Option Investor

Daily Newsletter, Saturday, 8/7/2010

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Jobs Number Disappoints

by James Brown

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It was a big week for economic news and stocks managed to post another weekly gain but the major averages remain under significant resistance. Last Monday started the week off with a bang. Better than expected ISM manufacturing data fueled a +2.2% rally. Unfortunately most of the gains stopped right there. As I suggested a week ago, the market churned sideways waiting for the jobs report on Friday morning.

Investors digested the disappointment in the ISM services data and the pending home sales for June pretty well. Services represent 90% of the U.S. workforce. The sector is still growing but the growth is slowing down and came in worse than expected. However, the employment gauge for the ISM services component turned positive with a reading at 50.9. Readings over 50.0 indicate growth and expansion. The same day brought the ADP employment report, which was stronger than expected. Economists were looking for +25,000-30,000 new jobs in the ADP number. What we got was +42,000, refreshing hopes for a stronger jobs report on Friday.

Hopes faded a bit on Thursday when the Labor Department reported an unexpected jump in initial weekly jobless claims. The market was expecting a decline to 455,000 but claims jumped to 479,000 and have remained stubbornly high above the 450,000 level. The disappointment continued on Thursday with the same-store sales figures for July. Wall Street was expecting, on average, +3.1% growth but retailers only delivered +2.9% and 60% of the companies reporting missed expectations. July is normally a huge clearance and discount month. If consumers aren't buying the big discounts then it doesn't bode well for the fall. On a brighter note July was the 11th month in a row that retailers did see positive same-store sales numbers but July was also the fourth month in a row that these figures came in below estimates. Part of the problem is the consumer savings rate, which has risen to a new one-year high at more than 6%. While this is great for consumers it can be deadly for retailers. The more money we save is less money we spend at the store.

Major retailers in Britain echoed bearish concerns with slowing consumer spending. Yet most of the economic data out of Europe was positive last week. Of course the big report was the U.S. nonfarm payroll data on Friday morning. Job losses were twice as bad as expected. The market was looking for a headline number of -65,000 due to a decline of 160,000 temporary census workers. The real focus was on private sector employment and investors were expecting a gain of +90,000 for this area. Unfortunately the headline number came in at -131,000. The federal government only cut 143,000 census jobs but there was a big jump in the job cuts from cash-strapped state and local governments. Further adding to the disappointment was private sector employment added +71,000, under expectations.

Accentuating the job loss figures were government revisions for June and May's jobs reports, which showed an additional loss of -97,000 jobs. Another warning signal was the drop in temporary help services. Normally a rise in temporary help jobs is a leading indicator the economy is improving and hiring is about to improve. Friday's report showed a decline of -5,600 temporary help positions.

Economists were expecting the unemployment rate to tick higher from 9.5% to 9.6% but the rate stayed unchanged as 181,000 people stopped looking for work, which reduced the workforce. If you look at the under-employed rate, which counts those out of work and only working part time because they can't get full-time work, you'll see unemployment is closer to 16.5%. We probably won't see any improvement any time soon. The federal government still has about 200,000 people employed as temporary census workers. These positions will continue to expire.

Altogether the U.S. economy has lost 8 million jobs since the recession began in December 2007. According to the east coast think tank Brookings Institution, they estimate it will take 11.5 years for the U.S. to reach pre-recession levels of employment. They looked at the last ten years and found the best monthly average job creation was +208,000 a month. We need at least +125,000 a month just to keep pace with population growth. On a side note the U.S. Department of Agriculture said that people on food stamps hit a new record of 40.8 million in May this year. That is a +0.9% increase from April and a +19% increase from a year ago. Current estimates expect this number to rise to 43.3 million people next year. The current U.S. population is estimated to be almost 310 million so that means about 13.2% of the population is on food stamps.

One of the things I find most puzzling is the rally in the stock market and the rally in bonds. Bonds are surging higher, which would suggest more and more investors are feeling nervous enough to park their capital in a safe haven security like bonds. At the same time stocks are up about 10% from their July lows. So how much of the stock market rally has been short covering? They say that volume is a weapon on the bulls. Strong volume on the rally is bullish. We are not seeing strong volume. Of course this past week the lack of volume makes sense as traders waited for the payroll data.

The rush into safety pushed the yield on the two-year note to a new all-time low under 0.5%. The yield on the 10-year U.S. treasury sank to 2.81%, a 15-month low. Right now there are expectations for the yield on the 10-year bond to fall toward 2.3%-to-2.2%. This rally in bonds and decline in yields is pushing mortgage rates to new all-time lows. The average 30-year fixed rate mortgage is down to 4.49% but so many homeowners are underwater on their mortgage they can't refinance. Although I will point out that mortgage applications have been inching higher the past couple of weeks. Just because a consumer fills out an application doesn't mean it will get approved.

The market action is mixed. The rally clearly stalled at resistance this past week. Yet stocks failed to see much of a sell-off given the disappointing jobs number. The jobs report would have been a perfect catalyst to launch the markets into the next leg higher or lower. Instead the Friday morning weakness evaporated. What are investors scared of that they would cover their shorts ahead of the weekend?

The S&P 500 has a bullish trend of higher lows but if you take another look at the index it also has a bear wedge pattern forming. I think there is still a chance the index could form an inverse head-and-shoulders pattern. We also have to consider the possibility that somehow stocks continue to rally. A breakout past 1130 on the S&P 500 would be bullish. I would certain prefer to buy a bounce near 1040 or even the July lows near 1010.

Daily charts of the S&P 500 index:

The NASDAQ's rally did not quite reach its 100-dma. While traders did buy the dip at its trend of higher lows some of the momentum indicators are suggesting this index is going to roll over soon. A close under 2250 might forecast a drop toward 2140 or even the July lows near 2070. If we're going to watch the NASDAQ we also need to watch the SOX semiconductor index since the chip stocks tend to lead the NASDAQ. Right now the SOX is going nowhere. It has been stuck in a trading range for months although the range has narrowed over the past few weeks.

Daily chart of the NASDAQ index:

chart of the SOX semiconductor index:

The small cap Russell 2000 index looks very similar to the S&P 500 but the index failed to reach its 100-dma last week. Traders bought the dip when the $RUT neared technical support at its 50 and 200-dma but the bounce was weaker compared to its large-cap peers. This is another sign that investors are nervous. A close over the 670 or 680 level would improve investor sentiment.

Daily chart of the Russell 2000 index:

Looking ahead we have a couple of events this week. On Friday we'll see the CPI data and the latest consumer sentiment numbers. Yet the real event will be the FOMC meeting on Tuesday, which could be a real wildcard. Earlier I asked why would traders cover shorts after the dismal jobs number? I think it could be the Fed meeting. The jobs data was so bad that analysts expect the Fed to announce some form of quantitative easing and no one is positive what design and shape this easing might take.

If the Fed makes some sort of move to "help" the economy it will only reinforce how fragile our situation really is. Analysts are starting to ratchet down their growth expectations for the rest of 2010 and 2011. Goldman Sachs expects the second half of 2010 to see +1.5% GDP growth and unemployment is expected to rise to 10% and stay there throughout 2011. Legendary bond fund manager Bill Gross believes that the U.S. could see its long-term unemployment rate eventually settle at 7%. He suspects that the FOMC will be forced to keep rates extremely low for the next two or three years. That is certainly not a vote of confidence.

Overall I don't see any catalyst to drive stock gains. Seasonally August and September are the worst months of the year. We are quickly approaching the 2010 election cycle and the rhetoric will only increase uncertainty. Consumer confidence and small business owner confidence continues to shrink. Thus we won't see any improvement in consumer spending. As we move deeper into the year the residential real estate market is unlikely to improve. Now there is fresh talk that China's real estate bubble could burst. Real estate values in China have ticked lower two months in a row. The Chinese government is requesting banks redo their stress tests to factor in a -50% drop in housing values.

Looking at this stock market bounce over the past few weeks I am reminded of the words of General Ackbar and his famous line, "It's a trap!" If we see the S&P 500 close over the June 21st high of 1131 then I might change my tune. Otherwise we're better off waiting for another correction and then look for the bounce before considering bullish positions.

~ James Brown


Portfolio Update

by James Brown

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Current Portfolio

Portfolio Comments:

The U.S. market's major indices manage to post another weekly gain thanks to Monday's big rally. We have a handful of candidates that hit new one-year highs this past week (BIDU, BWA, EMC, MCD, and MICC). Unfortunately, our USO play was spoiled by dollar weakness and the XLY's high for the week just happened to be our stop loss. We did see BIDU and GLD make the jump from the watch list to the play list.

I would be seriously tempted to take profits on RIG, MCD, and BWA again.

Please note there are new stop losses for BWA (39.75), EMC (17.80), and RIG (41.80).

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a dropped play this week.

New Plays

Beware the Wedge

by James Brown

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Editor's Note:

The rally in the major indices has stalled at technical resistance. Now the S&P 500 is nearing the top of a bear-wedge pattern. While I am surprised stocks did not see a sharper sell-off on Friday given the jobs data I remain wary. A close over 1130 on the S&P 500 might change my mind. Otherwise I am suggesting readers wait for another correction. Look for a dip toward 1040 or the 1010 levels on the S&P 500 before considering new bullish positions.

Chart of the S&P 500 with a bear wedge pattern:

Play Updates

New One Year Highs

by James Brown

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Editor's Note:

A number of our bullish candidates hit new one-year highs last week. Both BIDU and GLD jumped from the watch list to the play list this past week.

Closed Plays

USO and XLY were stopped out.

Play Updates

Baidu, Inc. (Baidu.com) - BIDU - close: 86.53 change: +0.96

It did not take long for BIDU to graduate from the watch list to our play list. The market-wide rally on Monday gave BIDU a sharp lift and shares opened at $83.03 and quickly rallied past our trigger to buy calls at $83.50. The stock managed to post gains four out of the last five days (actually if you're counting it's up to 5 out of the last 6 trading sessions). BIDU closed near its all-time highs, set this week, and remain short-term overbought. If you are looking for a new bullish entry point I suggest waiting for a dip (or a bounce) near the $80.00 level. BIDU is a volatile stock. A dip toward $80 could happen pretty quickly.

Previous Comments:
BIDU is a very volatile stock. This is an aggressive, higher-risk trade. Keep your position size small to limit your risk. Our first long-term target is $99.50.

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 8.00
symbol: BIDU1122A90 2011 JAN $90 call - current bid/ask $8.80/8.95
-stop loss on BIDU @ 73.40

- or -

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - current bid/ask $13.60/13.80
-stop loss on BIDU @ 73.40

Chart of BIDU:

BorgWarner Inc. - BWA - close: 47.01 change: +0.07

Shares of BWA continue to outperform. The stock rallied sharply on Monday and broke out past resistance near $45.00 to close at new one-year highs. That rally slowly continued the rest of the week. While BWA is short-term overbought the trend is up and there was not much profit taking on Friday. I am raising our stop loss to $39.75 but more conservative traders may want to raise their stops closer to $41.75 instead. Or consider exiting early. We only have a very small position left.

FYI: BWA is due to present at an analyst conference on Aug. 9th.

Prior Comments:
Our second and final long-term target is $49.75.

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: BWA1122A40 2011 JAN $40 LEAP call - current bid/ask $9.20/9.60
-stop loss on BWA @ 39.75

05/29/10 Sell half of remaining position, BWA @ 37.26, option @ 3.90 (+0.00%)
04/29/10 1st Target Hit, BWA @ 44.50, option @ $7.63 (+95%)

Chart of BWA:

ConocoPhillips - COP - close: 56.93 change: -0.77

COP delivered another weekly gain thanks to the big pop higher on Monday. Shares essentially churned sideways with the rest of the market into Friday. On a short-term basis the stock looks a little overbought with the rally from $48 in early July. I would expect a correction toward $54 or possibly the 50-dma. Wait for the dip or a bounce before launching new positions.

Prior Comments:
Our first target is $69.00.

