Option Investor
Newsletter

Daily Newsletter, Saturday, 8/30/2014

Table of Contents

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

Market Wrap

Dog Days of August?

by Jim Brown

Click here to email Jim Brown

August was far from a dog this year with a +70 point gain on the S&P or +3.6% making it the second best month of 2014 and the best August in 14 years.

Market Statistics

The charts were favorable for a big gain for the indexes in August. July ended on a large decline and the bottom was formed in the first week of August. The indexes rebounded from the lows and posted an unusual gain for August. The $64 billion question this weekend is what will September bring? Will it be a September to remember? More on this later.

Friday was really light on news of any kind. There were only two economic reports and neither was of much interest to the few people still in the market. The Personal Income for July rose only 0.2% compared to +0.4% in June and forecasts of +0.3%. This was the slowest increase in income so far this year. Rapidly rising tax payments limited the increase in disposable income to +0.1%. Consumer spending declined -0.1% and real spending fell -0.2%. The drop in auto sales was a major reason for the decline in spending. Real nondurable and service spending also fell. A drop in energy prices contributed to the decline in spending but that is a positive event. However, food prices rose +0.3%.

Prices excluding food and energy rose +1.5% for the third consecutive month. If you are confused welcome to the club. Prices are rising but spending is falling. In theory if prices are rising and consumers are buying the same things then spending would rise. However, spending is declining and that suggests consumers are cutting back on spending because of the rising prices.

Consumer Sentiment rose slightly in August from 81.8 to 82.5. That is a significant improvement from the 79.2 in the initial release. That is the largest revision since April 2013 in either direction. In order for the headline number to jump that much it suggests the second half of the month was running at a rate over 87.0 in order to boost the headline average. If that run rate continues we could see a blowout in September. Analysts believe the spike in sentiment came from cooling tensions in Ukraine and the truce in Gaza. Of course since the survey was completed the Ukraine situation has worsened.

The present conditions component rose from 97.4 to 99.8 and a seven year high. The expectations component declined from 71.8 to 71.3.


The economic calendar for next week is chock full of important events. The biggest reports are the ADP Employment and the Nonfarm Payrolls. Both are expected to show a gain of +208,000 jobs. This is where the rubber meets the road for Janet Yellen. She is jobs focused and a big miss or beat could change the Fed's outlook for stimulus.

The ECB meeting on Thursday is going to be huge because Mario Draghi has all but promised a QE program for the EU. However, he has been promising and not delivering for nearly two years now so it is a tossup on whether he will deliver or just keep trying to talk the markets up. U.S. treasuries are rising because investors are expecting a QE event in Europe. A negative surprise could be a shock to the bond market.

The Fed Beige Book on Wednesday should not be a surprise and analysts are expecting more bullish news from the various Fed regions. Should conditions worsen instead of improve it would be a real upset for equities.

The ISM Manufacturing on Tuesday is almost lost among the other high profile events. It is important but no material changes are expected.

Lastly NATO is holding a two-day summit that starts on Thursday. With Russia invading the Ukraine and sending fighters and bombers into sovereign air spaces all around its borders and even into U.S. airspace there will be some serious discussions at the summit but nothing will happen militarily. Even though NATO is supposed to provide a common defense against Russia nobody actually wants to be dragged into a fight. It is the coalition of the weak against the Russian bully.


There are no stock splits for next week. Next up on the calendar that is worth watching is Continental Resources on Sept 11th. UGI is on a pre-split run but the time is too short to play them. CPK has no volume and no trader interest.

CLR closed at a new high on Friday and appears to be making a run for it.


Since almost everyone was at the beach or mountains on Friday the stock news was very sparse. For shareholders of United Therapeutics (UTHR) it was Christmas in August regardless of where they were spending their holiday Friday. Shares of UTHR rallied +28% or $26 to $118 on news of a favorable court ruling over its blood pressure drug Remodulin. The court ruled that drug maker Sandooz can't make a generic version of Remodulin until October 2017. This is not that big of a drug in the marketplace with sales in 2013 of $491 million but it is a big drug for UTHR at 40% of its revenue. Basically they won three more years of roughly $500 million a year in revenue before the competition from generics crimps their sales.


Splunk (SPLK) enjoyed a +19% gain to $54 after it raised its full year sales forecast. Splunk helps companies analyze their Internet data. In the last quarter Splunk signed more than 500 new customers including Nordstrom (JWN), Dell (DELL) and Portugal's Banco BPI. The company ended the period with more than 7,900 customers. Full year revenue forecasts rose from $402-$410 million to $423-$428 million. Analysts were expecting $411 million. Second quarter revenue rose +52% to $101.5 million and beating estimates of $93.8 million.


Veeva Systems (VEEV) rose after subscription revenue soared +60% in Q2. Earnings of 9 cents beat estimates by 2 cents. Revenue rose +53% to $75.7 million and analysts were expecting $69 million. The company raised forecasts for the current quarter to rise +43% to $78.5 million but that was below estimates of $85 million. However, the company raised its profit forecast to 30-31 cents, up +32%, compared to its prior estimate of 27 cents. Analysts were expecting 31 cents.

On the surface it appeared to be an underwhelming guidance raise since they barely met estimates on earnings and were still below on revenue but apparently investors were satisfied since the stock spiked +20% on the news. It is possible that the thin volume simply caught the shorts off guard.


Stifel Nicholas initiated coverage on Stratasys (SSYS) with a buy rating. Stifel's Patrick Newton said Stratasys was his "favorite idea" in 3D printing. He expects annual growth of more than 30%. SSYS recently launched two of its desktop products in about a dozen Home Depot stores priced at $1,375 and $2,899.

Stratasys has been on an acquisition binge with deals to acquire Makerbot, Solid Concepts and Harvest Technologies. Newton said those deals represent a strategic shift that may suggest "additional aggressive acquisitions in the future." He put a $150 price target on SSYS and the stock closed at $120.


Stifel also initiated 3D Systems (DDD) with a buy rating and a target of $65. Separately 3D completed the acquisition of Simbionix, "a global leader in 3D virtual reality surgical simulation and training" for $120 million in cash. The acquisition is expected to be immediately accretive to cash generation and earnings. Simbionix products include 16 simulation platforms with 60+ interventional procedures across 8 specialties and is used in hospitals, colleges and educational facilities in more than 60 countries.


JP Morgan (JPM) was apparently hacked by a team that originated in Russia. There are some that believe this was in retaliation for the Russian sanctions. The initial hack began in June using a major security flaw according to people close to the investigation. Once inside the JPM system they used sophisticated programs to steal "gigabytes" of data almost at will. A routine scan by JPM technicians detected the intrusion and once they found the traces they were able to follow those tracks to the main source of the leak. JPM said confidential customer data was stolen and everyone should be watching their accounts for unauthorized transactions.

The hackers were traced back to Russia but that is not the only source of problems. Chinese, Asian, Middle East, African and South American threats are encountered on an ongoing basis. Iranian hackers are constantly trying to break into U.S. companies to steal engineering designs and financial data. It is much easier to steal the plans for an anti-ship missile than develop one from scratch. U.S. security officials claim there are more than 650,000 attacks an hour from overseas sources. Only a very, very few are successful but it only takes one to do serious damage. Now that the JPM attack has been discovered the hackers are free to release all the confidential data and credit card numbers on the Internet. While the hack was in progress they probably did not release the data because they did not want to alert customers that problems existed. As long as they were continuing to collect the data the hack remained a secret. Now those gigabytes of data will be going up for sale.

Hackers used a software flaw known as a zero-day vulnerability to get past one of the banks websites and then plowed through layers of elaborate security to get to the confidential data. Security experts said this was a feat that was far beyond the capability of normal criminal hackers and suggests a state sponsored hack. JPM could have been targeted because they refused some wire transfers to sanctioned Russian firms and from the Russian embassy. JPM received a lot of bad press in Russia at the time with the foreign ministry calling the blocks "illegal and absurd." The bank was widely criticized by Russian commentators. Russia has used hackers before to attack other countries. In conflicts with Estonia and Georgia, Russia used hackers to crash their communications systems, utility companies and government websites. In 2012 and 2013 Iran tried to hack U.S. banks in retaliation for the nuclear sanctions.


Apple (AAPL) shares closed at a new high at $102.50 after formerly posting September 9th would be the date for the iPhone 6 announcement. When fund managers come back from vacation they are likely to buy more shares of Apple because they will want to have it in their portfolio at the end of the quarter.

Analysts believe Apple may officially announce the iWatch or whatever they are going to call it but it may not be available for six months or more. They need to announce it so they can engage the developer community before it is actually available. Since this is a brand new product there is no software or applications for it yet.

Some people believe this could be the biggest Apple announcement ever. They could announce two new iPhone 6 models, a larger 12.9 inch iPad and the iWatch all at the same time with staggered delivery dates. There have been so many leaks about the products they might as well just get the announcement over with and let the consumer demand begin to grow.


IDC Corp slashed its 2014 global growth rate for tablets to 6.5% from 12.1% because they now expect no growth in North Americana and Western Europe. Shipments outside North America and Europe are expected to rise +12% after soaring +88% in 2013. They now believe the number of tablets to be shipped in 2014 will be 233.1 million. Tablet growth is expected to come from developing markets where the devices with screens less than 8 inches are in demand. Prices are set to decline -10% by year end. The tablet fad is fading thanks to the phones with larger screens and the majority of people that want a tablet already have one. It will take something new in the space like the 12.9 inch model from Apple to produce new demand.

Tesla Motors (TSLA) jumped to a new high after reaching an agreement to create a vehicle-charging network in China in conjunction with China Unicom. The agreement will create 400 charging points in 120 cities at China Unicom outlets. Tesla owners will be able to charge their cars for free at these outlets. Tesla will also build 20 rapid-charging stations that work as much as 16 times faster than normal stations. China is considering spending as much as $16 billion to expand charging facilities and drive demand for clean cars. China's smog is the worst in the world. Tesla already has agreements with Soho China and China Yantai Holdings to setup charging points at their properties around the nation.

China is also considering a fuel tax to slow down the smog problem. By putting a high tax on fuel there will be less driving and less smog. This will encourage drivers to switch to electric cars. China is also considering additional tax incentives for electric car purchasers. Tesla is making a big move into China just as China is making a big push for electric cars.

Tesla's revenue is expected to grow at more than 50% a year over the next five years as they add new models and expand overseas. While the average price target is $40 below Friday's close there are some projections for shares to rise to $325 in 2015.


What is the deal with the drones? Google (GOOG) demonstrated its new drone delivery project in Australia by delivering dog treats to a rancher. Really? Google said it was testing a 5-foot wide single wing prototype drone in Queensland Australia. Commercial drones are illegal in the U.S. and that is why everyone is testing them in other countries. Amazon will be testing its drone systems in Mumbai and Bangalore in late October. Domino's Pizza tested delivering by drone last year.

I believe these are all publicity stunts. I seriously doubt anyone will be utilizing drones to deliver products in my lifetime and I think I have about 15-20 years left. Amazon ships about one million packages a day. Obviously they can't use drones for more than a couple miles away from the distribution center so how many drones can they actually use? In a major city having a drone drop a package on the sidewalk outside a building or apartment is a sure recipe for getting it stolen.

Google and Amazon claim they are going to use them for same day delivery. What item is small enough for drone delivery that is so important that you need it 2 hours after you order it? What item are you willing to go out onto your front sidewalk and wait for after you order it? I could see ordering a few Subway sandwiches for the office lunch but Subway does not have the time or the money to implement that kind of delivery to make a $2 profit on a pair of sandwiches.

I just don't get it but maybe I am too old to see the opportunity. I see multiple employees to manage and fly the drones plus continuing expenses for buying, maintaining and fueling the drone fleet. Liability insurance is going to be a huge expense. Unless you are delivering life saving medicine for big bucks I don't see how the drone fleet will be profitable. To me it will only be a major series of headaches for everyone concerned. I believe it is just a cheap publicity stunt in the Google-Amazon shopping war. Meanwhile Skynet is watching and waiting.


Alibaba is delaying its IPO again in order to answer a new round of questions posed by the SEC. Alibaba was poised to launch its IPO marketing this week but that has now been delayed. The delay was due to questions about the separation of Alipay from the IPO. That is the Alibaba equivalent of PayPal. The new launch date is the following week with tentative pricing on September 18th and trading to start on Friday the 19th.

The IPO is now expected to raise $20 billion and be the largest in U.S. history. Previously the $19.65 billion IPO by Visa in 2008 was the largest. The latest projection for the post IPO value is $154 billion. That is -22% below the prior consensus estimates. Just a month ago a Bloomberg poll found average estimates had a post listing valuation of $198 billion. There are 632 million Chinese Internet users and that number could exceed 850 million by the end of 2015.

Markets

The S&P closed at 2003.37 after trading at 1999 for most of the day. Friday just happened to be the 1999th day since the market bottom in March of 2009. For a while on Friday afternoon it appeared it would close at 1999 on the 1999th day but a burst of buying at the close ended that possibility.

That was a new record close for the S&P and I suspect it came on short covering ahead of the weekend and new positions ahead of what could be a good week for the markets. That assumes a lack of negative headlines from Europe, Israel and Iraq. This was month end and the next three trading days will see inflows of retirement contributions. That should lift the market. The volume on Friday of 4.3 billion shares was slightly higher than the 4.18 billion on Thursday. The volume over the last four days has been the lowest since 2008, excluding the end of December. No volume means no conviction but it was a holiday so that does not really hold true.

I think we saw some decent conviction last week since the markets did not go down after the two week rally. There were enough buyers in the market that every intraday dip was bought. There was no V bottom rebounds but buyers appeared one after the other to slowly push the markets back to positive territory.

A recent survey found that 81% of actively managed funds are lagging behind their benchmarks. With only four months left in 2014 those fund managers are going to have to be proactive to try and boost results or they will see outflows in early 2015 when investors reevaluate their positions. We are moving into the "invest or die" period of the year. Lack of performance means a lack of yearend bonuses and most managers receive the most of their compensation from their bonuses. To make it even more stressful the majority of funds have a fiscal year end at the end of October. That is to allow two months for the accountants to produce the tax documents for the individual investors by December 31st.

Fund managers returning from the holidays will be shuffling their portfolios in an effort to spike their results. This may mean selling some winners and putting that money to work in stocks they believe have the potential for a short term gain.

The VIX is only 3 points from its lows after falling -29% in August. There is no fear in the market and all the recent geopolitical headlines only caused momentary pauses in the rally. There were roughly 3 puts purchased for every call option last week. However, only about 506,000 options on the S&P-500 traded on August 27th and the lowest level since May. That is about 70% lower than traded in the first week of August.

Fear has disappeared and complacency has returned. While it is good that fear has been erased we are not going to be surging to new highs on complacency. The bulls need to come back from the holiday and stampede into the market.

The S&P historically loses -1.1% in September since 1991. That is not the problem. The big problem is that September normally produced a 4.5% swing during the month compared to an average of 3.4% in all months. September is normally volatile.

August is also a volatile month and we did not see that this year. Investors are hoping September starts out like it did in 2013. The S&P hit a low of 1633 on the day after Labor Day and then rallied to 1729 over the next two weeks. That is a +96 point gain. However, a sell off began on the 20th that ended at 1646 three weeks later to erase nearly all the gains. This year investors are hoping to repeat only the first two weeks of gains and skip the -4.8% correction that followed.

The S&P has no real resistance until it reaches 2025 but it is also lacking any strong support until the 100-day average at 1930. There is light support that was built by brief pauses on the way up at 1995, 1985, 1965 and 1950 but none are significant. We may not need any significant support if the dip buyers continue to appear. That theory will probably be tested at some point next week so be prepared.


The Dow is vertically challenged. After a strong rebound from the August 7th lows it only managed a +97 point gain for the entire week. Most of that was gained on the first two days and the rest of the week was a battle to hold those gains.

We were due for some consolidation and I think everyone would vote for that kind of week after an 820 point rebound. Consolidation in place is far more agreeable than a couple hundred point decline for profit taking. This is why I think the market showed conviction. It was a low volume week with plenty of ugly headlines and the Dow still added +97 points. It could have been a LOT worse.

The Dow has support at 17,035 and 16,990 before dropping to 16,600 for conviction support. There are several bands of converging resistance at the 17,100 level and the resistance highs at 17,138. Technically this would be a good place for a bout of profit taking and then a new assault on the July highs. The market likes to climb a wall of worry and the converging resistance is a decent challenge. Once over that level we should be good for several hundred more points. Resistance would be in the 17,325 range and again at 17,500.



The Nasdaq Composite closed at a new 14 year high on Friday thanks to a burst of buying at the close. The Nasdaq has resistance at 4,600 and initial support at 4,550 and 4,515. There were some big gainers on news headlines on Friday that helped to push the composite higher. The +22 point gain on Friday was half the gains for the week. Like the Dow the tech index consolidated sideways all week. I am sure nobody is complaining.



The Russell 2000 punched through resistance at 1165 on Tuesday to 1175 and then traded sideways the rest of the week to end at 1174. Thursday's dip back to 1165 proved that it had turned from resistance into support and investors were not afraid to buy the dip. If the Russell can move over that 1175 level on Tuesday we could see a spring to the old highs at 1208. Small caps are where the action is for fund managers. If they want fast gains over the next two months they need to bet on the small caps. The big cap stocks are stores of money and tend to move slower. Managers can get more short term bang for their buck in the small caps IF the market is going higher.


The biggest challenge to the markets next week could come from the biotech sector. The Biotech Index posted a whopping 6.1% gain for the week of +180 points. The M&A in the sector along with favorable drug news is powering the stocks higher. They were the main reason for the Nasdaq's gains last week.

The index is at a crucial point. The $BTK has broken out to new highs but the various Biotech ETFs are at double top levels. If fund managers decide it is time to take profits and move to something else the biotechs could have a rocky week.



I am bullish for next week assuming we don't have any destructive headlines either geopolitical or economic. On a payroll week you never know because the anticipation or maybe I should say worry is so high. The ECB meeting is also a challenge because there is so much commentary around that expects Mario Draghi to finally announce a QE program. Inflation in Europe has fallen to 0.4% and unemployment is 11.5%. The ECB needs to take action.

Yields on the U.S. ten-year treasury are plunging with our debt seen as the safe port in the storm. If the ECB does institute QE the European debt yields are going significantly lower and the U.S. yield at 2.34% at Friday's close will seen like a windfall. If Draghi fails again to take action there could be a dramatic change in the treasury market and it could impact equities.

Now is the time to refinance your mortgage if you did not do it in 2013.


Random Thoughts

David Trice warned of an impending correction of 30-60% for the S&P-500. Unfortunately he made the same prediction in 2010 and again in 2012. Eventually he will get it right. Trice is the founder of the Prudent Bear fund so that should give you some idea of his mindset. The fund has underperformed the market by 400,000 basis points since 1996.

Another technician, Abigail Doolittle of Peak Theories Research, warned of a 50-60% market crash ahead as the Fed begins raising interest rates. While the end of QE is going to cause some market volatility I seriously doubt it will be a 50% crash.

Russia invaded the Ukraine. Pretty much everyone believes that except those that listen to Putin. He is still denying it. The 1000 special operations forces that crossed the border into Ukraine were humanitarian "volunteers" according to Putin. The 100 tanks, 500 armored personnel carriers, 200 artillery pieces that crossed with them must have been relief supplies.

Putin had a lot to say on Friday.

"No matter what U.S. does, it turns out like Libya and Iraq."

"UN can't be a foreign policy tool for the U.S."

"Fights at UN sometimes fiercer than during cold war."

"European leaders are not showing independent thinking."

"The liberal economic model leads to a buildup of crises."

"Russia is a country that doesn't fear anything."

"Leaders win support by being confident they are right."

"Russia is far away from being sucked into a global conflict."

"Russia is a nuclear power and is strengthening its capabilities."

"Russia strengthens its arsenal to feel safe, not to threaten."

"I don't think anyone seeks a large scale conflict with Russia."

Clearly he was warning the U.S. and Europe not to mess with Russia over the Ukraine invasion. We have returned to the cold war with a military buildup on Russia's side and a constant escalation of tensions.

He also said the satellite pictures of Russian tanks and artillery moving into the Ukraine were not real. He said they are from a video game. I guess if plausible deniability is your forte then any excuse works.

Russia is rapidly approaching a brick wall. More than 24% of the foreign debt of Russian banks and corporations, or $157 billion, comes due in 2014. Sanctions have erased the possibility to refinance that debt. Rosneft, the national oil company has $15.9 billion maturing in 2014 and $16.2 billion in 2015. Rosneft has asked the government to pay its $45 billion in debt coming due over the next 24 months out of its "rainy day fund." The finance ministry reportedly had $173 billion in that fund when the sanctions began. Many other companies have the same problem as Rosneft. Russian banks and corporations owed $652 billion in foreign debt and $650 billion in domestic debt when the sanctions were levied. Half of Russia's capital comes from foreign sources and those have now been shut off with the exception of China and a few other countries that ignore the sanctions. Add in the impact of the flight of capital out of the country and Russia is going to have some serious problems in 2015.

The ECB claims $221 billion in capital left Russia last quarter. Russia must raise $360 billion in new capital over the next 24 months just to maintain 2013 levels. In past years one half of investment finance totals have been raised overseas and is no longer an option for Russian companies. The impact of the financing shortfalls are expected to cause a 6% to 10% decline in GDP. It would not be unreasonable to see a long string of defaults from Russian companies or even Russian debt if Putin follows through on his conquest of Eastern Ukraine.

If the U.S. and Europe really wanted to put pressure on Russia they could kick them out of the SWIFT system and the Russian banking system would collapse. The SWIFT system communicates money transfers between countries. No communication, no transfers.

NATO is holding a summit this week and I expect a lot of consternation among the participants. Ukraine wants to be in NATO but I doubt NATO wants Ukraine to join. The entry requirements would be more than the Ukraine could handle.

Other NATO countries bordering Russia are escalating their military readiness and they will be seeking reassurances from the rest of the attendees that NATO will come to their aid if Russia moves in their direction.

Poland refused over flight permission for the Russian Defense Minister and his plane had to turn around and return to Bratislava where he had been attending a 70th anniversary of the Slovakian national uprising. In retaliation Russia denied over flight permission for the Romanian Prime Minister's plane.

Russia has now closed 12 of the highest profile McDonalds restaurants for "health reasons" in what is clearly a retaliation for the sanctions. Russia is highly publicizing the "health reasons" claim in an effort to cause customers to avoid the other 440 stores in Russia. Initially they blamed nutrition violations on the menus but that did not cause the desired impact so they changed it to health reasons.

