Option Investor
Newsletter

Daily Newsletter, Sunday, 2/16/2014

Table of Contents

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

Leaps Trader Commentary

Best Week Of The Year

by James Brown

Click here to email James Brown

Janet Yellen, the new Federal Reserve Chairman, reassured market participants on Tuesday and the U.S. stock market went on to have its best week of the year. That pretty much sums up the week in one sentence. Yellen testified for four hours before the House Financial Services Committee on Tuesday and did her best to not rock the boat as she promised to stay data dependent. Meanwhile the bounce in stocks continued with the S&P 500 index up six out of the last seven days and the NASDAQ now up seven out of the last seven trading days.

The major U.S. indices all posted gains of more than +2% with the Russell 2000 index gaining almost +3%. The S&P 500 large cap index is only about 13 points away from a new all-time high (less than one percent). The NASDAQ composite ended the week in positive territory for 2014. Other big winners were semiconductors and biotechs, both up +4% for the week.

A drop in the U.S. dollar had an impact on commodities. Crude oil continued its rally and is now up five weeks in a row. Gold has rallied seven days in a row and is now up +9.4% for the year. Silver had its best one-week rally since March 2008 and is up +9.7% for the year.

Economic Data

Surprisingly the trend of negative economic data has not hampered the market's rally. We have continued to see a parade of disappointing or downright bearish economic data but investors don't seem to care. Everyone seems content to just blame it on the extremely cold winter weather and move on.

U.S. industrial production in January fell -0.3% when economists were expecting a +0.3% gain. Manufacturing production had its largest drop in May 2009 with a -0.8% decline in January. Motor vehicle assembly plunged -5%. The early look at the University of Michigan consumer sentiment survey was unchanged in February at 81.2. Expectations were for a dip toward 80. One of the biggest surprises last week was the monthly retail sales data with January U.S. retail sales falling -0.4%. The government revised December's retail sales lower from +0.2% to +0.1%. If consumers are spending less than it wasn't a surprise to see business inventories rising. The latest inventory data showed December business inventories up +0.5% following a +0.4% gain in November.

Europe

Economic data out of Europe was mixed. France said its industrial production fell -0.3% when analysts were expecting a +0.1% gain. The Eurozone's industrial production dropped -0.7%, which was double the -0.3% estimate and down sharply from the +1.6% a month earlier. Eurozone GDP estimates showed +0.3% growth, which was slightly better than expected. This marks the third consecutive quarter of growth, albeit very, very slow growth. The Eurozone GDP gains were driven by small GDP advances in Germany, France, and Italy. Speaking of Italy, it was a very bad week for Italian Prime Minister Enrico Letta. There was a growing chorus calling for Letta to resign. On Friday, after less than a year in office, Mr. Letta did resign.

Asia

It seems like worries over an economic slowdown in China might be a little premature. China said its trade surplus soared from $25.6 billion to +31.86 billion last month. Imports surged +10.0% while exports climbed +10.6%. These import/export numbers were three to five times stronger than expected. Inflation data in China is on the rising with its latest CPI number hitting +2.5% year over year. Yet inflation at the wholesale level fell with the PPI down -1.6%. The U.S. isn't the only market bouncing with the Chinese Shanghai index up five out of the last six sessions. Elsewhere in the region Japan said its core machinery orders collapsed with a -15.7% drop month over month. Analysts were expecting a -4.1% decline.

Major Indices:

The market's bounce has been dramatic and actually sharper than its recent sell-off. This past week saw the S&P 500 index rally past potential resistance at 1800 and its 50-dma. The next challenge is resistance near 1850. A breakout past 1850 would be new all-time highs. A failure at 1850 and technicians will worry it's a short-term bearish double top.

On a short-term basis the S&P 500 does look a bit overbought with a 100-point, virtually non-stop bounce from the 1740 level. Odds that the S&P 500 will at least pause at the 1850 level are pretty high. We can watch for potential support near 1800 if stocks see a pullback. If the S&P 500 does breakout higher the 1900 is likely resistance.

chart of the S&P 500 index:

The NASDAQ has been a market leader. The index is up seven days in a row and delivered its best rally since July 2011. It's up +6.9% from its February 5th low of 3968. The index tagged a new 14-year high on Friday. If the rally reverses here it will look like a bearish double top. The problem is that stocks look overbought after such a fast bounce and are probably due for a pause, which could fuel the double-top fears.

