GM - $29.54 General Motors ** No Stop **
Lower oil prices provided a bounce for GM but news after the bell on Friday could be negative for next week. Ford warned that full year earnings would be -25% less than previously expected and blamed the same things that are putting pressure on GM. It is only a matter of time before oil starts higher again and GM will return to weakness. A break under $28 will be the sign of real trouble.
My long-term view is very bearish on the automakers due to the potential for $100 dollar oil over the next year or so. If $2.50 gas is bad for business $5.00 gas will be a death knell for gas-guzzlers.
With earnings approaching there is a good possibility GM will reveal some more negative details about its profits and its pension/healthcare problems.
I am using the 2007 leap puts because I think this will be a long term problem for GM and the other car makers as well. We could easily see prices in the teens before this put expires.
2007 $30 PUT VGN-MF Currently $7.20
Entry $29.35 (4/04)
CAL - $12.78 Continental Airlines ** Stop $14.50 **
CAL continued to rally on lower oil but there is strong resistance just ahead at $14.50. If oil continues lower we may be stopped out but it would mean a better entry for our next oil positions.
The airline industry as we know it is doomed. It is only a matter of time before it becomes too expensive to fly due to dwindling oil reserves and the tens of thousands of current routes will be cut in half and possibly half again. There is no substitute for oil to keep the planes in the air and that means costs will continue to skyrocket. Those airlines with defined benefit pension plans will be stuck with shrinking routes, more layoffs, higher costs and lower profits. In the not too distant future air travel for fun will be a fond memory and heading off to grandma's for the weekend or to Vail for skiing will simply be too expensive to justify.
Business travelers will be the majority of the fares and the high cost of those fares will restrict them to only the absolutely necessary trips.
I am very bearish on the future of the airlines and it is only a matter of time until the rest of the world catches on to the coming reality.
No insurance call due to the low price on the Leap.
Entry $12.00 (03/31)
OSTK $43.25 Overstock.com ** Stop loss $48.00 **
OSTK tried twice to rally last week and failed both times. Once support at $42 fails it could be a long drop.
Overstock.com is poised to repeat the Amazon story. They rallied to the excess peaks on the story and promise of the future and are now finding it difficult to follow through on that promise.
For a complete and lengthy explanation of this play please refer back to the April 3rd edition of the LEAP newsletter.
I believe Overstock.com will return to its $20 roots and with earnings just ahead we could easily have some negative surprises. Unfortunately they don't have leaps but we can still play with September puts. I realize many readers may not have the same incentive to short OSTK that I do and I understand. However, looking at a chart should suggest to you that others have found them lacking as well.
September $40 Put QKT-UH @ $5.70
No insurance call due to prices out of
Entry $42.60 (04/04)
FDX - $91.10 Federal Express ** Dropped **
FDX was clinging to support at $92 but the USFC warning tanked the sector with a -3% loss in the transports. We were targeting $90 for a breakeven exit in this busted play but with April options expiring next Friday I elected to close it today. The LEAP is down -3.40 and the call is up +2.45 for a net -95 cent loss. If it appears transports are going to be down again on Monday I would hold the put another day in hopes of a breakeven. With the $95 put already $4 in the money any negative movement on FDX would be immediately recognized in the put.
Support should be at $90 both from the 200-day average and the January dip low at $90. However, with fears of shipping volume slowing it is not worth the risk to hold it.
2006 $100 LEAP Call WFX-AT @ $7.50, exit 4.10, -3.40
Entry $96.00 (03/17)
SMH - $32.49 Semiconductor Holders ** No Stop **
The SOX held 410 again but failed at 420 and the SMH is holding just above $32. We have plenty of time and a May insurance put so no change here. Uptrend support is $31, which equates to 400 on the SOX.
Semiconductors have been the only strength sector for techs and we are rapidly running out of time for any real rebound. If techs do not rebound over the next two weeks I plan on closing this play for non-performance. I don't want to hold it into the summer doldrums.
2006 $35.00 LEAP Call YRH-AG @ $2.75
Entry $33 (03/15)
DGX - Quest Diagnostic $105.41 ** Stopped @ $104.00 **
DGX dipped on Monday to our stop loss at $104 and took us out of the play for a nice +$8 profit. It is nice to have a big winner when the market is doing everything it can to punish investors.
2006 $95 LEAP Call YFK-AS @ $6.40, exit $14.50, +8.10
Entry $91.00 (01/21)
ADBE - Adobe Systems $67.18 ** Stop $66.50 **
** Set a profit stop at $69.00 **
Adobe is still holding its gains but I am getting even more nervous. I raised the stop to $66.50 and I am hoping for a Nasdaq rebound to hit our profit target at $69. We came within 11 cents on Wednesday. I am maintaining that profit stop at $69.
Adobe is the king of the document and image business and continues to announce new products. The company announced earnings in December that rose +33% and beat estimates. Income for the year rose +69% on a +29% increase in revenue. Adobe affirmed guidance for 2005 and the stock has been beating the Nasdaq in percentage gains. In 2004 the stock rose +60%. Since they have already announced earnings we have very little event risk over the next month.
I recommended the February $55 put as insurance at 80 cents. That gave us six weeks for the Q1 earnings to cycle and for ADBE to pick a direction. If we are not profitable by Feb-18th expiration we will close and take our lumps.
Jan-06 $60 LEAP Call WAE-AL @ $7.50
Added new insurance on Feb-22nd
Stop loss $65.00
Entry $58.78 (01/09)
SYMC $20.57 Symantec - Veritas ** no stop - CHANGE PUT!! **
SYMC rolled over with the rest of the software sector and is headed right back for another retest of support at $20. I do not want to close this play but I have to make a change with the April insurance put expiring.
On Monday sell the April $22.50 put, currently $1.95, and roll out to a July $22.50 put SYQ-SX, currently 2.75. It will cost us about 80 cents but will protect our in-the-money position for three more months. If SYMC does breakdown below $20 we are protected on a dollar for dollar basis with that in-the-money put. If SYMC rebounds we will recover the loss in the put with an increase in the LEAP.
I believe that the SYMC/VRTS merger is a match made in heaven and analysts will come to that view as more plans are announced. The companies have no overlapping products but all their products are perfect fits for the others. With one company having anti-virus, data security, backup, recovery and storage management it puts the other stand-alone companies in a very difficult position. EMC and QLGC both fell in the storage sector and Mcafee was crushed in the anti-virus sector.
Entry $25.37 (12/19)