Option Investor
Newsletter

Daily Newsletter, Wednesday, 7/2/2014

Table of Contents

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

Market Wrap

Waiting for Follow Through

by Keene Little

Click here to email Keene Little
July opened strong but today there was no follow through to Tuesday's gains. But at least the bulls stay in charge with the sideways consolidation.

Wednesday's Market Stats

Futures ran flat last night and other than a quick blip up and down following the ADP report at 8:30 this morning there wasn't much for traders to do today. It was a race between the grass growing in my yard and the stock market and my grass won by a mile.

The ADP report showed stronger-than-expected employment gains and that had the market confused. It's a good sign for the economy but it means the Fed will stay on track to remove stimulus. Because Friday is a holiday we'll get the nonfarm Payrolls (NFP) tomorrow and the market seemed to be on hold until we get through that report. Hopefully the market will move after that. With the ADP report showing +281K jobs added in June, vs. +200K that was expected and an improvement over the +179K for May, most economists are now expecting the NFP to show +230K, up from +217K for May.

Factory Orders for May was released at 10:00 this morning and showed a -0.5% decline, which was slightly worse than the expected -0.4%. This was a drop from +0.8% in April and most write it off as old data and the fact that the weather ate our orders. The market didn't even flinch on the report. In fact the market didn't even flinch all day.

The first chart to show tonight is one which tells us all there is to say about how today went. The ES 10-min all-hours chart below shows the rally yesterday followed by the sideways consolidation in the after-hours session followed by the sideways consolidation in the regular-hours session today. We often see a quick move in the morning followed by consolidation for the rest of the day, what I call one-and-done kind of days. So today's mind-numbing flat session has me wondering if yesterday, being the 1st of the month, was a one-and-done day for the month. That's of course said tongue-in-cheek, or is it?

S&P 500 emini futures contract, 10-min all-hours chart

Last week at this time we had a nice setup for the bears but once again they were thwarted with another rally that negated the bearish wave count and left us with just another 3-wave pullback from the June 24th high. That then gave the bulls a bullish wave count that calls for the market to stair-step higher, possibly into next week or perhaps even into opex week (July 14-18). The pattern is short-term bullish and the bears will need to wait until there's better proof that a top of significance is in place. I'm therefore now looking for the next potential top (in time and price).

In last Wednesday's wrap I had shown a weekly chart for SPX with a series of Fibonacci time spans that pointed to this week as a potential turn week. I consider these timing signals to be +/- a week and therefore last week through next week would be considered a turn window. The way yesterday rallied I thought we might see a rally up to an important price level this week and that's still a possibility, especially if the market reacts happy to tomorrow morning's NFP. A price target zone is 1990-1998, which is 12-20 points above Tuesday's high and considering Tuesday's rally was 18 points to the high of the day it's not unreasonable to think it could happen, especially in a blow-off move on news.

The upper target, 1998, comes from the Gann Square of Nine chart. I've copied the middle section of the chart, showing from top to bottom, so that you can see the relationship of 1998 top previous important highs and lows for SPX. The October 2002 low, April 2012 high and October 2007 high are on the red vector at the 11:00 position. At the opposite end, 180 degrees from those important level, is 1998. The next important level on this chart is 2007, which "vibrates" off the March 2009 low at 666. Wouldn't it be interesting if the top following the 2007 high is at 2007.

Gann Square of Nine chart

On the weekly chart below I've added a price projection based on the relationship between the waves in the move up from October 2011, which is a 3-wave A-B-C move. The c-wave would be 162% of the a-wave at 1990. In addition to this projection we've got the top of the parallel up-channel from 2011, which price has been cycling around since June 6th, and the top of a parallel up-channel for the final leg of the rally from April 11th, the top of which is currently near 1993. The market continues to push higher in the face of many reasons why it shouldn't and I see additional upside but the leg up from April continues to fit well as the final leg of the rally and therefore bulls need to be careful about the high level of complacency since a turn, when it comes, could happen fast and furious.

S&P 500, SPX, Weekly chart

The wave count for the rally from April looks to have started with 3 sets of 1st and 2nd waves and that means it needs to stair-step higher following the pullback to June 12th. That's what I'm depicting on the daily chart below and the pattern supports the idea that SPX could rally to about 2015 by the end of opex week (July 14-18). The first sign of trouble for the bulls would be a decline below the June 26th low near 1944 but for now the pattern remains short-term bullish.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1960
- bearish below 1944

The same stair-step pattern higher also looks to be true for the leg up from June 26th, as depicted on the 60-min chart below. This pattern calls for a larger pullback next week and then a final rally into opex week.

S&P 500, SPX, 60-min chart

The choppy pattern on the DOW's daily chart leaves few clues as to what's next so keeping an eye on the bigger picture, with the weekly chart below, it shows price is getting pinched. The trend line along the highs from May 2011 - May 2013 is still controlling the highs for the DOW. Other than the brief poke above the line in December 2013 it has been holding the DOW down since then and is currently near 16986 (today's high). There's higher potential to a trend line along the highs from May 2011 across the December 2013 high, currently near 17300, so that's upside potential if the DOW can break above 17K and hold above. Support is at its uptrend line from February-April, nearing 16850, and its 2000-2007 trend line, now at 16745. A drop below 16700 would be a bearish heads up and below 16340 would tell us a long-term top is in place.

Dow Industrials, INDU, Weekly chart

Key Levels for DOW:
- bullish above 17,000
- bearish below 16,340

I get two different impressions about NDX with its trend lines when using the log scale vs. arithmetic scale. My preference is to use log scale on trend lines when we're dealing with months/years but I've seen traders react around them both ways and therefore it's important to check your charts to see how the trend lines change. The daily chart below is with the log scale and it shows upside potential to 3937 where the trend line along the highs from April 24 - June 9 crosses the trend line along the highs from April 2012 - March 2014. That's also where a 162% extension of its previous decline (March-April) is located and that makes it an important level to watch if reached.

Nasdaq-100, NDX, Daily chart, log scale

Key Levels for NDX:
- bullish above 3870
- bearish below 3791

But NDX could be in trouble here -- the trend line along the highs from April 2012 - March 2014 is now being tagged, near 3900. The trend line along the highs from April 24 - June 9 was hit yesterday and is currently near 3914. There's a short-term price projection for the leg up from June 24th at 3929 so there's a lot going on in the 3900-3937 area to suggest NDX could top out in this zone.

Nasdaq-100, NDX, Daily chart, arithmetic scale

The RUT had been relatively strong the past few days but was the weak sister today. Following yesterday's test of its March 4th high at 1212.82 (exceeding it by less than a point), today's pullback is leaving the potential for a double top to form. Typically double tops separated by a few months can be strong reversal setups and that's what we're facing with the RUT until the bulls can power it above 1213 and keep it above. With a 5-wave count for the rally from April it can be considered complete at any time, making the double-top setup all that more important. Today's candlestick pattern is a bearish harami (inside day) which is a reversal pattern at the end of a run up against resistance it's worth respecting.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1213
- bearish below 1165

The banks have remained relatively weak since topping in March with the broader market. It has not yet been able to top its high on March 21st at 73.90 as yesterday's high at 72.24 is still 2.3% below its peak. The bounce off the May 15th low is close to a back test of the bottom of its up-channel from June 2012, which is currently near the price projection at 73.64 for two equal legs up for its 3-wave bounce off the 2009 low. The bearish divergence, as can be seen on its weekly chart below, does not bode well for the bulls.

KBW Bank index, BKX, Weekly chart

The TRAN looks like it could press a little higher to an intersection of trend lines near 8350, only slightly higher than yesterday's high at 8295. Its trend line along the highs from April 2010 - July 2011 crosses the trend line along the highs from May 2013 - January 2014 this week and it fits well for the completion of the 5th wave in the move up from November 2012, which in turn should be the completion of the 3-wave move up from 2009.

Transportation Index, TRAN, Weekly chart

The U.S. dollar has pulled back from June 5th high but if it's to remain bullish it should reverse here and start back up. It has dropped down to its uptrend line from May-August 2011 as well as its broken downtrend line from January 19th (grey line on the weekly chart below). The uptrend line and a back test of the top of its previous descending wedge should act as support and launch another rally leg into at least the fall if not the end of the year.

U.S. Dollar contract, DX, Weekly chart

Gold's rally off its June 3rd low is looking bullish. It's not difficult seeing a 5-wave rally and while that calls for a pullback soon (perhaps after one more minor new high to about 1335), the pullback should then lead to higher highs this summer (depicted in green on its daily chart below). The rally from June 3rd could be part of a larger corrective pattern before heading lower so it will be the shape of the next pullback/decline (impulsive or corrective) that will provide clues for what will be next for gold. But in the short term this is not a good place to buy it.

Gold continuous contract, GC, Daily chart

On June 12th oil popped up out of its trading range that it had been in since February, by rallying above 105 and it needed to hold above 105 to stay bullish. But today it closed below 105 and that leaves a failed breakout attempt. It's on a sell signal because of that but there's still support at its uptrend line from January, currently near 103.10 and just below its 50-dma at 103.30. Its sell signal would be negated with another close above 105 so it's too early to tell which way oil will head from here. As depicted on its weekly chart below, I'm looking for higher prices, up to its downtrend line from May 2011 - August 2013, currently near 111. But a drop below 103 would be a pretty solid confirmation of the sell signal.

Oil continuous contract, CL, Weekly chart

Thursday morning will be busy with economic reports because all of Friday's will be reported as well. The big report is the Nonfarm Payrolls report before the bell. Once we get through that report maybe we'll see a little market movement than we saw today. It shouldn't be hard to accomplish that.

Economic reports and Summary

I've got two different short-term perspectives for the market -- the techs look like they could press higher, perhaps even into opex week. The techs and small caps could reverse here and now. What it means is the short-term picture is a little muddy right now but dangerous for complacent bulls. It's also dangerous for eager-beaver bears but at least they've been keeping stops tight. My concern for many bulls is that not only are stops not tight, many don't even bother with them. "The market always comes back; we don't need no stinkin' stops!" The market has conditioned most traders to firmly believe this and that's when the market slaps them silly and reminds them why stops are important.

Most bears are from Missouri now (the Show Me state) and they're waiting for proof of a top before stepping back in. It's another sign that a top is likely here or very close since it could start down in a hurry without the bears on board, in which case they'll end of chasing it lower as some bulls start to bail as well. It's what drives the market back down so quickly. Bears need to stay aware of the additional upside potential but be ready to short bounces if we start to see some impulsive action to the downside. Bulls, as hard as it might be, need to pull stops up tight and take as much profit off the table as you can. It might be tough but if shaken out of a long position and it reverses back up, I continue to believe upside potential is dwarfed by downside risk and I would trade accordingly.

Good luck and I'll be back with you on July 23rd as I'll be taking some time off. Feel free to email me questions in the meantime.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Already On Vacation

by James Brown

Click here to email James Brown

Editor's Note:

It looks like market participants are already on vacation. The major U.S. indices drifted sideways in a very narrow range.

The U.S. markets will close early tomorrow (July 3rd) at 1:00 p.m. Eastern. They will be closed all day on Friday for Independence Day.

Volume will be super low tomorrow. That could mean another quiet session or it could mean we'll see some sharp moves as lack of volume allows for more erratic trading in individual equities.

We are not adding any new trades tonight. The newsletter's next issue will be the weekend newsletter.

Have a great Fourth of July!




In Play Updates and Reviews

Stocks Turn Quiet Ahead Of Holiday

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. markets were drifting sideways as we approach the long weekend and the Fourth of July holiday in the U.S.

SYNA hit our entry trigger.


Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 93.48 change: -0.04

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: + 3.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: AAPL spent the day slowly drifting lower. I don't see any change from my comments yesterday and would not be surprised to see a dip toward $92.00.

In the news AAPL's stock got a new price target with one firm raising their target to $115.00. There was also a report that AAPL is expanding its retail presence in China.

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: 121.11 change: -0.42

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: Shares of AMP saw a spike lower at the opening bell. Shares traded at $118.64 right at the open and then immediately traded back near $121 again.

I don't see any changes from yesterday's comments. 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: 107.63 change: -1.70

Stop Loss: 102.40
Target(s): To Be Determined
Current Option Gain/Loss: + 33.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: APC delivered another disappointing session with a -1.5% decline. The stock looks headed for short-term support in the $106.80-107.00 zone. If that level breaks then $105.00 or the 50-dma near $103.60 could be support.

I do not see any reason behind the relative weakness. I'm not suggesting new positions at this time.

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: 83.60 change: +0.58

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: + 97.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: COF spent most of today's session drifting sideways but it did post a +0.69% gain thanks to its early morning rise. The $84.00 level looks like short-term resistance.

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: 67.53 change: -2.70

Stop Loss: 62.45
Target(s): To Be Determined
Current Option Gain/Loss: -13.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: Warning! DWRE underperformed the market with a -3.8% decline. I do not see any news to account for today's relative weakness. Plus, today's drop combined with yesterday's intraday pullback looks like a short-term reversal.

I am not suggesting new positions at this time. More conservative investors may want to consider a stop loss closer to $65.00.

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: 73.03 change: -0.06

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: +18.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: Wednesday was a quiet session for LNG. The stock churned sideways in the $72-74 zone and closed virtually unchanged.

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: 208.31 change: -0.55

Stop Loss: 207.75
Target(s): To Be Determined
Current Option Gain/Loss: +20.5%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
07/02/14: PPG saw a little bit more profit taking today. If this continues tomorrow we will likely see PPG hit our new stop loss at $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: 78.19 change: +0.11

Stop Loss: 73.40
Target(s): To Be Determined
Current Option Gain/Loss: +33.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: SBUX served up a mild session with shares drifting sideways 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: 54.81 change: -0.51

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +20.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: SLCA pared its losses with a bounce near $54.20 but still lost -0.9% by the closing bell. I am not suggesting new positions at current levels. More conservative investors may want to consider a stop loss closer to the simple 30-dma (currently near $52.00).

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


Synaptics Inc. - SYNA - close: 91.69 change: -0.19

Stop Loss: 87.65
Target(s): To Be Determined
Current Option Gain/Loss: -3.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: Our new play on SYNA has been triggered. The stock rallied to a new all-time high before paring its gains. Our suggested entry point was hit at $92.35. Nimble traders could look for a bounce off $91.00 as an alternative entry point. Otherwise I would wait for a new move above $92.20 before considering new bullish positions.

Earlier Comments: July 1, 2014:
"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.

- Suggested Positions -

Long Sep $95 call (SYNA140920C95) entry $6.35*

07/02/14 triggered @ 92.35
*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 July 02 at $92.35
Average Daily Volume = 1.45 million
Listed on July 01, 2014


United Rentals, Inc. - URI - close: 107.50 change: +0.29

Stop Loss: 101.80
Target(s): To Be Determined
Current Option Gain/Loss: + 1.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: URI rallied up toward its June highs near $108 before trimming its gains. Depending on your trading style you could wait for a breakout past today's high (108.39) or a dip back toward $106.00 as our next entry point.

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: 60.89 change: -0.19

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/02/14: TSCO did not see much follow through on yesterday's bounce. The stock traded up to $61.33 before fading into negative territory. I am not suggesting new positions at this time.

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