Option Investor
Newsletter

Daily Newsletter, Tuesday, 5/20/2014

Table of Contents

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

Market Wrap

Retail Earnings Disappoint

by Jim Brown

Click here to email Jim Brown

A trio of retailers disappointed investors this morning to set the tone for the day.

Market Statistics

The market started off in a hole after multiple earnings disappointments and after a brief attempt at buying the dip around 11:00 the sellers gained the advantage and the bottom fell out once again. Most of the market commentators began blaming the Fed's Charles Plosser for the decline. He did not speak until 12:30 and the Dow was already down -111 points at the time. However, one commentator said the text of the comments was released at noon and that is when the serious drop occurred. After Plosser and Dudley spoke the decline picked up speed.

There were no economics today so we can't blame it on some weak report. However, the weekly Chain Store Sales snapshot was down -1.3% and the third weekly decline for a total of -3.4%. That report has a lot of noise and is normally ignored. Coupled with the weak retail earnings it might have gotten a little more attention.

The calendar for Wednesday has the biggest report for the week and that is the FOMC minutes. That afternoon release at 2:PM will be the signal for traders to leave for the weekend. Volume is already ridiculously low and it will only get worse after the reaction to the minutes.

Thursday has several key reports but there will be nobody around to see them.


Charles Plosser, a noted hawk at the Fed, said rising inflation and strengthening economy may force the Fed to hike rates "sooner rather than later" to stay ahead of inflation. He said the Fed is at risk of "falling behind the curve" in its efforts to control inflation. "The U.S. economy is on the firmest footing it has been on since the recovery began" despite the weather related weakness in the first quarter. He expects unemployment to drop below 6% by year-end driven by a rebound in the housing market. He is expecting 3% GDP growth for all of 2014. He said the current pace of QE reductions of $10 billion a month may be too slow.

Plosser has stated his position numerous times over the last year so it should come as no surprise to traders that he wants to hike rates faster. Unfortunately traders tend to have a short memory on some things and they react to Plosser restating his position every few weeks.

New York Fed President William Dudley spoke after Plosser and while Dudley is more dovish on rates he did have some new comments to provoke the market. On the positive side he said inflation should drift up slowly towards the Fed's 2% target and a swift climb in inflation was unlikely. When the fed does decide to tighten rates it would come "after a considerable time" and "the pace of tightening will probably be relatively slow."

The conventional wisdom is that the Fed will allow the treasuries it is holding to run off or mature rather than sell them back into the market. Retail investors expect this run off to occur before the Fed begins to hike rates. However, Dudley said the maturation process will take too long and the Fed will be forced to hike rates while the Fed is still holding a large amount of treasuries. Anyone who has thought about the Fed unloading its $4 trillion in treasuries has realized it is going to take a long time. Far longer than the "considerable period" between the end of QE and the beginning of the rate hike process. Janet Yellen said the considerable period clause in Fed statements would be around six months. Any trader reacting negatively to Dudley's comments simply had not thought through the process.

Dudley did say the broad lack of volatility in the markets was a worry for the Fed. He felt this period of calm was "breeding complacency" in some investors. I would say that was an understatement. With the Dow declining nearly 170 points intraday the VIX remained relatively calm at 12.90. I don't know what it is going to take to shock investor out of the buy the dip focus on the big caps but when it appears it could be earth shaking.


Home Depot (HD) reported earnings this morning that missed estimates on EPS and revenue. The company reported adjusted earnings of 96 cents and revenue up +2.9% to $19.7 billion. Analysts were expecting 99 cents and $19.97 billion on revenue. U.S. Same store sales rose +3.3%. They currently operate 2,263 stores.

The company blamed the weak quarter on the weather and this is one company where I really believe it. Harsh weather prevents those outside renovation projects. I was in a Home Depot a couple times in Q1 when there was snow on the ground and it was very quiet. The company said Q2 was snapping back with sales in May classified as "robust." They expect full year sales to rise +4.8% but they raised guidance for earnings growth from 16.5% to 17.6%. The full year guidance rose from $4.38 to $4.42. They plan on repurchasing $3.75 billion in stock in 2014. The raised guidance and share repurchase forecast pushed shares up +1.46 for the day in a bad tape.


Staples (SPLS) reported earnings of 18 cents, a -44% drop, compared to analyst estimates of 21 cents. Revenue declined -3% to $5.65 billion and analysts were expecting $5.61 billion. International sales declined -4%. The real problem came from a lowered forecast for Q2 of 9-14 cents and analysts were expecting 15 cents. Staples said they were closing 140 of its 1,846 stores due to low sales.


TJ Max (TJX) reported earnings of 64 cents that missed estimates of 67 cents. Revenue rose +4.9% to $6.49 billion but that missed estimates of $6.59 billion. They guided for Q2 at 70-74 cents compared to estimates at 74 cents. The full year guidance was lowered to $3.05-$3.17 compared to estimates for $3.19. The company said they felt good about the rest of the year because of low inventory levels and the opportunity to make some opportunistic inventory buys they are seeing in the marketplace. Investors were not feeling the love and shares fell nearly -8%.


Dicks Sporting Goods (DKS) reported earnings of 50 cents compared to estimates of 52 cents. They blamed weakness in golf equipment and hunting gear for the earnings miss. Q2 guidance was cut to 62-67 cents compared to consensus at 82 cents. The company dramatically lowered full year guidance from $3.05 to $2.85 compared to analyst estimates for $3.08. Offsetting the negative news was a rise in online sales from 5.8% to 7.0%. Shares fell -18% on the lowered guidance.

There was one critical point in their guidance. The decline in golf and hunting was NOT weather related. It is ongoing and they are reducing floor space in those categories to adjust for the decline. Golf equipment and firearms are expensive. I believe this is another symptom of a weakening consumer. Walmart sales have declined for six quarters. That factoid along with the Dicks news is an economic warning.


After the bell SalesForce.com (CRM) reported earnings of 11 cents that beat estimates by a penny. Revenue rose +37% to $1.23 billion compared to estimates of $1.2 billion. Deferred revenue rose +34% to $2.32 billion. Sales and marketing costs rose +37% while R&D costs rose +43%. For the current quarter they guided for 11-12 cents, up from 9 cents and analysts were expecting 12 cents. Revenue of $1.285 billion would be slightly ahead of estimates at $1.27 billion. They raised revenue guidance for the full year by +30% from last year to $5.32 billion. Analysts were expecting $5.29 billion. They guided on earnings for 49-51 cents and analysts were at 50 cents. Shares rose about 30 cents in afterhours.


Earnings on tap for Wednesday include Lowes and Target. American Eagle also reports and could face a tough crowd if their results mirror those retailers today.

Tiffany will be interesting since their customers are better off financially than the Walmart or Target crowd.


Caterpillar (CAT) reported its rolling three-month sales numbers and it was not pretty. Sales were down -13% with Asian sales down -25%. Asian sales were down -17% in February and -20% in March so the pace of the sales decline is accelerating. Chinese sales in 2013 declined from $65.88 billion to $55.66 billion and apparently they are still declining. This is not a good sign for the Chinese economy and for the global recovery. Shares of CAT fell -3.6% on the news and caused about -32 points of the Dow's decline.


The market bears are coming out of hibernation. The number of analysts turning bearish are increasing daily. In just the last week Steve Grasso, David Tepper, Dennis Gartman, Peter Boockvar, David Rubenstein, Ralph Acampora and Quincy Krosby have made comments about an impending correction. Gartman warned that back in the 70s there was a broad market decline but the Nifty Fifty big cap stocks refused to decline. Investors saw the relative strength and poured money into them but eventually they crashed as well. Gartman cautioned that when the broad market is declining as it is today the pockets of strength will continue to shrink until they eventually fail as well.

Marc Faber has been warning for weeks the market is setting up for a worse correction than we saw in 2008. However, Faber is historically bearish so his warnings are more or less ignored and they are longer term rather than over the next month.

Piper Jaffray, normally a very bullish house, warned last week of the potential for a 10-15% decline. That was out of character for them. Bank of America said a fund manager survey showed they have the most cash on hand since June 2012.

Douglas Borthwick of Chapdelaine & Co believes the economy is falling into recession starting with Q1. He pointed to a set of facts that were very convincing but the odds of Q2 declining from 3.5% GDP growth to negative growth over the next month are very slim in my opinion.

When everyone is bullish you should sell stocks. When everyone is bearish you should buy stocks. With bears racing out of the forest to warn about the coming correction it could be a contrary indicator. As one analyst put it the "correction anticipation trade" is alive and well but gaining no traction. This suggests there are still more "buy the dip" investors than sellers.

Another warning sign came from today's volume. On Monday, the day after option expiration when everyone is settling up their exercised option positions, there were only 4.9 billion shares traded. That is the lowest non holiday volume this year and the market was up slightly. Today, when the market was down hard the volume was 5.7 billion or nearly a billion shares more. That is still anemic volume but you don't want to see a large increase on a down day.

The fate of the market may depend on this mystery chart. Which way will this pattern break? It is clearly setting up for a major move as the trading range narrows almost daily. This is spring compression and when the spring releases it could be a huge move. I will disclose the name of the chart later.


Despite the large intraday decline all the major indexes posted a higher low. In other words they did not decline to the levels we saw last Thursday. We also have a lower high so it is hard to draw any conclusions from the day's activity. What we did see was a sharp decline in the internals with 5,172 decliners to 1,725 advancers. New highs were 104 to new lows at 130.

The S&P rallied to exactly prior resistance of 1,885 on Monday and that is where it closed. The afternoon dip today punched through initial support at 1,870 for a few minutes before closing at 1,873. That close is right in the middle of the congestion pattern since early March. Again, we can't draw any conclusions from that performance.

Resistance is now 1,885 and support 1,870 and 1,860. It would be really beneficial if we could get a drop to 1,840 to clear out some weak hands but there are no indications this is imminent.


The Dow had a nice pattern of higher lows in progress but today's decline dropped to the lowest point since April 28th. That damaged the pattern but until we get a dip to 16,300 the longer term trend is still intact. The Dow decline stopped at 16,350, below the 50-day at 16,403 but above the 100-day at 16,287. The Dow it not very reactive to moving averages so I don't put much faith in them halting a decline.

If you draw a trendline from the February and April lows it intersects exactly at the Dow close for today. That makes tomorrow a little more important for market sentiment. The Dow is down -400 points from last Tuesday's high. That seems ominous to me.



The Nasdaq Composite continues to trade in a range with a slight downward tilt but the closing price was right in the middle of the congestive pattern. Like the other indexes the Nasdaq did not make a lower low so it is hard to draw any conclusions.

Critical support is 4030-4040 with resistance 4130-4150.



The Russell 2000 continues to be the weakest link but it avoided correction territory at 1,087 for one more day. The critical support at 1,096 continues to hold on a closing basis but the down trending pattern is still intact. All we need it one more sharp decline and we could see a breakdown below support and produce a new sell signal.

The Russell rebounded on Monday to the 200-day average at 1,117 and that is exactly where it stopped. The decline today took it out of range for another attempt without a major rebound.


The mystery chart was the Nasdaq 100 ($NDX). The pennant pattern historically produces some major moves because of the spring compression theory. With the strong pattern of higher lows and incrementally higher highs suggests it is going to break out to the upside. However, if you Google bear flags/pennants and bull flags/pennants you can see dozens of conflicting opinions and examples of movements in either direction. The only sure thing, if there a sure thing at all, is that the eventual breakout should be strong.

I said the broader market may depend on the eventual direction of this chart because the Nasdaq and Russell have been the leaders to the downside. The Nasdaq 100 is similar to the Dow. It is a narrow index of big cap stocks. Google, Apple, Microsoft and Amazon account for 25% of the index. Big caps have been attracting money while the small caps sell off. If the NDX breaks out to the upside it could provide a sentiment boost to the Nasdaq Composite and lift the broader market.

The risk to the NDX is the Apple 7:1 split on June 9th to holders on June 2nd. Funds and institutional traders typically sell shares they get in a stock split because the extra shares are normally classed as a dividend and they can sell them at a lower tax rate. That means Apple shares could decline after the split. However, the declining share price from $600 to $85 is a strong incentive for retail traders that could not previously afford Apple to load up on shares. It will be interesting to see how Apple shares react and their impact on the Nasdaq after the split.


I am neutral to slightly bearish for the rest of the week with worries over how the market will react to the FOMC minutes on Wednesday and what should be very low volume for the rest of the week. I have been recommending for the last month to avoid loading up on long plays until the S&P declines to 1,840 or closes above 1,900 on decent volume. Neither of those events appears likely this week.

The energy sector has been leading the market for the last month. Click the advertisement below for a free trial to the OilSlick.com newsletter.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 


New Option Plays

Fed Fears & Retail Results

by James Brown

Click here to email James Brown

Editor's Note:

Comments from Philadelphia Federal Reserve President Charles Plosser unsettled the market today.

Plosser suggested the Fed might have to act sooner than previously expected and bonds bounced while equities retreated.

A round of disappointing retailer earnings results also soured the mood today.

We are not adding any new trades tonight. The Russell 2000 is poised to hit new relative lows. Meanwhile the S&P 500 is on the verge of closing below its simple 50-dma, which hasn't happened since mid April.




In Play Updates and Reviews

The Bounce Lasted Two Days

by James Brown

Click here to email James Brown

Editor's Note:

The most recent bounce only lasted two days thanks to a widespread sell-off on Tuesday.

BA hit our stop loss.


Current Portfolio:


CALL Play Updates

Express Scripts Holding - ESRX - close: 69.14

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
05/20/14: ESRX continued drift higher today and managed to outperform the major indices with a +0.39% gain. We didn't see any news from the company's conference call today.

We're suggesting bullish positions at $69.50 (more conservative traders will want to stick with the $70.50 entry).

Earlier Comments:
ESRX is in the healthcare sector. The company provides pharmacy benefit management (PBM) services in the U.S. and Canada. Both the NASDAQ and shares of ESRX peaked in early March. It would appear that investors considered ESRX one of the higher-growth, momentum names since it has been sinking with that group over the last couple of months.

That big drop you see on ESRX's daily chart was market reaction to its latest earnings news. The results were disappointing. You could call it a trifecta of bad news. ESRX missed Wall Street's estimates on both the top and bottom line. Management guided lower for 2014. Plus they disclosed three separate subpoenas from different state authorities as the company is investigated for its relationship with drug makers.

Investors already had lowered expectations for ESRX's earnings because the company lost UnitedHealth Group (UNH) as a client last quarter. The loss of UNH accounted for about half of ESRX's lost revenues. ESRX complained that a lot of expected new enrollments had been postponed. They didn't see quite the impact from the new Obamacare exchanges previously expected.

It sounds like plenty of bad news for ESRX. Yet here's the interesting part. The stock lost -6% following its earnings report but there was no follow through lower. Investors have been buying the dip. Shares are up two weeks in a row and slowing chewing through resistance. With a drop from $79 to $65 (-17.7%) it is possible that all the bad news is already priced into ESRX stock price. The long-term trend for ESRX is still higher. As the new affordable healthcare policy changes gain momentum it should mean more enrollments for ESRX.

Trigger @ $69.50

- Suggested Positions -

Buy the Aug $70 call (ESRX140816C70) current ask $2.27
option format: symbol-year-month-day-call-strike
05/19/14 adjust entry trigger from $70.50 to $69.50
adjust the strike price to the August $70s.

Entry on May -- at $---.--
Average Daily Volume = 6.5 million
Listed on May 17, 2014


Gilead Sciences - GILD - close: 81.14 change: -0.91

Stop Loss: 77.90
Target(s): to be determined (potentially $85.00)
Current Option Gain/Loss: +41.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/20/14: After hitting new relative highs yesterday shares of GILD retreated with a -1.1% decline today. I am not suggesting new positions at this time. More conservative traders may want to use a higher stop loss.

- Suggested Positions -

Long Jun $80 call (GILD1421F80) entry $2.12

05/15/14 new stop @ 77.90, readers may want to exit now to lock in potential gains.
05/10/14 new stop @ 75.75
05/01/14 new stop @ 74.45
04/30/14 triggered @ 77.00

Entry on April 30 at $77.00
Average Daily Volume = 23 million
Listed on April 29, 2014


LyondellBasell Industries - LYB - close: 97.00 change: +0.20

Stop Loss: 93.75
Target(s): to be determined
Current Option Gain/Loss: - 1.9%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/20/14: LYB held up reasonably well and eked out another gain on Tuesday. I didn't see any significant headlines surface from its presentation at the Goldman Sachs conference today.

Earlier Comments:
It is possible that the $100.00 level could be round-number resistance but we are aiming higher. The Point & Figure chart for LYB is bullish with a $110 target.

- Suggested Positions -

Long Sep $100 call (LYB140920C100)* entry $2.55**

05/15/14 new stop @ 93.75
05/12/14 LYB gapped open higher at $96.20 (+75 cents)
**option entry price is an estimate since the option did not trade at the time our play was opened.
*I've provided the more standardized option symbol format.
symbol-year-month-day-call-strike

Entry on May 12 at $96.20
Average Daily Volume = 3.1 million
Listed on May 10, 2014


3M Company - MMM - close: 140.23 change: -1.44

Stop Loss: 138.75
Target(s): to be determined
Current Option Gain/Loss: -48.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/20/14: MMM has erased yesterday's bounce and is once again testing support at the $140.00 level. The stock is due to trade ex-dividend tomorrow. That's a potential problem for us. The quarterly dividend is 86 cents. MMM is at $140.23. An 86-cent gap down at the open would be $139.37 and our stop loss is at $139.49. Tonight we're choosing to adjust our stop loss down to $138.75.

I am not suggesting new positions at this time.

- Suggested Positions -

Long Jun $140 call (MMM1421F140) entry $3.45*

05/20/14 adjust stop loss to $138.75 due to the dividend
05/15/14 new stop @ 139.49
05/08/14 triggered @ $142.00

Entry on May 08 at $142.00
Average Daily Volume = 2.65 million
Listed on May 07, 2014


Pacira Pharmaceuticals - PCRX - close: 76.68 change: +0.42

Stop Loss: 69.95
Target(s): to be determined
Current Option Gain/Loss: - 20.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/20/14: PCRX rallied from its intraday lows and closed up +0.5%. Shares look poised to breakout past short-term resistance near $78 soon.

Earlier Comments:
If PCRX does breakout it could see a short squeeze. The most recent data listed short interest at 17% of the 33.6 million share float. This is a somewhat aggressive trade because the option spreads on PCRX are a bit wider than we like. The Point & Figure chart for PCRX is bullish with a $93 target.

- Suggested Positions -

Long Aug $80 call (PCRX1416H80) entry $7.00

05/06/14 triggered on gap higher at $75.32, suggested entry was $74.25

Entry on May 06 at $75.32
Average Daily Volume = 602 thousand
Listed on May 05, 2014


Potasch Corp. of Saskatchewan - POT - close: 37.22 change: +0.32

Stop Loss: 34.90
Target(s): to be determined
Current Option Gain/Loss: + 8.3%
Time Frame: 3 to 4 months
New Positions: see below

Comments:
05/20/14: POT displayed some relative strength today. Traders bought the morning dip and shares gained +0.8%. POT looks ready to breakout past short-term resistance near $37.40-37.50 soon.

- Suggested Positions -

Long Sept $35 call (POT1420i35) entry $2.65

05/15/14 new stop @ 34.90
05/02/14 triggered @ 36.50

Entry on May 02 at $36.50
Average Daily Volume = 5.0 million
Listed on April 26, 2014


Thermo Fisher Scientific, Inc. - TMO - close: 114.47

Stop Loss: 116.75
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
05/20/14: It would appear that investors were not happy with TMO's comments at the company's analyst day today. TMO reaffirmed their full year 2014 guidance in the $16.84-17.0 billion range. Wall Street's estimates are at $16.93 billion. The middle of TMO's range is $16.92 billion. It seems like a non-event but shares plunged with a sharp retreat from their 50-dma, down -4% on the session.

We are not changing our strategy yet. The plan is to buy calls at $120.25.

Earlier Comments:
TMO is in the healthcare sector. The company recently acquired Life Technologies making the combined company the world's largest producer of scientific and laboratory equipment.

This is a pretty simple story. TMO has been firing on all cylinders with strong earnings growth. When TMO reported earnings in January the beat Wall Street estimates on both the top and bottom line and raised their 2014 guidance. They did it again on April 23d with its Q1 earnings report beating analyst estimates on the top and bottom line. TMO raised their 2014 EPS guidance again.

Earnings will likely continue to accelerate as the Life acquisition should generate noticeable cost and revenue synergies, potentially worth $85 million in just the first year.

Multiple firms have upgraded the stock. Goldman Sachs recently upgraded TMO due to expectations for strong organic growth. Goldman bumped their price target on TMO from $114 to $153.

Wall Street is bullish on TMO because the company is growing in Asia, specifically China. TMO currently has a goal of achieving 25% of its total revenues from the Asia-Pacific region by 2016.

Technically the stock looks strong too. TMO has a long-term up trend and appears to be breaking out from a three-month bull-flag consolidation pattern. Today's display of relative strength (+1.2%) is also a breakout above its 50-dma.

We do see potential resistance at $120. Therefore we're suggesting a trigger to buy calls at $120.25. If triggered we will start with a stop loss at $116.75.

Trigger @ $120.25

- Suggested Positions -

Buy the Sep $125 call (TMO140920C125)

symbol-year-month-day-call-strike

Entry on May -- at $---.--
Average Daily Volume = 2.0 million
Listed on May 19, 2014


United Parcel Service - UPS - close: 100.53 change: -0.86

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 16.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/20/14: Shares of UPS follows the transportation stocks lower and lost -0.84% on Tuesday. The stock is testing its 10-dma and could test round-number support at the $100.00 mark soon. I am not suggesting new positions at this time.

More conservative traders may want to raise their stop loss but I would keep it below $100.

We're not setting an exit target yet but the Point & Figure chart for UPS is bullish with a $114 target.

- Suggested Positions -

Long Jul $100 call (UPS140719C100)* entry $1.98

05/12/14 triggered @ 100.25
*I've provided the more standardized option symbol format.
symbol-year-month-day-call-strike

Entry on May 12 at $100.25
Average Daily Volume = 2.9 million
Listed on May 10, 2014


Ventas, Inc. - VTR - close: 67.27 change: -0.17

Stop Loss: 66.75
Target(s): to be determined
Current Option Gain/Loss: + 5.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/20/14: VTR held up better than most with only a -0.25% decline today. If there is any follow through lower tomorrow we could see shares hit our stop loss at $66.75.

- Suggested Positions -

Long Aug $65 call (VTR1416H65) entry $2.75

05/19/14 new stop @ 66.75
05/12/14 readers may want to exit early right now
05/10/14 new stop @ 65.75
05/01/14 triggered @ 66.35

Entry on May 01 at $66.35
Average Daily Volume = 1.6 million
Listed on April 28, 2014




PUT Play Updates

Athenahealth, Inc. - ATHN - close: 114.36 change: -0.19

Stop Loss: 124.05
Target(s): to be determined
Current Option Gain/Loss: Jun$100put -29.2% & Sep100put: - 7.2%
Time Frame: 4 to 12 weeks
New Positions: see below

Comments:
05/20/14: ATHN spiked down to $110.73 and bounced. The 19-cent loss is virtually unchanged for ATHN. I am not suggesting new positions at this time. The last two days have seen ATHN's bearish momentum stall a bit.

Earlier Comments:
The plan was to keep our position size small to limit our risk.

*small positions* - Suggested Positions -

Long Jun $100 PUT (ATHN140621P100) entry $2.05**

- or -

Long Sep $100 PUT (ATHN140920P100) entry $6.90**

05/15/14 trade opened on gap down at $115.66
**option entry price is an estimate since the option did not trade at the time our play was opened.
*I've provided the more standardized option symbol format.
symbol-year-month-day-put-strike

Entry on May 15 at $115.66
Average Daily Volume = 1.5 million
Listed on May 14, 2014


Discovery Communications - DISCA - close: 73.73 change: +0.06

Stop Loss: 75.05
Target(s): to be determined
Current Option Gain/Loss: -40.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/20/14: I am starting to worry about our DISCA trade. The bearish momentum seems to have stalled a bit. Most of the market was down today but DISCA managed to close virtually unchanged.

After the closing bell tonight DISCA has announced a stock split in the form of a special dividend. They're not calling it a stock split but for any shareholders who own the class A, class B, or class C shares of Discovery stock on July 28th, 2014, they will receive a share of class C stock on or about August 6th, 2014.

I am not suggesting new bearish positions at the moment.

Earlier Comments:
We're not setting a target yet but the Point & Figure chart for DISCA is bearish with a $59 target.

- Suggested Positions -

Long Jul $70 PUT (DISCA140719P70)* entry $1.60**

05/14/14 triggered @ 72.25
**option entry price is an estimate since the option did not trade at the time our play was opened.
*I've provided the more standardized option symbol format.
symbol-year-month-day-put-strike

Entry on May 14 at $72.25
Average Daily Volume = 1.63 million
Listed on May 10, 2014


Chart Industries - GTLS - close: 71.24 change: -2.08

Stop Loss: 75.55
Target(s): to be determined
Current Option Gain/Loss: - 12.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/20/14: GTLs is finally starting to show some momentum lower. The stock fell -2.8% today after failing at its 30-dma this morning. I would consider new positions at current levels.

Earlier Comments:
More conservative traders could wait for a drop under $71.00 as an alternative entry point.

FYI: The Point & Figure chart for GTLS is currently bullish but a drop below $71.00 would produce a new triple-bottom breakdown sell signal.

- Suggested Positions -

Long Jun $70 PUT (GTLS140621P70) entry $2.25

05/16/14 trade begins. GTLS opened at $72.34
*I've provided the more standardized option symbol format.
symbol-year-month-day-put-strike

Entry on May 16 at $72.34
Average Daily Volume = 652 thousand
Listed on May 15, 2014


Lumber Liquidators - LL - close: 81.06 change: -0.84

Stop Loss: 84.05
Target(s): to be determined
Current Option Gain/Loss: -22.2%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/20/14: Traders bought the dip in shares of LL near round-number support at $80 this morning (actually the low was $79.50). LL still underperformed the broader market with a -1.0% decline and remains under technical resistance at its 10-dma.

The late April low was $78.92. I would wait for LL to trade below this level before initiating new bearish positions.

Earlier Comments:
I do consider a more aggressive trade because of LL's short interest. The most recent data listed short interest at 25% of the small 24.3 million share float, which raises the risk of a short squeeze. I am not setting a target yet. The P&F chart is bearish and forecasting at $72 target.

*small positions* - Suggested Positions -

Long Aug $75 PUT (LL140816P75) entry $4.50**

05/15/14 triggered @ 79.75
**option entry price is an estimate since the option did not trade at the time our play was opened.
*I've provided the more standardized option symbol format.
symbol-year-month-day-call-strike

Entry on May 15 at $79.75
Average Daily Volume = 888 thousand
Listed on May 14, 2014


Whole Foods Market, Inc. - WFM - close: 37.18

Stop Loss: 40.25
Target(s): to be determined
Current Option Gain/Loss: +15.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/20/14: The selling pressure in WFM continues. The stock is below the May 7th intraday low, which is good news for the bears. I do not see any changes from my prior comments.

Earlier Comments:
WFM is in the services sector. The company runs a grocery chain focused on natural and organic foods. As of May 2014 they had 379 stores. Unfortunately their success in the higher-margin organic foods has fueled significant competition.

The stock has been sinking for months as investors worried about growing competition. WFM's recent earnings report confirmed their fears. The stock crashed -19% after WFM missed estimates on both the top and bottom line and confessed they were facing tougher rivals. Management then lowered their 2014 guidance.

WFM said revenues still grew +10% and their same-store comparable sales were up +4.5%. Unfortunately profits were relatively flat and margins are getting squeezed with higher cost of goods sold and rising capex.

WFM is facing competition on all sides. Sprouts Farmers Market (SFM), The Fresh Market (TFM), Kroger (KR), Wal-mart (WMT), and regional competitors like HEB and Trader Joe's are all jumping on the organic and natural food bandwagon.

- Suggested Positions -

Long Aug $35 PUT (WFM140816P35) entry $1.01

05/19/14 trade begins. WFM opens at $37.89

Entry on May 19 at $37.89
Average Daily Volume = 9.2 million
Listed on May 17, 2014



CLOSED BULLISH PLAYS

The Boeing Company - BA - close: 131.35 change: +0.54

Stop Loss: 129.40
Target(s): to be determined
Current Option Gain/Loss: -47.2%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/20/14: The action in BA today was almost identical to the move in the Dow Jones Industrial Average. The index's weakness pulled BA below support at $130. Shares hit our stop at $129.40.

- Suggested Positions -

Jul $135 Call (BA1419G135) entry $2.75 exit $1.45 (-47.2%)

05/20/14 stopped out
05/13/14 new stop @ 129.40
05/05/14 triggered at $132.00

chart:

Entry on May 05 at $132.00
Average Daily Volume = 3.7 million
Listed on May 03, 2014