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Daily Newsletter, Monday, 10/21/2013

Table of Contents

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

Market Wrap

Shaking Out the Jitters

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

Today's trading day proved busy, with earnings reports, one extra economic release, and a Fed president and President Obama speaking. Today's title didn't reference those events, however. It referenced the light volume, small-range movement that occurred as markets shook out the jitters while awaiting this week's increasing number of earnings announcements and delayed economic releases. The shaking also referenced increasing international concern being voiced by foreign governments in the wake of the Snowden revelations. Both France and Mexico spoke out today, with U.S. ambassadors being summoned to explain what they can't explain away.

Of course, the title could just have easily referenced the Italian parliament. Parliament has the final say in whether to enforce a court's decision to ban Silvio Berlusconi from continuing to serve as a senator. The court banned him from voting or holding office for two years.

The title could also reference mixed emotions as the U.S. earnings season really gets underway this week. What would companies report and how would those reports be received when markets are at or near all-time or new recent highs?

Before the open, market-related newswires were reporting bullet points from Chicago Federal Reserve Bank President Charles Evans' interview on talk TV. This Fed president assured market participants that the Federal Reserve could still do more, if more turned out to be needed to boost the economy. He cautioned that market participants were too concerned about whether a taper could begin before the economy was ready to absorb the shock. He's concerned about consumer spending that remains soft but asserts that there's a valid reason for the stock market rallies. Companies are doing fairly well, he said, listing one reason. The recent shutdown may make interpretation difficult at the December meeting, he warned, and he agrees that the October meeting may also be a tough one as Federal Reserve members discuss the timing of any taper. He also affirmed his belief that Janet Yellen will function well as chairman of the FOMC.

If there was shaking or quaking going on today, that didn't stop some indices from reaching yet-another new intraday--and in the case of the SPX--new closing high. By the end of the day, however, indices were mixed, with gains, if any, sometimes muted. The SPX gained 0.01 percent; the Dow dropped 0.05 percent; and the NDX gained 0.22 percent. The RUT dropped 0.21 percent, achieving a new intraday but not a new closing high. The SOX gained 0.32 percent. The Dow Jones Transports ($DJT), however, soared 1.62 percent higher, closing at the day's high.

Gold futures (/GC) for December delivery settled at 1315.80, up 1.2 points. Silver futures (/SI) for December delivery settled at 22.278, up 0.365 points. With China's September refined copper output climbing 21 percent over the year-ago comparison, copper futures (/HG) for December delivery still gained. They settled at 3.3035, up 0.0045.

Some sources pointed to light volume in the metals today ahead of tomorrow's non-farm payrolls. Also, the weakness in the dollar probably helped these dollar-priced commodities. However, the sinking dollar futures did not prompt the same result in energy futures since crude inventories had jumped, pressuring prices. WTI crude futures settled at 99.22/bbl, down 1.59 or 1.58 percent. Crude futures (/CL) for December delivery settled at 99.68, down 1.43.

Monday's Developments

Asian bourses climbed during overnight trading, with some reports attributing the rise to a government statement from China on Sunday. That statement promised that efforts to bring about economic reform and strengthen the economy would continue. The Nikkei 225 rose 0.91 percent; the Hang Seng, 0.42 percent, and the Straits Times, 0.09 percent. China's Shanghai Composite gained 1.62 percent.

European bourses were not as buoyant today as Asian bourses had been. They rose and sank and then rose again. Well-received earnings from some European companies had led to early gains before some European bourses slipped off their highs. After the U.S. open, some regained their footing, but the results were mixed.

Germany's September producer prices show that while the 0.3 percent climb beat expectations, producer prices were five percent lower than September 2012 prices. Part of that decline was due to energy prices that were 1.4 percent lower than in the previous year. German's Deutsche Bundesbank's monthly report was also awaited as European bourses began trading.

That report noted, among other conclusions, that apartment prices in Germany's big cities may be overvalued. Home demand that is stronger than availability may have encouraged speculation and sent prices as much as 20 percent higher than their appropriate values.

As reported, this weekend an Italian court banned former Italian Prime Minister Silvio Berlusconi from voting or holding public office for two years, due to his tax fraud conviction. However, he will not immediately lose his seat as a senator. That will require a separate vote in the upper house of the Italian parliament. Senator Berlusconi's attorneys say they will appeal to the country's supreme court, but most experts believe the ban will hold on appeal, as did the conviction.

Also in Europe, Portugal has reportedly said that while it won't need a second bailout, it does seek a precautionary credit line (RANSquawk). The FTSE 100 gained 0.48 percent; the DAX, 0.02 percent; but the CAC 40 dropped 0.21 percent. Spain's IBEX 25 spent the morning below the flat-line level but gained 0.36 percent by the end of the day. Italy's FTSE MIB also spent the afternoon climbing, but gained only 0.04 percent.

Today's U.S. slate of economic releases began with this morning's weekly Business Sentiment Indicator from Moody's. The indicator slipped to 29.4 from last week's 30.4, ending several weeks of gains. Moody's thought, however, that business sentiment had "weathered the political brinksmanship in Washington" rather well. The firm again pointed out that two thirds of respondents believe that business conditions will be strong in the beginning of next year.

At the same time, the National Association of Realtors reported the more closely watched existing home sales. Market watchers had anticipated that the annualized number of residential buildings sold would reach 5.31 million, down from the prior 5.48 million. That prior number had represented the highest level for this indicator in four years. Instead, annualized sales softened slightly more than expected, to 5.29 million. Furthermore, the prior number was revised lower to 5.39 million. The NAHB noted that limited inventories impacted the sales and also pressured home prices higher across much of the country, so that affordability levels dipped. NAHB spokespersons warn that expected higher mortgage rates will further impact affordability. Even with the lower annualized sales, the seasonally adjusted annualized sales are still 10.7 percent higher than year-ago levels.

About mid-morning, President Obama voiced his frustration with the ACA healthcare site, a frustration that many have evinced since its rollout. He encouraged Americans who need healthcare options to keep trying because of the information offered. He said that the "massive demand" produced some of the glitches but that he did not want to sugar-coat the problems.

Jim Brown reported on the late-day Friday revelation that JPMorgan Chase (JPM, 54.27, down 0.03 or 0.06 percent) would reportedly be paying a $13 billion settlement. Today, many commentators speculated that other companies that had been involved in the market for mortgage-backed securities would be facing the same sort of decisions. Companies being mentioned as likely to come under scrutiny included Bank of America (BAC, 14.52, down 0.11 or 0.75 percent), Citigroup (C, 51.03, down 0.12 or 0.23 percent), Deutsche Bank (DB, 50.12, down 0.70 or 1.38 percent) and Royal Bank of Scotland (RBS, 11.40, down 0.71 or 5.86 percent).

Story stocks today included Halliburton (HAL, 50.66, down 1.81 or 3.45 percent). Excluding some charges, the company reported an EPS of $0.83 per share against an expectation of $0.82 per share, on income of $745 million. Reuters attributed the performance of the globe's second-largest oilfield services company to strong growth in international markets that included Angola, Russia and Saudi Arabia.

J.C. Penney Co. Inc. (JCP, 6.42, down 0.58 or 8.29 percent) dipped on a downgrade and rumors that the company denied. The research firm downgrading the company did suggest that the company might seek bankruptcy protection next year. JCP and Martha Stewart were also reportedly renegotiating contracts to avoid further problems with Macy's Inc. (M), who was suing both.

Excluding one-time items, Gannett Co., Inc. (GCI, 26.90, down 0.59 or 2.15 percent) reported earnings of $0.34/share on revenue of $1,252.9 million. Revenue was less than the expected $1,275 million. Soft advertising demand was a likely driver of the miss on revenue. Digital revenue grew robustly, however. The company announced several initiatives meant to diversify its business model and protect itself from competition. Two of those include a digital pay model and an immersion in local television.

Tesla Motors, Inc. (TSLA, 172.60, down 10.80 or 5.89 percent) dropped amid concerns about sales in Germany.

Caesars Entertainment Group (CZR, 17.81, down 0.89 or 4.76 percent) said today that it was withdrawing from a casino project at Boston's Suffolk Downs racetrack. The Massachusetts Gaming Commission briefed the public after its investigation into the casino's application and said that Suffolk Downs would be "deemed suitable for licensing," so Suffolk Downs reportedly asked Caesars to withdraw from their license application.

ManpowerGroup (MAN, 78.24, down 1.07 or 1.35 percent) reported adjusted earnings of $1.26 a share on revenue of $5.19 billion. The EPS was well above the expected $1.16 per share, but some analysts pointed to the company's reduction in overhead expenses by 6.3 percent and interest and other expenses by 46 percent as the reason for the beat.

Apparently that combination did not cheer MAN investors. Meanwhile, Salesforcedotcom (CRM, 55.10, up 1.00 or 1.85 percent) was benefitting from an upgrade.

Higher sales of toys for girls helped Hasbro (HAS, 49.72, up 2.48 or 5.25 percent) beat expectations this quarter. The company reported earnings of $1.31 per share, excluding various charges and adjustments, on revenue of $1.37 billion. Both numbers beat expectations. Overall sales have been weak, and revenue was only 2 percent higher, but international sales joined sales of toys for girls here in the U.S. in showing relative strength. The boys category saw sales dropping 17 percent.

In after-hours trading, Netflix (NFLX, 354.99, up 21.49 or 6.44 percent) surged from its closing values. The surge occurred after the company reported earnings of $0.52 per share and $1.11 billion against expectations of $0.47-0.48/share on revenue of $1.1 billion, according to Bloomberg. The company had previously projected total U.S. subscribers at 30.5-31.3 million, and the company reported domestic subscribers at 31.09 million. At last viewing as this report was prepared, the stock was up $34.80 or 9.80 percent from the day's close.

McDonald's (MCD, 94.59, down 0.61 or 0.64 percent) reported $1.52 a share on revenue of $7.32 billion. Analysts anticipated $1.51 a share on revenue of $7.33 billion. The company's CEO cautioned that this quarter's challenging operating environment would likely continue into the next quarter, with same-store sales staying in line with recent trends.

Abercrombie & Fitch (ANF, 33.99, down 0.84 or 2.41 percent) drifted lower after a downgrade. The company has scheduled earnings for November 21, according to one earnings calendar.

Texas Instruments (TXN, 40.99, up 0.28 or 0.69 percent) reported a profit of $0.56 per share on revenue of $3.24 billion. Although both beat expectations of $0.53 per share on revenue of $3.23 billion, both were well below year-ago levels. The company guided expectations lower for the current quarter, however, and dropped in after-hours trading. As this report was prepared, the price was last at 39.52, down 1.47 or 3.59 percent from the day's close.

Virtualization infrastructures company VMware (VMW, 82.65, up 1.22 or 1.50 percent) jumped in after-hours trading after reporting earnings. The price was last at 87.64, up 4.99 or 6.04 percent from the day's close as this report was prepared. Investors cheered an increase in licensing revenue and a beat on earnings. Earnings were $0.84/share on revenue of $1.29 billion, with expectations at $0.82/share on revenue of $1.29 billion.

It's time to look at daily charts and see what they can show us. Last week, indices moved all the way from the bottom of rising regression channels to the tops of those channels, all the way from support to or toward likely resistance. With the exception of a few instances such as the Dow Jones Transports, today's candlesticks on the daily charts did not impress.

Charts

Those new to my Monday Wraps might find the following paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with rectangles, usually green for upside and red for downside. Orange rectangles are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher rectangle, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Annotated Daily Chart of the SPX:

From the 10/9 low to this morning's high, the SPX traveled a long way in a short time. Prices moved all the way from strong support offered by a Keltner configuration converging with the bottom of an automatically drawn regression channel up into a close challenge of the top of that regression channel. Next presumed strong resistance on daily closes converges in a band from about 1752-1770.

Unless the SPX is going to burst through the top of that resistance and out of the rising regression channel, it will soon be time for a pullback to retest support. SPX bulls would like to see that support found in the upper half of the rising regression channel. Let's look at some possibilities.

Currently, nearest support might be found just underneath the SPX's current level, with potential support on daily closes extending from about 1727-1741. Prices that fall through that level would then next face the potentially strong support on daily closes from about 1708-1721. This support is composed of the converging mid-channel line and red 9-ema.

A failure to hold support on daily closes at the midline of the rising regression channel brings the SPX back into the weaker or more bearish section of the rising channel. Keltner evidence suggests that the SPX could then drop to 1682-1696, but of course we all know that buyers might be willing to step back in at 1700. If I were in bullish trades and the SPX were dropping that far, I would certainly be aware that it could drop into the 1682-1696 zone. If I were in bearish trades and the SPX were dropping that far, I would certainly be aware that 1700 could be the prompt that would encourage buyers to step back in.

A break through the bottom of the rising regression channel would again target the Keltner configuration that now ranges from about 1639-1654. Scanning the chart shows that this configuration has been particularly important support for the SPX over the last six months. It often is, and a sustained break through that support would do some psychological damage.

Annotated Daily Chart of the Dow:

The Dow zoomed up, too, but its progress was not as impressive as the SPX's. Its underperformance shows up in several ways. Most importantly, it did not reach another new high, as did the SPX. Currently, the Dow tests presumed resistance on daily closes that stretches from about 15387-15530.

If the Dow can surmount that resistance zone on daily closes, the next potential target and resistance zone ranges from about 15600-15682. Keltner evidence suggests that daily closes consistently above that zone would set a new target of about 16000-16105, but we know to expect potential resistance near September's high and the bottom trendline of the former rising regression channel.

What if the Dow heads lower? Bulls would like to see any retreat stopped by potential support on daily closes that extends from about 15170-15287. If support there fails, the Dow chopped out several lower potential support levels. The next lower extends from about 14980-15100, but it's the potential support from about 14703-14860 that is a must-hold level. A much lower potential target is set if that level doesn't hold on daily closes.

Annotated Daily Chart of the NDX:

While the SPX might have jumped up into a close approach to the top of its rising regression channel, the NDX punched a hole through the top trendline at its intraday high today. The NDX challenged potentially strong resistance that ranged from 3341-3384. It's in runaway mode, having broken out of the widest Keltner channel over the last few days, dragging its smallest (grey) Keltner channel into a partial breakout, too.

This suggests that the run-up is overdone, although we know better than to assume an immediate end to that climb, don't we? Moreover, when I glanced at the weekly chart, I see that the NDX also slammed into potentially strong resistance on weekly closes last week and this week. Keltner channels all the way up through weekly charts, then, suggest no further upside targets and suggest the NDX will be in runaway mode if it continues to climb.

What if the NDX drops back beginning tomorrow and then breaks through the support near 3341 on daily closes? Next potentially strong support would converge from about 3275-3315, with the top Keltner channel likely pushed down into that zone by any NDX pullback. NDX bulls would like to see that level hold as support on daily closes.

If that 3275 support doesn't hold on daily closes, Keltner channels suggest a next target from about 3183-3216. A failure to hold support at 3183-3216 suggests a next target at that same potentially strong Keltner configuration that has supported the SPX over the last few months, too. That's now at about 3070-3102 for the NDX, but it would likely be pushed lower by a sharp drop.

Of course, that summary leaves out potential support at important regression channel levels. The midline of the rising regression channel, now crossing at about 3245-3250, does appear to have had some relevance, so I would certainly put that on my radar screen, too, if I were watching NDX-related trades.

Annotated Daily Chart of the RUT:

Like the SPX, the RUT charged up toward the top of its rising regression channel. Like the SPX and some other indices, it has hit a potential Keltner resistance zone. That stretches from about 1109-1125 for the RUT. If the RUT is able to break through the topside of that 1109-1125 zone on consistent daily closes, it's also in a runaway momentum mode. The top of the rising regression channel could be watched for potential resistance, but that's an unproven resistance level since the RUT hasn't typically been reaching the top of the automatically drawn regression channel.

What if the RUT pulls back instead and falls through 1109 on consistent daily closes? Two important Keltner levels, including the red 9-ema, would likely converge from about 1089-1100, providing potential support. RUT bulls would like to see support hold there on daily closes. Keltner channels suggest that a failure to hold there would likely target 1059-1074, where next support on daily closes might be found.

Keltner channels also currently suggest that a failure to hold support from 1059-1074 on consistent daily closes would target important potential support from about 1019-1030. However, the bottom of the RUT's rising regression channel perhaps does hold slight relevance as a potential support level. I would put that on my radar screen, too, if the RUT is tumbling.

A last lower potential target is also marked in case all previous support levels fail.

Annotated Daily Chart of the Dow Jones Transports:

The transports punched through the top of this index's rising regression channel, but we've seen only one day above that channel. Unlike some of the other indices we've seen, the transports have not broken out into runaway momentum mode on a Keltner basis, and would present a potential new upside target near 7000-7050 if the transports consistently break to the upside out of that rising regression channel. Will the Transports continue to break out to the upside or roll over and travel down again through the rising regression channel, testing support? Although the transports have been confirming other indices' actions lately rather than acting as a bellwether or a harbinger of next developments, today this index at least attempted to set a new direction. We should continue to watch this index in case it continues leading to the upside or quickly reverses course and heads lower.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap.

Also notable for tomorrow are Apple's (AAPL, 521.36, up 12.47 or 2.45 percent) product event. In after-hours trading, AAPL was last at 522.40, up 1.04 or 0.20 percent from the day's close. Companies reporting earnings tomorrow include AMGN (AMC), COH (BMO), HOG (BMO), KMB (BMO), LMT (BMO), NBR (AMC), PNRA (AMC), UTX (BMO), WHR (BMO), and many others.

What about Tomorrow?

Annotated 60-Minute Chart of the SPX:

The SPX spent most of the day today battling potentially strong resistance on 60-minute closes that spans from about 1742-1747. Most 60-minute closes were within that potential resistance zone. Sustained 60-minute closes above it will break the SPX out above any next potential upside targets on this chart. The daily chart would then be used to determine a potential next upside target, possibly at the top of the SPX's rising regression channel.

If the SPX retreats instead, potential support zones stair step down from the SPX's current level. Potential support on 60-minute closes can be found at about 1734-1739, 1719-1725 and again at 1703-1710. That 1703-1710 zone would likely be pushed lower by either a sharp decline early tomorrow that breaks through several higher potential support zones or else a drawn-out droop lower over several days. That 1703-1710 zone might then be pushed toward 1695-1701.

A drop down to about 1719 that then reverses higher wouldn't do much to change the short-term tenor, but a drop much deeper, especially below 1695, would change that short-term tenor. That would also set a new potential downside target, marked on the chart.

Annotated 60-Minute Chart of the Dow:

The Dow also dealt with a potentially strong resistance zone today, with most 60-minute closes within a zone that spans from about 15370-15440. Sustained 60-minute closes above that zone would set a new tentative upside short-term target for the Dow. That target currently spans from about 15550-15596, but it could be shoved higher by a sharp move higher tomorrow.

Like the SPX, potential support stair steps lower if the Dow should roll over and sustain 60-minute closes beneath about 15370. Those next two zones are now at about 15287-15336 and 15150-15223. A pullback that targets 15287 and finds support there or above on 60-minute closes doesn't do much to change the short-term tenor. A pullback that sustains 60-minute closes beneath about 15150 would change that short-term tenor, however, and would also set a new potential downside target, marked on the chart.

Annotated 60-Minute Chart of the NDX:

Again showing its outperformance, the NDX leaped above its last marked potential resistance zone on this 60-minute chart, but I can't advise subscribers to look to the daily (or even the weekly) chart for a new upside target if that behavior should repeat tomorrow. The NDX has outrun potential upside Keltner targets all the way up through the weekly chart. This is a time of great danger for bulls and bears alike. A momentum run can't be timed. We don't know when it will end, so gaming it can be dangerous.

If the NDX should roll lower and sustain 60-minute closes below about 3338, potential support levels stair step lower in close proximity for a while. The next zones of potential support on 60-minute closes span from about 3318-3333, 3288-3304, and 3250-3268. A decline that stops at or above about 3288 on 60-minute closes wouldn't do much to damage the short-term pattern. One that produces sustained 60-minute closes beneath about 3250 would change that short-term pattern and would set a new potential downside target, marked on the chart.

Annotated 60-Minute Chart of the Russell 2000:

Like the NDX, the RUT charged above the highest potential resistance zone on the 60-minute chart, at least for a short while. It did not long sustain 60-minute closes above that zone. If the RUT repeats that behavior tomorrow, Keltner evidence suggests that sustained 60-minute closes above about 1116 would break the RUT out into a momentum run on this chart. Turn to the daily chart and the top of the RUT's rising regression channel on that chart for a new upside target in that case.

However, if the RUT tomorrow sustains daily closes below about 1112, potential support levels stair step lower. Those include the ones marked at 1105-1109, 1094-1098, and 1083-1087. The lower of those three zones would likely be pushed down closer to 1080 in a strong downside move.

Action that tested support at 1094 but found support there on sustained 60-minute closes might not change the short-term tenor for the RUT. Sixty-minute closes below about 1083 and especially below 1080 would, however. That would set a new potential downside target, marked on the chart.

Daily charts today revealed many candlesticks indicative of indecision or even some leaning slightly toward a bearish interpretation. That's to be expected after many days of strong gains ahead of a potentially market-moving economic release such as tomorrow's non-farm payrolls. While we know this is how markets sometimes react after such developments, we should also examine our what-if plans in case markets retreat to reaffirm support they've just left behind.

Several indices are butting up against resistance or else have broken through resistance and are into what is traditionally thin air. We're still climbing some walls of fear and uncertainty, so there are still sellers who can fuel short-selling rallies, but if momentum slips, we should prepare for pullbacks through those rising regression channels to test support. Bulls hope the pullbacks will be shallow, and I've indicated some potential support levels just below current prices. Bears hope that prices cascade all the way through the bottom of those channels.

We're also seeing a lot of information and, sometimes, misinformation fueling that uncertainty, so that market participants barely know what to expect. Should we even trust tomorrow's non-farm payrolls, for example, no matter what it says? We know the shutdown likely skewed results. The transports ($DJT) may be good to watch for some guidance to general beliefs about the economy's strength or weakness.

Some of that fear and uncertainty surrounds the impact to individuals and companies, and their spending abilities, due to the impact of the Affordable Care Act. I'm an inquisitive type, so I tested a recent reported supposition that costs were going to increase, sometimes astronomically, in many states. That countered recent information I had read that premiums were, in fact, going to be less than had originally been anticipated, and that applicants would get better deals.

Here's my real-life example. My husband and I have been paying for health insurance for three extended family members. That cost for a fairly basic insurance policy that excluded a prior condition for the one adult among the three cost $750 per month. I input all relevant information on these extended family members into the government's healthcaredotgov site and promptly received the prices on several plans in the silver group. The silver group would have the coverage most like the current coverage. For illustration purposes, I chose two from the current insurer we're paying for these family members, Blue Cross/Blue Shield. Below you'll find the two, straight from the healthcaredotgov site. These comparable plans from the same insurer do not exclude any conditions, as did the prior coverage. This is also without including any subsidy at all, which many applicants would qualify for and receive:

Of course, the "You" mentioned here is not me, but a person the age of the adult extended family member.

A recent state-by-state table I saw recently predicted a 29.5 percent increase for a family of four in our state. Wrong. My example was a family of three rather than a family of four, but there was no increase. Instead, taking the highest cost of those silver policies from the same insurer, $461, there was a $(750 - 461)/$750 = .385 or 38.5 percent decrease in costs. Even the best "gold" policies I found were far less than we have been paying for rather minimal coverage.

Unfortunately, when we U.S. citizens see information purporting to tell us some scary truth, we must these days remember that some supposed news sources have agendas and may set up surveys or studies and interpret them through the lens of their agendas. These days, it's incumbent upon us to ask ourselves 1) who collected this information, 2) does that person or group have a bias that might have skewed the information, 3) is there an opposing viewpoint that I might study to try to form a balanced view, and 3) can I test it for myself to verify the information? My test of one real-life case is not proof that can be extended across all cases, of course. I may have loved theoretical physics far more than I loved statistics in college, but even I know that one case cannot be extrapolated to represent many. However, my admittedly single test turned up results in direct opposition to this recently disseminated scary information and, instead, in line with the more optimistic information I'd recently read on a different site.

Good news for us, right? We had even better news. A small business is expanding despite all the negative press about small companies trimming the number of employees due to fears about rising healthcare costs. That company employed the husband of the extended family member for whom we were providing insurance. Now he has insurance for the first time in his adult life and so do the other three extended family members for whom we had been providing insurance. They're covered under his policy, provided by this small company.

What does it matter whether some group produces a chart that gets disseminated and scares people, perhaps even unnecessarily? It matters if it engenders so much concern that people who need insurance or are making decisions about employing others don't even go to the site due to that misleading information. It matters if we believe something that impacts our behaviors and the behaviors of small businesses.

Will the Affordable Care Act's exchange opportunities turn out to be less expensive for all, as it was in this individual case I verified and as one other site recently suggested? Or will they cost more for all, as a recent chart from a right-leaning foundation asserts? I don't know. Our state does not participate in the expanded Medicare program, for example, so many of the most needy will not qualify for the subsidies in a crazy loophole. I'm keeping an open mind, and I urge you to do the same.

We who read this newsletter and are willing to study options trading are smart people. We often think differently from the crowd. We pride ourselves on it. We can and do perform our own research and don't have to believe what we're being fed by sources that have an agenda, whether it be from the far right or the far left. A recent mainstream news program featured three sober-faced couples talking about the adverse effect of the Affordable Care Act on their insurance premiums or, in one case, on a small business. A diligent reporter who re-interviewed them turned up the information that none of those six people had actually checked out options on the government's site, and did not know what the costs would be, and the small business owner had fewer than ten employees. His business was not required to provide healthcare to employees under the ACA. He could not explain to the diligent reporter why he had said that the act had forced him to scale back on employees.

Such slanted information impacts how we feel about each other and our government. More importantly for these pages, it impacts business and consumer sentiment and, perhaps, decisions. We are in tune on these pages with the importance of sentiment measures. Each Monday, I report on the Moody's weekly Business Confidence Index. Other more important sentiment measures are reported throughout the week, too, here in the U.S. and in Europe and other areas of the globe. It matters. Be your own investigative journalist. Don't be rendered gullible by those who want to inflame sentiment for their own purposes.

Linda Piazza


New Option Plays

Entertainment & Medical Devices

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

The Walt Disney Company - DIS - close: 67.61 change: +0.46

Stop Loss: 65.85
Target(s): 74.00
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings on November 7th.
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of entertainment giant DIS are getting closer to a bullish breakout. The stock has produced a huge run from its 2011 lows. DIS ran into trouble back in May 2013 when its upward momentum stalled. The stock has been bouncing along under resistance at $68 since then. You could argue DIS has formed an inverse head-and-shoulders pattern. A breakout past $68 could be significant.

I am suggesting a trigger to buy calls at $68.10. More conservative traders may want to use a higher trigger to lessen the risk of being triggered on an intraday spike above resistance. If triggered our target is $74.00 but we will plan to exit prior to DIS' earnings report on November 7th.

FYI: The point & figure chart is currently negative but a move above $68.00 would create a new quadruple top breakout buy signal.

Trigger @ 68.10

- Suggested Positions -

Buy the NOV $70 call (DIS1316K70) current ask $0.57

Annotated Chart:

Weekly Chart:

Entry on October -- at $---.--
Average Daily Volume = 7.1 million
Listed on October 21, 2013


Medtronic, Inc. - MDT - close: 56.49 change: -0.10

Stop Loss: 55.40
Target(s): 59.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
MDT is in the medical device and equipment business. The stock has rallied to new multi-year highs and the stock has been showing significant relative strength in the last couple of weeks. Thursday last week saw MDT breakout past key resistance near $56.00 and traders were buying the dip near that same level today.

Friday's intraday high was $56.70. I am suggesting a trigger to buy calls at $56.75. If triggered our short-term target is $59.75.

Trigger @ 56.75

- Suggested Positions -

buy the NOV $55 call (MDT1316K55) current ask $1.88

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 3.4 million
Listed on October 21, 2013



In Play Updates and Reviews

Taking Profits

by James Brown

Click here to email James Brown

Editor's Note:

The market's major indices drifted sideways on Monday. Investors could be waiting for the jobs report out tomorrow morning.

JCOM hit our entry trigger. We closed our ZMH trade this morning to lock in gains.


Current Portfolio:


CALL Play Updates

Ctrip.com - CTRP - close: 58.21 change: +1.37

Stop Loss: 58.25
Target(s): 68.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
10/21/13: CTRP garnered new bullish analyst comments this morning. The stock spiked higher but failed at resistance near its early October high. Today's move looks like a bearish reversal at resistance at what could be the beginning of a bearish double top formation. If CTRP sees any follow through lower tomorrow we will likely drop it as a candidate.

Earlier Comments:
The October 2nd high was $61.09. I am suggesting a trigger to buy calls at $61.25. If triggered our target is $68.50. However, we will plan to exit prior to CTRP's earnings report in early November.

NOTE: CTRP can be a volatile stock. I do consider this a more aggressive, higher-risk trade. We want to use small positions to limit our risk.

FYI: The Point & Figure chart for CTRP is bullish with a $67.50 target.

Trigger @ 61.25 *small positions*

- Suggested Positions -

Buy the NOV $65 call (CTRP1316K65)

Entry on October -- at $---.--
Average Daily Volume = 2.65 million
Listed on October 19, 2013


3D Systems - DDD - close: 57.70 change: +0.93

Stop Loss: 53.45
Target(s): 64.00
Current Option Gain/Loss: + 6.6%
Time Frame: exit PRIOR to earnings on Oct. 29th
New Positions: see below

Comments:
10/21/13: DDD displayed some relative strength with a +1.6% gain on Monday. If you were waiting for a rally past $57.00 then you got it today.

Earlier Comments:
DDD could see some short covering. The most recent data listed short interest at 32.5% of the 94.5 million share float.

Our target is $64.00. However, we will plan to exit prior to DDD's earnings report on October 29th.

- Suggested Positions -

Long NOV $60 call (DDD1316K60) entry $2.25

Entry on October 18 at $57.05
Average Daily Volume = 6.8 million
Listed on October 17, 2013


Dril-Quip, Inc. - DRQ - close: 117.81 change: -1.57

Stop Loss: 114.75
Target(s): 124.50
Current Option Gain/Loss: Nov120c: -43.1% & Dec125c -35.8%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
10/21/13: Uh-oh! It was a bearish day for DRQ. The stock failed at round-number resistance near $120.00 and underperformed the market with a -1.3% decline. More conservative traders may want to raise their stops. I am not suggesting new positions at this time.

Earlier comments:
Our target is $124.50. However, we will most likely exit prior to DRQ's earnings report expected in early November. If you are willing to hold over the earnings announcement then you may want to use the December options instead of November options. I am suggesting small positions because the spread on DRQ's November options are a bit wide.

*small positions* - Suggested Positions -

Long NOV $120 call (DRQ1316k120) entry $2.90*

- or -

Long DEC $125 call (DRQ1322L125) entry $1.95

*option price is an estimate.

Entry on October 16 at $118.25
Average Daily Volume = 281 thousand
Listed on October 14, 2013


Helmerich & Payne, Inc. - HP - close: 76.49 change: -0.27

Stop Loss: 71.75
Target(s): 79.50
Current Option Gain/Loss: +19.0%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
10/21/13: It was a quiet session for HP. The stock followed the market's sideways move today. There is no change from my weekend comments. Shares are starting to look a little short-term overbought. I would not be surprised to see a dip back toward the $75.00 area but given the rally in the oil stocks HP may not see a dip. I am not suggesting new positions at this time.

We do not want to hold over the mid-November earnings report. FYI: The Point & Figure chart for HP is bullish with an $82 target.

- Suggested Positions -

Long NOV $75 call (HP1316K75) entry $2.31

Entry on October 14 at $74.50
Average Daily Volume = 1.1 million
Listed on October 12, 2013


iShares Russell 2000 ETF - IWM - close: 110.47 change: -0.22

Stop Loss: 104.80
Target(s): 114.00
Current Option Gain/Loss: +19.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/21/13: The IWM briefly tagged a new high this morning but shares spent the rest of the day drifting lower. The market is arguably short-term overbought. I wouldn't be surprised to see a short-term dip. Look for support near $108.00.

- Suggested Positions -

Long 2014 Jan $110 call (IWM1418a110) entry 2.80

Entry on October 16 at $108.55
Average Daily Volume = 41 million
Listed on October 14, 2013


J2 Global, Inc. - JCOM - close: 55.17 change: +0.62

Stop Loss: 53.25
Target(s): 59.75
Current Option Gain/Loss: - 6.9%
Time Frame: exit PRIOR to earnings on November 5th
New Positions: see below

Comments:
10/21/13: Our new play on JCOM has been triggered. The stock continued to rally and outperformed the broader market with a +1.1% gain on Monday. JCOM hit our suggested entry point at $55.05.

Earlier Comments:
The stock looks ready to launch its next leg higher. New highs could spark a short squeeze. The most recent data listed short interest at 31% of the 43.7 million share float. Our target is $59.75 but more aggressive traders could aim higher. The Point & Figure chart for JCOM is bullish with a $77 target.

- Suggested Positions -

Long NOV $55 call (JCOM1316K55) entry $2.15

Entry on October 21 at $55.05
Average Daily Volume = 329 thousand
Listed on October 19, 2013


Starbucks Corp. - SBUX - close: 79.31 change: +0.58

Stop Loss: 75.75
Target(s): 82.50
Current Option Gain/Loss: +15.7%
Time Frame: exit PRIOR to earnings in very late October
New Positions: see below

Comments:
10/21/13: SBUX was making headlines today with a story in the state-run China Central Television and the China Daily newspaper that alleged SBUX was making Chinese consumers pay more for their products than in other markets (source: CNN). The stock really didn't react to the news and shares actually tagged a new high before paring its gains.

It looks like the $80.00 level could be round-number resistance.

Earlier Comments:
Our target is $82.50. Yes, it's possible that the $80.00 level could be round-number, psychological resistance but after a three-week consolidation sideways under the $78.00 level we suspect that $80 is not going to stop the rally in SBUX. We do not want to hold over SBUX's earnings, which will likely occur at the end of the month of early November.

- Suggested Positions -

Long NOV $80 call (SBUX1316k80) entry $1.65

Entry on October 14 at $78.25
Average Daily Volume = 3.7 million
Listed on October 12, 2013


Constellation Brands - STZ - close: 64.42 change: +0.09

Stop Loss: 59.75
Target(s): 67.50
Current Option Gain/Loss: +81.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
10/21/13: STZ eked out another gain. That extends the rally to seven up days in the last eight sessions. There is no change from my weekend comments.

It is possible that the $65.00 level could be round-number, psychological resistance. If that's true then STZ may be close to a pullback. More conservative traders might want to take some money off the table here. I am not suggesting new positions.

Earlier Comments:
Our target is $67.50 but we may end up exiting near $65.00, which could be potential round-number resistance.

- Suggested Positions -

Long NOV $62.50 call (STZ1316k62.5) entry $1.38

10/16/13 new stop loss @ 59.75
10/11/13 trade opened on gap higher at $61.25,
trigger was $61.10

Entry on October 11 at $61.25
Average Daily Volume = 1.9 million
Listed on October 10, 2013


Thor Industries - THO - close: 58.54 change: -0.41

Stop Loss: 57.75
Target(s): 64.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
10/21/13: THO issued a press release this evening after the closing bell. The company completed its sales of its bus business to Allied Specialty Vehicles, Inc. for $100 million. The Board of Directors announced a special dividend of $1.00 per share payable on November 19th, 2013 to shareholders on record as of November 5th.

There is no change from my weekend comments. The stock is currently trading below short-term resistance in the $59-60 zone. I am suggesting a trigger to buy calls at $60.25. If triggered our target is $64.75.

Trigger @ 60.25

- Suggested Positions -

Buy the NOV $60 call (THO1316K60) current ask $1.15

Entry on October -- at $---.--
Average Daily Volume = 528 thousand
Listed on October 19, 2013


Vipshop Holdings Limited - VIPS - close: $76.48 change: -0.03

Stop Loss: 69.75
Target(s): 78.50
Current Option Gain/Loss: +45.8%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
10/21/13: The rally in VIPS took the day off. Shares did hit new highs on an intraday basis but the stock closed virtually unchanged on the session. It might be time for a little pullback. I am not suggesting new positions.

Earlier Comments:
If this rally continues the stock could see some short covering. The most recent data listed short interest at 8.7% of the very small 20.5 million share float.

- Suggested Positions -

Long NOV $75 call (VIPS1316K75) entry $4.80

10/19/13 new stop loss @ 69.75, adjust exit target from 77.50 to 78.50

Entry on October 17 at $71.55
Average Daily Volume = 1.25 million
Listed on October 16, 2013


PUT Play Updates


Currently we do not have any active put trades.




Longer-Term Play Updates



Chicago Bridge & Iron - CBI - close: 75.00 change: +1.62

Stop Loss: 68.40
Target(s): 79.00
Current Option Gain/Loss: +311.7%
Time Frame: 4 to 6 months
New Positions: see below

Comments:
10/21/13: Another day, another gain for CBI. Shares hit potential round-number resistance at the $75.00 mark today. More conservative investors may want to lock in gains now. I am not suggesting new positions at this time.

FYI: CBI is due to report earnings on October 29th.

*Small Positions* - Suggested Positions -

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

10/19/13 new stop loss @ 68.40
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: 56.72 change: +0.15

Stop Loss: 52.75
Target(s): 58.50
Current Option Gain/Loss: +58.3%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
10/21/13: The VGK continues to climb. Shares of this ETF are up seven out of the last eight sessions. It's starting to look short-term overbought and due for a pullback. 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*

10/19/13 new stop loss @ 52.75
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 BULLISH PLAYS

Zimmer Holdings - ZMH - close: 88.32 change: -0.63

Stop Loss: 84.40
Target(s): 89.50
Current Option Gain/Loss: +66.6%
Time Frame: exit PRIOR to earnings on Oct. 24th
New Positions: see below

Comments:
10/21/13: Our plan was to exit our ZMH trade this morning at the opening bell to lock in gains. The stock opened slightly lower at $88.83 and then fell -0.7% by the close.

The long-term trend is up. I would keep ZMH on your radar screen for another entry point. Keep in mind that shares could be volatile after the earnings report on Oct. 24th.

- Suggested Positions -

Long NOV $85 call (ZMH1316k85) entry $2.70 exit $4.50* (+66.6%)

10/21/13 planned exit this morning
*option exit price is an estimate since the option did not trade at the time our play was closed.
10/19/13 prepare to exit on Monday, Oct 21st to lock in gains
10/16/13 new stop loss @ 84.40
10/14/13 adjust exit target to $89.50

chart:

Entry on October 10 at $85.55
Average Daily Volume = 1.2 million
Listed on October 09, 2013