Option Investor

Daily Newsletter, Sunday, 3/24/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Stall on Cyprus

by James Brown

Click here to email James Brown

The financial meltdown in Cyprus and the potential for an emergency tax on bank deposits has been the topic all week long. Cypriot banks remain closed and there is still no solution for the small Mediterranean country. The Cyprus story, which exploded in the news just over a week ago, sparked profit taking across the global equity markets. Yet the selling pressure in the U.S. was relatively mild. We are quickly approaching the end of the first quarter and fund managers are still in a buy-the-dip mood. It has been an extraordinary first quarter for the U.S. market and money managers are chasing performance so they can look good in your quarterly statements that go out next month.

Overall the U.S. economic data was relatively benign. The Philly Fed survey for March came in at +2.0 versus a -12.5 reading in February. Numbers above zero indicate growth. Weekly initial jobless claims were flat at 336,000 versus 334K the week before. Existing home sales for February came in at an annual pace of 4.98 million versus estimates for 5.0 million. Building permits hit an annual pace of 946,000, which is up from 904,000. Housing starts improved in February hitting an annual pace of 917,000 after dipping to 910,000 in January. Of course the big non-event for the week was the FOMC meeting where the Fed kept rates unchanged in the 0.0% to 0.25% zone. There was no change in the current QE program.

There was a lot more action in overseas economics. The Eurozone ZEW economic sentiment survey came in at 33.4, which was significant below expectations. Another bearish sign was French and German PMI data. French manufacturing PMI hit 43.9 and the services PMI came in at 41.9. Both of these were below estimates. German manufacturing PMI declined to 48.9 and the services index dipped to 51.6. Again, both were below estimates. Numbers above 50.0 indicate growth and expansion and below that level indicate contraction. All four readings retreated lower.

Looking to Asia the Chinese HSBC manufacturing PMI data advanced to 51.7, which was above estimates of 51.2. It is worth noting that a few days ago Goldman Sachs issued cautious comments on the impact of inflation for the Chinese economy. Meanwhile in Japan, Mr. Kuroda was sworn in as the new Governor of the Bank of Japan. It is widely expected that Kuroda will launch significantly larger monetary easing programs. This expectation is helping fuel gains for the Japanese equity markets. The BoJ's next policy meeting is April 4th.

I'm going to try and cover the Cyprus issue as concisely as possible. This small Mediterranean country had a massive banking system that was nearly eight times the country's GDP. That's because Cypriot banks were encouraging offshore money to be deposited in Cyprus thanks to healthy interest rates and the chance to avoid taxes. Evidently Cyprus is a very popular spot for wealthy Russians to park their money and avoid taxes. Most of the problems started with Cypriot banks using these deposits to buy high-yielding Greek bonds. When the Greek economy collapsed and Greece restructured the bonds, the value of these assets were drastically reduced. Suddenly Cypriot banks had significant holes in their balance sheets.

Now jump ahead to current day and Cyprus is in desperate need of a bailout to prevent their banking system from crashing. They're part of the Eurozone so they cannot print more money. The Eurozone offered a 10 billion euro bailout but Cyprus would have to raise 5.8 billion euros of capital first. Since the country is bankrupt they couldn't raise the money. The geniuses in mainland Europe (think ECB, EU, IMF) told Cyprus to raise the money with an emergency tax (a.k.a. stability levy) on private citizens' bank deposits. The original levy called for the confiscation of 6.75% of Cypriot bank deposits up to 100,000 euros and a 9.9% cut of all deposits above 100,000 euros.

Naturally the citizens of Cyprus were not happy with this idea. The Cyprus government closed the banks to prevent a bank run. All week long we have been seeing pictures of long lines at ATMs as Cypriot citizens try to carry on with their day to day lives. Many local Cyprus merchants have stopped taking credit cards and demand cash (euros) only. The fear is that if Cyprus were to suddenly leave the euro and try and launch their own currency over the weekend, the new currency would be significantly devalued against the euro.

There was supposed to be a vote by the Cyprus parliament on this "stability levy" on Monday, March 18th. It was delayed to Tuesday where the levy was voted down. Cyprus still needed to raise the 5.8 billion euros to qualify for the 10 billion euro bailout money provided by the Eurozone. Currently the European Central Bank (ECB) is providing emergency funding to Cyprus banks but just announced they will cut this emergency funding as of March 25th if the country can't reach some sort of bailout deal. The Cyprus finance minister went to Russia with hat in hand asking for a loan. It was believed that Russia might be interested in helping Cyprus if Russia could get a deal on some newly discovered natural gas fields off the southern coast of Cyprus. The Russian negotiations did not produce any agreement. Cypriot banks remain closed. Cypriot citizens are protesting in the streets. The island's government still has to raise money and/or renegotiate a new deal with the troika or leave the euro altogether and start with a new currency.

If that was not bad enough this idea to "tax" (a.k.a. steal) bank deposits to raise emergency funds is starting to spread. A German economist suggested a 15% financial asset tax on Italian bank accounts so Italy can cut their debt to GDP percentage to more healthy levels. Spain said they were considering a tax on bank deposits. Honestly? Has the world gone nuts? If these governments actually steal money from their citizens' bank accounts, how in the world are they going to stop a massive bank run in their countries? Money will be pulled out of these countries so fast it will cripple their already struggling economies. Of course regulators will try and pass capital controls to prevent money from leaving the country. Consumer and business confidence levels are likely to plummet in any country considering such a "tax".

At this point, it doesn't matter how the Cyprus issue is solved. The EU's suggestion to confiscate the savings of citizens has cast grave doubts about the safety of deposit insurance. If citizens don't believe their money is safe then the banks are going to suffer for it. If people don't trust the banks then business activity is going to fall. Significant sections of the EU are already in recession (or worse) and this confidence-shaking fiasco is going to compound their problems. Many people are already pointing to this blunder as the final blow that will eventually unravel the Eurozone.

Major Indices:

In spite of all the headlines the S&P 500 index held up pretty well. The big cap index only lost -0.2% for the week. The index found short-term support near 1540 and once again looks poised to rally and hit new all-time highs. Of course that may depend on how the Cyprus issue plays out. At the moment the U.S. markets are trying to ignore the issues in Europe.

The numbers to watch are 1565, which is the old closing high and 1576, which is the intraday high. Given the trend of higher lows it seems like a new closing high could happen pretty soon. Yet the S&P 500 is still in danger of a massive triple-top pattern. Assuming Cyprus doesn't completely meltdown this week I would not be surprised to see the S&P 500 index rally into the $1570-1580 zone - just in time to mark the end of the first quarter.

Don't let new highs fool you. The Q1 earnings season is just around the corner and disappointing earnings results could endanger the rally.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

Monthly chart of the S&P 500 index:

The NASDAQ composite spent the week churning sideways inside the 3200-32.60 range. It closed with a -0.1% dip for the week. Overall the index held up relatively well considering the weakness in the semiconductor sector. The NASDAQ's largest component, AAPL, looks like it's ready to rally, which would certainly improve investor sentiment.

Weekly chart of the NASDAQ Composite index:

Out of the major U.S. indices the small cap Russell 2000 index delivered the worst performance with a -0.6% decline. Yet even this was minor considering the $RUT's gains for the year (+11.4%). If stocks continue to weaken then the $RUT might find some short-term support near 920 and near its 40 or 50-dma. Below that would be potential support near the 900 mark. On the other hand, if this rally were to continue, then a breakout to new highs could signal a run toward the 990-1,000 level for the $RUT. That's assuming the Q1 earnings season doesn't short circuit the rally.

chart of the Russell 2000 index

Economic Data & Event Calendar

The situation in Cyprus is likely to overshadow any economic reports this week. We will get new updates on consumer confidence and consumer sentiment. Fed Chairman Bernanke will speak on monetary policy on Tuesday. The third Q4 GDP estimate comes out on Thursday. The market will close on Good Friday to celebrate Easter.

You may notice that I have removed the U.S. budget resolution as an event. The republicans and the democrats have agreed to a funding solution that keeps the U.S. government going through September of this year. The next big fight will be the debt ceiling issue in May.

Economic and Event Calendar

- Monday, March 25 -
Potential vote on Cyprus Bailout Plan
German consumer confidence

- Tuesday, March 26 -
Federal Reserve Chairman Bernanke speaks
Durable Goods Orders
Case-Shiller 20-city home price index
Consumer Confidence
New Home Sales
Richmond Fed manufacturing survey

- Wednesday, March 27 -
Pending Home Sales
Eurozone industrial production

- Thursday, March 28 -
Weekly Initial Jobless Claims
U.S. Q4 GDP (3rd) Estimate
Chicago PMI

- Friday, March 29 -
U.S. market closed for Good Friday
Personal Income & Spending
University of Michigan Sentiment index

Additional Events to be aware of:

May 18th - U.S. debt ceiling deadline

The Week Ahead:

Looking ahead this week will see a tug-of-war between bearish headlines from the Cyprus situation and window dressing for the quarter end on Thursday. Momentum still favors the bulls. What worries me is Q1 earnings season. We have already seen several major earnings disappointments and or earnings warnings from the likes of Caterpillar (CAT), AK Steel (AKS), Steel Dynamics (STLD), Federal Express (FDX), and Oracle (ORCL). So far the market has been able to shrug off these negative headlines. Yet these warnings do not bode well for Q1 results.

Right now analysts are only expecting Q1 earnings growth of +0.58%. That's right, less than 1% growth. There is a growing chance that Q1 earnings could come in negative. That would prompt a big round of negative earnings revisions since Wall Street is way too optimistic for the rest of 2013. Currently analysts have set Q2 earnings growth estimates at +7%, Q3 at +10%, and Q4 at +15.6%. That's quite a jump from +0.5% growth in Q1.

The combination of a potentially disastrous Q1 earnings season with the S&P 500 at multi-year (almost all-time) highs and the likelihood of a bearish reversal at resistance to create a triple top pattern seems rather ominous. Investors have plenty of reasons to be cautious here. The stock market might also be considered overbought. Nearly 85% of the S&P 500 are trading above their simple 200-dma. History has proven that when this reading gets above the 80% level the market is nearing a top and a correction is almost imminent (give or take a few weeks).

Can the U.S. market (S&P 500) rally to new highs in the next several days? Absolutely, it can. Are we close to a pivotal market event with Q1 earnings season? Yes, we are. Could we see the market top in the next two to four weeks? Absolutely! If you're an investor, why buy stocks (or LEAPS options) now with the market at new highs and near resistance, when we have a pretty good chance of seeing a better, lower entry point a few weeks from now?



Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

The stock market has stalled as the world waits for a solution to the mess in Cyprus. Yet the first quarter is almost over and window dressing could lift the S&P 500 index to a new all-time high soon.

BBBY & M graduated from the watch list to our active trade list.

I have updated stop losses on KO and MTW.

We want to exit our MSI and URBN trades on Monday morning at the open.

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

Bullish Candidates

by James Brown

Click here to email James Brown

- New Trades -

Editor's Note:

(March 23, 2013)

Did you read tonight's LeapsTrader commentary? I hope you did. There is no arguing that the market's trend is up. I fully expect the S&P 500 index to tag a new high soon. Yet that does not mean we should be launching new long-term bullish positions at current levels.

There are a lot of potential headwinds for the market. Technically it's overbought. The number of stocks above their 200-dma is so high that it's a contrarian sell signal. The volatility index (VIX) remains near multi-year lows. Q1 earnings season is just around the corner and it could be a disaster. We've already seen several earnings warnings and disappointments. The situation in Cyprus, while small in the big picture, could have serious consequences for the rest of Europe and thus the globe.

I cannot in good conscience suggest new bullish candidates tonight when I believe there is a correction in the relatively near future. It may not show up for a couple of weeks but it will show up. Why launch bullish positions now when we could see stocks -5%, -10% or even -20% lower by late April or May?

You may completely disagree with me. That's perfectly fine. It takes both buyers and sellers to make a market. I suspect we will be closing several of our current trades in the next couple of weeks. Many of them already sport significant gains. You might want to exit early to lock in a profit.

Just in case you do disagree with me on the proximity of a market correction I am still providing some bullish LEAPS candidates tonight. Here's what caught my eye this weekend:

PAYX - this stock is nearing new multi-year highs. A close over the $35.00 level might be considered a new bullish entry point. You could set your long-term target in the $40-44 area.

UA - NKE just reported strong earnings. UA might follow suit. Shares of UA seem to be building a bottom. I would wait for a close above $52.50 and then buy calls the next day. An easy target would be the $59-60 zone.

TAP - I would almost be tempted to buy calls on a close above short-term resistance at $49.00. There has been resistance in the past near $51.00. If I bought calls my long-term target would be $59.00.

S - Sprint has spent six months consolidating under resistance at the $6.00 level. This past week has produced a bullish breakout. You could launch bullish positions now. Instead of buying calls you may want to just buy the stock. I would probably start with a stop loss under the 100-dma near $5.70. A long-term target could be the $9.00-10.00 zone.

CNQ - this oil stock appears to be breaking out past its long-term trend line of lower highs. You could make an argument to buy calls now. Nimble traders could buy a bounce off the $31.50 level or you could wait for a close above $33.50. It all depends on your risk profile. Consider a stop loss under the $30.00 mark.

V - Visa has a steady long-term up trend. Granted the stock has been consolidating sideways the last several weeks. A close above $163.00 could be used as a bullish trigger to buy calls. Target the $185-200 range.

WLT - the coal industry looks weak so this would be an aggressive, higher-risk trade. WLT has fallen to what looks like significant support near $28.00. You could buy calls now with a stop loss just under last week's low (27.88) or you could wait for a close above $30.00 as your bullish entry trigger. Target a rebound back into the $38-40 zone.

SOHU - check out a long-term target of SOHU and it looks like the stock has found a bottom. The January 2013 high was near $50.70. I'd probably wait for a close above $51.00 as a potential entry point. Keep in mind that SOHU can be a volatile stock. You may want to limit your position size to reduce your risk.

GLW - shares appear to have found a bottom. A close above $13.25 might be a bullish entry point as GLW breaks through the bearish trend of lower highs. This stock doesn't move very fast so you'll have to be patient.

GG - The sell-off in the gold miners appears to be overdone and GG has finally found support near the $32.00 level (check out a weekly chart). A close above $34.00 or a close above its simple 50-dma could be used as a new bullish entry point. I'd probably target a rebound into the $40-42 zone.

HSY - HSY actually looks like a strong bullish candidate right now. The stock has rallied to new all-time highs. If this trend continues we could see HSY challenging the $100 area before the year is over. You could argue that HSY is overbought. It might be too close for a long-term trade but I would be tempted to put my stop loss near its rising 20-dma or 30-dma.

COST - the long-term bullish trend of higher lows continues in shares of COST. The stock is consolidating sideways below resistance near $106. I would wait for a close above $106.00 before considering new bullish positions. With enough patience you could target a move toward the $120 area.

Plus, here's an update on what is on my radar screen.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself:


Play Updates

First Quarter End of 2013 In Sight

by James Brown

Click here to email James Brown

Editor's Note:

BBBY and M both graduated from the watch list to the play list.

I am suggesting we exit our MSI play on Monday morning to lock in profits. We also want to exit our URBN trade on Monday morning to cut our losses.

Closed Plays

JNPR was closed on Monday as planned.

Play Updates

Analog Devices - ADI - close: 44.90

03/23/13: Last week I expressed concern that ADI and the semiconductor sector could be poised for weakness. ADI did post another weekly loss as it tried to hold technical support at the simple 50-dma. The SOX semiconductor index is a problem because it appears to have formed a potential bearish double top with the peak in March 2012 and now a new peak in March 2013 near the 440-445 area. It's not a complete reversal yet for the SOX but the up trend looks fragile and if the SOX breaks down it will weigh on shares of ADI.

Meanwhile ADI already seems to have produced a lower high. Technical oscillators are short-term bearish. I am expecting ADI to correct lower toward $42.00. More conservative traders could exit early now, minimize any losses, and jump back in on a bounce from the $42 level.

- Suggested Positions -
JAN 03, 2013 - entry price on ADI @ 43.60, option @ 3.10
symbol: ADI1418a45 2014 JAN $45 call - current bid/ask $ 3.00/3.30

03/23/13 ADI still looks poised to retreat lower.
03/16/13 did ADI just create a new lower high?
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: 37.79

03/23/13: The financial sector hit a little profit taking this past week. That's not too surprising given all the bad press regarding the banking situation in Cyprus. Meanwhile shares of AIG retreated lower for the second week in a row. The stock is now testing technical support at the 50-dma. If AIG continues to move lower I would expect a retracement to the $36.00 level. I am not suggesting new positions at this time.

More conservative investors might want to adjust their stop closer to the $36.00 area.

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 $ 5.35/ 5.45

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

Bank of America - BAC - close: 12.56

03/23/13: BAC is our new play from last weekend's newsletter. The stock was first listed on our watch list. Our traded opened on Monday morning, March 18th. BAC gapped open lower at $12.29. Shares did rally to a new 52-week high midweek thanks to some bullish analyst comments. The stock closed virtually unchanged for the week.

Given the action in the market and the financial sector the last few days it looks like odds are good we could see BAC provide a better entry point near $12.00. You may want to wait for the pullback.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.54/0.55

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.33/1.36

Current Target:$ 18.00
Current Stop loss: 10.90
Play Entered on: 03/18/13

Originally listed on the Watch List: 03/09/13

Bed Bath & Beyond - BBBY - close: 64.59

03/23/13: BBBY is a watch list candidate that has graduated to our active play list. The rally in BBBY seems to be accelerating. After a slow, three-week slide lower in February the stock has exploded with a three-week rally from the $56.50 level to new five-month highs near $64.50.

Our plan was to wait for BBBY to close over $62.50 and then buy calls the next day. Shares met our entry requirement on March 20th with a close at $63.34. Our traded opened the next morning when BBBY gapped down at $63.06. If you missed the entry I would not worry. The $65.00 level is probably round-number resistance and BBBY is arguably short-term overbought. Odds are good the stock will provide a pullback into the $63-62 area where we can buy the dip.

Earlier Comments:
NOTE: BBBY's next earnings report is expected in early April, possibly the first week of April. More conservative investors will want to wait until after we see how the market reacts to the earnings results before initiating new positions, regardless if BBBY meets our entry requirement.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $0.54/0.55

03/21/13 trade opens with BBBY opening at $63.06
03/20/13 BBBY meets our entry requirement (close over $62.50) with a close at $63.34

Chart of BBBY:

Current Target:$ 74.50
Current Stop loss: 58.25
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/16/13

Citigroup - C - close: 45.23

03/23/13: Concerns over Cyprus and what that country's financial turmoil might mean for the EU sparked some profit taking in the financial sector. Shares of Citigroup, which were already short-term overbought, retreated this past week. Look for support in the $43-44 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 $ 4.90/ 4.95

03/16/13 new stop loss @ 41.75, readers may want to take profits now since our option has virtually doubled (+100%)
03/09/13 new stop loss @ 39.75, adjust target to $49.00
01/05/13 new stop loss @ 37.35

Current Target:$ 49.00
Current Stop loss: 41.75
Play Entered on: 12/18/12
Originally listed on the Watch List: 12/08/12

Colgate-Palmolive - CL - close: 114.41

03/23/13: After a sharp pullback two weeks ago CL managed a decent rebound this past week without much help from the broader market. I am leaving our stop loss at $108.40 but more conservative traders may want to use a stop closer to $110 or even $111 near Monday's low. I am not suggesting new positions at this time.

- 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 $ 5.05/ 5.30

03/16/13 new stop loss @ 108.40

Current Target:$ 124.50
Current Stop loss: 108.40
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13

Chevron Corp. - CVX - close: 121.18

03/23/13: The rally in CVX continues. The stock is outperforming the major indices and most of the oil sector. Shares of CVX are up five weeks in a row and broke out to new all-time, record highs this past week. Our option has almost doubled (+100%) and more conservative traders may want to take profits now.

Currently our exit target is $124.50. That could be hit this week. More aggressive traders may want to aim higher, say $129 or $134, since we still have several months left on our 2014 calls. The newsletter will plan to exit at $124.50.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 6.85/7.00

03/16/13 new stop loss @ 113.25
03/09/13 new stop loss @ 109.50
02/02/13 do not be surprised to see a pullback now that earnings have been announced.

Current Target:$124.50
Current Stop loss: 113.25
Play Entered on: 01/14/13
Originally listed on the Watch List: 12/22/12

Dollar Tree, Inc. - DLTR - close: 46.84

03/23/13: The rally has resumed in shares of DLTR. Traders bought the dip on Monday near $44.00. Two days later the stock was breaking out past technical resistance at its simple 200-dma and 300-dma. Now shares are up three days in a row and hitting new multi-month highs. I am not suggesting new positions at this time.

- Suggested Positions -
FEB 28, 2013 - entry price on DLTR @ 45.25, option @ 4.76
symbol:DLTR1418a45 2014 JAN $45 call - current bid/ask $ 5.50/5.80

03/16/13 new stop loss @ 41.40
02/28/13 trade opened following gap higher, above our trigger

Current Target: $53.50
Current Stop loss: 41.40
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13

Expedia Inc. - EXPE - close: 62.94

03/23/13: It was not a good week for online travel sites that do business in Hawaii. A judge has ruled that online travel companies including Expedia Inc. and most of its rivals, will have to pay the state of Hawaii a $70 million penalty for avoiding the state's general excise tax for the last ten years. Shares of EXPE plunged on Tuesday when the story came out. The stock found support near its simple 100-dma and retested this moving average again later in the week.

Technically it looks like the upward momentum in EXPE is in serious trouble. Investors will want to seriously consider an early exit out of this trade. I am not suggesting new positions. Tonight we're adjusting the stop loss to $59.75. If you choose to keep the play open you might want to tighten your stop closer to the $61.00 level instead.

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 $3.80/4.00

03/23/13 new stop loss @ 59.75, you may want to raise yours higher
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: 23.37

03/23/13: GE spent the week in a choppy sideways drift. The stock bounced off its 30-dma but failed near the $23.80 level again. Momentum indicators are starting to turn more bearish. Shares could be forecasting a correction lower. If GE does see a pullback I would look for a dip toward $22.00.

Since our call options have virtually doubled (+100%) readers might want to take profits right now. 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 $0.84/0.87

03/09/13 our 2014 Jan $25 call option has doubled. Readers might want to consider taking some money off the table.
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

The Coca-Cola Company - KO - close: 40.04

03/23/13: Some of the defensive names were showing strength this past week. KO was helping lead the group with a surge from the $38.50 area to round-number resistance at $40.00. Shares hit $40.43 intraday on Thursday, a new seven-month high.

Last summer (2012) KO ran into resistance in the $40.60-40.70 zone. Odds are that area will be resistance again and KO will see a pullback once it trades up into that area. Our 2014 calls have almost doubled (+93%) and more conservative investors may want to take profits early right now. I am not suggesting new positions at this time. We will raise our stop loss to $37.65.

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 $1.94/1.99

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $3.10/3.20

03/23/13 new stop loss @ 37.65
Our 2014 calls have almost doubled and readers may want to take profits early right now

Current Target: $44.00
Current Stop loss: 37.65
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13

Macy's Inc. - M - close: 42.66

03/23/13: The iconic department store is seeing continued strength in its stock price. Macy's was a watch list candidate. The plan was to wait for shares to breakout and close above $42.50 then buy calls the next day. M closed at $42.55 on March 20th. Our traded opened the next day at $42.22. These are new multi-year highs for the stock. The bullish breakout past resistance near $42.00 looks very positive.

The old all-time highs near $46.50 could be resistance but at the moment we are aiming for $48.50. FYI: The Point & Figure chart is bullish with a $53 target.

- Suggested Positions -
MAR 21, 2013 - entry price on M @ 42.22, option @ 2.85
symbol: M1418a45 2014 JAN $45 call - current bid/ask $2.87/2.92

Chart of M:

Current Target: $48.50
Current Stop loss: 39.25
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/09/13

Merck & Co. - MRK - close: 43.90

03/23/13: It turned out to be a quiet week for shares of MRK. The stock churned sideways on either side of the $44.00 level. MRK was also flirting with both the 10-dma and the 150-dma. The high for the week was $44.29. Readers may want to wait for MRK to close above $44.30 before initiating new bullish positions.

- Suggested Positions -
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 2.06
symbol: MRK1418a45 2014 JAN $45 call - current bid/ask $1.89/1.93

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $3.25/3.40

03/16/13 use the dip to $44.00 as another entry point to buy calls
03/13/13 trade opens with MRK gapping down at $44.54
03/12/13 MRK gaps open higher and closed at $45.04, above our suggested entry (close above $44.25).

Current Target: $49.50
Current Stop loss: 41.45
Play Entered on: 03/13/13
Originally listed on the Watch List: 02/23/13

Motorola Solutions - MSI - close: 63.61

03/23/13: The rally resumed in shares of MSI and the stock was accelerating higher on Friday with a +1.89% gain. This is a new multi-year high for the stock. We have been aiming for $64.00. Shares of MSI almost hit $64.00 on Friday. I am suggesting we exit immediately to lock in gains. Granted the trend is up and MSI could continue to rally. More aggressive traders may want to let it ride and keep the trade open but I would strongly suggest you tighten your stop loss significantly. The newsletter will plan on exiting positions on Monday morning at the opening bell.

- Suggested Positions -
NOV 26, 2012 - entry price on MSI @ 54.11, option @ 2.93
symbol: MSI1418a60 2014 JAN $60 call - current bid/ask $ 6.25/ 6.40

03/23/13 Prepare to exit on Monday morning (Mar. 25th)
03/09/13 new stop loss @ 59.75
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: 59.75
Play Entered on: 11/26/12
Originally listed on the Watch List: 11/17/12

The Manitowoc Co - MTW - close: 20.65

03/23/13: MTW tagged a new 52-week high on Wednesday but have since pared its gains. The stock posted a small loss for the week but the option is unchanged. The high on Wednesday was $21.35 and we've been aiming for $21.50. Readers may want to just exit now and lock in gains. Please note that I am raising the stop loss to $18.40.

- Suggested Positions -
JAN 24, 2013 - entry price on MTW @ 17.10, option @ 1.55
symbol: MTW1418a20 2014 JAN $20 call - current bid/ask $ 3.20/ 3.40

03/23/13 new stop loss @ 18.40
Readers may want to exit early now to lock in gains
03/16/13 new stop loss @ 17.85
03/09/13 new stop loss @ 16.85
02/16/13 new stop loss @ 16.30

Current Target:$21.50
Current Stop loss: 18.40
Play Entered on: 01/24/13
Originally listed on the Watch List: 01/19/13

Starbucks Corp. - SBUX - close: 57.38

03/23/13: Is the correction in SBUX already over? Traders bought the dip at $56.00 and the stock has been trying to build on that bounce. Right now SBUX is technically facing short-term resistance at its simple 10-dma. If the rally does continue SBUX faces potential resistance both at $59.00 and at $60.00. 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 $ 3.75/ 3.85

03/09/13 new stop loss @ 52.75
01/05/13 new stop loss @ 49.85

Current Target:$ 62.00
Current Stop loss: 52.75
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12

The Charles Schwab Corp. - SCHW - close: 17.54

03/23/13: After a strong two-week rally in early March SCHW produced a pullback this past week. The decline was relatively minor but at current levels every dip cuts into our potential profits. Investors have a decision to make. You could exit right now and pocket a +100% gain. Or we can hold on. SCHW could benefit from some end of quarter window dressing since shares are up significantly for the quarter.

The newsletter is going to hold on and keep the play open. We will also leave the stop loss at $15.90 for now. Our target remains $18.75.

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 $ 1.65/ 1.80

03/09/13 new stop loss @ 15.90, our call option has more than doubled and readers may want to take profits now.
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: 15.90
Play Entered on: 01/23/13
Originally listed on the Watch List: 01/19/13

Urban Outfitters - URBN - close: 38.75

03/23/13: Mayday! Mayday! Mayday! This stock is going down! The bounce in shares of URBN has failed and now the stock is breaking down to new relative lows. URBN is developing a bearish trend of lower highs and lower lows. The stock broke through technical support at its 100-dma this past week. Now it's sitting on the 150-dma.

I am suggesting we abandon ship immediately on Monday morning at the open.

- Suggested Positions -
JAN 03, 2013 - entry price on URBN @ 41.22, option @ 4.20
symbol:URBN1418a45 2014 JAN $45 call - current bid/ask $ 2.10/2.20

03/23/13 prepare to exit on Monday, Mar. 25th at the open
03/16/13 no follow through on the earnings bounce. URBN looks vulnerable here.
03/09/13 Get ready for earnings. URBN is scheduled to report earnings on March 11th.
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

Wal-Mart Stores - WMT - close: 74.28

03/23/13: WMT rallied almost two points for the week. Over half of that was on Friday with a surge past resistance near the $74.00 level. These are new three-month highs and WMT might actually get some window dressing to drive it higher this week. Currently our stop loss is at $67.25 but more conservative investors may want to adjust their stop closer to the $70 level.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 3.20/3.30

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 3.20/3.35

Current Target: $85.00-90.00 range
Current Stop loss: 67.25
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13

Zynga, Inc. - ZNGA - close: 3.42

03/23/13: Ouch! ZNGA is off 20 cents or -5.5% for the week. The stock gave us a scare on Wednesday with an intraday dip to $3.27. Our stop loss is at $3.25. Wednesday's weakness was exacerbated by an analyst downgrade that morning. Shares bounced off technical support at the 200-dma. The two-day rebound doesn't necessarily mean the correction is over. I would be very cautious here. The failed rally at $4.00 two weeks ago and the ensuing correction lower does not bode well for ZNGA. I am not suggesting new positions at this time.

Earlier Comments:
I cautioned readers that ZNGA was a higher-risk, more aggressive trade. The stock's volatility could make this a challenging trade.

- Suggested Positions -
MAR 12, 2013 - entry price on ZNGA @ 4.02, option @ 0.73
symbol:ZNGA1418a5 2014 JAN $5 call - current bid/ask $ 0.48/0.51

- or -

MAR 05, 2013 - entry price on ZNGA stock @ 4.02

03/12/13 ZNGA opens at $4.02 (entry point)
03/11/13 ZNGA closed at $3.93, above our entry requirement of 3.80

Current Target: $5.75
Current Stop loss: 3.25
Play Entered on: 03/12/13
Originally listed on the Watch List: 03/02/13


Juniper Networks - JNPR - close: 18.72

03/23/13: JNPR has not been cooperating. The stock had been correcting lower. Last weekend we decided the best move was to abandon ship and exit positions on Monday morning.

Unfortunately, JNPR only added insult to injury with a gap down on Monday, March 18th as it opened at $19.08 - a $1.09 drop! The sell-off continued with JNPR down -7.1% for the week.

- Suggested Positions -
DEC 19, 2012 - entry price on JNPR @ 20.39, option @ 1.84
symbol: JNPR1418a25 2014 JAN $25 call - exit $0.92 (-50.0%)

03/18/13 planned exit, but JNPR gapped down at $19.08
03/16/13 prepare to exit immediately on Monday morning (03/18/2013)
02/09/13 JNPR is showing relative weakness
01/26/13 new stop loss @ 19.45

Chart of JNPR:

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


Turning Cautious

by James Brown

Click here to email James Brown

New Watch List Entries

None, no new watch list candidates

Active Watch List Candidates

CY - Cypress Semiconductor

EL - The Estee Lauder Cos

Dropped Watch List Entries

BBBY and M have graduated to the play list.
TIF has been removed.

New Watch List Candidates:

Editor's Note:

The S&P 500 index is just below its all-time highs. Will it breakout or reverse?

Please see my comments on the new plays section.

Active Watch List Candidates:

Cypress Semiconductor - CY - close: 11.08

03/23/13: Weakness in the semiconductor sector put the brakes on CY's rally. Shares are consolidating sideways between technical resistance at its exponential 200-dma near $11.50 and short-term support at the $11.00 mark. Overall I don't see any changes from my prior comments.

Earlier Comments:
More aggressive traders might want to consider bullish positions on a breakout past the $11.50 mark. I am suggesting we wait for CY to close above $12.00 and then buy calls the next day. If triggered our target is $16.00.

Breakout trigger: Wait for CY to close above $12.00,
then buy calls the next day, stop loss @ 10.45

BUY the 2014 Jan $13 call (CY1418a13)

BUY the 2015 Jan $15 call (CY1517a15)

Originally listed on the Watch List: 03/16/13

The Estee Lauder Companies - EL - close: 63.89

03/23/13: Traders bought the dip on Tuesday and EL has continued to rebound. There is no change from my prior comments. We are waiting for a breakout to new highs.

I am suggesting we wait for EL to close above $66.55 and then buy calls the next day. I am suggesting that we start with small positions (half your normal trade size) to limit our risk. Our long-term target is $74.50.

Breakout trigger: Wait for EL to close above $66.55,
then buy calls the next day, stop loss @ 61.90

BUY the 2014 Jan $70 call (EL1418a70)

03/09/13 keep positions small to start!

Originally listed on the Watch List: 03/09/13

Tiffany & Co. - TIF - close: 69.23

03/23/13: TIF is down less than a quarter for the week. Yet the stock has been volatile following its earnings report on March 22nd. Wall Street was expecting a profit of $1.36 a share on revenues of $1.25 billion. TIF delivered $1.40 a share but revenues were a miss at $1.24 billion. Gross margins contracted a bit. Management issued lackluster guidance.

I am removing TIF as a candidate. More aggressive traders might want to consider buying calls if the stock can close above $71.00. I still suspect TIF will retrace lower and retest the $66-65 zone. Tonight I'd rather remove TIF and make room for a new watch list candidate.

Our trade did not open.

03/23/13 removed from the watch list.
03/09/13 adjust buy-the-dip trigger to $66.50

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