Option Investor

Daily Newsletter, Saturday, 9/4/2010

Table of Contents

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

Leaps Trader Commentary

Stocks Surge On Data

by James Brown

Click here to email James Brown

The volatility index (VIX) is sinking but stocks remain volatile. The S&P 500 just saw a +3% bounce marking its first weekly gain in a month. It was the best pre-Labor day week in 20 years, but it followed the worst August in nine years. Stock market gains were powered by short covering that began on Wednesday following the U.S. ISM manufacturing data and the Chinese PMI numbers. Friday's jobs report was also better than expected and shorts scrambled to cover before the long weekend.

It was a pretty good week for economic data around the world. The country of India significantly raised some of their growth estimates with consumption surging from +3.7% to +10%, investments soared with a change from +3.7% to +7.6%, and government spending in India reversed from -0.7% to +14.2%. The Indian market rallied midweek and closed less than 1% from new two-year highs. Australia made headlines on Wednesday when they announced their GDP growth climbed to +1.2%, better than the +0.9% estimate. Australia's Bureau of Statistics said the growth was fueled by stronger consumer spending. The U.S. rally actually started on Wednesday when China released better than expected PMI numbers. Economists were looking for an increase from 51.2 to 51.5 but the official report came in at 51.7. A separate, private PMI report for China, created by HSBC, also showed improvement with a rise from 49.4 to 51.9. Readings over 50.0 indicate expansion for these surveys. Fears that the Chinese economy might be slowing down too fast were temporarily forgotten.

Investors were also surprised to see the ISM manufacturing index for the U.S. suddenly improve. On Wednesday economists were expecting the ISM to drop from 55.5 in July to 52.8 in August. Yet the Institute for Supply Management reported their manufacturing activity index rose to 56.3 in August. Again, readings over 50.0 indicate growth and this was the 13th month in a row the report was positive. This data completely overshadowed the worse than expected ADP employment number on Wednesday morning, which saw a loss of -10,000 jobs instead of the expected +15,000. The ADP report didn't bode well for Friday's jobs number and traders were expecting a disappointment, especially with weekly jobless claims on the rise.

Imagine the surprise when Friday's non-farm payroll data came in significantly better than expected. Analysts were looking for the August jobs report to show a loss of -110,000 jobs with private sector job growth falling from +71,000 to +41,000. Instead the Labor Department reported the headline number at -54,000 jobs while private sector jobs grew +67,000. The headline number was negative due to the termination of summer census workers and a drop in state jobs. Shorts were once again in a rush to cover their positions. That is two weeks in a row that Friday had a big economic event that traders were expecting to be negative but surprised to the upside (last week was the Q2 GDP revisions). Another positive read in Friday's jobs report was an increase in temporary staffing (+17,000), which normally rises ahead of permanent job growth.

Chart of the Non-Farm Payroll Report:

Big picture the economy is still struggling. Temporary hiring averaged more than +40,000 a month from Q4 2009 through Q2 2010 so we're still tracking below average and need to a significant increase before expecting any serious improvements. The U.S. needs +150,000 new jobs a month just to keep pace with population growth. With almost 15 million people out of work it's going to take years and years before we reach anything resembling "normal" employment. Speaking of the unemployed, the unemployment rate actually ticked higher to 9.6% as nearly 500,000 people renewed their search for a jobs, which technically means they have rejoined the workforce even though they're still searching for work.

The pre-market release of the jobs data set the tone for trading on Friday and investors pretty much ignored the weaker than expected ISM services data released late Friday morning. The Institute for Supply Management reported their service-sector index fell from 54.3 in July to 51.5 in August. This was the lowest reading since January 2010. While readings above 50.0 indicate growth it's moving the wrong direction. Manufacturing only accounts for 11% of the U.S. economy while services are closer to 80%. A drop in services is not a positive sign for future growth. Inside the report the new orders component fell -4 to 52.5 and the employment component actually turned negative with a drop to 48.2.

Chart of the ISM Services index:

Technically the market was already set up for an oversold bounce. Stocks had been consolidating near support after the worst August since 2001. They were oversold and some unexpected good news sparked some short covering that began to feed on itself due to the low volumes. Sadly this has all the characteristics of a bear-market rally. It was short, very sharp, and didn't see much volume. On a more positive note the major indices crashed through a few resistance levels last week. Plus, the S&P 500 appears to be building an inverse head-and-shoulders pattern (a bullish H&S). If the S&P 500 can close over resistance near 1130 the pattern would forecast a move toward the 1240 area over the next two or three months.

Daily chart of the S&P 500 index:

On a short-term basis the S&P 500 should now find support at 1080, the 50-dma, and the 1060 area (in addition to 1040). The close over 1100 on Friday is bullish and certainly looks like another breakout over resistance but the index is facing the simple 100-dma directly overhead. If the rally continues we can look for resistance at the 200-dma (near 1115) and the August highs near 1130. The market is moving so fast we've gone from oversold to overbought. From a technical perspective I would look for a dip back toward 1080 (now support) before we see further upside.

Daily chart (#2) of the S&P 500 index:

The NASDAQ has produced a similar move higher with a breakout from the 2100-2150 trading range. Short covering pushed the composite above resistance near 2200 and the 50-dma but there is still resistance at the 200-dma and at the 2300-2310 zone. Technically I would expect some profit taking with a dip back toward the 2180-2170 zone although optimistically we might see the 2200 level hold as support.

Daily chart of the NASDAQ index:

I am still somewhat optimistic with the bullish double bottom pattern in the small cap Russell 2000 index. However, the $RUT has rallied nearly +9% from its August lows so it too probably needs to see a correction before making any further progress. Look for a pull back into the 625-616 zone. If the $RUT can close over resistance near the 675 area it would be very bullish for the market.

Daily chart of the Russell 2000 index:

Looking ahead the month of September is historically the worst month of the year for stocks but there can obviously be exceptions. If stocks continue to climb then fund managers will be tempted to chase them for fear the market will run away from them. We have seen this scenario before with the big rallies in Q3 2009 and Q1 2010. Short-term the trend is up but we're now overbought and need a dip. We might see that dip on Wednesday when the Federal Reserve releases their Beige Book report. At the same time if the Beige book is stronger than expected we could witness more short covering.

Keep in mind the 2010 elections are two months away. Short-term I see this as a negative as investors would rather wait and see the election results before putting money to work. Will the democrats defend their majority in Washington or will republicans see a surge in power as frustrated Americans continue to search for anything but the status quo? Right now polls seem to be favoring the republicans but we have a long eight weeks ahead of us and a lot could change between now and then.

Uncertainty over the elections could easily keep money on the sidelines but there will be some investors that begin placing their bets ahead of the vote in anticipation of a Q4 rally higher. For the moment each economic report remains a landmine but the last couple have blown up on the bears and not the bulls. The double-dip recession remains a risk but the recent splash of better than expected economic news has pushed those fears aside - at least until the next landmine goes off. I still expect a Q4 rally but it's too early to tell if the current bounce is our entry point or if we'll see another entry point in the next six weeks.

- James


Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

It's time to take some money off the table for a handful of plays. We're closing the bullish play on BWA a little early. I'm suggesting readers take profits early on MICC, NTAP, and PNRA. SBUX has been stopped out. BUCY and PNRA graduated to the play list.

The short-term trend is up but stocks already look overbought. I would expect a dip this week.

New stop losses for GLD 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

Caught My Attention

by James Brown

Click here to email James Brown

Editor's Note:

Stocks continue to get whipsawed around with big weekly swings. The S&P 500 has gone from oversold to nearly overbought in just three days. The lack of volume doesn't help matters. While I'm generally wary about adding new positions we are seeing an increase in potential candidates. I am not adding any new plays tonight. We just had BUCY and PNRA graduate from the watch list to the play list last week. Plus, I just added four new watch list candidates. If you're looking for more ideas a few stocks that caught my attention were: BRK.B, CAT, DD, DTV, and MO. Put them on your radar screen and wait for an entry point.

Play Updates

Take Profits on BWA

by James Brown

Click here to email James Brown

Closed Plays


Play Updates

Baidu, Inc. (Baidu.com) - BIDU - close: 84.30 change: +1.69

The market's widespread rally helped BIDU gain about five points for the week. The close over $80 was bullish and the stock continued to surge although volumes remain light. The lows near $76 might be a new base for the stock and more conservative traders will want to think about raising their stop losses. Both $80 and $76 should act as future support. BIDU is arguably short-term overbought so don't be surprised to see a dip back to $80. The $87-88 zone is the next level of significant resistance.

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 $7.05/7.20
-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 $12.30/12.55
-stop loss on BIDU @ 73.40

Chart of BIDU:

Bucyrus Intl. - BUCY - close: 64.37 change: +0.64

It was a big week for BUCY. The stock surged more than $6 and broke out over resistance at the 200-dma and the $60.00 level. The stock's four-day rally stalled on Friday near $65 but that happens to be a new four-month high. Originally we wanted to buy BUCY calls on a dip to $51 but we added a trigger to buy calls at $61.00 just in case the stock started to run away from us. The $61.00 trigger was hit on Wednesday. Now that the play is open our first target is $72.50. We'll use a stop loss at $52.99.

On a short-term basis BUCY looks overbought and due for a dip. I would expect a dip back toward the $61.50-60.00 zone and we can launch new positions there. FYI: I prefer the 2012 call LEAPS but the 2011s should work.

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - current bid/ask $9.95/10.10
-stop loss on BUCY @ 52.99

- or -

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 13.00
symbol: BUCY1221A70 2012 JAN $70 call - current bid/ask $13.20/13.50
-stop loss on BUCY @ 52.99

Chart of BUCY:

ConocoPhillips - COP - close: 55.05 change: +0.62

The commodity oil has not seen a very strong bounce but at least it has stopped falling after a -9% decline in August. Fortunately, the action in oil has not stopped the oil sector from climbing with the rest of the market. Recent news that another oil rig in the Gulf of Mexico (in water 300' deep) is on fire has not slowed the rally in oil stocks. Technicians could argue the OIX has produced a higher high and higher low in the last few weeks. COP has a similar pattern. The close over $54.00 in COP looks like a new bullish entry point however, on a short-term basis I would expect a dip back toward the $54-53 zone soon. I am tempted to raise the stop closer to $50 but we'll leave it at $47.99 for now.

Prior Comments:
Our first target is $69.00. FYI: The Point & Figure chart is suggesting a long-term $79 target.

May 20, 2010 - entry price on COP @ 51.00, option @ 3.75
symbol: COP 11A55.00 2011 JAN $55 call - current bid/ask $3.30/3.40
-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 $4.20/4.40
-stop loss on COP @ 47.99

09/04/10 COP gave us a new entry with the move over $54.00
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: 19.91 change: +0.34

It was a huge week for shares of EMC with the stock surging more than +8%. The stock has cleared resistance at $19.00 and its 50 and 100-dma. On the news front there is still plenty of speculation about further consolidation in the storage industry. EMC could be seen as a buyer although there are a few rumors that EMC could actually be a takeover target (unlikely with a market cap of $41 billion). It looks like HPQ has won the bidding war for 3PAR with a $33/share bid. Now traders are wonder who might DELL look at next. Will EMC get involved? There is some speculation that Brocade (BRCD) might be a target.

On a short-term basis EMC is short-term overbought and due for some profit taking. We can look for the $19.00 level to offer some support. Long-term the trend is still up but the $20.50-21.00 zone could be tough resistance to break. If you are looking at launching new positions I would use the 2012 call LEAPS if EMC provides a new entry point (like a new bounce from $19.00).

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 $1.35/1.38
-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 $2.84/2.98
-stop loss on EMC @ 17.80

09/04/10 EMC has provided a new entry point with the move over $19
07/03/10 More Conservative Traders may want to exit early!

Chart of EMC:

SPDR Gold ETF - GLD - close: 121.86 change: -0.43

With the stock market in rally mode one might have expected stronger profit taking in gold. That wasn't the case. Gold managed a gain for the week. Most of the safe-haven profit taking occurred in the bond market. Still, my short-term outlook hasn't changed, the GLD looks overbought with a six-week rebound and rally in progress. Momentum is stalling. I suspect gold is getting a boost from the dollar weakness the past week or two. Wait for the GLD to retrace and find new support before considering bullish positions. I'm watching the $118.00 or $116.00 areas as likely support. Please note our new stop loss at $112.90. More conservative traders may want to use a stop closer to $116.00 instead.

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 $8.60/8.80
-stop loss on GLD @ 112.90

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $11.85/12.10
-stop loss on GLD @ 112.90

Weekly Chart of GLD:

Infosys Technologies - INFY - close: 60.66 change: +0.89

Earlier this past week I was beginning to worry about INFY with shares slipping to new relative lows. That changed on Wednesday with the gap higher and the stock managed to end the week above $60 and its 50-dma. INFY has produced a bullish engulfing candlestick (reversal) pattern on the weekly chart but this signal needs to see confirmation. I suggested a week ago that readers look for a close over $60 as a possible entry point. We are leaving our stop at $54.90 for now but more conservative traders may want to move their stop toward this week's low (56.73).

FYI: Investor's Business Daily ran an article this past week with the opinion that the move to cloud-computing is positive for India-based outsourcing firms like INFY.

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 $4.70/ 4.90
-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 $6.90/ 7.60
-stop loss on INFY @ 54.90

Chart of INFY:

Intuitive Surgical - ISRG - close: 281.18 change: + 3.86

We were expecting an oversold bounce in shares of ISRG. The fact that the stock didn't see a bigger rebound is good news for our put play. However, I don't think the bounce is over yet. I would look for a move back into the $290-300 zone. Preferably we'll see a failed rally near $300 where we can add to our bearish positions.

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. We did take profits early on 8/28/10 given the sharp sell-off but our long-term target is $250.00. The plan was to use small positions to limit our risk. We have a stop loss at $311.00.

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 $15.80/16.60
-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: 75.09 change: +0.07

Another week, another new 52-week high in MCD. That's the sort of trend we like to see. Although I should warn you that MCD is starting to look a little more overbought with each week. The rally from its July lows has been significant. 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.

Prior Comments:
Keep your positions small. Our long-term target is $79.75. FYI: The Point & Figure chart forecasting an $96 (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 $6.70/ 6.80
-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 $4.15/ 4.25
-stop loss on MCD @ 66.75

08/28/10 New stop @ 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: 98.79 change: +2.49

Take Profits Now! Shares of MICC have been consolidating sideways for weeks. When the market decided to move higher, MICC broke out, and shares surged to a new two-year high. The stock is short-term overextended and too close to our initial target of $99.50 to ignore. I'm suggesting we take profits now (sell at least half) and raise our stop loss to $86.40.

Previous Comments:
Keep your positions small to limit your risk. MICC is (normally) a volatile stock. Our long-term targets are $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 $12.90/14.60
-stop loss on MICC @ 86.40

09/04/10 Take Profits Early, MICC @ 98.79, option @ $12.90 (+50%)
plus new stop at $86.40

Chart of MICC:

NetApp, Inc. - NTAP - close: 44.05 change: +0.98

Take profits now in NTAP. Technology stocks delivered a strong performance last week and there is plenty of speculation about further consolidation in the sector. Shares of NTAP rallied toward their 2010 highs near $44. The stock looks short-term overbought with a three-week rally and I would expect some profit taking soon. We want to go ahead and sell part of our position now to lock in a profit, especially if you have the 2011 calls. The 2011 Jan. $40s have more than doubled.

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 $ 6.45/ 6.60
-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 $ 7.05/ 7.30
-stop loss on NTAP @ 34.75

09/04/10 Take Profits Early, NTAP @ 44.05, 2011 $40 call @ 6.45 (+115%)
The 2012 $45 call @ $7.05 (+76%)

Chart of NTAP:

Occidental Petroleum - OXY - close: 78.32 change: +0.48

Shares of OXY soared on Wednesday, mostly like due to the market's very widespread bounce and not due to speculation that OXY's CEO would resign. Wednesday the Wall Street Journal reported that Ray Irani, the 75-year old CEO for OXY, would likely announce his retirement at the next board meeting. Irani has been criticized for his excessive pay and the WSJ claims he earned $857 million in the last ten years.

We were expecting a bounce sooner or later. OXY's rebound stalled at the 61.8% Fibonacci retracement level (see chart). Given this clear level of resistance more conservative traders may want to adjust their stops lower. We'll keep our stop at $80.25 for now. More aggressive traders could move their stops above the 200-dma near $80.90. I am suggesting we wait for this bounce to roll over before launching 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 $ 1.37/ 1.43
-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 $ 5.30/ 5.55
-stop loss on OXY @ 80.25

Chart of OXY:

PEPSICO Inc. - PEP - close: 65.57 change: +0.60

The trend in PEP is starting to look bullish again. More aggressive traders may want to consider bullish positions with a stop loss under $63.00. Or as an alternative you could wait for a close over $67.50. Keep in mind our final target is $72.25 (aggressive traders could aim for $75) but if you launch new positions be sure to use 2012 calls.

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 $6.75/6.85
-stop loss on PEP at $59.85

09/04/10 may want to consider new positions with 2012 calls
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:

Panera Bread - PNRA - close: 85.02 change: -0.19

Take profits now! We have been expecting PNRA to breakout past resistance at $80 and make a run toward its April highs but we knew the $85 level would be resistance. Shares managed to rally from $80 to $86.72 in just three days. Our bullish play on PNRA was triggered August 30th when shares hit $80.87. Our trigger to buy calls was $80.75. I am suggesting we go ahead and take some money off the table now. Odds are really good we'll see some profit taking. I am expecting a dip back toward $83.00 before PNRA tries to rally again. I'm moving the stop loss up to $78.45. Our final target is $88.00.

Aug 30th, 2010 - entry price on PNRA @ 80.75, option @ $4.20
symbol: PNRA1122A85 2011 $85.00 LEAP call - current bid/ask $6.20/6.70
-stop loss on PNRA at $78.45

09/04/10 Take profits early. Sell half. PNRA @ 85.02, option @ 6.20 (+47.6%)
08/30/10 Triggered at $80.75

Chart of PNRA:

Transocean Ltd. - RIG - close: 54.33 change: +0.33

A new fire on an oil rig in the Gulf of Mexico, this time on a rig closer to shore in 300' of water, did not have much affect on shares of RIG. Overall the stock looks poised to rally from current levels. I have been suggesting readers consider new bullish positions near support at $50 and would still consider new positions today or on the next dip near the $52-50 zone. Otherwise I don't see any changes from my previous comments. 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 $ 8.60/ 8.80
-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 $ 8.45/ 8.75
-stop loss on RIG @ 41.80

Chart of RIG:

TASER Intl. - TASR - close: 3.99 change: +0.02

TASR has performed well for us. The stock opened this last week at $3.69 and managed to rally past short-term resistance at $3.80 and close near round-number resistance at $4.00 for a +8.4% gain. Broken resistance near $3.80 should now offer some support. I would wait for a dip or a bounce near $3.80 before considering new bullish positions.

This past week TASR saw some headlines. A judge in Arizona ruled in favor of TASR in a patent lawsuit against Stinger. Then on Wednesday the company announced a big order from the Texas Department of Public Safety.

Previous Comments:
Our stop loss is at $3.45. Our long-term target is $4.90.

STRATEGY: Buy TASR stock (entry $3.69), stop loss $3.45

08/30/10 TASR opens Monday at $3.69 (entry point)
08/28/10 TASR listed as a new play

Chart of TASR:


BorgWarner Inc. - BWA - close: 48.42 change: +1.69

It's time to take profits in BWA. Our second and final target for the stock has been $49.75. Shares hit $49.04 on Friday. I'm suggesting an early exit now to lock in a gain and try to capture any option inflation from a sharp four-day rally. Honestly, I'm still bullish on BWA and more aggressive traders may want to let it run. You could argue the stock has created a bull flag pattern that is suggesting an upward target near $54.00.

09/04/10 - Exit Early @ 48.42

Feb 17th, 2010 - entry price on BWA @ 37.55, option @ 3.90
symbol: BWA1122A40 2011 JAN $40 LEAP call - current bid/ask $9.90/10.60
-stop loss on BWA @ 39.75

09/04/10 Final Exit (Early) BWA $ 48.42, option @ $9.90 (+153%)

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:

Starbucks Corp. - SBUX - close: 25.07 change: +0.41

Ouch! We have been whipsawed out of our SBUX put play. The stock was pinned under resistance near $23.70 most of the week until the Thursday. The S&P 500 rallied past resistance near 1080 on Thursday and shares of SBUX experienced some significant short covering. SBUX rallied past additional resistance at $24 and the 200-dma. On Friday the short covering continued and shares broke past the 50-dma and hit an intraday high of $25.19. Our stop loss to exit was $25.15.

- This is a PUT Play -

09/03/10 STOPPED OUT (SBUX @ $25.15)

Aug 24, 2010 - entry price on SBUX @ 23.30, option @ 1.16
symbol: SBUX1122M20 2011 Jan $20 put - exit @ 0.58 (-50%)
-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 - exit @ $2.23 (-15.8%)
-stop loss on SBUX @ 25.15

Chart of SBUX:


Biotech, Healthcare, Gambling & More

by James Brown

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New Watch List Entries

GILD - Gilead Sciences

HD - Home Depot

HUM - Humana Inc.

WYNN - Wynn Resorts Ltd.

Active Watch List Candidates

BVN - Compania de Minas Buenaventura

CHRW - CH Robinson Worldwide


V - Visa Inc.

VMED - Virgin Media

Dropped Watch List Entries

BUCY and PNRA have graduated to the play list.

New Watch List Candidates:

Gilead Sciences - GILD - close: 34.02 change: +0.87

Shares of GILD have been suffering since their April earnings report. Investors were very unhappy with the results and the stock gapped down sharply. Since then GILD has fallen almost 30% and hit levels not seen since early 2007. I suspect that shares may have found a bottom with investors buying GILD near the $32.00-31.75 zone. The stock has clearly been an underperformer in the biotech sector. However, I suspect it could outperform when the biotech sector rallies. If you check the BTK biotech index, the group looks poised to breakout from an inverse H&S pattern that is forecasting a move toward the 2010 highs. When that occurs GILD could see a little "catch up" with its peers.

Bear in mind this is an aggressive play. GILD is underperforming for a reason with a slow down in sales growth and worries about how the new health reform will affect its business. The current set up seems to offer a relatively low risk entry point. There is clear support at $31.75. I'm suggesting we buy calls (small positions only) on a dip at $33.00. We'll use a stop loss at $31.49. If triggered our long-term target is $41.75.

FYI: Readers may want to consider passing on this GILD play and focusing on the biotech sector instead. You could buy calls on the BBH biotech holders as an alternative. I would look for a dip in the 91.50-90.00 zone and use a tight stop in the $87-88 area.

Company Info:
Since 1987, Gilead Sciences has worked to discover, develop and commercialize medications to advance the care of patients suffering from life-threatening diseases in areas of unmet medical need. Headquartered in Foster City, California, the company has expanded rapidly over the past two decades, with annual revenues now exceeding $7 billion, operations spanning four continents and a staff of approximately 4,000 employees. Gilead’s primary areas of focus include HIV/AIDS, liver disease and serious cardiovascular/metabolic and respiratory conditions. (source: company press release or website)

Buy-the-Dip trigger: $33.00

BUY the 2011 Jan $35 calls (GILD1122A35)
- or
BUY the 2012 Jan $35 calls (GILD1221A35)

Chart of GILD:


Home Depot - HD - close: 29.85 change: +0.44

My outlook for the residential real estate market remains bearish. However, the dismal pace of home sales appears to have lost its impact on shares of HD. Shares of HD have been consolidating sideways in the $27-29 zone for several weeks now, which should now act as a new base or foundation, especially with the recent breakout higher. Since my opinion of the real estate and consumer spending is wary we want to keep our positions in HD pretty small. I am suggesting we buy calls on a dip at $29.00 and we'll use a relatively tight stop loss at $26.90. If triggered our long-term target is $33.90 and $36.00. We can expect to find resistance near $32.00. I prefer the 2012 calls over the 2011 calls.

Company Info:
The Home Depot is the world's largest home improvement specialty retailer, with 2,244 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, Mexico and China. In fiscal 2009, The Home Depot had sales of $66.2 billion and earnings from continuing operations of $2.6 billion. The Company employs more than 300,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index. (source: company press release or website)

Buy-the-Dip trigger: $29.00

BUY the 2011 Jan $30.00 calls (HD1122A30)
- or
BUY the 2012 Jan $30.00 calls (HD1221A30)

Chart of HD:

Humana Inc. - HUM - close: 51.08 change: +1.27

Last week I mentioned HUM was on my personal watch list as a bullish candidate (it was in the editor's note in the new play section). The stock is still building on a large, bullish basing pattern over the last several months. I would prefer to buy calls on HUM with a dip to $49.00 and a stop loss at $46.49. However, more aggressive traders may want to consider buying a breakout past the January highs near $52.50. If we are triggered at $49.00 our first target is $59.50.

Company Info:
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation’s largest publicly traded health and specialty benefits companies, with approximately 10.3 million medical members and approximately 7.3 million specialty-benefit members. Humana is a full-service benefits solutions company, offering a wide array of health and specialty benefit plans for employer groups, government programs and individuals. (source: company press release or website)

Buy-the-Dip trigger: $49.00

BUY the 2012 Jan. $55.00 calls (HUM1221A55)

Chart of HUM:

Wynn Resorts - WYNN - close: 87.81 change: +3.14

WYNN is another aggressive play. American consumers remain nervous with unemployment high and the housing market so weak so business in Vegas is probably not going to rebound too quickly. The real growth here is in Macau. The Chinese economy is humming along and tourists are flocking to WYNN's Macau destination. Through all of the market's ups and downs shares of WYNN have managed to maintain a bullish trend of higher lows.

The latest bounce from $80.00 looks like a potential entry point. There is still some resistance near $93-94 but I'd rather look for an entry point now than wait for a close over $94. I am suggesting we open small positions on a dip at $85.00. If triggered we'll use a stop loss at $79.00. Our first target to take profits is $99.00. Longer-term we'll consider a target at $109. I prefer the 2012 calls over the 2011s but if you're just aiming for $99 the 2011s can work. Remember, small positions to limit your risk. WYNN can be a volatile stock.

Company Info:
Wynn Resorts, Limited is traded on the Nasdaq Global Select Market under the ticker symbol WYNN and is part of the S&P 500 and NASDAQ-100 Indexes. Wynn Resorts owns and operates Wynn Las Vegas (www.wynnlasvegas.com), Encore (www.encorelasvegas.com) and Wynn Macau (www.wynnmacau.com). Wynn Las Vegas, a luxury hotel and destination casino resort located on the Las Vegas Strip features 2,716 luxurious guest rooms and suites, an approximately 111,000 square foot casino, 22 food and beverage outlets, an on-site 18-hole golf course, approximately 223,000 square feet of meeting space, an on-site Ferrari and Maserati dealership, and approximately 74,000 square feet of retail space. Encore, the new signature resort in the Wynn collection, opened December 22, 2008. Encore is located immediately adjacent to Wynn Las Vegas and features 2,034 suites, approximately 72,000 square foot casino, 12 food and beverage outlets, two nightclubs, a spa and salon, approximately 60,000 square feet of meeting space and approximately 27,000 square feet of upscale retail outlets. Wynn Macau is a destination casino resort in the Macau Special Administrative Region of the People's Republic of China and currently features 600 deluxe hotel rooms and suites, approximately 205,000 square foot casino, casual and fine dining in five restaurants, approximately 46,000 square feet of retail space, a health club, pool and spa, along with lounges and meeting facilities. (source: company press release or website)

Buy-the-Dip trigger: $85.00

BUY the 2011 Jan $90 calls (WYNN1122A90)
- or -
BUY the 2012 Jan $100 calls (WYNN1221A100)

Chart of WYNN:

Active Watch List Candidates:

Compania de Minas Buenaventura - BVN - close: 41.13 change: -0.57

BVN has continued to rally but shares started to run out of steam near resistance at the $42 level. The stock continues to look bullish given the breakout from the bull-flag pattern. I don't see any changes from my previous comments. We will use a trigger to buy calls at $38.50. If triggered we'll use a stop loss at $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)

Chart of BVN:

CH Robinson Worldwide Inc. - CHRW - close: 67.56 change: +0.33

I am about ready to give up on CHRW and oddly enough it is because the stock is too strong. Shares have been consolidating sideways the last four weeks in a pennant shaped pattern. This past week CHRW has broken out higher and looks poised to rally past more significant resistance near $67.50-68.00. You could argue the breakout is forecasting a move toward $76.00 but I just don't want to chase CHRW at these levels. More aggressive traders may want to consider opening small positions if CHRW can close over $68.00. FYI: Keep in mind that the inverse H&S pattern formed from Q4 2009 through Q2 2010 is projecting a move from $62 to $72 so CHRW is half way there.

I am keeping our trigger to buy call LEAPS at $62 for now but I suspect we will drop CHRW as a long-term bullish candidate soon. More nimble traders may want to consider a short-term bullish trade instead (maybe target $72 on a breakout over $68).

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:

NVIDIA Corp. - NVDA - close: 9.90 change: +0.33

Semiconductor stocks saw a nice bounce off their lows last week but they are still under performing the NASDAQ and the SOX index remains under prior support, which should be new resistance. Meanwhile NVDA is under performing and was late to participate in the market's widespread rally last week. The stock is struggling with resistance near $10.00 and the simple 50-dma. I don't see any changes from my prior comments. This remains an aggressive, higher-risk trade. NVDA has been struggling and sales growth has been slowing down but we are betting the worse has already been priced in for this stock. 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.

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:

Visa Inc. - V - close: $72.50 change: +0.52

The market is in rally mode and the breakdown under $70 in Visa appears to be a bear trap pattern. I am removing Visa from the watch list for now.

Virgin Media - VMED - close: 21.93 change: +0.17

Hmm... it looks like VMED might be trying to run away without us. Shares found support near the $19.40 area several times and was quick to rally higher last week. I am going to adjust our strategy on VMED. We will move the trigger to buy call LEAPS from $18.00 to $20.50. We'll move the stop loss to $18.90. Our first long-term target is $24.00. I prefer the 2012 LEAPS over the 2011s. FYI: The Point & Figure chart is forecasting a long-term target of $36.

FYI: Moving the trigger higher raises our risk so keep your position size smaller!

Buy-the-Dip trigger: $20.50

BUY the 2011 Jan $22.50 call (VMED1122A22.5)

- or

BUY the 2012 Jan $25.00 call (VMED1221A25)

Chart of VMED: