Option Investor
Newsletter

Daily Newsletter, Tuesday, 8/19/2014

Table of Contents

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

Market Wrap

Wake Me in September

by Jim Brown

Click here to email Jim Brown

The market rallied again on low volume thanks to a lack of negative headlines and strong housing data.

Market Statistics

The market got off to a fast start at the open after the New Residential Construction report for July posted blowout numbers. Housing starts came in at 1.093 million in July compared to 0.945 million in June. For single family starts this was an 8.3% rise month to month and 10% rise year over year. For multifamily starts it was a spike of 33% month over month and 50% year over year. June housing starts were revised up from a very disappointing 893,000 to a decent 945,000 units. Clearly the majority of the building today is in multifamily units with activity in that sector very close to prerecession levels. Single family starts are only about half the rate they reached in 2000. We have a very long way to go before the single family rebound is complete. Overall housing starts are up +21.7% over July 2013.

Housing permits rose +8.1% overall with single family rising only +0.9% while multifamily rose +21.5%. Annualized completions rose +4% from 811,000 to 841,000.


The Consumer Price Index (CPI) rose +0.1% and back to neutral levels after rising +0.3%, +0.4% and +0.3% in the prior three months. The inflation bounce appears to have evaporated exactly like Janet Yellen promised. Sharp declines in energy continue to drag down the overall prices. The Core rate only rose +0.1% for the second month. On a year ago basis both headline inflation and the core rate remain close to +2% and within Fed guidelines.

The +0.1% rise in the headline rate was the slowest since February but it is surprising it was not higher. The 12 month run rate for food prices rose to +2.6% and the strongest pace in two years. Record grain crops this year are poised to push food prices lower across the board along with beef prices thanks to the surplus of corn for feeder cattle.

The only event of note on the calendar for Wednesday is the FOMC minutes for the July meeting. The rise of the hawks to prominence over the last couple of months suggests there were probably some heated conversations over policy during the July meeting. With the end of QE so close the next discussion topic is going to be the beginning of the rate hike cycle. Currently most estimates are in the first half of 2015 with the consensus calendar target moving ever closer to Q1.

The Fed's Jackson Hole conference begins on Thursday and Janet Yellen is going to be a featured speaker on Friday. With the equity markets starting to make new highs again there is always the possibility Yellen will try to pop the equity bubble like she did at the last post FOMC press conference when she said small cap and biotech valuations were stretched. She caught a lot of flak for that comment but the markets quickly shook it off.

The market appears to be Teflon coated with nearly every headline having only a minimal impact. Will it also shake off a concentrated attack by an increasingly bearish Yellen?


Apple Inc (AAPL) rallied another $1.37 today to close at $100.55 and a new historic closing high. The prior closing high was $100.30 on September 19th, 2012. The intraday high is $100.72 and it came within 4 cents of that level today.

The date of that last high is no coincidence. Apple shares typically rise to new highs ahead of their new product announcements and then decline sharply on a sell the news trade. The return to triple digit levels brought out the "double top" crowd claiming this was a sell signal for Apple shares. I am not in that crowd. I believe Apple shares will continue rising until the announcement, which is expected on September 9th according to Re/Code and others. That is a Tuesday and the date is still unofficial. The Mirror is projecting a release for sale on September 19th and MacRumors is also projecting the third Friday (19th), which is in line with prior launches. German carrier Deutsche Telekom has been telling retailers the iPhone 6 will be released on the 19th. Chinese web portal Tencent is also quoting the 19th as the release date after an announcement on the 9th.

If you own Apple shares I would be a seller on September 5th.


Do you really like McDonald's coffee or is it just a quick cup on the way to somewhere? If you are just dying for a cup of McDonald's coffee when you climb out of bed then get ready. McDonald's and Kraft Foods (KRFT) are going to start selling the McCafe brand of packaged coffee in grocery stores across the U.S. beginning in early 2015. It will come in 12-ounce bags and single-cup portions including K-cups. Pricing has not yet been disclosed. You will be able to satisfy your coffee cravings at will without waiting in line for a rude server to take your order. That assumes you don't force your significant other to make the coffee for you.

MCD shares are struggling to hold over support at $93 and today's coffee news failed to energize investors.


Home Depot (HD) reported earnings that rose +14% thanks to a strong rebound in its spring selling season. Earnings were $1.52 compared to estimates of $1.44. Revenue rose +6% to $23.81 billion and beating estimates of $23.57 billion. Same store sales rose +5.8% overall and +6.4% in the U.S. alone. Online sales surged an unbelievable 38% for the quarter. Purchases over $800 rose a whopping +20%. The store raised full year guidance from $4.42 to $4.52. That is the second bump this year with the initial forecast at $4.38. Full year revenue is expected to rise +4.8%.

The HD news powered the Dow component's shares to a +5.55% gain of $4.64 and was responsible for about +35 points of the Dow's +80 point gain.


PetSmart (PETM) said today it was planning on exploring a potential sale of the company. This came after activist pressure from several shareholders led by Jana Partners. PetSmart has a market cap of $7 billion and it is unclear who would be a potential acquirer. Jana Partners has reported a 9.8% stake in PETM. Jana called for a sale after what they said was "years of financial underperformance." PetSmart was founded in 1986 and has 53,000 employees with 1,340 stores.

After the bell PETM reported earnings of 98 cents that beat estimates by 4 cents. Revenue of $1.73 billion was in line with estimates. Same store sales fell -0.5%. Guidance for current quarter was 93-97 cents with analysts at 94 cents. Full year net sales are only expected to grow +2%.


SolarCity (SCTY) was downgraded by Robert W Baird to neutral from outperform because of its rising stock price and increasing competition from competitors. Apparently Ben Kallo, the analyst at Baird, failed to read the recent earnings report. Business is booming. They have more business than they can handle and the installed user base is exploding. They are buying a panel manufacturer and constructing a new plant in New Jersey just to keep up with panel demand. They expect to install 65 megawatts in Q3 and CEO Elon Musk said they would be installing gigawatts in 2015. Investors and analysts should bet against Elon Musk at their own risk.


Allergan Inc (AGN) disclosed it had approached Salix Pharmaceuticals (SLXP) on a possible merger to avert a hostile takeover by Valeant Pharma (VRX) and William Ackman's Pershing square Capital Management. Salix is currently in the process of merging with a unit of Swiss-listed Cosmo Pharma. Salix makes drugs to combat gastrointestinal disorders. Salix is merging with the Swiss unit of Cosmo in a tax inversion play. Shares of Salix spiked +15% on the news.


The Ebola epidemic is causing some really crazy headlines. In Liberia armed forces have been given "shoot on sight" orders for anyone seen trying to cross the border from Sierra Leone. The border was closed to prevent the spread of Ebola. The border has 35 "known illegal entry points" according to immigration authorities. The announcement came after residents of a slum near the capital broke into an isolation center and freed 30 Ebola patients. Some Liberians don't believe in the existence of Ebola and think the whole thing is a plot by the government to secure foreign aid. They took the 30 patients and hid them in homes where families will care for them. Obviously this kind of mentality is going to accelerate the spread of Ebola, which has now reached about 2,500 admitted patients and roughly 1,300 deaths. People with Ebola are starting to appear in other countries and the World health Organization said it could take six months or more to quell the outbreak and only IF they could halt travel from affected areas.

In Iraq the ISIS militants have posted some more videos on Monday showing pictures of beheaded Americans and promising to "drown all of you in blood" if the U.S. airstrikes continue. In the videos ISIS said it will attack Americans "in any place" if the raids continue.

Late Tuesday American journalist James Wright Foley was beheaded in a horrific video as a warning to President Obama. The journalist had been missing since Thanksgiving 2012 while working in Syria. He spoke into the camera before his death and gave an obviously coerced speech blaming America. ISIS militants said missing American journalist Steven Joel Soltoff will be killed next if the bombings don't stop. LINK

In Ferguson Missouri last night there were people carrying homemade ISIS banners and Muslim flags. There are numerous twitter feeds urging ISIS followers to travel to Ferguson and form bands to take the battle to America. They promise justice and equality under Shariah law that "you will never get under democracy." Some of the tweets are unbelievable and suggest the rest of the decade could see a lot more unrest even worse than Ferguson.

Headlines in the market are also out of touch with reality. One today started out "Dow flirts with 19,000..." Apparently the hyperbole is getting so out of hand they only missed that flirt number by 2,000 points. The Dow closed at 16,919 today and hardly close to 19,000.

