Option Investor
Newsletter

Daily Newsletter, Sunday, 4/27/2014

Table of Contents

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

Leaps Trader Commentary

Russian Roulette

by James Brown

Click here to email James Brown

The U.S. stock market is struggling to keep its head above water after enduring a flood of earnings reports last week. There are always some high-profile hits and misses. The biggest hit for the week was Apple Inc. (AAPL) who beat estimates by a wide margin and announced a 7-for-1 stock split. Unfortunately AAPL's gains did not do much to support the NASDAQ. Nearly all of the economic data and corporate headlines were overshadowed by rising tensions between Ukraine and Russia. News that Russia was doing military drills off Ukraine's eastern border sparked some selling.

After a six-day bounce that lifted the S&P 500 from 1815 to 1880 the index has already given up 16 points. I warned readers last week that we should not be surprised to see the NASDAQ composite and the Russell 2000 index roll over and retest their April lows. It would appear that roll over has begun. The NASDAQ was down -0.49% and the Russell lost -1.3% for the week. Losses in the Dow Industrials and the S&P 500 were mild, down -0.29% and -0.08% respectively.

Economic Data

Economic data in the U.S. did see some improvement on a broader scale. The durable goods order for March rose +2.6%, which was the best reading in four months. The Richmond Fed survey was strong with a reading of 7 versus expectations for a reading of 2. Numbers above zero suggest growth. The Philly Fed survey also surpassed expectations of 10 with a reading of 16.6. The University of Michigan Consumer Sentiment survey hit its best levels since July 2013 at 84.1, up from a preliminary read of 82.6.

Not everything was coming up roses and the residential real estate industry seems to be slowing down. Existing home sales fell to an annual pace of 4.59 million units. That's the slowest pace since July 2012. New home sales plunged -14.5% month over month to an annual pace of 384,000 homes. Mortgage applications dropped -3.3%. This doesn't bode well for the beginning of the spring selling season.

Overseas Data

Economic data in Europe was mostly bullish. The Eurozone's manufacturing PMI came in better than expected with a rise from 53.0 to 53.3. Germany's manufacturing PMI also beat expectations with an improvement from 53.7 to 54.2. Numbers above 50.0 indicate growth. Germany also said their Ifo business climate survey improved slightly from 110.7 to 111.2. That's a little surprising given the situation with Russia. Meanwhile ECB President Mario Draghi said they were closely monitoring inflation (or in this case deflation) and would launch an asset purchase program, a.k.a. quantitative easing, if the inflation picture worsened.

The situation in Asia is not improving much. Japan said their trade deficit soared. March exports rose +1.8%, down from +9.8% in February, while imports soared +18.1%, up from +9.0%. That boosted their trade deficit from 800 billion yen to 1,446 billion yen. It was the biggest drop in exports since June of 2013.

China is not looking much better. The world's second largest economy does not seem to be responding to regulators stimulus efforts. Their growth remains at the slowest pace in six quarters. The China HSBC PMI data did improve from 48.0 to 48.3, which matched analysts' estimates. While this was the first improvement in four months it was also the fourth monthly reading below 50.0, which suggest economic contraction.

Ukraine-Russian Conflict

Russia wants war. That certainly seems to be the message they are sending. German Chancellor Merkel has publicly said the Geneva peace accord reached just two weeks ago has failed. Merkel called Putin out for not de-escalating the situation. The new Ukraine Prime Minister Arseny Yatseniuk made the alarming statement that Russia is ready to start world war three.

The situation is certainly growing more tense as five Ukrainian separatists (i.e. Russian forces) were killed in clashes with Ukraine security forces this last week. Putin has a planned that worked well in Crimea so why stop now? Odds are he has inserted Russian troops into Ukraine to "help" the locals foster political change and demand vote to secede from Ukraine, just like the vote held in Crimea. These "Ukrainian" rebels have taken over government buildings in several east Ukraine towns, set up road blocks, fired on Ukraine forces, and this last week they took a few international monitors hostage. Putin claims these are not Russian forces just like he claimed the unmarked soldiers in Crimea were not Russian (he later confessed to lying about that).

Putin already has "permission" from the Russian parliament to use military force to protect Russian-speaking peoples in Ukraine if they deem it necessary to save them from the evil Ukrainians. Ukraine has spent the last few weeks calling up its military reserves and promised to meet any Russian incursion across its border as an invasion. Meanwhile there has been a dramatic build up of Russian tanks and helicopters along Ukraine's eastern edge. Russia's military drills on Thursday and Friday helped spooked the equity markets.

Russia has also been harassing other countries by sending Russian military planes into their airspace. The Netherlands and Britain both scrambled fighter jets to chase off Russian planes this past week. Ukraine says Russia violates its airspace on an hourly basis.

Ukraine is not a member of NATO so it is unlikely that the United States or western Europe countries would get into a shooting war with Russia over Ukraine, must to Ukraine's dismay. The Ukraine army is severely outmatched by Russia's. What happens after Russia retakes Ukraine? Will Putin stop there? Former soviet states Estonia, Latvia, and Lithuania are members of NATO but they're probably getting nervous watching this ordeal unfold.

Map of NATO countries:

While the U.S. will (most likely) not get involved in a military war with Russia over Ukraine we could see a financial war. It's possible that the financial war has already begun with Standard & Poor's downgrading Russia's credit rating agency to BBB- last week. That's one grade above junk status and the first time S&P has downgraded Russia since 2008.

Given the developments last week it sounds like the EU and the U.S. are ready to slap even tighter sanctions on Russia this coming week. That's not such a big deal for the U.S. since we only do about $40 billion a year in trade with Russia. It is a much bigger issue for Europe, especially Germany. The EU does about $400 billion a year in trade with the Russian Federation. Meanwhile Russia is preparing counter sanctions. If Russia does invade Ukraine, then the subsequent barrage of financial sanctions could significantly hurt both Russia and European economies. Both economies could suffer a recessionary slowdown that lasts for years. Russia is already feeling the financial pinch as foreign money rushes for the exit. $64 billion in foreign monies have already left Russia since the Ukraine situation began. Russia has had to cancel a bond sale for the 7th time due to lack of buyers.





Major Indices:

The S&P 500's six-day bounce stalled and eventually reversed near the 1885 level. This is now a new lower high following its early April peak at 1897 (essentially 1900). The S&P 500's long-term trend is still higher but it could drop to 1800 and technical support at its 150-dma before threatening its up trend.

The levels to watch are probably support at the mid April lows near 1815 and the 1800 mark. If the 1800 level fails then the 200-dma, currently near 1772, could be the next area of support.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite's performance looks a lot more ominous. The bounce rolled over at its new trend of lower highs and technical resistance at its 100-dma. I warned readers last week to expect resistance at the 100-dma. Odds are good we will see the NASDAQ retest possible support near 4000 or its 200-dma near 3965 or even the April intraday low of 3946. A few market pundits are saying the NASDAQ has formed a bearish head-and-shoulders pattern. If it has it's a rather ugly, malformed H&S pattern but it doesn't matter. The overall trend is currently bearish.

The NASDAQ is currently down -2.4% for the year.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index did not have a good week. It's six-day bounce stalled near its 100-dma and shares lost -1.3% for the week. Year to date it's down -3.3%. Odds are good we will see the $RUT retest its April lows either at the 200-dma (near 1,111) or near the 1100 level. The small caps tend to be more volatile than the big caps so I would not be shocked to see the $RUT eventually decline to support near the 1080 area. A close below 1080 would be bearish indeed!

chart of the Russell 2000 index



Economic Data & Event Calendar

It's the beginning of a new month this week so we have a very full plate of economic releases. The ISM data and first look at U.S. Q1 GDP growth rate will make headlines. The big report to watch will be Friday's nonfarm payrolls. Of course even the jobs report could be dwarfed by April 30th's FOMC meeting. Wall Street expects the Fed to reduce QE again. The focus will be on the Fed's outlook.

It is still earnings season. Almost half of the S&P 500 components have reported their Q1 results and more than two thirds have beaten Wall Street's bottom line estimates. We should remember that these are dramatically lowered estimates. Only 55% have beaten the revenue estimates.

Economic and Event Calendar

- Monday, April 28 -
pending home sales for March

- Tuesday, April 29 -
Case-Shiller 20 city home price index
Consumer Confidence
Eurozone confidence survey

- Wednesday, April 30 -
ADP Employment Change Report
FOMC interest rate decision and outlook
Q1 GDP estimate
Chicago PMI data
Bank of Japan rate decision
China manufacturing PMI data

- Thursday, May 01 -
Weekly Initial Jobless Claims
Personal income and spending
ISM index
auto and truck sales
Fed Chairman Yellen speech

- Friday, May 02 -
Nonfarm payrolls (jobs) report for April
Factory orders

Additional Events to be aware of:

May 26 - U.S. market closed for Memorial Day


Looking Ahead:

Sometimes seasonal patterns do not show up. Normally April is one of the most bullish months of the year for stocks. Yet this year it looks like the market will end the month in the red. It could be investors locking in gains ahead of the next seasonal pattern, which is "sell in May and go away". Investors have an added incentive to sell now to avoid what could be a disappointing summer performance ahead of midterm elections.

The Stock Trader's Almanac alerted investors to the sell-in-May phenomenon back in 1986. If you sold on May 1st and didn't jump back into the market until November 1st your gains sprinted past the worst six months of the year. Just trading the best six months of the year by buying and selling the Dow Industrials a $10,000 investment in 1950 would be worth $765,000 today versus a loss of $593 if you only traded the "worst" six months. That same trade in the S&P 500 would be worth $565,846 versus a gain of less than $7,000.

Another troubling sign is the surge in retail investors jumping back into the market. Traditionally when the public decides it's time to start buying stocks it could be signaling a top. Both TD Ameritrade and E*Trade said they saw big jumps in trading volume in the first quarter of 2014. That's not surprising following the market's outstanding performance in 2013. Unfortunately this could be viewed as a contrarian signal that stocks have peaked. Ameritrade reported that the amount of cash their retail clients have as a percentage of total assets dropped to 14.8%. That happens to be the lowest level since September 2007, just before the market crashed.

Last week I mentioned we should keep an eye on the U.S. ten-year bond yields. That remains a potential warning signal for the market. If we see the yield fall below 2.6% or the February low of 2.57% then it could be a significant signal that smart money is moving out of stocks and into the safety of treasuries. Today yields stand at 2.66%.

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

My personal opinion is that we will see the NASDAQ and the Russell 2000 retest their April lows. This will probably drag the S&P 500 toward its long-term trend line of support. There are two wildcards in play. The FOMC meeting and the Fed's comments can always move the markets. The bigger wildcard could be Russia. If Russia invades Ukraine then the markets could see a knee-jerk reaction lower.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market's oversold bounce is rolling over. The U.S. market looks like it might retest its April lows.

We want to exit our BBT trade immediately on Monday morning (April 28th).

KLAC hit our stop loss.

I have updated the stop loss on CAT.

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

Avoiding The Knife

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 27, 2014)

I am growing more cautious on equities tonight. I warned readers in the market commentary last weekend to expect a pullback toward the April lows. It seems that pullback has begun.

As you know the market is way overdue for a correction. The S&P 500 has gone more than 900 days without a normal, healthy -10% pullback. I would not be in a rush to buy the dip here.

We can look at the market weakness as an opportunity since a correction would provide us much better entry points but we don't need to try and catch any falling knives. Better to let the market show us the bottom than trying to pick one.

Let's take a step back and see how the market reacts to a busy week of economic data, the FOMC meeting, and the threat of Russia invading Ukraine.



Play Updates

Is The Market Rolling Over?

by James Brown

Click here to email James Brown

Editor's Note:

We had BIG and HES graduate from our watch list to our active play list.

Keep in mind that if the broader market continues to roll over it will weigh on everything. A few of our candidates look weak. Investors may want to exit early. I am suggesting an early exit for our BBT trade.


Closed Plays


KLAC was stopped out.



Play Updates


BB&T Corp. - BBT - close: 37.33

Comments:
04/27/14: It's not looking good for our BBT trade. The bounce in the financial sector is rolling over. BBT didn't see that much of a bounce to begin with and shares are underperforming. The stock closed at new two-month lows and looks poised to hit our stop loss soon.

I am suggesting an immediate exit on Monday morning (April 28th).

- Suggested Positions -
DEC 17, 2013 - entry price on BBT @ 35.81, option @ 0.99
symbol: BBT1517a40 2015 JAN $40 call - current bid/ask $0.92/0.98

04/27/14 prepare to exit on Monday morning, April 28th
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


Big Lots Inc. - BIG - close: 39.47

Comments:
04/27/14: BIG has made the jump from watch list candidate to active trade. The plan was to wait for shares to breakout past resistance and close above $39.25 then buy calls the next morning. BIG closed at $39.45 on April 21st. Our trade opened the next day at $39.29. Since then BIG has struggled to build on its breakout thanks to a rollover in the wider market. More conservative investors may want to wait for a close above $40.00 before initiating new bullish positions here.

The stock did see its price target upgraded by one firm last week. Their new price target is $47.00, which just happens to be our exit target as well.

- Suggested Positions -
APR 22, 2014 - entry price on BIG @ 39.29, option @ 4.15*
symbol: BIG1517a40 2015 JAN $40 call - current bid/ask $3.80/4.30

04/22 trade opens. BIG opened at $39.29
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/21 BIG closed above our trigger at $39.25

Chart of BIG:

Current Target: BIG @ 47.00
Current Stop loss: 35.75
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/13/14


Caterpillar Inc. - CAT - close: 104.69

Comments:
04/27/14: It was a big week for CAT. The stock broke through resistance. Shares started to rally just before their earnings report. Then the stock popped higher on its results. Analysts were expecting a profit of $1.22 a share on revenues of $13.01 billion. CAT delivered $1.61 a share with revenues of $13.24 billion. Beating estimates was a good sign but management also raised their 2014 guidance.

The simple 50-dma has risen to $99.00. We will raise our stop loss to $98.45. Look for the $100 area to act as support if the market turns south.

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 $4.10/4.20

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $7.35/8.25

04/27/14 new stop @ 98.45
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: 98.45
Play Entered on: 04/03/14
Originally listed on the Watch List: 03/30/14


Chicago Bridge & Iron - CBI - close: 79.91

Comments:
04/27/14: As expected CBI traded sideways until its earnings report on Wednesday evening. Unfortunately CBI disappointed. Revenues were up +30% to $2.93 billion but that was not enough to exceed Wall Street's estimates of $3.06 billion. Shares have fallen sharply in the last two sessions and appear to be breaking down below what should be support at $80.00. Our stop loss is at $79.45. If there is any follow through on Monday we could see CBI hit our stop. I am not suggesting new positions.

- Suggested Positions -
MAR 07, 2014 - entry price on CBI @ 85.52, option @ 6.85
symbol: CBI1517a90 2015 JAN $90 call - current bid/ask $3.50/3.70

- or -

MAR 07, 2014 - entry price on CBI @ 85.52, option @ 8.50
symbol: CBI1615a100 2016 JAN $100 call - current bid/ask $5.50/6.20

04/27/14 the stock looks poised to break support and hit our stop
04/23/14 CBI missed the revenue estimate in its earnings report
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: 78.23

Comments:
04/27/14: I fear for our DIS trade. The stock has struggled and failed with resistance near $80 and its 50-dma all week long. DIS looks poised to fall toward $76 and its 100-dma (76.70). If the current trend holds true we'll see DIS hit new relative lows in the $74-75 zone. Currently our stop loss is at $74.75. More conservative investors will want to seriously consider an early exit right now to avoid further losses. I am not suggesting new positions. DIS is scheduled to report 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 $ 7.65/ 7.80

04/27/14 DIS looks poised to hit new relative lows and our stop loss
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


Hess Corp. - HES - close: 87.43

Comments:
04/27/14: Energy stocks were some of the strongest performers mid April but the group was hammered on Friday. HES didn't get hit that bad with a -1% pullback. However, the retreat from its midweek highs looks a bit short-term bearish.

HES was a watch list candidate. The plan was to wait for shares to close above $87.50 and then buy calls the next morning. HES met that requirement on April 21st with a close at $87.78. Our trade opened the next day at $87.50. On a short-term basis, given the market's pullbac, I suspect we'll see HES retest the $85-86 area.

Keep in mind that HES is scheduled to report earnings on April 30th, before the opening bell. Analysts are looking for a profit of $1.07 a share.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - current bid/ask $ 2.87/ 3.10

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $ 5.10/ 5.95

04/22 trade opened. HES opens at $87.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/21 HES closes at $87.78, above our entry trigger of $87.50

Chart of HES:

Current Target: HES @ 109.00
Current Stop loss: 81.75
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/06/14


Honeywell Intl. - HON - close: 92.65

Comments:
04/27/14: The bounce in HON, just like the market, has stalled and begun to roll over. Shares look like they will retreat back to support near $90.00 again. Our stop loss is at $89.75. More conservative investors may want to just take profits now. 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 $ 9.80/10.35

04/27/14 investors may want to just take profits now!
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: 60.39

Comments:
04/27/14: The market's reaction to CAT's news on Thursday briefly pushed shares of JOY to a new 52-week high. Unfortunately the rally didn't last. Shares have reversed and are now testing support near $60.00. Now Thursday's peak suddenly looks like a new bearish double top. If JOY breaks down below $60 I think we'll see it drop toward $57.50 and its simple 50-dma. I would hesitate to launch positions at the moment.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - current bid/ask $ 3.75/ 3.90

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 5.10/ 5.35

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


NuStar Energy - NS - close: 57.67

Comments:
04/27/14: NS continues to show relative strength and closed the week near two-year highs. The company reported earnings on the 23rd and beat estimates on both the top and bottom line. Shares were upgraded the next day following its report.

If the market accelerates lower we could see NS retreat back toward $55.00, which should be new support.

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 $ 3.70/4.20

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: 77.61

Comments:
04/27/14: Ouch! It was a rough week for QCOM. Shares are down almost four points thanks to a big post-earnings drop. The company's earning results were mixed. The bottom line beat estimates by 9 cents but revenues were a miss. Given QCOM's exposure to AAPL products and AAPL's better than expected quarterly results, many were surprised that QCOM did so poorly. Another important development was news that QCOM disclosed it had received a Wells Notice from the SEC regarding an investigation into bribery charges with Chinese companies.

The disappointing earnings and the Wells notice is a painful one-two punch combo. Investors may want to abandon ship immediately. Our stop loss remains at $74.70. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $6.25/6.35

04/24/14 QCOM's were a disappointment and they disclosed a Wells Notice. Investors may want to exit now and wait for the dust to clear.
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: 87.77

Comments:
04/27/14: I want to warn readers that the action in WDC last week is bearish. The stock has created a bearish engulfing candlestick reversal pattern on its weekly chart. Friday's drop (-2.2%) also left shares below their 50-dma. If there is any follow through lower this week we could see WDC hit our stop loss at $85.75. More conservative investors may want to abandon ship and exit right now considering how the broader market indices are rolling over.

WDC is scheduled to report earnings on April 30th, after the market's closing bell. Analysts expect a profit of $1.88 a share.

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 $4.60/4.80

- or -

APR 01, 2014 - entry price on WDC @ 92.56, option @ 9.65*
symbol: WDC1615a110 2016 JAN $110 call - current bid/ask $7.00/7.70

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: 49.05

Comments:
04/27/14: Believe it or not but WDC managed to eke out a gain last week in spite of the pullback in the financial sector. Unfortunately if the broader market continues to sink I would expect WFC to dip toward the $46-47 area. I'm not suggesting new positions at this time.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 2.06/2.11

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 3.75/3.90

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


KLA-Tencor - KLAC - close: 66.11

Comments:
04/27/14: KLAC lost $3.20 for the week or -4.8% thanks to its -7.1% plunge on Friday. The big drop on Friday was a reaction to KLAC's earnings released Thursday night. KLAC's earnings beat estimates on both the top and bottom line. Unfortunately management issued a pretty significant earnings warning and shares fell from $68 to technical support at its 200-dma (near the bottom of its long-term bullish channel).

Our stop loss was $63.90 but KLAC opened at $63.00 on Friday morning.

- Suggested Positions -
MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 4.50*
symbol:KLAC1517a70 2015 JAN $70 call - exit $2.00** (-55.5%)

- or -

MAR 13, 2014 - entry price on KLAC @ 67.63, option @ 5.50*
symbol:KLAC1615a75 2016 JAN $75 call - exit $3.00** (-45.4%)

04/24/14 shares gap lower at $63.00, below our stop at $63.90
04/24/14 KLAC issued an earnings warning
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

Chart of KLAC:

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



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Slim Pickings

by James Brown

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New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

CLX - Clorox Co.

KORS - Michael Kors


Dropped Watch List Entries

BIG and HES graduated to our play list. ZNGA has been removed.



New Watch List Candidates:


I am not adding any new watch list candidates tonight.

Every weekend I look at hundreds, sometimes thousands of stocks. We try and boil them down into a pool of potential candidates. Unfortunately, at the moment I don't see anything ready to be added to our watch list.

I do find Yum Brands (YUM) and McDonald's (MCD) to be interesting. Both look relatively bullish.

I would keep an eye on YUM since a close above resistance at $80.00 could be a new bullish entry point.

MCD has been showing relative strength and there appears to be short-term support at the $99.00 level. More aggressive traders may want to give MCD another look now given its relative strength late this past week.

Another stock that has caught my eye is Berkshire (BRK.B) . Shares are trading at all-time highs and look poised to breakout past short-term resistance near $128.00.


Active Watch List Candidates:



The Clorox Co. - CLX - close: 90.03

Comments:
04/27/14: CLX was showing some relative strength on Friday with a +1.0% gain. As the market turns lower this stock could see more interest as a safe-haven trade. Please note that CLX is due to report earnings on Thursday, May 1st. The stock could be volatile that day.

Earlier Comments:
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 $2.00

- or -

BUY the 2016 Jan $100 call (CLX1615a100) current ask $3.00

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


Michael Kors - KORS - close: 89.88

Comments:
04/27/14: The bounce in KORS is rolling over. I am still expecting shares to fill the gap with a drop toward $80 and its 200-dma. The plan is unchanged but I am moving the stop loss to $77.25.

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. You 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 $77.25

BUY the 2015 Jan $90 call (KORS1517a90)

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


Zynga, Inc. - ZNGA - close: 4.08

Comments:
04/27/14: I warned you that ZNGA was volatile. I also cautioned investors to wait until after ZNGA reported earnings before initiating positions. Shares have seen some big swings. Thursday's intraday high was $4.66 and Friday's low was $4.01 (-13.9%).

The earnings report on April 23rd was mixed. Bottom line met expectations and revenues were a beat. However, guidance was mixed and investors sold the news.

My suggested entry point was to wait for ZNGA to close in the $4.50-4.75 zone on Thursday or Friday before initiating positions. That did not happen so I am removing ZNGA from the watch list.

Trade did not open.

04/27/14 our aggressive trade on ZNGA was not triggered.

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