Option Investor
Newsletter

Daily Newsletter, Saturday, 9/14/2013

Table of Contents

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

Market Wrap

September to Remember

by Jim Brown

Click here to email Jim Brown

The best week for the Dow since January has pushed the index to a +575 point gain for the month.

Market Statistics

September is historically the worst month of the year for the Dow but it did not start off that way. If the rally continues this could be a September to remember for its gains rather than its losses. The Dow is now only 2% from the historic highs and the S&P only slightly more than 1% below the highs. The Nasdaq has already set new 13 year highs this month and would be higher were it not for declines in Apple.

Given the Syrian headlines in late August and the budget headlines out of Washington that are starting to heat up, the gains are positively amazing. The AAII investor survey was showing that 43% of respondents were expecting a correction two weeks ago and that level of bearishness is very high. On a contrarian basis that is very bullish. If that many people are short and expecting a market drop then every move higher is forcing additional short covering and that can be self sustaining for a long time.

Not to beat the headline risk to death again but the budget battle is starting to heat up. There may still be a deal to postpone the budget battle until December but so far there is no deal and only two weeks left before the deadline.

The FOMC announcement on Wednesday is still a big event even though the market has already priced in a $10 billion QE cut. I think this is the risk event for the week. The Fed said it would not cut QE until there was stable and sustainable economic growth. That is far from the case today. Therefore if the Fed does not upgrade its economic forecast at 2:PM on Wednesday and cuts QE anyway the market could react negatively. Once the Fed begins cutting the weekly economic reports are going to take on a lot more importance.

Lastly there are numerous rumors that the White House will announce Larry Summers for Fed Chairman next week. A Japanese newspaper reported Summers would be named next week citing unnamed sources. They also said Lael Brainard would be appointed as Vice Chairman replacing Janet Yellen. The rumors were so strong the White House had to restate "No decisions has been made." That does not mean the announcement will not come the following week. If President Obama does nominate Summers even after numerous lawmakers have specifically said they would vote against him the market could take it badly.

Last week 400 economists sent a letter to the president asking for him to nominate Janet Yellen instead of Summers. This came after 20+ senators sent him a similar letter several weeks ago on Yellen. Nobody has asked for Summers. As I have written before Summers is considered a bull in every china shop he has ever entered. Summers is for OMF operations in times of stimulus. That means the Fed would buy securities directly from the Treasury and directly monetize the Federal debt. Currently the Fed buys the securities in the open market in order to put cash back into the hands of investors. The difference is dramatic. A Summers Fed would not be as stimulative as a Yellen Fed.

News broke over the weekend that Summers has terminated his relationship with Citigroup in anticipation of the nomination. That sounds pretty convincing to me.

Economics on Friday were lackluster and the market dipped into negative territory early in the day. Dip buyers appeared and the markets posted another gain.

Consumer Sentiment for September declined from 82.1 to 76.8 and the weakest reading since April. The present conditions component declined from 95.2 to 91.8 and the expectations component declined from 73.7 to 67.2. Worries over impending changes in economic policy, softening economic outlook and slowing job growth were cited for the declines. With the markets closing at two-month lows on August 30th the early month sentiment numbers were setup to fall even though estimates were for a gain. It was the biggest monthly drop in 14 months and the largest miss versus expectations (83.0) on record.


I ran across an interesting chart from Citigroup. Sentiment has almost repeated the same pattern three times over the last 18 years. It runs up, stalls then crashes to a new low. Let's hope this pattern does not complete.

18 year sentiment history (Source Citigroup)

Retail sales for August rose only +0.2% compared to estimates for a +0.5% gain. Overall retail sales were the weakest in four months. Excluding auto sales the gain was only +0.1%. Year over year sales slowed from +5.7% in July to +4.7% in August. Excluding autos YoY sales were only 3.3%. Building materials declined -0.9% from a +1.8% gain in July. If you need a clue to the health of the housing market this would be it. Clothing and accessories fell -0.8%, sporting goods -0.5% and general merchandise -0.2%. Furniture and electronics were the leaders with +0.9% and +0.8% respectively.

The Producer Price Index (PPI) headline number rose +0.3% in August compared to a zero gain in July. However, the core rate declined again to zero from a +0.1% gain in July. The year over year headline inflation rate for producers was +1.4% with the core rate at only +1.2%. The gain in the headline number was driven by gains in food and energy prices. Commodities declined thanks to a -15% drop in corn and soybeans and -8% drop in natural gas prices. There were some abnormal events in August that supported prices with oil spiking on Syria as an example. This means prices should be flat to down in September.

The economic calendar for next week is going to boil down to two events. The FOMC announcement and the Philly Fed Survey. The Philly Fed is a proxy for the national ISM manufacturing out two weeks later. The FOMC is the rubber meets the road meeting that will start an entirely new discussion process concerning Fed direction. With the amount of taper talk over the last three months it would be a shock if they did not taper.

The housing numbers on Tue/Wed/Thr will be important but we are moving out of the season for housing so they will have less impact on the market.

The German elections on the 22nd will be important. Angela Merkel will probably win but she has had a tough race. After the election the real news will begin. Merkel is considered the backbone of the Eurozone because Germany is the deciding voice in direction. Once the election is over the eurozone problems will come back to the forefront. Greece will need a third bailout and it will not be pretty. Problems in Spain, Italy and Portugal have not gone away. There is talk of a "smaller" eurozone with several countries eventually leaving the monetary union. Expect those headlines to appear later this year. If by chance Merkel were to lose the election it would be a shock to the system and the markets would take it badly.


In stock news Twitter shocked the market by filing for an IPO. The stock sale is expected to be large but not like Facebook. With Goldman Sachs as the lead underwriter the IPO should be priced reasonably to allow a first day pop but not be obscene as we saw with Facebook. There is a lot of speculation on what the ticker symbol will be. Since TWIT is already the symbol for a stock in Taiwan, T is the symbol for AT&T and TW the symbol for Towers Watson they will have to use something different. Speculation symbols include TWTR, BIRD, CHRP, TWEET, HSTG, HTAG and HASH. Some suggested just using the "#" but that does not work on U.S. exchanges. Whatever they choose you can bet the IPO will draw a lot of attention. You can also bet that some investors in other social networking stocks like FB and LNKD will be selling shares to buy into the Twitter IPO. This could mark a temporary top in the other social networking shares.

The easing of tensions with Syria and the prospect for permanent diplomatic negotiations in lieu of an attack sent gold prices plunging. Expectations for a QE taper and resulting improvement in dollar strength also weighed on the yellow metal. Gold fell -4.4% for the week or a loss of -$60 to $1308 at the close. However, in the afterhours session the contract spiked unexpectedly to $1327.

Silver dropped -6.6% to $21.78 at the close but then rallied +50 cents after the close to $22.29. If the Fed were to pass on QE cuts both metals would rebound sharply.



Apple shares continued their decline to close at $465 on Friday. The iPhone C was priced higher than analysts expected and is causing a rethink on projected sales volumes and margins. Apple declines 71% of the time after a product announcement so I would not get too excited. The new iPhones are scheduled to be delivered earlier than expected and that could impact Apple's sales estimates and earnings for this quarter. So far the potential for a small boost to earnings is not supporting the stock.


Disney (DIS) continued its gains after saying it could buy an additional $6 to $8 billion in shares in the next fiscal year. Shares spiked nearly $3 on Thursday when the announcement was made and then gained another $1.20 on Friday. Disney is no stranger to share buybacks. They have purchased between $1.5 and $3.8 billion in shares in each of the last three years. They are planning on borrowing money to fund this buyback and that always bothers me. It is one thing if you have the extra cash lying around but borrowing it means adding debt and negatively impacting fundamentals. The spike in shares last week brought Disney right back to strong downtrend resistance.


The Japanese won the summer Olympics for 2020. They are introducing a new sport called Yen carry. By the time the 2020 Olympics begin the Yen will be nearly worthless. The Japanese debt has officially passed the quadrillion mark. (1,000,000,000,000,000) That is one thousand trillion Yen and that equates to 247% of GDP. Since Japan will need even more debt to finance the Olympics we can expect the debt to be over 300% of GDP when the games begin. The athlete that can carry the most Yen for 100 yards will be the winner in this new sport. Instead of a gold medal they will give the athlete the 100 pounds of Yen he will need to buy a Big Mac at the Olympic McDonalds.

Early Saturday it was announced that Russia and the U.S. had reached an agreement on Syria. The country will have a week to produce an "all inclusive" list of its inventory. I sure wish I could bet on the accuracy of that list since Assad said he had no chemical weapons as recently as three weeks ago and I am sure he will want to hold back some inventory for future use. After he produces the list a chemical weapons team will move into Syria and attempt to locate and secure the inventory from Assad's control and safe from capture by rebels. The weapons will somehow be magically destroyed by mid-2014. That would probably mean they would have to be transported out of Syria in the middle of a civil war. If Syria fails to live up to this agreement they can be sanctioned by the U.N. The U.S. claims they still have the right to use force but Kerry has agreed to abide by U.N. decisions. Since Russia has a veto on the Security Council there will be no use of force. I am sure Assad is laughing his head off at the final solution. He gets to provide an inventory of the weapons he does not want and the U.S. can't attack him.

This will probably provide a boost to the market on Monday since the threat of a U.S. attack has completely evaporated.

Triskaidekaphobia had no impact on the market on Friday. That is fear of the number 13 as in Friday the 13th. The actual fear of Friday the 13th is called paraskevidekatriaphobia where Paraskevi is Greek for Friday.

The Dow had its second best week of the year and it appears the bulls are still in charge after a couple weeks off to rest. The Barron's cover for the first week in September was a play on that bullishness and in the past covers like this tended to signify a pending top in the market. Once everyone is bullish the trend reverses.

Barrons, Sept 2nd Cover

John Hussman, of Hussman Funds, sent the following chart to John Mauldin and I am reprinting it here. Hat tip to both of them.


The topping process in the market does not occur overnight. It can take weeks or even months. We could be working on a top now that was begun back in May when the Dow stalled at 15,542. One alternative view would be a long term head and shoulders pattern in progress. I hesitate to apply much credibility to it until the right shoulder forms but we are close.


The S&P has a similar pattern but it does not resemble the H&S. The S&P has a long term pattern of lower highs and a higher high in the next couple of weeks would be a continued confirmation of the rising trend.


On a short term basis the S&P broke through resistance at 1680 and is now using that level as support. The historic high close was 1709.62 on August 2nd and we are only about 22 points away from that high. With the Fed in taper mode, the budget battles about to break out in Washington and the impending nomination of Larry Summers as the new Fed chairman the stage is set for increasing uncertainty rather than bullish confidence.

The wild card here for Monday is the deal with Russia over Syria. That should lift the markets for another day but then the headline will be old news and worry over the FOMC meeting will begin.

One point of note is that even though the S&P gained +4 on Friday it stalled right at resistance from Wednesday. The Syrian agreement could break that resistance and give us another shot at the recent highs. If the 1690 level holds on Monday I would be very concerned the next move will be lower.



The Dow has really sprinted higher since the August 30th low. The 15,300 level was intraday support on Thursday and 15,380 was resistance on Friday. The Dow could be under some pressure towards the end of the week as index funds sell HPQ, AA and BAC. Those stocks leave the Dow index at the close on Friday. Fortunately HPQ and BAC have high float and high volume so the limited amount of selling may not be a material impact to the Dow. Just be aware this is happening.

Quite a few of the Dow stocks had really ugly charts just a week ago and I am sure they were heavily shorted ahead of the September headlines. The short squeeze has eliminated those positions and now the upward momentum will have to be from buyers rather than from short covering. Those buyers may be tough to find.

Resistance is now 15,425, 15,500 and 15,650. Support is 15,300.


The Nasdaq gapped up on Tuesday to 3729 and that was almost the high for the week. There was a brief intraday spike on Thursday to 3731 but the trend since the Tuesday open was downhill. Once the Nasdaq broke out to a new 13-year high the advance stalled. Much of that was due to the heavy selling in Apple.

If the Nasdaq dips back below support at 3700 it could be a long drop with the next material support at 3600.



The Russell 2000 rallied to 1055 on Tuesday and came to a dead stop. Three days later it closed at 1053. This is solid resistance with the prior closing high at 1057. This could easily be forming a double top depending on the headlines next week. Headlines always trump technicals so anything is possible. A breakout to a new high could run into heavy selling as fund managers contemplate their end of year positions for October. Quite a few small caps have had major rallies in 2013 and managers could be thinking about cashing out some profits to secure their bonuses.

The flip side of that is the lagging performance of funds. The average fund is up only +9% for 2013 when the indexes are up around 18% on average. How do you justify the lagging performance to investors? Likewise if the market imploded on Washington headlines over the next three weeks how would they feel going into the October year end with only a 5% gain for the year?

I would watch support at 1050 on the Russell for directional clues for the broader market. If that level breaks the next material support is 1040 then 1012.


Contrary to the bullishness we saw last week I still believe the markets are at risk for a large decline. Economics are slowing, sentiment is declining, wages are falling, health insurance costs are rising and the Fed is probably going to reduce QE. Lawmakers are going to battle until the deadline over the debt ceiling and budget and the eventual compromise will be economically negative. The market is assuming the best outcome in all these cases and that would be mathematically unlikely. Investors have become numb to the headlines on the assumption that everything will always work out. We know from experience that this is a risky assumption.

Q3 GDP is tracking at +1.4% according to Moody's and +1.6% according to BofA Merrill. The bank warned "When excess liquidity is removed, the market will get 'CRASHy'" as deleveraging ends and the era of normalization begins.

Sunday is the fifth anniversary of the Lehman Brothers bankruptcy and nearly the end of the financial system as we know it.

I would continue to keep a watchful eye on the market because it rarely telegraphs the next big decline. Stay long until the trend changes but be prepared for the unexpected.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"An economist is someone who sees something happen and then wonders if it would work in theory."
Ronald Reagan

 

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Index Wrap

Clear Sailing Or a Next Down Leg ahead?

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Dow 30 (INDU) is back above its previously broken up trendline, which is bullish, but faces technical resistance a bit higher at 15400-15500. The S&P 500 (SPX) is rebounding from its November-August up trendline but may have limited upside to around 1700 or so currently.

Nasdaq looks to be in a new up leg but traders are 'too' bullish for my money and overhead resistance in the Composite (COMP), implied by the upper end of its uptrend channel isn't much higher, coming in around 3780-3800.

Bothering me from getting overly bullish here is the corrective pattern presented in a sizable August downswing in the S&P and Dow, followed by a limited recovery rally of about half of that earlier decline which looks a lot like the common pattern of a down-up-down (or 'a-b-c') decline, where remaining to be completed is a next and possibly larger down leg.

I'm the first to admit that technical analysis, which is my primary method of analyzing the major stock indexes, has some limitations. For example, in our present circumstances, the charts are 'blind' so to speak as to the possibilities ahead if a bunch of mad-as-hell ideological congressmen might (and seem ready to) shut down the government in the coming month, disrupting our massive government bond market and global leadership in finance. Investors run for the hills under these kind of circumstances. Who's going to keep bidding up stocks then?

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart remains in a 'mixed' pattern. The SPX chart is bullish in a broad sense in that the Index has held, and rebounded from, its multimonth up trendline. It's a mixed pattern in that we don't yet know if SPX can churn through a sizable resistance overhang implied the Head & Shoulder's top pattern of late-July to mid-August.

What happens, if anything, at near resistance in the 1700-1709 area is pivotal. I haven't noted any implied 'resistance' above 1700-1709, but SPX plows through this area, a next upswing could carry to 1740 at a minimum.

I've highlighted anticipated support only back at the trendline, currently intersecting in the 1640 area, but closer in support probably comes in at 1670, extending to 1660.

What confounds me in making a bullish case for SPX is how high bullish 'sentiment' (as illustrated above) has gotten recently per my CPRATIO Indicator. It's as if traders have gotten wise to the bullishness implied by a rebound from a long-standing up trendline. I don't believe that exactly and suspect that the sizable jump in bullishness is based on factors like relief on no Syrian intervention and oil prices dropping back some. I can't account for the jump but don't try to. I look at this high bullish pattern as suspect for the bulls primarily because such high readings are frequently associated with tops; and, I work from historical patterns. I'd be surprised if this jump in my indicator is showing how 'right' traders in mass can be!

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is mixed also, like SPX, more so even in that there's what I call a sizable supply (stock for sale) implied by the prior top. The bottom end of that top is at 755 and its no accident that recent highs stopped there. OEX can of course be consolidating for a decisive upside penetration of that 755 implied resistance. Stay tuned on that! Next overhead resistance then comes in 10 points higher, in the 765 area. Above that I'm not guessing right now at 'next' resistance.

Near support is highlighted at 746, then at 737, at the current intersection of the OEX's up trendline.

OEX could get to 765 again if 755 is pierced but I don't have higher objectives right now and would be leery of formation of a possible double top in that event.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU), as I noted in my initial 'bottom line' commentary, has Closed back above its previously broken up multimonth up trendline, which is bullish. Bullish that is as long as it continues back up into its former uptrend channel. If that's the case, I'm suggesting next resistance could come in at 15500, extending to the prior intraday high in the 15650 area.

Near support is now assumed back at the up trendline, at 15340, with next support looking like 15200. Fairly major support looks to come in at 15000.

There's been some bullish turnarounds, or continuation of prior uptrends, in a handful of Dow 30 stocks, namely BA, DIS, IBM, INTC, and UNH (I finally took Kraft out of my Dow stock list, only about a year after United Healthcare replaced KFT!). These few Dow stocks are so far not enough to suggest a sizable new up leg coming in INDU.

As far as changes to the Dow lineup, a week from Monday, is GS, NKE and V replacing AA, BAC, and HPQ. This change alone may account for the boost in INDU of late as at least NKE and V are showing stronger long-term up trends than the companies they're replacing. Goldman (GS) however looks to have built at least an interim top over June-August.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) Index is bullish as it rallied above prior resistance at 3700 and taking COMP to new highs for the current advance. What is not so bullish is the implication that there might not be much further upside IF the upper trend channel boundary is about the best upside ahead. Resistance in the 2780-3800 area may be a stopper on a further advance in the near to intermediate-term.

Near support is highlighted at 3650, with next support coming in around 3585.

We also can observe that COMP is back up near 'overbought' territory according to the Relative Strength Index (RSI) and is showing what I consider to be another type of overbought condition in the high bullish sentiment readings of my lowermost (CPRATIO) indicator. These key indicators also suggest to me that COMP may have limited further upside potential.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart is bullish in the same way described for the Composite, in that the Index decisively broke out to a new high. I see near resistance at 3180 and then not much higher at 3215 or so, at the upper channel line.

If there's a sizable move above 3200, there's no long-term resistance that I can project until closer to 3400. I don't see a new up leg getting up to levels like that anytime soon given that the Index is again approaching overbought RSI readings. It could happen of course but the 'normal' technical probabilities of such an occurrence are not high.

I've noted support back down at 3100, extending to 3070 in NDX. I could note an initial support in the 3150 area as what was chart resistance having 'become' subsequent support on pullbacks.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 (QQQ) chart is bullish like the underlying NDX and like the actual index, overhead QQQ resistance at 78.7 is not far above current levels, assuming the upper channel line 'acts as' a next technical resistance.

Near support is noted at prior resistance, in the 77.3 area. Next support looks to come in around 76. A pivotal support is next at 75 even.

I'm not counting on a next big advance in this ETF stock near to intermediate-term. However, it's also true that it doesn't look like there's major QQQ resistance coming in until near 83.

RUSSELL 2000 (RUT); DAILY CHART:

If the Russell 2000 (RUT) is once more acting as a bellwether for the overall market or specifically the Nasdaq, it's a dead canary in the coal mine perhaps, in that RUT has not yet (unlike Nasdaq) gone to new highs for the current move.

If 1060 is decisively penetrated, an advance to the 1080-1085 area looks possible. The recent spurt higher, followed by a narrow-range consolidation does have the appearance of a bull flag. So, stay tuned on RUT's next act!

Near support is seen at 1040, extending down to the current intersection of RUT's up trendline around 1020.



GOOD TRADING SUCCESS!


New Option Plays

Stereos & Auto Parts

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)
BWA, LLL, PII, SNA, CRI, DLTR, ILMN, BYI, WHR, PCAR, ECL, AMP, SWK, ASH, BWLD, PDCE, POOL, CNC,



NEW DIRECTIONAL CALL PLAYS

Harman Intl. - HAR - close: 66.46 change: +0.96

Stop Loss: 64.70
Target(s): 71.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
HAR makes audio equipment. You might be surprised that HAR is a beneficiary of the super strong sales pace of automobiles in the U.S. That's because HAR is a parts supplier for the higher-end vehicles. The stock exploded higher back in August following a better than expected earnings report where HAR beat Wall Street's top and bottom line estimates. Since the August peak shares saw a -10% correction before investors started buying the stock near its rising 30-dma.

Now the pullback appears to be over and HAR is starting to move higher again. Friday's high was $66.73. I am suggesting a trigger to buy calls at $67.00. If triggered our short-term target is $71.00. More aggressive traders could aim higher. The point & figure chart is bullish with an $88 target.

Trigger @ 67.00

- Suggested Positions -

Buy the Oct $70 call (HAR1319j70) current ask $1.05

Annotated Chart:

Entry on September -- at $---.--
Average Daily Volume = 690 thousand
Listed on September 14, 2013


Magna Intl. - MGA - close: 82.05 change: +1.91

Stop Loss: 79.65
Target(s): 89.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
MGA is in the auto parts industry. This stock is another market winner riding the wave of strong auto sales in the U.S. Their latest earnings report was also a bullish surprise with MGA beating analysts' both top and bottom line estimates. Management then raised their 2013 revenue guidance.

The stock's drop in late August was a reaction to market declines and not specific to MGA. Traders bought the dip at its 50-dma and now MGA is poised to breakout to new all-time highs. The August intraday high was $82.58. I am suggesting a trigger to buy calls at $82.65. Our target is $89.50.

Trigger @ 82.65

- Suggested Positions -

Buy the Oct $85 call (MGA1319j85) current ask $1.05

Annotated Chart:

Entry on September -- at $---.--
Average Daily Volume = 545 thousand
Listed on September 14, 2013



In Play Updates and Reviews

Still Buying Dips

by James Brown

Click here to email James Brown

Editor's Note:

Traders are still buying the dip as stocks rebound off their Friday morning lows. The Dow Jones Industrials displayed relative strength this morning with no morning dip.

CSOD was triggered. BBBY has been removed.
I have updated a some stop losses tonight.


Current Portfolio:


CALL Play Updates

Alnylam Pharmaceuticals - ALNY - close: 55.13 change: -0.39

Stop Loss: 53.75
Target(s): sell half at $60.0 and half at $64.00
Current Option Gain/Loss: -30.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/14/13: ALNY delivered a very disappointing performance for the week. The stock market's major indices actually performed well thanks to a strong move up on Monday-Tuesday-Wednesday. Yet shares of ALNY have been moving the opposite direction. This stock is now down four days in a row. Lack of participation in the market's rally is definitely a warning sign. I am raising our stop loss to $53.75.

Earlier Comments:
We want to keep our position size small to limit our risk. I am suggesting we sell half of our position at $60.00 and then we'll aim for $64.00 with the other half.

*small positions* - Suggested Positions -

Long Oct $60 call (ALNY1319j60) entry $2.45

09/14/13 new stop loss @ 53.75, traders should be cautious given ALNY's recent relative weakness.

chart:

Entry on September 09 at $56.50
Average Daily Volume = 464 thousand
Listed on September 07, 2013


Anadarko Petroleum - APC - close: 94.70 change: -0.83

Stop Loss: 91.65
Target(s): 99.50
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
09/14/13: Friday was a relatively quiet day for oil futures and energy stocks. Yet APC saw a sharp spike higher on Friday morning. Unfortunately traders sold the rally and APC reversed into a -0.8% decline, erasing Thursday's gain. We can look for short-term support near the 10-dma (about 93.50).

- Suggested Positions -

Long Oct $95 call (APC1319j95) entry $3.05*

*option entry price is an estimate since the option did not trade at the time our play was opened.

chart:

Entry on September 11 at $94.25
Average Daily Volume = 2.55 million
Listed on September 09, 2013


Cornerstone OnDemand, Inc. - CSOD - close: 53.77 change: -0.83

Stop Loss: 52.25
Target(s): 59.50
Current Option Gain/Loss: -34.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/14/13: CSOD also saw a spike higher on Friday morning that reversed into a decline. Shares hit new highs at $55.47 but posted a -1.5% decline by the closing bell. Our trigger to buy calls was hit at $55.25 on Friday morning but I would wait for a new rally above $55 before considering new positions.

- Suggested Positions -

Long Oct $55 call (CSOD1319j55) entry $2.60*

chart:

Entry on September 13 at $55.25
Average Daily Volume = 367 thousand
Listed on September 12, 2013


Fluor Corp. - FLR - close: 67.21 change: -0.51

Stop Loss: 64.75
Target(s): 74.50
Current Option Gain/Loss: Oct70c: -14.2% & 2014jan70c: - 9.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
09/14/13: After four days of gains FLR hit some profit taking on Friday with a -0.75% dip. Broken resistance near $67.00 should offer some support. I would wait for a bounce before considering new bullish positions.

Our target is $74.50. You may want to aim higher. The Point & Figure chart for FLR is bullish with an $82 target.

- Suggested Positions -

Long Oct $70 call (FLR1319j70) entry $1.05

- or -

Long 2014 Jan $70 call (FLR1418a70) entry $3.20

chart:

Entry on September 12 at $67.65
Average Daily Volume = 1.1 million
Listed on September 11, 2013


Hanesbrand Inc. - HBI - close: 62.00 change: +0.69

Stop Loss: 59.90
Target(s): 68.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
09/14/13: It looks like traders are back to buying the dip in HBI. More aggressive traders might want to launch positions now. I am suggesting readers wait for a new relative high and follow the plan in my earlier comments.

Earlier Comments:
I am suggesting a trigger to buy calls at $63.25. If triggered our target is $68.50. I do expect to see some temporary resistance at the prior high near $65.00.

Trigger @ 63.25

- Suggested Positions -

buy the Oct $65 call (HBI1319j65)

chart:

Entry on September -- at $---.--
Average Daily Volume = 612 thousand
Listed on September 10, 2013


Lennox Intl. - LII - close: 72.79 change: +0.03

Stop Loss: 69.65
Target(s): 74.90
Current Option Gain/Loss: +12.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/14/13: Fortunately there was no follow through on Thursday's short-term reversal lower. Yet that doesn't mean LII can't see a retracement back toward the $71-70 zone. I am not suggesting new positions at this time.

Our short-term target is $74.90. More aggressive traders could aim higher.

- Suggested Positions -

Long Oct $70 call (LII1319j70) entry $3.10*

09/11/13 new stop loss @ 69.65
*option entry price is an estimate since the option did not trade at the time our play was opened.

chart:

Entry on September 09 at $71.00
Average Daily Volume = 386 thousand
Listed on September 07, 2013


NetSuite Inc. - N - close: 106.03 change: -0.31

Stop Loss: 102.40
Target(s): 109.00
Current Option Gain/Loss: +52.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/14/13: N's performance on Friday really didn't tell us much. The stock drifted sideways on either side of the $106.00 level. Lack of any real profit taking is encouraging. Yet N remains short-term overbought here. I am raising our stop loss to $102.40. More conservative traders may want to exit immediately to lock in gains.

Earlier Comments:
Our multi-week target is $109.00.

- Suggested Positions -

Long Oct $105 call (N1319j105) entry $2.75*

09/14/13 new stop loss @ 102.40
09/12/13 readers may want to take profits now
09/11/13 new stop loss @ 101.45
09/10/13 new stop loss @ 99.45
*option entry price is an estimate since the option did not trade at the time our play was opened.

chart:

Entry on September 09 at $101.05
Average Daily Volume = 294 thousand
Listed on September 03, 2013


Northrop Gruman - NOC - close: 96.19 change: +0.45

Stop Loss: 93.30
Target(s): 99.75
Current Option Gain/Loss: Oct97.5c: +13.6% & 2014j100c: - 0.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/14/13: NOC ended the week on a high note, setting a new all-time closing high on Friday. Yet it's worth noting that the rally did stall at its all-time intraday high set in early August. NOC could see a pullback here but I would look for support near $94.00. A breakout past its August highs should herald a run toward round-number resistance at the $100 mark. I am adjusting our stop loss to $93.30.

Earlier Comments:
You could certainly argue that the August highs in the $96.25-96.50 zone are overhead resistance, odds are good that NOC will make a run at the $100 level.

FYI: The Point & Figure chart for NOC is bullish with a long-term $160 target.

- Suggested Positions -

Long Oct $97.50 call (NOC1319j97.5) entry $1.10

- or -

Long 2014 Jan $100 call (NOC1418a100) entry $2.16

09/14/13 new stop loss @ 93.30

chart:

Entry on September 12 at $95.25
Average Daily Volume = 1.2 million
Listed on September 11, 2013


Starbucks Corp. - SBUX - close: 75.57 change: -0.10

Stop Loss: 71.75
Target(s): 78.00
Current Option Gain/Loss: Oct75c: +87.2% & 2014Jan75c: +32.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/14/13: Traders bought the dip in SBUX on Friday morning and shares reduced their loss to just 10 cents. After a strong, four-day rally SBUX was due for some profit taking. The quick rebound is a sign of strength. I am raising our stop loss to $71.75.

- Suggested Positions -

Long Oct $75 call (SBUX1319j75) entry $1.18

- or -

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

09/14/13 new stop loss @ 71.75
09/11/13 SBUX at new highs. Cautious traders may want to lock in some gains.

chart:

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


Tractor Supply Company - TSCO - close: 130.50 change: -0.18

Stop Loss: 124.75
Target(s): 134.00
Current Option Gain/Loss: +68.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/14/13: Friday looked a lot like Thursday's session for TSCO with shares drifting sideways in a narrow range. The stock found short-term support near $130.00. The lack of profit taking is encouraging. Readers have to decide if they want to take profits now or risk just raising their stop loss. I am not suggesting new positions.

Earlier Comments:
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.

- Suggested Positions -

Long Oct $130 call (TSCO1319j130) entry $2.20*

09/12/13 traders may want to take profits now. Ask @ $3.90 (+77.2%)
09/11/13 new stop loss @ 124.75
*option entry price is an estimate since the option did not trade at the time our play was opened.

chart:

Entry on September 09 at $125.25
Average Daily Volume = 352 thousand
Listed on September 05, 2013


UnitedHealth Group - UNH - close: 74.48 change: -0.26

Stop Loss: 73.40
Target(s): 79.75
Current Option Gain/Loss: -20.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/14/13: Hmm... UNH underperformed the major indices and its peers in the healthcare sector on Friday. Traders did appear to be buying the dip near $74.00 on Friday afternoon. Readers may want to wait for a bounce back above $75.00 before considering new bullish positions. Overall the two-day dip does not change my outlook for UNH but a breakdown below $74.00 would risk hitting our stop loss.

- Suggested Positions -

Long Oct $75 call (UNH1319j75) entry $2.30

09/12/13 trade opened on gap higher at $75.32. Trigger was $75.25

chart:

Entry on September 12 at $ 75.32
Average Daily Volume = 3.3 million
Listed on September 10, 2013


PUT Play Updates

Diamond Offshore Drilling - DO - close: 64.41 change: -0.47

Stop Loss: 66.01
Target(s): 57.50
Current Option Gain/Loss: -49.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/14/13: Shares of DO are back to underperforming the energy stocks and the broader market. The stock lost -0.7% on Friday and is now flirting with a breakdown back below its simple 10-dma. Friday's low was $64.21. I would be tempted to use a new drop under $64.00 as a bearish entry point.

Earlier Comments:
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

09/11/13 DO is not cooperating and traders may want to exit early now

chart:

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



Longer-Term Play Updates



Chicago Bridge & Iron - CBI - close: 63.50 change: -0.84

Stop Loss: 57.65
Target(s): 74.50
Current Option Gain/Loss: +15.6%
Time Frame: 4 to 6 months
New Positions: see below

Comments:
09/14/13: It should be no surprise to see CBI pullback on Friday. I cautioned readers that the May highs were likely resistance and CBI could see some profit taking after such a strong performance this past week. Look for short-term support near $62.00.

*Small Positions* - Suggested Positions -

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

09/11/13 new stop loss @ 57.65
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: 53.96 change: +0.25

Stop Loss: 50.95
Target(s): 58.50
Current Option Gain/Loss: - 2.7%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
09/14/13: The European markets were mostly higher on Friday and traders bought the dip in the VGK on Friday morning. Shares are poised to breakout over what looks like short-term resistance at the $54.00 level.

Depending on your risk tolerance you could use a move past $54 as a new entry point or wait for a possible dip back toward $53.00.

Earlier Comments:
We are taking a multi-month time frame with this trade. 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.

- Suggested Positions -

Long 2014 Mar $55 call (VGK1422L55) entry $1.80*

09/11/13 trade opens. VGK @ 53.60
*option entry @ 1.80 is an estimate. Ask closed at $1.75 yesterday
09/10/13 entry trigger met. open positions tomorrow.
09/10/13 new stop loss @ 50.95
08/24/13 adjust the option strike from 2013 Dec $55 to $2014 Mar $55.

chart:

Entry on September 11 at $---.--
Average Daily Volume = 3.0 million
Listed on August 10, 2013


CLOSED BEARISH PLAYS

Bed Bath & Beyond Inc. - BBBY - close: 73.63 change: +1.53

Stop Loss: 73.55
Target(s): 66.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings on Sept. 25th
New Positions: see below

Comments:
09/14/13: BBBY is not cooperating with us. Shares outperformed the market on Friday with a +2.1% gain. This move marks a breakout from the $71.50-73.00 trading range. Our trade has not opened yet (trigger 71.45) so we're removing BBBY as a candidate.

Trade did not open.

09/14/13 removed from the newsletter. trigger was 71.45

chart:

Entry on September -- at $---.--
Average Daily Volume = 1.45 million
Listed on September 10, 2013