In France 1 in 6 people have a favorable view of ISIS. A survey showed that 27% of 18-24 year olds had a positive attitude to ISIS. 22% of 25-34 year olds and 20% of 35-44 year olds were favorable to ISIS. The reason for this is that a growing number of Europeans are from predominantly Muslim countries. More than 1,000 and as many as 2,500 Europeans have traveled to Syria and Iraq to fight with ISIS. The U.S. claims more than 500 citizens have left to potentially fight for ISIS. Some believe it could be a lot more but they took round about routes to get there to disguise their destinations.

Home prices just hit a 70 month high. Unfortunately home price appreciation is slowing in more than 65% of U.S. markets. Future annual appreciation is likely to be in the 5% range and what is considered normal. Incomes are not rising and credit is still tough to get. The low interest rates are no longer creating a surge of buying. The boom is over.

The intelligence community has noticed a significant increase in chatter among Islamic terrorist organizations overseas both on the Internet and on phone lines ahead of the 9/11 anniversary. Terrorists like to use key anniversary dates to remind us they are still there. Experts warned that they cannot pinpoint where or win an attack could take place but the increase is similar to that seen prior to 9/11. With ISIS kicked out of Al-Qaeda it would not be unreasonable for ISIS to attempt a large attack on the U.S. as a bragging chip that shows they are superior to Al-Qaeda and can successfully attack the USA.

On Thursday Judicial Watch warned that agents of Homeland Security, Justice and Defense Dept agencies had been placed on high alert concerning an imminent terrorist threat coming through the southern border. (LINK HERE)

Reportedly the Feds warned that ISIS was operating in Juarez and were planning an attack with car bombs and improvised explosive devices. Intelligence officials picked up radio chatter indicating the terrorist group is planning to "carry out an attack at the border" and it is "coming very soon." The commanding general at Ft Bliss in El Paso confirmed he had been briefed on the warning.

There was another headline on the news in the middle of the week about ISIS instructing U.S. operatives through the Internet on suggested targets of opportunity such as shopping malls, sporting events and high traffic business districts. The warning ran for a couple hours on TV then was completely erased from mention on any station. I suspected at the time that Homeland Security had it pulled from the airwaves in order to avoid a panic.

An ISIS laptop captured in Turkey had files describing how to build bubonic plague bombs as well as other biological weapons. There were 35,347 files on building car bombs, disguises, instructions on how to fight, how to hide in plain sight, speeches by Osama Bin Laden, etc. It was a veritable instruction manual on how to be a terrorist. After browsing the files the military experts warned it was obvious ISIS was going to target countries other than Iraq.

The tanker United Kalavryta carrying $100 million in Kurdish oil disappeared in the Gulf of Mexico last week. It had been anchored offshore as the result of an Iraqi claim the oil belonged to Iraq. A court order to seize the oil had been issued. However, after a month of court battles another court threw out the seizure order on Monday saying the court lacked jurisdiction because the tanker was anchored 60 miles offshore.

The day after the order was cancelled the tanker disappeared. The Coast Guard said the tanker probably turned off its transponder and went black and headed back out to sea. Without lights or a transponder even a million barrel tanker is hard to find in the ocean. Multiple tankers carrying Kurdish oil have turned off their transponders so they can disappear into the global waterways and unload their oil away from prying eyes. This is done to prevent Iraq from knowing who bought the oil and suing to be compensated.

Bullish sentiment in the weekly AAII Sentiment Survey rose +5.8% to 51.92% and the highest level since December 26th. Bullish sentiment has risen more than 20 points since the 30.89% reading on August 7th. Sentiment this high has only been seen 5 times since January 2011. For a contrarian that is a bearish signal.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Sometimes the best investments are the ones you don’t make."

Donald Trump

 


Index Wrap

S&P 500 Finishes Week Above 2000 Milestone

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The broad S&P 500 (SPX) closed over 2000, the S&P 100 (OEX) went to slight new highs and the Dow 30 (INDU) stalled at a line of prior resistance around 17130. The Nasdaq Composite and the big cap Nas 100 (NDX) were up too but saw slowing upside momentum as they get slightly overbought. Small is still not 'beautiful' with the Russell 2000 (RUT).

The trend picture, support and resistance and price objectives are seen in my index commentaries below. I will do my month end chart/technical review in my related Trader's Corner piece tomorrow (Sunday).

Things to Like: the Market continues higher. DON'T give up a position in the Indices just because we tick past May. Unlike passing 'go' in Monopoly, you won't collect anything by not being in a still continuing uptrend no matter what the season. Even the less than stellar Dow 30 (INDU), from its 16368 reaction low early this month up to INDU's Friday 17098 Close, saw a trading swing of 730 points, up 4.5%

Other Things I Like: Labor day weekend will be over soon so I can go out ON the road again along the Pacific Coast and not be in tourist traffic jams!

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index continues bullish and the latest news is SPX has gone over a big milestone: 2000. A kind of big deal technically.

SPX is now up 29% from its massive 2000 and 2007 double top in the 1550 area. And, up 300% from its 667 March 2009 low!!

Next resistance looks to come in around 2020-2040 per my highlights on the daily chart below. Technical/chart support comes in at 1980, extending to 1950.

SPX volatility as measured by VIX is still quite low of course. Some traders like low volatility (I'm one) especially when taking outright positions in calls/puts; options' sellers don't like a low VIX so much. One thing we can be reasonably sure of, VIX, like the fall weather, will change.

Bullishness, in terms of my 'sentiment' indicator, moderated a bit this past week, which in turn keeps the uptrend on track in my estimation. The market is nearing an overbought condition but not drastically so; well, except on a very long-term (monthly) chart basis but that could go on well into 2015.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) is no longer stalled at its prior top and while OEX hasn't gone on to substantial new highs, the Index IS holding above its prior peak levels fulfilling a tendency for prior highs, once exceeded, to 'become' subsequent support. Stay tuned on that!

Next resistance is projected at 890 and as you would likely suspect, at 900 after that, another milestone level; not quite like 2000 in SPX is, the equivalent in OEX being 1000, which we may see next in coming months.

