Option Investor

Daily Newsletter, Saturday, 8/28/2010

Table of Contents

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

Leaps Trader Commentary

Q2 GDP Lower But Stocks Bounce

by James Brown

Click here to email James Brown

Stocks delivered a strong oversold bounce on Friday. Shorts were ready for a drop to new monthly lows following the Q2 GDP revisions and Bernanke's speech on Friday. Yet both events failed to spark new selling and bears began to cover ahead of the weekend, fueling the widespread market bounce. Intel's revenue warning and the consumer confidence numbers were lost in the shuffle. The bullish reversal in stocks was matched by a bearish reversal in bonds with yields on U.S. treasuries surging from their intraday lows.

The big event on Friday was the Q2 GDP estimate revisions. After the shockingly poor trade numbers a couple of weeks ago and the ongoing parade of disappointing economic data there were whisper numbers that Q2 growth would be downgraded to just +1.0% from +2.4%. Instead the Commerce Department said Q2 growth was +1.6% and the markets breathed a sigh of relief it wasn't worse. It is still a significant drop from Q1's +3.7% growth and some economists are worried Q3's growth could be worse in the +1.0-0.0% range.

Investors were also eager to hear from Federal Reserve chief Ben Bernanke who was speaking at a conference in Jackson Hole, Wyoming on Friday. Bernanke assured his listeners that the economy was still improving and we are poised for a 2011 comeback. Of course that's a change from expectations a few months ago when it was a second half 2010 comeback. On a side note, readers of this column know that we have been worried about a double-dip recession hitting in the second half of 2010 or 2011. I'd like to think Bernanke is right but I don't have a lot of hope in his projections. Of course he is going to preach hope and growth. Anything else (negative) would become a self-fulfilling prophesy with consumers already scared and businesses already holding back in fear of another recession. Bernanke essentially said the economy would improve and should any unforeseen events occur the Fed is ready and willing to save us. For those expecting Ben to outline specific forms of stimulus or quantitative easing it was a disappointing speech.

Friday's session also saw the release of the final revision for August consumer confidence numbers. This came in at 68.9, down from the initial release of 69.6. No one was expecting any fireworks from this report. I'm more curious how the next couple of consumer sentiment reports change in September and October. How has the uptick in weekly jobless claims affected sentiment and what will the next jobs report show?

Speaking of jobs, last Thursday's initial jobless claims came in at 473,000. That's better than the 485,000 analysts were expecting and down from the 500,000 two weeks ago. Unfortunately the trend in the weekly jobless claims has been rising and it doesn't bode well for the non-farm payroll report due out on Friday, Sept. 3rd. Currently consensus estimates expect the country to lose -118,000 jobs in August but we do not know how many of these will be the final batch of laid off census workers from summer. The figure economists will be watching is private employment, which is expected to come in at +41,000, down from July's +71,000.

Next week has a lot of economic data coming out. I'm not going to list all of them but here are a few of the highlights. On Tuesday we'll see the ISM for New York, ISM Chicago, consumer confidence (not sentiment), the Case-Shiller home price report, and the FOMC minutes from the last meeting. Wednesday will bring the ADP employment report for August. Thursday should see the Kansas Fed manufacturing survey, retail chain store sales figures, pending home sales, factory orders, and of course the weekly initial jobless claims. All of this will lead up to Friday's jobs report. The jobs report is the wildcard. If estimates start to suddenly move higher and the number disappoints then stocks should sell off. Yet if Wall Street estimates make a sudden move lower and the number is better than expected then stocks might bounce. I would ignore the headline number and focus on the private sector growth figures on Friday.

Corporate news was mixed last week. Merger and acquisition news is normally bullish for the market. It is a sign that businesses are feeling confident and willing to spend money to make acquisitions instead of hoarding it for fear of a downturn. M&A is picking up. Last week merger news was dominated by the bidding war over 3PAR, a cloud-computing data storage company. Both DELL and Hewlett-Packard (HPQ) are fighting over the company. As of Saturday afternoon it looks like HPQ might have edged out DELL with a $2 billion ($30/share) bid for 3PAR. Just three weeks ago 3PAR was trading under $10 and had been stuck in the $9-11 range for six months.

