Editor's Note:

Q2 earnings season is about to hit full swing. The results could be Wall Street's version of fireworks with plenty of individual stock winners and losers making big moves. Meanwhile the debt ceiling talks are still raging without any signs of a deal. I am reluctant to add new candidates to our watch list tonight. If we don't see a debt deal soon the U.S. market could plunge before we ever reach the August 2nd deadline.

If you feel compelled to trade check out these candidates: CHD, KMT, and LLY. They all appear to be offering a bullish entry point right now but I'd rather wait to see where the market is trading a week from now before making any decisions.

CHD - this stock has rallied to new all-time highs. This past week saw shares ignore market weakness and breakout past resistance near $42.00. The relative strength is impressive and after three months of consolidating sideways this looks like a bullish entry point.

KMT - shares have spent several months consolidating sideways in the $37-44 range. These past two weeks saw a breakout and KMT is already rebounding from its correction. On a short-term basis Friday's move looks like a bullish entry point. One of my concerns is that KMT has resistance near $46 dating back to 2007. Aggressive traders could buy calls now. Others may want to wait for a close over $46.00 instead.

LLY - This drug stock does not move very fast. The stock has been trading sideways under resistance at $38.00 for nearly two years. If you look at a multi-year chart you can see LLY has been suffering for a very long time. However, the rally in April and May broke some very long-term resistance trendlines. On a short-term basis the action on Friday with the bounce near $38.00 looks like a new bullish entry point. Investors could buy call LEAPS now and target the $49-50 area but it may take a couple of years to get there.

- James



New Watch List Entries

None, no new watch list candidates


Active Watch List Candidates

AXP - American Express Co

HSY - Hershey Co.

EXXI - Energy XXI Ltd

JJC - iPath Copper ETF

MCD - McDonald's Corp.

PEP - Pepsico

WLP - Wellpoint Inc.

WNR - Western Refining


Active Watch List Candidates:


American Express Co. - AXP - close: 51.81

07/16 update: This could be an interesting week for AXP. The company reports earnings on July 20th after the closing bell. Cautious traders will not want to open positions until after we see the market's reaction to AXP's results.

Currently we have a buy-the-dip entry point at $50.00. More conservative trades could set their entry point closer to $48.00 and the 100-dma instead.

If we are triggered at $50.00 we'll start with a stop loss at $45.75. Our targets are $59.00 and $64.00.

Buy-the-Dip trigger: $50.00

BUY the 2012 Jan $55 call (AXP1221A55)

- or -

BUY the 2013 Jan $55 call (AXP1319A55)

Originally listed on the Watch List: 05/21/11


Energy XXI Ltd. - EXXI - close: 34.26

07/16 update: EXXI came super close to hitting our entry point on Thursday. The low was $32.28. Currently our trigger to launch positions is at $32.25. If you're bearish on the market you could wait for a dip closer to the $30.00 level instead as your entry point.

If we are triggered at $32.25 I'm suggesting a stop loss at $27.75, under the June low. Or you could choose an alternative stop closer to the 200-dma instead. Our long-term targets are $39.50 and $44.50.

Buy-the-Dip trigger: $32.25

BUY the 2011 Jan $35 call (EXXI1221A35)

- or -

You could try and buy 2013 calls but the spreads are VERY wide. Consider placing a limit order inside the spread. I would try the 2013 $40 calls.

Originally listed on the Watch List: 07/09/11


Hershey Co. - HSY - close: 56.80

07/16 update: HSY gave back almost a dollar last week. Shares remain under resistance at $58.00 while the stock has potential support at $56, its 100-dma, at $54, and then at $52. Further declines from current levels would make this look like a potential bearish double top pattern. We don't want to launch positions here. HSY is going to report earnings on July 26th. We'll re-evaluate our entry point after we see investor reaction to the results.

Prior Comments:
Currently our plan is to buy call LEAPS on a dip at $52.25. If triggered we'll use a stop loss at $48.75. Our long-term targets are $60 and $64.

Buy-the-Dip trigger: $52.25

BUY the 2012 $55 calls (HSY1221A55)

- or -

BUY the 2013 $55 calls (HSY1319A55)

Originally listed on the Watch List: 04/02/11


iPath Copper ETF - JJC - close: 57.96

07/16 update: JJC managed to eke out a gain after spending most of the week consolidating sideways. Aggressive traders may want to buy calls now. I am still expecting a pull back. The plan is to buy a dip at $56.00 with a stop at $52.75. Our first target is $61.75. Our second, more aggressive target is $64.00.

Earlier Comments:
I want to reiterate some of my concerns. The options on JJC do not have a lot of volume or open interest. Option prices could be very volatile and the spreads could get wider on us, putting us at a disadvantage. JJC does not (yet) have LEAPS so we'll have to use the December calls. My next concern is this equity is going to be very sensitive to the movement in the dollar. Finally, this ETF is going gap open, up or down, almost every day as it reacts to the price of copper futures. Therefore we want to keep our position size pretty small to limit our risk.

Buy-the-Dip trigger: $56.00 (small positions only!)

BUY the 2011 Dec. $60 call (JJC1117L60)

Originally listed on the Watch List: 07/02/11


McDonald's Corp. - MCD - close: 85.48

07/16 update: MCD has spent the last two weeks consolidating sideways. Either the rally has stalled or MCD is merely catching its breath for the next leg higher. I do not want to chase it here, not with earnings coming up on July 22nd.

Broken resistance near $83.00 should be new support. We have a trigger to buy calls at $83.25. If MCD pulls back and hits our trigger at $83.25 we'll use a stop loss at $79.40. More aggressive traders could place their stop under the 200-dma instead. Our profit targets are $92.50 and $99.50.

Buy-the-Dip trigger: $83.25

BUY the 2012 Jan $85 call (MCD1221A85)

- or -

BUY the 2013 Jan $90 call (MCD1319A90)

Originally listed on the Watch List: 05/21/11


Pepsico, Inc. - PEP - close: $68.53

07/16 update: PEP just spent the last six days correcting lower. Ye traders bought the dip twice on Friday near support at the $68.00 level. Is this a new short-term bottom? We won't know until PEP bounces. At the moment our entry point is at $67.50. Aggressive traders may want to go ahead and buy a bounce from current levels. I am suggesting readers wait. PEP could see some volatility this week after the company reports earnings on July 21st.

If we do get triggered at $67.50, we'll use a stop loss at $64.75. Our targets are $75 and $79.

Buy-the-Dip trigger: $67.50

BUY the 2012 Jan. $70 call (PEP1221A70)

- or -

BUY the 2013 Jan. $70 call (PEP1319A70)

Originally listed on the Watch List: 05/14/11


Wellpoint Inc - WLP - close: 74.90

07/16 update: We have been expecting a correction in WLP. That correction appears to be underway. The initial bounce from support near $75 has failed. The stock actually looks like a short-term bearish candidate. Nimble traders may want to buy some August puts right here and target a drop into the $71-70 zone.

I am adjusting our buy-the-dip trigger to $70.00 and moving our stop loss higher to $65.75. This will keep our stop under the 200-dma. Keep in mind that WLP is due to report earnings on July 27th. More conservative traders will not want to open positions prior to the announcement.

Prior Comments:
If we do get triggered we want to keep our position size small to limit our risk.

Buy-the-Dip trigger: $70.00

BUY the 2012 Jan. $75 call (WLP1221A75)

- or -

BUY the 2013 Jan. $80 call (WLP1319A80)

Originally listed on the Watch List: 06/25/11


Western Refining Inc. - WNR - close: 21.13

07/16 update: Hmm... WNR looks like it's running away from us. Shares managed to extend their gains and the stock is now up four big weeks in a row. I am still reluctant to chase it. We will leave our buy-the-dip entry point at $19.00. More conservative traders could hope for a dip closer to $18.00 instead. If we are triggered at $19.00 I'll start this trade with a stop loss at $17.25. Our long-term targets are $24.75 and $29.50. More aggressive traders could aim higher.

Earlier Comments:
WNR happens to have very high short interest so the short squeeze could be really big. Plus, the Point & Figure chart is bullish with a $28.50 target.

Buy-the-Dip trigger: $19.00

BUY the 2012 Jan $20 call (WNR1221A20)

- or -

BUY the 2013 Jan $20 call (WNR1319A20)

Originally listed on the Watch List: 07/09/11