Option Investor
Newsletter

Daily Newsletter, Wednesday, 10/30/2013

Table of Contents

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

Market Wrap

Market Not Happy with Fed

by Keene Little

Click here to email Keene Little
A rally in the past couple of weeks had traders anticipating something positive from today's FOMC announcement. Without more drug money the market had a small fit this afternoon and now we watch to see if it's just another dip to buy.

Market Stats

The market started on a positive note this morning with a gap up and call buyers were busy. But almost immediately the selling began, which is continuing a pattern we're seeing recently where rallies are being sold into. As we've been approaching the end of the month (and fiscal year for some) it's been apparent that some fund managers have been liquidating inventory by selling into the rallies (more liquidity then and they can sell without killing the stock price. However, enough managers are now doing it such that prices are collapsing right after brief spikes to the upside. Those who bought calls this morning paid top dollar for them and went immediately underwater.

It's a busy week for economic reports and today's reports started with the ADP Employment report, which showed an increase of +130K jobs. It was slightly better than the expected +125K but a drop from September's 145K, which was as downward revision from the originally reported +166K.

The CPI numbers were benign, with the core CPI staying at +0.1% while the broader CPI ticked higher to +0.2% in September from +0.1% in August.

The big report was the FOMC announcement this afternoon and it was met with disappointment and worry from the stock and bond markets. The market had hoped for something a little more accommodative than what it heard, which was essentially unchanged from September. Always looking for another handout, the market was not happy that the Fed didn't promise even more drug money for the banksters. They of course kept the interest rate at 0.25% and that was no surprise. But the QE program stands at $85B/month and the weakening economic numbers recently have had many hoping for hints from the Fed that they might have to do more. But in fact the Fed leaned slightly the other way by removing one sentence from their statement -- they omitted the reference from last month that fiscal tightening could slow growth in jobs and the broader economy. That was enough to drop the DOW about 80 points before recovering some of that loss into the close.

The dollar spiked up on the news but then pulled back slightly into the close. Currency traders believed the statement (or the removal of the one line from the statement) was good for the dollar. The bond market had rallied slightly in front of the FOMC announcement but then sold off sharply, showing concern that a lack of demand from the Fed could be trouble for bond prices. This had yields spiking up into the end of the day. It will be interesting, and potentially very important, what bonds do from here since the economy is so dependent on rates staying low.

One reason why the Fed can't stop their asset purchases, primarily U.S. government Treasuries, is because they're becoming the buyer of last resort. If they stop providing demand for bonds the prices will decline and that will spike yields. The Fed's whole effort has been to keep rates artificially low as a way to prime the economy, especially the housing market. All will be for naught if yields start spiking now. The mere talk about a possible tapering of asset purchases had the market reacting negatively so the Fed has now successfully painted itself into a corner and everyone is watching to see how they'll get of the box they put themselves into.

As the chart below shows, foreigners are not doing their part to fund our profligate spending. As the bars show, the month-to-month change has slowed since 2012 and dropped into negative territory in 2013. The line shows foreign holdings in a nice climb until this year but the turn down could be trouble if it does something more negative than just level off. The Fed will need to make up the difference and with an extremely accommodative Fed-head in Janet Yellen, there's already speculation that the Fed may have to double, quadruple or more their bond purchases just to make up the difference. That would spook foreigners who would likely then purchase even less. The death spiral may have begun.

Foreign holdings of U.S. Treasuries, 2000-present, chart courtesy agorafinancial.com

Last week I discussed some measures of trader sentiment that indicate a very high level of bullishness. I showed a chart of the NYSE debt margin, which has climbed faster than the S&P 500 into an all-time high, and the Rydex Money Market fund showing a low level that has matched previous market highs. Now we've got options players showing more confidence than usual as they purchase call options in expectation for a higher stock market. The ISEE Index chart below shows the spike on Monday and while it's not a good market timing tool it does provide another warning sign when it climbs above 150 (Monday's peak was 172). A reading of 100 shows equal numbers of puts and calls being purchased. It was high again this morning but it dropped as the day progressed and started to show some worry (hedging) in front of the FOMC announcement.

ISE Sentiment index (measure of speculative option purchases) for 2013

Even though we might have seen an important high made today I'm going to start off with the DOW's charts tonight to show the bullish potential for at least one more leg up to complete the rally. Whether the final high was today or if instead it will be tomorrow/Friday, it's obviously not much of a difference to longer-term traders who are simply riding the trend higher until it breaks. But for shorter-term traders looking to maximize profits on long positions and/or looking to play the short side, today's high looks potentially important. Watching what the DOW does from here should provide the clues we need.

The DOW's weekly chart shows upside potential to the trend line along the highs from 2000-2007, which will be near 16180 by mid-November. There are longer-term price projections near 16700 and that level crosses the top of the parallel up-channel from October 2011 at the end of the year. While I don't see that happening, it's a reminder (especially for bears) to keep it in mind as a possibility. This week I started thinking the DOW might top out in 15725-15760 area and this morning's high was 4 points shy of the lower end of that target zone. In the 5-wave move up from June 2012 the 5th wave is 62% of the 1st wave at 15725 and therefore the wave count can now be considered complete at any time.

Dow Industrials, INDU, Weekly chart

A trend line across the highs from August-September is currently near 15760 so that's the upper end of my target zone but in reality I don't think the trend line is that meaningful because of the wave count that I'm using (it's not a rising wedge pattern for an ending diagonal). But it's a guide line that many traders are watching. At this point I consider the risk too high to be thinking about the long side (the downside risk is much greater than upside potential, at least until it gets above 15800) but we don't have any evidence yet that the DOW has topped and therefore shorting it here is risky as well. We need another day or two to help determine whether or not the uptrend is still intact.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 15,760
- bearish below 15,366

Shorter-term we've been watching the up-channel from the October 15th low, as well as an uptrend line from October 9-23 and a smaller up-channel from October 23rd. The broken uptrend line from October 9-23 and the tops of the two up-channels all intersect near 15785 on Thursday, which is only slightly above the trend line along the highs from August-September. So from a trend-line perspective I see the potential for a rally to that area on Thursday before topping out. A common pattern following an FOMC announcement is for the post-FOMC reaction to get reversed the following day, so this afternoon's selloff could lead to another rally leg Thursday morning. But notice the DOW broke its shorter-term up-channel from October 23rd this afternoon and then bounced back up to it, leaving a back test and kiss goodbye. A drop below this afternoon's low, at 15574, would create a stronger sell signal.

Dow Industrials, INDU, 60-min chart

While the DOW is still working to reach its trend line across the highs from August-September, SPX has already climbed above its trend line, now near 1750. If SPX drops back below that line it's going to look like a failed breakout attempt and that would have many traders selling. A 5-wave move up for the rally from October 9th means the top could occur at any time now, at least for a pullback to correct the rally. But this top has the potential to be THE top as the final 5th wave of the rally from October 2011, which completes the c-wave of a big A-B-C move up from March 2009. Bernanke call or not, the market may soon call the Fed's bluff.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- stay bullish above 1750
- bearish below 1740

The 5-wave move up from October 9th is shown in more detail on the 60-min chart below. The 3rd wave was a tad shorter than the 1st wave, which means the 5th wave has to be shorter than the 3rd (EW rule saying the 3rd wave cannot be the shortest). Typically the 5th wave in this case is about 62% of the 1st wave, which is the projection at 1780.40. The very narrow up-channel from October 23rd was showing weak market breadth and only enough buying to keep the narrow up-channel intact (fitting well as a 5th wave). This morning's high was a quick throw-over above the top of the channel but it could not hold and then this afternoon it broke down from the channel, giving us a sell signal. While the DOW says we could go higher, SPX says we should be looking down now. The bottom of its up-channel will be near 1770 Thursday morning so any bounce up to that level that fails (back test followed by kiss goodbye) would be a good shorting opportunity.

S&P 500, SPX, 60-min chart

For the past 7 trading days NDX has been struggling near the top of its up-channel from June as well as the trend line along the highs from December 2012 - May 2013. It is leaving a series of red candles after making an early-morning high but then closing lower. It's a distribution pattern where we're seeing the rallies being sold into. Today's candle is a bearish engulfing pattern and looks vulnerable to reversal back down from here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3440
- bearish below 3300

Watching the leaders of a rally is a good way to find clues as to how the rally is doing. If they continue to lead then it's wise to follow the trend. But when the leaders start to crack, typically on earnings or other announcements, we know there's profit taking occurring and that's often a signal that the market in general is close to topping. We've seen some of the high flyers start to crack and AAPL joined the group yesterday after a disappointing reaction to their after-hours earnings announcement on Monday. It was jammed back up and it gapped up Tuesday morning but was then immediately sold into and it finished with a bearish engulfing candlestick. Today it bounced but only made it up to its broken uptrend line from October 9th for what looks like a back test and kiss goodbye. The trend line will be near 531 Thursday morning if the bulls take another crack at it. If it drops from here we'll likely see the 20-dma and uptrend line from September 17th, both near 505, tested next.

Apple Inc., AAPL, Daily chart

The RUT was the weak sister today and that's not a good sign for the bulls. Fund managers have been chasing performance this month and getting into the more volatile small caps was a good way to capture some upside gain, all in the hopes they'll be able to get their funds to beat the S&P 500 (otherwise risk losing their jobs). But with the month/fiscal year coming to an end, those stocks will be the first to go and that's what we saw today. The RUT gapped up this morning and immediately sold off and sold off strong. As can be seen on its chart, today left a nasty-looking bearish engulfing candlestick and created a key reversal day. Doing so at trend-line resistance (and its 1119.49 projection for two equal legs up for its big A-B-C rally off the March 2009 low) and with a completed wave count has "SELL!" written all over this. Bounces should be sold and use today's high for your stop for now. Once we get a decline and then lower high you'll then be able to lower your stop to the lower high.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1124
- bearish below 1102

Bond yields have been consolidating since the lows on October 23rd and TNX (10-year) is sitting just above support near 2.46%. This afternoon's low, just before the FOMC announcement, was 2.473 but it jumped up to a high of 2.549 just after the announcement. The bond market was also a little surprised the Fed didn't use more soothing and accommodating language. If the Fed doesn't buy more then who will? That's the question bond traders are asking and they're obviously feeling a little nervous about it. But I continue to believe bond prices will climb back up and yields will drop. The question in my mind is whether yields will drop from here or after a higher bounce. We could see TNX bounce up to resistance at the top of its down-channel from September and its broken H&S neckline, both crossing near 2.63 around November 7th.

10-year Yield, TNX, Daily chart

With the DOW's closing high yesterday it finally made a new closing high above its September 18th closing high but it did not exceed its intraday high at 15709. That was accomplished today and that at least confirms the TRAN's new highs since October 18th. Just in time for a reversal in the TRAN. Like the RUT, the TRAN gapped up and then immediately sold off and closed lower, creating a key reversal day with its bearish engulfing candlestick. It's a common theme among several indexes today. The TRAN has failed at the top of a parallel up-channel from June, which makes for a very nice setup for the bears. Will they take advantage of it this time?

Transportation Index, TRAN, Daily chart

As mentioned earlier, the dollar spiked up following the FOMC announcement, banged into its declining 20-dma and then pulled back some. It left a long-legged doji for today's candlestick and it's sitting just above support at its H&S neckline at 79.61 (briefly broken last week) and just below resistance at its 20-dma at 79.92. I continue to expect a dollar rally but still waiting for proof.

U.S. Dollar contract, DX, Daily chart

Gold has stalled at its downtrend line from February-August, now near 1360 so the bulls need to break above that level and then hold above the line on any back tests. But there remains bullish potential if we see gold pull back and then launch higher (light green dashed line). I'm still leaning to the downside for gold, with an expectation it will drop to at least the 1155 area, but remain watchful for something more bullish into November.

Gold continuous contract, GC, Daily chart

I thought we'd get a bounce by now in oil, especially off its 200-dma, currently at 98.71, but now the 200 is acting as resistance (back-tested on Monday). That points lower still and the uptrend line from June 2012, near 91.80 by mid-November looks like a good downside target.

Oil continuous contract, CL, Daily chart

The large number of economic reports continues tomorrow, which includes before the bell the Challenger Job Cuts, unemployment numbers, personal income and spending and PCE prices, and then the Chicago PMI shortly after the opening bell. The market has been pretty much ignoring these reports but we're still in Bizzarro World where bad is good so we'll see how the market reacts to them.

Economic reports and Summary

On several indexes we have key reversals today, shown on the daily charts with the bearish engulfing candlesticks -- gap up, make a new high and then close below yesterday's prices. The indexes are up against potentially strong resistance and showing signs of weakening momentum and weak market breadth. At the very least we should see a pullback before the bulls try assaulting the lines of resistance again, with charged-up batteries after letting the poor bears eat something.

The longer-term pattern supports the idea that the high made here (wherever "here" is) will be the final high for the rally from 2009. I've said that before but we now have a "3 drives to a high" pattern following the August high. The new highs are showing bearish divergence and we're overbought on all time frames (monthly, weekly, daily). Bullish sentiment is near historical highs as they convince themselves that even if we do get a pullback it will be another good buying opportunity. Fear of a major decline is almost non-existent and that kind of complacency has been a dangerous time for the bulls in the past.

The July 16, 2007 high was followed by a minor new high on October 11th, which was 62 trading days later. We had very similar sentiment, overbought and market breadth readings as we have today. The market doesn't always repeat patterns but they often rhyme. This year's August 5th high has been followed by a minor new high, which is currently 61 trading days later. Is that close enough to mimicking 2007? That's the setup and now we wait for confirmation. In the meantime the bears should be getting ready just in case and the bulls should be very defensive.

Good luck and I'll be back with you for the weekend wrap to fill in for Jim who is currently tied up in knots with a move.

Keene H. Little, CMT

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


New Option Plays

Networking & Railroads

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

F5 Networks - FFIV - close: 83.49 change: -0.67

Stop Loss: 85.01
Target(s): 76.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
FFIV is in the technology sector. The company provides networking technology. The company reported earnings on October 23rd and beat Wall Street's estimates on both the top and bottom line. Shares rallied on the news but traders quickly sold into strength. Shares have since broken down to new relative lows. FFIV seems to be suffering with a long-term trend of lower highs and lower lows (check a weekly chart). On a short-term basis FFIV is poised to breakdown below support in the $82.50 area.

I am suggesting a trigger to buy puts at $82.00. If triggered our target is $76.00.

Trigger @ $82.00

- Suggested Positions -

Buy the DEC $80 PUT (FFIV1322X80) current ask $2.64

Annotated Chart:

Entry on October -- at $---.--
Average Daily Volume = 2.2 million
Listed on October 30, 2013


Union Pacific Corp. - UNP - close: 150.59 change: +0.02

Stop Loss: 151.55
Target(s): 141.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
UNP is in the railroad industry. The stock has been a big underperformer. It's underperforming the broader market. It's underperforming the transportation average and it's underperforming its peers in the railroads. The weakness is a bit surprising since the latest rail traffic data actually improved.

The stock has faded lower to major support near $150 and its simple 200-dma. This is also a test of its long-term trend line of higher lows (see weekly chart below). A breakdown here could be ugly. Today's low was $149.23. The June low was $148.45. I am suggesting a trigger to buy puts at $148.00. If triggered our target is $141.00.

Trigger @ 148.00

- Suggested Positions -

Buy the DEC $145 PUT (UNP1322X145) current ask $1.95

Annotated Chart:

Weekly Chart:

Entry on October -- at $---.--
Average Daily Volume = 2.7 million
Listed on October 30, 2013



In Play Updates and Reviews

FOMC Fails To Surprise

by James Brown

Click here to email James Brown

Editor's Note:

Warning! The market looks vulnerable to profit taking. After a four-week rally stocks are overbought and today could be the beginning of a pullback. There were a lot of bullish engulfing candlestick reversal patterns in the market today.

The Federal Reserve ended their two-day meeting today. There were no changes in policy but stocks initially sold off following the Fed statement.

HON hit our entry trigger (and then reversed). VIAB hit our stop loss.


Current Portfolio:


CALL Play Updates

The Walt Disney Company - DIS - close: 68.47 change: -0.45

Stop Loss: 65.85
Target(s): 74.00
Current Option Gain/Loss: + 19.6%
Time Frame: exit PRIOR to earnings on November 7th.
New Positions: see below

Comments:
10/30/13: DIS saw a midday spike down toward support and traders bought the dip near $68.00 and its 10-dma. A bounce from current levels would look like an entry point for bullish positions. However, the broader market indices look vulnerable to more profit taking.

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

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


Dover Corp. - DOV - close: 91.84 change: -0.23

Stop Loss: 89.95
Target(s): 99.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Comments:
10/30/13: DOV tried to rally twice today; once this morning and again mid afternoon. The stock eventually settled in the red. There is no change from my prior comments.

I see the mid-September peak near $92.85 as potential trouble. Therefore we're suggesting a trigger to buy calls at $93.00. If triggered our target is $99.50. The Point & Figure chart for DOV is bullish with a $105 target.

Trigger @ 93.00

- Suggested Positions -

Buy the DEC $95 call (DOV1322L95)

Entry on October -- at $---.--
Average Daily Volume = 1.0 million
Listed on October 29, 2013


Honeywell Intl. - HON - close: 86.72 change: -0.74

Stop Loss: 84.75
Target(s): 98.50
Current Option Gain/Loss: -25.5%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
10/30/13: Uh-oh! I am urging caution on our HON trade. The stock spiked higher this morning, rallied past resistance, hit our entry point to buy calls, and then reversed to close on its lows for the session. Today's move is a failed rally and bearish reversal pattern. More conservative traders may want to raise their stop loss.

- Suggested Positions -

Long 2014 Jan $90 call (HON1418a90) entry $1.45

10/30/13 Caution. HON hit our trigger but the stock produced a potential bearish reversal pattern today.

Entry on October 30 at $87.65
Average Daily Volume = 2.9 million
Listed on October 23, 2013


Helmerich & Payne, Inc. - HP - close: 77.51 change: -1.15

Stop Loss: 75.75
Target(s): 79.50
Current Option Gain/Loss: +34.1%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
10/30/13: Ouch! Today's -1.4% drop in HP shaved off a dollar on our option. More conservative traders may want to take profits now. I am not suggesting new positions.

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

10/29/13 new stop loss @ 75.75
10/24/13 new stop loss @ 74.25
10/22/13 new stop loss @ 73.75

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


iShares Russell 2000 ETF - IWM - close: 109.83 change: -1.52

Stop Loss: 107.75
Target(s): 114.00
Current Option Gain/Loss: +11.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/30/13: The IWM spent almost a week and a half churning sideways under the $111.50 area. It kept flirting with new highs but not making much progress. Today shares reversed with a -1.3% decline and a close below short-term support at its 10-dma and the $110 level. The next level of support should be the $108.00 level.

I am not suggesting new positions.

- Suggested Positions -

Long 2014 Jan $110 call (IWM1418a110) entry 2.80

10/29/13 new stop loss @ 107.75
10/23/13 new stop loss @ 105.95

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


J2 Global, Inc. - JCOM - close: 54.95 change: -0.79

Stop Loss: 53.75
Target(s): 59.75
Current Option Gain/Loss: -18.6%
Time Frame: exit PRIOR to earnings on November 5th
New Positions: see below

Comments:
10/30/13: Hmm... I am urging caution here. JCOM erased all of yesterday's gains with a -1.4% decline and a bearish engulfing candlestick reversal pattern. More conservative traders may want to raise their stop closer to Monday's low (54.45).

We plan to exit prior to earnings on November 5th.

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

10/29/13 new stop loss @ 53.75

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


Medtronic, Inc. - MDT - close: 57.94 change: -0.56

Stop Loss: 56.45
Target(s): 59.75
Current Option Gain/Loss: +44.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/30/13: MDT tagged another new high this morning but shares succumbed to profit taking. The stock closed down -0.9%. I am not suggesting new positions at this time. Look for short-term support near its 10-dma or the $57.00 level.

- Suggested Positions -

Long NOV $55 call (MDT1316K55) entry $2.07

10/29/13 new stop loss @ 56.45

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


Packaging Corp. of America - PKG - close: 61.78 change: +0.04

Stop Loss: 59.75
Target(s): 67.50
Current Option Gain/Loss: - 30.0%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
10/30/13: There was no follow through on yesterday's bearish candlestick in PKG. The stock managed to buck the market's down trend today. Yet I would stay cautious here. I'm not suggesting new positions at the moment.

- Suggested Positions -

Long 2014 Jan $65 call (PKG1418a65) entry $1.50

Entry on October 28 at $62.50
Average Daily Volume = 1.0 million
Listed on October 23, 2013


Pall Corp. - PLL - close: 80.53 change: -0.39

Stop Loss: 77.90
Target(s): 86.00
Current Option Gain/Loss: -22.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/30/13: PLL managed to tag a new record high this morning before reversing. Unfortunately, today's pullback has produced a bearish engulfing candlestick reversal pattern. I would not be surprised to see a dip back toward the simple 10-dma near $79.50.

Earlier Comments:
Our target is $86.00. However, we will plan to exit prior to PLL's earnings report in late November (not date set yet). FYI: The Point & Figure chart for PLL is bullish with a long-term $113 target.

- Suggested Positions -

Long DEC $85 call (PLL1321L85) entry $1.10

Entry on October 28 at $80.50
Average Daily Volume = 551 thousand
Listed on October 23, 2013


SanDisk Corp. - SNDK - close: 69.86 change: -0.94

Stop Loss: 67.90
Target(s): 74.75
Current Option Gain/Loss: -18.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
10/30/13: Shares of SNDK gave up -1.3% on Wednesday. This morning the stock was downgraded by Bank of America from "buy" to "neutral" on valuation concerns. SNDK did find some short-term technical support at its 10-dma.

Our target is $74.75 but we may want to aim higher. The Point & Figure chart for SNDK is bullish with an $82 target.

NOTE: SNDK will begin trading ex-dividend on October 31st. The quarterly cash dividend should be 22.5 cents.

- Suggested Positions -

Long 2014 Jan $72.50 call (SNDK1418a72.5) entry $2.75

Entry on October 29 at $70.60
Average Daily Volume = 5.0 million
Listed on October 28, 2013


Constellation Brands - STZ - close: 64.69 change: -0.95

Stop Loss: 63.40
Target(s): 68.50
Current Option Gain/Loss: + 81.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
10/30/13: Uh-oh! STZ more than reversed yesterday's gains. The stock produced a bearish engulfing candlestick reversal pattern. More conservative traders may want to exit immediately to lock in gains. I am adjusting our stop loss a little higher to $63.40.

Our potential option gains went from +139% to +81%.

- Suggested Positions -

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

10/30/13 new stop loss @ 63.40
10/29/13 new stop loss @ 63.25
10/28/13 adjust exit target to $68.50
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

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


PUT Play Updates


Currently we do not have any active put trades.




Longer-Term Play Updates



Vanguard FTSE Europe ETF - VGK - close: 57.08 change: -0.22

Stop Loss: 53.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +66.6%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
10/30/13: Shares of the VGK were actually holding up relatively well. That changed after the FOMC announcement this afternoon and suddenly the VGK hit some profit taking. If you want to be picky about today's trading then the VGK has created a bearish engulfing candlestick reversal pattern. This ETF has been overbought and momentum has stalled in recent days. I would not be surprised to see a correction into the $56-55 area. 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.

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


CLOSED BULLISH PLAYS

Viacom, Inc. - VIAB - close: 83.49 change: -1.22

Stop Loss: 83.40
Target(s): 89.50
Current Option Gain/Loss: -35.4%
Time Frame: exit PRIOR to earnings on November 14th.
New Positions: see below

Comments:
10/30/13: Warning! VIAB displayed a sharp increase in volatility and today's session produced a bearish engulfing candlestick reversal pattern. I couldn't find any news to explain the sharp spike higher (to a new record high) or the sell-off (-1.44%). Our stop loss was hit at $83.40 this afternoon.

- Suggested Positions -

DEC $85 call (VIAB1322L85) entry $3.10 exit $2.00 (-35.4%)

10/30/13 stopped out
10/29/13 new stop loss @ 83.40

chart:

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