Option Investor
Newsletter

Daily Newsletter, Tuesday, 8/26/2014

Table of Contents

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

Market Wrap

S&P Closes Above 2000.

by Jim Brown

Click here to email Jim Brown

That headline is true but only barely with the S&P closing at 2000.02 and it was a struggle at the close.

Market Statistics

The S&P is struggling to move over that 2000 level but at least it has not been reactive for sellers. As long as it keeps holding there it will eventually move higher. The markets should have been strong today after the economic reports this morning.

Durable goods orders for July were a blowout with a +22.6% gain compared to estimates at +6.9% and the +0.7% rise in June. The driving force was a +318% increase in nondefense aircraft orders. Excluding transportation orders the index fell -0.8% and core capital goods orders fell -0.5%.

Durable goods shipments increased +3.3% in July. Nondefense shipments rose +3.4% and core capital goods ex-aircraft rose +1.5%. In theory this will be good for Q3 GDP.

Defense orders continued to decline with a -15.3% drop and the second double digit decline in three months. Orders were strong earlier in the year so this is just a cycle problem. The government's fiscal year starts on October 1st so agencies are probably out of money until the next budget year begins in October.

Transportation goods orders rose +74.2%. Orders for vehicles and parts rose +10.2% while transportation shipments rose +7.9%.

The headline gain of +22.6% is just a one month blip thanks to the orders from the Paris air show. Even though this was a one month blip it will dramatically impact the Q3 GDP.

The Richmond Fed Manufacturing Survey rose from 7 in July to 12 in August. That is the highest reading since March 2011. Manufacturing in the Richmond area is on the verge of breaking out of a multiyear consolidation. The new orders component rose from 5 to 13 and the backorders component shot up from zero to 15. Employment declined slightly from 13 to 11 but the average workweek component rose from 3 to 8 suggesting they will be hiring new workers soon. The expected average wage component rose from 23 to 28. Capex spending plans rose from 19 to 27 and that is bullish. It means manufacturers are confident enough about the future they are willing to invest new money. Over the last several years companies have been hesitant to invest money because of economic and political uncertainty.

The corresponding services survey Revenue Index rose from 12 to 21. The gains were driven by retail sales more than the services component. All seven retail sales components posted gains. The component for big ticket items soared with a jump from zero to 28. Shopper traffic rose from 35 to 48.

These were bullish reports and the market should have been excited. While it may mean the Fed could raise rates sooner than expected it would be for the right reason of accelerating growth.


The Texas Service Sector Outlook for August was nearly unchanged with a rise from 22.4 to 22.8. The internal components posted minor changes with employment the only hot spot with a rise from 4.6 to 13.2. The outlook for Texas was flat.

Consumer Confidence for August rose from 90.3 to 92.4 and nearly a seven-year high. Confidence has accelerated to the upside over the last year and this bodes well for the economy. The present conditions component rose from 87.9 to 94.6 and the expectations component declined slightly from 91.9 to 90.9. The percentage of respondents that felt jobs were plentiful rose from 15.6% to 18.2% and that is a huge jump. Those planning on buying a car rose from 12.3% to 12.9%. Home buyers rose from 4.6% to 4.9% but appliance buyers declined from 48.7% to 45.7%.


The economic calendar for the rest of the week is highlighted by the Q2-GDP revision on Thursday and the ISM Manufacturing on Friday. With volume declining every day there won't be many traders around to react to those reports when they come out. That can be good or bad since a low volume market can be volatile if the news is dramatically different than expectations.


Stock news was also pretty slim. The Burger King (BKW) merger with Tim Horton (THI) for $11 billion is now confirmed and if approved will create a $22 billion company with 18,000 stores in 100 countries with sales of $23 billion. Burger King will get a popular breakfast lineup and a cheaper maximum tax rate. The maximum in Canada is 26.5% and they don't tax earnings that are made overseas unlike the USA. BKW earns 40% of its revenue and earnings overseas and that cash is trapped overseas unless BKW wants to bring it back and pay taxes on it.

Warren Buffett went against President Obama by lending Burger King $3 billion to help finance the transaction. Buffett had previously supported the president's anti-inversion campaign. Apparently making money is still important and Berkshire will end up with $3 billion in preferred stock with a 9% dividend out of the deal.

Only two days into the BKW/THI deal and already Moveon.org is sponsoring a petition to scuttle the "Whopper Tax Dodge" and institute a boycott. MSNBC hosts are also calling for a boycott and trying to get burger buyers to switch to Wendy's. On Twitter the #BoycottBurgerKing movement is gaining steam. The thing about boycotts is they don't last. The movements may sound like a good idea to the organizers but they tend to rise and fall quickly. A month from now nobody will remember it.

On the surface analysts and investors like the deal with the shares of both companies rising.



Amazon (AMZN) gained +8 after announcing the purchase of the streaming game website Twitch. The all cash deal for $970 million came after a potential acquisition by Google fell apart. Twitch said they chose Amazon because "they believe in the Amazon community and they share our values and long term vision. They want to help us get there faster." Google wanted to put the Twitch platform under the Google brand and stream the games on YouTube. Users revolted over the potential connection and complained loudly. The Twitch app allows millions of gamers to watch games streamed by over one million hard core gamers. There were 55 million watchers in July. By watching a pro player you can learn the tips and tricks of your favorite game and that makes you a better player. Twitch streams billions of minutes a month and has a rabid following.

The Twitch website has had trouble keeping up with the millions of live streams and Amazon is exactly the instant fix for that with the largest cloud on the planet. Amazon began developing games in 2012 but has yet to produce any heavyweight crowd favorites. They have hired the developers from successful games like Portal and Killer Instinct so they are working on building a portfolio of crowd pleasers.

This was a good deal for Amazon and a good deal for Twitch. Jeff Bezos needs to attract the younger crowd to Amazon because they will eventually turn into shoppers. They will also buy games when Amazon begins to turn them out in volume.


Best Buy (BBY) lost -7% after reporting revenue that declined -4% to $8.89 billion and missing estimates for $8.99 billion. Earnings of 44 cents easily beat estimates of 31 cents but that is where the good news ended. Same store sales declined -2.7% and operating margins fell from 4.5% to 2.7%.

The retailer warned that same store sales would decline in low single digits for the rest of the year and operating margins would continue to shrink due to higher sales of low margin items and strong discounting in Canada and China. The company said sales by online retailers were impacting margins and revenue.

In a recent Nielsen survey 42% of respondents said they would likely buy TVs and cameras online, up from 15% a year ago. Best Buy announced a plan last year to match the lowest prices offered by local and online retailers and that hurt margins. Industry wide consumer purchases of TVs and desktop and notebook computers declined -2.5% in the quarter.

The CEO said he does not expect a "huge lift" from "phones released this year" because so many consumers already have high end phones and contracts. Best Buy is also unsure how much inventory it will receive. As a result they guided for lower sales the rest of the year. He did not specifically mention iPhone but that was the clear topic of the conversation. The CFO said about the lowered expectations "We don't live on wishes and hopes." Shares declined -7% on the news.


Smith & Wesson (SWHC) shares fell -10% after slashing sales forecasts to a range of $530-$540 million, down from $585-$600 million. Projected profits will be 89-94 cents, compared to $1.30-$1.40 in the prior forecast. The company cited high inventory levels and sluggish summer sales. The company said sales of "modern sporting rifles" had seen a drop in demand. That term is the new industry standard for the AR-15 style rifle. Prices have dropped from $1500-$2000 early in President Obama's first term to $600-$700 for the base model today. Price volatility is huge whenever the president makes antigun comments or threatens new rules. He has been called the greatest gun salesman ever. Ruger Firearms (RGR) fell -$3 on the S&W news.


Apple (AAPL) shares declined slightly on the Best Buy phone comments but still closed over $100. The weakness is probably going to be minimal because investors will continue to expect a huge product announcement in September. An Apple supplier said they were starting work on a new 12.9 inch iPad that will be released in 2015. Apple currently makes 9.7 inch and 7.9 inch iPads. Reportedly Apple has been working with suppliers for at least a year to develop a new range of larger touch screen devices. With iPad sales declining it is due for a refresh. The larger screen device could take on more tasks currently done on a notebook or laptop computer. Corporations are expected to be big buyers of the larger devices.


The S&P closed over 2000 by the smallest of margins at 2000.02 after trading just under the 2000 level in the seconds before the close. This is a psychological level and not a real technical event. The real resistance is still well above at 2025-2030. However, psychological levels still matter. The difficulty the S&P has had this week with making any gains over 2000 is evidence there are sellers taking advantage of this milestone to take profits.

At the same time there has not been a rush to sell. I expected at least a minor decline once that 2000 bell was rung and that did not occur. It still might happen since we are struggling to extend the gains but the lack of selling suggests we could be going higher.

Volume yesterday was the lowest non-holiday volume of the year at 4.2 billion shares and today was not much better at 4.4 billion. The closer we get to the weekend the lower the volume will be. The indexes are likely to stagnate and be subject to the whims of hedge fund program trading. They would love to cause a low volume 20 point run on the S&P in either direction but I seriously doubt they will be able to accomplish that. More than likely the markets will continue to creep higher without any material headlines to drive the market.

However, that long streak of green candles over the last two weeks is begging for some profit taking. That could happen at any time but more than likely after Labor Day.


The Dow rallied to a new intraday high at 17,153 but could not hold it. The record close was 17,138 and it could not hold that level either. The multiple bands of converging resistance at the 17,110-17,150 level are strong and the Dow is over extended from its August rebound. Like the S&P the string of green candles needs a dose of red at the top before we surge too much higher.



The Nasdaq is the index with the superiority complex. The tech index just keeps clawing its way higher and every little intraday dip is bought. Actual resistance on the Nasdaq is just over 4600 but it has the same need for some profit taking as the S&P and Dow. The biotechs are powering the recent move but they are being helped by other sectors as well. The buyers are maintaining a bid just under the market and every dip is bought. Support remains 4515.



The Russell 2000 made a critical move today. The index spiked above strong resistance at 1165 on Monday but fell back to close right on that level. Today the Russell opened strong and never looked back to close at 1175. This breakout over 1165 is very bullish. The next material resistance is the old high at 1208. If the small caps are rising again the bulls are back.


People keep asking what is pushing stocks higher. The answer is simple. The Fed is still injecting $25 billion a month into the market and the yields on bonds are still ridiculously low with the ten-year at 2.39%. Add in the rising dollar and falling markets overseas and we are the only market in the world worth investing in today. Overseas funds are flowing in and the Fed is still making sure there is no alternative to stocks.

Obviously this is eventually going to come to a screeching halt but probably not until later this year. There will come a day of reckoning but if the economy accelerates there may be a new reason to buy stocks and that would be rapidly rising profits.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Snake Eyes

by James Brown

Click here to email James Brown




NEW DIRECTIONAL PUT PLAYS

Las Vegas Sands - LVS - close: 67.85 change: -0.86

Stop Loss: 70.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.6 million
Entry on August -- at $---.--
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The high-speed growth in the world's biggest gambling hub is slowing down. Investors are taking notice. It used to be that when the world wanted to gamble the came to Las Vegas. Today the biggest gambling center in the world is Macau, a city in southern China.

LVS describes itself as "the world's leading developer and operator of Integrated Resorts. Our collection of Integrated Resorts in Asia and the United States feature state-of-the-art convention and exhibition facilities, premium accommodations, world-class gaming and entertainment, destination retail and dining including celebrity chef restaurants, and many other amenities." LVS has properties in Vegas, Pennsylvania, Singapore, and Macau.

Macau has been the major focus for casino companies the last few years. The coastal strip of Macau is the only place in China where gambling is legal. Forbes described Macau as "Vegas on steroids." Macau overtook Vegas as the world's biggest gambling center back in 2006 with Chinese tourists accounting for nearly 66% of its traffic.

After years of booming growth in Macau the area is facing a few hurdles. One of them is rising wage costs. Current laws force casino operators to hire locals. This has driven unemployment in Macau down to 1.7%. Employees are unhappy. They make less than half that their counterparts in Vegas make. There has been a number of demonstrations as casino workers demand higher wages. There is currently the threat of a labor strike on August 28th this year.

Macau is also suffering from an economic slowdown in China. The country has been slowing grinding down for years. China is still expected to grow more than +7% this year but that's a multi-year low. Another issue has been China's crackdown on corruption this year. This new pressure from Beijing has thrown a wet blanket on VIP traffic to Macau. Yet another challenge for Macau is growing competition from foreign destinations. Other countries are starting to add gambling resorts, which could pressure traffic to Macau.

Analysts have been adjusting their earnings and revenues estimates lower for the casino stocks. That's not surprising given the recent reports of slowing revenue numbers. Macau's gambling regulators said gross gaming revenues dropped -3.7% in June and -3.6% in July. Morgan Stanley just slashed their 2014 Macau estimates from +12% to +6%.

Technically shares of LVS are bearish. The stock has broken significant support near $70.00. The oversold bounce is starting to roll over under resistance. The point & figure chart is bearish and forecasting at $56.00 target.

Tonight we are suggesting a trigger to buy puts at $67.40.

Trigger @ $67.40

- Suggested Positions -

Buy the OCT $65 PUT (LVS141018P65) current ask $1.39

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Upward Momentum Continues

by James Brown

Click here to email James Brown

Editor's Note:

The market's upward momentum continued on Tuesday and the S&P 500 closed above 2,000 for the first time in history.

The question now is whether or not the market can hold on to these gains. You could argue the U.S. market looks short-term overbought here and due for a dip. Unfortunately a dip at current levels would look like a reversal at resistance (the 2,000 mark).

PNR hit our bearish entry trigger.


Current Portfolio:


CALL Play Updates

BioMarin Pharmaceutical Inc. - BMRN - close: 71.55 change: +0.66

Stop Loss: 68.90
Target(s): To Be Determined
Current Option Gain/Loss: +72.5%
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:
08/26/14: Red alert! BMRN was showing relative strength during the relative session with a +0.9% gain. Unfortunately after the closing bell tonight the company lowered its revenue guidance. Shares are trading lower in after hours markets.

The simple 10-dma is currently at $69.04. We will try and reduce our risk by raising the stop loss to $68.90. There is a good chance that BMRN will gap down at the open tomorrow. Based on the after hours trading it could gap down near $70.00.

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*

08/26/14 new stop @ 68.90 after BMRN lowers revenue guidance after hours
08/23/14 new stop @ 65.75
08/20/14 new stop @ 64.75
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: 100.61 change: +0.75

Stop Loss: 96.90
Target(s): To Be Determined
Current Option Gain/Loss: -18.8%
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:
08/26/14: CNQR spent most of Tuesday hugging the $100.00 mark but managed a late afternoon rally. Shares closed up +0.75%, outperforming the major indices. The fact that CNQR did not see any follow through on yesterday's potentially bearish session is good news. Yet traders may want to wait for a rally past $101.25 before considering new positions.

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


CVS Caremark Corp. - CVS - close: 79.35 change: +0.14

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

Comments:
08/26/14: CVS was little changed on Tuesday. The stock is consolidating sideways under resistance at $80.00. Our suggested entry point is $80.25.

Earlier Comments: August 19, 2014:
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)

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


Expedia Inc. - EXPE - close: 87.43 change: -0.37

Stop Loss: 83.95
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:
08/26/14: EXPE briefly tagged a new high before slipping lower. We can look for short-term support near $86.00.

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

08/23/14 new stop @ 83.95
08/18/14 triggered @ 86.25
Option Format: symbol-year-month-day-call-strike


Gilead Sciences, Inc. - GILD - close: 106.27 change: -1.18

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: +233.7%
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:
08/26/14: The first 90 minutes were a bit volatile for GILD today. Shares spiked up to a new high at $108.72 and then reversed with a drop to $104.77. The stock pared its losses and spent the rest of the day churning sideways in the $105-106 region. The stock was overbought and due for a dip. The dip may not be over yet.

More conservative traders may want to take profits now. 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*

08/25/14 new stop @ 102.85
08/23/14 new stop at $99.95
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


LyondellBasell Industries - LYB - close: 112.60 change: -0.35

Stop Loss: 108.75
Target(s): To Be Determined
Current Option Gain/Loss: +28.0%
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:
08/26/14: Tuesday proved to be a pretty quiet session for LYB with shares churning sideways in a narrow range.

I am not suggesting new positions at this time.

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*

08/23/14 new stop at $108.75
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


O'Reilly Automotive - ORLY - close: 154.94 change: -2.02

Stop Loss: 151.49
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 626 thousand
Entry on August -- at $---.--
Listed on August 25, 2014
Time Frame: 6 to 12 weeks
New Positions: Yes, see below

Comments:
08/26/14: ORLY did not see any follow through on yesterday's breakout higher. The stock underperformed with a -1.2% dip. We are on the sidelines waiting for a new high. Our suggested entry point is $157.50.

Earlier Comments: August 25, 2014:
The U.S. economy is slowly improving. We are seeing slow but consistent job growth. Yet consumers remain cautious. While there has been a healthy trend of new car sales this year most consumers are keeping their old cars. Of the 247 million cars in the U.S. the average age is at a record high. Passenger cars have hit an average age of 11.4 years while light trucks are at 11.3. If consumers are keeping their cars this long that is going to mean more replacement parts and repairs. That has been good news for the auto part companies.

ORLY is one such company. According to their company website, "O'Reilly Automotive, Inc. is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, serving both professional service providers and do-it-yourself customers. Founded in 1957 by the O'Reilly family, the Company operated 4,257 stores in 42 states as of June 30, 2014."

One analysts on Wall Street called ORLY a "well-oiled machine." It's easy to see why. The company has delivered four years of consistent double-digit earnings growth. Steady same-store sales are impressive considering the tough retail environment we've seen over the last few years. The company's margins are expected to grow over the next 12-18 months. ORLY is on track to open 200 new stores in 2014. They have also boosted their stock buyback program. On August 13th ORLY announced an additional $500 million, which bumps their total stock repurchase program to $4.5 billion.

Technically shares have been consistently bouncing off their long-term trend of higher lows (on the weekly chart below). ORLY did spent the last few months consolidating sideways but it has started to breakout past resistance. This is our chance to hop on board. A rally past $158.00 could create a new point & figure chart buy signal.

Tonight we are suggesting a trigger to buy calls at $157.50. We're listing the October $160 call. You may want to consider a longer-dated option (like the Novembers or 2015 Januarys).

Trigger @ $157.50

- Suggested Positions -

Buy the Oct $160 call (ORLY141018C160)

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


Schlumberger Limited - SLB - close: 111.02 change: +0.80

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: +6.0%
Average Daily Volume = 5.5 million
Entry on August 25 at $110.50
Listed on August 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/26/14: Shares of SLB shot higher this morning. The stock gapped open at $110.75 and then briefly traded above technical resistance at its 40-dma and 50-dma before trimming its gains.

Broken resistance near $110.00 should be new support.

Earlier Comments: August 20, 2014:
Consistent earnings growth is what investors like to see. SLB has done it eleven quarters in a row. The company is considered best in breed for the oil services industry. This past weekend Barron's ran a story on SLB and suggested the stock has +50% upside (or more) from current levels. That's because SLB has made several acquisitions in North America and is now a major player in the U.S. hydraulic fracking boom.

According to the company's website, "Schlumberger is the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide. Employing approximately 126,000 people representing over 140 nationalities and working in more than 85 countries, Schlumberger provides the industry's widest range of products and services from exploration through production."

As mentioned above SLB has beaten Wall Street's bottom line earnings estimates eleven quarters in a row. Their most recent earnings report was July 17th. Analysts were expecting a profit of $1.35 a share on revenues of $11.95 billion. The company reported a profit of $1.37 a share, up +19% from a year ago, with revenues up +7.8% to $12.05 billion for the quarter.

Management noted margin improvement. SLB said every geographic area saw growth. On the conference call SLB's CEO said, "Our second quarter results were strong and fully in line with our expectations as international activity rebounded in Russia, Norway and Australia and North American activity grew in both offshore in the U.S. Gulf of Mexico and on land in spite of the Canadian spring breakup."

Looking ahead the company issued a mixed outlook. Management said, "Turning our focus back to the remaining part of 2014, we continue to see a relatively constant mix of headwinds and tailwinds in the global economy and in our industry, which leads us to maintain our already established outlook for the year. The slow and steady recovery in the global economy is continuing and the global oil market remains relatively tight with a solid demand outlook, continued supply uncertainty related to geopolitics and with Brent prices holding steady above $100 per barrel, which should encourage oil directed investments in both the North American and international markets."

Their relatively cautious outlook and falling oil prices in the last several weeks have sparked some profit taking in SLB's stock price. The pullback could be a significant entry point. Long-term SLB is forecasting almost +20% earnings (compound annual growth rate) through 2017.

Wall Street has been very bullish the last couple of months. Several firms have upgraded their price targets on SLB with a few recent upgrades coming in at $132, $138, $140 and $150 a share for SLB.

SLB did make headlines earlier this month regarding Russia. The U.S. and the EU have leveled sanctions against Russia. This is impacting international companies like SLB who do business in Russia and with Russian companies. Fortunately, SLB estimates that any impact from the sanctions will be limited. Management expects a decline of 3 cents per share due to the sanctions. Wall Street hates uncertainty so having SLB actually come out and offer some guidance on the sanctions impact is bullish.

Another potential challenge could be Iraq. SLB does a lot of business in Iraq but most of the oil production is in southern Iraq. Right now the hot zones with fighting between ISIS, the Iraq military and the Kurds, are all in the northern half of Iraq. As long as the violence stays in the northern half of Iraq then the Islamic State terrorists are unlikely to impact SLB's operations in the country.

Shares of SLB hit all-time highs in late June. Since then the stock experienced a six-week correction from $118 to $105. That's a -11% pullback. The stock has begun to bounce and looks poised to break through resistance near $110. Tonight we are suggesting a trigger at $110.55. More conservative investors may want to wait for SLB to rally past its 50-dma before initiating positions (50-dma is currently at $111.30).

- Suggested Positions -

Long NOV $115 call (SLB141122C115) entry $2.00

08/25/14 triggered @ 110.50
Option Format: symbol-year-month-day-call-strike


U.S. Silica Holdings, Inc. - SLCA - close: 67.47 change: +1.07

Stop Loss: 61.75
Target(s): To Be Determined
Current Option Gain/Loss: +57.1%
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:
08/26/14: SLCA is flexing its relative strength muscle with a +1.6% gain and another new high. Tonight we'll raise the stop loss to $61.75. More conservative investors will want to consider raising their stop even higher.

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*

08/26/14 new stop at $61.75
08/23/14 new stop at $59.45
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: 118.33 change: +0.35

Stop Loss: 109.45
Target(s): To Be Determined
Current Option Gain/Loss: +14.2%
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:
08/26/14: URI eked out a gain after trading sideways most of the session.

The $120.00 level might be round-number resistance. I am not suggesting new positions at this time.

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

Pentair Plc - PNR - close: 68.69 change: -1.20

Stop Loss: 70.75
Target(s): To Be Determined
Current Option Gain/Loss: + 0.05
Average Daily Volume = 2.0 million
Entry on August 26 at $68.90
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/26/14: Good news! Our PNR trade has been triggered. Shares tried to rally again early this morning and reversed under resistance. The stock underperformed with a -1.7% decline and broke down under its 10-dma. Our suggested entry point was hit at $68.90.

Earlier Comments: August 23, 2014:
Pentair is considered part of the industrial goods sector. They manufacture industrial equipment across the globe. According to the company website, "Pentair is a global water, fluid, thermal management, and equipment protection partner with industry leading products, services, and solutions. Pentair reports the performance of its business within four reporting segments that focus on five primary verticals."

Long-term the stock has had a strong 2012 and 2013 performance. The rally appears to have peaked in 2014 when the market started pulling back in March this year. If you recall many of the momentum names and higher-growth stocks were hammered lower starting in March. PNR doesn't really qualify as a big momentum name or a high-growth name but shares have been unable to recover anyway. Shares have trended lower from the March peak, currently down -16% from its 2014 highs and down -10.6% year to date.

PNR's earnings results have not helped the stock's performance. Back in April they beat estimates but missed the revenue number and then guided lower for the second quarter. Their most recent earnings report was July 31st. Depending whose estimate you use PNR either reported in-line profits or managed to just beat by a penny. Revenues disappointed again. PNR missed the revenue estimate with a -2.7% decline from a year ago to $1.91 billion. Management lowered guidance again but they also announced they were exiting their struggling water transport business.

PNR collapsed on this late July earnings news and lowered guidance with a drop toward $64. Shares have spent three weeks with an oversold bounce that is just now starting to roll over under resistance. PNR appears to have resistance near $70-71 and its 50-dma and 300-dma (see daily chart below). The point & figure chart is bearish and currently forecasting at $61 target.

Tonight we are suggesting a trigger to buy puts at $68.90.

- Suggested Positions -

Long Nov $70 PUT (PNR141122P70) entry $3.60*

08/26/14 triggered @ 68.90
Option Format: symbol-year-month-day-call-strike


SPDR S&P 500 ETF - SPY - close: 200.33 change: +0.13

Stop Loss: 202.25
Target(s): To Be Determined
Current Option Gain/Loss: -7.0%
Average Daily Volume = 99 million
Entry on August 25 at $200.14
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/26/14: The SPY traded to another new high this morning before reversing. The ETF managed a very minor gain and closed right at round-number resistance near the $200 mark.

We would still consider new positions while more conservative investors may want to wait for a drop under $199.86 as a new entry point (Monday's low).

Earlier Comments: August 23, 2014:
The U.S. stock market has delivered one of the longest bull markets in recent history and it's still going. The large cap index has gone more than 1,050 days without a normal -10% correction. Typically the market sees a correction about twice a year. What are the chances that tagging major milestone might spark some sell orders?

The S&P 500 is currently at all-time highs but the 2,000 mark might be major round-number, psychological resistance. It would not surprise us to see the index tag 2,000 and then retreat.

Tonight we're suggesting a trigger to buy puts on the S&P 500 ETF (SPY) at $199.95. We'll start this trade with a stop loss at $202.25.

(NOTE: We picked the normal September $199 puts that expire on the 20th. The current open interest is over 43,000.)

- Suggested Positions -

Long Sept. $199 PUT (SPY140920P199) entry $1.84

08/25/14 triggered on gap higher at $200.14, suggested entry was $199.95
Option Format: symbol-year-month-day-call-strike