Option Investor
Newsletter

Daily Newsletter, Sunday, 4/20/2014

Table of Contents

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

Leaps Trader Commentary

Earnings Season Gains Momentum

by James Brown

Click here to email James Brown

Stocks just delivered one of their best weekly gains of the year with a four-day surge off their April lows. Investors ignored growing tensions between Ukraine and Russia although the threat of strife between the two countries did represent geopolitical risk over the three-day weekend. Overall the market is digesting Q1 earnings results well with many companies beating lowered expectations. The biotech stocks, semiconductors, and transportation stocks all led the rebound with +3% gains for the week. The S&P 500 added +2.7% while the NASDAQ recouped +2.39% for the week.

Economic Data

The Philadelphia Federal Reserve Manufacturing Survey for April improved from 9.0 in March to 16.6 in April. This is the highest reading since September and the second big monthly gain in a row. February's reading was -6.3. The New York Empire State Manufacturing Survey for April came in at 1.3. That is a decline from March's 5.6 and economists had been expecting a gain.

Housing starts rose +2.4% in March to an annual pace of 946,000. That's up from February's 920K pace. Unfortunately they remain below the 1 million unit pace set in Q4 2013. The National Association of Home Builders monthly sentiment survey was disappointing with a gain from 46 to 47. Economists were expecting the NAHB index to rise to 50. Readings under 50 suggest builders believe conditions to be poor.

The U.S. industrial production data increase +0.7% in March. That follows a +1.2% gain in February. The Consumer Price Index (CPI) rose +0.2% in March following a +0.1% gain in February. Meanwhile U.S. retail sales in March came in slightly ahead of estimates with a +1.1% gain. February's retail sales reading was adjusted from +0.3% to +0.7%.

Overseas Data

It was a relatively quiet week for economic data overseas. Germany said their Producer Price Index, a look at inflation at the wholesale level, dropped -0.3% month over month. Yet another signal suggest Europe is facing the specter of deflation. Most European markets will be closed on Monday for the Easter holiday.

Last week China said its foreign direct investment dropped -1.47% in March but still managed a +5.5% growth in the first quarter of 2014. That's down from a pace of +10.4% in the first two months of the year. The bigger headline was China's Q1 GDP estimate. The country's target is +7.5% annualized GDP growth but there has been a parade of disappointing economic data out of China the last few months. Expectations were negative. The communist country said its quarter-over-quarter growth was +1.4%, just under expectations. The year-over-year growth was +7.4%, which was better than many had feared.

Ukraine-Russian Conflict

The Ukraine government had been patiently dealing with pro-Russian separatists who had taken over government buildings and an airport in several Eastern Ukrainian towns. The challenge was to avoid an armed conflict so as not to give Russia any excuse to invade. There were a few small skirmishes between Ukraine forces and the militants but the equity markets did not react.

On Thursday last week there were several headlines surrounding a big peace initiative designed to "de-escalate" the situation. Everyone was supposed to stand down and avoid any new violence. Yet just hours after Russia, Ukraine, the EU, and the United States announced this deal there were signs that neither Russia or Ukraine planned to abide by it. In a separate event Russian President Putin admitted that the unmarked troops that invaded Crimea were indeed Russian. Yet he denies that the militants currently occupying government buildings in Eastern Ukraine are also Russian soldiers.

NATO has decided to send five warships to the Baltic Sea, which seems a strange way to "de-escalate" the situation. If we see Russian tanks crossing the Ukrainian border it could spark a significant sell-off in stocks.





Major Indices:

A week ago the S&P 500 index had pierced support at its 100-dma and the 1820 level. Here we are a week later and the index has produced a 50-point bounce, or a +2.7% gain for the week. Year to date the S&P 500 is up +0.89%. I am concerned that this is just a bounce. Until we see the S&P 500 actually close at new highs the risk is the market rolls over in the 1880-1900 zone.

