Option Investor
Newsletter

Daily Newsletter, Saturday, 9/13/2014

Table of Contents

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

Market Wrap

Considering "Considerable"

by Jim Brown

Click here to email Jim Brown

What a difference a week makes when the outlook for Fed action changes dramatically.

Market Statistics

It was a pretty slow Friday with very little news and lackluster volume. It was all about the Fed with the quarterly FOMC meeting next week. The worry is that the Fed will consider dropping the "considerable period" language and that suggests faster rate hikes. This weighed on the market all week and that makes next Wednesday's announcement and Yellen press conference the focal point for the week.

The economic calendar was light as well with Consumer Sentiment the biggest news. Sentiment for September rose from 82.5 to 84.6 and the highest level since July 2013. The gains came almost entirely from increased expectations for the future. The present conditions component declined from 99.8 to 98.5. The expectations component spiked from 71.3 to 75.6 and the highest level since May 2013.

This report suggests the weak payroll numbers were actually in error and will be revised higher. If jobs were worsening the expectations component in this report would not be shooting higher. We also saw a decent retail sales for August and that also suggests consumers are feeling better about the future.


Retail sales for August came in at +0.6% and the strongest month since April. This compared to only a +0.3% rise in July. Sales were a full +5.0% above year ago levels and continue to suggest the consumer is feeling better about the future. Motor vehicles were the biggest contributor at +1.5% with building materials coming in second at +1.4%. Holding sales back were a -0.8% decline at gasoline stations as a result of the lower gasoline prices. This is a big plus for me since it is the equivalent of a tax cut for consumers. Electronics and home furnishings both rose +0.7% and sporting goods +0.8%. General merchandisers like Walmart declined -0.1%. This was a strong report.

Business inventories rose +0.4% for July and in line with expectations. This is a lagging report and was ignored.

Import prices fell -0.9% in August compared to a -0.3% decline in July. Declines in fuel prices were the major drag on the totals. Excluding petroleum prices the decline was only -0.1%. Petroleum prices fell -4.4% and the biggest drop in nearly two years. Export prices fell -0.5% as a result of falling grain prices.

Next week has a lot of reports but they will all be overshadowed by the FOMC announcement and Yellen's press conference. Some believe Yellen will continue to use the "considerable period" language to tell investors there will be no rate hikes until six months after the end of QE. The end to QE is expected at the next FOMC meeting at the end of October. If she sticks with the language she will be quizzed strongly about when it might go away in the press conference after the announcement. The analyst community is about evenly split on whether the Fed will remove that phrase and that has weighed heavily on the market last week. Conversely if that phrase is in the statement we should expect the market to rebound. That assumes they don't change something else unexpectedly.

The housing reports next week will cover the last month of the selling season. From this point forward sales and construction will slow as we move into the winter months.

The Philly Fed Manufacturing Survey is the first look at the September activity. The NY Empire survey is on Monday but the Philly Survey is considered a proxy for the nation while the NY survey is considered state specific. What happens in NY stays in NY.

The PPI and CPI reports are expected to show no inflation for August. The CPI is expected to be flat and could even decline slightly as a result of the drop in energy prices.

On a side note the sharp drop in commodity prices all across the board is going to pressure inflation in the coming months. We have seen sharp drops in grain prices, meat, iron and copper, etc. This will push prices at the producer level lower and it will eventually work its way into consumer prices as well.



The Scottish vote for independence on Thursday is a wildcard. The various surveys show the vote is split about 50:50 but the undecided component is very high. Nearly 97% of Scottish citizens have registered to vote in this landmark decision. Scotland has been part of the U.K. for more than 300 years. If they do vote for independence it is going to cause serious upheaval in Europe. There are numerous companies that have already said they will move. Questions that remain unanswered are what currency they will use? What happens to the government owned buildings? What about government pensions for current government workers since the U.K. government will no longer be their employer? There are hundreds of other questions and there will be an 18-month transfer period where the two governments would work out the details if the vote is for independence.

For instance the Royal Bank of Scotland was bailed out by the U.K. for 45 billion pounds and the government still owns that stock, which accounts for 80% of the outstanding shares. RBS and Lloyds Banking Group would immediately move their headquarters to London in order to remain a U.K. governed entity. Sanford Bernstein said this could cost each of them 1 billion pounds.


Money is already flowing out of Scotland and the capital flight could lead to a drop of 5% in the GDP. The U.K. pound has been hammered for the last couple weeks because currency traders don't know what to expect after the vote.

Lastly, the Scottish vote has generated a flurry of independence movements all around Europe. Regardless of the outcome in Scotland the news has stimulated interest in a lot of other provinces that would like to be independent countries. For instance in Spain the region of Catalonia has wanted to be independent for a long time. The Scottish vote has energized the independence movement. Catalonia lost its independence on September 11th, 1714 after a yearlong Spanish military siege. Catalonia has 7.5 million residents with their own language and culture.

Spain's prime minister has said on many occasions that a vote for independence "cannot and will not take place." Catalonia represents about one-fifth of Spain's $1.4 trillion economy. It would be a serious blow for Catalonia to split off from Spain. The Catalonian president is seeking to have an independence vote on November 9th. They are using the Scottish vote as a precedent for a Catalonia vote. They can vote all they want but I seriously doubt Spain will give them independence.

Bloomberg said demand for Alibaba shares was so strong the underwriters were going to close the books early and stop accepting orders. This is a decades old way of trying to increase demand for shares. If portfolio managers think they are going to miss out they will panic and the demand for shares rises. This allows the underwriters to raise the price and the number of shares offered for sale if the demand rockets higher.

Dealbook said 40 portfolio managers had requested $1 billion or more each and there were still four more days of roadshow presentations when they made this claim. This is another time honored tradition of asking for more than you can get. If an IPO is in high demand and fund managers know they are not going to get what they ask for then they ask for more. For instance if they want 500,000 shares and they feel the allocations are going to be in the 20% range then they put in a request for 2,500,000 shares. Multiply this by the thousands of portfolio managers putting in requests and you can see how this could be a problem for Alibaba. The company said its "friends and family" plan already has orders for $1.5 billion in shares.

In a high profile IPO like this they want to make sure the stock pops on the first day and they don't face a problem like Facebook did. If every fund manager is putting in for five times the number of shares they really want and Alibaba ups the number of shares being offered to accommodate the phony demand then the stock will drop on the opening day. Every fund manager that gets 2-3 times what they really wanted will immediately try to sell the excess in the market. This pushes the price down and the underwriters or in this case Goldman Sachs has to buy those extra shares to keep the price above the offering price. Goldman was appointed "stabilization agent" to maintain the price.

Obviously all of the eight underwriters understand how the game is played. It is up to them to accurately determine how many shares they think they can actually place and what price they can get without damaging the IPO. Alibaba and its early investors and officers are selling 320 million shares with another 48 million as an overallotment option. The price range is $60-$66. They can add more shares or raise the price or both. The higher the share count and higher the price the more likely we see a post IPO decline.

The underwriters said they would stop taking orders in the U.S. at 4:PM Tuesday. Asian investors have until 4:PM Hong Kong time. European investors have until close of business in London.

At the New York roadshow at the Waldorf-Astoria, the first stop in the tour, there were 500 managers expected and more than 800 showed up with even more turned away for lack of space. Other meetings across the U.S. have been similarly packed.

Retail investors should remember that Facebook (FB) shares were easy to get at the IPO price because the underwriters sold too many shares at too high a price. It was a battle for Morgan Stanley to maintain the offering price on opening day because so many shares were available in the market. However, Twitter (TWTR) and Linkedin (LNKD) were impossible to get and the share price soared. Linkedin soared +137% on opening day. Underwriters were so careful not to repeat the Facebook disaster they were very cautious with the number of shares they distributed.

Nick Colas, chief market strategist at New York brokerage ConvergEx said IPOs are often about showmanship. "Capital markets professionals have a phrase - 'The illusion of scarcity' - that is their mantra for all public market transactions. Even on the largest deals - primary or secondary stock, it matters not - they must hold forth the proposition that demand far exceeds supply."

Alibaba will not be going into any of the U.S. indexes and that will limit the demand from the various funds that benchmark to the U.S. indexes. The Wall Street Journal still believes the initial IPO will exceed $24 billion making the company worth nearly $185 billion in total. Not a bad return on his investment for Jack Ma, an English teacher who failed his college entrance exam twice and started the company in his apartment in 1999.

Gil Luria at Wedbush initiated coverage of Alibaba with a buy rating and a price target of $80. His call came after James Cordwell of Atlantic Equities started coverage with a buy rating and a $100 price target. Most analysts don't initiate coverage until after the IPO and the post IPO quiet period expires. Apparently these analysts wanted to capture some of the spotlight on the IPO buzz.

With many retail investors fearing they won't be able to get shares of BABA in the IPO the shares of Yahoo (YHOO) have been soaring. Shares rallied to a 14 year high at $42.88 as investors try to get a piece of the action. Yahoo owns 22% of Alibaba and will be selling $8 billion in shares in the IPO. Yahoo investors should thank founder Jerry Yang every morning when they wake up for investing $1 billion in Alibaba in 2005. Yahoo has already sold $5 billion a couple years ago and will still have a 16.3% stake after they sell another $8 billion next Friday. Yahoo traded more than 650,000 options on Friday, second only to Apple. I think it is setting up for a monster sell the news event.

Yahoo also made news on Friday with the details of a government battle for its records. The U.S. government told Yahoo to hand over records of people using their service and Yahoo refused. The government threatened to fine them $250,000 a day if it failed to hand over the records. Yahoo sued the government but eventually had to turn over the records. A federal judge ordered the unsealing of the court records in a victory for Yahoo and 1,500 pages of documents of its battle with the NSA became publicly available.

Edward Snowden revealed the existence of the NSA PRISIM program where the agency collected information from Google, Facebook, Apple, Microsoft and Yahoo. The companies claimed the spying was unconstitutional and claimed the NSA sometimes collects data without the companies consent with pathways into the servers of these companies. Cisco Systems has seen revenue overseas decline after it was leaked that some of their equipment had backdoor access for the NSA. Yahoo wanted users to know they fought to keep the information private and the unsealing of the documents was a win for the company.


I wrote last week that a lot of money was going to be leaving the market as a result of the Alibaba IPO. On the face value the IPO is going to raise about $24 billion. That required portfolio managers to sell enough stocks to raise $24 billion in cash. However, that is not the end of the story. We will probably see 150-200 million BABA shares trade in the market on opening day and 50 million a day for the next week as retail investors try to get a piece of the company.

Those individuals have also been selling stocks and will continue to sell stocks early next week in order to raise cash. Investors will have put in their IPO requests with their brokers but they won't know "if" or "how many" shares they got until Friday. If they put in for 1,000 shares then they have to have that money in cash in their account on Thursday. Very few will actually receive shares even though they requested them and raised cash just in case. Multiply that by a couple million investors and the cash raise over the last week and early next week is probably well over $100 billion. That is a lot of cash leaving the market.

Obviously if those investors don't get any shares in the IPO and they decide not to chase it in the open market then that money will be put back to work in other stocks the week after the IPO.

Exxon Mobil (XOM) fell off a cliff last week after their Russian partner was finally hit with sanctions. Rosneft and Exxon are drilling a $700 million well in the Kara Sea in Russia's Arctic Circle. Originally Exxon was not hampered by the first round of sanctions because they had signed contracts before the effective date of those sanctions. In the current round of sanctions officials removed that loophole and named the Russian energy giants by name. The new sanctions ban the export of goods, services and technology used in exploration and production of Russian deepwater, Arctic offshore and shale projects that have the potential to produce oil. That specifically targeted Exxon because the company said it was providing "services" in its partnership with Rosneft to drill the $700 million well.

BP was also hit because it has a 20% ownership position in Rosneft. Other Russian companies singled out were Gazprom, Gazpromneft, Lukoil and Surgutneftegas. The new sanctions prevent any activity by U.S. and EU companies with those Russian energy companies. Russia currently produces about 10 million barrels a day.

Russia exported $363 billion in oil and gas in 2013 and that accounted for 68% of the Russian budget. If the U.S. and EU can figure out a way to cut into those exports it will force Russia to back off its aggressive behavior. There is clearly a trade war developing that could have serious consequences to the global economy. Russia is expected to announce retaliatory sanctions against the U.S. and EU next week.


Ebay (EBAY) saw a huge spike in option activity after a rumor that Google was in talks with Ebay about taking a stake in the company. The rumor suggested Google was interested buying a 40% stake for $85 billion or $68 per share in order to use Paypal to compete with Apple Pay. Since Ebay only has a market cap of $65 billion the stock jumped +4.7% on the news and option volume was more than 4 times its daily average. Ebay denied there were any discussions with Google and shares gave back some of their gains but it still closed up +1.51 in a bad market. Late in the day analysts speculated there may be somebody else in talks with Ebay or the talks were not specifically about a stake. The official quote from Ebay was "We have had no conversations with Google about acquiring a stake in the company." That phrasing leaves a lot of other possibilities but the numbers in the rumor make no sense whatsoever.


Ulta Salon Cosmetics and Fragrance (ULTA) spiked +18% after a monster beat and raise. Earnings of 94 cents were higher than the 83 cent analyst consensus. Revenue rose +22% to $734.2 million also well over the $713 million consensus. For the full year the company now expects earnings to grow by +20% compared to prior guidance of "mid-teens." They are now expecting same store sales to rise 7-8% up from 5%. Citigroup raised their target price from $118 to $130 and Robert Baird raised the target from $110 to $125. Credit Suisse cited the earnings beat, guidance raise and 20% long term earnings growth as a "hat trick" and targeted $115. The company laid out a five-year growth plan and analysts were very pleased.


Bill Ackman submitted requests for a special shareholder meeting to the board of Allergan (AGN). Ackman has been gathering requests from shareholders in an effort to get the required 25% to force the meeting. Reportedly he submitted requests from 35% of shareholders. Allergan has been stalling on the meeting since April but the company now has to follow through and the meeting will be held on December 18th. The special meeting will allow shareholders to vote on replacing most of the current board members in order to force Allergan to allow a takeover by Valeant (VRX).

However, Allergan has asked a U.S. District Court to give them a preliminary injunction against Valeant, Pershing Square and Ackman and prevent them from voting any shares they own. Allergan claims the parties violated securities law prohibiting insider trading, failed to disclose legally required information and engaged in other fraudulent practices. With Ackman tightening the noose around Allergan the share price is rising towards the $172.60 buyout offer as investors begin to decide the deal will get done. Valeant launched an exchange offer in June for $72 in cash and 0.83 shares of Valeant.


Apple's iPhone 6 sales are booming. People that really wanted a new phone stayed up late Thursday night to be the first to place orders at midnight Thursday night. Apple's system was so swamped that buyers could not get on for several hours once the order process began. Buyers during the day on Friday were given delivery times 4-6 weeks away due to the heavy pace of sales.

Apple said it was experiencing "record orders" and a strong customer response. CEO Tim Cook said this could be the mother of all upgrade cycles because of the record order demand. The most owned iPhone today is still the iPhone 4, which is now three generations old.

RBC Capital Markets said Apple could sell 10 million phones in the first weekend. The numbers will be released on Monday. Think about that. If you are Apple you have the cash to manufacture and store those phones but where do you put 10 million phones in preparation for opening weekend? How do you coordinate the sale and shipment of 10 million units in different colors and features in just one weekend? That is an Amazon like effort but Apple only does this 2-3 weeks out of every year.

Apple shares recovered to trade at a post announcement high but stalled at $102. Investors are trying to decide if Apple is going to have a post announcement decline or will the strong sales numbers push them to new highs. Until the stock moves over $103 everyone will have to keep wondering.


The strong retail sales report plus the potential for the Fed to change the language in their statement was a double tap for treasury yields. The yield on the ten-year spiked to close at 2.614% and well off the lows of 2.3% just a couple weeks ago. That is a two-month high. The bond bubble appears to be bursting with bonds selling off like crazy. The only question is where did the money go? It is not going into stocks with about $1 billion in outflows from equity funds over the last week.


The Goldman Sachs Commodity Index ($GCSI) closed at a new two-year low after the dollar shot up to a new ten-month high. Commodities of all types are under pressure.


Gold has declined -7% since the August high of $1,324 with the majority of the decline due to the spike in the dollar.



WTI crude prices dipped to $90 on Thursday, a level not seen since April 2013. Brent crude is approaching a two year low on slowing demand and rising production. The rising dollar is also pushing oil prices lower.




It is going to be hard for Janet Yellen to raise interest rates when the entire commodity complex is crashing. The weak global economy is weighing on prices and the U.S. is not strong enough to pick up all the slack. Falling commodity prices will depress prices for consumer goods and lower inflation rates. This is the opposite of what the Fed wants even though it is good for consumers. The sharp decline in commodity prices is actually deflationary to some extent and contrary to the Fed's goals.

Yellen is also faced with a sharp drop in the Nonfarm Payrolls and even if you don't believe the numbers we have to take them on face value until they are revised. The Fed is probably going to continue to see a "significant underutilization of labor resources" as in the last FOMC statement.

Yellen is an employment junkie. She has given analysts a list of nine jobs related data points that will guide her in changing monetary policy. Only three of those factors are positive today. The positive factors are a shrinking layoff rate, Nonfarm Payrolls averaging over 200,000 and the job opening rate over 3%. The negative factors include the unemployment rate, quits rate, U6 unemployment rate, hires rate, long term share of unemployment and the labor force participation rate. All of those factors are still well below what is considered full employment.

After giving analysts her employment "dashboard" she is not likely to drive off in a different direction just because several analysts believe the Fed language should be changed. However, when the markets give the Fed an opening they usually take it. The market has given Yellen a perfect opportunity to remove the "considerable period" portion of the guidance and replace it with something that is more data dependent even though her view of the slack labor market has not changed. After considerable analyst chatter on the potential language change the market sold off ahead of the FOMC. The damage is now done; why not take advantage of it?

This is an opportunity for the Fed to inject some volatility in the bond market. The bond market has been in a rally that was unjustified because the rate expectations were dramatically different than reality. Very few investors expected the Fed to raise rates until late in 2015. That allowed the yield on the ten-year yield to drop to 2.3%, which is totally out of line with an economy that may have grown over 4% in Q2.

Merrill Lynch said "We think Yellen and her allies will try to avoid shocking the markets. In the past, when the FOMC has reworked its forward guidance, they have often softened the blow by explicitly noting that their view on the likely timing of the exit has not changed or by downplaying the change in the press conference." Merrill's Ethan Harris moved his date for the first rate hike to June. He is expecting Q2 GDP to be revised up to 4.8% and Q3 will be 3.8% growth. With that kind of growth he believes the Fed will have to raise rates in the first half of 2015.

In another release Merrill said "While we anticipate Yellen will continue to support a patient and gradual normalization process, the risk is that the markets may sell off on the perception of a less dovish Fed. We also expect the statement to note that these changes do not reflect a shift in policy preferences, and for Yellen to reiterate that point at the press conference. Still, the risk is that markets see these revisions as a hawkish move in the timing of liftoff. While we expect Yellen’s overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language and any comments seen as potentially hawkish, could lead to a selloff, particularly at the short end of the yield curve."

With comments like that coming from a variety of analysts we are setting up for some volatility. Despite the rise in the VIX from 11.50 to 13.50 over the last three weeks there is still no volatility in the market. This is not expected to last and one trader placed orders for 135,000 October $22 calls on the VIX with Friday's close at $13.31. That is a bet of roughly $6.3 million that the VIX will rise 70% over the next five weeks. I could understand the bet if it was November calls that would take us past the Oct 29th FOMC meeting where QE will end. However, just going out to the October 22nd expiration does not cover that meeting.

This reminds me of the Armageddon trade from a couple years ago where someone placed a multimillion dollar put bet on the S&P that was way out of the money. Obviously this could be a hedge against a portfolio but it would be a really bad hedge since the market could decline significantly without spiking the VIX to 22. The VIX will only move that far if there is an unexpected event in the market or a sudden and dramatic reversal of fortunes leading to something worse than a correction. In the August selloff the VIX only rose to 17. In the last two years the VIX has only exceeded 20 on four occasions and it has not hit 22 since December 2012.

There are people out there who know of coming events but placing a bet like this would be a serious red flag for regulators after the fact. A month before 9/11 one of our writers received an email saying something like "get short now because every market in the world will crash in September." We talked about it at the time but ignored it. We get hundreds of emails a day and that was just another crackpot or so we assumed. After 9/11 we realized it was somebody with inside knowledge.

I hope that bearish VIX bet does not turn out to be a winner.


It felt like a bad week in the markets but the Dow only declined .9% and the Nasdaq .3%. The S&P lost -1.1% and the Russell 2000 -.8%. The high flying Transports only gave back .6%. Remember, we closed at a new high at 2007 on the S&P the prior Friday. This was not a bad week when you consider all the events weighing on the market. The drop in oil prices crushed the energy sector and that is a large percentage of the S&P. The drop in commodity prices hit all the commodity stocks in both agricultural and mining. The Russian sanctions and the strong dollar weighed on the S&P because those companies get 50% of their revenue from Europe. The Alibaba IPO was sucking huge amounts of money out of the market and Fed fears were killing the bond market and equities alike.

For the S&P to decline only -1.1% amidst all those factors was actually somewhat bullish. For next week the Alibaba selling should abate on Monday because trades to raise cash have to be settled by Thursday night. Selling in front of the Fed should end on Tuesday and bargain hunters hoping for a Fed surprise will be picking up stragglers.

If the Fed does change the language the damage has already been done. There will probably be some volatility but unless they go off the deep end on statement changes it should blow over by Thursday morning. If they don't change the language it should mean a market rebound for a couple more weeks then we will repeat the entire process for the late October meeting.

The S&P dipped to 1980 on Friday before clawing its way back to prior support at 1985. I was really glad to see that 1985 number at the close. If we can trade above that level on Monday the dip buyers should be adding to positions. If we trade below 1980 it could produce a change in market sentiment. The S&P is on the cliff edge and we don't want to take that next step.

If we do move higher the current resistance is 1996 followed by 2000 and then 2005.


The Dow is on shaky ground. The index closed under 17,000 after setting a new four week low at 16,937. The support at 17,000 was broken but only slightly. We could see a rebound from here but it would have to be at the open on Monday. If we go back down and retest that low the odds are good it would not hold. Recently we have been closing at the highs on Friday with the S&P closing at a new high on the two prior weeks. Closing at or near the lows is not confidence building and there is a lot of air under 17,000 before we hit strong support again.

The converging resistance at 17,075-17,150 was rock solid the prior week and it was tested again on Monday and it was still solid. Despite the close at 16,987 we are only about 163 points from the highs. That is just one good day for the Dow. The tight range in the Dow and S&P has made the declines seem worse than they are but the trend here is the key. There was a series of lower highs every day last week. The selling was not brutal but it was persistent and I believe it was related to cash raising for Alibaba and the Fed more than anything else. Both of those problems will be gone in the next couple of days.

Support would be the 50-day at 16,913 and the 100-day at 16,801. However, the Dow is not very reactive to moving averages. The 100-day has the best chance of holding a decline. If that breaks we could be looking at 16,725 again.



The Nasdaq is in a super tight range and the -.3% decline last week was barely even a hiccup. Support at 4550 is strong as is resistance at 4600. That 50 point range is seeing plenty of traffic and actually narrowing somewhat with only a 35 point spread over the last three days. The Nasdaq is consolidating in place and the dip buyers are alive and well. Biotechs, chips, software and solar stocks have been the leaders. When one sector takes a breather another sector steps up.

Let's hope this pattern keeps up until the rest of the market recovers from whatever is ailing it.



I was encouraged by the lack of a material decline in the small caps last week. The .8% decline was all on Friday after a strong rebound on Wed/Thr. There was volatility but no real movement. Fund managers were not running away from the small caps and that suggests the broader market is still healthy.


I was bullish last week but the sudden change in outlook for the Fed statement and the Alibaba cash raising killed that idea. This week is a coin toss. Once we get past the Fed and the Alibaba IPO we should see a lot of that cash coming back into the market. This is also option expiration week so there could be a lot of volatility related to expiration. The following week should begin the ramp into earnings and that gives investors a reason to be in the market.

If the Fed statement does change you can bet Janet Yellen will be backpedaling as fast as she can in the press conference to assure investors that "nothing" really changed and rate hikes are still a long way off. The Fed does not want to see 3% yields on the ten-year before they even finish with QE. Expect a lot of explaining why we should see the change as a good thing.

Lastly, September can still happen. This is normally the worst month of the year and bad things routinely happen. It has a better record when it comes after gains in August but nothing is guaranteed. According to the Stock Trader's Almanac September dips are the best time to load up on bargains ahead of the "best six months" of the year which starts on November 1st.

Random Thoughts

Now that your kids are back in school and whining about the teachers, food and long days you can show them this link. For kids around the world just getting to school is the toughest part of the day. Parents Worst Nightmares

The president is struggling to form a broad coalition but the most critical ally in this ISIS fight is refusing to join. Turkey, the country with the border right on the edge of ISIS territory has refused to let a U.S. led coalition use its airbases for combat operations, refueling and resupply. Turkey will only allow its bases to be used for humanitarian operations.

There is some discussion that this pronouncement is for public consumption. Secretly they may allow the coalition to use the bases. By publicly denying it they are trying to avoid a direct attack by ISIS as a coalition partner. Turkey is a NATO member and should take part in NATO operations. Turkey blamed the 49 Turkish hostages held by ISIS, which include women and children, as the reason they cannot take part in military operations. They were abducted from the Mosul consulate in June.

ISIS smuggles gasoline and diesel into Turkey and sells it for prices well under retail. In Turkey gasoline sells for 5 lira a liter ($2.30). ISIS is selling gas from trucks on the side of the road for 1-1.5 lira per liter. Turkish entrepreneurs resell it on the black market for 3 lira. ISIS controls about 60% of Syria's oil production and several oil wells in Iraq. They smuggle this oil into southern Turkey. The proceeds from the oil and fuel sales are used to fund their army. Some estimates put their daily take at roughly $2 million. The hostages keep Turkey from interfering with the smuggling process.

The CIA said last week that ISIS fighters may have tripled as a result of their success in Iraq and their social media campaign. The CIA now believes ISIS can field from 20,000 to 31,500 fighters across Iraq and Syria. That is up from the prior assessment of up to 10,000 fighters. Apparently poking the U.S. in the eye with a couple of beheading videos is good for recruiting. The CIA believes more than 15,000 foreign fighters from 80 countries of whom 2,000 are Westerners have traveled to Syria to join ISIS.

The planned air strikes in Syria have already been condemned by Syria, Russia and Iran. That should be no surprise. Russia said it was planning on complaining to the UN Security Council to prevent the strikes.

Funds are under a lot of pressure to add to gains before year end. This could cause a significant rally from any future dip. More than 80% of funds are lagging their benchmarks for 2014 and their bonuses and clients are at risk.

David Tepper's fund earned 42% in 2013. Through July it is up only 2.3% when the broader market is up +8%. That is a serious shortfall.

Perry Partners was up +22% in 2013 but up only +1.3% for 2014 as of August 22nd.

Leon Cooperman gained 30% in 2013 and is up only 2.25% through July.

Nelson Peltz of Trian partners gained +40% in 2013 and they are up only 6.6% through August.

Jeff Altman's Owl creek fund gained +48.6% in 2013 and they are down -3% for 2014 with 2% of the loss in August.

Paul Tudor Jones and Louis Bacon are down for the month. Bacon's main fund was down -5.5% through August. Jones is down -3% through August.

Wells Fargo analyst Gina Martin reaffirmed her 1850 year end forecast for the S&P on July 28th. On Tuesday she capitulated and raised it to 2100. She said she has spent most of the year expecting a "trade off" for stocks, with earnings growth improving but time ticking down on the Fed's monetary policy. While that is still the case she said earnings are starting to take over and turning Fed volatility into buying opportunities.

The other bear, David Bianco, with Deutsche Bank upgraded his 1850 forecast to 2050 on Monday and added a 2300 target for 2016.

The bottom of the ladder is still held by Brian Belski at BMO Capital. He reaffirmed his 1900 target last week saying "Despite the market's strength, we still remain comfortable with our now more cautious stance."

The pink entries have been recently revised. The number after their name is their prior forecast. Note the average forecast has risen from 2000 just four weeks ago to a robust 2027 today.


With all the bears turning bullish you have to wonder if it is time to be a contrarian. The low volatility in September is either lulling analysts to sleep or a ticking time bomb. The "fear index" is not showing any fear and that is sometimes a good reason to worry.

With oil prices plunging can gas prices be far behind? The national average on Friday was $3.41, down from $3.70 in June. Prices never fall as fast as they go up but cheap oil produces cheap gasoline and competition will eventually push prices lower. Some analysts expect $3.15 by Halloween and $3 is entirely possible according to Andy Lipow of the consulting firm of Lipow Oil Associates. Some southern states are already under $3.20. Baton Rouge and Kansas City are flirting with $3 already.

Nasdaq 5000 here we come. That is the belief of Ron Meisels a technical analyst in Montreal. He said the Nasdaq has fewer stocks and bigger companies that are more stable than in prior years. Many of these stocks now pay dividends, a sharp change from the Nasdaq bubble in 2000. The Nasdaq has only about half as many stocks as it had during the bubble and the components are about twice as large. There were 4,715 stocks in 1999 and about 2,500 now. Valuations are much lower and technology is rapidly improving, which will lead to new innovations and more M&A.

One thing every investor should continue watching is the interest on the Federal debt. The CBO has projected the U.S. interest on its debt to soar to $880 billion a year by 2024 compared to $411 billion in 2014. Currently the U.S. pays a blended 2.4% on its debt. The CBO is expecting that to climb to 3.1% by 2020. Personally I think it will break $1 trillion before then because once inflation begins to kick in the Fed will be forced to raise rates and the debt the government sells to pay the interest on its existing debt will be at those higher rates. If interest rates return to normal the interest on the debt could rise to 4.5% to 5%. This is the 800 pound gorilla that is not going away and everyone reading this newsletter should be preparing for it. Taxes are going through the roof and the economy is going to crash when that happens.


More than 53% of Chinese respondents expect war with Japan by 2020. About 29% of Japanese respondents also expected war. In the same survey 93% of Japanese have a negative impression of China and 87% of Chinese have a negative opinion of Japan. Apparently the governments of those countries are doing a good job painting the other in a bad light. With China's navy growing to be larger than the U.S. navy by 2020 the odds are good China will continue to grow into its bully role.

Journalist David Rothkopf was told by one of America's most dependable Middle Eastern allies in July, "You are still a superpower, but you no longer know how to act like one."

The current Ebola epidemic has infected more people than all the prior Ebola epidemics in the last 1,000 years. Of the 4,300 "reported" cases more than 2,300 have died. Unfortunately that is the good news. The bad news is that we are only one mutation away from having it transmitted by air instead of physical contact and that will cause a massive explosion of the disease. This article is well worth reading and it will scare the heck out of any intelligent person. What We Are Afraid to Say About Ebola

The Pope said on Saturday World War III had started on a piecemeal basis and he condemned the arms traders and "plotters of terrorism" for sowing death and destruction.

Over the Labor Day weekend President Obama applied to play golf at the Winged Foot, Willow Ridge and Trump National Golf Clubs in the New York area. Each club rejected his request saying they did not want to "shut down their clubs" so the president could play a round of golf. Labor Day is considered one of the busiest golfing weekends of the year. Should the president actually ask clubs like these to shutdown on a holiday weekend just so he can play? I think not.

The $2 billion Revel Casino in New Jersey is up for sale in a bankruptcy auction. Glenn Straub, a Florida developer, offered $90 million in cash. That is a heck of a discount and other parties have until Sept 23rd to place their bids.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"An economist is someone who sees something happen and then wonders if it would work in theory."

Ronald Reagan

 


Index Wrap

Still Marking Time

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Market is correction mode but in the Nasdaq it's a sideways move and with the S&P and Dow, there's been a 25% retracement of the last advance; fairly minimal so far. In either case, the indices are 'throwing off' their overbought condition.

I'm keying off the Nasdaq 100 (NDX) right now as technically I've got more to go on so to speak. NDX has been turning back from chart resistance implied by the upper end of its weekly chart trend channel. Strong technical support is implied back at the 4000 level in NDX versus its Friday Close at 4069.

In the SPX 500 (SPX), the Index hasn't been able to hold about the milestone 2000 level. SPX technical support looks to come in at 1980-1960.

In the Dow 30 (INDU) chart support is suggested at 16900-16800. Too many INDU stocks are in correction mode as I've been saying.

For more on support and resistance levels for the major indices, scroll down.

Bullish sentiment still looks optimistic for the trend ahead at least with trader types. However, with longer-term investment oriented money managers and with individual investors, there's of course Fed worries. This anxiety of when the Federal Reserve might start raising rates again seems to come and go with the monthly employment report and other key indicators of US and global economic weakness, or strengths.

I save myself considerable stress and just focus on the charts and let the worrywarts sort it out by their buying and selling of equities. So far, I don't see in chart and indicator patterns, more than a relative minor correction going on in September, after very strong gains in August.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) Index has gone from bullish to correction mode based on its minor rounding top formation. To date the pullback from its prior highs has been relatively minor.

After strong August gains, it's not surprising to see SPX in a sideways to lower correction, which 'throws off' any overbought extreme and puts such measures of overbought/oversold like the Relative Strength Index (RSI) into at least a neutral mid-range reading.

I don't envision a major pullback/correction ahead and have noted support at 1980, extending to the 1960 area. 1960 would represent a 50% retracement of the last SPX advance; a more 'minimal' 38% Fibonacci retracement would be reached at 1971.

Immediate overhead resistance is at the milestone 2000 level, extending first to 2010 and later to 2030. Major resistance begins around 2060; major support begins in the 1940 area.

S&P 100 (OEX) INDEX; DAILY CHART

The big cap S&P 100 (OEX) has gone from 'marking time' as I said last week into minor correction mode as prices have trended sideways of late, but with a line of support that's been defined at 880.

As with the broader S&P 500, I don't see OEX falling into a deep correction, such as in a move back to trendline support around 865. Near support is highlighted at 880, extending to 875 which also represents a fairly 'minimal' 38% correction of the strong August advance. A bit deeper give back of half (50%) of the prior advance would take OEX back to the 870-869 area.

I've noted overhead resistance at 892, but resistance begins at 887-888. Resistance above the prior recent intraday high at 892 is assumed for the milestone 900 level, the next big round 100 level that could be achieved for the big cap S&P 100.

The current correction (to the longer term bull trend) has the effect of 'throwing off' the prior overbought condition and could set the stage for the next up leg.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) has gone from mixed in its chart to a corrective pattern as 17000 gave way as support this past week. Previously, INDU was simply trending sideways in a narrow trading range. This situation of just sideways, not lower, didn't seem likely to last as fewer and fewer of the Dow 30 stocks were still in clear cut uptrends.

Near support is seen at 16900, with support extending to 16800. In terms of the common (Fibonacci) retracement levels, a minimal 38% of the last upswing in the Dow would be reached at 16843; a one-half/50 percent pullback would occur if INDU traded at 16746. Major support, at the dominant up trendline intersects in the 16600 area.

Overhead resistance is highlighted at 17150, with next resistance projected in the 17280-17300 area.

In terms of overbought/oversold, the Dow is a 'neutral' mid-range reading at 50 currently. I'd be surprised if INDU got 'fully' oversold (around 30) as measured by the 13-day Relative Strength Index or RSI but if it did I'd be looking at price action for a possible upside reversal and considering buying Dow Index calls; e.g., the October 1700 strike.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite Index (COMP) has gone from bullish to 'mixed' in that its recent trend has been sideways as COMP has been unable in the past two weeks to pierce key near resistance at 4600. Above 4600, resistance is highlighted in the 4700 area, at the upper end of COMP's uptrend channel.

COMP remains overall bullish in its pattern. In terms of how I usually define the trend, which is whether the Index in question is trading above or below the important (from a trading perspective) 21-day moving average, the COMP's trend remains UP. Current levels are near to possibly dipping below this average currently intersecting at 4552. I've highlighted near support at 4540, extending next to 4485.

The RSI is moving lower as the sideways trend 'throws off' the prior overbought condition. Bullish 'sentiment' is at a more or less 'neutral' mid-range reading.

I think Nasdaq can lead a next up leg higher in the overall Market. A Close below 4485 for a couple days running would be bearish however.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart has been bullish but the Index has been marking time in a sideways pattern and by this past Friday, its intraday low touched the trading-wise key 21-day moving average. A move below the 21-day average would suggest that the key 4000 level could be tested as support.

I favor buying NDX calls in the 4000 area if reached, assuming buying comes in this area as I believe it will; the idea being that what was a key chart resistance should now offer technical support on pullbacks. If not, a deeper correction may be 'signaled'.

Near resistance is seen at 4110, extending to 4140. Implied volatility as measured by the VXN has come up from the very low 12 level. I consider some volatility to be a bullish plus if it implies that there is less complacency on the key tech trend as just up, no downs. A little fear is a good thing if it keeps us more sharp!

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) has the same near-term mixed pattern as NDX as would be expected. The Q's are in a narrow trading range and this sideways trend is pulling the Relative Strength Index lower, which is a bullish plus if looking for a next up leg.

Near support is seen at 99 even, then at 98, which is not far above QQQ's up trendline.

Near resistance is highlighted at 100.3. A decisive upside penetration of 100.3, that found support at 100 on pullbacks would look good for a possible move to the 102 area.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) can't get no (bullish) respect! RUT retraced half of its last down leg at a point where a down trendline could be drawn. I've noted resistance at this line or resistance, which intersects at 1175; resistance then extends to 1185 and eventually to 1196-1200.

Support is highlighted at 1158-1160; with next support of technical importance at 1140.

No trading recommendations with the Russell as far as betting on a direction. RUT maybe can't go up, but maybe is not going to dip much and hard to say if there's much of a move coming. It is holding its 50-day moving average which is a bullish plus. Maybe the Russell can climb back up to the 1200 area if 1160 continues to find buying interest.


GOOD TRADING SUCCESS!




New Option Plays

Unmanned Aircraft & Big Data

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Northrop Gruman - NOC - close: 129.99 change: +0.23

Stop Loss: 127.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 870 thousand
Entry on September -- at $---.--
Listed on September 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
One might have assumed that when Washington politics cut $500 billion from the U.S. defense budget over the 2012-2021 time frame it would have been bearish for defense sector stocks. Yet the group has been an outperformer in the stock market and delivered amazing gains last year. The defense-related juggernauts like NOC continue to perform well in 2014.

According to their company website, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." What does that mean? It means NOC makes bombers, unmanned drones, cyber security solutions, and logistics. If you're curious, C4ISR stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

The fact that the world seems to be growing more dangerous, not less dangerous, should be a bullish undercurrent that lifts the defense sector. NOC should benefit because the American public does not have the stomach for another war. That means the U.S. will use more and more unmanned technology like NOC's drones.

The company has been performing well this year and NOC has raised guidance the last three quarters in a row. NOC's most recent earnings report was July 23rd. Wall Street was looking for a profit of $2.22 a share on revenues of $5.97 billion. NOC delivered $2.37 a share with revenues hitting $6.04 billion. Management then raised their EPS guidance and revenue guidance for 2014. NOC's backlog is currently at $35.6 billion.

Technically shares have a bullish trend of higher lows that just recently blossomed into a breakout to new all-time highs. NOC is testing the $130.00 level. At the moment the point & figure chart is bullish with a $158.00 target.

Tonight we're suggesting a trigger to buy calls at $130.55.

Trigger @ $130.55

- Suggested Positions -

Buy the NOV $135 call (NOC141122C135) current ask $1.65

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

Daily Chart:

Weekly Chart:


Splunk, Inc. - SPLK - close: 59.02 change: -1.49

Stop Loss: 57.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.3 million
Entry on September -- at $---.--
Listed on September 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Based in San Francisco, SPLK is cashing in on corporations' desire to analyze the massive amounts of "big data" out there. The last several months have been a bumpy ride for SPLI shareholders. If you recall back in March this year all the big growth and momentum stocks were hit hard with widespread selling. The correction in SPLK lasted longer than the broader market. Shares were cut in half with a drop from $93 to $40 by its June lows. Now shares have started to recover, up nearly 50% from its 2014 lows.

Who is SPLK? According to the company website, "Splunk was founded to pursue a disruptive new vision: make machine data accessible, usable and valuable to everyone. Machine data is one of the fastest growing and most pervasive segments of 'big data'—generated by websites, applications, servers, networks, mobile devices and all the sensors and RFID assets that produce data every second of every day. By monitoring and analyzing everything from customer clickstreams and transactions to network activity and call records—and more—Splunk turns machine data into valuable insights no matter what business you're in. It's what we call Operational Intelligence. Since first shipping its software in 2006, Splunk now has over 7,900 customers in 100 countries."

Earnings have been improving. Their earnings report in May saw SPLK beat estimates on both the top and bottom line. SPLK management guided higher for the second quarter. They did it again in their latest earnings report. The company added more than 500 new customers in the latest quarter. SPLK reported earnings on August 28th. Wall Street expected a loss of $0.02 a share on revenues of $93.82 million. SPLK delivered a profit of $0.01 a share with revenues soaring +51.7% to $101.5 million. Management then raised their guidance for the third quarter and fiscal year 2015.

The stock soared following its late August earnings news with a rally from $45 to $60 in a couple of days. Since then SPLK has been digesting its gains and consolidating sideways just below resistance near $60.00 and its simple 300-dma. The big reversal higher has created a buy signal on the point & figure chart that is forecasting a long-term $99.00 target.

This stock can be volatile so I do consider it a higher-risk, more aggressive trade. The high last week was $61.36. We are suggesting a trigger to buy calls at $61.55. More conservative investors may want to wait for shares of SPLK to close above potential technical resistance at its simple 200-dma (currently at $62.38) before initiating bullish positions.

Trigger @ $61.55 *smaller positions, higher risk*

- Suggested Positions -

Buy the NOV $65 call (SPLK141122C65) current ask $3.30

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Fade Lower Into The Weekend

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market drifted lower on Friday and all the major indices posted declines heading into the weekend.


Current Portfolio:


CALL Play Updates

Amgen Inc. - AMGN - close: 137.89 change: -1.07

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:
09/13/14: Biotech giant AMGN spent last week consolidating sideways beneath resistance near $140.00. We are waiting for a breakout. Our suggested entry point is $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

chart:


Concur Technologies - CNQR - close: 110.06 change: -0.74

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +78.2%
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:
09/13/14: CNQR spent last week trying to breakout past resistance near $110.00. It succeeded on Thursday.

Investors may want to raise their stop loss. 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:


F5 Networks, Inc. - FFIV - close: 125.08 change: -1.04

Stop Loss: 121.95
Target(s): To Be Determined
Current Option Gain/Loss: -24.6%
Average Daily Volume = 855 thousand
Entry on September 11 at $126.25
Listed on September 10, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/13/14: FFIV closed at two-year highs on Thursday. The widespread profit taking on Friday saw FFIV test its 10-dma before trimming its losses. A new rally past $126.25 could be used as a bullish entry point.

Earlier Comments: September 10, 2014:
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.

- Suggested Positions -

Long OCT $130 call (FFIV141018C130) entry $2.68*

09/11/14 triggered @ 126.25
Option Format: symbol-year-month-day-call-strike

chart:


Lockheed Martin - LMT - close: 174.43 change: +0.23

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: -14.4%
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:
09/13/14: Friday ended up being another quiet session for shares of LMT. I am suggesting traders wait for a new rally past $175.50 before initiating new positions.

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

chart:


Mallinckrodt Public Limited Co. - MNK - close: 86.25 change: -0.59

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.85 million
Entry on September -- at $---.--
Listed on September 11, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
09/13/14: MNK rebounded off its Friday morning lows but shares were unable to breakout to new highs. I do not see any changes from our Thursday night new play description below.

Earlier Comments: September 11, 2014:
MNK is considered a drug maker but the stock is outperforming its peers in both the drug industry and the biotech industry. The S&P 500 is up about +8% in 2014. The pharmaceutical index (DRG) is up +13.1%. The biotech index is up +34.8% thus far in 2014. Yet MNK is up +64.4%.

The company describes itself as "a global specialty pharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents."

"Areas of focus include analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians, and autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities."

"The company's Specialty Pharmaceuticals segment includes branded and specialty generic drugs and active pharmaceutical ingredients, and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has more than 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2013 revenue totaled $2.2 billion."

The company had seen a few key milestones this year. They recently finished their $5.6 billion acquisition of Questcor. In August the stock was added to the S&P 500 index. MNK's earnings report in May was better than expected and management raised their guidance. Their latest earnings report was August 7th. Wall Street expected a profit of $0.85 a share on revenues of $610 million. MNK delivered a profit of $1.20 a share with revenues up +14.6% to $653 million. Management raised their guidance again for both their 2014 EPS and revenue estimates.

MNK's Chief Executive Officer and President, Mark Trudeau, commented on their quarterly results saying,

"This has been another exceptionally strong quarter in what is shaping up to be a very promising year for Mallinckrodt. This performance is being driven by the strength of our Specialty Pharmaceuticals segment in both Brands and Specialty Controlled Substance Generics, as well as streamlined costs from our on-going restructuring initiatives, leading to meaningful top-line and bottom-line growth. We continue to be pleased with the performance of our base business and recently added OFIRMEV, and look forward to closing the acquisition of Questcor in the coming weeks."

The current rally in MNK stock has lifted shares to all-time highs. The September 5th move looked like a potential bearish reversal yet there was no follow through lower. Instead MNK has been consolidating sideways. If shares continue to march higher it could spark some short covering. The most recent data listed short interest at 29.3% of the small 53.9 million share float.

We are not setting a target tonight but the point & figure chart is forecasting at $90.00 target. We are suggesting a trigger to buy calls at $87.25.

Trigger @ $87.25

- Suggested Positions -

Buy the OCT $90 call (MNK141018C90) current ask $3.40

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

chart:


Nike, Inc. - NKE - close: 81.84 change: +0.02

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: +25.1%
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:
09/13/14: NKE ended up spending most of last week consolidating gains in a sideways move. Depending on your trading style you could wait for a breakout past $82.80 or a dip back toward $80.50 as our next bullish entry point.

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:


Spirit Airlines - SAVE - close: 70.17 change: -0.40

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -62.4%
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:
09/13/14: As a group the airline stocks have been down four out of the last five days. Meanwhile SAVE is down four days in a row with a pullback toward support near $70.00. If shares see any follow through lower we'll likely see SAVE hit our stop loss at $69.75.

Technically last week's performance has created a bearish engulfing candlestick reversal pattern on SAVE's weekly chart.

I am not suggesting new positions at this time.

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

chart:




PUT Play Updates

Chart Industries - GTLS - close: 64.83 change: -1.37

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: -10.0%
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:
09/13/14: GTLS gave back most of Thursday's bounce with a -2.0% decline on Friday. More conservative investors may want to lower their stop loss. 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

chart:


Herbalife Ltd. - HLF - close: 46.03 change: -0.19

Stop Loss: 50.55
Target(s): To Be Determined
Current Option Gain/Loss: - 0.4%
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:
09/13/14: HLF fell to new 2014 lows last week. Yet the last two and a half days have been really quiet. HLF is just hovering near the $46.00 level.

I am not suggesting new positions at this time.

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

chart:


iShares Russell 2000 ETF - IWM - close: 115.37 change: -1.24

Stop Loss: 118.15
Target(s): To Be Determined
Current Option Gain/Loss: -13.3%
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:
09/13/14: The IWM completely erased Thursday's bounce with a -1.0% decline on Friday. Shares are testing the $115 level and look like they could test their 50-dma and 200-dma soon.

Wednesday's low was $114.71. Investors may want to wait for a new relative low before initiating 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

chart:


Las Vegas Sands - LVS - close: 63.20 change: -0.45

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +116.6%
Average Daily Volume = 4.6 million
Entry on August 27 at $67.40
Listed on August 26, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/13/14: LVS retreated from short-term resistance near $64.00 on Friday. The stock has spent most of the last two weeks consolidation sideways in the $62-64 zone. LVS is either trying to form a new base or it is merely catching its breath before the next sprint lower.

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:


Pentair Plc - PNR - close: 67.39 change: -0.40

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +13.8%
Average Daily Volume = 2.0 million
Entry on August 26 at $68.90
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/13/14: PNR did not see any follow-through on Thursday's bounce either. Shares retreated -0.6%. If PNR continues to drop on Monday then we could use the weakness as a new bearish entry point.

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: