Option Investor
Newsletter

Daily Newsletter, Monday, 6/16/2014

Table of Contents

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

Market Wrap

Ahead Of The Fed

by Thomas Hughes

Click here to email Thomas Hughes
The US markets quietly bubbled on Iraq speculation...and the FOMC meeting starting tomorrow.

Introduction

The major markets were fairly quiet today as events in Iraq drew attention from economics and an impending FOMC meeting. Al Quaeda linked militants have taken control of more of Iraq since last week and are closing in on new targets. According to speculation the drive to retake parts of Iraq by the sunni forces may result in a three way split of the country. Also according to reports, 90% of Iraqi oil production remains unaffected centered as it is in the Kurdish north. Asian and European markets were quiet in the overnight session as traders there awaited the outcome of the current Iraq situation as well as a new development in the Ukraine. New reports have it that Russia has stopped shipments of natural gas and other products to the Ukraine and is now requiring prepayment.


Futures trading was indicated mildly lower in the earliest part of the day, the S&P 500 at -4.5 around 8AM. At 8:30AM a round of better than expected economic data helped to lift the futures trade a little bringing the S&P up to around -2 going into the open. At the bell the markets opened as expected with the SPX around -2 points. This held for the first few minutes of trading until the IMF released its latest report on the state of the US economy. The IMF lowered its outlook for 2014 GDP to 2% and suggested that we should raise the minimum wage. The market drifted lower for about 15 seconds and then quickly found today's support and bounced back and then into the green by 9:40AM. The SPX hit its intraday high around 10:20 and then spent the rest of the day ranging between the early low and high with the Friday close very near the mid point of today's price action and closing levels.

Another reason the market seemed to pause today is the FOMC meeting scheduled to start tomorrow. The meeting is expected to produce no changes to the taper but may (probably) will provide some insight into when interest rates may begin to rise. There is also some other key data out this week that may help the market find some support such as the Housing Starts, Building Permits and CPI tomorrow and then Jobless Claims, Leading Indicators and Philly Fed on Thursday. Yet another reason the market may have entered this week so timidly is triple witching. This week is triple witching options expiration and may come with additional volatility that is completely unrelated to geo political situations.


The Economy

There were a few notable economic events today besides the IMF report, which turned out to be a non event based on market reaction. First up this morning was Empire State Manufacturing. The index rose more than expected to 19.28, ahead of the previous months 19. Analysts had expected a drop to 15. This months reading is the highest level of Empire region manufacturing since June of 2010. There were areas of strength and weakness within the report but all segments showed growth. New orders jumped to 18.36 from 10.44 last month. Shipments, inventory and employment all dipped but remain positive and expansionary. Empire is one of the earliest gauges of manufacturing on a month to month basis and could foreshadow strength in other regions.

Net Long Term TIC flows was reported as -24.2 billion. The previous month saw a gain of roughly $4 billion. TIC flows measures the net inflow/outflow of foreign investment in the US. TIC flows is also a lagging indicator by 2 months.

Industrial production rose in May by 0.6%. This is in line with expectations and better than the previous month. April production was revised lower to -0.3%. Capacity utilization was also better than expected, rising to 79.1% versus the expected 79% and the previous 78.9%.

The National Association of Homebuilders Housing Market Index also rose more than expected. The index rose to 49 from 45 and 3 points better than the expected reading of 46. Any reading above 50 is expansionary for this index. This is the first significant up tick in the index for several months and shows that builder sentiment may be thawing with the summer season. There are still some reasons for caution within the report such as “limited availability of labor” which makes no sense to me...unless they mean labor in the local market and/or skilled and qualified labor. The three components that make up the index all rose as well; the current conditions to 56, the current expectations to 59 and buyer traffic to 36. Buyer traffic being the notable area of weakness.

Moody's survey of Business Confidence, which has been strong all year, is even more upbeat than usual. The survey is conducted by noted economist Mark Zandi. The summary kicks off with the statement “Strong business confidence shows no sign of wavering” and goes on to report that there were few negative responses and for the third week no business says that present conditions are bad. Business still report that sales, pricing and employment are strong. Mr. Zandi's conclusion; the survey represents an economy growing above its potential.

Merger Monday

Today was another Monday filled with M&A activity. There were at least a half dozen deals in the news today with tax inversion the topic of choice. Medtronic is buying Covidien for $42.9 billion in cash and stock, $93.22 per share. The merger will result in Medtronic moving its headquarters to Ireland and possible receiving tax benefit from the move. The deal is a significant premium to Friday's close and precipitated a 21% move in Covidien. Shares of Medtronic opened higher but sold off during the day and eventually closed down more than 1%.


The Gold Index

Gold trading hovered around Friday's closing prices just like the equities market. The flight to safety trade is faltering just like the fear driven sell off in equities. Traders and investors are trying to figure out just what the Iraq situation means for the global situation. Gold traded around $1275 all day with very little fluctuations. Early trading saw prices up near $1280 but that did not last long. The Gold Index trade in similar fashion, making a tight range with today's action. The index is above resistance but not looking to strong at this time. The index is overbought in the near term with weak momentum that may be peaking. Long term fundamentals do not support higher gold prices so I think direction for gold and the index may come down to Iraq. If the situation escalates gold prices will likely move higher and the index with it. However, Iraq is still near term for now, the FOMC and the data are both long term effectors of the market. Economic data supports the taper and the taper is supportive of the dollar and lower gold prices.


The Oil Index

Oil trading was really mild today considering the large gain in prices last week and the Iraq violence. The thing is, the violence is still not impacting actual oil production yet so far as I have heard. The major portion of the Iraq oil infrastructure in the Kurdish north west of the country and is at this time safe from the uprising. In fact, CNBC's own reporter on the scene said that she herself was “safe in Kurdistan”. WTI and Brent both traded within about a half percent of last weeks close with WTI trending toward the lower end of the daily range. The fear factor that drove oil prices to the current levels could come out of the market really fast if traders start to think that there will not be a significant threat or disruption to Iraqi oil. On the flip side Boone Pickens said that oil could go to $150 if the situation spins out of control and nothing is done about it.

The Oil Index traded to a new high today but without much strength. The index made a tight range and a very weak candle suggesting a near term top may have been reached. In the near term this view is subject to events in Iraq; a jump in oil could help send the Oil Index higher while at the same time a drop in oil prices could bring the index back to support. In the longer term the oil sector is in an uptrend and making new highs driven in part on geo politics but also on steadily improving economic data and the expected 2nd quarter rebound. The indicators are bullish and on the rise with plenty of room to move up provided hopes for increased oil profits remains high. In the near term it appears as if a correction or consolidation could be at hand with support at 1660, 1650 and 16250 on a break of the short term moving average.


Sector Watch

The Home Builders were one of today's leaders. The XHB Homebuilders Spyder gained more than .5% in today's session. The ETF made this move up from the short term moving average and helps to confirm support around the $31.50 level. The indicators are bearish in the near term but longer term analysis shows growing support along this level. Regardless, the ETF has been trading choppy in a range over the past 12 months at least and faces plenty of technical resistance. Today's NAHB data was enough to help bring in support but not enough to convince anyone that the housing market is truly strong. Tomorrow's data may help. First resistance I see will is at $33 and extends up to the $34 level.


The Utilities Spyder XLU gained more than 75% in today's session. This sector ETF made a fairly strong move higher in the early part of the day but met with resistance after lunch. A possible reason for this sectors attraction today is dividend. The utilities sector is a good one for finding decent returns. This sector hit a top in early May following a four month rally that has resulted in a 6 week sideways movement. This consolidation is beginning to look like a potentially bullish triangle, definitely one worth watching. The top of the range at $43.50 is current resistance, indicators are bearish at this time but rolling over into a potential buy signal. A break above resistance could result in a near to short term rally in utilities. Support at this time is along the lower edge of the triangle around $41.50-$42.00.


The Indices

The major indices basically tread water today. They all opened marginally lower, moved a little lower, then bounced into the green only to find resistance and then move back down to close very near to opening prices. Intraday ranges were very tight and volumes were low, supposedly caused by Iraq but probably more by the FOMC. Iraq is a serious situation but for now is still only a near term fear. The FOMC, their outlook, the economy, corporate profits, the taper and rising interest rates are long term.

The SPX traded in the aforementioned tight range, slightly above the 30 day moving average. The indicators have just turned bearish and look to be indicating a test of support. Support is along the moving average about 20 points lower and the trend line close to 1900-1910. High oil prices and Iraq headlines could help to bring the index down to support, especially ahead of the fed meeting. The long term trend is up so for now I am still buying on the dips.


The Dow Industrials also traded in a tight range, just above the short term moving average. Unlike the SPX, the blue chips are trading just above a much stronger looking support level. Just below the moving average is the previous all time high and a zone that I consider to be strong support. Like the SPX the indicators are turning bearish but are very weak. The MACD is barely in the red, a break below support would of course increase that. Stochastic is pointing down but still high in the range. There may be some more down side in the next couple of days but I also think that the Dow will find support when and if it does. Current support level is 16,750 with next at 16,680 and 16,600.


The Nasdaq Composite was today's leader with a whopping 0.24% gain. The tech heavy index suffered the least during last weeks Iraq sell off and is now nearest to making new highs. The indicators here are weakening but still bullish. MACD is still above the zero line and stochastic, although pointing down, is still high above the upper signal line. Price action in the index appears to be consolidating in the short term for a push up to test the long term high but is subject to Iraq news in the very near term.


The Dow Transports were the worst performing of the major indices today and the only one closing in the red. The Trannies lost close to a quarter percent. The indicators are firmly bearish and pointing to a test of support and possible return to the long term trend line. The index is sitting on the short term moving average which is good for near term bulls but a break below that could easily see the index move to the trend line about 250 points below.


Tomorrow look out for new developments in Iraq and economic data. Iraq is more likely to drive short term direction while the data will give a hint to the long term direction. After that the Fed and what they say will be the important market mover of the week.And don't forget about options expiration.

Until then, remember the trend!

Thomas Hughes


New Option Plays

A Cautious Tone

by James Brown

Click here to email James Brown

Editor's Note:

The major U.S. indices managed a bounce today following last week's profit taking. Overall the rebound was pretty mild. Traders are likely cautious with the situation in Iraq and Ukraine. Plus the Federal Reserve's next meeting concludes on Wednesday afternoon. You know the market wants to hear what Fed Chairman Janet Yellen has to say.

The tone of trading felt cautious with money moving into the safety of U.S. bonds and the yield on the 10-year note falling below 2.6%.

We are not adding any new trades tonight.

A few stocks currently on our radar screen that piqued our interest today are: FSLR, PRGO, WAGE, TRW, THS, VMC,




In Play Updates and Reviews

Stocks Drift Higher

by James Brown

Click here to email James Brown

Editor's Note:

The market drifted higher on Monday. Investors are likely waiting for the FOMC meeting on Wednesday.

LYB hit our stop loss. TMO has been removed.


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: + 43.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/16/14: APC saw a little profit taking today (-0.9%) after big gains last week. Broken resistance near $105.00 should be new support.

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: 132.54 change: +0.25

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:
06/16/14: BA issued a press release today that its 787-9 Dreamliner has been certified by the U.S. FAA and European ASA for commercial service. The first planes are scheduled for delivery this summer. These new 787-9 planes can carry 280 passengers up to 9,500 miles. BA's list price on these models is $249.5 million.

Meanwhile shares of BA hovered near the $132 level on Monday. 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: 92.49 chang6: -0.06

Stop Loss: 85.75
Target(s): to be determined
Current Option Gain/Loss: - 9.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/16/14: The BBH tried to rally this morning but failed at its 100-dma again.

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: 81.04 change: +0.57

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:
06/16/14: COF bounced from support near $80 and its 10-dma. Shares managed to outpace the market with a +0.7% gain. Today's move 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

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


CVS Caremark Corp. - CVS - close: 76.14 change: +0.28

Stop Loss: 74.65
Target(s): to be determined
Current Option Gain/Loss: -50.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/16/14: CVS produced a mild bounce from technical support at its 50-dma.

The company is due to present at two conferences this week. One on June 18th and the other on June 19th.

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: 70.74 change: -0.85

Stop Loss: 69.90
Target(s): to be determined
Current Option Gain/Loss: +15.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/16/14: ESRX underperformed the market today with a -1.18% decline. Shares look headed for what should be round-number support at $70.00. We are going to try and reduce our risk by raising the stop loss to $69.90. More aggressive investors might want to keep their stop below the simple 200-dma instead (currently near 69.50) .

Earlier Comments:
ESRX is in the healthcare sector. The company provides pharmacy benefit management (PBM) services in the U.S. and Canada. Both the NASDAQ and shares of ESRX peaked in early March. It would appear that investors considered ESRX one of the higher-growth, momentum names since it has been sinking with that group over the last couple of months.

That big drop you see on ESRX's daily chart was market reaction to its latest earnings news. The results were disappointing. You could call it a trifecta of bad news. ESRX missed Wall Street's estimates on both the top and bottom line. Management guided lower for 2014. Plus they disclosed three separate subpoenas from different state authorities as the company is investigated for its relationship with drug makers.

Investors already had lowered expectations for ESRX's earnings because the company lost UnitedHealth Group (UNH) as a client last quarter. The loss of UNH accounted for about half of ESRX's lost revenues. ESRX complained that a lot of expected new enrollments had been postponed. They didn't see quite the impact from the new Obamacare exchanges previously expected.

It sounds like plenty of bad news for ESRX. Yet here's the interesting part. The stock lost -6% following its earnings report but there was no follow through lower. Investors have been buying the dip. Shares are up two weeks in a row and slowing chewing through resistance. With a drop from $79 to $65 (-17.7%) it is possible that all the bad news is already priced into ESRX stock price. The long-term trend for ESRX is still higher. As the new affordable healthcare policy changes gain momentum it should mean more enrollments for ESRX.

- Suggested Positions -

Long Aug $70 call (ESRX140816C70) entry $2.45*

06/16/14 new stop @ 69.90
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: 74.58 change: +0.32

Stop Loss: 71.45
Target(s): To Be Determined
Current Option Gain/Loss: -15.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/16/14: EXPE bounced back above its simple 10-dma today. Readers may want to wait for a new close above $75.00 before initiating new positions.

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: 85.69 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:
06/16/14: HBI traders were in a buy-the-dip mood today and shares added +0.4%. This does help reaffirm the stock's up trend.

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


PPG Industries - PPG - close: 203.02 change: -1.25

Stop Loss: 199.85
Target(s): To Be Determined
Current Option Gain/Loss: - 4.1%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/16/14: The pullback in PPG continued today. Shares traded to $201.81 before paring its losses. We are expecting the $200.00 level to hold as support. Tonight we'll try and reduce our risk by raising the stop loss to $199.85.

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


Starbucks Corp. - SBUX - close: 75.09 change: +0.40

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

Comments:
06/16/14: SBUX was making headlines again. This time with news they were partnering with Arizona State University and offering to pay for tuition for its employees to get their degree with ASU's online program.

Meanwhile shares of SBUX were climbing as expected and closed just under technical resistance at their 200-dma. I do not see any changes from the weekend newsletter's new play description.

Earlier Comments: June 14, 2014:
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 $1.49

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

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


U.S. Silica Holdings - SLCA - close: 51.32 change: +0.01

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

Comments:
06/16/14: Monday was a quiet session for shares of SLCA. The stock traded up to and then reversed under its simple 10-dma. The intraday high was $51.95. I do not see any changes from the weekend newsletter's new play description.

Earlier Comments: June 14, 2014:
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)

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

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


United Parcel Service - UPS - close: 101.18 change: +0.15

Stop Loss: 97.75
Target(s): to be determined
Current Option Gain/Loss: + 11.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
06/16/14: UPS dipped to $100.53 before traders bought the dip this morning. The stock looks ready to bounce but I would hesitate to launch new positions here.

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

LyondellBasell Industries - LYB - close: 98.87 change: -0.09

Stop Loss: 98.45
Target(s): to be determined
Current Option Gain/Loss: +17.6%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
06/16/14: Shares of LYB failed at their 10-dma this morning and dipped to new two-week lows before bouncing. Our stop loss was hit at $98.45.

- Suggested Positions -

Sep $100 call (LYB140920C100) entry $2.55* exit $3.00** (+17.6%)

06/16/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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.
Option 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


Thermo Fisher Scientific, Inc. - TMO - close: 118.69 change: -0.47

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

Comments:
06/16/14: We are cutting TMO loose. The stock has been stuck churning sideways near resistance at $120. Our trade has not opened yet and tonight we're dropping it as a candidate.

TMO's long-term trend is still bullish and I would keep this stock on your watch list for a close above $120.50 as a potential bullish entry point.

Trade did not open.

06/16/14 removed from the newsletter. suggested trigger was $120.50

chart:

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