Editor's Note:

We are pruning some watch list candidates off the newsletter today. The market's correction is taking a toll.



New Watch List Entries

DFS - Discover Financial

WMT - Wal-Mart Stores


Active Watch List Candidates

HNZ - H.J. Heinz Co.

JPM - JPMorgan Chase

MRK - Merck & Co

PEP - Pepsico Inc.

PFE - Pfizer Inc.

SBUX - Starbucks Corp.

USB - U.S. Bancorp


Dropped Watch List Entries

MSFT graduated to the play list.

ATVI, ECA, and HAL are being removed.



New Watch List Candidates:


Discover Financial - DFS - close: 30.72

Company Info

Financial stocks helped lead the market lower. DFS was near the front of the pack with a -7.2% decline. I am expecting further weakness but DFS should find support near $28.00 and its simple 200-dma.

I am suggesting we buy calls on a dip at $28.00 with a stop loss at $26.40. More conservative traders may want to wait for DFS to actually bounce off $28 before considering new positions first.

Buy-the-Dip trigger: $28.00

BUY the 2013 Jan $30 call (DFS1319A30)

- or -

BUY the 2014 Jan $35 call (DFS1418A35)

Chart of DFS:

Originally listed on the Watch List: 06/02/12


Wal-Mart Stores - WMT - close: 65.55

Company Info

The largest retailer in the world has been showing impressive relative strength the past few weeks. The stock has broken out to new 12-year highs. Yet the rally looks like it's slowing as the market's weakness starts to weigh on WMT.

We want to be ready to buy the dip when it shows up. I am suggesting we buy calls on a dip at $62.00 with a stop loss at $57.90, just under the simple 200-dma. More conservative traders could use a stop loss closer to $60 instead.

Buy-the-Dip trigger: $62.00

BUY the 2013 Jan $65 call (WMT1319A65)

- or -

BUY the 2014 Jan $70 call (WMT1418A70)

Chart of WMT:

Originally listed on the Watch List: 06/02/12


Active Watch List Candidates:



Activision Blizzard, Inc. - ATVI - close: 11.65

Comments:
06/02/12 update: ATVI has fallen to the next level of support near $11.50. If you think the market is done moving lower then this might be a spot to speculate on a bounce, with a tight stop loss. If this level breaks the next level of significant support looks like the $10.50 area.

Our plan was to buy a breakout when ATVI closed above $13.25. That is unlikely to happen any time soon. We are dropping ATVI from the watch list.

Trade did not open.

06/02/12 removed from the watch list.

Originally listed on the Watch List: 03/24/12


Encana Corp. - ECA - close: 19.17

Comments:
06/02/12 update: The correction in ECA continues. The bounce failed near $21.00 this past week. The bounce two weeks ago now looks like a bear flag. ECA looks headed for the $18.00-17.50 zone. We might re-visit this stock if shares near support near $18. Until then it's unlikely that ECA is going to breakout past resistance near $22.50 soon. I am dropping ECA from the watch list.

Trade did not open.

06/02/12 removed from the watch list.

Originally listed on the Watch List: 05/12/12


Halliburton Co. - HAL - close: 29.97

Comments:
06/02/12 update: Crude oil prices look like they are in freefall with a sharp five-week plunge. The OSX oil services index is breaking down to new lows. HAL is also hitting new relative lows. However, traders bought the dip twice on Thursday and Friday near $29.00.

With the market breaking down and oil breaking down, you would expect HAL to be showing more weakness. If HAL is not going to accelerate lower now? Then when is it? Based on this lack of performance I am removing HAL from the watch list. We might reconsider it again if we see shares close under $29.00 or under their 2011 low.

Trade did not open.

06/02/12 removed from the watch list.

Originally listed on the Watch List: 05/26/12


H.J. Heinz Co. - HNZ - close: 52.51

Comments:
06/02/12 update: HNZ is flirting with a breakdown under technical support at its 200-dma and 300-dma. If we see shares close under $52.00 it would look very bearish on the weekly chart.

We are currently waiting for HNZ to breakout to new highs. The plan is to launch positions after HNZ closes above $55.50. Our long-term target is $64.00.

Breakout trigger: close over $55.50, stop loss @ 51.85

BUY the 2013 Jan $55 call (HNZ1319A55)

- or -

BUY the 2014 Jan $60 call (HNZ1418A60)

Originally listed on the Watch List: 05/12/12


JPMorgan Chase - JPM - close: 31.93

Comments:
06/02/12 update: So far so good. We've been expecting JPM to continue moving lower. Right now the plan is to buy calls when JPM dips to $30.25. More conservative traders might want to wait for a JPM to dip to $29.00 instead. I'm expecting support at $30.00 but real support is the $28.00 area.

I would prefer the 2014 calls but more aggressive traders could use the 2013 calls instead.

Buy-the-Dip trigger: $30.25 (stop loss @ 27.75)

BUY the 2013 Jan $33 call (JPM1319a33)

- or -

BUY the 2014 Jan $35 call (JPM1418A35)

Originally listed on the Watch List: 05/19/12


Merck & Co - MRK - close: 37.18

Comments:
06/02/12 update: MRK did not see that much weakness last week. Shares are hovering above support near $37.00 and its exponential 200-dma. I'm not willing to give up just yet.

Currently we are waiting to launch positions until MRK can close over $40.00 and then buy calls the next day. Our long-term target is $47.50. FYI: The Point & Figure chart has a long-term target of $60.00.

Breakout trigger: Wait for close over $40.00, stop loss @ 37.75

BUY the 2014 Jan $40 call (MRK1418A40)

Originally listed on the Watch List: 05/05/12


Pepsico, Inc. - PEP - close: 67.51

Comments:
06/02/12 update: Traders bought the dip on Friday, which trimmed PEP's losses to about a dollar for the week. Currently, I am suggesting we wait for PEP to close above $70.25. We'll buy calls the next day with a stop loss at $65.75. Our long-term target is $79.00. FYI: The Point & Figure chart is currently forecasting an $80 target.

Breakout trigger: Wait for a close over $70.25, stop loss @ 65.75

BUY the 2014 Jan $75 call (PEP1418A75)

Originally listed on the Watch List: 05/26/12


Pfizer Inc. - PFE - close: 21.64

Comments:
06/02/12 update: PFE tried to hold support near $22 and its 100-dma but started breaking down on Thursday and Friday. I've been warning readers to look for a correction lower toward $21.00 or even the simple 200-dma.

At the moment we are leaving our strategy unchanged with plans to buy calls when PFE closes above $23.20 (and then launch positions the next morning). Our long-term target is $28.00. I will list the 2013 calls but I prefer the 2014 because PFE does not move very fast.

Breakout trigger: Wait for a close over $23.20, use a stop at $20.65

BUY the 2013 Jan $22.50 call (PFE1319A22.5)

- or -

BUY the 2014 Jan $25 call (PFE1418A25)

04/28/12 do not launch positions prior to the earnings report on May 1st.

Originally listed on the Watch List: 04/21/12


Starbucks Corp. - SBUX - close: 52.15

Comments:
06/02/12 update: The oversold bounce in SBUX has run out of steam. Consumer related names were hit hard on Friday. SBUX really underperformed with a -5% drop.

I am suggesting we buy calls if SBUX trades down to $50.25. The $50.00 level should be round-number support. We'll use a stop loss at $47.00. More conservative traders may want to wait for a dip to $48.50 as their entry point instead.

Our long-term target is $64.00.

Buy-the-Dip trigger: $50.25 (stop loss @ 45.75)

BUY the 2013 Jan $55 call (SBUX1319A55)

- or -

BUY the 2014 Jan $60 call (SBUX1418A60)

05/19/12 adjust stop loss to $45.75

Originally listed on the Watch List: 05/05/12


U.S. Bancorp - USB - close: 29.60

Comments:
06/02/12 update: USB is correcting lower as we expected. However, my enthusiasm is somewhat diminished to trade the financial sector as we see Europe slowly implode. The $28 level should still be support for USB but readers may want to use a tighter stop loss to reduce risk. I am adjusting our buy-the-dip trigger to $28.00 (from 28.25). We'll use a stop loss at $25.90. Our long-term target is $34.00. I prefer the 2014 calls but we'll list the 2013s as well.

Buy-the-Dip trigger: $28.00 (stop loss 25.90)

BUY the 2013 Jan $30 call (USB1319A30)

- or -

BUY the 2014 Jan $30 call (USB1418A30)

06/02/12 adjust entry trigger to $28.00

Originally listed on the Watch List: 05/19/12