New Watch List Entries

AIG - American Intl. Group

CHK - Chesapeake Energy


Active Watch List Candidates

ITW - Illinois Tool Works

RGR - Sturm, Ruger & Co

WSM - Williams-Sonoma Inc.


Dropped Watch List Entries

We are removing KORS from the watch list. Wait until after it reports earnings in late May and then re-evaluate KORS.



New Watch List Candidates:


American Intl. Group - AIG - close: 52.28

Company Info

AIG is in the financial sector. They are one of the largest financial companies on the planet and provide insurance for commercial, institutional, and individual clients. The company recently reported earnings in May and beat the bottom line estimate by 15 cents with a profit of $1.21 per share. Revenues were a miss at $8.23 billion versus the $8.62 billion estimate. AIG was at the center of the U.S. government bailout fiasco of 2008-2009 that was so unpopular outside of Wall Street. What many people don't know is that the U.S. actually made a $22.7 billion profit on bailing out AIG.

The stock has more than doubled from its late 2011 lows. The rally stalled back in October last year but it looks like AIG has been building a new base with a six-month trading range in the $47-53 range. A breakout could signal the beginning of its next leg higher.

Currently AIG has resistance in the $53.25 region. I am suggesting we wait for AIG to close above $53.75 and then buy calls the next morning with a stop loss at $49.75. Our long-term target is the $65-70 zone. Currently the point & figure chart is bullish with a $64 target.

Breakout trigger: Wait for AIG to close above $53.75
then buy calls the next day with a stop at $49.75

BUY the 2015 Jan $60 call (AIG150117C60)* current ask $1.15

BUY the 2016 Jan $60 call (AIG160115C60)* current ask $3.90

*Please note I'm listing the standardized option symbol:
symbol-year-month-day-call-strike

Chart of AIG:

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


Chesapeake Energy - CHK - close: 29.81

Company Info

CHK is in the basic materials sector. The company produces natural gas, oil and natural gas liquids (NGL). The company is one of the largest independent energy companies in the U.S. with significant domestic production. The company just reported earnings this past week and CHK delivered a profit of 59 cents a share, beating Wall Street's 48 cent estimate. CHK's Q1 revenues rose +47% to $5.05 billion, which was well above analysts' estimates. CHK's management raised their 2014 cash flow guidance.

The earnings results were good news but wait there is more. CHK also said that the S.E.C. had ended its investigation into the company and its former CEO Aubrey McClendon. The SEC said they "did not intend to recommend any enforcement action" (source: Reuters). With all this good news shares of CHK soared to new 52-week highs and now look poised to breakout past round-number resistance at $30.00.

I am suggesting we wait for CHK to close above $30.25 and then buy calls the next day with a stop loss at $26.75. There is potential resistance near $36.00 but we're going to set our long-term target at $40.00.

Breakout trigger: Wait for a close above $30.25
then buy calls the next day with a stop at $26.75

BUY the 2015 Jan $35 call (CHK150117C35) current ask $1.08

- or -

BUY the 2016 Jan $35 call (CHK160115C35) current ask $2.60

*Please note I'm listing the standardized option symbol:
symbol-year-month-day-call-strike

Chart of CHK:

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


Active Watch List Candidates:



Illinois Tool Works, Inc. - ITW - close: 86.23

Comments:
05/11/14: Traders continue to buy the dips in ITW and shares are inching higher. The stock looks poised for a breakout past short-term resistance in the $86.00 area. I don't see any changes from my prior comments. Odds are good we could see ITW meet our entry point requirements soon.

Earlier Comments:
I am suggesting we wait for a close above $86.50. If that occurs we can buy calls the next morning with a stop loss at $81.75. Our long-term target is the $98-100 zone.

Breakout trigger: Wait for a close above $86.50
then buy calls the next morning with a stop at $81.75

BUY the 2015 Jan $90 call (ITW1517a90) current ask $2.90

- or -

BUY the 2016 Jan $90 call (ITW1615a90) current ask $6.30

Originally listed on the Watch List: 05/04/14


Michael Kors - KORS - close: 91.82

Comments:
05/11/14: KORS found support near the $90 level this past week. Depending on your risk tolerance there are a variety of entry points one could use for KORS. You could wait for a breakout past the $95.00 level or you could wait for another dip toward support near $86.00. However, retail stocks have been having a really rough time this year. KORS is an exception but they could blame the weather for a lousy Q1. I am concerned that KORS could disappoint when they report earnings on May 23rd. Therefore, tonight we're going to remove KORS as a candidate and re-evaluate it after it reports earnings.

Trade did not open.

05/11/14 removed from the newsletter.
Look at KORS again after they report earnings on May 23rd.
05/04/14 move the buy-the-dip trigger from $81.00 to $83.00.
move the stop loss to $79.00

Originally listed on the Watch List: 04/13/14


Sturm, Ruger & Co. - RGR - close: 67.41

Comments:
05/11/14: I was concerned that RGR might be volatile. Shares did see some volatility with $4.00 swings last week but not how I expected. RGR reported earnings on May 5th. The street was expecting a profit of $1.12 a share on revenues of $157.7 million. RGR beat both estimates with a profit of $1.22 a share and revenues of $169.9 million. It was impressive since they were facing tough comparisons to a year ago.

Traders did buy the post-earnings dip near $64 and RGR looks poised to challenge resistance in the $69-70 zone. I am adjusting our entry point strategy. Wait for RGR to close above $70.25. If RGR can close above $70.25 then we'll buy calls the next morning with a stop loss at $64.75. Our long-term target is the $90-100 zone.

This is an aggressive trade, use small positions.

Wait for RGR to close above $70.25, then buy calls the next day.

BUY the 2015 Jan $85 call (RGR1517a85) current ask $1.90

05/11/14 adjust entry point strategy. Wait for RGR to close above $70.25 and use a stop loss at $64.75.

Originally listed on the Watch List: 05/04/14


Williams Sonoma - WSM - close: 63.43

Comments:
05/11/14: WSM struggled on May 6th with a breakdown to new multi-week lows. Fortunately investors bought the dip and shares have recovered. The stock is now up three out of the last four weeks and WSM looks poised to breakout past resistance in the $63.50-64.00 area.

Earlier Comments:
I am suggesting we wait for WSM to close above $64.50. If that occurs we can buy calls the next day with a stop loss at $59.75. Our long-term target is the $75-85 zone.

Breakout trigger: Wait for WSM to close above $64.50
then buy calls the next morning with a stop at $59.75.

BUY the 2015 Jan $70 call (WSM1517a70) current ask $2.65

- or -

BUY the 2016 Jan $75 call (WSM1615a75) current ask $4.30

Originally listed on the Watch List: 05/04/14