Intel had much more significant news with a revenue warning on Friday morning. The company said Q3 revenues could come in $1 billion less than previously estimated. Yes, that's a billion, but keep in mind the company just had a record-setting Q2 with almost $11 billion in revenues. So a little pull back in this economic environment isn't too surprising, especially with the PC market stalling. What is surprising is that Intel had just raised revenue and margin guidance six weeks ago when it reported earnings in July. Unfortunately Intel's warning could be a sign of things to come as more and more corporations warn about their third quarter results. Shares of Intel spiked down under $18.00 intraday but rebounded to close up +1.0%. The stock came very close to testing the top of the gap ($17.72) from July 2009, which would have been technical support. If Intel breaks this level we can expect it to fill the gap and trade near $16.90.

Technically the market is flashing mixed signals. The trend is down but we're a little bit oversold. Some of the major indices produced a short-term bullish double-bottom pattern last week, which is positive but it needs to see follow through. The S&P 500 index dipped to the 1040 level, which was very obvious support so traders were naturally ready to cover shorts on a bounce. If stocks do continue to bounce I would look for the S&P 500 to rally towards resistance near 1080 or the 1100 level. Below I've posted an hourly, daily and weekly chart of the S&P 500.

Hourly chart of the S&P 500 index:

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ Composite has performed a similar bullish double bottom at the 2100 level. Unfortunately that involved breaking down under its May and early June lows. The relative weakness here is a warning even if we can lay the blame at the semiconductor sector. If the NASDAQ can rebound from here I would look for overhead resistance near 2200 and its 50-dma.

Daily chart of the NASDAQ index:

Daily chart of the SOX semiconductor index:

The small caps have been showing relative weakness. The Russell 2000 index dropped all the way down toward its July lows. While the relative weakness is bad it also presents an opportunity. The $RUT has the opportunity to build on a much more significant double-bottom. Nimble and more aggressive traders might want to consider short-term bullish positions here with an appropriate stop loss. Watch out for potential resistance at its 50-dma and the 200-dma. It is worth noting that the 50-dma crossing under the 200-dma (which happened about three weeks ago) is long-term bearish and this might turn out to be nothing more than an oversold bounce.

Daily chart of the Russell 2000 index:

In summary it looks like the oversold bounce in stocks is poised to continue. Maybe see a nice pop on Monday and then slowly drift higher into Friday's jobs report. Then we'll move on the jobs data. The rally could end there or it might propel the S&P 500 toward the 1100 level. I still think odds are high that we'll see stocks rollover again and we could see the S&P 500 test the July lows before the end of September. However, a surprise in the jobs report that is stronger than expected could change this outlook.

Short-term traders can trade the technical levels of support and resistance. As longer-term investors we need to be patient and pick our entry points. Why buy stocks with the S&P 500 at 1065 when we might get a chance to buy them at 1010? Keep in mind that the midterm election rhetoric will really start to heat up in September and will get even hotter in October. All of the negative ads and mudslinging will be bearish on consumer and investor sentiment. Yet any sell-off this fall probably sets us up for a Q4 rally higher.

~ James Brown


Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

Stocks look poised to bounce after producing a short-term bullish double bottom pattern last week although the signal needs to see some confirmation. Oil stocks might outperform is the U.S. dollar rolls over from current levels. The GLD looks ready to correct lower. While I'm expecting a market bounce I remain wary of launching new long-term bullish positions.

New stop losses for ISRG, MCD, and MICC.

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

Priced In

by James Brown

Click here to email James Brown

Editor's Note:

FYI: Another stock I'm watching is Humana (HUM). I seriously considered adding it as a new bullish play tonight. Traders may want to consider buying call LEAPS on it now. Of you could try and fine tune your entry point with a bounce near its 200-dma or a close over $50.00 (or the August high near $51).

TASER Intl. - TASR - close: 3.72 change: +0.14

Why We Like It:
As noted in our original watch list entry for TASR the company has been suffering from a slowdown in sales growth. More and more states and foreign countries are facing budget shortfalls so they are postponing buys and upgrades from companies like TASR. At under $4.00 a share I'm starting to think all the bad news has already been priced into this stock. Obviously it could get worse but the action this past week offers an attractive entry point. Shares of TASR declined toward its July lows and found support there. This bounce could be the beginning of a bullish double-bottom pattern. I'm suggesting we take advantage of the rebound and buy shares of TASR stock right now and place a stop loss under Wednesday's low of $3.52 (we'll use a stop at $3.45). Keep your positions small and if the rebound finds legs we can slowly add to positions. More conservative traders can keep an eye on short-term resistance near $3.80. If TASR fails at $3.80 you may want to consider an early exit to protect your capital. Our first long-term target is $4.90.

Company Info:

TASER International, Inc., is the global leader in the development of technologies that Protect Life and Protect Truth. More than 15,000 public safety agencies in 40 countries rely on TASER electronic control devices (ECDs) to help protect and serve. 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)

BUY the stock (TASR) now at current levels ($3.72) stop loss @ 3.45

Chart of TASR:

Play Updates

SBUX Slips, MCD Hits New Highs!

by James Brown

Click here to email James Brown

Closed Plays

CRS was stopped out.

Play Updates

Baidu, Inc. (Baidu.com) - BIDU - close: 79.37 change: +2.77

Shares of BIDU traded as we expected with a dip into the $77-75 zone. Traders bought the dip twice near $76.00 and it looks like a short-term (bullish) double bottom. A close over $80 would be another short-term bullish development. While I would be tempted to launch new bullish positions here or on a close over $80 I am not convinced the sell-off in the market is done. That means BIDU may hit a new relative low before the year ends (I'm thinking some time in September or early October). If you choose to launch new positions keep your position size small. Longer-term I'm still bullish on BIDU but this can be a very volatile stock.

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 $5.75/5.90
-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 $10.95/11.15
-stop loss on BIDU @ 73.40

Chart of BIDU:

BorgWarner Inc. - BWA - close: 44.09 change: +0.88

We were expecting BWA to test the $42.00 level and shares dipped to $42.18 on Wednesday. Traders bought the dip near the stock's rising 50-dma. While BWA does look poised to bounce there is some short-term resistance near the $44.50-45.00 zone. I am still expecting shares to rise toward $50 before the year is over. If you're looking for a new entry point the dip to $42 or this bounce could work but I suggest a much tighter stop loss (like maybe $41.90). FYI: In the news this past week BWA said they were expanding one of their plants in Mississippi and would add 120 new jobs by the end of 2012.

Prior Comments:
We have taken profits on BWA before and only have a small position left. 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 $7.00/7.60
-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: 53.42 change: +1.01

Shares of COP flirted with a breakdown under technical support at its simple 200-dma but there was no follow through selling and the stock managed a bounce. The dip toward $52 was almost enough to hit the 61.8% Fib retracement of its July-August rally. The short-term trend remains down but oil stocks look like they produced a bullish reversal last week - at least on a short-term basis. Traders may want to consider new positions on a move over $54.00 but keep them small. It would be an aggressive entry point and I would suggest you use a much tighter stop loss (maybe near $52).

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 $2.85/2.91
-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 $3.90/4.20
-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:

EMC Corp. - EMC - close: 18.37 change: +0.32

EMC is all about data storage. I'm sure they are watching the current bidding war between DELL and HPQ over 3PAR with plenty of interest. There was even some speculation that EMC could join the fray and try and buy 3PAR as a defensive move to prevent DELL or HPQ from leaping into the cloud-computing and cloud-storage business model. If that were to happen, EMC making a bid for 3PAR, shares of EMC would likely gap open lower and our play would get stopped out. However, no one really expects EMC to make a play, not with DELL and HPQ fight for 3PAR.

While we're on the subject of EMC's stock price moving lower we were almost stopped out on Wednesday, Aug. 25th when EMC dipped to $17.90. Fortunately EMC seems to have found some support near $18.00, which is what we expected. I would be tempted to launch new bullish positions here (with the 2012 call LEAPS). More conservative traders could wait for a close over $19.00 or $19.50 before initiating positions.

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 $0.72/0.76
-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 $2.09/2.24
-stop loss on EMC @ 17.80

07/03/10 More Conservative Traders may want to exit early!

Chart of EMC:

SPDR Gold ETF - GLD - close: 121.01 change: +0.05

Be careful here! The GLD posted another gain for the week but it also looks like this ETF and gold have produced a short-term top, especially with Thursday's intraday reversal lower. I am expecting the GLD to retrace back toward the $116.00 area. Wait for the dip or a bounce there before considering new long-term positions. Gold will continue to garner buying interest as the U.S. economy continues to slow down.

Previous Comments
Currently our stop loss is at $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 $8.40/8.50
-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 $11.55/11.85
-stop loss on GLD @ 111.00

Weekly Chart of GLD:

Infosys Technologies - INFY - close: 58.01 change: -0.28

It was a rough week for the Indian stock market. After hitting new two-year highs two weeks ago the Indian market dove sharply. This helped propel shares of INFY lower. The stock broke down under its 200-dma and short-term support near $58.00 on Friday but managed to bounce back by the closing bell. If this stock closes under $56.00 the long-term up trend might be broken. On a short-term basis the trend is still down but a close over $60.00 might affirm the reversal and could be a new bullish entry point.

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 $3.70/ 3.90
-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 $5.60/ 6.90
-stop loss on INFY @ 54.90

Chart of INFY:

Intuitive Surgical - ISRG - close: 273.07 change: + 5.11

Take profits now! I am suggesting we sell part of our position now to take some money off the table. While the short-term trend is down shares of ISRG bounced from $262 to $273 on Friday. Shares could see a sharp oversold bounce back toward $290-300 before rolling over again. We can evaluate a new entry point when we see ISRG fail under resistance at $300. Please note our new stop loss at $311.00.

Previous Comments:
I'm suggesting an option significantly out of the money. This is probably going to be a real black or white win/lose situation. Our long-term target is $250.00. The plan was to use small positions to limit our risk.

This is a PUT play.

Aug 20, 2010 - entry price on ISRG @ 299.00, option @ 14.00
symbol: ISRG 11m250 2011 Jan $250 PUT - current bid/ask $18.30/21.50
-stop loss on ISRG @ 311.00

08/28/10 Take Profits, sell half @ $18.30 (+30.7%)

Chart of ISRG:

McDonald's Corp. - MCD - close: 73.99 change: +0.83

One company that is doing well during this economic slow down is Mickey D's. Consumers are nervous and watching their budget, which makes MCD's value meal so attractive. The stock hit a new closing high on Friday and is up +18% this year, placing MCD in the running to be the best performing component in the Dow Jones Industrial Average this year. I am not suggesting investors chase MCD at this time but we can look for short-term support near $72 and $70 on pull backs. Please note I am raising the stop loss to $66.75. You may want to raise yours even higher.

Prior Comments:
Keep your positions small. Our long-term target is $79.75. FYI: The Point & Figure chart forecasting an $91 (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 $5.70/ 5.85
-stop loss on MCD @ 66.75

- or -

June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $3.80/ 4.00
-stop loss on MCD @ 66.75

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: 92.69 change: +2.22

MICC managed a gain for the week but shares are still consolidating sideways in side the neutral pattern of higher lows and lower highs. The stock should see a breakout soon one way or the other. Please note the new stop loss at $82.90.

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 $ 9.30/10.10
-stop loss on MICC @ 82.90

Chart of MICC:

NetApp, Inc. - NTAP - close: 41.45 change: +1.76

The oversold bounce in NTAP hits week two and shares posted a strong gain on Friday to close near resistance in the 41.50-42.00 zone. If NTAP where to fail here, under $42, it would look like the right shoulder to a bearish head-and-shoulders pattern (neckline would be in the $37-36 area). Meanwhile in other news the bidding war for 3PAR could have investors looking at NTAP as a potential takeover candidate. There hasn't been any specific rumors regarding NTAP but it is a possibility.

Previous Comments:
We are using a stop loss at $34.75. Our long-term target is $49.00.

Aug 12, 2010 - entry price on NTAP @ 37.50, option @ 3.00
symbol: NTAP1122A40 2011 Jan $40 call - current bid/ask $ 5.00/ 5.25
-stop loss on NTAP @ 34.75

- or -

Aug 12, 2010 - entry price on NTAP @ 37.50, option @ 4.00
symbol: NTAP1221A45 2012 Jan $45 call - current bid/ask $ 5.65/ 6.25
-stop loss on NTAP @ 34.75

Chart of NTAP:

Occidental Petroleum - OXY - close: 75.42 change: +3.19

The Q2 GDP revisions were bad but they were not as bad as the whisper numbers (which were closer to +1.0% growth). Oil and energy stocks rallied on the news and OXY saw some short covering with a +4.4% pop on Friday. The close back above $74 and $75 is certainly short-term bullish and puts us in jeopardy. The stock could easily see an oversold bounce back toward the $78-80 zone. I am suggesting we wait for the next failed rally, most likely in the same $78-80 zone, before we consider new bearish positions.

Previous Comments:
Our first target is $65.50. Our second target is $60.25. I prefer the 2012 puts over the 2011 puts but both should work.

- This is a PUT Play -

Aug 16, 2010 - entry price on OXY @ 74.00, option @ 2.17
symbol: OXY1122M60 2011 Jan $60 put - current bid/ask $ 1.93/ 2.01
-stop loss on OXY @ 80.25

- or -

Aug 16, 2010 - entry price on OXY @ 74.00, option @ 6.58
symbol: OXY1221M60 2012 Jan $60 put - current bid/ask $ 6.20/ 6.45
-stop loss on OXY @ 80.25

Chart of OXY:

PEPSICO Inc. - PEP - close: 64.12 change: -0.01

Pepsi under performed the market on Friday but traders did buy the dip near its 200-dma. I am expecting the intraday bounce to continue on Monday but I remain cautious. 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 $5.60/5.70
-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: 52.03 change: +1.38

Thanks to the bounce on Friday RIG gained about a $1 for the week. Overall shares have been consolidating sideways in a narrow range above the $50.00 level. Oil-related stocks saw a strong bounce Friday since the Q2 GDP estimates were not as bad as feared. I remain bullish on RIG and would still consider new positions here but more conservative traders may want to wait for a new rise over $55 before launching positions. More conservative traders may want to raise their stop loss 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 $ 7.15/ 7.35
-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 $ 7.65/ 7.85
-stop loss on RIG @ 41.80

Chart of RIG:

Starbucks Corp. - SBUX - close: 23.47 change: +0.20

SBUX has made the leap from watch list to play list with a breakdown to new two-month lows. Shares have spent the last few months building a bearish top formation and last week's breakdown under $23.50 was the signal. We had a trigger to buy put options at $23.30, which was triggered on Tuesday, Aug. 24th. SBUX did produce a technical, bullish reversal pattern on Wednesday but has not seen much follow through. The $23.50-24.00 zone should be short-term overhead resistance.

I would still consider new bearish positions now. However, with the market poised to bounce we might get a better entry point to buy puts on SBUX on a bounce near $25.00. Please note I'm moving the stop loss to $25.15. Our first target to take profits is at $20.15. Our second target is $18.25. FYI: The Point & Figure chart just produced a new sell signal this past week and is forecasting at $17 target.

- This is a PUT Play -

Aug 24, 2010 - entry price on SBUX @ 23.30, option @ 1.16
symbol: SBUX1122M20 2011 Jan $20 put - current bid/ask $ 0.92/ 0.96
-stop loss on SBUX @ 25.15

- or -

Aug 24, 2010 - entry price on SBUX @ 23.30, option @ 2.65
symbol: SBUX1221M20 2012 Jan $20 put - current bid/ask $ 2.70/ 2.82
-stop loss on SBUX @ 25.15

Chart of SBUX:


Carpenter Technology - CRS - close: $31.38 change +0.68

Last week I warned readers that CRS looked weak and suggested cautious traders exit early. Wish we had chosen to exit ourselves! The stock broke down under support to hit new relative lows on Tuesday and in the process hit our stop loss at $30.90. This move breaks the neckline to a bearish head-and-shoulders pattern that should forecast a move toward $25.

Previous Comments:
The plan was to initiate small positions to limit our risk.

08/24/10 - Stopped out @ $30.90, option @ $1.90 (-64%)

June 29, 2010 - entry price on CRS @ 34.00, option @ 5.30*
symbol: CRS 10L35.00 2010 DEC $35 call - current bid/ask $1.85/2.05
-stop loss on CRS @ 30.90 *(entry price is an estimate)

Chart of CRS:


Semiconductors and Sourdough

by James Brown

Click here to email James Brown

New Watch List Entries


PNRA - Panera Bread Co.

Active Watch List Candidates

BUCY - Bucyrus Intl.

BVN - Compania de Minas Buenaventura

CHRW - CH Robinson Worldwide

V - Visa Inc.

VMED - Virgin Media

Dropped Watch List Entries

SBUX graduated to the play list. TASR was promoted. WLT was removed.

New Watch List Candidates:

NVIDIA Corp. - NVDA - close: 10.12 change: +0.32

I know that 2008 and 2010 have been pretty rough years for NVDA for a plethora of reasons but I'm starting to think all the bad news has been priced into this stock after a 50% haircut from its April highs. The stock is acting like it has found a potential bottom. Now I realize that people are turning more and more bearish on chip stocks but NVDA has been trading out of sync with the semi sector for months.

This could be a tempting bullish play. Just keep your positions very small to limit our risk. I'm suggesting a trigger to buy calls at $10.55. If triggered we'll use a stop loss at $9.35. Our first target is $12.50. Our second, longer-term target is $14.00.

Company Info:
NVIDIA awakened the world to the power of computer graphics when it invented the graphics processing unit (GPU) in 1999. Since then, it has consistently set new standards in visual computing with breathtaking, interactive graphics available on devices ranging from portable media players to notebooks to workstations. NVIDIA's expertise in programmable GPUs has led to breakthroughs in parallel processing which make supercomputing inexpensive and widely accessible. Fortune magazine has ranked NVIDIA #1 in innovation in the semiconductor industry for two years in a row. (source: company press release or website)

Breakout trigger: $10.55

BUY the 2011 Jan $10.00 calls (NVDA1122A10)

- or -

BUY the 2012 Jan $12.50 calls (NVDA1221A12.5)

Chart of NVDA:

Panera Bread - PNRA - close: 79.81 change: +0.66

Shares of PNRA have been holding up pretty well. The stock has been consolidating sideways in the $73-80 zone for the last couple of months. This consolidation narrowed in the last week or so and now PNRA is poised to breakout over resistance near $80.00. The high on Aug. 18th was $80.56. I am suggesting a trigger to buy calls at $80.75. If triggered our target is $88.00. There is some resistance at the June high around $85.00 so don't be surprised if PNRA pulls back at the first test. More conservative traders could take some profits at $85.00. I don't see this as a real long-term trade so I'm only suggesting the 2011 January calls. More aggressive traders could use the November calls. If triggered at $80.75 we'll use a stop loss at $77.40.

Company Info:
Panera Bread Company owns and franchises 1,399 bakery-cafes as of June 29, 2010 under the Panera Bread®, Saint Louis Bread Co.®, and Paradise Bakery & Café® names. With our identity rooted in handcrafted, fresh-baked, artisan bread, we are committed to providing great tasting, quality food that people can trust. Nearly all of our bakery-cafes have a menu highlighted by antibiotic free chicken, whole grain bread, select organic and all-natural ingredients, with zero grams of artificial trans fat per serving, which provide flavorful, wholesome offerings. Our menu includes a wide variety of year-round favorites, complemented by new items introduced seasonally with the goal of creating new standards in everyday food choices. In neighborhoods across this country and in Ontario, Canada, our customers enjoy our warm and welcoming environment featuring comfortable gathering areas, relaxing decor, and free internet access. (source: company press release or website)

Breakout trigger: $80.75

BUY the 2011 January $85 calls (PNRA1122A85)

Chart of PNRA:

Active Watch List Candidates:

Bucyrus Intl. - BUCY - close: 57.12 change: +3.02

Shares of BUCY produced a very convincing bullish double bottom this past week. It just so happens the stock is bouncing from the 61.8% Fibonacci retracement of its July-August rally. I'm am certainly tempted to buy calls on the stock right here. However, there is still resistance in the $58-60 zone. We will keep our entry point to buy calls on the dip at $51.50 with a stop loss at $47.00. We will also add a trigger to buy calls at $61.00 just in case BUCY rallies from here. If triggered at $61.00 we'll use a stop at $52.99. FYI: I prefer the 2012 call LEAPS but the 2011s should work.

Buy-the-Dip trigger: $51.50 or buy calls at $61.00

BUY the 2011 Jan $60 calls (BUCY1122A60)

- or -

BUY the 2012 Jan $70 calls (BUCY1221A70)

Chart of BUCY:

Compania de Minas Buenaventura - BVN - close: 40.47 change: +0.82

Uh-oh! It looks like BVN is going to run away from us. Shares are breaking out from a big bull-flag shaped pattern. We don't want to chase it right here after a four-day surge higher. Instead we will adjust our trigger to buy calls from $34.00 up to $38.50. We'll move the stop loss to $34.75. There is still resistance near $42.50 but long-term BVN looks poised to breakout. Our target is $47.50 but we might adjust it higher.

Buy-the-Dip trigger: $38.50

BUY the 2011 March $40 calls (BVN1119C40) *adjusted*

Chart of BVN:

CH Robinson Worldwide Inc. - CHRW - close: 65.92 change: +1.01

CHRW is still consolidating sideways in a neutral, pennant shaped formation. Aggressive traders may want to consider bullish positions on a close over $68.00. Personally, I'd rather wait for a pull back toward support near $62.00. I am suggesting we buy call LEAPS if CHRW dips to $62.00. More conservative traders may want to hold off and wait for a dip closer to $60.00. 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: $62.00

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:

TASER Intl. - TASR - close: 3.72 change: +0.14

I am promoting TASR to an active play. Check the details in tonight's new play section.

Visa Inc. - V - close: $71.11 change: +1.20

Visa almost hit our trigger on Tuesday when shares spiked down to $69.00 but traders bought the dip. The stock is stuck in a $70-72 zone right now. The overall trend remains bearish. Nimble traders could try and open bearish positions on a failed rally near $74.00. I'm suggesting most of us just wait for the breakdown and keep our trigger at $67.75. If triggered our immediate target is $60.25. Once triggered I don't expect this trade to last more than a few weeks. We'll use a stop loss at $70.55.

- This is a PUT play -

Break down trigger: $67.75

BUY the 2011 Jan $60 puts (V1122M60)

Chart of V:

Virgin Media - VMED - close: 20.23 change: +0.64

Hmmm... the action this past week, with the bullish double bottom near $19.40, almost looks like a new entry point to buy calls. However, since I'm still wary of the market and expect this oversold bounce in stocks to fail in a few days I'm going to stick tot he original plan. Wait for a correction closer to $18.00. If triggered we'll start the play with a stop loss at $16.40. Our first target is $22.00. Our second, longer-term target is $24.75. I prefer the 2012 LEAPS over the 2011s. FYI: The Point & Figure chart is forecasting a long-term target of $36.

Buy-the-Dip trigger: $18.00

BUY the 2011 Jan $20.00 call (VMED1122A20)

- or

BUY the 2012 Jan $20.00 call (VMED1221A20)

Chart of VMED:

Walter Energy - WLT - close: 70.54 change: +2.86

I am removing WLT from the watch list. Shares have failed twice now at resistance near $80.00 and the breakdown this past week sundered the pattern of higher lows. I would keep WLT on your watch list for a bounce from the July lows or a close over $80.00.