Editor's Note:

I am growing more and more concerned about the market. My expectations about a double-dip in the U.S. sometime in the next twelve months are growing. That doesn't bode well for stocks (or long-term bullish LEAPS positions). We need to take a more defensive attitude. I'm raising stops and will be more quick to take profits.


Closed Plays


None. No closed plays this week.


Play Updates


BorgWarner Inc. - BWA - close: 37.26 change: -0.80

Uh-oh! BWA rallied more than 10% off its May lows but the rally failed near $38 and its 20-dma and 50-dma. I find this worrisome especially given the fading volume on the bounce. I would strongly suggest more conservative traders sell the rest of their positions now to avoid or minimize any losses. The bid on the 2011 Jan $40 call LEAPS is $3.90, which is pretty much breakeven. Officially we'll sell another half (now 1/4 of our original) position, which leaves us with a very small position. The recent low was $33.93. We'll up our stop loss to $33.75. No new positions at this time.

We have already taken profits once at $44.50. Our second and final long-term target is $49.75.

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: BWA1122A40 2011 JAN $40 LEAP call - current bid/ask $3.90/6.00
-stop loss on BWA @ 33.75

05/29/10 Sell half of remaining position, BWA @ 37.26, option @ 3.90 (+0.00%)
04/29/10 1st Target Hit, BWA @ 44.50, option @ $7.63 (+95%)

Chart of BWA:


CIRCOR Intl. - CIR - close: 29.72 change: -0.72

I'd like to think this past week was a significant bottom for CIR but it's too early to tell. If the rest of the market continues to sink I do not have any hopes that CIR will be able to hold above the $28 level. The action in May has been extremely damaging to its longer-term bullish posture. I remain very, very cautious here. CIR failed at its 10-dma on Friday and I would probably expect a retest of the $28 area over the next few days. I am not suggesting new bullish positions at this time.

NOTE: I suggested readers only initiate half a position to limit our risk.

May 6th, 2010 - entry price on CIR @ 30.50, option @ 5.00
symbol: CIR 10K35.00 2010 NOV $35 call - current bid/ask $1.40/2.20
-stop loss on CIR @ 27.45

Chart of CIR:


Cliffs Natural Resources - CLF - close: 55.86 change: -1.83

CLF has continued to bounce, which is encouraging and shares have cleared the $55 level, another positive sign. The rally has currently stalled near the 100-dma. Unfortunately, this play is going to remain volatile due to dollar strength or weakness and its affect on commodities.

CLF's Chairman recently wrote a letter to shareholders voicing his concern over Australia's proposed "super tax". He said that currently their Australian operations accounts for 23% of CLF's $2.3 billion annual revenues. Here is an excerpt from his letter to shareholders:

As written, the Government's proposal could result in the total effective tax burden on Cliffs' Australian profits increasing to approximately 60% from a current rate of approximately 39%. This would make the Australian resources industry the highest taxed in the world.

In defending this proposal, the Australian Federal Government is claiming that the mining industry is not paying its fair share of taxes. We, along with countless others in the industry, argue this is demonstrably not the case. This is not a tax on "Super Profits". It is a new tax added on to the current federal and state taxes, royalties and other taxes already paid by participants in the Australian mining industry. Our Australian-based iron ore operations have contributed A$625 million to tax revenues over the past ten years. During this time, the Company has also invested A$460 million of capital in Australia and created over 400 new jobs.

He goes on to say that if this proposal does get passed, which could take a while to happen, CLF will have to re-evaluate their expansion plans in Australia.

I'm still optimistic on CLF but if we heard any more news about China's economy slowing down it could have a negative impact on stocks like CLF. The idea that Europe is sliding back into recession and will see a drop in demand for commodities could already have an impact.

I would not be surprised to see CLF retest the $51-50 zone. Consider using that dip or a bounce from this area as our next entry point. I am turning more defensive with our stop loss and raising it to $44.90. You might be able to get away with a stop closer to the recent lows near $46.00.

Prior Comments:
This is an aggressive trade. CLF can be volatile. Plus, there is a chance that Australia will levy a new tax on resource names like CLF. I suggested readers keep their position size small. Our stop loss is at $39.50. Our first target is $75.00.

May 21, 2010 - entry price on CLF @ 46.50, option @ 6.65
symbol: CLF 11A60.00 2011 JAN $60 call - current bid/ask $8.40/8.70
-stop loss on CLF @ 44.90

- or -

May 21, 2010 - entry price on CLF @ 46.50, option @ 7.55
symbol: CLF 12A70.00 2012 JAN $70 call - current bid/ask $10.30/11.20
-stop loss on CLF @ 44.90

Chart of CLF:


ConocoPhillips - COP - close: 51.86 change: -0.35

Thankfully Tuesday looks like it may be a significant low or bottom for COP. The oil sector remains in a downtrend. Oil was sold off so hard thanks to the dollar's rally in May that the commodity managed a snap-back rally in spite of any real weakness in the dollar this past week. The worry here is that it could just be an oversold bounce. We still have incredibly high levels of inventory in the U.S. and analysts are worried about slowing demand for all commodities for a Europe that appears to be headed back toward recession.

Short-term the bounce in COP stalled at its 100-dma. I would not be surprised to see shares retest the $50-49 area again. I would prefer to buy bounces instead of the dips at this point since we don't know when one of these days the dip may not stop. I am VERY tempted to raise the stop loss closer to the $48.00 level. If COP does provide an entry point and you choose to buy calls I would keep your positions very small.

Our first target is $69.00.

May 20, 2010 - entry price on COP @ 51.00, option @ 3.75
symbol: COP 11A55.00 2011 JAN $55 call - current bid/ask $3.30/3.40
-stop loss on COP @ 46.00

- or -

May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $4.00/4.20
-stop loss on COP @ 46.00

Chart of COP:


EMC Corp. - EMC - close: 18.62 change: -0.16

EMC looks a lot better thanks to an analyst upgrade on Thursday. Shares rallied toward their 50-dma and stalled but some of the short-term technicals actually look positive. I remain cautious on this stock. I suspect that EMC will bounce around the $17-19 zone for a while. If you're interested in launching new positions try and time one on a dip or rebound near $17.50. If you do launch positions keep them small. If the major market averages breakdown I expect EMC to follow them lower.

Currently our stop loss is at $16.75. More aggressive traders may want to use a wider stop (maybe $15.90). Our first target is $22.50. Our second, longer-term target is $24.75.

May 6, 2010 - entry price on EMC @ 18.25, option @ 1.40
symbol: EMC 11A20.00 2011 Jan $20 call - current bid/ask $1.21/1.28
-stop loss on EMC @ 16.75

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $2.49/2.68
-stop loss on EMC @ 16.75

Chart of EMC:


Fortune Brands - FO - close: 47.45 change: -0.29

Shares of FO were upgraded to a "buy" on Wednesday and that helped the oversold bounce surge from $44 toward $48 this past week. FO was looking pretty oversold so the bounce isn't that surprising. What worries me was the economic data out this week. The savings rate in the U.S. surged back to 3.6%. If consumers are nervous and trying to save more that's going to have an impact on retail sales.

The optimist inside of me would like to think FO will be much higher by yearend but the implications for a double-dip recession in the U.S. some time in the next 12 months doesn't bode well for the likes of FO. I am strongly suggesting that more conservative traders exit this position right now with the Sept. $50 calls trading near $2.00. That would minimize any potential losses. It is possible that FO manages to rally toward $50, which would obviously be a better exit for you but you're taking a risk that the bounce never gets that high. I am not suggesting new positions at this time. Do not be surprised to see FO retest the $45-44 zone and its rising 200-dma.

We have already chosen to sell half our position near $52. Our long-term (final) target is $59.75.

Mar. 12th, 2009 - entry price on FO @ 47.55, option @ $2.20
symbol: FO1018I50 SEP 2010 $50 call - current bid/ask $1.95/ 2.15
-stop loss on FO @ 42.90

05/29/10 -Conservative traders should exit now-
04/17/10 Sell Half - FO @ $52.00, option @ $4.30 (+95%)

Chart of FO:


Imation Corp. - IMN - close: 10.28 change: -0.06

Some of the short-term indicators on IMN are starting to turn bullish but the stock has failed to break the trend of lower highs over the last few weeks. I remain optimistic here but we will raise our stop loss to $9.25.

Keep your positions small. I still prefer buying the stock over the calls. The spreads on the October and January calls are outrageously wide. Really, it's ridiculous. If you want to try the options consider trying a limit order for a price closer to the bid and see if you get filled. You might get lucky - but then what happens when we try to sell them? A market order is going to hurt our exit plans here!

Our first long-term target is $12.25. Our second, even longer-term target is $14.25.

May 6, 2010 - entry price on IMN @ 10.00,
Stop loss at $9.25

- or -

May 6, 2010 - entry price on IMN @ 10.00, option @ 1.00
symbol: IMN 10J10.00 2010 Oct $10 call - current bid/ask $0.25/2.45
-stop loss on IMN @ 9.25

Chart of IMN:


Lockheed Martin - LMT - close: 79.92 change: -0.64

Shares of LMT have gone no where over the last five sessions. The stock is just hovering near the $80 level. This would make more sense if last week was an option expiration week or the week before LMT's earnings but it's not. I don't see any changes from my prior comments. You would think that rising geo-political tensions with North Korea and Iran would be bullish for defense stocks but they don't appear to be helping. I'm not suggesting new bullish positions but a close over $82.00 might change my mind.

Our first target is $99.00. Our second, longer-term target is $109.00.

FYI: Our plan was to only use small (half) positions to limit our risk.

May 6, 2010 - entry price on LMT @ 80.50, option @ 6.50
symbol: LMT 11A85.00 2011 Jan $85 call - current bid/ask $ 4.20/ 4.50
-stop loss on LMT @ 74.75

- or -

May 6, 2010 - entry price on LMT @ 80.50, option @ 7.70
symbol: LMT 12A90.00 2012 Jan $90 call - current bid/ask $ 5.70/ 6.40
-stop loss on LMT @ 74.75

Chart of LMT:


Mckesson - MCK - close: 70.00 change: -0.07

MCK continues to show relative strength. This is very encouraging since the initial spike over $70 looked like a bull trap. I do not see Wednesday's news that MCK raised their dividend by 50% to 18-cents a share as having much of an impact on the stock. The new yield is still less than 1% at current share prices. I don't see any changes from my prior comments. Readers could wait for a close over $71.00 as a new entry point. Or if the market breaks down then look for a dip toward the 200-dma (but we would be stopped out in that event). Speaking of stops I am raising our stop loss to $63.99 and more conservative traders may want to raise theirs toward $66. If you do open positions you still want to trade small. This was labeled an aggressive trade with a plan to keep positions small. Our first target is $94.50.

May 18, 2010 - entry price on MCK @ 71.00, option @ 3.25
symbol: MCK 11A75.00 2011 Jan $75 call - current bid/ask $ 4.20/ 4.50
-stop loss on MCK @ 63.99

- or -

May 18, 2010 - entry price on MCK @ 71.00, option @ 4.10
symbol: MCK 12A80.00 2012 Jan $80 call - current bid/ask $ 5.70/ 6.50
-stop loss on MCK @ 63.99

Chart of MCK:


Millicom Intl. - MICC - close: 79.93 change: -1.31

I couldn't find any news to explain the weakness on Wednesday but it may have been a reaction to trading in European markets. MICC has been unable to build on its bounce and traders seem to be selling the rebound attempts. This is short-term bearish for us. I am turning a lot more defensive with our stop loss and raising it to $74.40. If MICC breaks down under the early May low we want out. We can still enter positions near this long-term trendline of higher lows but I'd prefer to do so on a dip near $77.00.

Keep in mind that this is a higher-risk trade given MICC's volatility. I would use small positions if you do open a trade. Our long-term target is $99.50 and the $109.00 levels.

May 6, 2010 - entry price on MICC @ 80.00, option @ 8.60
symbol: MICC 11A90.00 2011 Jan $90 call - current bid/ask $ 5.60/ 6.50
-stop loss on MICC @ 74.40

Chart of MICC:


PEPSICO Inc. - PEP - close: 62.89 change: -0.01

The action in PEP has been somewhat volatile for this stock over the last few days. While PEP is considered a defensive consumer stock it will be interesting to hear how the drop in the euro will affect their sales. Earnings are due out until late July so we have a while before that news is released. Thus far PEP is holding to some support near $62 and its 200-dma but I am not suggesting new bullish positions at this time. More conservative traders may want to consider taking profits now or raising their stops toward last week's low near $61.00. Our final target is $72.25.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $5.65/5.80
-stop loss on PEP at $59.85

03/27/10 SELL HALF: PEP $ 66.59, Option @ $8.00 (+77.7%)

Chart of PEP:


Titanium Metals - TIE - close: 17.67 change: -0.06

I am concerned about the wider market and that makes me want to sell the remaining position in TIE especially with the 2012 Jan $15 call trading at $6.00. However, TIE has been able to rally in spite of the market. We do risk seeing shares reverse if the market breaks down but currently the path of least resistance for TIE appears to be higher. I am raising our stop loss to $13.49. I am not suggesting new long-term bullish positions.

A few weeks ago we closed the 2011 January $15 call LEAP. We still have the 2012 January $15 call LEAP. Our final, long-term target is $19.75. More aggressive traders may want to aim a lot higher.

Feb. 20th, 2010 - entry price on TIE @ 12.06, option @ 2.60
symbol: WWN1221A15, 2012 JAN $15 LEAP call - current bid/ask $6.00/6.40
-stop loss on TIE @ 13.49

03/27/10 SELL HALF: TIE @ 16.21, option @ 4.50 (+73%)

Chart of TIE:


WLT - Walter Energy Inc. close: $79.33 change: -0.72

The last week and a half have been a good one for WLT with a big bounce from $65 to $80. This is a volatile stock that swings from oversold to overbought very quickly. Shares now look short-term overbought. If you're looking for a new entry point consider waiting for a dip or a better yet the next bounce in the $75-70 zone. Please note our new stop at $64.90.

Keep an eye open on news regarding China. Fears that China will slow down its economy too much could send coal names back into a down trend again.

Our first target is $99.00.

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

May 6, 2010 - entry price on WLT @ 73.00, option @ 12.00
symbol: WLT 11A80.00 2011 Jan $80 call - current bid/ask $13.40/14.10
-stop loss on WLT @ 64.90

- or -

May 6, 2010 - entry price on WLT @ 73.00, option @ 14.10
symbol: WLT 12A90.00 2012 Jan $90 call - current bid/ask $16.10/17.40
-stop loss on WLT @ 64.90

Chart of WLT:


Wal-Mart Stores Inc. - WMT - close: 50.56 change: -0.14

I don't see a lot of change from my prior comments on WMT. The stock has been hovering in the $50-51 zone all week. News that the savings rate in the U.S. rose to 3.6% didn't have much affect on shares of WMT, but is normally seen as a negative for retailers. If people are trying to save money they're probably going to do a lot of their shopping at WMT. I am still bullish on this company and buying this dip near $50.00 is an entry point.

Our long-term target is the $63.00 level. Since WMT does not move very fast readers may want to supplement their position by turning it into a calendar spread or a diagonal spread to enhance their gains.

Mar 7th, 2009 - entry price on WMT @ 54.14, option @ 4.60
symbol: WWT1221A55 JAN 2012 $55 LEAP call - current bid/ask $3.90/4.10
-stop loss on WMT @ 48.95

Chart of WMT