Option Investor
Newsletter

Daily Newsletter, Sunday, 3/9/2014

Table of Contents

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

Leaps Trader Commentary

Stocks Shrug Off Russian Invasion

by James Brown

Click here to email James Brown

The U.S. stock market managed another weekly gain in spite of some big headlines that could have been used as an excuse to sell. Equities were weak on Monday, March 3rd, following news that Russian forces had invaded the Crimean peninsula of Ukraine. The Germany stock market and most of the European markets were down -3% on Monday but the Russian stock market plunged -10% on Monday. U.S. stocks were down on Monday but not that bad.

In an interview on Tuesday Russian President Putin suggested Russia is not planning to annex Crimea by force and stocks surged on Tuesday. The situation in Ukraine remained in the foreground while markets digested economic news in addition to headlines that China had its first significant corporate bond default. By Friday's closing bell the NASDAQ was up +0.65% for the week. The S&P 500 index was up +1.0% and the Russell 2000 index posted a +1.7% gain for the week. Transports and financials were both up more than +3% offering strong leadership for the U.S. market.

Economic Data

It was the first week of the month and that meant a lot of economic data to digest. Market participants have been talking about how the unusually cold winter has created a "blame it on the weather" type of "get out of jail free" card and allow traders to ignore disappointing data. The Federal Reserve did not shy away from blaming the weather. The monthly Beige Book report for February 2014 mentioned the winter weather as a factor 119 times versus an average of just 14 times over the last 15 plus years.

American PMI data came in at 57.1, which was higher than expected and the best reading since May 2010. Numbers above 50.0 suggest growth. The ISM services index fell from 54.0 in January to 51.6 in February, which was the weakest reading since February 2010. The employment component of the index plunged from 56.4 to 47.5 in February. Since numbers under 50.0 represent contraction February's drop in the employment component snapped a 25-month growth streak.

Factory orders fell -0.7% in January following a downwardly revised -2.0% drop in December. A number of analysts were alarmed at the drop in Q4 productivity gains, which were adjusted from +3.2% to +1.8%. The monthly ADP Employment Change report for February came in at +139,000 new jobs while the January number was revised lower from +175K to +127K.

The nonfarm payroll (jobs) report on Friday was mostly a nonevent. The general consensus was that if the February jobs report was poor then everyone would just blame it on the weather. Only if the report was significantly above expectations would it be a real market mover. Economists were expecting between +150K to +160K new jobs in the jobs report. February's number came in at +175,000 while January's reading was adjusted higher from +113 to +129K. The unemployment rate ticked higher to 6.7%.

Overseas Data

Most of the economic data from Europe was bullish, except for the constant threat of deflation. The European Central Bank (ECB) kept interest rates unchanged at 0.25% and the Bank of England also left its rates unchanged at 0.5%. The Eurozone GDP estimate rose to +0.3% growth for the quarter. Eurozone manufacturing PMI inched higher from 53.0 to 53.2. Unfortunately the Eurozone retail PMI dipped from 50.5 to 48.5. Numbers above 50.0 suggest growth and under 50.0 indicate contraction.

Germany said its manufacturing PMI ticked higher from 54.7 to 54.8. German industrial production came in at +0.8%. Germany said their wholesale price index slipped -0.1%. Meanwhile Italy also saw its producer price index (PPI) fall -0.2% month over month.

Most of the data out of the Asia region came from China. The HSBC services PMI in China rose from 50.7 to 51.0. Their official manufacturing PMI fell from 50.5 to 50.2. Yet the HSBC manufacturing PMI data for China inched up from 48.3 to 48.5. The Chinese National People's Congress released their 2014 GDP target of +7.5% growth, which is the same as 2013's target growth rate. Unfortunately there were a couple of analysts out this past week suggesting that Chinese GDP growth would likely fall into the +6.0% to +7.2% range this year. Plunging exports do not support their +7.5% GDP target. The most recent data on Chinese exports was alarming with a -18.1% drop in February compares to estimates for +7.5% growth. Chinese imports rose +10.1%.

