Option Investor
Newsletter

Daily Newsletter, Tuesday, 6/11/2013

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

BOJ Spooks Markets Snaps Streak

by Thomas Hughes

Click here to email Thomas Hughes
Introduction

The BOJ held its policy steady last night and met analyst expectations. What they did not do was indicate any need increase policy or make a move to help reduce market volatility. It was the lack of effort to reduce volatility that caused all the volatility. . . which is funny because I think if the BOJ had made an additional move that would have caused some volatility. The Nikkei ended the day down more than 1% but the move is really miniscule when compared to the massive 3, 5 and 7% drops the index has seen over the last month or so. At this time the Nikkei index is still above support at 13,000.

Needless to say the yen reacted strongly to the news as well, climbing sharply versus the dollar. The USD/JPY fell by more than 2 handles to near the two month low. The volatility is of concern for short term traders but the indicators may be pointing to a longer term buy for this pair. European shares followed in the footsteps of their Asian counterparts, shedding roughly 1.5% across the board. European markets found some support after our markets opened but did not recover the days losses. The euro tried to gain against the dollar but fell back from long term resistance.

At first it seemed like the S&P, Dow and NASDAQ were going to trade down for the day. The S&P futures were indicating an opening about 14 points lower than yesterday's close. This put the index opening just above the 30 day moving average and an important near and long term level of support. Early trading carried the index below this level, briefly, where some buying kicked in sending the index back above. The indexes climbed to touch the break even mark before moving back down to the day's low. Violence in Turkey was part of today's problem and bears some of the blame for the late day sell off.

SPX daily

The Indexes

There are many signs of possible continuation in the market today. The S&P 500 is showing signs of a long term bounce and so is the DOW and the NASDAQ. There is also the possibility that prices will just keep falling too. Looking at the charts of the DOW we can see the same test of support and bounce after the NFP as on the SPX. Bearish momentum is subsiding in the near term and stochastic is showing an early buy signal. Of course you have to believe in the long term trend for that signal to really count. Near term resistance, which may prove to be long term resistance, exists around the recent highs near 15,500. Keep a close eye on the 30 day ema and support at 15,000.

Dow Daily

The NASDAQ is in the exact same position as the blue chips and broad market. The index is retesting the support bounce seen last Friday with the NFP release. Be on the look out for a bounce or a break from the current level. If the techs can break above their near term resistance at 3,500 then this index could run up another 300 points. If not then the downside targets exist There is a lot of fear in the market concerning Fed policy, the state of the economy and now the BOJ. The fears of tapering are slowly diminishing, we'll have to wait and see if the index and indexes can break above their respective resistances. Economic data that could impact market direction include the mortgage index tomorrow and jobless claims/retail sales on Thursday.

NASDAQ Daily

Today's Data

Today's economic data was light but positive. Wholesale inventories rose by an as expected 0.2% while sales of wholesale inventories rose by a much greater than expected 0.5%. The previous months sales data was also revised up. This could be another good sign for the economy and the market. If inventories are rising while sales are on the increase then manufacturing must be on the rise as well. This may not result in new jobs but it should result in at least less lay-off's. Market breadth at the open was largely negative, nearly 100% down in the first 10 minutes. The tide change at 10AM when wholesale inventories was released.

The BOJ Moves As Expected

The BOJ wasn't expected to make a change and they didn't. And the Japanese market did not like it. Sometimes tough love hurts. From what I have read the market was disappointed because the BOJ did not address market volatility. This seems like a move driven on expectations and emotions rather than fundamentals or trend. The yen's reaction was to strengthen versus the dollar but a look at the charts does not support this move. The USD/JPY is trading below the 30 day moving average and the 100 support level which will provide upside resistance. However, the pair is also bouncing from a long term support around the 95 level with an early stochastic buy signal like the ones on the index charts above. Applying a Fibonacci Retracement to the chart reveals some interesting price action at the 23.6% level. There may be some more volatility in this pair near term but longer term it looks like a retest of the 100 level is likely and the 103.75 level is possible. Support at this time is 95.

