Option Investor
Newsletter

Daily Newsletter, Thursday, 5/29/2014

Table of Contents

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

Market Wrap

And Another New High

by Thomas Hughes

Click here to email Thomas Hughes
First Quarter GDP was negative, as generally expected, setting the stage for a second quarter rebound.

Introduction

The overnight session was quiet, Asian and European indices tread water awaiting the release of the second estimate for US 1st quarter GDP. The number, -1%, in line with many expectations and yet another confirmation the 1st quarter was a bust. We knew this and the market reacted as expected, without fanfare. Other data released today helped to confirm the current state of the economy. Employment claims fell and pending home sales rose. Futures trading was positive this morning ahead of the 8:30AM releases of data and remained that way up until the open. Also keeping overseas markets in check, an upcoming round of central bank meetings. The ECB meets next week and is expected to enact some form of QE. The BOJ meets the following week and is not expected to change its policy. The following week the FOMC meets and is expected to taper as usual.


The S&P 500 was indicated to open about 4 points higher throughout the morning. At the open trading was mild but in the green. The S&P quickly moved up to roughly +4 and a little higher and held that level right up until pending home sales at 10AM. Pending sales, a measure of contracts signed and a forward looking indicator of potential sales, rose but not by as much as expected. Upon hearing this the markets faltered, but only for a moment. The S&P dipped oh so briefly into the red before quickly moving back up to the high of today's range where it remained until the early afternoon hours. Around 2:30 the afternoon trading picked up and sent the indices a little higher. The SPX moved up to around +9 and another new high. The Dow and Nasdaq were both right behind. Trading remained steady throughout the afternoon and into the close. The last few minutes of trading saw the market gain a little more strength as it moved to the days high just before the close.


The Economy

US 1st quarter GDP was revised lower to -1%. This is more than a full percent below the previous estimate of +0.1% and the first negative month in three years. It was generally expected to be negative but the reported number is double the consensus estimate. The market reacted without much care for the reward looking number in favor of the forward looking expected bounce in 2nd quarter GDP. Analysts are expecting a 3.8-4% rebound in the current quarter. So far the data has been supporting this expectation. The end of the month is this weekend which means that next week we'll get a boat load of economic releases including ADP, Challenger, NFP and Unemployment.

Initial claims for unemployment fell this week by -27,000 to 300,000. The previous weeks figure was revised up by 1,000 for a net drop of -28,000 this week. The drop basically wipes out the gain in claims last week and puts the number back at the low end of the 12 month range. Initial claims remain steady at this time, neither a plus or a minus for the my outlook at this time. More importantly are the longer term numbers that continue to decline. The four week moving average fell by -11,250 to hit another new low not seen since August 11th, 2007, according to the seasonally adjusted and annually revised data. On an unadjusted basis claims fell -5.4% to 271,865. I think going forward a drop below 300K claims or a move above 350,000 claims could be an indicator of strength/weakness in the economy.


Continuing claims fell by -17,000 to 2.631 million, the lowest level since November 17,2007. The previous week was revised lower making the total drop from last weeks report -22,000. Continuing claims continues to downtrend and is suggesting, at least to me, that while turnover in jobs remains steady, finding jobs is becoming easier and easier. At the same time total claims are also in decline. Total claims fell again this week, by -66,969, to another long term low. This could be an indication of job seekers moving out of the market but I suspect not. Jobs creation was strong the past two months and is expected to be strong this time around as well.


Pending home sales, released at 10AM, rose but not by as much as expected. The index of pending sales rose by 0.4 to 97.8, only 0.4% and a far cry from the expected 4.0%. This number gave the markets pause for about 15 or 20 minutes, just long enough to read into the report and get a better glimpse of the future. Economists are quoted within the report as saying they expect the housing market to grow, for sales to “trend higher” over the next few months at least. One reason is a build in inventory and the recent dip in mortgage rates, both expected to attract more buyers.

