517a40 2015 JAN $40 call - current bid/ask $1.59/1.67

01/12/14 new stop loss @ 34.90

Current Target: BBT @ 42.50
Current Stop loss: 34.90
Play Entered on: 12/17/13
Originally listed on the Watch List: 12/15/13


E.I. du Pont - DD - close: 59.97

Comments:
01/26/14: Warning! The recent action on DD does not bode well for the bulls. This past week the stock produced a failed rally at resistance near $65.00, which now looks like a bearish double top. Not only that but DD has already fallen $5.00 from Tuesday's high. If there is any follow through lower on Monday, which is likely, then we'll see DD hit our stop loss at $59.75. If somehow that does not happen then we face DD's earnings report on January 28th.

- Suggested Positions -
(2014 calls closed on December 30th, 2013)
OCT 25, 2013 - entry price on DD @ 62.57, option @ 0.74
symbol: DD1418a65 2014 JAN $65 call - exit $0.69 (-6.7%)

- or -

OCT 25, 2013 - entry price on DD @ 62.57, option @ 3.15
symbol: DD1517a65 2015 JAN $65 call - current bid/ask $2.20/2.29

01/19/14 new stop loss @ 59.75
12/30/13 planned exit for 2014 calls.
12/29/13 prepare to exit 2014 calls on Monday, Dec. 30th at the open.
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: 59.75
Play Entered on: 10/25/13
Originally listed on the Watch List: 08/11/13


Deer & Co - DE - close: 85.55

Comments:
01/26/14: Shares of CAT and DE were big underperformers on Friday. DE lost -2.65% with a drop toward support near $85.00 and its simple 200-dma. I am worried that if the market sees any follow through weakness on Monday we could see DE hit our stop at $84.40. If that doesn't happen then a bounce from support near $85.00 could be used as a new bullish entry point. Investors may want to evaluate potential new trades on Tuesday.

FYI: DE is scheduled to report earnings on February 12th.

- Suggested Positions -
DEC 10, 2013 - entry price on DE @ 87.26, option @ 5.85*
symbol: DE1517a90 2015 JAN $90 call - current bid/ask $4.40/4.55

01/05/14 new stop loss @ 84.40
12/22/13 new stop loss @ 83.75
12/10/13 trade opens. DE @ 87.26
*option entry price is an estimate since the option did not trade at the time our play was opened.
12/09/13 DE closed @ 87.20, above our suggested entry of a close above $86.25

Current Target: DE @ 98.50
Current Stop loss: 84.40
Play Entered on: 12/10/13
Originally listed on the Watch List: 12/08/13


The Walt Disney Co. - DIS - close: 72.72

Comments:
01/26/14: Shares of DIS garnered new bullish analyst comments and an $85 price target on Friday but that didn't stop DIS from following the market lower. Shares plunged -2.76%. If DIS doesn't bounce near $72 and its 50-dma then I would look for a drop toward $70.00. Our stop loss remains at $69.40.

FYI: DIS is scheduled to report earnings on February 5th.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $5.50/5.65

01/05/14 new stop loss @ 69.40
12/29/13 new stop loss @ 67.40
12/08/13 new stop loss @ 65.75
11/24/13 new stop loss @ 64.75

Current Target: DIS @ 84.00
Current Stop loss: 69.40
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Delphi Automotive - DLPH - close: 59.92

Comments:
01/26/14: DLPH was a watch list candidate. The plan was to wait for shares to correct back toward round-number support near $60.00 and buy calls on a dip at $60.25. That happened on Friday with the -3.8% drop toward the $60 level. Our play is open but I would probably wait for a bounce before initiating positions. On a short-term basis I would not be surprised to see DLPH tag the 50-dma near $59.00 soon.

Earlier Comments:
The company recently announced an increase to its dividend (25 cents/quarter) and a $1 billion stock buyback program.

FYI: DLPH is scheduled to report earnings on February 4th. Investors may also want to note that DLPH will begin trading ex-dividend on February 13, 2014. The quarterly cash dividend should be 25 cents.

- Suggested Positions -
JAN 24, 2014 - entry price on DLPH @ 60.25, option @ 4.49
symbol: DLPH1517a65 2015 JAN $65 call - current bid/ask $4.10/4.50

Chart of DLPH:

Current Target: DLPH @ 75.00
Current Stop loss: 57.25
Play Entered on: 01/24/14
Originally listed on the Watch List: 01/19/14


Foot Locker, Inc. - FL - close: 37.47

Comments:
01/26/14: We were expecting FL to correct lower when we added it to our watch list two weeks ago. Shares met our buy-the-dip trigger over a week ago. Unfortunately the relative weakness has continued. FL is now down two weeks in a row and slicing through potential support levels. If FL does not bounce soon we'll see it hit our stop loss at $36.75. I am not suggesting new positions at this time.