USD/JPY

Gold Moving Lower

Gold broke down below the $1390 and $1380 levels, trading as much as $21 in today's session. I have been waiting for a retest of the lows around $1326 and this could be it. The spot price is not too far away, just $40-$50. One or two down days could bring gold to that level. The Gold Index has been tracking the price of the base metal may be about to test long term support. The index MACD is close to neutral in the long term but the peak progression analysis points to lower prices at this time. In the short term bullish momentum is about to turn bearish as the index approaches support while at the same time stochastic has plenty of room to move down. The $110-$111 level will be important to watch, a break below here will likely result in a 100% retracement of the 2009-2012 bull market.

Gold Index

Story Stocks

Lululemon, the yoga apparel giant with the see through pants problem, reported earnings Monday night. The company made a huge miss, blamed on the pants fiasco, and reported $0.32 eps versus $0.72 in the previous quarter. Shares took a big hit in after hours trading and then another this morning when the company announced that the CEO was leaving. The stock fell more than 16% in total with a huge spike in volume, more than 15% of shares outstanding.

Lululemon

If we think of Lululemon as the end of the earnings rotation then we can also think of Oracle as the beginning. The software and network giant reports earnings next Thursday and is preceded by Redhat on Wednesday and Adobe on Monday. These companies all reported better than expected last quarter with semi-positive outlooks for this quarter. Oracle is the only one with an earnings estimate consensus greater than last quarter but none are expected to earn less. Oracle gapped down with last quarters earnings release and has since recovered the loss and closed the window. The stock is now trading above a long term support and the short term moving average. The last few days has seen the stock test that support and bounce higher. Indicators are neutral and suggest range trading with an upward bias at this time. There was a lot of options volume at the $34 strike for this months expiration (next week) and next month.

Oracle

Competitor Redhat has not been faring as well. The stock had been up toward the top of the longer term trading range a month or so ago but has since fallen to below short term support. I scanned back through the headlines and could not account for the decline. Redhat is expected to earn around $0.22 per share versus the previous quarters $0.25.

Redhat

The VIX

Since reaching the top of its range relative to the current rally the VIX has fallen. Friday morning the index gapped lower, today's S&P gap lower resulted in an opposite gap higher for the VIX which closes Friday's window. Tapering fear brought volatility to a near boil but now that those fears seem to be subsiding, if slowly, the VIX appears to be settling down as well. Look to the 15 level as support for the VIX. A break below would be bullish while a bounce could result in further downside for the general markets.

The VIX

Financials Topping Out?

The banking index may be topping out. It has made a series of three tops that could easily become a head&shoulders. The $60 level would be the neckline and is the line to watch. The long term trend is still up and the indicators are bullish, however, in the short term indications are weak and without true direction. With Oracle releasing earnings next week we can expect to hear from the big banks a few weeks later. Fear, speculation and economic data will weigh on the sector until then. The short term stochastic is forming an early buy signal like the broader market but with the potential top in place I am much more cautious with this sector. A break above $62.50 would be bullish for this index while a drop below $60 bearish.

The Banking Index

The S&P closed the day in the negative but off of the day's low. It seems as though there are buyers along the long term trendline and maybe even short term traders along the 30 day EMA. The news from Turkey did a lot to depress today's trading. Hopefully it will end soon for the poor souls affected. I am looking for data to help drive direction, Thursday's unemployment release could help confirm direction.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Grocery Stores

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

(bullish ideas) ACT, BWLD, UHS, BA,

(bearish ideas) DE, BRCM, ULTA, FFIV, ROSE, EXPE, SBAC,



NEW DIRECTIONAL CALL PLAYS

The Fresh Market, Inc. - TFM - close: 51.87 change: -0.21

Stop Loss: 49.75
Target(s): 54.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
TFM is a specialty grocery store. Many compare them to Whole Foods (WFM) since both tend to sell high-end, more expensive products. Shares of TFM have seen some volatility in recent weeks. The big spike higher in late May was a reaction to the company's earnings report. Chart readers will notice that traders have been buying the dips in TFM near its rising 10-dma. Technically the recent breakout past $50 and its 200-dma is also bullish. If this trend continues TFM could see more short covering. The most recent data listed short interest at 13.9% of the small 40 million share float.

The simple 10-dma is currently at $50.60. I suspect we're going to see TFM retesting this moving average soon. Tonight I am suggesting a buy-the-dip trigger to buy calls when TFM hits $50.75. If triggered we will try and limit our risk with a stop loss at $49.75. Our upside target is $54.75. FYI: The Point & Figure chart for TFM is bullish with a long-term $85 target.

Trigger @ 50.75

- Suggested Positions -

Buy the Jul $50 call (TFM1320G50) current ask $3.30

Annotated Chart:

Entry on June -- at $---.--
Average Daily Volume = 741 thousand
Listed on June 11, 2013



In Play Updates and Reviews

The Bounce Is Failing

by James Brown

Click here to email James Brown

Editor's Note:

Uh-oh! It looks like the S&P 500's bounce from the 1600 level is already starting to fail. We could see the index testing 1600 again soon.

Today saw three of our trades hit entry triggers. They are: DVA, DISCA, and the IWM.


Current Portfolio:


CALL Play Updates

Aegerion Pharma. - AEGR - close: 74.01 change: -0.94

Stop Loss: 71.90
Target(s): 84.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
06/11/13: AEGR's attempt to rally failed by lunchtime. Shares erased yesterday's gains. Yet AEGR still has a trend of higher lows, at least for now. The high today was $75.58. I do not see any changes from my prior comments.

This is an aggressive, higher-risk trade. Shares of AEGR have been volatile over the last few weeks. I am suggesting small bullish positions if AEGR can hit a new high. This past week saw two intraday spikes to $75.70. We are suggesting a trigger to buy calls at $75.75. If triggered our target is $84.00. More aggressive traders may want to aim higher. New highs could spark another short squeeze. The most recent data listed short interest at 15% of the small 24.3 million share float. FYI: The Point & Figure chart for AEGR is bullish with a $102 target.

Trigger @ 75.75 *Small Positions*

- Suggested Positions -

Buy the Jul $80 call (AEGR1320G80)

Entry on June -- at $---.--
Average Daily Volume = 980 thousand
Listed on June 08, 2013


Colfax Corp. - CFX - close: 51.01 change: -0.55

Stop Loss: 49.45
Target(s): 55.00
Current Option Gain/Loss: -16.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/11/13: CFX gapped down this morning but managed to pare its losses to -1.0%. Shares should find short-term support near $50.00 or at its rising 10-dma ad 20-dma.

- Suggested Positions -

long SEP $55 call (CFX1321i55) entry $1.55

Entry on June 10 at $51.05
Average Daily Volume = 1.29 million
Listed on June 04, 2013


Costco Wholesale - COST - close: 110.02 change: -0.29

Stop Loss: 108.80
Target(s): 118.50
Current Option Gain/Loss: - 40.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/11/13: It is interesting to note that on a down day for the market (S&P 500 -1.0%) that COST only lost -0.26%. I remain concerned with the stock's current sideways consolidation in the $108-112 zone. The 50-dma should offer some short-term support near $109.00. If this moving average fails then we'll see COST hit our stop loss at $108.80. Investors may want to wait for a breakout past $112.00 before initiating new positions. FYI: The Point & Figure chart for COST is bullish with a $124 target.

*Small Positions* - Suggested Positions -

Long Jul $115 call (COST1320G115) entry $1.20

06/07/13 triggered

Entry on June 07 at $111.50
Average Daily Volume = 2.0 million
Listed on June 06, 2013


Domino's Pizza - DPZ - close: 59.80 change: -0.92

Stop Loss: 57.75
Target(s): 64.75
Current Option Gain/Loss: -18.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/11/13: DPZ gapped down this morning but shares managed to settle on its rising 10-dma. I am not suggesting new positions at this time. More conservative traders might want to consider raising their stop closer to the 20-dma (currently 58.80).

Earlier Comments:
I am suggesting that investors keep their position size small.
FYI: DPZ will begin trading ex-dividend on June 12th. The cash dividend should be about 20 cents.

*Small Positions* - Suggested Positions -

Long Jul $60 call (DPZ1320G60) entry $2.15

Entry on June 04 at $60.30
Average Daily Volume = 733 thousand
Listed on May 30, 2013


DaVita Healthcare - DVA - close: 129.41 change: +1.81

Stop Loss: 124.75
Target(s): 134.00
Current Option Gain/Loss: +10.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/11/13: DVA continues to show relative strength. The stock gapped open lower like so many stocks did this morning. Yet traders quickly bought the dip and DVA surged to a +1.4% gain. Our trigger to buy calls was hit at $128.05.

It is possible that the May highs near $131.25 could be overhead resistance but we're targeting a move to $134.00. FYI: The Point & Figure chart for DVA is bullish with a $141 target.

*small positions* - Suggested Positions -

Long Jul $135 call (DVA1320G135) entry $1.85

Entry on June 11 at $128.05
Average Daily Volume = 573 thousand
Listed on June 10, 2013


Western Digital - WDC - close: 64.54 change: -0.07

Stop Loss: 62.95
Target(s): 66.00
Current Option Gain/Loss: +84.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/11/13: WDC managed to hit a new all-time high before some afternoon profit taking. The stock stalled at round-number resistance near the $65.00 mark. Our previous exit target was hit at $64.75. However, we are currently aiming for $66.00. More aggressive traders may want to aim higher (potentially the 67-68 area). While more conservative traders will want to seriously consider taking profits right now.

Please note that I am raising our stop loss to $62.95.

*small positions* - Suggested Positions -

Long Jun $60 call (WDC1322F60) entry $2.55

06/11/13 new stop loss @ 62.95
06/08/13 new stop loss @ 62.40, adjust target to $66.00
06/04/13 new stop loss @ 61.75
06/01/13 new stop loss @ 61.45, readers may want to exit now
05/29/13 more conservative traders may want to lock in gains now.
05/28/13 new stop loss @ 59.65

Entry on May 21 at $60.65
Average Daily Volume = 3.3 million
Listed on May 18 2013


Whirlpool Corp. - WHR - close: 124.10 change: -2.18

Stop Loss: 118.65
Target(s): 132.00
Current Option Gain/Loss: - 1.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/11/13: WHR erased yesterday's gains and more with a -1.7% pullback today. If the market continues lower tomorrow we could see WHR retesting the $122-120.00 zone. I am not suggesting new positions at this time.

- Suggested Positions -

Long Jul $125 call (WHR1320G125) entry $4.70

06/07/13 trade opened on gap higher at $123.49, trigger was 123.35

Entry on June 07 at $123.49
Average Daily Volume = 826 thousand
Listed on June 06, 2013


PUT Play Updates

CARBO Ceramics - CRR - close: 66.75 change: -0.56

Stop Loss: 70.05
Target(s): 62.00
Current Option Gain/Loss: -36.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/11/13: CRR gapped lower this morning. Shares managed a bounce but after filling the gap, shares rolled over into a -0.8% decline. The stock is nearing prior support near $65.00. Keep in mind that June options expire in less than two weeks.

Earlier Comments:
If triggered we do want to keep our position size small. The most recent data listed short interest at 33% of the very small 19.8 million share float. That does raise the risk of a short squeeze but the last squeeze attempt (May 20th) didn't last very long.

*small positions* - Suggested Positions -

Long Jun $65 PUT (CRR1322R65) entry $1.25

Entry on May 31 at $67.65-
Average Daily Volume = 266 thousand
Listed on May 30, 2013


Discovery Communications - DISCA - close: 73.87 change: -0.48

Stop Loss: 76.55
Target(s): 68.50
Current Option Gain/Loss: -20.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/11/13: Our new trade on DISCA is open. We wanted to buy puts at $73.95 but shares gapped down at $73.30 immediately triggering our play. DISCA bounced off its morning lows but once it filled the gap the rally stalled. I would still consider new positions at current levels.

Our target is $68.50 but I will warn you that the $70.00 level could be round-number support and DISCA might bounce at $70.00. More conservative traders may want to exit near $70.00 instead.

- Suggested Positions -

Long Jul $70 PUT (DISCA1320S70) entry $1.20

06/11/13 triggered on gap down at $73.30. Trigger was $73.95

Entry on June 11 at $73.95
Average Daily Volume = 1.4 million
Listed on June 10, 2013


iShares Russell 2000 - IWM - close: 97.73 change: -1.07

Stop Loss: 100.65
Target(s): 93.50
Current Option Gain/Loss: - 5.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/11/13: Our IWM trade has been opened. The small cap ETF gapped lower at $97.68 and quickly hit our trigger at $97.45. The IWM did manage to pare its losses but I would still consider new positions now at current levels.

We have a stop loss at $100.65 but more conservative traders may want to tighten their stops closer to yesterday's high (98.80) instead.

Our target is the rising 100-dma. Currently the 100-dma is at $93.36. We will temporarily set our exit target at $93.50.

*Small Positions* - Suggested Positions -

Long Jul $95 PUT (IWM1320S95) entry $1.80

Entry on June 11 at $97.45
Average Daily Volume = 43 million
Listed on June 08, 2013


Susser Holdings - SUSS - close: 48.43 change: -0.45

Stop Loss: 49.25
Target(s): 45.25
Current Option Gain/Loss: -26.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/11/13: SUSS slipped -0.9% today. I remain cautious on this trade. Shares merely dipped to their simple 10-dma. I am not suggesting new positions.

- Suggested Positions -

Long Jun $50 PUT (SUSS1322R50) entry $2.60

06/10/13 readers may want to exit early now
06/06/13 new stop loss @ 49.25
06/01/13 new stop loss @ 50.25

Entry on May 30 at $48.75
Average Daily Volume = 369 thousand
Listed on May 29 2013



Longer-Term Play Updates



Chicago Bridge & Iron - CBI - close: 58.78 change: -1.96

Stop Loss: 61.45
Target(s): 74.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 months
New Positions: Yes, see below

Comments:
06/11/13: Ouch! It looks like shares of CBI have caught a cold. The stock underperformed the broader market with a -3.2% decline. We may need to reconsider our entry point strategy. One alternative might be buying calls on a dip near $55.00 or its rising 100-dma. However, for the moment we are still on the sidelines and we will stick to the $65.25 entry trigger.

Earlier Comments:
Last time we added CBI we successfully caught the bounce from mid April back toward its March highs. You can read the background details and bullish fundamentals for CBI in our original play description
here, since it still applies. Just scroll down to the "longer-term trades" section of the page.

I am suggesting a trigger to buy calls at $65.25. If triggered our long-term target is $74.50. NOTE: the broader market does look vulnerable to more selling. Thus traders may want to start this trade with small positions to limit risk. Even though CBI looks strong it is up six weeks in a row and could succumb to profit taking. More conservative traders may want to wait for shares of CBI to close above $65.25 and then launch bullish positions the next morning as an alternative entry point strategy.

Trigger @ 65.25 *Small Positions*

- Suggested Positions -

Buy the 2014 Jan $70 call (CBI1418A70)

Entry on June -- at $---.--
Average Daily Volume = 1.8 million
Listed on June 01, 2013