If stocks do manage to keep rising then the 1800 and 1900 levels are potential resistance. On the other hand if stocks reverse lower again then 1800 and the 200-dma near 1770 could be key support levels to watch.

chart of the S&P 500 index:

The NASDAQ composite also managed four days of gains last week but it was a bumpy ride. Tuesday's session dropped to new two-month lows and tagged the 3950 area and technical support at the simple and exponential 200-dma(s) before bouncing. The NASDAQ ended the holiday-shortened week with a +2.39% gain but it's still down -1.9% for the year.

The intraday chart looks a little ominous with the NASDAQ's bounce stalling at a new trend line of lower highs. The path of least resistance appears to be down. Now every level of broken support is new overhead resistance. I would not be surprised to see the NASDAQ struggle with the 50-dma and 100-dma as resistance.

It is worth noting that on an intraday basis the NASDAQ has seen a drop from 4,371 to 3,946 or a -9.7% correction from its March highs. Maybe, just maybe, that has satisfied the market's need for a correction but I wouldn't bet on it. "V" shaped bottoms are not that common.

chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index:

It was a volatile week for the Russell 2000 index as well. It pierced support near 1100 and its 200-dma before bouncing to a +2.38% gain on the week. Year to date the $RUT is down -2.2%. Just like the NASDAQ the $RUT now faces new resistance at every level of broken support. Also like the NASDAQ the $RUT's bounce has stalled at a new trend line of lower highs.

chart of the Russell 2000 index

Intraday chart of the Russell 2000 index



Economic Data & Event Calendar

This week is kind of quiet for economic data. We will hear from the Chicago, Richmond, and Kansas City federal reserve banks and their regional surveys. Q1 earnings will overshadow most of these reports. We're about to face one of the busiest week of the reporting season with hundreds of companies reporting results. Thus far only 10% of the S&P 500 companies have reported. About 57% have beaten Wall Street's lowered estimates.

Don't forget that the next FOMC meeting is April 30th.

Economic and Event Calendar

- Monday, April 21 -
Chicago Federal Reserve National Activity index
Moody's Business confidence

- Tuesday, April 22 -
China HSBC manufacturing PMI data
Existing home sales for March
Richmond Federal Reserve manufacturing survey

- Wednesday, April 23 -
New home sales for March
Eurozone PMI data

- Thursday, April 24 -
Weekly Initial Jobless Claims
Durable Goods Orders
Kansas City Federal Reserve manufacturing survey

- Friday, April 25 -
University of Michigan Consumer Sentiment (final reading for April)

Additional Events to be aware of:

April 30th - FOMC interest rate decision and outlook


Looking Ahead:

Are investors nervous about the stock market? If they are the volatility index (VIX) does not show it. The VIX reversed with a drop back toward its recent lows. I heard one market pundit suggest the VIX, as an indicator of investor fear, is broken.

Most of us have heard of the "sell in May and go away" phenomenon. That's the seasonal pattern of selling in May to avoid the worst six months of the year. This year a few advisors have suggested their clients sell in April to beat the rush. Mid-term election years tend to be more volatile, especially in the summer just ahead of the election.

If you are having a rough year in the market you are not alone. New research shows that hedge funds are having their worst start to the year since 2008.

Last week market legend Art Cashin said we should be watching the 10-year U.S. treasury bond yields. These yields have been churning sideways in the 2.60% to 2.80% range for the last several weeks. A breakdown below 2.6% yields could signal serious trouble as money flows into the "safety" of bonds. The February low was 2.579%. 10-year yields ended this week at 2.72%.

chart of the U.S. 10-year bond yields

The S&P 500 index has gone more than 900 days without a -10% correction. That's more than unusual. A normal market sees a 10% pullback about twice a year. Since 1900 the average bull market died at 3.5 years. Since the end of World War II that has grown to 4.2 years. Our current bull market is over 5 years old and currently the second longest bull market in the last 80 years. These numbers do not mean bull market is going to end soon but just like a human body the market is probably growing more fragile as it ages.

On a short-term basis I would not be surprised to see the NASDAQ and the Russell 2000 roll over and retest their April lows. If we see these indices bounce there then it would look like a bullish double bottom and offer more confidence for investors.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

U.S. stocks produced a pretty big bounce last week. It was big enough to erase the prior week's decline.

TOL hit our stop loss.

I have updated the stop loss on 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

Too Soon

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 20, 2014)

The rebound in the NASDAQ and the Russell 2000 has stalled at a new trend of lower highs. Thus I am hesitant to buy this bounce. V-shaped bottoms are not that common and would not be surprised to see stocks retest their April lows.

I am not adding any new trades tonight. However, keep an eye on the watch list. HES could hit our entry point soon. Our new watch list candidate CLX could also hit our entry point soon.

I wanted to add Eli Lilly (LLY) as a new play but the company reports earnings on April 24th. The safer move is to wait until after we see how the market reacts to LLY's results before initiating positions.

Keep in mind that a market pullback can be an opportunity for us. Big pullbacks can generate great entry points but do not jump in too soon. We do not have to catch the absolute bottom to be successful investors.

I have updated my radar screen below.

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:

MCD, CL, PEP, ADBE, CNX, HP, Z, STX, ATI, WSM, HAL, SLB, DO, HPQ, BRK.B, CSCO, HSY, UPS, FSLR, UPL, ORLY, FTK, BRKR, STZ, LUV, HFC, PBR, GLW, NBL, PSX, ALK, SNDK.



Play Updates

U.S. Stocks Deliver A Decent Bounce

by James Brown

Click here to email James Brown

Editor's Note:

Overall most of our bullish candidates managed to recoup most if not all of the prior week's sell-off. A few have rallied to new highs.

I am concerned that the market could see more volatility this week.


Closed Plays


TOL hit our stop loss.



Play Updates


BB&T Corp. - BBT - close: 37.93

Comments:
04/20/14: BBT was bouncing along with the market until Thursday. Shares lost -3.5% in reaction to its earnings report. Wall Street was expecting a profit of $0.70 a share on revenues of $2.31 billion. BBT delivered 69 cents on revenues of $2.29 billion. The stock dropped toward its 100-dma near $37.70 before bouncing. I suspect this is just a one-day reaction to the earnings news. However, more conservative traders may want to raise their stop loss toward Thursday's low ($37.60). 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 $1.18/1.23

04/17/14 BBT drops on its earnings report
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: 102.83

Comments:
04/20/14: CAT spent the week churning sideways but did manage a gain for the week. Shares look like they are coiling for a breakout higher. However, the stock might be stuck moving sideways until it reports earnings on April 24th. Wall Street expects a profit of $1.23 a share. More conservative traders may want to move their stop loss closer to the 50-dma (near $98.00) just in case CAT disappoints on the earnings report.

I am not suggesting new positions ahead of earnings.

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 $3.65/3.75

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $7.35/7.60

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

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: 86.50

Comments:
04/20/14: After a big drop two weeks ago CBI produced an equally big bounce last week. I would expect shares to move sideways until CBI reports earnings on April 23rd. Analysts are expecting a profit of $1.10 a share. I am not suggesting new positions ahead of the earnings report.

- Suggested Positions -
MAR 07, 2014 - entry price on CBI @ 85.52, option @ 6.85
symbol: CBI1517a90 2015 JAN $90 call - current bid/ask $6.50/6.90

- or -

MAR 07, 2014 - entry price on CBI @ 85.52, option @ 8.50
symbol: CBI1615a100 2016 JAN $100 call - current bid/ask $8.10/8.90

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: 79.99

Comments:
04/20/14: It's another big summer for movies and DIS is still raking in money from its recent hit Captain America: The Winter Soldier. DIS has several films coming out with potential hits like Maleficient and Guardians of the Galaxy. Meanwhile the stock has bounced from technical support at its simple 100-dma and rallied back to resistance near $80 and its 50-dma. I am not expecting DIS to make any significant progress until after the company reports earnings on May 6th.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $ 9.05/ 9.20

04/13/14 investors may want to take profits now. DIS could be headed for $70.00
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: 93.10

Comments:
04/20/14: HON retested support near $90.00 and bounced. The company reported earnings on Thursday. Wall Street was looking for a profit of $1.26 a share on revenues of $9.74 billion. HON delivered $1.28 a share but revenues only hit $9.68 billion. Management did offer bullish guidance and raised the low end of its prior 2014 guidance estimates. The company is planning to spent $10 billion over the next few years on acquisitions and said they were "cautiously optimistic on the macro environment" at the end of the first quarter.

The long-term trend is still up but HON still has some resistance in the $95 area. I am not suggesting new positions at this time.

- 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 $10.40/10.95

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...
The plan was to use small positions to limit our risk.

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



Joy Global Inc. - JOY - close: 61.55

Comments:
04/20/14: JOY spent the week consolidating sideways in the $60-62 zone. Shares are still respecting the 10-dma as short-term support so the trend remains higher. I don't see any changes from last week's comments.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - current bid/ask $ 4.35/ 4.55

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 5.65/ 6.00

04/08/14 JOY hit our entry trigger at $60.75

Current Target: We're aiming for the $75-80 zone
Current Stop loss: 55.75
Play Entered on: 04/08/13
Originally listed on the Watch List: 04/06/14


KLA-Tencor - KLAC - close: 66.11

Comments:
04/20/14: KLAC spent most of the week consolidating sideways between support near $65.00 and resistance at its 50-dma (currently near $66.65) . KLAC did see some volatility on Wednesday. Chip maker ASML lowered its Q2 sales outlook on Wednesday and many of its rivals, including KLAC, dropped on this news. Shares of KLAC fell toward short-term support near $64 and its 150-dma before bouncing. The actual low was $63.96. Our stop loss is at $63.90 so it was a close call.

KLAC is scheduled to report earnings on April 24th. Wall Street is looking for a profit of $1.11 a share. I am not suggesting new positions ahead of earnings.

- Suggested Positions -
MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 4.50*
symbol:KLAC1517a70 2015 JAN $70 call - current bid/ask $ 3.30/3.50

- or -

MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 5.50*
symbol:KLAC1615a75 2016 JAN $75 call - current bid/ask $ 4.30/4.60

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: 55.10

Comments:
04/20/14: It was another quiet week for NS. Shares did test its recent highs with an intraday rally on Thursday but gains faded ahead of the long weekend. NS is consolidating sideways along the $55.00 level. Investors may want to wait for a close above $56.00 before initiating new positions. I would wait until after we see the market's reaction to NS earnings before launching new trades here.

NS is due to report earnings on April 23rd and analysts are expecting a profit of 40 cents a share.

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 $ 2.80/3.20

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
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: 81.32

Comments:
04/20/14: QCOM was up every day last week and closed at new multi-year highs. I am raising our stop loss to $74.70. More conservative investors may want to raise their stop closer to April's lows in the $77.50 area. QCOM could see more volatility this week after the company reports earnings on April 23rd. Wall Street expects a profit of $1.22 a share. 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 $8.85/9.00

04/20/14 new stop @ 74.70
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: 74.70
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


Western Digital Corp. - WDC - close: 91.05

Comments:
04/20/14: WDC is holding up well. Shares managed to erase the prior week's losses. The stock looks poised to breakout past short-term resistance near $92.00 soon. I doubt we will see WDC above the April high near $95 before they report earnings on April 30th.

I am not suggesting new positions at this time.

- Suggested Positions -
APR 01, 2014 - entry price on WDC @ 92.56, option @ 6.85*
symbol: WDC1517a100 2015 JAN $100 call - current bid/ask $5.90/6.10

- or -

APR 01, 2014 - entry price on WDC @ 92.56, option @ 9.65*
symbol: WDC1615a110 2016 JAN $110 call - current bid/ask $8.20/8.45

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

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: 48.93

Comments:
04/20/14: The financial sector as a whole was up four days in a row last week. Yet some of the big banks struggled. The rebound in WFC has stalled near $49. I am not convinced the correction is over for WFC. I would watch for support in the $46-47 area.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 2.15/2.20

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 3.90/4.00

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

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


Toll Brothers - TOL - close: 34.16

Comments:
04/20/14: I warned investors last week that our TOL trade was probably dead. The industry has not been performing well. The latest builder sentiment survey from the National Association of Home Builders was another disappointment. The April reading improved to 47, up from March's 46, but readings below 50 suggest home builders believe market conditions are poor. Analysts had been expecting a rise to 50.

Shares of TOL hit our stop loss at $34.40 on Tuesday, April 15th.

- Suggested Positions -
FEB 27, 2014 - entry price on TOL @ 38.72, option @ 4.25*
symbol: TOL1517a40 2015 JAN $40 call - exit $1.75** (-58.8%)

- or -

FEB 27, 2014 - entry price on TOL @ 38.72, option @ 5.35*
symbol: TOL1615a45 2016 JAN $45 call - exit $2.50** (-53.2%)

04/15/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
04/13/14 TOL looks poised to hit our stop at $34.40
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)

Chart of TOL:

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



Watch

Safe-Haven & Higher-Risk

by James Brown

Click here to email James Brown



New Watch List Entries

CLX - Clorox Co.

ZNGA - Zynga Inc.


Active Watch List Candidates

BIG - Big Lots Inc.

HES - Hess Corp.

KORS - Michael Kors


Dropped Watch List Entries



New Watch List Candidates:


The Clorox Co. - CLX - close: 90.84

Company Info

CLX is in the consumer goods sector. The company makes consumer and professional products across multiple brands. They have a cleaning division, household division, and a lifestyle division.

CLX is what many consider a "safe haven" investment or a "recession-proof" stock. That's because in an economic slowdown consumer still buy the household goods and cleaning supplies they need. For a mature company like CLX, over 100 years old, growth has slowed down but the stock also offers a 3% dividend yield.

Shares have been consolidating sideways for weeks (about mid February). CLX last earnings report on February 4th was a disappointment thanks to management lowering their guidance. Investors seem to have backed that into their picture for CLX or they have forgotten since CLX shares have rallied to new two-month highs and broken through resistance near $90.00.

The most past $90.00 looks like a new bullish entry point. However, I would like to see more confirmation. That's why tonight I'm suggesting we wait for CLX to close above $91.50 and buy calls the next morning with a stop loss at $86.90. Please note that CLX is scheduled to report earnings on May 1st and investors may want to wait until after CLX reports earnings before they initiate new positions.

If we are triggered (a close above $91.50) then our long-term target is the $100-110 zone. The point & figure chart is bullish with a $128 target.

NOTE: I would hesitate to buy the 2016 calls because the spreads are so wide but over time they should narrow.

Breakout trigger: Wait for a close above $91.50
then buy calls the next day, stop @ 86.90

BUY the 2015 Jan $95 call (CLX1517a95) current ask $2.25

- or -

BUY the 2016 Jan $100 call (CLX1615a100) current ask $2.90

Chart of CLX:

Originally listed on the Watch List: 04/20/14


Zynga, Inc. - ZNGA - close: 4.29

Company Info

This is a more aggressive, higher-risk trade. ZNGA is in the technology sector. The company makes online social games on the internet, social networks and mobile platforms (smarthphones and tablets). They are probably best known for their Farmville and Words with Friends games.

The stock has fallen a long way from its 2012 highs near $15 a share but they are up significantly from the 2012 lows near $2.00. Their most recent earnings report launched shares higher when management said they expect to be profitable again in 2014. Unfortunately, ZNGA has given back nearly all of those gains with a drop from $5.50 to $4.00.

It looks like investors have finally started buying ZNGA again as it bounces from technical support at its rising 200-dma and new longer-term trend of higher lows. I suspect we could see an entry point soon.

Here's the plan. ZNGA reports earnings on April 23rd (this Wednesday), after the closing bell. Wall Street expects a loss of 1 cent per share for the quarter. We do not want to open positions until after April 23rd. Thursday morning could be very volatile for shares of ZNGA.

Wait for ZNGA to close above $4.50 but not above $4.75. I'm giving it a 25-cent range. If ZNGA closes in the $4.50-4.75 zone then we want to open bullish positions the next morning. Our first available entry point is potentially Friday morning (April 25th). If triggered our long-term target will be the $6-to-$8 zone. We'll start with a stop at $3.90.

*See entry details above*

BUY the ZNGA stock @ (trigger)

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Buy the 2015 Jan $5 call (ZNGA1517a5) current ask $0.64

Chart of ZNGA:

Weekly Chart of ZNGA:

Originally listed on the Watch List: 04/20/14


Active Watch List Candidates:



Big Lots Inc. - BIG - close: 38.72

Comments:
04/20/14: BIG is still slowly drifting higher. I don't see any changes from last week's watch list comments.

Earlier Comments:
BIG is in the services sector. The company operates almost 1,500 closeout retailer stores in the U.S. Late last year most of the market was in rally mode. Yet BIG was crushed in early December when the company issued an earnings warning. After losing almost one third of its value BIG started to bounce. BIG most recent earnings report was March 7th and they lowered guidance again. Yet instead of falling the stock produced a huge spike. The company has decided to close its Canadian stores to focus on the U.S. and they have new management. Wall Street must have swallowed the BIG kool-aid because the stock has been pretty resilient over the last few weeks. Shares of BIG have also received multiple upgrades since its March earnings report.

BIG is now poised to breakout to new multi-year highs. There is resistance at $39.00. I am suggesting we wait for BIG to close above $39.25 and then buy calls the next morning with a stop loss at $35.85. If triggered our $47.00.

Breakout trigger: Wait for BIG to close above $39.25
then buy calls the next day with a stop loss at $35.75

BUY the 2015 Jan $40 call (BIG1517a40) current ask $4.20

Originally listed on the Watch List: 04/13/14


Hess Corp. - HES - close: 87.27

Comments:
04/20/14: Energy stocks helped lead the market rebound last week. Shares of HES delivered gains every day last week and closed at new multi-year highs. More aggressive investors may want to buy calls now. Our suggested entry point is a close above $87.50 and then buy calls the next day, which could happen this week.

Earlier Comments:
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 $3.10

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BUY the 2016 Jan $100 call (HES1615a100) current ask $5.55

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


Michael Kors - KORS - close: 89.93

Comments:
04/20/14: After a four-week decline shares of KORS managed a bounce thanks to a rebound in the broader market. I am not convinced the correction is over and KORS stalled near resistance at $90.00. The plan is unchanged. We're waiting for a dip near $80.00, which should be support bolstered by its 200-dma.

Earlier Comments:
I do want to caution you on this trade. We are attempting to "catch the falling knife". That can be hazardous. We are suggesting a buy-the-dip trigger to buy calls at $81.00. We'll try and limit our risk with a stop loss at $77.75. You, the individual trader, may want to sit back and watch for a bounce from the $80 region before considering new positions. If we are triggered at $81.00 our target is $99.00.

Buy-the-Dip trigger: $81.00, stop loss at $77.75

BUY the 2015 Jan $90 call (KORS1517a90)

Originally listed on the Watch List: 04/13/14