Option Investor
Newsletter

Daily Newsletter, Sunday, 4/6/2014

Table of Contents

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

Leaps Trader Commentary

Bearish New Highs?

by James Brown

Click here to email James Brown

Why does the market feel so bearish when the S&P 500 and the Dow Industrials just hit new all-time highs?

April is normally one of the most bullish months of the year for stocks but it certainly didn't feel that way on Friday. Early gains on Friday reversed and the NASDAQ plunged -110 points for its worst one-day loss in two months. Small caps and technology stocks continue to underperform while transportation, housing, and energy stocks displayed relative strength. Oil declined. Precious metals like gold and silver delivered a small bounce. U.S. bond yields reversed early gains to close on their lows for the week.

The week started on a strong note as stocks applauded what appeared to be improvement in diplomatic tensions between Russia and the U.S. as Putin called Obama to discuss the situation in Ukraine. The new Federal Reserve Chairman Janet Yellen also gave stocks a boost on Monday when she said the Fed still has work to do and said the U.S. "economy needs extraordinary support for some time."

The S&P 500 and the Dow Jones Industrial Average managed to hit new all-time highs. So why the sell-off on Friday? It's possible that traders decided to interpret Friday's jobs report, which continues to show slow and steady growth, as reinforcement that the Fed will continue to cut its QE program. It could also be a technical move since the S&P 500 failed three times below round-number resistance at the 1900 level. It's also possible that traders were selling equities to raise cash to pay taxes since April 15th is almost here.

Economic Data

Most of the U.S. economic data last week was actually up or relatively flat. Construction spending rose +0.1% in February after dropping -0.2% in January. Factory orders rose +1.6% in February following a -1.0% in January. Auto sales in March surged +9.7% year over year. The ISM manufacturing index rose from 53.2 in February to 53.7 in March. ISM services came in at 53.1 in March, up from 51.6 in February. Numbers above 50.0 suggest growth. The Dallas Federal Reserve manufacturing survey hit a six-month high with it rise to 4.9. The Chicago PMI was a disappointment with a drop to 55.9.

The ADP Employment Change Report said private companies added +191,000 jobs in March. That was below estimates but the February number was revised up from +139K to +178K. Economists were expecting between +185,000 to +200,000 new jobs in the nonfarm payrolls report. Friday's jobs number came in at +192,000. February's NFP report was revised up from +175K to +197K and January was revised higher from +129K to +144. All in all it was a positive read and marked the third monthly rise in jobs for the first time in three years. The unemployment rate was unchanged at 6.7% for the second month in a row.

While the jobs report is showing growth it is slow growth. It takes +150,000 new jobs a month just to keep up with new graduates and new immigrants joining the U.S. workforce. We've seen the U.S. gain over two million new jobs in the last four years but it's still the slowest jobs recovery on record, going back to when they started tracking this data back in 1939. We still need another five million new jobs to get back to pre-recession levels. At the current rate of jobs growth that could take us another five years.

Overseas Data

Economic data in Europe was relatively flat. The Eurozone GDP number was adjusted lower from +0.3% growth to +0.2% for the previous quarter. The manufacturing PMI for the Eurozone was unchanged at 53.0. Meanwhile the Eurozone unemployment rate ticked lower to 11.9%.

The European Central Bank was busy last week. As expected the ECB left their interest rates unchanged at 0.25%. Elsewhere ECB officials were actively denying rumors they had already planned a one-trillion euro QE program to stimulate the economy. Deflation is becoming a bigger and bigger threat for Europe so they would rather risk inflation and try to speed up economic activity with more money.

The economic data from China wasn't so hot. The HSBC China Manufacturing PMI number inched lower from 48.1 to 48.0. Numbers under 50.0 indicate economic contraction. The Chinese government had been hinting at a new stimulus program and they finally announced new plans for more infrastructure projects, more low-income housing, and stimulus for small business. Meanwhile the China Banking Regulatory Commission announced they will perform their own stress tests for regional and national banks.




Major Indices:

The S&P 500 lost -1.25% on Friday but still managed a +0.4% gain for the week. Year to date the S&P 500 is up +0.9% versus declines in both the NASDAQ and the Russell 2000. Unfortunately Friday's action looks bearish. As you can see on the intraday chart buyers tried to push the S&P 500 toward the 1900 level three times. All three times it failed near 1897. That's close enough to call it a failed rally at round-number resistance.

The S&P 500 index should find some support at 1840. If that level fails the 100-dma near 1825 and the 1800 level could also offer support. A drop to 1800 would be a -4.7% decline from its all-time closing high of 1890 set on Wednesday, April 2nd.

intraday chart of the S&P 500 index:

chart of the S&P 500 index:

The action in the NASDAQ looks pretty ugly. Friday's move produced a -2.59% drop and a breakdown below its late March low and a breakdown below technical support at the 100-dma. Declining stocks outnumbered advancing stocks 5:1 on Friday. Last week's move looks like a new lower high and the up trend over the last year is now in serious jeopardy.

The next levels to watch for potential support are 4100 and the 4000 area. Currently the NASDAQ is down -1.1% for the year but it's off -5.5% from its March highs.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) looks a lot like the NASDAQ. Last week produced a new lower high. Unlike the NASDAQ the $RUT is still holding above its late March low and the 100-dma, at least for now. The $RUT lost -0.8% for the week and is now down -4.8% from its all-time highs set in early March.

The 1140 level should be support but if we see the $RUT breakdown below the March low I would not expect 1140 to hold. That means the new levels to watch for support are 1120 and 1100, which should be bolstered by the rising 200-dma.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

The economic and event calendar this week is pretty light. However, we will see the Q1 earnings season begin, which could be significant. Dow-component Alcoa (AA) reports on Tuesday, after the closing bell. More importantly we will hear from big banks like JPMorgan Chase (JPM) and Wells Fargo (WFC) on Friday.

Economic and Event Calendar

- Monday, April 07 -
Moody's business confidence
German Industrial Production

- Tuesday, April 08 -
Alcoa (AA) kicks off Q1 earnings season

- Wednesday, April 09 -
Wholesale inventory data
FOMC minutes

- Thursday, April 10 -
Weekly Initial Jobless Claims
import/export prices

- Friday, April 11 -
Producer Price Index (PPI)
University of Michigan Consumer Sentiment

Additional Events to be aware of:

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


Looking Ahead:

At the beginning of the year Wall Street was expecting Q1 earnings growth of +5%. Three months later, after one of the worst winters in years, analysts are only predicting +0.31% earnings growth. That could be our saving grace. There have been so many earnings warnings regarding the first quarter that expectations are so low we could see a lot of earnings surprises.

On the other hand, because expectations are so low and corporate management has a convenient excuse to blame Q1 results on the weather, this could turn into a "kitchen sink" quarter where management tosses everything negative they can into the earnings report to get rid of it and off the books. This turns the fast approaching earnings season into a two-edged sword. If you're bearish then you're worried about companies beating already super-low expectations. If you're bullish then you're worried about companies sinking their results and blaming it on the weather. The only prediction I feel strongly about is an almost guaranteed chance of increased volatility.

Warning Signs

The current bull market is five years old and it's been called one of the most hated bull markets in history. It seems like lately everyone has been rushing to call the top and declare the end of the bull market on every pullback. This time the bears have something going for them. Every time the Federal Reserve terminates a QE program the market declines.

The bears have five years of history on their side. Now currently the Fed is still buying billions of bonds and mortgage backed securities every month but they started cutting back on QE in January. Bulls will argue this argument is invalid given the S&P 500 just hit a new record high a few days ago. It is worth considering that at the current pace the Fed's QE program will end this year and the market is a forward-looking machine.

Another worrisome development is the number of IPOs in the market. There has been speculation that the rush of IPOs is actually signaling a top for the stock market. We've already had 70 IPOs this year. Every time a company goes public it's a diversion for investor cash that could have gone somewhere else. In the last 30 days we've seen about 50 IPOs. Is there a connection between the flood of new stocks coming to market and the underperformance in the NASDAQ and the Russell 2000?

A new record high for margin debt is another ominous headline. Granted the bears have been pointing at this factor for a long time and it hasn't really had any bearing on the market. Peter Boockvar, with the Lindsey Group, has made an interesting observation. Margin debt at the NYSE hit an all-time high of $465.7 billion in February 2014. Boockvar suggests we measure this number against U.S. GDP. The current level of margin debt is 2.7% of nominal GDP. Near the market top in 2007 margin debt hit 2.6% and at the market peak in March 2000 we saw margin debt hit 2.8%.

Another interesting statistic is suggesting we are due for another recession. Over the last 60 years the United States has averaged a recession every 5.2 years. The most recent one, the "Great Recession", ended in Q2 of 2009. That means we just crossed the five-year threshold since our last recession. Does that mean this summer we're going to see the U.S. economy tank?

I do not want to be Chicken Little claiming the market is about to crash. That would be a hard argument to make when the Dow Industrials and the S&P 500 just hit all-time highs this past week. However, the underperformance of the broader NASDAQ composite (3,000+ stocks) and the Russell 2000 index (2,000 stocks) is troubling. This market has gone almost 900 days without a normal -10% correction. The NASDAQ and the $RUT are half way there with -5% declines from their recent highs.

Earnings season is about to start and that means individual stocks could see significant volatility as traders react to corporate results. I would be somewhat hesitant to launch new positions unless the stock you're considering is showing significant relative strength.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

We are seeing a divergence in the market between big cap indices like the Dow Industrials and the S&P 500, which hit new highs, and the NASDAQ and the small cap Russell 2000, which are down -5% from their recent highs.

Our plan was to exit the BSX trade last Monday (March 31st).

We want to exit our SBUX trade immediately on Monday morning (April 7th).

I have updated stop losses on: ALK, BAC, and BBT

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

Another Successful Week for the Watch List

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 06, 2014)

I am not adding any new trades tonight. Our LeapsTrader watch list had a very successful week with four stocks (AGU, CAT, NS, and WDC) all graduating to our active play list.

In tonight's market commentary I noted that the S&P 500 and the Dow Industrials just hit new all-time highs this past week. Yet why does the market feel so bearish? That's probably because of the flood of bearish reversal moves we saw on Friday. Plus the NASDAQ and the Russell 2000 indices are both underperforming and down about -5% from their recent highs.

This divergence between the major indices is not encouraging. We're also on the verge of Q1 earnings season. Expectations are low and I expect any company that misses to see its stock punished severely. This does not make me enthusiastic about launching new positions tonight.

The market is overdue for a normal correction (-10%) but many stocks have already corrected this much or more. In the aftermath of earnings season we could find stocks significantly lower. That's a good thing if you're looking for new trades. We just need to be patient. We may not see any real opportunities for another three to six weeks.



Play Updates

Lots Of Reversals On Friday

by James Brown

Click here to email James Brown

Editor's Note:

Friday's session was truly ugly with a large number of stocks generating moves that look like a bearish reversal.

We did add AGU, CAT, NS, and WDC to the play list.

I am suggesting we exit our SBUX trade on Monday morning, April 7th.


Closed Plays


The plan was to exit our BSX trade on Monday morning (03/31/2014).



Play Updates


Agrium Inc. - AGU - close: 94.22

Comments:
04/06/14: AGU is a new watch list candidate that has graduated to our play list. The plan was to wait for shares to close above $97.50 and then buy calls the next day. AGU met that entry requirement with Monday's close at $97.52. Unfortunately shares have since pulled back toward the $94 level and its simple 30-dma. The drop on April 2nd was sparked by AGU lowering its EPS guidance. The stock was downgraded on the 3rd.

The story hasn't changed but just to be safe investors may want to wait for a close above $98.00 before considering new positions.

Earlier Comments:
Long-term estimates suggest that food production will need to rise +60% over the near 36 years to feed the growing global population (currently 7.2 million people). This will require crop yield to double from their average annual increase of +1.2%. To do that farmers will need more fertilizer.

The point & figure chart is forecasting a long-term target of $121.00.

More conservative investors may want to wait for AGU to close above the $100.00 level as an alternative entry point since $100 could be round-number resistance.

- Suggested Positions -
APR 01, 2014 - entry price on AGU @ 97.48, option @ 2.60*
symbol: AGU1517a110 2015 JAN $110 call - current bid/ask $ 1.70/ 1.95

- or -

APR 01, 2014 - entry price on AGU @ 97.48, option @ 6.20*
symbol: AGU1615a110 2016 JAN $110 call - current bid/ask $ 4.50/ 5.20

04/01/14 AGU opens at $97.48
*option entry price is an estimate since the option did not trade at the time our play was opened.
03/31/14 AGU closes above our suggested entry trigger (above $97.50)

Chart of AGU:

Current Target: AGU @ $115.00
Current Stop loss: 92.45
Play Entered on: 04/01/14
Originally listed on the Watch List: 03/30/14


Alaska Air Group - ALK - close: 92.33

Comments:
04/06/14: ALK also suffered a downgrade last week but it was the market's widespread decline on Friday that hurt. Shares had been struggling with resistance near $95.00 and they dropped -2.6% on Friday to close near technical support at its 20-dma.

I am raising our stop loss to $88.45.

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 $10.50/11.80

04/06/14 new stop loss @ 88.45
03/30/14 new stop loss @ 84.75
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: 88.45
Play Entered on: 02/25/14
Originally listed on the Watch List: 02/23/14


Bank of America - BAC - close: 16.72

Comments:
04/06/14: Shares of BAC are down three days in a row and Friday's move produced a drop below technical support at the 50-dma. The last few weeks appear to have painted a bearish head-and-shoulders pattern on BAC's daily chart. If this pattern holds true then it would suggest a drop toward $15.50. I am inching our stop loss higher to $15.85.

More conservative investors may want to take profits now and exit early.

JPM and WFC are scheduled to report earnings this coming Friday and BAC could move in reaction to their results. BAC reports earnings on April 16th.

- Suggested Positions -
(exit target hit on 07/23/13 @ $15.00)
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - exit $1.04 (+136.3%)

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $2.45/2.46

04/06/14 new stop @ 15.85
04/06/14 BAC appears to have created a bearish H&S pattern (target 15.50)
03/30/14 new stop @ $15.70
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: 15.85
Play Entered on: 03/18/13

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


BB&T Corp. - BBT - close: 40.04

Comments:
04/06/14: BBT has been struggling with resistance near $41.00 and its multi-year highs the last few days. Friday's move looks like a bearish reversal. I would expect a drop toward $39.00. I am raising our stop loss to $36.90.

More conservative traders may want to lock in profits now and exit early.

BBT is scheduled to report earnings on April 17th.

- Suggested Positions -
DEC 17, 2013 - entry price on BBT @ 35.81, option @ 0.99
symbol: BBT1517a40 2015 JAN $40 call - current bid/ask $2.12/2.30

04/06/14 new stop @ 36.90
03/30/14 new stop @ 36.40
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: 36.90
Play Entered on: 12/17/13
Originally listed on the Watch List: 12/15/13


Caterpillar Inc. - CAT - close: 102.17

Comments:
04/06/14: CAT is another new watch list candidate that has graduated to our active play list. Shares broke through significant resistance at the $100.00 level this past week. Our plan was to wait for shares to close above $101.00 and buy calls the next day. CAT met that entry requirement with Wednesday's close at $102.63. Our trade opened on Thursday morning at $101.92.

At this point I am suggesting investors look for a dip toward the $100.00 mark as the next attractive entry point to buy calls on CAT.

Earlier Comments:
Our long-term target is the $115-125 zone. Currently CAT's point & figure chart is bullish with a $126 target.

- Suggested Positions -
APR 03, 2014 - entry price on CAT @ 101.92, option @ 3.50*
symbol: CAT1517a110 2015 JAN $110 call - current bid/ask $3.50/3.65

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $7.10/7.50

04/03/14 trade opens. CAT @ 101.92
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/02/14 CAT meets our entry trigger with a close above $101.00

Chart of CAT:

Current Target: CAT @ 115.00-125.00 zone
Current Stop loss: 94.90
Play Entered on: 04/03/14
Originally listed on the Watch List: 03/30/14


Chicago Bridge & Iron - CBI - close: 86.07

Comments:
04/06/14: CBI lost -1.23% on Friday but even with this pullback shares delivered a gain for the week. The stock also tagged new all-time highs on Friday morning. Unfortunately the stock reversed at a trend line of higher highs and fell lower as the market sank. Friday's move could be a bearish reversal. I would expect a dip toward the $82.00-83.00 area.

- Suggested Positions -
MAR 07, 2014 - entry price on CBI @ 85.52, option @ 6.85
symbol: CBI1517a90 2015 JAN $90 call - current bid/ask $6.50/7.70

- or -

MAR 07, 2014 - entry price on CBI @ 85.52, option @ 8.50
symbol: CBI1615a100 2016 JAN $100 call - current bid/ask $8.30/9.90

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: 80.43

Comments:
04/06/14: Friday's -1.5% reversal in DIS looks ugly but shares are still up for the week. Unfortunately the move on Friday looks like a possible lower high. Meanwhile DIS is enjoying another Marvel comics movie hit. DIS bought Marvel for $4 billion back in 2009. Since then Marvel's super hero movies have been some of the biggest hits of the industry. It's newest Captain America: The Winter Soldier just scored the best opening for a film in April with $96.2 million over the weekend. Comments:
03/30/14: I have been warning readers to look for a pullback in shares of DIS and the stock did not disappoint. DIS tested its 50-dma this past week. There is no guarantee the pullback is over. We can watch for potential support in the $75.00-76.50 area. Our stop remains at $74.75.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $ 9.65/ 9.80

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


Honeywell Intl. - HON - close: 93.33

Comments:
04/06/14: HON produced a five-day bounce off its late March low before giving back -1% on Friday. Technically Friday's move looks like a reversal so I would expected another dip to the 100-dma near $90.85. 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 $10.75/11.15

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



JPMorgan Chase & Co. - JPM - close: 59.81

Comments:
04/06/14: After churning sideways in the $60-61 zone for days JPM broke down with the market's broad-based sell off on Friday. The stock could see a drop back toward the long-term trend line of higher lows near $58.00. More conservative investors may want to raise their stop toward the $57.00 area.

Keep in mind that JPM will report earnings on Friday morning, April 11th. The stock could be volatile following its report. You may want to exit prior to the announcement.

I am not suggesting new positions.

- 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 $ 6.85/7.05

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: 69.40

Comments:
04/06/14: KLAC hit new 14-year highs before reversing on Friday. Friday's drop was ugly, erasing three days of gains and closing below its 10-dma. I would not be surprised to see KLAC retrace down to the $66.00 level.

KLAC is due to report earnings on April 24th.

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 $ 5.00/5.30

- or -

MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 5.50*
symbol:KLAC1615a75 2016 JAN $75 call - current bid/ask $ 5.80/6.10

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


NuStar Energy - NS - close: 55.28

Comments:
04/06/14: NS is another watch list candidate that has graduated to an active play. The plan was to wait for shares to close above $55.25 since the $55.00 level is major resistance. NS met our entry point requirement on Thursday with a close at $55.26. Our trade opened Friday morning at $55.25.

The stock did a good job ignoring the market's weakness on Friday but there is no guarantee it will do the same tomorrow. NS does not move very fast so we probably have time to sit back and wait before launching new positions.

FYI: NS is due to report earnings on April 23rd.

Earlier Comments:
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.

- Suggested Positions -
APR 04, 2014 - entry price on NS @ 55.25, option @ 3.10*
symbol: NS1517a55 2015 JAN $55 call - current bid/ask $ 2.70/3.40

04/04/14 our play opens. NS @ 55.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/03/14 NS closes above $55.25

Chart of NS:
Current Target: exit calls when NS hits $64.50
Current Stop loss: 51.75
Play Entered on: 04/04/14
Originally listed on the Watch List: 03/23/14


QUALCOMM Inc. - QCOM - close: 78.53

Comments:
04/06/14: Last week saw shares of QCOM hit new 14-year highs thanks to some bullish analyst comments and a new $90 price target. Unfortunately, Friday's -2.5% drop erased about a week's worth of gains. Friday's move does look like a bearish reversal and I would expect a drop toward $76.00 and its 50-dma.

FYI: QCOM is scheduled to report earnings on April 23rd.

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

03/30/14 new stop @ 73.75
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: 73.75
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


Starbucks - SBUX - close: 71.55

Comments:
04/06/14: I like SBUX. The still think the stock has a lot of potential for growth. Unfortunately shares have been trading horribly since their bearish reversal near $78.00 two weeks ago. It is certainly possible that SBUX will find support again and bounce in the $69-70 zone but I am suggesting an immediate exit on Monday morning, April 7th. We'll wait until after SBUX's next earnings report before considering new positions.

- Suggested Positions -
FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 4.65
symbol: SBUX1517a75 2015 JAN $75 call - current bid/ask $4.25/4.35

- or -

FEB 03, 2014 - entry price on SBUX @ 70.50, option @ 6.75*
symbol: SBUX1615a80 2016 JAN $80 call - current bid/ask $5.55/5.80

04/06/14 prepare to exit immediately on Monday, April 7th
03/30/14 new stop @ 69.75
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: 69.75
Play Entered on: 02/03/14
Originally listed on the Watch List: 01/05/14


Toll Brothers - TOL - close: 36.78

Comments:
04/06/14: TOL posted gains for the week but Friday's session looks like another potential bearish reversal. I am not suggesting new positions.

- Suggested Positions -
FEB 27, 2014 - entry price on TOL @ 38.72, option @ 4.25*
symbol: TOL1517a40 2015 JAN $40 call - current bid/ask $2.60/3.20

- or -

FEB 27, 2014 - entry price on TOL @ 38.72, option @ 5.35*
symbol: TOL1615a45 2016 JAN $45 call - current bid/ask $3.20/4.00

03/30/14 new stop @ 34.40
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: 34.40
Play Entered on: 02/27/14
Originally listed on the Watch List: 02/16/14


Western Digital Corp. - WDC - close: 90.50

Comments:
04/06/14: WDC lost -3.1% on Friday and still managed a gain for the week. This stock is another watch list candidate that has graduated to an active play. The stock was hovering near resistance at $90.00. Our plan was to wait for shares to close above $91.25 and then buy calls the next day. WDC met our entry point requirement with Monday's close at $91.82. Our trade opened on Tuesday morning at $92.56. WDC rallied up to $95.00 and then reversed hard on Friday, stalling near prior resistance and what should be support at $90.00.

Our stop loss is at $85.75 but more conservative traders may want to move it significantly higher. A bounce from $90.00 can be used as a new bullish entry point.

- Suggested Positions -
APR 01, 2014 - entry price on WDC @ 92.56, option @ 6.85*
symbol: WDC1517a100 2015 JAN $100 call - current bid/ask $6.20/6.45

- or -

APR 01, 2014 - entry price on WDC @ 92.56, option @ 9.65*
symbol: WDC1615a110 2016 JAN $110 call - current bid/ask $8.35/8.65

04/01/14 trade opens. WDC opened @ 92.56
*option entry price is an estimate since the option did not trade at the time our play was opened.
03/31/14 WDC meets entry requirement with close above $91.25

Chart of WDC:

Current Target: WDC @ $110.00
Current Stop loss: 85.75
Play Entered on: 04/01/14
Originally listed on the Watch List: 03/30/14


Wells Fargo & Co. - WFC - close: 49.56

Comments:
04/06/14: Warning! WFC hit new highs above resistance at $50.00 and reversed. This also looks like a reversal at resistance at its long-term trend line (see chart). WFC is due to report earnings this coming Friday, April 11th. I would expect shares to move flat to down from here. Look for support in the $46.00-47.00 area. Friday morning could be volatile as investors react to WFC's earnings results.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 2.42/2.47

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.05/4.15

04/06/14 WFC looks poised for a pullback
03/30/14 new stop loss @ 44.80
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

Chart of WFC:

Current Target: Exit WFC hits $54.50
Current Stop loss: 44.80
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13



CLOSED Plays


Boston Scientific - BSX - close: 13.50

Comments:
04/06/14: BSX was not cooperating so we decided in last weekend's newsletter to exit positions on Monday morning (03/31/2014). Naturally BSX decides to rally four days in a row before reversing with the market on Friday.

BSX opened at $13.30 on Monday, March 31st.

- Suggested Positions -
MAR 10, 2014 - entry price on BSX @ 13.73, option @ 1.07
symbol: BSX1517a15 2015 JAN $15 call - exit $0.78 (-27.1%)

- or -

MAR 10, 2014 - entry price on BSX @ 13.73, option @ 2.08*
symbol: BSX1615a15 2016 JAN $15 call - exit $1.50 (-27.8%)

04/06/14 closed positions on Monday, March 31st
03/30/14 prepare to exit on Monday, March 31st at the open
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)

Chart of BSX:

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



Watch

Oil & Mining

by James Brown

Click here to email James Brown



New Watch List Entries

HES - Hess Corp.

JOY - Joy Global, Inc.


Active Watch List Candidates

ASML - ASML Holdings

HFC - HollyFrontier

UPS - United Parcel Service


Dropped Watch List Entries

AGU, CAT, NS, and WDC have all graduated to our play list.



New Watch List Candidates:


Hess Corp. - HES - close: 85.34

Company Info

HES is in the basic materials sector. They are an oil and gas company. The latest earnings report in late January was a bit disappointing but that hasn't stopped the rebound in HES. Wall Street seems to be applauding their decision to focus on one business. In early January HES announced they would spin off their refining and retail division to focus on being an oil exploration and production company. The new company, Hess Retail Corp. (new symbol: HRE) will have over 1,250 convenience store locations, mostly along the east coast. There is no date yet set for this spin off. Meanwhile the company is doing well with its Bakken shale resources and plans to focus 2014 on the Gulf of Mexico, Malaysia, and West Africa.

Technically HES has been showing relative strength and just hit new multi-year highs this past week. The stock does have significant resistance in the $87.00 area. I am suggesting we wait for HES to close above $87.50 and then buy calls the next morning with a stop loss at $81.75.

I suspect the $100 level could prove to be round-number resistance but our long-term target will be $109.00.

FYI: HES is scheduled to report earnings on April 30th.

Breakout trigger: Wait for HES to close above $87.50
then buy calls the next day with a stop loss at $81.75.

BUY the 2015 Jan $95 call (HES1517a95) current ask $2.58

- or -

BUY the 2016 Jan $100 call (HES1615a100) current ask $5.35

Chart of HES:

Originally listed on the Watch List: 04/06/14


Joy Global Inc. - JOY - close: 59.73

Company Info

JOY is in the industrial goods sector. The company makes mining equipment for the coal, copper, gold, iron, oil sands, and more. The stock is a long way from its 2011 highs near $100 a share. That's because the mining industry has had its share of ups and downs. JOY is dealing with what appears to be a worldwide trend to move away from coal.

It is starting to look like all the bad news for JOY is baked into the stock. Shares found support and have slowly been working their way higher. The company reported earnings in early March and missed Wall Street's bottom line estimate while beating the top line number. Investors seem to be ignoring JOY's falling margins and revenue numbers. Possibly due to somewhat bullish guidance from JOY's management.

The stock has been outperforming the market with a three-week rally. Now shares are poised for a bullish breakout past resistance near $60.00. I do consider this a more aggressive, higher-risk trade since the outlook for JOY seems a bit murky. Technically the stock is saying it wants to go higher.

Normally I suggest a trigger where we wait for the stock to close above a certain level. Today I am suggesting an intraday trigger to buy calls on JOY at $60.75. I'm not setting a long-term exit target yet but probably somewhere in the $75-80 zone. If triggered we will start with a stop loss at $55.75.

Breakout trigger: $60.75 *small positions to limit risk*

BUY the 2015 Jan $65 call (JOY1517a65) current ask $4.00

- or -

BUY the 2016 Jan $70 call (JOY1615a70) current ask $5.50

Chart of JOY:

Originally listed on the Watch List: 04/06/14


Active Watch List Candidates:



ASML Holdings - ASML - close: 90.82

Comments:
04/06/14: I am starting to lose faith that ASML is strong enough. Shares are falling toward support near $90.00 and its 200-dma. If shares close below this level we'll drop it as a watch list candidate.

Earlier Comments:
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)

- or -

BUY the 2016 Jan $105 call (ASML1615a105)

Remember, small positions to limit risk!

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


HollyFrontier Corp. - HFC - close: 47.93

Comments:
04/06/14: Let's give HFC another week. If the stock doesn't improve by next weekend then we'll remove it as a watch list candidate.

Earlier Comments:
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)

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


United Parcel Service - UPS - close: 98.10

Comments:
04/06/14: UPS managed a gain for the week. The stock struggled with technical resistance at its 100-dma on Friday morning. I don't see any changes from my prior comments.

Earlier Comments:
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