Very near support is at 886, which was the prior top; next support is 880, then back at the 21-day moving average (at 871 currently).

OEX has hit an overbought extreme based on the 13-day Relative Strength Index. Pullbacks to at or near the 21-day average be bought again, not risking to too far below this key trading average, looking for a move to the 900 area and higher.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) is hitting resistance in the 17130 area, but isn't backing off from there much, suggesting potential for INDU to pierce this level. If so, next resistance then looks like it comes around 17250.

Near support is now up to 17000 even, with next lower chart support at 16900.

INDU stocks that look capable of working still higher, OR continuing ongoing rallies, are the following 19: AXP, CAT, CSCO, CVX, DD, DIS, GS, HD, INTC, JNJ, JPM, KO, MMM, MRK, MSFT, PFE, TRV, UNH, and XOM.

Based on what I see with the 30 various Dow charts, INDU looks to be capable of going to new highs within its broad long-term uptrend price channel. Stay tuned!



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite Index (COMP) remains bullish in its pattern. COMP has slowed its rate of increase but volume has been relatively low in the waning summer. The pattern is bullish regardless, as weekly lows were above the prior week's highs for the most part.

I still peg key support in the 4500-4485 area. (Very near support is closer to 4550 however.) Next lower intermediate support is seen at 4400, which is just above COMP's up trendline.

Technical resistance is seen in the 4600 area, then up at the upper channel line, currently intersecting in the 4670 area.

COMP is still in the high-end RSI (13-day Relative Strength Index) zone that suggests a short to intermediate overbought condition.

Bullish sentiment has moderated some in the past week, which is a mild bullish plus in contrarian sense. Bullishness in terms of my equities call to put daily volume ratio line hasn't shot up to what I consider to be another type of 'overbought' extreme as prices have continued higher. There's some trader caution in what happens next with the economy, which tends to set the stage for the rally to continue more than not.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart remains bullish. The only cautionary note to a continued strong advance is suggested by the Index having hit (again) the top end of its bullish uptrend price channel. What tends to happen with this pattern is that the advance SLOWS down.

This isn't to say that the NDX rally won't continue but this pattern, PLUS an overbought 13-day RSI can result in sluggish further gains and perhaps another dip such as seen from late-July into early-August. I'd also note that this wasn't a huge pullback as prices found support near the middle of the NDX's price channel. A strong uptrend will often see dips to around the channel mid-point, rather than to the LOW (support) end of the channel; i.e., at the up trendline.

Near NDX support is highlighted in the 4050 area, then back at the milestone 4000 level. I anticipate significant support/buying interest at 4000 and at the close by 21-day moving average.

Near resistance is at the upper channel line, currently intersecting at 4100, with the 100 increment levels being minor milestone areas where the bulls will see if they can push it up and through and the bears/profit takers push back and down.

Implied Nas 100 volatility (VXN) remains low, possibly suggesting some bullish complacency and perhaps more of a propensity for a corrective pullback ahead than a new up leg.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bullish. The way the channel line gets drawn with the Q's, there's a suggestion of a little more upside than the underlying index, before this ETF hits resistance in the 100.9 to 101.5 zone.

Near support now is bumped up to 99, with next support suggested in the 98 even area. Support implied by the 21-day moving average comes in at 96.9 currently.

Daily trading volume continues to be quite low, which isn't atypical for QQQ. If this was a company stock chart, I would see a rally on less and less volume as a bearish divergence. With QQQ its sort of business as usual.

The On Balance Volume (OBV) line has leveled off, which doesn't fill me with great bullish confidence for a next leg higher but we should better see what's what when we have more market participation after the 3-day weekend. 100 is a big 'milestone' number and traders may take a wait and see attitude as to whether 100 gets pierced or not, at least straight away.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart is now more or less at a pivotal 'technical' chart juncture. RUT has retraced just over a Fibonacci 62 percent of its prior downswing, which may be as much as a push higher as it can manage for now. Moreover, a down trendline can start to be drawn (with 3 highs to start it) as seen on the daily RUT chart below.

I've pegged initial resistance at 1175, at this hypothetical resistance trendline. Above 1175, next resistance looks to come in the 1186 area.

Support is seen in the 1160=1158 area, at the 50-day moving average, with potential support then extending to 1150.

RUT touched an overbought level as suggested by the 13-day Relative Strength Index or RSI and then stalled a bit. This may suggest that the Index will next trend sideways to lower in order to 'throw off' its overbought extreme.


GOOD TRADING SUCCESS!




New Option Plays

Energy & Technology

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Hess Corp. - HES - close: 101.10 change: +0.91

Stop Loss: 98.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.97 million
Entry on August -- at $---.--
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
HES started back in 1933 with one man and a used 615-gallon oil delivery truck. Today they have over 700 wells across a dozen different countries around the world, including the U.S., Norway, Iraq, China, and several in Africa. Hess bills itself as a leading global independent energy company that produces oil and natural gas with over 1.3 billion barrels of oil equivalent proven reserves.

The stock has been a decent performer with a strong rally from its 2012 lows. An improving earnings picture has helped. Back in April they reported significantly better than expected EPS growth and revenues for the first quarter. Their second quarter results came out July 30th. Wall Street was looking for a profit of $1.18 on revenues of $2.49 billion. HES delivered a profit of $1.38 with revenues of $2.85 billion.

HES has also announced plans to form an MLP thanks to pressure from activist investor Elliott Management. The company plans to spin off its distribution assets in the North Dakota Bakken shale area. Exploring for oil and gas can be a risky, capital-intensive business. Yet the distribution side is much more stable. MLPs, or master limited partnerships, are much more tax efficient and they pass almost all of their income directly to shareholders as dividends (similar to real estate investment trusts). HES joins a growing crowd of major oil companies forming MLPs like ConocoPhillips (COP), Marathon (MRO), and Royal Dutch Shell (RDS). HES an initial public offering for its MLP in the first quarter of 2015.