On a short-term basis the 4200 and 4180 levels could act as support. Overhead the 4300 and 4400 levels are potential resistance.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) saw the biggest bounce last week (+2.9%) but since this index had fallen the most it's not surprising to see the big round. The $RUT fell exactly 100 points (-8.4%) from its high of 1182 to the intraday low of 1082 (on Feb. 5th). The current rebound has lifted the $RUT above resistance near 1140 and its 50-dma. The next level of resistance could be the 1165 and 1180 levels. However, after such a sharp bounce the $RUT may be due for a pullback now. If the Russell falls back below the 50-dma again then 1120 and 1100 remain potential support levels.

chart of the Russell 2000 index



Economic Data & Event Calendar

We have a holiday shortened week with the U.S. stock and bond markets closed on Monday for President's day. The market will digest a couple of Fed surveys from New York and Philadelphia. Analysts will be eager to see the latest FOMC Minutes from the last meeting.

Economic and Event Calendar

- Monday, February 17 -
U.S. market closed for President's Day
Bank of Japan interest rate decision

- Tuesday, February 18 -
New York Empire State manufacturing survey
NAHB housing market index

- Wednesday, February 19 -
Produce Price Index (PPI)
housing starts and building permit data
FOMC Minutes
China HSBC manufacturing PMI

- Thursday, February 20 -
Weekly Initial Jobless Claims
Consumer Price Index (CPI)
Philadelphia Fed regional survey
Eurozone manufacturing PMI

- Friday, February 21 -
Existing home sales data from January

Additional Events to be aware of:

Mar. 19th - FOMC policy update and economic projections
Mar. 19th - new Fed Chairman Yellen's first press conference




Looking Ahead:

Blame it on the weather seems to be the market's excuse to ignore the latest round of disappointing economic data. It is true that the colder than normal winter is having an impact on the economy the assumption is that once the weather improves the U.S. will see this big snap-back surge activity due to pent up demand. If that pent up demand doesn't show up we could be in trouble.

Another issue that could be boosting investor sentiment is speculation that the U.S. Federal Reserve might taper the taper. The economy is not growing as fast as expected. Job growth has been a disaster with two big monthly misses in a row. Industrial production is falling. Consumer spending is falling. The trend in retail sales has been declining for three months in a row. The latest GDP numbers were rising due to rising inventories but if consumers don't buy that inventory, then what? Thus there has been some speculation that the Fed might actually slow down or pause their "taper" to the current QE program. There are even some pundits forecasting that the Fed will be forced to ease again (increase stimulus).

Analysts expectations for growth are falling due to the disappointing data and the weather. This past week Goldman Sachs lowered their Q1 GDP estimate to +1.9% after the terrible retail sales numbers. Barclays reduced their Q1 GDP growth estimate from 3.2% to 2.2%. Credit Suisse lowered their estimate to 1.6% and Citigroup cut their estimate to just +1.0%.

Another major story last week was news that the republican controlled congress managed to pass a "clean" debt-ceiling bill by a vote of 221 to 201. This new legislation raises the debt to $18.2 trillion, which is expected to last until March 2015. The democrat controlled senate then passed it with a vote of 55-43. This removes the threat of a major political fight in Washington over raising the debt ceiling. This is definitely good news for the stock market, probably not so good for the country when our GDP is only about $16 trillion.

It would appear that the market's path of least resistance has returned to higher. However, this coming week will be a significant test. If the S&P 500 fails at resistance near 1850 it's going to generate some worry about a potential top.

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks are in rally mode with their best weekly performance of the year. Can the S&P 500 breakout past resistance at the 1850 level?

Last week our plan was to exit our LVLT trade on Monday morning, Feb. 10th.

I have updated stop losses on: A, GILD, 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

Ignoring Bad News Again

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 16, 2014)

The U.S. market's big rebound is both encouraging and somewhat frightening at the same time. Stocks remain overbought. We did not see a normal correction of -10% (actually the average is -13%). It has been almost 850 days since the last official correction. That's way too long.

Investors seem to be ignoring disappointing economic news. Previously the market ignored slowing economic data because the Fed was there to provide stimulus but right now the Fed is reducing stimulus.

If the S&P 500 can breakout past 1850 then we could be off to the races again. However, if the S&P 500 fails at 1850 then the situation turns a lot more dangerous. I am not adding any new trades tonight. We did add three new candidates to the watch list. Plus I am updating my list of radar screen trading ideas.

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:

radar: KMB, NVDA, MA, CSCO, UPS, FDX, DD, FLR, ADBE, FLS, ROVI, MTW, ANV, SCCO, FB, ZNGA, P, SWI, DNKN, ALK, UA, NKE, PFE, LLY, BCR, PCAR, EOG, FLWS,



Play Updates

The Market Rebound Accelerates

by James Brown

Click here to email James Brown

Editor's Note:

MU was added on Monday and A graduated to our play list on Friday.


Closed Plays


We closed our LVLT on Feb. 10th to lock in potential gains.



Play Updates


Agilent Technologies - A - close: 55.25

Comments:
02/16/14: Agilent is a new addition to the play list. We had this stock on our watch list with a buy-the-dip entry point at $55.00. There was the potential for a post-earnings sell-off and Agilent didn't disappoint on that end. The company did disappoint in its earnings report. A beat estimates by one cent but revenues came in just below expectations. Management then lowered their Q2 guidance. Full year guidance was a bit soft as well. The stock reacted to this bearish guidance with a gap down at $57.15 on Friday and an intraday drop to $54.87. Our buy-the-dip trigger to buy calls was hit at $55.00 in the last hour of trading. If you haven't opened positions yet more conservative investors may want to take a step back and see where the dust settles. You could wait for a bounce back above $56.00 or wait to see if shares dip toward the next level of support near $53.00. I am adjusting our stop loss from $52.40 to $52.90.

Earlier Comments:
FYI: Agilent is planning to spin off its electronic measurement company, Keysight Technologies, toward the end of 2014.

- Suggested Positions -
FEB 14, 2014 - entry price on A @ 55.00, option @ 3.70
symbol: A1517a60 2015 JAN $60 call - current bid/ask $3.75/3.85

- or -

FEB 14, 2014 - entry price on A @ 55.00, option @ 5.10
symbol: A1615a65 2016 JAN $65 call - current bid/ask $4.65/5.10

02/16/14 new stop loss @ 52.90 (was 52.40)
02/14/14 triggered at $55.00
02/09/14 adjust the entry trigger to $55.00 (from $55.50)

Chart of A:

Current Target: BAC @ $74.00
Current Stop loss: 52.90
Play Entered on: 02/14/14
Originally listed on the Watch List: 01/26/14


Bank of America - BAC - close: 16.70

Comments:
02/16/14: It was a quiet week for shares of BAC. The stock traded sideways in the $16.60-16.90 zone. Look for support near its 50-dma (around $16.25). I am not suggesting new positions at this time.

- 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 $2.60/2.64

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: 37.60

Comments:
02/16/14: BBT continued to rebound from its early February lows. Yet shares seemed to find new resistance in the $37.75 area. At this point I would suggest waiting for a close above $38.00 before considering new bullish positions.

- Suggested Positions -
DEC 17, 2013 - entry price on BBT @ 35.81, option @ 0.99
symbol: BBT1517a40 2015 JAN $40 call - current bid/ask $1.35/1.40

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


The Walt Disney Co. - DIS - close: 79.23

Comments:
02/16/14: DIS continues to outperform with another week of big gains. Shares garnered bullish analyst comments and a new $90 price target a few days ago. DIS also pushed past short-term resistance near $78 to close at new all-time highs.

We still have several months left on our 2015 calls so I am raising our long-term price target from $84 to $89 but more conservative investors may want to go ahead and take profits now, near $80. I am not suggesting new positions at this time.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $9.15/9.30

02/16/14 more conservative traders may want to take profits now.
We are adjusting our long-term target from $84 to $89
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 @ 89.00
Current Stop loss: 69.40
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Delphi Automotive - DLPH - close: 64.12

Comments:
02/16/14: DLPH rallied to new all-time highs but momentum stalled once shares hit $64.00. The stock is near a trend line of higher highs so DLPH could be due for a pullback. I am not suggesting new positions at this time.

- Suggested Positions -
JAN 24, 2014 - entry price on DLPH @ 60.25, option @ 4.49
symbol: DLPH1517a65 2015 JAN $65 call - current bid/ask $5.80/6.30

02/04/14 DLPH reports better than expected earnings but lowers Q1 guidance

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: 38.95

Comments:
02/16/14: I am growing concerned with our FL trade. The stock is actually up three weeks in a row but it has been a volatile three weeks. Gains this past week were disappointing. More conservative investors may want to just abandon ship right now. I am not suggesting new positions.

If FL does not perform better this week I'll likely drop it as an active trade.

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 $3.10/3.40

02/16/14 recent performance has been disappointing. Investors may want to exit early now.
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


Gilead Sciences - GILD - close: 81.21

Comments:
02/16/14: GILD posted gains for the week but shares continue to struggle with resistance in the $82-83 area. I am not suggesting new positions at this time. I am turning more defensive and raising our stop loss to $74.00.

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. Currently the point & figure chart is bullish and forecasting at $98 target.

- Suggested Positions -
FEB 07, 2014 - entry price on GILD @ 76.25, option @ 7.30
symbol: GILD1517a85 2015 JAN $85 call - current bid/ask $9.00/9.30

02/16/14 new stop loss @ 74.00
02/07/14 triggered @ 76.25
01/26/14 move the buy-the-dip trigger from 75.25 to 76.25

Current Target: exit when GILD hits $95.00
Current Stop loss: 74.00
Play Entered on: 02/07/14
Originally listed on the Watch List: 01/19/14


Honeywell Intl. - HON - close: 94.61

Comments:
02/16/14: HON is still showing relative strength. The stock is up three weeks in a row and this past week produced a rally to new all-time highs. HON is currently hovering just below resistance at the $95.00 level. Our target is $98.00. 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 $12.30/12.50

02/09/14 new stop loss @ 87.45
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: 87.45
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Helmerich & Payne, Inc. - HP - close: 90.59

Comments:
02/16/14: Shares of HP also rallied to new all-time highs last week. The breakout past $90.00 is technically bullish. However, HP closed near a trend line of higher highs (resistance) so do not be surprised to see a pullback soon. HP's 50-dma has risen to $84.17. I am adjusting our stop loss to $84.00. 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 $ 8.80/9.10

02/16/14 new stop loss @ 84.00
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: 84.00
Play Entered on: 12/05/13
Originally listed on the Watch List: 10/27/13


Hospira Inc. - HSP - close: 43.55

Comments:
02/16/14: HSP posted a gain for the week but the trading action in the stock actually looks a bit bearish. HSP reported earnings on Feb. 12th. The company managed to beat Wall Street's estimates on both the top and bottom line. Unfortunately the stock has seen sold off, slightly, following its earnings data. Technically shares failed at their January highs producing a bearish double top. HSP should still have support near $42.00. Investors may want to wait for another dip near $42 and then look for a bounce before considering new positions.

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 $ 3.80/4.20

02/03/14 triggered at $43.00

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


JPMorgan Chase & Co. - JPM - close: 58.15

Comments:
02/16/14: JPM has been a beacon of strength for the financials. Shares are up three weeks in a row and up nine sessions in a row. On a short-term basis the stock is overbought and due for a pullback. I am not suggesting new positions at this time.

- 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 $ 6.00/6.10

02/09/14 new stop loss @ 53.65
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: 53.65
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


Micron Technology - MU - close: 25.08

Comments:
02/16/14: Last week MU graduated from our watch list to our new play list after meeting our entry point requirement on Friday, February 7th. Since then MU has quietly consolidated sideways near the $25.00 level.

Depending on your trading style you could wait for a new high above $25.30 or wait for a dip toward $24.00 or even the 50-dma near $22.90 as an alternative entry point to launch positions.

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.

- Suggested Positions -
FEB 10, 2014 - entry price on MU @ 24.64, option @ 3.75*
symbol: MU1517a25 2015 JAN $25 call - current bid/ask $ 3.90/3.95

- or -

FEB 10, 2014 - entry price on MU @ 24.64, option @ 3.60*
symbol: MU1615a30 2016 JAN $30 call - current bid/ask $ 3.70/3.90

02/10/14 trade opens, MU @ $24.64
*option entry price is an estimate since the option did not trade at the time our play was opened.
02/07/14 MU meets our entry point requirement with a close above $24.50
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.

Current Target: MU @ $29.75
Current Stop loss: 21.75
Play Entered on: 02/10/14
Originally listed on the Watch List: 01/12/14


QUALCOMM Inc. - QCOM - close: 76.28

Comments:
02/16/14: QCOM kept its rally alive and stretched its gains to three weeks in a row. This past week saw a breakout past its January highs. I remain long-term bullish but would hesitate to launch positions at current levels. QCOM is testing a trend line of higher highs and shares could see a pullback soon.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $6.00/6.15

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: 75.03

Comments:
02/16/14: Hmm... SBUX only managed a 99-cent gain for the week. Shares have spent the last few days consolidating sideways under round-number resistance at the $75.00 level. If this bounce continues then SBUX could breakout past its two-month trend of lower highs, which could be bullish. I do see potential resistance at its 50-dma and the $76.00 level. If you're looking for a new entry point then a close above $76.00 could qualify. Alternatively if SBUX fails at current levels then we'll likely see shares retest their lows in the $69-70 zone.

On a side note, here's fun little story about how NBC has a "private" Starbucks in their Socchi Olympic operations. read the article here .

- Suggested Positions -
FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 4.65
symbol: SBUX1517a75 2015 JAN $75 call - current bid/ask $6.70/6.85

- or -

FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 6.75*
symbol: SBUX1615a80 2016 JAN $80 call - current bid/ask $8.15/8.35

02/09/14 new stop loss @ 67.90
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.

Current Target: $82.00
Current Stop loss: 67.90
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/05/14


Wells Fargo & Co. - WFC - close: 46.13

Comments:
02/16/14: WFC continues to hold up well. The gains last week were not amazing but they were still gains. WFC is currently trading just below short-term resistance near $46.25. Investors might want to wait for a close above this level before initiating new positions. Or if you think the market is going to roll over then wait for another dip toward $44.00 as an alternative entry point.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 1.35/1.40

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 2.85/2.99

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


Level 3 Communications - LVLT - close: 38.48

Comments:
02/16/14: It looks like I was a little early calling a top in shares of LVLT. Two weeks ago the stock had moved higher in a big way and stopped at potential resistance. Our plan was to exit positions on Monday morning, Feb. 10th, to lock in potential gains. A bullish market allowed LVLT to keep climbing and shares added another +4.7% for the week.

Our exit was on the 10th at $36.82.

- Suggested Positions -
OCT 31, 2013 - entry price on LVLT @ 29.39, option @ 4.40*
symbol:LVLT1517a30 2015 JAN $30 call - exit $8.30** (+88.6%)

02/10/14 planned exit at the opening bell
**option exit price is an estimate since the option did not trade at the time our play was closed.
02/09/14 prepare to exit immediate, Feb. 10th at the opening bell
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.

Chart of LVLT:
Current Target: $39.00
Current Stop loss: 29.75
Play Entered on: 10/31/13
Originally listed on the Watch List: 10/20/13



Watch

Precious Metals, Solar, & Housing

by James Brown

Click here to email James Brown



New Watch List Entries

ANV - Allied Nevada Gold

FSLR - First Solar, Inc

TOL - Toll Brothers


Active Watch List Candidates

BSX - Boston Scientific

KBH - KB Home

RYL - Ryland Group


Dropped Watch List Entries

A has graduated to our play list.



New Watch List Candidates:


Allied Nevada Gold - ANV - close: 5.75

Company Info

After a terrible 2013 performance gold has reversed higher. This past week has seen gold breakout past some significant resistance. This strength in gold has allowed the gold miners to outperform. ANV is one of those miners with big gains last week. We do not want to chase it here.

I am hoping that shares provide a pullback after Friday's rally. Use a trigger at $5.25 with a stop loss at $4.45. This is an aggressive play . Gold and the miners can be volatile and ANV is due to report earnings in the next couple of weeks. I am suggesting small positions to limit our risk.

I am also suggesting investors buy the stock as an alternative to buying the options.

Buy-the-Dip trigger: $5.25, stop loss $4.45

BUY the 2015 Jan $7.50 call (ANV1517a7.5) current ask $0.90

- or -

BUY the ANV the stock @ $5.25

Chart of ANV:

WEEKLY Chart of ANV:

Originally listed on the Watch List: 02/16/14


First Solar, Inc. - FSLR - close: 53.17

Company Info

FSLR is in the technology sector. The company makes solar energy components and systems. Shares of FLSR have been correcting lower since their November 2013 peak. Now after an $18 correction lower shares have finally found support and started to bounce. A breakout past FSLR's 50-dma could signal the next leg higher.

I am suggesting we wait for FSLR to close above $54.00 and then buy calls the next day with a stop loss at $47.40. FSLR can be a volatile stock so I consider this an aggressive, higher-risk trade. Our long-term target is $74.00.

FYI: Earnings are coming up on February 25th. More conservative investors will want to seriously consider waiting until after FSLR reports earnings and we see the market reaction before initiating positions.

*Use small positions to limit risk*

Breakout trigger: Wait for a close above $54.00
then buy calls the next day with a stop at $47.40

BUY the 2015 Jan $60 call (FSLR1517a60) current ask $8.50

Chart of FSLR:

WEEKLY Chart of FSLR:

Originally listed on the Watch List: 02/16/14


Toll Brothers - TOL - close: 37.79

Company Info

TOL is a homebuilder. Stocks in this group have been holding up pretty well in spite of worries that the unusually cold winter weather is killing home sales. The expectation is that pent up demand will produce a rebound surge when weather improves.

Shares of TOL have been consolidating sideways in the $30-38 zone for over a year. A breakout past resistance near $38.00 could be huge and signal the next big move higher. I am suggesting we wait for TOL to close above $38.50 and then buy calls the next day. More conservative investors may want to wait for TOL to close above $40.00 and then buy calls. Readers should also keep in mind that TOL is scheduled to report earnings on Feb. 25th and you may want to wait until after we see how the market reacts to TOL's earnings results before initiating positions.

We already have KBH and RYL on our watch list as potential candidates. I would not trade them all. Pick a homebuilder you like and focus on one.

Breakout trigger: Wait for TOL to close above $38.50 and then buy calls the next morning with a stop loss at $34.30.

BUY the 2015 Jan $40 call (TOL1517a40) current ask $3.90

- or -

BUY the 2016 Jan $45 call (TOL1615a45) current ask $4.60

Chart of TOL:

Originally listed on the Watch List: 02/16/14


Active Watch List Candidates:



Boston Scientific - BSX - close: 13.20

Comments:
02/16/14: BSX could see some movement next week. The stock looks like it's poised to breakout from its recent consolidation/correction phase over the last three weeks. I don't see any changes from last week's new watch list candidate description.

Earlier Comments:
I am suggesting we wait for BSX to close above $13.50 and then buy calls the next morning. We'll start with a stop loss at $11.90. More conservative traders may want to wait for BSX to close above $14.00 before considering new positions.

If triggered our long-term target is the $17.00-18.00 area. The point & figure chart is much more bullish and forecasting at $32.50 target.

Breakout trigger: Wait for a close above $13.50
then buy calls the next morning, stop loss @ 11.90

BUY the 2015 Jan $15 call (BSX1517a15) current ask $0.98

- or -

BUY the 2016 Jan $15 call (BSX1615a15) current ask $1.99

Originally listed on the Watch List: 02/09/14


KB Home - KBH - close: 19.03

Comments:
02/16/14: Extremely cold weather will undoubtedly impact home sales and yet investors don't seem too worried about it. The expectation is that demand and sales will return once the weather warms up. Shares of KBH are holding up relatively well. Traders bought the dip near its early February lows and now KBH is rebounding. More aggressive investors might want to launch positions now.

We're suggesting traders wait for a close above potential round-number resistance at $20.00. 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)

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


Ryland Group - RYL - close: 43.28

Comments:
02/16/14: RYL saw some profit taking early last week but shares have started to bounce. I don't see any changes from last week's new watch list candidate description.

Earlier Comments:
I am suggesting we wait for RYL to close above $45.75 and then buy calls the next day. More aggressive investors may want to just jump in early right now. If we are triggered above $45.75 I am suggesting a stop loss at $41.25.

The $50.00 level was resistance back in early 2013 and will likely be resistance again. However, we are aiming for the $55-60 range. The point & figure chart for RYL is forecasting a long-term target of $64.00.

Breakout trigger: Wait for a close above $45.75
then buy calls the next day. Stop loss at $41.25.

BUY the 2015 Jan $50 call (RYL1517a50)

Originally listed on the Watch List: 02/09/14