Option Investor
Newsletter

Daily Newsletter, Monday, 7/14/2014

Table of Contents

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

Market Wrap

Transport Average Makes New High

by Thomas Hughes

Click here to email Thomas Hughes
Better than expected earnings from Citigroup helped catapult the market to a new all time highs.

Introduction

The global markets continued to rebound this week with the start of trading in Japan. Asian indices powered their way close to 1% higher and were then surpassed by EU indices and an average 1.5% gain. The ripple of fear that sent the markets seeking support last week has run its course. For now, the focus is back on earnings and Citigroup gave impressed the market with its. The report was a nice surprise for the markets and helped to send the cash markets higher, indicating an opening for the SPX about ten points above last weeks close. At the open the indices quickly found today's highs, a new all time high for the Dow Jones Industrial and Transportation Averages, before settling down for a mild day of trading.


This is the first big week of earnings. It's not the biggest week in terms of numbers, there only about 150 companies reporting, but the bulk of the banks will report this week along with some other important names. Today Citi, tomorrow Goldman Sachs and JP Morgan, Wednesday is Bank of America's turn with Morgan Stanley on Thursday. In between those reports are dozens of small and regional banks as well as other top names. Even though this week is well known as big for banks it is also big for tech, the internet, consumer products, healthcare and others. Names on the list that popped out at me include Intel, Advanced Micro Devices, Yahoo, Ebay, Johnson & Johnson, Abbott Labs, Yum Brands, Google Class A and Whirlpool.

Earnings Calendar 7/15/2014

On top of the rosy earnings news there was other business news for the market to chew on. Sotheby's and Ebay are in talks for teaming up to provide live streaming auctions worldwide. Whiting Petroleum is buying Kodiak Oil and Gas, making the largest single player in the Bakken Shale formation of North Dakota. Alibaba has updated its IPO filing to raise an estimated $130 billion in the initial offering. Shire PLC has received a new bid from Shire that it is considering at this time. Mylan has acquired its tax inversion through the purchase an Abbot Labs international division.

No Economic data was released today but this week is important. There are roughly 20 releases this week, some monthly some weekly. Early in the week is Retail Sales, Empire Manufacturing, Import/Export prices and the Fed's Beige Book. Mid week is dominated by PPI, TIC flows and Industrial Production. Thursday is the usual jobless claims with the addition of housing starts, building permits and the Philly Fed followed up on Friday by Michigan Sentiment, Leading Indicators and CPI.


Even though there is no numerical data for us to ponder today there is always the weekly survey of Business Confidence put out by Moody's. Mark Zandi reports that “US business confidence surged to a record high last week” and that hiring is still strong. In addition to a similar statement in last weeks report he also says that “hiring intentions are especially robust”. This is in line with the last few months of semi robust NFP/ADP numbers and the down trend in jobless claims. There still hasn't been a surprising or marked jump/spike/improvement or what have you in jobs but does there need to be when it keeps going steady the way that it is? And with the number of millenials that will be reaching employment age over the next few years to a decade there are people to keep that trend going for a long time.

The Banking Index

It's bank week so let's start off with the banks. Citigroup reported earnings that beat on the top and bottom lines. The bank also said that it would pay $7 billion to settle charges filed against it in regards to mortgage backed securities. Both revenue and earnings were down from the prior period but not as much as expected. Revenue of $19.3 billion resulted in adjusted earnings per share of $1.24, just a penny of shy of the previous year. Expectations were for earnings to be around $1.08 per share. Interest margins increased to 2.87%, credit losses declined 16%, deposits increased by 3% and loans increased by 8%. Shares of Citigroup jumped more than 3.5% in the pre market but sold off from the opening high. Shared closed up by 3% on high volume. The stock is still well within a long term trading range but indicators support some near term strength and a stochastic buy signal that could take it to the upper end of said range. Current resistance is around $50 with support just below at $47.50 and the short term moving average.


JP Morgan reports tomorrow and is scheduled to release at 7AM. The bank is expected to report earnings of about $1.30 per share, down from the year ago period of $1.45 per share. This is due to an expected 5% decline in revenue. If Citi can be any kind of an indicator then we can now expect JPM to at least meet the expectations as Wells Fargo did last week or beat them as Citigroup did to today. JPM also popped at the open, climbing about 1.25%, but was capped at the 30 day EMA. Current prices are likewise suspended between near term support and resistances around $55 and $57.50. The indicators are bearish at this time but in the process of rolling over. A test of resistance at least could be possible, provided the report tomorrow is not a disappointment.


The Banking Index also jumped but opened inside a potential resistance zone. The index pushed into the zone but was repelled, falling back beneath it before the close. The index has been wrangling with this zone for about a month now, the third time it has been at this level since the first of the year and has yet to break above it. The indicators are not looking good at this time but could be setting up for a break out; if the banks report well, and the index can maintain the current levels, and economic data is good. Current support and resistance are around the $70 and $72.50 levels, with the index right in the middle. A good report from JPM and others could go along way toward helping the index to move up to resistance.

 


The Gold Index

My fears of a bull trap were not misplaced. The rising tide of stocks, boosted today by Citigroup, and the underpinning steadiness of the economic situation pulled the rug out from under gold prices today. Gold fell so hard and so fast at the open of trade this morning that I had to double and triple check to make sure I wasn't hallucinating. Prices on my charts were way ahead of prices on the TV which caused about 5 minutes of confusion, CNBC indicated gold at Friday's close while my charts did not. Price settled just over $1307 per ounce after moving down as much as $35 during the day. Gold is now sitting just above the $1300 long term support/resistance line and what I think could be a pivotal point on the charts. A break below this level could easily take gold down to $1250.

The Gold Index fell as well and a little harder. The Gold index lost over 2.75% in today's action falling from resistance and my suspected bull trap. The index is still above another near/short term support line at $100 but I think it will fall under pressure. There is growing divergence in the MACD with momentum about to turn bearish while stochastic is also diverging and now showing the bearish crossover. In terms of the underlying down trend in the index this looks like a strong trend following signal. Supports are at roughly $5 increments upon a break of $100 with near term possibilities around the 30 day EMA and the March/April bottom. Risk at this time as always is gold price and earnings outlook. A break below $1300 for gold could be a catalyst for a break below $100 in the index. The major miners report earnings around August 7th .


The Oil Index

Oil prices traded in a tight range around $100.75 before ending the day near $101. Prices hovered as traders weigh the possibilities of supply disruptions in Libya even as Libyan production increases. Last week's reports, and updates over the weekend, have current production at Libya's main oil terminal up by roughly 300% to about 450,000 barrels per day. At the same time new violence sprang up in Tripoli and there were renewed protests from rebel factions impeding the operation of the LIbya's other oil port. Also, the possibility that economic rebound could expand/is expanding is on everyone's mind as well.

The Oil Index traded higher today and moved just above the 30 day EMA. The index is making a small, quiet bounce from long term support with early sign of possible entry from the indicator. Bearish momentum has peaked and stochastic is making an early/weak trend following crossover. The index may consolidate along this level until economics, politics or earnings can move oil prices again. A break below 1650 would find support around 1625 and 1600 with up side targets for resistance at 1700 and 1725.


The USD/JPY

The Bank Of Japan meets again this week for its monthly policy meeting. The bank is largely expected to do nothing and even with the recent weak data and poor 1st quarter GDP I tend to agree with that. For one, the yen is well above the original target rates of Abenomics which were around 95. For another the BOJ has said many time that they are happy with the current recovery and see no need to adjust rates. The USD/JPY has been trading in a tight range since February, basically since the BOJ started being firm on current policy, and is near the bottom of that range now. The indicators are very weak and point to a neutral and quiet market.


The Indices

Today the Dow Jones Transports led the way higher. The index climbed close to 0.7% in today's session and making a new all time high. The index also moved above the high of the bull flag I have been tracking in possible confirmation of that pattern. If so this would give the index a target near 8,750 in the short term. The indicators are firing a trend following signal but very weakly. MACD and stochastic are both just crossing their respective signal lines after a short period of flattish movement. This could be just random fluctuation ahead of more substantial earnings or a precursor to expectations from the sector this quarter. Tomorrow JB Hunt, an index component, reports earnings. Today the stock rose about a half percent.


The Dow Jones Industrial Average was runner up today with a gain of 0.65%. The blue chips set a new intra day high but did not manage to hold it into the close. The index is making a bounce from the 30 day moving average with similarly weak indicators. MACD is again right at the zero line while stochastic is basically ranging sideways and with %K and %D not yet even touching, much less crossing. It looks like the index wants to rally again but just needs a push across the line.


The tech heavy Nasdaq Composite took third spot today with a gain of 0.56%. This index is also in mid bounce, from the 30 day EMA and a longer term area of support. Today's action was a lot less decisive than the blue chips or the trannies, forming a spinning top candle stick. Traders are likely waiting for the earnings report from Intel, world's largest chip maker, before making any decisions about market direction. The indicators here are bearish in the near term but have peaked and/or rolled over in the near term. A retest of resistance at the current 14 year high just shy of 4,500 looks probable even without earnings season but I think there is no coincidence here. Intel is scheduled to report after the bell tomorrow, along with Yahoo!, so trading in this index may be muted until late day or after the close, at which time I think things will heat up considerably. Current support is along the moving average near 4,440.


The SPX was today's laggard with a 0.46% gain. The broad index is also bouncing higher from the 30 day EMA but with a little conviction. The index formed a white bodied candle, not remarkably large but big enough to be more than a spinning top. The indicators are also bearish in the near term with momentum peaking but stochastic is not yet rolling over. In the short term there is some divergence between the indicators and price but the sell off last Thursday helped to relieve overbought near term conditions. With the bounce in play I would expect to see the index at least retest resistance at the current all time high with the chance of it gaining momentum for a break through. Earnings, and data, hard to say which will be more important, maybe the way the two combine for future out look, will be key. A failure to break above this level could result in a near to short term double top, based on earnings or economic outlook, with a target at or near the long term trend line around 1900/1925.


The indices appear to be in synch, at least in the near term to short term. This doesn't happen as often as you might think and could prelude a sharper than normal movement, in either direction. All four that I track are bouncing from the short term moving average with indicators that are in early stages of rolling into a trend following signal. This is all happening while they are facing long, short or near term resistance in the form of an all time or long time high. Except for the Dow Jones Transports which set a new high today. The transports are a historical leader of the markets and have been doing a fine job of it recently as well. If earnings, guidance and economic data point to continued growth then I expect to see new highs for all the indices.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Tough Environment For Retail

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Ross Stores Inc. - ROST - close: 65.06 change: -0.74

Stop Loss: 67.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
According to the company website, Ross Stores, Inc. is an S&P 500, Fortune 500 and Nasdaq 100 (ROST) company headquartered in Dublin, California, with fiscal 2013 revenues of $10.2 billion. The Company operates Ross Dress for Less ("Ross"), the largest off-price apparel and home fashion chain in the United States with 1,146 locations in 33 states, the District of Columbia and Guam at fiscal 2013 year end.

Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. The Company also operates 130 dd’s DISCOUNTS in ten states.

The retail sector has had a rough year. 2014 started off with a harsh winter that kept consumers at home. Just about everyone blamed the terrible weather on terrible sales numbers in the first quarter. ROST joined the crowd when they reported earnings in February and lowered guidance. The first quarter has been followed by a tough Q2 as well.

Winter seemed like it would never go away. When spring finally showed up retailers were fighting for every consumer dollar. The apparel stores are facing a very competitive and highly promotional environment. There have been warnings and bearish commentary from all sort of retail players including Family Dollar, The Container Store, Rent-A-Center, and retail giant Wal-Mart.

This year the consumer has had to suffer through elevated gasoline prices at the pump and a sharply rising food prices. Everything from beef, pork, vegetables, and eggs have been rising. Every dollar spent on groceries and gas is another dollar that doesn't make it into the discretionary items.

ROST has been no exception. The company's most recent same-store sales figures had fallen to just +1% growth. Wall Street is concerned as well. There is a growing worry that ROST's sales growth will remain stuck in low single digits. Margins are also under pressure and will likely be flat to down. It's no surprise

Technically ROST's bearish trend of lower highs and lower lows has pushed the stock to key support near $65.00. This is where the stock bounced back in February. The intraday February 2014 low was $65.15. Today ROST dipped to $64.96 intraday.

I am suggesting a trigger to buy puts at $64.75. If triggered our short-term target is $60.00. Earnings are coming up on August 21st. We may choose to exit prior to the earnings announcement.

I am listing the November puts but you might want to use the August puts, which have more volume. Today the August $65 put was popular with over 2,000 contracts trading.

Trigger @ $64.75

- Suggested Positions -

Buy the Nov $62.50 PUT (ROST141122P62.5) current ask $2.30

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

Annotated Chart:

Weekly Chart:

Entry on July -- at $---.--
Average Daily Volume = 1.4 million
Listed on July 14, 2014



In Play Updates and Reviews

Market's Rally Triggers New Trades

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's widespread rally on Monday triggered our new trades.

AAP, HAR, and SAFM all hit our entry points today.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 134.81 change: +1.52

Stop Loss: 129.40
Target(s): To Be Determined
Current Option Gain/Loss: -2.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: The market's widespread gains on Monday allowed AAP to breakout from its recent trading range under $134.00. Shares hit our suggested entry point 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.

- Suggested Positions -

Long Sep $140 call (AAP140920C140) entry $3.50*

07/14/14 triggered @ 134.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on July 14 at $134.25
Average Daily Volume = 818 thousand
Listed on July 09, 2014


Apple Inc. - AAPL - close: 96.45 change: +1.23

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: +31.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: Positive analyst comments helped give AAPL a boost this morning. Not one but two firms raised their price target on AAPL to $110 today. This may have helped overpower rumors that AAPL's larger big-screen iPhone expected this September might be delayed until next year.

Investors may want to start raising their stop loss.

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

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


Ameriprise Financial - AMP - close: 121.77 change: +0.71

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: +33.3%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: AMP gapped open higher this morning. The rally stalled near its early July (all-time) highs. It looks like $122.60 area is short-term resistance.

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

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


Harman Intl. Industries - HAR - close: 117.15

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: - 5.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: HAR garnered bullish analyst comments today. That may have helped shares spike higher at the opening bell. The stock opened at $117.00 and quickly hit our suggested entry point at $117.25. Unfortunately the rally stalled after the opening pop.

Investors may want to consider waiting for a dip in the $114-115 zone as an alternative entry point (suggested in the initial play description).

Earlier Comments: July 12, 2014:
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.

- Suggested Positions -

Long OCT $120 call (HAR141018c120) entry $6.00*

07/14/14 triggered @ 117.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on July 14 at $117.25
Average Daily Volume = 715 thousand
Listed on July 12, 2014


Cheniere Energy, Inc. - LNG - close: 72.00 change: +0.88

Stop Loss: 66.40
Target(s): To Be Determined
Current Option Gain/Loss: - 8.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: LNG bounced and outperformed the major indices with a +1.2% gain. Readers could use this bounce as a new bullish 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

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


Sanderson Farms, Inc. - SAFM - close: 102.59 change: +0.58

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: -5.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: The stock market's broad-based rally on Monday lifted SAFM to a new high. Shares hit our suggested entry point at $102.55 in the first minute of trading. I would still consider new positions now at current levels.

Earlier Comments: July 12, 2014:
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 little 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.

- Suggested Positions -

Long NOV $110 call (SAFM141122C110) entry $5.80

07/14/14 triggered @ 102.55
Option Format: symbol-year-month-day-call-strike

Entry on July 14 at $102.55
Average Daily Volume = 305 thousand
Listed on July 12, 2014


Starbucks Corp. - SBUX - close: 78.56 change: -0.04

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +35.5%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: SBUX underperformed the market today. Shares closed virtually unchanged but when the rest of the market is in rally mode today's relative weakness could be a warning signal. Some of SBUX's momentum indicators are starting to roll over.

If SBUX does see a pullback look for support near $76.00 or its 200-dma.

The company has earnings on July 24th.

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

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


U.S. Silica Holdings - SLCA - close: 55.82 change: +0.31

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +23.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: SLCA grinded out a minor gain after churning sideways all day. Investors may want to wait for a move over $56.50 before considering new positions.

Earnings are coming up on July 29th.

Earlier Comments: June 14, 2014:
There is a new gold rush going on for sand! America's shale oil and gas boom has created another boom for sand producers. Energy companies use hydraulic fracking to mine oil and gas out of tight shale formations. This fracking technique blasts millions of gallons of water at high pressure into shale rock where the oil and gas is trapped. These wells can cost between $4 million and $12 million each. In order to maximize their returns drillers use proppants to help "prop" open these minute cracks in the shale rock to help the oil and gas escape to the surface.

The cheapest and one of the most effective proppants has been fine sand. SLCA has been providing sand for industrial use for over 100 years. The company currently has 297 million tons in reserve. Oil and gas industry demand for proppants is expected to rise +30% between 2013 and 2016. That might be underestimated. The energy industry consumed 56.3 billion pounds of sand for fracking in 2013. That's up 25% from 2011.

According to SLCA they saw a +45% increase in demand for their sand. SLCA's CEO reported that some hydraulic fracking wells have doubled their use of sand from 2,500 tons per well to 5,000 tons. There are some wells using up to 8,000 tons.

Demand has been so strong that SLCA is actually sold out of some grades of sand and they're raising prices (about +20%) on non-contracted silica. SLCA believes demand for their products will rise another 25% this year alone.

Wall Street has taken notice of the dynamics of the sand industry and shares of SLCA have soared from their February 2014 lows. It may not be a coincidence that the stock was added to the S&P 600 smallcap index in February this year.

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

- Suggested Positions -

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

07/01/14 new stop @ 49.25
06/17/14 triggered @ 52.15
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

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


Energy SPDR ETF - XLE - close: 99.25 change: +0.85

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:
07/14/14: The XLE energy ETF outperformed the major indices with a +0.86% gain. We are still waiting on a breakout to new relative highs.

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

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




PUT Play Updates

Tractor Supply Co. - TSCO - close: 60.65 change: +0.30

Stop Loss: 62.15
Target(s): To Be Determined
Current Option Gain/Loss: + 6.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/14/14: The oversold bounce in TSCO continued on Monday with a +0.5% gain. It looks like the rebound's momentum as slowing as TSCO near what should be resistance in the $61-62 zone.

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

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