Option Investor
Newsletter

Daily Newsletter, Sunday, 3/23/2014

Table of Contents

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

Leaps Trader Commentary

Digesting Crimea And The FOMC

by James Brown

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Stocks produced a significant relief rally following the Crimea referendum last weekend. Results showed that 95.5% of Crimea voted to join Russia. The West views the vote as illegal but that didn't stop Russia from accepting Crimea and annexing the region. The facts that this has not turned into a shooting war in the Ukraine and that sanctions against Russia have (thus far) been mild helped spur the equity markets' rally.

The markets were also digesting the latest FOMC meeting policy statement and Janet Yellen's first press conference as Fed chairman. Markets also reacted to the Federal Reserve's latest bank stress test. Financial stocks showed relative strength after the Fed said 29 of the 30 banks passed their test. Wednesday marked the end of a two-day FOMC meeting where the Fed released its longest policy statement on record. As expected the Federal Reserve reduced their QE program by another $10 billion a month, down to $55 billion. This reduces their asset purchases to $25 billion in mortgage-backed securities and $30 billion a month in long-term U.S. treasuries.

The market was not expecting the Federal Reserve to remove the 6.5% unemployment as a condition for potential tightening. Another surprise was Yellen's definition of a "considerable time." Previous Fed statements said that the FOMC would not raise interest rates for a "considerable time" after the current QE program had ended. When asked during the press conference on Wednesday what a considerable time was for the Fed, Yellen responded with a seemingly casual remark that it was "probably six months" or so. The previous expectation was that a "considerable time" was more in the 10 to 12 month range. Thus the bond market reacted since this means the Fed might raise interest rates a few months sooner than everyone expected.

At the current rate the Federal Reserve is tapering their QE program, $10 billion per fed meeting, the current consensus puts the end of the QE program at January 1st, 2015. Yet comments from Dallas Fed President Richard Fisher this past week threw another curve ball at the market. Fisher suggested he would like to see the QE program end about three months earlier than that. If you combine his time line with Yellen's six-month "considerable time" comments then the Fed could start raising rates a lot earlier than previously expected.

Economic Data

Economic data in the U.S. continues to be mixed but some of the manufacturing data was encouraging. The New York Empire State manufacturing survey came in at 5.6 versus expectations at 7. Yet the Philly fed survey jumped to 9 compared to estimates for a reading near 3. Overall U.S. factory output rose +0.8% in February, the biggest one-month rise since August. Looking at inflation the consumer price index (CPI) was in-line with estimates with a rise of 0.1% in February following a +0.2% rise in January.

The U.S. real estate market is still shaking off a cold winter. The NAHB homebuilder sentiment survey hit 47, which was below expectations. Housing starts fell -0.2% to an annualized pace of 907,000. Yet building permits rose +7.7% to an annual pace of 1.01 million, which was better than expected. Existing home sales in February slipped -0.4% to an annual pace of 4.6 million home. Unfortunately, that is the slowest pace of existing home sales since July 2012. We will see more home sales and price data this week.

Overseas Data

It was a relatively quiet week for economic data overseas. The Eurozone CPI reading came in at +0.3% for the month, slightly below expectations. The Eurozone ZEW economic sentiment survey declined from 68.5 to 61.5, which was worse than expected. On a positive note car sales in Europe posted their sixth monthly gain with a +7.6% rise in February. Meanwhile Japan said their trade deficit retreated from 1.76 trillion yen to 1.13 trillion thanks to a +9.8% rise in exports. The Chinese government announced plans to accelerate several major construction projects to try and combat their slowing economy.

Russia

The fallout from Russia's mostly bloodless invasion of Ukraine's Crimea peninsula will not be fully known for years. We are starting to see some interesting developments. Thus far Russian President Vladimir Putin has scoffed at sanctions from Europe and the U.S. It does seem interesting that the U.S. is targeting sanctions at individual Russians but not Putin himself.

Last week saw the Fitch rating agency and Standard & Poor's both lower their credit outlook on Russia to "negative" over worries that sanctions would further hurt Russia's already slowing economy. The country is currently rated at BBB, the second lowest investment grade possible.

This West versus Russia attitude could damage recent progress in negotiations with Iran over its nuclear strategy. Russian Deputy Foreign Minister Sergei Ryabkov suggested Russia's participation in the Iran talks could be a bargaining chip to counter western sanctions.

The U.S. may also have to deal with the long-term implications of an uncooperative Russia and our joint efforts in space. It might be called the International Space Station but the U.S. pays $150 million per seat to Russia to fly our astronauts up there. The massive Saturn 5 rockets we use to launch U.S. satellites into orbit come from Russia. They could refuse to sell them to us if the relationship continues to sour.




Major Indices:

Believe it or not but in spite of all the news about Russia, the Fed tapering, and a slowing China, the S&P 500 index still managed to tag a new all-time high on Friday morning. The sharp pullback from that high is a little bit troubling and might signal a short-term bearish double top pattern. Yet for the week the S&P 500 gained +1.38%.

The 1885 area is clearly overhead resistance now. Beyond that the 1900 mark is probably round-number, psychological resistance. If stocks do see a pullback then 1840-1850 area has been support in the past. Below that the 1820 and 1800 levels are probably additional support.

chart of the S&P 500 index:

Friday's -0.98% drop in the NASDAQ shaved its gains for the week down to +0.74%. The NASDAQ composite has a short-term trend of lower highs (from its March peak) and Friday's session has created a bearish engulfing candlestick reversal pattern. On a short-term basis I would expect the NASDAQ to move lower.

The 4240 level has been support in the past. I would look for additional support near 4200 and 4150.

intraday chart of the NASDAQ Composite index:

chart of the NASDAQ Composite index:

The small cap Russell 2000 index gave up -0.4% on Friday. That reduced its weekly gain to +1.0%. The index is only 20 points or 1.6% away from a new all-time high. The action on Friday might be a short-term reversal pattern.

If the market rally resumes then the 1220 area and the trend of higher highs is likely resistance. If stocks retreat then the $RUT should find some support in the 1160 area.

chart of the Russell 2000 index



Economic Data & Event Calendar

There is nothing too significant on the economic calendar this week. We will see the latest consumer confidence numbers and anther revision for the Q4 GDP estimate. Nothing on the calendar is really market moving.

President Obama will be traveling to Europe for a G7 meeting. It was going to be a G8 meeting but after Russia's little invasion into Crimea the club has kicked Russia out.

Q1 earnings season will start soon on April 8th.

Economic and Event Calendar

- Monday, March 24 -
(nothing significant)

- Tuesday, March 25 -
Case-Shiller 20-city home price index
G7 Meeting
Consumer Confidence data
New home sales data

- Wednesday, March 26 -
Durable Goods Orders

- Thursday, March 27 -
Weekly Initial Jobless Claims
Q4 GDP estimate (revision)
Pending home sales data

- Friday, March 28 -
personal income and spending data
University of Michigan consumer sentiment (final March reading)

Additional Events to be aware of:

April 18th - U.S. markets closed
April 30th - FOMC interest rate decision and outlook


Looking Ahead:

The stock market could be left searching for a catalyst to move higher. The back and forth sanction talk between Russia and the West is currently just a minor irritant for the equity market but if it escalates the issue could have a bigger impact. The real worry would be any escalation of Russia's land grab. The U.S. and European allies remain concerned over the tens of thousands of Russian soldiers on Ukraine's eastern border. Now there are rumors that the Russian-leaning eastern half of Ukraine wants to secede from Ukraine and join Russia as well.

We are only a few days away from the end of the first quarter. Stocks could see some window dressing by fund managers. However, the last week of March does not have the strongest history for any real gains. Pretty soon we're going to hear market pundits talking about the "sell in May" and go away phenomenon and the worst six months of the year (May through October). This year is a midterm election year and the months prior to the election tend to be more volatile than non-election years.

The big picture for the U.S. markets would suggest the overall trend is still up. However, recent trading action has created some bearish technical signals and we are seeing a deterioration of the fundamentals, like fewer stocks above their 50-dma and fewer new highs. I would not be surprised to see another mild pullback. This market has made it more than 880 days without a -10% correction. Eventually we will see one.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Double check your stop loss placement. We noticed a lot of bearish-reversal looking candlesticks on Friday.

We want to exit our FSLR and MU trades immediately on Monday morning (March 24th).

GILD hit our stop loss.

I have updated stop losses on: A, BSX, HSP, JPM, KLAC, and QCOM.

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

Why Aren't Investors More Bullish?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(March 23, 2014)

The large cap S&P 500 index hit new all-time highs on Friday morning. So why don't investors feel more bullish on the market? Maybe it's because the S&P 500 was the only one. The Dow Industrials, the small cap Russell 2000, and the NASDAQ composite failed to hit new highs.

It was encouraging to see relative strength in the financials last week but the tone of the market felt a bit fearful on Friday. It may have been volatility for the quadruple-witching options and futures expiration. Overall I am suggesting caution when it comes to launching new positions. Some of the market internals are starting to breakdown. We are seeing fewer stocks trading above their 50-dma.

We are adding three new candidates to our watch list tonight (ASML, HFC, and NS), which could hit our entry triggers this week if the market continues to rise.

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:

WDC, CAT, CLB, HP, ATK, Z, BWLD, CMG, AAPL, HAS, MSA, MSFT, HES, ATI, GILD, NVDA, FLS, ROVI, FLT, NTGR, BWA, ROST, UA, LB, HPQ, SLB, M, LVLT, PSX, DE,



Play Updates

Time To Take Profits In FSLR

by James Brown

Click here to email James Brown

Editor's Note:

We want to exit our FSLR and MU trades immediately on Monday morning.

A, BSX, HSP, JPM, KLAC, and QCOM have new stop losses.


Closed Plays


GILD was stopped out.



Play Updates


Agilent Technologies - A - close: 56.09

Comments:
03/23/14: I am growing increasingly concerned with A's performance. More conservative investors may want to exit early now. The recent bounce attempt has failed near its 50-dma and reinforced the two-month trend of lower highs. A looks poised to retest support near $55.00. If the $55 level fails then A is probably headed form $50.00. I am raising our stop loss to $54.40.

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 $3.60/3.70

- or -

FEB 14, 2014 - entry price on A @ 55.00, option @ 5.10
symbol: A1615a65 2016 JAN $65 call - current bid/ask $4.40/5.70

03/23/14 new stop loss @ 54.40
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: 54.40
Play Entered on: 02/14/14
Originally listed on the Watch List: 01/26/14


Alaska Air Group - ALK - close: 90.76

Comments:
03/23/14: ALK spent the week testing new highs and finding resistance in the $93.50-94.00 zone. Friday's decline looks like a short-term bearish reversal. If ALK breaks down under $90.00 then it's probably headed for the $85-86 zone.

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 $10.20/10.80

03/16/14 new stop loss @ 83.40
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: 83.40
Play Entered on: 02/25/14
Originally listed on the Watch List: 02/23/14


Allied Nevada Gold - ANV - close: 5.49

Comments:
03/23/14: After a sharp rise higher two weeks ago ANV has seen an equally sharp decline. Shares are now testing support near the $5.50 level. More conservative investors may want to raise their stop loss toward the $5.25-5.30 zone. 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

03/23/14 investors may want to raise their stop loss
03/16/14 new stop @ 4.95
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: 4.95
Play Entered on: 02/26/14
Originally listed on the Watch List: 02/16/14


Bank of America - BAC - close: 17.56

Comments:
03/23/14: Financial stocks were leaders last week as the market reacted to news that the 29 of the 30 biggest banks in the U.S. passed the Federal Reserve's "stress test". BAC was tagging new multi-year highs before Friday's -2.0% pullback. 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 $3.10/3.20

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: 40.19

Comments:
03/23/14: BBT is another financial stock hitting new multi-year highs following the stress test news. The breakout past $40.00 is technically bullish but I'm not convinced BBT can hold it this time. Look for support near $39.00.

Please note that I am raising our exit target from $42.50 to $44.00.

- Suggested Positions -
DEC 17, 2013 - entry price on BBT @ 35.81, option @ 0.99
symbol: BBT1517a40 2015 JAN $40 call - current bid/ask $2.27/2.35

03/23/14 adjust exit target to $44.00
03/16/14 BBT has formed a potential bearish double top.
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 @ 44.00
Current Stop loss: 35.80
Play Entered on: 12/17/13
Originally listed on the Watch List: 12/15/13


Boston Scientific - BSX - close: 12.82

Comments:
03/23/14: BSX is only down 20 cents for the week. Yet its recent performance is disappointing and looks bearish. Friday's move has generated a bearish candlestick reversal pattern. More conservative investors may want to exit early now. I am moving our stop loss up to $12.40. No new positions at this time.

Earlier Comments:
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.

- Suggested Positions -
MAR 10, 2014 - entry price on BSX @ 13.73, option @ 1.07
symbol: BSX1517a15 2015 JAN $15 call - current bid/ask $0.66/0.71

- or -

MAR 10, 2014 - entry price on BSX @ 13.73, option @ 2.08*
symbol: BSX1615a15 2016 JAN $15 call - current bid/ask $1.41/1.69

03/23/14 new stop @ 12.40, readers may want to exit early.
03/10/14 trade opens.
*option entry price is an estimate since the option did not trade at the time our play was opened.
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)

Current Target: BSX @ 17.50
Current Stop loss: 12.40
Play Entered on: 03/10/14
Originally listed on the Watch List: 02/09/14


Chicago Bridge & Iron - CBI - close: 86.87

Comments:
03/23/14: CBI is up more than five points for the week thanks to the pop higher on Tuesday. The rally appeared to be a reaction to news that CBI had won some large construction contracts. I am not suggesting new positions at this time.

- Suggested Positions -
MAR 07, 2014 - entry price on CBI @ 85.52, option @ 6.85
symbol: CBI1517a90 2015 JAN $90 call - current bid/ask $7.10/7.40

- or -

MAR 07, 2014 - entry price on CBI @ 85.52, option @ 8.50
symbol: CBI1615a100 2016 JAN $100 call - current bid/ask $8.30/9.30

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

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: 80.35

Comments:
03/23/14: DIS continues to consolidate sideways. The stock has been churning sideways in the $80-82 zone for about two weeks. While the long-term trend is up I would not be surprised to see a pullback toward the $76.00 area.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $ 9.80/ 9.90

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


First Solar, Inc. - FSLR - close: 73.37

Comments:
03/23/14: It's time to take profits in our FSLR. I am suggesting an immediate exit!

It's not very often we see a stock move $20 in a week. The company issued bullish guidance for 2015 and 2016 and shares surged +20% on Wednesday. The stock was up every day last week and hit an intraday high of $73.97 on Friday. Our exit target is $74.00 but I am suggesting an immediate exit to lock in potential gains (exit Monday morning, March 24th).

*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 $19.70/20.10

03/23/14 exit immediately to lock in potential gains.
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.

Chart of FSLR:

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


Honeywell Intl. - HON - close: 92.99

Comments:
03/23/14: HON spent the week consolidating sideways in the $92-94 zone. 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 $10.85/11.00

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: 42.33

Comments:
03/23/14: HSP eked out a small gain for the week but I am growing more and more concerned about its bearish trend of lower highs. More conservative traders may want to exit early now. I am raising our stop loss to $41.40. The stock is currently testing support near $42.00 and appears to have additional support near $41.50. I am not suggesting 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 $ 2.90/3.40

03/23/14 new stop @ 41.40, more conservative traders may want to exit early now
02/03/14 triggered at $43.00

Current Target:$ 49.75
Current Stop loss: 41.40
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/26/14


JPMorgan Chase & Co. - JPM - close: 60.17

Comments:
03/23/14: JPM helped lead the financial sector higher with a surge to new 14-year highs. The breakout past round-number resistance at $60.00 is technically bullish but I would expect a pullback.

I am not suggesting new positions. We will adjust the stop loss to $54.75.

FYI: JPM is scheduled to report earnings on April 11th.

- 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 $ 6.95/7.10

03/23/14 new stop @ 54.75
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)
Current Target: exit 2015 calls when JPM hits $69.00
Current Stop loss: 54.75
Play Entered on: 06/24/13
Originally listed on the Watch List: 05/25/13


KLA-Tencor - KLAC - close: 70.02

Comments:
03/23/14: Financials were not the only stocks in rally mode. The semiconductors also pushed higher. KLAC displayed relative strength with a surge to new multi-year highs. On a short-term basis KLAC does look a bit overbought and due for a pullback.

We are adjusting the stop loss to $63.90.

Earlier Comments:
Our long-term target is $79.00. Currently the point & figure chart is bullish with an $82 target.

- Suggested Positions -
MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 4.50*
symbol:KLAC1517a70 2015 JAN $70 call - current bid/ask $ 5.40/5.60

- or -

MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 5.50*
symbol:KLAC1615a75 2016 JAN $75 call - current bid/ask $ 6.20/6.50

03/23/14 new stop loss @ 63.90
03/13/14 trade opens with KLAC @ 67.63
03/12/14 KLAC closes @ 67.63, above our suggested entry, a close above $67.50
Current Target: exit calls when KLAC hits $79.00
Current Stop loss: 63.90
Play Entered on: 03/13/14
Originally listed on the Watch List: 03/02/14


Micron Technology - MU - close: 23.66

Comments:
03/23/14: Warning! MU's performance is getting worse. The stock completely ignored the rally in the semiconductor industry. Shares have continued to sink under a trend of lower highs and now MU is breaking down below technical support at its 50-dma.

More aggressive investors may want to hold on to their positions since MU could bounce in the $22-23 area. I am suggesting an immediate exit on Monday morning (March 24th) to try and preserve capital. We can look at MU again after its earnings report on April 3rd.

- Suggested Positions -
FEB 10, 2014 - entry price on MU @ 24.64, option @ 3.75*
symbol: MU1517a25 2015 JAN $25 call - current bid/ask $ 2.97/3.05

- or -

FEB 10, 2014 - entry price on MU @ 24.64, option @ 3.60*
symbol: MU1615a30 2016 JAN $30 call - current bid/ask $ 2.89/3.20

03/23/14 prepare to exit positions immediately on Monday morning (March 24th)
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: 78.19

Comments:
03/23/14: QCOM recovered from its mid-March sell-off. Shares reversed higher and were tagging new multi-year highs. Tonight we are adjusting our stop loss to $71.75. 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 $7.15/7.30

03/23/14 new stop @ 71.75
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: 71.75
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


Starbucks - SBUX - close: 76.71

Comments:
03/23/14: A month ago SBUX had us worried but shares have since delivered a strong three-week rally and pushed through multiple layers of resistance.

This past week the company held its annual meeting and Wall Street seemed pretty happy with what SBUX management had to say. I recall hearing something on CNBC that SBUX had hedged its coffee prices for the next couple of years prior to the recent explosion in coffee futures. The currently rally in coffee is unlikely to have that much impact on SBUX.

Management unveiled plans to broaden their alcohol selection. They're calling it "Starbucks Evenings" as they try and bring customers back into the store after the morning rush. Back in 2010 SBUX only had one store that offered beer and wine. Today they have 26 locations with alcohol. They plan to up that number to 40 by year end. Over the next several years beer and wine will be available in thousands of stores.

On a short-term basis the stock is arguably overbought. I would not be surprised to see a dip into the $74-75 area.

NOTE: The $82.00 level is resistance for SBUX but I am raising our long-term target to $89.00 for the 2015 calls and $99.00 for the 2016 calls.

- Suggested Positions -
FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 4.65
symbol: SBUX1517a75 2015 JAN $75 call - current bid/ask $7.20/7.35

- or -

FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 6.75*
symbol: SBUX1615a80 2016 JAN $80 call - current bid/ask $8.35/8.55

03/23/14 adjust exit targets to $89 for the 2015 calls and $99 for the 2016s
03/16/14 SBUX rallied through several resistance levels last week but the pullback is already starting to reverse.
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: exit the 2015 calls when SBUX hits $89.00
exit the 2016 calls when SBUX hits $99.00
Current Stop loss: 67.90
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/05/14


Toll Brothers - TOL - close: 35.72

Comments:
03/23/14: The homebuilders continue to struggle. The NAHB homebuilder confidence survey decline last month. The fear of rising interest rates could be killing the housing stocks. TOL has been a terrible performer in the month of March. Shares are currently testing support near its 100-dma and the $35.00 area. I am not suggesting new positions at this time.

- Suggested Positions -
FEB 27, 2014 - entry price on TOL @ 38.72, option @ 4.25*
symbol: TOL1517a40 2015 JAN $40 call - current bid/ask $2.30/2.50

- or -

FEB 27, 2014 - entry price on TOL @ 38.72, option @ 5.35*
symbol: TOL1615a45 2016 JAN $45 call - current bid/ask $3.10/3.70

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: 49.12

Comments:
03/23/14: WFC is another winner from the banking industry. The company passed the Fed's stress tests and shares surged to new all-time highs. Not surprisingly the rally failed at round-number resistance near $50.00. I would expect a pullback from here.

FYI: WFC is scheduled to report earnings on April 11th.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 2.40/2.46

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.00/4.10

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


Gilead Sciences - GILD - close: 72.07

Comments:
03/23/14: Our GILD trade has been stopped out. Shares already looked weak but the stock underperformed on Friday with a -4.5% drop and hit our stop loss at $74.00. The move in GILD was a reaction to House Democrats asking GILD why the cost of its Sovaldi treatment, a hepatitus C drug, is so expensive. The product costs patients $84,000 but it's worth noting that Sovaldi actually cures the patient it doesn't just treat the disease. Analysts tried to defend GILD suggesting the alternative was a lot more expensive. A liver transplant costs $250,000 and $50,000 a year for medications the rest of their life. The sell-off in GILD also had the unfortunate timing of occurring (or sparking) a widespread industry-wide drop in biotech stocks.

Our play was closed on Friday but I would keep GILD on your radar screen.

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.

- Suggested Positions -
FEB 07, 2014 - entry price on GILD @ 76.25, option @ 7.30
symbol: GILD1517a85 2015 JAN $85 call - exit $5.25* (-28.0%)

03/21/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart of GILD:

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



Watch

Semiconductors, Refiners, & Energy

by James Brown

Click here to email James Brown



New Watch List Entries

ASML - ASML Holdings

HFC - HollyFrontier

NS - NuStar Energy


Active Watch List Candidates

AEM - Agnico Eagle Mines

EBAY - eBay Inc.

MA - MasterCard

MPC - Marathon Petroleum

PFE - Pfizer Inc.

UPS - United Parcel Service


Dropped Watch List Entries

KMB and NKE have been removed.



New Watch List Candidates:


ASML Holdings - ASML - close: 92.39

Company Info

ASML is in the technology sector. The company, based in the Netherlands, makes semiconductor processing equipment. The stock has lagged the broader semiconductor index but shares are bouncing off their long-term bullish up trend and could try to catch up. The point & figure chart has recently turned bullish and forecasts a $110 price target (that could grow higher).

There are some concerns that expectations are currently too optimistic for the chip equipment companies. One of ASML's rivals, Taiwan Semiconductor Manufacturing (TSM), recently lowered its capacity over growth concerns.

I am suggesting small bullish positions on ASML if shares can close above $95.25. If triggered our long-term target is $119.50.

Breakout trigger: Wait for ASML to close above $95.25
then buy calls the next day with a stop loss at $89.00.

BUY the 2015 Jan $100 call (ASML1517a100) current ask $6.00

- or -

BUY the 2016 Jan $105 call (ASML1615a105) current ask $10.00

Remember, small positions to limit risk!

Chart of ASML:

Originally listed on the Watch List: 03/23/14


HollyFrontier Corp. - HFC - close: 49.05

Company Info

HFC is in the basic materials sector. The company is an oil refiner and produces gasoline, diesel, jet fuel, and similar products. The company's latest earnings report was bullish with HFC beating estimates on both the top and bottom line. Many investors believe that HFC will continue to benefit from the WTI/Brent oil spread, which is even wider for HFC since its refineries sit so close to some of the shale-oil formations currently being drilled in the U.S.

Shares of HFC are currently hovering just below resistance near the $50.00 level. The stock has seen some intraday spikes into the $50.50-50.75 area. I am suggesting we wait for HFC to close above $50.50 and then buy calls the next day with a stop loss at $47.40. Our target is $59.50. More aggressive investors may want to aim higher since the point & figure chart is forecasting at $65 target.

Breakout trigger: Wait for HFC to close above $50.50
then buy calls the next day with a stop loss at $47.40.

BUY the 2015 Jan $55 call (HFC1517a55) current ask $2.90

Chart of HFC:

Originally listed on the Watch List: 03/23/14


NuStar Energy - NS - close: 53.78

Company Info

NS is in the basic materials sector. The company is part of the oil storage and pipeline industry. Shares have spent a good chunk of the last four months consolidating sideways after a big rally from its 2013 lows. Now shares are on the move again and look poised to break out past key resistance at the $55.00 level. If the market turns more volatile NS could benefit from investors seeking safety in high-dividend plays. NS currently offers an 8% dividend.

I am suggesting investors buy calls if NS can close above $55.25. If triggered our target is $64.50. More aggressive investors with a longer time frame may want to aim higher since the point & figure chart is targeting an $87 target.

Breakout trigger: Wait for NS to close above $55.25
then buy calls the next day with a stop loss at $51.75.

BUY the 2015 Jan $55 call (NS1517a55) current ask $3.10

Chart of NS:

Originally listed on the Watch List: 03/23/14


Active Watch List Candidates:



Agnico Eagle Mines - AEM - close: 32.36

Comments:
03/23/14: Gold prices reversed sharply last week. If this pullback continues it could pull below support in the $30-32 area and we may end up removing AEM as a candidate. Currently we are on the sidelines waiting for a breakout higher.

I am suggesting investors wait for AEM to close above $35.50 and then buy calls the next morning with a stop loss at $31.75. If triggered our long-term target is $48.50. Currently the point & figure chart is bullish with a $46 target.

Breakout trigger: Wait for a close above $35.50
then buy calls the next day with a stop loss at $31.75

BUY the 2015 Jan $40 call (AEM1517a40)

- or -

BUY the 2016 Jan $45 call (AEM1615a45)

Originally listed on the Watch List: 03/16/14


eBay Inc. - EBAY - close: 56.96

Comments:
03/23/14: EBAY managed a small gain for the week but the action was bearish with shares falling under a bearish pattern of lower highs. We are waiting for a breakout higher.

Earlier Comments:
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. 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)

- or -

BUY the 2016 Jan $70 call (EBAY1615a70)

Originally listed on the Watch List: 03/09/14


Kimberly Clark Corp. - KMB - close: 110.16

Comments:
03/23/14: KMB continues to struggle with resistance near the $111-112 zone. I am growing concerned that KMB may not move fast enough for us. Tonight we are removing KMB as a watch list candidate.

Trade did not open.

03/23/14 removed from the watch list. suggested entry was a close above $112.00

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


Mastercard Inc. - MA - close: 75.99

Comments:
03/23/14: MA looked like it was finally building up enough steam to breakout past resistance near $80.00. Then shares reversed hard on Friday after news hit that a "U.S. appeals court upheld the Federal Reserve's controversial rules for debt card 'swipe fees' on Friday, reversing a lower court's decision to throw them out" (source: Reuters). Federal regulators ruled back in 2011 that the cap on swipe fees would be 21 cents per transaction.

Friday's drop could be a one-day, knee-jerk type of reaction so I'm not ready to give up on MA just yet but Friday's decline has created a bearish reversal pattern at resistance.

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: 03/09/14


Marathon Petroleum - MPC - close: 90.69

Comments:
03/23/14: MPC suffered some profit taking last week. More aggressive investors might be tempted to buy calls on this dip to potential round-number support at $90.00.

Earlier Comments:
I am suggesting investors wait for MPC to close above $95.00 and then buy calls the next day with a stop loss at $89.65. It is possible that the $100.00 mark could be round-number resistance but we are setting our long-term target at $115.00.

Breakout trigger: Wait for a close above $95.00
then buy calls the next day with a stop loss at $89.65

BUY the 2015 Jan $100 call (MPC1517a100)

- or -

BUY the 2016 Jan $110 call (MPC1615a110)

Originally listed on the Watch List: 03/16/14


Nike, Inc. - NKE - close: 75.21

Comments:
03/23/14: Shares of NKE weighed on the Dow Jones Industrial Average with a -5.1% plunge and a breakdown below its simple 50-dma on Friday. Now you know why I suggested investors wait until after we see the market's reaction to NKE's earnings report before initiating positions.

NKE actually beat Wall Street's estimates on both the top and bottom line. Unfortunately during the conference call NKE management warned that currency fluctuations would negatively impact results in 2014 and they warned that China would be weaker than expected.

It seems unlikely that NKE will meet our entry point requirement with a close above $81.00 any time soon and we don't want to buy a dip at current levels so we're removing NKE as a candidate.

Trade did not open.

03/23/14 removed from the watch list, suggested entry was a close above $81.00

Originally listed on the Watch List: 03/16/14


Pfizer Inc. - PFE - close: 32.18

Comments:
03/23/14: Trading in PFE has been a bit rocky the last couple of weeks but the overall trend is still higher. I don't see any changes from my prior comments.

Currently I am suggesting investors wait for PFE to close above $33.00 and then buy calls the next morning.

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


United Parcel Service - UPS - close: 96.86

Comments:
03/23/14: UPS spent last week consolidating sideways in the $96-98 zone. The CEO of FedEx (FDX) just said last week that this winter was the worst winter ever for his company. They've suffered 20 storms so far and the delays, the overtime, the snow removal and deicing, and extra effort due to adverse weather has cost them $125 million. UPS is likely in the same boat but the stocks for both companies didn't move much. The results of a bad winter may already be priced into these stocks.

We are still waiting for a breakout higher. I am suggesting investors wait for UPS to 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)

- or -

BUY the 2016 Jan $110 call (UPS1615a110)

Originally listed on the Watch List: 03/09/14