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Daily Newsletter, Tuesday, 7/22/2014

Table of Contents

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

Market Wrap

Bad Earnings Ignored

by Jim Brown

Click here to email Jim Brown

Multiple negative earnings reports were ignored and the market rallied anyway. We are officially in the Twilight Zone.

Market Statistics

A flurry of Dow components reported earnings today and the results were not good. Despite some sharp declines from those stocks the market rallied anyway and another short squeeze was born. The futures began to rally Monday night after CMG beat earnings by a mile and Netflix failed to disappoint. Hopes for a strong earnings cycle rose and futures rallied. The Dow spiked for the first 40 minutes of trading before flat lining into the afternoon. However, attempts to sell it off into the close eventually failed.

It was a heavy day for economics and most of the data was positive. This added to the premarket futures rally. The Consumer Price Index (CPI) headline number rose +0.3% for June, compared to +0.4% in May. The core rate excluding food and energy rose only +0.1% and in line with estimates. Higher gasoline prices were the major driver of the headline number with a +1.6% rise. Food prices only rose +0.1% and a dramatic decline from the +0.4% average over the last four months.

The core rate of inflation for the last 12 months is +1.9% and the Fed is targeting up to 2.5%. The headline rate is 2.1%, food +2.4% and energy +3.1%. Overall this report substantiates Janet Yellen's claim that the higher inflation earlier in the year was just noise. Longer term inflation is definitely contained.


Existing home sales rallied +2.6% to an annualized rate of 5.04 million units. This is up from 4.91 million in May. This is the fastest pace since October and the severe weather dip has been erased. Home prices are up only +4.3% over the last 12 months. The number of homes for sale are increasing slowly at a +2.2% rate as current owners realize they may not be able to qualify for a loan on a replacement house. Home price appreciation slowed to +4.3% compared to +13% on a trailing 12 month basis for June 2013.

Distressed sales are dropping rapidly as are foreclosures. The share of distress sales dropped to 11% of the total in June, down from 15% in June of 2013. Lower priced homes are shrinking with higher priced homes making up the majority of the homes available on the market. Investor buying is slowing now that prices have firmed and supply of inexpensive homes shrinks.

The separate FHFA Purchase Only House Price Index showed home prices rose +0.5% in May and +5.5% over the trailing 12 month period. This includes new homes as well as existing homes.


The Richmond Fed Manufacturing Survey rose from 4 to 7 for July. The components were mixed and the gain came from the shipments component rising from 1 to 3 and employment rising from 4 to 13. New orders were flat at 5 and backorders rose from contraction territory at -4 to flat at zero. The average workweek declined from 5 to 3 and inventories rose from 8 to 12. Rising inventories suggest consumers are not increasing purchases. The lack of backorders shows a weak order flow and the shrinking workweek suggests part time workers are seeing their hours cut and new hires are coming in under the 30 hour level where health insurance has to be provided under Obamacare. One interesting component was supplier delivery time, which rose from 2 to 12. With all the slack in the economy why is the delivery time rising?

The Richmond Services Survey rose from 9 to 12 for July. The main driver was retail sales revenues. Expected demand for the next six months rose from 10 to 24 and retail demand was expected to rise from 1 to 21. This was a strong report.


The calendar for the rest of the week is light with the Kansas Fed Survey and Durable Goods the only material reports. Of the two the Durable Goods will be the most important because it has a direct impact on the Q2 GDP estimates.

Next week is the FOMC meeting and the next cut in QE. After a tame CPI report there is little worry the Fed will do anything but stay the course and the statement should not contain anything to roil the markets.


Earnings are front and center this week with 12 Dow components and 133 S&P 500 components reporting. Tuesday through Thursday is the most active three days for the earnings cycle.

Dow components were making the biggest headlines and most were not good. Travelers (TRV) reported earnings of $1.93 compared to estimates of $2.07. Revenue rose +2% to $6.79 billion. However, catastrophe losses rose +28% to $436 million. Also today a federal appeals court ruled Travelers had to pay more than $500 million to settle some asbestos related claims stemming from policy holder Johns-Manville.

Travelers does not provide guidance but comments from the CEO seemed to suggest earnings would be pressured for the rest of the year. Shares fell -4% for the day.


McDonalds (MCD) posted earnings of $1.40 compared to estimates for $1.44. Global same store sales were flat with U.S. sales down -1.5%. The company said July comps were expected to be negative. McDonalds is fighting growing competition from places like Five Guys and the addition of sandwiches to the Starbucks menu to name just a couple.

McDonalds warned on Monday a supplier in China shipped them beef and chicken that was out of date and they had to remove some items from the menu and sales were expected to decline as consumers went elsewhere for fast food.


Coca-Cola (KO) reported earnings that declined -3% to 64 cents that beat estimates by a penny. North American volume was flat and global volume rose only +3% thanks to growth in carbonated beverages. U.S. consumers are drinking less carbonated beverages and more water and juices. Sales were actually better because the date for Easter fell favorably into the quarter. That means Q3 could be even worse for sales. The lack of hot weather so far this summer suggests sales could be light.

Diet Coke sales are declining with a drop of up to -2% for the quarter according to JP Morgan. Diet carbonated beverages are declining for everyone as the health negatives become better known. On the conference call the company said consumer skepticism about the safety and quality of artificial sweeteners was weighing on sales. Higher commodity costs related to the juice beverages also weighed on earnings.


DuPont (DD) reported adjusted earnings of $1.17 that were in line with estimates. Revenue declined -1.4% to $9.71 billion and missing estimates for $10.02 billion. The company said weak sales as a result of a wet spring were continuing into Q3. The company warned operating earnings at the agricultural unit would be down -11% in Q3. Sales were expected to decline to $9.71 billion compared to analyst estimates of $9.79 billion. The company said farmers were concentrating on soybeans instead of corn and soybeans made up only 14% of DuPont's 2013 sales.


Altria Group (MO) reported earnings of 65 cents compared to estimates of 66 cents. Tobacco volume declined -5%. The stock declined only fractionally on the earnings miss because they announced a $1 billion stock buyback.

Kimberly Clark (KMB) reported earnings that declined -3.2% to $1.49 per share and in line with estimates. Revenue rose +1.4% to $5.34 billion and slightly better than the $5.31 billion expected. The company narrowed full year guidance to the low side from $6.00-$6.20 to $6.00-$6.15. shares declined -3% on the report.


Harley Davidson (HOG) reported earnings of $1.21 compares to estimates for $1.46. The company also cut full year guidance to 270,000-275,000 bikes compares to prior guidance for sales of 279,000-284,000 bikes. The company blamed the weak Q2 performance on the lingering winter weather that kept people out of the showrooms early in the quarter. However, they sold 58,225 bikes in the quarter compared to 58,241 in Q2-2013. That is not much impact from weather. Shares fell -5.4% on the report.

I think it is strange that they had an 18.7% jump in sales in Q1 when the weather was the worst and blowout earnings of $1.21 compared to estimates for $1.07. So why did Q2 weather hurt them so badly? Can you say, "Convenient excuse."


At the same time Harley was suffering from the cold Polaris (PII) was selling everything in stock. I know it is an unfair comparison since Polaris makes snowmobiles and four-wheelers as well as motorcycles but I could not resist the comparison.

Polaris reported earnings of $1.42 which rose +26% and beat estimates by +3 cents. Revenue rose +20% to $1.014 billion and slightly ahead of consensus. They also raised full year guidance to $6.48-$6.58 per share up from $6.30-$6.45, an increase of 21% on revenue growth of 17%. Analysts were expecting $6.49. North American sales rose +15% in Q2.


Lockheed Martin (LMT) profits rose +3.5% to $2.76 compared to estimates for $2.66. The company also raised full year guidance from $10.50-$10.80 to $10.85-$11.15. Total revenue declined -1% to $11.31 billion due to a decline in U.S. spending. Shares rallied +3% to $168 and the prior resistance high.


After the bell Microsoft (MSFT) reported adjusted earnings of 66 cents compared to estimates for 60 cents. Those comparisons may not be apple to apples. Some analysts did not factor in the impact of the Nokia acquisition and some did. Microsoft said their actual earnings were 55 cents after subtracting 8 cents for Nokia and 3 cents on restructuring charges. Revenue rose +18% to $23.4 billion with $2 billion coming from Nokia. This was slightly ahead of the $23 billion expected.

Microsoft said it was cutting up to 18,000 jobs and would take charges over the next two quarters between $1.1 to $1.6 billion. The new cloud services and software effort produced $4.4 billion in revenue. The company is also benefitting from the end of Windows XP, an OS version that lasted 12 years. They sold $409 million in Surface tablets, 1.1 million Xbox consoles, and 5.8 million Lumia smartphones and 30.3 million lower priced non-Lumia models it is discontinuing.

Shares rose 50 cents in afterhours.


Apple (AAPL) reported earnings that rose +12% to $1.28 and beat estimates of $1.23 on a 6% rise in revenue to $37.43 billion. Revenue missed estimates for $37.99 billion. The rumor of a 4.7 inch iPhone 6 plus a 5.5 inch model probably weighed on iPhone 5 sales in the quarter that totaled 35.2 million. That was a +13% rise in volume but Apple said it would have been more but the leaks from suppliers on the new products ahead restrained sales. If the bigger screens appear as expected it could be an explosive quarter for Apple sales.

iPad shipments totaled 13.3 million and a -9% drop. That is the second consecutive quarter for declining iPad sales. Apple hopes the newly announced partnership with IBM will provide a boost to tablet sales. Apple was granted a patent this week for a "touch screen device to be worn on the wrist" and it will be called iTime rather than the iWatch. This patent makes it even more likely the iTime product will be announced in Q3.

Shares of Apple declined -44 cents in afterhours.


Electronic Arts (EA) announced adjusted earnings of 19 cents compared to estimates for a loss of -4 cents. Shares initially rallied strongly in afterhours but then fell back to earth to close down -30 cents. The company said on the call it had delayed the launch of the next version of "Battlefield" until early 2015. Previously it was expected before the holiday shopping season and this will hurt Q4 sales. The company did reaffirm full year revenue of $4.1 billion and earnings of $1.85 despite the delay in Battlefield. CFO Blake Jorgensen said the company was seeing strong headwinds on sales of products for the older Xbox console while sales for the new Xbox and Sony PlayStation were running 90% ahead of the older models.


Chipotle Mexican Grill (CMG) reported blowout earnings Monday night and the stock rallied +12% today. Chipotle's earnings are a slap in the face to McDonalds. The company sells higher priced fast food and sales are booming. If you have the right menu consumers will beat a path to your door.

The company's same store sales rose +17.3% and they opened 89 new stores so far this year. They currently have about 1,700 stores on their way to 4,000 in the U.S. alone. They expect to open up to 195 stores in 2014. Revenue is expected to rise +25% from the current $4.5 billion to more than $5.5 billion in 2015. Revenue in Q2 rose +26% to $1.05 billion. Earnings increased +24% to $3.50 per share. For comparison YUM Brands reported a 2% increase in Taco Bell's sales and McDonalds reported a -1.5% decline in U.S. sales. Chipotle is showing everyone else how to run a fast food chain.


So far this earnings cycle 23% of the S&P have reported, prior to today, and 66.1% beat on earnings while 22.6% missed estimates. The earnings growth so far has been close to 7% and well over the revised estimates of 3.3% just a couple weeks ago. However, 77 companies have warned on guidance so there are still some problems in earnings world.

Earnings due out on Wednesday include Facebook, Boeing and Gilead with Facebook probably the most watched. Thursday is another big day with numerous high profile reporters and then the announcement calendar begins to fade next week.


Walmart (WMT) said it was cutting back-to-school (BTS) prices by another 10% and increasing the number of BTS products on its website by 30% to 75,000. Walmart is suffering from five consecutive quarters of sales declines and they are pulling out all the stops for this BTS season. Teachers who shop there are eligible for e-gift cards for 10% cash back on 15,000 products. It is the first time Walmart has offered a cash back program. The company estimates teachers spend about $1,000 preparing their classrooms for the fall semester. Half of that comes from their own pockets. WMT shares were down fractionally.

Pershing Square Capital Management's Bill Ackman had a very public humiliation today. On CNBC on Monday he said he was giving a presentation today that would be a death blow for Herbalife (HLF). Ackman has a $1 billion short on Herbalife with an average cost of $40. He has been battling the company in high profile appearances since 2012 and the stock refuses to die.

Yesterday the stock fell -12% after Ackman promised the death blow in his presentation today. He said it will be the most important presentation of his career. Unfortunately he over promised and under delivered. There was no death blow and investors rushed back into Herbalife while he was speaking and pushed the stock up 25.4% for the day. In the middle of his three hour presentation he was told the stock was spiking and he tried to blame it on Herbalife's stock buyback program and the company trying to make him look bad. Shares rallied +14 to $68 and a five-month high.

Trading volume was the most since February 2013 at 98.1 million shares. That is hardly a buyback program in progress. It was a massive short squeeze after Ackman promised on Monday the stock was going to zero. So many people believed him that stock lost -$9 immediately after his CNBC appearance. All of those shorts and probably a lot that were already short were scrambling to exit the stock on the rocket ride higher. Ackman shot himself in the foot with his bragging on Monday and it was a very expensive lesson. In addition to his $1 billion short position he spent more than $50 million on private investigators and undercover operatives to study Herbalife methods. More than 10,000 man hours were involved. All this and no death blow?


Apache (APA) spiked today after Jana Partners said they had acquired a stake worth more than $1 billion and wanted to talk to the board about options. Jana wants Apache to sell off its international holdings and drill only in North America. Apache has sizeable holdings in Egypt, Australia and the Kitimat LNG project in Canada. Apache is already working on selling off non-core assets so this could be a match made in heaven. Shares rallied 4.6% to a new high on the news.


The markets rallied today but it all came in the first 40 minutes of trading. It was a futures related short squeeze and once the indexes hit their highs around 10:10 the volume died and no further progress was made. Total volume was light at 5.2 billion shares and only slightly more than the 4.9 billion on Monday.

The S&P rallied to 1,986 intraday and just a point over the 1,985 level analysts are claiming as strong resistance. That was the high close back on July 3rd. As we move farther into the Q2 earnings cycle and more stocks begin to experience "post earnings depression" after their reports the harder it will be for the markets to move higher. Once a company reports earnings and any short squeeze fades the excitement is over. Traders exit the stock and move to some company that has not yet reported. The prior stock is left to settle to a point where fundamental investors are comfortable adding shares. This post earnings depression can last from a few days to a few weeks and the declines can be substantial.

Since this is the summer doldrums earnings cycle the post earnings depression typically lasts longer because investors are on vacation and not focused on the market. We need to watch carefully for the S&P to weaken. If it is successful in breaking out to a new high the 2,000 level is a natural round number selling point so any forward progress may be limited.

The 62 day streak without a 1% move ended on Thursday.

Support remains 1950-1960 with resistance 1985-2000.


The Dow may have rallied +80 points at the open but that was the high of the day at 17,133. The index moved perfectly sideways until a minor sell program hit about 2:15 but that dip was bought. The Dow remains in its uptrend channel with resistance now the prior high at 17,138 and 17,200.

It was a miracle the Dow rallied at all with the negative earnings events from multiple Dow components. We need to thank Goldman, IBM and Visa for offsetting losses in DD, KO, MCD, UTX and TRV. The gains in the winners came at exactly the right time.



The Nasdaq 100 ($NDX) broke out to a new high but it all happened in the first 30 min of trading. There was no forward progress after 10:AM. This is a new 14-year high but it may be difficult to maintain since Microsoft and Apple both failed to rally after their earnings tonight.


The Nasdaq Composite finally punched above short term downtrend resistance but the gain was a struggle. Initial resistance is 4,465 with the 4,485 closing high from July 3rd the next target. I don't have a lot of faith in the Nasdaq Composite today. There are some high profile tech earnings due out on Thursday but the MSFT/AAPL results tonight may be the equivalent of jumping the shark for those familiar with the Happy Days analogy.

If the Nasdaq Composite falls back into the congestion range around 4,420 it may have a difficult time breaking out again. This current breakout needs to continue tomorrow or investors are going to become discouraged and head for the beach.



The Russell 2000 is struggling. The +9 point gain today failed at the 1,160 resistance level and this would be a good place for the index to roll over and retest the lows from Thursday at 1,131. The Russell rebound from those Thursday lows has been lackluster and we need to see some more excitement here or the index is going to drag the broader market lower.


I have been recommending buying the dips for the last several months. I am starting to worry we may be coming to the end of that trend of successful rebounds. This is summer and the indexes are struggling at the highs. Once the earnings excitement fades we could be in for a slow, choppy decline into August. The next two months are typically the worst two of the year for the markets and while a rally is always possible we need to be on alert for an alternate reality. Markets don't go up forever and it has been more than two years since a 10% correction. Tiptoe lightly through the coming minefield. Reduce your long positions to only those with the best relative strength. We don't want to run from the market but simply manage our risk in case a decline does appear.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Full Steam Ahead

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Golar LNG Ltd. - GLNG - close: 61.53 change: +0.71

Stop Loss: 58.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on July -- at $---.--
Listed on July 22, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
GLNG describes themselves as, "one of the world's largest independent owners and operators of LNG carriers with over 30 years of experience. We developed the world's first Floating Storage and Regasification Unit (FSRU) projects based on the conversion of existing LNG carriers. We lead the industry with committed projects. We are progressing plans to grow our business further upstream via Floating liquefaction (FLNG). Our strategic objective is to become an integrated midstream player in the LNG industry."

The big picture play here is LNG exports. The shale-gas industry in the United States is booming so there has been a surge in supply. Meanwhile demand remains strong globally and the price of natural gas in Europe is double what is in the U.S. and the price is triple in Asia. Seeing an opportunity the American gas industry is planning on exporting more natural gas. The problem is that natural gas has to be liquefied before it can be transported. Turning natural gas to liquefied natural gas means cooling the material to -259 degrees Fahrenheit. Creating an LNG export terminal is a multi-year, multi-billion project. The U.S. is currently building several LNG export terminals to be completed in the next few years.

At the same time there has been a rise in the number of LNG transport ships to move all of this natural gas. Unfortunately the timing is a bit off. At the moment there is more LNG transport ships than really needed. The current global LNG fleet is about 365 vessels. That number is supposed to grow by another 29 ships this year but several of them have been delayed. However, by 2017-2018 it looks like there could be a shortage of LNG transport ships, which will drive rates higher for the shipping companies.

GLNG has about a dozen ships. They should take deliver of several more in the next 12 to 18 months. Instead of scrapping their older ships the company has decided to turn some of them into floating storage & regasification units (FSRU). They are also working on a floating liquefaction (FLNG) project.

Long-term the company looks poised to capitalize on the natural gas transport market. Investors have taken notice with a strong rally this year. Of course a +3.2% dividend yield doesn't hurt either.

Shares of GLNG have been consolidating sideways in the $57.50-62.00 zone for the last few weeks. Today GLNG is on the verge of breaking out from this trading range. We want to be ready if it does.

We are suggesting a trigger to buy calls at $62.25. Earnings are coming up in late August (potentially around the 27th) and we will likely exit prior to the announcement.

Trigger @ $62.25

- Suggested Positions -

Buy the Sep $65 call (GLNG140920C65) current ask $3.00

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

Annotated Chart:



In Play Updates and Reviews

Earnings Power Another Rally

by James Brown

Click here to email James Brown

Editor's Note:

Bullish earnings news powered another widespread market rally on Tuesday.

We closed our SBUX trade tonight. AVGO hit our entry trigger.

I have updated a few stop losses.


Current Portfolio:


CALL Play Updates

Ameriprise Financial - AMP - close: 122.73 change: +1.07

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: +44.4%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: AMP managed to outpace the major indices today with a +0.8% gain. The stock is on the verge of breaking out to new multi-year highs. A rally past $123.30 could be a new entry point but keep in mind that we will likely exit before earnings.

Tonight we will adjust our stop loss to $117.75.

FYI: AMP is scheduled to report earnings on July 29th.

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

07/22/14 new stop @ 117.75
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


Avago Technologies - AVGO - close: 75.39 change: -0.03

Stop Loss: 71.49
Target(s): To Be Determined
Current Option Gain/Loss: -10.6%
Average Daily Volume = 1.58 million
Entry on July 22 at $75.75
Listed on July 21, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: Our brand new play on AVGO is open but shares are not performing as we had expected. We added AVGO last night with a trigger to buy calls at $75.75. The stock hit our entry point early this morning and rallied to $76.44. AVGO spent the rest of the day fading lower and eventually closed nearly unchanged on the session. Closing flat while the rest of the market is in rally mode is not bullish. I am suggesting caution here.

Nimble traders may want to consider buying a bounce from the $75.00 level but I would definitely wait for the bounce. Otherwise today's move might look like a bull-trap pattern.

Earlier Comments: July 21, 2014:
Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other (source: company website and press releases).

The company's products are everywhere. They make components for the industrial, automotive, solid state lighting, communications, consumer electronics and appliances, the military, and medical. A couple of months ago AVGO completed their $6.6 billion acquisition of LSI. Management believes they can wring out $200 million in annual synergies by the end of 2015. One analyst suggested that AVGO should benefit from China's rollout of a 4G wireless network. Plus the LSI acquisition could boost AVGO's margins.

Speaking of margins, AVGO continues to show margin improvement. The company last reported earnings on May 29th and said gross margins improved to 54% when they were only expecting 51.5-53.5%. Management then guided higher for the third quarter and expects margins to rise to the 54-56% range. Earnings were also better than expected. Wall Street wanted to see a profit of 77 cents a share. AVGO delivered 85 cents. Revenues surged +24.7% to $701 million, which was better than the $678 million estimate. LSI is scheduled to report earnings next in late August (27-28th).

There are a rising number of bulls on this stock. The number of mutual funds that own shares has risen from 856 to 981 in the last year. Multiple firms have price targets in the $85 region. Citigroup just raised their price target to $90.

Shares of AVGO look poised to breakout from its $72.00-75.50 trading range. The July 7th high was $75.55. We are suggesting a trigger to buy calls at $75.75. The July 18th low was $71.66 so we'll start with a stop loss at $71.49.

- Suggested Positions -

Long Oct $80 call (AVGO141018C80) entry $2.35*

07/22/14 triggered @ 75.75
*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


Emerge Energy Services LP - EMES - close: 112.97 change: +3.06

Stop Loss: 104.75
Target(s): To Be Determined
Current Option Gain/Loss: - 6.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: EMES was off to a running start this morning. Shares outperformed the market with a +2.7% gain and closed near its highs for the session. Traders may want to start raising their stop loss (maybe closer to $108).

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: 114.31 change: +0.97

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: -35.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: HAR came really close to erasing yesterday's losses. A new rally past $115.00 could be used as a new bullish entry point.

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: 74.50 change: +1.64

Stop Loss: 69.40
Target(s): To Be Determined
Current Option Gain/Loss: +10.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: LNG's rally past its early July highs has left shares at a new all-time high. LNG displayed relative strength with a +2.2% gain. I would be tempted to buy calls on this strength but earnings are probably coming up in the next three weeks. There is no confirmed date yet but likely in early August.

Tonight we will raise the stop loss to $69.40.

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

07/22/14 new stop @ 69.40
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: 102.17 change: +1.92

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: -20.6%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: SAFM rebounded off the $100.00 mark and posted a +1.9% gain. This move looks like a new bullish entry point to buy calls.

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


U.S. Silica Holdings - SLCA - close: 59.92 change: +0.71

Stop Loss: 54.90
Target(s): To Be Determined
Current Option Gain/Loss: +100.0%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: Our call option in SLCA has doubled (+100%) with today's closing bid of $6.30. At the same time SLCA is testing potential resistance at $60.00. More conservative investors may want to take some money off the table.

I am raising our stop loss to $54.90.

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*

07/22/14 new stop @ 54.90
traders may want to take some money off the table now that our option has doubled
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: 99.85 change: +0.71

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:
07/22/14: I noticed several energy stocks showing relative strength today. That helped left the XLE to a +0.7% gain. We are still on the sidelines. Our suggested entry point at $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

Fossil Group, Inc. - FOSL - close: 100.03 change: +0.27

Stop Loss: 100.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: Exit PRIOR to earnings on Aug 12th
New Positions: Yes, see below

Comments:
07/22/14: FOSL spiked at the open and produced a $2.00 rally before failing at short-term technical resistance and reversing at its 10-dma.

I do not see any changes from the weekend newsletter's new play description.

Earlier Comments: July 19, 2014:
Fossil Group Inc. (FOSL) is a giant in the multi-billion global watch industry. They started in 1984 and have grown to over 400 retail locations, 4,000 wholesale locations, and annual revenues of more than $3 billion. They own the Watch Station line of stores. A couple of years ago FOSL purchased the Denmark brand Skagen. They also own or market Michele, Zodiac, Relic, Burberry, Emporio Armani, Michael Kors, DKNY, Karl Lagerfeld, Tory Burch, Diesel, Armani Exchange, and adidas Originals brands. Altogether FOSL has about 45% market shares of the U.S. fashion market.

FOSL also sells jewelry, handbags, wallets, belts, sun glasses and clothing. While FOSL has done a pretty good job of growing sales, they are seeing rising expenses. Lately it has become a very competitive market for the higher-end luxury goods industry. Just look at stocks like Coach (COH) and Michael Kors (KORS). Granted COH and KORS are more leather goods and hand bags but they cater to the same customer.

FOSL is also facing the smart watch revolution. Smart phones have become ubiquitous and replaced their older rivals. Could investors be worried that smart watches will do the same to traditional watches? Currently Samsung has 78% of the smart watch market. A smaller, newer company named Pebble has 18%. At the moment the smart watch market is small and still dwarfed by the traditional watch market. Current estimates put the smart watch/wearable devices market at $2.5 billion in 2013. That's expected to surge to $13 billion by 2017. It will obviously be a growth area for the accessories industry.

Back in March Google announced it was partnering with HTC, LG, Motorola, Samsung and Fossil to promote its Android wearable products. It seemed like a natural fit to include Fossil given the company's dominant market share in the watch industry. Yet when Google held its I/O conference a few weeks ago there wasn't any news on FOSL and any upcoming smart watch launch. That might be troubling news. Apple is rumored to have their own smart watch (dubbed iWatch) to be coming out later this year.

Looking at the earnings picture FOSL last reported in May and issued an earnings warning for the second quarter that send shares lower. Consumer spending has not been as robust as many had hoped. Investors could be worried that FOSL will disappoint again when they report earnings in mid August.

In summary, FOSL is strong in the traditional watch market but the overall retail environment remains challenging. Plus, FOSL could be facing really tough competition in the growing wearable devices/smart watch industry.

Technically shares are in a bearish trend of lower highs and lower lows. FOSL is about to breakdown under its May low of $98.53. The Point & Figure chart is bearish and suggesting at $90.00 target.

We are suggesting a trigger to open bearish positions at $98.40. Plan on exiting prior to earnings in mid August.

Trigger @ $98.40

- Suggested Positions -

Buy the Aug $95 PUT (FOSL140816P95)

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

Entry on July -- at $---.--
Average Daily Volume = 548 thousand
Listed on July 19, 2014


Ross Stores Inc. - ROST - close: 62.60 change: -0.18

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: + 11.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
07/22/14: The early morning rally in ROST also reversed and shares continued to underperform the broader market.

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*

07/19/14 new stop @ 64.15
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



CLOSED BULLISH PLAYS

Starbucks Corp. - SBUX - close: 78.74 change: +1.13

Stop Loss: 76.85
Target(s): To Be Determined
Current Option Gain/Loss: +26.5%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/22/14: SBUX has earnings coming up on Thursday. Our plan was to exit today at the closing bell to try and lock in any potential gains. The $79-80 zone looks like overhead resistance and then the November 2013 highs near $82.50 is also overhead resistance.

I would keep SBUX on your watch list. We will definitely consider it again after the post-earnings dust settles.

- Suggested Positions -

OCT $80 call (SBUX141018c80) entry $1.66 exit $2.10 (+26.5%)

07/22/14 planned exit at the close
07/21/14 new stop @ 76.85
prepare to exit tomorrow at the close
07/19/14 prepare to exit on Tuesday
07/05/14 new stop @ 74.75
06/28/14 new stop @ 73.40
06/17/14: triggered @ 75.65
Option Format: symbol-year-month-day-call-strike

chart:

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