Option Investor
Newsletter

Daily Newsletter, Saturday, 10/26/2013

Table of Contents

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

Market Wrap

Here Comes The Fed

by Thomas Hughes

Click here to email Thomas Hughes
Recap And Commentary

After faltering early in the week U.S. indices recovered and rallied to new highs. European indices rallied steadily into the week as well. Relief over the U.S. debt ceiling, earnings and economic data helped to drive both sectors. Earnings in the EU were mixed, like here at home, but the general spin was positive. Adding to the vibe were reports from Ford and a few others that indicated the European sector was improving, if only a little. On the economic front PMI readings and UK GDP also helped to elevate stock prices. Flash PMI suggests that the EU is still expanding and on track for continued recovery, provided unseen hurdles do not emerge. The EU is still not in great shape but it is recovering and the second half rebound predicted by Mario Draghi appears to be in effect.


News from the Asian sector was similar. Earnings are OK but not a real sweet spot. On the economic front flash PMI readings and other data show the region to be on track for growth. China's PMI reading expanded unexpectedly to a seven month high, this is only the most recent positive reading from this country. In Japan inflation rose again and helped put to rest fears the country's recovery was not taking hold. This month's reading of +0.7% is lower than last months by a tenth but the fourth month of gains. Both countries economic expansion bodes well for global economic recovery over the longer terms.

We received a lot of economic data here at home as well this week. About evenly split between data held back by the shut down and regularly scheduled releases. For the most part the data is all from before the shut down and does not reflect any damage it may have caused. The NFP report on Tuesday may have been the most important release of the week. The data was weaker than the expected 180,000 jobs. The expectation for 180K new jobs was about as dated as the data itself. In the time between the beginning and ending of the two week shut down expectations for job growth had weakened significantly. The actual report of 148,000 jobs turned out to be good enough to support near term bullishness and resulted in a rally that carried into the end of the week. The unemployment claims numbers fell from the recent California induced spike but remained at elevated levels. Reports indicate that the back log of claims caused by California and Nevada's compueter issues is still trickling through the system. Taking that into consideration the longer term trends of declining unemployment still hold.

We can expect a lot of data next week as well. Most importantly the Fed meeting, policy announcement and statements. The taper will be the primary focus for the markets. If tapering gets pushed out to next spring as some are suggesting then the liquidity driven rally could continue moving higher. If tapering is indicated to be coming sooner than that then the markets could sell off. This weeks data, and likely the data the Fed will rely on, is going to be incomplete. It is unclear just how data collection has been affected by the shut down and the speculation is leading me to think it may not be until December before that affect passes. ADP and Challenger figures on employment should be OK as they are provided by private companies and not the government. Jobless claims should also be OK, this data is collected by the states. We won't get the next NFP report until the next week.


Gold prices remain volatile. The price of gold shot up close to $45 on an intraday basis with most of that gain happening Tuesday. When the NFP numbers came out weaker than expected it pushed the idea of tapering back several months, weakening the dollar and boosting the price of gold. Gold prices are now trading just under a long term resistance level and forming a rising wedge. The Gold Index, on the heels of higher gold prices, moved back into its pennant formation in a continuation of it's long term consolidation. Higher gold prices may lead to higher gold profits and higher prices for gold stocks. The caveat is that gold prices are heavily influenced by QE, the Fed and tapering. The Gold Index may remain trapped inside this range until after the Fed meeting or longer. At this time the index is indicated higher and will likely move up toward the top of the range.


Oil prices fell hard this week. Declining tensions with Iran, new discoveries and rising supply are combining to help pressure oil prices lower. This is good for the economy and the consumer but has different implications for oil stocks, especially shale gas producers. As the price of oil falls it squeezes tight margins and may cause some to shut down production or else go out of business. The $80 level for oil is one target for such an event. For oil companies not directly involved with production it will reduce operating costs and for those producing oil, gas and derivatives it could lead to increased sales volume. The Oil Index fell at the beginning of the week but then bounced back to regain most of the losses. On the long term charts of weekly prices the index is moving up from the long term trend line, above support with bullish indicators. The index recently broke out of a trading and looks as if it will continue higher to sideways over near to short term.


Earnings will be in focus again this week. There are another 500+ reports due out this week. There has been some concern over fourth quarter earnings growth but it appears to be limited to only a few companies. Despite the headlines trumpeting the high profile misses and disappointments more companies than not are meeting or beating estimates. A lot of this is also coming with lower than expected revenue, a trend we have seen for the last several quarters. Business continues to improve the balance sheets and operations getting ready for the consumer. If, when, the consumer does step back in there could be a quarter dominated by really great earnings reports.

The Charts

The S&P set a series of new all-time highs this week. At the same time breaking out of a rising wedge pattern with bearish implications. The pattern is coincident with a series of divergent indicators. In the time since this index broke above the 2008 all time high earlier this year and then retested that level for support momentum has been strong. The first wave after the bounce was very strong and set an extreme 12 month peak. The next was a little smaller, and the next and current wave a little smaller yet. The divergences are a cause for caution but not necessarily an indication that a decline will start this week. The current MACD peak is not yet over and could still produce another ripple or two before settling back down.


The stochastic is also a sign of warning but not of immediate correction. The indicator is overbought in the near and short term but both %K and %D are pointing up. For now buyers are still in control and could remain in control for the nearer terms. I added Bollinger bands to my usual analysis to get a look at how the index is moving in relation to that indicator. The B Bands show a market that is trending up near and short term with a little room to keep going. The index was pushing up against the upper band over the last couple of weeks but this week was able to get a little breathing room. For now, it appears as if the S&P is still trending up in the short to near term but I am cautious ahead of the FOMC and next round of data.

The Dow has finally begun to break out of the trading range it has been in the last 6 months. Momentum is bullish but not too strong when compared to the most recent peak, a 12 month extreme. This divergence calls the break out into question and could produce a whip saw. The last two tests of the upper range produced such an occurrence. Stochastic is similar to the SPX, overbought in the near and short terms but pointing bullish in both time frames. The SPX does not have any real resistance ahead of it, just the upper Bollinger Band at this time. The Dow is in much a different situation. The blue chip index broke it's long term trend during it's stay within the range and faces resistance from that line as well, about 125 points above the current value. This index is indicated higher on the daily charts but faces resistance which it could reach coincidentally with the Fed meeting this week.


The Nasdaq has been making new highs like hippie on pay day. Earnings report from major players like Microsoft, Amazon and Google may be the catalyst that sends the index even higher. However, there are some signs of weakness in the near to short term that are a little more ominous than either the S&P or the Dow. The tech heavy index is also diverging from it's indicators on the daily chart. The current MACD peak is bigger than the previous but not very strong and much smaller than the first peak in the series since the beginning of this year. The MACD is not too concerning by itself but the stochastic, candle and Bollinger Bands are pointing to near term weakness. Stochastic is overbought but has made a short term bearish crossover while in the upper range. This does not mean the index is reversing long term but it does mean that the Dark Cloud Cover candlestick that formed during Friday's rally could lead to more selling this week. The current levels of the Nasdaq are pretty high and could be attracting folks to begin taking profits.


The Russell 2K looks has some characteristics of all three of the previous indices. This index is making new highs while at the same time Friday's rally produced a bearish candle formation. The index is well above the long term trend and diverging from MACD. Stochastic is overbought in the short term but a near term bearish crossover could carry into the first part of next week. The B Bands also indicate a rising market with some room to move up to the upper limit or down to the mid line. The index is still trending up but a real possibility of it returning to the long term trend line is growing. The FOMC and/or the data could be a trigger for this move.


The Dow Transports are the best looking of the bunch and could be pointing to higher index prices across the board at some time in the future. This index is trending up, breaking out to new highs in a nearly vertical movement and converging with indicators. The current rally is a bounce of the long term trend line and the top of a 6 month trading range very similar to the one the Dow Industrials is trying to break out of. The current MACD peak is higher than the previous and also a 12 month extreme. Stochastic is in overbought territory with both % lines pointing up. MACD is peaking and Friday's candle shows the rally is slowing but I expect to see this index either remain near the current levels or to at least retest them after a short correction based on the current analysis.

Moving out to a longer term view(weekly data) and back to the S&P. This index is trending up and above the long term trend line. However, the longer term divergence from the indicators is more pronounced in this time frame. Momentum is currently bullish but very weak, with the index so far above trend and the daily analysis suggesting correction a correction looks likely here too. In this time frame the stochastic is also diverging. Looking back over the past few years the last time stochastic has performed in this manner, making news lows while the index makes new highs, it preceded a correction to the primary trend. That level is currently 300 points below the current value of the S&P. This correction is by no means a guarantee, just a possibility. It is possible that the divergences forming over the long term are the result of taper fear, debt ceiling garbage, government shut down and general fear of global slowing. It is also possible that the FOMC and/or the data could alleviate that fear. If that were the case the current low level of the stochastic indicates that there is plenty of room for the index to move up. Once again the FOMC seems to guarding the gates and blocking the path for a bull run. The long term trend is still up, the primary trend is still up but the short and near terms are providing plenty of reason for caution.


The Dow looks a little different in the longer term. This index is in what looks like a consolidation pattern. The index, during the last 6 months of sideways movement, has been able to alleviate long term overbought conditions and move the stochastic down into the middle part of the range. The bearish momentum that has kept the index inside the range is diminishing, nearing to zero, and could provide a burst of bullish activity if it does manage to crossover. The stochastic may be indicating a growing amount of support for the blue chips. The longer term %D is flattening, not really bullish, but the short term %K has traced out a pattern suggesting that buyers are interested in the stock. Maybe enough to break it out the upside. If the Transports can be relied upon to indicate future movement in the industrials the Dow break out I suggested above could be a reality. However, once again the FOMC is standing in the way for now.


The Nasdaq is indicated higher in the longer term but may have reached a temporary stalling point. The MACD is bullish and rising, but also kind of weak and divergent. Stochastic is pointing up in the short and long term but the index has also been brushing up against the upper B Band. At this point in the commentary, after reviewing the indexes, I have had the idea...and dare I say it, that there could be a small sector rotation from techs to blue chips? We know that the techs have been hot, it also looks like the Nasdaq Composite is ready for week or two to cool off. At the same time the Dow Industrials appear to be breaking out of a 6 month trading range, led by the Transports. Only time will tell but I will be keeping up with this new theory over the next few weeks.


The Russell 2K has some mixed indications over the longer term. The index is trending up but way way above the long term and primary trend lines, like all the indicators. MACD is bullish and rising, yet highly divergent over the past 9 months since the 2013 rally kicked off. Stochastic is pointing up, yet overbought in the short and longer term, and divergent. The index is also brushing up against the upper B Band and could easily make a near to short term correction, if not longer. I think it will come down to the Fed, the data and the impact of the shut down on small business.


The Transport Average is yet again the index that looks the best. This index is bullish in the long term and indicated up as in the shorter term. MACD is bullish and rising, and since this is the first peak after a break out comparing it for divergences at this time are not effective. Stochastic is pointing up in both the %K and %D, with plenty of room for longer term buying to drive it up. The %D is in the middle portion of the range with a series of troughs in both lines suggesting support. At the same time the index is breaking above the upper B Band, an indication of strong buying sentiment and the possibility it could run higher for the next couple of weeks.


Next Week

Next week could be a volatile one. The index look poised to make a move, lower in most cases although that is not a guarantee. The Dow Transports are looking might bullish in the long and short term and could be indicating that the FOMC, tapering and the data are already baked into the cake. This week could be a good one for standing on the sidelines and evaluating positions. It may be a good time to tighten stops or to even take profits. The FOMC meeting is top on my list of market movers for the week so I will wait until after that to make any kind of long term decisions.

Besides the FOMC there is a lot economic data. ADP, Challenger and jobless claims next in importance after the Fed in my opinion. The regularly scheduled release of NFP won't come until a week later due to the after effects of government shut down. In any case, this round of data is suspect, also because of the shut down. It may or may not be completely accurate and the speculation on the street is that it may not be completely reliable until December.

Until then, remember the trend!

Thomas Hughes


Index Wrap

Another Strong Week, Especially in Tech

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Nasdaq Composite (COMP), after a brief mid-week dip, rallied strongly on the week and led the overall Market higher. My objective and what may prove to be resistance in COMP, is to 4000. I can project objectives to 1820-1850 in the S&P 500 (SPX); to the 805-810 area in the S&P 100 (OEX); to 15700 again in the Dow 30 (INDU); to 3500 in the Nas 100 (NDX) and to 1140-1145 in the Russell 2000 (RUT).

The CBOE Volatility Index (VIX) has sunk to 13 and I've noticed the tendency for interim tops when VIX gets down to 12 and under.

The Dow 30 (INDU) is lagging and of course has not cleared its prior peak. There was a strong to very strong week seen in AXP, BA, DD, DIS, and MSFT; VISA (V) continued to climb above 200 resistance. All well and good if your portfolio has just these 6 stocks, but isolated strength in the 30 is not enough to cause INDU to do anything but lag the other major indexes.

Why worry about tops, interim or otherwise, in such a strong market? Mainly, due to the 'overbought' long-term (high) extremes, especially, in the tech-heavy Nasdaq, as measured by the Relative Strength Index (RSI) over a year time-horizon. No top can be predicted on overbought considerations alone but this condition does point to a high-risk for a pullback as we go further into the 4th quarter and/or as the major indices get closer to the aforementioned objectives and possible resistances.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart continues bullish as SPX rallied further above its prior (late-Sept) top in the 1730 area. A next potential 'resistance' highlighted is at 1780, extending to 1800, the top end of my projected uptrend channel.

Support is seen at 1740 (extending to 1720), with next technical support likely around 1700.

Bullish sentiment has moderated some in the past week from the extremes of the end of the prior week (10/18). In terms of a short to intermediate time frame, SPX is in the 13-day RSI overbought zone. Overbought markets sometimes 'fall' after hitting excessive valuations but 'overbought' conditions can persist for longer than expected periods. Such extreme readings do warn of getting complacent in bullish strategies.



S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart continues in its bullish pattern as it appears to be climbing toward a next big 100 round number at 800, which is also at the top (resistance) end of OEX's broad uptrend price channel. I've highlighted possible resistance at 790 but 800 looks like it's the level to watch ahead; assuming OEX gets there. Sooner or later, 800 looks like a prime target.

On the downside, 770 is a significant pullback objective/support, with support then extending to the 760 area at the 21-day moving average.

As with big brother/big sister SPX, the big cap S&P 100 has reached an overbought extreme in terms of the daily chart. Such an extreme is not yet present on a weekly chart (not shown here) basis, as is also true of SPX, although such a overbought/high RSI extreme is getting closer.



THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) chart is bullish as the Average appears, albeit s l o w l y, to be advancing toward a test of its prior highs in the 15665-15710 zone. There are current a small number of the 30 INDU stocks in continued strong uptrends. I noted 6 (AXP, BA, DD, DIS, MSFT and V) in my initial 'bottom line' comments, as noticeably in strong uptrends this past week.

Currently more of the Dow 30 need to be in renewed advances to propel INDU into a sustained move to new high ground for the current move. It may also be that INDU has settled into a broad 15700-14800 trading range and won't climb above 15700 anytime soon.

I've highlighted a 15665 to 15710 resistance zone based on highs seen on the last major upswing into mid-September. However, longer-term weekly charts (not shown) suggest that major INDU resistance might not come into play before 1700. Stay tuned on such a target being hit!

Initial chart support looks to come in around 15370, with more pivotal support coming in the 15200 area.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) Index chart continues strongly bullish as was the case LAST week. Tech stocks are not quite in a 'bubble' but in the words of the old song are "too hot not to cool down"! Accelerating advances, after what was already previously a strong advance, are often, not always, a predecessor pattern before an interim top. I wouldn't predict any kind of final top to COMP but when a stock or index gets overbought for long 'enough' there's a pullback-reaction. Enjoy the ride just don't become a total believer in it. Been there, done that, through some prior tech boom/bust cycles.

On all chart time frames I measure, significant technical resistance looks to come in around 4000. Perhaps COMP gets to 4100. Beyond that my bullish crystal ball is cloudy. It can go anywhere that tons of money will propel it, but 4000, maybe 4100, is my current 'maximum' upside objective.

Near support is seen in the 3900-3890 area, with next support suggested in the 3820-3800 zone. Speaking of zones COMP isn't quite yet in my overbought 'zone' in terms of the RSI, but it's closing in on it. Bullish sentiment appears to have peaked for now with traders perhaps getting more realistic as to how far this puppy can go.



NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart also is strongly bullish and I wrote last week of my assessment of the prior upside (overnight) price gap as the type suggesting a strong further run; i.e., a runaway type gap that comes later in a move. An opposing downside gap ahead would cause me to take the money (profits on bullish strategies) and (exit) RUN. You could call it technical superstition!

Anyway, we've seen a powerful move in the big cap Nas 100. There's always a beginning, middle and end in any move and NDX may be slightly above the middle and headed toward a end point in the 3500 area. I've noted resistance from 3450 on but 3500 is the pivotal one that I'm seeing currently.

Near support at 3300, an easy call as strong buying interest often lies at the LOW end of an upside gap. Support in the 3300 area extends to 3250. Fairly major support begins at 3200 currently.

NDX has again been in or near an 'overbought' RSI extreme as was the case at the last rally peak. There was a subsequent pullback/correction but not by much and it was very short-lived as you can see.



NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 (QQQ) tracking ETF chart also shows a strong bullish pattern identical to of course the NDX Index that QQQ tracks. Only the support and resistance numbers/levels are different. That and we can easily track daily volume info.

My projection of next potential resistance (above 84) comes in around 84.6. Pivotal resistance is then seen at the upper end of QQQ's broadest daily chart uptrend channel in the 86 area. Near support is highlighted at 80.9 currently, extending to 79.7; fairly major support begins in the 78-77 area.

Volume didn't spike higher on QQQ's most recent upward price spurt, which unlike common stocks, is a 'typical' pattern for QQQ, where volume typically ONLY noticeably jumps when the stock breaks below perceived support(s). On Balance Volume (OBV) is bullishly trending higher; this indicator is my key volume measure for QQQ.



RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart remains in a bullish pattern. Some minor resistance/selling pressure has come in around 1120, but as long as RUT remains above key support at 1100, I anticipate the Index possibly testing, even besting, the upper end of its price trend channel, currently intersecting in the 1140-1145 area.

Resistance in the same 1140-1145 area is also suggested by RUT's longer-term weekly chart. 'Confirmation' in target levels is usually on more solid footing when the same objectives come up on both daily AND weekly charts.

Key near support comes in at 1100, extending to 1080. Pivotal technical support then is implied by RUT's up trendline, intersecting presently around 1060.



GOOD TRADING SUCCESS!




New Option Plays

Consumer Goods & Industrials

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Packaging Corp. of America - PKG - close: 62.21 change: +0.59

Stop Loss: 59.75
Target(s): 67.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 9 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
PKG is in the consumer goods sector. They make container board and packaging products. If you believe in an improving economy then that should be bullish for PKG since more business activity should mean more demand for packaging. If you look at the stock you'll see that PKG popped higher back in mid September as investors reacted to news the company was buying rival packing company Boise (BZ) for $1.28 billion. Normally the acquiring company's stock tends to go down on an acquisition but Wall Street applauded the move. A month later PKG reported earnings that beat Wall Street's both top and bottom line estimates.

Since then PKG has broken out to a new all-time high. Friday's intraday high was $62.33. I am suggesting a trigger to buy calls at $62.50. If triggered our multi-week target is $67.50.

Trigger @ 62.50

- Suggested Positions -

Buy the 2014 Jan $65 call (PKG1418a65) current ask $1.40

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 1.0 million
Listed on October 23, 2013


Pall Corp. - PLL - close: 80.27 change: +0.87

Stop Loss: 77.90
Target(s): 86.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
PLL is in the industrial goods sector. The company operates in two segments, Life Sciences and Industrial. The stock has been showing relative strength. You may recall that the market peaked in mid September on the FOMC meeting and the S&P 500 corrected lower several days. Shares of PLL did not correct immediately and instead consolidating sideways. Traders were quick to buy the dip in early October near PLL's rising 30-dma. Since then shares have broken out past resistance near $78.00 to hit new all-time highs.

Friday's move over potential round-number resistance at $80.00 is bullish. Friday's intraday high was $80.29. I am suggesting a trigger to buy calls at $80.50. If triggered our target is $86.00. However, we will plan to exit prior to PLL's earnings report in late November (no date set yet). FYI: The Point & Figure chart for PLL is bullish with a long-term $113 target.

Trigger @ 80.50

- Suggested Positions -

Buy the DEC $85 call (PLL1321L85) current ask $1.05

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 551 thousand
Listed on October 23, 2013



In Play Updates and Reviews

Another Week of Gains

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500, Russell 2000 and the NASDAQ all ended Friday with gains for the week. The trend is up but some stocks (and indices) are looking overbought and due for a dip.

We want to exit our DDD and CBI trades on Monday. See play updates for details.


Current Portfolio:


CALL Play Updates

3D Systems - DDD - close: 58.64 change: +0.94

Stop Loss: 55.75
Target(s): 64.00
Current Option Gain/Loss: +11.1%
Time Frame: exit PRIOR to earnings on Oct. 29th
New Positions: see below

Comments:
10/26/13: DDD displayed relative strength on Friday with a +1.6% gain and another new high. Hopefully this pace continues. We are almost out of time. DDD is due to report earnings on October 29th and we do not want to hold over the announcement. Therefore I am suggesting we plan on exiting positions Monday, October 28th at the closing bell. Tonight we are raising our stop loss to $55.75.

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

10/26/13 new stop loss @ 55.75, prepare to exit on Monday, Oct 28th at the closing bell

chart:

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


The Walt Disney Company - DIS - close: 69.26 change: +0.21

Stop Loss: 65.85
Target(s): 74.00
Current Option Gain/Loss: + 81.8%
Time Frame: exit PRIOR to earnings on November 7th.
New Positions: see below

Comments:
10/26/13: DIS rally to another new all-time high on Friday and closed above the $69.00 level. The next challenge is potential round-number resistance at the $70.00 mark.

Our target is $74.00 but we will plan to exit prior to DIS' earnings report on November 7th.

FYI: Tuesday's rally has produced a new buy signal on the Point & Figure chart that is currently suggesting an $80 price target.

- Suggested Positions -

Long NOV $70 call (DIS1316K70) entry $0.66

chart:

Entry on October 22 at $68.10
Average Daily Volume = 7.1 million
Listed on October 21, 2013


Honeywell Intl. - HON - close: 87.50 change: +0.22

Stop Loss: 84.75
Target(s): 98.50
Current Option Gain/Loss: Unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see below

Comments:
10/26/13: HON continued to push higher on Friday but shares failed to hit a new high and failed to hit our entry point. If this rally continues on Monday we could see our trade opened. There is no change from my prior comments.

The intraday high was $87.55 from September 19th. I am suggesting a trigger to buy calls at $87.65. If triggered our multi-week target is $98.50.

Trigger @ 87.65

- Suggested Positions -

Buy the 2014 Jan $90 call (HON1418a90) current ask $1.46

chart:

Entry on October -- at $---.--
Average Daily Volume = 2.9 million
Listed on October 23, 2013


Helmerich & Payne, Inc. - HP - close: 76.57 change: +0.69

Stop Loss: 74.25
Target(s): 79.50
Current Option Gain/Loss: +16.8%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
10/26/13: HP's rebound continued on Friday with a +0.9% gain. Shares remain below short-term resistance near $78.00. The stock did end a three-week winning streak but HP looks poised to continue higher.

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

10/24/13 new stop loss @ 74.25
10/22/13 new stop loss @ 73.75

chart:

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


iShares Russell 2000 ETF - IWM - close: 111.08 change: +0.10

Stop Loss: 105.95
Target(s): 114.00
Current Option Gain/Loss: +31.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/26/13: The small cap IWM continued to inch higher on Friday. This ETF is up seven out of the last eight weeks and is essentially sitting at all-time highs. Beware the trend line of overhead resistance (which is also top of its bullish channel).

I am not suggesting new positions.

- Suggested Positions -

Long 2014 Jan $110 call (IWM1418a110) entry 2.80

10/23/13 new stop loss @ 105.95

chart:

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


J2 Global, Inc. - JCOM - close: 55.06 change: -0.25

Stop Loss: 53.25
Target(s): 59.75
Current Option Gain/Loss: -16.2%
Time Frame: exit PRIOR to earnings on November 5th
New Positions: see below

Comments:
10/26/13: I remain cautious on JCOM. The major indices have continued to inch higher this past week. Yet the rally in JCOM stalled on Wednesday and has been stuck drifting sideways near $55.00. Readers may want to readjust their stop loss.

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

chart:

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


Medtronic, Inc. - MDT - close: 57.36 change: -0.14

Stop Loss: 55.40
Target(s): 59.75
Current Option Gain/Loss: +23.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/26/13: MDT has found short-term support near $57.00 the last two days in a row. If $57 breaks then $56.00 should be even stronger support. I would be tempted to wait for a dip near its 10-dma or $56.00 before initiating new positions.

- Suggested Positions -

Long NOV $55 call (MDT1316K55) entry $2.07

chart:

Entry on October 22 at $56.75
Average Daily Volume = 3.4 million
Listed on October 21, 2013


Rockwell Automation Inc. - ROK - close: 110.60 change: -1.15

Stop Loss: 108.95
Target(s): 117.50
Current Option Gain/Loss: Unopened
Time Frame: Exit PRIOR to earnings on November 7th
New Positions: Yes, see below

Comments:
10/26/13: ROK did not see any follow through on its Thursday rally. Instead shares retreated from short-term resistance near $112.00 and underperformed the market on Friday with a -1.0% decline. Overall I don't see any changes from my Thursday night new play comments.

I am suggesting a trigger to buy calls at $112.25. If triggered our target is $117.50 but we will plan to exit prior to earnings on November 7th.

Trigger @ 112.25

- Suggested Positions -

buy the NOV $115 call (ROK1316K115)

chart:

Entry on October -- at $---.--
Average Daily Volume = 659 thousand
Listed on October 23, 2013


Starbucks Corp. - SBUX - close: 79.96 change: +0.91

Stop Loss: 77.75
Target(s): 84.00
Current Option Gain/Loss: +30.9%
Time Frame: exit PRIOR to earnings on October 30
New Positions: see below

Comments:
10/26/13: Traders bought the dip in SBUX on Friday and shares outperformed the market with a +1.15% gain. Yet once again the stock is facing round-number resistance at $80.00. We are almost out of time. SBUX is due to report earnings on October 30th (previously 31st). We do not want to hold over the announcement. Therefore we'll plan to exit positions on Tuesday, October 29th at the closing bell. I am raising our stop loss to $77.75.

- Suggested Positions -

Long NOV $80 call (SBUX1316k80) entry $1.65

10/26/13 new stop loss @ 77.75, prepare to exit on Tuesday, Oct. 29th at the closing bell
10/22/13 adjust exit target to $84.00

chart:

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


Constellation Brands - STZ - close: 63.91 change: +0.06

Stop Loss: 61.90
Target(s): 67.50
Current Option Gain/Loss: +44.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
10/26/13: Friday proved to be another quiet day for STZ. The stock drifted sideways and held on to short-term technical support at its 10-dma. There is no change from my earlier comments.

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

10/22/13 new stop loss @ 61.90, readers may want to take profits now. Our option is up +84%.
10/16/13 new stop loss @ 59.75
10/11/13 trade opened on gap higher at $61.25,
trigger was $61.10

chart:

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


Thor Industries - THO - close: 59.03 change: -0.50

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:
10/26/13: THO has spent the last few days churning sideways below resistance at the $60.00 level. The larger trend is still bullish so we're not giving up yet. Traders bought the dip on Friday near its 10-dma.

I don't see any changes from my earlier comments. 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)

chart:

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


Viacom, Inc. - VIAB - close: 84.94 change: +0.55

Stop Loss: 82.75
Target(s): 89.50
Current Option Gain/Loss: -12.9%
Time Frame: exit PRIOR to earnings on November 14th.
New Positions: see below

Comments:
10/26/13: VIAB acts like it wants to go higher. The last two days in a row shares have shot higher from the opening bell only to see its rally fade by lunchtime. Shares did set a new all-time closing high on Friday but VIAB remains near round-number resistance at the $85.00 level.

Friday's high was $85.45. Readers may want to wait for a rally past $85.50 before initiating new bullish positions.

Earlier Comments:
Our target is $89.50. However, we will plan to exit prior to VIAB's earnings report in mid November.

- Suggested Positions -

Long DEC $85 call (VIAB1322L85) entry $3.10

chart:

Entry on October 24 at $85.30
Average Daily Volume = 2.6 million
Listed on October 22, 2013


PUT Play Updates


Currently we do not have any active put trades.




Longer-Term Play Updates



Chicago Bridge & Iron - CBI - close: 74.52 change: +0.18

Stop Loss: 71.75
Target(s): 79.00
Current Option Gain/Loss: +296.0%
Time Frame: 4 to 6 months
New Positions: see below

Comments:
10/26/13: CBI bounced from its simple 10-dma again on Friday. Shares look poised to continue higher. However, CBI is due to report earnings on Tuesday, October 29th. After such a big rally so far odds are good that CBI could see some post-earnings profit taking no matter how great the results are. Therefore we want to exit positions on Monday, October 28th at the closing bell. I am raising our stop loss to $71.75.

*Small Positions* - Suggested Positions -

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

10/26/13 new stop loss @ 71.75, prepare to exit on Monday, Oct. 28th at the closing bell
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

chart:

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


Vanguard FTSE Europe ETF - VGK - close: 57.47 change: +0.01

Stop Loss: 53.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +94.4%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
10/26/13: Friday proved to be a quiet day for the VGK. Shares saw some very minor profit taking in the morning but faded back to unchanged by the closing bell. This ETF remains short-term overbought and probably due for some profit taking. I am not suggesting new positions.

Don't forget that we have two exit targets for this trade! More conservative traders could lock in gains now with our option up +94%.

Earlier Comments:
We are taking a multi-month time frame with this trade. FYI: The Point & Figure chart for VGK is bullish with a $63 target.

- Suggested Positions -

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

10/22/13 Strategy Update: Plan to exit half @ $58.00 and exit the rest at $63.00. New stop loss @ 53.90
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.

chart:

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