Option Investor
Newsletter

Daily Newsletter, Saturday, 7/12/2014

Table of Contents

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

Market Wrap

A Rocky Week For Stocks

by James Brown

Click here to email James Brown

The U.S. stock market started the third quarter on an up note. Momentum faded and equities experienced a rocky week thanks to some troubling headlines out of Europe. Believe it or not but after last week's choppiness and widespread declines the S&P 500 index is still less than one percent from its all-time high set on July 3rd - just five trading days ago.

Market Statistics:

Stocks just delivered their worst weekly performance in three months. The small cap Russell 2000 index led the way with a -3.99% plunge. The NASDAQ composite fell -1.6% for the week. Both the Dow Industrials and the large cap S&P 500 managed to pare their weekly losses to less than 1%.

Tuesday and Thursday were pretty ugly considering the low-volatility environment. Yet traders are still in a buy-the-dip mood. The main stories fueling the market weakness was disappointing economic data out of Asia and Europe. Plus, a shocking revelation out of Portugal that resurrected all the worries about a financial meltdown in Europe but we'll talk more about that in a minute.

Money was searching for safety and U.S. bonds rallied. The yield on the 10-year note pierced 2.5% on Thursday and closed at 2.52% on Friday. Gold was also in rally mode and the GLD broke out to three-month highs. Gold is currently up six weeks in a row, which makes it the best streak since August 2011. Gold prices are up +6% in the last six weeks and up +10.9% for the year. Meanwhile gold miners are really outperforming. The GDX gold miner ETF is also up six weeks in a row. It has been a very volatile year for the GDX but it's currently up +29% year to date.

Weekly chart of the Gold Miner ETF (GDX)

In contrast oil is down sharply. West Texas intermediate crude oil futures fell -2% to close at $100.83 a barrel. Oil is now down 9 out of the last 10 days and just marked its fourth weekly loss in a row. The International Energy Agency said Iraqi oil production fell -260,000 barrels a day last week but the difference was made up by other OPEC nations. Fighting continues in Iraq but the headlines are not making front page news so its impact is not having an effect on investor sentiment.

Economic Data

It was a quiet week for economic data in the United States. The only real event was the FOMC minutes from the June meeting. The message the market got from the minutes was that the Fed is likely to end its current QE program and reduce the stimulus by the last $15 billion in October. You could choose to interpret that as confidence that the U.S. economy is improving. Analyst are now looking beyond the end of QE and speculating on when the Federal Reserve will start to raise rates again.

Bloomberg noted some good news in consumer sentiment hitting the highest levels in six years. The Bloomberg Consumer Comfort Index rose +1.2 to 37.6 the week ending July 6th. The component that measures consumer outlook on the U.S. economy reached levels not seen since January 2008.

With little economic news in the U.S. the markets looked overseas and what they saw was disappointing. Germany said their industrial production fell -1.8% for the month. That's down from a -0.3% reading the month before. Italy reported a -1.2% drop in their industrial production and Great Britain saw a -0.7% drop.

Japanese machinery orders plunged -19.5% for the month, which doesn't bode well. China said their exports rose +7.2% in June. That looks like good news but economists were expecting a +10% gain. Meanwhile Germany said their exports actually dropped -1.1% in May. That was worse than the -0.4% estimate.

The real story of the week was in Portugal. With a GDP of $212.5 billion and a population of less than 11 million people, Portugal is not a very big player on the world stage. Yet the European banking system is so interconnected that if Portugal were to see a dramatic failure the shockwave could affect the entire region. Espirito Santo International failed to make a short-term debt payment. ESI happens to own Espirito Santo Financial Group SA and Banco Espirito Santo. Suddenly the creditworthiness of both financial companies were in question. The two stocks plunged -9% and -14%, respectively, before the exchanges halted trading.

This news fueled a serious case of nervousness for the European financial system and European banks were hammered lowered. The Portuguese stock market fell -4.2% on Thursday while the country's bond yields soared. Portugal's central bank was trying to soothe investors' fears on Friday and the major European indices (Germany, France, and Britain) all bounced.

American banking giant Wells Fargo & Co (WFC) was making headlines on Friday. The company reported Q2 earnings before the opening bell. Wall Street was looking for a profit of $1.01 per share with revenues in the $20.7-20.8 billion range. WFC met expectations with a profit of $1.01 on revenues of $21.1 billion. Net income was $5.7 billion. That's up from $5.5 billion a year ago.

Shares of WFC were down every day last week and gapped down on Friday morning as traders sold the earnings news. Analysts are a little concerned about WFC's net interest margin. A year ago WFC's net interest margin was 3.40%. The first quarter it was 3.20%. Last quarter this fell to 3.15%. WFC is one of the biggest mortgage lenders in the country. The bank said its mortgage originations hit $47 billion in the second quarter. That's down from $112 billion a year ago but up from $36 billion in the first quarter.

Weekly chart of the Wells Fargo (WFC)





Major Indices:

The S&P 500 lost -0.9% for the week. The index pierced short-term support near 1960 and its 20-dma on Thursday. On a short-term basis the index looks like it wants to rally. Yet looking at the weekly chart you can see how over extended the index really is. The S&P 500 has gone more than 1,000 days without a -10% correction. In a normal market it would see a correction about once or twice a year.

I don't see any changes from my prior comments on the S&P 500. If the 1960 level fails then there might be support at 1940 and 1920. The real level to watch is most likely the 1900 area, which would coincide with the bottom of its long-term bullish channel on the weekly chart.

chart of the S&P 500 index:

Intraday chart of the S&P 500 index

The NASDAQ composite posted a -1.6% loss for the week. The good news is that this index managed to bounce near its prior highs. There is no guarantee that "support" near 4370 is going to hold.

If the NASDAQ breaks down below the March peak then 4300 is the next likely level of support. A really ugly drop could pull the NASDAQ down to its long-term trend line of higher lows on the weekly chart.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

Right now there is a lot of focus on the small cap Russell 2000 index. This index just delivered its worst weekly performance in two years with a -4% plunge. The $RUT has clearly reversed at resistance near its March highs. This is starting to look like a bearish double top. One of the fast money guys on CNBC called it an "epic" double top.

There is still potential support in the 1140-1150 zone. Below that the 1080-1100 area is probably decent support. The six-week up trend from the May lows is clearly broken.

The current sell-off in the $RUT has 39% of the Russell 2000 stocks trading in bear market territory.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

This week will see an increase in economic reports. We'll get two Fed surveys with the New York and Philadelphia reports. Plus, the wholesale look at inflation in the PPI.

The pace of Q2 earnings announcements will pick up speed.

Economic and Event Calendar

- Monday, July 14 -
Q2 earnings season announcements pick up speed.
Citigroup (C) reports earnings

- Tuesday, July 15 -
New York Empire State manufacturing data
Retail sales for June
Import/Export prices
JPM, GS, INTC, and JNJ reports earnings

- Wednesday, July 16 -
Producer Price Index (PPI)
U.S. Industrial Production data
Federal Reserve's Beige Book
BAC and EBAY report earnings

- Thursday, July 17 -
Weekly Initial Jobless Claims
Housing Starts & Building Permits
Philadelphia Federal Reserve survey
MS, IBM, and GOOG report earnings

- Friday, July 18 -
University of Michigan Consumer Sentiment
G20 Meetings
GE, HON, and KSU report earnings

Looking ahead the market still faces potential geopolitical risks. The situation in Israel is slowly escalating. Hamas terrorists fired over 800 rockets and more than 60 mortars into Israel last week. The Israelis responded with airstrikes that hit more than 1,000 targets. On Friday Israeli commandos traded fire with Hamas fighters but it does not appear to be part of a full scale invasion. Israel has not ruled anything out and continues to build up its forces on the Gaza border. Israeli Prime Minster Netanyahu said he has spoken with several world leaders in the past week including U.S. President Obama and several European leaders. If the Israeli army does march into Gaza it might be negative for investor sentiment.

The situation in Ukraine is not improving either. On Friday the pro-Russian rebels killed almost two dozen Ukraine forces. This time they were using "heavy" weapons including what appear to be Russian rockets. Ukraine President Petro Poroshenko had declared that, "For every life of one of our soldiers, the militants will pay with dozens and hundreds of theirs." U.S. Vice President Biden spoke with Poroshenko on Saturday saying the U.S. would continue to pressure Russia to do more to stop the violence and remind them of the consequences if they do not. There will be an EU summit in the July 16-18 time frame and one of the main topics will be Russia and if the country has done enough to counter the rebels that Ukraine claims are being supplied by the Russians.

With the exception of the small cap Russell 2000 index the U.S. market seems to be hovering near its highs. Investors are waiting for more data and earnings results from the Q2 earnings season. The real focus will be guidance.

James







Index Wrap

Sideways to Lower

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The major indexes were down on the week as prices worked sideways to lower. The pullback hasn't been big as stocks 'throw off' their prior overbought extremes.

The outlook for the Market turned mixed as many buyers stepped to the sidelines as Q2 earnings started coming out. Technically, a correction was 'due' given the overbought extremes that were reached prior to this past week. And, all it takes is a more or less sideways move to cause the Relative Strength Index (RSI) 'overbought' readings to decline down to more neutral territory.

I suggested taking profits on bullish positions last week and am not pining to get back in given the way the charts are looking currently in pause mode. It looks like a good course of action is to stand aside as the long-term uptrend pauses. As to adopting bearish strategies I don't see the percentages in that either as the dominant trend remains up.

Unlike the S&P 500 (SPX), the big cap S&P 100 (OEX) and the Dow 30 (INDU) have yet to Close below their up trendlines. The previously strong Nasdaq 100 (NDX) has also not made a decisive downside penetration of its up trendline in that Closing levels have maintained the Index above its bullish/up trendline.

The Russell 2000 (RUT) is the weakest of the indexes. When RUT got back the area of prior intraday highs, it fell sharply after that; well, at least from a line of resistance at 1209 to Friday's Close in RUT at 1159.

It looks like we're now in the summer doldrums and the recent sideways to lower correction may go on for a while. A good time to take a break from assuming any large bets on further upside and letting the current correction play itself out as S&P and Nasdaq volatility indexes have rebounded some from very LOW recent levels.

It's another matter if prior highs are clearly exceeded but it's not what I forecast near-term at least.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index is bullish on an intermediate to long-term basis and bearish to 'mixed' on a short-term one. SPX fell below its previous up trendline. Not surprisingly in that the prior up trendline, dating from the mid-May low, was a steep one. I have no trading suggestions except to stand aside from taking on new positions.

The risk of another down leg is large enough that, taking on bullish positions doesn't have a favorable risk to reward outlook in my opinion.

Resistance is seen in the 1985 area, extending to 2000. Technical/chart support is highlighted in the 1950 to 1940 price zone; I'd also note that very short-term support is suggested by the 21-day moving average and if SPX started falling below this key trading average, this could set the stage for a test of lower support area.

Back to back closes above 1985 would suggest that 2000 could get tested; the same thing for closes below 1940, as suggesting further weakness. Bullishness is still quite high. If it was lower and my 'CPRATIO' indicator line came down some more, this could help set the stage for a next rally.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) advance has stalled a bit but Closes have held above OEX's up trendline dating from mid-May. The 21-day moving average, as is the case with SPX, is important in gauging short-term price momentum; trade above this average suggests that prices are maintaining an uptrend and below this line as suggesting prices may be headed lower still.

Key resistance in the area of prior highs comes in around 878. Next resistance is at 885.

Near support is suggested at 866, tracking the aforementioned 21-day average. Support then extends to 860. Fairly major support comes in the area of OEX's up trendline and its 50-day moving average; i.e., at 852-853.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) has lost short-term momentum as intraday lows fell back to INDU's up trendline; to below this line on Thursday and Friday intraday, but not on a Closing basis and the all-important 'moment of truth' so to speak.

Updating the bullish list of the 30 individual Dow stocks there are 8 (down from around 18) that have not faltered in their bullish weekly chart patterns: CAT, CSCO, DIS, INTC, JNJ, MSFT, TRV and UNH. This 'bottoms up' analysis suggests that INDU may be headed lower.

Near resistance is at 17000, extending to 17075. Near support is seen at 16800, with next technical/chart support suggested in the 16720-16700 area.

I'm neutral on the near-term outlook. INDU could go up, could go down. Yes, I know, not a profound statement but that's the way things look, especially when you flip through the 30 Dow component charts. It's a coin toss to a degree but short-term momentum is down and the trend uncertain in the near-term.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

"The Nasdaq Composite Index (COMP) has fallen under its admittedly steep up trendline dating from mid-May and suggests we may see further downside. I'll also be watching the 21-day moving average as a harbinger of future direction as trade above it suggests the trend is up, trade below this key average suggests potential for another down leg.

Technical support, beside that implied by the 21-day average, is highlighted at 4350, extending to 4300.

Near resistance is obviously suggested by the recent intraday COMP high at 4485. Next key resistance comes in at 4550, extending to 4600.

The 13-day Relative Strength Index (RSI) has pulled back to a more or less 'neutral' reading. My sentiment indicator (CPRATIO) saw a mid-week reading that was also a neutral mid-range reading but bullish sentiment still predominates. I lean to the view that we'll have some more days when bullishness falls off before we see another sustained rally in the Composite.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart is maintaining bullish Closes above its up trendline so I continue to rate the chart as bullish; especially so, as the lowest low of the week (Thursday) rebounded from NDX's 21-day moving average. 3850 is a key must hold support for the bulls. Back to back Closes below 3850 suggests potential for another dip such as to 3800 or a bit lower, such as to 3750.

Near resistance is implied by NDX's prior intraday highs at 3923. A close above this prior high that continued to provide support in subsequent days would suggest upside potential to the pivotal 4000 level. We'd then have pundits speculating if NDX might not eventually challenge its 2000 monthly tops in the 4200-4300 area, to a peak around 4800.

My outlook is more or less neutral on NDX. Individual key tech stocks within the Index are still going up strongly; others are in correction mode or marking time. A mixed chart here and I don't want to suggest staying in bullish positions after what was a heck of run up. I like that part, not the part where we speculate on whether the index in question might go up somewhat more but its no longer clear sailing higher.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bullish in holding 94 support and the stock (or 'ETF' properly) looks capable of re-testing prior highs at 95.7. A close above 95.7, that didn't reverse lower the following day(s), would suggest potential to the upper end of QQQ's uptrend price channel, currently intersecting at 96.7

Key near support is at 94-93.6, extending to 92.7.

The On Balance Volume line (OBV) is trending sideways to lower and Friday's spurt higher was on very low volume. Recent volume activity doesn't lend much bullish support to the price chart.

Overall, as with NDX, I'm neutral and lack conviction for the prospects of a renewed push higher. I've suggested in the past week taking profits on bullish positions.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart is bearish in its pattern but RUT has paused after appearing to find support in the area of its 50-day moving average. This, after RUT retraced approximately half of its prior advance.

Near support is suggested by the 50-day moving average, currently at 1150. Next lower chart/technical support comes in around 1120.

Near resistance is highlighted at 1170; next resistance is in the 1185 area (not noted on my chart) and then at the line of prior highs at 1209.

RUT tends to be a buy when it gets oversold but can hit such levels more than once. I suggest, besides keeping an eye on price action for signs of bottoming, to follow the 13-day Relative Strength Index (RSI) when readings are below 40 and especially when RSI gets to around 35.


GOOD TRADING SUCCESS!




New Option Plays

Electronics & Chickens

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Harman Intl. Industries - HAR - close: 116.51

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Automobile sales in the U.S. have been strong this year. Instead of playing the carmakers, which run the risk of announcing yet another recall, consider a derivative play. HAR makes speakers and electronics that are part of the growing "connected car" trend (a.k.a. infotainment systems).

HAR is developing a very bullish trend of beating Wall Street's earnings estimates. Their last two reports were both upside surprises in January and May. Both times HAR not only beat estimates on the top and bottom line but management also guided earnings higher.

The most recent report was May 21st. Analysts were expecting a profit of $1.00 a share on revenues of $1.27 billion. HAR delivered $1.12 a share with revenues hitting $1.4 billion. HAR said recovering demand in European luxury cars and growing demand in China helped fuel their gains.

Management explains that consumers want the connected car experience. The HAR teams says there is pent up demand in Europe that will likely stabilize soon. Meanwhile their business in China is surging. China is now the largest automobile market in the world and HAR's sales surged +60% in China last quarter.

Looking at that last quarter HAR reported revenues were up +32% from a year ago to $1.4 billion. Their bottom line EPS grew +41% to $1.12. They expect to end their fiscal year 2014 with revenues of $5.275 billion, up +23% from the year before.

HAR has also been making acquisitions. They recently announced a $365 million deal to buy AMX LLC, which is an enterprise control and automation system company. HAR plans to roll that up into their professional division. HAR also bought Yurbuds last month. Yurbuds is the number one brand of sports headphones in the U.S.

Last month HAR announced they were raising their quarterly dividend from 30 cents to 33 cents a share.

Technically shares have broken out from a five-month consolidation phase in the $100-115 zone. Shares have weathered the market's recent weakness pretty well. Friday's close at $116.51 is a new seven-year high. I suspect HAR can rally into the $125-130 zone, which has been resistance in the past. The Point & Figure chart is more bullish and currently projecting at $146 target.

Tonight I'm suggesting a trigger to buy calls at $117.25. More patient investors may want to use a different strategy and buy a dip or a bounce from the $114.00 level, which looks like it could be short-term support.

We'll start with a relatively wide stop loss at $109.90.

Trigger @ $117.25

- Suggested Positions -

buy the OCT $120 call (HAR141018c120) current ask $5.80

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

Annotated Chart:

Weekly Chart:

Entry on July -- at $---.--
Average Daily Volume = 715 thousand
Listed on July 12, 2014


Sanderson Farms, Inc. - SAFM - close: 102.01 change: +1.55

Stop Loss: 97.25
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:
Sanderson Farms actually started out as a farm supply business back in 1947. A few years later they started raising chickens. Today they are the third largest chicken ranch in the United States processing more than 9.3 million chickens a week.

If you have been shopping for a backyard BBQ this summer then you already know that meat prices are high. A long, widespread drought has been plaguing cattle ranchers for months and beef prices are soaring. At the same time disease has killed millions of pigs this year reducing the supply of pork. This has fueled a surge in beef and pork prices. Chicken has been on the rise as well but consumers appear to be buying more chicken as an alternative to pricier meats.

SAFM has developed a very strong trend of beating Wall Street's earnings estimates. They have beat analysts estimates the last two quarters in a row by a very wide margin. Consensus estimates for the first quarter of 2014 was 85 cents. SAFM reported $1.25. Analyst estimates for the second quarter was $1.75. SAFM smashed that with a profit of $2.21 a share. Revenues have also beaten expectations. For the whole year SAFM's earnings are expected to rise +68%.

Summer is the peak season for chicken demand. Investors could start to bid up shares of SAFM ahead of its next earnings report in late August. Meanwhile SAFM could provide a floor in the stock price. Earlier this year management extended their stock buyback program to buy up to 1.0 million shares. That is almost five percent of the stock's 20.3 million share float. They have 23.0 million shares outstanding.

It is also worth noting that SAFM could be a buyout target. Back in May this year shares of Hillshire Brands Co (HSH) soared from $37 to $45 on a takeover bid. Suddenly a bidding erupted and three weeks later HSH had popped to $62 a share. Bloomberg thinks that SAFM could also be a takeover target as the meat industry continues to consolidate.

A takeover would be bad news for all the shorts in SAFM. The most recent data listed short interest at 17% of the float. The current breakout to new highs and the rally past round-number resistance at $100.00 could fuel more short covering.

Friday's high was $102.28. I am suggesting a trigger to buy calls at $102.55. More nimble traders might want to consider waiting for a potential dip into the $100.00-100.50 zone instead as an alternative entry point. The low on Friday was $99.90. We're not setting an exit target yet but do plan to exit prior to earnings in late August.

Trigger @ $102.55

- Suggested Positions -

Buy the NOV $110 call (SAFM141122C110) current ask $5.70

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

Annotated Chart:

Weekly Chart:

Entry on July -- at $---.--
Average Daily Volume = 305 thousand
Listed on July 12, 2014



In Play Updates and Reviews

Stocks Drift Higher Friday Afternoon

by James Brown

Click here to email James Brown

Editor's Note:

After Thursday's intraday bounce from the market's morning lows it took a while for the rebound to resume on Friday.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 133.29 change: +0.13

Stop Loss: 129.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
07/12/14: Investors' Business Daily reaffirmed the idea that auto part stocks have been outperforming the market. The industry is up about 11% versus a +7% gain in the S&P 500. AAP remains one of the strongest performers with a +20% gain this year.

AAP's quiet consolidation continued the last few days. The stock is just hovering in the $132-134 zone. We're currently suggesting a trigger to buy calls at $134.25.

Earlier Comments: July 9, 2014:
The average car on the road in the U.S. today is over 11 years old. Even though the pace of new car sales has been strong in 2014 there are large chunks of the consumer that are still struggling. Older cars mean higher demand for auto parts.

AAP is in the services sector. The company is one of the largest auto parts retailers in the nation. They recently bought General Parts International for $2.08 billion in a cash deal that closed early this year. That added 1,233 Carquest stores and 103 Worldpac branches.

AAP believes they will be able to achieve about $190 million in synergies over the next three years. Analysts believe that AAP, now even bigger, will be able to negotiate better prices with wholesalers and rev up its supply-chain efficiencies.

The company delivered strong gains in the first quarter in spite of the lousy weather. That's a feat many retailers failed to accomplish with same-store sales up +4%. The company is also seeing improvement in its gross margins.

While the U.S. economy is slowly improving we are not seeing significant wage inflation. Consumers are still looking for bargains. That means more older cars on the road and more consumers buying auto parts to keep their older cars running.

IHS Automotive said the average age of light vehicles is currently 11.4 years. This includes cars, SUVs and light trucks. That's the average. This is expected to rise to 11.5 years by 2015 and 11.7 years by 2019. Older cars require more maintenance and more replacement parts. This is a strong tailwind for AAP.

AAP's recent breakout past resistance at $130.00 is bullish. The recent pullback looks like a buying opportunity. However, I'd like to see some follow through on today's bounce. Yesterday's intraday high was $133.99. I am suggesting a trigger to buy calls at $134.25.

FYI: We are not setting an exit target tonight but the Point & Figure chart for AAP is bullish with a $154.00 target.

Trigger @ $134.25

- Suggested Positions -

Buy the Sep $140 call (AAP140920C140) current ask $3.30

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

chart:

Entry on July -- at $---.--
Average Daily Volume = 818 thousand
Listed on July 09, 2014


Apple Inc. - AAPL - close: 95.22 change: +0.19

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: +18.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/12/14: AAPL continued to bounce on Friday but gains were mild. The stock did garner positive analyst comments and a new $112 price target. There was also a story that a Chinese news agency was labeling the location-tracking feature in Apple's iPhone a national security threat. The main worry was that the U.S. government could use this tracking data to learn "state secrets" in China. On Saturday AAPL responded to the story saying they do not track a user's location. AAPL posted a statement on its website saying they have "never worked with any government agency from any country to create a backdoor in any of our products or services." Plus, "we have also never allowed access to our servers and we never will. It's something we feel very strongly about."

The stock market expects AAPL to launch a new iPhone in September this year. AAPL wants to make sure they do not alienate their Chinese market.

Technically shares of AAPL are doing okay. The stock is up three weeks in a row and just bounced off their 10-dma on Thursday morning. Investors need to decide. Will you exit your calls as AAPL near resistance at the $100.00 mark? Or will you hold on as until we get closer to the expected iPhone 6 product launch in September.

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: 121.06 change: +0.79

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/12/14: The rebound in AMP continued on Friday with a +0.65% gain. That was enough to outperform the major U.S. indices. Shares are testing their 10-dma again.

On Thursday night we raised our stop to $115.75. More conservative investors may want to use a higher stop loss.

I am not suggesting new positions at this time.

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

07/10/14 new stop @ 115.75
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


Cheniere Energy, Inc. - LNG - close: 71.12 change: +0.50

Stop Loss: 66.40
Target(s): To Be Determined
Current Option Gain/Loss: -17.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/12/14: LNG continues to find support near $70.00. Traders could choose to buy calls now or wait for a rally past the short-term trend of lower highs (a move above $72.00) as an alternative entry point.

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

07/10/14 new stop @ 66.40
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


Starbucks Corp. - SBUX - close: 78.60 change: -0.25

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +39.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/12/14: SBUX received positive analyst comments on Friday. Yet shares underperformed the major indices with a -0.3% dip. Traders did buy the stock near $78.00 and SBUX bounced back above its simple 10-dma again.

A couple of things to be aware of, SBUX has earnings coming up on July 24th. The $80.00 and $82.50 levels could be overhead resistance.

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: 55.51 change: +0.14

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:
07/12/14: SLCA delivered a quiet session on Friday with shares drifting sideways inside a 75-cent range. The stock has some short-term resistance near $56.50 and support at near its rising 20 and 30-dma.

I suspect a breakout past $56.50 would signal a run towards the $60.00 mark.

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


Energy SPDR ETF - XLE - close: 98.40 change: -0.76

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

Comments:
07/12/14: Crude oil's bounce on Thursday snapped a nine-day losing streak. The commodity immediately reversed on Friday and fell to a new two-month low. The International Energy Agency reported that Iraqi oil production dropped 260,000 barrels a day but the loss was made up by increases in other OPEC nations. Somehow oil traders saw this as another reason to sell. Oil is breaking its multi-month trend of higher lows and WTI crude oil closed at $100.83 a barrel on Friday.

The sharp drop in crude on Friday is the most likely culprit for the relative weakness in the XLE on Friday. I am suggesting we give the XLE one more day. If this ETF doesn't recover then we'll likely remove it as an active candidate.

Technical traders will note the bullish channel on the XLE chart below. A bounce from $98.00 (bottom of the channel) could be used as an aggressive entry point to buy calls.

I am not suggesting new positions at this level. The newsletter's suggested entry point is $100.75.

Earlier Comments: July 5, 2014:
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)

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

chart:

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




PUT Play Updates

Tractor Supply Co. - TSCO - close: 60.35 change: +0.43

Stop Loss: 62.15
Target(s): To Be Determined
Current Option Gain/Loss: +14.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/12/14: It is odd seeing TSCO showing relative strength after its earnings warning on Wednesday night. Shares continued to bounce on Friday and outperformed with a +0.7% gain. Lack of follow through lower is troubling if you're bearish.

The top of the gap down in the $61.00-61.50 zone should be short-term resistance. The $62.00 level should also remain overhead resistance. Tonight I am adjusting our stop loss down to $62.15.

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

07/12/14 new stop @ 62.15
07/09/14 after the closing bell TSCO issued a Q2 earnings warning
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