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Daily Newsletter, Saturday, 7/5/2014

Table of Contents

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

Market Wrap

Houston, We Have Liftoff

by Jim Brown

Click here to email Jim Brown

It would appear we have escaped the bounds of congestion and have lifted off to new highs. Sometimes appearances can be deceiving.

Market Statistics

The Dow ($INDU), S&P-500 ($SPX), S&P-100 ($OEX), Nasdaq ($NDX, $COMPQ), Dow Transports ($TRAN), Russell 1000 ($RUI), Russell 3000 ($RUA), NYSE Composite ($NYA) all set new historic closing highs on Thursday. The Nasdaq high was a new 14 year high but nobody is complaining.

Left out of that list above was the Russell 2000 ($RUT) and S&P Midcap 400 ($MID), which both missed new closing highs by a faction of a point. They may have missed a new record by a fraction but again, nobody should be complaining.

We constantly talk about volume and breadth. Holiday volume was low at 3.5 billion shares and breadth was 2:1 advancers to decliners. To have all the major indexes breaking out to new highs you really want to see much better market breadth.

However, the holiday spike was welcomed. All sectors appeared to participate with financials leading the charge. Financials are higher because the strong payroll numbers suggest the Fed will raise interest rates sooner rather than later and banks can finally make money on their trillions in deposits. While that may be good for banks and investors with money in interest bearing accounts it is also bad for the economy to some extent because it raises the cost of money for individuals and corporations.

We are still a long way from that happening so in the short term the improvement in the payroll numbers is positive for the economy and the market.

There were a lot of economic reports on Thursday but the most important was the Nonfarm Payrolls. The report showed there were +288,000 jobs added in June compared to estimates in the 215,000 range. This was a blowout number that confirmed the +281,000 headline on the ADP report on Wednesday.

Also, May was revised higher by +7,000 to 224,000 and April was revised up by +22,000 to 304,000. This was a very strong number and the upward revisions to April and May brought the three month average to a whopping +272,000 jobs. The separate Household Survey showed a gain of +407,000 jobs.

The unemployment rate fell from 6.3% to a post recession low at 6.1% and the labor force participation rate remained flat for the last three months at 62.8%. The BLS said the labor force increased by 81,000 in June.

The private sector added +262,000 jobs and the public sector added +26,000 with 18,000 of that coming from public education hiring. The average workweek remained flat at 34.5 hours as employers hired more workers rather than increase weekly hours over the 30 hour threshold for ObamaCare coverage. Average hourly wages increased +0.2% for the second month.

This was a good report but it was not without flaws. The number of people working part time for economic reasons, meaning they can't get a full time job, rose by +275,000 or almost all of the new job gains. As one commentator put it, "We are becoming a nation of burger flippers" rather than scientists, engineers and professionals. When you have to make the mortgage payment and put food on the table you have to take whatever job is available.

There are help wanted signs all over the Denver area where I live and they have been there for weeks. Yes, they are all in places like Walmart, Burger King, Olive Garden, etc. These are not what you would call career jobs but they do provide a weekly paycheck.

On a positive note the percentage of unemployed workers out of work for more than a year fell to 33% and a post-recession low.

It will be hard for analysts to say business activity is not picking up in Q2. The ADP Employment report and the Nonfarm Payrolls finally suggest the economy is accelerating. If this continues the negative points from forced part time work to weak retail sales will fade away. As more and more of the unemployed find work those new paychecks will immediately be spent.


The ISM Non-Manufacturing report for June came in at 56.0 and only slightly lower than May's 56.3. This is still in expansion territory and the internals were slightly improved. The consensus estimate was 56.3. The new orders component rose from 60.5 to 61.2 and employment rose from 52.4 to 54.4. Exports rose from 53.0 to 55.0 while order backlogs declined slightly from 54.0 to 53.0.

However, the business activity index declined from 62.1 to 57.5 suggesting a lot of buyers took off early for the summer. The business activity component normally prints in the mid 50s. However, in April and May the number spiked to 60.9 and 62.1 respectively. Analysts believe this was the snapback from the winter weather and the component is now trending back to its norms as the activity spike fades.

Fifteen of the 18 industries in the survey reported a growth in new orders with only 2 reporting declines. Fourteen of the 18 industries reported business expansion in June saying business conditions and the economy were improving. Four industries declined including Mining, Educational Services, Accommodation/Food Services and Healthcare.


The calendar for next week is very light with the only pothole the FOMC minutes on Wednesday. With some of the economic indicators suddenly improving the analysts will be looking for signs of disagreement between meeting participants and signs a rate hike could come sooner rather than later.


There were adjustments to rate expectations popping up all over. The Bank of Tokyo said the payroll report showed just how far behind the curve the Fed really was. The bank believes the first rate hike will be in March rather than their prior forecast for June. Roberto Perli of Cornerstone Macro, said the Fed would have to raise its projections for the interest rate at the end of 2015 and 2016 as a result of the rising economics. Currently the Fed is projecting 1.13% at the end of 2015 and 2.5% at the end of 2016. The Fed Funds Futures are projecting 0.78% by the end of 2015 and 1.82% at the end of 2016. All of those numbers are going to rise if the economic reports continue to improve.

The Fed claims it is in a "data dependent" mode on stimulus and interest rate hikes. If that is the case their actions could accelerate if the numbers continue to be strong. When new jobs spiked in April to 304,000, analysts said it was snapback hiring from the winter weather. The +224,000 number in May was the fourth consecutive month over 200,000 and right where the slow growth economy was expected to remain for the summer. The +288,000 in June has no "reason" behind it. The weather excuse has been used and this number represents an acceleration of the rebound trend from the low of 84,000 jobs gained in December.

Janet Yellen confirmed the very slow path to normalization in her recent speech and said the rising inflation number was just noise. Suddenly that inflation claim may be in error and that slow path comment due to change soon.

Remember the Fed has NEVER predicted an economic problem in advance. They are always overly optimistic. If we are depending on the Fed for guidance we are likely to be disappointed.

John Ryding, chief economist at RDQ Economics and a former economist with the Fed, now expects the first rate hike in March. Stephen Stanley, chief economist at Pierpoint Securities, moved his rate hike projection up from September 2015 to June. Michael Feroli, chief economist at JP Morgan, pulled his rate estimate forward from Q4 to Q3 2015 with rates at 1.0% by year-end 2015 and 2.5% at the end of 2016.

Bill Gross downplayed the forecast changes. Gross said in order for the Fed to reach its inflation target at 2%, assuming a 1% productivity number, you are going to have to see wage growth at 3% plus so the Fed is going to be willing to stay put at the current stimulus stance. Hourly earnings only rose +0.2% in June and +2.0% over the past 12 months so there is plenty of room to grow.

As you can imagine on the day before a holiday weekend the stock news was very light. PetSmart (PETM) shares rallied +12% after activist hedge fund Jana Partners disclosed a 9.9% stake and plans to talk to the retailer's board about performance improvements or possibly selling the company. The company said it "welcomes open communications with its shareholders and values constructive input toward the goal of enhancing shareholder value." That sure sounds like a canned response some attorney thought up ages ago to cover a situation like this. The company posted disappointing results in Q1 because of increasing competition and lower consumer spending.


Lululemon (LULU) shares jumped +3% after the WSJ reported founder Dennis Wilson was talking to private equity firms about taking the yoga apparel firm private. The WSJ said Wilson had talked to Leonard Green & Partners among others. No deal had been reached but Wilson was actively exploring options. However, with declining fortunes and a $7.5 billion market cap a deal would be expensive. Any LBO would require a steep premium on the famous name and that may be hard for Wilson to engineer. Now would be the right time for a takeout with the shares trading at a four year low after a high of $82 in 2013.


Lorillard (LO) rose +5% on speculation they would merger with Reynolds American to create a giant tobacco company. Reports claim they could avoid antitrust claims by selling off specific non-core assets to smaller tobacco companies. This is an old story with the speculation returning every few weeks since March 1st. This time it appeared to gain some traction to push the shares back to 52-week highs.


PACCAR (PCAR) rallied +5% on speculation it could be the target of an acquisition by Volkswagen. Like the Lorillard merger rumors the PCAR-Volkswagen rumors are a recurring theme. However, this time Volkswagen denied any interest in acquiring the truck maker. Surprisingly PCAR did not decline after Volkswagen denied the rumors.


Blackrock (BLK) shares spiked +$23 after the close but I could not find any news to support the spike. There was a news item at 11:30 about a 150,000 euro fine by European regulator Consob. The company made an erroneous statement about its holdings in UniCredit in December 2011. Blackrock found the error and reported it to the regulator in January 2012 and offered to cooperate in the investigation. Blackrock had disclosed a reduction in their stake in UniCredit when no actual reduction occurred. The regulator fined Blackrock for market manipulation in the matter. The disclosure forced shares of UniCredit lower just before the bank announced a secondary offering and the European sovereign debt crisis was in full swing. I doubt this was the reason for the spike in Blackrock shares.


On Wednesday Greenbrier Companies (GBX) reported earnings of $1.03 compared to estimates of 74 cents. Revenue increased +37% to $593.3 million and well over estimates for $571 million. The company builds railcars and it delivered 4,300 in the quarter, up from 2,500 in the comparison quarter. They also received orders for 15,600 new cars during the quarter and another 2,600 after their quarter ended. The orders were valued at more than $2 billion. Their backlog is now 26,400 cars compared to 15,200 at the end of February. The average sales price per car is $104,000, up from $101,000 in February. Gross margin rose from 11.5% in February to 16.3% in the current quarter. This allowed them to raise full year estimates to $2.98-$3.08 per share, up from $2.45-$2.70 previously. Shares rallied +7 on Wednesday and then gained another +2.70 on Thursday. Davidson raised the price target to $75. I added this company as a recommendation in Ultimate Investor back at $36 and it is still in the portfolio. Definitely a home run.


Now that the major economics are behind us for a couple weeks all eyes will turn to the Q2 earnings cycle. That could be a blessing or a curse. More than 90 S&P-500 companies have already warned about Q2. That is sure to exceed 100 and 20% of the index components in the week ahead. I reported last week that expectations had declined to 5.2% earnings growth, down from 7.3%, and +2.6% revenue growth according to S&P Capital IQ. Financials are expected to be the biggest drag at only +0.6% earnings growth.

The U.S. economy may be improving but 50% of the revenues of S&P companies come from outside the USA. Europe is dragging and Asia has been in a slump. South America is in turmoil with currency issues plaguing companies doing business there. The Middle East is in a war and tourism and consumer spending is minimal. When bullets are flying down your street buying a new flat screen TV or an iPad are not the top thoughts on your mind.

The earnings calendar for next week is minimal. Only three companies stand out. Alcoa on Tuesday is important because it tells us about aluminum demand, which is a proxy for global economic activity. Progressive on Thursday could be our first look at the casualty amounts for Q2. Some estimates from wind and hail are over $1 billion for the quarter. Lastly Wells Fargo on Friday gives us the health of the mortgage market. They are the largest originator of mortgages and home equity loans.

The following week really heats up with about 30% of the S&P 500 reporting. It will be a virtual fire drill for market reporters.


The markets broke out to new highs and did it convincingly. The newspapers this weekend are going to be headlined by "Dow Breaks 17,000, Bull Market Continues." The most hated bull market ever will become even more hated by those on the sidelines. With the majority of professional traders expecting a correction the short interest remains high and funds remain under invested. Retail traders were holding 22% cash in Q1 and that has risen to 27% in Q2 as everyone waits for the correction.

Normally new highs attract new money faster than flies to a picnic but the exception is a summer rally. A rally during the summer doldrums is always looked at skeptically. They typically come on high volatility with a lot of sudden moves inside the overall trend before eventually collapsing in September/October.

We have no volatility with the Volatility Index ($VIX) closing at a new seven-year low. When this situation reverses it is going to be with a vengeance. It could be next week or next month but once panic arrives it is going to be ugly. The VIX spent several weeks under 10 back in late 2006 before shooting up to 90 during the 2008 crash. Obviously nobody expects that to happen again in the near future but the VIX can remain low as long as the Fed continues tapering QE and every minor dip of 2-3% is bought.

They say the trend is your friend until it ends. The current trend is falling volatility and rising markets. In the chart below note that every major spike came in very few candles. When the stuff hits the fan the reaction is immediate.


I listened to the market analysts this week and nearly all were expecting a bout of serious profit taking after Dow 17,000 was achieved. Personally I believe the real level to worry about is S&P 2,000. The Dow is only 30 stocks and the S&P is 500. It takes a lot more to push the S&P around than the Dow. The Dow has been the laggard with only a +2.97% gain year to date. That is the smallest gain of all the indexes.

The S&P is up +7.42% after a +29% gain in 2013. While that is a lot for an index that normally rises 8% in a year there have been plenty of pauses to consolidate. The current rally did not begin until the end of May after the S&P traded in a range for nearly three months. Even with that consolidation pause the S&P took profits in early June and then again starting on June 24th. As long as these 3-2 day dips continue to be bought the trend will continue higher. This gives the current holders a chance to take profits and provides a chance for new investors to buy the dip. Our problem will come when the first dip is not bought. That will be the clue the trend has changed.

The sprint over the last several days from 1,950 to 1,985 has put the S&P within range of the 2,000 target level. When we get to 2,000 there will only be 8 analysts with year-end forecasts that are higher. Clearly some of those estimates are pie in the sky at 2,100-2,185 but we can always hope.

The key point is that at 2,000 the S&P will have already met or exceeded the forecasts of two-thirds of the analyst community. If you are a fund manager and all the major forecasts have been met what do you do? You don't hit the sell button but you do tighten up your risk management and raise your stops.


The worst two months of the year are still ahead. Even in 2013 when we had a blowout year and +29% gains in the S&P the months of September and October were still rocky. From the August high to the September low there was an -82 point drop in the S&P. From the September high to the October low there was a -83 point drop. Fortunately by Halloween both declines had been erased.

We could easily see an 80 point drop in the next 120 days before Halloween. Maybe more! Historically the summer period in midterm election years is very rocky.

On the flip side we could continue to press our gains if the economic reports continue to marginally improve. We don't need any monster gains in the ISM or the regional Fed reports. Slow and steady wins the race. If the reports continue to improve at their recent snail's pace then the market can continue to move higher in measured steps.

Right now the markets are afraid of prosperity breaking out. (HT Art Cashin) If the economy suddenly caught fire and surged ahead the Fed would be forced to scrap the "considerable period" clause on rate hikes after QE and take evasive action to offset a rapidly rising economy. In the Fed's mind they want +3% annual GDP for the rest of the decade. They don't want to see 4-5% or even higher because that becomes a breeding ground for inflation. If prosperity were to breakout with new jobs surging to 350,000 or even 400,000 a month it would scare the skirt off Janet Yellen. The hawks on the FOMC would be dining on red meat from the terrified doves.

Since there are no economic reports of note for next week the only pothole is the FOMC minutes. Analysts are pretty sure what they are going to say since this was a press conference meeting and all the questions have already been asked and the answers dissected. Therefore I don't consider the minutes a major stumbling block. I could be wrong.

If the S&P moves over Thursday's closing high at 1,985 on Monday I think we have a good chance of testing 2,000 before the week is out. Once we hit 2,000 all bets are off. There could be quite a few sell stops at or just below 2,000 even though the economy is tiptoeing higher. It is a money management problem. Expectations have been met and some risk comes off.

Remember, the first five days of July are powered by end of quarter, end of half retirement contributions. That incoming cash flow dries up next week.

More than 90% of the S&P stocks are trading over their 200-day average.


Also, 85% of the S&P stocks are trading over their 50-day short term average. This is right at the level where they topped out since June of 2013.


Last but not least 84.4% of the stocks in the S&P have a point and figure buy signal. This is exactly the level of bullishness where the market failed multiple times since early 2012.


Markets can remain bullish far longer than analysts can remain skeptical of the move. Once everybody turns bullish the move is over.

Support at 1,950 is growing and regardless of what happens at 2,000 I believe 1,950 will hold.


The Dow punched through the 17,000 level with conviction. It is too bad it only occurred on volume of 3.5 billion shares. Next week we should see volume pick up as fund managers and individuals make decisions based on the new highs and round numbers.

The Dow hit 13,000 in February 2012 and it took it a year to hit 14,000. The next 1,000 points only took just over three months and the next 2,000 points took about seven months for each 1,000 points. The only one of those increments that did not see significant declines before hitting the next level was the 14K to 15K sprint in just over three months.

13,000 February 11th, 2012
14,000 February 1st, 2013 - 12 months
15,000 May 7th, 2013 - 3.5 months
16,000 November 18th 2013 - 7 months
17,000 July 3rd, 2014 - 7 months

There is nothing magic about these round numbers. Several of those saw the Dow trade above and below those numbers for hundreds of points numerous times before moving to the next level.

For the Dow these are just numbers on a chart. With only 30 stocks in the index any 4-5 stocks making decent gains over a month or two can overcome all the rest and power the index higher. In the current case it was Caterpillar (CAT) that pushed the Dow higher. CAT's gain since November has accounted for nearly +250 Dow points. That is another Ultimate Investor position that we added at $95.


Chevron gained +22 points or +176 Dow points.
Disney gained +27 or +216 Dow points.
3M gained +20 or +160 Dow points.
JNJ gained +20 or +160 Dow points.

However, for every gainer there were several decliners. It is a wonder we actually reached the 17,000 level. When you have some free time this weekend sit down and run through the charts for each of the Dow stocks. If just 5-6 of the weak stocks started to trend higher we would be talking about 18,000 instead of 17,000.


Can the Dow go higher? Absolutely but all it would take is a couple earnings warnings to knock it significantly lower.

We all know from past experience the markets move higher and faster when we least expect it. Very few analysts are expecting the Dow to move materially higher in the short term.

On Friday an associate and I were having a conversation about exiting positions because the market could put in a top any time now. My point was that nobody can time the market every time. Ask the millions of investors in cash on the sidelines today and hating this rally. They thought they could time the market. I have been there and done that and been frustrated more times than I can count. My parting thought in our conversation was "The trend is your friend until it ends and when that happens your stop loss orders suddenly become your new friend." Peter Lynch is famous for saying, "Cut the losers and let your winners grow." Jesse Livermore said, "Always sell what shows you a loss and keep what shows a profit." Lynch also warned that "more money had been lost trying to avoid a downturn than would have been lost in the downturn."

The Dow spiked higher on July 1st from 16,800. It consolidated for a day at 16,950 and then blasted well past 17,000 to close at 17,068. The consolidation on Wednesday should give us initial support at 16,950 on any future weakness. Even if we dipped back to uptrend resistance at 16,825 would that be so bad? People are picking apart handfuls of points when we are talking about a major long term move. Since the rebound in February the Dow has been a steady gainer BUT only if you look at the daily chart. You can't look at a shorter term chart or all you will see is static.


On the weekly chart the last month is a very smooth, low volatility rally. Contrast that with the 90 min chart above and the difference is amazing. Don't get too close to the market or all you will see is static.


Support at 16,825 and 16,950 with resistance at 17,300.


The Nasdaq Composite is in blue sky territory. The last material resistance is 4,500 and it should be clear sailing after that to 4,800. I know that sounds like I have been drinking the Ralph Acampora Kool-Aid but it is the truth. Any dips along the way will be headline related or the result of some earnings disaster or simply profit taking. What I am trying to say is there is very little in the way of technical resistance for the next 300 points.

I obviously don't expect the index to just run in a straight line to 4,800. There will be dips and possibly major declines. This is especially true considering the calendar period ahead. This is even more likely because the Nasdaq has gained +450 points since May 15th. There were multiple consolidation periods along the way but that is still a huge +11% gain. When you consider the Nasdaq is only up +7% for the year that emphasizes the profit taking in March and April. The Nasdaq declined -9.7% from 4,371 to 3,946 from the March highs to the April lows.

The Nasdaq is only 12.5% below its all time high of 5,132 on March 10th, 2000. The low after that high came in October 2002 at 1,108. It has been 4,285 days since that low and the Nasdaq has rallied +302%. Most of that came after the March 2009 recession low with a +253% gain as of Thursday. The Nasdaq has rallied +13.7% since the April lows. If it were to repeat that move over the next two months we would be back at new historic highs.

Whenever the Nasdaq goes through a rocky period like we saw in March/April it tends to erase that decline and then sprint higher as the bears are forced to cover when the prior highs are surpassed. I do think the Nasdaq is over extended today but every 2-3 day dip should be bought.

In this case support is well below at 4,371 and 4,344 or prior resistance levels. That is more than 100 points below Friday's close so don't buy the first big drop. Wait for support to appear.



The Russell 2000 is troubling me today. The Russell failed to break out by half a point. Normally that would be no big deal. However, given the +110 point rebound since May and the dead stop for three consecutive days at the prior high of 1,208 we have the potential for a double top.

The Russell had the benefit last week of the reconstitution buying and the end of quarter retirement contributions. That is now over. The Russell will have to move higher on the back of some successful earnings reports. With the warnings in the S&P just under 20% and rising the strength of the small caps may be over estimated.

This would be the perfect place for the Russell 2000 to fail.


However, if the Russell can power over the 1,210 level the shorts would be forced to cover. A strong gain at the open on Monday could trigger that short covering. Traders not in the office on Thursday will play catch up on Monday. Hopefully their first act will not be to hit the sell button.

Support is 1,180 and resistance 1,208-1,210.


The Russell 1000 is another picture perfect index since late 2012. A nicely formed trend channel with plenty of room to move higher before reverting to the mean. This is the top 1,000 stocks by market cap. Buy the dip until the uptrend support fails.


To summarize I don't expect the market to continue straight up. In fact I hope it does the opposite. I would love to see another 2-3 day dip and then a move to new highs. I have said for several weeks we are in "buy the dip" mode. Until longer term uptrend support fails we need to honor the trend.

Random Thoughts

Get ready to pay up for those summer vacations by car. The spike in crude prices caused by the Iraq insurgency has pushed the average price for gasoline to $3.67 and almost 20 cents over year ago levels. Drivers on the west coast are paying up to $4.50 while drivers around the Gulf are closer to $3.25. The spike in 2008 was the only other year where prices were as high this time of year.

AAA expects 34.8 million Americans to take to the roads this weekend. Historically gas prices decline in June but they rose +20 cents this year because of Iraq. The closer gas prices are to $4 the bigger hit we will see to consumer spending. In 2008 there was a dramatic decline in spending because all the extra money consumers could scrape up was going into the gas tank.

Wall Street Journal Gas Price Chart

Gasoline is not the only holiday expense rising sharply. Ground beef for hamburgers has risen 16.5% since last year and price hikes are similar on bread, cheese, lettuce, tomatoes, ice cream, etc. your holiday cookout has never cost you more. Welcome to the age of prosperity brought to you by five years of QE by the Fed.

Blackrock Budget Comparison


Saudi Arabia positioned 30,000 troops on its border with Iraq after Iraqi soldiers withdrew from the area. Reportedly more than 2,500 Iraqi soldiers left their posts and fled deeper into Iraq and away from the ISIS fighting. Saudi Arabia shares a 500 mile border with Iraq. King Abdullah ordered all "necessary measures to protect the kingdom against potential terrorist threats" according to the SPA news agency. Many people believe Saudi Arabia is a principal supporter of ISIS and the Sunnis that are joining ISIS to fight. An Iraq interior spokesman said the entire operation was a cover to position Saudi troops on the border in preparation for an invasion of Iraq to claim its own piece of the pie should Iraq self destruct as expected.

ISIS or ISIL depending on the reporter has now changed its name to simply IS for Islamic State. Iraq has been using jets purchased/borrowed from Russia to pound the IS positions and the Iraqi army has finally mobilized their artillery and are slowly taking back the outward edges of the ground held by IS.

Ukraine has vowed to retake Crimea and the fighting just keeps getting worse. On Friday three Russian military helicopters crossed the border into Ukraine to help Russian separatists in a village in the Luhansk region. Nine civilians died in those skirmishes.

On Friday Russia passed a law requiring all websites that handled the personal data of Russian citizens to host those websites on servers in Russia. On the face the law was passed for protection of that data but analysts believe it is really to control what is said on the Internet. Starting in 2016 all companies handling Russian data will be forced to use Russian servers or be blocked from operating in Russia. This is seen as a way to block sites like Facebook, Twitter, YouTube, etc, and prevent the rapid sharing of information between Russian citizens and block political comments. Russia just enacted a rule requiring blogs and news websites with more than 3,000 daily visitors to register with a communications watchdog. Another law allows Russia to shut websites down immediately without a court order.

Critics claim all these laws are a new wave of Russian censorship. If you shutdown the websites and social communication in times of civil strife the spread of information ceases. Putin, a former KGB officer has called the Internet a "CIA project." Russia already has a law that allows the blocking of websites deemed "extremist" or a "threat to public order." Many websites of Kremlin critics have already been shut down because they "contained calls for illegal activity." Twitter officials met with the Russian communication watchdog last month and the Russians demanded that more than a dozen twitter accounts be shutdown. Russian protestors used social media to generate massive protests against Putin and coordinate their moves when he ran for office again in 2012.

On the same topic China blocked Flickr photo sharing and messaging applications Line and Kakao last week. YouTube, Facebook and Twitter are also unavailable in China.

The Iraqi Kurds started a move toward independence last week. President Massoud Barzani, speaking to parliament, asked lawmakers to start making plans for an independence referendum. Barzani said he no longer felt bound by the Iraqi constitution and wants a vote on the right of self-determination, which would be the Kurd's boldest move towards statehood in 94 years. "The time has come to determine our fate and we should not wait for other people to determine it for us." The sudden motivation comes on the heels of Iraq's inability to act decisively to protect them from the invading ISIS force. Kurdish forces seized Kirkuk and protected it from ISIS when Iraqi forces fled in the face if the ISIS advance. The president said, "We will try to help our Shia and Sunni brothers … to get out of this crisis, but to be truthful we will [be responsible for] a new people [Kurds] who believe in coexistence, democracy and constitution. We will not deal with those who sabotaged the country." The Kurdish parliament believes a vote on independence could be held within two months.

JP Morgan cut its GDP estimates again. The bank now expects only a +1.4% GDP for the entire year and the lowest rate since the recession. This comes after a -2.9% GDP in Q1. The bank lowered its GDP forecast for Q2 from 3% to 2.5% but kept the 3% estimate for Q3 and Q4 for at least a few more weeks. The bank said now that Q2 has ended it looks like the real GDP for the first half will be negative despite a surge in job growth. At the same time labor costs rose by roughly 5%. Stephanie Pomboy of MacroMavens said, "How do you go from a -2.9% contraction in GDP to +3% GDP growth in a couple quarters? I don't see it happening."

Analyst Joe Donohue pointed out that once the extended unemployment benefits were halted in January and the food stamp rolls were cut that employment suddenly surged beginning in February with 220,000 jobs and rising strongly ever since. When you subsidize unemployment by sending out billions in extended compensation you get more unemployment. Many people would prefer to sit at home and collect a variety of monthly checks and food stamps rather than have a job. When the skillfully unemployed can game the system for up to $75,000 in benefits a year that is a strong incentive not to work at a $40,000 a year job. Once those checks went away the laggards were forced to find work to support their eating habit. There is still a serious problem with unemployment. For instance millennials, those who reached adulthood around the year 2000, have an unemployment rate of about 40%. They are roughly 30-35 years old now and a high percentage still live at home with their parents.

"Investors should acknowledge that this is not an ordinary, average, typical or normal bull market and thus many approaches and metrics are not useful or applicable." Lazlo Birinyi on Thursday. Uber bull Jeremy Siegel called for Dow 18,000 by year-end and a move to 20,000 in 2015. Let's hope he is right.

Macy's will spend $6 million on their fireworks show in New York City. The Boston Pops spent $2.5 million and Philadelphia spent $2 million. There are about 14,000 professionally prepared fireworks shows in America this weekend costing about $320 million. Consumers spent $645 million on "at home" fireworks in 2012, up from $284 million in 1998. The average American spends about $28 a year on fireworks. The 18-24 age bracket averages $70 per season while the age 65 and over spends only $15 each. When you consider how many people don't buy fireworks you realize those individual purchases by those that do are actually a lot higher.

The S&P has now gone 1,005 days without a 10% correction. That is the fifth longest stretch since 1928. It is the longest since a 1,127 day rally from July 1984 to August 1997. The longest ever was a 2,553 day run from October 1990 to October 1997.

Since the Dow was created in 1896, if the index is up in the first half of the year it was up in the second half 71% of the time. If it was down in the first half then it was down in the second half 67% of the time.

The Bank of International Settlements (BIS) is a hub for gathering and analyzing data provided by the 58 member central banks. They provide in depth analysis and broad policy recommendations. They warned last week that short term policy responses to the last crisis may be creating a bigger one down the road. BIS warns that "policymakers have failed to address the root problems that caused the 2007-2008 financial meltdown. Instead of taking a long-term perspective aimed at increasing real economic productivity and output — the kind that actually benefits people by raising living standards — government officials have sought to pump up the numbers through monetary and fiscal stimulus." The bank warned that not only stock exchanges but a whole group of world financial markets are rallying in unison for the first time in 20 years. Commodities, stocks and bonds appear to be betting on continued stimulus and low rates from central banks for years to come. This is creating a bubble that will eventually burst.

The cost of credit default swaps on U.S. debt is rising. The price is not set by the U.S. but by traders demanding more credit insurance on U.S. debt. The reason for this is the rising debt load, now over $17.5 trillion and projected to be $25 trillion by 2022. Secondly the growing hostility in Washington between the President and lawmakers is expected to increase. Republicans are expected to gain a larger and more vocal majority in the House and potentially gain control of the Senate. This means a serious confrontation when the debt ceiling comes up for debate in early 2015. With Obama a lame duck and republicans in control of both houses there will be a huge fight for spending cuts when the current spending limit expires. President Obama has declared forcefully he will not negotiate on the debt limit even though both parties have used the debt limit as a bargaining chip in the negotiations for the last 60 years. The president will negotiate with terrorists but not with lawmakers. How does that work?

With the debt rising and interest rates set to rise the U.S. could see its debt service payments triple by 2020 even if yields on the ten-year note only rise to 3.5-4.0%. Tripling the debt service to $1 trillion a year only means the U.S. will sell another trillion in debt each year to pay for the interest on existing debt. You can't get a cash advance on your credit card to pay your bill forever. Eventually that plan comes to an abrupt halt. Apparently international debt buyers are putting 2 and 2 together and realizing the long term risk of default is growing.

On Thursday Mario Draghi released the plans for what the ECB is calling the "Targeted Long-Term Refinancing Operations" or TLTROs. He said the eventual scope of the program could far exceed the 400 billion euros initially discussed. Under the new program European banks could borrow up to one trillion euros at 0.15% interest as long as they promise to loan the money out. Can you say giga-bubble ahead?

If you want to get out of Mexico and safely into the U.S. hassle free for at least a year you don't have to pay a smuggler or risk your life swimming across the Rio Grande River. Homeland Security is now handing out "Get Out of Mexico Free" cards. The only catch is that you have to snitch on Mexican cartels or drug dealers. If you provide "credible information" that results in arrests the DHS will invite you into the U.S. as a reward. That assumes you live long enough after snitching on your druggie friends to actually get across the border. In order to have enough credible information to qualify you would probably have to be a member of one of the cartels or involved in a drug operation. No problem, all your past sins are forgiven, come on over!

In an interview on CNN a border patrol agent said the U.S. government was giving illegal immigrants a free pass. He said the feds were releasing immigrants coming into the U.S. using the equivalent of an honor system and asking them to report to an immigration hearing 90 days later even though they know very few will actually show up. Agent Hector Garcia defied a government gag order on border patrol agents to tell his story on CNN. Agents have been told not to talk to anyone about their orders and operations and sites where the underage children are being bused are off limits even to Congressmen wanting to see conditions themselves. He also said 70% of border patrol agents have been taken off patrol and assigned to desk duties. You can't make this stuff up.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Today we deal with 65,000 more pieces of information each day than did our ancestors 100 years ago."

Dr. Jean Houston

 


Index Wrap

Charging Ahead In Another Spurt Higher

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I implied last week that traders might not be active in continuing to bid up stocks as part of the 'typical' summer slow down. Whereas, in retrospect, stocks had been going up on the expectation of a favorable increase in the employment numbers. The last spurt higher 'discounted' the even better than expected numbers released ahead of the 4th of July holiday weekend. As to resistance and upside targets, I noted last week (6/28) that:

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

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

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

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

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

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

Whereas the aforementioned moves may suggest further upside to come, it's also true that the major market indexes have reached what I saw as 'reasonable' objectives on the S&P 500 (SPX) and the big cap S&P 100 (OEX). I didn't have a specific objective on the Dow but it did pierce key resistance suggested at 17000 highlighted last time. The Nasdaq also has exceeded my initial targets/resistances in COMP at 4450 and in NDX at 3900.

All of the major indexes may go higher as the current trend is strongly up. However, with volatility so low and overbought indicators (except for INDU) so high (as is bullish trader sentiment), I suggest its time to take profits on bullish strategies or at least partial profits.

By taking profits at pre-set objectives I've never lost more than some further potential unrealized gains. However, the statement that "no one goes broke taking a profit" is TOO simplistic by far, if it means taking profits as soon as your strategies START to work. Exiting too soon means missing what might be a sizable move in your favor; e.g., when NDX goes up 350+ points from where the Index was a relatively 'safe' buy (on a risk to reward basis) around 3550.

I've calculated further upside resistances for the major indices in my comments below. Just so you know my trading philosophy or style: I attempt and succeed often enough to get into significant price swings EARLY and then get out 'early' in the sense that I tend to exit when the indexes I'm following are calculated to be in the last part of a move (e.g., the last 10%); AND, where the risk of a counter-trend correction has grown significantly.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index has been in a solid uptrend, irrespective of the recent short-lived dip TO its relatively steep up trendline. This past week brought an acceleration of the Index's advance as SPX cleared 1980 resistance. My target on SPX in terms of a 'pre-set' objective was 1980-1985 and that's been reached. This is not to say that SPX isn't likely to go to say 2000-2010. It's hard to believe that SO close to a 2000 major milestone, buyers won't push the Index there.

Relative to having bought SPX calls at the time of bottoming action in the 1860 area, another 15 points to 2000 isn't a lot more upside relative to an existing 120 point gain in the Index from trade entry. An added 15-25 points relative to the ADDED risk is another story due to, for example, an increased risk of a shakeout that you don't get out of quickly enough.

Support is highlighted at 1970, extending to 1950. Resistance is suggested at the benchmark 2000 level, extending to 2010-2015.

An indicator of an overbought market is expressed with a high reading (75) in the 13-day Relative Strength Index (RSI) and with high bullish trader sentiment. If there is ANOTHER 'key downside reversal' or some such reversal type price action, this time it could well be a tip off to an interim top or a sideways leveling off trend. A recent 1-day ('key' downside) price reversal didn't predict more than a brief pause in SPX's continued higher advance.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) advance accelerated to the upside this past week once OEX pierced a line of resistance at 867. OEX has reached 864 and could be headed to 890-900, speaking of big even 'milestone' numbers (900).

I've been suggesting taking profits on bullish positions. There's considerable profit waiting to be taken if, for example, you bought into this move during the favorable risk to reward outlook seen in the late-April to late-May bottoming (sideways) chart action. Going out past June expiration was necessary but makes sense as July-August often see even strong uptrends flatten out although not in early-July so far!

I've highlighted near support at 865, extending to 860 per the green up arrows. Not noted on the OEX daily chart, but as suggested at the intersection of the lower up trendline, technical support should come in next in the 850 area; near to the important 50-day moving average also.

The only 'resistance' I can point to is suggested at the upper channel line currently intersecting at 890. 900 is a 'natural' target for the bulls to keep bidding up the big cap S&P stocks to take OEX to or above that big round number.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) is bullish as the Dow has finally gone to a decisive new high above a line of its prior tops in the 16970 area. What was prior resistance in this area should now be a first 'support'. I've estimated a next Dow resistance for just over 17100, with a higher target and possible resistance coming in around 17260.

Last week I pointed to Dow stocks AXP, CAT, CVX (oil) DIS, GE, INTC, JNJ, KO, MMM, MSFT, TRV, UNH and XOM (the other big INDU oil stock) as all looking 'capable' relative to bullish charts, of higher prices. Added to the above 13 INDU stocks was good to strong price action in HD, IBM, MRK, T, and V, making for 18 stocks that collectively pushed the Dow higher; or, at least were not off any appreciable amount in the shortened week just ended.

Support in the Dow below 16970, is highlighted in the 16825 area, then next around 16720 and close above the 50-day moving average which ended the week at 16701.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

I wrote last week that:

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

OK, check and double check as COMP soared to 4485. What next in terms of technical resistance?

I've highlighted the top end of COMP's uptrend channel as potential resistance at 4550. Assuming a decisive upside penetration above its current bullish price channel, a next COMP target and possible resistance, comes in around 4630. Near support is suggested initially at COMP's up trendline intersecting at 4415, with next support seen in the 4350 area.

A very HIGH and overbought RSI is a feature of my key indicators, as is substantial if not 'excessive' bullishness. What makes bullishness excessive is somewhat subjective but is mostly a comparison with the relevant call to put volume ratios of past months and years. My indicator is probably skewed a bit as such low volatility makes for 'cheaper' calls and probably drives some call volume to a degree. I base my model of 'sentiment' on equities-only daily call volume versus put volume.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart is bullish in its pattern and shows a continued strong rate of increase, visually seen in the steep up trendlines comprising NDX's uptrend price channel dating from the mid-May upside breakout above a line of prior resistance at 3615. A bullish outlook was actually warranted from the time when the Index made a second double bottom low on NDX's brief mid-April intraday dip to 3414. The Index has had a heck of move higher to its Thursday end-of-week Close at 3923!

Next (potential) technical 'resistance' is suggested at the upper channel line, currently intersecting at 3970. Next resistance above 3970 is estimated in the 4030 area.

Near support is highlighted at 3850, at NDX's up trendline, with support/buying interest coming in around 3800. Fairly major support begins at 3700.

Like the Composite, the big cap Nasdaq 100 is at an overbought extreme according to the 13-day Relative Strength Index or RSI. At 84 it's as high as I've seen it in the current bull market, since an 83 RSI peak in mid-April 2010. At that time the market topped out over the next 12 trading sessions and had a substantial but brief 200 point dip after that. Past comparisons don't mean the same pattern will reoccur but looking back gives at least some idea of downside risk from prior Market cycles.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bullish in its chart pattern and the only difference suggested by the NDX and QQQ chart patterns is that QQQ just touched the upper end of ITS uptrend price channel, thereby implying potential resistance at Thursday's Close at 95.7.

On the long-term weekly chart (not shown) QQQ's upper channel, and implied resistance, line comes in at 97 currently. I've noted potential next QQQ resistance at 96 on the daily chart, extending to 97 over time.

Support is seen at what was prior resistance at 95 even. Chart support then extends to 94 and still a bit lower to 93.5.

Daily trading volume has been relatively low. I've observed this phenomena over years and still can't quite get used to the fact that uptrends in QQQ don't tend to drive big increases in volume (unlike 'regular' company stocks); only downside reversals below perceived support levels bring big spikes in daily QQQ volume. However, as long as the On Balance Volume (OBV) line is going up, in the SAME direction as prices, volume is 'confirming' an advancing price trend.

I favor taking (assumed!) profits on long positions in QQQ.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) has rebounded along with the Nasdaq, but the weaker RUT Index has of course NOT gone to a new high for the current move. Consequently, I've highlighted very close by resistance at 1209 as seen on the daily RUT chart below. Next resistance then looks like it comes in around 1226 currently.

RUT is 'overbought' in terms of the RSI, suggesting to be alert to a possible double top if the high reading in this indicator suggests trouble in the Russell breaking out to a new high.

I'd exit bullish positions on further strength or on a break below 1200 at this point. 1200 is immediate/near support, with next technical support at RUT's up trendline as highlighted at 1183, with support extending next to the 1170 area. I could have noted 1160 as a further next layer of support also but tend to stick to what I think we could see within a coming week.


GOOD TRADING SUCCESS!




New Option Plays

Energy Rising

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Energy SPDR ETF - XLE - close: 100.39 change: +0.38

Stop Loss: 97.95
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:
Energy stocks are some of the stock market's best performers this year. The S&P 500 index is up +7.4% year to date. The XLE is up +13.4%. Earlier in the year a harsh winter helped drive demand for heating fuels. Now the industry is boosted by rising geopolitical events between Ukraine & Russia and more recently a Sunni jihadist uprising that is pushing Iraq toward a civil war.

Iraq is the third largest oil producer in the Organization of Petroleum Exporting Countries (OPEC). The country produces about three million barrels of oil a day. Iraq also accounted for over half of OPEC's recent production growth. Today the world is concerned that a civil war between hard-line Sunni Muslims in the north and northwest of Iraq and the Shia Muslim government in the south and southeast could damage or severely handicap Iraq's oil production. Meanwhile the Kurds will carve out their own independent nation at the very northern tip of Iraq.

Why should we care about a civil war in Iraq and its three million barrels of oil production a day? We should care because the difference between global oil demand and global oil supply is very tight. The U.S. Energy Information Administration (EIA) estimates that global oil demand will be in the 92 and 93 million barrels a day (mb/d) range in 2014-2015. Furthermore demand will rise 1.2 mb/d both in 2014 and 2015. The Paris-based International Energy Agency (IEA), from the latest data in June 2014, estimates global demand will rise 1.3 mb/d in 2014 to a total of 92.8 mb/d. Yet global supplies are only at 92.6 mb/d.

The world is already falling behind on oil supplies. People often forget that once you drill an oil well production is always declining as there is less and less oil in that well. Eventually wells run dry. Globally this lost production is between -3% and -5% a year. Not only do we need to discover, drill, and produce another +1.3 mb/d to meet growing demand we also have to replace the -3.6 mb/d we're losing every year due to maturing wells. That's almost 5 million barrels of oil a day!

You can see now why Iraq's 3 mb/d production is a focus for the equity markets. We've been lucky so far that nearly all of the fighting in Iraq has been in the northern half while most of the country's oil production and infrastructure is in the southern half. Thus far Iraq's production has not been seriously damaged. There is no guarantee the fighting will stay contained to the north. What happens if Baghdad falls or if the country is permanently divided? Terrorist could target Iraq's production facilities and pipelines.

Fortunately oil production in the U.S. is booming. America just hit 11 million barrels a day. That makes the U.S. the biggest single producer in the world. Current forecast put U.S. production hitting a peak of 13.1 mb/d in 2019. Unfortunately global demand might rise by another 5 or 6 mb/d by then (let's not forget the lost production from declining wells).

Oil prices will most likely remain elevated for an extended period of time. That should mean good news for all the energy companies, up stream, down stream, and everyone in between. A good way to play this strength in energy demand is the XLE, the Energy Select SPDR Exchange Trade Fund (ETF).

The XLE is a basket of over 40 of the biggest names in the energy space from production, to drilling, oil services, and refining. The XLE's top ten components are:

Exxon Mobil (XOM)
Chevron Corp. (CVX)
Schlumberger Ltd. (SLB)
ConocoPhillips (COP)
EOG Resources (EOG)
Pioneer Natural Resources (PXD)
Halliburton Co (HAL)
Occidental Petroleum (OXY)
Anadarko Petroleum (APC)
The Williams Companies Inc. (WMB)

As the violence in Iraq worsened last month we saw the XLE sprint higher in the first three weeks of June. When the stock market experienced some widespread profit taking on June 24th traders rushed into to lock in profits on the XLE. Since then the ETF has been slowly drifting higher.

We believe the up trend continues. The July 1st high was $100.66. Tonight we're suggesting a trigger to buy calls at $100.75. We'll start this trade with a stop loss at $97.95.

Trigger @ $100.75

- Suggested Positions -

Buy the Oct $105 call (XLE141018C105) current ask $1.00

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

Annotated Chart:

Entry on July -- at $---.--
Average Daily Volume = 8.8 million
Listed on July 05, 2014



In Play Updates and Reviews

Another Round of Record Highs

by James Brown

Click here to email James Brown

Editor's Note:

Big cap indices like the S&P 500 and the Dow Industrials surged to new record highs on Thursday.

Our SYNA trade was triggered.

We have updated several stop losses tonight.


Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 94.03 change: +0.55

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: +10.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: AAPL slowly drifted higher but the rally stalled near the $94.00 level on Thursday. I am not suggesting new positions at current levels. I'd rather buy a dip near $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

chart:

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


Ameriprise Financial - AMP - close: 122.42 change: +1.31

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: +47.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: AMP gapped open higher on Thursday morning. Shares ended the week at a record high.

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

chart:

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


Anadarko Petroleum - APC - close: 107.58 change: -0.05

Stop Loss: 105.85
Target(s): To Be Determined
Current Option Gain/Loss: + 32.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: It was a disappointing week for shares of APC. The rally on Tuesday reversed and APC has been slowly fading lower. We are turning more cautious tonight and raising the stop loss to $105.85. More aggressive traders might want to give APC more room to maneuver and keep their stop loss below potential support at $105.00 or the 50-dma, currently at $103.75. 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*

07/05/14 new stop @ 105.85
06/28/14 new stop @ 102.40
06/11/14 APC hit our trigger at $105.25
rumors this morning that XOM might buy APC.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

chart:

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


Capital One Financial - COF - close: 84.95 change: +1.35

Stop Loss: 83.85
Target(s): 85.95
Current Option Gain/Loss: +113.0%
Time Frame: exit prior to earnings on July 17th
New Positions: see below

Comments:
07/05/14: COF continues to show relative strength with a +1.6% gain on Thursday. Chart readers will notice that the stock's rally stalled at potential round-number resistance on the $85.00 level.

More conservative investors may want to take profits immediately. We are setting an exit target at $85.95 and moving our stop loss to $83.85.

COF's earnings are coming up on July 17th and we do not want to hold over the announcement.

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*

07/05/14 new stop @ 83.85, set target at $85.95
06/28/14 new stop @ 77.95
05/28/14 triggered @ 78.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

chart:

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


Demandware, Inc. - DWRE - close: 66.81 change: -0.72

Stop Loss: 65.35
Target(s): To Be Determined
Current Option Gain/Loss: -17.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: DWRE is not performing as expected. More conservative investors may want to exit early now. We are moving the stop loss up to $65.35.

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

07/05/14 new stop @ 65.35
06/28/14 new stop @ 62.45
06/18/14 triggered @ 66.75
Option Format: symbol-year-month-day-call-strike

chart:

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


Cheniere Energy, Inc. - LNG - close: 72.52 change: -0.51

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: +11.5%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: LNG experienced a little bit of profit taking on Thursday with a -0.6% decline. Shares could see a dip toward $70.00, which should be new support.

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

chart:

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


PPG Industries - PPG - close: 210.16 change: +1.85

Stop Loss: 207.75
Target(s): To Be Determined
Current Option Gain/Loss: +45.2%
Time Frame: exit prior to earnings on July 17th
New Positions: see below

Comments:
07/05/14: Honestly I am surprised that PPG has not hit our new stop loss at $207.75. Shares have found short-term support at $208.00 and PPG rebounded on Thursday.

More conservative traders may want to exit now or set a target near the June 30th high of $213.00.

We are not setting a target tonight but we will plan on exiting positions prior to PPG's earnings report on July 17th.

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

chart:

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


Starbucks Corp. - SBUX - close: 79.06 change: +0.87

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +56.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: SBUX continues to boil higher. The stock has closed above potential resistance at its March peak. The stock is now up seven out of the last eight weeks.

I am moving our stop loss to $74.75.

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

07/05/14 new stop @ 74.75
06/28/14 new stop @ 73.40
06/17/14: triggered @ 75.65
Option Format: symbol-year-month-day-call-strike

chart:

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


U.S. Silica Holdings - SLCA - close: 55.97 change: +1.16

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +39.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: Traders continue to buy the dips in SLCA. Shares outperformed the broader market with a +2.1% gain on Thursday. The stock set a new all-time closing high.

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

chart:

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


Synaptics Inc. - SYNA - close: 92.68 change: +0.99

Stop Loss: 87.65
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: SYNA continued drifting higher on Thursday and posted a +1.0% gain and another new high. I would still consider new positions now at current levels. However, nimble traders could look for a bounce off $91.00 as an alternative entry point.

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

chart:

Entry on July 02 at $92.35
Average Daily Volume = 1.45 million
Listed on July 01, 2014


United Rentals, Inc. - URI - close: 108.96 change: +1.46

Stop Loss: 106.60
Target(s): 109.85
Current Option Gain/Loss: +16.8%
Time Frame: exit before earnings on July 16th
New Positions: see below

Comments:
07/05/14: URI outperformed the broader market on Thursday with a +1.35% gain. Shares also closed at a new record high. While the trend is good we are making big adjustments to our strategy.

URI is scheduled to report earnings on July 16th. We do not want to hold over the announcement. Therefore to reduce our risk tonight we are moving the stop loss to $106.60 and setting an exit target at $109.85.

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

07/05/14 new stop @ 106.60 and set a target at $109.85
07/01/14 triggered @ 106.70
Option Format: symbol-year-month-day-call-strike

chart:

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: 61.65 change: +0.76

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: -10.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/05/14: TSCO's oversold bounce continued but as expected shares found resistance near $62.00 and its February low. The intraday high was $62.12.

If the reversal continues on Monday traders could use it as a new entry point. However, keep in mind that TSCO's earnings are about three weeks away. We might decide to exit ahead of earnings.

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

chart:

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