Option Investor
Newsletter

Daily Newsletter, Tuesday, 10/1/2013

Table of Contents

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

Market Wrap

Market Logic

by Jim Brown

Click here to email Jim Brown

If you are expecting a logical response to the government shutdown don't look in the stock market.

Market Statistics

Portions of the government shutdown at midnight last night and the markets rallied. While that may seem like the opposite of conventional wisdom there is some validity to it. Actually going into shutdown has changed the characteristics of the negotiations. As the hostility heats up and the mudslinging shifts into high gear there is a greater chance of a compromise. With the debt ceiling coming up for debate only two weeks from now there is suddenly a good possibility the two problems could be merged into one big settlement.

When the market opened it was running on comments from various lawmakers saying it would be a very short term shutdown lasting a day or two. By late afternoon that idea had faded and 10 minutes after the close news started to break that the republican leadership was now thinking it could be a week to ten days. While that means we will be inundated with shutdown headlines for far longer than expected it also means there is an even better chance there will be an omnibus settlement that could include the debt ceiling. That is bullish if it works out that way but there are a lot of potholes in the path between now and a grand bargain.

Another positive for the market was the outlook for QE. The longer the shutdown lasts the longer it will be before the Fed actually tapers QE. The shutdown is harming the economy because of the uncertainty and the million plus government workers not getting paid. Companies may hold off on capital spending because they don't know what the environment will look like when the dust settles. Who knows what grand bargain the House and Senate may end up with after all the arm twisting? If it drags on very long the AAA credit rating for the U.S. could be in jeopardy.

You would have thought the Washington headline war was already over. The Nasdaq soared to a new 13 year high at 3817 and broke out of a two week consolidation range. The Russell 2000 also broke out to a new high at 1086 after punching through solid resistance at 1080. The Dow and S&P both posted gains but remained well off their September highs. The Nasdaq and Russell have been the leaders to the upside and that was very evident today.

The economics were also favorable although mixed once again. The biggest positive was the ISM Manufacturing Index. The ISM headline number rose from 55.7 to 56.2 and the highest level since 2011. The estimate was for a decline to 55.0. The gain was a surprise to everyone. However, the new orders component declined from 53.2 to 60.5 but order backlogs rose slightly from 46.5 to 49.5. The employment index rose from 53.3 to 55.4 and that is positive for the job outlook. That is only the third gain this year.

This was an update report and it suggests the ISM Services report will also surprise to the upside.


The Construction Spending report was not released because of the government shutdown.

The Texas Service Sector Survey for September declined from 16.7 to 14.0. The revenue component declined sharply from 13.6 to 8.9 and that suggests the index could fall in October as well. However, the employment component fell sharply from 7.5 to 3.7, a 50% decline. Companies are still hiring but at a much slower pace. Retail sales also fell sharply from 21.1 to 16.5. The expectation component fell from 27.5 to 23.5. Texas was the hot spot for business in the U.S. but maybe that trend is slowing.

The annualized vehicle sales for September declined from the 16.1 million pace in August to 15.3 million in September. Last month had two less selling days because of an unusual calendar but estimates were still higher at 15.9 million. Even at the lowered pace that is still higher than the 14.94 million pace for September 2012. The pace of auto sales fell from 8.0 million to 7.7 million. Light truck sales declined from 8.1 million to 7.6 million.

Domestic manufacturers saw their market share rise slightly from 44.6% to 45.0%. The three major Japanese automakers saw market share decline from 34.5% to 31.4%.

The economic calendar for the rest of the week is cloudy. The Nonfarm Payroll report on Friday has been postponed because it is a government report. Other reports that will be postponed until after the shutdown will be the Factory Orders for August, oil inventories and natural gas inventories. The reports produced by private agencies like the ISM Services and home prices will be released on schedule. The ADP Employment report on Wednesday will be released on schedule.

Bernanke will still speak at 3:PM on Wednesday and three of the Fed dwarves, Williams, Powell and Fisher, will still speak on Thursday.


As you can imagine what little stock news there was quickly became lost in the storm of shutdown headlines. One headline that stayed on the top of the news was the massive sell off in gold. Somebody, probably a big hedge fund, dumped a massive amount of gold futures in the market. Between 8:30-8:40 more than 23,000 contracts of the December gold futures were dumped on the market. This was more than $1 billion in gold futures.

Gold prices imploded from yesterday's close at $1,326 to hit $1,282 intraday and a decline of -$38 for the day. This completely flushed any weak holders and it may actually be a capitulation event in the gold market. It may take a couple days for the echoes of the drop to fade away but it was a major event. Strangely the total volume for the day of the December futures was 119,700 contracts compared to the daily average of 159,000. That is a significant shortfall given the massive move. The drop probably would not have occurred if the contracts were parceled out over the entire day rather than dump them all at once.

That strange trade could have been a major player bailing out OR it could have been a major player trying to crush the market. It could have been JP Morgan dumping futures to raise money for a massive settlement for its mortgage sins but I doubt it since JPM traders are smart enough to sell the contracts in small amounts to avoid impacting the price.

Several analysts theorized that the expectations for a short shutdown simply negated the Armageddon trade. I think they were drunk at the time since the shutdown could actually morph into an Armageddon event where gold as insurance would be a plus.

Whatever the reason for the massive drop it will be interesting to see if buyers appear now that the weak holders have been flushed.

Silver declined -50 cents in sympathy with gold and volume was also below normal. Silver broke below the 100-day average at $21.52 that had been support for the last month. After trading as low as $20.63 it rebounded strongly in the last hour to close at $21.15.



Under Armor (UA) rallied +4% on an upgrade from JP Morgan to neutral from underweight. Yes, I said +4% on an upgrade to neutral. The analyst said in conversations with retailers they found the space allotted to active wear growing significantly. Macy's said it was doubling the square footage over the same period in 2012. Nike (NKE), Under Armor and North Face were the brands being expanded. There was a strong push into space allocated for women's active wear. That is a portion of the sector that has previously been under served by retailers.


Apple (AAPL) shares rallied +$11 after Carl Icahn had his long awaited dinner with CEO Tim Cook and pressed him for upping the share buyback to $150 billion. That is twice what Apple has already planned. Icahn said Apple could borrow money at 3% and take advantage of the depressed share price to organize a monster share repurchase that would benefit all shareholders. I am not holding my breath. Icahn may be a billionaire but Apple has a market cap of $450 billion. Even if Icahn bought a billion dollars in Apple shares he is just 1/450th of the outstanding shares. Icahn said he can't promise they will take his advice or that the stock will go up but he did promise he was not going away. That implied threat to Cook and the board will at least make them think about upping the buyback.


Chicago Bridge and Iron (CBI), a current play in Option Investor and the OilSlick.com newsletters announced today it was forming a joint venture with China Power Investment Corp (CPI) to build nuclear power plants in China. CBI will include the provision of engineering, procurement, construction management, commissioning, project management and technical support services for new plants developed by CPI. China is planning on approving 30 new plants by 2020. They have approved four new plants so far in 2013. CPI is one of the largest state-owned power companies in China and one of three nuclear plant owners and operators.

CBI has 50,000 employees and is the most complete energy infrastructure focused company in the world. They are the provider of choice for the LNG industry and they have several major developments under construction and several more in the bid process. They were just awarded an engineering bid for LNG work by Russia on Friday. CBI shares have recently broken out from a three-month consolidation and closed at a new high today.


The markets rocketed higher on Tuesday for multiple reasons. I already explained how the expectations for a short 1-2 day shutdown caused buyers to appear. We have had so many critical events pass silently away that the prospect of a 1-2 day shutdown and then a successful budget agreement was just one more crisis that turned into a buying opportunity. The "everything is going to work out" mentality took hold again.

When the futures began spiking overnight the shorts got scared and the result was another major short squeeze. After declining continuously since the high on September 18th on fears of the dreaded shutdown the shorts were overloaded and ready for a massive drop. Surprise! It did not quite work out as they expected and the squeeze was on.

This was also the first day of the month when new retirement contributions normally hit the market. Fund managers apparently applied those funds to what has been working for them for the last several months. That is small caps and tech stocks.

The White House may have been preaching Armageddon against the republicans but investors were tuning out the hostile headlines. The news after the bell that the shutdown could last 7-10 days took the bloom off the S&P futures and turned them negative. The House tried to pass targeted spending bills to support parks, veterans and the municipal government for the District of Columbia but before the votes had even been taken the Senate and White House said they were doomed. The increasingly hostile environment now has analysts wondering if everything will work out after all.

Normally when the House approves a bill and the Senate modifies it they appoint a conference committee that meets to work out a compromise. The House appointed a conference committee to conference the budget differences but the Senate members refused to attend.

In theory this is when the two sides should be hiding out in a conference room working out their differences. Instead they are firing off increasingly hostile sound bites and the situation is not improving. This may turn the shutdown rally into a one day wonder.

The S&P bounced off 1680 twice on Monday and then rallied to test resistance at 1695 today. There is significant resistance from the close at 1694 and 1705. An announcement the two sides have come to an agreement could easily propel the S&P well over that resistance but continued hostility could force a retest of support at 1680.

We should not apply too much emphasis to technical analysis of the charts tonight. This is a headline driven market and until the headlines turn positive the S&P should have a tough time pushing higher.


The Dow was the weakest index again with a gain of +62 points or +0.4%. The Dow struggled with resistance at 15,200 and would have performed even worse except for a +30 point gain in the last five minutes of trading. There were big gains in JPM, IBM, AXP, DD and DIS and GE in the last 5 min.

The Dow declined to a three-week low on Monday and was heavily shorted. Despite that the rebound was lackluster.

Support is 15,100, 14,880. Resistance 15,200, 15,275.



The Nasdaq exploded higher after touching a two week low at 3734 on Monday. The index gained +46 points to close well over prior resistance at 3800 and we are in blue sky territory at 13 year highs. Unless there is a disaster in Washington we should see higher highs. There may be some temporary profit taking and there is always headline risk but the strength of the move today was pretty amazing.

Support should now be 3800 followed by 3750.


The Russell 2000 also broke out to a new high at 1087 and easily overcoming prior resistance at 1080. With the small caps in breakout mode after a dip to 1061 on Monday this rally could have legs. I keep thinking the October fiscal year end for funds will eventually force some profit taking but there is no indication of that today but the month is young.


The market is being driven by headlines and assumptions that everything will work out. Rarely does that work out as expected but investors appear committed to that prospect. It is hard to project market direction when fundamentals don't matter.

More than 100 S&P companies have issued guidance for Q3 earnings. S&P said 65 have warned, 25 have issued positive guidance and 16 guided in line with estimates. That is nearly a 3:1 ratio of negative to positive. Earnings are expected to grow +3.1% and revenue +4.0%. While that is not bullish it is still a positive trend in earnings growth. It is not enough to justify the markets breaking out to new highs.

I expected a buying opportunity when the debt ceiling debate heated up. We are not there yet but the market does not appear concerned. If a grand bargain is struck it should produce a continued gain in equities. However, if whatever compromise is reached in the coming days only deals with the continuing resolution on the budget we could see a sell the news event.

Enjoy the gains but keep your finger on the exit trigger.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Consumer Goods & Transportation

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)
CVLT, FDX, PH, FISV, SLB, COF, HAR, PNR, LTD, WFM, OIS, BEAV, NUS, SWK, CRS, IBB, ULTA, ALNY,



NEW DIRECTIONAL CALL PLAYS

Ecolab Inc. - ECL - close: 99.48 change: +0.72

Stop Loss: 97.75
Target(s): 105.00
Current Option Gain/Loss: Unopened
Time Frame: exit prior to earnings in late October
New Positions: Yes, see below

Company Description

Why We Like It:
According to ECL's website the company is a "global leader in water, hygiene and energy technologies and services that protect people and vital resources. " They're listed as being in the cleaning products industry and the consumer goods sector. The stock is in a long-term up trend. The last few days have seen shares consolidating sideways below resistance at the $100 level. We want to hop on board if ECL can breakout past $100, which is significant round-number, psychological resistance.

Tonight we're suggesting a trigger to buy calls at $100.25. If triggered we'll use a stop loss at $97.75. Our target is $105.00. We will plan to exit prior to ECL's next earnings report due some time in very late October.

Trigger @ 100.25

- Suggested Positions -

buy the NOV $100 call (ECL1316k100) current ask $2.25

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 877 thousand
Listed on October 01, 2013


United Parcel Service - UPS - close: 91.80 change: +0.43

Stop Loss: 89.95
Target(s): 99.00
Current Option Gain/Loss: Unopened
Time Frame: exit prior to earnings on Oct. 25th
New Positions: Yes, see below

Company Description

Why We Like It:
The transportation sector was one of the market's stronger performers today. Meanwhile shares of UPS have been consolidating sideways below resistance near $92.00 the last several days. The two-day bounce has left UPS poised for a bullish breakout higher. It sounds like most market pundits remain bullish on the economy even though the U.S. government shutdown could have a negative impact. An improving economy should be positive for UPS.

We are suggesting a trigger to buy calls at $92.25. If triggered our target is $99.00 but we will plan to exit prior to the earnings announcement on October 25th.

Trigger @ 92.25

- Suggested Positions -

buy the 2014 Jan $95 call (UPS1418a95) current ask $1.47

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 2.6 million
Listed on October 01, 2013



In Play Updates and Reviews

Q4 Starts Strong

by James Brown

Click here to email James Brown

Editor's Note:

The first day of the fourth quarter got off to a good start. Market participants ignored the U.S. government shutdown and bought the dip in stocks.

ROST and TSCO hit our entry triggers.


Current Portfolio:


CALL Play Updates

Actavis, Inc. - ACT - close: 145.10 change: +1.10

Stop Loss: 139.40
Target(s): 148.50
Current Option Gain/Loss: +90.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/01/13: ACT tested support near $142 again and then rallied to a new all-time closing high. More conservative traders may want to take profits soon. We are aiming for $148.50.

- Suggested Positions -

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

09/30/13 new stop loss @ 139.40
09/28/13 new stop loss @ 137.75
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: 93.44 change: +0.45

Stop Loss: 92.25
Target(s): 99.50
Current Option Gain/Loss: -53.4%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
10/01/13: APC posted +0.4% gain but it was a disappointing session with shares failing near their 10-dma midday. I remain cautious here. 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


Boeing Co. - BA - close: 117.75 change: +0.25

Stop Loss: 117.75
Target(s): 127.50
Current Option Gain/Loss: Unopened
Time Frame: Exit prior to Oct. 23 earnings announcement
New Positions: Yes, see below

Comments:
10/01/13: Hmmm... I find it very interesting that BA underperformed the market by only gain +0.2%. That could be forecasting more weakness ahead. Shares have stalled at their 10-dma. There is no change from my prior comments.

Earlier Comments:
Right now BA is consolidating sideways below resistance near the $120 level. The September 19th high was $120.38. I am suggesting a trigger to buy calls at $120.50. If triggered our target is $127.50 but we will plan on exiting positions prior to BA's earnings report in late October.

Trigger @ 120.50

- Suggested Positions -

Buy the NOV $125 call (BA1316K125)

Entry on September -- at $---.--
Average Daily Volume = 4.5 million
Listed on September 26, 2013


3D Systems - DDD - close: 55.83 change: +1.84

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:
10/01/13: DDD was showing lots of relative strength today with a +3.4% gain. Shares now look poised to breakout past resistance near $56.00 soon. 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) current ask $2.60

- or -

Buy the 2014 Jan $60 call (DDD1418a60) current as $4.20

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


iShares Russell 2000 ETF - IWM - close: 107.85 change: +1.24

Stop Loss: 103.40
Target(s): 110.95
Current Option Gain/Loss: +37.1%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
10/01/13: The rally in the small cap ETF continued on Tuesday with the IWM breaking out to a new all-time high. We are setting our bullish exit target at $110.95.

Earlier Comments:
I'm suggesting the 2014 January $110 calls but you may want to use another month or strike that better suits your trading style.

- Suggested Positions -

Long 2014 Jan $110 call (IWM1418a110) entry $2.10

10/01/13 setting the bullish exit target at $110.95
09/30/13 buy-the-dip trigger hit at $105.25.

Entry on September 30 at $105.25
Average Daily Volume = 34.6 million
Listed on September 28, 2013


Ross Stores Inc. - ROST - close: 73.74 change: +0.94

Stop Loss: 69.95
Target(s): 77.50
Current Option Gain/Loss: Nov75c: +15.0% & 2014jan75c: + 5.7%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
10/01/13: The rally in ROST continued as expected. Shares gapped open higher at $73.00 and posted a +1.29% gain to close at new all-time highs. Our trigger to buy calls was hit this morning at $73.05.

Earlier Comments:
FYI: The Point & Figure chart for ROST is bullish with an $89 target.

NOTE: I'm listing our trade with an initial stop loss at $69.95 but more conservative traders may want to use a stop closer to $71.00 instead.

- Suggested Positions -

Long Nov $75 call (ROST1316K75) entry $1.13

- or -

Long 2014 Jan $75 call (ROST1418a75) entry $2.60*
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on October 01 at $73.05
Average Daily Volume = 1.28 million
Listed on September 28, 2013


Starbucks Corp. - SBUX - close: 77.16 change: +0.19

Stop Loss: 75.75
Target(s): 79.00
Current Option Gain/Loss:(Oct75c:+ 93.2%) & 2014Jan75c: +55.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
10/01/13: I am surprised that SBUX did not perform better on Tuesday. Shares managed to eke out a +0.24% gain thanks to a late day spike higher. The overall trend remains bullish.

We are aiming to exit our 2014 calls at $79.00. More aggressive traders may want to aim higher.

- Suggested Positions -

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

- or -

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

09/28/13 new stop loss @ 75.75, consider taking profits early!
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: 51.98 change: +0.34

Stop Loss: 47.90
Target(s): 57.50
Current Option Gain/Loss: -11.4%
Time Frame: exit prior to October expiration
New Positions: see below

Comments:
10/01/13: SFUN posted another gain following yesterday's short-term bullish breakout higher. Yet I would have expected a stronger outperformance than today's +0.6% advance. Given the intraday bounce I would still be tempted to buy calls here.

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


Tractor Supply Company - TSCO - close: 68.27 change: +1.10

Stop Loss: 64.75
Target(s): 74.00
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
10/01/13: A strong open for the stock market produced a gap higher in shares of TSCO. The stock gapped to $68.04 this morning and eventually closed with a +1.6% gain (another new all-time high). Our plan was to buy calls at $67.50 so the gap open triggered our play.

Earlier Comments:
It is possible that the $70.00 level could be round-number resistance but we're aiming for $74.00 between now and yearend. FYI: The Point & Figure chart for TSCO is bullish with an $87 target.

- Suggested Positions -

Long 2014 Jan $70 call (TSCO1418a70) entry $2.72

10/01/13 trade opened on gap higher at $68.04.
Trigger was $67.50

Entry on October 01 at $68.04
Average Daily Volume = 440 thousand
Listed on September 30, 2013


Workday, Inc. - WDAY - close: 82.68 change: +1.75

Stop Loss: 79.75
Target(s): 89.00
Current Option Gain/Loss: -12.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
10/01/13: WDAY displayed relative strength with a +2.1% gain. Shares appear to have short-term resistance near $83.00 (check the intraday chart). Overall WDAY looks poised to move higher.

Earlier Comments:
The stock could see a short squeeze. The most recent data listed short interest at 18% of the 65.2 million share float.

- Suggested Positions -

Long Dec $90 call (WDAY1322L90) entry $2.85

Entry on September 27 at $82.75
Average Daily Volume = 1.2 million
Listed on September 26, 2013


PUT Play Updates

Energizer Holdings - ENR - close: 92.37 change: +1.22

Stop Loss: 94.65
Target(s): 88.00
Current Option Gain/Loss: -30.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/01/13: The stock market's widespread rally on Tuesday sparked an oversold bounce in ENR. Shares reversed yesterday's losses. Look for resistance near the $93.50-94.00 area.

- Suggested *Small* Positions -

Long Oct $90 PUT (ENR1319v90) entry $1.00

Entry on September 26 at $92.36
Average Daily Volume = 424 thousand
Listed on September 25, 2013


The Fresh Market, Inc. - TFM - close: 47.51 change: +0.20

Stop Loss: 50.05
Target(s): 42.00
Current Option Gain/Loss: -44.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/01/13: TFM briefly traded above technical resistance at its 10-dma and at its 200-dma today. Fortunately the rally faded and TFM pared its gains to just +0.4% while closing back below these key moving averages.

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 *small* 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: 70.00 change: +2.23

Stop Loss: 64.00
Target(s): 79.00
Current Option Gain/Loss: +166.6%
Time Frame: 4 to 6 months
New Positions: see below

Comments:
10/01/13: Shares of CBI rallied on news it had won a contract (joint venture) to build nuclear power plants in China. The stock reacted by surging to round-number, psychological resistance near $70.00 (+3.29% today).

The rally in CBI has really accelerated with shares up $10 in the last four weeks. We are going to raise our exit target to $79.00 and adjust our stop loss to $64.00.

I am not suggesting new positions at this time.

*Small Positions* - Suggested Positions -

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

10/01/13 new stop loss @ 64.00, adjust target to $79.00
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: 54.86 change: +0.36

Stop Loss: 50.95
Target(s): 58.50
Current Option Gain/Loss: +13.8%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
10/01/13: It was an up day for the European markets. The British FTSE was the only exception with a -0.03% loss on the session. The rest of the continent traded higher. The VGK erased yesterday's losses. I am not suggesting new positions at this time.

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