May 20, 2010 - entry price on COP @ 51.00, option @ 3.75
symbol: COP 11A55.00 2011 JAN $55 call - current bid/ask $4.85/4.95
-stop loss on COP @ 47.99

- or -

May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $4.85/5.05
-stop loss on COP @ 47.99

07/17/10 COP's bounce has failed. Consider an early exit!
07/03/10 More Conservative traders may want to exit early!

Chart of COP:

Carpenter Technology - CRS - close: $36.38 change +0.87

We're not seeing a lot of action in CRS. Shares managed a gain for the week but essentially churned sideways in a $2 range. The stock continues to struggle with the $36.50 level. I would focus on the trendline of lower highs. Wait for a close over this trendline (see chart) and then consider bullish positions. An alternative would be to buy another dip or bounce near the simple 200-dma approaching $32.

Previous Comments:
The plan was to initiate small positions to limit our risk. Our long-term target is $44.75.

June 29, 2010 - entry price on CRS @ 34.00, option @ 5.30*
symbol: CRS 10L35.00 2010 DEC $35 call - current bid/ask $4.50/4.80
-stop loss on CRS @ 29.90 *(entry price is an estimate)

Chart of CRS:

EMC Corp. - EMC - close: 20.24 change: -0.46

EMC appeared to breakout from its pennant-shaped consolidation midweek only to reverse on Friday thanks to the market-wide profit taking. I would hesitate to launch new bullish positions here but more aggressive traders may want to consider it if EMC can close over $20.70 again (although if you do I suggest you raise your stop loss significantly). We are adjusting our stop loss to $17.80, which is just under the July 1st low (17.87).

Previous Comments:
Our first target is $22.50. Our second, longer-term target is $24.75.

May 6, 2010 - entry price on EMC @ 18.25, option @ 1.40
symbol: EMC 11A20.00 2011 Jan $20 call - current bid/ask $1.66/1.70
-stop loss on EMC @ 17.80

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $2.96/3.15
-stop loss on EMC @ 17.80

07/17/10 new stop @ 17.45
07/03/10 More Conservative Traders may want to exit early!

Chart of EMC:

SPDR Gold ETF - GLD - close: 117.84 change: +0.86

The GLD rallied more than $2.00 for the week and shares of the gold ETF traded above $118.00 on Friday morning. Investors are seeking safe havens as money flows into bonds and the dollar sinks. The GLD has broken the trend of lower highs but it is worth noting the rally stalled at its 50-dma today. I would anticipate a pull back toward the $116 level again. Use a dip near $116 as another entry point or if you want to see more confirmation of the up trend wait for a close over the simple 50-dma (near $118.50).

Previous Comments
Since the GLD hit our trigger at $118.00 (and not $112.00) our stop loss on the play is $111.00. Our first long-term target is $140.

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - current bid/ask $7.15/7.35
-stop loss on GLD @ 111.00

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $10.30/10.65
-stop loss on GLD @ 111.00

Weekly Chart of GLD:

Infosys Technologies - INFY - close: 61.88 change: -0.34

INFY is holding up pretty well considering the market's weakness on Friday and the news out Thursday night regarding foreign worker visas. Evidently the U.S. senate passed legislation Thursday night regarding a $600 million border-security bill. As a way to help pay for a significant chunk of this border-security bill the Senate included a measure that significantly raised fees on companies that have more than half of their U.S.-based employees on H1-B or L-1 visas. It is estimated this could raise between $200-250 million. INFY would be one of the major companies affected by this bill if it becomes law. Yet the stock failed to see much reaction to the news and shares rebounded from their intraday lows on Friday.

Short-term I would expect INFY to rally again and challenge resistance near the $64.00 area. If you are looking for a new entry point wait for another bounce from the trendline of higher lows or a close over $64.00.

Previous Comments:
We have a stop loss at $54.90. Our long-term target is $79.00.

July 1, 2010 - entry price on INFY @ 59.00, option @ 7.50
symbol: INFY 11A60.00 2011 Jan $60 call - current bid/ask $5.90/ 6.20
-stop loss on INFY @ 54.90

- or -

July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $7.50/ 8.60
-stop loss on INFY @ 54.90

Chart of INFY:

McDonald's Corp. - MCD - close: 71.74 change: +1.29

MCD was a real outperformer on Friday. I was unable to find out any specific reason for the stock's +1.8% rally on Friday. Maybe investors think fast-food companies like MCD with their value meals will continue to do well as consumers cut back? Whatever the cause, shares of MCD closed at a new all-time high on Friday. There is still some resistance in the $72 area but readers may want to consider adding to positions or launching new ones if MCD can close over $72.00. More conservative traders might want to consider raising their stop loss.

Prior Comments:
Keep your positions small. Our long-term target is $79.75. FYI: The Point & Figure chart forecasting an $82 (long-term) target.

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.65
symbol: MCD 11A70.00 2011 Jan $70 call - current bid/ask $4.25/ 4.35
-stop loss on MCD @ 64.75

- or -

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $2.92/ 3.40
-stop loss on MCD @ 64.75

07/17/10 Take Profits! 2011 Jan $70 call @ 4.00 (+51%), 2012 $80 call @ 3.50 (+59%)

Chart of MCD:

Millicom Intl. - MICC - close: 94.71 change: +0.01

MICC posted another gain for the week but the stock was actually drifting lower the last four days following Monday's rally higher. Volume has been very light this past week as well. I don't see any changes from my prior comments but more conservative traders may want to raise their stops toward the $85 area. I am not suggesting new positions at this time. Be prepared to take profits if MICC hits our first target at $99.50 soon (sell half our position).

Previous Comments:
Keep your positions small to limit your risk. MICC is (normally) a volatile stock. Our long-term target is $99.50 and the $109.00 levels.

May 6, 2010 - entry price on MICC @ 80.00, option @ 8.60
symbol: MICC 11A90.00 2011 Jan $90 call - current bid/ask $10.90/11.90
-stop loss on MICC @ 79.90

Chart of MICC:

PEPSICO Inc. - PEP - close: 65.90 change: +0.32

PEP rallied another dollar for the week. Shares are slowly marching higher and look poised to challenge resistance near $67.00 soon. I don't see any changes from my previous updates. We're not suggesting new positions at this time.

Previous Comments:
Our final target remains $72.25.

July 7th, 2009 - entry price on PEP @ 57.25, option @ $4.50(estimate)
symbol: VP-AL, 2011 $60.00 LEAP call - current bid/ask $6.85/7.00
-stop loss on PEP at $59.85

06/26/10 Repeat - More cautious traders will want to consider an exit.
06/05/10 More cautious traders may want to exit now to avoid a loss.

03/27/10 SELL HALF: PEP $ 66.59, Option @ $8.00 (+77.7%)

Chart of PEP:

Transocean Ltd. - RIG - close: 57.11 change: -0.82

It was a big week for RIG with shares surging more than $10 and closing above resistance at the $55 level. The market rally on Monday was the launching point with a move over $50 and its 50-dma. Earnings midweek kept the rally going as RIG blew past estimates. News that BP was close to finally sealing the leaking well in the Gulf of Mexico probably boosted investor confidence. On a short-term basis RIG is now overbought but I would consider new positions on dips. RIG should find support near $55, 52 and $50. Don't forget that our first target is $59.00. More conservative traders may want to go ahead and take some money off the table.

I am adjusting the stop loss to $41.80. More conservative traders may want to raise theirs toward the July low of $44.30.

Previous Comments:
This is a very aggressive trade given the unknown risks associated with RIG's connection to the Gulf oil spill. Our long-term targets are $59 and $75. FYI: The P&F chart is forecasting an $82 target.

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 6.50
symbol: RIG 11A50.00 2011 Jan $50 call - current bid/ask $10.80/11.00
-stop loss on RIG @ 41.80

- or -

Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $10.05/10.35
-stop loss on RIG @ 41.80

Chart of RIG:


U.S. Oil Fund - USO - close: 36.20 change: -0.51

Our put play on the USO was foiled by the extreme weakness in the U.S. dollar. Normally as the dollar declines commodity values rise as it takes more dollars to buy them. The dollar plunged to new relative lows this past week. Our play on the USO was stopped out on Monday when shares opened at $36.18. Our stop loss was $36.15.


08/02/10 - Stopped out @ 36.18 (gap open)

July 06, 2010 - entry price on USO @ 33.06, option @ 2.34
symbol: USO 11M30.00 2011 Jan $30 PUT - closed at $1.14 (-51.2%)
-stop loss on USO @ 36.15

- or -

July 06, 2010 - entry price on USO @ 33.06, option @ 2.70
symbol: USO 12M25.00 2012 Jan $25 PUT - closed @ 1.74 (-35.5%)
-stop loss on USO @ 36.15

Chart of USO

Consumer Discretionary Sector - XLY $32.03 -0.22

It looks like our stop loss was just too close. Shares of the XLY struggled with resistance near the $32.20 level all week long. Yet on Thursday afternoon, as stocks inched higher, the XLY managed to trade at $32.25, hitting our stop loss and closing this play.

Falling consumer sentiment, consumer spending, and the disappointing same-store sales figures are not a bullish environment for consumer discretionary stocks. Yet the short-term trend for this ETF is still up. There may be another bearish entry point in the future so keep this name on your watch list. The next level of resistance is the $33.00 area.

This is a PUT play!

08/05/10 - Stopped out @ $32.25

July 19, 2010 - entry price on XLY @ 30.09, option @ 1.95
symbol: XLY 11M28.00 2011 Jan $28 PUT - exit @ 1.07 (-45%)
-stop loss on XLY @ 32.25

- or -

July 19, 2010 - entry price on XLY @ 30.09, option @ 2.81
symbol: XLY 12M25.00 2012 Jan $25 PUT - exit @ 1.96 (-30.2%)
-stop loss on XLY @ 32.25

Chart of XLY


Law Enforcement Products & Energy

by James Brown

Click here to email James Brown

New Watch List Entries


WLT - Walter Energy

Active Watch List Candidates

BUCY - Bucyrus Intl.

BVN - Compania de Minas Buenaventura

CHRW - CH Robinson Worldwide

MA - Mastercard Inc.

NTAP - NetApp, Inc.

Dropped Watch List Entries

BIDU and GLD graduated to the play list last week.

New Watch List Candidates:

TASER Intl. - TASR - close: 4.06 change: +0.05

The last several months have been pretty rough on TASR. The stock has fallen from $7.50 in February to almost $3.50 in early July. Sales have been disappointing as cash-strapped state budgets cut into sales and purchases overseas were also postponed. It would appear that the new, slower sales outlook has been factored into TASR's stock price. Shares have been consolidating sideways the last few weeks and we're seeing some technical indicators turn bullish.

I am suggesting we use a trigger to open small bullish positions if TASR hits $4.25. This is an aggressive trade and TASR can see big bouts of volatility. If triggered at $4.25 we'll use a stop loss at $3.79. There is some resistance near $5.00 but our first long-term target is $6.00. (Buy the stock, not the options!)

Company Info:
TASER International, Inc., is the global leader in the development of technologies that Protect Life. More than 15,000 public safety agencies protect and serve in more than 40 countries with TASER technology. TASER innovations benefit individuals and families too; providing personal protection and accountability while maintaining regard for life. TASER is committed to bringing advanced solutions to market, like TASER AXON and EVIDENCE.COM -- powerful evidence capturing and management platforms. (source: company press release or website)

Breakout trigger: $4.25

BUY the stock (TASR) @ 4.25

Chart of TASR:

Walter Energy - WLT - close: 76.71 change: +0.99

I remain very wary of stocks right now but there is always a chance that the market surprises us with a continued rally. If that occurs a breakout in WLT above resistance near $80.00 could forecast a rally back toward its highs near $100. Short-term the stock is still bounce from its July lows but the rally has stalled at its 100-dma. The technical picture is mixed and I am actually expecting a pull back toward $70.00. However, I want to be ready if the market continues higher. Right now I'm suggesting a trigger to buy calls at $81.00 with a stop loss at $74.00. Our target is $99.00. Nimble traders will want to keep an eye on the $70.00 zone. A bounce near $70 could be an alternative entry point and we could use a much tighter stop loss (maybe near $68.40). FYI: I do want to point out that the coal sector has managed to rally over resistance and break the trend of lower highs. (check the KOL ETF)

Company Info:
Walter Energy is a leading U.S. producer and exporter of premium hard coking coal for the global steel industry and also produces steam coal and industrial coal, metallurgical coke and coal bed methane gas. The Company has revenues of approximately $1.0 billion and employs approximately 2,100 people. (source: company press release or website)

Breakout trigger: $81.00

BUY the 2011 Jan $90 calls (WLT1122A90)

- or -

BUY the 2012 Jan $100 calls (WLT1221A100)

Chart of WLT:

Active Watch List Candidates:

Bucyrus Intl. - BUCY - close: 63.32 change: +0.00

The rally in BUCY has stalled near $64.00. I am still expecting a correction back toward the $55.00 area. I am suggesting a trigger to buy a dip at $56.00. If triggered we'll use a stop loss at $49.50. Our first target is $69.00, which coincides with the bullish point & figure chart target. FYI: I prefer the 2012 call LEAPS but the 2011s should work.

Buy-the-Dip trigger: $56.00

BUY the 2011 Jan $65 calls (BUCY1122A65)

- or -

BUY the 2012 Jan $70 calls (BUCY1221A70)

Chart of BUCY:

Compania de Minas Buenaventura - BVN - close: 36.44 change: +0.17

BVN underperformed the market this past week. Of course we have been expecting a pull back. The plan is to buy calls on a dip at $35.00. If triggered we'll use a stop loss at $31.95. Our first target is $42.25. Our second, more aggressive target is $47.50.

Buy-the-Dip trigger: $35.00

BUY the 2011 March $40 calls (BVN1119C40)

Chart of BVN:

CH Robinson Worldwide Inc. - CHRW - close: 66.89 change: -0.46

The rally in CHRW continues and has hit five weeks in a row. Shares closed near their 2008 highs and resistance near $67.50. Nimble and aggressive traders may want to consider some short-term put positions because I'm expecting a correction back toward $62.00. Once CHRW corrects the plan is to buy calls on the dip. I am adjusting our trigger to $62.50. If triggered we will use a stop loss at $57.75. Our first long-term target is $67.50. Our second, long-term target is $72.50.

Buy-the-Dip trigger: $62.50

NOTE: I prefer the 2012 calls!

BUY the 2011 January $65.00 calls (CHRW1122A65)

- or -

BUY the 2012 January $70.00 calls (CHRW1221A70)

Chart of CHRW:

Mastercard Inc. - MA - close: 207.42 change: + 5.79

There is no change from my prior comments. We are still waiting for a breakdown. The trigger to open bearish positions is at $192.00. More conservative traders can wait for MA to actually close under $192.00. If triggered we'll use a wide stop loss at $213.00. Our first target is $161.00.


Break Down trigger: $192.00

I prefer the 2012 PUT LEAPS but the 2011 PUTS should also work well.

Keep your positions small. MA can be a very volatile stock!

BUY the 2011 Jan $180 PUT LEAPS (MA1122M180)

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BUY the 2012 Jan $160 PUT LEAPS (MA1221M160)

Chart of MA:

NetApp, Inc. - NTAP - close: 43.11 change: -0.61

Nothing has changed from my prior comments on NTAP. The rally is running out of steam under $45.00. I am expecting a correction before NTAP resumes its climb. Please note I am adjusting our trigger down to $37.50. If triggered we'll use a stop loss at $34.75 (although we might want to put the stop under the 200-dma instead). If triggered our long-term target is $49.00. FYI: NTAP is due to report earnings on August 18th.

Buy-the-Dip trigger: $37.50

BUY the 2011 Jan $40.00 calls (NTAP1122A40)

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BUY the 2012 Jan $45.00 calls (NTAP1221A45)

Chart of NTAP: