Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/25/2013

Table of Contents

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

Market Wrap

Selling the Rallies

by Keene Little

Click here to email Keene Little
Each morning this week we've seen morning declines bought but then the rallies have been used to sell into. It looks like a distribution pattern as we head for month/quarter-end.

Market Stats

This week so far we've seen morning declines followed by attempted reversals. But rallies into midday highs then get sold into and the market drops back down. Selling into rallies is not a good sign for the bulls, especially as we approach month/quarter end since it looks like fund managers are using the rallies to relieve themselves of inventory. That could be a bad sign for what the beginning of the next month might look like.

Many retail traders have been flocking back into the stock market as many analysts point to the great opportunity we have here to own stocks for a run higher into year-end. I can't help but feel they're like sheep being led to the slaughter house, again. Just keep playing nice soothing music (new highs by the end of the year!) and the people will stay calm and continue buying the stocks that are being offloaded to them in the rallies. Topping is a process and it seems to be a particularly long one this time but while retail traders are buying we see continuing evidence of selling by the funds.

Last week's highs for the indexes (those that made new highs or tested their August highs) are showing even more bearish divergence than the August highs compared to the May highs. This is a clear indication that the rally continues to lose momentum, which can also be seen in the market breadth numbers. We are not seeing the kind of rally strength that is needed to ensure it will continue into the end of the year. We should be mimicking the fund managers and using rallies to sell into and no longer looking for dips to buy.

The rally weakness does not prevent new highs from here, especially for the stronger indexes such as the small caps and techs, but each new high with continuing bearish divergence is a warning not to get complacent if you're playing the long side here. The flip side of the coin, for the bears, is that we do not yet have a clear signal that the top is in. It looks good for the blue chips and broader market indexes, as I'll review on their charts, but the dipsters are still active and there is a strong belief that the Bernanke call (a more aggressive market support than the Greenspan put) will not this market go down (or at least not down very much before the Fed will prop it back up).

The belief in the Fed has created a sense of entitlement for the bulls and certainly a sense of complacency. Even the week-long decline in the broader indexes has not budged the VIX much. There's simply no fear of a decline and that makes the market even more dangerous. Like generals fighting the last war, the Fed's monetary policies are fighting the last war as well. But as Didier Sornette, Professor on the Chair of Entrepreneurial Risks at the Department of Management Technology and Economics of the Swiss Federal Institute of Technology Zurich, argues, the Fed is now the problem, not the solution. Sornette's work is arguably some of the best in the field of risk management and how stability and complacency lead to less stable and more dangerous environments.

As Sornette has observed, each financial crisis that we've experienced since the 1980s has been "solved" by measures that have actually fueled the next crisis. Each market crash has been fought with an accommodative policy and each one gets more aggressive than the last. Last week's FOMC announcement has now made it clear that QE is a permanent structure which will likely only be increased or marginally decreased over time. As John Mauldin recently argued, QE is now a government program for supporting the market, I mean economy, which is not much different than other entitlement programs from the government -- once in place it becomes a permanent structure. The Fed has proven itself to be part of the government now and not an independent organization. This is a profound change of character for them.

The Fed has been using the same method to try to cover up real problems with more money. As Sornette observes, "Not only are crashes not any more mysterious, but the present crisis and stalling economy, also called the Great Recession, have clear origins, namely in the delusionary belief in the merits of policies based on a 'perpetual money machine' type of thinking." As Einstein once noted, "The problems that we have created cannot be solved at the level of thinking we were at when we created them." This is of course his definition of insanity.

All of this is to say that we're getting another step closer to a real disconnect in the stock market. The level of complacency and apparent stability are actually making the stock market even more dangerous. The next market crash will be worse the previous one and in fact the longer-term chart supports this view. We're forming a long-term megaphone pattern and the next decline is going to be very scary for most market participants. By the time the next leg down in the bear market finishes (below 6000 for the DOW), the Fed will be completely discredited and we'll hopefully have done away with them. The good news here is that once the next leg down finishes (2016-2018) we'll finally be done with the bear and set off on the next secular bull market. At least we're closer than where we were in 2000 (wink).

Dow Industrials, INDU, Monthly chart

This morning's economic reports included the Durable Goods Orders before the bell and New Home Sales at 10:00 AM. The durable goods orders, with and without transportation, were better than July's numbers but not as good as the market expected. Ex-transports the number was still negative (-0.1%), which signifies continuing weakness in the economy with two negative months in a row now. New home sales were better than July and slightly better than expectations. Nothing to write home about for either metric and the market largely ignored both reports.

I'll start tonight's chart review with the Wilshire 5000 index since it's a great study in trend lines with the use of the log and arithmetic price scales. The longer-term trend lines and big price changes make the use of both scales important when analyzing your charts. It might be helpful to print out the first 4 charts below, two weekly and two daily, and look at each as I compare the locations of the trend lines and what they signify.

The weekly chart below is using the arithmetic price scale and it shows a parallel up-channel for the rally from 2009. The May, August and September highs are up against the top of the channel and the July and September highs show bearish divergence, especially the September high. An uptrend line from October 2011 through the June 2012 low was briefly broken in November 2012 but then recovered back above it and it held as support at the June 2013 low. Another uptrend line from November 2012 through the June 2013 low has not been tested yet (but it has been tested when viewed with the log scale).

Wilshire 5000 index, $W5000, Weekly chart, arithmetic price scale

Now look at the same chart using the log price scale. The top line for the up-channel is of course no longer parallel so I took it off. The uptrend line from 2009-2011 is now much closer to current price action and the uptrend line from October 2011 through the June 2012 low has been support and resistance since June 2012, with the latest high is September finding it to be resistance. The uptrend line from November 2012 through the June 2013 is where the low at the end of August found support.

Wilshire 5000 index, $W5000, Weekly chart, log price scale

Now let's look closer with the daily chart and the two price scales. The daily charts below show the rally from November 2012 and the first one is using the arithmetic price scale. This time I've added an uptrend line from November 2012 through the April 2013 low and you can see how it became resistance in September, along with the trend line along the highs from May-August. Remember, this shorter-term trend line across the highs is actually the top of the parallel up-channel from 2009 that's shown on the weekly chart. It's clear how the June low found support at the October 2011 - June 2012 uptrend line (bold green). The last a-b-c of the complex wave count for the leg up from October 2011, which is the 3-wave move up from June, has the c-wave achieving 62% of the a-wave at 18365 (the September 19th high was 18409) and can therefore be considered complete.

Wilshire 5000 index, $W5000, Daily chart, arithmetic price scale

Now switching to the log price scale, the daily chart below shows how those trend lines shift. The longer-term uptrend line, from October 2011 - June 2012 (bold green) has shifted up and is the line that stopped the September rally, taking the place of the shorter-term uptrend line, from November 2012 - April 2013 (bold black) on the arithmetic price chart. The uptrend line from November 2012 - June 2013 is the one that acted as support for the August low.

Wilshire 5000 index, $W5000, Daily chart, log price scale

So after all this, what's the bottom line? While the top of the rally is much easier to see in hindsight we currently have a very good setup for it considering all the pieces of the puzzle that fit together here. The Fib projection to 18365 crossed multiple trend lines on different price scales (log and arithmetic) and the wave count can be considered complete. The bearish divergence, especially at the September high, is a clear warning of topping action. The "3 drives to a high" pattern can be considered complete (May, August and September highs). All of this does not guarantee that a top is in place but in hindsight many will be looking at the setup wondering why they didn't get more aggressive on the short side. They don't ring the dinner bell for bears at the top.

Now back to our normally scheduled program, SPX has the same pattern as the Wilshire 5000. I show the potential for a bounce back up this week, maybe even the start of another rally leg, but I think the greater risk is for the market to suddenly turn down hard. Below 1709 it stays bearish and above 1730 it would turn bullish. In between, mind the chop.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1730
- bearish below 1709

The short-term price pattern has me wondering which way the market will head on Thursday and into the end of the month. We know fund managers do some strange things into the end of a month/quarter and we could see the held up into next Monday. Or it could drop hard if fund managers start to worry about losing some of their profits for the quarter/year and suddenly start selling en masse. The different indexes give me different ideas for what's next but in total I see the potential for a bounce back up into Friday/Monday. On Thursday we enter the T+3 settlement window so fund managers could start to lighten up at any time.

I see the potential for a small descending wedge for the blue chips over the past two days and that's what I'm showing on the SPX 60-min chart below. A small drop Thursday morning followed by a rally (which it did Tuesday and Wednesday) could trap some bears for a bigger bounce. I show the start of a stronger decline next week but I'll be reviewing that potential very carefully on Friday if the bounce plays out. The risk is for a suddenly much stronger decline at any time.

S&P 500, SPX, 60-min chart

The bad news for bulls today is that the DOW broke and closed below its 50-dma. It could be just a one-day head fake and in fact I've been looking for a higher bounce since Tuesday morning's low (the short-term pattern looks like a small descending wedge pattern that could finish Thursday morning). It could find support near 15250, which is where it will retrace 50% of its August-September rally and then bounce back up to the 15500 area before setting up a stronger decline.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 15,750
- bearish below 15,300

Last week NDX rallied up to the top of a parallel up-channel for its rally from November 2012 and stopped a little shy of the price projection at 3253 where the 2nd leg of the 3-wave move up from June would be 62% of the 1st leg up, which is a common relationship inside a rising wedge pattern (which is arguably what we have with the bottom of the wedge as the uptrend line from June-August). It's been repeatedly testing the trend line along the highs from May-August but closed slightly below it today and that could be a bearish signal that more selling is coming. Back above Tuesday's high near 3237 should see at least another test of the top of its up-channel, which will be near 3262 on Monday and that would also be a back test of its broken uptrend line from August 30th. A break below price-level support at 3150, as well as its uptrend line from June-August, would be confirmation the top is in place.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3237
- bearish below 3150

A closer view of NDX shows the trend lines in play here. After tagging the top of its up-channel from November-April last week it tried on Monday and Tuesday to hold support at the trend line across the highs from May-August as well as its uptrend line from August 30th. It broke its uptrend line this morning and back tested it at today's midday high. The selloff from there looks bearish and it closed marginally below the trend line across the highs from May-August. But the whole pullback pattern from last week's high looks corrective and as shown on the chart below, we could see a final rally attempt into next Monday to finish the month/quarter on a positive note. From there it should be all downhill so don't get caught up thinking a new high would be bullish. The bounce is speculation at this point; a break below 3190 would suggest the high is already in place.

Nasdaq-100, NDX, 60-min chart

Like the NDX I've been thinking the RUT will push marginally higher and it has been the stronger index as those who believe the market will rally higher into the end of the year buy up the riskier stocks. Either that or fund managers are trying to show how smart they are by loading their books with the high-flying stocks. Once we get past this month that could change in a hurry. At the moment the RUT is bouncing between two parallel lines that mark the top of an up-channel from October 2011, which it did back in July and August as well. This time it's doing it with bearish divergence at new price highs. It could be now or just a matter of a few days but I think the RUT is getting ready to break down.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1085
- bearish below 1063

Continuing with the 30-year bond, which I've been updating for a few weeks now, we see it has now made a clear break out of its small descending wedge after a small throw-under of it into its September 6th low. Whether it will be just a bounce before heading lower again or the start of a new rally leg into 2014, we should get at least a larger bounce. Believing it's the start of the next rally leg I would anticipate seeing a rotation out of stocks and into bonds. A scary stock market selloff would certainly prompt some of that and it could start with some rebalancing following the end of this month.

30-year Bond, ZB, Daily chart

The banks have been weak since the August 28th low and the bounce has been very choppy. At last Wednesday's high, following the Fed's promise to keep giving banks more money to play with, BKX managed to back test its broken uptrend line from April-June, which was broken with the strong decline on August 27th. That back test and kiss goodbye was clearly bearish and it subsequently broke what could be interpreted as a H&S neckline from June through the August low (this is more apparent on some of the big banks such as JPM). Monday's strong break of the neckline was followed by a bounce off a retest of its August low and could give us a back test if it bounces a little higher to its 20-dma, both near 63.25 on Thursday. It's showing bullish divergence compared to the August low so perhaps there's a bigger bounce in store but clearly a drop below today's low at 61.94 would be bearish.

KBW Bank index, BKX, Daily chart

The dollar bounced off Fib support last week, at 80.18, which is where the 2nd leg of the decline from July is 62% of the 1st leg down and that could lead to the start of another rally in the dollar. But so far the bounce off last Wednesday's low is hardly impressive. We might instead see a continuation lower to the H&S neckline near 79.52 by next Monday before setting up a rally.

U.S. Dollar contract, DX, Daily chart

Last week gold bounced off Fib support near 1302 (50% retracement of its 2008-2011 rally) and managed to make it back up to its broken uptrend line from June-August and its 20-dma. It gave both of them a kiss goodbye and fell right back down. So far it's at least a higher low than last week's (just before the FOMC announcement) and it's holding support at its broken downtrend line from February-April. But it's now dealing with a band of resistance shown on the chart at 1336-1345 (today's high was 1338). It would be at least short-term bullish above its 20-dma, currently near 1356, and more bearish below last Wednesday's low near 1291.

Gold continuous contract, GC, Daily chart

Last week I showed an expectation for oil to pull back to support near 102.50 to be followed by another rally leg into October, perhaps testing its August 28th high at 112.24, before pulling back again. Basically it would be one large choppy pattern into the end of the year, trading between 100 and 115. Today's low at 102.20 fulfills the pullback and it could start back up from here. But it's threatening to break support at its broken downtrend line from 2011-2012 and its uptrend line from April-June. A break much below today's low would be more immediately bearish, which might coincide with a stock market selloff. Forced to choose here I'd side with the bears but either way we should find out quickly.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include unemployment claims, the 3rd estimate for GDP (no changes expected) and then after the bell we'll get pending home sales, which are expected to show a worsening picture for the housing market.

Economic reports and Summary

Depending on which index I look at I could argue the need for one more new high (the tech and small cap indexes) or at most a bounce before heading lower in a stronger decline (blue chips). Since at most I'm looking for a minor new high I don't think the long side is the place to be. We could see an effort to hold the market up into the end of the month/quarter (and maybe get the new high for NDX and RUT) but with the rallies now being sold into I think it's providing evidence that fund managers will have little desire to stick around as we head for October.

With the retail crowd showing enthusiasm for the stock market and fund managers showing the opposite it's a strong signal that we should be looking to play the downside. While I'd hardly call the downside the path of least resistance (not with this choppy market), the downside risk for longs is far greater than the upside risk for shorts. Short-covering rallies are short-lived and that may be our clue that there are not many shorts left in the market who are nervous enough to cover on bounces. That makes the downside more vulnerable.

Bernanke's "gotcha" stunt last Wednesday fried a lot of shorts (in bonds as well as stocks) but the short covering in stocks got no follow through (what's your encore Mr. Bernanke?) while bonds continue to see buying. The bond market is of course the Fed's primary concern and they want to see a bond rally and lower yields. They might get their wish if my read of the charts is correct. I think we're close to a rotation out of stocks and into bonds so stock players get ready to rumble to the downside.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

It just keeps going, and going, and going.

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)
COF, ACE, SXL, DECK, CME, UPS, ETN, LII, YELP, LAD, VIPS, WAGE, SOHU

(bearish ideas)
TGT, EW,



NEW DIRECTIONAL PUT PLAYS

Energizer Holdings - ENR - close: 92.12 change: -1.67

Stop Loss: 94.65
Target(s): 88.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ENR makes the popular Energizer brand batteries. They also make a number of other personal goods including shaving products, skin care products, and more. The stock peaked near six-year highs back in July. The correction started following the company's earnings report on July 31st where ENR beat the bottom line estimate but missed the revenue estimate.

Since the late July peak ENR has been consistently weak with traders selling every rally. Now ENR is breaking down through multiple layers of support and today's drop just broke through another layer of support near $92.50. We suspect this downward momentum continues and ENR could drop toward its simple 300-dma near $87.65.

I am suggesting small bearish positions now, at the open tomorrow morning. We'll use a stop loss at $94.65, just above yesterday's high. Our exit target is $88.00.

- Suggested Positions -

Buy the Oct $90 PUT (ENR1319v90) current ask $1.05

Annotated Chart:

Weekly Chart:

Entry on September -- at $---.--
Average Daily Volume = 424 thousand
Listed on September 25, 2013



In Play Updates and Reviews

The Selling Continues

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index posted its fifth decline in a row, the first time that has happened this year.

Prepare to exit our N call play tomorrow morning.
TFM was triggered. WDC was stopped out.


Current Portfolio:


CALL Play Updates

Actavis, Inc. - ACT - close: 139.09 change: -0.24

Stop Loss: 135.75
Target(s): 148.50
Current Option Gain/Loss: -40.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: ACT tried to rally past resistance near $140 this morning but traders quickly sold the move and shares reversed under their early September highs. We are turning more cautious here and raising the stop loss to $135.75.

- Suggested Positions -

Long Oct $145 call (ACT1319j145) entry $1.50*

09/25/13 new stop loss @ 135.75
09/21/13 Shares of ACT were volatile right at the closing bell on Friday (09/20/13). Expected more volatility on Monday morning
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on September 19 at $139.50
Average Daily Volume = 985 thousand
Listed on September 18, 2013


Anadarko Petroleum - APC - close: 94.83 change: +0.12

Stop Loss: 92.25
Target(s): 99.50
Current Option Gain/Loss: -22.6%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
09/25/13: APC managed to eke out another small gain. Yet shares struggled under yesterday's high near $96.00. I am not suggesting new positions.

- Suggested Positions -

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

09/21/13 new stop loss @ 92.25
*option entry price is an estimate since the option did not trade at the time our play was opened.

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


3D Systems - DDD - close: 54.96 change: -0.19

Stop Loss: 52.48
Target(s): 59.75 & 64.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks and two-to-three months
New Positions: Yes, see below

Comments:
09/25/13: Shares of DDD quickly churned sideways. I don't see any changes from my earlier comments.

Earlier Comments:
DDD could see a short squeeze. The most recent data listed short interest at 33% of the 94.5 million share float. Tuesday's high was $56.23. We are suggesting a trigger to buy calls at $56.35. If triggered our short-term target is $59.75. Our longer-term target is $64.00. The Point & Figure chart for DDD is bullish with a $71 target.

Trigger @ 56.35

- Suggested Positions -

Buy the NOV $60 call (DDD1316k60)

- or -

Buy the 2014 Jan $60 call (DDD1418a60)

Entry on September -- at $---.--
Average Daily Volume = 4.1 million
Listed on September 24, 2013


Hanesbrand Inc. - HBI - close: 62.70 change: -0.71

Stop Loss: 62.25
Target(s): 68.50
Current Option Gain/Loss: -42.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
09/25/13: Hmm... it was an interesting session for HBI. The stock saw a midday rally that reversed under last week's highs. Shares gave back all of its gains and more and eventually underperformed with a -1.1% decline. I suspect that if the broader market is weak tomorrow we could see HBI hit our stop loss at $62.25.

Earlier Comments:
The late July high near $65.60 could be short-term overhead resistance. I would not be surprised to see HBI stall or pullback on its initial test of this level.

- Suggested Positions -

Long Oct $65 call (HBI1319j65) entry $1.40

09/21/13 new stop loss @ 62.25

Entry on September 16 at $63.25
Average Daily Volume = 612 thousand
Listed on September 10, 2013


Jarden Corp. - JAH - close: 48.65 change: -1.01

Stop Loss: 47.75
Target(s): 54.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
09/25/13: JAH hit some profit taking today with shares reversing under resistance at the $50 level again. The stock underperformed the broader market with a -2.0% decline. There is no change from my earlier comments.

Earlier Comments:
I am suggesting a trigger to buy calls at $50.25. If triggered our target is $54.50. More aggressive traders could aim higher.

I am suggesting the October calls but you might want to consider buying the 2014 January calls instead.

Trigger @ 50.25

- Suggested Positions -

buy the Oct $50 call (JAH1319j50)

Entry on September -- at $---.--
Average Daily Volume = 1.9 million
Listed on September 21, 2013


Magna Intl. - MGA - close: 84.00 change: -0.43

Stop Loss: 81.90
Target(s): 89.50
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: MGA gave back about two thirds of yesterday's gains. The stock appears to be coiling between resistance at $85.00 and short-term technical support at the 10-dma.

- Suggested Positions -

Long Oct $85 call (MGA1319j85) entry $1.20

09/21/13 new stop loss @ 81.90
09/16/13 trade opened on gap higher at $82.76
trigger was $82.65

Entry on September 16 at $82.76
Average Daily Volume = 545 thousand
Listed on September 14, 2013


NetSuite Inc. - N - close: 108.50 change: +1.30

Stop Loss: 104.75
Target(s): 109.75
Current Option Gain/Loss: +85.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/25/13: NetSuite almost hit our exit target today. The stock rallied to a new high and hit $109.56 intraday before paring its gains. Our exit target has been $109.75. We're not going to wait. Tonight we're suggesting traders exit immediately to lock in gains. The October $105 calls currently have a bid/ask of $5.10/5.40. Plan to exit at the open tomorrow.

- Suggested Positions -

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

09/25/13 prepare to exit at the open tomorrow morning
09/18/13 new stop loss @ 104.75, adjust exit target to $109.75
09/17/13 new stop loss @ 103.75
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.

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


Northrop Gruman - NOC - close: 95.73 change: -0.22

Stop Loss: 94.95
Target(s): 99.50
Current Option Gain/Loss: (Oct97.5c:+118.1%) & 2014j100c: -16.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: We are growing more concerned over the action in NOC. You could argue that NOC is actually showing relative strength as it churns sideways near $96 while the broader market slips lower. Unfortunately, momentum is definitely starting to turn for NOC. More conservative traders may want to seriously consider an early exit right now. Tonight we are adjusting our stop loss higher to $94.95.

- Suggested Positions -

Oct $97.50 call (NOC1319j97.5) entry $1.10 exit $2.40*(+118.1%)

- or -

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

09/25/13 new stop loss @ 94.95
09/18/13 closed the Oct. $97.50 calls @ the open
*option exit price is an estimate since the option did not trade at the time our play was closed.
09/17/13 prepare to exit the Oct. $97.50 calls at the open tomorrow
09/17/13 new stop loss @ 94.75, adjust exit target to $99.50
09/16/13 new stop loss @ 94.25
09/14/13 new stop loss @ 93.30

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


Starbucks Corp. - SBUX - close: 76.34 change: -0.21

Stop Loss: 73.90
Target(s): 79.00
Current Option Gain/Loss:(Oct75c:+ 93.2%) & 2014Jan75c: +40.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/25/13: Wednesday proved to be a quiet session for SBUX. The stock churned sideways and closed with a minor decline. More conservative traders might want to raise their stop. I am not suggesting new positions at this time.

- Suggested Positions -

Oct $75 call (SBUX1319j75) entry $1.18 exit $2.28 (+93.2%)

- or -

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

09/19/13 new stop loss @ 73.90
09/18/13 new stop loss @ 73.40, adjust exit to $79.00
this morning we closed the Oct. $75 calls at the open.
09/17/13 prepare to exit the October $75 calls at the open tomorrow
09/17/13 new stop loss @ 72.40
09/14/13 new stop loss @ 71.75
09/11/13 SBUX at new highs. Cautious traders may want to lock in some gains.

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


SouFun Holdings - SFUN - close: 50.00 change: +1.07

Stop Loss: 47.90
Target(s): 57.50
Current Option Gain/Loss: -25.7%
Time Frame: exit prior to October expiration
New Positions: see below

Comments:
09/25/13: There was no follow through lower on yesterday's decline. SFUN actually erased yesterday's loss. Shares outperformed the market with a +2.1% gain but the rally did stall at the $50.00 mark.

More aggressive traders may want to buy calls now. Today saw new short-term resistance near $50.50 so you could use a rally past $50.50 as an entry point. I am still suggesting readers wait for a rise past $51.00.

Earlier Comments:
This is an aggressive, higher-risk trade. I am suggesting we use small positions to help limit our risk. The recent high near $53.50 could be resistance but we're aiming for $57.50. The Point & Figure chart for SFUN is bullish with a $63 target.

*small positions* - Suggested Positions -

Long Oct $55 call (SFUN1319j55) entry $1.75*

09/24/13 trade opened on gap higher at $51.14. Trigger was 51.10
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on September 24 at $51.14
Average Daily Volume = 1.2 million
Listed on September 23, 2013


PUT Play Updates

Alliant Techsystems - ATK - close: 97.14 change: -0.06

Stop Loss: 98.05
Target(s): 90.25
Current Option Gain/Loss: -48.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: There was no follow through higher on yesterday's big bounce in ATK. Yet ATK did not see any real selling pressure either. My comments from yesterday still apply. If ATK rolls over back below its 50-dma (near 96.40) I would consider new positions.

Earlier Comments:
Our target is $90.25. More aggressive traders may want to aim for the rising 100-dma instead. I do consider this a slightly more aggressive, higher-risk trade because we're using a wider stop loss, just above Friday's intraday high.

- Suggested Positions -

Long Oct $95 PUT (ATK1319v95) entry $2.80

09/24/13 new stop loss @ 98.05

Entry on September 23 at $94.75
Average Daily Volume = 434 thousand
Listed on September 21, 2013


The Cooper Companies - COO - close: 129.24 change: +1.45

Stop Loss: 130.25
Target(s): 124.00
Current Option Gain/Loss: -22.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: COO is not cooperating. Shares spiked down to $126.00 today. After a couple of hours of finding support there COO rallied back and more to completely reverse yesterday's losses. Technically this might be considered a one-day bullish reversal pattern but COO still has overhead resistance near $130.00 and its simple 50-dma. Tonight we are adjusting our stop loss down to $130.25.

- Suggested Positions -

Long Oct $125 PUT (COO1319v125) entry $2.00

09/25/13 new stop loss @ 130.25, COO not cooperating.

Entry on September 24 at $128.90
Average Daily Volume = 280 thousand
Listed on September 23, 2013


The Fresh Market, Inc. - TFM - close: 47.28 change: -0.85

Stop Loss: 50.05
Target(s): 42.00
Current Option Gain/Loss: -11.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: We have been patiently waiting for a bearish breakdown in TFM and it looks like the breakdown is happening today. The stock has closed below support near $48.00 and its 200-dma and 150-dma. Our trigger to buy puts was hit at $47.50.

Earlier Comments:
Our target is $42.00. I am suggesting we keep our position size small because TFM can be a little bit volatile. Plus the most recent data listed short interest at 13% of its small 40.1 million share float. FYI: The Point & Figure chart for TFM is bearish with a $39 target.

- Suggested Positions -

Long Oct $45 PUT (TFM1319v45) entry $0.45

Entry on September 25 at $47.50
Average Daily Volume = 591 thousand
Listed on September 16, 2013



Longer-Term Play Updates



Chicago Bridge & Iron - CBI - close: 65.84 change: -0.52

Stop Loss: 59.75
Target(s): 74.50
Current Option Gain/Loss: +56.8%
Time Frame: 4 to 6 months
New Positions: see below

Comments:
09/25/13: The S&P 500 posted its fifth decline in a row and shares of CBI look like they might finally succumb to some profit taking. Shares gave back -0.7% although it's worth noting that traders did buy the dip at its 10-dma today.

I am not suggesting new positions at this time.

*Small Positions* - Suggested Positions -

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

09/21/13 new stop loss @ 59.75
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

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


Vanguard FTSE Europe ETF - VGK - close: 54.85 change: +0.15

Stop Loss: 50.95
Target(s): 58.50
Current Option Gain/Loss: +19.4%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
09/25/13: After a four-day decline the VGK bounced at its 10-dma. Today's move erases yesterday's loss. I am not suggesting new positions at this time.

Look for support in the $53.00-53.50 zone.

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.

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


CLOSED BEARISH PLAYS

Western Digital Corp. - WDC - close: 65.43 change: +0.75

Stop Loss: 65.60
Target(s): 60.15
Current Option Gain/Loss: -48.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/25/13: The bullish rebound in WDC continues and shares broke out past the $65.00 level and its 50-dma and one of its trend lines of lower highs. WDC's rival STX surged on bullish analyst comments and that could have given WDC a boost today. Our stop loss was hit at $65.60.

Earlier Comments:
I would keep our position size small to limit risk.

*small positions* - Suggested Positions -

Oct $60 PUT (WDC1319v60) entry $1.22 exit $0.63 (-48.3%)

09/25/13 stopped out
09/23/13 trade opened on gap down at $63.24.
suggested trigger was $63.50

chart:

Entry on September 23 at $63.24
Average Daily Volume = 2.2 million
Listed on September 21, 2013