Another big story in China was news that the Shanghai Chaori Solar Energy Science and Technology company had failed to make a $14.5 million interest payment on its bond debt. This is the first corporate default in China in over 17 years. Normally the Chinese government tends to prop up local corporations for fear that letting them default would be bad for their economy and investor sentiment. Their decision to stray from tradition and let this company default could have very significant shockwaves.

The corporate debt market in China is $14 trillion. The question investors will ask is what about all the companies that should have defaulted in the past but did not thanks to government assistance. Will these companies miss their next debt payment? How much pain is the Chinese government willing to endure to let the markets adjust now that the government safety net is gone? It could be a very volatile year for Chinese investors and markets if this is the new normal going forward. Borrowing costs for Chinese companies should skyrocket and the number of defaults is likely to soar this year.

Ukraine-Russian Conflict

The situation in Ukraine will remain a potential stumbling block for the global equity and currency markets. I'm going to try and just go over the highlights. Last year Ukraine President Viktor Yanukovich turned down an economic deal with the European Union in favor of a deal with Russia. A large portion of the Ukraine people saw this as a betrayal and signs of corruption and manipulation by Russia. This kicked off three months of massive protests in Ukraine that climaxed into a bloody battle between protestors and Ukraine police.

Yanukovish fled Ukraine when it appeared the protestors had won. 24 hours after he fled Kiev (capital of Ukraine) Russian President Putin launched military drills on the Ukraine-Russian border. Shortly thereafter unidentified men, speaking Russian and carrying Russian military equipment, took over the Crimean peninsula of southern Ukraine, seizing the two airports, the parliament building, TV stations, and cutting off road access from Crimea to the rest of Ukraine.

This Russian invasion of Ukraine occurred last weekend. Stock markets around the world were rattled on Monday, March 3rd, following a story that Russia had threatened Ukraine troops with an ultimatum to surrender or "face of storm" of military might from Russia. Fortunately, this was quickly walked back by Russia's Defense Minister, denying any such threat was made.

Russia already had a major naval base near the southern tip of Crimea on the Black Sea. They were leasing it from Ukraine. Putin claims Russia had a right to protect their military base and all Russian-speaking people following the collapse of the Ukraine government. In the past week Russia has bolstered its presence in Crimea to 30,000 troops. According to Stratfor, the geopolitical intelligence firm, the Russian navy has sunk a mothballed ship in the inlet to Crimea's Donuzlav lake, which essentially blocks access from Ukraine's naval port to the Black Sea. By blocking the channel they have trapped seven of Ukraine's 25 ships.

On March 6th the Crimean parliament voted to leave the Ukraine and join the Russian Federation and proposed a referendum on the matter in ten days (March 16th). The U.S. and Europe are blaming Russia behind this move and fueling the Crimean separatist movement. While President Putin blames the west for the protests that brought down the pro-Russian government. It is important to note that there is a significant Russian (or pro-Russian) population in southern and eastern Ukraine. A poll several years ago found that over 50% of the Crimea region identified themselves as Russian, not Ukrainian.

President Obama and President Putin spent over an hour on the phone discussing the situation. They failed to reach any significant agreements. Obama pointed out that the proposed Crimea referendum violates international law. If Russia does not cooperate the U.S. and Europe would retaliate with economic sanctions. Apparently the threat of sanctions did not work and a Russian minister warned that any sanctions would boomerang back and hurt the U.S.

As it stands now the U.S. and Europe have levied sanctions against Russia and any individuals that threaten the sovereignty of Ukraine, and they're prepared to increase them of Russia doesn't cooperate. Russia has promised the retaliate and the Russian parliament is said to be drafting legislation that would allow their country to seize U.S. and European assets in Russia.

Russian energy giant Gazprom, essentially a state-run corporation, has threatened to cut off natural gas supplies to Ukraine if Ukraine doesn't pay its overdue $1.89 billion bill. Part of the issue there is that Europe receives 20% of its natural gas from pipelines that flow through the Ukraine. Fortunately, that number is a lot lower than it was back in 2009 when Russia and Ukraine had a conflict over gas pricing and debt. This time Europe has a lot more natural gas storage and the winter weather in Europe has been mild this year. If Russia were to cut off gas supplies it would hurt but it probably wouldn't be crippling. There are some lawmakers in the U.S. suggesting America could help by sending natural gas to Europe and Ukraine if Russia did cut off supplies.

In the meantime the U.S. and the IMF are working with Ukraine to come up with an economic bailout package to help the country get back on its feet. The recently removed Ukraine president has allegedly stolen billions from his countrymen.

Map of the Black Sea region:

The situation remains fluid. A 37-member observation team from 18 nations by the Organization for Security and Cooperation in Europe tried to enter Crimea but they were stopped at the border by Russian troops. Over the last week Russian troops and Ukraine troops in Crimea have been at a stalemate with nothing more than a few warning shots in the air. The Russians had surrounded all of the Ukraine military bases in Crimea but the latest news coming out this weekend suggests that Russians have upped the ante and started storming Ukraine bases (in Crimea).

The U.S. has started sending F-15 and F-16 fighter jets to the region and a guided-missile cruiser was seen heading north into the Black Sea. At the same time Russian surveillance planes have been pushing the boundaries of international airspace and Turkey has scrambled jets to chase off Russian planes. The current consensus among analysts would suggest that this conflict in Crimea will not be over quickly. Thus far we have probably only seen act one in a four-act play.

Major Indices:

The S&P 500 index ended the week at new all-time highs. Last week's +1.0% gain lifted its year-to-date performance to +1.6%. Some of the momentum indicators are starting to look tired. The index is up 120+ points from its February lows near 1740 without much of a pullback along the way.

The good news is that prior resistance near 1850 should offer new support. If the market continues to push higher then we're looking at likely round-number resistance near 1900.

chart of the S&P 500 index:

The NASDAQ's weekly gain has pushed its 2014 results to +3.8%. The index tagged new 14-year highs. Yet it's worth noting that Friday's performance has created a bearish engulfing candlestick reversal pattern. These patterns need to see confirmation but it remains a warning signal. The 4400 level is probably overhead resistance. We can look for potential support near 4300 and 4240.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index was one of the better performers with a +1.7% gain and a bullish breakout past the 1200 mark. However, you will notice on the chart below that the rally has stalled at one of its trend lines of resistance. The $RUT has been stuck there under this trend line the last three days. The $RUT is also very short-term overbought with a rally from 1,082 to 1,203 with almost no profit taking. Odds would favor a pullback here. Look for support near 1180 and 1160.

chart of the Russell 2000 index



Economic Data & Event Calendar

After last week's parade of economic data this week is pretty quiet.

Economic and Event Calendar

- Monday, March 10 -
Bank of Japan interest rate decision

- Tuesday, March 11 -
wholesale inventories

- Wednesday, March 12 -
G7 meetings

- Thursday, March 13 -
Weekly Initial Jobless Claims
China retail sales
China industrial production
U.S. retail sales for February
business inventory data

- Friday, March 14 -
Producer Price Index (PPI) for February
University of Michigan Consumer Sentiment Survey

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:

Earnings season is over. We have a very light scheduled of economic data. That could leave investors focused on geopolitical events overseas, specifically the Ukraine. We don't know yet how U.S. and European sanctions on Russia and Russia's reprisal sanctions and seizures on the West will impact markets.

I do find it interest that Russia will host the upcoming CIS meeting on April 4th in Moscow. What is the CIS? That's the Commonwealth of Independent States, comprised of former Soviet Republics. It's sometimes referred to as the Russian commonwealth. Current member countries include Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan, and of course Russia. Turkmenistan and Ukraine are unofficial members since they did not ratify the most recent charter.

On a side note, European borders have been changing for a long time. Here's a short video clip of European border changes over the last 1,000 years. click here.

The Bull Market Turns 5 Years Old

March 9th, 2014 happens to be the fifth anniversary or birthday of the current bull market. March 9th, 2009 was the closing low on the S&P 500 at 676 points. The intraday low was 666.79 on March 8th. The large cap index is up +177% from the 2009 low, which marks the second most powerful market move since World War II. The Dow Jones Industrial Average is up +10,000 points from its March 9th, 2009 low of 6,547.

It is worth noting that the current bull market had some help from the Federal Reserve. Five years later and multiple stimulus programs have swollen the Fed's balance sheet from $1.9 trillion to $4.1 trillion today (yes, you read that right. trillion with a "t").

The average bull market has a lifespan of about 3.8 years old, dating back to 1932. Only five bull markets in the last 80 odd years have lived more than 4 1/2 years old. Is the bull market living on borrowed time? While we don't have a large sample size to work with, those markets that do make it past their 5th birthday have a 60% chance of making it to their 6th birthday.

Here's another factoid for you, market technician Carter Worth pointed out that only seven times in history has the S&P 500 rallied five years in a row. 2013 was the fifth up year.

I do want to remind investors that a normal market sees a -10% correction about twice a year. Right now the market is up about 870 days without a 10% correction. Are we overdue for a correction? Absolutely! Does that mean one is imminent? No, it doesn't but if a correction shows up, possibly on rising geopolitical fears, then we shouldn't be surprised.

What is worrisome is the tone of the market. CNN's fear & greed index is firmly in the greed category. The volatility index (VIX) is awfully low considering a Russian invasion of one of its neighbors.

CNN's Fear & Greed index:

You can view the details by clicking here.

The market's trend is still higher. However, I would not be surprised to see a minor pullback or see stocks churn sideways while investors wait to see how the situation in Ukraine turns out. We do have an FOMC meeting coming up in less than two weeks. Stocks could start to drift sideways the closer we get to the meeting as traders wait to hear what the Federal Reserve will do and their outlook for the economy.

U.S. stocks and bonds are the most likely beneficiaries of any global flight to safety. That doesn't mean they can't go down but they should perform better than their European peers as the Ukraine situation unfolds.

James



Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market managed to hit new highs in spite of the conflict in Ukraine.

We added CBI from our watch list to the active play list and BSX is graduating to an active play on Monday (not listed below).

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

I have updated stop losses on: DIS and WFC

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

Graduating To Active Play

by James Brown

Click here to email James Brown


- New Trades -


Boston Scientific - BSX - close: 13.70

Comments:
03/09/14: Our watch list candidate BSX has graduated to a new play. The stock has been consolidating sideways the last few weeks. We have been waiting for shares to close above $13.60 as our entry point. BSX met that requirement with Friday's close at $13.70. The plan is to buy calls on Monday morning. We are launching this play with a wide stop loss at $11.90. More conservative investors will want to consider a higher stop loss (maybe closer to $12.50).

BSX is in the healthcare sector and makes medical devices. Shares have fallen a long way from their 2004 highs near $46.00. The trend changed back in 2003. Momentum now favors the bulls. Our long-term target is the $17-18 area. More aggressive investors, with a longer time frame, may want to aim higher. The Point & Figure chart is very bullish and forecasting at $32 target.

NOTE: More conservative investors might want to wait for BSX to close above potential resistance at $14.00 before launching positions.

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) current ask $1.06

- or -

BUY the 2016 Jan $15 call (BSX1615a15) current ask $2.08

03/10/14 trade opens.
03/09/14 Move BSX from watch list to new plays
03/07/14 BSX closes above $13.60
03/02/14 adjust entry trigger. Wait for close above $13.60 (instead of 13.50)

Chart of BSX:

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



Play Updates

Financials Surge, Homebuilders Crumble

by James Brown

Click here to email James Brown

Editor's Note:

CBI has graduated from our watch list to our active play list.

We want to exit our FL trade immediately on Monday, March 10th.


Closed Plays


Our plan was to close the DLPH trade on Monday, March 3rd.



Play Updates


Agilent Technologies - A - close: 58.42

Comments:
03/09/14: Financial sector stocks were showing relative strength last week. A rallied with them and broke out above its 50-dma. Shares still have a six-week trend of lower highs but this is starting to look like a bull flag pattern, which is a good sign. More conservative investors might want to move their stop closer to the 100-dma.

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 $5.10/5.20

- or -

FEB 14, 2014 - entry price on A @ 55.00, option @ 5.10
symbol: A1615a65 2016 JAN $65 call - current bid/ask $5.90/6.60

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: 89.40

Comments:
03/09/14: ALK was up more than $3 for the week before profit taking hit on Friday. Friday's move is noteworthy since it created a bearish engulfing candlestick reversal pattern. After ALK's four-week rally I would not be surprised to see a pullback.

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 $9.40/9.90

03/09/14 Friday's move is a potential reversal pattern
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

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: 5.51

Comments:
03/09/14: Even with Friday's -3.3% pullback shares of ANV managed to outperform its peers in the gold mining industry. Given the pullback in the group I would not be surprised to see shares of ANV retest the $5.15-5.00 area. Therefore I am not suggesting new positions at this time.

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 $0.65/0.75

- 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)

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: 17.33

Comments:
03/09/14: Financial stocks were some of the market's best performers last week and provided some desperately needed leadership. BAC rallied almost +5% for the week.

- 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 $3.00/3.05

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: 39.18

Comments:
03/09/14: BBT delivered a strong performance with a four-day surge toward its January highs. The stock naturally stalled at potential resistance near its prior highs near $39.30. I would not be surprised to see a short-term pullback from here but if BBT pulls back too sharply it will look like a potential bearish double top pattern. Look for short-term support near $38.00. 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 $1.89/1.96

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


Chicago Bridge & Iron - CBI - close: 84.30

Comments:
03/09/14: CBI is a watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $85.00 and then buy calls the next morning. CBI met that requirement on Thursday with a close at $85.36. Our trade opened on Friday morning at $85.52. I am suggesting a little patience if you did not launch positions yet. Technically, Friday's move has created a bearish engulfing candlestick reversal pattern. I would not be surprised to see CBI retest its 10-dma near $83.00 or possibly even more lower given its last week's performance, which might be interpreted as a possible short-term top.

Nimble traders may want to consider buying calls on a dip in the $83-80 zone. Alternatively you may want to wait for a close above $86.00 as an entry point. Friday's high was $85.86.

- Suggested Positions -
MAR 07, 2014 - entry price on CBI @ 85.52, option @ 6.85
symbol: CBI1517a90 2015 JAN $90 call - current bid/ask $6.00/6.40

- or -

MAR 07, 2014 - entry price on CBI @ 85.52, option @ 8.50
symbol: CBI1615a100 2016 JAN $100 call - current bid/ask $7.60/8.60

03/07/14 trade opens with CBI @ $85.52
03/06/14 CBI closes above our entry requirement of $85.00

Chart of CBI:

Current Target: CBI @ 99.50
Current Stop loss: 79.45
Play Entered on: 03/07/14
Originally listed on the Watch List: 03/02/14


The Walt Disney Co. - DIS - close: 82.21

Comments:
03/09/14: Shares of DIS hit new all-time highs last week. The stock garnered a new $95 price target from an analyst. Shares extended their gains to five up weeks in a row. Yet Friday's move has generated a one-day bearish reversal pattern. I would expect some profit taking soon.

At the moment our long-term target is $89.00 but if DIS continues to surge I will be tempted to raise it into the $95-100 zone.

Please note our new stop loss at $74.75. That is still pretty wide thanks to DIS' sharp rally higher. More conservative investors will want to strongly consider adjusting their stop higher or taking some money off the table.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $11.20/11.40

03/09/14 new stop loss @ 74.75, traders may want to take some money off the table here. DIS is overbought and due for a dip.
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: 74.75
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


Foot Locker, Inc. - FL - close: 46.49

Comments:
03/09/14: Boom! Shares of FL are up +11.4% for the week and most of that was with Friday's +8.79% surge to new highs. The rally follows a better than expected earnings report. Wall Street was expecting a profit of 76 cents a share on revenues of $1.77 billion. FL delivered 82 cents on revenues of $1.79 billion. Same-store sales came in at +5.3% and management offered bullish guidance.

The intraday high on Friday was $46.80. Our long-term target has been $48.00 but FL is moving too far too fast and I am suggesting an immediate exit on Monday morning, March 10th, to lock in potential gains. We can check out FL again after it corrects lower.

- Suggested Positions -
JAN 17, 2014 - entry price on FL @ 39.25, option @ 3.85*
symbol: FL1517a40 2015 JAN $40 call - current bid/ask $7.70/8.10

03/09/14 prepare to exit immediately on Monday morning to lock in potential gains.
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: 56.11

Comments:
03/09/14: I am urging caution on our FSLR trade. Shares continued to drift higher following the prior week's volatile moves. Yet FSLR struggled with resistance near its late February highs. Friday saw FSLR underperform with a -3.65% decline. I suspect shares will move lower next week. We could see FSLR in a new $50-60 trading range.

Remember, this is an aggressive trade. If you cannot stomach the volatility you may want to exit now! Currently our stop loss is at $51.75 but that might be too high. More aggressive traders may want to keep their stop below $50 and below its 200-dma (currently 49.50).

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 $ 8.55/ 8.80

03/09/14 recent action looks short-term bearish, expect a pullback
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: 79.58

Comments:
03/09/14: It was not a good week for GILD bulls. Shares underperformed the broader market and violated short-term support near $80.00a and technical support at its 50-dma. Fortunately both times (Thursday and Friday) GLD traded below its 50-dma the stock recovered to close above it. This is important since the 50-dma has been consistent support over the last several months.

GILD should have support near $75.00 but if the stock closes below $78.00 it could spell bad news for the up trend. Currently our stop loss is at $74.00. More conservative investors may want to raise their stop higher. 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 $8.35/8.60

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: 95.44

Comments:
03/09/14: HON has been struggling to make progress but shares managed a cool $1.00 gain for the week. This is a new all-time high for the stock. I am not suggesting new positions.

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 $12.85/13.05

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: 43.35

Comments:
03/09/14: Last week saw HSP bounce from support near $42.00 again. Shares are trying to breakout past the short-term trend of lower highs. I am optimistic on HSP but I'm 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:
03/09/14: Financial stocks helped lift the market last week. JPM did its part with a big bounce off its long-term trend line of support (see chart below). Now shares face round-number resistance at the $60.00 level.

I am adjusting our long-term bullish target from $64.00 to $68.50. More conservative traders may want to leave their target at $65 since JPM does have some resistance in the $65 area dating back to 1999-2000.

- 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 $ 6.45/6.60

03/09/14 adjust target from $64.00 to $69.00
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)

Chart of JPM:

Current Target: exit 2015 calls when JPM hits $69.00
Current Stop loss: 53.65
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


KB Home - KBH - close: 18.62

Comments:
03/09/14: Ouch! The homebuilders were hammered lower last week. After being nearly bulletproof to negative economic data suddenly the homebuilders are sinking. KBH was hit the hardest with a -8.7% plunge. The stock is back below several layers of what should have been short-term support. The stock settled on Friday at its 50-dma after testing the $18.50 level. Our stop loss on KBH is at $18.45. If there is any follow through lower on Monday we should see KBH hit our stop.

- Suggested Positions -
FEB 27, 2014 - entry price on KBH @ 20.15 option @ 3.09
symbol: KBH1517a20 2015 JAN $20 call - current bid/ask $ 2.16/2.21

03/09/14 KBH has reversed sharply with a -8.7% plunge last week. Any further weakness will hit our stop loss at $18.45.
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: 24.42

Comments:
03/09/14: MU's early March gains faded with shares drifting lower the last few days. The stock looks poised to retest support near $24.00 or possibly its 50-dma near $23.50. Earnings are coming up on March 20th. More conservative investors may want to wait until after the earnings report before considering 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 $ 3.35/3.40

- or -

FEB 10, 2014 - entry price on MU @ 24.64, option @ 3.60*
symbol: MU1615a30 2016 JAN $30 call - current bid/ask $ 3.15/3.25

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: 76.79

Comments:
03/09/14: It was a volatile week for QCOM with shares plunging below support near $74 and its 50-dma last Monday (during the market's drop on the Ukraine news). Shares reversed higher and closed the week at new 14-year highs. The stock got a big boost on Tuesday thanks to the market's big bounce and news that QCOM was boosting its dividend by 20% to 42 cents a share and raising its stock buyback program by another $5 billion, bringing the current buyback allotment to $7.8 billion. 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 $6.15/6.25

03/04/14 QCOM raises dividend and buyback program
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: 43.41

Comments:
03/09/14: RYL is another homebuilder hammered lower by the recent profit taking in the industry stocks. Shares found support at their 50-dma on Friday. The profit taking may be a reaction to very disappointing earnings results from homebuilder Hovnanian, who reported a few days ago. At this point I would wait for a bounce back above $45.00 before considering new positions.

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 $3.60/3.90

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)

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: 73.07

Comments:
03/09/14: Coffee prices continue to soar. the JO coffee ETN is up +77% from its late January lows. A lot of that is likely short covering by coffee futures traders. Shares of SBUX managed another bounce off of support near $70.00. SBUX is quickly approaching technical resistance near its 50-dma and 200-dma, both converging near $74.00. A breakout would be bullish and naturally a reversal would be bearish and suggesting another drop toward its 2014 lows. I am not suggesting new positions at this time.

- Suggested Positions -
FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 4.65
symbol: SBUX1517a75 2015 JAN $75 call - current bid/ask $5.25/5.35

- or -

FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 6.75*
symbol: SBUX1615a80 2016 JAN $80 call - current bid/ask $6.60/6.80

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: 39.22

Comments:
03/09/14: TOL caters to more high-end homebuyers and the stock managed to weather the recent sell-off in homebuilding stocks very well. TOL actually posted a gain for the week. Shares were testing round-number resistance near $40.00 after two analyst firms up graded the stock on Monday and Tuesday.

I would still consider buying calls on a dip near support at $38.00 or you could wait for a close over $40.00 as an alternative entry point.

- Suggested Positions -
FEB 27, 2014 - entry price on TOL @ 38.72, option @ 4.25*
symbol: TOL1517a40 2015 JAN $40 call - current bid/ask $4.00/4.40

- or -

FEB 27, 2014 - entry price on TOL @ 38.72, option @ 5.35*
symbol: TOL1615a45 2016 JAN $45 call - current bid/ask $4.50/5.20

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)

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: 47.95

Comments:
03/09/14: WFC displayed leadership last week with a breakout to new all-time highs. The stock could soon be testing round-number resistance at the $50.00 level. I am raising our stop loss to $43.90.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 1.89/1.93

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 3.45/3.60

03/09/14 new stop loss @ 43.90
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: 43.90
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13



CLOSED Plays


Delphi Automotive - DLPH - close: 66.63

Comments:
03/09/14: Last weekend we had decided to close our DLPH trade on Monday, March 3rd after the stock's rally had stalled at resistance. Shares opened on March 3rd at $65.85, down 72 cents, as the broader market sank on Russia-Ukraine fears.

DLPH's long-term trend is still higher. 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 - exit $6.55 (+45.8%)

03/03/14 planned exit
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



Watch

Services, Semiconductors, & Transports

by James Brown

Click here to email James Brown



New Watch List Entries

EBAY - eBay Inc.

KLAC - KLA-Tencor

UPS - United Parcel Service


Active Watch List Candidates

KMB - Kimberly-Clark Corp.

MA - MasterCard

PFE - Pfizer Inc.


Dropped Watch List Entries

CBI graduated to our play list. BSX has been moved to new plays



New Watch List Candidates:


eBay Inc. - EBAY - close: 59.06

Company Info

EBAY is labeled as part of the services sector and considered a specialty retailer with its online auction market place. They have grown their internet empire to include Stubhub.com and Half.com plus a handful of classified ads website including a stake in Craigslist. One of their biggest and best performing assets is their PayPal business.

The company has been making headlines, whether they want to or not, thanks to activist investor Carl Icahn calling for EBAY to split off its PayPal business. EBAY continues to reject this idea. Shares have been showing relative strength and just recently broke out past major resistance at the top of its trading range (see weekly chart). Now EBAY is hovering in the $59-60 area. The stock's prior highs were $59.00 back in 2004.

I am suggesting we wait for EBAY to close above $60.25 and buy calls the next morning with a stop loss at $54.75. If triggered our long-term target is the $70 - $80 range. Currently the Point & Figure chart is bullish and forecasting at $74 target.

NOTE: Our $79 target might be a little too optimistic if you're buying the 2015 calls but a move $70 would still be profitable.

Breakout trigger: Wait for a close above $60.25
then buy calls the next day with a stop loss at $54.75

BUY the 2015 Jan $65 call (EBAY1517a65) current ask $3.75

- or -

BUY the 2016 Jan $70 call (EBAY1615a70) current ask $5.75

Chart of EBAY:

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


KLA-Tencor - KLAC - close: 66.85

Company Info

KLAC is in the technology sector. The company is in the semiconductor industry and the stock is part of the NASDAQ-100 index. Semiconductor stocks as a group have been helping lead the market higher. Shares of KLAC have rallied to resistance near the 2013 highs.

I am suggesting we wait for KLAC to close above $67.50 and then buy calls the next morning with a stop loss at $61.90. More conservative investors may want to use a stop closer to $64 instead. Our long-term target is $79.00. Currently the point & figure chart is bullish with an $82 target.

Breakout trigger: Wait for a close above $67.50
then buy calls the next day with a stop loss at $61.90

BUY the 2015 Jan $70 call (KLAC1517a70) current ask $4.20

- or -

BUY the 2016 Jan $75 call (KLAC1615a75) current ask $5.20

Chart of KLAC:

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


United Parcel Service - UPS - close: 98.22

Company Info

UPS is part of the transportation industry. They are the largest package delivery company on the planet. Transports were showing relative strength last week. If you believe the U.S. or global economies are going to improve then that should mean more business for companies like UPS. The long-term growth forecast for online shopping is nothing but bullish for UPS.

Currently shares of UPS are bouncing from a long-term trend line of support (see weekly chart below). The stock is also testing technical resistance at the 50-dma. Nimble, more aggressive traders could buy calls on a dip in the $95-96 area. I am suggesting investors wait for UPS to close above round-number resistance at $100.00, actually our trigger is a close above $100.25. Then buy calls the next day with a stop at $94.75. Our long-term target is the $115-120 zone.

Breakout trigger: Wait for a close above $100.25
then buy calls the next day with a stop loss at $94.75

BUY the 2015 Jan $105 call (UPS1517a105) current ask $2.35

- or -

BUY the 2016 Jan $110 call (UPS1615a110) current ask $3.35

Chart of UPS:

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


Active Watch List Candidates:



Kimberly Clark Corp. - KMB - close: 108.95

Comments:
03/09/14: KMB is still consolidating sideways in the $108-111 zone. 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)

- or -

BUY the 2016 Jan $120 call (KMB1615a120)

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


Mastercard Inc. - MA - close: 77.94

Comments:
03/09/14: MA's performance last week was a bit disappointing. There was no follow through on Tuesday's big bounce and shares just slowly drifted lower the rest of the week. Big picture nothing has changed. We are still waiting on a breakout past its 50-dma and past the $80.00 mark.

Earlier Comments:
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)

- or -

BUY the 2016 Jan $90 call (MA1615a90)

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


Pfizer Inc. - PFE - close: 32.43

Comments:
03/09/14: PFE managed to tag new multi-year highs last week but failed to close above our $32.75 requirement to launch positions. It did come exceptionally close with PFE closing right at $32.75 on Tuesday. The overall trend is still bullish so you're probably fine if you did launch positions on Wednesday.

Tonight I am adjusting our entry point and moving the requirement to a close over $33.00 instead of $32.75. PFE struggled with the $33.00 level midweek. We will leave the stop loss unchanged.

Earlier Comments:
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 $33.00
then buy calls the next morning with a stop at $29.75.

BUY the 2015 Jan $35 call (PFE1517a35)

- or -

BUY the 2016 Jan $35 call (PFE1615a35)

03/09/14 adjust the entry trigger to a close above $33.00 (instead of $32.75)
03/05/14 PFE closed @ 32.75 but not above $32.75, no trade.

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