Option Investor
Newsletter

Daily Newsletter, Wednesday, 8/27/2014

Table of Contents

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

Market Wrap

SPX Holds 2000 Again (Another Close One)

by Keene Little

Click here to email Keene Little
The psychological level for SPX, at 2000, was defended on Tuesday with a last-minute bump back up to close at 2000.02. Today's little bump back up into the green at the close added a dime to that and closed at 2000.12. Don't go and spend all that extra profit in one place!

Wednesday's Market Stats

The overnight trading range was very narrow (ES traded in a 2.50-point range until opening it dropped a point lower in the pre-market session) and the day mirrored the overnight session. SPX traded in about a 5-point range before it dropped a point lower in the late afternoon before getting the save into the close. Trading volume was practically non-existent. And the volume will likely decline further as we near the holiday weekend.

There were no geopolitical events to move the market and there were no important economic or central bank reports to move them either. In other words there's not much to report on as far as what might have served as a catalyst for a market move. Consequently the market didn't move.

Before jumping into tonight's charts I wanted to talk a little bit about sentiment. As usual, as the indexes have made new highs we've heard many market pundits come out of the woodwork to proclaim how bullish the market is and how the bull market will continue for another 5 years and why SPX 2500 is practically a foregone conclusion before the end of the year (or whatever number they're arguing about). We heard none of these forecasts when the stock market tanked in July. Looking at the market from an EW (Elliott Wave) perspective it's a little easier to understand this sentiment shift.

As you know, I use EW patterns to help judge where we are in a move. Like all other technical tools it's subject to interpretation but one thing I like about it is that I know when an expected move gets negated and that actually further clarifies the picture. It's nice when price follows an expected pattern, especially when in a trade that's making money because the market is moving as expected, but when the wave count transitions from one wave count to another it's just as helpful. The use of other technical tools, such as trend lines/channels, oscillators and Fibs can help support or call into question wave counts and that's an important part of the analysis. What you see on my charts are always my best guesses at the time but obviously price is king and I have to respond to it and not what I think it should do instead.

One important component of wave analysis is the use of sentiment. Each wave has its own "personality." I'll use a rally as an example. At the conclusion of a decline, the rally starts with the 1st wave (duh) and it's a wave that most traders don't believe in. The decline has most traders believing in a down trend and the 1st wave is thought to be just a correction to the decline. Bears eagerly short it and longs are not buying it because they're sure more lows are coming.

Once the 1st wave completes we get a 2nd wave pullback, which is typically a sharp pullback correction, and the trend followers jump on the decline with full expectation that new lows are coming. The 2nd wave is the one that captures many traders going the wrong way and then when it completes, at a higher low, we'll see the start of the 3rd wave up. Bears keep thinking it's just another bounce correction and they keep shorting it. Longs are fearful of a further decline and they use bounces to exit positions.

When the 2nd wave pullback finishes and the 3rd wave starts back up, especially when we get into the middle of the 3rd wave, traders begin to recognize that the trend has in fact changed. Shorts start aggressively covering and longs start getting back in and the combination produces a strong move (the 3rd wave is typically the strongest of a 5-wave move). The 3rd wave is the most profitable wave to trade and the key is to identify when it's setting up.

At the completion of the 3rd wave we get a 4th wave correction, which is typically a slow choppy sideways pullback, the opposite of a sharp 2nd wave pullback (and is referred to as the "rule of alternation" between 2nd and 4th waves). The 4th wave chop is where a lot of traders give back profits made during the 3rd wave. You want to avoid trading a 4th wave and obviously the key is to identify when it should start and finish.

Finally the 4th wave finishes and we get the 5th wave up to a new high. This is the wave of complacency. This is when trend followers are fully on board -- shorts are out and longs are all in. Market pundits are out in force projecting the continuation of the uptrend forever and much higher. Bullish sentiment goes to new highs while technical indicators show the move to new highs is accompanied by weaker market breadth and waning momentum. Just at a time when everyone believes in the trend they should instead be getting ready for a significant reversal. Care to guess which wave we're currently in? And we've got 5th waves at multiple degrees of the trend, which indicates we've got more than a significant reversal coming. Starting with the SPX weekly chart I'll show you what I mean.

Off to the left of the SPX weekly chart below is the start of a 5-wave rally from October 2011. The chart picks up this wave count with the wave-2 low in June 2012 and the start of the 3rd wave, which itself will be a 5-wave move. The 5-wave move up to December 2013 completed the 3rd wave and that was then followed by the 4th wave pullback into February. From February is the 5th wave, which again needs to be a 5-wave move, and once complete it will complete the larger-degree 5th wave.

S&P 500, SPX, Weekly chart

At the same time SPX looks to be completing the 5th of the 5th wave it's again tagging the trend line along the highs from April 2010 - May 2011, currently near 2002 (today's high). For the wave count on the weekly chart, the completion of the rally from August 7th will be the completion of the rally from October 2011, which in turn will complete the rally from March 2009. It will be an important high and it's occurring just when the most traders and market pundits are turning uber-bullish. Most are turning more bullish at a time when the rally is actually quite weak (see the bearish divergence on MACD and RSI) and this helps interpret the wave count as the 5th wave (both the comparative weakness and the uber-bullishness).

The daily chart below looks closer at the 5-wave move up from February. Again, like the weekly chart, the 1st wave of this move is off the left side of the chart and we pick it up with the 2nd wave pullback in April. The little squiggles in April-May and then again in June-July make it difficult to count but at the time of the July high it was looking good for the final high, especially with the impulsive decline into the August 7th low. But this was another example of a 4th wave "gotcha" and the 4th wave turned out to be a larger correction that started off the July 3rd high and the sharp decline from July 24th was actually the conclusion to the 4th wave.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2007
- bearish below 1960

We've been in the 5th wave since the August 7th low and while the straight-up rally looks very bullish it's actually showing less strength by many internal breadth measures. If it rolls over near here we're also going to see confirming bearish divergence against the July highs (which is typical for a 5th wave compared to the stronger 3rd wave). As you can see more clearly on the daily chart, price has stalled at the trend line from April 2010 - May 2011 with yesterday's small shooting star and today's little doji. I consider it very high risk at this point to be long while recognizing there's a little more upside potential into early next week, as shown on the 60-min chart below.

The 60-min chart below focuses on the 5th of the 5th of the 5th wave. We've got a larger-degree 5th wave up from February (weekly chart), which needs to be a 5-wave move. The 5th wave of the rally from February is the leg up from August 7th, which also needs to be a 5-wave move. Once the final 5th wave finishes we'll then have a completed rally. Simple, no? If only, but it does identify where and when to expect the completion of the rally and even if it does something different from what's expected it actually helps clarify a better wave count.

As I've labeled the move up from August 7th, we should be ready for the final 5th wave. There's a way to consider Tuesday's high the final high but I'm waiting for price to tell me rather than just guess. One early signal from SPX that the final high is already in place would be a drop below 1989 and a break below its parallel up-channel shown on the chart. We could see SPX drop a little lower Thursday morning before heading up or just start up immediately Thursday morning since this week's consolidation continues to support the idea that we'll get another rally leg.

S&P 500, SPX, 60-min chart

If this afternoon's low completed the pullback correction off Tuesday morning's high, the upside projections for the 5th wave are 2021 (62% of the 1st wave) and then 2036 (equal to 1st wave). The higher projection crosses the top of the up-channel at the end of the day September 3rd. If SPX drops to about 1991 Thursday morning and then heads higher in the 5th wave we'll have upside projections near 2016 and 2031. We've now entered an important turn window based on cycle turn dates, the end of which is September 4th but from a time perspective we could see an important high at any time in the coming week. One other price level to keep an eye on, if reached, is 2015, which is the 127% Fib extension of the previous decline and is commonly associated with reversals.

