Option Investor
Newsletter

Daily Newsletter, Thursday, 6/5/2014

Table of Contents

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

Market Wrap

Rally On, Rally On

by Thomas Hughes

Click here to email Thomas Hughes
ECB actions, economic data and comments from David Tepper helped spur the rally to new highs.

Introduction

Today started quietly as traders around the world awaited the results of the most recent ECB meeting. The ECB and Mario Draghi gave the market what it wanted but it was comments from hedge fund manager David Tepper that are credited for today's new highs. Mr. Tepper says he sees market concerns alleviating and that he is not as worried about market conditions today as he was just a month ago. Following his comments indices that had been simmering near yesterdays close began a steady march to new highs.


Early trading was positive. Index futures were indicated a few points higher across the board. The steady release of news and data before the bell did little to move the markets more than a point or two in either direction. The ECB statement was met with relief but not surprise as the moves were largely expected and our own economic data was also unable to move the market. Challenger reports that planned job cuts increased while the weekly jobless claims figures show that unemployment claims continue to trend lower.

The S&P 500 was indicated about 4 points higher throughout the morning and went into the open about +2. The first hour of trading was steady but without direction. The indices drifted from the opening highs, the SPX and DJI both opening at new all time highs, back to near break even and then briefly into the red. Although eyes are on the NFP report tomorrow it appears as if the results, whatever they may be, have been discounted by the markets already. After touching near term support, just above 1920 for the SPX, the indices bounced back into the green and then were propelled to new all time highs.


The Economy

Today's economic calendar started early with the release of the Challenger, Grey & Christmas survey of planned lay off's. Planned lay off's in May totalled over 52,000, the highest level in 15 months and a 31% increase over the last month. This is the second month of increase since the sharp drop in claims seen in March. To date, the total number of lay offs this year is 214,600, -2.3% from last year at this time. The bulk of the cuts were in the tech sector led by HP's planned 16,000 job cuts which accounts for nearly a third of this months gains. Tech's and computer in particular are the leading sector for jobs cuts this year. The report went on the project labor condition for the rest of the year saying that job cuts should decline and that job growth will continue into the end of the second half.

Initial claims for unemployment rose by 8,000 to 312,000 which is basically as expected. Last weeks figure was revised up by 4,000 making this weeks figures 12,000 higher than last weeks report. The four week moving average fell to 310,250, the lowest level since June 2,2007. On an unadjusted basis claims fell -4.5% or -12,481. Initial claims remain within and near the bottom of the 12 month range between 300K and 350K. Near term unemployment and job turnover remains steady at this time. Claims were steady on a region to region basis led by an increase in claims from NY of +1,327 and MI with a decline of -6,083.


Continuing claims fell by -20,000 to 2.603 million. This is the lowest level for this figure since October 27,2007. The previous week was revised lower by -8,000 for a net drop of -28,000. Continuing claims is declining rapidly and suggesting that something big is shifting in the labor markets. Assuming people are finding jobs and not giving up on work this could be indicative of strong(ish) NFP numbers tomorrow. Adding to this theory is the decline in total claims. Total claims for unemployment fell by over -40,000 to 2.513 million and yet another new low. Annecdotal evidence; I have a group of friends who are all involved in building/construction in some form and all agreed last night that if you can't find work you aren't looking.


Net worth in America grew by $1.5 trillion in the firs quarter to $81.76 trillion. The gain comes mostly on increases in home values and stocks.

Going into tomorrow the most important economic event will be the Non Farm Payroll report. Expectations are for claims to decline from last month to a level around 200,000 to 220,000 but it may not matter. Earlier in the week the ADP report revealed that private payrolls had increased by less than expected which raises some concern the NFP will also fail to meet expectations and yet the market rallies. On the other hand strong home and auto sales data combined with declining levels of employments claims suggest that job creation could be strong.

The Dollar Index

The Dollar gained and lost ground against the euro today in the build up to and aftermath of the ECB statement. The index surged to a near 5 month high just over $91 and the top of the recent trading range before heavy selling sent it back down into negative territory. The index made such a wild move because of fluctuating euro values due to speculation over what the ECB may still do in its effort to raise inflation and weaken the euro.

On top of the new interest rates and LTRO facility Draghi pledged to “do more” to help stimulate the economy as and when needed. Today the ECB lowered its deposit rate to -0.1% which effectively charges banks for leaving capital unused. This move is meant to push banks into lending money to the public sector rather than let it sit in the central banking system. The lending rates were also cut to new lows but there were no asset purchases made. The statements following the announcement did include hints of preparations for some form of purchases in the future. Today's price action created a bearish candle for the Dollar Index confirming the top of the current 5-6 month range between $79 and $81. The indicators are bullish at this time but overbought and convergent with the trading range.


The EUR/USD made a near mirror image move to the Dollar Index. The pair traded lower in the early part of today's session, briefly touched support and then reversed. The pair is at the lower end of a near 8 month trading range with bearish indicators. The indicators are oversold and in line with the range bottom theory. The pair could trend upward to retest resistance near 1.38870. In the near term economic data from us tomorrow (NFP), BOJ policy next week and the FOMC meeting the week after will be drivers of this trade. Strong US data should strengthen the dollar and could return the pair to support. Support is currently at the bottom of the range around 1.3500.


The Oil Index

Oil prices fell by about a percent during the early part of the day until the ECB decision sent the dollar plunging versus the euro. The lower dollar helped to support oil prices, along with a smaller than expected build in natural gas, and by the end of the day WTI was trading back near $102.50. The Oil Index has been in turn supported by the relatively high prices for oil and other product along with the rising economic trends. The index traded to the upside today, breaking above the long term resistance line, but is still contained within the current chart pattern. The index has been trending sideways for about 6 weeks now, since hitting the current resistance level, and is forming a potentially bullish triangle. In that time prices have bounced from the 30 day EMA twice, stochastic has fired off the stronger trend following signal and bearish momentum has retreated to near 0; all that is left now is for prices to break out to new highs. Tomorrow's NFP report could be the catalyst that does it. If not, and the index fails to break resistance, support exists just below the current level at 1,600 and then next at 1,550.


The Gold Index

Gold prices rebounded today in part on a weaker dollar as well as simple rebounding from the recent precipitous drop. Gold traded up about $10 for most of the day, hovering around the $1252-$1255 level. The move in gold is rooted in the ECB's efforts to add inflation which have in turn affected dollar values. This is I think only a short term shift and not a reason to change stance on gold prices. The Gold Index also traded higher today but is still well below the recently broken support level. The rebound in gold is helping to support index prices but I don't know if this will last. Until some reason to expect gold prices to improve or earnings for gold miners to improve I am treating any pull backs to resistance as selling opportunities in this sector. Tomorrow's NFP could return the dollar to strength and put pressure on gold.


Sector Snap

I found it interesting today when I read into the Challenger report that technology and computers were leaders in job cuts. The technology sector was the leader in jobs cuts last month and to date is the leader for the year. This was interesting to me because the tech heavy Nasdaq was today's market leader among the big three indices with a more than 1% gain and the XLK (technology sector Spyder) broke out to a new high. The new high in the XLK was also aided by a string of upgrades for tech companies like Microsoft and Broadcom, Microsoft being the #2 holding of the XLK.


The Semi Conductor Index also traded higher today and is looking quite bullish. Today's action created the third of Three White Soldiers ( a weak one but one none the less) and is accompanied by bullish indicators. Momentum is strong, on the rise and approaching long term high levels. Stochastic is also on the rise and looking strong.


The Indices

The Nasdaq was today's leader with a more than 1% gain, followed by the SPX and the DJI with 0.65% and 0.59% respectively. The Nasdaq Composite made a strong move up, from previous short term resistance, with rising bullish indicators. The bounce from long term support that began a few weeks ago looks good to continue up to long term resistance at or near the current long term highs. Tomorrow's NFP could help or hinder the move but it looks like it may be discounted already.


The SPX also made a strong move up today, creating a long white candle, with rising indicators. Momentum is strong in the near to short term and supportive of higher prices in the near future. Stochastic is on the rise but now very high in the range. This is indicative of an overbought market but also one of strength during times of rally. This index looks like it is in the middle stages of a short term rally that could keep it trending higher for another 80 or 90 points putting my target around 2020. Of course, there is the NFP to keep an eye on so caution is due until we can see what is going on in the morning.


The Dow Jones Industrial Average moved above the round number resistance area of 16,750 today. Today's action created a strong white candle in this index as well, one that is also accompanied by bullish indicators. Momentum is weak at this time but stochastic is showing some strength as it is about to cross the upper signal line. This index is also looking like it is in the early to mid-stage of a short term rally with a target near 17,000-17,250.


The transports traded to the upside, approaching, but not making a new high today. The index has been consolidating for the past 4 or 5 trading sessions and is forming a potentially bullish flag. The indicators are bullish but weakening. The index at this level certainly looks like an decent spot to take some profits I don't think the move upward is quite over yet. The Trannies have been leading the markets higher for over a year and I see no reason for that to end now.


All eyes are on the NFP tomorrow, or are they? At the beginning of the week I think most would have agreed with that statement. Today's rally might make you think the number, whatever it is, is already factored into the mix. Of course most would not have guessed comments from a respected hedge fund manager would give traders permission to rally either. I think the early action in today's market was in line with the thought that the NFP was the most important thing on the schedule this week and it probably still is. David Tepper's comments did not change economic trends or the importance of the data but it did give the market an excuse to stop worrying about it and I think that is what led to today's new highs. Tomorrow will still be big day and an important one.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Revving Higher!

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

(bullish ideas)
COST, ORLY, CYT, DIS, FFIV, DIS, EXPE, IR, PKG, AKAM



NEW DIRECTIONAL CALL PLAYS

Delphi Automotive - DLPH - close: 70.51 change: +0.49

Stop Loss: 67.75
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:
DLPH is a British company. They're also one of the largest auto parts suppliers on the planet. The stock has been a strong and steady performer for bullish investors.

The recovery in the U.S. auto market and the booming growth in the Chinese auto market has been a boon for DLPH. Wall Street analysts believe that DLPH benefits from its product mix that are focused on fuel economy, car safety, and automotive electronics. U.S. regulators are demanding a significant upgrade in fuel economy from American carmakers, which should be a tailwind for DLPH. The future of automobiles is more and more electronics, which is bullish for DLPH as well.

China will prove to be a big market for DLPH. The Wall Street Journal reports that DLPH believes its business in China could double to almost $5.5 billion by 2016.

DLPH's Q1 earnings report was strong. Analysts were expecting a profit of $1.08 per share on revenues of $4.29 billion. DLPH delivered $1.20 per share with revenues rising more than 6% to $4.28 billion. The company issued generally bullish guidance for 2014's profit and revenue estimates. DLPH also bought back 2.38 million shares of its own stock in the first quarter of 2014.

Wall Street analysts are bullish with price targets in the $84-90 range. The Point & Figure chart is bullish and forecasting at $81 target.

Tonight we're suggesting a trigger to buy calls at $71.15. If triggered we'll start with a stop loss at $67.75.

Trigger @ $71.15

- Suggested Positions -

Buy the Aug $72.50 call (DLPH140816C72.50) current ask $1.75

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

Annotated Chart:

Weekly Chart:

Entry on June -- at $---.--
Average Daily Volume = 1.4 million
Listed on June 05, 2014



In Play Updates and Reviews

Bulls Applaud ECB Moves

by James Brown

Click here to email James Brown

Editor's Note:

Equity bulls applauded the ECB's new monetary easing policies. The U.S. market responded with widespread gains.

We are setting some exit targets on GILD and MMM.

Bearish play WFM hit our stop loss.


Current Portfolio:


CALL Play Updates

The Boeing Company - BA - close: 136.82 change: +1.49

Stop Loss: 129.90
Target(s): To Be Determined
Current Option Gain/Loss: +16.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: BA announced it had received another big order for new plays. Meanwhile the market's widespread rally helped lift shares to new four-month highs.

NOTE: More conservative investors might want to wait for BA to close above $136.50 as an alternative entry point since the top of the January 2014 gap down could be resistance (near $136.00-136.50).

Earlier Comments:
BA is in the industrial goods sector. The company is a major manufacturer for aerospace, aviation, and a defense contractor. The company last reported earnings on April 23rd and held an analyst day in mid May. Earnings results were strong. Wall Street expected a profit of $1.56 per share on revenues of $20.21 billion. BA delivered $1.76 per share with revenues rising to $20.46 billion for the quarter.

BA said their total company backlog had ended the first quarter at $440 billion. That's up from $390 billion a year ago. About $374 billion is for commercial airplanes and the rest is defense and space related. This represents about 5,100 aircraft orders and several years worth of production. BA recently reaffirmed their 2014 guidance and their airplane delivery scheduled.

Analysts have been positive and raising their price targets and earnings estimates thanks to BA's strong Q1 results, their improving margins, and BA's stock buyback program. Margins are a big deal. BA has been slowly growing its margins over the last couple of years and suggested they will continue to see margin improvement in 2014.

There has been some concern that the U.S. defense budget might be cut again and that could impact BA's defense sales. Yet the New York Times recently reported that BA is close to signing another multi-billion deal with the U.S. Navy for 47 more fighter jets. This deal is expected to close over the summer.

BA has also seen strong growth overseas with international sales accounting for 30% of its backlog. China is expected to grow into the largest aircraft market by 2032. BA is strengthening its position in China with another big sale of fifty 737 jets to a new Chinese budget airline. The retail price on this deal is estimated to be in the $3.8 to $5.5 billion. BA's China president said the company will deliver 140 aircraft to China this year following 143 deliveries in 2013.

Asia will also be a growing market for BA's defense and security business. A recent Bloomberg article mentions how territorial disputes in Asia are getting worse and there will be rising demand for maritime and aerial surveillance systems. BA's defense business chief believes aerial surveillance equipment and machines will continue to grow steadily for the "foreseeable future."

Technically shares of BA are on the up swing after spending more than three months consolidating in the $120-132 area. The recent strength has pushed BA through resistance and the stock closed at new four-month highs.

The point & figure chart is bullish and forecasting at $160 target. I do expect BA to see some resistance at its 2014 high near $145.00.

- Suggested Positions -

Long Aug $140 call (BA140816C140) entry $2.25*

06/02/14: Triggered @ 135.55
*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 June 02 at $135.55
Average Daily Volume = 2.95 million
Listed on May 31, 2014


Biotech ETF - BBH - close: 93.35 chang6: +0.51

Stop Loss: 85.75
Target(s): to be determined
Current Option Gain/Loss: +15.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: Biotech stocks continued their rally on Thursday and the BBH added +0.5%. This ETF is now testing technical resistance at its simple 100-dma.

Traders may want to start raising their stop loss!

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: 79.82 change: +0.64

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +16.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: COF rallied straight to round-number resistance at $80.00 and stalled. I am not suggesting new positions at the moment.

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: 78.62 change: +0.46

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: +31.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: Shares of CVS rebounded off its 10-dma again this morning and closed at new all-time highs. Shares are nearing what could be psychological, round-number resistance at the $80.00 mark.

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: 71.12 change: +0.63

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: +24.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: Traders are still in a buy-the-dip mood and ESRX rebounded from another test of the $70.00 level. Shares closed right on technical resistance at their 50-dma.

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*

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.

option format: symbol-year-month-day-call-strike

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


Facebook, Inc. - FB - close: 63.19 change: -0.15

Stop Loss: 59.45
Target(s): To Be Determined
Current Option Gain/Loss: -16.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: FB underperformed the market's widespread rally on Thursday. Shares are still struggling with resistance near $64.00. Today's high was $64.36. Investors may want to look for a rally past $64.50 before initiating new 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: 82.80 change: -0.22

Stop Loss: 78.75
Target(s): GILD @ 83.95
Current Option Gain/Loss: +60.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
06/05/14: GILD underperformed both its peers in the biotech group and the broad market indices with a -0.2% decline. More conservative investors may want to exit now to lock in potential gains.

We are listing an exit target at $83.95. We'll also raise the stop loss to $78.75.

I am not suggesting new positions at this time.

- Suggested Positions -

Long Jun $80 call (GILD1421F80) entry $2.12

06/05/14 new stop @ 78.75, adjust exit target to $83.95
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


Hanesbrands Inc. - HBI - close: 84.73 change: -0.37

Stop Loss: 81.75
Target(s): To Be Determined
Current Option Gain/Loss: -13.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: HBI is still struggling with resistance near the $85.00 level. Today's high was $85.37. Yesterday's intraday high was $85.42. I am suggesting investors wait for a rise above $85.50 before initiating new positions.

Earlier Comments:
HBI is in the consumer goods sector. The company designs and manufacturers apparel. You wouldn't normally think of basic apparel maker as a momentum stock but HBI has been outperforming. Shares just ended the week at a new all-time high.

The company has delivered on its earnings results. When HBI last reported in January and April this year the company beat Wall Street's estimates both times and raised their guidance both times.

Think about that. HBI is not a retailer but their products are sold through retailers. Most of retail got hammered in the first quarter due to lousy winter weather. Yet HBI managed to beat estimates and then raised its guidance.

Jim Cramer has pointed out what many analysts are saying on the company. HBI has strong brand names like Hanes, Champion, Playtex, and Bali. HBI owns most of their supply chain, which allows them to keep and improve their strong margins. Their first quarter saw margins increase 180 points. Most of Wall Street is bullish on HBI's recent acquisition of Maidenform. HBI believes they can generate significant margin improvement in the Maidenform brand by 2016.

The Point & Figure chart for HBI is bullish with a $92 target.

- Suggested Positions -

Long Oct $90 call (HBI141018C90) entry $2.94

06/04/14 triggered @ 85.25
Option Format: symbol-year-month-day-call-strike

Entry on June 04 at $85.25
Average Daily Volume = 690 thousand
Listed on May 31, 2014


LyondellBasell Industries - LYB - close: 99.04 change: -1.09

Stop Loss: 94.75
Target(s): to be determined
Current Option Gain/Loss: +33.3%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
06/05/14: Hmm... LYB is not looking healthy. After stalling at resistance near $100 the last few days shares underperformed the market with a -1.0% drop today. Today is the first time LYB has closed beneath its simple 10-dma in weeks. Readers may want to exit immediately!

I am not suggesting new positions.

Earlier Comments:
The Point & Figure chart for LYB is bullish with a $110 target.

- Suggested Positions -

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

06/03/14 new stop @ 94.75
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: 76.84 change: +0.52

Stop Loss: 72.35
Target(s): To Be Determined
Current Option Gain/Loss: -11.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: MA surged midday and closed with a +0.68% gain. The stock looks poised to breakout from its current two-week consolidation phase. Traders may want to use a rally above $77.25 as a new bullish entry point.

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: 143.71 change: +1.45

Stop Loss: 138.75
Target(s): MMM @ $144.75
Current Option Gain/Loss: +15.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
06/05/14: MMM bounced off short-term support near $142 and its 10-dma this morning. The stock ended the session at new all-time highs.

We have June $140 calls, which expire in just over two weeks. Because of our time frame we are adding an exit target at $144.75. If you have longer-dated options then consider aiming higher.

- Suggested Positions -

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

06/05/14 set exit target at $144.75
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


PPG Industries - PPG - close: 203.15 change: -0.71

Stop Loss: 192.90
Target(s): To Be Determined
Current Option Gain/Loss: + 1.3%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/05/14: After yesterday's rally PPG started the day with some profit taking. Before the opening bell the company announced they were buying The Homax Group, Inc., a specialty coatings supplier. Financial terms were not disclosed.

Earlier Comments:
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.

The Point & Figure chart is bullish and forecasting at $222.00 target.

- Suggested Positions -

Long Aug $210 call (PPG140816C210) entry $3.65*

05/30/14 triggered @ 202.00
*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 30 at $202.00
Average Daily Volume = 552 thousand
Listed on May 29, 2014


United Parcel Service - UPS - close: 103.62 change: +0.65

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 76.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
06/05/14: UPS ended a two-day pullback with a +0.6% bounce but shares underperformed the transportation average. If you look at an intraday chart UPS was struggling with resistance in the $103.65 area.

There is no change from my earlier comments. Readers may want to adjust their stop loss higher.

Earlier Comments:
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.

We're not setting an exit target yet but the Point & Figure chart for UPS is bullish with a $123 target (up from $114 a few weeks ago).

- 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

Bally Technologies - BYI - close: 57.48 change: +0.54

Stop Loss: 60.35
Target(s): To Be Determined
Current Option Gain/Loss: - 13.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: Widespread market gains gave shares of BYI a lift this morning. The stock bounced with a +0.9% gain but the rally stalled under short-term resistance near $58.00.

In the news BYI announced they were buying Dragonplay Ltd., a leading online social casino company.

Earlier Comments:
BYI is in the services sector. The company designs, manufactures, and sells gaming equipment (gambling type games, slot machines, etc.). After an incredible run in 2013 shares of BYI have reversed sharply and is in a bear market with a -29.9% drop from its January 2014 highs.

Looking at the earnings news you would think BYI should be doing better. They raised guidance after their Q4 report and offered bullish guidance again when they reported earnings on May 1st. Their most recent results missed Wall Street estimates by two cents with a profit of $1.10 per share but revenues came in better than expected. Revenues were up +30% thanks to its acquisition of SHLF entertainment. In spite of this news investors were not happy with the results and have continued to sell BYI.

It would appear that the game-making business is facing industry-wide headwinds. BYI is considered one of the biggest and strongest in the industry but the big names are losing market share with new comers making an already competitive business even worse. Casino operates are delaying or cutting back on upgrading new machines. Expectations on how many slot machines Vegas is going to replace in 2014 has been downgraded.

A number of analyst firms have been downgrading their price targets on BYI over the last few months. News of a new CEO came as a shock. After less than a year and a half on the job BYI announced they were replacing their CEO with its former CEO effective May 23rd. This was a surprise. As one analyst put it, "You don't change CEOs when things are going well."

FYI: The Point & Figure chart for BYI is bearish with a $50 target.

- Suggested Positions -

Long Oct $55 PUT (BYI141018P55) entry $3.30

06/03/14 triggered @ 57.25
Option Format: symbol-year-month-day-call-strike

Entry on June 03 at $57.25
Average Daily Volume = 697 thousand
Listed on June 02, 2014


Intl. Business Machines - IBM - close: 185.98 change: +1.47

Stop Loss: 187.50
Target(s): To Be Determined
Current Option Gain/Loss: -27.7%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/05/14: Widespread market gains are also making it tough on IBM bears. The stock bounced back toward short-term resistance near $186.00. Our stop is currently at $187.50. I am not suggesting new positions at this time.

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


CLOSED BEARISH PLAYS

Whole Foods Market, Inc. - WFM - close: 40.08 change: +1.70

Stop Loss: 40.25
Target(s): to be determined
Current Option Gain/Loss: -40.5%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/05/14: The combination of new bullish analyst comments with a $48 price target and a broad-based market rally proved to be too much for WFM shorts. The stock surged with a +4.4% gain. The intraday high was enough to tag our stop loss at $40.25.

- Suggested Positions -

Aug $35 PUT (WFM140816P35) entry $1.01 exit $0.60* (-40.5%)

06/05/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
05/19/14 trade begins. WFM opens at $37.89

chart:

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