Option Investor
Newsletter

Daily Newsletter, Sunday, 3/2/2014

Table of Contents

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

Leaps Trader Commentary

Stocks Manage New Highs

by James Brown

Click here to email James Brown

The month of February 2014 is now in the books and it turned out to be a positive one for stocks. It didn't start out that way. After a sharp sell-off in late January the U.S. markets shot lower again early February. However, the S&P 500 index found support near 1740 and has produced an almost non-stop rebound from its February lows.

This past week saw the S&P 500 struggle to breakout past its old highs but that changed on Thursday. After Fed Chairman Janet Yellen completed her semiannual testimony before the Senate Banking Committee on Thursday stocks ended on a high note. The market managed to weather some alarming headlines on Friday regarding Russia's military move into the southern part of Ukraine. The Dow Industrials had their best month since January 2013 but are still more than 200 points from new highs. Meanwhile the S&P 500 and Russell 2000 tagged new all-time highs and the NASDAQ composite hit new 14-year highs.

Ukraine-Russian Conflict

Two weeks ago Ukraine was making major headlines as its government started firing on protestors that eventually toppled what many are calling its corrupt Russian-backed government. Here we are, a week later, and Russia is taking advantage of the power-vacuum in Ukraine and sending troops into the Crimea, Ukraine's southern peninsula.

Early reports described camouflaged men without any insignia, in full combat gear, carrying AK-47s and sniper rifles, had seized Crimea's two airports. These soldiers also seized Crimea's parliament building, a television station, and telecom company. This followed less than 24 hours after Russian president Putin had launched snap drills for 150,000 Russian soldiers, including 900 tanks, on the border of Ukraine and Russia.

Russia already has a major naval base at Sevastopol, on the southern tip of Crimea, with a lease from the Ukraine through the year 2042. Russia already had a military presence in the area. This "invading" force met very little resistance since most of the locals support Russia. A 2001 poll found that 58% of Crimeans identified themselves as Russian.

Russia claims the movement of men and military vehicles into Crimea were necessary to ensure the security of its naval base. However, the amount of men and machines has ballooned to over 6,000 soldiers in the last 24 hours. Russian Parliament has given unanimous approval for military action while the Ukraine leadership is calling it an invasion and an act of war.

Ukraine is begging for help from the Europe and the U.S. There has already been an emergency NATO meeting and an emergency U.N. Security Council concerning Russia's movements into Ukraine. I'm sure that was an interesting meeting since Russia is a permanent member of the security council. NATO, the U.N. and President Obama have all strongly condemned Russia's actions but so far it has been nothing but words. Ukraine is home to 45 million people but they only have an army of 130,000. Russia's total military force is about 845,000.

There has been plenty of speculation this weekend on how Russian leader Putin seems ready to reignite the Cold War with the west. Russia's military spending has doubled since 2007 and is on pace to triple by 2016. Russian Defense Minister Sergei Shoigu said the country is currently in talks to set up permanent bases for its navy and bombers in Cuba, Venezuela, Nicaragua, Cyprus, the Seychelles, Vietnam, and Singapore. There were additional headlines of a Russian warship that docked in Cuba this weekend.

Ukraine is not a member of the EU nor is it a member of NATO. It seems unlikely that the West will be willing to get into a shooting war with Russia, especially if all they take is Crimea. However, it's a fluid situation and could change significantly in the days ahead.

Economic Data

U.S. economic data was mixed last week. The market was expecting the Q4 GDP estimate to be revised lower so it was no surprised to see Q4 GDP growth adjusted from +3.2% to +2.4%. The full year 2013 GDP estimate has been adjusted to +1.9%, which is down from +2.8% in 2012. Currently Q1 GDP 2014 estimates are in the +1.0 to +1.2% range.

The Chicago PMI data for February came in at 59.8, up from 59.6. Analysts were expecting a decline. The final reading for the University of Michigan Consumer Sentiment index for February was revised higher from 81.2 to 81.6. Economists were expecting the durable goods orders to drop -1.7% but the number came in at -1.0%. The December durable goods number was revised lower form -4.2% to -5.3%.

There was a lot of data on the housing market. The Case-Shiller 20-city home price index for December rose +13.4%. That's down from November's +13.7% but December marks the tenth month in a row that home prices have risen double digits. Pending home sales for January inched +0.1% following a -5.8% plunge in December. Meanwhile better than expected new home sales data sent the housing stocks surging higher. Analysts were expecting new home sales to fall -3.4% but the January numbers surged +9.6% to an annual pace of 468,000. That's the fastest pace in five years. Mortgage applications were moving the opposite direction with the weekly application index down -8.5%. That follows the prior week's -4.1% decline. The mortgage application purchase index has fallen to the lowest level since 1995.

Overseas Data

German retail sales improved +2.5% on a month over month basis. German unemployment was unchanged at 6.8%. The country's Q4 GDP estimate was unchanged at +0.4%. France said their PPI numbers slipped -0.6% for the month, which doesn't help since fears are already rising over deflation in Europe.

Meanwhile in Japan the country said their manufacturing PMI dipped from 56.6 to 55.5. Numbers above 50.0 suggest growth. Japan's industrial production rose +4.0% for the month, which was better than expected. China continues to see housing price appreciation with home prices up +9.6% year over year. A director at the People's Bank of China warned that the economy could be volatile this year. Over the weekend China released their purchasing managers index (PMI) numbers for February, which hit an eight-month low at 50.2. That's down from January's 50.5. Numbers above 50.0 suggest growth and you can see that these PMI numbers indicate China is on the verge of contraction. Last month also saw a very sharp drop in the Chinese currency, the Yuan. There has been some speculation that China is letting their currency fall since it makes their exports cheaper and more competitive.

Major Indices:

Investor sentiment on the S&P 500 index was starting to sour by Wednesday after seeing the index fail to breakout to new highs for the third time in a row. Fortunately by Friday's closing bell the index was at a new all-time high. Currently the S&P 500 is up +0.6% for 2014.

If this rally continues then the 1880 and 1900 levels are potential resistance. The 1840 level was support last week but any market decline would probably push the S&P 500 toward its 50-dma near 1820.

chart of the S&P 500 index:

The NASDAQ composite tagged new 14-year highs before paring its gains on Friday. The index is up more than 300 points from its February low. It's probably time for a pullback. Look for overhead resistance at 4400 and 4500 (and the trend line of higher highs). We can watch for likely support near 4200. Year to date the NASDAQ is up +3.2%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index was a strong performer with a +1.58% gain last week. Year to date the $RUT is up +1.6%. Unfortunately the $RUT also looks very short-term overbought with its big bounce from the February lows near 1080. After a 100-point rally it's probably time for a dip.

The 1200 level and the trend line of higher highs are potential resistance. We can watch for potential support near 1160 and 1140.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's a new month and that means a parade of economic data. On Wednesday we'll see the ADP Employment Change report. Last month the ADP numbers were +175,000 new jobs and estimates for February suggest a similar performance. The nonfarm payroll (jobs) report is due out Friday morning. Last month we saw January job growth of +113,000. Economists are estimating +165,000 for February.

This week we will also hear from the ECB and its latest interest rate decision. No one expects any changes although there are some hoping for a decline in rates to help fight what mean see as Europe's biggest threat - deflation. ECB President Mario Draghi will hold a press conference after the ECB decision is released.

Economic and Event Calendar

- Monday, March 03 -
personal income and spending
ISM (manufacturing) index
auto and truck sales
Eurozone manufacturing PMI data

- Tuesday, March 04 -
(nothing significant)

- Wednesday, March 05 -
ADP Employment Change Report
ISM Services index
Federal Reserve Beige Book report
Eurozone GDP estimate

- Thursday, March 06 -
Weekly Initial Jobless Claims
Factory orders
European Central Bank (ECB) rate decision
ECB President Mario Draghi press conference
Bank of England (BoE) rate decision

- Friday, March 07 -
U.S. nonfarm payrolls (jobs) report
Unemployment rate

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:

As we look ahead to the first week of March there are a lot of cross currents at play. First and foremost is the situation in Ukraine with Russian troops in Crimea. If shooting starts it could rattle global markets. Right now Ukraine leaders are mobilizing troops and calling up reservists.

Here at home in the U.S. a good chunk of the country is going to get hit with another winter storm. Thus far the 2013/2014 winter has been one of the coldest on record. The U.S. could see up to a foot of snow from parts of Kansas to Massachusetts. This is likely to further fuel the idea that winter weather is depressing Q1 business activity. We'll hear more and more about how Q1 doesn't matter because of the weather but that's because the expectation is a snap back in spring when the weather improves.

Bulls could argue that the trend is up, which is true. I am concerned, at least on a short-term basis, that stocks look a bit overbought with the big bounce from their February lows. Seasonally the market tends to rise in March and into April. The first week of the month should see new mutual fund money put to work. However, market participants may take a wait and see approach. As of Sunday night the futures are down and suggesting a drop at the opening bell on Monday.

It is certainly possible that stocks churn sideways as the world waits to see what happens in Ukraine and waits to see what the U.S. job numbers are on Friday morning.

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market finished the month of February on a high note with the S&P 500 index and Russell 2000 index at or near all-time highs.

We added ALK, ANV, KBH, RYL, and TOL from our watch list to the active play list.

We want to exit our DLPH trade on Monday morning to lock in potential gains.

I have updated stop losses on: A, BBT, DIS, FL, FSLR, and HON.

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

Five Candidates Jump To Active Plays

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(March 02, 2014)

The stock market's recent strength is encouraging. However, stocks now look a bit overbought and due for a pullback after its big bounce from the February lows.

This past week we had five candidates graduate from our watch list to our active play list (ALK, ANV, KBH, RYL, and TOL). I'm not adding any new plays tonight but we are adding three new candidates to the watch list.

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:

EBAY, PCLN, HSY, FB, NVDA, ADBE, GBX, TRN, FLS, MS, CBS, NTGR, GE, TTM, LUV, TTWO, DNKN, CAT, CTSH, NOV, EOG, CBOE, DG, EMN, KRFT, M, HP, WDC, ITW, FLWS, HOG, WSM, DPS, VMC, UNH, AA, XLNX, SPWR, SCTY, JKS, ABT, IR,


Play Updates

Prepare To Exit DLPH

by James Brown

Click here to email James Brown

Editor's Note:

We had several candidates graduate from our watch list to our active play list: ALK, ANV, KBH, RYL, and TOL.

We want to exit our DLPH trade on Monday morning to lock in potential gains.


Closed Plays



None. No closed plays this week.




Play Updates


Agilent Technologies - A - close: 56.93

Comments:
03/02/14: Shares of Agilent eked out a gain for the week but shares are still struggling with resistance near the $58 area and its 50-dma. Odds are still good we will see A retest its 100-dma near $55.20. I am turning a bit more defensive here and we will raise our stop loss to $53.80.

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 $4.25/4.40

- or -

FEB 14, 2014 - entry price on A @ 55.00, option @ 5.10
symbol: A1615a65 2016 JAN $65 call - current bid/ask $5.10/5.50

03/02/14 new stop loss @ 53.80
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)

Current Target: A @ $74.00
Current Stop loss: 53.80
Play Entered on: 02/14/14
Originally listed on the Watch List: 01/26/14


Alaska Air Group - ALK - close: 86.64

Comments:
03/02/14: It was a big week for ALK with shares flying to new highs. The stock was on our watch list and the plan was to wait for shares to close above $82.50. ALK met that requirement on February 24th with a close at $83.50. Our trade opened the next day with ALK gapping higher at $85.88. At the moment I would not chase ALK here. Odds are good the stock will see a pullback into the $82-84 area and investors can use the pullback as a new entry point.

Earlier Comments:
The point & figure chart is already bullish with a $98.00 target. Our long-term target is $99.00.

- Suggested Positions -
FEB 25, 2014 - entry price on ALK @ 85.88, option @ 8.00
symbol: ALK1517a90 2015 JAN $90 call - current bid/ask $8.10/8.60

02/25/14 trade opens with ALK gapping higher at $85.88
02/24/14 ALK meets our entry requirement with a close above $82.50

Chart of ALK:

Current Target: ALK @ $99.00
Current Stop loss: 77.40
Play Entered on: 02/25/14
Originally listed on the Watch List: 02/23/14


Allied Nevada Gold - ANV - close: 5.23

Comments:
03/02/14: ANV is also a watch list candidate that has graduated to our active play list. ANV is in the gold mining industry. As we suspected the stock did see a post-earnings sell-off and ANV hit our buy-the-dip entry point at $5.00. Shares fell to an intraday low of $4.82 on Feb. 26th but it looks like investors are buying the dip. More conservative investors might want to wait for a new close above $5.50 before initiating new positions. Our long-term target is $9.50.

Earlier Comments:
This is an aggressive play . Gold and the miners can be volatile I am suggesting small positions to limit our risk. I am also suggesting investors buy the stock as an alternative to buying the options.

- Suggested Positions -
FEB 26, 2014 - entry price on ANV @ 5.00, option @ 0.60
symbol: ANV1517a7.5 2015 JAN $7.50 call - current bid/ask $0.55/0.65

- or -

(Buy the stock)
FEB 26, 2014 - entry price on ANV @ $5.00

02/26/14 triggered @ 5.00
02/23/14 Adjust the buy-the-dip entry to $5.00 (from $5.25)

Chart of ANV:

Current Target: ANV @ $9.50
Current Stop loss: 4.45
Play Entered on: 02/26/14
Originally listed on the Watch List: 02/16/14


Bank of America - BAC - close: 16.53

Comments:
03/02/14: The financial sector managed gains last week but gains were relatively mild. BAC is still trading under a six-week trend of lower highs. A breakout above this trend line would naturally be bullish for the stock.

- 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 $2.45/2.47

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
...please see earlier updates for older comments...

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: 37.80

Comments:
03/02/14: BBT looks like it's about ready to breakout from its four-week consolidation. The stock briefly traded above resistance near $38.00 on Friday. I am raising our stop loss to $35.80.

- Suggested Positions -
DEC 17, 2013 - entry price on BBT @ 35.81, option @ 0.99
symbol: BBT1517a40 2015 JAN $40 call - current bid/ask $1.32/1.38

03/02/14 new stop loss @ 35.80
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: 35.80
Play Entered on: 12/17/13
Originally listed on the Watch List: 12/15/13


The Walt Disney Co. - DIS - close: 80.81

Comments:
03/02/14: Another week, another new all-time high for shares of DIS. That seems to be the trend lately. Traders bought the dip near DIS' rising 10-dma. The stock remains overbought and due for some profit taking. I am not suggesting new positions.

DIS will eventually see another pullback, and it could be several points. More conservative investors might want to lock in gains now.

I am raising our stop loss to $71.75.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $10.00/10.20

03/02/14 new stop loss @ 71.75
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: 71.75
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Delphi Automotive - DLPH - close: 66.57

Comments:
03/02/14: The rally in DLPH has paused at resistance. I am suggesting we take profits immediately (on Monday morning) to lock in gains. We can revisit DLPH as a potential candidate again on a correction lower.

- Suggested Positions -
JAN 24, 2014 - entry price on DLPH @ 60.25, option @ 4.49
symbol: DLPH1517a65 2015 JAN $65 call - current bid/ask $6.90/7.30

03/02/14 prepare to exit on Monday morning
02/04/14 DLPH reports better than expected earnings but lowers Q1 guidance

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: 41.71

Comments:
03/02/14: FL rallied to new highs only to stall at the $42.00 level. This stock may continue to move sideways as investors wait for the earnings results. FL is due to report earnings on March 7th. I am not suggesting new positions at this time. I am raising our stop loss to $37.45.

NOTE: The winter weather has been challenge for retailers, keeping customers at home and indoors. I would not be surprised to see FL miss estimates. More conservative traders might want to exit prior to the earnings report.

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 $4.60/4.80

03/02/14 new stop loss @ 37.45
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: 37.45
Play Entered on: 01/17/14
Originally listed on the Watch List: 12/29/13


First Solar, Inc. - FSLR - close: 57.07

Comments:
03/02/14: Wow! Talk about a volatile week. FSLR reported earnings on Feb. 25th. The missed the bottom line estimate. They missed the revenue estimate. If that wasn't bad enough management also lowered guidance. The next day shares plunged from $58.00 to $49.52. Yet FSLR has seen a big bounce and actually closed with gains for the week. The big bounce got a boost from an analyst upgrade.

I am worried about this trade following FSLR's earning results. Virtually everything management discussed suggested the company is facing headwinds. I am raising our stop loss to $51.75 and more conservative investors might be better off to just exit now. I am not suggesting new positions.

Earlier Comments:
FSLR can be a volatile stock so I consider this an aggressive, higher-risk trade. Our long-term target is $74.00.

*Use small positions to limit risk*

- Suggested Positions -
FEB 19, 2014 - entry price on FSLR @ 56.63, option @ $10.20
symbol: FSLR1517a60 2015 JAN $60 call - current bid/ask $ 9.15/ 9.30

03/02/14 new stop loss @ 51.75. The earnings call last week was very disappointing and does not bode well for FSLR. More conservative traders may want to just exit early now.

Current Target: exit when FSLR hits $74.00
Current Stop loss: 51.75
Play Entered on: 02/19/14
Originally listed on the Watch List: 02/16/14


Gilead Sciences - GILD - close: 82.79

Comments:
03/02/14: GILD eked out a very small gain for the week. The previously bulletproof biotechs finally saw some profit taking last week. Big picture the trend for GILD is still higher but shares may retest support near $80 or its 50-dma on any market pullback. I am not suggesting new positions at this time.

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 $9.65/9.90

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: 94.44

Comments:
03/02/14: HON has spent the last two weeks consolidating sideways beneath resistance at the $95.00 level. Shares look poised for a breakout higher. I am adjusting our exit target from $98.00 to $99.00. I am moving our stop loss to $89.75.

Earlier Comments:
Our initial plan was to keep our position size small to limit risk.

- Suggested Positions -
(closed the 2014 calls on May 20th at the open)
MAY 07, 2013 - entry price on HON @ 76.20, option @ 2.68
symbol: HON1418a80 2014 JAN $80 call - exit $5.10 (+90.2%)

- or -

MAY 07, 2013 - entry price on HON @ 76.20, option @ 4.10
symbol: HON1517a85 2015 JAN $85 call - current bid/ask $11.80/12.40

03/02/14 new stop loss @ 89.75, adjust target to $99.00
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
...please see earlier newsletter for prior comments...

Current Target: exit when HON hits $99.00
Current Stop loss: 89.75
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Hospira Inc. - HSP - close: 43.28

Comments:
03/02/14: HSP gained a dollar for the week. Shares seem to be struggling with a short-term trend of lower highs. There is additional resistance near $45.00. I am not suggesting new positions at this time.

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 $ 3.50/4.00

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: 56.82

Comments:
03/02/14: JPM underperformed its peers in the financial sector with a decline last week. Shares are back below their 50-dma and look headed for their lows in the $55-54 area. The long-term trend is up and a dip near its 200-dma (currently near 54.70) could be used as a new entry point. Keep in mind our stop loss is at $53.65.

- 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 $ 4.95/5.00

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


KB Home - KBH - close: 20.40

Comments:
03/02/14: The rally in the homebuilders accelerated last week and shares of KBH broke out past key resistance near the $20.00 mark. KBH was on our watch list and the plan was to wait for shares to close above $20.00. KBH met that requirement on Feb. 26th with a close at $20.18. Our trade opened the next day at $20.15. I would still consider new positions now.

- Suggested Positions -
FEB 27, 2014 - entry price on KBH @ 20.15 option @ 3.09
symbol: KBH1517a20 2015 JAN $20 call - current bid/ask $ 3.15/3.25

Chart of KBH:
Current Target: KBH @ $25.00
Current Stop loss: 18.45
Play Entered on: 02/27/14
Originally listed on the Watch List: 02/03/14


Micron Technology - MU - close: 24.19

Comments:
03/02/14: The recent action in MU does not inspire any confidence. Shares have been underperforming the chip sector and the broader market. The action on its weekly chart looks like a potential top. The stock has found short-term support near $24.00. Below that there should be more support at the 50-dma (near $23). Investors may want to wait for a bounce before launching new bullish positions.

Earlier Comments:
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 $ 3.25/3.30

- or -

FEB 10, 2014 - entry price on MU @ 24.64, option @ 3.60*
symbol: MU1615a30 2016 JAN $30 call - current bid/ask $ 3.10/3.25

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: 75.29

Comments:
03/02/14: QCOM is not participating in the market's recent push higher. The stock has spent two weeks consolidating sideways (with minor losses). I haven't heard any more news on the Chinese investigation into QCOM's business but that could be weighing on the share price. 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 $5.15/5.25

02/19/14 QCOM being investigated by Chinese authorities
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


Ryland Group - RYL - close: 43.05

Comments:
03/02/14: RYL delivered big gains last week with a +8.2% surge higher. The stock has broken out past major resistance near $45.00. We had RYL on our watch list with a plan to wait for shares to close above $45.75. The stock met that requirement on Feb. 26th with a close at $45.98. Our trade opened on the 27th at $45.78. If you're looking for a new entry point consider waiting for a dip near $45.50. The $45.00 level should be new support.

Earlier Comments:
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.

- Suggested Positions -
FEB 27, 2014 - entry price on RYL @ 45.78, option @ 4.85*
symbol: RYL1517a50 2015 JAN $50 call - current bid/ask $4.80/5.30

02/27/14 trade opens with RYL @ 45.78
*option entry price is an estimate since the option did not trade at the time our play was opened.
02/26/14 RYL closes above our trigger (45.75)

Chart of RYL:

Current Target: $55.00-60.00 range
Current Stop loss: 41.25
Play Entered on: 02/27/14
Originally listed on the Watch List: 02/09/14


Starbucks - SBUX - close: 70.96

Comments:
03/02/14: A warned readers last week that SBUX appeared to be headed lower. Shares fell to support near $70.00 and bounced. I suspect we will see SBUX test its February low near $68.60. Currently our stop loss is at $67.90. I am not suggesting new positions at this time. The best outcome is a bounce at the February low, which would form a bullish double bottom.

- Suggested Positions -
FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 4.65
symbol: SBUX1517a75 2015 JAN $75 call - current bid/ask $4.25/4.40

- or -

FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 6.75*
symbol: SBUX1615a80 2016 JAN $80 call - current bid/ask $5.65/5.90

02/23/14 SBUX is rolling over and looks headed for the February low
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


Toll Brothers - TOL - close: 39.01

Comments:
03/02/14: TOL is another homebuilder and another watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $38.50 and then buy calls the next day. TOL closed at $38.90 on February 26th. Our trade opened the next morning at $38.72. I would still consider new positions now but nimble traders may want to consider trying to buy a dip near $38.00 instead.

- Suggested Positions -
FEB 27, 2014 - entry price on TOL @ 38.72, option @ 4.25*
symbol: TOL1517a40 2015 JAN $40 call - current bid/ask $3.90/4.30

- or -

FEB 27, 2014 - entry price on TOL @ 38.72, option @ 5.35*
symbol: TOL1615a45 2016 JAN $45 call - current bid/ask $4.50/5.10

02/27/14 trade opens with TOL @ 38.72
*option entry price is an estimate since the option did not trade at the time our play was opened.
02/26/14 TOL closes above our trigger (38.50)

Chart of TOL:

Current Target: RYL @ $49.00
Current Stop loss: 34.30
Play Entered on: 02/27/14
Originally listed on the Watch List: 02/16/14


Wells Fargo & Co. - WFC - close: 46.42

Comments:
03/02/14: WFC is helping lead the financial sector higher. The stock is approaching its January highs, which could be resistance in the $46.85 area. While the trend is bullish 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 $ 1.32/1.37

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 2.79/2.90

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



Watch

Another Successful Week!

by James Brown

Click here to email James Brown



New Watch List Entries

CBI - Chicago Bridge & Iron

MA - MasterCard

PFE - Pfizer Inc.


Active Watch List Candidates

BSX - Boston Scientific

KMB - Kimberly-Clark Corp.


Dropped Watch List Entries

ALK, ANV, KBH, RYL, and TOL have all graduated to our play list.



New Watch List Candidates:


Chicago Bridge & Iron - CBI - close: 84.19

Company Info

CBI is part of the industrial goods sector. They are a huge contract construction firm with a big focus on energy infrastructure projects. The stock was a big performer in 2013. The company has been firing on all cylinders yet that didn't stop shares from seeing some profit taking and a correction lower in the second half of January (following the market lower). The stock market's bounce from the February lows has carried CBI back toward its highs. Shares managed to breakout to new highs following a much better than expected earnings report.

Wall Street was expecting a profit of $1.17 a share on revenues of $3.08 billion. CBI reported revenues of $3.0 billion but net profits soared to $1.91 a share. Their backlog surged +155% to $27.8 billion. I suspect we could see CBI reach $100 or more by yearend. The Point & Figure chart is forecasting at $111.00 target.

Tonight I am suggesting investors wait for CBI to close above $85.00 and then buy calls the next morning with a stop loss at $79.45. Our target will be $99.50.

Breakout trigger: Wait for CBI to close above $85.00
then buy calls the next morning with a stop at $79.45.

BUY the 2015 Jan $90 call (CBI1517a90) current ask $6.50

- or -

BUY the 2016 Jan $100 call (CBI1615a100) current ask $8.10

Chart of CBI:

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


Mastercard Inc. - MA - close: 77.72

Company Info

MA is in the financial sector. The company provides transaction processing and payment-related services. They're best known for their MasterCard branded credit cards but they also provide debit cards, prepaid cards and more. MA processes about 33% of the world's credit card transactions and about 19% of the global debit card transactions. MA growing its "in-app payment" service that allows users to make purchases with a mobile app and MA just recently announced plans to buy C-SAM, a mobile-wallet type of service.

The U.S., Europe, and most of the Western countries see a significant amount of electronic transactions but a lot of the emerging markets still do a significant amount of cash transactions. MA sees this trend changing as the rest of the globe catches up to credit and debit card transactions.

The stock recently held a 10-for-1 stock split on January 21st, 2014. During the market's January sell-off MA corrected from $85 to $72.50. The bounce has stalled beneath resistance in the $78-80 zone but the point & figure chart is still bullish with a $89.00 target.

I am suggesting investors wait for MA to close above $80.00 and buy calls the next morning with a stop loss at $74.75. Our long-term target is $99.00.

Breakout trigger: Wait for MA to close above $80.00
then buy calls the next morning with a stop at $74.75.

BUY the 2015 Jan $85 call (MA1517a85) current ask $4.45

- or -

BUY the 2016 Jan $90 call (MA1615a90) current ask $7.30

Chart of MA:

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


Pfizer Inc. - PFE - close: 32.11

Company Info

PFE is in the healthcare sector. The company, founded back in 1849, has grown into a titanic drug maker. Wall Street expects 2014 to see significantly more volatility than 2013, which was an unusually low-volatility year. An increase in market volatility could drive investor money into more defensive and high-dividend names thanks to their perceived safety. PFE looks tempting with a long-term bullish trend and a 3.2% yield.

Currently PFE is on the verge of a breakout past resistance near $32.50. Such a move would mark new multi-year highs for the stock. I am suggesting investors wait for PFE to close above $32.75 and then buy calls the next morning with a stop loss at $29.75. Our long-term target is the $38-40 zone. I prefer the 2016 calls but I'm listing both the 2015s and 2016s.

Breakout trigger: Wait for PFE to close above $32.75
then buy calls the next morning with a stop at $29.75.

BUY the 2015 Jan $35 call (PFE1517a35) current ask $0.95

- or -

BUY the 2016 Jan $35 call (PFE1615a35) current ask $1.75

Chart of PFE:

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


Active Watch List Candidates:



Boston Scientific - BSX - close: 13.10

Comments:
03/02/14: BSX flirted with a push past resistance near $13.50 but didn't quite make it. The intraday high on February 26th was $13.58. We will adjust our trigger from a close above $13.50 to a close above $13.60.

Earlier Comments:
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 $13.60
then buy calls the next morning, stop loss @ 11.90

BUY the 2015 Jan $15 call (BSX1517a15)

- or -

BUY the 2016 Jan $15 call (BSX1615a15)

03/02/14 adjust entry trigger. Wait for close above $13.60 (instead of 13.50)

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


Kimberly Clark Corp. - KMB - close: 110.35

Comments:
03/02/14: Traders bought the dip in KMB near $108 last week. The rebound has left shares poised for a breakout higher. I don't see any changes from my prior comments.

Earlier Comments:
The stock's recent rally has lifted shares to key resistance near $110-111. A breakout here could signal the next big leg higher. The point & figure chart is already very bullish forecasting a $145 target.

I am suggesting we wait for KMB to close above $112.00 and then buy calls the next day with a stop loss at $107.00. If triggered our long-term target is $128.00.

FYI: KMB is planning to spin off its health care business by the end of Q3 2014.

Breakout trigger: Wait for a close above $112.00
buy calls the next day. stop loss @ 107.00.

BUY the 2015 Jan $115 call (KMB1517a115) current ask $3.90

- or -

BUY the 2016 Jan $120 call (KMB1615a120) current ask $5.40

Originally listed on the Watch List: 02/23/14