Option Investor
Newsletter

Daily Newsletter, Thursday, 6/12/2014

Table of Contents

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

Market Wrap

Iraq Violence Curbs Market

by Thomas Hughes

Click here to email Thomas Hughes
Rising violence in Iraq gripped the market sending oil prices climbing and equities into retreat.

Introduction

The newly revised global GDP estimate released yesterday along with the rising tide of violence in Iraq kept the global markets in check during the overnight session. Asian markets closed in the red while EU marketplaces were able to hold closer to break even as Al Quaeda linked militants marched on the major cities of Iraq, threatening oil infrastructure and supply. The violence was also the cause for today's more than $2 spike in WTI and Brent crude. Here at home the futures trade indicated a flat to negative opening for most of the major indices up until the release of economic data at 8:30AM. After the release the indices began to drift marginally lower up into the open. The data was more of the same, growth but not as much as expected, but it was the situation in Iraq that gripped the markets once trading began.


Current reports show that the forces have already taken control of several of Iraq's key cities. The rebels say they are going to march on Baghdad in order to settle “scores” against the government. Iraq's own protective forces are also reported to have abandoned their posts, throwing down their weapons and taking off their uniforms. A mid-day press conference from President Obama did little to bolster confidence in the markets. The S&P had been trading down about -5 points after a morning spent bobbing between 1935 and 1940, after the presidents statements that there was “no ruling out” American involvement the S&P moved back down and set a new intraday low. Later in the afternoon Iran put out a statement that it would attack rebels if they came to close to their territory and the market sank even lower.


The Economy

There was a bit more data today than the usual jobless claims. Top of the list is Business Inventories which climbed by 0.6%. This is ahead of the expected 0.3% and the previous month's unrevised 0.4%. Ex-auto's inventories climbed by a smaller 0.2%. Business Inventories is a component of GDP and will be a factor in the amount of rebound we get from the first quarter. In the first quarter business inventories was a negative impact on GDP. Business sales increased at a rate of 0.7%.

Import and export prices both rose marginally in the current data. Import and export prices both rose by 0.1%. For the 12 month period ending in May import prices are up only 0.4%. At this time inflation from imported goods is still very low.

Retail was the big disappointment of the day and indicates that the consumer my not be bouncing back as strongly as expected. Sales increased by 0.3%, less than the expected 0.7%. Ex-Autos sales increased only 0.1%. Analysts had expected a much larger gain on the headline for one due to the strong sales numbers reported by the auto-makers.

Initial claims for unemployment rose by 4,000 to 317,000. This is in line with expectations and still at the lower end of the 12 month range. The previous week's figure was revised up by 1,000 for a total gain of 5,000 over the last reported numbers. The four week moving average rose as well, to 315,250, just above the 7 year low. On an unadjusted basis claims rose by near 50,000 or 18.2%. On a state by state basis no state had an increase in claims more than 1,000. Tennessee, Puerto Rico and Connecticut all reported increases in the range of 600-700 while California, New Jersey and Pennsylvania all reported decreases greater than -1,500.


Continuing claims rose by 11,000 to 2.614 million from last weeks unrevised figure. This number is also just above the 7 year low set in the last few weeks. Continuing claims still appears to be trending lower. Total claims is the only number that declined this week. Total claims fell by -66,000 to a new low of -2.44 million.


The Gold Index

A flight to safety took place in the gold market today as the details of the Iraq situation percolated through the market. Gold prices climbed more than $10 to hover around the $1270 level for most of the day. A slightly weaker dollar also had some impact on gold prices. In terms of the trends this new crisis in Iraq will likely be short lived but may keep gold trading higher in the near term. In the short to long term economic trends are still pointing to continued, if sluggish, growth which is a negative for gold.