The Ten Year Treasury

The yield on the ten year treasury fell again today, dropping below 2.5%. Today's decline was met with support around the 2.4% level.


The Dollar

The dollar weakened a little today but remains in an uptrend. The Yen remains range bound and near the lower end of the range, held in place by Abenomics and the current no-more-QE stance of the BOJ. The euro has been moving lower over the past few weeks driven by the expectation of some form of QE from the ECB, which Draghi has said could come as early as the next meeting. Should the ECB follow through the euro could weaken further against the dollar, and perhaps against the yen as well. Until then economic data and expectations will drive the euro. The dollar index is above the midpoint of its 7 month range with bullish indicators, weakly bullish indicators, and a little room to move higher before reaching resistance.


Gold Is Falling

I guess the market finally got the memo I was bearish on the gold sector. Gold prices have fallen close to $50 this week and are approaching the $1250 level. The strengthening of the dollar over the past few weeks, coupled with improving data and the fed/taper outlook have been a big driver of the decline. Gold prices may find some support around $1250 but this will need to be watched closely. I still haven't seen, heard or read a reason to get long on gold. The Gold Index has responded to the sell off in gold by dropping hard, falling from the support turned resistance line I have been tracking over the last month. Low gold prices can only hurt already low earnings expectations for the gold miners and could carry the index even lower. The index made a small bounce today from just above $85 but it was very weak and failed to break above the mid point of yesterday's long black candle. The indicators are strongly bearish and are pointing to a retest of the 2013 lows near $82. This will be an important support level as a break below here could lead to a drop to the $66.50 level, the 2007 low and a full retracement of the 2009-2011 bull market in gold and gold stocks.


Oil Climbs Higher

Oil prices found support today around the $102.50 level. After initially trading to the downside crude prices gained in later trading. Economic data helped to boost oil prices but a drop in gas inventories was what really helped to give prices a lift. A rise in oil inventories was completely offset by a decline in gasoline supplies. The drop signals a strong start to the summer driving season and is a bullish sign for oil over the next few weeks and months. At the same time a near complete disruption of Libyan supply had Brent prices moving higher as well. WTI rose about $0.85 in today's session. The Oil Index, bolstered by higher prices and demand outlook, wrestled with the resistance of a previous all time high. The index gained about a half percent today and was able to move above resistance by the close. I wouldn't call this a confirmed break out by any means but one could be on the way. The indicators are still a little bearish but could be setting up with a weak/early entry signal, it just depends on said confirmed break out. In any event, now is probably a good time to look for possible trades in the oil sector.


Story Stocks

Earnings, and in particular retail earnings, were in the news today. A handful of retailers spanning the sector reported a mixed bag of results. Clothing retailer Abercrombie&Fitch beat expectations while Costco failed to. Popeye's, maker of delicious fried chicken, also beat with an impressive gain in profits and revenue. Abercrombie's results have be taken with a grain of salt though, they beat the expectations of an -$0.18 loss per share with a -$0.17 loss instead. The company also reaffirmed its guidance for full year earnings in the range of $2.15-$2.35. The results were enough to bring share prices back up from yesterday's one month lows but not enough to break the 30 day moving average.


Costco missed expectations but made an actual profit for its investors. Costco reported $1.07, 2 cents shy of estimates, on a 6% gain in comp store sales. Profit for the company is up 3% with a 5.6% increase in membership fee revenues. Total revenue of $25.23 billion was about a half billion short of estimates. Higher costs was one reason cited for the miss. Costco trade to the upside today in a wide range centered on the 30 day EMA.


The Retail Spyder (XRT) traded up today but remains at/near the center of a trading range. The ETF has been hovering around the mid point of that range for the past few months and is trading at that level now. Today's action brought the ETF back above the midpoint and the 30 day moving average with mildly bullish indicators. Over the longer term the indicators are fairly neutral and point to a possible state of near equilibrium and lack of direction for this sector. MACD and stochastic are both near the midpoint of their respective ranges and bobbing along that level. Both are currently bullish but neither are definitive.