Earlier Comments:
Our long-term target is $48.00 but more aggressive traders could aim higher since the point & figure chart is forecasting a $60 target.

- Suggested Positions -
JAN 17, 2014 - entry price on FL @ 39.25, option @ 3.85*
symbol: FL1517a40 2015 JAN $40 call - current bid/ask $2.65/2.90

01/17/14 triggered @ 39.25
*option entry price is an estimate since the option did not trade at the time our play was opened.

Current Target: exit when FL hits $48.00
Current Stop loss: 36.75
Play Entered on: 01/17/14
Originally listed on the Watch List: 12/29/13


Fluor Corp. - FLR - close: 77.48

Comments:
01/26/14: The two-day sell-off in FLR has been painful with a drop from $84 to below $78 and its 50-dma. Technically this weakness has painted a huge, bearish engulfing candlestick reversal pattern on FLR's weekly chart. I am concerned that the market will see more selling on Monday morning and that could be enough to push FLR to our stop loss at $76.75. I am not suggesting new positions at this time.

FYI: FLR is scheduled to report earnings on February 18th.

- Suggested Positions -
(exit 2014 call on Nov. 13th)
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: 9.20/ 9.50

01/26/14 caution: FLR looks poised to hit our stop loss.
01/19/14 new stop loss @ 76.75
12/22/13 new stop loss @ 74.40
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
(see earlier updates for older comments)
*option entry price is an estimate since the option did not trade at the time our play was opened.

Current Target: Target for 2015 calls is FLR @ $88.00
Current Stop loss: 76.75
Play Entered on: 09/12/13
Originally listed on the Watch List: 08/11/13


Home Depot, Inc. - HD - close: 79.16

Comments:
01/26/14: The profit taking in HD has been relatively minor. Shares lost less than $2 for the week. The close under its 50-dma is technically bearish but look for support near $78 or its 200-dma near $77.30. I am not suggesting new positions at this time.

Earlier Comments:
Our long-term target is $99.00. FYI: The point & figure chart is bullish with a $97 target.

- Suggested Positions -
DEC 27, 2013 - entry price on HD @ 81.65, option @ 3.40
symbol: HD1517a90 2015 JAN $90 call - current bid/ask: 2.04/ 2.14

- or -

DEC 27, 2013 - entry price on HD @ 81.65, option @ 6.55
symbol: HD1615a90 2016 JAN $90 call - current bid/ask: 4.65/4.95

Current Target: HD at $99.00
Current Stop loss: 76.75
Play Entered on: 12/27/13

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


HollyFrontier Corp. - HFC - close: 46.69

Comments:
01/26/14: HFC continues to correct lower from its early January high. The stock garnered another downgrade last week. That's the second downgrade this year. I cautioned investors last week that HFC was probably headed for the $46 level and I still think that is a possibility. I am not suggesting new positions at this time.

Earlier Comments:
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 $4.30/4.70

01/12/14 new stop loss @ 44.75
12/15/13 new stop loss @ 43.75
*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: 44.75
Play Entered on: 11/26/13
Originally listed on the Watch List: 11/24/13


Honeywell Intl. - HON - close: 88.47

Comments:
01/26/14: The profit taking in HON has been mild and orderly. The stock is down four weeks in a row and yet HON still maintains its long-term bullish up trend. I strongly suspect that we'll see HON test technical support at its rising 100-dma soon (near $87.00). Investors may want to consider buying calls again on a dip or a bounce near the 100-dma.

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 $ 8.35/ 8.55

12/29/13 new stop loss @ 84.85
12/22/13 adjust the exit target to $98.00
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:$ 98.00
Current Stop loss: 84.85
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Helmerich & Payne, Inc. - HP - close: 86.01

Comments:
01/26/14: Believe it or not but HP managed a gain for the week. The relative strength is encouraging but if the broader market continues to sink we can expect HP to eventually follow. HP could see some volatility after it reports earnings on January 30th this week.

Please note our stop loss at $81.40. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 05, 2013 - entry price on HP @ 81.00, option @ 5.60*
symbol: HP1517a90 2015 JAN $90 call - current bid/ask $ 6.50/6.90

01/26/14 new stop loss @ 81.40
01/12/14 new stop loss @ 79.65
12/29/13 new stop loss @ 77.45
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

Current Target:$ 95.00
Current Stop loss: 81.40
Play Entered on: 12/05/13
Originally listed on the Watch List: 10/27/13


Illinois Tool Works Inc. - ITW - close: 79.21

Comments:
01/26/14: ITW was a watch list candidate. The plan was to wait for a dip toward support near $80.00 and buy calls at $80.75. Shares met that requirement and more on Friday with a gap down at $80.66 and a plunge to $79.21. That is not only a breakdown below its simple 50-dma but it's a breakdown below the $80.00 level, which makes me nervous. Our play opened on Friday morning but I am not suggesting new positions at this time. Our stop loss is at $76.85 but more conservative traders may want to raise their stop.

Keep in mind that ITW reports earnings on January 28th this week and the stock could see more volatility following the report.

- Suggested Positions -
JAN 24, 2014 - entry price on ITW @ 80.66, option @ 3.65*
symbol: ITW1517a85 2015 JAN $85 call - current bid/ask $3.10/3.40

01/24/14 trade opened on gap down at $80.66. Trigger was $80.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
01/12/14 adjust the buy-the-dip entry point to $80.75 (from 80.25)

Chart of ITW:

Current Target: ITW @ 95.00
Current Stop loss: 76.85
Play Entered on: 01/24/14
Originally listed on the Watch List: 12/29/13


Juniper Networks - JNPR - close: 27.72

Comments:
01/26/14: JNPR bucked the market's trend on Friday and rallied +6.5%. The stock was actually higher on Friday morning but JNPR pared its gains by the close. The pop higher was a reaction to JNPR's better than expected earnings results released on Thursday night.

The stock is up significantly with a six-week rally. and up even more from its Q4 lows. Our long-term target was $29.75 and JNPR hit $28.75 on Friday. I suspect that JNPR has moved too far too fast. Tonight I am suggesting an early exit on Monday morning to lock in gains.

- Suggested Positions -
JAN 13, 2014 - entry price on JNPR @ 25.07, option @ 3.95
symbol:JNPR1517a25 2015 JAN $25 call - current bid/ask $ 4.90/5.05

- or -

JAN 13, 2014 - entry price on JNPR @ 25.07, option @ 5.10*
symbol:JNPR1615a25 2016 JAN $25 call - current bid/ask $ 6.10/6.85

01/26/14 prepare to exit on Monday morning to lock in gains.
01/19/14 new stop loss @ 22.75, adjust target to $29.75
01/13/14 trade opens with JNPR's gap open higher at $25.07
*option entry price is an estimate since the option did not trade at the time our play was opened.
01/10/14 JNPR meets our entry point requirement with a close above $23.25

Current Target: exit calls when JNPR hits $29.75
Current Stop loss: 22.75
Play Entered on: 01/13/14
Originally listed on the Watch List: 01/05/14


JPMorgan Chase & Co. - JPM - close: 55.09

Comments:
01/26/14: The big bank stocks displayed relative weakness last week and JPM was no exception with a $3 plunge to new two-month lows. JPM is nearing what should be support in the $54.00 area and its simple 200-dma. More conservative investors may want to raise their stop closer to the 200-dma. I would watch for a bounce from the $54 area as a new bullish entry point to buy calls.

- Suggested Positions -
(2014 call exit on Monday, December 23rd)
JUN 24, 2013 - entry price on JPM @ 50.25, option @ 1.60
symbol: JPM1418a55 2014 JAN $55 call - exit $3.05 (+90.6%)

- or -

JUN 24, 2013 - entry price on JPM @ 50.25, option @ 3.80
symbol: JPM1517a55 2015 JAN $55 call - current bid/ask $ 4.40/4.50

01/26/14 a dip or a bounce near $54.00 could be used as a new bullish entry point
01/05/14 new stop loss @ 52.90
12/23/13 planned exit for 2014 calls, option @ +90.6%
12/22/13 prepare to exit the 2014 calls on Monday morning, Dec. 23rd
12/01/13 adjust exit target for the 2014 calls to exit when JPM hits $59.50
(see older updates for earlier comments)
Current Target: exit 2015 calls when JPM hits $64.00
Current Stop loss: 52.90
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


Level 3 Communications - LVLT - close: 32.34

Comments:
01/26/14: LVLT was down every day last week and has now erased all of its January gains. The stock should find support in the $31-32 zone. I am not suggesting new positions at this time.

FYI: LVLT is scheduled to report earnings on February 5th.

- Suggested Positions -
OCT 31, 2013 - entry price on LVLT @ 29.39, option @ 4.40*
symbol:LVLT1517a30 2015 JAN $30 call - current bid/ask $ 5.40/5.80

01/12/14 new stop loss @ 29.75
12/29/13 new stop loss @ 28.75
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: 29.75
Play Entered on: 10/31/13
Originally listed on the Watch List: 10/20/13


Motorola Solutions - MSI - close: 64.42

Comments:
01/26/14: It was a volatile week for MSI. The company reported earnings on January 22nd. The company beat estimates by five cents but then guided lower for the first quarter. The post-earnings sell-off sparked a dip to its 100-dma and MSI almost hit our stop loss. The low on Wednesday was $62.68. Our stop is at $62.45. The bounce is rolling over beneath its 50-dma and that makes me concerned that we'll see MSI retest the 100-dma soon. I am not suggesting new positions at this time.

Earlier Comments:
Currently our target is the $80-90 zone but we'll be more specific as the trade progresses. The point & figure chart is bullish with a long-term target at $91.00.

- Suggested Positions -
DEC 23, 2013 - entry price on MSI @ 66.75, option @ 4.10
symbol: MSI1517a70 2015 JAN $70 call - current bid/ask $ 2.68/2.80

- or -

DEC 23, 2013 - entry price on MSI @ 66.75, option @ 5.10
symbol: MSI1615a75 2016 JAN $75 call - current bid/ask $ 3.35/3.80

01/19/14 adjust stop to $62.45
01/12/14 new stop loss @ 62.75
Current Target: Exit when MSI trades in the $80-90 zone.
Current Stop loss: 62.45
Play Entered on: 12/23/13
Originally listed on the Watch List: 12/08/13


The Manitowoc Co. - MTW - close: 23.62

Comments:
01/26/14: Ouch! MTW struggled with the $26.00 level last week. Shares reversed on Wednesday and Friday's -5.7% decline has pushed its three-day loss to more than -9%. Not surprisingly MTW has found support in the $23.50 area. Currently our stop loss is at $21.90 but more conservative investors may want to raise their stop closer to the January low (22.68) or the $23.00 level.

I am not suggesting new positions. MTW is scheduled to report earnings on January 30th, after the closing bell. Wall Street expects a profit of 34 cents a share.

- Suggested Positions -
DEC 19, 2013 - entry price on MTW @ 22.33, option @ 2.85*
symbol: MTW1517a25 2015 JAN $25 call - current bid/ask $ 3.00/3.30

01/12/14 new stop loss @ 21.90, investors may want to just lock in profits now.
12/19/13 trade opens. MTW @ 22.33
*option entry price is an estimate since the option did not trade at the time our play was opened.
12/18/13 triggered with MTW close at $22.36, above our $22.10 trigger
Current Target: $28.00
Current Stop loss: 21.90
Play Entered on: 12/19/13
Originally listed on the Watch List: 12/15/13


QUALCOMM Inc. - QCOM - close: 74.08

Comments:
01/26/14: QCOM was showing relative strength up until Friday's market-wide plunge. Shares sank back toward short-term support near $74.00.

The company made headlines last week after unveiling it had acquired a huge portfolio of patents from Hewlett-Packard. The patents included approximately 1,400 in the U.S. and about 1,000 from other countries like China, England, Germany, Japan and S. Korea (source: Reuters).

This week could be volatile for QCOM. The company is scheduled to report earnings on January 29th, after the closing bell. Analysts are expecting a profit of $1.19 a share.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $5.40/5.55

01/19/14 new stop loss @ 69.45
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: 69.45
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


SanDisk - SNDK - close: 69.48

Comments:
01/26/14: SNDK reported earnings last week on the 22nd. Bottom line results were $1.71 a share on revenues of $1.73 billion. That was better than Wall Street's estimates of $1.58 on revenues of $1.71 billion. Guidance was a bit soft but the stock didn't really reacted that much. Unfortunately the widespread market sell-off on Friday sparked a -3.5% decline right to technical support at its 50-dma. I am worried that if the market continues to sink on Monday we could see SNDK break down further and potentially hit our stop at $67.00.

Earlier Comments:
The plan was to start with small positions. Our long-term target is $90. Coincidentally the point & figure chart is forecasting at $90 target.

- Suggested (small) Positions -
JAN 13, 2014 - entry price on SNDK @ 72.51, option @ 5.80
symbol: SNDK1517a80 2015 JAN $80 call - current bid/ask $ 4.30/4.45

01/13/14 trade opens. SNDK @ 72.51

Current Target: $90.00
Current Stop loss: 67.00
Play Entered on: 01/13/14
Originally listed in the New Plays 01/12/14


Wells Fargo & Co. - WFC - close: 45.48

Comments:
01/26/14: Shares of WFC have held up reasonably well compared to many of the large financial names. Shares did see a -1.8% drop on Friday. Broken resistance near $45.00 could still be support. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 1.33/1.39

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 2.81/3.15

01/19/14 new stop loss @ 42.90
12/26/13 trade opens with WFC @ $45.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
12/24/13 WFC closed @ 45.39, above our trigger at $45.25

Current Target: Exit WFC hits $54.50
Current Stop loss: 42.90
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13


Wyndham Worldwide - WYN - close: 71.85

Comments:
01/26/14: WYN hit new all-time highs on Wednesday. Since then shares have given back -4.2% and settled Friday on technical support at its simple 50-dma. If this correction continues the next support level should be $70.00. I am not suggesting new positions at this time.

FYI: WYN is scheduled to report earnings on February 7th.

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 $ 4.90/5.50

01/19/14 new stop loss @ 69.40
12/22/13 new stop loss @ 67.40
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: 69.40
Play Entered on: 11/18/13
Originally listed on the Watch List: 11/10/13



CLOSED Plays


Citigroup Inc. - C - close: 49.33

Comments:
01/26/14: The profit taking in shares of C has been very sharp. The last two weeks have seen a -10% pullback. The selling pressure accelerated on Thursday and Friday this past week. Friday saw C gap down lower beneath its 200-dma and closed below the $50.00 mark. Our stop loss was hit at $49.40.

- Suggested Positions -
JAN 08, 2014 - entry price on C @ 54.29, option @ 3.05*
symbol: C1517a60 2015 JAN $60 call - exit @ $1.50 (-50.8%)

- or -

JAN 08, 2014 - entry price on C @ 54.29, option @ 6.05*
symbol: C1615a60 2016 JAN $60 call - exit @ $3.60 (-40.4%)

01/24/14 stopped out
01/16/14 C reports disappointing earnings results
01/12/14 new stop loss @ 49.40
01/08/14 trade opens. C @ $54.29
*option entry price is an estimate since the option did not trade at the time our play was opened.
01/07/14 C meets our entry point requirement with a close above $54.00
01/05/14 adjust the trigger to $54.00
...see earlier updates in the watch list section for older comments...

Chart of C:

Current Target: C @ 70.00
Current Stop loss: 49.40
Play Entered on: 01/08/14
Originally listed on the Watch List: 11/24/13


Caterpillar - CAT - close: 86.17

Comments:
01/26/14: CAT is another big cap stock that was crushed last week with a five-day (actually six-day) plunge. The selling accelerated late last week and CAT hit our stop loss at $87.45 on Friday.

Earlier Comments:
I do consider this somewhat of an aggressive play.

- Suggested (small) Positions -
JAN 13, 2014 - entry price on CAT @ 90.26, option @ 3.00
symbol: CAT1517a100 2015 JAN $100 call - exit $2.50** (-16.6%)

- or -

JAN 13, 2014 - entry price on CAT @ 90.26, option @ 5.30*
symbol: CAT1615a105 2016 JAN $105 call - exit $4.10** (-22.6%)

01/24/14 stopped out @ 87.50
**option exit price is an estimate since the option did not trade at the time our play was closed.
01/13/14 trade opens. CAT @ $90.26
*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of CAT:

Current Target: $112.00
Current Stop loss: 87.50
Play Entered on: 01/13/14
Originally listed in the New Plays 01/12/14


Capital One Financial - COF - close: 70.57

Comments:
01/26/14: We were already on the defensive with our COF trade given the stock's post-earnings sell-off. The latest two-day market decline was too much for COF. Shares hit our stop at $71.75 on Thursday, Jan. 23rd.

- Suggested Positions -
NOV 29, 2013 - entry price on COF @ 71.69, option @ 5.80*
symbol: COF1517a75 2015 JAN $75 call - exit $4.60** (-20.6%)

01/23/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
01/17/14 shares plunge in reaction to earnings news
01/16/14 COF reports disappointing earnings
01/12/14 new stop loss @ 71.75
12/29/13 new stop loss @ 69.45
12/22/13 new stop loss @ 68.35
*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of COF:

Current Target: COF @ 84.00 for 2015 calls
Current Stop loss: 71.75
Play Entered on: 11/29/13
Originally listed on the Watch List: 11/17/13


Dollar General Corp. - DG - close: 57.35

Comments:
01/26/14: The profit taking in DG that began two weeks ago continued last week. Shares broke down below their 100-dma and hit our suggested stop loss at $57.45 on Thursday.

- Suggested Positions -
(exit on 2014 calls was Monday, January 6th, 2014)
SEP 06, 2013 - entry price on DG @ 57.61, option @ 2.58
symbol: DG1418a60 2014 JAN $60 call - exit $1.89 (-26.7%)

- or -

SEP 06, 2013 - entry price on DG @ 57.61, option @ 3.48
symbol: DG1517a70 2015 JAN $70 call - exit $2.20* (-36.7%)

01/23/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
01/12/14 new stop loss @ 57.45
01/06/14 planned exit for the 2014 calls
01/05/14 prepare to exit 2014 calls immediately on Monday morning
11/17/13 new stop loss @ 54.75
09/22/13 new stop loss @ 53.60

Chart of DG:

Current Target: DG @ 69.00 for the 2015s
Current Stop loss: 57.45
Play Entered on: 09/06/13
Originally listed on the Watch List: 08/04/13


Dick's Sporting Goods - DKS - close: 52.43

Comments:
01/26/14: We decided in last weekend's newsletter to exit our DKS trade on Tuesday morning, January 21st. Shares actually gapped open higher on Tuesday at $54.13.

- Suggested Positions -
NOV 12, 2013 - entry price on DKS @ 54.73, option @ 4.00*
symbol: DKS1517a60 2015 JAN $60 call - exit $2.95 (-33.75%)

01/21/14 planned exit
01/19/14 Prepare to exit immediately. DKS is not cooperating.
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.

Chart of DKS:

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


Freeport-McMoRan - FCX - close: 32.77

Comments:
01/26/14: It was a very ugly week for FCX. After Friday's bearish engulfing candlestick reversal pattern from a week ago FCX continued to drop, falling four days in a row. Earnings came out on January 22nd. The bottom line results were better than expected but revenues were a miss.

Shares of FCX broke down below support near $34.00 and hit our stop at $33.45.

- Suggested Positions -
NOV 13, 2013 - entry price on FCX @ 35.25, option @ 2.60*
symbol: FCX1517a39 2015 JAN $39 call - exit $1.22** (-53.0%)

01/23/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
12/29/13 new stop loss @ 33.45
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

Chart of FCX:

Current Target:$ 42.50
Current Stop loss: 33.45
Play Entered on: 11/13/13
Originally listed on the Watch List: 09/15/13


General Electric - GE - close: 24.95

Comments:
01/26/14: Ouch! The sell-off in GE is just picking up speed. We bought calls on GE's breakout to new highs back in late December. Sadly the stock has gone straight down ever since with a four-week plunge. Our stop loss was hit at $25.95 on Thursday. The next level of support might be the $24.00 area.

- Suggested Positions -
DEC 27, 2013 - entry price on GE @ 27.84, option @ 1.19
symbol: GE1517a30 2015 JAN $30 call - exit $0.52* (-56.3%)

- or -

DEC 27, 2013 - entry price on GE @ 27.84, option @ 1.96
symbol: GE1615a30 2016 JAN $30 call - exit $1.27* (-35.2%)

01/23/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
01/17/14 GE falls following Q4 earnings announcement

Chart of GE:

Current Target: GE in the $32.50-35.00 zone.
Current Stop loss: 25.95
Play Entered on: 12/27/13
Originally listed on the Watch List: 12/22/13


Harley-Davidson - HOG - close: 64.02

Comments:
01/26/14: It was a painful week for HOG. The stock lost more than $3.50 and broke down through multiple layers of potential support. Our stop loss was hit on Friday at $64.75.

- Suggested Positions -
(exited 2014 calls on Monday, December 9th, 2013)
SEP 04, 2013 - entry price on HOG @ 61.01, option @ 2.36
symbol: HOG1418a65 2014 JAN $65 call - closed @ 3.70 (+56.7%)

- or -

SEP 04, 2013 - entry price on HOG @ 61.01, option @ 4.35*
symbol: HOG1517a70 2015 JAN $70 call - exit $3.95** (-9.1%)

01/24/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
01/12/14 new stop loss @ 64.75
12/29/13 new stop loss @ 63.75
12/09/13 planned exit for 2014 calls. option @ $3.70 (+56.7%)
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
(see older updates for earlier comments)

Chart of HOG:

Current Target: exit 2015 calls @ 74.50
Current Stop loss: 64.75
Play Entered on: 09/04/13
Originally listed on the Watch List: 08/25/13


Western Digital Corp. - WDC - close: 85.00

Comments:
01/26/14: We decided last weekend to exit our WDC trade to lock in gains. That proved to be a smart move with WDC collapsing from $90 to $85. Our trade closed on Tuesday morning with WDC gapping open higher at $90.00. Our 2015 Jan. $90 call should have opened about $12.00 that morning. Instead the option opened at $11.20. Minus the spread our exit was about $10.95.

- Suggested Positions -
DEC 10, 2013 - entry price on WDC @ 77.00, option @ 6.00*
symbol: WDC1517a90 2015 JAN $90 call - exit $10.95 (+82.5%)

01/21/14 planned exit
01/19/14 prepare to exit on Tuesday morning, Jan. 21st
01/12/14 new stop loss at $77.40
01/05/14 new stop loss at $76.40
12/22/13 new stop loss at $74.25
12/10/13 triggered on our buy-the-dip entry at $77.00
*option entry price is an estimate since the option did not trade at the time our play was opened.
(see older updates for earlier comments)

Chart of WDC:

Current Target: Exit 2015 calls when WDC hits $94.00
Current Stop loss: 77.40
Play Entered on: 09/19/13
Originally listed on the Watch List: 11/17/13



Watch

Healthcare & Airlines

by James Brown

Click here to email James Brown



New Watch List Entries

A - Agilent Tech

ALK - Alaska Air Group

HSP - Hospira Inc


Active Watch List Candidates

CBI - Chicago Bridge & Iron

GILD - Gilead Sciences

MU - Micron Technology

SBUX - Starbucks


Dropped Watch List Entries

DLPH and ITW graduated to the play list.
JBHT has been removed.



New Watch List Candidates:


Agilent Technologies - A - close: 57.87

Company Info

Agilent is in the healthcare sector. The company is "the world's premier measurement company and a technology leader in chemical analysis, life sciences, diagnostics, electronics and communications" (company press release). The stock delivered a strong 2013 with a rally to new multi-year (ten-year) highs. That rally has continued into 2014 with A displaying relative strength. The two-day market sell-off has pushed A toward support near $57.50. If this market weakness continues then A might dip to the next support level near $55.00.

I am suggesting a buy-the-dip trigger at $55.50 with a stop loss at $52.40. If triggered our long-term target is $74.00.

Investors will want to note that A is scheduled to report earnings on Feb. 13th.

FYI: A does plan on spinning off its electronic measurement company, Keysight Technologies, toward the end of 2014.

Buy-the-Dip trigger: $55.50

BUY the 2015 Jan $60 call (A1517a60) current ask $5.30

- or -

BUY the 2016 Jan $65 call (A1615a65) current ask $6.80

Chart of A:

Originally listed on the Watch List: 01/26/14


Alaska Air Group - ALK - close: 79.65

Company Info

ALK is in the services sector. The company is a regional airline headquartered in Seattle, Washington. ALK reported earnings last week that beat estimates by five cents. Revenues were also ahead of estimates. ALK's earnings results were good enough to garner a couple of analyst upgrades in the last few days.

It looks like ALK's stock may have formed a short-term top. There should be some support near $75.00. I am suggesting a buy-the-dip trigger at $75.25. If triggered we'll start with a stop loss at $72.75. Our long-term target is $95.00. FYI: The point & figure chart is bullish with a $101 target.

Buy-the-Dip trigger: $75.25

BUY the 2015 Jan $80 call (ALK1517a80) current ask $10.10

Chart of ALK:

Originally listed on the Watch List: 01/26/14


Hospira Inc. - HSP - close: 44.57

Company Info

HSP is in the healthcare sector. The company manufactures injectable drugs and related products. HSP spent a good portion of last year consolidating sideways in the $38-42.50 trading range. Now after a five-month rest shares have recently broken out past resistance and rallied to new two-year highs. Profit taking on Friday, in spite of the market's sharp decline, was not that bad in shares of HSP.

More aggressive investors may want to buy calls now. I am hoping for a pullback. Broken resistance near $42.50 should be support. I'm suggesting a buy-the-dip trigger at $43.00. We'll use a stop loss at $39.90. Our long-term target is $49.75. You may want to aim higher since the point & figure chart is forecasting at $69 target but I do see potential resistance at $50.00.

FYI: Earnings are scheduled for February 12th.

Buy-the-Dip trigger: $43.00

BUY the 2015 Jan $45 call (HSP1517a45) current ask $5.20

Chart of HSP:

Originally listed on the Watch List: 01/26/14


Active Watch List Candidates:



Chicago Bridge & Iron - CBI - close: 75.78

Comments:
01/26/14: Wow! The sell-off in CBI looks extremely overdone. We suspect it's just pent up profit taking. We are adjusting our entry point strategy. CBI could see support at its simple 100-dma (near 74.40). I am suggesting a trigger to buy calls at $74.50. We'll move our stop loss stop loss to $72.25. We'll adjust the option strike down to the 2015 Jan $80 call. If triggered our long-term target is $98.00.

Buy calls on a dip at $74.50, new stop 72.25

BUY the 2015 Jan $80 call (CBI1517a80) current ask $7.10

01/26/14 adjust entry strategy to buy calls on a dip at $74.50, move the stop loss to $72.25. Adjust the option strike to 2015 Jan $80 call
01/19/14 adjust entry strategy. Wait for a close above $84.00, move the stop loss to $79.40
01/12/14 move the trigger to $78.50 (from 78.25)
01/05/14 adjust the buy-the-dip trigger to $78.25, from $80.25
adjust the stop loss to $74.45 from $74.75.

Originally listed on the Watch List: 12/22/13


Gilead Sciences - GILD - close: 80.62

Comments:
01/26/14: GILD spiked to new highs last week but shares have already corrected -$4.00 from its highs. I am adjusting our buy-the-dip trigger to $76.25.

Earlier Comments:
I am labeling this a more aggressive, higher risk trade. There is always the risk that the wrong headline sends any biotech stock gapping lower (or higher as the case may be). I'm suggesting small positions to start. Broken resistance near $75.00 should be new support. If triggered we'll use a stop loss at $69.75. Our long-term target is $95.00. Currently the point & figure chart is bullish and forecasting at $98 target.

FYI: GILD is expected to report earnings in early February but no date has been set.

Buy-the-Dip trigger: $76.25 with a stop at $69.75

BUY the 2015 Jan $85 call (GILD1517a85)

01/26/14 move the buy-the-dip trigger from 75.25 to 76.25

Originally listed on the Watch List: 01/19/14


JB Hunt Transport - JBHT - close: 76.30

Comments:
01/26/14: The transportation sector plunged -4% on Friday. JBHT followed it lower with a -2.79% drop. It seems unlikely that JBHT is going to breakout past $80 any time soon so we're removing JBHT as a watch list candidate tonight.

Trade did not open.

01/26/14 removed from the newsletter. trade did not open.

Originally listed on the Watch List: 01/12/14


Micron Technology - MU - close: 22.92

Comments:
01/26/14: MU managed to weather the market's recent sell-off very well. Shares even managed to post a gain for the week. Odds are still good that MU will see a correction to what should be support near $22.00 or its simple 50-dma (currently near 21.70).

Earlier Comments:
Use a buy-the-dip entry point at $22.00. If triggered we'll start with a stop loss at $19.75. Our long-term target is the $28-30 area.

Keep in mind that late last year MU saw some volatility around news that a rival chip maker, Hynix, was building a new factory in 2014 and investors worried that might (naturally) impact supply and thus memory pricing. This could be a story that shows up again in 2014 even though the new factory probably won't start producing until 2015.

Buy-the-Dip trigger: $22.00, stop @ 19.75

BUY the 2015 Jan $25 call (MU1517a25)

- or -

BUY the 2016 Jan $30 call (MU1615a30)

Originally listed on the Watch List: 01/12/14


Starbucks - SBUX - close: 74.98

Comments:
01/26/14: SBUX rallied on Friday thanks to its earnings report. The fact that it earnings is a bit surprising. Bottom line results were better than expected but SBUX missed the revenue estimate and guided lower. I remain longer-term bullish on SBUX in spite of the disappointing guidance. I suspect that this bounce will fail and we'll see SBUX dip toward $70.00.

Shares did bounce from support at its 200-dma near $72 so more aggressive investors might want to buy calls on a dip near $72 instead.

Earlier Comments:
I am suggesting a buy-the-dip trigger to buy calls at $70.50 with a stop loss at $67.00.

Buy-the-Dip trigger: $70.50

BUY the 2015 Jan $75 call (SBUX1517a75)

- or -

BUY the 2016 Jan $80 call (SBUX1615a80)

Originally listed on the Watch List: 01/05/14