Technically shares of HES have been consolidating gains near resistance at $100 for several weeks. You can see the big spike higher in late July as a knee-jerk reaction to its earnings news. Now after a month of churning sideways the consolidation is narrowing. Shares of HES look poised to breakout higher.

Friday's intraday high was $101.22. We're suggesting a trigger to buy calls at $101.55.

Trigger @ 101.55

- Suggested Positions -

Buy the NOV $105 call (HES141122C105) current ask $1.89

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

Annotated Chart:


Western Digital Corp. - WDC - close: 103.01 change: +0.94

Stop Loss: 99.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on August -- at $---.--
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Hard drives are a critical piece for any computer system. Today hard drives or hard disk drives are not just for computers. They are in tons of consumer products including DVRs, home entertainment centers, game consoles, laptops in addition to your PC. Plus they are a significant portion of the data center business and the cloud computing phenomenon.

A few years ago WDC was neck and neck in a race with its rival Seagate (STX). They were essentially a duopoly in the hard drive business. WDC has slowly stolen market shares from STX thanks to a better product. The outer edge of a normal 7200 RPM hard drive is moving at 67 miles an hour. Eventually something is going to break. Hard drives have a 5% failure rate in the first year. That jumps to almost 12% in the first three years and about a 20% failure rate in four years. Some of you are reading this right now and wondering how long you've had your current hard drive. Whatever the answer is, you'd better back up your data now.

Seagate's drives have a 26.5% failure rate in the first three years. WDC's managed to cut its failure rate to just 5.2% in the first three years. That is significant, especially if you're an enterprise customer with a ton of servers. WDC has been developing a stronger solid-state drive for its big business clients. All the data on the cloud has to sit somewhere. The sea change movement to put more and more data on the cloud will continue to drive need for more storage.

The death of the PC was been a long-term issue for hard drive makers. WDC has developed a strong non-PC related sales that now account for more than 50% of its business. On the plus side earlier this year Intel (INTC) reported a strong surge in PC sales so the death of the PC might be a little premature.

WDC just reported earnings on July 30th and it was a good quarter. For WDC it was their fourth quarter of 2014. Wall Street expected a profit of $1.74 a share on revenues of $3.6 billion. WDC delivered $1.85 a share with revenues of $3.65 billion.

The company said consumer electronics and gaming was a big performer with a +67% surge to 10.9 million units. Their notebook hard drive shipments fell -5% to 22.9 million units but that was better than analysts' expectations. Altogether WDC shipped 63.1 million hard drives with an average selling price of $56 and a gross margin of 28.2 percent.

WDC has also been actively buying back shares. Last quarter the company repurchased 3.2 million shares and for the their fiscal year they bought 10.3 million shares for a total of $816 million.

WDC's guidance was rather lackluster but shares held up well. Barclays raised their outlook for WDC following the earnings report and upped their price target from $98 to $117. The Point & Figure chart is more bullish and currently forecasting at long-term target of $145. A move over $104 would produce a new triple-top breakout buy signal on the P&F chart.

Currently shares of WDC have been inching higher and tagged new all-time highs on an intraday basis this past week. We are suggesting a trigger to buy calls at $103.75.

Trigger @ 103.75

- Suggested Positions -

Buy the OCT $105 call (WDC141018C105) current ask $2.21

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Shake Off Geopolitical Concerns

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market continues to show resilience in the face of growing conflict between Russia and Ukraine.

We have updated multiple stop losses tonight.

GTLS hit our entry point.


Current Portfolio:


CALL Play Updates

BioMarin Pharmaceutical Inc. - BMRN - close: 71.22 change: +1.60

Stop Loss: 68.90
Target(s): To Be Determined
Current Option Gain/Loss: +49.0%
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:
08/30/14: BMRN rebounded from Thursday's loss and outperformed the market on Friday with a +2.2% gain. The stock is holding up pretty well. A breakout past short-term resistance near $72.00 could be used as an alternative bullish entry point.

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

chart:


Concur Technologies - CNQR - close: 100.38 change: +1.23

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:
08/30/14: CNQR appears to be bouncing from a test of its 300-dma and 200-dma. I would stay cautious since there is still overhead resistance near $101.00.

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

chart:


Expedia Inc. - EXPE - close: 85.90 change: -0.50

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -29.5%
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:
08/30/14: We are urging caution on EXPE. The stock is down four days in a row and definitely underperformed the market on Friday. Last week's pullback has created a bearish engulfing candlestick reversal pattern on EXPE's weekly chart. This needs to see confirmation but we are taking defensive action now.

The simple 20-dma is at $85.50. We will raise the stop loss to $84.90. More conservative traders could inch their stop closer to the 20-dma instead.

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

08/30/14 new stop @ 84.90
08/23/14 new stop @ 83.95
08/18/14 triggered @ 86.25
Option Format: symbol-year-month-day-call-strike

chart:


Gilead Sciences, Inc. - GILD - close: 107.56 change: +0.05

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: +248.6%
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:
08/30/14: After surging to new highs early in the week GILD has spent the last few days consolidating gains. Tonight we're raising the stop loss to $104.85. More conservative traders may want to just 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*

08/30/14 new stop @ 104.85
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

chart:


LyondellBasell Industries - LYB - close: 114.35 change: +0.87

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +52.0%
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:
08/30/14: LYB is also showing relative strength. The stock added another +0.7% on Friday and closed at another new high. Shares are up four weeks in a row. We are raising our stop loss to $112.25.

The $115.00 level is potential round-number resistance. Traders might want to take some money off the table.

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*

08/30/14 new stop @ 112.25
08/28/14 new stop @ 109.75
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

chart:


O'Reilly Automotive - ORLY - close: 155.98 change: -0.48

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:
08/30/14: ORLY garnered bullish analyst comments this past week and shares are still flirting with a breakout to new highs. Yet we are still on the sidelines. The intraday high on Friday was $157.18. 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) current ask $2.00

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

chart:


Schlumberger Limited - SLB - close: 109.64 change: -0.12

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: -12.0%
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:
08/30/14: The energy stocks have been mixed lately. Some of them are showing relative strength while others are underperforming. SLB's recent rally has stalled. Shares have pulled back the last couple of days and the breakout past $110.00 has been reversed.

Given SLB's underperformance the last couple of sessions I would wait for a new rally above $111.00 before considering new bullish positions.

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

chart:


U.S. Silica Holdings, Inc. - SLCA - close: 71.81 change: +1.09

Stop Loss: 68.85
Target(s): To Be Determined
Current Option Gain/Loss: +121.4%
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:
08/30/14: It's decision time for traders. Do you take profits in SLCA now or do you hold on? We had some disagreement among the staff about this very question. SLCA had produced a very impressive run lately. The stock is up four weeks in a row and the rally accelerated last week.

As you can see on the daily chart below SLCA is testing resistance at a trend line of higher highs. It could reverse here or it could ignore the trend line. Personally, I would suggest exiting now or at the very least taking some money off the table. Officially we will update the stop loss to $68.85.

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*

08/30/14 new stop @ 68.85, traders will want to seriously consider taking some money off the table right here.
08/28/14 new stop @ 65.75
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

chart:


United Rentals, Inc. - URI - close: 117.65 change: +0.55

Stop Loss: 114.25
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
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:
08/30/14: URI is bouncing from its 10-dma. Shares ended the week near its all-time high. We are moving our stop loss up to $114.25. 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*

08/30/14 new stop @ 114.25
08/28/14 new stop @ 113.25
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

chart:




PUT Play Updates

Chart Industries - GTLS - close: 66.89 change: +0.55

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: -24.0%
Average Daily Volume = 617 thousand
Entry on August 29 at $65.60
Listed on August 28, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/30/14: GTLS traded lower enough on Friday to hit our suggested entry point at $65.60. Shares managed an afternoon rebound that reversed its losses. The $67.50-68.00 area should be short-term resistance. Investors might want to wait for a new lower high or failed rally near its 10-dma before initiating new positions.

Earlier Comments: August 28, 2014:
If you have seen the 1986 movie Top Gun then you know that Tom Cruise's character "Maverick" and his RIO "Goose" fly through the jet wash of another aircraft and their plane enters a flat spin that Maverick is unable to pull out of. Spoiler - their plane crashes.

Both the stock price and the earnings results for GTLS appear to be in a flat spin that they cannot pull out of. According to the company website, "Chart Industries, Inc. is a leading independent global manufacturer of standard and custom engineered products and systems for a wide variety of cryogenic and gas processing applications. Our equipment is used in the production, storage, distribution and end-use of atmospheric and industrial gases as well as natural gas itself."

A growing portion of their business is natural gas. "Major equipment designed and manufactured by Chart is used in the liquefaction, distribution and storage of LNG, plus we also supply LNG fueling stations and vehicle fueling systems." Considering the huge surge of natural gas demand you might think GTLS business would be booming. Yet the company seems to be struggling.

Shares of GTLS delivered an amazing rally in 2013. That is until late October. GTLS reported earnings in late October 2013 that missed profits estimates, missed the revenue estimate and management lowered guidance. When GTLS reported earnings in February 2014 they missed estimates, missed the revenue number and lowered guidance. In April 2014 they missed estimates, missed the revenue number and lowered guidance. Are you seeing a trend here? Their latest earnings report was July 31st, 2014 and guess what? GTLS missed the EPS estimate, missed the revenue estimate, and lowered guidance.

Technically the oversold bounce from its August lows has completely reversed. Today is worth noting since GTLS has broken down to a new closing low for 2014. This trend will likely continue.

Today's intraday low was $65.70. I am suggesting a trigger to buy puts at $65.60.

- Suggested Positions -

Long OCT $65 PUT (GTLS141018P65) entry $2.50*

08/29/14 triggered @ 65.60
*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

chart:


Las Vegas Sands - LVS - close: 66.51 change: -1.14

Stop Loss: 70.55
Target(s): To Be Determined
Current Option Gain/Loss: +17.3%
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:
08/30/14: LVS dipped toward its August lows as the company deals with worker unrest in Macau. There was concern that casino employees might stage a strike on August 28th. Now the worry was that they might strike this weekend.

Shares of LVS dipped toward potential support near $66.00 before trimming its losses to -1.6% on Friday.

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

chart:


Motorola Solutions, Inc. - MSI - close: 59.40 change: +0.03

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: - 4.2%
Average Daily Volume = 2.0 million
Entry on August 28 at $59.25
Listed on August 27, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
08/30/14: MSI saw some volatility in the first 45 minutes of trading on Friday. The rest of the session was pretty quiet. The stock did tough new 2014 lows. Nimble traders could wait for a bounce near $60.00 before initiating new bearish positions.

Earlier Comments: August 27, 2014:
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.

- Suggested Positions -

Long MSI 2015 Jan $60 PUT (MSI150117P60) entry $3.29

08/28/14 triggered @ 59.25
Option Format: symbol-year-month-day-call-strike

chart:


Pentair Plc - PNR - close: 68.07 change: -0.44

Stop Loss: 70.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.1%
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:
08/30/14: PNR's oversold bounce from its early August lows is rolling over. Shares continued to show relative weakness on Friday. I would consider new bearish 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

chart:


SPDR S&P 500 ETF - SPY - close: 200.71 change: +0.57

Stop Loss: 202.25
Target(s): To Be Determined
Current Option Gain/Loss: -16.3%
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:
08/30/14: Our put play on the SPY could be in trouble. Stocks were in rebound mode on Friday. The SPY set a new record closing high. More conservative investors may want to lower their stop loss. I am not suggesting new positions at this time.

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

chart: