Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/3/2014

Table of Contents

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

Market Wrap

More Volume, Less Filling

by Keene Little

Click here to email Keene Little
Some more volume has returned to the market but it hasn't helped the bulls much. In fact the increased volume has seen more churning in prices and is either accumulation or distribution by the big funds. It's likely distribution.

Wednesday's Market Stats

Today's trading volume was a little less than yesterday's but both days at least had stronger volume than last week. But the stronger volume is not coming from the buyers since the indexes have more or less traded flat. This is an indication that we're getting churning and if we were near the lows of a big move I'd suggest it was accumulation of stocks by the big funds from retail traders popping their cookies and handing off their stock to the Big Boyz. But since we're at the highs of a longer-term move I'm guessing the funds are now distributing the stock to eager retail traders who want to get long now (retail trader bullish sentiment is back to historical highs, which is not a good sign for the market).

The DOW was the only major index to close in the green today but only by 10 points. We could see some minor relative strength in the DOW in the days to come if stock is in fact being distributed. Most mutual funds have to remain invested and therefore they'll "park" their money in the safety of big stocks which are more liquid and easier to get out of if panic selling hits. Tech stocks and small caps were the relative losers today, which again points to an effort to reduce risk in the higher-beta names. The utility sector was also relatively strong today, which is another defensive sector (stocks pay dividends instead of being a growth stock).

So far the market has been a little weaker than I expected to see (usually the first two trading days of a new month see inflows of retirement money) but with minor new highs, even if not holding, continue to support my expectations from last week for at least minor new highs to complete the rally, as in put in THE high. It might be worth reviewing last Wednesday's market wrap to see why I'm feeling very confident about a final high this week. We have 5th waves at multiple degrees of the pattern along with the normally high bullish sentiment found at market highs.

Between Mr. Gann and Mr. Fibonacci I've been thinking there's a good chance we'll see SPX make a high somewhere between 2007 and 2015. You might remember last week's discussion about the Gann Square of Nine chart which pointed out the importance of 1998 and 2007, each being on a vector 180 degrees from previous important highs and lows. The vector that 2007 is on passes through the 2009 low near 667. Today's high was 2009 but it closed near 2000. It's been holding 2000 on a closing basis for the past 5 out of 6 trading days but it hasn't been able to much better than that.

SPX 2015 comes from a Fib (127% extension of the previous decline, in this case the July-August decline) as well as a 5th wave projection in the rally from August 7th. The 2015 target needs a rally on Thursday since any further drop could indicate trouble for bulls. We've been in a strong turn window, between mid-week last week and tomorrow, so it's an interesting time to see if we do in fact get a major high this week.

Adding to the possible fireworks tomorrow are a couple of economic reports. The ADP report will be out in the morning but more importantly, from Europe we'll find out how much "whatever it takes" means to Mario Draghi. He has jawboned the market long enough and it's time to either SOGOP ("poop" or get off the pot). The market expects him to announce some type of quantitative easing program to help prevent Europe from sinking lower into another recession (if not a depression since the deflation monster is again rearing its head). The market is also expecting a rate cut, not that that will be helpful. Once in the mud, going lower doesn't really help.

Interesting times indeed. I'll do a little Art Cashin here for you -- on this day in 1720 the South Sea company's stock started its crash from about 810 (it had been slowly declining since it peaked near 950 at the beginning of July) to 180 on the London stock exchange before rolling into October, signifying the collapse of the first stock market bubble. There were virtually no bounces in that nearly 80% decline. Also on this day, 85 years ago, was the DOW's high on September 3, 1929. Hmmm...

One could reasonably argue we are once again in bubble territory in the stock market, especially when comparing the meteoric climb in the indexes in the past 5 years vs. the lack of economic improvement. One of the ways to make that comparison is to look at SPX vs. the commodity index, as shown on the weekly chart below.

