Editor's Note:

Our watch list was very successful last week with four candidates graduating to our active play list.



New Watch List Entries

DE - Deer & Co

MSI - Motorola Solutions

WFC - Wells Fargo & Co


Active Watch List Candidates

ATI - Allegheny Tech.

C - Citigroup, Inc.

HD - Home Depot, Inc.

WDC - Western Digital


Dropped Watch List Entries

CZR, HP, SBUX, WDC, and YUM all graduated to our active play list.

COP and WAG have been removed.



New Watch List Candidates:


Deer & Co - DE - close: 85.32

Company Info

DE is in the industrial goods sector. The company manufacturers agriculture, turf, construction, and forestry equipment. Shares of DE, much like its rival CAT, have been stuck in a trading range for the last several months. Fortunately for DE this limbo could be coming to an end. This past week DE exploded higher after its board of directors approved an $8 billion stock buyback program. That's on top of the $1 billion they had left in their existing buyback program.

The last couple of days have seen DE hovering just below major resistance near $86.00. A breakout could signal the next leg higher. I am suggesting we wait for DE to close above $86.25 and then buy calls the next morning with a stop loss at $81.75. If triggered our long-term target is $98.50.

Breakout trigger: Wait for DE to close above $86.25
then buy calls the next day with a stop at $81.75

BUY the 2015 Jan $90 call (DE1517a90) current ask $4.85

Chart of DE:

Originally listed on the Watch List: 12/08/13


Motorola Solutions - MSI - close: 66.18

Company Info

MSI is in the technology sector. The company makes communication equipment. The company's latest earnings report back in October was bullish. MSI beat by a wide margin and guided higher. The stock has been trying to breakout past resistance near $66.00 the last couple of weeks. MSI really didn't see much of a pullback during the market's recent five-day decline. Friday left shares at a new all-time high.

I am suggesting a trigger to buy calls at $66.75. If triggered our long-term target is the $80-90 zone but we will adjust this as needed. The point & figure chart is bullish with a long-term target at $91.00.

Breakout trigger: $66.75, start with a stop loss at $61.90.

BUY the 2015 Jan $70 call (MSI1517a70) current ask $4.05

- or -

BUY the 2016 Jan $75 call (MSI1615a75) current ask $4.80

Chart of MSI:

Originally listed on the Watch List: 12/08/13


Wells Fargo & Co. - WFC - close: 44.11

Company Info

WFC is in the financial sector. The company operates one of the largest U.S. banks. The company currently has over 9,000 locations in 35 countries and revenues of more than $81 billion. Of the major banks WFC seems to have escaped the negative spotlight that seems to constantly be shining on BAC and JPM as they deal with government investigations and MBS settlements from the housing boom. That's not to say WFC is innocent or not at risk for the same issues but the extent of the taint doesn't seem to be as bad on WFC.

The stock has been holding up pretty well and shares tested resistance near its all-time highs just two weeks ago. The $44.50-45.00 zone appears to be major resistance. A reversal here would look like a potential bearish double top pattern. Yet a breakout could signal the next major leg higher.

I am suggesting we wait for WFC to close above $45.25 and then buy calls the next day with a stop loss at $41.90. Our long-term target is $54.50.

Breakout trigger: Wait for WFC to close above $45.25
then buy calls the next day with a stop at $41.90

BUY the 2015 Jan $50 call (WFC1517a50) current ask $1.25

- or -

BUY the 2016 Jan $50 call (WFC1615a50) current ask $2.50

Chart of WFC:

Originally listed on the Watch List: 12/08/13


Active Watch List Candidates:



Allegheny Technologies - ATI - close: 32.77

Comments:
12/08/13: ATI made a new relative low last Tuesday near $32.00 and was bouncing Wednesday and Thursday while the market slipped lower. Unfortunately the relative strength vanished on Friday with ATI failed near some short-term moving averages.

If this stock doesn't show some significant improvement next week I will likely drop ATI as a watch list candidate.

I am suggesting we buy calls if ATI can close above $34.50. Wait for it to close above this level and buy calls the next day with a stop loss at $30.40. Our long-term target is $44.00.

Breakout trigger: Wait for a close above $34.50
then buy calls the next morning with a stop loss @ 30.40

BUY the 2015 Jan $40 call (ATI1517a40)

Originally listed on the Watch List: 11/03/13


Citigroup Inc. - C - close: 51.49

Comments:
12/08/13: Financial stocks ran into some profit taking last week. After a four-week bounce shares of C were due for a pullback anyway. I don't see any changes from my prior comments.

We want to wait for C to close above $53.60 and then buy calls the next morning. I am adjusting our stop loss to $47.90. Our long-term target is the $70.00 area.

Breakout trigger: Wait for C to close above $53.60
buy calls the next morning with a stop loss at $47.90

BUY the 2015 Jan $60 call (C1517a60)

- or -

BUY the 2016 Jan $60 call (C1615a60)

12/08/13 if triggered start with a stop loss at $47.90
12/01/13 adjust the entry trigger: wait for a close above $53.60 instead of a close above $53.50

Originally listed on the Watch List: 11/24/13


ConocoPhillips - COP - close: 70.77

Comments:
12/08/13: It was not a good week for shares of COP. The stock had been consolidating sideways in the $72-74 zone for weeks. The breakdown this past week below $72 and its 50-dma is bearish.

Our trade has not opened yet. The suggested trigger was a close above $75.00. Tonight we are removing COP as a watch list candidate.

Trade did not open.

12/08/13 removed from the watch list

Originally listed on the Watch List: 11/24/13


Home Depot, Inc. - HD - close: 79.84

Comments:
12/08/13: It was a bumpy week for shares of HD but traders started buying the dip on Wednesday. I do not see any changes from last week's new watch list entry for HD.

I am suggesting we wait for HD to close above $81.50 and buy calls the next morning with an initial stop loss at $76.75. Our long-term target is $99.00. FYI: The point & figure chart is bullish with a $97 target.

Breakout trigger: Wait for HD to close above $81.50
then buy calls the next morning.

BUY the 2015 Jan $90 call (HD1517a90)

- or -

BUY the 2016 Jan $90 call (HD1615a90)

Originally listed on the Watch List: 12/01/13


Walgreen Co. - WAG - close: 56.71

Comments:
12/08/13: We are removing WAG as a watch list candidate. The stock really underperformed last week. Our trade has not opened yet. The suggested entry was a close above $61.00.

Trade did not open.

12/08/13 removed from the watch list
11/24/13 Strategy Update: new entry point to buy calls when WAG closes above $61.00. New stop loss @ 56.75.
11/17/13 new trigger at $56.00, up from $55.00
10/27/13 removed the 2014 calls
10/20/13 adjust the buy-the-dip trigger to $55.00 and move the stop loss to $49.75. Plus we will adjust our option strikes higher.
09/22/13 adjust entry strategy: move the trigger to $52.25
adjust the stop loss to $48.40
(previous trigger and stop was $51.50 & 47.40)

Originally listed on the Watch List: 09/15/13


Western Digital Corp. - WDC - close: 78.91

Comments:
12/08/13: The best laid plans of mice and men oft go astray. We were waiting for a breakout higher in WDC. The plan was to buy calls if shares closed above $76.50. Yet I put a limitation on this entry point to not open positions if WDC closed above $77.50. I wanted to try and protect us from a big spike higher. Shares jumped last Wednesday thanks to bullish analyst comments from Morgan Stanley and WDC closed at $77.57. Yup, seven cents above my limit. Nimble traders could have bought the dip on Thursday. The market's big bounce on Friday sent WDC to new highs.

Thus our trade is not open. Tonight I am adjusting our entry point strategy to buy calls on a dip at $77.00.

Our long-term target is $94.00. FYI: The Point & Figure chart is bullish with a $91 target.

Buy-the-dip trigger at $77.00
use a stop loss at $69.75

BUY the 2015 Jan $90 call (WDC1517a90)

12/08/13 adjust the entry point strategy to buy calls on a dip at $77.00 since we missed the breakout (see the December 8th, watch list update)
12/01/13 adjust entry point to a close above $76.50 instead of 76.25
adjust the stop loss to $69.75

Chart of WDC:

Originally listed on the Watch List: 11/17/13