Option Investor
Newsletter

Daily Newsletter, Monday, 8/4/2014

Table of Contents

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

Market Wrap

Market Rebound

by Thomas Hughes

Click here to email Thomas Hughes
The US markets rebound from last weeks lows as global fears retreat.

Introduction

The US equity market rebound today as global fears retreat in favor of underlying trends. The round of fear experienced last Thursday, not unlike the wave of fear experienced last month, sent the indices to long term support. Today those fears were mostly absent from the market as traders began to scoop up lower priced stocks. The rebound started in the EU, having bypassed Asian markets in the early hours, and carried into the open of trading here at home. Futures trading was indicated higher from the earliest part of the session and led into a positive opening. Trading was hesitant during the first half of the day but gained strength going into the afternoon. During the first half of the trading day stocks held steady but tested support on a number of occasions. The DJI and SPX both dipped into the red at one point but were soon projected back into the green. After lunch the inices were able to break early resistance, 1930 on the SPX, and move to new intraday highs.

What happened, or didn't happen, to make the market rebound? To recap from last week there were 5 or 6 factors blamed for the drop in stocks on Thursday. These were fear of higher interest rates, bank default and financial meltdown fear for Portugal, weaker than expected economic data, Russia/Ukraine, and Argentina. Of these not one was present in a serious way come the start of trading today. The fear of higher interest rates was overblown last week and has now returned to its previous place of importance as a mere brick in the wall of worry. We, the market, have been concerned about higher rates for a long time but higher rates means the economy is doing OK and it will be a long long time, years, before rates are so high as to actually be a threat and not a fear. Portugal solved its banking crisis as surely it would. The bank in question has been bailed out and split into two separate entities. There is some fall out but it is localized and contained. The economic data was not as hot as some expected but when has it been so far this year? Except of course for the GDP number this past quarter. To date, data has in general not been as hot as expected but remains steady; no one sector is booming but all combine to create GDP of near 4%. Russia and the Ukraine were not even mentioned in the news this morning, an absence shared by the Argentine bond default.

Market Statistics

Now, assuming the near term fear factors are out of the way, what happened today? Earnings. Earnings keep rolling in. Today there were about 85 reports with another 700-800 due this week. So far the stats according to Factset are about 75% of S&P 500 companies showing earnings growth with an average gain of roughly 7.5%. In addition, 8 of the 10 S&P 500 sectors have beaten earnings projections, causing growth rate above the previous estimates. So far 75% of companies have reported and on average are above the historical growth rate for earnings.

Economic Calendar

The Economy

There was no economic data released today but we still get to see the weekly survey of business confidence prepared by Moody's and Mark Zandi. This week's summary is much like that in past weeks. The only notable change is that the statement showing concern with overseas business conditions has been removed. The summary is still in line with underlying economic trends and supports the idea of continued growth in jobs and the economy through the end of the year. One other change mentions that the current positive outlook carries into the first part of next year at least.

The full summary: “Businesses remain very upbeat, especially in the U.S. Sentiment has been strong all year, consistent with an economy that is expanding well above its potential. Responses to the survey questions are strong across the board. Expectations regarding prospects into next year remain very positive, and hiring intentions are robust as more than half of respondents to the survey are hiring. There are no indications that price pressures are building”

The rest of the week is pretty light on data as well. The month just started and there just isn't much data to be had. There will still be weekly natural gas and oil inventory reports as well as jobless claims. Other than that Factory Orders and ISM tomorrow along with Wholesale inventories dominate the list.

Even without economic data there is risk of fundamental change this week because there are two major central bank meetings. The ECB and the BOJ. I have not heard of any speculations for policy changes from either bank but that does not rule out a change in speak that could move the market. The ECB is facing stagnation and deflation while at the same time the BOJ is fighting its way out of the same. The ECB is expected to release its statement on Thursday with the BOJ slated for Friday. The ECB usually sticks to their time table while the BOJ is only loosely bound by theirs.

The Oil Index

Oil prices firmed today after dropping below $98 last week. Prices gained 0.45% in a move possibly aided by short covering and profit taking. There is some risk in the current week for geopolitical events to drive prices back up. The ISIS incursion in Iraq has taken a few new towns with at least one in control of a dam and regional water, while two more, located in the Kurdish north, are centered in oil fields. In Libya fighting continues as does a fire at a fuel plant.

The Oil Index climbed today, in line with equities, gaining over 1.8% and coming just shy of resistance at the short term moving average and previous all time high. This level has been broken before and looks likely to break again. Support is indicated along the current level by stochastic and MACD with first target on a break up near 1,700.


The Gold Index

There was not much to impact gold trading today. The fears of last week seem to have been left behind or are at least on the back burner in terms of market focus. Gold prices fell in today's action, dropping below $1290 on what I believe to be the underlying fundamentals of slow steady growth in the economy, an end to taper and the onset of higher interest rates sometime in what is generally accepted as the next 12 months (at the latest).

The Gold Index fell today as well, dropping -1.5% from the short term moving average and coming to rest just above the long term moving average. The index is indicated lower in the near and short terms, in line with the underlying bear trend in the index. However, there is some signs of bottoming in the index over the past 12 months along the $85-$90 level so any drop below the long term average could find support/strong support around these levels. As always gold prices will have a big affect on Gold Index prices, a sustained drop below $1290 would be bearish for index prices.


In The News, Story Stocks and Earnings

Michael Kors made headlines this morning, beating the expectations. The name brand retailer reported results that beat on the top and bottom line, driven by a 24% increase in comp store sales. However, the report also revealed that the sales came on top of heavy mark downs and that those same discounts would impact future performance. The stock climbed initially, in the pre market, but fell before the opening. At the open share prices gapped lower and then fell more than 5% from last week's closing prices. The stock is now sitting on long term support and has fully retraced the gap up/open window created two earnings releases ago in February. Although not good for KORS earnings, the numbers reveal that shoppers are out and buying.


There are a few other big name retailers slated to release earnings this week including Coach with the rest of the group spread out over the next 2 to 3 weeks. The Retail Sector Spyder, XRT, gained over 1.25% today, moving above the long term 150 day moving average. Today's action is a continuation of a bounce indicated by a long legged doji formed Friday. The doji formed while testing my support line, at or near the center of a long term range for the ETF. The indicators are consistent with support at this level and could lead the ETF to the upper end of the range provided a break above the short term moving average can be sustained. Upper targets on a break are $87.50 and $89 with support just below along the $83 level.


AIG reported after the bell. Expectations were high for the insurance giant and it soundly beat them. The company also announced a $2 billion buy back and sent the stock soaring 2.75% in the after hours session. This is a continuation of a long term moving average bounce begun today and takes the stock back over the short term moving average.


The Indices

The VIX fell by over 12% today. Dropping below/into a support a potential support zone. The fear gauge looks good to continue down through this small range just below 15 and down to the 12.50 area. What it does there could be indicative of the future of the rally. I would consider a drop below and back to the “new normal” bullish whereas a hold above may mean longer term fear is moving back into the market but that does not necessarily mean reversal, or even correction, is on the way.


The S&P 500 tied with the NASDAQ Composite for lead today. The broad market and the tech sector both gained 0.72%. The broad S&P 500 index climbed back above the long term trend line in a price action confirmation of the long term trend. This is in line with previous trend line bounces over the past two years, 7 times not counting the initial point from which the line is drawn. The indicators are bearish but indicate an oversold extreme in the near term, also in line with previous trend line bounces. There may be some more action around or below the trend line but providing fear remains at bay I expect to see the index continue on with the trend. There is some technical resistance ahead around 1960 and 1980 but it is near term in nature. Economic data will be the key, we need to see it in the Goldilocks range of slow steady growth, not too hot and not too cold.


The tech heavy NASDAQ Composite also gained 0.72% today regaining an important long term support above the March long term high. The index fell short of the round number 4,400 and the short term moving average which may provide near term resistance. The indicators are bearish but in line with a test of support. There may be some sideways action and/or retest but the longer term trend is intact and seems to be taking back control from near term fear.


The Dow Jones Industrials climbed by 0.46% or or 75 points. The blue chips moved up today from the long term moving average and the 16,500 level in a confirmation of the strong support zone I highlighted in earlier wraps. This zone formed in the early part of the year between 16,250 and 16,500 as the index was moving up to, testing and breaking out to new highs. The indicators are bearish and pointing lower at this time but also consistent with a near term extreme and potential long term bullish entry point. There is some resistance ahead, namely the previous all time high which is just a hair above the current level. This level was broken down by earlier action so may not be that strong now. A break above this level could take the index back up to 17,000 pretty quick while a drop below would find additional support within the zone down to 16,250.


The Dow Transports were the lagging index in today's mix. The trannies only climbed by 0.35% but did confirm short term support along the down sloping top of the previously broken flag pattern. The long term trend is still up but there is some risk the index will continue to bob along this down trending support until it reaches the long term trend line. The indicators are bearish, and like the other indices, consistent with a near term bearish extreme during a bull market. The question is, was today the peak, a peak or merely a stopping off point as the index consolidates over the next week or more? It is possible that there is some rotation out of the transport and into other areas which could keep it moving sideways.


Today was a day in which the indices, the SPX specifically, were at a major technical level and a point in which the long term trend could start to take over or begin to break down. Today's action was a little wishy washy at first and I have to admit I was a little nervous this morning. The open was positive and stayed that way for a while, there was a dip into the red and test of support but buyers were active. The S&P 500 found support and was lifted back in line with the long term trend. Now that the near term fears have subsided the long term fundamentals can shine again. Earnings growth is good, the economy is trending higher and the expectations are still positive. Tomorrow be on the look out for more earnings and economic data in the form of Factory Orders and ISM Services. Both are expected to rise from last month.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Another Way To Play U.S. Nat Gas

by James Brown

Click here to email James Brown

Editor's Note:

Two more stocks you might want to check out tonight are BCR and TMO.

BCR looks bullish and a rally past $152.00 could be a new bullish entry point.

TMO is starting to bounce from support near $120.00. I would be tempted to buy calls on a rally above $122.50.




NEW DIRECTIONAL CALL PLAYS

LyondellBasell Industries - LYB - close: 108.64 change: +2.09

Stop Loss: 105.99
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.5 million
Entry on August -- at $---.--
Listed on August 04, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
One way to play the shale-gas boom in the U.S. is plastics. The bloom of natural gas production has been a huge blessing for LYB. According to the company's website, "We participate in the entire petrochemical value chain, from refining to specialized petrochemical product end uses. We are the largest producer of polypropylene and polypropylene compounds; a leading producer of propylene oxide, polyethylene, ethylene and propylene; a global leader in polyolefins technology; and a producer of refined products, including biofuels. Additionally, LyondellBasell is a leading provider of technology licenses and a supplier of catalysts for polyolefin production."

The recent spike in LYB's stock price was a reaction to better than expected earnings results. Wall Street was looking for LYB to deliver a profit of $1.93 a share on revenues of $11.5 billion. LYB surpassed expectations with a profit of $2.22 a share with revenues rising +9.1% to $12.12 billion.

The stock has been an earnings machine with rising earnings the last four years in a row. Analysts are now estimating LYB will see earnings rise 11% in 2014 and 16% in 2015. Jefferies recently raised their price target on LYB from $120 to $125 as they upgraded their EPS estimates on the company.

After a strong rally from $100 to $110 in mid July the stock was short-term overbought and due for a pullback. Traders jumped in to buy the dip near LYB's simple 10-dma last week. Now LYB is rebounding higher.

More aggressive traders may want to buy the bounce today. We are suggesting a trigger to buy calls at $110.50 since the July high is $110.38.

FYI: For more background on the LYB story Forbes.com has a great article that you might find interest. You can read it here.

Trigger @ $110.50

- Suggested Positions -

Buy the DEC $115 call (LYB141220C115) current ask $2.25

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

Annotated Chart:



In Play Updates and Reviews

Dip Buying Continues

by James Brown

Click here to email James Brown

Editor's Note:

Traders came back from the weekend in a buy-the-dip mood. The major U.S. indices bounced.

PANW hit our new entry trigger. Our new bearish plays on COH and PVH began this morning.


Current Portfolio:


CALL Play Updates

Gilead Sciences, Inc. - GILD - close: 92.18 change: +0.68

Stop Loss: 87.99
Target(s): To Be Determined
Current Option Gain/Loss: - 1.3%
Average Daily Volume = 14.1 million
Entry on July 29 at $92.25
Listed on July 28, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/04/14: GILD kept pace with the broader indices on Monday and posted a +0.7% gain. A quick glance at the intraday chart shows short-term resistance in the $92.60 area.

More conservative investors may want to move their stop loss close to the simple 20-dma currently near $89.80.

Earlier Comments: July 28, 2014:
GILD seems to be everyone's favorite biotech stock. I only hear bullish opinions about the future of the company, and for good reason. They have some pretty amazing treatments with products for HIV/AIDS, liver diseases, oncology, cardiovascular, respiratory, and more. GILD has essentially revolutionized how we treat major diseases like HIV and Hepatitis C.

According to the company website, "Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. We strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer and inflammation, and serious respiratory and cardiovascular conditions."

This year everyone has been raving over GILD's hepatitis C treatment called Sovaldi. Hepatitis C is a form of viral hepatitis that causes chronic inflammation of the liver. About 185 million people currently suffer with hepatitis C. Previously the most common treatment for hepatitis C had serious side effects and was less than 50% successful. GILD changed that with their Sovaldi drug that not only treats the symptoms but actually cures the patient. The company has drawn some negative publicity over the cost since GILD charges $84,000 for a 12-week course of Sovaldi in the United States. The fact that 80% to 90% of patients who take Sovaldi are cured is a major milestone.

The Financial Times noted that before Sovaldi the impact of hepatitis C in the U.S. took a heavy toll on the healthcare system. The disease can lead to liver failure and cancer, both of which cost significantly more than Sovaldi's $84,000 price target. Hepatitis C is the leading cause for liver transplants in the U.S., which can cost a minimum of $145,000. One consulting firm estimated that the annual cost of hepatitis C to the U.S. healthcare system was going to surge from $30 billion to $85 billion in the next twenty years. Sovaldi has the potential to change. that.

Stocks move on earnings and GILD has plenty of them. They company last reported on July 23rd. Wall Street was expecting a profit of $1.80 a share on revenues of $5.86 billion for the second quarter. GILD delivered a profit of $2.36 a share with revenues soaring +136% to $6.53 billion. Last quarter Sovaldi accounted for $3.5 billion in sales. Management issued bullish guidance on revenues and margins.

GILD has also had good news with both the FDA and the European Committee for Medicinal Products for Human Use approving GILD's Zydelig treatment for chronic lymphocytic leukemia and follicular lymphoma. The European committee's decision will now be sent to the full European Commission and if approved will open up Zydelig to all 28 countries in the EU.

The outlook is pretty bullish for GILD. Traders just bought the dip and shares closed at all-time highs. Today's intraday high was $91.73. We are suggesting a trigger to buy calls at $92.25. We are not setting an exit target tonight but I will point out the point & figure chart is bullish with a $106.00 target. I am concerned that the $100.00 level could be temporary resistance for GILD. We'll have to wait and see.

- Suggested Positions -

Long Oct $95 call (GILD141018C95) entry $3.70*

07/29/14 triggered @ 92.25
*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


Golar LNG Ltd. - GLNG - close: 62.31 change: +0.27

Stop Loss: 59.65
Target(s): To Be Determined
Current Option Gain/Loss: -11.1%
Average Daily Volume = 1.3 million
Entry on July 25 at $62.25
Listed on July 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/04/14: GLNG slowly drifted higher on Monday only gaining +0.4%. Today's high was $62.75. I would consider new positions on a rally past $62.50 or $62.75.

Earlier Comments: July 22, 2014:
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 delivery 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.

- Suggested Positions -

Long Sep $65 call (GLNG140920C65) entry $3.32

07/29/14 new stop @ 59.65
07/25/14 triggered @ 62.25
Option Format: symbol-year-month-day-call-strike


Palo Alto Networks, Inc. - PANW - close: 80.24 change: +1.57

Stop Loss: 76.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.1%
Average Daily Volume = 1.3 million
Entry on August 04 at $80.50
Listed on July 30, 2014
Time Frame: Exit PRIOR to earnings on Sept. 9th
New Positions: Yes, see below

Comments:
08/04/14: In the weekend newsletter we adjusted our entry point to buy calls at $80.50. PANW obliged us and hit $80.50 at its high for the day. Shares did show relative strength with a +1.99% gain on Monday.

I don't see any changes from my prior comments. We would still consider new positions now or you could wait for a rally past $80.50.

Earlier Comments: July 30, 2014:
Customer data mining is big business. It doesn't matter of the company is online or a bricks and mortar store they want to know all they can about you. Who are you? How old are you? What zip code do you live? They track your purchases and store your credit card data.

Last year retail giant Target (TGT) disclosed a cyber breach that affected up to 110 million customers to potentially having their credit card data stolen. Months later, Target's president and CEO resigned over the fiasco. Target isn't the only one being targeted. The University of Maryland recently disclosed an online security breach. The number of cyber attacks on small business doubled last year.

Sadly it's only getting worse. The Justice Department called the online landscape for cyber threats and hacking extremely dangerous. They used the term "pre-9/11 moment" suggesting that any day now someone could launch a massive cyber attack. The government is worried about protecting our infrastructure and electrical grid. Corporate America wants to protect their data (and your data). That's why cyber security is big business and getting bigger.

PANW is making a splash in the security world. The stock IPO'd in 2012 and while it has been a rocky ride so far the company seems to have found its groove. Founded in 2005 and headquartered in Santa Clara, California, PANW describes their company as, "leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. Unlike fragmented legacy products, our security platform safely enables business operations and delivers protection based on what matters most in today's dynamic computing environments: applications, users, and content."

More than 70 of the Fortune 100 companies use PANW's products and services. In 2013 PANW saw revenues grow +55% year over year, outpacing their rivals. They have added more than 1,000 customers per quarter for the last ten quarters in a row. PANW most recently reported earnings on May 28th and said it was their "highest rate of new customer acquisition in our history and now serve more than 17,000 customers."

Another important event last quarter was the settlement of a three-year patent lawsuit with rival Juniper Networks (JNPR). Resolving this issue has removed a significant black cloud over PANW.

Wall Street has noticed. The last few weeks have seen a number of price target upgrades. Deutsche Bank upped their PANW price target to $95.00. Goldman Sachs raised their price target to $97.00. Morgan Stanley is forecasting at PANW price target of $105.00.

Shares of PANW have rallied back toward their all-time highs set just five weeks ago. A bullish breakout appears imminent. Tonight we're suggesting a trigger to buy calls at $84.55. More conservative investors might want to consider waiting for a new high above $85.80.

Keep in mind that PANW is scheduled to report earnings on September 9th and we will likely exit prior to the announcement.

- Suggested Positions -

Long SEP $85 (PANW140920C85) entry $3.20*

08/04/14 triggered @ 80.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/02/14 Strategy update: Move the entry trigger from $84.55 to $80.50 and move the stop loss from $79.65 to $76.75.
Adjust the option strike from Sep $90 call to Sep $85 call
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Coach, Inc. - COH - close: 34.31 change: +0.61

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: -17.2%
Average Daily Volume = 4.8 million
Entry on August 04 at $33.71
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/04/14: Our plan was to buy puts at the opening bell this morning. COH opened at $33.71. COH's rival KORS reported earnings this morning that beat Wall Street's top and bottom line estimates. Yet KORS guided lower and investors were unhappy with the increase in marked down merchandise from KORS. Shares of KORS plunged -5.8% on the session. These results from KORS do not bode well for COH so it is surprising to see COH's stock rising today. COH reports earnings tomorrow morning.

We are no longer suggesting new positions.

I am setting the stop loss at $35.55.

Earlier Comments: August 2, 2014:
Coach started in a Manhattan loft back in 1941. Their focus on high-quality leather goods has expanded to handbags, men's bags, women's and men's small leather goods, footwear, outerwear, watches, weekend and travel accessories, scarves, sunwear, fragrance, jewelry and related accessories. As of last year COH had almost 1,000 stores with more than 500 in North America and more than 400 in Asia.

It used to be that COH was the big brand in luxury items. It seemed like they could do no wrong with strong growth. It appears they out grew their exclusivity. It did not help that rival Michael Kors (KORS) was beginning to hits its stride and steal the spotlight from Coach.

It has been a tough year for retail companies. 2014 started with a very harsh winter that kept consumers indoors. COH was not immune to this effect. However, normal retailers could lay blame at the rising cost of gasoline or food items. That shouldn't apply to COH, which was always seen as a retailer to the higher-end consumer.

Desperate to stop the slide in sales COH resorted to promotions and discounts. This seemed to backfire. While the promotions may have increased foot traffic in their stores it helped sully their appearance as a luxury brand. Today COH is trying to turn things around. They're going to revamp their stores and go back to full luxury pricing. This could be expensive and pressure their margins as they try to turn things around.

COH held an investor day on June 19th. They told analysts that Coach would close 70 underperforming stores in North America as part of the turnaround plan. Most analysts leaving the meeting with COH turned bearish. In the three weeks following the analyst day shares of COH were downgraded six times.

If you look at chart of COH you'll see big drops in January and April. Both of those declines were sparked by disappointing earnings news and guidance. The recent plunge in mid June was a reaction to the investor day mentioned above. Today COH is poised to hit multi-year lows.

COH's rival Michael Kors (KORS) reports earnings on Monday morning, August 4th. COH will report earnings on August 5th. We suspect that COH will disappoint yet again. However, there is a risk that expectations are so bad that COH could rally on earnings that are bad but not as bad as expected. I would consider this a more aggressive trade.

The idea here is to hold over COH's earnings report on Tuesday morning. That means if you can stomach the risk for this trade our entry point is Monday. It's up to you if you want to jump in on Monday morning or Monday at the close.

Aggressive traders may want to buy August puts, which expire in two weeks. We're listing the September puts below.

- Suggested Positions -

Long Sep $33 put (COH140920C33) entry $1.45

08/04/14 set initial stop loss at $35.55
08/04/14 trade began at the opening bell
Option Format: symbol-year-month-day-call-strike


Pall Corp. - PLL - close: 77.83 change: +0.26

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: +26.9%
Average Daily Volume = 437 thousand
Entry on July 30 at $79.45
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/04/14: Hmmm... shares of PLL have bounced two days in a row near $76.95. This might be suggesting a short-term bottom. I would expect an oversold bounce back into the $79-80 zone soon if the market is positive.

We're not suggesting new bearish positions at this time.

Earlier Comments: July 29, 2014:
PLL is in the industrial goods sector. It is considered part of the diversified machinery industry. They market to a lot of different customers around the world. PLL operates in the aerospace and defense industry, the animal health, biopharma, food and beverage, fuels and chemicals, graphic arts, laboratories, machinery and equipment, medical, microelectronics, power generation, and water treatment.

The company describes themselves as, "Pall Corporation is a filtration, separation and purification leader providing solutions to meet the critical fluid management needs of customers across the broad spectrum of life sciences and industry. Pall works with customers to advance health, safety and environmentally responsible technologies. The company's engineered products enable process and product innovation and minimize emissions and waste."

PLL's latest earnings report on May 29th was a disappointment. Wall Street was expecting a profit of $0.83 a share. PLL delivered 81 cents. Revenues did come in better than expected. Guidance was only in-line with prior estimates. The results failed to generate any investor excitement for the stock.

Quite the opposite seems to have happened. PLL produced what appears to be a triple-top pattern from late May through June. Then in July the stock has collapsed through several layers of support. Today we are seeing PLL breakdown under significant support at the $80.00 mark, support at its 300-dma, and support at its long-term trend line of higher lows (see weekly chart below).

Today's intraday low was $79.65. Tonight we're suggesting a trigger to buy puts at $79.45. We're not setting an exit target yet but I will point out that the point & figure chart is bearish and forecasting at $72.00 target.

Keep in mind that PLL is scheduled to report earnings again in very late August. There is no confirmed date yet. We will likely exit prior to the announcement.

- Suggested Positions -

Long Sep $80 PUT (PLL140920P80) entry $2.60*

07/30/14: triggered @ 79.45
*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


PVH Corp. - PVH - close: 107.87 change: -0.12

Stop Loss: 112.55
Target(s): To Be Determined
Current Option Gain/Loss: - 7.8%
Average Daily Volume = 821 thousand
Entry on August 04 at $108.00
Listed on August 02, 2014
Time Frame: 4 to 6 weeks, exit ahead of earnings in mid September
New Positions: see below

Comments:
08/04/14: It was a quiet day for shares of PVH, which drifted sideways near the $108.00 level the entire session. The stock opened at $108.00 this morning.

I would still consider new bearish positions now at current levels. If you think the broader market might bounce then consider waiting for PVH to rebound toward short-term resistance near $110.00 and then buy puts.

Earlier Comments: August 2, 2014:
PVH is one of the largest apparel companies in the world. They purchased the Calvin Klein brand in 2003. In 2010 they added Tommy Hilfiger to their portfolio. Last year they purchased the Warnaco Group. PVH is also know for its Van Heusen, IZOD, ARROW, Speedo, Warner's and Olga brands. PVH started in 1881 and has grow into clothing powerhouse with sales topping $8 billion a year across North America, Europe, Asia and Latin America.

The stock has delivered an amazing performance from its 2009 lows near $15.00 to January 2014 high of $137.00 a share. Unfortunately for investors the momentum has reversed. Technically shares have formed a massive head-and-shoulders bearish top over the last several months (see weekly chart below).

Consumer spending patterns have changed this year. Consumers seem to be saving up and purchasing big ticket items like cars and spending less on apparel. PVH has been working hard to overcome the tough environment. During the previous quarter PVH managed to show revenue growth but profits are getting squeezed. That's like due to the increasingly promotional retail environment. The big drop in early June was a reaction to PVH's earnings where they missed the bottom line estimate by two cents and management guided lower.

The stock's recent bounce just failed at resistance near $115 and its 20 & 30-dma. Now PVH is breaking support near $110. The Point & Figure chart looks pretty ugly and currently projects an $82 target.

I am suggesting bearish positions now at current levels. We are not setting an exit target tonight but we'll most likely exit prior to PVH's next earnings report in mid September.

- Suggested Positions -

Long Sep $105 PUT (PVH140920P105) entry $3.20

08/04/14 PVH opened @ 108.00
Option Format: symbol-year-month-day-call-strike


United Natural Foods, Inc. - UNFI - close: 59.95 change: +1.24

Stop Loss: 60.35
Target(s): To Be Determined
Current Option Gain/Loss: -13.0%
Average Daily Volume = 443 thousand
Entry on July 28 at $59.00
Listed on July 26, 2014
Time Frame: exit PRIOR to earnings in mid September
New Positions: see below

Comments:
08/04/14: UNFI is not cooperating. Shares outperformed the market with a +2.1% gain today. UNFI settled near overhead resistance at $60.00. We're turning defensive and moving our stop loss down to $60.35. More aggressive investors might want to keep their stop above $62.00, which should be stronger resistance.

Earlier Comments: July 26, 2014:
Natural and organic foods are a growing business today. The consumer is choosing healthier and typically more expensive foods, which had driven long-term gains for companies like UNFI and Whole Foods (WFM). Yet all of this growth has caught the attention of competitors.

According to UNFI's website the company, "is the leading independent national distributor of natural, organic and specialty foods and related products including nutritional supplements, personal care items and organic produce, in the United States. In addition to excellent distribution services, we provide a range of innovative, value-added services for our customers and suppliers, to foster mutual success and growth. Our services include marketing and promotional tools, merchandising, category management and store support services."

UNFI's business also includes a chain of retail stores with their Earth Origins Market brand. They also do a lot of importing and processing of nuts, seeds, and fruits with their Woodstock Farms company. UNFI just recently announced the acquisition of Tony's Fine Foods.

The challenge is that grocery and food products are normally a low-margin business. The organic and natural niche has enjoyed bigger margins but those margins are contracting as more and competition tries to hop on the natural and organic bandwagon. Large regional food chains and nationwide titans like Wal-mart and Target could steal market share. It has been a serious problem for Whole Foods (WFM) and that makes it a problem for UNFI because WFM is UNFI's biggest customer. WFM accounts for over one third of the company's revenues.

If growing competition wasn't enough the grocers and processors like UNFI also face rising input costs as suppliers raise prices. Margins are getting squeezed from both sides.

Now UNFI's latest earnings report wasn't that bad. The company announced earnings on June 11th. Results were in-line with Wall Street estimates. Sales improved +13.8% from a year ago. Yet gross margins inched down from 16.8 percent to 16.7 percent. That doesn't seem like much but it confirms the trend. Furthermore, while the prior quarter's sales were up +13.8% UNFI is only expecting full-year revenues to grow 11.0%-11.6% this year.

You can see on the chart where UNFI plunged in early June on its earnings report. The oversold bounce failed near $67.00 and the stock has gone almost straight down since then. Today UNFI is flirting with a breakdown near support in the $60.00 area. Last week the stock bounced at $59.25 and $59.30. We are suggesting a trigger to buy put options at $59.00.

Please note that Whole Foods (WFM) is scheduled to report earnings Wednesday, July 30th, after the closing bell. WFM's results and their guidance will have an influence on shares of UNFI. More conservative investors may want to wait until after we see how the market reacts to WFM's results before initiating positions on UNFI.

- Suggested Positions -

Long NOV $55 PUT (UNFI141122P55) entry $2.07

08/04/14 new stop @ 60.35
07/28/14 triggered @ 59.00
Option Format: symbol-year-month-day-call-strike