SPX vs. Bloomberg Commodity index (DJUBS), Weekly chart

Speaking of commodities, one thing in Art Cashin's report for today was a discussion about why September has often been such a bad month for the stock market. Some of it had to do with food manufacturers buying bulk commodities, such as wheat, in late summer (when crops are harvested) and the spending by these manufacturers was a draw on the big banks, who then had to sell holdings to provide the cash (credit was not nearly has prevalent back then). This caused a swoon in the stock market and even though this cause doesn't really exist today, the pattern seems to have held. Now we wait to see if this September will be another swoon for the stock market. At the moment it appears to be setting up that way

At the end of April I had reviewed the DJUBS chart to point out a strong correlation of Fib price levels near 138.20, including the 50% retracement of the September 2012 - August 2013 decline. The 50% retracement has been a repeating pattern since the April 2011 high that retraced a little more than 50% of the 2008-2009 decline. At the end of April most had turned bullish the commodities and I, as my usual contrarian self, said to get ready for the start of another leg down in its continuing bear market.

Since its April high the commodity index has had an impulsive decline and today it tested its August 20th low, at 124.80, retracing in two days the 8-day bounce in the last half of August. The next likely test will be of the November 2013 and January 2014 lows, near 122. The disconnect between the stock and commodity indexes continues the widening gap in the chart above. This will soon end and the correction (with a stock market decline) could be a nasty one for all those who have again turned bullish the stock market.

In the meantime the stock market has pressed higher and bullish sentiment quickly moved back to a bullish extreme following the August 7th lows in the stock market. This week's AAII survey shows bullish sentiment jumped another +3.6% to 56.1% and last week's climb above 50% was the first time since last December and only the 4th time above 50% since February 2011. In last Wednesday's market wrap I discussed this sentiment picture and how common it is to see in final 5th waves of a rally. We've got an EW count and sentiment lining up very nicely for a top to the rally, which should be dangerously close for all those bulls jumping in with both feet here.

The bearish sentiment, at 13.3%, is the lowest reading since February 1987. The boat is starting to get tippy here with too many bulls on one side and not enough bears to counter-balance it on the other.

When too many bulls rush over to one side of the boat

One of the things that makes the stock market more vulnerable to a downside disconnect this time is the plethora of ETFs. These have never really been tested in a major bear market since most have increased in size only in the past 5 years. Many existed in 2008 but today their aggregate size is about 4 times what they were in 2008. If investors ever reach a point of exiting their ETF positions en masse we could see a liquidity lock-up event. Instead of selling individual shares investors can sell thousands of shares by simply executing one trade. ETF managers would then be forced to sell the ETF's holdings and get it done that day, which in turn could create a panic selloff.

In August we saw a very steep decline in the high-yield bond market, which was outsized as compared to the selloff in the stock market. It may be offering us a preview of what's to come in the stock market. When the high-yield ETF managers were forced to sell large volumes of their bonds and they quickly learned that even the larger bond market was not as liquid as they thought. Some of the ETFs, especially techs and small caps, could find liquidity vanish with no buyers on the other side of the trade. This is what causes the flash crashes as the computers go hunting far below for any buyers. Again, these ETFs with their huge holdings now have not been battle tested and many are starting to worry that it could exacerbate any selloff. Food for thought and just another reason why I suggest bullish complacency here is very dangerous.

Starting tonight's chart review with the 50,000' view of SPX, the monthly chart below shows the price pattern since the blast-off days back in 1994. Following the new high is 2007, with bearish divergence against its 2000 high, it broke the uptrend line from 1990 through the 2002 low. Since the 2009 low SPX has made it all the way back up to the broken uptrend line and now we've got the mother of all back-tests in progress with more bearish divergence. If this results in a kiss goodbye it's going to be the mother of all corrections that follows. It looks a wee bit risky to be long here.

S&P 500, SPX, Monthly chart

The weekly chart below zooms in on just the part of the rally from June 2012. A trend line along the highs from April 2010 - May 2011 has been resistance since almost being tested in December 2013 and price has been pounding on the line since August 25th, currently near 2006. It's interesting that the line will be near 2007 on Thursday, an important turn date, and at the important Gann Sof9 level. Could be all just coincidence. At any rate, as mentioned last week, we've got a clean 5-wave move up from February which completes the 5th wave of the rally from October 2011. The over-the-top bullish sentiment fits well for a final 5th wave and I'm on high alert for an end to the rally that will be followed by at least a very larger downward correction of the rally from October 2011. More bearishly, we'll be at the start of the next cyclical bear market within the larger secular bear. Both should end sometime in 2016, maybe 2017.

S&P 500, SPX, Weekly chart

The 3rd through 5th waves in the rally from February are shown more closely on the daily chart below. You can see how it's been banging on that trend line along the highs from 2010-2011. The bulls see this as bullish consolidation while bears see it as topping action. Whenever I see price chopping marginally higher I think ending pattern rather than bullish consolidation. But I do see the potential for a head-fake break above the trend line to tag the 2015 projection and then create a bull trap with an immediate reversal. It would turn more bullish above 2015, with upside targets then at 2030 and 2050.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2007
- bearish below 1967

What's not clear at the moment is what the price pattern since the August 26th high (last Tuesday) means. I see the potential for a sharp drop to about 1985 to complete a bullish consolidation pattern so I'd be cautious about an immediate drop from here -- without a clear ending pattern to the upside it's a bit risky to jump in short on a decline from here. There are plenty of reasons to suspect we'll start a stronger decline but I just don't have the price pattern to support an aggressive approach on the short side (not yet). Short term I'm watching a possible parallel up-channel off Tuesday's low to see if the final 5th wave finishes inside this channel.

S&P 500, SPX, 60-min chart

Keeping the bigger picture in mind for the DOW, it has the same wave count as SPX -- a 5-wave move up from October 2011, with the 5th wave being the leg up from February. The 5th wave of wave-5 is the leg up from August 7th and can be considered complete at any time. Today the DOW tested its July high at 17151.56 and August 26th high at 17153.80 with a high of 17151.89. It gave back 73 points from this morning's high by the close. A trend line along the highs from December 2013 is currently near 17300 so from a trendline perspective that's upside potential for now

Dow Industrials, INDU, Weekly chart

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

Getting in much closer to the above chart, the 60-min chart focuses on just the small rally from the August 7th low (the 5th of the 5th wave on the above chart). If the pullback/consolidation into Tuesday's low was the completion of a 4th wave correction then we've got a little rally ahead of us. Today's pullback was to the uptrend line from August 7th through Tuesday's low. If that holds as support and the 5th wave of the rally from August 7th achieves equality with the 1st wave we get an upside projection at 17303, which aligns nicely with the trend line along the highs from December-July that I mentioned above being near 17300. The projection shown on the chart below shows the completion of the rally on Friday. This would also make a very interesting reversal setup. But a drop below 17K would have me alert to the possibility that rally already completed.

Dow Industrials, INDU, 60-min chart

NDX has been battling two trend lines for more than two weeks now, since August 19th when it first reached its broken uptrend line from June 2013 - February 2014, currently near 4085. The other trend line is a longer-term one and is along the highs from April 2010 - April 2012, also near 4085. Yesterday it gapped above both of these trend lines and closed above (with a small hammer doji). Today it gapped up, hit a high at 4104 but then closed down near 4071 and below the two previous day's lows. That created an outside down day (bearish engulfing candlestick) following what could have been an exhaustion gap (suck in a few more eager-beaver bears, spit out a few more shorts) followed by a bull trap. A down day on Thursday could spell a lot more trouble for bulls. The 5-wave move up from April may have completed with this morning's quick high, which in turn completes the 5-wave move up from November 2012 (and in turn that completes a large zigzag correction pattern off the November 2008 low).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4100
- bearish below 3985

The RUT had a relatively strong day yesterday but today it gave it all back and then some. Buyers of the small caps yesterday are already underwater. Today's candle looks even more bearish than NDX and is another bearish engulfing candlestick after failing to hold above a 62% retracement of its July-August decline. I haven't seen anything bullish about the RUT's price pattern since its double top on July 1st and believe it will continue to lead the way lower.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1191
- bearish below 1150

The bond market might have a little rally left in its gas tank before starting a larger pullback correction but it's now vulnerable to starting a pullback at any time. It has a clean 5-wave move up from December and while it could press higher (especially since there's no bearish divergence on its daily or weekly charts) but the risk of a downturn in the bonds appears to be growing. On the TLT weekly chart below I show a pullback to its broken 2012-2013 downtrend line, in the 110 area in November, before starting a stronger rally into next year. I remain in the (small) camp that's looking for higher bond prices (lower yields) into next year. This would give the Fed some cover not to raise rates (the bond market is in charge of rates even though the Fed likes to think it controls them).

20+ Year Treasury ETF, TLT, Weekly chart

Since the TRAN's July 23rd high at 8515 I've wondered if we'd see one more attempt at a new high and achieve the projection at 8591, shown on its weekly chart below, which is where the c-wave of an a-b-c move up from October 2011 would achieve 162% of the a-wave. Today's high was a minor new high, near 8538, but still a little shy of the 8591 projection. From a short-term perspective I see the potential for only one more minor new high but probably a little short of its projection. Nevertheless, it's looking like a good setup for a top this week and then a major reversal.

Transportation Index, TRAN, Weekly chart

The U.S. dollar's rally from July 1st should end soon and then possibly start a month-long consolidation or a deeper pullback. The rally from July 1st is the 2nd leg up in the rally from May and would be 162% of the 1st leg up at 83.22. The downtrend line from June 2010 - July 2013 is near 83.45 so that gives us an upside target zone to watch for now. If we get a choppy pullback/consolidation this month I'll then look for a break higher and as long as it stays above 81.50 in a pullback (assuming we'll get one this month) I'll stay bullish the dollar.

U.S. Dollar contract, DX, Weekly chart

Gold sold off hard yesterday and dropped it to a new low for the decline from July 10th. That decline has been very choppy and it's what has kept me thinking we'll see another bounce up in its sideways triangle that it's been in since 2013 but it should stay above the uptrend line from 2001-2005, which was tested with the overnight low at 1261.90. If it continues lower from here, and especially if it breaks below its June 3rd low at 1240, it will point much lower sooner rather than later. I have a minimum downside target near 1000.

Gold continuous contract, GC, Weekly chart

On August 19th oil broke below its uptrend line from June 2012 - January 2014, currently near 98, and its 200-week MA. By last Friday it had bounced back up to its 20-dma and its 200-week MA, which this week is at 96.25. It sold off sharply yesterday, leaving a bearish kiss goodbye, but rallied back up today for another test of its 20-dma at 95.44. Today's rally created an inside day so it's hard to judge the merit of the bounce but if it's able to bounce higher it could test its broken uptrend line near 98. However, oil looks like it drop a little lower before setting up a higher bounce later this year, to be followed by a stronger decline next year.

Oil continuous contract, CL, Weekly chart

Thursday morning will be busy with economic reports, including the important ADP report and some other measures of employment. Employment numbers are what the Fed has been discussing recently so the market could react to anything they believe will turn the Fed more dovish (not needing so much stimulation). The ISM Services at 10:00 AM is not likely to move the market, especially if comes in close to expectations and not much of a change from July's number (58.7). The big reaction might come from the ECB's rate decision (market expects a cut) and any firm plans (not just talk) about their own QE program.

Economic reports and Summary

There's a lot coming together this week for a major market high. We have over-the-top bullish sentiment at a time when the wave pattern looks to be completing (and the high bullish sentiment is typical in final 5th waves so there's a good match with sentiment and the wave count). The waning momentum at the new highs also fits for a final 5th wave scenario since 5th waves are almost always negatively divergent against the previous 3rd wave high.

We obviously do not have any confirming signals to indicate we have made or will see a high this week but that's the setup. Today's bearish engulfing candlesticks for NDX and RUT at resistance are a real heads up for a possible top made today. I see a little more upside potential for SPX and the DOW but it's not something I'd want to bet my money on from here. SPX even made its Gann number at 2007 (opposite its March 2009 low). The pieces are in place for the bears, what few remain.

Upside potential is dwarfed by downside risk so good luck in the coming week and I'll be back with you next Wednesday.

Keene H. Little, CMT

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


New Option Plays

Traders Awaiting The ECB, Draghi, and Russia

by James Brown

Click here to email James Brown

Editor's Note:

The market looks a little vulnerable here. Early gains faded on Wednesday. The S&P 500, the NASDAQ composite and the small cap Russell 2000 all ended the session in the red. Losses were not that bad but the NASDAQ and the Russell both produced bearish engulfing candlestick reversal patterns.

Tomorrow the market will be focused on two things. First will be the European Central Bank's decision on interest rates. More importantly if the ECB announces any sort of QE or stimulus plans. ECB President Mario Draghi will be holding a press conference after the ECB decision is released.

The second major issue remains the conflict in Ukraine. There were stories today that Russia and Ukraine were talking over a ceasefire deal. At the same time Russia announced it's staging major exercises for its troops that handle their strategic nuclear arsenal. Yes, you read that right. Russia's is staging practice drills for its nuke teams. You have to hand it to Russian President Putin for his subtlety. At the same time U.S. and NATO forces are staging exercises in Western Ukraine while the fighting rages in Eastern Ukraine. NATO is also holding a two-day summit this week.

Reaction to these headlines above could move markets or stocks could just churn sideways while investors wait for the U.S. jobs report due out on Friday morning.

Given the market's performance today we are not adding any new trades tonight.




In Play Updates and Reviews

Quiet Ahead of the ECB

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market was relatively quiet ahead of the ECB meeting tomorrow.

Our bullish plays on GBX and HES were both triggered today.


Current Portfolio:


CALL Play Updates

BioMarin Pharmaceutical Inc. - BMRN - close: 70.49 change: +0.10

Stop Loss: 68.90
Target(s): To Be Determined
Current Option Gain/Loss: +17.6%
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:
09/03/14: BMRN delivered a quiet session hovering near the $70.00 level. I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

- Suggested Positions -

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

08/26/14 new stop @ 68.90 after BMRN lowers revenue guidance after hours
08/23/14 new stop @ 65.75
08/20/14 new stop @ 64.75
08/14/14 triggered @ 66.55
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Concur Technologies - CNQR - close: 109.60 change: +8.65

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +82.1%
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:
09/03/14: CNQR gapped higher as expected following last night's reveal the company was looking for a buyer. Shares are down from last night's after hours highs in the $115-125 zone. CNQR did close near its highs for the session, which is encouraging.

More conservative traders may want to take profits now. We will raise the stop loss to $104.90, just below today's intraday low.

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*

09/03/14 new stop @ 104.90
08/27/14 CNQR is not moving. Investors may want to exit now. We are moving the stop loss up to $98.40
08/19/14 triggered @ 100.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Expedia Inc. - EXPE - close: 88.40 change: +0.11

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: - 4.5%
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:
09/03/14: EXPE spiked to new highs this morning and then gave back nearly all of its gains. 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


The Greenbrier Companies - GBX - close: 72.33 change: -0.91

Stop Loss: 69.40
Target(s): To Be Determined
Current Option Gain/Loss: Oct$75c: -36.8% & Dec$80c: -18.0%
Average Daily Volume = 600 thousand
Entry on September 03 at $73.50
Listed on September 02, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/03/14: Our new play on GBX is now open. The stock market's early morning gains gave GBX a boost. The stock gapped open higher at $73.50 and then rallied to $74.20 before reversing. Our suggested entry point was $73.50. Today's relative weakness, closing down -1.24%, is a bit disappointing but GBX held short-term technical support at its 10-dma. Investors may want to wait for a new rise past $73.50 before considering new positions.

Earlier Comments: September 2, 2014:
The shale-oil boom in the U.S. has had a number of impacts. Obviously one of them has been a surge in U.S. production. A side effect of all this production has been the use of railroads to transport a lot of this crude oil. The U.S. department of transportation has reported that back in 2008 the railroads averaged about 9,500 carloads of crude oil transport a year. Today that number is closer to 415,000 carloads a year and likely to grow, especially as the U.S. government stalls any decision on new pipeline construction (like the controversial XL Keystone pipeline). Lack of options have driven a big surge in demand for railcars that can transport oil.

According to the company's website, "Greenbrier, headquartered in Lake Oswego, Oregon, is a leading supplier of transportation equipment and services to the railroad industry. We build new railroad freight cars in our 4 manufacturing facilities in the U.S. and Mexico and marine barges at our U.S. manufacturing facility. Greenbrier also sells reconditioned wheel sets and provides wheel services at 9 locations throughout the U.S. We recondition, manufacture and sell railcar parts at 4 U.S. sites. Greenbrier is a 50/50 joint venture partner with Watco Companies, LLC in GBW Railcar Services, LLC which repairs and refurbishes freight cars at 38 locations across North America, including 14 tank car repair and maintenance facilities certified by the Association of American Railroads. Greenbrier builds new railroad freight cars and refurbishes freight cars for the European market through our operations in Poland. Greenbrier owns approximately 8,300 railcars, and performs management services for approximately 235,000 railcars."

GBX's railcar manufacturing business is obviously growing due to the demand to transport oil but don't overlook the reconditioning and refurbishing business. Just two months ago (July 2014) the U.S. DOT proposed new rules on transporting crude oil and flammable materials. That's significant because the oil from the Bakken shale is volatile and prone to combustion. These new standards would phase out the old DOT 111 tank cars. This would force railcar owners to either buy new cars or retrofit the old ones to meet the new standards.

GBX earnings are projected to grow double digits in 2014 and 2015. Their most recent earnings report was July 2nd. Wall Street expected a profit of $0.74 a share on revenues of $572.4 million. GBX beat those estimates with a profit of $1.03 a share on revenues of $593.3 million. That was more than double its $0.50 earnings in the second quarter. Gross margins surged from 11.5% to 16.3%, well above prior growth estimates.

GBX management said their railcar backlog grew from 15,200 units from February 2014 to a backlog of 26,400 units as of May 31st. The estimated value of this railcar backlog is $2.75 billion. Their marine barge backlog hit $110 million. GBX went on to raise their guidance for Q4 and 2014. Management also said they bought back 352,000 shares during the prior quarter and they're only halfway through their $50 million stock buyback program.

Now some traders feel that shares of GBX may have gotten ahead of themselves. That's one potential explanation behind the big short interest. The most recent data listed short interest at 22.4% of the small 22.3 million share float. Further gains in GBX could spark more short covering.

Today's high was $73.29. We're suggesting a trigger to buy calls at $73.50.

- Suggested Positions -

Long OCT $75 call (GBX141018C75) entry $2.85*

- or -

Long DEC $80 call (GBX141220C80) entry $2.99

09/03/14 triggered @ 73.50
*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


Gilead Sciences, Inc. - GILD - close: 109.43 change: +0.07

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: +300.0%
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:
09/03/14: The market's early strength helped lift GILD above potential round-number resistance at $110 this morning. The gains didn't last and the stock closed virtually unchanged. 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


Hess Corp. - HES - close: 100.75 change: +0.22

Stop Loss: 98.40
Target(s): To Be Determined
Current Option Gain/Loss: -17.4%
Average Daily Volume = 1.97 million
Entry on August 03 at $101.55
Listed on August 30, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/03/14: HES started the day with a bang. Shares gapped open higher at $101.28 and spiked up to $101.96 before revering all the way back toward $100.50 again. HES spent the rest of the day drifting sideways.

Our suggested entry point to buy calls was hit at $101.55 but I would hesitate to launch new positions at current levels. Wait for further follow through higher (maybe above $101.25 or $101.50).

Earlier Comments: August 30, 2014:
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.

- Suggested Positions -

Long NOV $105 call (HES141122C105) entry $1.95*

09/03/14 triggered @ 101.55
*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


LyondellBasell Industries - LYB - close: 114.23 change: +0.04

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:
09/03/14: LYB traded quietly in a narrow range on Wednesday. More conservative traders may want to adjust their stop loss closer to technical support at the simple 10-dma (currently near $113.20).

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


O'Reilly Automotive - ORLY - close: 157.15 change: +0.55

Stop Loss: 151.49
Target(s): To Be Determined
Current Option Gain/Loss: - 9.0%
Average Daily Volume = 626 thousand
Entry on September 02 at $157.50
Listed on August 25, 2014
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
09/03/14: After trading sideways most of the session ORLY managed to eke out a small gain of +0.3%. I would consider new positions here but you may want to wait and only buy calls if both ORLY and the S&P 500 are both positive tomorrow.

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).

- Suggested Positions -

Long Oct $160 call (ORLY141018C160) entry $2.20*

09/02/14 triggered @ 157.50
*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


Schlumberger Limited - SLB - close: 108.06 change: -1.58

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: -32.5%
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:
09/03/14: Early morning gains in SLB faded after spiking towards $110. I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

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

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

- Suggested Positions -

Long NOV $115 call (SLB141122C115) entry $2.00

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


U.S. Silica Holdings, Inc. - SLCA - close: 71.95 change: +0.06

Stop Loss: 68.85
Target(s): To Be Determined
Current Option Gain/Loss: +135.7%
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:
09/03/14: Shares of SLCA remain resilient, hovering near their highs. Today's session looks like a mirror of yesterday's with early gains fading but traders buying the dips midday. I want to remind readers that SLCA is fighting with a longer-term trend line of higher highs (resistance). Investors might want to take some money off the table.

I am not suggesting new positions at this time.

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


United Rentals, Inc. - URI - close: 118.22 change: -0.62

Stop Loss: 114.25
Target(s): To Be Determined
Current Option Gain/Loss: + 5.3%
Average Daily Volume = 1.0 million
Entry on August 19 at $115.25
Listed on August 18, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/03/14: URI did see a brief rally this morning but the rally failed near round-number resistance at the $120.00 level. 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


Western Digital Corp. - WDC - close: 101.74 change: -0.26

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

Comments:
09/03/14: WDC dipped to its 20-dma and bounced. We are still on the sidelines waiting for a new relative high. I don't see any changes from our new play description in the weekend newsletter (below).

Earlier Comments: August 30, 2014:
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)

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




PUT Play Updates

Chart Industries - GTLS - close: 65.90 change: -1.54

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.0%
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:
09/03/14: It looks like the bounce in GTLS is failing near the $68.00 level. Shares underperformed the market today with a -2.2% decline.

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


Las Vegas Sands - LVS - close: 63.54 change: +0.44

Stop Loss: 68.25
Target(s): To Be Determined
Current Option Gain/Loss: +116.6%
Average Daily Volume = 4.6 million
Entry on August 27 at $67.40
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/03/14: After yesterday's big drop shares of LVS managed a little bit of an oversold bounce today (+0.6%).

I am not suggesting new positions at this time.

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*

09/02/14 new stop @ 68.25
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


Motorola Solutions, Inc. - MSI - close: 58.94 change: -0.07

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: + 3.3%
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:
09/03/14: MSI closed Wednesday's session little changed. Traders may want to start inching down their stop loss.

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


Pentair Plc - PNR - close: 67.55 change: -0.14

Stop Loss: 70.75
Target(s): To Be Determined
Current Option Gain/Loss: +13.8%
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:
09/03/14: PNR is still drifting lower and lost another -0.2% today. This stock could still bounce near its August 15th lows near $67.25.

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

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

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

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

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

- Suggested Positions -

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

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


SPDR S&P 500 ETF - SPY - close: 200.50 change: -0.11

Stop Loss: 202.25
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
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:
09/03/14: The SPY gapped open higher and spiked to a new all-time high before reversing and giving back all of its gains. Shares are still holding above the 200 mark and its 10-dma. 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