Option Investor
Newsletter

Daily Newsletter, Saturday, 6/14/2014

Table of Contents

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

Index Wrap

Traders Lose Fear Of Downside Risk

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Traders are quite soon again quite bullish and that gives me some pause as a 'contrarian'. Still, the trend is up and the pullback to date isn't severe. The S&P 100 (OEX) as well as the Russell 2000 (RUT) are up against some trendline resistance in terms of their weekly charts. Not so with the other major indexes so, for now, I remain bullish on the prospects for stocks to continue to trend modestly higher.

I've had a 1980-1985 target for the current advance in the S&P 500 (SPX). Relative to the recent SPX Closing high at 1951, a further march to 1980 is just another 1 percent higher. Entering bullish strategies NOW would have a poor risk to reward if downside 'risk' is back to the steeper up trendline currently intersecting at 1886 which; hence a pullback 'risk', relative to Friday's SPX 1936 Close, of 2.5 percent.

In terms of this year, SPX looks like it could wind up above 2000. The question is how much of a correction do we get before that and before 1980-1985 is seen. This market is showing overbought status on oscillator type indicators that attempt to measure trend 'extremes', as seen after periods of steep up or down trends; trendlines get correspondingly STEEP.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index had the 'inevitable' correction/pullback after seeing a strong prior uptrend which saw 13 days when SPX was up or strongly up. This is the kind of movement that will put the 13-day Relative Strength Index into 'overbought' (RSI) territory which is seen graphically on the SPX daily chart below. The 13-day RSI computes the rate of price change over the prior 13 trading sessions (an 8-day RSI does the same over 8 Closes). The RSI 'overbought' zone which is typically readings of 70-75. As you see below and as you know, a pullback/correction followed. This market looks like it will go higher over time but this year looks more like a 'normal' year in terms of annual price gains, historically, averaging out to 10% or less.

I'm still seeing chart support around 1920, then in the 1900 area. Resistance areas are highlighted at 1950 and then fairly major resistance at the upper end of SPX's broad uptrend channel, now intersecting around 1990.

Continued gains will see the rising SPX upper channel line reaching 2000 relatively soon. My persistent thought here is that the bulls, if they got the chops at all, will take SPX to 2000. That would be a story for the talking media heads. It's still the Dow this, the Dow that, but there's growing knowledge that the broad indexes rule.

As noted already, bullish sentiment on both a 1-day and 5-day moving average (thick dark blue line) are showing the kind of 'overbought' extremes that I associate with readings over 2; that means CBOE equities daily call volume is at least double that of total equities put volume. Moderating a bearish interpretation is that such extremes are typically hit 2-3 times before SPX sees a steep, not shallow, pullback.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart remains bullish. A corrective pullback as seen this past week was 'bound' to happen I could say, given the prior EXTENDED run of days when the market was rallying strongly again. The associated short and intermediate-term overbought readings that this run brought about are not always significant. But, here overbought extremes encourages profit taking by the bulls. Given especially the many cross-currents in shifting from a stellar market year to one projected to have a more 'normal' gain and even how much gain is a big debate still as we wait for more economic data.

I continue to see potential to the 875-880 from a next move higher or least one that could carry OEX to technical resistance implied by the upper trend channel boundary. This, of course, assumes the recent correction has run its course; that may have started Friday although more selling may spill over into early trading in the coming week. I've highlighted initial resistance at 865 in OEX.

Chart support looks like 850, extending to 840. There's been a slight moderation in the overbought RSI extreme seen the prior week. Ahead, a further price dip or just a sideways trend would see this indicator continue to drift down from its recent highs into a more 'neutral' range. I have a strong aversion to taking on trading positions that depend on prices continuing to go higher in the face of a prior extended run up and a correspondingly high RSI; e.g., 70-75.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) had me going in terms of seeing a bullish Head & Shoulder's type bottom pattern. The apparent upside breakout above the corresponding (H&S) 'neckline did not however lead to a further spurt higher. Still, the overall chart pattern remains bullish as long as the recent pullback doesn't lead to a decline in INDU below 16600 for a couple days (or more) of back to back Closes. 16700 looks like immediate close by support and the 16400 level should offer fairly major support/buying interest.

Resistance is seen at the line of recent highs in the 16950 area. Next resistance is then projected to 17100, perhaps extending to 17200.

Last week I wrote that "Pullbacks to the 16800 area should be well bought, with chart support down to the low-16700 area." Opps, not so good on the 'well bought' part, but 16700 may hold up as support.

Dow stocks that look like they can continue to work higher are, on my list: AXP, CSCO, CVX, DD, GE, INTC, JNJ, MMM, MRK (maybe with a bit of a question mark), MSFT, TRV and XOM. There are enough INDU stocks drifting lower, off from earlier highs, to give pause to planning Dow 18000 celebrations later this year. But, the year is only half over so stay tuned!



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite Index (COMP) hasn't 'confirmed' or renewed its intermediate bullish trend, unlike the still-hot big cap Nasdaq 100 (NDX) which shot to new highs. Tech fever is still with us but it's more selective. The whole market has gone more selective in terms of stock picking. That said, COMP looks like its pausing here than being 'arrested' or stopped shy of re-testing its prior high.

Near resistance is 4350, extending to the 4370 area of the prior key top from early-March. Assuming COMP makes it through to a new high, a next target/resistance looks like 4450.

Technical support is initially seen at 4250, extending to the 4215-4200 area.

NASDAQ 100 (NDX); DAILY CHART:

I've had a target for the current move in the Nasdaq 100 (NDX) to 3850. The 13 trading day rally, prior to this past week's pullback, pulled the 13-day Relative Strength Index up to 75, which shows high 'relative' strength as they say and suggests risk of a pullback. Since all this is RELATIVE (there's that word again), peaks in RSI can occur multiple times before a bigger top forms; by 'bigger' I mean a top with substantial downside potential such as seen after the early-March peak. By the way, no RSI extreme (e.g., at or over 70) occurred in March, but there was a Head & Shoulder's top pattern that formed, highly correlated with tops.

Near resistance is seen at 3800, and then is projected next at 3850. 3900 also isn't a wild extreme guess as an objective for the current move either.

Near support comes in at 3750, about as expected so to speak in that this area was a prior recent high. Prior highs, once exceeded, often get 'tested' as a support floor. Next support comes at 3715-3700.

Volatility remains quite low, as measured by the VXN for the big cap Nasdaq 100 Index. There tends to be a correlation with HIGH VXN readings (e.g., 21-22) occurring in conjunction with bottoms. I can't find a meaningful historical correlation with LOW volatility readings as correlated with a key top as least in a meaningful time span AFTER a period when VXN is low. Such' low readings are a challenge in trying to sell some fat time premiums; they isn't much 'fat' to be had!

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) was in a strong bull move and this past week saw the QQQ tracking stock pull back a bit with the underlying NDX index. If QQQ holds 92 the stock is doing quite well from a bullish pattern perspective: the stock has a strong move on an upside price gapabove 90 then rallies 3 points to 93, followed by a slight giveback so far of 1 point (a 33% retracement) making for a mild correction to date.

I've highlighted chart/technical support in the low-91 area, 91.3, with next support at 90. I doubt we'll see QQQ lower than 89.5. Near resistance comes in at 93 even, with next resistance of importance technically at 95.

95, extending to 96, is potential resistance implied by bumping up against the top end of QQQ's broad weekly chart uptrend channel. The weekly chart isn't shown here and doesn't add much to what we see below in the daily chart where the KEY pattern is seen in QQQ's decisive move to new highs. The subsequent pullback was modest, which continues a bullish chart.

Daily trading volume expanded a bit on Friday's rebound, which is a bullish sign on rallies in a company stock; such volume expansion on price rises is not often the case in an ETF representing an index, like QQQ.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) continues in an emerging rally that has seen RUT retrace fully 3/4ths, 75%, of its prior decline. Passing the 2/3rds retracement level like it has, suggests that RUT's current recovery rally has the potential to also retest its prior top. In another way of looking at it a return to the prior top is a 100% 'round-term' retracement of its prior decline. Such re-tests are how double tops form OR can mark the point where the index or stock breaks through in a new up leg that carries to decisive new highs.

Time will tell on how much there is left in RUT's new found strength. Key near support is at 1154, extending to the 1140 area and RUT's current up trendline.

Near resistance is at 1180, at the prior intraday high, with resistance extending then to 1200.


GOOD TRADING SUCCESS!




New Option Plays

Big Demand For Beverages and Proppants

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Starbucks Corp. - SBUX - close: 74.69 change: +0.73

Stop Loss: 71.75
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:
The twin-tailed siren of Stabucks could be ready to sing for investors again. The company is named after the first mate in Herman Melville's Moby Dick. According to company literature their mission is "to inspire and nurture the human spirit - one person, one cup and one neighborhood at a time."

Notice it didn't say one cup of coffee at a time. Make no mistake. Coffee is big business. According to Business Insider coffee is worth about $100 billion globally and planet earth drinks about 500 billion cups of coffee every year. Quite a few of those cups are consumed at Starbucks' ubiquitous coffee chain, which now has over 10,000 company-run stores and over 9,500 licensed stores.

Believe it or not but tea is a bigger market. Tea producers churn out more than 4 billion kilograms of tea every year. Tea is the second-most consumed beverage behind water. Several months ago SBUX purchased the Teavana chain for $620 million. Now they're planning to update and expand the brand into 1,000 tea bars in the next five years.

SBUX recently said that food remains a big opportunity and currently food sales are only 22% of its U.S. business. SBUX purchased the French bakery chain "La Boulange" in 2012 and they've started distributing some of the bakery's products in more than 6,000 Starbucks stores. These should reach all of their coffee stores by the end of this year. They're also testing lunch items and testing alcohol sales in certain states. That means Malbec wines and bacon-wrapped dates could be available at a Starbucks store near you soon. The company said that adding food items has increased purchases and boosting ticket growth.

This past week SBUX said they're going to roll out wireless charging mats for smartphones in some of their stores soon.

Put it altogether and the company has big plans. Their latest earnings report in late April was mixed. Profits were in-line with estimates but revenues were a miss although same-store sales came in above expectations. SBUX management raised their Q4 guidance and 2014 guidance following its results.

Technically SBUX looks ready to breakout again. After correcting from its 2013 highs near $82 the stock tested $68 in April this year. The last several days have seen SBUX trying to breakout past big moving averages like the 150-dma and 200-dma. The June 6th high was $75.54. We're suggesting a trigger to buy calls at $75.65.

Trigger @ $75.65

- Suggested Positions -

Buy the OCT $80 call (SBUX141018c80) current ask $1.44

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

Annotated Chart:

Weekly Chart:

Entry on June -- at $---.--
Average Daily Volume = 3.5 million
Listed on June 14, 2014


U.S. Silica Holdings - SLCA - close: 51.31 change: +1.86

Stop Loss: 48.40
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:
There is a new gold rush going on for sand! America's shale oil and gas boom has created another boom for sand producers. Energy companies use hydraulic fracking to mine oil and gas out of tight shale formations. This fracking technique blasts millions of gallons of water at high pressure into shale rock where the oil and gas is trapped. These wells can cost between $4 million and $12 million each. In order to maximize their returns drillers use proppants to help "prop" open these minute cracks in the shale rock to help the oil and gas escape to the surface.

The cheapest and one of the most effective proppants has been fine sand. SLCA has been providing sand for industrial use for over 100 years. The company currently has 297 million tons in reserve. Oil and gas industry demand for proppants is expected to rise +30% between 2013 and 2016. That might be underestimated. The energy industry consumed 56.3 billion pounds of sand for fracking in 2013. That's up 25% from 2011.

According to SLCA they saw a +45% increase in demand for their sand. SLCA's CEO reported that some hydraulic fracking wells have doubled their use of sand from 2,500 tons per well to 5,000 tons. There are some wells using up to 8,000 tons.

Demand has been so strong that SLCA is actually sold out of some grades of sand and they're raising prices (about +20%) on non-contracted silica. SLCA believes demand for their products will rise another 25% this year alone.

Wall Street has taken notice of the dynamics of the sand industry and shares of SLCA have soared from their February 2014 lows. It may not be a coincidence that the stock was added to the S&P 600 smallcap index in February this year.

The recent pullback in shares of SLCA could be an opportunity. The high on Wednesday this past week was $52.06. We're suggesting a trigger to buy calls at $52.15. We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.

Trigger @ $52.15

- Suggested Positions -

Buy the Sep $55 call (SLCA140920C55) current ask $2.95

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

Annotated Chart:

Entry on June -- at $---.--
Average Daily Volume = 1.2 million
Listed on June 14, 2014



In Play Updates and Reviews

S&P 500 Snaps 3-Week Streak

by James Brown

Click here to email James Brown

Editor's Note:

Profit taking last week ended the S&P 500 index's three-week winning streak.


Current Portfolio:


CALL Play Updates

Anadarko Petroleum - APC - close: 109.37 change: +1.64

Stop Loss: 99.90
Target(s): To Be Determined
Current Option Gain/Loss: + 48.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/14/14: Traders jumped in and bought the dip in APC near $106.25 on Friday morning. The stock rebounded to close at a new high.

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

chart:

Entry on June 11 at $105.25
Average Daily Volume = 2.8 million
Listed on June 10, 2014


The Boeing Company - BA - close: 132.29 change: +0.10

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:
06/14/14: BA had a really rough week with shares falling from four-month highs near $138 toward technical support at its 150-dma near $131.50 by Thursday. Shares held there on Friday.

I'm surprised BA didn't show more strength on Friday after news hit that BA signed its largest deal with a Chinese airline to date. China Eastern, the country's third largest airline, is buying 80 of BA's 737 jets with a book value of $7.4 billion.

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

chart:

Entry on June 02 at $135.55
Average Daily Volume = 2.95 million
Listed on May 31, 2014


Biotech ETF - BBH - close: 92.55 chang6: -0.32

Stop Loss: 85.75
Target(s): to be determined
Current Option Gain/Loss: - 4.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/14/14: Upward momentum stalled in BBH last week with shares struggling to breakout past its 100-dma. It's pullback snapped a four-week winning streak. If this dip continues we could see BBH retest what should be support near $90.00.

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

chart:

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


Capital One Financial - COF - close: 80.47 change: -0.46

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +28.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/14/14: COF spiked to new multi-year highs on Monday and spent the rest of the week fading lower. Shares ended the week near short-term technical support at its 10-dma and potential round-number support at $80.00. A bounce from here could be used as a new entry point.

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

chart:

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


CVS Caremark Corp. - CVS - close: 75.86 change: -0.12

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: -55.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/14/14: CVS delivered an ugly performance last week. The drop from $79 to $76 and its 50-dma erased almost three weeks of gains. Friday's intraday high was $76.34. Traders may want to wait for a rally above $76.50 before considering new positions.

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

chart:

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


Express Scripts Holding - ESRX - close: 71.59 change: +0.02

Stop Loss: 66.90
Target(s): to be determined
Current Option Gain/Loss: +34.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/14/14: ESRX has been holding up well during the market's recent pullback. Shares have consolidated sideways in the $70.80-71.80 zone. Traders could use a new rally past $72.00 as a bullish entry point.

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

chart:

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


Expedia Inc. - EXPE - close: 74.26 change: +0.28

Stop Loss: 71.45
Target(s): To Be Determined
Current Option Gain/Loss: -18.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/14/14: EXPE did see a little volatility on Friday morning but spent most of the day consolidating sideways. Shares remain under their 10-dma. I'm not suggesting new positions at the moment. Let's see how EXPE performs on Monday.

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

chart:

Entry on June 11 at $75.75
Average Daily Volume = 1.6 million
Listed on June 09, 2014


Hanesbrands Inc. - HBI - close: 85.32 change: +0.09

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:
06/14/14: HBI suffered some relatively minor profit taking last week. If the broader market continues to sink we could see HBI 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

chart:

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


LyondellBasell Industries - LYB - close: 98.96 change: -0.30

Stop Loss: 98.45
Target(s): to be determined
Current Option Gain/Loss: +25.4%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
06/14/14: LYB delivered a very quiet session on Friday. Last week's performance would suggest a potential top for the stock. More conservative traders may want to take profits now. I am not suggesting new positions.

- 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

chart:

Entry on May 12 at $96.20
Average Daily Volume = 3.1 million
Listed on May 10, 2014


PPG Industries - PPG - close: 204.27 change: +0.69

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:
06/14/14: PPG weathered the market's pullback pretty well last week. The stock has been consolidating sideways under new resistance near $206.00. Traders may want to look for a new dip in the $200-201 zone before considering new positions.

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

chart:

Entry on May 30 at $202.00
Average Daily Volume = 552 thousand
Listed on May 29, 2014


Thermo Fisher Scientific, Inc. - TMO - close: 120.43 change: -0.69

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:
06/14/14: TMO has tried to breakout past $120.50 three days in a row and it has failed each day. More conservative traders may want to adjust their entry point trigger from $120.50 to $120.75 instead. 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)

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

chart:

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


United Parcel Service - UPS - close: 101.03 change: +0.14

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:
06/14/14: Transport stocks were crushed this past week on the sharp spike in oil prices. The momentum in UPS had already started to weaken. Shares look like they are poised to retest round-number, psychological support at the $100.00 mark soon. 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

chart:

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.