Option Investor
Newsletter

Daily Newsletter, Wednesday, 5/21/2014

Table of Contents

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

Market Wrap

Reversals of Reversals

by Keene Little

Click here to email Keene Little
The stock market is coiling for a big move and no one can say with certainty which way it's going to break. In the meantime we have a choppy consolidation that won't quit and it's frustrating both sides.

Wednesday's Market Stats

The stock market is continuing its sideways choppy consolidation pattern that it's been in for the past 2+ months. Short-term sentiment is swinging daily with the market while longer-term sentiment shows complacency that could get the bulls into trouble if they're not careful. But the bears haven't been able to do anything to scare the bulls yet and with an intact uptrend they haven't felt the need to worry.

It's been very quiet for the markets when looking at geopolitical events and economic reports. This has left the market to bounce around on its own and at the moment it's looking rudderless. The only report today that's worth mentioning was the FOMC minutes that were released at 14:00 and even that didn't move the market much. There was a little downside blip but after 10 minutes the indexes started back up and finished near their highs for the day (the RUT was a little off).

There were no surprises in the FOMC minutes, which simply confirmed what we've already heard. The Fed feels the economic slowdown in Q1 was largely weather related and that economic growth should look better as the year progresses. This could be wishful thinking or it's a way for the Fed to stay on track with its bond-purchase taper program. They know they need to taper their purchases and they're hoping to get it done before the market rocks the boat. The big question in my mind is whether or not they'll make it to October when the last of the bond buying should be completed. Any further threat of an economic slowdown could have the Fed halting their taper program, if not reversing it. This is especially likely if the stock market starts down more earnestly.

The Fed members acknowledged that they believed there could be some risk to the stock market with the low volatility. They believe this represents an increase in investor willingness to accept higher levels of risk and as we know, when the VIX is low it's time to go. Perhaps someone in the Fed meeting mentioned that saying. With the Fed's push to get investors into riskier assets there is perhaps some recognition now that it has made the market more vulnerable to a downside disconnect.

Following the May 13th high, which was a good setup for the completion of the rally, I had expected to see the market start down into what should become a much larger decline than just a "pullback." We got the decline, especially Thursday morning, but the bulls have hardly been scared away. Just another dip to buy as far as they're concerned. It's been such a winning strategy for years and therefore it's not hard to understand why they keep doing it.

But now the bounce off last Thursday's low could be setting up the completion of a correction to the initial decline, to be followed by another leg down. At least that's the bearish setup, but as has been the case for a long time, the bull could still have a rabbit or two left in his hat. Many are now just hoping the market at least continues to float higher into the holiday weekend and then month-end.

But the only way the market is going to make it much higher is for the sellers to stay away. Total trading volume is pitifully low and especially so during rally attempts (today's rally was again lower than yesterday's selling). The pattern since March has generally been weaker volume during rally attempts and stronger volume during declines. Market breadth reamins weak. Looking at today's Market Stats above shows the 52-week highs and lows came in at the same 155. But getting in behind those numbers shows the Nasdaq had 75 news lows vs. 41 new highs and yet the index finished up +0.84%. This is the way the rally has been progressing for some time -- on the backs of fewer and fewer stocks.

As an example of the situation for the tech indexes, NFLX was up big today and finished at its high, up almost 19 (+5.1%) at 390.69. That certainly helped the indexes but what if these same stocks start back down while the weaker stocks simply drop harder? Take a look where NFLX finished today -- up against its broken uptrend line from April 2013, currently near 392. The 2nd leg of a 3-wave bounce off its April 28th low would be 162% of the 1st leg up (to complete an a-b-c bounce correction to its March-April decline) at 392, only a little more than a point above today's high.

Netflix, Inc., NFLX, Weekly chart

From a bearish perspective, this is a back test that will be followed by a kiss goodbye and the next decline could be stronger than the March-April leg down. Some of these big tech stocks are going to be important to watch in the next couple of weeks since without their support it would be hard for the tech indexes to keep the majority fooled about the rally. Keep in mind that while the tech indexes had a marginal pullback into April that wasn't true for the average stock in the indexes. It's the same for the RUT -- the average decline for the stocks in these indexes was more than -20%. If the indexes had done that we would have seen the Nasdaq down to about 3500 (instead of holding support near 4000).

While on the subject of the techs, I'll show the Nasdaq's daily chart to show a bullish setup if tech stocks like NFLX can keep going. I get a different interpretation using NDX, which I'll show next. The COMPQ has been trading sideways in a narrowing coil, the top of which is near its 50-dma, which will cross near 4146 on Thursday, about 13 points above today's high. A rally above 4146, that holds above (not just an intraday break above it to catch the stops), would be bullish. But if it heads back down and drops below the bottom of the triangle, near 4040, it would be bearish for another leg down to at least match the March-April decline.

Nasdaq Composite index, COMPQ, Daily chart

As I've been showing for NDX, it has a little different pattern since the April 15th low, one which looks more bearish. It's a rising wedge pattern and as you can on the chart below, today's rally brought NDX right up to the top of the wedge. Possibly a pop higher Thursday morning for a little throw-over and then a key reversal to the downside -- that's what the bears need to wish for here. If it rallies above 3640 and stays above that level it will be a bullish breakout from a bearish pattern and failed patterns tend to fail hard (so a strong rally). Regardless of how weak the rally had been so far, a rally above 3640 would have me looking to buy the dips rather than sell the rallies. In the meantime we've got a bearish setup here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3640
- bearish below 3542

If the bears take over from here there's considerable downside potential for NDX, which I show on the chart. First, there's the potential for a H&S top, with the left shoulder in January, head in March and now completing the right shoulder. The downside objective out of the pattern (neckline near 3425) is to about 3112. If the 2nd leg of the move down from March achieves 162% of the 1st leg down we'll see it drop to 3100 (3300 would be two equal legs down). Needless to say, it's decision time for the techs and as they go so will go the broader market.

The wedge pattern for NDX is shown in more detail with the 60-min chart below. You can see today's rally into the close is up against the top of the wedge pattern. I'm showing a possible 3-wave move up from April 15th (labeled w-x-y) and two equal legs points to 3639.28, less than 3 points above today's high. This is why a slight pop higher Thursday morning followed by a drop back inside the wedge would give us a sell signal (stop above the morning high). MACD shows bearish divergence, which supports the idea that the rally is going to fail here but price is king so follow it. This is what I'll be watching closely in the morning (looking to get short if the bearish pattern follows through).

Nasdaq-100, NDX, 60-min chart

Looking at SPX weekly chart, the first thing that jumps out, other than the tangle of uptrend lines, is the bearish divergence since December. The market has chopped its way higher but as discussed ad nauseum since January, the waning momentum and a slew of market breadth indicators tell us the rally is on its last legs. The bull has run its marathon and is crawling to the finish line on bloodied knees. Somebody needs to shoot the poor thing and put it out of its misery.

S&P 500, SPX, Weekly chart

While the weekly perspective of SPX looks like it could, and should, fail at any time now, the choppy pattern to the upside might not be finished. The sideways consolidation that we've been in for the past 2+ months could resolve to the upside, in which case I'd be looking for a rally up to at least the 2000 area. First I'd want to see it get through 1920-1930 before betting on the long side but if you're short the market you need to see the upside potential. There are signs confirming a top is already in place but until it drops below its April low near 1814 the bulls will still have a fighting chance for higher highs.

As I said, I liked the setup for a top on May 13th, which missed a price projection at 1904 by only 2 points. The sharp decline following that high also supports the idea it was an important high. The bounce off last Thursday's low is so far a correction to the decline that has run into trouble at the broken uptrend line from April 11th, which stopped Monday's rally and will be near 1892 Thursday morning. If SPX pushes much above 1892 we'll probably see new highs whereas a drop below last Tuesday's low, near 1868, should lead to a move down to at least test 1850 support.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1900
- bearish below 1862

The 60-min chart below shows another reason why 1892 is an important level for the bulls to break through -- two equal legs up from last Thursday, for an a-b-c bounce correction to last week's decline, points to 1891.78. That crosses the broken uptrend line from April 11 - May 7 (which fits as the bottom of the rising wedge pattern up from April 11th to complete the last leg of its rally into the May 13th high) early Thursday morning. This makes it possible we'll see a quick high Thursday morning followed by the start of a stronger selloff. In other words, don't get sucked into a bullish start to Thursday since it could be a bull trap.

S&P 500, SPX, 60-min chart

Coinciding with a potential top for the stock market is a VIX level down in the weeds. Complacency is obvious with the VIX banging on 12, a level that has been support since August 2013. The VIX is also now down to the bottom of a potential bullish descending wedge from its February 3rd high and the combination looks like a bullish setup. That would of course mean a bearish setup for stocks.

Volatility index, VIX, Daily chart

The DOW sold off 155 points yesterday and rallied 158 today. Will the real market direction please stand up. Yesterday's low below the March 15th low (as opposed to the higher low for the other indexes) was a bear trap but now the question is whether today's rally is setting a bull trap. Like SPX, the DOW is bouncing back up toward its broken uptrend line from April 11 - May 7, near 16600 Thursday morning (so a little further away relative to SPX). While it's a different shape, the bounce off the May 15th low nearly achieved a price projection at 16549 for its completion with a high near 16545 this afternoon. So its bounce, if it's to be just a correction to the decline, might have finished this afternoon or could finish with a minor pop higher Thursday morning. A rally above 16600 would look more bullish and that would point to at least a test of its May 13th high at 16735.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 16,735
- bearish below 16,340

The RUT was a bit whippy today and then finished near the middle of its range, leaving a doji day to ponder. As I look at its daily pattern I get a bullish impression. It has been nothing but a choppy move down since March and that has it looking like a corrective pullback. The bullish divergence since April also adds to the bullish impression. As long as it holds above 1080 it's hard to turn bearish but the bears have in their favor the fact that it's in a down trend (lower highs) and its recent bounce attempt into Monday's high was rejected by its broken 200-dma (and descending 20-dma). The bulls need to break the downtrend line, currently near 1120, in order to at least turn the pattern neutral.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1137
- bearish below 1080

I usually show the TNX (10-year yield) chart but tonight I'm showing the TYX (30-year yield) chart since it bounced off support last week where it should and the bullish interpretation of the pattern calls for the bounce to turn into a rally. The bond bears need to keep selling in order to get TYX up over 3.5%, the May 12th high, in order to confirm a breakout of its down-channel from March 7th and a larger one from December 31st, currently near 3.49%. The bullish divergence since February supports the bullish perspective and selling in the bonds could support a rally in the stock market, which is the reason I'm watching this carefully. But if the bond bulls keep up their buying and drive yields lower, a break below support near 3.3% would be significant. Two equal legs down from December 31st and the uptrend line from 2012-2013 would then be broken and a failed bullish setup could fail hard.

30-year Yield, TYX, Daily chart

The Trannies have been stronger than the DOW Industrials this year, consistently putting in new highs for the year after December's highs while the DOW has lagged behind in that regard. But the TRAN's days could be numbered here if the rising wedge pattern off the April 14th low is going to be the conclusion to its longer-term rally, which is how it's currently fitting. It fits as the c-wave (ending diagonals are common for the final 5th or c-wave) of an a-b-c move up from February 5th and two equal legs up projects to 7963. The 5th wave of the move up from April 14th would be 62% of the 3rd wave (common in an ending diagonal) at 7952. The top of the rising wedge will be near 8000 next Tuesday (Monday is a holiday) so we've got an upside target zone of about 7950-8000 for a final high. A drop below 7700 would confirm the final high is in place.

Transportation Index, TRAN, Daily chart

Last week I mentioned I was looking for a pullback in the U.S. dollar and following its quick high Thursday morning we've seen more of a consolidation than a pullback. There's still the potential for a slightly larger pullback but in any case it should head higher once the pullback/consolidation completes.

U.S. Dollar contract, DX, Daily chart

Gold has continued to chop sideways in the coil I showed last week and came close to the bottom of it today, currently near 1281. A break below that level would be a bearish heads up but it needs to break below its April 24th low at 1268.40 to confirm it's breaking down. The downside objective, assuming it will head lower, is 1194 but there is lower potential. It takes a rally above 1310 to put the gold bears back on their heels and then above 1340 to turn the pattern bullish.

Gold continuous contract, GC, Daily chart

Oil has also reached an inflection point by rallying up to resistance at its current price near 104, at its downtrend line from August 2013 and its broken uptrend line from January 9 - March 17. Slightly higher, near 104.75, is a shallow downtrend line from the two previous highs in March and April. This could be the top of what will become a bullish sideways triangle, which needs one more trip down to the bottom of it (the uptrend line from March 17th) in order to complete the triangle. Oil would be bullish above 105 but currently looks like a setup for at least a pullback, if not something more bearish with a triple top here.

Oil continuous contract, CL, Daily chart

Tomorrow's reports include existing home sales for April, which are expected to be about the same as March. The market is looking for signs of improvement in home sales as evidence for improved 2nd quarter growth.

Economic reports and Summary

Stock indexes have hit an important point where the bulls need to keep the rally going (and hopefully add some oomph behind it) whereas the bears need to reverse it now. A slight pop up Thursday morning should be followed by immediate selling if the bears are going to take over. Or it could start down immediately, depending on what the futures do in the pre-market session. How Thursday goes could set the market's direction for the next couple of weeks so don't get caught on the wrong side.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

Be who you are and say what you feel, because those who mind don't matter and those who matter don't mind. - Dr. Seuss


New Option Plays

Fifth Quarter of Double-Digit Growth

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

CVS Caremark Corp. - CVS - close: 76.70 change: +0.77

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CVS is in the services sector. The company provides integrated pharmacy healthcare services in addition to running a drug store chain with over 7,600 locations. CVS' largest rival is Walgreen's with 8,650 locations.

The company's most recent earnings report was mixed. CVS delivered a profit of $1.02 per share. That missed estimates by a penny. Revenues came in above expectations at $32.69 billion in the first quarter. Wall Street appears to have accepted CVS's "blame it on the weather" excuse. Last month CVS also disclosed they had finalized a settlement with the SEC over events dating back to 2009 that stemmed from its acquisition of Longs Drug Stores in 2008. In the settlement CVS did not have to admit any wrongdoing and does not have to restate any earnings reports. They're happy to put the ordeal behind them and for investors it's old news.

More importantly the company is seeing strong growth in its PBM business. Its pharmacy services segment saw revenues climb +10.3% to $20.2 billion in the second quarter. Management said CVS is "beginning to develop integrated products for both hospitals and health plans."

They're also growing into a broader healthcare provider with the retail-based clinic subsidiary MinuteClinic. According to CVS' website, "MinuteClinic launched the first retail medical clinics in the United States in 2000 and now has more than 800 locations in 28 states. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to provide treatment for common family illnesses, skin conditions and injuries, administer vaccinations, conduct physicals and wellness screenings, and offer monitoring for chronic conditions seven days a week without an appointment, including evenings and holidays."

American's growing acceptance of the MinuteClinic for quick healthcare services will grow. Long-term CVS will benefit from an aging population more dependent on their prescriptions. Plus, CVS will benefit from the growing number of new Americans being covered under Obamacare. Payments for these services will be covered by health care plans, Medicaid, and now the Affordable Care Act mandate.

Wall Street is happy with its steady growth. The most recent earnings report showed profits rising 18% year over year for the fifth consecutive quarter of double-digit earnings growth.

More aggressive traders may want to buy calls now. The all-time intraday high is $77.13. I am suggesting a trigger to buy calls at $77.25. We're not setting a bullish exit target yet but the Point & Figure chart for CVS is bullish with a $102 target.

Trigger @ $77.25

- Suggested Positions -

Buy the Aug $80 call (CVS140816C80) current ask $0.96

symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:

Entry on May -- at $---.--
Average Daily Volume = 5.1 million
Listed on May 21, 2014



In Play Updates and Reviews

No Follow Through Lower

by James Brown

Click here to email James Brown

Editor's Note:

Stocks did not see any follow through on yesterday's reversal lower. Big caps continue to lead the way higher.

ESRX hit our entry trigger. VTR and DISCA hit our stop loss.


Current Portfolio:


CALL Play Updates

Express Scripts Holding - ESRX - close: 69.84

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: +2.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/21/14: ESRX managed to outpace the rally in the major indices today with a +1.0% gain. Our suggested entry point to buy calls at $69.50 was hit early this morning. It is worth noting that the rally stalled at the $70.00 mark.

I have been suggesting that more conservative traders will want to wait and use an entry point at $70.50.

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.

- Suggested Positions -

Long Aug $70 call (ESRX140816C70) entry $2.45*
option format: symbol-year-month-day-call-strike
05/21/14 triggered @ 69.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
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: 81.81 change: +0.67

Stop Loss: 77.90
Target(s): to be determined (potentially $85.00)
Current Option Gain/Loss: +53.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/21/14: There were new headlines regarding criticism of GILD's price for its Solvaldi hepatitis C cure. They failed to stop the rally in GILD's stock. Traders bought the dip midday and GILD recouped a good chunk of yesterday's pullback. GILD is currently on course for its sixth weekly gain in a row.

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: +17.6%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/21/14: LYB displayed some relative strength on Wednesday with a +1.1% gain and a new all-time closing high. Shares are approaching what could be round-number, psychological resistance at the $100.00 level. I am not suggesting new positions at this time.

Earlier Comments:
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: 140.66 change: +1.29

Stop Loss: 138.75
Target(s): to be determined
Current Option Gain/Loss: -32.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/21/14: Good news! MMM technically opened higher considering the stock began trading ex-dividend this morning. MMM opened at $139.77 and kept pace with the Dow Industrials with a +0.92% gain.

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: 74.79 change: -1.89

Stop Loss: 69.95
Target(s): to be determined
Current Option Gain/Loss: - 32.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/21/14: PCRX tagged a new two-month high this morning and then reversed. I do not see any news that might account for the relative weakness today (-2.4%). With last week's high, today's move is arguably a short-term double top. More conservative traders may want to exit early or raise their stop loss.

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

05/21/14 caution! today's move looks like a potential reversal lower.
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: 37.05 change: -0.17

Stop Loss: 34.90
Target(s): to be determined
Current Option Gain/Loss: + 1.1%
Time Frame: 3 to 4 months
New Positions: see below

Comments:
05/21/14: POT shot lower this morning thanks to a downgrade before the opening bell. Traders bought the dip near its rising 10-dma. POT has been stuck in the $36.50-37.50 zone for almost two weeks now.

- 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: 115.32

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:
05/21/14: TMO did not see any follow through on yesterday's sharp decline. Instead the stock gapped open higher this morning. Before the bell TMO announced a quarterly dividend of 15 cents per share payable on July 15th, 2014 to shareholders of record on June 16th.

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: + 51.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/21/14: UPS is looking a lot stronger with today's +1.2% bounce. The stock has found support twice at $100.20 in the last few days. We will probably raise our stop loss soon.

I would be tempted to use this bounce as a new bullish entry point.

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




PUT Play Updates

Athenahealth, Inc. - ATHN - close: 113.23 change: -1.13

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:
05/21/14: Shares of ATHN popped higher this morning but reversed near $117. The stock eventually underperformed the market with a -0.98% decline. If ATHN continues to sink tomorrow it might be time to reconsider new bearish positions.

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


Chart Industries - GTLS - close: 71.70 change: +0.46

Stop Loss: 75.55
Target(s): to be determined
Current Option Gain/Loss: - 22.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/21/14: GTLS did not see any follow through on yesterday's decline. Today's market wide bounce may have stalled the sell-off.

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: 79.53 change: -1.53

Stop Loss: 84.05
Target(s): to be determined
Current Option Gain/Loss: -17.7%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/21/14: LL continues to underperform and lost another -1.8% today.

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: 37.55

Stop Loss: 40.25
Target(s): to be determined
Current Option Gain/Loss: + 1.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/21/14: After hitting new lows yesterday WFM managed a bounce today (+0.99%). 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

Ventas, Inc. - VTR - close: 66.32 change: -0.95

Stop Loss: 66.75
Target(s): to be determined
Current Option Gain/Loss: - 1.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/21/14: VTR underperformed the broader market with a -1.4% decline on Wednesday. I do not see any company-specific news to account for today's relative weakness. Shares did breakdown below their 20-dma for the first time in several weeks. Our stop loss was hit at $66.75.

- Suggested Positions -

Aug $65 call (VTR1416H65) entry $2.75 exit $2.70* (-1.8%)

05/21/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
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

chart:

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


CLOSED BEARISH PLAYS

Discovery Communications - DISCA - close: 74.30 change: +0.57

Stop Loss: 75.05
Target(s): to be determined
Current Option Gain/Loss: -58.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/21/14: DISCA has not been cooperating. The stock spiked higher this morning, likely on last night's announcement that Discovery was offering an extra share of stock as a special dividend. DISCA rallied toward $76 before reversing under its 30-dma. Our stop loss was hit at $75.05.

- Suggested Positions -

Jul $70 PUT (DISCA140719P70)* entry $1.60** exit $0.67*** (-58.1%)

05/21/14 stopped out
***option exit price is an estimate since the option did not trade at the time our play was closed.
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

chart:

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