Option Investor
Newsletter

Daily Newsletter, Thursday, 5/22/2014

Table of Contents

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

Market Wrap

Markets Move Higher

by Thomas Hughes

Click here to email Thomas Hughes
The post Fed minute rally continued today as data stoked investor hopes for global growth.

Introduction

Yesterday the Fed indicated, through the minutes of the last meeting, that the taper was still on yet the chances of a rate hike are still far off. The rally in US equities inspired by this news carried over into the over night sessions lifting Asian and EU markets. Adding to the positive spin was better than expected data from China and some mixed data from the EU. Chinese flash PMI rose to 49.7 versus the previous final reading of 48.1 in April. This indicates that the pace of contraction in China is slowing and may soon revert to growth as expected. In Europe isolated weakness, France, was overlooked in favor of stronger PMI readings for Germany and the EU as a whole. Flash PMI for the EU is 53.9, in line with expectations.


Early futures trading indicated the markets would open flat to negative ahead of the 8:30 release of jobless claims data. Following the release futures held steady into the open at which time the markets dipped briefly into the red. By 10AM the markets had rebounded from the early lows and moved into positive territory with the S&P 500 tickling current all time high levels. Once the morning highs had been reached the indices tread water going into the lunch hour and held those levels for most of the afternoon. Late afternoon trading saw the indices retreat from their daily highs but remain in positive territory from yesterday's closing prices. The Dow Transports set a new high while the VIX moved down to test a more than one year low.

The Economy

Data started today with the weekly release of unemployment claims. Initial claims for unemployment rose by 28,000 from a mild 1,000 claim revision to last weeks data. Claims were reported at 326,000 in the current data, above the expected range of 310-320,000. The 4 week moving average fell this week, in response to last weeks sharp drop, by -1,000 to 322,500. On an unadjusted basis claims gained 15,638 versus an expected decline of about -1,000. This weeks gain, while not exactly expected, is not too disturbing. Initial claims seem to be bobbing along between 300,000 and 350,000. This may be the new “normal” for this indicator, while other data improves this possibility looks more and more likely. I am beginning to view initial claims as an indication of job turnover more than joblessness. Job turnover can remain elevated provided that job creation and total unemployment are coming down.


Continuing claims and total claims both fell this week. Continuing claims fell by about -13,000 to a new low not seen since December 1, 2007. The previous weeks figure was also revised down by -1,000. This data point is still in decline and suggestive that once someone loses a job it doesn't take too long to find another one. On an unadjusted basis continuing claims fell by more than -50,000. Total claims fell by nearly -85,000 to reach another new low as well. Total claims, which is not revised, was reported at 2.620 million. This indicator of longer term unemployment has been in decline all year, even after the massive drop in claims at the beginning of the year due to expiring benefit extensions.


Existing home sales was reported as expected at +1.3%. The previous months data was unrevised. On a regional basis there were ares of strength and weakness led by gains in the west. This is the first increase in sales this year and are expected to trend upward. Comments within the report noted that inventories were up and prices were down and that the combination would help the home sales market to continue trending up this year.

Leading indicators were also released today. The Index of Leading Indicators gained by 0.4% last month, indicating a gain in activity this month. This is the third month of increases in the index and in line with expectations. The previous 1% increase was unrevised. The Coincident and Lagging Indicators also rose in the current data indicating that last month and the previous month were both a little stronger than expected.


Tomorrow there is only one economic release on the calendar, New Home Sales. Next week Durable Goods is released on Monday followed up by the Case Shiller Index, FHFA Index, Consumer Confidence, 2nd estimate for 1st quarter GDP and Pending Home Sales. There are no earnings reports scheduled for tomorrow.


The Dollar

The Dollar Index strengthened today. The FOMC minutes and mixed EU PMI combined to help this move I think. The minutes are indicative of the taper continuing with the start of interest rate hikes still far off. Mixed EU PMI furthered the speculation the ECB could or would start some form of QE in early June. Today's economic helped as well, adding a little weight to the idea the economy is rebounding as we speak. Regardless, the Dollar Index made a strong move up from support at the 80 level with bullish momentum and stochastic crossing the upper signal line.


The euro fell to a new low versus the dollar. The EUR/USD fell near a three month low in today's session. The next ECB meeting is June 5th, when the governing council has hinted it may begin a Fed style stimulus program. This expectation is being helped by tepid EU data and will likely drive this pair until then.


The Gold Index

Gold prices trade up in the early part of the morning, hovering around $1300 before moving up around $1305 before the open of stock trading. After the bell gold prices fell back below $1300, where it traded the rest of the day. Adding to the pressure on gold are reports of fund outflows. Holdings of gold of the top gold backed funds dropped, led by the Spyder Gold Trust with a drop of 3.3 tons. Although gold price held positive territory following yesterday's FOMC minutes it did not hold above $1300.

The Gold Index traded up from yesterday's close but down from resistance. In the past week the index has fallen beneath the near term support line I have been tracking. Today, prices opened higher, just beneath the line and then traded down from there. This is a possible confirmation of the break of support. The indicators are bearish although momentum is very weak. Stochastic is crossing the lower signal line which can be a sign of impending weakness in some cases. A peek at the longer term chart of weekly closings shows momentum turning bearish and stochastic moving lower as well. With the current set up I would not be surprise to see the Gold Index move lower in the near to short term with my previous targets near the $85 level still in play. Until gold prices firm and move higher there is little reason to expect improving earnings from gold miners.


The Oil Index

Oil prices hovered around $104 for most of the day before falling down near $103.50 in the late afternoon. Reports of violence in the Ukraine mixed with unsubstantiated claims from Putin that his troops have been order to withdraw helped to keep prices higher while better than expected data from China and here at home added downward pressures. Growing unrest in Libya has also helped to boost oil prices over the past week or two. The Oil Index traded to the upside today in a continuation of a moving average bounce begun earlier this week. The expected pullback in the index was very shallow and is bouncing off the short term moving average while capped by resistance at this time. Resistance is right around 1625-1630 at this time and bears close watching. A break above could lead to another move higher for this index. For now, the indicators are still bearish but beginning to roll over. There could be some more consolidation in the near term. Support levels exist near 1600, 30 day EMA, and 1550, previous resistance.


Story Stocks

Retail earnings were in the spot light today. Today, and this week in particular, is heavy with retail earnings. Today Best Buy and others reported what most of the other retailers have as well...less than expected with weak guidance. Best Buy reported a surprise gain in EPS despite missing on revenue and posting a near 2% drop in comp store sales. The company reported $0.33 per share on revenue of $9.04 billion versus an expected $0.20 on revenue of $9.206 billion. Comp store sales fell by -1.9%, analysts had been expecting a drop of -0.8%. Guidance for the next two fiscal quarters includes an expectation for single digit decline of comp store sales as well. The stock, which has been trading in a tight range all year, opened above the 30 day moving average and climbed higher before falling back before the close. This stock has been range bound for months, appears to be range bound now and has little reason to break out now....unless its to the downside. Upper resistance is around $27.50 with support around $22.50.


The Spyder Retail ETF XRT trade to the upside today, moving up by more than 1%. Today's gain was capped by resistance near the $83 level, a level coincident with the middle of a long term trading range. The indicators are incredibly neutral and consistent with a range bound asset. This index may continue to consolidate around the $83 level until the market gets a cleared indication of an improving economy and more importantly an improving consumer.


McDonald's made the news today as the company geared up for its share holder meeting. What made the news was record protests of the company by its workers and fast food employees. Protesters are demanding the right to unionize as well as for a $15 minimum wage. Shares of McDonald's lost about a tenth of a percent in today's session. The stock has been trending up over the past two months and is just off the all time high, supported by the short term moving average.


The Indices

The SPX is still winding up into the point of the current triangle formation. Today's action extended the move from the lower support of the long term trend line up to the resistance of the current all time high begun yesterday, but could not quite break above it. The indicators are once again pointing to an early/weak buy signal but a break above resistance is needed to get bullish on it. In the near term momentum is turning bullish with today's candle but remains weak, stochastic is rolling over and making a weak bullish crossover; Over the longer term both indicators show support along the trend line. At this time I am really just looking for a break of one of these lines. I am still a long term bull and believe the markets are going higher but without that break of support the chances of a correction in the index grow. Resistance 1900, Support 1875 and 1850.


The VIX fell to a new +12 month low today. The so called fear gauge is now at levels only briefly touched in the time since the 2008 financial crisis. This could be seen in two ways. First, it could indicate that the market is extremely calm, fearless and ready to rally. It could also be seen as an extreme of fearlessness in an uncertain time and indicative of an upcoming correction. This certainly goes along with my current analysis of the SPX. The index appears to be at a point of change be it a more up or down and the VIX seems to support it.


The Dow Jones traded to the upside today as well although by a smaller percentage gain. The blue chip index crept up from the short term moving average but remained below resistance. Resistance is the previous all time high with the current all time high just above. Dividend yield could be one thing keeping the index at the current levels; about 2/3's of Dow stocks are yielding about 2.5%, just about what the ten year treasury is yielding. The indicators are weak at this time but rolling over toward bullishness. A break above the current resistance could take the index up to near 17,000 while a failure to break could bring it back to support around 16,250 and 16,000.


The Dow Transports continue to set new highs, which is a bullish indicator in and of itself. The new highs being set by the transports were confirmed, if weakly, by the Dow just last week. Basic Dow theory says that the Transports will often lead the broader markets and that new highs in the Transports should be confirmed by a new high in the Industrials. So far both events have occurred although the indicators on the Transports are divergent. A correction of the up trend could by in the future but for now the index is indicated higher. Support exists around 7600 and 7800 between a longer term trend line and the short term moving average.


The Nasdaq Composite gained a half percent today, leading the big three indices. The tech heavy index moved up from support and the short term moving average today with rising, bullish, indicators. The index is showing support at the current levels following the correction of the past 6 weeks or so and could be gearing up for a move back up to retest the most recent long term highs. Following up from last week's addition of Bollinger â„¢ Bands to the Comp chart I see that they are still narrowing, pointing to further calming of market volatility and echoing the sentiment perceived from the VIX. A break above the upper band would be a bullish signal for me at this time.


Near term fears are still weighing on the market although it appears as if long term trends are still intact and taking back control. Jobless claims remain stable in the near term and are trending lower in the longer term; Leading indicators are positive and show better than expected improvement over the past and current month; home sales are improving and the Trannies are making new highs. There is still resistance for the markets in terms of technical levels and geo politics but I think they are both losing importance.

Tomorrow's trading could be weak due to the 3 day weekend so I wouldn't put much stock into what happens. Next week and the week after will be much more important in terms of the summer outlook for stocks. There will be now reports of earnings tomorrow, only one economic release. There will be no earnings or economic releases on Monday but a few important ones later in the week. Two weeks from now it will be time for new Jobs data.

Until then, remember the trend!

Thomas Hughes

 


New Option Plays

Where Are Biotechs Headed?

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Biotech ETF - BBH - close: 88.91 change: +1.47

Stop Loss: 85.75
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Last year the biotech industry doubled the market's growth with +60% gains in the BBH. The rally continued into January and February with almost another +20%. Then sentiment reversed. Suddenly traders did not want to own the momentum names or the high-growth names. News articles and debates about the extremely high costs of some biotech treatments like Sovaldi helped feed the sell-off. Biotech experienced 20 percent correction (actually -22.6%) in less than two months.

Now it appears that investors are losing their fear over the growth names again. The BBH has been consolidating sideways the last several weeks. Many believe the correction in biotech is providing a great entry point. There are plenty of high-profile biotech firms with low multiples. A lot of the big names have high-quality pipelines. The group could see more M&A activity as older firms seek to buy up younger rivals.

We want to be ready to buy calls if the BBH can breakout from this consolidation phase. Currently shares of this ETF are testing resistance near $90.00 and its 50-dma and 150-dma. I am suggesting a trigger to buy calls at $90.25.

Bear in mind that biotech stocks can be volatile. The BBH does not see a lot of volume and the option spreads are wide. Add it all up and I would label this a more aggressive, high-risk/high-reward trade. Investors may want to start with small positions.

Trigger @ $90.25

- Suggested Positions -

Buy the Sep $95 call (BBH140920C90) current ask $3.10

Option Format: symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:

Entry on May -- at $---.--
Average Daily Volume = 119 thousand
Listed on May 22, 2014



In Play Updates and Reviews

Stocks Continue Drifting Higher

by James Brown

Click here to email James Brown

Editor's Note:

The markets continue to move higher and the NASDAQ is above its 50-dma while small caps actually outperformed today.

CVS hit our entry trigger. TMO has been removed.
We want to exit our PCRX trade tomorrow morning.


Current Portfolio:


CALL Play Updates

CVS Caremark Corp. - CVS - close: 77.21 change: +0.51

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: + 0.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/22/14: We did not have to wait very long for CVS to hit our suggested entry point. The stock rallied to new highs and hit trigger at $77.25.

In the news today Reuters reported that a Brazilian drugstore chain, DPSP, has rejected at $2 billion offer from CVS. The news failed to have much impact on CVS' stock price today.

I do not see any changes from our Wednesday night new play description.

Earlier Comments:
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.

We're not setting a bullish exit target yet but the Point & Figure chart for CVS is bullish with a $102 target.

- Suggested Positions -

Long Aug $80 call (CVS140816C80) entry $1.04

05/22/14 triggered @ 77.25
symbol-year-month-day-call-strike

Entry on May 22 at $77.25
Average Daily Volume = 5.1 million
Listed on May 21, 2014


Express Scripts Holding - ESRX - close: 70.25

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: +9.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/22/14: ESRX continues to push higher and closed above potential round-number resistance at the $70.00 level today. Today's high was $70.49. 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: 82.90 change: +1.09

Stop Loss: 77.90
Target(s): to be determined
Current Option Gain/Loss: +88.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/22/14: GILD displayed some relative strength today with a +1.3% gain. The stock is nearing what could be resistance in the $84-85 zone. GILD might spend some time here before eventually breaking out past $85.

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: 97.70 change: -0.46

Stop Loss: 93.75
Target(s): to be determined
Current Option Gain/Loss: +13.7%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/22/14: LYB briefly tagged another all-time high on an intraday basis before paring gains.

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: 140.31 change: -0.35

Stop Loss: 138.75
Target(s): to be determined
Current Option Gain/Loss: -40.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/22/14: MMM's action today was not very inspiring if you're a bull. Shares underperformed and look poised to breakdown below support near $140.00.

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: - 31.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
05/22/14: We think it's time to let PCRX go. Shares underperformed their peers in the biotech sector today. Technicals are starting to roll over on PCRX.

Tonight we're suggesting an immediate exit tomorrow morning.

- Suggested Positions -

Long Aug $80 call (PCRX1416H80) entry $7.00

05/22/14 prepare to exit tomorrow morning
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: 36.30 change: -0.75

Stop Loss: 34.90
Target(s): to be determined
Current Option Gain/Loss: -17.3%
Time Frame: 3 to 4 months
New Positions: see below

Comments:
05/22/14: POT hit some profit taking today following POT's comments at the BMO Capital Markets Farm to Market conference. Shares of POT underperformed with a -2.0% drop and a close under short-term support near $36.50 and its 20-dma. The next level of support could be $35.00 or its 50-dma. I am not suggesting new positions at this time.

- 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


United Parcel Service - UPS - close: 101.66 change: -0.08

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 47.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/22/14: Thursday proved to be a quiet day for UPS. The stock drifted sideways inside a relatively narrow range. Lack of follow through on yesterday's bounce is a bit surprising especially with the Dow Jones Transportation Average hitting new all-time highs.

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: 117.57 change: +4.34

Stop Loss: 124.05
Target(s): to be determined
Current Option Gain/Loss: Jun$100put -58.5% & Sep100put: -21.7%
Time Frame: 4 to 12 weeks
New Positions: see below

Comments:
05/22/14: Strength in the biotech stocks is starting to power a bounce in shares of ATHN. The stock surged +3.8% and is testing technical resistance at its 20-dma. The next level of resistance should be the $120.00 level.

More conservative traders may want to abandon ship immediately. A breakout past $120 could spark some short covering.

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**

05/22/14 more conservative traders may want to exit immediately!
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: - 28.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/22/14: GTLS' attempt to bounce stalled near its 30-dma, a moving average that has been trouble for the bulls. I don't see any changes from my recent comments.

Earlier Comments:
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.
Update: The P&F chart is now bearish with a $64 target.

- 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: -22.2%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/22/14: The bounce in LL failed near its 10-dma and the $82.00 level this morning. Shares still managed to outperform the market with a +1.2% gain.

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: 37.50

Stop Loss: 40.25
Target(s): to be determined
Current Option Gain/Loss: + 0.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/22/14: The main story behind WFM's decline is rising competition. Bloomberg just put out a new story today saying Sprouts Farmers Market Inc. (SFM) is currently "undercutting the prices of its larger rival by about 13 percent, according to analysis by Bloomberg Industries."

I don't see any changes from my earlier 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

Thermo Fisher Scientific, Inc. - TMO - close: 115.93

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

Comments:
05/22/14: TMO is still not recovering as fast as we'd like from Tuesday's reversal lower. While the story has not changed for TMO the technicals are not lining up for a bullish move. Shares may need to retest support near $110.

Tonight we are removing TMO from the newsletter. Our trade did not open.

Trade did not open.

05/22/14 removed from the newsletter, suggested trigger was $120.25

chart:

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