Option Investor
Newsletter

Daily Newsletter, Thursday, 9/4/2014

Table of Contents

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

Market Wrap

Mixed Market Waits On NFP

by Thomas Hughes

Click here to email Thomas Hughes
A tidal wave of market moving events pushed the major US indices to new highs although caution took hold late in the day reversing the early gains.

Introduction

Today was one of the biggest days for market moving events, actual fundamental events, that I have witnessed in some time. No only were there 2 central bank meetings to contend with there was a hefty dose of labor and other macroeconomic data.

Setting the back drop for today's action is a possible cease fire in the Ukraine. I say possible because details I have read are sketchy and I semi-expect that it could be a ruse on the part of Putin and Russian. In any event, the news helped to lift the market. Now on to non-geopolitical market movers. First up, the BOJ held their monthly policy meeting and left current stimulus measures in place. The bank is still purchasing asset backed securities and is on track to increase the monetary base in the country as planned. The bank says its view of the Japanese economy still stands and that it expects to see a rebound in recovery starting this quarter. This decision is in the face of poor data that suggests the April usage-tax hike has had a deeper impact than forecast. Market reaction in the region was mixed with most indices trading flat to slightly negative.

Moving on, the ECB also held their policy meeting and released their decision this morning around 7:30AM ET. The ECB lowered it's three key interest rates by 0.1% each. This is an unexpected move and in addition to other QE measures announced later during the press conference. Mario Draghi revealed that the ECB will be engaging in the purchase of asset backed securities and covered bonds in an attempt to stimulate the EU economy. The exact nature of the purchases is still not clear but they are planned to begin next month. Mr.Draghi says the purchases will have a “sizable” impact on the ECB's balance sheet and that additional measures could be taken if the members deemed it necessary. The news was met with approval and EU indices were able to move up into positive territory.

Market Statistics

All of this news had our own markets trading higher in the early hours. Futures were indicated higher from the earliest part of the day with the SPX up about 5 or 6 points along with a 40ish point gain the DOW and 10 for the NASDAQ. These levels held firm through the morning and gained strength as each piece of data was released. The day started pretty early with the 7:30 release of the Challenger survey, followed by ADP at 8:15AM, jobless claims and productivity at 8:30 and then finally services sector ISM at 10AM. As a whole the data today was better than expected and suggest that tomorrows NFP could be another decent number. Current expectations are for non-farm private payrolls in a range around 225,000.

Between 8:30 and 9:00 futures spiked up to the high of the morning before moderating into the open of today's session. At the open advancers led decliners by about 2:1 in a fairly broad rally and that held through the morning. The SPX opened with a gain of only 3 points and did not seem to want to move higher but by 9:45 had extended that to 8 points and then to 10 points by 10:30AM. The move took the index and others to new all time/long term highs that coincidentally were reached exactly one year after the 52 week low. After reaching the intraday high the markets drifted slowly lower until reaching break even and then even lower. The SPX and Dow Jones Industrials both tested near term support before making a small bounce and closing near flat for the day. Although today's data was very good, trading is still light and very cautious which had a lot to do with overall market action.

Economic Calendar

The Economy

One reason today was so action packed is because of the Labor Day Holiday. Some, but not all, economic releases were pushed back by a day. Two of these were the Challenger, Gray&Christmas survey of planned layoffs and ADP which are typically released on Wendesday. According to Challenger the number of planned layoffs fell by -20.7% from last year at the same time and -15% from last month. The number of expected layoffs came in at just over 40,000 and is the fourth time that planned lay off were below last years levels. However, on a year to date basis, job cuts are only down about -4%. The heaviest sector for cuts this month was the tech/electronics sector led by Cisco Systems. Tech also leads for the year due in part to large cuts from Hewlett Packard and Microsoft. An important take away here is that the pace of job cuts are holding steady from last year if not trending lower. Another is that the cuts would be even lower if not for restructuring in two very large tech firms.

ADP was released next, at 8:15, just before the weekly jobless claims. The number of new non-farm jobs, as estimated by ADP, created in August is 204,000. This is below the expected 218,000 but still strong, or at least steady, enough to maintain current trends. July's number was revised down by -6,000 to 212,000. Despite being below expectation there were gains across the board, particularly in manufacturing and construction. Small business led in job creation among the three business sizes tracked, adding more than 78,000 new jobs. Mark Zandi from Moody's made some comments this morning to the effect that the numbers were "broad", "good" and revealed creation of “quality” jobs.

Initial claims for unemployment rose by 4,000 to 302,000. This is slightly above expectations but still at low levels. The number of initial claims has been holding steady at or near the bottom of the 12 month range for nearly two months in line with the idea that firing and job turnover is slowing. The four week moving average of claims also rose, by 3,000, to 302,750. The average, which smooths out some of the noise present in the data, has also been hanging right around 300,000 for a number of weeks, lending weight to the initial claims data. On an unadjusted basis there were 248,570 new claims, about 20,000, or 7.5%, less than last year at this same time. The seasonal factors had expected a slightly larger drop this month which accounts for the small rise we saw in the adjusted data.


Continuing claims fell by -64,000 to a new low seen last on June 16, 2007. This weeks tally of those receiving extended unemployment benefits fell to 2.464 million. Last weeks figure was revised higher, but only by 1,000. The four week moving average of continuing claims also hit a low not seen since summer of 2007. This drop in continuing claims continues the downtrend in longer term unemployment claims that stalled during the previous month. Considering that the data lags by two weeks it helps support estimates for strong August NFP and Unemployment numbers tomorrow. Another sign that tomorrows data will be strong is the total claims data. Total claims fell by -11,387 to 2.455 million. This is just off the long term low set earlier this year.


Some other data was released simultaneously to the claims data; final revision for 2nd quarter productivity, unit labor costs and the July trade balance. 2nd quarter productivity was revised slightly lower, against the expectations, to 2.3%. This is the final revision for this data point and while not as good as expected, is still positive and supportive of growth. Labor cost for the quarter were also revised lower, counter to expectations. Labor costs were revised down to -0.10% from +0.6% and below the expected +0.5%. This data shows that there may be even less job based inflation in the system than we thought.

The trade balance for July is -$40.5 billion, slightly better than expected. The previous month was revised to show a smaller deficit.

The final piece of data released today, and the one that propelled the market to its intraday high, was the services sector ISM figures. The gauge of the non-manufacturing industry expanded more than expected on top of an unrevised number for last month. The expectation was for 58, previous is 58.7, August ISM is 59.6, the highest level since the index inception. Within the report the new orders, business activity and employment indices all showed strong growth, with only the employment index below 60. All components of the non manufacturing ISM were above the expansionary 50 level.

The Oil Index

Oil prices have been volatile of late and today was no different. The price of black gold has swung in moves greater than 1% for each of the past 5 days as supply, geopolitics and economic trends play havoc with short and long term expectations. These moves have been testing support in the low $90's and resistance at $95 with no clear direction for the short to long term. Today's action had WTI begin trading even with yesterday's closing prices near $95 but that level did not hold with WTI losing more than -1.25% by the end of the session.

The Oil Index also fell in today's session. The index dropped just over -1%, coming to rest on the 30 day moving average and the long term support of a previous all time high. The index is still trending sideways while oil prices correct but has not suffered the way you might think. The index is well supported by technical levels and rising moving averages along with bullish indicators. There is still some near term weakness which could keep the index trapped within a range but it looks like the trend is still up. Low oil prices are not necessarily good in terms of revenue per barrel but could lead to increased sales volume, which could increase overall revenues. Low oil prices are good for the economy in general, and could help increase economic activity, which could lead to increased demand for oil and increased sales ….. Current support is 1,662, roughly the middle of the three month range. The indicators are bullish but also consistent with a range bound index that could persist into the short term.


The Gold Index

Gold prices were flat in early trading but once trading began in earnest could not hold up. Gold lost another $6 today, falling below $1265 for the first time in over two months. Today's move confirms the $1275-$1270 area as resistance, an area of previous support. The moves by the ECB along with our own economic data are dollar positive and will pressure gold going forward so this resistance could be strong. The long term low in gold is below $1200 and this is a real target for the metal at this time although there is additional support in the $1225 region.

The Gold Index broke out of the tight range it has been trading in over the past two months confirming my bearish analysis. Today's drop in the underlying commodity was the straw that broke the camels back. Gold prices are now at levels significantly below those of the previous quarter and will have a serious impact on the earnings ability of the gold miners. This is evidenced in the Gold Index which dropped close to 3% in today's session, falling from the 30 day moving average, breaking support and the 150 day moving average. The indicators are bearish and pointing lower with a near term target around $95. The candles formed this week, in particular Tuesday, Wednesday and today, are particularly bearish and could be indicative of strength in this move.


In The News, Story Stocks and Earnings

The dollar strengthened significantly today. The moves by both the BOJ and the ECB are undermining the value of their respective currencies and boosting the dollar. The Dollar Index, which is euro heavy, gained more than 1% today extending the 4 month rally. The index is now trading near long term 14 month highs on rising indicators. Both the MACD and stochastic are bullish and gaining strength.


The euro made a big move today as well and was the biggest mover of the Dollar Index. The announcement from the ECB was even more than the market expected. Today's action dropped the EUR/USD more than two handles, below what had been support and even lower to below long term support at 1.3000. The pair is oversold in the short and log terms but that may not matter as it is also gaining momentum. Downside target is currently 1.2750 with risk being EU economic data and any comments from the ECB or its members. Resistance is now at 1.3000.


The yen weakened today as well even though the BOJ did not increase it's stimulus. That may not matter for several reasons including but not limited to the following; the move by the ECB is boosting dollar value relative to the euro and other currencies, US economic data is strengthening while both EU and Japanese data remains weak, the Fed is on track to end US QE and the BOJ is still increasing its monetary base at a rate of billions of yen per year. The dollar set a new 8 month high versus the yen today, briefly touching long term resistance. The USD/JPY has been near resistance for three days now, following a 6 week rally. The indicators are bullish but divergent so it looks like resistance is going to hold for now.


The VIX

The afternoon turnaround in the equities market sent the VIX moving higher today. The fear index had opened near yesterday's close, just under support, and traded lower during the morning but the late day sell off pushed it above my 12.50 resistance line. The move broke one resistance but was capped at the short and long term moving averages. It still looks like the VIX is testing resistance but now that it is above 12.50 there is a chance for it to spike. There are still geopolitical risks in the market as well as important data to be released tomorrow.


The Indices

The S&P 500 traded in a wide range today despite closing near flat for the session. The broad market lost -0.15% at the end of the day after posting as much as a half percent gain and near that amount of loss at different time during the day. The action was broad, but volume was light, which may have accounted for the late day turnaround.

There has been quite a bit of data out this week and today, all pointing to continued economic recovery, but the market still likes to wait for the official NFP and unemployment numbers before getting too excited about it. Today's action dropped below 2,000 but is still above long term support. The candle formed by today's action is doji-ish but not overly big, more of a serious spinning top than anything else. The indicators are bullish but displaying some near term weakness. The MACD, for example, is in decline and approaching the zero line. This is not a problem while the index consolidates above support but will gain importance if it drops below support. Stochastic is strongly bullish, high in the upper signal zone, but currently moving lower. Also not a problem while the index is consolidating and is actually good for the index, relieving near term overbought conditions. The trend is up and the index is bullish but I think it's time to wait for the next signal, tomorrow the NFP could be it.


The NASDAQ Composite was today's leader in terms of losses. The tech heavy index fell -0.22%, or -10.28 in today's session. This is the second day of declines in the index since it hit a new intraday high yesterday. The indicators are still bullish but like with the SPX, are showing some near term weakness. There is some near term support at the current level with short and long term support not far below around 4,500. The long term trends are up but it looks like the index could drift down to 4,500 if the NFP is not to the market's liking and maybe even if it is.


The Dow Jones Industrial Average only lost -0.05% in today's session. The blue chip index fell less than 10 points at the close, trading just beneath long term resistance all day. The index has been trading just under this resistance for nearly two full weeks in a consolidation move and appears to be setting up for an attempt at new highs. A break above resistance at 17,150 could carry the index as much as 750 points higher in the near to short term while a failure to break out could keep the index range bound until market direction is decided.


The Dow Jones Transportation Average is the one index that was able to hang on to the early highs. The transports broke above resistance to gain 0.62% and set a new all time high. The index set this new high with rising, bullish indicators that point to more new highs. The only caveat at this time is a possible divergence in the near to short term MACD. The long term trend is up and the long term indications are for this continue so the divergence is not a major concern just yet, just something to take note of. The transportation stocks have been on a tear ever since oil prices dropped and I don't think this is over yet. Thinking about this index in terms of Dow theory and the Transports as a leading indicator. The transports are breaking to new highs with the industrials setting up for potential break out so it looks like the industrials could break out too.


Today's market action was little confusing. The data and events were rally worthy, sent the markets higher and yet they did not stay high. In fact, you could say they reversed, at least on an intraday basis. What happened to cause this? I think the market is waiting for the NFP. Regardless of the state of the economy, regardless of the additional data we received just today, the market still wants to wait for the NFP. I guess nothing else matters if there aren't jobs, and that is true in a sense. There has to be jobs to provide pay checks to fuel the economy.

What to expect in the number? I think it's going to be strong, over 200,000. Estimates are for it to be around 220,000. This is not out of the question and there is even a chance for it to be higher. How the market will react is the question. What is a Goldilocks number? Will just “strong” be enough to keep the market interested, as has been the case in the past, or will it need to be “surprisingly strong” to catalyze the rally. We will find out tomorrow at 8:30AM.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Poised To Run

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Nike, Inc. - NKE - close: 79.92 change: +1.10

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.8 million
Entry on September -- at $---.--
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Nike made headlines earlier this week when there was a bit of a bidding war for NBA star Kevin Durant. Durant's endorsement contract with NKE was coming to an end and rival Under Armour (UA) was trying to steal Durant away from NKE with a $200 million deal. In the end NKE outbid its rival and offered the 25-year old Durant a $300 million deal over the next ten years. Some of suggested that it could be worth a total of $350 million over the next 20 years. While I personally find numbers like these outrageous it's pocket change for NKE, which is sitting on $5.14 billion in cash and brings in a net profit of $2.7 billion a year on revenues of almost $28 billion annually.

Meanwhile the winds of fashion seem to be blowing in NKE's favor. There's a new trend being called "athleisure" where activewear and fashion intersect. Last year apparel sales fell -1%. Yet sales of activewear rose +7%. The activewear market now accounts for 16% of the U.S. market and has grown to almost $34 billion.

NKE's most recent earnings report was better than expected. Wall Street was looking for a profit of $0.75 on revenues of $7.34 billion. The company beat estimates with $0.78 on revenues of $7.42 billion. Gross margins improved 170 basis points to 45.6 percent. Management reported that they spent $912 million on buying back 12.3 million shares of stock last quarter as part of their $8 billion stock buyback program.

Technically shares of NKE have been stuck under major resistance at the $80.00 level since December 2013. Investors have been slowing buying the dips and now the stock looks poised to breakout past resistance. The point & figure chart is bullish and currently forecasting at $98 target.

Tonight I'm suggesting a trigger to buy calls at $80.50. Shares of NKE do not move super fast so we'll use the 2015 January calls.

Trigger @ $80.50

- Suggested Positions -

Buy the 2015 Jan $85 call (NKE150117C85) current ask $1.81

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Third Day of Losses

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 marked its third day of declines. Granted the pullback has been very mild for the large cap index but some stocks were definitely getting hit with selling pressure on Thursday.

BMRN, SLB, and SLCA hit our stop losses today.


Current Portfolio:


CALL Play Updates

Concur Technologies - CNQR - close: 106.18 change: -3.42

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +42.5%
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:
09/04/14: After big gains yesterday traders were taking some money off the table today. CNQR hit an intraday low of $105.81 before trimming its loss to 3.1%. I am not suggesting new positions at this time.

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: 87.94 change: -0.46

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -11.3%
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:
09/04/14: EXPE slipped -0.5% and almost tagged its 10-dma before starting to bounce this afternoon. 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: 72.80 change: +0.47

Stop Loss: 69.40
Target(s): To Be Determined
Current Option Gain/Loss: Oct$75c: -31.5% & Dec$80c: -11.3%
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:
09/04/14: GBX shot higher at the open and briefly traded at a new record high before reversing much of its gains by the closing bell. This intraday reversal lower might be a warning signal for the bulls. I would not be surprised to see GBX retest short-term support at $72.00 again.

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: 106.86 change: -2.57

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:
09/04/14: Ouch! GILD delivered one of its worst one-day drops (-2.3%) in several weeks. The stock settled on short-term technical support at its 10-dma. Our stop loss is currently at $104.85 but more conservative traders may want to move their stop closer to today's low (106.27). 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: 100.15 change: -0.60

Stop Loss: 98.40
Target(s): To Be Determined
Current Option Gain/Loss: -30.2%
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:
09/04/14: HES displayed a little more volatility today with an intraday swing from $99.50 to $101.78. The stock appeared to bounce near its simple 30-dma. I am not suggesting new positions at this time.

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: 113.84 change: -0.39

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +40.0%
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:
09/04/14: LYB retreated lower with a -0.3% decline. The stock is nearing what should be support at its simple 10-dma. More conservative investors might want to tighten their stop loss.

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: 157.43 change: +0.29

Stop Loss: 151.49
Target(s): To Be Determined
Current Option Gain/Loss: + 2.2%
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:
09/04/14: ORLY spent much of the day flirting with new all-time highs. The stock eventually pared its gains by the closing bell. The trend is up but the broader market looks a little fragile at the moment. Wait and see how the market reacts to the jobs report tomorrow morning before considering new positions.

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


United Rentals, Inc. - URI - close: 118.30 change: +0.08

Stop Loss: 115.65
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:
09/04/14: URI spent the day bouncing between short-term support at its 10-dma and short-term resistance at $120.00. Tonight we'll move the stop loss up to $115.65. 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*

09/04/14 new stop @ 115.65
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: 100.95 change: -0.79

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:
09/04/14: WDC is nearing what should be round-number support at the $100 mark. If shares don't bounce we might remove WDC as a candidate. Currently we are on the sidelines wait for a breakout.

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: 65.35 change: -0.55

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: - 4.0%
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:
09/04/14: GTLS continues to sink. Keep an eye on the April low near $64.00, which might spark a short-term bounce.

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: 63.08 change: -0.46

Stop Loss: 68.25
Target(s): To Be Determined
Current Option Gain/Loss: +133.3%
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:
09/04/14: Shares of LVS were downgraded this morning and that helped the stock erase yesterday's bounce.

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: 58.98 change: +0.04

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: + 4.8%
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:
09/04/14: MSI did not see much movement today. Shares hovered on either side of the $59.00 level. 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: 67.01 change: -0.54

Stop Loss: 70.75
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
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:
09/04/14: Shares of PNR continue to sink and underperformed the market with a -0.79% decline. PNR has now broken below the August 15th low.

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: 200.21 change: -0.29

Stop Loss: 202.25
Target(s): To Be Determined
Current Option Gain/Loss: -19.5%
Average Daily Volume = 99 million
Entry on August 25 at $200.14
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/04/14: Once again early gains lifted the SPY to a new all-time high only to see the rally fail and roll over. Today's low was $199.66. Traders might want to consider new bearish positions on a drop below this level.

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

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

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

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

- Suggested Positions -

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

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



CLOSED BULLISH PLAYS

BioMarin Pharmaceutical Inc. - BMRN - close: 68.32 change: -2.17

Stop Loss: 68.90
Target(s): To Be Determined
Current Option Gain/Loss: + 5.8%
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:
09/04/14: BMRN hit some profit taking today with a -3.0% drop toward its simple 20-dma. Shares accelerated lower at the open and hit our stop loss at $68.90. The next level of support might be the $65-66 area.

- Suggested Positions -

Oct $70 call (BMRN141018C70) entry $2.55* exit $2.70** (+5.8%)

09/04/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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:


Schlumberger Limited - SLB - close: 105.64 change: -2.53

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: -42.5%
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:
09/04/14: SLB's pullback accelerated lower today. The stock underperformed the market with a -2.3% decline that also broke through technical support at its 100-dma. Our stop loss was hit at $107.45.

- Suggested Positions -

NOV $115 call (SLB141122C115) entry $2.00 exit $1.15* (-42.5%)

09/04/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
08/25/14 triggered @ 110.50
Option Format: symbol-year-month-day-call-strike

chart:


U.S. Silica Holdings, Inc. - SLCA - close: 67.79 change: -4.16

Stop Loss: 68.85
Target(s): To Be Determined
Current Option Gain/Loss: + 92.8%
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:
09/04/14: It was a tough day for SLCA. After weeks of gains traders decided to hit the sell button. Shares plunged -5.7% and closed under their 10-dma. Our stop loss was hit at $68.85.

- Suggested Positions -

DEC $65 call (SLCA141220C65) entry $4.20* exit $8.10 (+92.8%)

09/04/14 stopped out
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: