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Newsletter

Daily Newsletter, Saturday, 9/7/2013

Table of Contents

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

Market Wrap

Headline Overload Ahead

by Jim Brown

Click here to email Jim Brown

Headlines will drive the market next week and the direction may be down.

Market Statistics

The market is going to suffer from headline overload over the next two weeks and if Friday is any indication we could be looking at another week of losses.

The Dow rallied +52 points on Friday morning and was doing ok considering the weak Nonfarm Payroll report until President Putin said Russia would provide Syria with a missile shield to protect against "external" attacks. The comments immediately crashed the market on worries Russia would enter the fighting using the growing number of Russian ships in the Mediterranean.

The market choked on the comments. The Dow plunged from +52 to -148 in a matter of minutes. Buyers immediately stepped into the gap as the comments were clarified and the market recovered over the next couple hours but the Dow could not hold the gains.


The president is going to have a tough time selling his Syrian attack plans. Currently, of those lawmakers expressing opinions, there are not enough votes to pass the resolution on the use of force in either the Senate or the House. Even some high ranking democrats are against it. The president will speak to the nation on Tuesday night in an attempt to drum up support. Several lawmakers have said the phone traffic at their offices in Washington is 65% to 95% against the attack depending on which lawmaker is reporting the numbers.

The biggest fear is that the president will go ahead with the attack even if Congress does not approve the resolution. The president has said repeatedly he does not need congressional approval to launch the attack. If he fails to get approval and presses the attack to save face over his red line comments in August 2012 the world will condemn the attack. If he has congressional approval the rest of the world will not like it but they are likely to be less irritated because a majority of 535 lawmakers supported it.

The only good thing about Syria being the primary focus in Washington next week is that the various budget committees will have another week to try and work out a compromise before the debt ceiling and budget battles begin flooding the airwaves with ugly headlines.

The ugly headline from Friday was the Nonfarm Payroll numbers. The headline number showed a gain of +169,000 jobs and slightly better than the +162,000 jobs initially reported for July. However, the July number was revised down to a gain of only +104,000, a loss of -58,000 from the prior report. The June number was revised down again to +172,000 from the initially reported +195,000.

That means the three-month average fell to only +148,000 and well below what the Fed said they needed to halt QE. Fed presidents have repeatedly said they wanted to see "sustained" job growth in the 200,000 range before cutting QE purchases. Given the sharp decline in July they will need some very robust numbers for the rest of the year in order to reach that "sustained 200,000" level.

To further cloud the issue the unemployment rate declined again to -7.3%, down from 7.4 in July and 7.6 in June. Obviously it was not due to a surge in new jobs. A whopping 312,000 people dropped out of the labor force in August to bring the labor force participation rate down to 63.2% and the lowest level since 1978. The total number of people not in the labor force rose by +516,000 in August to 90.473 million. The total number of people considered unemployed and willing to work (U6) is 13.7 million.

Some commentators have blamed this decline on the growing number of baby boomers leaving the workforce for retirement. This is NOT true because the fastest growing segment in the workforce is the over 55 segment. Older people are being forced back into the workforce at a rate faster than the baby boomer retirement rate.

St Louis Fed Chart - Labor Force Participation Rate

Not only did the separate Household Survey show the drop in the labor force it also showed a loss of -115,000 jobs in August after a loss of -37,000 in July. This is a different survey from the establishment survey that produces the Nonfarm numbers.

Auto manufacturing added +19,000 jobs in August after a -10,000 jobs drop in July. These numbers are skewed by layoffs to change over plants to the new models. If you remove those numbers from the headline since they are an annual event the headline number would have been a gain of only +150,000 jobs. I contend that laying someone off in June-July for several weeks because the plant is shutdown and then putting them back to work when the plant reopens is not really a new job. However, both Ford and GM have said they were adding workers in Q3/Q4 to keep up with higher demand. I believe the total new hires for GM/Ford for the rest of 2013 is around +7,000 workers.

The recent trend has been for downward revisions so it would be reasonable to assume the +169,000 headline number for August will be revised lower next month.


The market saw the bad payroll number as good news that would either delay QE tapering or reduce its impact. In a survey taken after the payroll release 62% of economists felt it was less likely the Fed would taper in September. The consensus month for tapering to begin was November. If tapering did commence after the September FOMC meeting the consensus for cuts was about $10 billion in the first cut. The economists felt August 2014 would be the end of QE.

Late Friday Esther George, a Fed hawk, called for a -$15 billion QE cut to $70 billion at next week's meeting. At the same time Chicago Fed president Charles Evans said the Fed should not make any changes in September and wait until the economic data improves. The economic outlook will still allow the Fed to taper "later this year" if it continues to improve.

I have said for several months I did not believe the Fed would announce a taper in September because the economy was too weak. We are scraping along the bottom with only the slimmest amount of growth. However, several recent reports have improved and there are signs of improvement in Europe and Asia.

Because of all the Fedspeak over the last six-months the market has already factored in about 80% of the impact of a tapering program according to the analysts surveyed. The ten-year yield is already threatening to break above 3% and has nearly doubled over the last four months as a result of QE tapering expectations. The Fed would be crazy not to take advantage of this situation to announce a minimal tapering and then forcefully claim that future QE cuts would be data dependent and not likely until 2014. This would force rates lower since the topic would be off the table for a couple months.

They need to take advantage of this spike in yields and easing of the bond bubble BUT they also need to force the 30-year rates lower to take pressure off the housing market. This will require a delicate balancing act and a particularly blunt session by Bernanke in the post meeting press conference.

Pimco's Bill Gross said the Fed would taper next week because they have too much reputation capital invested in the buildup to September. They drew a red line on a QE cut in September and now they are committed. Otherwise nobody would believe them next time they drew a red line on rates. Gross believes they will cut $10 billion in a "taper lite" operation rather than a significant cut. Any actual taper will fulfill their taper warnings and still give them the opportunity to stress data dependence in the future.



Another good thing about the Syrian problem is the delay in the president announcing his choice for the new Fed Chairman. The White House said they would not be making that announcement until after the Syrian event had passed. Since Obama's apparent choice is still Larry Summers this will delay the negative market impact from that announcement most likely until October.

On a side note three top democrats on the Senate Banking Committee has already said they would not vote to send a Summers nomination to the floor of the Senate for confirmation. Democrats hold a two-vote majority on the 22 member committee so a defection by three democrats would make it nearly impossible to pass through committee. No republicans on the committee have expressed a positive view on Summers. He is known for controversial statements, abrupt changes in direction and a long list of skeletons in his closet. Barclay's said in a research note "a Summers nomination could lead to an increase in volatility and higher rates." More than one-third of the Democratic caucus sent a letter to President Obama asking him to nominate Janet Yellen instead.

The economic calendar for next week is light on important economics and heavy on Washington headlines. President Obama will speak to the nation on Tuesday night in an effort to sway voters and soften the dissention over the Syrian situation. The House will receive a classified briefing on Monday ahead of the speech.

Apple will be the big news in the stock world next week with the new iPhone announcement on Tuesday afternoon and another announcement from Beijing on Wednesday morning. Apple is expected to announce the iPhone 5S. Does the S mean "Same" as before? They are also expected to announce the iPhone 5C where the C either means Cheap or China or both since it will be a cheaper phone for Chinese consumers. The Wednesday announcement is expected to be the opening of iPhone sales in China through China Mobile (CHL), which has 700 million subscribers, and Apple would be expected to eventually convert 100 million of those customers to the iPhone. For comparison Verizon and AT&T only have about 100 million accounts each.

The big event for September remains the FOMC meeting the following week. The Syrian vote should be over by then and the attack either underway or cancelled. The debt ceiling headlines will start as soon as the Syrian vote is over with the budget battle picking up steam several days later. The next two weeks could be very rocky in the markets.


I am going to touch on a few more points on Syria and why it will impact the market next week. Russia's President Putin said last week he will continue to supply arms to Syria and he will provide a "missile shield" to protect against "external" attacks. It was initially thought he was talking about using his guided missile cruisers in the Mediterranean to shoot down U.S. missiles. Later his comments were clarified to suggest he would renew a suspended contract to supply Syria with advanced anti-aircraft and anti-missile systems.

The U.S. has reportedly intercepted messages from Qasem Soleimani, the head of Iran's Revolutionary Guards, telling Shiite militia groups in Iraq to attack the U.S. embassy in Baghdad in the event of an attack on Syria. The military also said they could see swarm attacks of Iranian fast attack boats in the Persian Gulf.

The U.S. also recalled all embassy personnel in Lebanon and Turkey because of growing threats.

Syria has said they will attack Israel if the U.S. attacks Syria. After reading several analysis of that potential I deem it very unlikely. Not only would retaliation against Israel bring an even larger attack by the U.S. it would also prompt an Israeli retaliation and unlike the U.S. any attack from Israel would be aimed at an immediate regime change. Assad will not want Israeli planes zeroing in on his location. Iran is not likely to launch against Israel as they have previously warned. They will not want to give the U.S. and Israel an excuse to obliterate key Iranian facilities.

That leaves Hezbollah as the major retaliator and that means Jordan, Lebanon, Turkey and Israel could be the targets but at least it will be small scale terrorism and not country against country.

At this point a Syrian attack is slipping farther into the future and becoming less likely unless there is a major change of heart after the president's speech on Tuesday. The danger is an attack by Obama after a failed vote in Congress. That could lead to more repercussions and stir up a mess in the Middle East.

There were comments in the news late Saturday suggesting White House aides were recommending President Obama cancel the request to Congress because it appears the vote will not pass. Rather than face a no vote and then launch the attack without congressional permission the president could cancel the request saying time was running out to act and he was going to launch under his own authority. Does that mean he would have to give back his Nobel Peace Prize?

However, if there is no attack under any scenario then we can expect chemical weapons to proliferate in Syria and potentially spread to countries infested with Hezbollah and Al Qaeda. If there is no significant penalty for using chemical weapons they will spread outside Syria and the rebels in Syria will face them on a daily basis. This is a pivotal point for the 90+ countries that signed on to the chemical weapons ban after World War I. Actions must have consequences whether we like it or not.

Bloomberg is keeping a running count of the potential votes on the attack question. In the House there are 25 members that have said they would support the resolution. There are 182 that have either said no or they are leaning towards no. The vote needs 217 votes to pass. Link to updated charts

Bloomberg House Chart

In the Senate there are 13 yes votes and 12 no votes with 51 needed for passage according to Bloomberg. However, I believe that with a joint resolution it requires 60 on a cloture vote for the motion to proceed and then 51 votes for the actual passage. Opponents can keep the measure from coming to a final vote by preventing the passage of the cloture vote. That would allow some fence sitters from actually having to vote on the actual resolution and then face voter wrath in 2014.

Bloomberg Senate Chart

In stock news teen retailer Quicksilver (ZQK) spiked +31% after reporting adjusted earnings of 10 cents that beat estimates of 6 cents. Revenue fell -3% to $495.8 million and missed estimates of $505 million. Apparently short covering took precedence over the revenue miss.


Smith & Wesson (SWHC) saw its shares decline -10% despite a +25% increase in sales for Q2. Earnings surged to 41 cents from 27 cents in the comparison quarter. The company said increases in manufacturing capacity combined with a strong demand for firearms resulted in increased market share. Shares dipped on the sales forecast for the current quarter of $137.5 million and 21 cents in earnings. The summer quarter is not normally a strong quarter for guns but Q4 is normally very strong.

The Obama gun rush is beginning to fade as efforts to pass more gun laws have proved futile. Ammo is starting to show up on retailer shelves once again and prices are slipping from the hysteria levels seen over the last year. Retailers are actually glad the hysteria is fading because now they have inventory to sell. It has been very difficult to acquire merchandise since all the manufacturers were severely backordered.


Mattress Firm (MFRM) fell -15% after reporting adjusted earnings of 43 cents compared to estimates for 51 cents. Higher expenses from acquisitions weighed on the earnings. The company guided for $1.75 to $1.83 for the full year and the prior outlook was $1.90 to $1.98. Analysts were looking for $1.96. They missed on earnings, revenue and guidance.


Analyst upgrades included STZ to buy at BAC. DEO was upgraded to buy at Citi. ETFC upgraded to buy at Goldman.

SPLK was initiated with a buy at Canacord Adams. UA was initiated at hold at Jefferies. URI was started at buy at Longbow. Zillow (Z) was started at hold at Deutsche Bank.

Amazon (AMZN) is rumored to be close to a deal to offer free smartphones without a contract. The plan has some hurdles since Amazon wants to offer the phones with a stripped version of the Android operating system like they use on the Kindle tablets. Unfortunately most manufacturers have contracts with Google to make only Google-approved devices with the pre-loaded Google apps.

Amazon is rumored to be linking the free phones to an Amazon Prime account in order to get more merchandise sales from phone customers. The new Kindle Fire tablets, the cheap versions, have an Amazon shopping interface that offers you products when you sign on. I would expect the phones to have the same kind of impulse shopping setup. I am sure there are many people that would opt for a free Amazon phone with no contract and put up with a few unsolicited ads. The Prime account gives them access to thousands of movies, millions of books and assorted other products for free. Amazon has the potential to disrupt the Apple/Samsung grip on the phone market. Free is a very strong marketing tool when high end phones today cost $400-$600. Since the carriers would not have to eat the equipment cost they could offer cheaper monthly rates and that would squeeze profits for Apple and others.


The U.S. markets managed to post a gain for the week with the major indexes adding over 1%. The Dow was the exception with a .76% gain. Wednesday was the big day with the rest of the week simply treading water.