The Gold Index moved higher today but was halted by resistance at the $93 level, the previously broken support level from last month. While Iraq has gold prices up the Gold Index could continue to rebound. The $93 level will be important to watch over the next few days as well. In the nearer term the index is already overbought so $93 may hold into the weekend. On the long term horizon the FOMC meeting next week has the most chance of changing the fundamental picture on gold but that is not likely. Even though the world bank has lowered its global forecast the economic trends are still up which means that interest rates are going to rise sooner rather than later and that will keep gold prices down. Another though I just had concerns potentials for profits among gold miners. High oil prices will only further pressure margins that the miners have been struggling to improve. Earnings in this sector may be disappointing.


The Oil Index

Oil was the obvious winner in today's session. Prices for WTI and Brent both rose by more than $2 as the violence escalated. This is a day after OPEC statements led traders and speculator to wonder if OPEC was even able to increase production if they wanted to, a subject much debated in oil circles. What did they say? That the oil markets are stable and that OPEC would be maintaining current production levels. The Oil Index surged on the rise in oil prices to a new all time closing and all time intra-day high, the first all time intraday day high since 2008. The break above resistance looks to have some potential strength as bullish momentum is on the rise and stochastic is crossing the upper signal line.


The Dollar and the Yen

The Dollar weakened some today on the data and somewhat on flight to safety moves into the yen. At the same time the yen may also be strengthening on expectation the BOJ will make no move to increase QE at the meeting being held today. The bank is expected to release its statement sometime overnight tonight but there is no time scheduled. Bank Governor Kuroda and other bank members have held a firm stance that Abenomics was working, the Japanese economy is getting better and that no QE was needed. The recent upward revision to Japanese 1st quarter GDP supports that stance and helps to confirm in my mind that the bank will keep sticking with it. The Dollar Index lost about a quarter percent today in a move that may be confirming the resistance at the top of the 9 month range. Momentum turned bearish with today's actions and stochastic is already pointing down suggesting a test of support near the moving average and the mid point of the range could be at hand.


The USD/JPY also fell today, by about a half percent from the opening tic. The momentum in this pair has just turned bearish and the stochastic is also pointing lower. The recent peak in stochastic makes it look like 102.50 may be emerging as a new resistance level. So long as there as no chance of more QE from the BOJ and the taper is well discounted by now I think there is little chance for the pair to move any higher. The flight to safety trade may take the pair down to support along the 100.50 level if the BOJ statements don't.


Story Stocks

First up, a little reminder that the “official” earnings season starts in less than a month. Alcoa is set to report on Tuesday July the 8th.

Elon Musk went on record today opening up the patents on Tesla's electric car technology so that other companies can help build charging stations and advance electric car technology.

After hours Intel boosted 2nd quarter guidance. The company increase revenue and margin outlook. Revenue for Intel has been flat for some time. The stock popped in the after market to a 52 week high.

Lululemon Athletica reported earnings today. The company reported earnings per share that beat estimates but failed to deliver positive guidance. The company earned $0.34 per share versus estimates of $0.32. Guidance was set as a range between $1.71 -$1.76 for the year which is more than a dime short of consensus at best. The company also issued a stock buy back but this did not provide enough support for the stock today. Shares of Lulu fell more than 15% in today action. I would not be surprised to see Lulu continue to fall short on future sales as discounting becomes more and more a part of their model. They have high levels of inventory to move and, lets face it, why would anyone pay full price for Lulu when you can get something else for much less? Lulu is now at a fresh 3+ year low.


Sector Watch

The transportation stocks, in particular the airlines, were hit hard today as high oil prices raised concerns over the future. Delta alone fell close to 5.5%, dropping below the short term moving average on high volume and a shift in momentum. Today's move, along with high oil prices, may have ended, or at least paused, the rally in airlines that has been going on over the past 12 months or so. Delta is still above trend but looks as though support will be tested.


The Indices

Let's start with the Transports, recent market leaders and today's loss leader. The Dow Transportation Average lost nearly -2% today compared to -0.79, -0.71 and -0.65 for the Nasdaq Composite, SPX and Dow Jones Industrials. Among the transports the airlines were hit particularly hard but higher oil is bad news for any transportation related industry. The thing to keep in mind that many of them hedge their oil use and may be taking the opportunity to do just that while oil prices are so high. Today's action has brought the index down to the short term moving average with bearish momentum and a downward pointing stochastic. This is not indicative of reversal but does suggest a retest of support, perhaps as far down as the long term trend line around the 7,750 level, could be at hand.


The Nasdaq was the next big loser of the day but not half so bad as the Trannies. The candle formed is not even that bad looking compared to the selling that occurred in this index during the March/April correction. Today's action confirms resistance exists at the previous high but bullish momentum and strong stochastic suggest that at least a test of the actual resistance line, about 75 above the current level, is likely. In the near term support exists about 50 points lower around 4,250.


The SPX is next in terms of loss for today. The broad market fell by -0.71% in a move that looks more like normal profit taking at a high level than any major fear inspired move I have seen before. I don't want to make light of what going on but I don't think, at this time yet, that the Iraq situation is market reversing material. The index is still well above the short term moving average and the long term trend line so there is still solid short and long term support for the market. A test of that support looks likely and could easily come over the next few days.


The Dow Jones Industrials were the laggard in terms of today's run for cover. Perhaps because of dividends, the Dow 30 are still averaging a better return than the 10 Year Treasury. The Dow fell -0.65%, halting just above the 30 day EMA. The indicators are rolling over into bearishness similar to the other indices and is expected to test support over the next couple of days. The moving average is currently at 11667 with more significant support just below that level in the 16,250-16,500 range.


The long term trends are up but recent economic data is not supporting the rebound as strongly as we would like. This has called into question the strength of the current economic rebound and may keep stocks range bound until more data is revealed. On one hand the first quarter looks worse and worse with each revision or addition to the data which could make the rebound stronger than originally estimated. On the other hand if the current data isn't as strong as expected that may put a cap on expectations and lower GDP. I think the answer to the question of how the economy is really doing is what was really behind today's sell off.

Next week the FOMC may clear things up for us but I think it more likely they raise as many questions as they answer. Anticipation of the meeting will also have an impact on trading and could help keep stock prices lower up until the meeting. Afterward depends on what they say.

Earnings season is also coming up. Even if economic data starts to show better improvement the market may wait for the earnings before resuming the rally.

The Iraq violence is significant but more of an excuse than a real catalyst. Just look at Ukraine, it was a serious threat to the market for about 6-8 weeks. Just long enough for the market to correct to trend and/or long term support in order to bounce back to a new high. This could be the same situation but as always, vigilance is due on both the technical and fundamental levels. Eventually we will be able to look back and know for sure.

Until then, remember the trend!

Thomas Hughes

 


New Option Plays

Rising Geopolitical Concerns

by James Brown

Click here to email James Brown

Editor's Note:

Stock markets around the world were mostly lower today as investors worry about rising geopolitical concerns.

Terrorist in Iraq have seen a string of victories and are now pushing south toward the country's capital Baghdad. Oil prices surged to nine-month highs on this news. The spike in oil sparked a sell-off in transportation stocks. The rest of the market was looking for an excuse to take some money off the table and Iraq is a convenient reason.

Stocks could see more weakness on Friday morning as markets react to headlines out of Iraq.

We are not adding new trades tonight. If the S&P 500 fails to hold the 1920 level then the next area of support is 1900.




In Play Updates and Reviews

Iraq Concerns Sink The Market

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. markets were already starting to see a pullback. Negative headlines out of Iraq sparked a rally in oil and transports led the market lower.

Many stocks saw their recent profit taking accelerate lower today.

DLPH, LMT, and MA hit our stop loss.


Current Portfolio:


CALL Play Updates

Anadarko Petroleum - APC - close: 107.73 change: -0.59

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 39.5%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: Energy stocks were one of the few groups up today. Yet after yesterday's big move in APC the stock saw a little bit of profit taking. JPMorgan expressed their opinion that the rumor of ExxonMobil (XOM) buying APC was likely false.

Earlier Comments: June 10, 2014:
APC is in the basic materials sector. The company is a very active oil and natural gas producer. They have assets in the Rocky Mountains, the Southern U.S., the Gulf of Mexico, and Alaska. Plus, APC is active internationally with assets in Algeria, Brazil, China, Colombia, Ghana, Liberia, Mozambique, New Zealand, Sierra Leone, and South Africa. Altogether APC has a strong onshore and off-shore portfolio.

The company's latest earnings report on May 5th was better than expected. Wall Street was expecting $1.14 per share. APC delivered $1.26. APC said they set record volumes in the quarter at 819,000 barrels of oil equivalent (BOE) per day. Management went on to raise their full-year sales-volume. A week later they increased their dividend by 50% from 18 cents to 27 cents per share.

APC could end up a big liquefied natural gas (LNG) producer with their assets in Mozambique (Southeast Africa). Last year APC drilled two natural gas off-shore wells. This year they could drill up to eight new wells. The company recently upgraded their view on how much recoverable gas in their northern Mozambique assets to 50 trillion to 70 trillion cubic feet. APC is developing an LNG project and plan to deliver their first LNG cargo in 2018.

One of the biggest headlines for APC has been its settlement over the TROX litigation. This refers to a large lawsuit over the bankrupt Tronox company, which was spun-off from APC's Kerr-McGee division. Previously the estimated penalty range for this TROX lawsuit was in the $5.15 billion to $14.17 billion with many analysts estimating the final results would probably be around $10 billion. On April 3rd this year APC reported they would settle this for $5.15 billion, the very low end of the range and the stock exploded higher. Getting past this TROX liability has removed a very dark cloud for the company and the stock price.

It is worth noting that APC still has potential legal risk from the April 2010 Macondo well blow out. BP Plc was the operator and majority owner of the well but APC did own 25% of it. The U.S. judges are arguing that APC will be held responsible for its 25% of the penalties. The final numbers could be huge. The U.S. Clean Water Act allows the government to fine the companies $1,100 per barrel of oil spilled into the Gulf. Plus, they could add another $4,300 penalty per barrel for gross negligence. Right now BP is arguing with the courts over how much oil was spilled. The U.S. is claiming 4.2 million barrels of oil escaped into the Gulf of Mexico. BP estimates only 2.45 million barrels. APC management has suggested they may not be fined for any gross negligence penalties since they did not have any direct operational involvement. The penalty phase for this lawsuit is scheduled for January 2015. This issue is clearly not stopping the rally in shares of APC today.

Technically shares of APC have been consolidating sideways under resistance near $105 with a bullish trend of higher lows. Now the stock is on the verge of breaking out.

- Suggested Positions -

Long NOV $110 call (APC141122C110) entry $4.80*

06/11/14 APC hit our trigger at $105.25
rumors this morning that XOM might buy APC.
*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 11 at $105.25
Average Daily Volume = 2.8 million
Listed on June 10, 2014


The Boeing Company - BA - close: 132.19 change: -1.91

Stop Loss: 129.90
Target(s): To Be Determined
Current Option Gain/Loss: -44.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: The sell-off in BA is accelerating. Shares are now down four days in a row. Today's drop saw BA dip toward its 150-dma near $131.60 late this afternoon. BA is down six points and looking short-term oversold here.

I am not suggesting new positions at this time.

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: 92.87 chang6: -0.68

Stop Loss: 85.75
Target(s): to be determined
Current Option Gain/Loss: + 1.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: Biotech stocks were mixed today. The BTK biotech index eked out a small gain. The BBH briefly traded below short-term support at its 10-dma before trimming its losses.

I am not suggesting new positions at this time.

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: 80.93 change: +0.10

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +41.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: COF displayed some relative strength and managed to close with a minor gain while most of the market was sinking. If the broader indices continue to sink tomorrow I would expect COF to test the $80.00 mark.

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: 75.98 change: -1.34

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: -50.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: The profit taking in CVS has hit four days in a row. The stock is testing what should be support near the $76.00 level. A bounce from here could be used as a new bullish entry point.

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: 71.57 change: +0.01

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: +36.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: ESRX continues to hold up well. Traders bought the dip at its 10-dma intraday and ESRX rebounded to close virtually unchanged. Meanwhile the call option is still drifting higher.

More conservative investors might want to move their stop loss closer to the 200-dma (currently at 69.35).

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


Expedia Inc. - EXPE - close: 73.98 change: -2.00

Stop Loss: 71.45
Target(s): To Be Determined
Current Option Gain/Loss: -16.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: After breaking out to new multi-week highs yesterday shares of EXPE reversed hard today with a -2.6% decline and a close under its 10-dma. The next level of support could be the $72.00 area.

Earlier Comments: June 9, 2014:
EXPE is in the services sector. The company is in the super competitive online travel industry with rivals like Priceline.com (PCLN) and Orbitz Worldwide (OWW).

EXPE is developing a trend of beating analysts' estimates with strong profit and revenue growth. This past quarter EXPE reported revenues of $1.2 billion. That is the fifth quarter in a row that EXPE has delivered double-digit year over year revenue growth. The company has also seen surging growth in its bookings. Q3 2014 saw 15% bookings growth. Q4 2014 was +21%. Q1 2014 was +29%.

Analyst firm Cantor Fitzgerald recently offered bullish comments on EXPE and raised their price target. The company is having success with its Expedia Traveler Preference program. In Q3 2013 there were about 35,000 hotels in the program. By Q1 2014 that has grown to 51,000 hotels. As more hotels join it will boost EXPE's room nights metric and sales.

Billionaire hedge fund manager David Tepper's Appaloosa Management is also bullish on EXPE. The latest 13F filing showed that Appaloosa had initiated a new stake in EXPE in the first quarter of 2014.

Bears could argue that EXPE, PCLN and OWW could face competition from companies like Google and Facebook as they seek to boost their ad revenues to their large audiences. Reuters has reported that Google is experimenting with some programs with a few hotels. This threat is probably a few years away and could eventually make EXPE as potential takeover target.

Technically EXPE experienced a correction from $81 to $67 earlier this year. The stock found support in the $67 area and just recently EXPE has broken out past some key resistance.

At the moment shares of EXPE are flirting with a breakout past potential round-number resistance at the $75.00 mark. The Point & Figure chart is bullish and forecasting at $90.00 target. I do expect the $80.00 area to offer some overhead resistance. We will choose a target later as the play progresses.

- Suggested Positions -

Long Oct $80 call (EXPE141018C80) entry $4.15*

06/11/14 triggered @ 75.75
*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 June 11 at $75.75
Average Daily Volume = 1.6 million
Listed on June 09, 2014


Hanesbrands Inc. - HBI - close: 85.23 change: -0.58

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:
06/12/14: Our HBI options reacted a lot more than HBI stock did today. The stock only fell -0.6%. If this market pullback continues I would look for HBI to test the $83-84 zone.

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: 99.26 change: +0.06

Stop Loss: 98.45
Target(s): to be determined
Current Option Gain/Loss: +29.4%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
06/12/14: It was a volatile day for shares of LYB. The stock spiked at the open and hit new highs before fading lower the rest of the session. I don't see any headlines to account for the rally this morning.

- Suggested Positions -

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

06/07/14 new stop @ 98.45
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


PPG Industries - PPG - close: 203.58 change: -2.02

Stop Loss: 192.90
Target(s): To Be Determined
Current Option Gain/Loss: + 4.1%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/12/14: PPG could not escape the market's widespread pullback and shares closed under their 10-dma today. If this market decline continues we could see PPG retesting what should be support near $200 soon.

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


Thermo Fisher Scientific, Inc. - TMO - close: 119.85 change: -0.21

Stop Loss: 115.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
06/12/14: Shares of TMO continue to hold up reasonably well. The stock spent today's session hovering just under resistance at $120.00. It did hit $120.46 intraday. There is no change from my earlier comments.

Earlier Comments:
TMO is in the healthcare sector. The company makes analytical instruments, equipment, reagents and consumables. Plus they provide software, and services for research, manufacturing, analysis, discovery, and diagnostics in the United States and abroad. The story looks pretty simple. TMO is executing its business well. The company is developing a trend of beating analysts' estimates on both the top and bottom line and raising guidance. They've done it two quarters in a row.

TMO reported its Q1 results on April 23rd. Analysts were expecting a profit of $1.40 per share on revenues of $3.78 billion. TMO delivered $1.53 per share and revenues grew +22.3% from a year ago to $3.9 billion. How many companies are growing that fast? Shares did see a pullback when the markets were selling all the high-growth names in March and April. Investors have stepped up to buy the pullback.

At its Q1 earnings announcement TMO's management also raised their 2014 guidance on both the top and bottom line. A few weeks later at least one analyst firm issued bullish comments on TMO stating their opinion that TMO's management is being too conservative, even with their raised guidance.

Wall Street seems pretty happy with TMO's recent acquisition of Life Technologies for $13.6 billion. The deal is accretive to TMO's bottom line and should generate significant synergies. The new, combined company is seeing strong growth in Asia, especially in China. TMO is currently aiming to generate 25% of its annual revenues from China by 2016.

Technically shares of TMO are bouncing from its long-term up trend. They have also just recently broken out from its three-month consolidation and down trend of lower highs. Right now TMO is trading just below $120.00. We're suggesting a trigger to buy calls at $120.50.

Trigger @ $120.50

- Suggested Positions -

Buy the Sept $125 call (TMO140920C125) current ask $3.10

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

Entry on June -- at $---.--
Average Daily Volume = 1.7 million
Listed on June 07, 2014


United Parcel Service - UPS - close: 100.89 change: -1.61

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 8.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
06/12/14: Transport stocks were hammered today on rising oil prices. Investors are worried that the violence in Iraq could eventually impact the country's oil exports and spark a long-term rise in oil that will then affect fuel costs.

UPS lost -1.5% and looks headed for round-number support at the $100.00 mark. I am not suggesting new positions in UPS.

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

Currently we do not have any active put trades.



CLOSED BULLISH PLAYS

Delphi Automotive - DLPH - close: 67.35 change: -1.89

Stop Loss: 67.75
Target(s): To Be Determined
Current Option Gain/Loss: - 62.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: Our DLPH trade has been stopped out at $67.75. The reversal in DLPH accelerated with the market's widespread decline and shares lost -2.7%. They also broke down under what should have been support near $68.00 and its 50-dma.

I do not see any news to account for this weakness. The fundamental story on DLPH has not changed. I would keep this stock on your watch list. The 100-dma near $66.00 might be support.

- Suggested Positions -

Aug $72.50 call (DLPH140816C72.50) entry $1.93 exit $0.73 (-62.1%)

06/12/14 stopped out @ 67.75
06/06/14 triggered @ 71.15
Option Format: symbol-year-month-day-call-strike

chart:

Entry on June 06 at $71.15
Average Daily Volume = 1.4 million
Listed on June 05, 2014


Lockheed Martin Corp. - LMT - close: 162.64 change: -1.89

Stop Loss: 163.95
Target(s): To Be Determined
Current Option Gain/Loss: -37.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: The profit taking in LMT continued on Thursday and shares lost -1.1%. LMT dipped to its 50-dma and bounced (although it didn't bounce very much). Our stop loss was hit at $163.95.

Our trade is closed but the strong fundamental story on LMT is unchanged. Keep an eye on this stock for a close above $169.00 as a potential entry point for bullish positions.

- Suggested Positions -

Sep $175 call (LMT140920C175) entry $2.70* exit $1.70** (-37.0%)

06/12/14 stopped out
06/09/14 triggered @ 168.55
*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

chart:

Entry on June 09 at $168.55
Average Daily Volume = 1.2 million
Listed on June 07, 2014


MasterCard Inc. - MA - close: 75.72 change: -1.15

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/12/14: MA was an underperformer today. Shares fell back toward technical support near its 30-dma and 100-dma. This meant a -1.5% decline and MA hit our stop loss at $75.75.

- Suggested Positions -

Oct $80 call (MA141018C80) entry $2.85* exit $1.99 (-30.1%)

06/12/14 stopped out
06/09/14 new stop @ 75.75
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

chart:

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