Option Investor
Newsletter

Daily Newsletter, Saturday, 6/28/2014

Table of Contents

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

Market Wrap

Bipolar Markets

by Jim Brown

Click here to email Jim Brown

The Dow and S&P declined slightly and the Nasdaq and Russell rallied slightly. Not bad for a week that normally produces a -2% loss.

Market Statistics

The S&P added another year to raise the totals to 22 of the past 25 years for post June expiration losses but it was by the narrowest of margins with the S&P declining only 0.1% for the week. Historically this week normally loses about 2.1%.

The Nasdaq ended up with a decent gain of +30 points for the week to close at a new 14-year high. The Russell squeezed out a gain despite the big drop on Tuesday. The rebound over the last three days recovered +21 points of that Tuesday drop from three month highs.

Volume was ridiculously low with only 2.8 billion shares on Wednesday and well under the average of 5.9 billion. Thursday picked up slightly to 5.0 billion and Friday soared to 8.64 billion as a result of the Russell index rebalance.

I am really happy about the Russell rebound when the rebalance pressures normally push it lower as the week progresses. This should be positive for next week when follow up buying on the new stocks will help lift the index higher.

Friday's economics were lackluster and limited. The final revision of the June consumer sentiment rose slightly from the initial reading of 81.2 to 82.5. The current conditions component improved slightly from 94.5 to 96.6 and the expectations component declined slightly from 73.7 to 73.5. Since the revision was minimal the report was ignored.


Agricultural prices for June declined -2.9% compared to a -0.9% drop in May. Investors should have been thrilled after the +7.1%, +4.7% and +3.6% rises in Feb, Mar and April. The biggest decline was a -9.8% drop in food grains and -7.6% drop in feed grains and hay. This means it will be cheaper to feed livestock and those prices should decline from record levels.

Fruit prices rose +6.1% driven by higher orange prices and commercial vegetables rose +11.3%. That was offset by a -3.3% decline in dairy and -4.1% decline in poultry and eggs. Meat animals declined -0.8%. Retail food prices have been rising at the fastest rate in years and any weakness will be appreciated. The 2012 drought is still impacting meat and grain prices as farmers rebuild their herds with a cautious eye. Many were hurt significantly when the drought killed hay fields and they were forced to sell their cattle cheap rather than buy expensive feed.

The agricultural report is normally ignored by equity traders but commodity traders do pay attention.

Next week is a short week with July 4th falling on Friday. However, we will have three critical reports. The national ISM Manufacturing for June is Tuesday and most analysts are only expecting a minimal rise. There are quite a few expecting a negative surprise. The regional manufacturing reports have been weak and that should translate into the national numbers.

The Factory Orders for May are out on Wednesday and those are expected to decline from 0.7% to 0.3% and could potentially go negative. This will impact GDP calculations for Q2, which are already declining.

The big reports for the week are the ADP Employment on Wednesday and Nonfarm Payrolls on Thursday. The ADP forecast is for new jobs to rise from 179,000 in May to 205,000 in June. The range of estimates is from 190,000 to 240,000.

The Nonfarm forecast is for a decline from 217,000 jobs in May to 213,000 in June. The range of estimates on the Nonfarm report is from 199,000 to 290,000. Clearly there is a wide disagreement in expectations.

There is a lot of confusion surrounding the employment numbers. Some of the regional reports have shown improving metrics and some have shown a decline in the employment components. Whatever numbers are reported next week will be important. The Nonfarm needs to remain in the 200,000 range to continue the Fed's current economic growth scenario. If jobs begin to decline from that 200,000 range there is going to be a lot of revisions to economic growth forecasts.


I can't let last week expire without rehashing the negative GDP revision. Initially the government said growth rose a miniscule +0.11% in Q1. Investors were lukewarm on the report and the market actually rose slightly. In the next revision they said growth declined -0.98% and investors still shook it off as a negative weather event and the S&P rose +32 points over the next six days.

Last week the government's final report showed growth declined -2.9% in Q1 and way below the first couple of estimates and the market rallied again. Eventually economics will matter. Analysts again tried to blame the weather but the cracks in the argument were growing. Some even went back to see how the GDP reacted to past spells of cold winter weather. Oops! They found out that winter actually comes every year. In most cases the GDP was not materially impacted and the weather excuse began to fall apart.

The -2.9% decline was the lowest quarter since Q1-2009 and the biggest downward revision to Q1 since 1976. It was the largest contraction in Q1 in 32 years. The combined GDP growth for the last four quarters fell from +2.6% to only +1.5% and lower than the trend of +2.0% for the last five years.

Corporate profits fell -9.1% in Q1 after rising +2.2% in Q4. This is the lowest level in four years! Final sales declined -1.3% and the largest drop since Q1-2009. Consumer spending contributed only 0.7 points and significantly below the prior estimate at +2.1 points. Total consumer spending growth fell from +3.1% to +1.0%. Foreign trade reduced the GDP by -1.5 points and it would be hard to blame that on the weather.

Analysts blamed not only the weather and the drop in consumer spending but also the decline in unemployment insurance benefits and slower inventory accumulation. Investment spending declined for the first time since 2012 and the decline in net exports was the first drop in three quarters.

Six weeks ago analysts were predicting a snapback in the economy in Q2 with GDP estimates well over 3.5% with most in the +4.0% range and some analysts suggesting we could have a +5% quarter. Fast forward to today and those estimates are crashing. A +2.0-2.5% number was being circulated but after the weak personal income and spending numbers on Thursday I heard some estimates in the high +1% range.

Some analysts who were projecting that big snapback in Q2 are now reversing those projections because of the latest data showing a lack of rebound in May and June.

Obviously the Q2 estimates are going to be all over the map for the next month and we don't get the first official government estimate until the end of July. If that number comes in under 2% with the potential for further downward revisions as in Q1 the market and the Fed are going to be doing some serious soul searching. Recessions typically appear every 5-7 years and we are moving into year six of this recovery. However, the slow pace of the recovery could actually extend the length of the cycle. Nobody is expecting negative growth in Q2 but we do have a very good chance of slowing growth over the rest of 2014.

The prior week the Fed lowered its GDP estimates for the full year to +2.2% from +2.9%. In order to hit that new number we would have to have GDP over 3.9% for each of the next three quarters. This is not likely to happen. This means the Fed is going to be forced to lower projections again to something in the +1.8% range. The IMF just cut U.S. GDP estimates to +2% for the full year.

I guess if the Q2 GDP disappoints we can blame it on the World Cup and two weeks of lost productivity.


It was another summer Friday ahead of a holiday week and if it were not for the Russell reconstitution the volume would have been very low. Quite a few traders will be off all next week and that means very light volume. Art Cashin said the already low volume may be the result of the charges against Barclay's for running a dark pool to benefit high-frequency traders. Art speculated that the low volume may be due to high-frequency traders sitting out right now while they decide how the trading environment is changing as a result of the Barclay's attack and the pledge by SEC Commission Chair Mary Jo White. She has pledged to change high-frequency trading rules later this year.

Art also said he was worried about the low volatility. "You will hear a good deal of people saying that this much calm and complacence in the market will spring out in a negative fashion." The earnings warning by Dupont (DD) is fueling concerns that Q2 earnings may be weak.

Dupont warned on Thursday that full year earnings would sink to $4.00-$4.10 down from $4.20-$4.45 compared to analyst estimates of $4.30 and they could take a charge of 20 cents due to restructuring. They lowered current quarter earnings estimates to $1.28 compared to analyst estimates of $1.46. Dupont said seed sales had slowed and herbicide sales were weak. Dupont blamed it on the weather but that suggests they are forecasting weather issues for the rest of the year as well. If it was just weather why are they restructuring? I think this is another example of the weather being used as a "kitchen sink" excuse.


I don't want my weekend commentaries to be a weekly shout out for Amazon but that is the way it is working out. Late Friday news broke that Amazon may be ready to take aim at GrubHub and launch a local takeout-delivery service. It would be an extension of the Amazon Local daily deal service similar to Groupon. TechCrunch first reported the news after the feature was turned on briefly for testing and then quickly taken back down. There were rumors Amazon could be looking at acquiring Peach, a takeout service in Seattle, Maryland and Virginia or Caviar, which operates in San Francisco, Chicago, Washington DC, New York and Boston with gps tracking of customer orders.

Deutsche Bank analyst Karen Short also warned on Friday that Amazon could quickly disrupt the grocery store business with its Amazon Fresh grocery delivery business. They have been testing that service in Seattle, Los Angeles and San Francisco. Short warned they could already be building out the local infrastructure and easily just turn it on at some point in the future. Existing grocery stores could lose several percentage points of market share very quickly and with only a 1% profit margin this could represent a 10% EBITDA dollar loss.

Amazon just keeps launching weekly efforts to conquer the world. Two weeks ago it was the local services market place to compete with Yelp and Angie's list. A couple weeks earlier it was the Fire TV. Last week was the Fire Phone. Where will it all end?


Manitowoc (MTW) said it was in talks with activist investment fund Relational Investors about a proposal to breakup the company. Relational has an 8.5% stake in Manitowoc. The company primarily manufactures two things, cranes and food service freezers and ice makers. Relational believes the company would perform better as two separate companies. The MTW CEO said they would consider the Relational proposal. Jefferies upgraded the stock and raised the price target to $33. Shares of MTW spiked +11% to close at $32.92.


Green Mountain (GMCR) rallied +4% after Argus upgraded the company from hold to buy. They based the upgrade on solid revenue and earnings improvements for the rest of 2014 and throughout 2015. The analyst expected 2014 revenue growth of 10% with an increase in the sales of K-cups and brewers. The firm raised the price target to $140. The K-cup product is a gift that just keeps on giving for Green Mountain.


Carlos Slim's holding company, Inmobilaria Carso, told America Movil's board it will acquire AT&T's 8.3% stake, which includes 24% of the voting shares. The value of the stake is roughly $6 billion. AT&T has to sell the stake to avoid a conflict of interest when it buys DirecTV, which competes with America Movil for pay-TV customers in Latin America. The deal will provide AT&T with another $6 billion in cash as it tries to raise $48.5 billion for the DirecTV acquisition. AT&T also said it reached an agreement to sell $2 billion in receivables to a group of banks led by Citigroup. Part of the deal was to sell $1.6 billion in future installment payments for phones for $800 million in cash and the balance to be paid out over time. The company also expects to receive $2 billion for some asset sales in Connecticut before year end. Shares of AT&T barely moved on the news.

Allergan (AGN) rose another 2% after the company agreed with Bill Ackman's Pershing Square Capital Management not to trigger the poison pill as a result of Ackman's request for a special shareholder meeting. Ackman wants to replace several board members in an effort to take over the company in conjunction with Valeant (VRX). Ackman said he was pleased to reach the agreement without the assistance of the court. Ackman had sued Allergan over the poison pill provisions. Ackman said to call the special meeting they would need support from about 25% of Allergan shareholders and they were about halfway there. Valeant has offered $54.2 billion for Allergan. That is the latest offer after they raised it twice. Ackman owns 9.7% of Allergan. The poison pill triggers at 10% ownership. The pill allows existing shareholders with less than 10% positions to buy large amounts of stock at a steep discount in the event of a hostile takeover. This would massively dilute any potential acquirer's position. I think the end is in sight for Allergan.


Barclay's (BCS) recovered slightly on Friday with a +2% rebound but the damage is far from over. On Thursday the New York attorney general filed a 30 page complaint against Barclay's alleging fraud in the way the bank handled the dark pool. He claims Barclay's lied to brokerage customers while partnering with high-frequency trading firms. Instantly money managers and brokers shunned the LX dark pool and Barclay's stock fell more than -6%. Banks and brokers that immediately disconnected from the LX pool included Deutsche Bank, Royal Bank of Canada, Sanford Bernstein and Investment Technology Group. Goldman Sachs, Morgan Stanley and JP Morgan had previously halted connections to the pool before the AG complaint. The AG said Barclay's horded orders for stocks to make it more lucrative for the high-frequency traders. While they did this they continually assured investors they were protecting their interests when in fact they were selling the order flow to the pool participants.


The constant stream of negative news about high-frequency trading and dark pools is not going to give investors a lot of faith about the stock market. The Flash Boys book several weeks ago ignited another firestorm on whether the markets are rigged.

I believe the days of high-frequency trading as we know it today are numbered. There are too many regulators smelling blood in the water and they are circling the participants trying to figure out how to charge them with wrongdoing. Eventually they will find the key and the industry will have to change.

Retail investors already believe the market is rigged against them even though HF trading has narrowed spreads to unbelievably low levels and provided extra liquidity even in low volume markets. This uneasiness about the market is part of the reason we are seeing equity outflows. The Investment Company Institute said investors pulled money out of equities in the week ended June 25th making it the eighth consecutive week of outflows. More than $20 billion flowed into bond funds over the same period.

Retail investor interest in the equity market is sagging for multiple reasons. CNBC viewership is tanking along with investor interest in the market. Viewership is at the lowest level since 1997. On Friday the 20th Jim Cramer's Mad Money show had only 2,000 viewers in the targeted 25-54 demographic. Cramer has been spreading himself all over the various CNBC time slots trying to capture viewers for his nightly show. Apparently it is not working. Mad Money may be going dark soon unless something changes quickly.

In the "you have got to be kidding" department Caesar's Entertainment (CZR) with a massive $23 billion in debt, loans and bonds near default with creditors nipping at their heels, said it was ready to invest $5 billion developing a casino in Japan. Caesar's said it would have no trouble financing the project. This is from a company where the debt is rated at nine levels below investment grade.

Japanese lawmakers began debating a bill this month to legalize casinos. Japan is the world's third largest economy and they are in serious trouble. They need extra revenue and economic activity. Their debt to GDP is the highest of any industrialized country. Prime Minister Shinzo Abe said they would try to pass a law ending the ban on casinos in an effort to boost tourism along with the Tokyo Olympics in 2020.

Caesar's said they could finance it but they would also consider selling shares in Japan through a public listing to finance the casino project. Wynn Resorts and MGM Resorts have also said they intend to sell shares for planed resorts if casinos are approved. Getting three major casinos approved, designed, permitted and built by 2020 would still be a challenge. CLSA Ltd said the Japanese casino market could be worth $25 billion a year by 2025.

I applaud Caesars for attempting this project because it would be a lucrative market. However, they need to come up with a plan to pay down their existing debt before the creditors start taking over properties. Just this week Caesars said they were shutting down the Showboat in Atlantic City to reduce capacity in the East Coast gambling hub. Caesars acquired the Showboat in 1998. Caesars has four properties in Atlantic City including the Showboat, Caesars, Bally's and Harrah's out of the 11 total casinos there. The Atlantic Club shutdown in January and the newest casino Revel AC filed for bankruptcy for the second time in two years. They told employees they were shutting down in August if no buyer is found. Penn National Gaming cancelled plans for a casino citing the deteriorating demand in the area.


One decision down, one to go. Alibaba plans to list on the NYSE under the ticker BABA and will be the third largest tech company on the NYSE based on their $168 billion valuation. Only IBM and Oracle would be larger. Ba means 8 in Chinese and is considered a lucky number. BABA would be 88 and they would like to begin trading on August 8th. According to recent rumors the company is looking to sell a 12% stake worth about $20 billion.

The Nasdaq has been fighting an uphill battle for large IPOs after the botched Facebook IPO. Of the ten technology IPOs in Q1 the NYSE won 7 of them. This shows the reversal of fortunes for the Nasdaq. From 2001-2011 the Nasdaq won 122 tech IPOs and the NYSE only 42. Since January 2012 the NYSE has won 45 while the Nasdaq scored 35. Facebook was the largest for the Nasdaq and represented about 50% of the dollar volume of the 35 listed.

The next question will be the pricing. Nobody has a clue how they are going to price their shares and because of the high demand they could issue more shares or raise the price. When this IPO does happen it is going to suck a lot of air out of the market. The money for that $20 billion IPO is going to come out of other shares. Investors will lighten up on their existing positions to buy BABA. The real winners here will be Yahoo with a 24% stake and SoftBank (SFTBY) with a 34.4% stake. Yahoo is going to sell half of its stake but SoftBank said they would not be sellers in the IPO. Softbank only invested a little less than $200 million in the Alibaba stake in 2000, which is now estimated to be worth $50 billion. Softbank is one of only three companies to post more than a one-trillion yen profit in 2013. The other two were Toyota and NTT DoCoMo. Softbank owns stakes in more than 1,300 tech companies.


The S&P is up +4.7% in Q2 and is only one day away from completing the longest stretch of quarterly gains since 1998. We would have to see a major crash on Monday to turn the S&P negative for the quarter. The S&P has traded for 50 consecutive days without a 1% move and that is the longest stretch since 1995. The U.S. market has gone for two years without a 10% correction and in any playbook that is pressing our luck.

The key to keeping this streak alive is going to be earnings growth or more importantly revenue growth for Q2. The earnings over the last several quarters have been engineered from stock buybacks and cost cutting. Revenues are barely rising. We need to see the revenue growth surge to really get investors excited.

If the Q2 earnings are simply another quarter of earnings rising by a couple pennies and revenue flat to barely positive and a new round of stock buybacks announced we could see some negative reactions.

TrimTabs.com said announced buybacks in Q2 slowed to $92.7 billion, down from $138.5 billion in Q1. This will be the lowest in seven quarters. Buybacks in June have declined to $11.5 billion and the lowest level since May 2012. Only four companies have announced buybacks of more than $1 billion in June. On the flipside TrimTabs said companies are selling new shares at the fastest rate since Q3-2013. This always happens at new market highs.

Here is the $64k question. Did they stop the buybacks because they ran out of money or because they expect to buy the stocks back cheaper in the future? I would vote for a combination of the two. With the markets at new highs stocks are not cheap. That means you can buy back less and your money does not go as far. Also, with stocks at new highs going into summer there is always the potential for a correction.

Lastly, since we know Q1 was a weak quarter for sales and profits and Q2 may not be much better there is the possibility companies have elected to save cash to get them over the next soft patch as we head into the midterm election weakness.

The S&P closed at the high of the day at 1,960 after a late day buying spurt thanks to the Russell rebalance. Support at 1,950 was tested twice last week and penetrated both times but traders bought both dips. That should have been enough to reinforce that level as future support. The next battle is the closing highs at 1,962 on both the 20th and 23rd. We are really close to making a new high and buyers don't appear to be diminishing despite the arrival of summer. Next week's extremely low volume could easily allow a major move to develop and after testing 1,950 it could be to the upside.

The 50-day average is now 1909 and rising pretty sharply. This is short term support. The longer term support is the 125-day average at 1,867. The S&P returns to this average about once every 2.5 months. The last touch was on April 15th making Monday 2.5 months. We are due for another retest of that level.



The Dow was the weakest index last week with a -95 point decline for the week. It would have been worse than that but the Dow rebounded +80 points in the final minutes of trading. On the bright side the short term uptrend support held.



The daily chart shows strong resistance at that 17,000 level and the range between that resistance at 16,700 and uptrend support is narrowing. The longer term trend is clearly higher but the Dow is struggling after the +171 point gain the prior week. Every day that passes we move further into the summer doldrums but we still have the Q2 earnings cycle to provide lift over the next three weeks. That assumes a lack of serious earnings warnings next week when companies hope everyone will be at the beach.


The Nasdaq is clearly in breakout mode. The strong resistance band from 4,344-4,371 is history and should now be support. The Nasdaq closed at a 14 year high and the internals for the last several days were bullish.

The Nasdaq and the Russell should be positive over the next couple of days as leftover buying from the rebalance pushes the indexes higher. Apple appears to be over its post split depression phase and should contribute to a higher Nasdaq.




The Russell indexes confounded historical norms and actually rose for the week rather than decline on pre rebalance selling. This is very positive for next week because there is always some leftover buying as fund managers level out their positions to fit the new Russell weightings.

Because of the order on close buying the volume on the NYSE spiked from 400 million shares at 3:50 to 1.485 billion at 4:05. This spike confounded some chat rooms where ignorance of reality prevailed. They were calling it everything from a fat finger trade by the Fed to a rumor of ISIS pulling out of Iraq. A lot of information rockets across the Internet but quite a bit of it is worthless. Always consider the source of the headline.

The Russell 2000 still has strong resistance at 1,194 and several levels just above that. The Russell is not likely to be breaking out to new highs over the next week but I would not complain if I am wrong.


In theory the markets should rise the next two days as a result of lingering rebalance buying as fund managers finish their portfolio adjustments. It will be a very low volume week with several high profile economic reports. The Manufacturing ISM on Tuesday will be the first hurdle but after the market rallied on a -2.9% contraction in GDP I don't know what it would take to push the market lower.

The payroll reports on Wednesday and Thursday are also critical but as long as the numbers don't deviate from expectations by a huge amount the market will probably take almost anything in stride. The expectations for 7% earnings growth or better in Q2 and the continued paint drying pace of the QE taper should keep the markets positive. I always cringe when I write things like "should keep the markets positive" because that is a clear kiss of death for the rally. Let's hope this time the market is not listening.

Random Thoughts

There is not much in this section this week. The news flow was pretty stagnant except for Iraq, the Ukraine and the world cup. I have already run out of words on Iraq and Ukraine and I have nothing to say about the World Cup. However, Nike (NKE) normally declines in the weeks after the event on a sell the news drop. They rise into the event and then decline afterwards.

July is the best month in Q3 for the markets. Of course August and September are so bad it makes July the clear winner. Since 1950 July has averaged a minor +1.2% gain on the S&P. July 2009 and 2010 were so strong they boosted the average from near zero to that 1.2% average. Of course two years does not make a trend. Midterm election Julys are normally negative with the Dow and S&P ranking as only the 5th best month of the year but the Nasdaq ranks as the 11th and the Russell 2000 the 12th or the worst month of the year for the Russell.

The Stock Trader's Almanac pointed out that June is the end of the Nasdaq's 8th best months string that runs from November through June. We are heading into the four worst months for the Nasdaq. The Investors Intelligence sentiment rating has seen the bullish sentiment at more than 60% for four consecutive weeks and reached a multi-year high two weeks ago. Similar readings were seen in August 1987, December 2004 and October 2007 and at the end of 2013. The CBOE equity put-call ratio declined to 0.47 last week and the lowest since January 2011 representing extreme complacency.

Here are two interesting charts showing the Fed has no clue where they are going. They have consistently missed on their projections for economic growth, stimulus and inflation. Blind Leading the Blind

Two major banks in Bulgaria were the focus of depositor runs after two men started publishing bogus news on the Internet and warning people to withdraw their deposits or lose them. The government had to take over Bulgaria's fourth largest lender Corporate Commercial Bank (CorpBank) after tens of thousands of customers stormed the bank's locations demanding their deposits. Two days ago the third largest lender First Investment Bank warned the government they were seeing a surge in large scale cash withdrawals and were short of funds. If only two men can cause the collapse of two of the top four banks in Bulgaria in only a week's time what could a terrorist group of hundreds do to the financial system in any country? I think we have just seen the first in a new wave of terrorist attacks. I am sure the various individual groups like Al-Qaeda and the government sponsored groups from places like North Korea and China were awakened by the headlines and this will be on their playlist in the future.

Most Americans will believe anything they read on the Internet and it would be very easy for several hundred terrorists with smartphones to flood the Internet with warnings about our banks. Individuals should take this as a warning and keep some cash at home just in case.

Customers waiting for cash ar BankCorp

NATO Secretary General Anders Fogh Rasmussen, a person that rarely comments on energy matters, told the London based think tank Chatham House on June 19th that Russia was secretly backing some European anti-fracking environmentalists in order to stop Europe from joining the shale-gas revolution. By outlawing fracking it keeps Europe from producing its own energy and keeps them dependent on energy from Russia. Rasmussen claimed NATO allies had detected Russian manipulation at work in the "sophisticated information and disinformation operations" within Europe's well-organized anti-fracking groups. As punishment for the Ukraine refusing Russian involvement Gazprom raised gas prices to the Ukraine in April by 80%. Russia has used its gas exports to Europe as a political lever numerous times over the last decade. It is no surprise that they would resort to funding environmentalists to keep the gas flowing. Last year alone Gazprom spent more than $6 million on Washington lobbyists and they have far less to gain here than in Europe.

Got water? In most of the U.S. we are fortunate to have plenty of water. That is not true in the rest of the world. More than 2.5 billion people don't have fresh water that is safe. In March Australia opened a futures exchange that deals in water. Since March 1.6 million dollars representing about 16.5 billion liters of water have changed hands. While that may be a drop in the bucket as far as fresh water goes it is the start of commoditization of water. Recent droughts in the American west and in Texas have shown lawmakers in those areas the need to prepare for significantly larger water storage plans. I think it is only a matter of time before water futures are going to be traded in the USA. In the southwest water rights are hard fought and are deeded down for generations. Without irrigation water there are no crops.

A Mexican military helicopter crossed the border into Arizona and fired two shots at two border patrol officers sitting in a marked patrol car. Reportedly the military copter was assisting Mexican federal police on the ground in a drug operation on a ranch in Altar, Sonora when they were shot at by criminals. How or why the helicopter strayed into the U.S. and why they fired upon the marked patrol car is unknown. The Mexican government contacted the local U.S. authorities and apologized for the incident. The helicopter flew within 15 yards of the patrol car when the shots were fired sometime after midnight. Later in the day when reporting of the event started exploding across the news wires the Mexican government changed their story saying there was no event and no Mexican helicopters were involved in the operation.

In January two heavily armed Mexican soldiers were confronted inside Arizona by border patrol agents and a standoff ensued but no shots were fired. In 2011 more than 30 uniformed soldiers in military vehicles crossed the Rio Grande into Arizona and were eventually confronted by border patrol and they returned to Mexico. The agents said the foray into Arizona was "inadvertent." They just accidentally crossed the Rio Grande River and wandered for an hour in Arizona. I guess they don't have maps or GPS devices. They should have asked the drug smugglers for directions.

Washington D.C. police were ordered to return to work this weekend in an "All Hands on Deck" initiative to fight an expected onslaught of summer crime. The unions have filed paperwork challenging the "all days off cancelled" order by the Police Chief. The all hands on deck command has been used seven times since 2007. Apparently criminals don't take off during holiday weeks.

A blackout hit most of Venezuela on Friday just as President Maduro was speaking on TV. Various excuses were given for the nationwide blackout and all of them due to natural causes or blamed on deteriorating equipment. In December power went off during another Maduro speech and it was due to gunmen attacking power transmission lines to cut the power. The real problem is 15 years of socialist policies that have collapsed the economy and left the country unable to pay for anything including utility maintenance. Maduro has suffered through three months of public disturbances demanding his resignation because of economic conditions. He said the protests were a U.S. backed attempt to overthrow him. The rule for dictators is to always blame the USA to deflect protests against yourself.

President Obama requested $500 million to arm the rebels against President Bassar Assad in Syria. The problem there is that most of the rebels left in Syria are ISIS fighters. To clarify this imitative he said the U.S. wanted to train and arm the "moderate factions" among the rebels. Good luck with that litmus test to find "moderate rebels." Hi, we are giving out guns. Are you a moderate?

In the truth is stranger than fiction department the Banghazi terror suspect captured on film waving a rifle with the embassy in flames behind him has pled not guilty in front of a federal judge in Washington DC. Ahmed Abu Khatallah, has given numerous television interviews to all the major U.S. networks while he was free in Benghazi in which he described the event. Officials said he was talkative and cooperating on his slow ride to the U.S. aboard the U.S.S. New York before he was read his Miranda rights. One official said the conversations "continued" after he was Mirandized. I am sure once he has an attorney assigned those conversations will cease. Officials say any information he revealed before he was Mirandized could not be used and would not be admissible in court. Would somebody explain to me why a terrorist overseas has any Miranda rights in the USA? If the president can legally fire Hellfire missiles from drones at terrorists without reading them their rights why does this one have rights?

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"This is no longer conjecture. We cannot simply turn a blind eye to data that is weak and argue that all bad news is good news for stocks. At some point, bad news is bad news. At some point, volatility will rise from the ashes of complacency."

Michael A. Gayed

 


Index Wrap

Mighty Mo Meets Summer Doldrums

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

A key downside reversal pattern led to a stumble in S&P and Dow momentum ('Mo') but tech marched higher, just a bit slowed down in the Nas Composite.

There was a key downside chart reversal this past week, as the major indexes rallied to a decisive new high but Closed the day under the prior 2-days' Lows. But, as noted, this apparent reversal pattern has led only to a slightly down week for the S&P and Dow. But, there's also been some further gains in the Composite and continued strength in the red-hot big cap Nasdaq 100 (NDX). A longer range objective for NDX is to 4000.

I found that very high bullish sentiment, as suggested by my CPRATIO 'sentiment' model, was worrisome and it is, but this kind of 'excess' doesn't pin down a top. Extreme bullishness in a bull market can persist for long periods. Bullishness has moderated some, but remains relatively high. The tech froth and fever is probably skewing bullishness, as traders are not throwing money at mainstream economic stocks like traders are with key stocks in the Nasdaq universe.

I've had an objective in the S&P 500 (SPX) for 1980-1985 which may or may not be seen in the near-term. If SPX goes to this area, it seems likely to then touch or test 2000, a big milestone number.

I'm watching the following key resistances, which if overcome, suggest further upside momentum to come:

S&P 500 (SPX) - resistance at 1964 intraday; 1968-1970, Closing.

S&P 100 (OEX) - resistance at 870, per long-term charts.

Dow 30 (INDU) - resistance at 16910, then 16970-17000.

Nasdaq Composite (COMP) - key resistance at 4415, then 4450.

Nasdaq 100 (NDX) - resistance, 3875-3900.

An overall tech bellwether, the Semiconductor Index (SOX) should find technical (up trendline) support around 625; its Friday Close was 629. A bellwether stock within SOX is Intel (INTC) and the semiconductor stock is in a strong long-term uptrend; INTC Friday Close: $30.9, up 61% in 18 months. If SOX falters here, it may be a sign that Nasdaq stocks may get choppy ahead with some downside pressure.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index remains bullish in its overall pattern. There was a key downside reversal that set up this past week, but this formation appears so far to have led only to slowing momentum and a sideways move. SPX was down slightly on the week.

There remains risk of a minor or interim top formation ahead. A more bullish chart would emerge with consistent Closes above minor resistance in the 1960 area. 2000 remains a long-term target and would be a 'double' for SPX within the past 5-year period.

My concerns for a 'stumble' in SPX last week had to do with an overbought level in the 13-day Relative Strength Index (RSI) and an 'extreme' in my bullish sentiment indicator (CPRATIO). Extremes in bullish sentiment plus an overbought situation COUPLED with an apparent downside reversal in the price chart, suggested high risk for a pullback. Working against this view, so far at least, is that SPX hasn't fallen any appreciable amount and there's continued supportive strength in the Nasdaq, especially in the big cap Nasdaq 100 (NDX).

A risk for those who want to stay the course in SPX calls is that SPX gets choppy ahead and trends sideways in a trading range pattern, say between 1940-1925 on the downside and 1980, possibly closer to 2000, on the upside.

Near support is highlighted in the 1940 area, with support extending to 1925. As noted already, bullish sentiment has pulled back from very high recent readings as traders appear to have realized that there IS risk of a pullback, especially with liquidity drying up some in our summer slow period.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is bullish overall but 'neutral' in its recent sideways trend. This, after what looked a key downside reversal was traced out in OEX. Such reversal patterns are normally suggestive of more than a minor pullback. I thought, ah-ah, a correction is starting given the related overbought RSI and such high bullish sentiment as seen in the spike above in my CPRATIO indicator accompanying my SPX chart.

I wrote last week that: "My concerns about a stall in the trend, taking prices either sideways or lower, is an overbought situation both in terms of the Relative Strength Index (RSI) and extreme bullishness among options traders as I measure it; see my 'CPRATIO' indicator accompanying the SPX chart above." We have seen the stall. Stay tuned if this leads to more of a sideways movement, a new up leg or a pullback.

A next objective and potential resistance in OEX is highlighted this week at 870, only down slightly from 875 noted last time, and with next resistance suggested at 880. 890 to 900 looks like a fairly major resistance zone. At such time as there's a more neutral mid-range reading in the RSI indicator there's somewhat greater likelihood of a next move up testing 900 in OEX.

Near support remains highlighted this week at 860, with support extending to 850-845.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) is bullish on a long-term and intermediate basis, but neutral to bearish on a short-term view given the recent double top in INDU. These two tops don't constitute a 'major' double top as would be the case if the two peaks were a few weeks or few months apart rather than a few (trading) sessions apart. The more time that goes by before a second similar top forms makes the pattern more significant in suggesting a tradable bearish double top.

The two Dow oil stocks (CVX and XOM) helped push the Dow Average to the prior price peak, but the bullish oil influence has waned a bit as world crude prices haven't spiked significantly with the Iraq situation. AXP, CAT, DIS, GE, INTC (discussed above in my 'bottom line' commentary), JNJ, KO, MMM, MSFT, TRV, and UNH all look 'capable' (from bullish charts) of higher prices. If CVX and XOM stay up or go higher, and the other aforementioned stocks keep gaining the Dow could break out to the upside. This past week's price action isn't compelling for a further bull move near-term. INDU is a laggard here as sexy tech has the glamour, where high P/E ratios don't keep potential buyers away necessarily as is the case with 'old economy' stocks.

Near support is highlighted at the uppermost trendline, currently intersecting at 16740. Next support is highlighted via the green up arrow, at 16600.

Pivotal resistance is seen at the prior top in the 16970 area, with resistance likely extending to 17000 even, with resistance then extending to 17050 and next to around 17280-17300 in terms of what I'm seeing on the weekly Dow chart (not shown here).



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite Index (COMP), after looking like it would top out for a time at or near the prior 4370 intraday high, went on to Close near 4400 at near-term technical resistance. To move into a clear cut bullish pattern COMP should close above 4415 at the previously broken up trendline. Next resistance is at 4450.

COMP is still in an overbought area in terms of the Relative Strength Index AND there's still a lot of bullishness among options traders, but my CPRATIO 'sentiment' model has come down from the extreme seen recently (at 2.6). Besides, if COMP keeps going up, high bullishness is only a sign of a lot of other traders being bullish and probably complacent in their view that's there's limited downside risk. There's often substantial downside risk after a prolonged advance when most market participants are bullish on stocks!

Near support is highlighted in the 4350 area, with support extending to 4300. Fairly major support comes in the low-4200 area.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) is bullish in its pattern after an end of the week push higher, after buying interest was repeatedly found at 3800 support. NDX had been in a narrow uptrend channel, as defined by a steep up trendline, but fell below implied trendline support briefly. Friday's rebound put NDX back into its bullish price channel.

Another pullback to 3800 or under in the upcoming holiday shortened week would lean bearish. A push above 3850 would suggest next resistance around 3875 could be tested. Further resistance then comes in around 3950, at the current intersection of the upper channel line. Long-term resistance is suggested at 4000 and I think that's where NDX is headed; eventually and perhaps after some further corrective action.

Near support as noted is at 3800-3790. A Close below 3800, not reversed the following day, would be bearish short-term. Next support comes in around 3750. Major support is at 3700-3680.

NDX is well into its 'typical' overbought territory in terms of the 13-day RSI and this suggests significant risk for those would be bulls coming (very) late to this party. That and the very low Nasdaq 100 Volatility Index (VXN), also seen below, suggests some risk that volatility could rebound and prices pull back, given bearish economic/Market news. It's impossible to correlate a low VXN with tops, but tops of any degree seldom occur without a low VXN; e.g., at or below 13.4-13. VXN went out Friday at 12.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bullish like the underlying Index of course. The bullish charts are completely similar with only the support/resistance levels different.

Support in the Q's comes in around 92.5, at the line of recent lows, then next at 92 even per the green up arrow highlight. Next support in QQQ then is seen at 91, at the current intersection of the stock's up trendline per my trendline highlight.

QQQ near resistance is suggested at 94 even, then in the 95 area, as implied by the upper channel line.

Volume has been quite low on this latest rebound, which is fairly typical of QQQ. New buyers are afraid to jump in and the bulls have got the would be shorts running scared as the big cap tech index seems to only go UP. Volume jumps in QQQ usually ONLY when the many holders of this EFT guard profits and exit long positions. The On Balance Volume (OBV) line continues to trend up and is a related bullish volume aspect to the bullish chart pattern.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) has rebounded following the Nasdaq higher, after its prior steep decline. A heck of a call buy opportunity occurred when RUT formed the second part of a double bottom.

Where to from here? The Russell has yet to overcome it prior recent 1193 intraday peak and then challenge/retest an area of prior highs in the 1208 area. If RUT can manage a couple of Closes above 1200-1208, the Index is in a position to possibly head next to 1260-1265. However, with RUT continuing to hover near its RSI overbought zone, this backdrop isn't great for suggesting that the Index will have such a further up leg.

Near support is at the current intersection of RUT's steep up trendline at 1170; RUT technical support then extends to the 1160 area.


GOOD TRADING SUCCESS!




New Option Plays

Consumer Electronics & Natural Gas

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Apple Inc. - AAPL - close: 91.98 change: +1.08

Stop Loss: 88.80
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:
You don't get any more high-profile than Apple Inc. (AAPL). Many consider AAPL a technology company but they are known for their consumer electronics. Their ecosystem continues to grow with iPods, iPads, iPhones, Macintosh computers, Apple TV, and soon Beats music headphones and possibly an iWatch.

Right now the market is focused on Apple's upcoming launch of its next iPhone, rumored to be the iPhone 6. It's also rumored to be coming out on September 19th. Everything seems to be a rumor these days when it comes to Apple's next product. Right now the big rumor is that Apple might introduce two different iPhone 6s. One with a 4.7 inch display and one with a 5.5 inch display.

It really doesn't matter what the display size is. There is a legion of loyal iPhone customers that will jump at the chance to upgrade. One analyst firm is estimating that iPhone 6 sales could hit a record-breaking 80 million units in 2014 alone. That's amazing if the phone doesn't come out until mid September.

Why do we care about Apple's next iPhone launch? We care because the stock tends to see a pre-iphone launch rally in its share price. Now that shares have split 7-for-1 just a few weeks ago we can actually trade it. AAPL stock had rallied seven out of eight weeks in a row until it peaked at round-number resistance near $95.00 on June 10th. The stock split was June 6th.

Since peaking at $95.00 AAPL has slowly consolidated sideways. I heard a lot of traders on CNBC saying they wanted to buy it at $85.00. It looks like that may not happen. Investors have jumped in to buy the dip at $90.00. The point & figure chart is bullish and forecasting at $131.00 target. I think AAPL can rally toward $100 before its iPhone launch in mid September as long as the broader market cooperates.

Tonight we are suggesting a trigger to buy calls at $92.75 with a stop loss at $88.80.

Be careful when choosing an option strike. There are a lot of weird strikes due to AAPL's 7:1 split. We are listing the October $95.00 call. (FYI: Look for the Oct. $95 call with more than 22,000 in open interest)

Trigger @ $92.75

- Suggested Positions -

Buy the Oct $95 call (AAPL141018C95) current ask $3.60

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

Annotated Chart:

Entry on June -- at $---.--
Average Daily Volume = 38 million
Listed on June 28, 2014


Cheniere Energy, Inc. - LNG - close: 69.95 change: +0.72

Stop Loss: 64.90
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:
According to LNG's website, Cheniere Energy, Inc. is a Houston-based energy company primarily engaged in LNG-related businesses, and owns and operates the Sabine Pass LNG terminal and Creole Trail Pipeline in Louisiana. Cheniere is pursuing related business opportunities both upstream and downstream of the Sabine Pass LNG terminal. Through its subsidiary, Cheniere Energy Partners, L.P., Cheniere is developing a liquefaction project at the Sabine Pass LNG terminal adjacent to the existing regasification facilities for up to six LNG trains, each of which will have a design production capacity of approximately 4.5 mtpa ("Sabine Pass Liquefaction Project"). Cheniere has also initiated a project to develop liquefaction facilities near Corpus Christi, Texas. The Corpus Christi Liquefaction Project is being designed and permitted for up to three LNG trains, with aggregate design production capacity of up to 13.5 mtpa of LNG and which would include three LNG storage tanks with capacity of approximately 10.1 Bcfe and two berths.

Why is Cheniere's ability to turn natural gas into liquefied natural gas (LNG) important? Natural gas has to be turned into LNG to be transported. The oil and natural gas boom in the United States thanks to technology and hydraulic fracturing rigs that access tight oil in shale rock formations has generated a huge supply. Right now the price of natural gas in the U.S. is less than $5.00 per million British thermal units (BTUs) or mmbtu. In Europe the cost per mmbtu is over $10.00 and in Japan the cost is almost $16 per mmbtu. There is a huge opportunity if producers can export natural gas to these markets. Unfortunately, building an LNG terminal that can export natural gas is a massive undertaking. It takes years to build them and there is a very long permit process from the government. Cheniere is quickly becoming the major player in this space in the U.S.

Cheniere recently moved one step closer to a FERC approval on the Corpus Christi LNG facility. The Federal Energy Regulatory Commission draft review said the project will result in the permanent loss of more than 25 acres of wetlands, but measures Cheniere plans to take will minimize any further disturbance. FERC will take public comments until August 4th and then issue a final review by Oct 8th.

They are building the largest LNG facility in the U.S. and it takes time. They are building six trains with annual production of 4.5 million tons per annum each (MTPA). Trains 1&2 began in August 2012 and are 63% complete. First production is expected in late 2015. Trains 3&4 began construction in May 2013 and are 27% complete. First production is expected in late 2016, early 2017. Purchase orders for 7.7 MTPA have been received for trains 1&2 and another 8.3 MTPA for trains 3&4. Trains 5&6 are still in permit mode with 3.75 MTPA of purchase agreements already being approved to Free Trade Agreement (FTA) countries and the non FTA authorization is pending. Trains 1-4 already have that authorization.

The three trains to be constructed in Corpus Christi for 13.5 MTPA are nearing the end of the permit approval process. Full approvals are expected not later than January 6th 2015. Purchase agreements for 5.53 MTPA have already been signed and the DOE has approved 767 Bcf per year for export to FTA countries with the authorization for non FTA countries still pending.

You might be wondering, "what is an LNG train?" According to Cheinere, The LNG industry has adopted the analogy of a "train" meaning the series of processes and equipment units that individually remove elements from raw inlet natural gas that would otherwise plug or freeze the small passages in the downstream heat exchangers that in a cascade fashion reduces the temperature from ambient to -260 F. Each of these processes and equipment units are sequentially arranged, similar to cars of a railroad train.

Just a couple of days ago the House of representatives voted to fast track more LNG export projects, which if signed into law, should be beneficial for Cheniere's current projects under review.

Technically shares of LNG have been consolidating sideways the last few weeks after the sharp end of May rally. That big pop at the end of May was market reaction to news that the U.S. Department of Energy proposed new rules to streamline their approval process and focus on projects with the best chance of actually getting built. That was good news for LNG and the company is on track to be the first to export LNG produced in the U.S.

Today shares of LNG are hovering just below round-number resistance at $70.00. We are suggesting a trigger to buy calls at $70.25.

Trigger @ $70.25

- Suggested Positions -

Buy the Sep $75 call (LNG140920C75) current ask $3.20

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

Annotated Chart:

Entry on June -- at $---.--
Average Daily Volume = 3.0 million
Listed on June 28, 2014



In Play Updates and Reviews

Stocks End Week On An Up Note

by James Brown

Click here to email James Brown

Editor's Note:

The market's major indices started climbing higher late Friday afternoon.

I have updated a few stop losses tonight.


Current Portfolio:


CALL Play Updates

Ameriprise Financial - AMP - close: 119.81 change: +0.66

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: AMP continued to drift higher on Friday. Shares look poised to break out past resistance near $120.00 soon.

Earlier Comments: June 18, 2014:
AMP is in the financial sector. The company, and its subsidiaries, provides a range of financial products including advice and wealth management. The company had a record year in 2013 and it looks like the momentum has continued into 2014. The company' last earnings report was its Q1 results, reported on April 28th. Wall Street was expecting a profit of $1.88 per share on revenues of $2.84 billion. AMP delivered $2.04 with revenues rising +11% to $3 billion.

AMP's Q1 results were a +19% improvement from a year ago. Furthermore both revenues and margins are improving. AMP raised its dividend 12 percent to 58 cents (currently at a 2.0% yield) and announced a $2.5 billion stock buy back program.

Technically shares of AMP are in a long-term up trend and just recently broke out from a five-month consolidation. Traders have already jumped in to buy the dip at prior resistance near $115.00.

- Suggested Positions -

Long Sep $120 call (AMP140920c120) entry $3.60

06/20/14 triggered @ 118.80
Option Format: symbol-year-month-day-call-strike

chart:

Entry on June 20 at $118.80
Average Daily Volume = 823 thousand
Listed on June 18, 2014


Anadarko Petroleum - APC - close: 109.50 change: +0.41

Stop Loss: 102.40
Target(s): To Be Determined
Current Option Gain/Loss: + 55.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: APC bounced off its midday Friday lows but shares remain under short-term resistance near $110.00. Traders may want to wait for a rally above $110 before considering new positions.

We are moving the stop loss to $102.40.

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*

06/28/14 new stop @ 102.40
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


Capital One Financial - COF - close: 83.01 change: +0.52

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: + 80.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: COF saw a little bit of volatility at the opening bell on Friday with a spike down to $81.06 near its 20-dma. In less than a minute shares had recovered and were working their way higher thanks to some bullish analyst comments.

Tonight we are raising the stop loss to $77.95. More conservative investors may want to use a stop loss closer to $80.00 instead.

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*

06/28/14 new stop @ 77.95
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


Demandware, Inc. - DWRE - close: 67.84 change: +1.17

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: - 8.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: The recent consolidation in shares of DWRE might be over. The stock was outperforming the major indices on Friday with a +1.75% gain.

Tonight we are moving our stop loss to $62.45.

Earlier Comments: June 17, 2014:
DWRE provides cloud-based digital commerce solutions. They first introduced their platform in 2004. According to DWRE's website they "power more than 200 retail brands across more than 800 sites around the globe."

The stock was hammered lower this spring as investors sold everything that might be considered high-growth or a momentum-stock. DWRE corrected from $80 to $45 but shares have since rebounded.

Earnings have been strong. The company reported Q4 numbers in February that beat estimates and DWRE management raised their Q1 and 2014 guidance. DWRE reported their Q1 numbers on May 6th. Wall Street was expecting a loss of 9 cents per share on revenues of $29.0 million. DWRE delivered a loss of 7 cents. Revenues were up +57% to $32.2 million. DWRE's CEO said their momentum from 2013 carried over into 2014. The first quarter this year saw record subscription revenues.

Technically shares of DWRE have broken through resistance in the $60-65 zone and all of its major moving averages. The stock also has short interest that is about 8.5% of the small 31.8 million share float. New relative highs could spark more short covering. Currently the point & figure chart is bullish and suggesting a long-term target of $99.00.

I would consider a more aggressive, higher-risk trade. DWRE can be volatile and the options are not cheap. I'm suggesting small positions to limit our risk.

*small positions* - Suggested Positions -

Long Oct $70 call (DWRE141018c70) entry $6.92

06/28/14 new stop @ 62.45
06/18/14 triggered @ 66.75
Option Format: symbol-year-month-day-call-strike

chart:

Entry on June 18 at $66.75
Average Daily Volume = 705 thousand
Listed on June 14, 2014


PPG Industries - PPG - close: 204.05 change: +1.47

Stop Loss: 200.75
Target(s): To Be Determined
Current Option Gain/Loss: -17.8%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
06/28/14: PPG gapped open lower on Friday morning but bounced from its simple 30-dma. Shares rebounded and managed to recover most of Thursday's losses.

I am not suggesting new positions at this time. PPG has been stuck consolidating sideways for three weeks now.

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*

06/19/14 new stop @ 200.75
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


Starbucks Corp. - SBUX - close: 77.94 change: -0.12

Stop Loss: 73.40
Target(s): To Be Determined
Current Option Gain/Loss: +34.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: SBUX has spent the last couple of days consolidating sideways near $78.00. Shares might need to generate some steam to break out past its March highs ($78.64).

Please note our new stop loss at $73.40.

I am not suggesting new positions at the moment.

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.

- Suggested Positions -

Long OCT $80 call (SBUX141018c80) entry $1.66

06/28/14 new stop @ 73.40
06/17/14: triggered @ 75.65
Option Format: symbol-year-month-day-call-strike

chart:

Entry on June 17 at $75.65
Average Daily Volume = 3.5 million
Listed on June 14, 2014


U.S. Silica Holdings - SLCA - close: 53.87 change: -0.17

Stop Loss: 48.40
Target(s): To Be Determined
Current Option Gain/Loss: +11.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: SLCA tried to rally again but failed at resistance near $55.00 for the fourth time this month. The stock is building a bullish trend of higher lows that should eventually push through this resistance.

Investors may want to wait for an intraday rise past $55.25 or a close above $55.00 as their next entry point on SLCA.

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.

We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.

- Suggested Positions -

Long Sep $55 call (SLCA140920C55) entry $3.15*

06/17/14 triggered @ 52.15
*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 17 at $52.15
Average Daily Volume = 1.2 million
Listed on June 14, 2014


United Rentals, Inc. - URI - close: 104.89 change: -0.39

Stop Loss: 101.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
06/28/14: URI is still consolidating sideways near $105.00. I do not see any changes from Wednesday's new play description.

Earlier Comments: June 25, 2014:
URI is the 800 pound gorilla in the rental space. With almost $5 billion in annual sales they have become the largest equipment rental company in the world. URI offers 3,100 categories of construction and industrial equipment for rent, including a number of specialty equipment. They have over 870 locations in 49 U.S. states and 10 Canadian provinces.

URI claims a diverse customer base that includes construction and industrial companies, utilities, local municipalities, government agencies and independent contractors.

Business must be good because URI is developing a trend of beating analysts' estimates. Their most recent earnings report in April was 90 cents a share on revenues of $1.18 billion. Wall Street was only looking for 76 cents a share on revenues of $1.17 billion. Management reaffirmed their full year outlook. Last year URI delivered earnings growth of 30 percent. They're on track to hit almost 32% EPS growth this year.

If you believe the economy is improving then URI should continue to benefit as construction picks up. The relatively slow growth the U.S. has seen so far has promoted a more cautious stance on companies in the construction and industrial space. That means more of them have chosen to just rent equipment instead of buying it. This has fueled strong time utilization rates for URI.

URI reported they spent $43 million of their $500 million stock buyback program in the first quarter. They expect to complete the program by April 2015.

Technically shares of URI are in a long-term up trend as investors continue to buy the dips. Tonight we are suggesting a trigger to open bullish positions at $106.70. We are not setting an exit target tonight but the point and figure chart is bullish with a $114.00 target.

Trigger @ $106.70

- Suggested Positions -

Buy the Sep $110 call (URI140920C110) current ask $4.10

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

chart:

Entry on June -- at $---.--
Average Daily Volume = 1.6 million
Listed on June 25, 2014




PUT Play Updates

Tractor Supply Co. - TSCO - close: 60.21 change: -0.64

Stop Loss: 64.10
Target(s): To Be Determined
Current Option Gain/Loss: +22.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
06/28/14: Our TSCO trade is off to a good start. Shares continued to underperform the market on Friday with a -1.0% decline. Shares did start to bounce after testing potential round-number support at $60.00.

I would not be surprised to see a little oversold bounce from here but broken support near $62.00 should be new resistance.

Earlier Comments: June 24, 2014:
TSCO has everything from cowboy boots to chicken coops and everything you might possibly need on the farm. The company has over 1,300 stores in 48 states. This specialty retailer is focused on the "lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses."

A lot of things are on the rise for TSCO. They have rising sales, a rising dividend, rising stock buyback program. What is not rising is their stock price. Shares peaked in January this year after surging to all-time highs in 2013. The company has been raising its dividend, now up to 16 cents a share. They also recently announced another $1 billion to their stock buyback program. Unfortunately these do not seem to be helping the share price.

Their last earnings report was April 23rd. TSCO reported Q1 earnings of 35 cents a share on revenues of $1.18 billion. That missed estimates of 37 cents on revenues of $1.21 billion. To be fair the terrible weather in the first quarter really did affect their sales, given their farm and rancher focus. Management believes these sales will return as the weather improves. TSCO reaffirmed their 2014 sales guidance of $5.62 billion to $5.7 billion and same-store sales of 2.5% to 4%. The company plans to open over 100 new stores this year.

Not everyone on Wall Street believes TSCO is a buy. The company was recently downgraded thanks to its high valuation (over 26 times its 2014 earnings estimates) and weaker gross margins. TSCO also seems to be suffering from slowing same-store sales. Last year their average same-store sales growth was +4.8%. The fourth quarter's was +3.5%. The first quarter of 2014 it was down to +2.2%. Again, you could blame that on the weather but it's not a good trend.

We are not setting an exit target tonight. It is worth noting that the point & figure chart is bearish and suggesting a $46 target.

- Suggested Positions -

Long Oct $60 PUT (TSCO141018P60) entry $2.45

06/26/14 triggered
Option Format: symbol-year-month-day-call-strike

chart:

Entry on June 26 at $61.90
Average Daily Volume = 871 thousand
Listed on June 24, 2014