Option Investor
Newsletter

Daily Newsletter, Thursday, 7/17/2014

Table of Contents

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

Market Wrap

Another Flight To Safety

by Thomas Hughes

Click here to email Thomas Hughes
The possible shooting down of a Malaysian Air flight on the border between the Ukraine and Russia sparked another flight to safety.

Introduction

An early day of quiet trading turned sour when reports a crash was possibly an attack from unknown sources along the Ukrainian/Russian conflict zone. The crash happened but the details remain murky. What matters is that the chance it was an attack or mistaken attack raised the possibility of escalation in the region and sent traders seeking safer havens. Backing up to the start of the day Asian indices were mixed on profit taking and earnings. European indices were impacted by action in Asia but also by renewed tensions with Russia following President Obama's increased sanctioning. Early indications here at home had the indices down about a half percent with that moderating somewhat before the opening bell.


There was quite a lot going on today even without the airline crash. Of course earnings are in full swing, economic data was on the heavy side as well. Earnings are coming in steady with more companies meeting or beating expectations than not. A few companies are not meeting the expectations and some of them and others have also lowered expectations. Three additional reports on top of the weekly jobless claims reveal that things are still the same. Slowly growing but not as strong as we would like to see and no sign of any surprise surge in growth could be on the way. Jobless claims remain steady in the near term and continue to decline in the longer terms. Housing permits, a sign of planned construction, fell last month along with housing starts. Regional manufacturing data rose more than expected and suggest that some momentum is building.


The early signs were that the SPX would open down about 9 points. This moderated as the data was released and earnings were reported. The index opened down only a few points and found early support above 1975. By the end of the first half hour the index, along with the other majors, had bounced back to break even. I thought reports from the Philly Fed would help to get us into positive territory but I was wrong. The indices drifted sideways for the next hour and half with no real indication of market intentions until the first whispers of the plane crash started coming in. At that time the SPX sank close more than 15 points to the intraday low. The news caused sharp movements in some of the safe haven plays like the yen and gold. After the initial drop in equities the news tempered a little and the markets were able to find some support.

The Economy

First up on the economic calendar today was jobless claims. Initial claims for unemployment fell by -3,000 from an upward revision of 1,0000 for a net drop of -2,000 from last weeks reported figures. This is against expectations of a rise near 10,000. The four week moving average also fell, to 309,000, the lowest level since June of 2007. On an unadjusted basis claims rose by 47,000 or 14.6%. State by state Michigan led with a gain of nearly 10,000 new claims while California had the biggest drop in claims with -4,008. Based on the graph provided by the Bureau of Labor Statistics initial claims have been trending near the bottom of the range for some time now and look ready to break below 300,000. Regardless, claims are trending at the low end of the range and holding steady, enough to help other data points trend lower.


Continuing claims fell more than expected to a new low not seen since June of 2007 as well. Claims fell by -79,000 to 2.507 million. This is a sharp drop and an extension of a downtrend in longer term unemployment. As I have postulated before, I view the initial claims as a sign of turnover in the market and continuing claims as a sign of how quickly a person who gets fired can find work and total claims as an indication of longer term unemployment. This is not official, just a theory I have in place. In that light total claims also fell, by -20,292, to 2.446 million.


Housing permits and starts were released at 8:30AM coincident with the claims data. Permits fell versus an expected rise. On the flipside the previous month's data was revised higher to just over 1 million homes. While the new data suggests building permits cooled off a little for the current month the revision shows they were stronger last month and could lead to more starts in the next month. This month housing starts fell by -9.3% to 893,000 missing estimates. Last month's data was also revised higher but not over 1 million. This could get revised higher in light of the higher revision to permits.

The bit of data I thought might move the market a little more was the Philly Fed Survey Of Business. The survey rose to a reading of 23.9 from last month's 17.8 versus an expected fall to near 12. All readings within the report rose in June and all future indications were rose or remained positive. This is the fifth month of positive readings in the survey and reflect sentiment similar to that reported by Mark Zandi in his weekly survey of business. This is also the highest level for this indicator since March of 2011. New Orders are up 17, Shipments up 9, labor is near flat but improved.

Accoriding to RealtyTrac foreclosures are down to 2006 lows and down -16% from last year. Todya's data reveals that nothing has changed. Employment trends are still positive, housing is still growing slowly and business sentiment is positive.

Safety In Gold

The crash report sent traders scurrying in a knee jerk reaction into gold. Gold prices had been up a few dollars and were hovering just above $1300 when the reports started to flow in. At that time gold prices shot up $20 or so. The metal found resistance at $1325 and moderated down to a closing price of just over +$17. This situation could keep some buying in gold in the near future, at least until we get a better indication of what happened. For now no one is taking credit.

The Gold Index climbed more than 2% today in the hopes that gold prices would remain elevated. The index is making a bounce from support but still indicated very weak. Bullish momentum is still in decline and stochastic is moving lower. The long term trend is down, the most recent signal is bearish and today's rise is driven by news/flight to safety reactions. This may be another trap and one to be cautious of.


The Oil Index

Oil prices may have been affected by the crash news but were already on the move. WTI had been up close to to $2 earlier in the day and moved back up to the daily high before the close of the session. WTI climbed $1.92 while Brent rose only about $0.60, narrowing the spread some. The positive Chinese GDP released earlier this week, our own economic data, earnings and a draw down in stocks are providing a reason to think oil demand could rise. WTI settled at $103.10 at the end of today's session. The Oil Index fell today, in line with stocks and not with the underlying commodity. The index is now sitting on the short term moving average with long term support just a few points lower. Bearish momentum is in decline while stochastic is indicating an early buy suggesting that a stronger signal could be on the way. Support is at 1,650 so that is the line to watch for now. A break below that would find support at 1,625 and 1,600.


In The News

Microsoft made a big headline today announcing 18,000 new job cuts. The cuts are focused on the Nokia branch of the business, purchased last year, and are part of the overall restructuring process begun by the new CEO. The move will cost the company close to $1.5 billion dollars over the coming quarters and is expected to reduce long term operating costs, streamline and focus business segments. The stock popped on the news during the early session and gapped up at the open. Strong selling ensued driving prices down from the open but not below yesterday's close.


The Banking Index

Morgan Stanley was the last of the big financials to report earnings today. They too beat estimates, by a nickel. Adjusted EPS is $.60 and comes on slightly better then expected revenue. The report says that loan portfolios continue to grow and that the company expects this to continue into the future. The stock moved higher in pre market trading and then gapped up to resistance at the open. After trying to move higher selling pressure took over and sent shares lower. Morgan Stanley has been trending sideways for almost a year and is now moving down from the upper end of that range. The indicators are listless and without direction, in line with a trading range .


The BKX fell pretty hard today, aided by lack luster revenue guidance from regional bank FifthThird. The index dropped more than 2% to come to rest on a near/long term support line. Indicators are weak and point to a further move lower. Bearish MACD is picking back up and stochastic is trending lower in the range with a potentially bearish crossover. A break below this level could take the index to the next support around $67.50. Earnings this quarter were good, I think now there is concern for more improvement into the future.


Earnings Roundup

There was a flurry of reports before the bell today including the banks. Phillip Morris, tobacco maker, beat on the top and bottom lines. The company also reaffirmed full year guidance. Shares of the stock were one of today's few gainers. SAP, one of the fastest growing cloud companies, beat expectations and raised its full year guidance. The company said that it is experiencing subscription growth and higher revenue rates for cloud computing. Shares of this stock gapped up at the open and then sold off during the day, closing with a small gain. United Health Care also beat earnings expectations. The health company reported $1.42, $0.16 better than the consensus estimates. Investment company Blackstone beat on the top and bottom lines. The company reported the gains come on the back of sales of assets in the private equity side of business. Shares of Blackstone carried the trend of gapping up at the open, then selling off during the day. Medical products maker Novartis also reported profits and revenue above estimates and reaffirms full year guidance. Novartis shares bucked the trend, gapping lower and rising during the day. After the closing bell earnings from Google had the market moving a little. The internet giant beat expectations with an increase of profit on better than forecast revenue.

The VIX

The VIX spiked with today's sell off. The so called fear gauge climbed by more than 25% today creating one of the longest candles I have ever seen it make. Looking back over the past 3 or 4 year the index has made a few candles of this nature but they always precede a subsequent drop. Nearly every time the index makes such a strong move the next day it moves down with an equally strong movement. The few times it did not the down move came a day or two later. This could be a sign of something good for the market as it could be wiping a lot of negativity and expectations of pullback or correction out of the market. In the near term and going into tomorrow the news will have a lot to do with how the index and the market reacts. If the crash scenario detoriates, or looks like Russia was behind it, then there will likely be more selling.


The Indices

The Techs and the Transports tied for biggest decline today with a drop of -1.41 each. The Transports are falling from a brand new all time high and still above near term support. The indicators are still on the neutral side although bullish at the time. The recently turned bullish MACD is already peaking and stochastic is still moving sideways, just under the upper signal line. There is something going on here and I'm not sure what it is yet. If the selling persists there is support for the index just below today's closing price along the 8,250 round number level, and then just below that at the 30 day moving average. The long term trend is up but it looks at this time that the index may consolidate some in the near term with a chance of it moving down to the long term trend line about 300 points lower.


The Techs were also hit hard today as traders moved out of the riskier assets and into the safer plays. The Nasdaq Composite has now made a lower high and is in danger of making a lower low. Today's move down took the index below my long term support line and the short term moving average with increasingly bearish indicators. Momentum is on the rise and stochastic is moving lower in the range. I expect to see some more weakness here with a possible strong retest of support. A break below would find first support near 4,300 with a short term target down around 4,100.


The broad market fell more than 1% today for the first time in nearly 3 months. The last time I can see for sure, without measuring, was April 10th. That was during a long term trend line bounce and I think that is what could be happening now, a move down to the long term trend line. Today's move was a drop down from the resistance of current all time highs and has the look of a consolidation or correction to trend. The long term trend line is not far from the current level and could be reached with only a few days of moderate selling.


The Dow fell by just under a full percent, also moving down from a freshly set all time high. Today's move brought the index back below 17,000. The index is still above the short term 30 day moving average with indicators that are positively neutral. MACD is at the zero line and has been over the last few peaks while stochastic is firmly trending through the middle of the range. These readings are highly divergent and could be leading to a correction or pull back in the index. Support for the index is found below the 17,000 line at 16,750 and 16,500.


There has been some underlying near term weakness in the markets of late and only needed a catalyst to set it off. Not anything overtly bearish but as if the market was waiting for something and this is what it got. The geo politics in Ukraine and Israel are near term problems just like they ISIS last month, Ukraine the month before and others along the way. The long term trends are up and I expect them to continue but for the near term earnings haven't been strong enough to keep the market elevated. This correction is good for the rally as it will provide a cooling off time and potential trend following entries in the future. Tomorrow may be a tough day because of the plane crash story that is still unfolding but keep in mind that economic data and Fed outlook point to continued, steady growth through the end of the year at least. What was once called the most hated rally I now dub the Tortoise Rally, slow and steady, slow and steady.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Investors Looking For Safety

by James Brown

Click here to email James Brown

Editor's Note:

It was a busy news day. There were a lot of headlines for the stock market to digest and most of them were negative.

Just last night President Obama announced another round of targeted sanctions against Russia for its support of the pro-Russian insurgents in Ukraine. Then today a passenger jet was shot down near the Russian border.

Malaysian Airlines

It's been a tough year for Malaysian Airlines. In March the airline lost Flight 370 from Kuala Lumpur to Beijing in international waters. Today Malaysian Airlines lost flight 17, which was headed from Amsterdam to Kuala Lumpur. This was a huge Boeing 777 jet with 280 passengers and 15 crew. Reports suggest it was shot down at 33,000 feet by a surface-to-air missile near the city of Donetsk, a bastion for the pro-Russian separatists.

No one is claiming responsibility. The Ukrainians blame the rebels and the rebels blame the Ukrainians.

Israel Troops

Hamas terrorists tried to infiltrate Israel through an underground tunnel today. They were stopped by Israel's defense forces but the event sparked a massive ground offensive by Israel into Gaza. Israel had been preparing for such a move and calling up reservists in the last few days.

The Israeli operation hopes to eliminate most of the Hamas weapon stores in Gaza. These last few weeks have seen a constant barrage of rockets and mortars into Israel. 75% of the Israeli population has been at risk from these rocket attacks, which had grown to over 120 rockets a day. The ground offensive is expected to last 10 days.

As geopolitical risks escalate the markets saw investors pulling money out of stocks and into traditional safe haven trades like bonds and gold, which both rallied today.

We are not adding any new trading candidates tonight.




In Play Updates and Reviews

Stocks Drop On Geopolitical Fears

by James Brown

Click here to email James Brown

Editor's Note:

Stocks did not respond well to news that a Malaysian Airlines passenger jet was allegedly shot down with a surface-to-air missile over Ukraine airspace near the Russian border.

News just before closing bell that Israel has started a ground offensive in Gaza helped send stocks lower and could also depress stock prices tomorrow.


Current Portfolio:


CALL Play Updates

Advance Auto Parts Inc. - AAP - close: 129.86 change: -1.96

Stop Loss: 129.40
Target(s): To Be Determined
Current Option Gain/Loss: -44.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: It has been a painful three days for AAP. The stock is down three days in a row and shares settled near what should be support at the $130.00 mark. The intraday low was $129.73. Our stop loss is at $129.40. I am not suggesting new positions at current levels.

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: 93.09 change: -1.69

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: -5.8%
Time Frame: exit prior to earnings on July 22nd
New Positions: see below

Comments:
07/17/14: Uh-oh! AAPL gave up -1.78% today. That underperformed all the major U.S. indices. Today's drop also confirms yesterday's bearish reversal candlestick pattern.

More conservative traders may want to exit immediately. AAPL has earnings coming up on Tuesday, July 22nd. We have decided to exit positions prior to the earnings report and then we'll re-evaluate a new trade once the post-earnings dust clears.

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

07/17/14 has confirmed yesterday's bearish reversal candlestick. Readers may want to exit early now. We will plan to exit prior to earnings on July 22nd
07/16/14 AAPL has generated two technical reversal patterns in back to back sessions.
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: 120.71 change: -1.50

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: +16.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: AMP's early gains reversed and shares closed down -1.2%. Shares will likely test the $120 level tomorrow. If $120 fails then $119.00-118.00 should be short-term support.

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


Emerge Energy Services LP - EMES - close: 108.57 change: -1.16

Stop Loss: 104.75
Target(s): To Be Determined
Current Option Gain/Loss: -16.9%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: The early rally in EMES failed near $110 again. The stock ended the session near its 10-dma. If this pullback continues the $106.00 level looks like it might be short-term support.

Earlier Comments: July 15, 2014:
The shale energy rush in America continues. Widespread hydraulic fracturing wells means big demand for sand. The process of hydraulic fracturing or "fracking" happens deep underground. Oil and natural gas drillers reach deep into the shale formation. Then they pump tons of water and proppants (usually sand) into the formation to fracture the rock and allow the oil and natural gas to escape and be pumped up to the surface.

Drillers use sand to prop open the tiny cracks in the shale rock formation, which allows for a better flow and larger output from the well. The demand for fracking sand is expected to grow +10% a year for the next 8 years. Drillers have figured out how to boost their production. Instead of fracturing the well just once they could do it up to 40 times. The amount of proppant used has jumped from 2,500 tons to 8,000 tons per well.

According to the EMES website, Emerge Energy Services is a diversified energy services company that operates in two key segments of the energy industry: Sand Production and Fuel Processing and Distribution. Through its subsidiaries, Emerge Energy Services provides critical products and services to both the upstream and midstream energy segments.

Emerge Energy Services' sand subsidiary produces silica sand that is a key input for the hydraulic fracturing of oil and gas wells. While the Company is able to produce sand suited for the stimulation of both oil and gas wells, the Company has developed a strong reputation in the industry for producing sand that meets the strict requirements for use in oil wells.

Emerge Energy Services' Fuel Processing and Distribution ("FP&D") segment is primarily focused on acquiring, re-refining and selling transportation mixture ("transmix"). Transmix is received by the business from a number of common carrier pipelines that include the Explorer, Plantation, and Colonial pipelines, as well as via truck and private pipeline from independent refinery and terminal operators. Additionally, the FP&D division includes wholesale, terminal and biodiesel operations.

EMES last reported earnings on May 5th. It was their Q1 results, which came in at 77 cents a share. Wall Street was expecting 69 cents. EMES' revenues soared +80% to $274 million, surpassing estimates of $261 million. EMES' Chairman of the Board said it was the company's strongest quarter as a public company. The Chairman also said, "even with an industry wide shortage of railcars, we sold a company record 882,000 tons of sand, while our fuel division continues to outperform our expectations." Analysts have forecasted EMES' 10-year earnings growth at 33%.

The company is investing over $100 million into two new sand mines that are expected to be ready for production by the end of next year. This will add 5 million tons of sand capacity, which would make EMES the largest fracking sand producer in the country.

I will note the stock's gap down on June 20th. That was a reaction to a secondary offering of 3.5 million units at $109.06 a share. Fortunately there was no follow through on the drop and shares of EMES have been drifting higher. Currently shares are hovering just below resistance at $110.00. We are not setting an exit target tonight but the Point & Figure chart is forecasting at $133 target. More than one Wall Street firm has a $120 price target on EMES.

Tonight we are suggesting a trigger to open bullish positions at $110.25.

Investors should note that shares of EMES can be volatile. We love the story and the bullish outlook but I would probably label this an aggressive, higher-risk trade due to the stock's volatile moves.

- Suggested Positions -

Long Sep $115 call (EMES140920C115) entry $6.50*

07/16/14 triggered @ 110.25
Option Format: symbol-year-month-day-call-strike

Entry on July 16 at $110.25
Average Daily Volume = 586 thousand
Listed on July 15, 2014


Harman Intl. Industries - HAR - close: 112.26 change: -2.42

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: -41.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: HAR has just posted its third decline in a row. The stock underperformed the major indices with a -2.1% decline. Today's move does break short-term support at its 10-dma and the $114.00 level.

I am not suggesting new positions at this time.

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: 70.35 change: -0.25

Stop Loss: 66.40
Target(s): To Be Determined
Current Option Gain/Loss: -29.8%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: LNG announced another natural gas deal today. The Electricite de France, S.A. (EDF) has signed a 20-year deal to buy 7.65 million tonnes of liquid natural gas a year from LNG's Corpus Christi facility.

The news failed to move shares of LNG, which continue to hover just above support at $70.00. More conservative investors may want to raise their stop loss.

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: 99.48 change: -1.81

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: -31.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: The market's widespread sell-off on Thursday pushed SAFM to a -1.78% decline and a breakdown below what should have been support at $100.00 and its 10-dma. Today's move is clearly short-term bearish. More conservative investors might want to abandon ship early here. I am not suggesting new positions at this time.

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

07/17/14 today's move breaks short-term support. More conservative investors may want to exit early now.
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: 77.24 change: -1.49

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: - 0.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: SBUX has broken down under short-term support near $78.00. After two weeks of consolidating sideways this drop today is very short-term bearish. Readers may want to exit early now.

I am not suggesting new positions at current levels.

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: 57.52 change: -0.20

Stop Loss: 53.25
Target(s): To Be Determined
Current Option Gain/Loss: +58.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/17/14: Shares of SLCA were upgraded this morning and given a $64 price target. The stock reacted with a spike up to $59.22 before reversing.

I don't see any changes from yesterday's comments. SLCA could see potential resistance at $60.00. More conservative investors might want to consider taking profits as SLCA nears the $60 mark.

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*

07/16/14 new stop @ 53.25
SLCA buys a Texas-based sand producer for $98 million
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: 98.70 change: -1.62

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:
07/17/14: XLE tried to rally today but the ETF failed twice near $100.50. By the end of the day the XLE had erased yesterday's gains. We are still on the sidelines. Our 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

Ross Stores Inc. - ROST - close: 62.19 change: +0.04

Stop Loss: 65.65
Target(s): To Be Determined
Current Option Gain/Loss: + 23.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
07/17/14: After yesterday's big drop shares of ROST produced a little dead cat bounce today. I would not launch new positions at current levels.

Earlier Comments: July 14, 2014:
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.

- Suggested Positions -

Long Nov $62.50 PUT (ROST141122P62.5) entry $2.60*

07/16/14 new stop @ 65.65
07/16/14 triggered on gap down at $64.57, suggested entry point was $64.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on July 16 at $64.57
Average Daily Volume = 1.4 million
Listed on July 14, 2014


Tractor Supply Co. - TSCO - close: 61.10 change: +0.15

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:
07/17/14: Someone is still buying shares of TSCO. It could be short covering. The stock is up four out of the last five trading days. Today saw TSCO rally towards resistance near $62.00 and spike to $62.08 before reversing. Our stop loss is at $62.15. We were expecting the $62.00 level to be resistance. Further weakness from here would look like a new bearish entry point but I would not launch positions this close to earnings.

TSCO is scheduled to report earnings on July 23rd.

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

07/15/14 TSCO is not cooperating. Readers may want to exit now with our option back to breakeven.
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