Option Investor
Newsletter

Daily Newsletter, Monday, 2/3/2014

Table of Contents

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

Leaps Trader Commentary

Markets Testing (& Breaking) Their Bullish Trend

by James Brown

Click here to email James Brown

(Written Sunday, Feb. 2nd, 2014)

January 2014 is done and in the books. The month turned out to be a roller coaster ride for investors. After a +29% rally in 2013 the S&P 500 seems to have lost its momentum with a -3.5% decline this year. January is the first monthly decline since last August for the U.S. market. There were plenty of market-moving headlines. Just this past week the market digested emerging market volatility, massive currency fluctuations, a tidal wave of earnings news, and an FOMC meeting. Equities were down almost across the board last week. The biotechs remain a standout group with a +0.3% gain last week and up +8.8% in 2014. The Dow Jones Industrial Average is off -5.3% and the small cap Russell 2000 index is down -2.8% for the year. According to Bank of America, investors are pulling money out of the market with equity funds enduring their biggest outflows in more than two years.

Continuing to pressure the markets are fast-growing concerns over emerging market countries. There is a fear that the weakness is spreading to larger economies like Russia, which just saw the ruble fall to a five-year low against the dollar. The Central Bank of Turkey was making headlines when they held a midnight meeting last week and pulled out their monetary defibrillator in an effort to stop the Turkish Lira's nosedive lower. The world was shocked to see the Turkish Central Bank raise interest rates 445-basis points to 12.0%. Their daring move worked and managed to prop up the lira but the gains lasted less than 24 hours.

The market was also reacting to earnings news. It was the busiest week of Q4 earnings results. There were some earnings winners with Chipotle (CMG), Facebook (FB), and Caterpillar (CAT) all delivering strong results and a post-earning report rally. Yet the good news was overshadowed by earnings misses and profit warnings from the likes of Wal-mart (WMT), Chevron (CVX), and Amazon.com (AMZN). Big companies like Apple (AAPL) and Boeing (BA) reported better than expected results but saw their stock price plunge as investors reacted to cautious guidance.

Overseas Data

It was a busy week for economic data. The U.S. Q4 GDP estimate came in slightly ahead of expectations at +3.2% growth. That is down from the Q3's pace of +4.1%. Durable goods data saw orders fall -4.3% in December after a downwardly revised November reading of +2.6%. Economists were expecting December's durable goods to rise +1.8%. In positive news the U.S. flash PMI data hit its highest level since September at 56.6 in January. Numbers above 50.0 indicate growth.

The latest data on personal income showed flat growth in December after a +0.2% the prior month. Overall personal income is actually down -0.8% from December 2012. Real disposable income has plunged -2.7% from December 2012. That is the biggest decline in 40 years and does not bode well for the consumer or the economy. Consumer spending is estimated to account for almost 70% of the U.S. economy. If incomes are falling it's going to be tougher to raise the consumer spending levels.

The latest data on consumer sentiment was down with the University of Michigan consumer sentiment survey falling from 82.5 in December to 81.2 in January. It's not surprise to see sentiment in falling in January as consumers open up their credit card bills reflecting their spending from December. Both the present conditions and expectations components retreated in the latest survey. A weak stock market probably didn't help matters.

The latest real estate data was mostly bearish. The Case-Shiller 20-city home price index said that last November saw home prices rise +13.6% versus November 2012. This trend of rising prices may start to struggle as sales fall. The pace of new home sales declined -7.1% in December, which was significantly worse than the -1.9% estimate analysts were expecting. Pending home sales data from December put the pace at -8.7% month over month. Analysts were expecting a gain of +0.3%, which makes that the biggest miss in over three years.

I would be remiss in covering economic headlines if I didn't mention the FOMC meeting last week. It was Ben Bernanke's last meeting as Fed chairman. The Federal Reserve announced they would taper their QE program by another $10 billion a month. You could argue that is a sign of confidence by the Fed that the U.S. economy is strong enough to grow without additional stimulus.

Overseas Data

Economic data overseas was all over the map with mix of positive and negative data points. It wasn't just the U.S. that saw stocks struggle in January. European stock market's delivered their worst January performance since 2010. Meanwhile the Eurozone consumer confidence reading slowly improved with an uptick from -14.0 to -12.0. Germany said its Ifo Business Climate index inched higher from 109.5 to 110.6. Yet Germany raised some eyebrows when they reported that retail sales plunged -2.4% year over year and -2.5% month over month. Economists were expecting retail sales to grow so the sudden decline is worrisome. Another worry was the +0.7% rise in the Eurozone's CPI. This was lower than expected. A falling inflation number will stoke fears of deflation.

Greece will be back in the headlines this year. The latest story was word of "secret meetings" between high-level Eurozone and IMF officials last week as continue to play their game of hot potato with Greece. I recently mentioned how most of the new money Greece receives as part of their bailout package is immediately returned to the EU, IMF, and ECB to pay the interest on their previous bailout loans. It's like Greece is using a cash advance on their Mastercard to pay the interest on their Visa card debt. The debt balances are not falling and Greece is just racking up more debt every month. When Greece first asked for a bailout a few years ago the rescue was "only" $50 billion. Now their bailout bill has hit $325 billion. There is no possible way for Greece, a country of 10.8 million people with a nominal GDP of $243 billion, of every paying back this debt. The country has another big $8 billion payment due in July this year. You can bet this situation will heat up again this summer.

Economic data in the Asia region was definitely mixed. Two weeks ago the U.S. market plunged as markets reacted to a troubling HSBC Market PMI report that showed China's PMI at a six-month low of 49.6. Numbers under 50.0 indicate economic contraction. The official Chinese government PMI number was recently released and it too hit a six-month low but it remains above 50.0 with a January reading of 50.5. Of course most market pundits take the official numbers with a grain of salt since there have been constant accusations that the Chinese government will manipulate the numbers to look better than reality. Another new concern from HSBC suggested that the Chinese economy was losing jobs at the fastest rate since March 2009.

Meanwhile the situation in Japan was a lot more optimistic. Manufacturing PMI improved from 55.2 to 56.6, with numbers above 50.0 suggesting growth. Industrial production improved from -0.1% to +1.1% last month. Japan's unemployment rate fell from 4.0% to 3.7%. There was some concern about a decline in retail sales from +4.1% to +2.6%. Yet the inflation picture is improving. Japan's national CPI rose to +1.6%. That's the fastest pace in five years. The Japanese government's goal is a +2.0% inflation rate. Unfortunately none of this helped the Japanese stock market. The NIKKEI fell to two month lows thanks in part to a rising Japanese yen.

Major Indices:

The S&P 500 index spent last week churning sideways in the 1770-1800 range. This looks like a test of technical support near its rising 100-dma and one of its long-term trend lines of higher lows (see the daily chart). Last week's -0.4% decline has pushed the index's yearly performance to -3.5%. If you step back and look at the bigger picture then the January decline is very mild. The question will be where does it go from here?

The 1800 level is short-term overhead resistance. The broken 50-dma is also overhead resistance (currently near 1812). Obviously the recent highs near 1850 are overhead resistance. More importantly is the short-term support near 1770 and its 100-dma. I am concerned that a breakdown below 1770 could herald a much steeper decline. The 1750 level could be potential support but I would not be surprised to see a drop toward the 200-dma in the 1700-1710 area. A -10% correction would be 1665.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite fell about -0.6% last week. Its year to date loss is only -1.7% and it has been the strongest of the major U.S. indices this year. The last week has seen the NASDAQ flirting with a breakdown below support in the 4050-4100 area (and its simple 50-dma). If the NASDAQ breaks down below 4050 I would expect a much deeper correction. It's possible the 4000 level or the 100-dma could offer some support but I suspect a breakdown could signal a drop toward the 3850-3750 area. A typical -10% correction would mean a drop toward 3818.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index was at new all-time highs just two weeks ago. This past week the $RUT delivered a -1.1% decline. It's year to date loss is -2.8% but it's already down -4.3% from its recent high.

The breakdown below 1140 and its 50-dma was technically bearish. However, you can see on the weekly chart that the long-term trend of higher lows is still intact for now. I am worried that a drop below 1120 or the 100-dma near 1115 could signal the next leg lower. If that happens then the $RUT could be headed for its 200-dma near 1060. A -10% correction would mean a drop toward 1063.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

It's a new month and that means another busy week of economic data. The biggest report to watch will be Friday's nonfarm payrolls (jobs) report. Last month's report was a disaster of only +74,000 jobs. Right now estimates are for +175,000 new jobs but whisper numbers are falling into the 125K to 150K zone. That means anything above 150K might be considered good news. The problem is that January's number could be volatile as the retail industry sheds their temporary holiday workers.

The ECB President's press conference on Thursday could be interesting if he says anything noteworthy about the emerging market currency worries currently plaguing the global market.

Economic and Event Calendar

- Monday, February 3 -
ISM Index (for January)
Construction Spending
Auto & truck sales
Eurozone manufacturing PMI

- Tuesday, February 4 -
Factory orders

- Wednesday, February 5 -
ADP Employment change report
ISM services data
Eurozone services PMI

- Thursday, February 6 -
Weekly Initial Jobless Claims
European Central Bank interest rate decision
ECB President Mario Draghi press conference

- Friday, February 7 -
Nonfarm payrolls (jobs) report for January
Unemployment rate

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:

Now that the month of January is over we can hopefully stop hearing about the January Barometer (indicator). Just in case you forgot here's a quick summary. Looking back over the last 76 years of market history, if the S&P 500 index ended the month of January with gains then 89.7% of the time the S&P also ended the full year with gains. If the month of January ended negative, then 60.7% of the time the market ended the year with a loss. Now there are plenty of investors who do not believe in this sort of "indicator" but it could make traders more nervous and potentially quicker to take profits. We already know that mid-term election years have an historical pattern of being more volatile.

I have mentioned multiple times how long we are overdue for a market correction. Officially a correction is a -10% pullback. The S&P 500 index has gone more than 835 days without a normal correction of -10%. Part of the challenge is that bull markets tend to have an expiration date. On average a bull market tends to die around its five-year anniversary and March 2014 would be the fifth anniversary of the current bull market.

BESPOKE Investment Group has done some research on this and mapped out the length of the current market rally without a -10% correction. At 835+ days there have only been "four rallies in the history of the S&P 500 that have had a longer streak than the current one." There is no guarantee that the market will see a correction but odds are getting slim that this rally can continue for much longer without some kind of pullback. You can view their observations on this topic here.

chart of the S&P 500's current winning streak

(Image from Bespoke Investment Group)

One of the biggest concerns I have is earnings guidance. I have been warning readers for weeks that it will not be earnings results that matter but earnings guidance that could set the tone for early 2014. I also cautioned investors that the second half of January could be down. Thus far the Q4 earnings results have been relatively good. Almost 70% of the S&P 500 companies who have reported earnings have beat Wall Street's estimates. Yet corporate guidance has been terrible. Almost 60% of companies have lowered their forward estimates for 2014. We still have a lot of earnings results yet to digest and the results will only get worse as we move deeper into the season. If corporate America is lowering their expectations for 2014 how is that going to buoy investor sentiment?

A recent article from Barron's had a great quote from Citigroup's Tobias Levkovish who basically warned that there is "no reason to start buying stocks yet." According to Tobias, "few would have guessed that Argentine currency devaluation would be the trigger for a momentum change. Unfortunately, there is no clear signal to step up quite yet and buy aggressively. ... As noted in the past, we expect a more volatile, choppy tape and believe that investors will have to get used to this new era of bumpiness after the far smoother ascent in 2013."

At the moment I would have to agree with Mr. Levkovish. There is no rush to buy stocks just yet. As you can see from the weekly charts above the market's long-term up trend is still place but the trend is in danger of breaking down. A -10% correction may be healthy for the market. As LEAPS traders we will want to be patient when it comes to initiating new bullish positions.

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Widespread weakness continues as investors worry over disappointing economic data and emerging market weakness. The stock market continues to correct lower. We saw several candidates hit our stop loss: AIG, CBI, DD, FLR, HD, WYN.

MTW was an exception and hit our bullish target on Friday.

Last week our plan was to exit our JNPR on Monday, Jan. 27th to lock in potential gains.

This week I am suggesting we exit our AVGO and MSI trades on Tuesday, February 4th.

I have updated stop losses on: BAC, FL, and 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

Middle Of a Correction?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 03, 2014)

The stock market is breaking down from last week's sideways consolidation. The S&P 500's drop below 1770 is bearish and it breaks the long-term up trend (on the weekly chart in tonight's market wrap).

I am suggesting investors take a cautious approach to launching new positions. Odds are growing that we are in the middle of a -10% market correction, a correction that has been long overdue.

We're not adding any new plays tonight. We did see four candidates from our watch list graduate to the active play list.



Play Updates

Market Sell-off Continues

by James Brown

Click here to email James Brown

Editor's Note:

The market's widespread profit taking continues as investors use disappointing economic data as an excuse to sell.

Our plan was to exit the JNPR trade on Monday, Jan. 27th to lock in gains. MTW hit our target on Friday. Jan. 31st.

CBI was a watch list candidate that hit our entry trigger last week and hit our stop loss today (Feb. 3rd).


Closed Plays


JNPR was closed on Monday. Jan. 27th to lock in gains.

MTW hit our bullish target on Jan. 31st.

AIG, CBI, DD, FLR, HD, WYN hit our stop loss.



Play Updates


Alaska Air Group - ALK - close: 79.65 (as of Jan. 31, 2014)

Comments:
02/03/14: ALK is a watch list candidate that has graduated to our active play list. The plan was to buy calls on a dip at $75.25. ALK met that requirement today. The market's widespread sell-off on Monday, Feb. 3rd has produced a -4.9% plunge in shares of ALK and they're testing round-number support at $75.00.

The relative weakness today is a bit troubling. We have a stop loss at $72.75 but more conservative investors may want to use a higher stop loss. Based on today's weakness I'd probably want to see a bounce back above $76.00 or $76.25 before initiating new positions.

FYI: The point & figure chart is bullish with a $101 target.

- Suggested Positions -
FEB 03, 2014 - entry price on ALK @ 75.25, option @ 7.90
symbol: ALK1517a80 2015 JAN $80 call - current bid/ask $7.30/ 7.90

02/03/14 triggered @ 75.25

Chart of ALK:

Current Target: $95.00
Current Stop loss: 72.75
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/26/14


Avago Technologies - AVGO - close: 54.64 (as of Jan. 31, 2014)

Comments:
02/03/14: AVGO spent last week consolidating sideways in the $54-55 zone. The simple 10-dma has turned into overhead resistance. As of midday Monday, Feb. 3rd, the stock tagged resistance at the 10-dma and then reversed with the stock market's widespread decline. Shares look headed for the $52.00 area or worse.

I am suggesting an immediate exit (now or Tuesday morning Feb. 4th) to lock in gains.

- Suggested Positions -
NOV 11, 2013 - entry price on AVGO @ 44.44, option @ 3.60
symbol: AVGO1517a50 2015 JAN $50 call - current bid/ask $7.50/ 9.10

02/03/14 prepare to exit immediately (Tuesday morning, Feb. 4th)
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: 16.75 (as of Jan. 31, 2014)

Comments:
02/03/14: BAC actually managed a bounce last week after traders bought the dip near support in the $16.00 area. Unfortunately the stock appears to have developed a short-term trend of lower highs. Odds are good we will see BAC retest the $16 area and its 50-dma.

I am moving our stop loss up to $15.35. More conservative investors may want to just exit now to lock in gains.

- 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 $2.60/2.65

02/03/14 move stop loss to $15.35, investors may want to just exit now to lock in potential gains
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: 15.35
Play Entered on: 03/18/13

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


BB&T Corp. - BBT - close: 37.41 (as of Jan. 31, 2014)

Comments:
02/03/14: The profit taking in BBT continued last week as shares followed the market lower. The prior week I suggested BBT might find support near $37.00. Unfortunately, as of Monday morning, Feb. 4th, BBT has plunged through $37 and is now trading below its simple 50-dma.

More conservative investors may want to exit now to avoid a loss or raise their stop loss. 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 $1.07/1.15

02/03/14 conservative investors may want to exit now to avoid a potential loss (or raise their stop loss)
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


Deer & Co - DE - close: 85.96 (as of Jan. 31, 2014)

Comments:
02/03/14: DE spent last week churning sideways in the $85-87 zone. It looked like DE would actually hold support near 485 and its 100-dma and 200-dma. Yet as of Monday, Feb. 3rd, the stock has pierced its 200-dma. So far the low today is $84.60. Another 20 cents and DE will hit our stop loss at $84.40. I am not suggesting new positions at this time.

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 $4.15/4.30

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: 72.61 (as of Jan. 31, 2014)

Comments:
02/03/14: With DIS's bounce from last Wednesday, Jan. 29th, it looked like the stock's four-week correction from its January highs might be over. Unfortunately for the bulls the bounce in DIS stalled at its simple 10-dma. Monday, Feb. 3rd's market sell-off has pushed DIS to a new relative low. The stock is nearing what should be support near $70.00. Our stop loss is currently at $69.40.

I do expect DIS to see some volatility (up or down) following its earnings report later this week.

FYI: DIS is scheduled to report earnings on February 5th, after the closing bell.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $4.65/4.75

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: 60.89 (as of Jan. 31, 2014)

Comments:
02/03/14: DLPH spent last week hovering around support near $60 and testing its 50-dma. Yet each bounce kept stalling at short-term resistance at its 10-dma. Today's move, Monday, Feb. 3rd, doesn't look so hot with another failed rally at the 10-dma and what currently looks like a bearish engulfing candlestick reversal pattern.

Tomorrow could be volatile. DLPH is due to report earnings tomorrow morning (Feb. 4th).

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 $3.80/4.50

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: 38.60 (as of Jan. 31, 2014)

Comments:
02/03/14: Shares of FL appeared to find a bottom last week with shares churning sideways in the $37.50-39.00 zone. Today's market drop (Monday, Feb. 3rd) looks pretty ugly and FL is underperforming with a -3.5% decline (so far today). Our stop loss is at $36.75.

The bottom of the gap from November 21, 2013 is $36.75. The simple 100-dma is at $36.76. Either of these could offer potential support. I am adjusting our stop loss down from $36.75 to $36.49. 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 $2.50/3.10

02/03/14 adjust stop loss to $36.49
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: 36.49
Play Entered on: 01/17/14
Originally listed on the Watch List: 12/29/13


HollyFrontier Corp. - HFC - close: 46.30 (as of Jan. 31, 2014)

Comments:
02/03/14: It's not looking good for our HFC trade. After peaking in early January with a failed rally near $50.00 the stock has developed a bearish trend of lower highs and lower lows. More conservative investors may want to abandon ship. Today, Monday, Feb. 3rd, has HFC flirting with a breakdown below its converging 100-dma and 200-dma. The intraday low this morning was $44.92. Our stop loss is at $44.75. HFC could hit our stop before the day is over. 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 $3.60/4.10

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: 91.23 (as of Jan. 31, 2014)

Comments:
02/03/14: HON displayed some relative strength last week. The stock managed to tag a new all-time high near $92.00. More conservative investors might want to consider moving their stop loss closer to technical support at the rising 100-dma (currently near $87.35).

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 $ 9.25/ 9.35

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: 88.04 (as of Jan. 31, 2014)

Comments:
02/03/14: Shares of HP were also showing relative strength last week. The stock garnered bullish comments from two different analysts. HP was giving a $100 price target. The stock is currently flirting with new highs.

The simple 50-dma has risen to $82.57. I am raising our stop loss to $82.45. More conservative investors may want to raise their stop higher. 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 $ 7.00/7.80

02/03/14 new stop loss @ 82.45
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


Hospira Inc. - HSP - close: 44.01 (as of Jan. 31, 2014)

Comments:
02/03/14: HSP was a watch list candidate. We have been waiting for shares to pullback toward support. The plan was to buy calls on a dip at $43.00. HSP almost hit our entry point on Friday but the intraday low was only $43.06. The market's widespread sell-off today (Monday, Feb. 3rd) has pushed HSP to our suggested entry point at $43.00. Broken resistance in the $42-43 zone should be significant support. A pullback to this area can be used as a new bullish entry point.

Earlier Comments:
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.

- Suggested Positions -
FEB 03, 2014 - entry price on HSP @ 43.00, option @ 4.60
symbol: HSP1517a45 2015 JAN $45 call - current bid/ask $ 3.70/4.60

02/03/14 triggered at $43.00

Chart of HSP:

Current Target:$ 49.75
Current Stop loss: 39.90
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/26/14


Illinois Tool Works Inc. - ITW - close: 78.87 (as of Jan. 31, 2014)

Comments:
02/03/14: Shares of ITW were upgraded last week but the news didn't help much. ITW spent last week consolidating sideways in the $78-80 zone. Unfortunately, today (Feb.3rd) we are seeing ITW breakdown below support at $78. The low today so far is $76.97. Our stop loss is at $76.85. I am not suggesting new positions at this time.

- Suggested Positions -
JAN 24, 2014 - entry price on ITW @ 80.66, option @ 3.65*
symbol: ITW1517a85 2015 JAN $85 call - current bid/ask $2.65/2.75

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)

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


JPMorgan Chase & Co. - JPM - close: 55.36 (as of Jan. 31, 2014)

Comments:
02/03/14: JPM delivered a similar performance last week with shares consolidating sideways. Look for additional support near $54.00 and its 200-dma. Currently our stop is at $52.90. More conservative investors may want to raise their stop given the market's recent weakness.

- 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: 32.10 (as of Jan. 31, 2014)

Comments:
02/03/14: Last week saw LVLT pullback toward technical support at its 50-dma. Today (Feb. 3rd) we see LVLT break lower and move toward $31.00, which as broken resistance should be support.

Keep in mind that LVLT could be volatile this week as the market reacts to earnings, which are expected on February 5th, before the opening bell.

- Suggested Positions -
OCT 31, 2013 - entry price on LVLT @ 29.39, option @ 4.40*
symbol:LVLT1517a30 2015 JAN $30 call - current bid/ask $ 4.70/5.40

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: 63.80 (as of Jan. 31, 2014)

Comments:
02/03/14: Our MSI trade is not performing as expected. The oversold bounce has failed. Today (Feb. 3rd) we see MSI breaking down below its simple 100-dma. I suspect shares are headed for the $60 area. Prepare to exit immediately on Tuesday, Feb. 4th at the opening bell.

- Suggested Positions -
DEC 23, 2013 - entry price on MSI @ 66.75, option @ 4.10
symbol: MSI1517a70 2015 JAN $70 call - current bid/ask $ 2.41/2.53

- or -

DEC 23, 2013 - entry price on MSI @ 66.75, option @ 5.10
symbol: MSI1615a75 2016 JAN $75 call - current bid/ask $ 2.93/3.60

02/03/14 prepare to exit immediate (on Tues. Feb 4th)
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


QUALCOMM Inc. - QCOM - close: 74.22 (as of Jan. 31, 2014)

Comments:
02/03/14: QCOM continued to see volatility last week. Shares broke support near $72 but traders bought the dip near its 100-dma. Fortunately the stock has rebounded. Honestly I am surprised that QCOM did not see more weakness. Earnings came out on January 29th and QCOM's results were disappointing. They missed the bottom line number by 8 cents and missed the revenue number. Management then guided lower for the second quarter but they raised guidance for all of 2014. Investors must be hopeful that QCOM will deliver on that full-year guidance.

Currently our stop loss is at $69.45. More conservative investors may want to raise their stop closer to last week's low near $71.00. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $5.05/5.15

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


Starbucks - SBUX - close: 71.12 (as of Jan. 31, 2014)

Comments:
02/03/14: We have had SBUX on our watch list since early January. Shares have been correcting lower and we've been waiting for a decline toward $70.00. Today's market sell-off (Monday, Feb. 3rd) has pushed SBUX below the $70.00 mark. Our buy-the-dip trigger was hit at $70.50. Unfortunately the stock did not bounce at the $70.00 mark. Currently, with less than 90 minutes to go on Monday, SBUX is down -2.9% and trading near $69.00. At the moment I would not launch new positions until we see SBUX close back above the $70.00 level.

- Suggested Positions -
FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 4.65
symbol: SBUX1517a75 2015 JAN $75 call - current bid/ask $4.05/4.20

- or -

FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 6.75*
symbol: SBUX1615a80 2016 JAN $80 call - current bid/ask $6.05/6.50

02/03/14 triggered at $70.50
*option entry price is an estimate since the option did not trade at the time our play was opened.

Chart of SBUX:

Current Target: $82.00
Current Stop loss: 67.00
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/05/14


SanDisk - SNDK - close: 69.55 (as of Jan. 31, 2014)

Comments:
02/03/14: SNDK closed virtually unchanged for the week on Friday. The bad news is that shares are underperforming today (Monday, Feb. 3rd) with a -3.2% plunge to technical support at its 100-dma. The intraday low (so far) has been $67.17. Our stop loss is at $67.00. I am not suggesting new positions at this time.

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 $ 3.65/3.80

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: 45.34 (as of Jan. 31, 2014)

Comments:
02/03/14: WFC only lost about 15 cents after churning sideways in the $45.50-46.25 zone all week. That is changing today. The market's broad-based sell-off is pushing WFC below short-term support near $45.00 and its 50-dma. I would look for WFC to find additional support in the $43-44 area. 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 $ 1.27/1.31

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 2.56/2.91

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



CLOSED Plays


American Intl. Group - AIG - close: 47.96 (Friday, 01/31/2014)

Comments:
02/03/14: The stock market's sell-off on Monday, January 27th was too much for AIG and the stock pierced its 200-dma. Shares also hit our stop loss at $47.75. The stock followed the late January decline with a bounce but the $49.00 level has turned into new overhead resistance. It looks like AIG may have formed a large (bearish) double top pattern with the peaks in October and the lower high now in January 2014.

- 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 - exit $2.10 (-48.1%)

01/27/14 stopped out at $47.75
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...

Chart of AIG:

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


Chicago Bridge & Iron - CBI - close: 74.99 (as of Jan. 31, 2014)

Comments:
02/03/14: CBI was on our watch list. The plan was to buy calls on a dip at $74.50. The stock market's sell-off on Monday, Jan. 27th was enough to push CBI below the $74.00 level, triggering our play. CBI managed a bit of an oversold bounce. Unfortunately as of Monday, Feb. 3rd, that bounce has been completely erased. CBI is significantly underperforming the market and hit our stop loss at $72.25 today (02/03/2014).

- Suggested Positions -
JAN 27, 2014 - entry price on CBI @ 74.50, option @ 6.14
symbol: CBI1517a80 2015 JAN $80 call - exit $4.90* (-20.1%)

02/03/14 stopped out @ 72.25
*option exit price is an estimate since the option did not trade at the time our play was closed.
01/27/14 triggered on a dip at $74.50
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.

Chart of CBI
Current Target:
Current Stop loss: 72.25
Play Entered on: 01/27/14
Originally listed on the Watch List: 12/22/13


E.I. du Pont - DD - close: 61.01 (as of Jan. 31, 2014)

Comments:
02/03/14: Last week's market decline pushed DD below the $60.00 level. Shares hit our new stop loss at $59.75. If this stock closes under its 200-dma I would expect a drop into the $55-52 area.

- 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 - exit $2.10 (-33.3%)

01/27/14 stopped out @ 59.75
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

Chart of DD

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


Fluor Corp. - FLR - close: 75.96 (as of Jan. 31, 2014)

Comments:
02/03/14: The reversal in FLR has been pretty ugly. The market's sell-off on Monday, January 27th was enough to push FLR below our stop loss at $76.75. If the current weakness continues the next level of support could be $70 or its simple 200-dma.

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 - exit $8.70 (+52.6%)

01/27/14 stopped out on the widespread market sell-off today
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.

Chart of FLR:

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: 76.85 (as of Jan. 31, 2014)

Comments:
02/03/14: HD has suffered some ugly profit taking in the last two weeks. The stock has been slicing through potential support levels and key moving averages. HD hit our stop loss at $76.75 on Jan. 29th.

NOTE: Traders may have gotten a better exit on the 2016 option. The spread is normally 30 to 50 cents. On the 29th the spread appeared to be $1.80.

- Suggested Positions -
DEC 27, 2013 - entry price on HD @ 81.65, option @ 3.40
symbol: HD1517a90 2015 JAN $90 call - exit $1.52 (-55.2%)

- or -

DEC 27, 2013 - entry price on HD @ 81.65, option @ 6.55
symbol: HD1615a90 2016 JAN $90 call - exit $3.20 (-51.1%)

01/29/14 stopped out at $76.75

Chart of HD:

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


Juniper Networks - JNPR - close: 26.61 (as of Jan. 31, 2014)

Comments:
02/03/14: Our plan was to exit our JNPR play on Monday, January 27th to lock in gains. The stock was kind enough to see a small gap open higher on the 27th.

- Suggested Positions -
JAN 13, 2014 - entry price on JNPR @ 25.07, option @ 3.95
symbol:JNPR1517a25 2015 JAN $25 call - exit $4.90 (+24.0%)

- or -

JAN 13, 2014 - entry price on JNPR @ 25.07, option @ 5.10*
symbol:JNPR1615a25 2016 JAN $25 call - exit $6.10 (+19.6%)

01/27/14 planned exit
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

Chart of JNPR

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


The Manitowoc Co. - MTW - close: 28.45 (as of Jan. 31, 2014)

Comments:
02/03/14: Target achieved.

MTW was a big winner last week with a +20% gain. Most of that gain was from Friday's rally. Shares hit an intraday high of $29.39 before paring its gains to settle at $28.45. The move was a reaction to MTW's earnings report released on Thursday night. MTW beat estimates by 13 cents. Wall Street was only expecting 34 cents a share and MTW reported 47 cents. Our exit target was hit on Friday at $28.00.

- Suggested Positions -
DEC 19, 2013 - entry price on MTW @ 22.33, option @ 2.85*
symbol: MTW1517a25 2015 JAN $25 call - exit $5.55** (+94.7%)

01/31/14 target hit at $28.00
**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 @ 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

Chart of MTW
Current Target: $28.00
Current Stop loss: 21.90
Play Entered on: 12/19/13
Originally listed on the Watch List: 12/15/13


Wyndham Worldwide - WYN - close: 70.94 (as of Jan. 31, 2014)

Comments:
02/03/14: WYN continues to see profit taking. Today's market-wide sell-off (Monday, Feb. 3rd) has pulled WYN below round-number support near $70.00. WYN is underperforming with a -3.1% decline. Our stop loss has been hit at $69.40.

- Suggested Positions -
NOV 18, 2013 - entry price on WYN @ 68.97, option @ 4.20
symbol: WYN1517a75 2015 JAN $75 call - exit $3.50 (-16.6%)

02/03/14 stopped out
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

Chart of WYN:

Current Target: 85.00
Current Stop loss: 69.40
Play Entered on: 11/18/13
Originally listed on the Watch List: 11/10/13



Watch

Building A Foundation

by James Brown

Click here to email James Brown


New Watch List Entries

KBH - KB Home


Active Watch List Candidates

A - Agilent Tech

GILD - Gilead Sciences

MU - Micron Technology


Dropped Watch List Entries

ALK, CBI, HSP and SBUX all graduated to our play list.



New Watch List Candidates:


KB Home - KBH - close: 18.81 change: -0.52

Company Info

KBH is in the industrial goods sector. The company is a residential home builder. Homebuilders as a group appeared to peak in early 2013. Shares of KBH corrected lower and spent much of 2013 building a base in the $16-18 zone. The company's latest earnings report in December was a miss. Yet in spite of the disappointing results there was no big reaction in the stock price. Shares actually reversed higher a couple of days later. If investors are buying KBH in spite of bearish results then maybe all the bad news has been priced in. There has been a worry that rising interest rates could crush the rebound in home sales but KBH's stock appears to be building on a trend of higher lows.

This past week we've seen KBH breakout past major technical resistance at its 200-dma. Today (Feb. 3rd) traders are buying the dip near short-term support around the $18.50 level. More aggressive investors may want to buy calls right now and use a tight stop loss. I am suggesting we wait for KBH to close above $20.00 since the $20.00 level could be round-number resistance. If triggered our long-term target is $25.00.

Breakout trigger: Wait for a close above $20.00,
then buy calls the next day with a stop at $18.45.

BUY the 2015 Jan $20 call (KBH1517a20) current ask $2.48

Chart of KBH:

Originally listed on the Watch List: 02/03/14


Active Watch List Candidates:



Agilent Technologies - A - close: 58.15 (as of Friday, Jan. 31st)

Comments:
02/03/14: We are expecting A to correct lower toward what should be support near $55.00. The stock is underperforming the market on Monday, Feb. 3rd with a -3.1% decline. Right now our plan is to buy calls on a dip at $55.50. Yet more conservative traders may want to wait and see if shares bounce from $55.00 as an alternative entry point strategy.

Earlier Comments:
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 $4.50

- or -

BUY the 2016 Jan $65 call (A1615a65) current ask $6.05

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


Gilead Sciences - GILD - close: 80.65 (as of Friday, Jan. 31st)

Comments:
02/03/14: GILD spent last week churning sideways near the $80 level. Today (Monday. Feb. 3rd) the stock is down about -1.85% and producing what appears to be a bearish engulfing candlestick reversal pattern. I do not see any changes from my prior comments.

We want to buy calls on a dip at $76.25.

CAUTION: GILD is scheduled to report earnings on Feb. 4th after the closing bell. That means Wednesday morning, Feb. 5th, GILD could be volatile.

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.

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


Micron Technology - MU - close: 22.84

Comments:
02/03/14: I am adjusting our entry point strategy on MU. The stock continues to consolidate sideways. It is holding up reasonably well during the Monday, Feb. 3rd, market sell-off.

Instead of buying a dip at $22.00 I'd rather wait for MU to breakout to new relative highs. The 2014 intraday high is $24.50. Wait for MU to close above $24.50 and then buy calls the next day. We'll move the stop loss to $21.75.

Earlier Comments:
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.

trigger: Wait for a close above $24.50, use a stop at $21.75

BUY the 2015 Jan $25 call (MU1517a25)

- or -

BUY the 2016 Jan $30 call (MU1615a30)

02/03/14 adjust entry strategy. Instead of a buy-the-dip trigger at $22.00, wait for MU to close above $24.50 and then buy calls the next day.

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