The reason I have the key level to the upside as 2007 on the daily chart has to do with the Gann Square of Nine chart. The chart below shows the middle vertical section of this chart in order to highlight, in yellow, the important price levels. As noted at the top, the October 2002 low at 768, the April 2012 high at 1422 and the October 2007 high were on the same red vector, which shows prices that vibrate off each other (in Gann's language). Gann believed in a strong relationship between time and price, giving time more importance than price. Not seen off the left of the Gann Sof9 chart is the red vector that's 90 degrees to the one through the above price levels -- it points to the dates for the October 2002 low, October 2007 high, October 2011 low and October 2012 high.

Gann Square of Nine chart

Now 180 degrees to the above prices is the highlighted 1998 at the bottom, which I thought had a good chance of being a final high. But since 1998 was exceeded (although only one day on a closing basis so far -- yesterday's) the next highlighted level at 2007 is another possibility. It's 180 degrees from the March 2009 low at 666, which makes it particularly interesting since the 2009-2014 bull market could be capped on both ends on the same vector on the Gann Sof9 chart.

Many see an improving economy as a reason to expect the stock market to continue rallying but in fact we've been getting a lot of misinformation from the government and Fed in hopes of keeping consumers and investors happy and spending. For example, the +288K jobs that were added in June -- that's a strong number and sounds great. Too bad the number came only from a net gain of part-time jobs. Full-time jobs were cut by 523K while part-time jobs increased by 800K. The net result are more jobs but lower paying, which lowers the discretionary spending by consumers, which in turn is a drag on our economy.

And the effort to keep investors bullish is working -- Jim mentioned in last Saturday's market wrap that there's been a huge influx of money into equity funds and into high-yield (junk) bonds (the largest inflow for 2014 so far). Risk-on is back in style, which is backed by the latest AAII Investor Survey, showing 46.1% of retail investors are bullish, the highest level of the year. Keep in mind what I said about sentiment in 5th waves. And it's all coming together with an EW count that suggests trouble directly ahead.

The DOW has been struggling with its July high at 17151 (broken marginally on Tuesday but so far it has been able to close above its July 16th closing high at 17138) and its trend line along the highs from May-November 2013. The DOW played around this trend line for about 6 weeks in June-July but finally broke hard below it in late July. It's now back up to it for what could be a bearish back-test to be followed by a kiss goodbye. That's the potential I show on the chart but if it rallies with SPX into early next week we could see the DOW up to the 17300 area before it tops out (to leave a head-fake break above its July high).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,150
- bearish below 16,985

NDX has been trying to get above two intersecting trend lines since early last week and while marginally above them I'd say the price pattern in the past week looks more like an ending pattern than something more bullish. One trend line is along the highs from March-July and is currently near 4065.50. The other is a broken uptrend line from June 2013 - February 2014 and both intersect on Thursday near 4068. Bullishly, the lines are currently acting as support so if we get another rally leg into early next week we'll surely see NDX do the same.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4075
- bearish below 3985

The RUT has been the laggard in this month's rally and it even got a head start by bottoming on August 1st. But so far it's only been able to retrace a little over 62% of its July decline and in fact closed on it today (1172.97, with a closing price at 1172.71). The RUT has seen a few major reversals around the 1st of the month, including the February low, March high, July high and August low. The timing is good for setting up another major reversal on or around September 1st (September 2nd is the first trading day of the month).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1173
- bearish below 1148

Bond yields continue to fall and not just in the U.S. as many of the European bond prices continue to rise in anticipation of more stimulus (bond purchases) by the ECB. Most feel that Mario Draghi will soon be forced to either eat or back up his words to do "whatever it takes." Europe is a stone's throw away from entering a deflationary cycle and while Central Banks think they can stop the process, and Draghi will certainly try, they're just along for the ride as well. The German 10-year bund fell to a record-low 0.909% today while Spain's 10-year yield dropped to 2.083%. There are certainly no worries about inflation.

The U.S. 10-year yield (TNX) remains relatively strong by comparison (less demand for the bonds, some of which is the Fed's reduced purchases) but it remains below resistance near 2.46%. The potential is for a sharp move lower that breaks down below its parallel down-channel from December 2013, the bottom of which is currently near 2.26% but I suspect once fears of deflation in the U.S., which I believe is coming, starts to become more of a concern we'll see the same interest in bonds, especially if the stock market starts to take a more significant tumble.

10-year Yield, TNX, Weekly chart

What's interesting about the current declining yields is that it's keeping investors feeling bullish about the stock market. Most bear markets have started after yields have been rising in response to an overheating economy. The declining yield scenario is therefore keeping investors complacent about what's happening this time. No matter how hard the Fed and other central banks have tried, they have not been able to stimulate the economy enough to get inflation going. This time, for the first time since WWII, we're facing a deflationary event and that has yields dropping. Deflation is bad for stocks but the stock market doesn't believe in deflation yet because the Fed keeps assuring us that everything is under control (cough).

The current deflationary period has been brought to us by far too much credit expansion and debt. The destruction of debt (paying it down or through bankruptcy), which has been happening in fits and starts since 2000, is deflationary. Interestingly, the Fed is on course to stop their QE stimulus program just at a time when they should be ramping up stimulus. But once again they'll prove to us that they really don't have a clue about what's happening in the real world, which is far different than what their books tell them.

Last week I showed the BKX index and pointed out the sideways triangle pattern that it's been in since its March high. I can view it as a bullish continuation pattern following the rally into it but I want to see BKX exceed its July 3rd high at 72.55 before turning at least short-term bullish the index. I had mentioned the 78.6% retracement and to watch for a small throw-over above it like it did into its July high. At the moment it's looking like we also might have had a brief throw-over above the top of the triangle (downtrend line from March-July) yesterday, which has been followed by a red candle today. If this is a failed breakout attempt and the bullish pattern is going to fail instead, it will likely fail hard and the bearish wave count suggests a very strong 3rd of a 3rd wave down will be next (the "recognition" wave). The next several days for BKX are going to be important.

KBW Bank index, BKX, Daily chart

At its August 21st high, the TRAN made it back up to its trend line along the highs from April 2010 - July 2011, which it had briefly climbed above when it made its high at 8515 on July 23rd. Its August 21st high, at 8482, was only slightly lower and so far fits as a retest of its July high (like the DOW) as well as its trend line along the highs. In the meantime the bearish divergence on the oscillators is glaring and the retest/back-test is a very good time to be thinking short. I see the potential for another pop up to the trend line, near 8530 early next week but I think resistance will hold.

Transportation Index, TRAN, Daily chart

The U.S. Dollar rallied strong while the Euro declined. Mario Draghi mentioned he'd like to see the Euro drop in value so that it will help the European economy. That kind of talk only inspires other countries to devalue their currency as well and it will again be a race for the bottom. Geopolitical (Russia and its satellite countries), economic and currency devaluations -- it's all eerily reminiscent of history (leading up to WWII). At any rate, the dollar spiked up after finally breaking free of the top of its trading range at 81.50 and hit a high of 82.75 last night before pulling back today. It could charge up to its downtrend line from June 2010, currently near 83.40, but if it does pull back we should see support now near 81.50.

U.S. Dollar contract, DX, Weekly chart

Following gold's strong decline last week it's been trying to get a bounce off support, which is its uptrend line from December 2013 - June 2014, currently near 1274. It's taking a while but I'm still looking for gold to bounce up to the top of its sideways triangle, near 1350 next month, before setting up a stronger decline into the end of the year.

Gold continuous contract, GC, Weekly chart

Following oil's steep decline last week it's been consolidating in a choppy sideways/up bounce, which is corrective and points lower once the correction completes. I suspect we'll see stronger support at 91-92 and maybe a bounce back up to its broken uptrend line from June 2012 for a back-test but for now oil looks more bearish than bullish and potentially strongly bearish if we've got a 3rd wave, as labeled on its weekly chart, ahead of us.

Oil continuous contract, CL, Weekly chart

Thursday will be a little busier for economic reports with the 2nd revision for GDP being one of the more influential reports. The number is not expected to change so there could be a jump in the futures if the number is a surprise. One thing helping GDP is inventory builds, which is not necessarily a good thing. China building an inventory of uninhabited cities might keep workers busy but eventually buyers are needed. I consider inventory builds one of the riskier parts of GDP because it can be stopped and reversed quickly if businesses get a whiff of trouble in the sales department.

After the opening bell we'll get Pending Home Sales, which are expected to improve from June's -1.1% to +0.5%. But if sales are down and confirm Monday's report of slowing new home sales there could be more trouble in paradise. New homes are being built almost twice as fast as they're being sold, which has increased inventory to a 6-month supply, the highest it's been since late-2011 (kind of like the inventory build that's considered a good thing for GDP). Build it and they will come might not be working so well right now.

Economic reports and Summary

From an EW perspective I'd like to see one more rally leg into early next week to do a nice job completing the wave count. SPX 2015-2030 would be the upside target zone, which I'll be able to zero in on a little closer as the 5th wave develops (assuming we'll get the final little 5th wave in the move up from August 7th). Look for an important high any time between now and September 4th.

There are some indicators, trend lines and price patterns for some of the indexes that suggest we could see a final high sooner rather than later and therefore I consider the risk to be on the upside. There's very little reward to the upside vs. huge downside risk. The marginal new highs this month vs. last month have actually done a better job in showing a cleaner wave pattern that now strongly suggests an endgame in sight. The trend is still up and therefore bears have to be extremely careful trying to catch rising knives. A conservative method to get short will be to wait for confirmation of a high, such as breaking uptrend lines/up-channels, and then short the subsequent bounce to lower highs. We'll have plenty of opportunities on the short side in the coming year and there's no need to rush entries. Both sides should be very careful in the coming week.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Failure To Communicate

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Motorola Solutions, Inc. - MSI - close: 59.68 change: -0.62

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on August -- at $---.--
Listed on August 27, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
According to a company press release, "Motorola Solutions is a leading provider of mission-critical communication solutions and services for enterprise and government customers. Through leading-edge innovation and communications technology, it is a global leader that enables its customers to be their best in the moments that matter."

What does that mean in English? The company makes all sorts of devices (scanners, kiosks, mobile computers, pagers, RFID products, tablets, and two-way radios), systems and networks, software and applications, and accessories. MSI has sales in over 100 countries with more than 20,000 employees. The company has over $8 billion in annual revenues.

The challenge now is that those revenues seem to be falling. MSI issued an earnings warning back in April. Their results in May were in-line with these lowered estimates. The most recent earnings report came out on August 5th. Analysts were expecting adjusted earnings per share of $0.62. MSI only delivered $0.47. Revenues were down -7% to $1.39 billion, well below Wall Street's estimate of $1.96 billion.

MSI management then lowered their current quarter guidance into the 35-41 cent range, significantly below Wall Street's $1.01 estimate. Revenue guidance was also forecasted to fall -7% to -9%.

The company used to be a dominant player in wireless communications from two-way radios to mobile phones. Now they're struggling with rising competition. The stock's recent sell-off is starting to break some major support.

Today's display of relative weakness broke down below round-number, psychological support at the $60.00 mark. If this trend continues it could signal a pivotal direction change for MSI. Today's low was $59.46. We're suggesting a trigger to buy puts at $59.25.

Trigger @ $59.25

- Suggested Positions -

Buy the MSI 2015 Jan $60 PUT (MSI150117P60) current ask $3.20

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Pause To Catch Their Breath

by James Brown

Click here to email James Brown

Editor's Note:

After racing to the 2,000 level the S&P 500 has paused a moment to catch its breath.

CVS has been removed. LVS hit our entry trigger.


Current Portfolio:


CALL Play Updates

BioMarin Pharmaceutical Inc. - BMRN - close: 70.80 change: -0.75

Stop Loss: 68.90
Target(s): To Be Determined
Current Option Gain/Loss: +45.0%
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:
08/27/14: BMRN did not see much of a reaction to last night's earnings guidance. The stock opened at $71.28. It immediately dropped to round-number support at $70.00 and then started to bounce.

The lack of any real sell-off is encouraging but I'm not suggesting new positions.

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: 99.93 change: -0.68

Stop Loss: 98.40
Target(s): To Be Determined
Current Option Gain/Loss: -20.7%
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:
08/27/14: I am urging caution on CNQR. The stock's lack of movement is a potential warning signal. Cautious investors may want to just exit now. I am not suggesting new positions. We will raise the stop loss to $98.40.

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*

08/27/14 CNQR is not moving. Investors may want to exit now. We are moving the stop loss up to $98.40
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: 86.50 change: -0.93

Stop Loss: 83.95
Target(s): To Be Determined
Current Option Gain/Loss: -18.1%
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:
08/27/14: EXPE hit some profit taking today with a -1.0% decline. Shares settled on short-term technical support at their 10-dma. IF the $86 level fails then $85.00 might be bolstered by the rising 20-dma.

I am not suggesting new positions at this time.

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: 107.41 change: +1.14

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: +259.4%
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:
08/27/14: GILD almost completely erased yesterday's dip. It's worth noting the bounce today did stall near yesterday's high in the $108.75 region.

There is no change from my prior comments.

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: 113.60 change: +1.00

Stop Loss: 108.75
Target(s): To Be Determined
Current Option Gain/Loss: +44.0%
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:
08/27/14: LYB displayed relative strength on Wednesday with a +0.88% gain versus the +0.0% move in the S&P 500. This is a new closing high for LYB.

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: 155.30 change: +0.36

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:
08/27/14: ORLY did not see any follow through on yesterday's pullback. Shares appeared to find support at its 10-dma. I don't see any changes from my prior comments. 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: 111.04 change: +0.02

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: +7.0%
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:
08/27/14: SLB delivered a forgettable session on Wednesday. Shares failed at the $112.00 level again and closed virtually unchanged.

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: 68.00 change: +0.53

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: +61.9%
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:
08/27/14: Investors may want to consider taking some profits in our SLCA trade. The stock rallied up to $69.42 and then pared its gains with a nearly $1.50 drop back to $68.00. This might be viewed as a failed rally near round-number resistance at $70.00. After a super strong four-week rally traders may want to go ahead and take some money off the table.

The simple 10-dma has risen to $63.64. We will raise our stop to $63.45.

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*

08/27/14 new stop @ 63.45, investors may want to take profits now
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: 117.64 change: -0.69

Stop Loss: 109.45
Target(s): To Be Determined
Current Option Gain/Loss: + 1.7%
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:
08/27/14: After a three and a half week rally shares of URI might be pausing. Shares underperformed with a -0.5% dip today.

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

Las Vegas Sands - LVS - close: 67.54 change: -0.31

Stop Loss: 70.55
Target(s): To Be Determined
Current Option Gain/Loss: - 6.6%
Average Daily Volume = 4.6 million
Entry on August 27 at $67.40
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/27/14: Our brand new trade on LVS is open. The plan was to buy calls if shares traded at $67.40. The stock met our entry point this morning. I would still consider new positions at current levels.

Earlier Comments: August 26, 2014:
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.

- Suggested Positions -

Long OCT $65 PUT (LVS141018P65) entry $1.50*

08/27/14 triggered @ 67.40
*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


Pentair Plc - PNR - close: 68.64 change: -0.05

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:
08/27/14: PNR produced a small gap higher at the open and then spent the rest of the day slowly fading lower. I don't see any changes from my prior comments. I would still consider new positions at current levels.

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: 200.25 change: -0.08

Stop Loss: 202.25
Target(s): To Be Determined
Current Option Gain/Loss: -6.5%
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:
08/27/14: The S&P 500 delivered a quiet session on Wednesday. The SPY ETF slowly faded lower while trying to hold on to 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



CLOSED BULLISH PLAYS

CVS Caremark Corp. - CVS - close: 79.43 change: +0.08

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: see below

Comments:
08/27/14: Upward momentum in CVS has stalled with resistance near $80.00. We have been waiting on a breakout higher but it doesn't seem to be happening. Tonight I am removing CVS as a candidate. We can revisit the stock if shares finally break through the $80 level.

Trade did not open.

08/27/14 removed from the newsletter, suggested trigger was $80.25

chart: