Option Investor

Daily Newsletter, Sunday, 3/3/2013

Table of Contents

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

Leaps Trader Commentary

State of Sequestration

by James Brown

Click here to email James Brown

Fears that the eurozone crisis might resume if uncooperative leaders were elected in Italy's recent election shook the markets for a day. Last Monday (Feb 25th) witnessed the global stock markets stumble following the Italian elections the day before. The S&P 500 index fell to four-week lows. Yet there was no follow through on the sell-off. The U.S. market's rebounded as traders bought the dip. The Dow Jones Industrial Average is actually showing relative strength and poised to hit new highs soon.

There was a wave of economic data hitting the markets as we closed the month of February. Plus the markets digested the semiannual Humphrey-Hawkins testimony where the Federal Reserve Chairman gives testimony before the U.S. House and Senate finance committees. Continued weakness in the euro and pound currencies fueled gains for the U.S. dollar. This dollar strength continued to feed the sell-off in commodities like gold, silver, copper and oil. The U.S. bond market bounced on Monday's stock market sell-off but spent the rest of the week churning sideways.

The second estimate on the U.S. fourth quarter GDP was release last week. Economists were expecting a revision from -0.1% to +0.5%. Yet the Commerce Department only bumped their estimate to +0.1%. At this level the last quarter of 2012 had the slowest growth since Q1 of 2011. Overall most of the domestic economic news was better than expected. The ISM manufacturing index rose from 53.1 in January to 54.2 in February. Numbers above 50.0 indicate growth and expansion and February's reading was the best since June 2011. The Chicago PMI was a positive surprise at 56.8 - an eleven month high. Analysts were expecting a dip from 55.6 to 54.0.

The weekly initial jobless claims fell -22,000 to 344,000. New home sales rallied +15.6%. The Case-Shiller home price index rose +6.8% from a year ago, posting its biggest year-over-year gain in six years. Pending home sales in January hit their best levels since April 2010 thanks to a +4.5% surge. This reverses a -4.3% plunge the month before. The final reading for February's consumer sentiment numbers increased from 76.3 to 77.6. Vehicle sales in February hit an annualized pace of more than 15.0 million.

In not so sunny news the Kansas City Fed manufacturing survey plunged to a -10 reading when economists were only expecting -1. The January durable goods orders saw a headline number of -5.2%, which was worse than expected and well below the prior month's +3.7% gain. Minus the more volatile transportation numbers, and a -45% drop in defense and nondefense aircraft orders, the durable goods orders were up +1.9%. You may have heard that personal income in January plunged -3.6% for the biggest one-month drop in 20 years. November saw a +4.2% increase and December saw a +2.6% jump in personal income but that was likely due to corporate America pushing bonuses and dividends into 2013 to avoid higher taxes in 2013.

There was plenty of data overseas. The Eurozone CPI (consumer inflation) data rose +2.0%, which was in-line with estimates. Unfortunately the Eurozone's unemployment has risen to 11.9% in January, which is the highest level since they began keeping records in 1995. Another challenge is the slowing PMI readings across Europe. A slowdown in manufacturing in France, Italy and Spain contributed to a 47.9 PMI reading for the Eurozone. Numbers under 50.0 indicate contraction or recession. Some of the regional data points continue to worsen. Consumer spending in France fell -0.8%, which was worse than expected. Spain's Q4 GDP estimate was revised down to -0.8% from -0.7%.

Economists are also worried about a potential slowdown in Asia. South Korea saw its retail sales fell -2.0% versus estimates for a small gain. Japan also said their retail sales fell -1.1% for the month. Japan reported that their manufacturing PMI came in at 48.5, which was improvement over the prior month's 47.7. Yet the Bank of Japan downgraded their growth forecasts. China's manufacturing PMI data was a disappointment with a drop to 50.1 in February, down from 50.4 in January. February's reading is the lowest level in five months. Numbers above 50.0 indicate growth but this figure is slipping lower. It's possible that China's PMI slowdown is a reflection of the weeklong Lunar New Years festival (holiday). That would suggest Chinese manufacturing should pick up again in March.

One of the biggest events of the week was the U.S. sequestration deadline that hit on March 1st. There was plenty of fear mongering about how the sequestration budget cuts might impact the U.S. economy but the stock market didn't seem to care. The $45 billion in cuts was from increased U.S. spending. The country will still spend more in 2013 than we did in 2012, just at a slower pace. There are plenty of projections on how the sequestration will affect the U.S. economy. Most estimates suggest that these government spending cuts could shave off -0.6% to -1.0% from the U.S. GDP. Plus, the country could see 750,000 to 1.5 million job losses.

Major Indices:

The S&P 500 index managed to eke out a +0.17% gain for the week in spite of Monday's big drop. For the year this large cap index is up +6.4%. Last weekend I cautioned readers to look for resistance 1520 and 1530 and likely support at 1480 and 1460. The S&P 500 hit 1485 and bounced. It also failed twice near 1525. Thus, it is still within the prior range.

A close above resistance at 1530 could fuel some short covering. Technical traders could argue that the S&P 500 is creating an inverse or bullish version of a head-and-shoulders pattern over the last week and a half. The 1525 level could be the neckline on this pattern (see charts below). If the market were to correct lower I would still expect a dip toward 1480-1460. Odds probably favor a pullback toward the 1460-1450 zone.

Plus, the weekly chart still shows resistance near a long-term trend line and there is still a risk that the S&P 500 could form a bearish triple top (displayed on the long-term monthly chart last week).

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

Short-term chart of the S&P 500 index:

The NASDAQ composite briefly spiked below technical support at its rising 50-dma and the 38.2% Fibonacci retracement level on Tuesday morning (following Monday's big drop). It's interesting to note that the NASDAQ has also spent most of the week trading inside Monday's big range. Bulls and bears have their talking points. The 50-dma remains technical support (for now) but Monday's high and the prior highs near 3200 are still overhead resistance. Essentially the index is consolidating sideways and churning for a breakout one way or the other. On the intraday chart you'll find a similar inverse H&S pattern building like the one seen on the S&P 500.

If the NASDAQ can breakout past the February highs, near 3215, then look for the rally to continue. Otherwise, we may want to plan on a correction lower toward the 3050 area. For the week the NASDAQ gained +0.25% and is up +4.9% year to date.

Weekly chart of the NASDAQ Composite index:

The small cap Russell 2000 index is hanging in there. The index did post a -0.16% loss for the week but it's still up +7.7% year to date. The big drop on Monday found support at the 40-dma and traders bought the dip at this moving average throughout the week.

The pullback from its February high did break the trend of higher low but there hasn't been any follow through lower. You could say that the $RUT is coiling in a neutral pattern and will see a breakout, one way or the other, soon. If the $RUT moves higher the February high near 930 is short-term resistance. If the $RUT breaks down then look for support near 870.

chart of the Russell 2000 index

Economic Data & Event Calendar

It's the beginning of the month and that means the normal parade of economic data. This week the big events to watch are probably the ECB interest rate decision and the U.S. non-farm payroll (jobs) report. The ECB rate decision will be followed by a press conference with ECB President Draghi.

Economic and Event Calendar

- Monday, March 04 -
Eurozone PPI

- Tuesday, March 05 -
ISM services
Eurozone services PMI
Eurozone GDP estimate

- Wednesday, March 06 -
ADP employment change report
factory orders
Federal Reserve Beige book report

- Thursday, March 07 -
Weekly Initial Jobless Claims
European Central Bank (ECB) interest rate decision
ECB President Mario Draghi press conference
Bank of England interest rate decision
Bank of Japan interest rate decision
Japan GDP estimate

- Friday, March 08 -
non-farm payrolls (jobs) report
unemployment rate
wholesale inventories

Additional Events to be aware of:

Mar. 20th - FOMC meeting & Bernanke press conference
Mar. 27th - U.S. budget resolution expires
Apr. 15th - U.S. new budget resolution deadline
May 18th - U.S. debt ceiling deadline

The Week Ahead:

Last weekend I suggested that the stock market was in a state of flux. The upward momentum had been severely challenged and the trend was in jeopardy. Monday's big sell-off following the Italian elections didn't help the bulls. Yet there was no follow through lower. Essentially the market remains in flux. Even though stocks are still technically overbought the rally could continue. I am hearing more warnings that we're nearing a significant top but many fund managers don't have a lot of choices. They could invest in U.S. ten-year bonds with a 1.8% yield or stay invested in stocks. Their challenge, and ours, is what could be a slowing U.S. and global economy.

A good chunk of Europe is already in recession. The latest data out of China was disappointing but we'll have to wait another month to see if that was just a temporary dip due to the country's weeklong holiday. The U.S. Q4 GDP was revised slightly higher at +0.1% but that was still way below estimates. Meanwhile the U.S. sequestration budget cuts are expected to shave off between -0.6% to -1.0% of our GDP. We're still faced with two more big political battles in Washington with the budget talks and the debt ceiling issue over the next couple of months. The gridlock and failures in Washington could generate negative investor sentiment.

The U.S. consumer is facing higher taxes and rising gasoline prices. The combination could spell trouble for retailers. Consumer spending accounts for nearly 70% of the U.S. economy. Now add decreased government spending to what might be a cautious consumer and the U.S. could be faced with a potential recession this year. Another troubling sign is the sharp rise in insider selling of stock. The recent surge of company executives rushing to sell stock with the market at multi-year highs does not promote investor confidence. Essentially this is a signal that insiders believe their company stock is near a top and they want to sell now before it declines.

I don't want to preach gloom and doom here but the market is still due for a correction lower. There seems to be a shortage of potential catalyst to drive stocks higher. There are plenty who believe that the only reason asset prices are rising is due to the Federal Reserve's QE program. That's why every time there is a hint or a shadow that the Fed might slow down their QE buying the stock market shudders.

You also have to consider that bull markets tend to climb the wall of worry. I just listed a handful of bricks in the wall. The S&P 500 index is only about 50 points away from its all-time high. There's certainly a chance we see a last gasp surge higher to tag its highs or even inch up and over to mark a new all-time high and then reverse lower.

Issues that could be market events over the next few months are: geopolitical risk between Japan and China, geopolitical risk between Iran and Israel (and the U.S.), any sudden deterioration in the Eurozone as they continue to deal with their financial cancer.



Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

The stock market can't make up its mind which direction it's moving. There was no follow through on the sell-off. Yet the bounce back has stalled. Stocks seem to be churning sideways.

DLTR graduated from the watch list to our active trade list.

HON was closed as planned.

The stock market's sharp decline on Monday, Feb. 25th triggered some of our stop losses. LLL, SLB, SOHU, and VMC were stopped out this past week.

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 play or option position exited or closed this week.

New Plays

What I'm Watching

by James Brown

Click here to email James Brown

- New Trades -

Editor's Note:

(March 02, 2013)

The stock market has not changed much in the last week. Bears tried to take it down following the Italian elections a week ago but there was no follow through. Traders bought the dip but stocks failed to rally back toward their highs, at least for the S&P 500. The market could breakout either direction.

I remain cautious. Even with the recent dip stocks remain overbought. There are a lot of potential obstacles for the market as well, discussed in the wrap tonight. That doesn't mean there are not some pockets of strength.

If you're looking for a bullish candidate you may want to look at some of the oil refiners. Stocks like HFC, TSO, and WNR all look bullish and poised to rally. Another stock I would keep an eye on is LULU. Shares of LULU are testing a long-term trend line of support. A close above $70.00 or $71.00 in LULU could be a new bullish entry point.

I am not adding any new trades tonight. This past week we saw DLTR jump from the watch list to the active trade list. Tonight we're adding TIF and ZNGA to the watch list.

Play Updates

No Follow Through Lower

by James Brown

Click here to email James Brown

Closed Plays

We closed HON on Monday, Feb. 25th
LLL, SLB, SOHU, and VMC were stopped out.

Play Updates

Analog Devices - ADI - close: 45.23

03/02/13: ADI shares are down two weeks in a row but traders have been buying the dips. On the daily chart it looks like shares spiked down, below $44.00, and hit its 50-dma before bouncing back but that seems to be a bad tick. You won't see it on an intraday chart, which shows short-term support in the $44.40 area. Essentially ADI is churning sideways like much of the market. There should be short-term support near $44 and there is short-term resistance at the 10-dma. If the $44 level breaks then the next support is probably $42.00. I am not suggesting new positions at this time.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 3.40/3.60

02/09/13 new stop loss @ 41.90
adjust exit target to $49.00

Current Target:$ 49.00
Current Stop loss: 41.90
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/22/12

American Intl. Group - AIG - close: 37.85

03/02/13: The financial sector was hit hard on Monday's market decline. AIG was no exception. Yet traders bought the dip. Although it's worth noting that the bounce didn't make it very far. I am not convinced the correction in AIG is over. I would not be surprised to see the stock pullback into the $36-35 zone. Over the past week there has been a small flurry of analysts activity. AIG received both bullish and bearish analyst comments.

Earlier Comments:
Our plan was to keep our initial position size small to limit our risk. We will plan on exiting our 2014 calls when shares hit $42.50.

- Suggested Positions - (small positions @ first)
(closed on Dec. 24th)
May 18, 2012 - entry price on AIG @ 28.25, option @ 3.40
symbol: AIG1319A30 2013 JAN $30 call - exit @ $5.00 (+47.0%)

- or -

May 18, 2012 - entry price on AIG @ 28.25, option @ 4.20
symbol: AIG1418A35 2014 JAN $35 call - current bid/ask $ 5.60/ 5.75

02/02/13 new stop loss @ 34.40
01/26/13 new stop loss at $32.75
12/24/12 closed our 2013 call position at the open.
Our exit was at $5.00 (+47.0%)
12/22/12 Exit the 2013 calls immediately on Monday morning
current bid is at $4.80
..for prior updates, check older newsletters

Current Target:$ 2013 call: $37.00, 2014 calls: $42.50
Current Stop loss: 34.40
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12

Citigroup - C - close: 42.11

03/02/13: Citigroup also saw a sharp decline with the market's sell-off last Monday. The stock did bounce but traders were selling into strength near technical resistance at its 10-dma. I suspect there is a growing risk we will see C retreat into the $40-38 zone. I am not suggesting new positions.

- Suggested Positions - (small positions)
DEC 18, 2012 - entry price on C @ 39.21, option @ 3.02
symbol: C1418a45 2014 JAN $45 call - current bid/ask $ 3.35/ 3.45

01/05/13 new stop loss @ 37.35

Current Target:$ 47.50-50.00range
Current Stop loss: 37.35
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12

Colgate-Palmolive - CL - close: 114.11

03/02/13: CL was downgraded on Tuesday but the news didn't have much affect on the stock price. Shares did rally back toward their recent highs and reversed. This now has the potential to turn into a short-term bearish double top pattern with resistance near $115.70. So far the up trend is still in place. If CL does pullback we can watch for support in the $111-110 zone.

- Suggested Positions - (small positions)
FEB 20, 2013 - entry price on CL @ 112.00, option @ 4.20
symbol: CL1418a115 2014 JAN $115 call - current bid/ask $ 5.30/ 5.60

Current Target:$ 124.50
Current Stop loss: 106.75
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13

Chevron Corp. - CVX - close: 116.90

03/02/13: CVX added almost a point for the week as the stock ignored the weakness in oil prices. Shares actually tagged a new four-month high on Thursday. The recent relative strength is a good sign I am not suggesting new positions at this time. More conservative investors may want to start adjusting their stop loss higher.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 5.05/5.25

02/02/13 do not be surprised to see a pullback now that earnings have been announced.

Current Target:$124.50
Current Stop loss: 104.75
Play Entered on: 01/14/13
Originally listed on the Watch List: 12/22/12

Dollar Tree, Inc. - DLTR - close: 46.11

03/02/13: Our DLTR is now open but the trade has not shaped up as we expected. DLTR was a big outperformer this past week with a +10% gain. Most of that gain was on Wednesday when shares gapped open higher at $43.50 and then spiked up to $46.71 intraday.

The big move higher was a reaction to DLTR's earnings report. The company beat estimates by two cents with a profit of $1.01 a share. Revenues were also a beat. Q1 guidance was normal but DLTR actually lowered their full year guidance. Normally you would think that management lowering guidance would send the stock lower. Yet investors were more interested in seeing DLTR's strong same-store sales and improving margins. Management also provided bullish commentary suggesting that the payroll tax and rising gas prices would help funnel more cost-conscious consumers into DLTR stores.

DLTR was on our watch list and the plan was to wait for shares to close above $42.75 and then buy calls the next day. DLTR met that requirement on Wednesday with a close at $45.39. Our trade opened on Thursday at $45.25. I would not chase it here. DLTR did show strength on Friday and the breakout past its 200-dma and 300-dma is technically bullish but DLTR is short-term overbought.

Please note that I am changing our exit target to $53.50.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 5.10/5.30

02/28/13 trade opened following gap higher, above our trigger

Chart of DLTR:

Current Target: $53.50
Current Stop loss: 39.50
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13

Expedia Inc. - EXPE - close: 63.74

03/02/13: The correction in EXPE is now four weeks old. Thus far the pullback has been mild and orderly. The stock is nearing its longer-term trend of higher lows. We'll soon see if EXPE can resume the up trend or if it will breakdown. Nimble investors could use a bounce off the $60.00 level or its 100-dma as a new bullish entry point.

Earlier Comments:
I would consider this a more aggressive, higher-risk trade because EXPE can be so volatile. We will want to keep our position size small to limit our risk.

- Suggested Positions -
NOV 29, 2012 - entry price on EXPE @ 61.84, option @ 6.00
symbol: EXPE1418a74.48 '14 JAN $74.48 call - current bid/ask $4.30/4.50

02/23/13 new stop loss @ 59.25
01/05/13 new stop loss @ 57.40
12/13/12 EXPE began trading ex-dividend (52cents). The option strike on our 2014 calls moved from $75.00 to $74.48.

Current Target: $79.00
Current Stop loss: 59.25
Play Entered on: 11/29/12
Originally listed on the Watch List: 11/24/12

General Electric - GE - close: 23.19

03/02/13: GE spent the week churning sideways. I don't see any changes from my prior comments. If the market does correct lower I would look for a dip into the $22.50-22.00 zone. I am not suggesting new positions.

- Suggested Positions -
NOV 14, 2012 - entry price on GE @ 20.25, option @ 0.42
symbol: GE1418a25 2014 JAN $25 call - current bid/ask $0.76/0.79

02/16/13 new stop loss @ 21.40
02/02/13 new stop loss @ 20.40
12/14/12 GE increased its dividend to 19 cents
11/24/12 new stop loss @ 19.75
11/14/12 triggered at $20.25
11/10/12 adjust the trigger down to $20.25, just above the 200-dma, stop to $19.25
10/27/12 move the buy-the-dip trigger down to $20.50
10/20/12 adjust the buy-the-dip trigger to $21.00 and our stop to $19.45

Current Target: $27.50
Current Stop loss: 21.40
Play Entered on: 11/14/12
Originally listed on the Watch List: 09/22/12

Juniper Networks - JNPR - close: 20.49

03/02/13: Ouch! JNPR lost almost a dollar for the week thanks to a Monday-Tuesday decline that broke support near $21.00 and its 50-dma. Shares look headed for round-number support at $20.00 soon. More conservative investors might want to raise their stop loss closer to the $20.00 mark. Currently our stop is at $19.45. JNPR has seen more than a -10% correction from its February intraday high. We are looking for the stock to find support at $20.00. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - current bid/ask $1.18/1.25

02/09/13 JNPR is showing relative weakness
01/26/13 new stop loss @ 19.45

Current Target: $24.75
Current Stop loss: 19.45
Play Entered on: 12/19/12
Originally listed on the Watch List: 12/15/12

The Coca-Cola Company - KO - close: 38.70

03/02/13: Monday's session for KO looked very ugly with a big, bearish engulfing candlestick. Yet there was no follow through and shares reversed to post a gain for the week. Positive comments from billionaire investor Warren Buffett didn't hurt. KO is now facing short-term resistance near the $39.00 level.

Earlier Comments:
KO's next quarterly dividend is payable on April 1st, 2013 to shareholders on record as of March 15th.

- Suggested Positions -
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - current bid/ask $1.30/1.34

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $2.26/2.37

Current Target: $44.00
Current Stop loss: 36.40
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13

Motorola Solutions - MSI - close: 62.03

03/02/13: Traders bought the dip near round-number support at $60.00 and MSI has rebounded to hit new highs. Shares are flirting with a bullish breakout past the $62.00 level.

We are currently aiming for $64.00. More aggressive investors may want to aim higher. I am not suggesting new positions at this time.

- Suggested Positions -
NOV 26, 2012 - entry price on MSI @ 54.11, option @ 2.93
symbol: MSI1418a60 2014 JAN $60 call - current bid/ask $ 5.20/ 5.40

02/16/13 new stop loss @ 57.25, adjust exit to $64.00
02/09/13 new stop loss @ 55.75
01/19/13 new stop loss @ 54.75
01/12/13 new stop loss @ 53.75

Current Target:$64.00
Current Stop loss: 57.25
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12

The Manitowoc Co - MTW - close: 18.14

03/02/13: We have been expecting a pullback in MTW. Shares managed a bounce from their Tuesday lows near $17.50 and the 40-dma but I am not convinced the correction is over. Traders sold the rebound at short-term resistance near the 10-dma. I suspect MTW is likely headed for the $17.00 area. No new positions at this time.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 1.90/ 2.00

02/16/13 new stop loss @ 16.30

Current Target:$21.50
Current Stop loss: 16.30
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13

Starbucks Corp. - SBUX - close: 54.87

03/02/13: Investors continued to buy the dips in SBUX and shares managed a 70-cent gain for the week. Shares are still fighting with short-term technical resistance at the 20, 30, 40 and 50-dma, all directly overhead. A breakout could spark a little short covering. I am not suggesting new positions at this time.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 2.92/ 2.97

01/05/13 new stop loss @ 49.85

Current Target:$ 62.00
Current Stop loss: 49.85
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12

The Charles Schwab Corp. - SCHW - close: 16.40

03/02/13: Last weekend I warned readers that the correction in SCHW was probably not over. The stock broke down to new two-week lows. On a positive note we did see traders buy the dips near $16.00 but the stock appears stuck under the $16.50 level for the moment. I am not suggesting new positions at this time. If the stock market turns lower I would expect SCHW to test the $15.50 area.

Earlier Comments:
Our long-term target is $18.75. More aggressive traders can aim higher. The Point & Figure chart is bullish with a $24 target.

- Suggested *SMALL* Positions -
JAN 23, 2013 - entry price on SCHW @ 15.74, option @ 0.80
symbol:SCHW1418a17 2014 JAN $17 call - current bid/ask $ 1.05/ 1.15

02/23/13 new stop loss @ $15.20
02/19/13 sold half at the open: option bid @ $1.25 (+56.2%)
02/16/13 prepare to sell half of our position on Tuesday morning, Feb. 19th at the opening bell
02/09/13 investors may want to consider exiting now to book a profit and then jump back in on a correction.

Current Target: $18.75
Current Stop loss: 15.20
Play Entered on: 01/23/13
Originally listed on the Watch List: 01/19/13

Urban Outfitters - URBN - close: 40.81

03/02/13: Good news! Traders bought the dip in URBN near $39.00 and its rising 100-dma. The stock is now up four days in a row and has delivered a nice rebound back above what could have been resistance at $40.00. I would not get too optimistic here. The retailers could see trouble with rising gasoline prices and the payroll tax increase. I am not suggesting new positions.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - current bid/ask $ 3.20/3.40

02/23/13 readers may want to consider scaling back positions or exiting early now.
02/07/13 URBN pre-warning better than expected sales numbers

Current Target: $48.00
Current Stop loss: 37.85
Play Entered on: 01/03/13
Originally listed on the Watch List: 12/15/12


Honeywell Intl. - HON - close: 70.05

03/02/13: Last weekend we decided to exit our HON trade so investors can lock in gains. The plan was to exit on Monday morning. HON opened at $69.89 on Feb. 25th.

- Suggested Positions -
DEC 31, 2012 - entry price on HON @ 62.50, option @ 4.40
symbol: HON1418a65 2014 JAN $65 call - exit $7.70 (+75%)

02/25/13 early exit at the open
02/23/13 Exit now on Monday morning to lock in gains.
02/09/13 new stop loss @ 67.40, adjust exit target to $72.00,
investors may want to book profits now with the option bid @ $8.05
02/02/13 new stop loss @ 63.75
01/05/13 new stop loss @ 59.90

Chart of HON:

Current Target: $72.00
Current Stop loss: 67.40
Play Entered on: 12/31/12
Originally listed on the Watch List: 12/22/12

L-3 Communications - LLL - close: 76.40

03/02/13: The stock market's sharp decline on Monday pushed LLL to our stop loss at $75.75.

- Suggested Positions - (small positions)
NOV 05, 2012 - entry price on LLL @ 75.64, option @ 4.40
symbol: LLL1418a80 2014 JAN $80 call - exit $2.80 (-36.3%)

02/25/13 stopped out
02/09/13 new stop loss @ 75.75
01/05/13 new stop loss @ 73.75. readers may want to just exit early now!

Chart of LLL:

Current Target:$ 85.00
Current Stop loss: 75.75
Play Entered on: 11/05/12
Originally listed on the Watch List: 10/20/12

Schlumberger Ltd. - SLB - close: 77.64

03/02/13: SLB only lost 15 cents for the week but it was a volatile week. The stock market's widespread decline on Monday helped push SLB to our stop loss at $76.40.

- Suggested Positions -
FEB 15, 2013 - entry price on SLB @ 81.03, option @ 3.37
symbol: SLB1418a90 2014 JAN $90 call - exit $2.33 (-30.8%)

02/25/13 stopped out at $76.40

Chart of SLB:

Current Target: $94.75
Current Stop loss: 76.40
Play Entered on: 02/15/13
Originally listed on the Watch List: 02/02/13

Sohu.com - SOHU - close: 43.76

03/02/13: SOHU has not been cooperating and I cautioned readers last week that we might see this trade stopped out. Shares hit our new stop loss at $44.75 on Feb. 28th.

- Suggested Positions -
FEB 05, 2013 - entry price on SOHU @ 45.50, option @ 4.40
symbol:SOHU1418a50 2014 JAN $50 call - exit $3.30 (-25%)

02/28/13 stopped out
02/23/13 new stop loss @ 44.75, readers may want to exit early right now to cut their losses

Chart of SOHU:

Current Target: $58.50
Current Stop loss: 44.75
Play Entered on: 02/05/13
Originally listed on the Watch List: 12/31/12

Vulcan Materials Co. - VMC - close: 51.99

03/02/13: VMC pierced support at the $50.00 level thanks to the stock market's sharp sell-off on Monday, Feb. 25th. Shares hit our stop loss at $49.75.

Earlier Comments:
We want to keep our position size small!

- Suggested Positions -
Jan 22, 2013 - entry price on VMC @ 56.81, option @ 5.60
symbol: VMC1418a60 2014 JAN $60 call - exit $1.75 (-68.7%)

02/25/13 stopped out
02/02/13 expecting a pullback in VMC.
01/22/13 trade opens
01/19/13 moved to the new plays section
01/18/13 VMC rallies past resistance, meets our entry requirements
01/05/12 new strategy. Wait for a close above $55.25 with a stop at $49.75. Our long-term target is $68.50. Small positions.

Chart of VMC:

Current Target:$ 68.50
Current Stop loss: 49.75
Play Entered on: 01/22/13
Originally listed on the Watch List: 12/02/12


Jewelry & Online Gaming

by James Brown

Click here to email James Brown

New Watch List Entries

TIF - Tiffany & Co

ZNGA - Zynga Inc.

Active Watch List Candidates

MRK - Merck & Co

WMT - Wal-Mart Stores

Dropped Watch List Entries

DLTR graduated to the play list.
CSCO has been removed.

New Watch List Candidates:

Tiffany & Co. - TIF - close: 69.04

Company Info

The payroll tax increase and rising gasoline prices are not going to affect the high-end consumer. That might be why shares of TIF have been showing relative strength. The stock recently broke through resistance in the $65-66 zone and now shares are nearing what is likely round-number resistance at $70.00.

I am suggesting we buy calls on a dip at $66.00. If triggered we'll start with a stop loss at $63.40. Out long-term target is $74.00 but readers could definitely aim higher.

NOTE: TIF is scheduled to report earnings on March 22nd.

Buy-the-Dip trigger: $66.00, stop loss 63.40

BUY the 2014 Jan $75 call (TIF1418a75) current ask $4.55

Chart of TIF:

Originally listed on the Watch List: 03/02/13

Zynga, Inc. - ZNGA - close: 3.43

Company Info

Zynga is the mastermind behind online games like FarmVille, MafiaWars, and Words with Friends. Many of its properties are found and played on your smart phone and social networks like FaceBook. The stock has been crushed from its early 2012 highs in the $15-16 zone. Yet it looks like all the bad news is backed in. Shares bottomed near $2.00 and have been slowly recovering. That recovery accelerated in February thanks to a better than expected earnings report.

ZNGA reported on Feb. 5th and beat analysts estimates by four cents. Most of that rally may have been short covering. However, there is a new story for ZNGA. Investors are starting to bet that ZNGA could be a player in the reintroduction of online real-money gambling when it returns to the U.S. There are plenty who believe that casinos have the upper hand over ZNGA but there might be room for multiple players in what is projected to be a $7 billion U.S. online gambling market.

I do consider this a higher-risk, more aggressive trade. Thus we will want to limit our position size. I am suggesting we wait for ZNGA to close above $3.80 and then buy calls the next day (or buy the stock itself). If triggered we'll start with a stop loss at $3.25. Our long-term target is $5.75 but we'll adjust that target as the play progresses.

Breakout trigger: Wait for a close above $3.80
Stop loss @ 3.25

BUY the 2014 Jan $5.00 call (ZNGA1418a5) current ask $0.55

- or -

BUY ZNGA the stock

Chart of ZNGA:

Originally listed on the Watch List: 03/02/13

Active Watch List Candidates:

Cisco Systems - CSCO - close: 20.83

03/02/13: CSCO is still churning sideways. The stock has struggled to make any forward momentum for the last several weeks. I am dropping CSCO as a watch list candidate. We can revisit the stock if shares see a correction or eventually breakout past $21.50. Our trade did not open.

Trade did not open.

03/02/13 removed from the newsletter
02/02/13 adjust entry trigger to wait for a close above $21.50

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

Merck & Co. - MRK - close: 42.63

03/02/13: The rebound in MRK stalled last week. Shares have been consolidating sideways. At the moment MRK still has a bearish trend of lower highs and technical resistance at the 100-dma and 150-dma. We are waiting on a bullish breakout higher.

I am suggesting we wait for MRK to close above $44.25 and then buy calls the next day. Our long-term target is $49.50 although the $48.00 level could be resistance.

Breakout trigger: Wait for MRK to close above $44.25,
then buy calls the next day, stop loss @ 41.45

BUY the 2014 Jan $45 call (MRK1418a45)

- or -

BUY the 2015 Jan $45 call (MRK1517a45)

Originally listed on the Watch List: 02/23/13

Wal-Mart Stores - WMT - close: 71.74

03/02/13: WMT displayed relative strength last week. The stock has fully recovered from the February sales email disaster story that sparked the gap down Feb. 15th. Currently WMT is hovering just below resistance near $72.00 and its simple 150-dma. Aggressive traders may want to launch bullish positions on a close above $72.00. I am suggesting investors wait for shares of WMT to close above $73.00 a share. Then buy calls the next day with a stop loss at $67.25. Our long-term target is the $85-90 range.

Trigger: Wait for WMT to close above $73.00, then buy calls the next day.
Stop loss @ 67.25

BUY the 2014 Jan $75 call (WMT1418a75)

- or -

BUY the 2015 Jan $80 call (WMT1517a80)

Originally listed on the Watch List: 02/02/13