The Indices

The SPX is moving higher after breaking through resistance. This move follows a bounce from the long term trend line and is accompanied by bullish indicators. Momentum is on the rise and gaining strength. Stochastic is overbought in the nearer terms and bullish in the short term with plenty of room to move higher. Economic trends are still good, if a little hit or miss still as today's pending sales and GDP reminded us. These trends and the expectation of an economic bounce back should carry the index higher. The market is rallying but the rally is not very strong at this time. There is also risk of divergence in both MACD and Stochastic that bears watching. If the data next week does not inspire confidence then the index could very easily be taken back to longer term support along the trend line. Until then however the index is advancing and supported by indicators.


The Dow's march higher left it a hairs breadth away from new all time closing highs. This move has been foreshadowed repeatedly by the Transportation Average which has made yet another new high today. The Dow is accompanied by indicators that are weakly bullish and exhibiting an early trend following signal. MACD has turned just turned bullish again with today's candle. The stochastic has made a weak bullish crossover; the %K has crossed but %D is flat and not yet fully rolled over. Resistance is currently at 16,750, a break above here could easily take the index up to the 17,000 levels.


The Tranports made yet another new high. This leading index has been leading the markets higher for at least the past 12 months. The index is currently more than 28% higher than 12 months ago (DJI is about 9.5% higher and the SPX is up about 16.5% in the same time). This index is showing strength in the candles and in the indicators. The index has traded up and into the green for the past days along with bullish indicators. MACD is strongly bullish and rising, stochastic is trending higher into the upper signal zone. While we must always be cautious as traders I see no reason to fear reversal in this index tomorrow and into next week. Once the data starts rolling in it's a different story but until then the transports are rallying.


The techs were among today's leaders and helped to power the Nasdaq Composite a half percent higher. The tech heavy index is still about midway between the recent bottom and the long term highs set in early March. Today's action brought the index to a potential resistance area around 4,250 with bullish indicators. MACD and stochastic are both indicating the index higher with a target at or near the current highs.


The markets seem to all be marching higher. The broad S&P is making new highs. The Industrials are tickling new highs and being led higher by the Transports. The Techs and smaller caps are doing their best to get back to high levels and are closing in fast. Next week will be important for the market as it will be filled with monthly macroeconomic events. Tomorrow's trading could subdued, there are only a few economic and earnings releases scheduled and I think all eyes will looking toward next week as a whole and next Friday in particular. Until then the SPX could drift along these new levels, perhaps test support, while the market awaits and gets ready for the NFP. Expectations are high for a rebound in the second quarter, let's see if the data still supports it.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Basic Materials

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

PPG Industries - PPG - close: 201.00 change: +0.75

Stop Loss: 192.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Big cap industrial names have been leading the market higher. PPG is one of them. The company is in the basic materials sector. PPG manufacturers coatings, specialty materials, and glass products.

PPG has developed a strong trend of beating Wall Street's earnings estimates. They just did it again when they reported earnings on April 17th with EPS coming in 10 cents above estimates. Revenues were up +17% year over year to $3.64 billion. Earnings were up +33% from a year ago at $1.98 per share. The company is also seeing margin improvement.

Last month PPG's management announced a $2 billion stock buyback program and raised their dividend by +10% to $0.61 per share. PPG's CEO said that his company saw volumes improve in Europe for the first time in ten quarters. The tough winter in the U.S. did not hurt them. Thus far PPG has been able to pass along small price increases to offset rising commodity costs.

Technically the stock is in a long-term up trend. Shares have spent the last three months consolidating below the $200 level. Now the bullish pattern of higher lows is about to push PPG through major resistance near $200-201. Tonight we are suggesting a trigger to buy calls at $202.00. We're not setting an exit target yet but the Point & Figure chart is bullish and forecasting at $222.00 target.

Trigger @ $202.00

- Suggested Positions -

Buy the Aug $210 call (PPG140816C210) current ask $3.50

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

Annotated Chart:

Weekly Chart:

Entry on May -- at $---.--
Average Daily Volume = 552 thousand
Listed on May 29, 2014



In Play Updates and Reviews

Negative Q1 GDP Fails To Slow The Rally

by James Brown

Click here to email James Brown

Editor's Note:

The latest estimate on U.S. Q1 GDP has been revised negative but that failed to stop the stock market's widespread rally on Thursday.

FB hit our bullish entry trigger.


Current Portfolio:


CALL Play Updates

Biotech ETF - BBH - close: 90.77 chang6: +0.53

Stop Loss: 85.75
Target(s): to be determined
Current Option Gain/Loss: -15.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/29/14: BBH reversed yesterday's losses. This ETF managed to tag a new relative high before trimming its gains to +0.5%.

Earlier Comments:
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.

- Suggested Positions -

Long Sep $95 call (BBH140920C95) entry $3.55*

05/27/14 triggered @ 90.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on May 27 at $90.25
Average Daily Volume = 119 thousand
Listed on May 22, 2014


Capital One Financial - COF - close: 78.72 change: +0.17

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: - 0.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/29/14: Traders bought the dip in COF twice near $78.20 today. Shares managed to recover and close in the green by a small margin. Overall I do not see any changes from my prior comments. I would still consider new positions here.

Earlier Comments:
COF is in the financial sector. The company provides financial services and products in the United States, United Kingdom and Canada. They're probably best known for the Capital One credit cards.

The financial sector took a leadership role in today's widespread market rally. The group has been lagging the big cap indices the last few weeks. If financials resume their up trend it's going to be a rising tide that helps lift shares of COF to new highs.

Financials should also benefit from the big picture view that interest rates will rise. Some of the federal reserve governors have been hinting that the Fed may have to raise rates sooner than expected. If rates do start rising then investors could start buying financials ahead of this trend.

Credit card companies are also showing strength in their loan quality. COF said their charge off rates have been dropping (losses from unpaid loans).

Technically shares of COF have a long-term bullish trend of higher lows and it's about to breakout past resistance and hit new multi-year highs. The point & figure chart is already bullish and suggesting an $83 target.

- Suggested Positions -

Long Sep $80 call (COF140920C80) entry $2.30*

05/28/14 triggered @ 78.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on May 28 at $78.75
Average Daily Volume = 3.0 million
Listed on May 27, 2014


CVS Caremark Corp. - CVS - close: 77.66 change: +0.41

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: + 5.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/29/14: CVS bounced off short-term support near $77.00 again. Today's gain kept pace with the major indices.

Another stock in this industry is Walgreens (WAG) and it's looking bullish as well.

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
option format: 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: 71.06 change: -0.03

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: +26.5%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/29/14: The rally off ESRX's late April low is almost four weeks old. Shares could be losing a little momentum as they test resistance at its 50-dma. I would not be surprised to see a little pullback.

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


Facebook, Inc. - FB - close: 63.83 change: +0.32

Stop Loss: 59.45
Target(s): To Be Determined
Current Option Gain/Loss: - 9.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/29/14: FB spent most of today's session hovering just below resistance at the $64.00 level but the stock did see a spike high enough to hit our suggested entry point at $64.25. Readers might want to wait for another rise above today's high ($64.30) before initiating positions.

Earlier Comments:
FB is in the technology sector. The company operates the largest social network on the planet with monthly active users up +15% year over year to 1.28 billion as of March 31st, 2014. Mobile monthly users were up +34% to 1.01 billion.

When investors started selling the momentum stocks and high-growth names in March shares of FB were not immune. The stock corrected from $72 to $55, a -23.6 percent correction. We suspect when investors return to the high-growth names they will flock to FB.

The company is firing on all cylinders with a strong Q1 report. Analysts were expecting a profit of 24 cents a share on revenues of $2.35 billion. FB delivered a Q1 profit of 34 cents with revenues soaring +71.6% year over year to $2.5 billion. Advertising revenues were up +82% from the same quarter a year ago. Mobile advertising has increased from 30% of ad revenues to 59% of ad revenues.

Wall Street is pretty bullish on shares of FB. Many analysts have price targets in the $75-85 zone. David Tepper's Appaloosa Management initiated a new position in FB last quarter. ITG Research recently offered positive comments on FB suggesting the current quarter could also come in ahead of estimates.

Update on the P&F chart: The recent rise above $64.00 has created a new P&F chart buy signal with a $79.00 target.

- Suggested Positions -

Long Sept $70 call (FB140920C70) entry $3.42

05/29/14 triggered @ 64.25
Option Format: symbol-year-month-day-call-strike

Entry on May 29 at $64.25
Average Daily Volume = 62 million
Listed on May 24, 2014


Gilead Sciences - GILD - close: 82.08 change: +0.22

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

Comments:
05/29/14: GILD spent Thursday's session drifting sideways near short-term support at its 10-dma. Readers may want to take profits right now. The MACD indicator on the daily chart just rolled over into a bearish signal. I am still concerned that the rally might be losing steam under resistance in the $84 area.

I am not suggesting new positions at this time.

- 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: 100.35 change: +1.36

Stop Loss: 93.75
Target(s): to be determined
Current Option Gain/Loss: +56.8%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/29/14: LYB displayed relative strength today with a +1.3% gain. The stock has also closed above what could be round-number resistance at the $100.00 mark.

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


MasterCard Inc. - MA - close: 76.79 change: -0.14

Stop Loss: 72.35
Target(s): To Be Determined
Current Option Gain/Loss: -5.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/29/14: MA has not managed any follow through on Tuesday's breakout higher. Investors may want to look for a dip near $76.00 as an alternative entry point to buy calls.

Earlier Comments:
MA is in the financial sector. The company provides transaction processing and payment-related services. Globally cash is still the most dominant method of payment. That may not be true in the most developed countries but worldwide there is a long-term trend with consumers moving away from cash more toward cards and electronic payments, which will benefit MasterCard.

MA's latest earnings on May 1st was positive. The company beat Wall Street's estimates on both the top and bottom line. The company said a 14% increase in transactions, on a local currency basis, hit $1.0 trillion. They also saw a +14% jump in processed transactions. Cross border volumes were up +17%.

MA's CEO and President Ajay Banga said the company signed new deals with Wal-Mart (WMT), Sam's Club, and Target (TGT). WMT and Sam's will move their co-brand portfolios to MasterCard. TGT will also shift its co-brand cards to MasterCard and use MA's chip and PIN technology to upgrade their security. Banga said MA will, "continue to invest in technology and acquisitions that will speed our development of mobile and online solutions."

Both Visa and MA were caught up in the sanction backlash between Russia and Europe and the U.S. The two companies were not singled out but new legislation in Russia was going to force the two American companies out of the country. Working with Russian officials MA and Visa have found a way to sidestep the issue by creating a domestic (Russian) payment system within six months and create a Russian company to handle domestic transactions.

Technically shares of MA saw a -20% correction on an intraday basis from its January 2014 highs to the April intraday lows. The stock bounced near its long-term up trend. Now MA appears to be breaking out past resistance near $76, resistance at its 100-dma and 150-dma, and resistance at its five-month trend of lower highs. We're not setting an exit target yet but the point & figure chart is bullish with an $87 target.

- Suggested Positions -

Long Oct $80 call (MA141018C80) entry $2.85*

05/27/14 triggered @ 77.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on May 27 at $77.25
Average Daily Volume = 5 million
Listed on May 24, 2014


3M Company - MMM - close: 141.43 change: -0.01

Stop Loss: 138.75
Target(s): to be determined
Current Option Gain/Loss: - 8.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/29/14: MMM is looking stronger today with a closed above short-term resistance at $142.00. Investors could use this move as a new entry point but be sure to buy the July or October calls.

- Suggested Positions -

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

05/24/14 if you open new positions, use the July or October calls
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


Potasch Corp. of Saskatchewan - POT - close: 36.40 change: +0.21

Stop Loss: 35.75
Target(s): to be determined
Current Option Gain/Loss: -16.9%
Time Frame: 3 to 4 months
New Positions: see below

Comments:
05/29/14: POT is still holding support near $36.00 but it's also facing short-term technical resistance at its 10-dma and 20-dma directly overhead. I am not suggesting new positions.

- Suggested Positions -

Long Sept $35 call (POT1420i35) entry $2.65

05/27/14 new stop @ 35.75
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: 104.06 change: +0.65

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: +132.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/29/14: Transport stocks continued showing relative strength and UPS added another +0.6%. I am concerned that the $105 level could be resistance. More conservative traders may want to start taking profits now or closer to $105.00.

Readers may want to keep an eye on shares of UPS' rival FedEx (FDX). While UPS is nearing resistance at its 2013 highs, shares of FDX have broken out past their 2013 highs. I'm not suggesting new plays on FDX yet but it's worth watching.

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

05/29/14 more conservative investors may want to start taking profits now or as UPS gets closer to potential resistance at the $105 level.
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

Intl. Business Machines - IBM - close: 183.76 change: +0.68

Stop Loss: 187.50
Target(s): To Be Determined
Current Option Gain/Loss: - 5.5%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
05/29/14: IBM gapped open higher at $183.64 and then fell to a new relative low under $182.50 before bouncing back. I would still consider new bearish positions at current levels of you could wait for a bounce closer to $185.00 and its 200-dma, which should be short-term resistance.

Earlier Comments:
IBM is in the technology sector. The company has grown from a massive hardware manufacturer into a global information technology services company.

The company reported earnings on April 17th. Results were in-line with Wall Street estimates on the bottom line at $2.54 per shares. Revenues fell -3.9% and missed estimates by a wide margin. Management reaffirmed their 2014 guidance. This was the fifth quarter in a row that IBM missed analysts' revenue estimates and its eight quarter in a row of revenue declines. Shares plunged from $196 to $187 on this earnings news. Since its quarterly report IBM's stock has rallied just high enough to fill the gap and then reverse lower.

The company is currently facing a new problem and that's China pressuring local companies to stop using U.S. technology. Actually it's not a new problem. This has been trending for a couple of years and the issue was exacerbated after the Edward Snowden scandal. Now many foreign governments distrust any tech hardware from big name U.S. corporations for fear there could be U.S. spying malware on it.

This tension between China and U.S. has escalated following America's recent allegations of five Chinese military officers hacking American businesses. In response the story now is China's government is pressuring large state-run banks to stop using IBM servers and replace them with local domestic hardware. Chinese officials are arguing that using IBM machines could be a national security threat. The Chinese market accounts for about 5.5 percent of IBM's total sales.

This political pressure to stop buying U.S. technology could last a while, especially as China takes a more belligerent pose against the west and its neighbors.

Technically shares of IBM are underperforming. The stock just broke down below support near $185.00 and technical support at its simple 200-dma. There appears to be significant support near $172.00. Coincidentally the point & figure chart is bearish and forecasting a $172 target.

We're not setting a target but $175-172 is a good spot to aim. I wouldn't be surprised to see a short-term bounce at $180.

- Suggested Positions -

Long Aug $180 PUT (IBM140816P80) entry $4.50*

05/29/14 trade begins. IBM gapped higher at $183.64
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on May 29 at $183.64
Average Daily Volume = 3.2 million
Listed on May 28, 2014


Whole Foods Market, Inc. - WFM - close: 38.10 change: +0.25

Stop Loss: 40.25
Target(s): to be determined
Current Option Gain/Loss: -18.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/29/14: WFM spent Thursday's session churning sideways following a little spike higher at the open.

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