Option Investor
Newsletter

Daily Newsletter, Saturday, 9/6/2014

Table of Contents

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

Market Wrap

Tough Week for Indexes

by Jim Brown

Click here to email Jim Brown

The markets struggled all week but S&P closed at a new high on Friday and the Dow missed it by less than 1 point.

Market Statistics

All of the major indexes with the exception of the Russell 2000 managed to add to their gains from the prior week but those gains were minimal. In the graphic above the majority of the major indexes gained only single digits for the week.

The stand out was the Dow Transports with a +193 point surge and a clear breakout to new highs. As the Dow transports go the Dow industrials normally follow. The stage could be set for a good week ahead.

The Dow started off in a hole on Friday with a dip to 17,009 after the August Nonfarm Payrolls came in significantly weaker than expected. The August report showed only 142,000 jobs created and the prior two months were revised down -28,000. The three month moving average has declined from +267,000 in June to +207,000 in August. That is a significant decline. An even bigger surprise was the minimal 16,000 jobs that were created in the separate Household Survey.

The unemployment rate declined from 6.2% to 6.1%. The labor force participation rate declined -.1% to 62.8% and a 36 year low. More than 64,000 people dropped out of the labor force in August pushing the number not in the labor force up to 92,269,000.

With the majority of headline forecasts in the 200,000 to 250,000 range the 142,000 number was a big surprise. Almost immediately a flurry of analysts were hitting the wires with negative comments. Diane Swonk, one of the most respected and often quoted economists said something to the effect of "If August created only 142,000 jobs, pigs will be flying." She also called the number a "fluke" in the internals.

Numerous analysts echoed those sentiments but it does not change the number. Everyone expects it to be revised higher next month. That may be true but there were some serious declines in the data. Manufacturing added zero jobs in August compared to +28,000 in July. Construction added only +20,000 compared to +31,000 in July. The retail sector actually lost -8,000 compared to a +21,000 gain in July. Transportation and utilities only managed to add +1,000 jobs compared to a gain of +19,000 in July. The only major gain came from professional and business services, which gained +47,000 compared to +36,000 in July.

Some analysts blamed the drop on the seasonal adjustments. Normally automakers layoff a lot of workers in the summer when they are changing over to new models. In August they hire them back and strange as it may seem those rehires are counted as new jobs. This year the automakers did not shutdown because demand for cars was so strong. When the seasonal adjustment that accounts for the normal rehire process was added it subtracted jobs and produced the unexpectedly low number.

Obviously that is speculation but it could be somewhat correct. However, that would only impact the manufacturing sector and there were no job declines in that line item. There were no manufacturing jobs created according to the report. Hypothetically if there were 20K created and the seasonal adjustment removed 20K to make the total zero it still would not have any a material impact on the overall number.

I was surprised the headline number was that low but I did expect it under 200K. In retrospect quite a few analysts claimed August was the least trustworthy number of the year. Others warned that August was typically a low point for job creation. My question is this. If so many analysts thought August would be a low point and it was so untrustworthy then why were the majority of the forecasts from 220K to 250K? Why were the forecasts so high when everyone "knew" the August numbers were normally low?

Mark Zandi, chief economist at Moody's Analytics, said "August tends to be weak consistently, and it gets revised up consistently." However, his estimate was for 200,000 so his comments and the forecast don't match just like every other complainer.

Zandi was right about the prior three years. In August 2013 the first number was 169,000 and it was revised up to 202,000. In August 2012 the first number was 96,000 and revised up to 165,000. 2011 started out at zero and was revised up to 85,000. However, that is where the pattern ends. In 2010 it was revised down by -4,000. In 2009 it was revised down by -57,000 and 2008 it dropped -48,000 in the revision.

If this was just a U.S. problem then why did Canada post job losses for the month of August? Retail and wholesale employment fell by -26,500. Transportation and warehousing declined -14,700 and manufacturing lost -11,000. Construction rose by 24,400 and government employment rose by 14,000 to reduce the losses for the month but there was a total decline of -11,000 jobs.

Separately the National Retail Federation said industry employment declined -17,700 in August. Could this be a symptom of a bigger trend?

How strong can employment be when 53 million of the 146 million people with jobs are working part time?


Janet Yellen is probably celebrating this weekend. The decline in the jobs numbers take all the heat off the Fed to raise rates. She has constantly advised patience and warned there was still considerable slack in the labor market despite the decline in the unemployment rate to 6.1%. The doves were probably celebrating and the hawks are frustrated. Even if the jobs report was a onetime abnormal event it will be several more months before the Fed can be sure. That means the hawks have to wait for confirmation. If September comes in less than 200K it will kick the Fed's rate hike plans a couple of quarters farther into the future. Less than 12 hours after the jobs report was released the forecasts for the first hike were slipping into Q2 rather than Q1.

The next FOMC meeting is not until the 16th but you can bet it will be the topic of conversation for the next 7 trading days. The Fed economists have access to a lot more data than we do and they will be telling Yellen and the members of the round table exactly why the jobs numbers were so low.

The economic calendar for next week is fairly devoid of important reports. The Retail Sales for August is probably the biggest report since it covers the back to school shopping season. FYI - there are only 107 shopping days until Christmas.


Apple (AAPL) shares did not wait for the announcement next Tuesday to give back their gains. The combination of the iCloud hacking scandal and new product announcements from Samsung and Motorola caused a -$5 drop from Tuesday's $103.74 high. Typically the stock craters after they announce new products. However, Samsung and Motorola stole their thunder this time around. Samsung announced new models of its popular Note along with a virtual reality device that uses the Note for video. The Galaxy Edge Note has a second screen on the side of the device that can be used for navigation by active users. They also announced the Gear S, a wristwatch that will allow users to make calls without being tethered to a smartphone. Apple's rumored iWatch is thought to require a phone to make or receive calls.

Motorola (MSI) announced a new Moto X phone that can be customized in dozens of cases and colors including wood, leather, plastic and metal. They also announced a smartwatch called the Moto 360 for $249. The Motorola watch went on sale on Google's online store, Best Buy and Motorola's website at 12:PM on Friday. It was sold out in all three locations by 1:PM. Just a week earlier LG revealed its new G Watch R smartwatch.

MOTO-360

The rush by all these companies to announce all the new products ahead of Apple has definitely put a crimp in Apple's stock gains. Next week instead of being the leader in the space Apple will be faced with differentiating itself from the cheaper competition. Apple will have to make a compelling case on why consumers should pay $800 for the iPhone 6 instead of several hundred dollars less for the competitor's phones.

Apple's security is not what it used to be. The iPhone 6 is already being sold in China. China Mobile has been accepting orders for several days now and they had presold 33,000 by Tuesday evening. By accepting orders online they had to disclose the two new models with a 4.7 inch and a 5.5 inch screen.

The big question now is which way will Apple trade next week. Since it already declined -$5 will it still decline after the announcement or will this be seen as a dip to buy? That probably depends a lot on whether the iWatch requires a phone to perform its functions. Tim Cook claims Apple's new product offerings are the biggest and most diverse ever so it will be interesting to see if this is reality or merchandising hoopla.


Michael Kors (KORS) fell -4.5% after the company said it was holding a secondary offering to liquidate the holdings of its biggest shareholder. Sportswear Holdings Ltd, a founding shareholder, owns a 5.7% stake worth $890 million. The company will hold a secondary offering for that 5.7% and the company will not receive any of the proceeds of the offering. Sportswear Holdings two representatives will also resign from the board. Sportswear has been selling shares of Kors since 2011 and will maintain a relationship with Kors through its ownership in Michael Kors Far East Holdings Ltd. Shares of Kors declined to support at $76.


Alibaba finally filed its IPO papers after the close on Friday. The company is selling 123 million shares at $60-$66 each and they are expected to price on the 18th and begin trading on Friday the 19th. However, officers and early investors are going to sell another 197 million shares making the total offering 320 million. At the high end of the expected pricing it would value the initial offering at just over $21 billion making it the largest ever. The symbol will be BABA and it will trade on the NYSE. The post IPO valuation of the company is expected to be in the $165 billion range. That is larger than 95% of the companies on the S&P-500. Alibaba has more than 279 million active buyers on its websites. Net income tripled to $1.99 billion for Q2.

Alibaba said it would also allow employees and others "close to the company" to buy shares at the IPO price before the stock begins trading. The roadshow will begin on Monday and end on Sept 18th. The founder Jack Ma is expected to participate. Barclays will be the designated market maker for the IPO. Other banks will be co-equal leads on the deal behind Barclays. Those include CS, C, DB, JPM, MS and GS. Goldman Sachs will also be the "stabilization agent" and be responsible for propping up the stock in the market to make sure it does not trade below the offering price. Goldman will also be responsible for deciding whether or not to execute the "greenshoe" option for the underwriters to buy more stock to support demand beyond the original offering. Up to 46 million additional shares could be sold.

The challenge for the market will be the drain on other equities. When an IPO takes $21 billion out of the existing market that money has to come from somewhere and normally it is out of existing equities. We should expect to see selling in Amazon, Ebay, Baidu, Priceline, as well as equities in general. Everyone expects BABA to do well and analysts are already saying the shares could hit $100 in record time. That will entice a lot of traders to dump stocks they currently own and try to buy shares of BABA either in an IPO distribution or on the open market on the 19th. This will drag on the Nasdaq more than anywhere else since BABA is considered a tech stock.


YHOO invested $1 billion in Alibaba nine years ago. They sold some shares in 2012 for $5 billion but today that remaining investment still equates to a 22.6% stake in Alibaba or 524 million shares. Yahoo will sell 121.1 million shares in the IPO. That has been reduced twice in the lead up to the IPO. That will generate about $8 billion for Yahoo and leave them with about a $26 billion stake in BABA at $64 a share. With analysts already predicting a share price in the $100 range this is a real windfall for Yahoo. The company has pledged to distribute half of the after tax proceeds to shareholders and use the rest of the cash for corporate purposes. Buying Yahoo shares would be one way to benefit from any post IPO rally in BABA shares. Some analysts are projecting a $45 share price for Yahoo immediately after the IPO. Other analysts are projecting an immediate sell the news event.


Japan's SoftBank owns 34% of Alibaba and does not plan to sell any shares in the IPO. They believe BABA will rise quickly because of its dominance in the Asian markets. Softbank has investments in more than 1,300 companies in addition to the $65 billion stake in Alibaba. They had $19 billion in cash at the end of June. SoftBank has not rallied in advance of the IPO like Yahoo. This would be another way to play the BABA IPO but SoftBank is carrying the weight of those 1,300 other investments. U.S. investors don't really know how to value SoftBank but the market cap is the key. With a market cap today of $87 billion a rapid rise in BABA shares will quickly send that investment alone to near $80 billion and that means the other 1,300 companies they own are free.


Lastly the Krane Shares Chinese Internet ETF (KWEB) can add the shares on the 11th day of trading. Obviously there could be a giant rally in BABA shares before KWEB can add them to the ETF. I would be very cautious about buying the ETF before the shares are added and after the addition only if the BABA shares are still rising.


Tesla Motors (TSLA) announced that the battery gigafactory would be built in Nevada, just outside of Reno. Nevada promised to wave permit rules and/or accelerate approvals and they are going to give Tesla $1.25 billion in tax breaks and subsidies to get Tesla to build in Nevada. Elon Musk said the money was not the deciding factor. The most important factor was the time to completion of the factory. The factory has to be completed and producing batteries when the Tesla Model 3, mass market vehicle, begins production. With about 6,500 jobs expected to be created that works out to about $200,000 per job in benefits. In return Tesla will build the world's most advanced battery factory and create more than $100 billion in economic impact for Nevada over the next 20 years. Under the agreement Tesla promised to invest at least $3.5 billion in the Nevada project.

This compares to the $8.7 billion Washington State committed to Boeing in 2013 to win a Boeing 777 assembly plant. That is the largest subsidy ever for a corporate deal.

Tesla shares were lower on Friday after Elon Musk said investors often "get carried away" with the stock price. Also, "I think our stock price is kind of high right now." And, "if you care about the long term, I think he stock is a good price. If you look at the short term, it is less clear." Musk should keep his focus on developing products and refrain from talking about the stock price. The last time he said the stock was high it sold off for a month. Shares are up +90% from the $150 close at year end and investors are enjoying the ride. The -3% decline on Friday was minimal but I am sure investors would rather Musk keep his mouth shut on the price.

In each of the last three years Tesla has had a secondary offering to raise money for building plants, charging stations and equipment. With the stock at an all time high and Musk admitting it, there is a really good chance there will be another secondary very soon. They need to raise $3.5-$5.0 billion for the gigafactory alone. Plus they are expanding in Europe and Asia. All those efforts cost money. With the share price so high they would only need to sell 22 million shares to raise $6 billion. There are 124.6 million shares outstanding today.


Family Dollar Stores (FDO) declined a sweetened $9.1 billion ($80.00) offer from Dollar General (DG). FDO said it would be hard to get regulatory approval and there was a good chance the offer would fail to close. The board reaffirmed acceptance of the prior $8.5 billion ($74.50) offer by Dollar Tree (DLTR). Dollar General has threatened to take its $80 offer directly to the shareholders if rejected again. A DG/FDO combination would have more than 20,000 stores. More than 6,000 of those FDO stores would be within 3 miles of a DG location. The FTC has already said that having stores from competing chains so close together it reduces prices for shoppers.

With DG taking over FDO it would immediately raise prices for customers because there would be limited competition. The FTC is already questioning the Dollar Tree bid because of the proximity of some stores to each other. FDO said this would only increase because of the greater density of DG stores. Dollar Tree has said they would divest as many stores as necessary to satisfy the FTC but they have very limited store overlaps. Furthermore the product assortment and pricing of DLTR stores is significantly different than FDO stores.

Here is a really interesting link with some location charts of FDO, DLTR, DG store locations. Trust me, it is interesting. Store Density Maps

FDO and DG shares declined on the news but DLTR rose on their improved chance of concluding a deal.


SanDisk (SNDK) was upgraded from equal-weight to overweight by Morgan Stanley and the price target raised from $110 to $115. The reason for the upgrade was "increased conviction in a more sustainable earnings stream" as SNDK significantly out earns its peers. Analysts see a stronger pricing environment in NAND memory is likely to last longer than originally anticipated. The various new products including multiple versions of smart watches and phones could significantly increase demand. MS believes Apple could create higher demand from the sales of the iPhone 6 alone. Shares rallied +2.7% on the upgrade.


Gilead Sciences (GILD) fell from Thursday's high of $110 to a low of $97.54 on Friday before rebounding. The drop came after news broke that Gilead was in talks to make a cheaper generic form of the blockbuster drug Sovaldi to distribute to poorer countries. With the 12 week course of treatment to cure Hepatitis C costing around $84,000 any talk of a cheaper version is sure to cause investor jitters.

However, this is nothing new. They have done this with other drugs and it increases sales rather than decreases them. Gilead has done this same thing with HIV treatments and this was already expected for Sovaldi. There was also an article suggesting the new plan for a 2 pill a day program for 8 weeks instead of 12 weeks could affect pricing. Again, this is not the case. The shorter treatment would use less pills but also help more patients.

The case for selling Gilead is worthless. This company sells today at a relatively cheap PE of 11 and it has more business than it can handle. The demand for Sovaldi alone is more than they can produce. They have a huge pipeline of more than 30 drugs and I am surprised nobody has tried to acquire them yet. I would continue to be a buyer of GILD on any dip.


Markets

For the second week in a row the S&P spiked up at Friday's close to end at a new high. The other eight trading days were lackluster. The S&P hit 2005 on August 26th and it took seven days to gain another 2 points. In theory the two weeks of consolidation built a base for the next move higher.

I expected fund managers to come back from vacation and begin restructuring their portfolios in hopes of adding some gains before the fiscal year end on Oct-31st. The volatility over the last four days definitely could have been managers liquidating some positions ahead of the payroll report with plans to put that money back to work next week. The S&P rose steadily from the 10:45 low Friday morning. The dip buyers are alive and well and there are no economic reports next week to create negative headlines.

Even with the volatility over the last several weeks the S&P has posted consecutive gains for the last five weeks.

Strong support has appeared at 1992 and resistance is the closing high at 2007 and again at 2025.


On the Dow we have seen several support tests at just over 17,000 over the last two weeks. The converging resistance from 17,075-17,150 has also been rock solid. The index closed at 17,137.36 and less than one point from the 17,138.20 closing high in July. Like the S&P the Dow has struggled over the last two weeks as it underwent some consolidation from the August rebound. Wednesday and Thursday both saw strong upward moves at the open followed by selloffs into the close. That is typically a classic distribution pattern that is seen at market tops. On Friday that trend reversed to selling at the open in a continuation of Thursday's plunge and then strong buying into the close. The profit taking may be over and next week could see a breakout.

The resistance is strong BUT the bears have not been able to push the index lower after two weeks of trying. If we do break out I think fund managers are going to be chasing prices with all their available cash. They only have 60 days to add some performance to their fund numbers. Two weeks ago a Bloomberg survey showed that 81% of actively managed funds were lagging their benchmarks. They need to correct that before their fiscal year ends on Oct-31st.



The Nasdaq Composite spiked to resistance at 4,600 on both Wednesday and Thursday at the open. Both days saw solid selling into the close. Friday's open saw support at 4,550 tested for the third time in two weeks and the rebound was strong.

Like the other indexes I believe the Nasdaq is poised to breakout over that 4,600 level. The Nasdaq had three major losers on Friday and still gained +21 points. The buying was broad based and I think it will continue.

Support is 4,550 and resistance 4,600.



The Russell 2000 was the fly in our soup. The Russell sold off hard on Thr/Fri before managing a +3 point gain at the close. In theory the small caps are where fund managers are going to get the most bang for their buck but the buying was lackluster. This has to change if the broader markets are going to continue higher.

On the positive side support at 1160 held with the low at 1160.02. You can't get better support buying that that. Now we need the Russell to push back over Thursday's high at 1180 and lead the markets higher.


The Dow Transports offset the negativity of the Russell with a strong breakout over the prior highs at 8500. The strong surge suggests investors believe the economy is solid and the jobs numbers were bogus. If anything they probably believe the weak jobs numbers will keep the Fed on hold for another quarter and that will be positive for the market.


The Russell 3000 ($RUA) is the 3000 largest stocks in the market. This is a view of the real market not just a small subset as we get with the Dow and S&P. The R3K stalled just under 1200 BUT it did close at a new record high at 1197.45. This is a bullish signal for the market for the broadest index to make a new high at the end of a consolidation week even if it was just by a couple points.


Clearly I have a bullish bias for next week, which is strange for me since September is normally negative. However, that historical trend is negated when August is positive. I think all the historical trends have been negated by the Fed, QE and the TINA trade. (There is no alternative) With bonds approaching the financial suicide level you have to be in equities or cash. David Tepper proclaimed the end of the bond bubble on Friday.

I also believe that once we get to the end of October and the Fed announces the end of QE there will be a reset in the market. Until then the trend is still up. Fortunately for fund managers they can ride the trend until their fiscal year end and then take profits. The FOMC meeting announcement is on October 29th so the two dates coincide almost perfectly.

With bearish sentiment at 27 year lows and the very long term charts suggesting a topping pattern we should be cautious as we approach the end of October.

Monthly Russell 2000

SPY Monthly Chart

Random Thoughts

German two-year Bund yields went negative again with investors having to pay the government to hold their money.

Spain issued its first 50-year bond, selling one billion euros with a 4% coupon. That is cheaper interest than they paid on their 10-year debt in 2012. Three years ago Spain's 10-year debt was at 7%.

French 10-year bonds are yielding 1.3%.

The ECB cut rates last week and pledged to buy and buy and buy various forms of debt. In response the interest rates for European debt in all forms has fallen to record lows. The market is talking about the ECB buying up to 500 billion euros of asset backed securities but that much debt does not exist. One major ABS manager said it takes him three months to by one billion euros of ABS debt. The ECB is also predicting the TLTRO program could reach one-trillion euros. The ECB brought out its bazooka as Mario Draghi promised but now they have nothing to shoot at. What good does it do to announce a 500 billion QE light program when they will be doing good to buy a billion a quarter? This is more talk by Draghi and in the end very little action.

Historically over the last 100 years the equity markets have averaged a 10% correction once a year and has fallen at least 20% once every four years. Trying to time those bouts of volatility will drive grown men to tears. It has been three years since we had a 10% correction and there have only been two since the recession bottom in March 2009. The bull market just crossed the 2000 day mark. Only three bull markets since 1928 have lasted longer. We are definitely overdue for some serious volatility.

Chart from AWealthofCommonSense.com

The Investors Intelligence report for last week showed that bearish advisors fell to only 13.3% and the lowest level since 1987. Since extremes in this report are normally seen as contrarian indicators this should be an extreme warning of a market top. However, as we know from watching the Volatility Index the swings can remain at extremes for an extended period. There is no magic number that if touched will produce an immediate market reversal. This is simply a warning that everyone has moved to the same side of the boat and conditions can change dramatically if somebody moves to quickly.

Chart from Ryan Detrick

Argentina is becoming Venezuela. Argentina defaulted on its debt again and has decided to follow Venezuela down the rabbit hole of socialization. They raised the minimum wage by +31% to $523 a month despite soaring inflation approaching 60%. They are currently working on legislation to let the government regulate private-sector prices, profit margins and production levels. The bill will allow the government to "establish at any stage of the economic process, profit margins, reference prices, minimum and maximum prices, or all or any of these measures." Already sugar, toilet paper and other commodity items are scarce. Fixing prices and profits will mean their complete disappearance.

Global inflation hit the lowest level since November 2009. If you take the CPI year over year change for 33 reputable reporting countries and average them the number for August was 1.72%. Six countries in Europe have zero inflation or are currently in a depression. They are Portugal, Sweden and Switzerland at zero with Greece, Italy and Spain in a depression.

In 1994 CompuServe advertised their online service where you could connect via a dial up modem and get information on news, sports, weather, shopping and reference materials. In addition to these online options you could get up to 60 emails a month for only $8.95 a month. I get 60 emails an hour today. You might be surprised to know that CompuServe still exists. The 1990s Live

There are conflicting news reports that 11 Libyan airliners were stolen from the Tripoli airport when the rebel group Libyan Dawn seized the airport. There is a considerable amount of confusion regarding these planes and quite a few reports claim that "maybe" the planes were just moved to other locations for safety reasons. However, in recent days pictures of some of the planes and their new rebel owners have shown up on the Internet. There are considerable fears that some of these planes could be used to carry out 9/11 style attacks on the 9/11 anniversary.

However, none of them will be coming to America. The distance is too great, fuel too expensive and without a valid flight plan into U.S. airspace they would be shot down before they reached land. However, there is considerable talk about the planes being used to attack places like Saudi Arabia or Israel or any number of western targets in the Middle East. Despite all the governments looking for these planes only two have been positively located. Those were moved to a "safer" airport.

The U.S. has said it cannot confirm the disappearance of the planes and it is looking at satellite photos in an attempt to locate them. A second State Dept official sought to downplay the reports saying only "We can't confirm that." I am sure the State Dept does not want the public worrying about the unannounced arrival of a terrorist piloted jet.


While Libyan planes may not be our biggest problem next week there is considerable angst about the potential for a large terrorist attack on U.S. soil by Al-Qaeda, ISIS or some other faction trying to make a name for itself. There has been a confirmed increase in chatter from northern Mexico about an attack on U.S. soil from terrorists the cartels helped across the border. This is been common knowledge for the last two weeks. Again, it has been kept low key because of the lack of specificity and the inability to locate any of the potential perpetrators. Let's hope this was just a psychological warfare exercise.

The ceasefire in the Ukraine ended late Saturday when government forces came under artillery fire near the strategic port of Mariupol in eastern Ukraine. Mariupol had been a major rebel target and a key port for Ukrainian steel exports. Observers claim the artillery came from Russian positions.

The EU announced new sanctions against Russia on Friday. Russia's foreign ministry responded angrily on Saturday pledging unspecified "reactions" if they were implemented.

ISIS posted a video of fighters in captured Russian fighter jets in Syria with signs saying we are coming to Russia in these planes to get Putin. A Russian official fired back "They can sit in 2,000 planes but they will never get close to Russia."

What an interesting time we are living in.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

The four most expensive words in the English language, "This time it's different."

Sir John Templeton

 


Index Wrap

Marking Time

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

While the S&P 500 continues above 2000, the Dow struggles around 17150, the Nasdaq Composite at 4600 and the big cap Nas 100 at 4100. The Market looks to be consolidating as it throws of a minor overbought condition; I take the charts as mildly, not wildly, bullish.

BULLS SHOULD LIKE THAT:

Many stocks have paused in their up trends; even strong bull markets have to pause from time to time or risk getting over-heated.

Bullish sentiment has moderated some; everyone bullish can be a warning sign for a correction.

Employment data suggests the Fed will continue to keep rates low as we are not seeing consistent job growth.

BEARS NOTE THAT:

Europe slides into recession and the U.S. may be slowing down again.

The Dow 30 (INDU) could be forming a double top.

The super bull market in tech/internet could be cooling down; a possible harbinger of this is Apple (AAPL) hitting resistance at its September highs.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index is bullish as it continues to trade above 2000 for the most part. SPX has had a day here or there Closing back below 2000, but the Index keeps rebounding to above this key milestone level.

Near support is at 1990, extending to 1970. Major support begins at the SPX up trendline intersecting around 1940 currently.

Near resistance is seen at 2010, with intermediate resistance suggested in the 2045 area. Major resistance begins at 2100.

The S&P has gotten near to overbought RSI levels but isn't extreme on the charts. Nor is bullish sentiment at extreme hyperventilating levels. Currently, sentiment is more or neutral in terms of total daily (CBOE) equities call to put volume figures.

S&P 100 (OEX) INDEX; DAILY CHART

The big cap S&P 100 (OEX) is marking time also but isn't ABOVE a key big milestone level like big brother SPX. OEX would be in a similar chart pattern if it was trading above 900.

The few current OEX strong gainers such as AAPL, HD, MRK, NKE and UNH don't look to be enough to boost the Index above 900 currently. A good number of the member stocks in the 100 Index have pulled back from their recent highs.

The Index has been finding support in the 885-882 area. Next support comes in around 875. The 21-day moving average implies potential support in the 877 area currently.

Resistance/selling pressure has been coming in around 890-892. Next projected resistance is suggested at 900-902.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) is in what looks to be a bullish sideways consolidation on one hand, but there's a chart pattern risk also of a double top forming on the other hand.

Only 7 of the Dow 30 stocks: DIS, HD, INTC, MRK, MSFT, NKE AND UNH remain at new highs. GS is at similar risk to the overall Average of forming a double top.

All 22 of the other INDU stocks are trading down from their prior highs. More of these stocks can of course rally if a broad based Market advance gets going but currently I can only point to the aforementioned few that are in current strong bull trends.

Near INDU support is seen at 17 thousand, with next technical/chart support highlighted in the 16900 area.

A near-term line of resistance, formed by repeated intraday highs coming in in the 17150 area. Intermediate resistance is projected in 17400 area.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite Index (COMP) is bullish, with near resistance seen at 4600; next resistance then is anticipated at the upper channel line, currently intersecting around 4700.

Near support is at 4550, extending to 4485, at the 'line' of prior highs; i.e., what was resistance, once penetrated, 'becoming' subsequent support. Fairly major support is likely to be found in the 4400 area at the current intersection of COMP's long-term up trendline.

COMP has pulled back from an overbought condition based on the 13-day Relative Strength Index; the weekly chart (not shown) RSI, on a 2-month basis, is high at around 70 but isn't at what I consider to be a major extreme. Usually, PROLONGED extremes above 76, even 80, preface substantial pullbacks.

Bullish sentiment readings aren't currently extreme either. As I noted in an initial comment I'm mildly, not wildly bullish. I get 'wildly' bullish on oversold pullbacks to major chart support when bearishness is high! Stay tuned on that!!

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart is bullish but the Index is also 'bumping' up against implied resistance at the upper end of NDX's broad uptrend price channel as highlighted below; technical resistance implied by this trendline comes in around 4120 currently. Next resistance, assuming a breakout above the upper channel line, is projected in the 4200 area.

Near support is at 4050, with more significant technical support at 4000. Major support is assumed at prior lows in the 3850 area.

I have no strong leaning to buy pullbacks, but a continued sideways to lower trend that took NDX back to a successful re-test of the 4000 level, especially with continued low volatility would suggest buying calls for a trade, but without staying in if 4000 gave way easily and/or repeatedly.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) is bullish in its pattern and the stock so far has held near support at 99. Next support comes in at the 21-day average at 98, then in the 96.5 area.

Near resistance is at 100.2, then is projected near QQQ's upper trend channel boundary, currently at 101.6

Daily volume has been light and fairly typical with summer kind of rolling to an end. The employment report just released now begs for more bullish economic numbers before NDX might see another up leg develop.

A pullback to 98, even to close to 96 wouldn't be surprising ahead. On a risk to reward basis, buying such a dip may be favorable: risking to 95 (or on a Close below 94 for the more risk tolerant) with an upside objective to the 102 area.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart is mixed with a projected down trendline in play suggesting technical resistance in the 1180 area. Should there be a sustained breakout above 1180 resistance, there's resistance next coming in at 1196-1200.

Near support is at 1160, extending to 1150.

I have no trading suggestions. IF by chance you bought RUT calls when the Index got to its 'typical' oversold (RSI 33) and then exited after the Index retraced 2/3rds or 66% of its last downswing, congratulations on getting out on its upswing stall near 1180. Don't even think about any further trading given the current mixed picture. Lay down until any such feeling passes!


GOOD TRADING SUCCESS!




New Option Plays

Aerospace & Airlines

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Lockheed Martin - LMT - close: 174.58 change: +1.54

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on September -- at $---.--
Listed on September 06, 2014
Time Frame: 10 to 14 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
A few years ago the word "sequestration" was a buzzword in politics and the defense industry. The defense cuts were supposed to be so bad that it would force the democrats and republicans to work together and prevent the Budget Control Act of 2011 from becoming law. Well we all know how that worked out. Politics won and the budget cuts were enacted. The U.S. is supposed to be cutting $500 billion in defense spending from 2012-2021.

Yet these drastic cuts have not slowed the defense stock's performances. The group had a banner year in 2013 with big stock market gains. They continue to show leadership in 2014. Shares of LMT are up +17.4% in 2014 versus a +8.6% gain for the S&P 500.

According to a company press release LMT describes itself as, "Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation’s net sales for 2013 were $45.4 billion."

The company has continued to capture a number of big government contracts including a $915 million deal to build a "space fence" for the U.S. Air Force.

It is worth noting that LMT is the U.S. government biggest defense contractor and just over 80% of LMT's revenues come from the U.S. government. The company is being proactive in trying to broaden their customer base and hope to achieve 20% of sales from outside the U.S. At the moment LMT already has sales in 70 different countries. The plan seems to be working with 25% of the company's backlog coming from international orders.

Many believe that LMT's F-35 joint strike fighter program will be a key revenue driver in the future. The F-35 Joint Strike Fighter (JSF) is already the world's most expensive weapons system with a price tag near $400 billion. Earlier this year the JSF program suffered a set back after its engines, built by a subcontractor, caught fire. LMT believes they have solved the engine problem and the JSF program is getting closer to completion with over 19,500 hours of flight time. LMT already has 11 countries planning to purchase the new F-35 JSF planes.

LMT's earnings have been strong in spite of the sequestration. Back in April they report their Q1 results that beat estimates. Wall Street expected a profit of $2.53 a share on revenues of $10.89 billion. LMT beat the bottom line estimate with $2.87 per share but missed the revenue estimate at $10.65 billion for the quarter. However, management gave an optimistic outlook and raised their 2014 guidance on both net profits and revenues. When LMT reported earnings again in July they deliver a profit of $2.76 a share on revenues of $11.31 billion. That beat Wall Street's estimate of $2.66 and revenues of $11.15 billion. Management raised their EPS guidance again. The company has beaten analysts estimates four quarters in a row.

The company is shareholder friendly with a strong stock buyback program and a dividend yield of 3.2%. The point & figure chart is bullish and forecasting at $200 price target.

Tonight we're suggesting a trigger to buy calls at $175.55.

Trigger @ $175.55

- Suggested Positions -

Buy the DEC $180 call (LMT141220C180) current ask $3.30

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

Annotated Chart:

Weekly Chart:


Spirit Airlines - SAVE - close; 73.20 change: +0.90

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 544 thousand
Entry on September -- at $---.--
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Airline stocks have been some of the best performers in 2014. The XAL airline index is up +26.2% this year versus the +8.6% gain in the S&P 500. A significant drop in crude oil prices has played a big part and should help boost margins for the entire industry.

One stock leading the charge is SAVE. According to a company press release, "Spirit Airlines is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. We operate more than 270 daily flights to over 55 destinations in the U.S., Latin America and the Caribbean." Last year SAVE's average fare was $133. That's 65% lower than the average domestic airline flight. That is just their basic ticket with no frills and they charge you for extras to boost their margins. The strategy seems to be working.

SAVE reported better than expected earnings back in April with revenues up +18.3% from a year ago, beating analysts expectations. They did it again in July when SAVE reported their Q2 numbers. The company beat estimates on both the top and bottom line with revenues soaring +22.6% from a year ago. Management reported that their adjusted pre-tax margins improved from 17.8% to 21.3%.

The stock is in rally mode with SAVE closing near all-time highs on Friday. The Point & Figure chart is already bullish and forecasting an $82.00 target. Tonight we are suggesting a trigger to buy calls at $73.75.

Trigger @ $73.75

- Suggested Positions -

Buy the OCT $75 call (SAVE141018C75) current ask $2.05

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Another New 2014 High

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market continues to show resilience and the S&P 500 closed at a new 2014 high.

GILD hit our stop loss. NKE hit our entry trigger. WDC has been removed.

We want to exit our SPY trade on Monday morning.

Several stop losses have been updated tonight.


Current Portfolio:


CALL Play Updates

Concur Technologies - CNQR - close: 108.76 change: +2.58

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +72.2%
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:
09/06/14: There was renewed chatter that CNQR could be a takeover target and the stock bounced on Friday. Shares erased most of Thursday's losses with a +2.4% rebound. Now CNQR is facing resistance near $110.00 again.

More conservative investors may want to take profits now. 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

chart:


Expedia Inc. - EXPE - close: 87.86 change: -0.08

Stop Loss: 86.45
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:
09/06/14: EXPE bounced near its simple 10-dma again on Friday. Shares managed a gain for the week thanks to Tuesday's big move higher. I am not suggesting new positions at this time.

We will adjust our stop loss to $86.45.

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

09/06/14 new stop @ 86.45
08/30/14 new stop @ 84.90
08/23/14 new stop @ 83.95
08/18/14 triggered @ 86.25
Option Format: symbol-year-month-day-call-strike

chart:


The Greenbrier Companies - GBX - close: 71.87 change: -0.93

Stop Loss: 69.40
Target(s): To Be Determined
Current Option Gain/Loss: Oct$75c: -45.6% & Dec$80c: -26.4%
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:
09/06/14: GBX was weaker than expected on Friday morning. The stock dipped toward $70.50 before rebounding. Investors might want to wait for some follow through on Friday's bounce before considering new bullish 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

chart:


Hess Corp. - HES - close: 100.99 change: +0.84

Stop Loss: 98.40
Target(s): To Be Determined
Current Option Gain/Loss: -16.9%
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:
09/06/14: HES briefly traded below its 50-dma on Friday morning and then rebounded to a +0.8% gain. Investors may want to wait for a breakout past short-term resistance near $102.00 before considering new bullish positions.

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

chart:


LyondellBasell Industries - LYB - close: 114.59 change: +0.75

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:
09/06/14: LYB bounced off its simple 10-dma and managed to outperform the major indices with a +0.65% gain on Friday. Shares are nearing what could be round-number resistance at $115.00.

I am not suggesting new positions at this time.

Earlier Comments: August 4, 2014:
One way to play the shale-gas boom in the U.S. is plastics. The bloom of natural gas production has been a huge blessing for LYB. According to the company's website, "We participate in the entire petrochemical value chain, from refining to specialized petrochemical product end uses. We are the largest producer of polypropylene and polypropylene compounds; a leading producer of propylene oxide, polyethylene, ethylene and propylene; a global leader in polyolefins technology; and a producer of refined products, including biofuels. Additionally, LyondellBasell is a leading provider of technology licenses and a supplier of catalysts for polyolefin production."

The recent spike in LYB's stock price was a reaction to better than expected earnings results. Wall Street was looking for LYB to deliver a profit of $1.93 a share on revenues of $11.5 billion. LYB surpassed expectations with a profit of $2.22 a share with revenues rising +9.1% to $12.12 billion.

The stock has been an earnings machine with rising earnings the last four years in a row. Analysts are now estimating LYB will see earnings rise 11% in 2014 and 16% in 2015. Jefferies recently raised their price target on LYB from $120 to $125 as they upgraded their EPS estimates on the company.

After a strong rally from $100 to $110 in mid July the stock was short-term overbought and due for a pullback. Traders jumped in to buy the dip near LYB's simple 10-dma last week. Now LYB is rebounding higher.

More aggressive traders may want to buy the bounce today. We are suggesting a trigger to buy calls at $110.50 since the July high is $110.38.

FYI: For more background on the LYB story Forbes.com has a great article that you might find interest. You can read it here.

- Suggested Positions -

Long DEC $115 call (LYB141220C115) entry $2.50*

08/30/14 new stop @ 112.25
08/28/14 new stop @ 109.75
08/23/14 new stop at $108.75
08/15/14 triggered @ 110.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/14/14 adjust the stop loss to $107.40 (trade not open yet)
08/14/14 LYB almost hit our trigger but failed at $110.49
Option Format: symbol-year-month-day-call-strike

chart:


Nike, Inc. - NKE - close: 82.04 change: +2.12

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: +26.6%
Average Daily Volume = 2.8 million
Entry on September 05 at $80.50
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/06/14: Our brand new trade on NKE is off to a strong start. NKE actually opened lower near $79.50. Shares churned sideways for a couple of hours and then took off midday to breakout past resistance and close at all-time highs. Our suggested entry point was hit at $80.50.

If you missed the entry point consider waiting for a dip near $81.00.

Earlier Comments: September 4, 2014:
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.

- Suggested Positions -

Long 2015 Jan $85 call (NKE150117C85) entry $1.95*

09/05/14 triggered @ 80.50
Option Format: symbol-year-month-day-call-strike

chart:


O'Reilly Automotive - ORLY - close: 158.55 change: +1.12

Stop Loss: 155.90
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:
09/06/14: ORLY used the simple 10-dma as a spring board to bounce up to a new all-time high by the closing bell. We are upping our stop loss to $155.90.

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*

09/06/14 new stop @ 155.90
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

chart:


United Rentals, Inc. - URI - close: 118.51 change: +0.21

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:
09/06/14: URI has spent the last week churning sideways beneath round-number resistance at the $12.00 level. I am not suggesting new positions at current levels. Readers might want to inch their stop loss higher.

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

chart:




PUT Play Updates

Chart Industries - GTLS - close: 64.80 change: -0.55

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: + 2.0%
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:
09/06/14: The relative weakness continues. The S&P 500 ended the week at a new high while GTLS closed the week at a new 2014 (closing) low.

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

chart:


Las Vegas Sands - LVS - close: 62.82 change: -0.26

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +146.6%
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:
09/06/14: LVS managed another bounce near Tuesday's low close to $62.00. Yet shares still underperformed on Friday with a -0.4% decline. Tonight we're adjusting the stop loss down to $64.65.

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*

09/06/14 new stop @ 64.65
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

chart:


Motorola Solutions, Inc. - MSI - close: 58.89 change: -0.09

Stop Loss: 60.05
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:
09/06/14: MSI dipped to a new 2014 low on Friday. The stock managed to pare its losses by the closing bell but it still closed negative. MSI is arguably short-term oversold here and due for a bounce. Downward momentum has been slowing. That makes us cautious. We're adjusting the stop loss down to $60.05.

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

09/06/14 new stop @ 60.05
08/28/14 triggered @ 59.25
Option Format: symbol-year-month-day-call-strike

chart:


Pentair Plc - PNR - close: 67.32 change: +0.31

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +16.6%
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:
09/06/14: After a multi-day decline shares of PNR managed a bit of an oversold bounce on Friday with a +0.4% gain. I would not be surprised to see a bounce back toward its simple 10-dma near $68.25. We are going to take a more defensive posture and lower the stop loss to $68.65.

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*

09/06/14 new stop @ 68.65
08/26/14 triggered @ 68.90
Option Format: symbol-year-month-day-call-strike

chart:


SPDR S&P 500 ETF - SPY - close: 201.11 change: +0.90

Stop Loss: 202.25
Target(s): To Be Determined
Current Option Gain/Loss: -48.3%
Average Daily Volume = 99 million
Entry on August 25 at $200.14
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/06/14: The U.S. market continues to show resilience. Now peace might be breaking out in Ukraine. Equities look like they want to move higher. Tonight we are giving up on our bearish SPY play and suggesting an immediate exit on Monday morning. The current bid/ask spread is $0.95/0.97.

- Suggested Positions -

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

09/06/14 prepare to exit on Monday morning
08/25/14 triggered on gap higher at $200.14, suggested entry was $199.95
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

Gilead Sciences, Inc. - GILD - close: 105.36 change: -1.50

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: +263.5%
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:
09/06/14: Friday proved to be an extremely volatile day for shares of GILG. The stock plunged at the open and dropped from Thursday's close of $106.86 to an intraday Friday low of $97.54 (-$9.32 or -8.7%) in the first ten minutes of trading. Our stop loss was hit at $104.85.

The stock's relative weakness caught a lot of attention on Friday. Everyone wanted to know why shares were selling off. The best answer seemed to be a negative reaction to news that GILD is in talks with other drugmakers to develop a generic version of their megahit hepatitis C treatment Solvaldi. GILD is said to be considering a license to sell their Solvaldi treatment in poorer countries for significantly less than the $84,000, 12-week treatment sold in the United States (that's $1,000 a pill). This isn't really new news so the reaction is a bit of a mystery. GILD did manage a big bounce back intraday but our stop has been hit.

- Suggested Positions -

Oct $95 call (GILD141018C95) entry $3.70* exit $13.45 (+263.5%)

09/05/14 stopped out
08/30/14 new stop @ 104.85
08/25/14 new stop @ 102.85
08/23/14 new stop at $99.95
08/16/14 new stop @ 93.45
Investors will want to seriously consider taking profits now with GILD testing potential resistance at the $100.00 mark.
08/14/14 new stop @ 89.95
Investors may want to consider taking money off the table as GILD nears the $99-100 zone.
07/29/14 triggered @ 92.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

chart:


Western Digital Corp. - WDC - close: 100.92 change: -0.03

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: see below

Comments:
09/06/14: The S&P 500 ended the week at a new record high. Unfortunately, WDC is not participating. Shares underperformed the last few days. Now the stock is testing what could be round-number support at $100.

The bullish story on WDC has not changed but the stock price is not cooperating. We are going to remove WDC as a candidate tonight but I would keep it on your watch list. We'll play it again.

Trade did not open.

09/06/14 removed from the newsletter, suggested entry point was $103.75

chart: