Editor's Note:

Sometimes it pays to wait. I warned readers a week ago that we might want to avoid launching new positions until after we see the market's reaction to the jobs report on Friday. Now the market looks like it could retest its August lows.

I would use a dip near the August lows as a new entry point but we want to keep our position size small to limit risk.

-James


Closed Plays


None. No closed plays this week.


Play Updates


Bank of America - BAC - close: 7.25

update 09/03: It was not a good week for BAC. Shares are down -6.5% for the week but they're off -13.5% from Monday's close. Our plan was to open small bullish call LEAPS positions on Monday at the open. BAC opened at $8.10 on August 29th. Shares churned sideways for a couple of days and then collapsed on Friday with a -8.3% drop.

Before we get to Friday, let's back up to Thursday when the Federal Reserve asked BAC to design a contingency plan in case economic conditions worsen. That says two things to us. The Fed is worried about the economy slowdown getting worse. Second, the Fed is worried about BAC. It certainly doesn't inspire a lot of confidence.

One of the market's biggest stories on Friday was the FHFA lawsuits against 17 financial firms for $200 billion. The Federal Housing Financial Authority is suing these firms over misrepresentation of the mortgages and mortgage related securities they sold during the housing boom. BAC is the largest target in this lawsuit with the FHFA aiming for more than $50 billion in damages. The stock gapped open lower on Friday and looks like it's headed for the next level of support near $7.00.

I cautioned readers a week ago that this BAC trade was like a lottery ticket. If we win, it should win big. If not, then we didn't have that much invested. Our investment is certainly smaller since Monday. I am suggesting that readers be ready to buy calls again on a dip or a bounce near the August lows near $6.00.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ 8.10, option @ 0.57
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.35/ 0.38
No Stop on this position (at this time)

- or -

AUG 29, 2011 - entry price on BAC @ 8.10, option @ 1.50
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 1.11/ 1.15
No stop loss on this position (at this time)

09/03 no stop loss on this trade at this time.

Current Target: $12.00-to-$15.00
Current Stop loss: --.--
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11


Baker Hughes Inc. - BHI - close: 58.27

update 09/03: BHI had a pretty good start to the week but the Thursday-Friday sell-off erased most of its gains. At this point I would prefer to wait for a dip or a bounce in the $55.00 area before considering new bullish positions.

Earlier Comments:
The plan was to keep our position size small. Our long-term targets are $67 and $74. I do want to caution traders that one of our biggest risks is probably news that BHI will make an acquisition. If BHI does purchase another company, then shares of BHI could gap open lower on us, which is another reason to keep our position size small.

- Suggested Positions -
AUG 29, 2011 - entry price on BHI @ 57.62, option @ 3.85
symbol: BHI1221A65 2012 JAN $65 call - current bid/ask $ 3.70/ 3.80

- or -

AUG 29, 2011 - entry price on BHI @ 57.62, option @ 7.00
symbol: BHI1319A70 2013 JAN $70 call - current bid/ask $ 6.90/ 7.15

Current Target: $67.00 and 74.00
Current Stop loss: 52.40
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11


Cliffs Natural Resources - CLF - close: 78.49

update 09/03: CLF was an outperformer last week in spite of the -7.6% drop from its highs near $85.00 last week. The stock managed to end the week up +2.4%. The early rally last week stalled at resistance near $85.00 and its 50-dma and 200-dma. With that much overhead resistance I wasn't surprised to see CLF slow down.

I would expect shares to retest the $75.00 level support. Readers can use a new bounce from $75 as an entry point to buy calls but you may want to raise your stop loss a bit.

FYI: This past week there were some rumors that CLF was a takeover target.

Earlier Comments:
The plan was to use small positions to limit our risk. Our targets are $89.00 and $99.00.

- Suggested (SMALL) Positions -
Aug 18, 2011 - entry price on CLF @ 71.51, option @ 4.25
symbol: CLF1221A85 2012 JAN $85 call - current bid/ask $ 7.05/ 7.20

- or -

Aug 18, 2011 - entry price on CLF @ 71.51, option @ 10.50*
symbol: CLF1319A90 2013 JAN $90 call - current bid/ask $13.25/13.60

09/03 look for a dip toward $75.00
08/27 new stop loss @ 67.00
08/20 adjusted stop loss to $64.95.
08/18 *entry on 2013 Jan. $90 call is an estimate. Option did not trade on Thursday.

Current Target: $89.00 and 99.00
Current Stop loss: 67.00
Play Entered on: 08/15/11
Originally listed on the Watch List: 08/13/11


EMC Corp. - EMC - close: 21.43

update 09/03: EMC gave up less than 1% for the week. The rally stalled on Wednesday and Thursday and it does look like a short-term top near $23.00. I would wait for a dip (or a bounce) in the $21.00-20.00 zone as our next entry point to buy calls.

Earlier Comments:
The plan was to use small positions to limit our risk. Our first long-term target is $25.75. Our second target is $28.50. Aggressive traders could aim higher.

- Suggested (SMALL) Positions -
Aug 18, 2011 - entry price on EMC @ 20.25, option @ 2.20
symbol: EMC1221A20 2012 JAN $20 call - current bid/ask $ 2.75/ 2.80

- or -

Aug 18, 2011 - entry price on EMC @ 20.25, option @ 1.80
symbol: EMC1319A25 2013 JAN $25 call - current bid/ask $ 2.01/ 2.22

Current Target: $25.75 and 28.50
Current Stop loss: 18.90
Play Entered on: 08/18/11
Originally listed on the Watch List: 07/23/11


McDonalds Corp. - MCD - close: 89.09

update 09/03: MCD managed to set new all-time highs above $91.00 this past week. Yet even MCD could not avoid some profit taking. The stock broke down under $90.00 and its 10-dma, both of which were very short-term support. There is a good chance we could see MCD retreat back toward its rising 40 or 50-dma if the market averages plunge back toward their August lows. The simple 50-dma is currently at $86.50. I'd wait for a dip or a bounce near this area before launching positions.

Conservative traders might want to use a stop loss closer to the $84.50 area.

Earlier Comments:
The plan was to use small positions to limit our risk. Our first target is $99.00.

- Suggested (small) Positions -
Aug 15, 2011 - entry price on MCD @ 86.82, option @ 2.50
symbol: MCD1221A90 2012 JAN $90 call - current bid/ask $ 3.95/ 4.05

- or -

Aug 15, 2011 - entry price on MCD @ 86.82, option @ 3.90
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 5.20/ 5.35

09/03/11 look for a dip toward the 50-dma

Current Target: $99.00
Current Stop loss: 81.75
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


McDermott Int. Inc. - MDR - close: 13.58

update 09/03: MDR ended the week up +3% even after it saw a -6% pull back from its highs near $14.50. I do not see any changes from my prior comments. I'd prefer to wait for a new dip near $12.00 before launching new positions. Nimble traders may want to try buying calls on a bounce near $13.00 instead.

FYI: If we do see a new entry point, readers may want to buy the 2013 calls instead of the 2012s.

Earlier Comments:
The plan was to use small (half) positions to limit our risk and keep some cash in reserve in case we want to add to positions later. Our long-term targets are $19.50 and $23.50 but the $18 level and $22 level could prove to be tough resistance.

- Suggested (small) Positions -
Aug 15, 2011 - entry price on MDR @ 14.67, option @ 2.15
symbol: MDR1221A15 2012 JAN $15 call - current bid/ask $ 1.25/ 1.35

- or -

Aug 15, 2011 - entry price on MDR @ 14.67, option @ 1.15
symbol: MDR1221A17.5 2012 JAN $17.50 call - current bid/ask $ 0.55/ 0.65

08/20/11 adjust stop loss to $11.49

Current Target: $19.50, and $23.50
Current Stop loss: 11.49
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Visa Inc. - V - close: 85.55

update 09/03: Visa lost 30 cents for the week. Were it not for Friday's $2.00 drop it would have been a different story. Visa is near potential support near $85.00 but I would not buy it now. Wait for a dip into the $83.00-82.00 zone before considering new long-term positions. Or better yet wait for a bounce from $81.00 as your entry point.

- Suggested (small) Positions -
Aug 18, 2011 - entry price on V @ 80.00, option @ 4.00
symbol: V1221A90 2012 JAN $90 call - current bid/ask $ 5.10/ 5.30

- or -

Aug 18, 2011 - entry price on V @ 80.00, option @ 7.75
symbol: V1319A100 2013 JAN $100 call - current bid/ask $ 8.05/ 8.55

08/27 new stop loss at $77.00

Current Target: $94.00, and $99.00
Current Stop loss: 77.00
Play Entered on: 08/18/11
Originally listed on the Watch List: 08/13/11


Walter Energy Inc. - WLT - close: 77.61

update 09/03: WLT's rebound failed at resistance near $85.00. Profit taking pulled it all the way back down to $74.57 on Friday morning. The $75.00 area has been support or resistance in the past several times over the last few weeks so this isn't too surprising. I warned readers last week that we might see WLT dip back toward the $75-70 zone. I am not convinced the sell-off is over.

Readers may want to wait and see if WLT can retest the bottom of this range in the $72-70 zone before considering new positions. I would definitely consider new positions on a dip near $70.00 with our stop at $69.00.

Earlier Comments:
WLT can be a volatile stock so I do consider this an aggressive, higher-risk trade. We have a wide stop loss and the option we're using is very out of the money. We definitely want to keep our position size small. We'll start this trade with a stop loss at $69.00. Our upside targets are $97.75 and $129.00 (a very long-term target).

- Suggested (small) Positions -
Aug 15, 2011 - entry price on WLT @ 82.82, option @ 6.65
symbol: WLT1221A100 2012 JAN $100 call - current bid/ask $ 4.30/ 4.50

- or -

Aug 15, 2011 - entry price on WLT @ 82.82, option @ 14.05
symbol: WLT1319A100 2013 JAN $100 call - current bid/ask $10.05/12.00

Current Target: $97.75 and $129.00
Current Stop loss: 69.00
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11