Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/10/2014

Table of Contents

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

Market Wrap

Bears Can't Get No Satisfaction

by Keene Little

Click here to email Keene Little
Sung to the tune of the Rolling Stone's "(I Can't Get No) Satisfaction," the bears (the few that remain) are feeling the same way. The choppy pullback from last week is looking like the bears might have to wait at least a little longer.

Wednesday's Market Stats

Last week's high still has the potential to be an important high for the market but with each passing day it's looking like we have just a corrective pullback that will lead to a push higher. The few remaining bears are likely singing the Rolling Stones' song "(I Can't Get No) Satisfaction" as they continue to be amazed by the resiliency of this market.

It was relatively quiet during the overnight session and there were no market-moving economic reports this morning. That left the market to fend for itself and initially that led to a small decline out of the gate but then after the first hour of trading the dipsters couldn't stand it any longer and started lifting the market back up. By the end of the day the DOW was challenging Tuesday afternoon's high near 17086 (after dropping to a low of 16974). The bears have no more hair to pull out and they are now running around naked.

We have plenty of signs, including various sentiment measures, which tell us there are very few bears left and there's a lot of complacency by the bulls. The dipsters do what they because it has worked for so long but when most expect something it's usually a good time to be a bit of a contrarian. It doesn't pay to be a contrarian too early, which I tend to be, but it pays to be alert to the possibility that there are too many chasing the market in one direction since a reversal could happen fast and violently as the masses disembark en masse.

Last week's Investor's Intelligence sentiment survey showed 56.1% bulls and 13.3% bears, for a 42.8% spread. Anything over a 40 spread is dangerous territory for bulls. This week's numbers show a small increase for both sides -- 57.6% bulls and 14.1% bears, for a 43.5% spread. Bulls are playing with fire here even if the measure is not a good market timing tool.

An interesting sentiment measure is the CNBC viewership, as shown on the chart below. A recent article at zerohedge.com showed this chart and as you can see, viewership is down to a low not seen since 1992. During the 2002-2007 bull market it also dropped down near the current level, which was another time when the market seemed to only know up as the direction (following the pullback in the first half of 2004). CNBC should be rooting for a market collapse so they can get viewership and advertisers back (like the spike following the 2008 market collapse). Traders are simply not interested in either CNBC, the market or both.

CNBC viewership, 1991-August 2014, chart courtesy ZeroHedge.com

At the end of August I had reviewed the Gann Square of Nine chart to review the two important levels for SPX on the chart (1998 and 2007). Since then we now have an interesting correlation of time and price pointing to a potentially important high in early September. Once SPX got through 1998 the next important level is 2007, which is opposite the March 2009 low near 667. It would be more than a little interesting if the 2009-2014 bull market was capped at opposite ends of the vector through the low and high of the bull market on the Gann Sof9 chart.

Gann Square of Nine chart (vertical middle section)

SPX rallied above 2007 twice, on September 3rd and 4th, but was unable to hold above 2007. It then closed at 2007 on September 5th and so far that's its all-time closing high. From a Gann perspective, with the chart above, it would be easy to call a major high now in place. The weekly chart below shows it occurred at the trend line along the highs from April 2010 - May 2011 and did so with a significant bearish divergence against the July highs. From a weekly perspective the wave count looks complete with the confirming bearish divergence for the 5th wave.

S&P 500, SPX, Weekly chart

For those who love to play with numbers, the intraday all-time high on September 4th was 2011 and 2011 days from the March 6, 2009 low gives us September 5th, which is when we had the all-time closing high at the important Gann 2007 level. Gann would have loved this setup for a market reversal.

I've had 2015 on my charts as a possible upside target (the 127% extension of the July-August decline) but it would also be interesting if we achieved a high of 2014 in 2014. As for future potentially important days, some cycle studies, which pointed to September 4th as an important turn date, show September 18th as the next important turn date. Alibaba is expected to price its IPO on that date and then we have quadruple witching on Friday, September 19th. The Autumnal equinox is on Sunday, September 21st. If the market does drop lower in the coming week I think it will be important to watch for a possible low by the end of next week (opex week).

In the above paragraph I mentioned the 127% extension and if I use this extension off the July 3 - August 7 a-b-c pullback, as shown on the daily chart below (instead of off the July 24 - August 7 decline), that extension points to 2007.57. The September 5th high was 2007.71. I'm sure this is all purely coincidental with the Gann 2007 level (wink), but the linkage between Mr. Fibonacci and Mr. Gann is potentially very strong here.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2015
- bearish below 1972

Looking at the daily chart above it's not hard to view last week's high as an important high, even if not THE high. The oscillators have rolled over from overbought (and MACD has crossed down) and an uptrend line for the rally from August 7th has clearly been broken. We don't yet have confirmation of a trend change so a rally back above 2007 would be a bullish move. It's not confirmed bearish until SPX is driven below 1972 so in the meantime this could go either way in the coming week.

The problem for the bears right now, other than the fact that the market refuses to sell off, is that the move down from last week's high has been choppy (overlapping highs and lows within the move down) and that makes it look like a correction to the rally instead of something more bearish. On the 60-min chart below I've drawn a parallel down-channel for the pullback and it could easily fit as a bull flag pattern as an a-b-c correction. I'm now watching carefully for evidence that the pullback has completed and a new rally leg has started but so far there's no strong evidence either way.

The alternate interpretation of the pullback pattern is very bearish since from an EW (Elliott Wave) perspective it means we're in a series of 1st and 2nd waves down and it's getting ready to unwind the wave count in a series of 3rd waves to the downside, which would likely be a strong move (at least down to the 1950 area in a couple of days and then stair-step lower in a week's time). The series of lower highs since last week needs to be broken in order for the bulls to negate the bearish potential, starting with last Friday's closing high near 2007. We'd have a bullish heads up above 2000, which was yesterday's midday high (which was a bearish back-test and kiss goodbye against the broken uptrend line from August 7 - September 5).

S&P 500, SPX, 60-min chart

In addition to the Gann Sof9 chart we have the moon phases coinciding with a potential market high as well. As can be seen on my MPTS chart below, the choppy price pattern between August 26th and the marginal new high on September 4th (and closing new high on the 5th), which might have been part of a rounding top, occurred between the new moon on August 25th and the full moon on September 9th (yesterday). We don't know yet if THE top is in place but that's the possibility here.

SPX MPTS Daily chart

The DOW looks very similar to SPX and the 2-week consolidation/pullback can easily be interpreted as a bullish continuation pattern. At this morning's low it tested both its 20-dma, near 16992, its uptrend line from November 2012 - February 2014, near the same level, and price-level S/R at 16970-17000 (the morning low was 16974). As long as the bulls can defend 16970 on a closing basis they control the tape. If support breaks, the next support level will be the 50-dma, currently near 16915.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,150
- bearish below 16,970

For the past 2-1/2 weeks NDX has been doing battle with two trend lines -- the one along the highs from April 2010 - April 2012, which is where it closed today, and the broken uptrend line from June 2013 - February 2014, currently near 4115. As with the other indexes, the daily oscillators have rolled over from overbought and bearish divergence but if price continues to trade sideways while MACD drops down the zero line we'd have a bullish setup. Today NDX almost tagged its 20-dma at 4052, with a low near 4054, so the bulls would like to see that support hold. A drop below 4050 would be a bearish heads up whereas a rally above 4120 would be bullish (not sure how high but it certainly would hammer a few more shorts).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4120
- bearish below 3985

It will important to see how the semiconductor index does from here. This is one of my favorite indexes to watch because it's a good indicator for economic health and since it's an important driver for the tech indexes. At the moment I see a possible high for the SOX but with no confirmation yet (similar to the broader market indexes). Back at the end of June I was thinking we'd soon see a high near the price projection at 656.57, which is where the c-wave of an A-B-C bounce off the November 2008 low would achieve 162% of the a-wave. There was a double top high near 652 in July but the 656 projection wasn't achieved. Monday's high at 656.03 can be considered close enough for government work and as can be seen on its weekly chart below, at the same time it has stalled at the mid-line of its up-channel from November 2012 and is showing significant bearish divergence if it rolls over from here. A drop below 620 would be the fat lady singing the blues for the SOX (and the broader market).

Semiconductor index, SOX, Weekly chart

Yesterday the RUT closed marginally below its 20-dma, near 1163 today, and this morning it had broken marginally below its 50-dma, at 1156, but closed back above both today. I don't show the short-term downtrend line from last week's high but it's currently near 1165, which is where it closed today. That's also the location of a broken uptrend line from the August 1-7 lows so there's the potential for a back test and kiss goodbye here. The bulls need to rally this above 1165 and make it stick otherwise a drop below this morning's low would look more bearish, especially if it drops below its 200-dma near 1151.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1183
- bearish below 1150

Last week I showed the weekly chart for TLT and suggested it could be ready for a stronger pullback over the next couple of months since this year's rally looks to have completed a 5-wave move up. There's been a larger pullback since the August 29th high but it remains inside its up-channel from the December 2013 low, the bottom of which is currently near 114 (today's low was 114.79). It's certainly possible TLT will simply continue higher but a break below 114 would be a good signal that TLT will pull back further to correct this year's rally before heading higher next year.

20+ Year Treasury ETF, TLT, Daily chart

Another bond chart, this one of the high yield (junk) variety, is providing another warning sign for the bulls. HYG normally tracks very close to the stock market since investors' appetite for risk for stocks and junk bonds closely correlate. But notice on the daily chart below how quickly it plunged following the June high, well ahead of the stock market high in September (so far). I see two warning signs here: first, the very strong plunge lower demonstrates the risk I discussed last week about ETFs in general -- with their large sums of money invested in them they haven't been battle tested in a bear market and selling can quickly get out of control; second, the strong selling following the bounce to a lower high on August 27th is further indication investors don't want to exposed to the risk in these bonds. It's only a matter of time before investors in stocks feel the same way.

High Yield Corporate bond fund, HYG, Daily chart

The U.S. Dollar has been on fire and it climbed a little higher above its downtrend line from 2010-2013, currently near 83.40. That line should now be support on a pullback but I don't see much higher before it will pull back further to correct the rally from May. A rally up to its downtrend line from 2009-2010, currently near 87, continues to look like an upside target over the next several months (maybe faster).

U.S. Dollar contract, DX, Weekly chart

In the race for the bottom in currency valuations, the ECB's actions (lowering their interest rate and threatening to add a trillion euros to their balance sheet) tanked the euro's value against other currencies and as can be seen on its monthly chart below, the rollover is from May's test of its downtrend line from 2008-2011. The pattern calls for a quick retracement of the small rising wedge pattern from the July 2012 low, at 1.207, and will likely head for the bottom of its down-channel, which will be near 1.08 by the end of the year.

Euro, Monthly chart

I'm beginning to doubt gold's ability to make one more bounce before tumbling lower. It might skip the bounce and just tumble instead. A drop below 1240 would likely lead to a drop to just below 1200 before I would again look for the possibility for a bounce back up before heading for the 1000 area. If the gold bulls arrive in time, there's still the potential for a rally up to about 1350 before it starts a more serious decline into early next year. Silver (not shown) is close to testing price-level support near 18.60 (June-July 2013 and then January, May and June of this year) so if that holds we could see both bounce back up. But silver below 18.60 and gold below 1240 would likely lead to a couple of weeks of selling before looking for support.

Gold continuous contract, GC, Weekly chart

Short-term bullish divergences suggest oil could be nearing a tradable bottom for the decline from June. But the pattern now looks bearish so a bounce over the next month or two could lead to a nice short trade in oil. We might see a bounce into November for a back-test of its broken uptrend line from June 2012, near 100 by then.

Oil continuous contract, CL, Weekly chart

It's quiet again for economic reports Thursday morning so the market will left to react to geopolitical events. Friday will be a little more important with retail sales and Michigan Sentiment.

Economic reports and Summary

Last week was a good setup for a market top and it remains possible the top is now in place. But the pullback from last week looks corrective enough to suggest new highs are coming. There are certainly enough dipsters who keep propping the market back up. We had many signs of distribution into last week's highs and the propping we're seeing (to a series of lower highs so far) could be more evidence of controlled selling by big funds to retail traders. In one sense, the series of lower highs since last week is a down trend and as shown on the charts, such as for SPX, price remains inside a down-channel from last week.

The bottom line is that I could argue for new highs as well as I could argue for new lows. The important thing though is that upside potential is dwarfed by downside risk. This is especially true from an EW perspective since the bearish wave count calls for a strong break to the downside as a series of 3rd waves are unleashed. A drop below this morning's lows could usher in much stronger selling. But we do not have enough evidence yet to call last week's highs THE highs yet and that warrants caution by those who want to try the short side. Keep a tight leash on short positions and a break of the series of lower highs should be enough to get you out of your position. Trade carefully or stay patient and watch for a little longer. We should have an answer in the next day or two.

Lastly, tomorrow is the Thursday prior to opex week and is known to be a head-fake day. Usually it's a selloff in the morning followed by the start of a jam back to the upside and into opex. This time there's the possibility the end of opex will mark a tradable bottom but again, we should have a clearer picture of that possibility by the end of the week.

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

Keene H. Little, CMT

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


New Option Plays

Raising Expectations

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

F5 Networks, Inc. - FFIV - close: 125.19 change: +2.16

Stop Loss: 121.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 855 thousand
Entry on September -- at $---.--
Listed on September 10, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of FFIV did not enjoy the same rally the rest of the market did back in 2013. This year they're playing catch up with their stock up +35.4% versus the +8% rally in the S&P 500. Who is FFIV? According to a company press release:

"F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

Just a few months ago FFIV strengthened their security services by buying Defense.net Inc. "a privately-held provider of cloud-based security services for protecting data centers and Internet applications from distributed denial-of-service (DDoS) attacks. The advanced technologies and operational experience shared between the two companies will expand F5's portfolio of security solutions for defense against Internet-based DDoS attacks on networks, data centers, and applications."

One reason the stock has been performing better this year is the earnings picture. Back in April when FFIV reported its Q2 numbers the company beat analysts expectations with revenues rising almost 20% from the year before. Management raised their EPS and revenue guidance.

They did it again in their last report. FFIV reported its Q3 results on July 23rd. Analysts were expecting a profit of $1.35 a share on revenues of $435 million. FFIV delivered a profit of $1.39 with revenues up +18.9% to $440.3 million. FFIV management raised their 2014 EPS and revenue estimates again.

John McAdam, F5 president and chief executive office, commented on their Q3 results. McAdam said,

"F5's solid gains in Q3 were driven by strong growth in product revenue, up 5 percent sequentially and 20 percent year-over-year... Growing demand for our expanding array of systems and application services was fueled by increasing awareness and uptake of our security offerings and the appeal of our Good, Better, Best pricing options. During the quarter, sales of Good, Better, Best bundles grew 49 percent from the prior quarter and contributed to a significant increase in sales of software products and of security solutions in particular. Sales were generally solid across all geographic regions and vertical market segments, with the exception of Japan."

These results sparked new upgrades from the analyst community. The Point & Figure chart is bullish and forecasting at $144 target.

The recent high is near $126.00. We are suggesting a trigger to buy calls at $126.25. We are listing the October calls. Investors may want to consider the 2015 January calls instead.

Trigger @ $126.25

- Suggested Positions -

Buy the OCT $130 call (FFIV141018C130) current ask $2.32

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

Daily Chart:



In Play Updates and Reviews

The NASDAQ Leads Stocks Higher

by James Brown

Click here to email James Brown

Editor's Note:

The NASDAQ Composite, with a heavy dose of help from the tech sector, led the market higher on Wednesday.

We had a few bullish plays get stopped out (GBX, HES, LYB, and ORLY).

IWM hit our bearish trigger.


Current Portfolio:


CALL Play Updates

Amgen Inc. - AMGN - close: 139.19 change: +1.80

Stop Loss: 135.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.0 million
Entry on September -- at $---.--
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
09/10/14: The market's widespread bounce today helped lift AMGN back toward resistance near $140.00. We are suggesting a trigger to buy calls at $140.25.

Earlier Comments: September 8, 2014:
Biotech stocks have been leading the market higher this year. The BTK biotech index is up +32.5% year to date. The IBB biotech ETF is up +19.1%. AMGN is up +20.8% versus the S&P 500's +8% gain in 2014.

The company describes itself as focusing "on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people's lives. A biotechnology pioneer since 1980, Amgen has grown to be the world's largest independent biotechnology company, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential."

They are one of the first major biotech firms to go public. Today the California-based company has grown to 20,000 employees with a presense in more than 75 countries. Annual revenues are set to hit $19.5 billion this year. The company invests near $4 billion in R&D every year. AMGN has is a combination of mature drugs and a new stable of treatments working through their pipeline.

The company recently received good news after the FDA granted priority review to AMGN's Ivabradine treatment for chronic heart failure. Wall Street is also eager for AMGN's new cholesterol drug, which could be its next multi-billion blockbuster. This new cholesterol drug, Evolocumab, is a PCSK9 inhibitor to lower LDL cholesterol for patients that can't use statin drugs. AMGN recently filed some key regulatory paperwork with the FDA as it races against rival Regeneron to be the first mover in this new field of cholesterol treatments.

Enthusiasm for AMGN's new pipeline should continue. In addition to Evolocumab and Ivabradine, AMGN should see progress on Kyprolis, Talimogene laherparepvec, Blinatumomab, Trebananib, Brodalumab, and AMG 416 in the next six months.

The company's last earnings report was better than expected. AMGN reported on July 29th. Wall Street was looking for earnings of $2.07 a share on revenues of $4.9 billion. The company reported $2.37 a share with revenues up +10.7% to $5.18 billion. Management also guided higher and raised estimates for 2014 earnings growth and revenue growth. Several analysts have raised their price targets and the point & figure chart is bullish and currently forecasting at $152 target.

Tonight we're suggesting a trigger to buy calls at $140.25.

Trigger @ $140.25

- Suggested Positions -

Buy the 2015 Jan $150 call (AMGN150117C150)

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


Concur Technologies - CNQR - close: 109.74 change: +0.28

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:
09/10/14: CNQR was little changed for Wednesday's session. The stock appears to be coiling for a bullish breakout past short-term resistance near $110.

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


Lockheed Martin - LMT - close: 174.59 change: -0.35

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: -10.1%
Average Daily Volume = 1.1 million
Entry on September 08 at $175.55
Listed on September 06, 2014
Time Frame: 10 to 14 weeks
New Positions: see below

Comments:
09/10/14: LMT dipped toward short-term technical support at its simple 20-dma today before paring its losses. Defense-related stocks could see a boost tomorrow following tonight's speech by President Obama as he discusses America's strategy to deal with ISIS terrorists in the Middle East.

Earlier Comments: September 6, 2014:
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 setback 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.

- Suggested Positions -

Long DEC $180 call (LMT141220C180) entry $3.45*

09/08/14 triggered @ 175.55
*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


Nike, Inc. - NKE - close: 82.47 change: +0.63

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: +39.4%
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:
09/10/14: NKE looked strong today. Traders quickly bought the dip this morning and shares outperformed the major indices with a +0.76% gain.

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


Spirit Airlines - SAVE - close: 71.33 change: -0.55

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -48.3%
Average Daily Volume = 544 thousand
Entry on September 08 at $73.75
Listed on September 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/10/14: The drop in crude oil today should have been bullish for airlines. It was for the most part. The XAL airline index displayed relative strength with a +1.25% gain today. Unfortunately shares of SAVE were downgraded before the opening bell and shares underperformed.

Earlier Comments: September 6, 2014:
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.

- Suggested Positions -

Long OCT $75 call (SAVE141018C75) entry $2.13*

09/08/14 triggered @ 73.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Chart Industries - GTLS - close: 64.50 change: -0.01

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: + 6.0%
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:
09/10/14: GTLS briefly traded at a 52-week low before bouncing this morning. More conservative traders might want to adjust their stop loss lower. I am not suggesting new positions at this time.

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


Herbalife Ltd. - HLF - close: 45.76 change: -0.73

Stop Loss: 50.55
Target(s): To Be Determined
Current Option Gain/Loss: +18.1%
Average Daily Volume = 1.5 million
Entry on September 09 at $47.90
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/10/14: HLF continued to underperform the market today with a -1.5% decline.

Earlier Comments: September 8, 2014:
HLF calls itself a nutrition company. Most see it as a multi-level marketing firm. Its detractors would call HLF a pyramid scheme.

According to the company's website, "Herbalife is a global nutrition company that has been changing people’s lives with great products since 1980. Our nutrition, weight-management, energy and fitness and personal care products are available exclusively to and through dedicated Independent Herbalife Members in more than 90 countries. We are committed to addressing the global obesity epidemic by offering high-quality products, one-on-one coaching with an Herbalife Member and a community that inspires customers to live a healthy, active life. The company has over 7,400 employees worldwide, and its shares are traded on the New York Stock Exchange (NYSE: HLF) with net sales of $4.8 billion in 2013."

HLF's biggest opponent is influential hedge fund manager Bill Ackman. Ackman's Pershing Square Capital Management has famously bet $1 billion that HLF is an illegal pyramid scheme and once the facts come to light the government will shut it down. Unfortunately for Bill this is a fight he has been waging since late 2012. It has definitely generated a roller coaster ride in HLF's stock price.

Back in July Ackman promised to deliver a death blow to HLF in an over hyped presentation. Unfortunately, Wall Street failed to see the smoking gun and shares of HLF surged about 25% in one day. Yet there hasn't been any follow through. In fact shares of HLF have reversed and are trading near their 2014 lows.

The latest earnings report did not help. HLF reported earnings in late July and missed both the top and bottom line estimates. Management lowered their 2014 guidance. The company seems to be having trouble retaining their independent salesmen. At the same time there is a growing scrutiny of MLMs overseas, especially in big markets like China and India.

The stock is hovering above support near $48.00. A breakdown would look very bearish for HLF. The Point & Figure chart is already bearish and forecasting a $28.00 target. A drop under $48.00 would generate a new triple-bottom breakdown sell signal on the P&F chart.

I do want to caution investors that this should be considered a more aggressive, higher-risk trade due to the high amount of short interest. The most recent data listed short interest at 44% of the 60.0 million share float. I suggest limiting your position size to reduce risk.

(small positions) Suggested Positions -

Long Oct $45 PUT (HLF141018P45) entry $2.37

09/09/14 triggered @ $47.90
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 115.86 change: +0.68

Stop Loss: 118.15
Target(s): To Be Determined
Current Option Gain/Loss: -18.5%
Average Daily Volume = 29.0 million
Entry on September 10 at $114.85
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/10/14: Our brand new put play on the IWM was triggered at $114.85 this morning. This ETF briefly traded below its 50-dma and then bounced as the broader market rebounded higher.

Investors may want to wait for a new relative low under $114.70 or a failed rally near $118.00 before initiating new bearish positions.

Earlier Comments: September 9, 2014:
The S&P 500 made it 14 days in a row without a move of more than 0.5% on a closing basis. Jonathan Krinsky at MKM Partners noted this occurrence yesterday. Krinsky said the last time we saw a streak this long was 1995. To find a streak longer than 14 days you have to go back to 1969, which saw a run of 20 days in a row. Today would have been the 15th day but stocks started to move and the direction was down. Small cap stocks were leading the way with the Russell 2000 falling -1.1% versus the -0.6% drop in the S&P 500.

Market watchers were blaming the rising dollar and new fears that the Federal Reserve might raise rates sooner than expected. There is speculation that the Fed might drop its "considerable time" guidance for low rates in its policy statement at the Fed meeting scheduled for next week.

Whatever the reason small caps look vulnerable and underperformed on above average volume today. We want to hedge our bullish bets with a put position on the IWM just in case the market does start to correct lower. Investors might be growing nervous about the 9/11 anniversary on Thursday. You could call this put a little 9/11 market insurance.

Tonight we are suggesting a trigger to buy puts at $114.85.

- Suggested Positions -

Long OCT $115 PUT (IWM141018P115) entry $2.70

09/10/14 triggered @ 114.85
Option Format: symbol-year-month-day-call-strike


Las Vegas Sands - LVS - close: 62.92 change: +0.07

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +130.0%
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:
09/10/14: LVS continues to hover above what appears to be new support around the $62.00 area.

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


Pentair Plc - PNR - close: 67.19 change: -0.13

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:
09/10/14: Shares of PNR are also churning sideways. I am not suggesting new positions at this time.

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



CLOSED BULLISH PLAYS

The Greenbrier Companies - GBX - close: 69.97 change: -0.21

Stop Loss: 69.40
Target(s): To Be Determined
Current Option Gain/Loss: Oct$75c: -70.0% & Dec$80c: -41.4%
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:
09/10/14: GBX pierced round-number support at $70.00 and hit our stop loss at $69.40 this morning. The story has not changed on GBX. I would keep this stock on your watch list. Look for additional support at its rising 50-dma.

- Suggested Positions -

OCT $75 call (GBX141018C75) entry $2.85* exit $0.85 (-70.0%)

- or -

DEC $80 call (GBX141220C80) entry $2.99 exit $1.75** (-41.4%)

09/10/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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: 99.14 change: -0.35

Stop Loss: 98.40
Target(s): To Be Determined
Current Option Gain/Loss: -46.1%
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:
09/10/14: Crude oil fell to new multi-month lows and this pressured the energy stocks lower. HES hit our stop at $98.40.

- Suggested Positions -

NOV $105 call (HES141122C105) entry $1.95* exit $1.05 (-46.1%)

09/10/14 stopped out
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: 113.45 change: +0.42

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: +18.0%
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:
09/10/14: LYB managed a +0.3% gain today but shares first dipped toward $112.00 before rebounding. Our stop was hit at $112.25.

The long-term trend is still higher but traders may want to wait for a bounce from support near its 50-dma.

- Suggested Positions -

DEC $115 call (LYB141220C115) entry $2.50* exit $2.95 (+18.0%)

09/10/14 stopped out
08/30/14 new stop @ 112.25
08/28/14 new stop @ 109.75
08/23/14 new stop at $108.75
08/15/14 triggered @ 110.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/14/14 adjust the stop loss to $107.40 (trade not open yet)
08/14/14 LYB almost hit our trigger but failed at $110.49
Option Format: symbol-year-month-day-call-strike

chart:


O'Reilly Automotive - ORLY - close: 156.18 change: -0.27

Stop Loss: 155.90
Target(s): To Be Determined
Current Option Gain/Loss: -22.7%
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:
09/10/14: The fundamental story for ORLY has not changed and remains bullish. We did have a relatively tight stop loss to limit our risk. ORLY hit that stop at $155.90 today. I would keep ORLY on your watch list for another entry point. A bounce from the $150 level would be near the long-term trend of higher lows (support).

- Suggested Positions -

Oct $160 call (ORLY141018C160) entry $2.20* exit $1.70** (-22.7%)

09/10/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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: