Option Investor

Daily Newsletter, Sunday, 4/28/2013

Table of Contents

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

Leaps Trader Commentary

Stocks Rebound Toward Their Highs

by James Brown

Click here to email James Brown

Buying the stock market dip remains in vogue as equities race back toward their April highs. Stocks were not alone as both commodities and bonds rallied as well. The rally in stocks poses an interesting question. Who is really buying equities? This past week saw investors pulling significant amounts of money out of U.S. stock funds. At the same time it was disclosed that many of the world's central banks are now buying equities as part of their QE programs. It was the last full week of April and end of month window dressing could have boosted the rebound. The big cap S&P 500 index added +1.7% for the week.

The semiconductor sector was a bright spot in the market with a +4.39% weekly gain. Chips got a boost after news surfaced that demand for certain memory chips is outpacing supply. Speaking of overwhelming demand, gold was a hot commodity last week. Both silver and gold were crushed two weeks ago with their worst slide in years. Yet demand for physical gold surged as investors rushed to buy the precious metal at these new lower prices. Bloomberg ran a story saying that demand for gold was so high that the U.S. Mint had to halt sales of its smallest gold coin (one-tenth ounce) because buyer demand more than doubled following the sell-off and the Mint simply ran out of inventory. For the week gold bounced +3.9% and silver added +3.1%.

Homebuilders were another hot industry with the homebuilding index up +8.9%. Inventories are falling. The latest data showed inventory at a 4.7 month supply. Equilibrium is supposed to be a 6.0 month supply. The pace of existing home sales fell -0.6% to an annual pace of 4.92 million in March. Yet new home sales rose +1.7%. DR Horton (DHI) delivered a bullish earnings report with a very positive outlook and the stock soared, helping fuel industry gains. Several homebuilders were also upgraded this past week, which didn't hurt.

The University of Michigan Consumer Sentiment index came out with its final reading for April, which bounced from 72.3 to 76.4. This is a drop from March's reading of 78.6 and represents a three-month low.

The big economic report for the week was the first estimate on U.S. Q1 GDP growth. Analysts were expecting +3.0% growth. Unfortunately, the reading came in at +2.5%. This was improvement from the 2012 Q4 growth rate of +0.4% but economists are worried that the Q1 bounce is temporary. Most of the Q1 growth came from businesses rebuilding their inventories and a rise in consumer spending at the expense of consumer savings. The savings rate for Americans fell from 4.7% in the fourth quarter to 2.6% in the first. A real drag on the economy was a drop in government spending, which fell -4.1% following a -7.1% pullback in Q4 2012. Government spending is expected to plunge even further as the sequestration cuts kick in. We are starting to see some analysts already downgrade their Q1 and Q2 growth numbers with expectations for a Q1 revision to less than +2% growth and Q2 estimates falling to +1.5% growth.

There were plenty of headlines from overseas. The European economy continues to slow down. The Eurozone manufacturing PMI fell to 46.5 and the services PMI dropped to 46.6. Germany, the Eurozone's biggest economy, saw its manufacturing PMI fall from 49.0 to 47.9. German services PMI declined from 50.9 to 49.2 PMI readings that come in at less than 50.0 indicate economic contraction.

Spain is the fourth largest economy in the Eurozone. Unfortunately Spain's economy is in shambles. The Spanish government confessed that the situation is worse than expected and they will not hit the EU's growth targets or deficit reduction targets that Spain agreed to for its bailout. The country's employment is surging and hit 27.1%. If you're less than 24 years old the unemployment rate is 57% in Spain. The country adjusted its 2013 GDP growth estimates from -0.5% to -1.3%. Spain also adjusted its deficit estimates and expected a 2013 deficit of 6.3% versus the EU's target of 4.5%. Spain also raised its deficit estimates for years 2014 and 2015.

China remains a significant concern for the market. Two weeks ago the market sank on weaker than expected Chinese economic data. The data continues to trend lower with disappointing PMI and flash manufacturing PMI readings at or below the 50.0 mark. There is also a growing concern over Chinese banks and consumer debt. Non-performing loans at Chinese banks surged +20% year over year in March. Meanwhile consumer credit in China is ballooning with an increase of more than $1 trillion in just the first quarter. That is significant when you consider the entire Chinese economy is only $8 trillion (nominal GDP). I will point out that I had a hard time confirming this story. That $1 trillion rise could be a jump in Chinese government debt across all levels of the government. Whether it's government or consumer, it is a significant increase. While we're on the subject of China it's worth noting that the recent down turn in economic growth is prompting some analyst firms to downgrade their forecasts. JP Morgan and Goldman Sachs have already lowered their estimates for China's 2013 growth.

Believe it or not but we're still in Q1 earnings season but we are past the peak. The market just suffered through one of the busiest weeks of earnings announcement and there were several warnings. Big companies like Amazon.com (AMZN), Apple Inc. (AAPL), Caterpillar (CAT) and Starbucks (SBUX) are lowering their guidance. Only 59% of the companies that have reported have beaten Wall Street's estimates. That's the lowest rate of success in the last four years.

The bigger problem is falling revenues. Depending on who you listen to the only 35% to 44% of the companies reporting have beaten the revenue estimates. That means corporations are meeting the earnings estimates by cost savings not new business. Normally 62% of companies beat the revenue estimates. One issue making the earnings outlook even darker is guidance. The number of companies that are lowering guidance versus raising guidance has hit a ratio of 14:1. Normally this ratio is closer to 2:1. Falling revenue and earnings guidance is not a bullish market environment for rising stock prices. 2013 could be more challenging than we previously expected.

Major Indices:

After breaking the rising trend line of higher lows and testing its simple 50-dma the S&P 500 index bounced. It was a pretty good bounce too with the index surging past all of its short-term moving averages and approaching its brand new all-time high set earlier this month. Unfortunately it looks like the rally is losing steam. The closing high on April 11th was 1593. The intraday high on Thursday was essentially 1593.

There is a risk that the S&P 500 reverses from here or it continues to push higher and tags round-number resistance at 1600 and then reverses lower. This would look like a bearish double top pattern. Of course nothing is guaranteed. If the S&P 500 breaks out past 1600 the next level of resistance is probably 1620. On the other hand if the index does reversed we'll probably see it testing support near 1540 pretty quickly. If the 1540 area fails then I would look for a drop toward 1500.

chart of the S&P 500 index:

The NASDAQ was a strong performer last week with a +2.2% gain. The index surged back toward resistance near the 3300 level. The NASDAQ also faces a potential reversal at resistance. A failure here, near 3300, would look like a short-term bearish double top. A breakout could spark some short covering and we could see the NASDAQ racing to 3350 or 3400. On the other hand a reversal would probably see a drop toward the 3100 area or worse.

Daily chart of the NASDAQ Composite index:

The rebound in the small cap Russell 2000 index was impressive with a +2.49% gain. It could have been a combination of dip buyers and short covering from round-number support at the 900 level. Yet so far the rebound has failed to hit new relative highs.

If you're the optimistic type you might be able to interpret the $RUT's action over the past few weeks as part of a bull-flag pattern that's still developing. I suspect that the $RUT will reverse and we'll see it testing the 870-850 area. If the $RUT surprises us with an upside breakout then the next significant resistance area is probably the 1,000 mark.

chart of the Russell 2000 index

Economic Data & Event Calendar

We have a very busy calendar for the coming week. The end of April and the beginning of March brings several key economic reports. We'll hear from both the Federal Reserve, which has a two-day meeting, and the European Central Bank. No one expects any changes from the Fed. Yet there seems to be a growing consensus that the ECB might lower interest rates. After the ECB interest rate decision the ECB President, Mr. Draghi, will hold a press conference.

This week will also bring the next jobs report. The latest initial jobless claims fell to 339,000. That's better than expected and could prove positive for the jobs number. Analysts expect the ADP report on Wednesday to show +170,000 new jobs. While the U.S. government's nonfarm payrolls report is only expected to hit +150,000 but that would be improvement over the prior month's +88,000 reading. Odds are high that March's +88K jobs number will be revised but which direction will it go? Let's not forget that April will be influenced by the sequestration budget cuts. Government jobs should see a significant decline.

Economic and Event Calendar

- Monday, April 29 -
Personal income & spending
Pending Home Sales

- Tuesday, April 30 -
FOMC meeting begins
Case-Shiller 20-city home price index
Chicago PMI for April
Consumer Confidence for April
Eurozone unemployment rate
Chinese manufacturing PMI

- Wednesday, May 01 -
FOMC meeting ends, interest rate decision
ADP Employment Change report
ISM index for April

- Thursday, May 02 -
Weekly Initial Jobless Claims
Auto & Truck Sales
Eurozone manufacturing PMI
ECB interest rate decision
ECB President press conference

- Friday, May 03 -
U.S. nonfarm payrolls (jobs) report
Unemployment rate
ISM services
Eurozone PPI

Additional Events to be aware of:

May 18th - U.S. debt ceiling deadline
May 27th - U.S. market closed for Memorial day

The Week Ahead:

I have been warning readers that the declining economic data is pointing toward a slowdown and should spark a correction in the equity markets. I've been suggesting that we'll see a market top in the mid-April to early May time frame. So far the correction hasn't shown up yet but we still have a couple of weeks to go.

What investors should find concerning is the deteriorating market internals. The U.S. market's major indices are near their recent highs and yet the number of new 52-week highs is falling. At the same time U.S. stock funds are reporting significant outflows. Where is that money going? It could be commodities, which bounced significantly. It could also be into the safety of bonds. The yield on the 10-year U.S. bond has plunged over the last several weeks. Bond yields fall as the bond market rallies. Normally if investors are bullish on stocks they're not buying bonds and yields should be rising. Yet we have the opposite occurring.

chart of the U.S. 10-year bond yield

Another warning signal is the surge in margin debt. Individual investors and hedge funds can use margin to leverage their equity investments. Right now margin levels are soaring and they are close to breaking out past the 2007 highs. Do I need to remind you that the U.S. stock market peaked in 2007? This bubble in margin debt could be a contrarian signal that we're near a top for equities.

Yet another issue facing the stock market is the recent trend for the U.S. economy to stumble in the second quarter. Three years in a row the U.S. economy has surged in the first quarter only to hit the brakes in the second quarter. 2013 marks the fourth year in a row we've seen a rising Q1 economy (+2.5% versus +0.4% Q4 2012). Yet all signs are pointing to a another slowdown ahead.

We also have a number of geopolitical hotspots right now. The situation with North Korea hasn't improved. South and North Korea operate a jointly run factory just across the border in North Korea. It's called the Kaesong industrial complex. The North shut down the factory complex a month ago as part of its saber rattling. Two days ago the South decided to bring home all of its workers. Once this separation is complete it will heighten tensions between the two countries.

There are also new developments in the Syria civil war. The U.S. has tried to stay out of it but warned that if Bashar Al-Assad's regime used chemical weapons on their people we would get involved. Right now there are conflicting reports whether or not Assad used chemical weapons. There are plenty of rumors and conspiracy theories out there over who did what and why. The point here is that if the U.S. military does get involved it's going to escalate the situation since Russia has consistently supported the Assad government.

Let's not forget that we are probably just a few months away from another showdown between Israel and Iran regarding Iran's nuclear weapons program. That could be the military event of the summer.

Overall the slowing economic growth data from China, Europe and the U.S. is the major concern. The large number of corporations that are lowering their earnings guidance merely confirms there is trouble ahead. The market is way overdue for a real correction of -5% to -10%. Remember, corrections are healthy and a normal part of the market cycle. The challenge is trying to identify what might spark the correction. The spark could be the FOMC meeting this week. It could be the ECB President's press conference if Draghi says something unpalatable. It could be the jobs report on Friday. We really will not know until after the fact.

I read an interesting trading maxim this week. "It's okay to be wrong; it is not okay to stay wrong." Essentially the market is always right. If we are wrong with a trade or a market bias, then admit we are wrong, learn from it and move on. If we reach mid-May and the U.S. market hasn't peaked yet I may have to admit that I'm wrong in forecasting a top.



Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

The bulls refuse to give up and stocks have rebounded sharply back toward their 2013 highs. At least the big cap indices have with the S&P 500 and the NASDAQ testing resistance. The small cap Russell 2000 is playing catch up.

The trend of slowing economic data remains a serious threat to further market gains. I would be cautious here. Investors may want to scale back their positions and take some money off the table.

AIG hit our bullish exit target. We closed CL on April 23rd at its closing high for the week (we were fortunate).

I am suggesting we exit our SCHW trade immediately on Monday morning. We also want to exit our WMT 2014 calls on Monday morning.

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

Revving Up

by James Brown

Click here to email James Brown

- New Trades -

Ford Motor Co. - F - close: 13.67

04/27/13: Ford is on the move. Shares appear to be revving up for a bullish breakout higher. We added Ford last week as a watch list candidate. The stock had a good week with a +5% gain and a breakout past resistance near $13.50. Our plan was to wait for shares to close above $13.60 and then buy calls the next day. Ford met that entry requirement on Friday so our trade opens on Monday morning.

Investors will want to take note that the next monthly U.S. auto and truck sales figures will come out in a few days. The results could move this stock. You'll also want to keep in mind that shares of Ford will begin trading ex-dividend on May 1st. The stock is currently yielding 3.1%.

Our long-term target is $16.50. You could certainly aim higher. Currently the Point & Figure chart is forecasting a $24.50 target.

Breakout trigger: Wait for a close above $13.60, buy calls the next day
stop loss @ $12.40

BUY the 2014 Jan $15 call (F1418A15) current ask $0.59

- or -

BUY the 2015 Jan $15 call (F1517A15) current ask $1.26

Chart of F:

Current Target:$ 16.50
Current Stop loss: 12.40
Play Entered on: 04/29/13
Originally listed on the Watch List: 04/20/13

Play Updates

AIG Hits Our Bullish Target

by James Brown

Click here to email James Brown

Editor's Note:

You will notice that both INTC and VOD, our new watch list candidates have graduated to the active play list.

I am suggesting we exit our SCHW trade immediately and exit our 2014 calls on WMT. Please see the play updates below for details.

Closed Plays

AIG hit our bullish exit target.
We closed the CL trade at its highs.

Play Updates

Bank of America - BAC - close: 11.66

04/27/13: BAC was a strong performer last week with a +6.5% gain. The stock is arguably short-term overbought after such a fast rise. Investors may want to note that the financial sector ETF has broken out to a new 52-week high but BAC has not. I remain optimistically bullish here but I am not suggesting new positions.

- Suggested Positions -
MAR 18, 2013 - entry price on BAC @ 12.29, option @ 0.44
symbol: BAC1418a15 2014 JAN $15 call - current bid/ask $0.34/0.35

- or -

MAR 18, 2013 - entry price on BAC @ 12.29, option @ 1.13
symbol: BAC1517a15 2015 JAN $15 call - current bid/ask $1.05/1.07

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: 67.09

04/27/13: News of an analyst lowering their price target on BBBY on Thursday failed to stop the stock's rally. Yet there was no follow through higher on Friday. The $68.00 level remains short-term resistance. Friday's session actually painted a bearish engulfing candlestick reversal pattern. I would not be surprised to see BBBY retreat towards technical support at its rising 20-dma near $65.65 soon. More conservative traders may want to raise their stop loss significantly.

- Suggested Positions -
MAR 21, 2013 - entry price on BBBY @ 63.06, option @ 5.20
symbol: BBBY1418a65 2014 JAN $65 call - current bid/ask $6.90/7.05

04/13/13 new stop loss @ 62.25
03/30/13 Nimble traders could exit now (for a small profit) and re-enter positions on a pullback.
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

Current Target:$ 74.50
Current Stop loss: 62.25
Play Entered on: 03/21/13
Originally listed on the Watch List: 03/16/13

Chevron Corp. - CVX - close: 120.04

04/27/13: A big bounce in stocks and oil helped fuel a four-point rally in CVX. The company reported earnings on Friday morning that beat estimates, which helped fuel Friday's gains. Wall Street was expecting a profit of $3.08 a share. CVX delivered $3.18.

The big rebound in the stock price is encouraging but CVX is currently forming a short-term trend of lower highs. That is temporarily bearish. More conservative investors might want to take profits now.

I am not suggesting new positions at this time.

- Suggested Positions -
JAN 14, 2013 - entry price on CVX @ 111.38, option @ 3.40
symbol: CVX1418a120 2014 JAN $120 call - current bid/ask $ 5.60/5.75

04/27/13 more conservative investors may want to take profits now.
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: 47.95

04/27/13: The three main "dollar" stores, DLTR, DG, and FDO have continued to rally. Yet all three look like they have reached likely resistance. Big picture, given what is likely a slowing U.S. economy, I expect this industry to perform well. Yet short-term they look poised for a pullback. Our stop loss on DLTR is at $44.75. That might actually be too high. More aggressive investors may want to adjust their stop so it's below the top of the gap higher in late February (about $43.50).

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 $ 6.10/6.20

04/13/13 new stop loss @ 44.75
03/30/13 new stop loss @ 43.45
More conservative investors might want to take profits as DLTR moves into the $49-50 zone.
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: 44.75
Play Entered on: 02/28/13
Originally listed on the Watch List: 02/23/13

Intel Corp. - INTC - close: 23.40

04/27/13: The semiconductor sector was an overachiever last week. Chip giant Intel did not disappoint with a bullish breakout to new relative highs. Our plan was to wait for shares to close above $23.10 and then buy calls the next day. INTC met our entry point on April 23rd with a close at $23.38. Our trade opened the next day.

Shares have since run into potential resistance at $24.00 and its simple 300-dma. We can use any pullback from here as a new entry point and I would not be surprised to see a dip back toward the simple 10-dma.

Earlier Comments:
Our long-term target is $26.50 but we may have to exit our 2014 calls before then.

- Suggested Positions -
APR 24, 2013 - entry price on INTC @ 23.28, option @ 0.89
symbol:INTC1418a25 2014 JAN $25 call - current bid/ask $ 0.88/0.91

- or -

APR 24, 2013 - entry price on INTC @ 23.28, option @ 1.74
symbol:INTC1517a25 2015 JAN $25 call - current bid/ask $ 1.74/1.80

Chart of INTC:

Current Target: $26.50
Current Stop loss: 21.40
Play Entered on: 04/24/13
Originally listed on the Watch List: 04/20/13

The Coca-Cola Company - KO - close: 42.10

04/27/13: With the market in rally mode some of the defensive, safe-haven names like KO were forgotten. Shares slowly drifted lower from their recent highs. We should not be surprised if KO retreats toward the $41-40 zone again.

Earlier Comments:
KO's all-time high is $44.47 from July 1998. We are leaving the long-term exit target at $44.00 but readers may want to seriously consider taking profits early.

- Suggested Positions -
(closed 2014 calls on April 1st, 2013 at the open)
FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.01
symbol: KO1418a40 2014 JAN $40 call - exit $1.97 (+95.0%)

- or -

FEB 12, 2013 - entry price on KO @ 38.05, option @ 1.75
symbol: KO1517a40 2015 JAN $40 call - current bid/ask $4.25/4.40

04/20/13 new stop loss @ 39.65, readers may want to take profits now.
04/01/13 exited 2014 calls at the open. Option @ $1.97 (+95.0%)
03/30/13 prepare to exit our 2014 Jan $40 calls on Monday, April 1st, 2013 at the opening bell to lock in gains. Current bid is $2.09.
03/30/13 new stop loss @ 38.25
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: 39.65
Play Entered on: 02/12/13
Originally listed on the Watch List: 02/09/13

Macy's Inc. - M - close: 44.63

04/27/13: Friday's pullback snapped a five-day rally in the retail sector. Shares of Macy's were not quite so bullish but the trend was up. The stock is nearing its 2013 highs set two weeks ago. A failure here might be seen as a short-term bearish double top pattern.

Right now our stop is at $39.25. More conservative investors may want to raise their stops toward the $41.50 area since broken resistance near $42.00 should offer some support. I am not suggesting new positions at this time.

Earlier Comments:
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 $3.50/3.60

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: 47.87

04/27/13: The rally in MRK broke out past resistance near $48.00 and hit new five-year highs before reversing on Wednesday. The stock has seen a significant rally from its February lows. I suspect that MRK will see some profit taking following its earnings report on May 1st. The company reports before the opening bell. Wall Street expects a profit of 78 cents a share. I am not suggesting new positions at this time. More conservative investors may want to raise their stops or take profits early right now.

- Suggested Positions -
(closed 2014 call position on April 15, 2013)
MAR 13, 2013 - entry price on MRK @ 44.54, option @ 2.06
symbol: MRK1418a45 2014 JAN $45 call - exit $3.60 (+74.7%)

- or -

MAR 13, 2013 - entry price on MRK @ 44.54, option @ 3.60
symbol: MRK1517a45 2015 JAN $45 call - current bid/ask $5.50/5.65

04/15/13 closed 2014 calls
04/13/13 prepare to exit 2014 calls on Monday, April 15th at the opening bell.
new stop loss @ 43.40 and new target of $53.50 for 2015 calls.
03/30/13 MRK is not participating in the market's rally or drug sector rally. Investors will want to turn more defensive here.
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: $53.50
Current Stop loss: 43.40
Play Entered on: 03/13/13
Originally listed on the Watch List: 02/23/13

Starbucks Corp. - SBUX - close: 60.00

04/27/13: Coffee giant SBUX kept the rally alive with a bullish breakout past round-number resistance at $60.00. Reaction to earnings sparked some profit taking on Friday but SBUX managed to bounce back to the $60.00 mark.

SBUX reported earnings on Thursday and only met analyst expectations with a profit of 48 cents a share. Revenues were up +11.3% to $3.56 billion, which was just below estimates. Unfortunately management lowered their earnings guidance. The fact that shares did not see a sharp sell-off on its earnings warning is somewhat bullish. Traders were prepare to buy the dip and they did. However, I would still expect a pullback in SBUX. Look for a correction toward the $57-56 area. More conservative investors may want to just take profits now and exit early. A slowing U.S. economy could prove to be tough for SBUX consumers.

- Suggested Positions -
DEC 07, 2012 - entry price on SBUX @ 53.43, option @ 3.80
symbol:SBUX1418a60 2014 JAN $60 call - current bid/ask $ 4.60/ 4.65

04/27/13 the earnings news is out. investors may want to exit early now
04/13/13 new stop loss @ 54.75, adjust target to $61.50
03/09/13 new stop loss @ 52.75
01/05/13 new stop loss @ 49.85

Current Target:$ 61.50
Current Stop loss: 54.75
Play Entered on: 12/07/12
Originally listed on the Watch List: 12/02/12

The Charles Schwab Corp. - SCHW - close: 16.73

04/27/13: I am concerned about our SCHW trade. The stock's bounce failed near resistance at its 50-dma on Thursday. SCHW looks poised to drop toward support near $16.00 and likely breakdown. The S&P 500 and the financial sector ETF are trading at or near their recent highs. SCHW is not.

I am suggesting we exit immediately on Monday morning, April 29th!

- Suggested *SMALL* Positions -
JAN 23, 2013 - entry price on SCHW @ 15.74, option @ 0.80
symbol:SCHW1418a17 2014 JAN $17 call - current bid/ask $ 1.10/ 1.25

04/27/13 prepare to exit immediately on Monday morning (04/29/13)
04/20/13 SCHW looks vulnerable following its earnings report and investors may want to exit early.
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

U.S. Oil (ETF) - USO - close: 33.12

04/27/13: Ouch! I cautioned readers to expect a bounce but I was surprised by the strength of the rebound. The USO gained +5.5% for the week. Overall commodities in general had a good week. Actually stocks, commodities and bonds all rallied so it could be a case of a rising tide lifting all boats. Technical traders will note that the rebound stalled near technical resistance at its 50 and 100-dma. Plus, the bounce stalled near the 61.8% Fibonacci retracement of its April sell-off.

When you take into account that oil production is rising and that U.S. inventories are at 22-year highs I do not expect the rebound in oil to last. Investors could actually use this bounce as a new entry point for bearish positions although more conservative traders may want to lower their stop loss.

NOTE: Right now this is a put play with 2013 September puts. I am having second thoughts about the USO as viable long-term bullish trading vehicle. The USO should still work as a short-term or intermediate trade but longer-term we may need to find another way to play oil.

Earlier Comments:
There is still a significant risk that Israel and Iran eventually start shooting at each other as Israel tries to stop Iran's nuclear weapons program. If that happens oil will definitely skyrocket higher. However, no one expects any Israel/Iran conflict until late summer. Oil could plunge to new relative lows before that happens.

Here's the plan. We can aim for a drop into the $30-29 zone (target 29.50). The USO has what appears to be significant support near $29.00. If and when the USO nears this support level we can exit our USO puts for a potential profit and switch to buying calls in anticipation of any rising geopolitical risk in the Mideast.

This is a PUT play

- Suggested Positions -
APR 15, 2013 - entry price on USO @ 31.94, option @ 1.39
symbol: USO1321u30 2013 SEP $30 PUT - current bid/ask $ 0.75/ 0.77

Current Target:$ 29.50
Current Stop loss: 35.05
Play Entered on: 04/15/13
Originally listed on the Watch List: 04/06/13

Vodafone Group - VOD - close: 30.63

04/27/13: Both INTC and VOD were new watch list candidates and both of them were triggered this past week. Our plan was to wait for VOD to breakout past resistance near $30.00 and close above $30.25. Shares of VOD met that entry requirement on Thursday with a gap open higher at $30.37 and a close at $30.43. The rally was fueled by news that Verizon was considering a $100 billion deal to buy VOD's stake in Verizon Wireless.

On Thursday Reuters published an article suggesting that VZ was hiring advisers on a potential $100 billion bid to buy VOD's stake in their joint venture: Verizon Wireless. The initial plan was a 50:50 cash and stock deal. The next day in a British news outlet, the Guardian, it was said that VOD had rejected VZ's $100 billion bid as no where close to being considered. There is speculation that $100 billion was merely the "opening bid" and VZ may make a higher offer. If so, that works well for us. Shares of VOD are surging on this news.

Our trade opened on Friday morning at $30.63. Nimble investors could look for a dip back toward $30.00 as an alternative entry point but I would consider new positions now.

- Suggested Positions -
APR 26, 2013 - entry price on VOD @ 30.63, option @ 2.07
symbol: VOD1418a30 2014 JAN $30 PUT - current bid/ask $ 2.00/ 2.10

- or -

APR 26, 2013 - entry price on VOD @ 30.63, option @ 1.00
symbol: VOD1517a35 2015 JAN $35 PUT - current bid/ask $ 0.85/ 1.20

Chart of VOD:

Current Target:$36.00
Current Stop loss: 28.45
Play Entered on: 04/26/13
Originally listed on the Watch List: 04/20/13

Wal-Mart Stores - WMT - close: 79.04

04/27/13: It was a relatively quiet week for WMT. The stock has been churning sideways at new all-time highs. Wednesday's session was troubling with a bearish engulfing candlestick reversal pattern but there was no follow through lower.

Please note that I am suggesting we exit our 2014 Jan. $75 calls immediately. The option currently has a bid/ask spread of $6.10/6.20. I am suggesting we exit these on Monday morning, April 29th.

We've got about two weeks before WMT reports earnings on May 16th.

- Suggested Positions -
MAR 05, 2013 - entry price on WMT @ 73.47, option @ 3.10
symbol: WMT1418a75 2014 JAN $75 call - current bid/ask $ 6.10/6.20

- or -

MAR 05, 2013 - entry price on WMT @ 73.47, option @ 2.97
symbol: WMT1517a80 2015 JAN $80 call - current bid/ask $ 5.50/5.70

04/27/13 prepare to exit our 2014 calls immediately on Monday morning (04/29/13)
04/13/13 new stop loss @ 73.45
04/06/13 new stop loss @ 71.40
03/30/13 new stop loss @ 69.45

Current Target: $85.00-90.00 range
Current Stop loss: 73.45
Play Entered on: 03/05/13
Originally listed on the Watch List: 02/02/13


American Intl. Group - AIG - close: 40.87

04/27/13: AIG rallied to new 52-week highs and hit our exit target at $42.50 on Thursday.

- 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 - exit $8.45 (+101.1%)

04/25/13 target hit
04/13/13 new stop loss @ 35.75
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

Chart of AIG:

Current Target:$ 2013 call: $37.00, 2014 calls: $42.50
Current Stop loss: 35.75
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12

Colgate-Palmolive - CL - close: 118.99

04/27/13: Our plan was to exit our CL positions on Tuesday, April 23rd, at the closing bell. We were lucky in that proved to be an excellent exit. CL rallied right up to Tuesday's close and then promptly reversed on Wednesday morning. We were fortunate to exit at CL's closing high.

- Suggested Positions - (small positions)
FEB 20, 2013 - entry price on CL @ 112.00, option @ 4.20
symbol: CL1418a115 2014 JAN $115 call - exit $10.00 (+138.0%)

04/23/13 planned exit at the close
04/20/13 new stop loss @ 115.90, readers may want to exit immediately!
Plan on exiting positions April 23rd at the closing bell
04/13/13 new stop loss @ 114.35
Investors may want to just take profits now with the bid on our call at $7.15.
03/30/13 new stop loss @ 109.90
03/16/13 new stop loss @ 108.40

Chart of CL:

Current Target:$ 124.50
Current Stop loss: 115.90
Play Entered on: 02/20/13
Originally listed on the Watch List: 02/16/13



by James Brown

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New Watch List Entries

None, no new watch list candidates

Active Watch List Candidates

Success! They've all graduated.

Dropped Watch List Entries

INTC and VOD have graduated to the play list.
Ford met our entry point on Friday and I've moved it to the new plays section.

New Watch List Candidates:

Hopefully you read tonight's LEAPStrader market commentary. If so then you know I am very cautious on the market right now. Yes, the trend is up. Yet the S&P 500 and the NASDAQ are sitting right at or just below resistance. There are a number of factors all pointing to an economic slowdown. Add to that the disappointing results from earnings season and the rising amount of lowered guidance and it could be a tough 2013 for stocks.

I am still concerned that the market could reverse in the next two or three weeks. Thus I would much rather wait for the market to pull back than launch new bullish candidates now at the market's highs.

We are not adding any new watch list candidates tonight. Many of the stocks on my radar screen below could be LEAPS candidate if they see a correction or breakout past resistance.

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:


Active Watch List Candidates:

None: Currently we do not have any active watch list candidates.

Our watch list has been very successful adding new plays to the LEAPStrader newsletter. This past week saw all three new candidates hit our entry point.