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Daily Newsletter, Tuesday, 7/1/2014

Table of Contents

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

Market Wrap

New Highs for Everyone

by Jim Brown

Click here to email Jim Brown

A sudden spurt of short covering triggered by a PMI spike in China and quarter end retirement contributions pushed the market higher.

Market Statistics

Overnight China's Purchasing Manager Index (PMI) rose from 50.8 to 51.0 in June. This is the highest level in six months. The HSBC PMI rose from 49.4 to 50.7. The combination of reports suggested the Chinese economy had stabilized and helped to spike the futures overnight and set the stage for the U.S. markets to rise today.

The remainder of the Russell reconstitution buying also helped give the markets an upward bias. Add in the normal end of quarter contributions to retirement accounts and the stage was set for a strong market day.

The Nasdaq had been in breakout mode for several days and the opening print on the S&P sent it to a new high and a market stampede was in progress. The Dow rallied +171 points to a new high at 16,998.70 intraday and only 1.3 points from the psychological 17,000 level.

More importantly the Russell 2000 broke out to a new high at 1,213 intraday and completely erased the -9.3% drop to the May lows. The Russell 2000 is the sentiment indicator for the market and it has been bullish for the last week.

The U.S. economics were mixed again but the weak reports were not weak enough to drag on the market. The ISM Manufacturing for June declined slightly from 55.4 to 55.3 compared to estimates for a rise to 55.9. The minor decline failed to upset the market since it remained near six month highs. Anything over 50 represents expansion.

The new orders component rose from 56.9 to 58.9. However, order backlogs declined from 52.5 to 48.0 and export orders fell from 56.5 to 54.5. Inventories were flat at 53.0 and employment was flat at 52.8. Overall the report was weaker than expected but it was not dramatic.

The 88 economists surveyed by Bloomberg projected an average rise to 55.9 with estimates ranging from 54.0 to 57.0.


Construction spending rose only 0.1% in May compared to Moody's estimates for a +0.8% gain. This was down from the revised gain of +0.8% in April. Residential spending declined -1.5% and non-residential spending rose +1.1%. Most of that was the result of a +4.3% spike in spending on utility structures. That sector is up +29.7% since May 2013. Spending on highways rose +0.7% and bridges +3.2%. This report was ignored.

The Intuit Small Business Employment Index declined from 0.16% to 0.10% for June. The index suggested small businesses added only 20,000 jobs compared to 25,000 jobs in May. Workers took home an average of $2,715 in June compared to $2,804 in May for an annual drop in wages of -$1,080. To summarize, new hires declined, hours worked were flat and wages declined. It was not an encouraging report.

The Texas service sector outlook survey rose from 10.3 in May to 21.1 in June. The revenue index rose from 13.1 to 16.9. Employment rose from 13.8 to 16.5. Conditions in Texas appear to be continuing their rebound from the February lull. Hours worked increased from 4.9 to 7.3 and wages rose from 17.0 to 20.8. Those components suggest the job market in Texas is improving otherwise wages and hours would not be rising.

Auto sales surged in June to an annualized rate of 16.98 million, up from 16.8 million in May. Estimates were for a decline to 16.3 million. The June rate is the highest since July 2006 and compares to the 15.9 million rate from June 2013. Auto sales are soaring because the average age of a vehicle in the U.S. is around 10 yrs, interest rates are very low and the spring weather has been outstanding. This is a good sign for U.S. economic growth.

A report from the Health Department Inspector General on Obamacare problems found the administration had been unable to resolve problems with 2.6 million applications out of the reported 8 million people that signed up. The main problem was verifying citizenship and income. The report said the government's eligibility checking system was still not fully functional. Without successful eligibility verification the system takes the information submitted by the applicant to estimate how much subsidy money the applicant is eligible to receive. The inspector general said this was a major problem because insured persons would have to repay the subsidies with their taxes in 2015. Those that are eventually found to be ineligible for insurance because they are not citizens will have received free healthcare in the interim funded by taxpayers.

Other "inconsistencies" may mean some applicants are not receiving all the subsidy funds they are qualified to receive. Overall about 80% of the 8 million applicants are receiving subsidies. The CBO has retracted its prior claims of a potential deficit reduction by the passage of Obamacare and now say measuring the fiscal impact of the program is impossible.

"The provisions that expand insurance coverage established entirely new programs or components of programs that can be isolated and reassessed," the office wrote. "In contrast, other provisions of the Affordable Care Act significantly modified existing federal programs and made changes to the Internal Revenue Code. Isolating the incremental effects of those provisions on previously existing programs and revenues four years after enactment of the Affordable Care Act is not possible."

Wednesday is a big day for economic events with the ADP Employment, Factory Orders and a speech by Janet Yellen on Financial Stability. The ADP Employment report will probably give traders direction on the Nonfarm Payrolls on Thursday and traders may close their positions after the ADP numbers and head for the beach.

Yellen is not expected to say anything new and her speeches have been bullish for the market. Today's rally could have been instigated in part on expectations for another bullish speech by Yellen.

The Nonfarm Payrolls will be the closing bell for the markets for the week. After the opening print with reaction to the number the market should go dormant with the lowest volume of the year.


Today is the first day of the second half and despite dire predictions by numerous analysts all through the first six months of the year the markets had a great first half. The Dow was the laggard with a +2.3% gain followed by the Russell 2000 at +3.7%. However, that Russell gain came after a -9.3% decline in Q2. The big cap indexes managed bigger gains with the S&P-100 gaining +5.9% and S&P-500 +6.9%. The Nasdaq Composite gained +6.9% and Nasdaq 100 +8.5%. The Dow Transports overcame higher fuel costs with a +11.6% gain. Semiconductors gained +20.6% and Biotechs +21.8%. Energy gained +12.5%.

GoPro (GPRO) has turned into the IPO of the year with the share price having doubled in only 5 days. The average gain per day has been +20%. The sharp rise in the price is related to multiple things. First the name is very well known to the public and especially to the younger generations. There are millions of hours of YouTube videos shot with a GoPro camera.

Secondly the company only released 18 million shares out of the 123 million authorized. This created a feeding frenzy for the shares and the younger investor drawn to this product is probably not buying them based on fundamentals. They like the product and therefore they buy the stock. The daily spikes only increase the feeding frenzy. Options will be listed next week according to the CBOE.


NetFlix (NFLX) shares rallied $7 after Goldman Sachs went bullish on the stock saying it could rise another 34%. Goldman said international subscribers of 11.7 million at the end of Q1 could rise to 62 million by the end of 2017. Goldman said the U.S. user base could grow from the current 46 million to 55 million. Expanding into new international markets could push the total subscriber base to 207 million with a market share of 30%. The bank said Netflix could add profits almost at will by adjusting prices. At $8.99 they felt a Netflix subscription could increasingly be viewed as a high-value add-on to a wireless data plan for any number of devices. Goldman upgraded the company from neutral to buy with a price target of $560. Shares closed at $473 with a +7.4% gain.


Acuity Brands (AYI) was not having a very good day. The company missed earnings for the second consecutive quarter and investors were not kind. Revenue rose +11.5% to $603.9 million and short of estimates for $609.1 million. Earnings rose +3.1% to $1.00 but analysts were expecting $1.12. The earnings report spent a lot of time talking about new trends and rising sales but investors still trashed the stock. Shares fell -15% to $117.


GM shares rallied +3.5% despite saying they were adding another 8 million cars to the recall list GM has now recalled more cars than they made in total over the last three years. Apparently GM has decided to go "all in" on the recalls because they have nothing else to lose. The weekly recall announcements for the last several months plus the CEO testimony to congress and the constant blasting in the press has finally reached the ignore point for consumers. The news is so common they don't even hear it any more. By dumping all the potential problems they can find into a series of new recalls they have created a huge kitchen sink quarter for earnings. They believe the recalls will cost them around $2-$3 billion and they can take that charge in one quarter and then be done with the entire problem at least financially.

GM shares have risen for the last six weeks despite the negative news. Today they actually posted an increase in sales in June of +1% when most analysts were expecting a decline of up to -6%. SUV sales were strong with Escalade sales rising +84% and Suburban sales rising +72.7%. With gas prices spiking it is really surprising to see sales spike for the large SUV models.


Want cream with your coffee? Keurig Green Mountain (GMCR) and Nestle announced a multiyear agreement to produce K-cups with Coffee-Mate creamer in the cup. The 2-in-1 K-cup will be available initially in Original and French Vanilla flavors. They will be available in stores and online nationwide.

The Coffee-Mate creamer was first introduced in 1961 and is now offered in 20 different flavor combinations. Since 25% of coffee drinkers use creamer in their coffee this was a natural deal. Green Mountain has a 72% market share of the single serve market.


Blackberry (BBRY) continues to surprise investors with its daily gains. The stock is up +35% since May and it just keeps going and going and going. The rally is based on comments from CEO John Chen about a return to profitability, new products and a new focus. Apparently somebody believes him because the stock keeps rising. There is a tremendous amount of short interest and those shorts are getting flushed out every day. John Chen has been focused on the upcoming launch of the Blackberry Z3 in India and the Middle East and that should provide an earnings boost. Better sales of the BB10 will also help earnings. The company has built up a $3.1 billion cash reserve and talks about Blackberry's demise have all but disappeared. Shares of BBRY have significant resistance at $10.85 but a move over that level should create a huge short squeeze.


Google (GOOGL) announced it is acquiring privately held Songza for an undisclosed price. Songza is a service that creates soundtracks tailored for people's changing modes. This shows Google is aware of the changing trends favoring services that create tailored playlists for remote devices. Google is planning on using Songza's technology in its own music-streaming service as well as on the YouTube video site.


Salix Pharma (SLXP) surged +13% to $140 after saying its drug Xifaxan succeeded in a late stage study of irritable bowel syndrome with diarrhea. The company said patients in the phase-three study showed significant improvement in symptoms compared to the placebo group. A Sterne Agee analyst said the company could see significant incremental profits from the drug because they already have a strong suite of gastrointestinal drugs and a sales force in place.


IBM shares gained more than +5 points and added more than 40 points to the Dow as a major short squeeze was triggered. IBM has been declining for the last three months as a result of weakness in Asia. China and Asian neighbors are not buying IBM servers because they fear the NSA backdoors engineered into the hardware. Whether true or not the result is the same. Slowing sales and struggling profits.

The decline was short circuited today after IBM announced a new Big Data service in the cloud. The scope is truly amazing and far too detailed to describe here. IBM believes there is 2.5 billion gigabytes of data created every day from things like point of sale terminals, invoices, purchase orders, legal forms, emails, proposals, technical documents, web pages, loyalty cards, credit card charges, etc. IBM can manage all these information sources in the cloud to make every piece of data available to everyone based on their authorized clearance. Two thirds of the Fortune 500 say their biggest challenge in linking everything together is data variety.

With a high short interest in IBM any announcement can trigger short covering and once that fuse is lit we can get a rather large candle in certain stocks. The positive market news today added to the lift from the announcement and the squeeze was launched.


As we near the start of the Q2 earnings cycle in two weeks the estimates are already coming down. Bloomberg surveyed a number of analysts and estimates have come down from 7.3% to 5.2% with revenues dropping from 3.7% growth to 3.2%. S&P Capital IQ said today they are still expecting 7.11% growth in earnings but revenue estimates have declined from 3.4% the prior week to 2.6% today. S&P said the majority of the earnings gains will come from the Telecommunications Services, Materials and Energy sectors with growth of 39.5%, 15.0% and 12.0% respectively. Financial are expected to be the biggest drag at only +0.6% earnings growth. S&P believes all 10 sectors will report positive gains with total S&P earnings at a record of $28.84 for the quarter.

Let's hope both surveys are correct and we do show decent earnings growth in Q2 and hopefully better than the +3.4% final number for Q1. With the manufacturing sector stuck in the mud and barely maintaining the current trend and consumer spending in the tank thanks to higher food and energy prices we could see some disappointments this quarter.

The markets are not showing any hesitancy over the coming earnings cycle. With the strong gains today we are off to a good start for Q3. However, as Jeffery Saut pointed out the S&P is up the last two days of June and the first five days of July about 72% of the time since 1950. That is a pretty good record. That record has the benefit of the Russell index reconstitution and the end of quarter/half retirement contributions.

I do expect the market to continue to creep higher this holiday week IF the ADP/Nonfarm payrolls are close to the forecasts and Janet Yellen puts on her patriotic hat and gives a bullish speech on Wednesday. I don't think she has a bearish speech in her repertoire but you never know when she might decide to live on the wild side.

The S&P rallied to a new intraday high at 1,978.58 and closed at a new high at 1,973.34. The S&P is still about 25 points from the assumed target at 2,000 but it is making progress. The intraday spike today failed right at uptrend resistance at 1,978. We are now a long way from support at 1,950 and 1,925 so we do have room for volatility to appear.

Volume today was 6.09 billion shares and just over the 5.7 billion on Monday. Volume the rest of the week should be much less unless some economic event causes a serious market stumble.


The Dow spiked to within 1.3 points of 17,000. While this number is more psychological than technical there is uptrend resistance at this level. A breakout could quickly run for 200-300 points on short covering. We saw strong uptrend support at 16,800 last week and the range between support and resistance is narrowing.

We need to thank IBM and Visa for the majority of the Dow's gains. Between them they added about 70 Dow points.

The failure just under 17,000 is the third time in the last month. While we can still breakout any day we do have history at this level. If we truly fail here again it could prompt a reset and possibly lower lows. While I don't see that tonight it is always possible.




The Nasdaq is truly in breakout mode. The last three days of gains have been to new 14 year highs and despite the +50 point spike there was very little pullback at the close. However, the Nasdaq is now in overbought territory after the +420 point run since the late May lows at 4,040. We had plenty of consolidation time in mid June but the acceleration really started on June 25th. We have gained +120 points in only five days. It may be time for a rest.

However, if you look at the winners and sinners list below the bullish gains were far stronger than the losses. This brings up the market saying, "Buy the dips and sell the rips." We definitely had a rip higher the last several days.



The Nasdaq 100 is also in breakout mode and has added nearly 100 points since the struggle at 3,800 for the prior two weeks.


The Russell 2000 hit a new intraday high at 1,213 but could not hold on and slipped to 1,205 at the close and beneath the historic high close at 1,208. I am perfectly happy with the Russell. It has erased the -9.3% drop in Q2 to trade at new highs again. We definitely can't complain.

We need the Russell to punch through that old high resistance and close somewhere in the 1,215-1,220 range to really light this market candle.


Analysts continue to claim this is the most hated market rally in history because so few people are invested. Equity funds have seen outflows for the last eight weeks and bond funds have seen inflows. Investor participation is definitely not in sync with the new market highs. Investors waiting on the sidelines are losing money every day the market makes a new high.

I believe this "disbelief" in the rally will keep a floor under it for some time. Everyone who realizes the error of their ways in going to cash is now hoping for a pullback so they can jump back in. Every minor 2-3% dip is immediately bought. Unless there is a really negative surprise in the payroll reports there is nothing on the immediate horizon that could derail the rally. Everybody is drinking the Kool-Aid and believes the economy is accelerating. Until something appears to shock investors out of their bullish daze the rally should continue.

This is of course contrary to the normal midterm election year decline. Since we are just entering the Q2 earnings cycle there may be just enough bullish momentum to carry us 2-3 more weeks but I would be increasingly cautious if we start seeing some unexplained drops. The market does not need an excuse to correct. The talking heads on TV will assign whatever excuse is convenient if it happens.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

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New Option Plays

Human Interface & Fingerprints

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Synaptics Inc. - SYNA - close: 91.88 change: +1.24

Stop Loss: 87.65
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:
"We are the leading developer of human interface solutions which enhance the user experience in the expanding digital lifestyle. We were founded in 1986 by Federico Faggin and Carver Mead and over the last 26 years we have grown from a neural network research organization into the leading human interface solutions partner of a global customer base. Simply put, our next-generation interfaces set users free to interact with devices in ways the world couldn't have imagined a decade ago." (source: SYNA website)

SYNA has over 500 patents or patent pending for technology. Over one billion devices have an interface designed by Synaptics. The company recently purchased Renesas SP Drivers, who happens to be the only supplier of touchscreen chips to Apple Inc. (AAPL). SYNA believes this acquisition will boost the company's market by +50%.

SYNA also purchased Validity Sensors late last year. Fingerprint sensors on your devices is a growing trend and Validity is a major player in the fingerprint ID solutions. Some estimates suggest we could see fingerprint sensors on more than 500 million devices in the next two years. This could fuel widespread adoption of fingerprint sensors for a number of security and payment applications, especially on mobile devices. SYNA's new fingerprint sensors could end up on Apple's phones, Android phones, and Windows phones.

SYNA raised its guidance the same day it announced the acquisition of Renesas. SYNA boosted its Q4 revenue guidance to the $300-310 million range, up from $275-295 million. The company raised its full year 2014 revenue guidance to $933-943 million, up from $918.5.

Wall Street seems to like SYNA's acquisitions. Combining SYNA's technology with Renesas' technology could make SYNA a dominant player in the smartphone, tablet, touchscreen technology space. It could also boost SYNA's margins as they combine the solutions together into one product. The acquisition and the raised guidance sparked a wave of analysts upgrades for shares of SYNA.

SYNA spent about two weeks consolidating its mid-June rally higher. Now SYNA appears to be breaking out to new highs. Today's intraday high was $92.19. We are suggesting a trigger to buy calls at $92.35.

Trigger @ $92.35

- Suggested Positions -

Buy the Sep $95 call (SYNA140920C95) current ask $6.70

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

Annotated Chart:

Entry on July -- at $---.--
Average Daily Volume = 1.45 million
Listed on July 01, 2014



In Play Updates and Reviews

Stocks Surge Into July

by James Brown

Click here to email James Brown

Editor's Note:

Stocks were off to the races as we entered the first day of the third quarter.

URI hit our entry point.


Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 93.52 change: +0.59

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: + 4.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: Another day, another batch of rumors about AAPL's iPhone or iWatch. The stock posted its fourth gain in a row although it looks like momentum stalled a little bit today.

I would not be surprised to see a dip back toward $92.00.

Earlier Comments: June 28, 2014:
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-launch rally in its stock price. Now that shares have split 7-for-1 just a few weeks ago we can actually trade it. AAPL stock 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.

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)

- Suggested Positions -

Long Oct $95 call (AAPL141018C95) entry $3.93

06/30/14 triggered @ 92.75
Option Format: symbol-year-month-day-call-strike

Entry on June 30 at $92.75
Average Daily Volume = 38 million
Listed on June 28, 2014


Ameriprise Financial - AMP - close: 121.53 change: +1.53

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: +36.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: AMP is finally breaking out past resistance at $120.00. Readers may want to raise their stop loss.

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

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


Anadarko Petroleum - APC - close: 109.33 change: -0.14

Stop Loss: 102.40
Target(s): To Be Determined
Current Option Gain/Loss: + 53.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: APC delivered a disappointing session with a spike higher at the open and then falling back into the $108-110 trading range.

After the closing bell the company announced they sold $1.25 billion in debt in 10 year and 30 year notes. I don't see any reaction in APC after hours.

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

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


Capital One Financial - COF - close: 83.02 change: +0.42

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: + 86.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: COF inched higher today with a +0.5% gain. This lagged behind the rest of the financial sector. The stock is nearing recent resistance at $84.00.

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

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


Demandware, Inc. - DWRE - close: 70.23 change: +0.86

Stop Loss: 62.45
Target(s): To Be Determined
Current Option Gain/Loss: + 8.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: DWRE is flirting with a breakout past resistance at $70.00. The afternoon high was $70.50. Traders could use a new rise past $70.50 as an entry point.

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

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


Cheniere Energy, Inc. - LNG - close: 73.09 change: +1.39

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: +20.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: LNG was making headlines again. The company signed another 20-year deal. The company also announced they were cancelling their stock award plan for executives following a shareholder lawsuit. LNG's CEO is the highest paid in the country with a $142 million pay package.

Earlier Comments: June 28, 2014:
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.

- Suggested Positions -

Long Sep $75 call (LNG140920C75) entry $3.45

06/30/14 triggered @ 70.25
Option Format: symbol-year-month-day-call-strike

Entry on June 30 at $70.25
Average Daily Volume = 3.0 million
Listed on June 28, 2014


PPG Industries - PPG - close: 208.86 change: -1.29

Stop Loss: 207.75
Target(s): To Be Determined
Current Option Gain/Loss: +36.9%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
07/01/14: PPG garnered bullish analyst comments this morning and received a new $235 price target. Yet that didn't stop PPG from seeing some profit taking today with a -0.6% decline.

We are turning more cautious here and raising the stop loss to $207.75. If you have a longer-term time horizon then I suggest you keep the stop loss under $202 or under $200 and give PPG time to work off yesterday's pop higher before it continues its long-term up trend.

I could see PPG dipping to $206.00 and bouncing since the $206.00 level was prior resistance and should be new support.

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*

07/01/14 ne stop @ 207.75
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

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


Starbucks Corp. - SBUX - close: 78.08 change: +0.70

Stop Loss: 73.40
Target(s): To Be Determined
Current Option Gain/Loss: +31.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: There was no follow through on yesterday's relative weakness but SBUX is still struggling with resistance near $78.00.

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

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


U.S. Silica Holdings - SLCA - close: 55.32 change: -0.12

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +33.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: Shares of SLCA spiked to a new record high near $57 before paring its gains. The stock eventually closed in the red. Looking at the intraday chart, readers may want to look for a new rise past $55.75 before considering new bullish positions.

The simple 50-dma has risen to $49.28. We'll move our stop loss to $49.25.

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*

07/01/14 new stop @ 49.25
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

Entry on June 17 at $52.15
Average Daily Volume = 1.2 million
Listed on June 14, 2014


United Rentals, Inc. - URI - close: 107.21 change: +2.48

Stop Loss: 101.80
Target(s): To Be Determined
Current Option Gain/Loss: - 0.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: Shares of URI were upgraded this morning with one analyst raising their price target to $122. The stock soared +2.3%, outpacing the broader market. Our suggested entry point was hit at $106.70.

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. We are not setting an exit target tonight but the point and figure chart is bullish with a $114.00 target.

- Suggested Positions -

Long Sep $110 call (URI140920C110) entry $4.62

07/01/14 triggered @ 106.70
Option Format: symbol-year-month-day-call-strike

Entry on July 01 at $106.70
Average Daily Volume = 1.6 million
Listed on June 25, 2014




PUT Play Updates

Tractor Supply Co. - TSCO - close: 61.08 change: +0.68

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: + 6.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/01/14: The oversold bounce in TSCO continues with a +1.1% gain on Tuesday. Shares should find resistance at the 10-dma near $62.25 and the $62.50 level.

We are adjusting our stop loss to $62.65.

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

07/01/14 new stop @ 62.65
06/26/14 triggered
Option Format: symbol-year-month-day-call-strike

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