The S&P rallied to downtrend resistance and the 50-day average at 1665 and was immediately stopped. The S&P closed with a fractional gain on Friday but it was -10 points off its high. Given the comments out of Putin and the huge headline risk next week I think it was a good performance.

The 100-day average has returned as initial support at 1640 but we traded down to 1630 on four days the prior week. That is the critical support level that generates some decent fear if it breaks.

I still believe we have risk to 1560 in September. However, if we can get by some of these headlines without much of a drop I would quickly turn bullish. The markets have been showing relative strength despite the declines of the last three weeks. Volume has been dismal with about a 5.4 billion share per day average over the last week. With the holiday out of the way we should see volume pick up next week.

I would watch 1630 and 1665 for direction. A move outside of that range could gain speed quickly.


The Dow managed to touch upper resistance at 15,000 intraday and dip to lower support at 14,800 all on low volume. The 220 point range was headline driven and that gives you an idea how next the next two weeks should play out. The Dow is particularly responsive to headlines and there will be a bunch and most of them will be negative.

As soon as the Syrian problem has passed the debt ceiling will take center stage and both sides have already staked out their positions. The democrats claim they will not negotiate without strong tax hikes and the republicans demand $1 or more in cuts for every $1 in debt ceiling increase and no new taxes. We have seen this movie before and we know how it will end. A compromise will be reached at the last possible minute but not until the headline war has left the market a smoking ruin.

I am still expecting to see my 14,400 target reached but a sudden and amicable resolution to the debt problems would be a major market mover. I am not holding my breath.


The Nasdaq was the strongest performer thanks to a +3.8% rebound in the chip sector. There was a fire at a Hynix plant and all the chip companies rallied on the potential for a chip shortage.

You can tell the Apple news was already priced in because AAPL shares only gained +$11 for the week to close at $498. Apple was only a minor benefit to the Nasdaq but the tech index was still strong.

The Nasdaq traded to within 15 points of its multiyear closing high at 3692. With the rest of the indexes working on minor rebounds from much lower levels the tech stocks were leading the parade.

The Nasdaq closed at 3660 and a minor +1 point gain for the day but a +70 point gain for the week. Prior resistance at 3645 became support and after three weeks of consolidation the Nasdaq appears poised to make a new high. That assumes no headline risk. The rebound in techs will give fund managers an opportunity to cash in their gains if the headlines begin to weaken the market.

Support is 3580-3600 and resistance 3685.


The Russell 2000 managed a +1.8% gain but it did not go anywhere. Last Friday the Russell closed at two-month lows and gaining +1.8% from that close only put it back in the middle of its recent consolidation range. The Russell still has major resistance at 1040 and major support at 1012. A breakdown below 1012 should bring on the heavy selling.

My target for the Russell is 950 and possibly 900 depending on the severity of the headlines.


We saw a minor market bounce last week thanks to a delay in attack plans for Syria and new retirement money from the August month end. I cannot emphasize strong enough how headline driven I expect the markets to be over the next 2-3 weeks.

The wild card here is how much of the headline fear has already been priced into the market. The Fed may only taper a little or not at all and push expectations out into 2014 and the markets would celebrate. Washington headlines have not gotten to the ugly stage yet so it is hard to believe anything good will emerge for another couple of weeks. That is the real weight on the market and it really has not been seen as of yet.

Art Cashin warned repeatedly last week that a 3% yield on the ten-year treasury could be a tripwire for the market. The high close last week was 2.98%.

I would start looking for long positions you want to add on any material market dip and then set back and wait patiently for a buying opportunity. I would be very surprised if we did not get one.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Prudent speculators never argue with the tape. Markets are never wrong, but opinions often are."
Jesse Livermore

 

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Index Wrap

A Tale Of 'Different' Markets

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The major indexes are showing a mixed picture, with the S&P 500 (SPX) and S&P 100 (OEX) rebounding a bit from their up trendlines, the Dow 30 (INDU) drifting sideways (in a narrow 200 point range) well under its prior multimonth up trendline and with the Nasdaq Composite in an unusually tight 6-week 3590-3690 trading range. With all that, traders show fairly high bullish sentiment, suggesting optimism the bull market will resume ahead.

I'm leery of being in this market with bullish positions with what I consider to be 'overly high' bullish trader sentiment. I'm also reluctant to play the downside with SPX having rebounded some at least from its November-August up trendline. INDU fell well under its up trendline in mid-August making me wonder if this pattern is a bellwether for a next downturn in even the tech sectors. COMP hasn't had occasions in several years of a number of weeks peaking at the same highs without a downturn occurring later.

Is this where I should say that "past performance is no guarantee of future results"! Or, maybe better is to say that there are times where uncertainty is such that it's a good time to not have outright bullish or bearish strategies. Standing aside is always an option in trading, especially with a mixed trend.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart is mixed with SPX remaining below its key 21 and 50-day moving averages. SPX came up to resistance in the 1665 area on Friday and backed off. Next resistance comes in around 1683.

Near support is seen at the November-August up trendline, currently intersecting at 1633. The fact that SPX has to date managed to stabilize and hold above its multimonth up trendline is a bullish development. Next up to suggest renewed upside momentum is for a move above 1680-1683 that was sustained. Technical support in SPX is suggested by the 62-66% retracement zone at 1616 to 1608.

There has been one sizable down leg, followed by a rebound. If SPX can rally back up to the resistance overhang in the 1680-1683 area but fails there, I can envision another decline developing from this area, especially a downswing that fell lower than has been seen to date.

I'm keeping an eye on the support trendline for possible breaks, a further rally that clears the two moving averages; if so, next is what happens in the 1680 area, which looks like a pivotal resistance overhang.

Per my initial 'bottom line' comments, my trader 'sentiment' indicator seen above to me reflects an overly optimistic market outlook. It's true that SPX held its up trendline after getting into oversold territory, so betting on calls isn't a wild speculation either. However, it's rare to see traders and investors get or remain solidly bullish at bottoms. More likely is my CPRATIO line rising this high at or near tops. I'll be interested to see if the recent increase in bullish sentiment turns out to be foretelling of a next sizable move higher.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is pretty much a mirror of the S&P 500's in OEX's bullish action in holding above its November-August up trendline. Friday's OEX low was right at the Index's up trendline and best single day rally in awhile followed. While OEX went to a higher high for this move, its Close was a hair's breath under Thursday's. We still have a kind of 'indecision' pattern going with buyers getting scarce as the major indexes get near prior recent highs.

I've noted resistance in the 744 area, then up at the top end of the downside gap, which would get 'filled in' at 753. Overhead price gaps tend to act a resistance. A move above 753 that persisted would suggest a possible retest of highs in the 760-765 zone.

Near support is seen at the up trendline, currently intersecting at 734. Next support is suggested by the levels representing the 62 to 66% retracement levels at 727-724. A Close below 720 that persisted would suggest a possible move to near 700 again.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) has attempted to rally from at or just over 14800 over the past two weeks but with limited ability to extend its gains above 15000. Near technical resistance is at 15000, extending to 15040. Pivotal higher resistance at 15300 is suggested at the previously pierced up trendline dating from INDU's November lows.

The Dow has seen support/buying interest develop in the 14755 area but the Average still looks vulnerable for a move back to the 14700-14660 area, with further support looking to come in around prior key downside lows in the 14600-14550 zone.

There's been no noticeable turnaround in bearish patterns seen in most of the Dow 30 stocks. I noted last week bearish charts seen with AXP, BA, CSCO, DIS, GE, HPQ, INTC, JNJ, MCD, PG, WMT and XOM. ExxonMobil stock (XOM) may stabilize at or above a line of prior support at 85 as crude prices have risen on how Syrian military action might affect oil prices. T and VZ are looking vulnerable to further declines also.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) Index is mixed in its pattern in that COMP has been unable to achieve an upside penetration of the top end of its 6 week 3585-3700 trading range. They can't take COMP down and can't take it up or up by much so far anyway. Normally, a substantial move higher such as seen from the 3300 area up to 3700, followed by a sideways consolidation is bullish. An upside move that takes the Index into a new up leg would be a common outcome of this pattern.

The caveat is that the longer COMP is range bound and it has had approximately the same tight 3590-3690 weekly range for 6 weeks now (and the same repeated high), the more there's the possibility that the Index will stumble and fall into a steeper decline. Stay tuned. A next substantial move is seen in whether COMP achieves a decisive upside OR downside penetration of the relatively narrow 100 point range of the prior 6 weeks. A Close above 3700 that was sustained, could lead to a test of COMP's upper channel line. Stay tuned!

There's bullish sentiment (see my indicator above) that seems 'overly' bullish to me and a Relative Strength Index (RSI) that is more or less in 'neutral' middle ground. If anything these technical indicators point to possible trouble in mounting a next sustained rally.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart is in a similar sideways mixed pattern to the Composite, even more so as this past Friday's high equaled the prior couple of Nas 100 intraday price peaks. A Close above 3150, not reversed the next trading day, would be bullish and could lead to a test of possible resistance in the low-3200 area, at the top end of NDX's uptrend channel.

I've highlighted potential support in the 3067 area, at the 50-day moving average and in the area of prior recent intraday lows. Next lower support is suggested around 3025, which is close to the bottom end of NDX's trading range and also represents a Fibonacci 38% retracement of the late-June to mid-August advance.

As noted with the Nas Composite (see above) commentary, 'normally' in chart patterns having a strong prior advance, followed by a sideways consolidation type move (we assume, until proven otherwise, that such a the sideways trend 'consolidates' the prior advance), will lead to a next up 'leg'. However, the longer this kind of range-bound trade goes on the more that all bets are off so to speak. Tops do get 'built' by repeated sell offs from highs in the same area.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 (QQQ) chart is mixed in the short-term and remains bullish on an intermediate and long-term basis. The repeated but unsuccessful attempts to penetrate highs in the 77.3 area makes for the 'mixed' near-term pattern as such repeated rally failures could lead to another sell off and possible lower lows than seen since the sizable upside overnight price 'gap' of July 10-11.

The QQQ price gap exists from the 73.6 intraday high of 7/10 and the subsequent trading day's low at 74.25. Gap areas below current price levels tend to act as support. When such technical type support gives way, a further downswing is anticipated, even back to support implied by the up trendline currently intersecting just over 72.

Conversely, a decisive upside penetration of 77.3 resistance could lead to test of next implied resistance at the upper QQQ channel line, currently intersecting at 78.5

Near support is seen at 75.2, then at 74.3-74.1.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) is mixed on a short-term basis after RUT retraced not quite half of its strong advance from late-June into a mid-August price peak. What keeps the RUT daily chart technically bullish is the fact of RUT rebounding from its up trendline, which maintains its longer-term uptrend pattern.

I've highlighted anticipated support in the 1010 area, extending to around 988. If the 1000 level is pierced it would not be surprising to see the Index drop another 10-12 points and hit the next 'Fibonacci' retracement level of 62%.

If RUT stays above 1020 the Index 'holds' or maintains its support (up) trendline. Near resistance is seen in the 1040 area, with next higher resistance at 1060-1063.



GOOD TRADING SUCCESS!


New Option Plays

Biotech, Industrials & Specialty Retail

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Alnylam Pharmaceuticals - ALNY - close: 55.90 change: +0.85

Stop Loss: 53.20
Target(s): sell half at $60.0 and half at $64.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ALNY is in the biotech industry. According to their website the company is developing novel therapeutics based on RNA interference, or RNAi. Alnylam is leading the translation of RNAi as a new class of innovative medicines with a core focus on RNAi therapeutics toward genetically defined targets for the treatment of serious, life-threatening diseases with limited treatment options for patients and their caregivers.

ALNY has been acting like a momentum stock. The challenge with biotech stocks is how reactive they are to headlines. The right headline can send them soaring. The wrong one can produce catastrophic moves lower. Right now ALNY has a bullish trend of higher lows and higher highs and it just broke out past resistance near $55.00.

I am suggesting small bullish positions to limit our risk. Thursday's intraday high was $56.44. I am suggesting a trigger at $56.50. If triggered I am suggesting we sell half of our position at $60.00 and then we'll aim for $64.00 with the other half.

Trigger @ 56.50 *small positions*

- Suggested Positions -

buy the Oct $60 call (ALNY1319j60) current ask $2.35

Annotated Chart:

Entry on September -- at $---.--
Average Daily Volume = 464 thousand
Listed on September 07, 2013


Lennox Intl. - LII - close: 70.52 change: +1.00

Stop Loss: 68.95
Target(s): 74.90
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
LII is in the industrial goods sector. The company focuses on heating, ventilation, air conditioning, and refrigeration. The big spike higher in July was a reaction to LII's earnings report. The company beat Wall Street's top and bottom line estimates. Management then raised their 2013 guidance. Shares soared toward round-number resistance at $75.00. Since then LII has corrected lower. The last couple of weeks the stock has consolidated sideways and is just now starting to breakout past resistance near $70.00.

We are suggesting a trigger to buy calls at $71.00. Our short-term target is $74.90. More aggressive traders could aim higher.

Trigger @ 71.00

- Suggested Positions -

Buy the Oct $70 call (LII1319j70) current ask $2.60

Annotated Chart:

Entry on September -- at $---.--
Average Daily Volume = 386 thousand
Listed on September 07, 2013


NEW DIRECTIONAL PUT PLAYS

Advance Auto Parts - AAP - close: 79.12 change: -0.92

Stop Loss: 80.60
Target(s): 75.10
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
AAP is a specialty retailer that operates almost 4,000 stores in 39 states. The stock peaked back in May of this year just ahead of its earnings report. Since then AAP has been underperforming the broader market. That underperformance has taken on a bearish posture with lower highs and now lower lows.

AAP has now broken down below support near $80.00, support at its exponential 200-dma and now with Friday's decline, under its simple 200-dma. Friday's intraday low was $78.91. I am suggesting a trigger to buy puts at $78.80. If triggered our target is $75.10. More aggressive traders could aim lower.

Trigger @ 78.80

- Suggested Positions -

Buy the Oct $80 PUT (AAP1319v80) current ask $2.80

Annotated Chart:

Entry on September -- at $---.--
Average Daily Volume = 640 thousand
Listed on September 07, 2013



In Play Updates and Reviews

Market Rally Slows

by James Brown

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Editor's Note:

The S&P 500 index eked out another gain on Friday, making it four in a row for the bulls. Yet worries over Syria continue to persist. The Friday morning jobs report failed to give a clear picture if the Fed will or will not announce any taper in the QE program at the next meeting.


Current Portfolio:


CALL Play Updates

NetSuite Inc. - N - close: 100.16 change: -0.33

Stop Loss: 97.85
Target(s): 109.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
09/07/13: The market was volatile this morning. Yet the volatility in N was limited to a $101.00-99.50 range. Shares spent the rest of the day hovering near $100.50. The overall trend is still higher and we're waiting for a breakout past $101.00.

Earlier Comments:
If triggered our multi-week target is $109.00. I would not be surprised to see N find some short-term resistance around the $105 area.

Trigger @ 101.05

- Suggested Positions -

Buy the Oct $105 call (N1319j105) current ask $2.35

chart:

Entry on September -- at $---.--
Average Daily Volume = 294 thousand
Listed on September 03, 2013


Sturm, Ruger & Co. Inc. - RGR - close: 54.03 change: -0.98

Stop Loss: 50.90
Target(s): 57.50
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/07/13: Disappointing comments from Smith & Wesson (SWHC) sparked some profit taking in both SWHC and RGR. SWHC said that the pace of gun sales was slowing from the frenzied pace earlier in the year.

RGR found short-term support right where you would have expected it too, near prior resistance in the $53.50 area. The simple 50-dma has risen to $51.30. I am adjusting our stop loss higher to $50.90.

Earlier Comments:
If this rally continues it could spark a short squeeze. The most recent data listed short interest at 30% of the very small 18.8 million share float.

- Suggested Positions -

Long Oct $55 call (RGR1319j55) entry $1.24

09/07/13 new stop loss @ 50.90
08/28/13 trade opened on gap higher at $53.45. Trigger was 52.65

chart:

Entry on August 28 at $53.45
Average Daily Volume = 341 thousand
Listed on August 27, 2013


Starbucks Corp. - SBUX - close: 71.57 change: -0.48

Stop Loss: 69.95
Target(s): 78.00
Current Option Gain/Loss: Oct75c: -29.6% & 2014Jan75c: -16.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/07/13: The market's spike lower this morning pushed SBUX down toward $71.00 and technical support at its rising 40-dma before shares rebounded. I remain bullish on SBUX but readers may want to hesitate on launching new positions. We might see a lower entry point near the 50-dma or you could wait for a new rally past $72.50 as an alternative entry.

Our target is $78.00. I do expect the recent high near $74.00 to offer some short-term resistance.

- Suggested Positions -

Long Oct $75 call (SBUX1319j75) entry $1.18

- or -

Long 2014 Jan $75 call (SBUX1418a75) entry $3.25

chart:

Entry on September 05 at $72.35
Average Daily Volume = 3.0 million
Listed on September 04, 2013


Tractor Supply Company - TSCO - close: 123.66 change: -1.05

Stop Loss: 121.75
Target(s): 134.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
09/07/13: The volatility this morning saw TSCO spike down toward $122 before bouncing back. Unfortunately the rebound could not breakout past resistance near $125. By day's end TSCO had erased Thursday's gain. The stock does still have a three-week trend of higher lows so we're not giving up yet.

Earlier Comments:
I am suggesting a trigger to buy calls at $125.25. If triggered our target is $134.00. More conservative traders may want to take profits near $130 instead.

NOTE: The company has announced a 2-for-1 stock split set for Friday, September 27th.

Trigger @ 125.25

- Suggested Positions -

Buy the Oct $130 call (TSCO1319j130)

chart:

Entry on September -- at $---.--
Average Daily Volume = 352 thousand
Listed on September 05, 2013


Under Armour, Inc. - UA - close: 77.20 change: +0.31

Stop Loss: 73.45
Target(s): 79.50
Current Option Gain/Loss: + 28.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/07/13: UA managed to keep the rally alive with another gain on Friday. Shares spiked higher at the open and traded above $78.00 before paring its gains. UA is arguably short-term overbought here with a +6.2% gain in just the last four days. I would not be surprised to see a dip back toward $75.00 if the market turns weak.

Please note our new stop loss at $73.45.

- Suggested Positions -

Long Oct $77.50 call (UA1319j77.5) entry $2.25

09/07/13 new stop loss @ 73.45

chart:

Entry on September 05 at $75.25
Average Daily Volume = 1.1 million
Listed on September 03, 2013


PUT Play Updates

Diamond Offshore Drilling - DO - close: 64.33 change: +0.43

Stop Loss: 66.01
Target(s): 57.50
Current Option Gain/Loss: -30.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/07/13: Crude oil continued to rally on Syria worries. The energy sector is still moving higher. DO bounced for a second day in a row but the rally stalled at technical resistance near its 10-dma. More conservative traders might want to move their stop loss closer to the $65.00 level.

Earlier Comments:
If triggered our target is the $57.50 level. I would not be surprised to see a temporary bounce near the $60.00 mark.

- Suggested Positions -

Long Oct $60 PUT (DO1319v60) entry $0.85

chart:

Entry on September 03 at $63.75
Average Daily Volume = 1.0 million
Listed on August 28, 2013


iShares Russell 2000 ETF - IWM - close: 102.39 change: +0.28

Stop Loss: 103.25
Target(s): 99.00
Current Option Gain/Loss: -46.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/07/13: I am growing worried about our IWM put play. The small cap IWM is now up four days in a row. Previously it looked like overhead resistance my curtail any rebounds but now I'm having doubts. Plus, we are down to our last two weeks with the September options. I am not suggesting new positions.

- Suggested Positions -

Long Sep $100 PUT (IWM1321u100) Entry $1.48

08/31/13 new stop loss @ 103.25
08/27/13 adjust exit target to $99.00
08/24/13 new stop loss @ 105.25
08/19/13 new stop loss @ 104.25
08/15/13 adjust exit target from $97.00 to $98.50
08/03/13 readers may want to consider an early exit

chart:

Entry on July 30 at $103.69
Average Daily Volume = 31 million
Listed on July 29, 2013



Longer-Term Play Updates



Chicago Bridge & Iron - CBI - close: 59.39 change: -0.32

Stop Loss: 55.75
Target(s): 74.50
Current Option Gain/Loss: -39.2%
Time Frame: 4 to 6 months
New Positions: see below

Comments:
09/07/13: CBI dipped toward short-term technical support at the simple 100-dma. The stock continues to consolidate sideways inside a huge wedge-like pattern. This consolidation has been narrowing, which would suggest a breakout is getting closer. More conservative traders may want to raise their stops.

I am not suggesting new positions at this time.

*Small Positions* - Suggested Positions -

Long 2014 Jan $65 call (CBI1418A65) entry $2.55

07/20/13 new stop loss @ 55.75
06/29/13 CBI might be poised to dip into the $57-55 zone again.
06/24/13 triggered @ 56.75
06/22/13 adjust entry trigger to $56.75
06/15/13 entry strategy change: change the breakout trigger at $65.25 to a buy-the-dip trigger at $56.50. Adjust the stop loss to $53.75.
Adjust the option strike to the 2014 Jan. $65 call

chart:

Entry on June 24 at $56.75
Average Daily Volume = 1.8 million
Listed on June 01, 2013


Vanguard FTSE Europe ETF - VGK - close: 52.38 change: +0.34

Stop Loss: 51.25
Target(s): 58.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to 2013 December option expiration
New Positions: Yes, see below

Comments:
09/07/13: The overall tone for European stocks remains optimistic. Investors seem to believe that the worst is behind it for the Eurozone. The VGK produced a decent bounce this past week but shares of this ETF are in no man's land. The $53.00-53.50 zone remains overhead resistance.

Earlier Comments:
We are taking a multi-month time frame with this trade. I am suggesting we wait for the VGK to close above $53.50 and then buy calls the next morning. If we are triggered our target is $58.50 but we'll adjust it as the trade progresses.

FYI: The Point & Figure chart for VGK is bullish with a $63 target.

Trigger: Wait for a close above $53.50,
then buy calls the next morning.

- Suggested Positions -

Buy the 2014 Mar $55 call (VGK1422L55)

08/24/13 adjust the option strike from 2013 Dec $55 to $2014 Mar $55.

chart:

Entry on August -- at $---.--
Average Daily Volume = 3.0 million
Listed on August 10, 2013