The Dow is still -219 points below its closing high but the sprint over the last eight days has been dramatic. The low on the 7th was 16,333. The Dow has gained nearly 600 points in only 8 days. If this sprint continues to the 17,138 historic high it will be very overbought by the time it gets there and could have trouble pushing through that level.

The key levels for the rest of the week are 16,600 for support and 17,138 for resistance.



The S&P is also moving closer to its recent closing high of 1987.98, call it 1988. The S&P has already done the hard work and a retest of the highs appears to be a foregone conclusion. The big cap techs are leading the charge but the industrials are starting to join the party. The 1988 level is the key for the rest of the week with the psychological 2000 level the next hurdle. The S&P is up +78 points from the 1904 low on August 7th. Support is now 1945.


The Nasdaq broke out to a new 14-year high and shows no indications of slowing. In the winners and sinners list below the winners far outpaced the sinners and Apple is not even in the list. Semiconductors and biotechs are leading the Nasdaq charge.

Support is now 4440 and well below today's close. The prior high at 4485 could now be support but we won't be sure until it is tested.



The NDX encountered light resistance at the close at 4040 after breaking over round number resistance at 4000 on Monday.


The Russell 2000 is the laggard in this parade. The Russell is still below decent resistance at 1165 and well below the highs at 1210. Unless the small caps pick up the pace they could send the wrong signal to the market.


The S&P futures dropped slightly when the ISIS beheading video was released but I don't think that headline will produce any lasting damage to the market. We are all sorry it happened but this is a war. It may not be on our shores, yet, but it is a war and ISIS is far more dangerous than al-Qaeda. The signs in Ferguson are just a hint of what is to come.

The market is very good about ignoring these kinds of events. Lately they have been ignoring a lot more serious events like the Russian invasion of Ukraine, Israel and Gaza and the resumption of bombing in Iraq.

We should be due for some light consolidation ahead of the Fed conference in Jackson Hole but if Yellen gives another dovish speech we could be off to the races again. If she puts on her bear coat and tries to talk down equities it could be an entirely different outcome.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Prescription For New Highs

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

CVS Caremark Corp. - CVS - close: 79.53 change: +0.38

Stop Loss: 77.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.1 million
Entry on August -- at $---.--
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Where can a company lose $2 billion in annual sales, voluntarily, and be rewarded for it? Evidently the answer is CVS Caremark Corp. Back in February 2014 the company announced they would stop selling cigarettes in all of their 7,700 stores by October this year. That accounted for $2 billion in sales a year. Management felt selling cigarettes didn't line up with the company's mission - to help people with their health.

It makes sense. About 480,000 people die from smoking every year in the United States. 16 million people already have at least one disease from smoking. Investors may have been concerned initially but CVS' most recent earnings report should remove any worries. CVS is focusing on building out their MinuteClinic busniess, their specialty pharmacy services, and capturing their share of the millions of new healthcare members through Obamacare. It seems to be working. CVS' MinuteClinic sees four million visitors a year. The company has 64 million pharmacy benefit plan members.

According to a company press release, "CVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the Company's more than 7,700 retail pharmacy stores; its leading pharmacy benefit manager serving nearly 65 million plan members; and its retail health clinic system, the largest in the nation with more than 860 MinuteClinic locations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare Part D Prescription Drug Plans. As a pharmacy innovation company, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisor program that helps people with chronic diseases such as diabetes obtain and stay on their medications.

CVS is in a good position if you consider the demographics of the U.S. Right now there are 10,000 people a day turning 65 years old. An older population needs more healthcare services and more prescriptions. CVS plans to capitalize on this growing trend.

The company's most recent earnings report was August 5th. Analysts were expecting a profit of $1.10 a share on revenues of $33.52 billion. CVS reported earnings of $1.13 a share. That beat estimates and represents +16.5% growth from a year ago. Revenues were up +11% to $34.6 billion. Same-store sales in the second quarter were +3.3%, which beat rival Walgreen's (WAG) +2.2% growth. CVS management sees this bullish momentum continuing and raised their 2014 earnings guidance.

In their earnings press release CVS was pretty optimistic:

President and Chief Executive Officer Larry Merlo stated, "I'm extremely pleased with our strong performance this quarter. With Adjusted EPS increasing 16.5%, we came in two cents above the high end of our expectations. This was fueled by solid results across the enterprise, as both the PBM and retail businesses exceeded revenue expectations while delivering strong gross margins. Operating profit in the PBM increased 30%, exceeding expectations, while operating profit in the retail business grew 6.5%, at the high end of our expectations." Mr. Merlo continued, "Additionally, we have generated significant free cash flow through the first half of this year. Between dividends and share repurchases, we have returned $2.6 billion to our shareholders year-to-date, and remain on track to achieve our goal of returning more than $5 billion in 2014."

Following this earnings report Wall Street applauded. Several firms updated their outlook on the stock. Many were raising their CVS price targets in the $85, $86 and $88 range. The point & figure chart is a lot more optimistic and currently forecasting a $102.00 target.

Currently shares of CVS are hovering just below resistance at $80.00. We are suggesting a trigger to buy calls at $80.25.

Trigger @ $80.25

- Suggested Positions -

Buy the NOV $80 call (CVS141122C80) current ask $2.07

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Rally Triggers New Plays

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's widespread rally on Tuesday triggered all of our unopened trades.

CNQR, SLCA, and URI are now open.


Current Portfolio:


CALL Play Updates

BioMarin Pharmaceutical Inc. - BMRN - close: 69.10 change: +1.11

Stop Loss: 61.95
Target(s): To Be Determined
Current Option Gain/Loss: +29.4%
Average Daily Volume = 1.26 million
Entry on August 14 at $66.55
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: The market's widespread rally on Tuesday helped BMRN add another +1.6%. The stock is nearing what could be round-number resistance at the $70.00 mark.

Investors may want to start raising their stop loss.

Earlier Comments: August 11, 2014:
BMRN is in the healthcare sector, specifically the biotech industry. According to the company's press release they "develop and commercialize innovative biopharmaceuticals for serious diseases and medical conditions. The company's product portfolio comprises five approved products and multiple clinical and pre-clinical product candidates."

The company's strategy is "providing first-in-class or best-in-class treatments for patients with serious unmet medical needs, optimizing powerful biology with demonstrated potential and development clarity, accelerating approval process, strategic pipeline development."

BMRN's current product portfolio looks like this: VIMIZIM™ for Morquio A syndrome (MPS IVA), Naglazyme® for MPS VI, Aldurazyme® for MPS I, Firdapse™ (currently approved in the EU only) for LEMS, KUVAN® Tablets for PKU.

BMRN lists their current clinical pipeline as follows: PEG PAL for PKU, BMN 673 for genetically defined cancers, BMN 701 for Pompe disease, BMN 111 for achondroplasia, BMN 190 for late-infantile neuronal ceroid lipofuscinosis (CLN2), a form of Batten Disease, BMN 270 for hemophilia A and BMN 250 for Sanfilippo Syndrome or MPS IIIB.

The company is developing a trend of beating Wall Street's earnings estimates. Back in February they reported results that bested analysts' estimates by a wide margin. They did it again in May. Wall Street was looking for a loss of 44 cents on revenues of $145.1 million. BMRN reported a loss of just 1 cent with revenues rising +18.5% to $151.6 million. Their most recent earnings report was July 30th. Analysts were expecting a loss of 41 cents on revenues of $159.2 million. BMRN announced a loss of 23 cents with revenues soaring +40.1% to $191.7 million. Furthermore BMRN management raised their 2014 guidance following the July 30th report.

The stock peaked back in February this year. When the market corrected in March most of the high-growth and momentum names were crushed. BMRN was in that group that saw their stock hammered lower. Shares fell from almost $85 to $55.00. Fortunately the $55.00 level has been solid support. Shares have been building a significant base in the $55-65 zone for over three months.

Currently the rebound from its July lows is pushing the stock up against major resistance in the $65.00-66.00 area. This is where BMRN has resistance with its simple 200-dma and its trend line of lower highs. If the stock breaks out it could spark a significant move higher.

Tonight we're suggesting a trigger to buy calls at $66.55. We're not listing an exit target tonight but I will share that the point & figure chart is bullish with a $77.00 target.

- Suggested Positions -

Long Oct $70 call (BMRN141018C70) entry $2.55*

08/14/14 triggered @ 66.55
*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


Concur Technologies - CNQR - close: 100.62 change: +0.63

Stop Loss: 96.90
Target(s): To Be Determined
Current Option Gain/Loss: - 2.9%
Average Daily Volume = 576 thousand
Entry on August 19 at $100.50
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: CNQR rallied in the first 90 minutes of trading and hit our suggested entry point at $100.50. Shares then spent the rest of the day drifting sideways in the $100.50-101.00 zone.

I would still consider new positions now at current levels.

Earlier Comments: August 16, 2014:
CNQR is in the technology sector. The company provides travel and expensive management solutions. The company was founded back in 1993. Their focus is helping companies control travel costs. The business has been growing over 23,000 customers and over 25 million users.

The company press release describes Concur as "the leading provider of spend management solutions and services in the world, helping companies of all sizes transform the way they manage spend so they can focus on what matters most. Through Concur's open platform, the entire travel and expense ecosystem of customers, suppliers, and developers can access and extend Concur's T&E cloud. Concur's systems adapt to individual employee preferences and scale to meet the needs of companies from small to large."

There is no denying that it has been a rocky year for CNQR investors. The stock struggled with resistance near $130.00 for over a month earlier this year. When the momentum names corrected lower in March shares of CNQR were crushed. The stock produced a two-month retreat down to $75.00.

Meanwhile earnings continued to improve. When CNQR reported earnings on April 29th they beat estimates by six cents and guided higher for the second quarter. Their most recent earnings report was August 4th. Wall Street expected a profit of $0.16 on revenues of $175.1 million. CNQR delivered a profit of $0.25 with revenues rising +28.6% to $178.4 million. Management also raised their 2014 guidance.

Stocks analysts are starting to notice and a few of them have upgraded their price targets on CNQR into the $110-115 region. If shares of CNQR can breakout past resistance near $100 and its 200-dma then it might sprint towards $110. That's because the stock has a significant chunk of short interest.

The most recent data listed short interest at 12.2% of the relatively small 55.5 million share float. Since the $100 mark is significant resistance a breakout could definitely spark some short covering. The point & figure chart is already bullish and projecting at $108 target.

Tonight we are suggesting a trigger to buy calls at $100.50.

- Suggested Positions -

Long NOV $105 call (CNQR141122C105) entry $5.05*

08/19/14 triggered @ 100.50
*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


Expedia Inc. - EXPE - close: 86.34 change: +0.30

Stop Loss: 81.80
Target(s): To Be Determined
Current Option Gain/Loss: - 6.8%
Average Daily Volume = 2.3 million
Entry on August 18 at $86.25
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: EXPE underperformed the broader market with a +0.3% gain. The stock spent Tuesday's session churning sideways above the $86.00 level.

I would consider new positions at current levels or as an alternative nimble traders could look for a dip near $85.00 and its 10-dma as an entry point.

Earlier Comments: August 16, 2014:
EXPE is in the services sector. The company is in the super competitive online travel industry with rivals like Priceline.com (PCLN) and Orbitz Worldwide (OWW).

EXPE is developing a serious trend of beating analysts' estimates with strong profit and revenue growth. EXPE last reported earnings on July 31st. Analysts were expecting a profit of $0.75 a share on revenues of $1.44 billion. EXPE blew those numbers away with a profit of $1.03 a share. Revenues soared +24.0% to $1.49 billion. That's up from $1.2 billion the prior quarter. EXPE has now delivered double-digit year over year revenue growth for six quarters in a row.

EXPE's bookings continue to soar. Gross bookings were up +29%. Domestic gross bookings were up +35% and international gross bookings rose +21%. Both hotel revenues and air travel revenues were up more than +20% each.

Last time we traded EXPE we noted that Billionaire hedge fund manager David Tepper's Appaloosa Management is also bullish on EXPE. The latest 13F filing showed that Appaloosa had initiated a new stake in EXPE in the first quarter of 2014. In the second quarter Appaloosa added another 201,000 shares of EXPE.

The stock popped on its earnings results but have since spent the last two weeks digesting gains in a sideways consolidation. Now it looks like EXPE is poised to breakout and could make a run towards the $95-$100 area. The point & figure chart is bullish and forecasting at $105 target.

Tonight we are suggesting a trigger to buy calls at $86.25.

- Suggested Positions -

Long NOV $90 call (EXPE141122C90) entry $4.40

08/18/14 triggered @ 86.25
Option Format: symbol-year-month-day-call-strike


Gilead Sciences, Inc. - GILD - close: 101.28 change: +0.56

Stop Loss: 93.45
Target(s): To Be Determined
Current Option Gain/Loss: +118.9%
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:
08/19/14: Another day, another all-time high for shares of GILD. Traders bought the dip at $99.33 midday. The $101.50-101.65 area appears to be acting as very short-term resistance.

Readers may want to consider taking some money off the table here. I am not suggesting new positions at this time.

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*

08/16/14 new stop @ 93.45
Investors will want to seriously consider taking profits now with GILD testing potential resistance at the $100.00 mark.
08/14/14 new stop @ 89.95
Investors may want to consider taking money off the table as GILD nears the $99-100 zone.
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


Isis Pharmaceuticals - ISIS - close: 35.71 change: -0.25

Stop Loss: 31.85
Target(s): To Be Determined
Current Option Gain/Loss: -7.3%
Average Daily Volume = 1.5 million
Entry on August 13 at $35.25
Listed on August 12, 2014
Time Frame: 12 to 15 weeks
New Positions: see below

Comments:
08/19/14: Failure to participate in the market's relatively widespread rally does not bode well for ISIS. Traders have been buying the dips at its simple 300-dma but this isn't very inspiring. The level to watch is probably support near $34.00 and overhead resistance in the $37.25-38.00 zone. The simple 200-dma is at $37.80.

Earlier Comments: August 12, 2014:
Science has discovered that some diseases are caused by certain proteins. Some biotech firms are using RNA-targeted technology to focus on those proteins and find a treatment. ISIS is one such company.

According to their website, ISIS is "the leading company in antisense drug discovery and development, exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class drugs. Antisense technology provides a direct route from genomics to drugs. With our highly efficient and prolific drug discovery platform we can expand our pipeline and our partners' pipelines with antisense drugs that address significant medical needs. Our strategy is to do what we do best—to discover unique antisense drugs and develop these drugs to key clinical value inflection points."

The company has a significant number of drugs in development. You can see a list of ISIS' pipeline on this webpage. They currently have over 30 drugs in progress. The depth and scale of their pipeline makes ISIS a potential takeover target from bigger drug or biotech firms. Gilead Sciences and Biogen Idec have been rumored as potential suitors.

Lately the headlines have been full of the world's worst Ebola outbreak in history. Biotech stocks are grabbing investor attention as companies search for a treatment. Whenever one biotech firm makes positive headlines it tends to create a halo effect that buoys the rest of the group.

The stock peaked back in February this year after ISIS reported positive results on a treatment for children with spinal muscular atrophy. After soaring from $8.00 in the prior 18 months traders sold this news near $60.00. A few days later in March all the high-growth and momentum names were crushed. The correction was exceptionally tough on ISIS. The stock plunged from $60 in February to $23 in May. Their Q1 results in early May didn't help. Results were in-line but revenues were down 35% from a year ago to $28.2 million. Their most recent earnings report on August 4th was much better. ISIS missed Wall Street's estimate for a loss of 10 cents a share by 1 cent. However, revenues soared +49.8% to $57.1 million, which was significantly above expectations.

ISIS explained that the big swings in their revenues are normal. According to their press release, "Isis' revenue fluctuates based on the nature and timing of payments under agreements with its partners and consists primarily of revenue from the amortization of upfront fees, milestone payments and license fees. Isis' revenue from the amortization of payments from its partners was $31.4 million in the first half of 2014, compared to $19.2 million for the same period in 2013." You can see they made significant improvement from 2013 to 2014.

ISIS is getting closer to several drugs completing their final Phase 3 clinical trials before being approved for market. The company said,

We have initiated the Phase 3 program for ISIS-SMNRx to treat patients with spinal muscular atrophy. Our Phase 3 clinical study of ISIS-TTRRx in patients with the polyneuropathy form of transthyretin amyloidosis is enrolling well and patients who have completed the controlled portion of the study can continue to receive treatment in our open-label extension study. Also this year, we plan to initiate the Phase 3 program for ISIS-APOCIIIRx to treat patients with severely elevated triglyceride levels with the first study starting very shortly," said B. Lynne Parshall, chief operating officer of Isis. "By the end of the year, we plan to be conducting Phase 3 programs on a number of different drugs to treat important genetically driven diseases for which antisense may offer a unique therapeutic approach."

It looks like the stock has made a bottom in July. Shares have pushed through several key moving averages in the last couple of weeks. If this continues ISIS could see some short covering. The most recent data listed short interest at 10% of the 117.9 million share float. The Point & Figure chart is bullish and forecasting at $46.00 target.

Tonight we are suggesting a trigger to open bullish positions at $35.25. If triggered we'll try and limit our risk with a stop loss at $31.85. I will point out that ISIS does have resistance in the $37.50 area including its simple 200-dma. We're expecting the stock to break through it. More conservative investors might want to wait for ISIS to close above $38.00 before considering new positions.

- Suggested Positions -

Long 2015 Jan $40 call (ISIS150117C40) entry $4.10

08/13/14 triggered @ 35.25
Option Format: symbol-year-month-day-call-strike


Transportation ETF - IYT - close: 150.81 change: +0.18

Stop Loss: 141.90
Target(s): To Be Determined
Current Option Gain/Loss: +30.4%
Average Daily Volume = 276 thousand
Entry on August 11 at $146.03
Listed on August 09, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: Yesterday the transports were leading the market higher. Today the group stalled. The IYT managed a +0.1% gain. This ETF is nearing what could be resistance at its July highs near $152.35.

I am not suggesting new positions at this time.

Earlier Comments: August 9, 2014:
In tonight's market commentary Jim pointed out the bounce in the Dow Jones Transportation Average ($TRAN). The transportation group has been leading the market higher for months with a series of new all-time highs. The group was hit with some profit taking in the last two and a half weeks. Even with a 500-point (about -6%) pullback in the $TRAN index it's still up +9.3% for the year. Now that group is bouncing.

One way to play the transports is the iShares transportation ETF (symbol: IYT). This ETF tries to mimic the performance of the Dow Jones Transportation Average. The top ten holdings in this ETF are:

(FDX) FedEx - delivery services
(KEX) Kirby Corp. - marine transportation
(KSU) Kansas City Southern - railroads
(UPS) United Parcel Service - delivery services
(NSC) Norfolk Southern - railroads
(UNP) Union Pacific Corp. - railroads
(CHRW) C.H. Robinson Worldwide - trucking
(R) Ryder System Inc. - transportation services
(CNW) CON-WAY Inc. - trucking
(JBHT) J.B. Hunt Transport Services - trucking

If the U.S. economy continues to improve as so many expect it will then the transports should be a major beneficiary. We should take advantage of this pullback in the transports and buy this bounce from support.

The IYT has been bouncing from technical support at its rising 100-dma for months. It bounced off the 100-dma in October 2013, February 2014, April 2014, and almost hit it again on Friday morning before bouncing.

Tonight we're suggesting traders buy calls now following Friday's bouncing with a stop loss at $141.90, just under the 100-dma. More conservative traders may want to consider an alternative entry point and wait for a rise past $146.25 instead.

- Suggested Positions -

Long 2015 Jan $150 call (IYT150117C150) entry $4.60

08/11/14 trade begins. IYT gaps higher at $146.03
Option Format: symbol-year-month-day-call-strike


LyondellBasell Industries - LYB - close: 112.20 change: +1.04

Stop Loss: 107.40
Target(s): To Be Determined
Current Option Gain/Loss: +16.0%
Average Daily Volume = 2.5 million
Entry on August 15 at $110.50
Listed on August 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: LYB was showing relative strength on Tuesday and outpaced the market with a +0.9% gain. Investors may want to start raising their stop loss.

Earlier Comments: August 4, 2014:
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.

- Suggested Positions -

Long DEC $115 call (LYB141220C115) entry $2.50*

08/15/14 triggered @ 110.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/14/14 adjust the stop loss to $107.40 (trade not open yet)
08/14/14 LYB almost hit our trigger but failed at $110.49
Option Format: symbol-year-month-day-call-strike


Palo Alto Networks, Inc. - PANW - close: 85.39 change: -0.19

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: +43.7%
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: see below

Comments:
08/19/14: PANW is really struggling with resistance near $88.00. The stock has tried to breakout past this level and failed three out of the last four sessions.

I am not suggesting new positions at this time.

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*

08/13/14 new stop @ 79.90
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


U.S. Silica Holdings, Inc. - SLCA - close: 62.13 change: +0.89

Stop Loss: 57.95
Target(s): To Be Determined
Current Option Gain/Loss: -9.5%
Average Daily Volume = 1.42 million
Entry on August 19 at $62.05
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: Our bullish trade on SLCA is now open. The stock rallied past resistance near $62.00 and hit our suggested entry point at $62.05. Today's +1.45% gain outpaced the major indices. This is a new all-time closing high for SLCA.

I would consider new positions at current levels.

Earlier Comments: August 13, 2014:
We are bringing SLCA back after some post-earnings volatility.

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.

SLCA's most recent earnings report was July 29th. Wall Street expected a profit of $0.47 a shares on revenues of $189.7 million. SLCA beat estimates with a profit of $0.55 and revenues soaring +58.5% from a year ago to $205.8 million.

The company said sales were up sharply both from a year ago and from the first quarter. Management raised its 2014 earnings guidance.

Currently shares of SLCA are hovering just below resistance in the $61.75 area. Tonight we're suggesting a trigger to buy calls at $62.05. We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.

- Suggested Positions -

Long DEC $65 call (SLCA141220C65) entry $4.20*

08/19/14 triggered @ 62.05
*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


United Rentals, Inc. - URI - close: 115.41 change: +1.12

Stop Loss: 109.45
Target(s): To Be Determined
Current Option Gain/Loss: -5.3%
Average Daily Volume = 1.0 million
Entry on August 19 at $115.25
Listed on August 18, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/19/14: URI shot higher at the open. The stock gapped open at $114.90 and surged past $116.50 before 10:00 a.m. URI spent the rest of the day retracing its gains before bouncing late in the afternoon. The stock outperformed the major indices with a +0.9% gain and closed at a new high, above potential resistance at $115.00. Our suggested entry point was hit at $115.25.

Earlier Comments: August 18, 2014:
URI is a company that is gaining market share. Traditionally equipment rental has been a very fragmented industry with a lot of mom and pop stores. URI has decided that being the biggest offers a better selection to their clients. Today URI is the biggest equipment rental company in the world.

Twenty years ago commercial construction clients only accounted for about 15% of the equipment rental market. Today that number is closer to 50%. The last few years have seen a strong trend of construction companies choosing to rent equipment instead of buy new equipment due to an uncertain economic outlook.

According to URI's website they were founded in 1997 and have grown into a network of 832 rental locations in 49 states and 10 Canadian provinces. Their rental fleet includes 3,100 classes of equipment.

Earnings are improving. URI's most recent earnings report was July 16th. Wall Street was looking for a profit of $1.50 a share on revenues of $1.36 billion. URI delivered $1.65 a share with revenues hitting $1.399 billion. URI's earnings results were up +47% from a year ago. Margins hit a second quarter record at 47.4%. URI management then raised their 2014 guidance.

In URI's earnings press release their CEO offered a bullish outlook:

Michael Kneeland, chief executive officer of United Rentals, said, "Our strong performance in the quarter reflects significantly more equipment on rent at better margins than a year ago, resulting in a new high water mark for second quarter EBITDA margin. The rebound in non-residential construction is continuing to drive up demand, particularly in the energy and commercial sectors. Given the vigorous activity we're seeing, and the benefit of secular penetration, we've raised our full year outlook - and we concur with the forecasts that show multiple years of healthy industry growth beyond 2014."

URI said their rental revenue was up +16.8% for the quarter. They're also see super growth in their specialty segment. Their trench safety rentals were up +21%. Their power and HVAC rentals were up +54%. URI purchased National Pump on April 1st this year. Now they've renamed it United Rentals Pump Solutions and they're using it as an opportunity to cross sell pumps to their broader customer base.

URI is also on track with their stock buyback program. In October 2013 they announced at $500 million repurchase program that's expected to be completed by April 2015. Thus far URI has bought back $228 million in common stock this year ($185 million of that was in the second quarter).

Technically the post-earnings depression for URI is over. Traders bought the dip near its long-term up trend of higher lows. Now URI is testing resistance at its all-time highs and resistance at the $115.00 level.

We are suggesting a trigger to buy calls at $115.25.

- Suggested Positions -

Long DEC $120 call (URI141220C120) entry $5.60*

08/19/14 triggered @ 115.25
*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




PUT Play Updates


Currently we do not have any active put trades.