Option Investor
Newsletter

Daily Newsletter, Monday, 9/15/2014

Table of Contents

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

Market Wrap

Awaiting The Fed

by Thomas Hughes

Click here to email Thomas Hughes
The market is still waiting on the FOMC to point the way.

Introduction

It was another quiet, calm day of trading while the market awaits the Fed. The major indices all gently tested support in a day of nearly flat trading.

Asian and European markets were both mixed to start the day. Asian markets were affected by weaker than expected data from China that shows out-put and investment were both weaker than expected. Additionally, Japanese markets were closed for a holiday making trade volumes light. In Europe the struggling economy and the geopolitical standoff in the Ukraine continues to weigh on stocks with the added concern of this weeks Scottish referendum for independence.

Futures trading on the US indices was equally mixed with the market indicated to open flat to negative during the earliest part of the morning. Trading lifted somewhat going into the open but trading remained weak throughout the day. The SPX opened a point of two lower and hovered between -1 and -5 all morning. The Dow managed to hold above break even for the day but the NASDAQ composite suffered some pretty steep losses in the range of -50 points.

Market Statistics

Needless to say there is a lot for the market to wait for this week. The Fed I think is first and foremost; the taper, the verbiage around “considerable time”, the scope of interest rate hikes and anything else the market grabs onto will be the main market driver. After that there are 15 economic releases not counting the FOMC and energy inventories, including two regional Fed reports. After that and of lesser importance to us is the outcome of the Scottish referendum and a slate of corporate events. Apple releases the new iPhones on Friday and has already announced that the initial offering has been overwhelmed by demand. Microsoft announced its acquisition of game maker Mojang and there is an expected change to the S&P 500 on Friday.

After lunch trading was just about the same. The SPX drifted in a tight range below break even for most of the afternoon. There was a little strength late in the day that brought the index up into the green but it did not last. The NASDAQ was hit especially hard today, losing more than -1%, with the Dow Jones the only major average to close in the green. A sell of in high growth stocks like Tesla and Netflix, -9% and -3% respectively, was the cause of most of the losses.

Economic Calendar

The Economy

The September reading of the Empire State Survey of Manufacturing expanded well above expectations. The reading came in at 27.54, more than 13 points above the previous months 14.59 and and 10 points above the expected 16. This is the highest level of manufacturing in the New York region since October of 2009. New orders, shipments and prices received all moved higher while prices paid and unfilled orders both fell. Based on the increase in prices received and decrease in prices paid it looks like margins could be on the rise in NY. The index of expected activity also rose this month in expectation of a solid fourth quarter. This report was released at 8:30 and helped to lift the futures trade off of its morning low.

Industrial production and capacity utilization were both released at 9:15AM and helped to curb the positive spin that Empire Manufacturing data put on the market. Both fell in this months data with the drops blamed largely on the expected seasonal decline in auto manufacturing. The big three automakers typically slow down production in the late summer, a move they skipped last year in order to build inventory. Both employment indicators within the report rose pointing to an increase in jobs and hours worked, contrary to the recent jobs report. Production declined by -0.10% versus an expected rise of +0.3%, this is following a +0.2% gain last month. Capacity Utilization fell to 78.80% from 79.10%, 3/10ths, versus an expected gain of 2/10ths. Moody's Survey Of Business Confidence remains positive. Mark Zandi reports that “Business sentiment is strong and stable, particularly in the United States. Responses to the business survey questions are upbeat across the board and are particularly positive regarding the economy’s prospects through the remainder of the year. Hiring intentions also remain strong, inconsistent with the weaker U.S. employment gain in August.” There are only two reports scheduled for tomorrow; Long Term TIC Flows and the Producer Price Index.

According to FactSet the earnings growth expectations for Q3 remain the same at 6.2%. This is down from 6.9% in Q2. The telecom sector is still expected to produce the greatest earnings growth with consumer discretionary the only sector expected to decline.

The Oil Index

Oil traded mixed today as well. WTI had been down as much as -$0.75 before reversing near mid-day to add $0.65 to Friday's closing price. Brent also traded lower but was not able to recapture break even before the close. The reason for the drop was the weaker than expected data from China, putting additional pressure on already declining demand expectations. It is unclear what caused the mid day turn around in WTI but it may have simply been a technical bounce from the 7 month low near $91 or short covering, or both.

The Oil Index fell sharply in the early session and gapped lower at the open, falling below the long term trend line. The mid day turnaround in oil prices helped the index to regain the trend line and rise nearly 1% by the close of the day. The oil index has been in a correction of late, as oil prices tumble, and is now beginning to catch up with the underlying commodity. MACD reached a peak of Friday that is not extreme but a little bigger than the last bearish peak, convergent with the new low set by the index at today's open. This usually leads to a retest of lows and possible lower lows. However, the long term trend is up so it is not quite time to start thinking about a bearish trade just yet. Today's action shows that there is interest in the sector along the long term trend so we need to wait and see what happens over the next few days.


The Gold Index

Gold prices hovered just above break even from Friday's closing prices. Gold added about $2, trading just above $1230 and a 7 month low. Gold prices are being pressured heavily by Fed expectations and have corrected to trend following the summer flight-to-safety. Expectations have driven gold to a near term extreme that may produce a bounce back once the Fed statement is released but my long term targets have gold back to $1200.

The Gold Index traded higher as well, gaining close to 1% in a move up from support. The index has fallen over -10.5% in the last two weeks and is now consolidating above a long term support zone. The momentum is bearish but has peaked in the short term on the daily charts, consistent with support, but is still increasing longer term on the weekly charts. Stochastic on the other hand has not peaked and is crossing the lower signal line, indicating weakness in the index. While highly susceptible to gold prices and the Fed, the Gold Index is in the hands of traders with low expectations of profits from the sector and is heading lower. Support is between $90 and $92 right now, just below the current levels with downside targets on a break as low as $80 in the short term.


In The News, Story Stocks and Earnings

Apple announced some data relating to iPhone 6(+) sales today. They reported a record, no surprise there, 1st day pre-order ever for one of it's products. Pre-orders totaled more than 4 million and have exceeded initial supply. They are saying that it may take up to 6 weeks for some of these to ship. Yet another great problem for Apple to have, they sold all their phones and now they have to make more. Another story on Apple speculated that the company could earn as much as $0.15 for every $100 transaction on its new Pay service which could be a serious addition to income and one not tied to sales of products, just usage. Shares of Apple opened at the recent high but sold off during the day. Momentum is still bearish but about to cross the zero line so there could be a near term break. Stochastic however is still weak so I'd be careful of whipsaws for now. Current resistance is around $103.75 with support near $95.


Tesla was downgraded today and accounted for much of the loss in the NASDAQ. An analyst at Morgan Stanley said the shares are still worth more, just not right now. His sentiment is an echo of words spoken by Tesla CEO Elon Mush not once but at least twice over the last year to the effect he didn't think the shares were worth what they were currently trading for, at least not yet. The downgrade sparked a -9% drop in the stock that may have been exacerbated by fund raising executed by would be owners buyers of Alibaba, due to IPO Friday. Today's move has brought Tesla down to the $250 region and near the long term trend line. Morgan Stanley's target for the stock is still over $300, odd in the face of today's comments.


Microsoft announced the purchase of game maker Mojang, creator of Minecraft. The deal is worth over $2.5 billion but does not include Minecraft, the companies founders or top executives. What Microsoft is said to be getting is a “loyal and largely young following” which is good but now what are they going to do with it. And will they even be able to keep it in the first place. Shares of Microsoft fell over 1% on the news. The stock is just off a recent high with divergent indicators suggesting a short term consolidation or correction is likely. There is near to short term support just below today's closing level near $45 with short to long term support near $42.50.


Ken Feinberg announced the first settlements for victims of the GM ignition switch recall scandal. The first findings are that at minimum 19 deaths have been linked to the faulty switches with more to come. Shares of GM traded higher today but are below my support line at this time. The indicators are consistent with long term support at this level which is, based on the 12 month range, not an unattractive entry for longer term positions.


The Indices

All the indices were soft today but the NASDAQ really took a beating. A sell off in high growth names like Tesla and Netflix helped to send the tech heavy index down by over 1%. This move is due in part to the half cocked downgrade for Tesla and also in part to a possible pre-Alibaba IPO sell off. The speculation is that money is being raised by investors in order to buy shares of the Chinese internet retailer. It is also options expiration week which could have something to do with it as well. Today's move brought the NASDAQ down to the short term 30 day moving average where it was halted. The indicators are bearish at this time but with strong support just below the current level so any move may be small and only serve to confirm support.


The Dow Jones Transportation Average also fell today, but not by quite so much. The transports lost only -0.36% in today's session, also coming to rest just above support. This support, like with the NASDAQ and other indices, is sitting on the previous all time high set in late July. It looks like the index has calmed down and is now holding its breath waiting for the next “something” to happen. The trend is up, the index is above support and trading near all time highs so I am leaning toward that something being a rally. The indicators are neutral but still strong; MACD is hovering on the zero line and stochastic is trending sideways with %D hovering on the upper signal line.However, there is some room for the index to move down should the fed disappoint or if the market just decides it's time to take some money off the table. A break of support at 8,500 would find the trend line about 250 points below with the short term moving average in between.


The S&P 500 traded in the red most of the day in a range between -1 and -5. Late in the day the index powered higher and popped into the green a couple of times before returning back to the original range. At the close the broad market was off by only -0.07 points and sitting on support; support consistent with the all time highs set back over the summer. The indicators are bearish still but also in line with support over the short to long term. This support level may be tested further but the longer term trends are still up so I think an downside will be limited. A break below 1980, which was approached several times today, could take the index down as much as 80 points before reaching the trend line with additional near and short term supports in between.


The Dow Jones Industrial Average was able to hold in the green all day today; dividends and stability attracting investors while the Fed meeting is still a question. The blue chip index gained a little over a quarter percent today in a move up from the short term moving average. This index is still beneath the resistance of the August all time highs but still supported. The indicators are consistent with support at this level but that support may be tested. If broken, around 16,950, the index could move down to 16,750 in the near term with a full correction to trend about 6% lower near 16,000.


It really is a wait and see time for the market now. The Fed is on the horizon and what they do, don't know and hint at doing carries a lot of weight. As far as the market goes I know what it looks like is happening, and what I want to happen, but that doesn't mean it will happen. It looks like we're setting up for another leg up but there is a lot that could happen between now and the end of the week to change that.

The FOMC meeting emerged as a target pivot point for me a few weeks ago and it turns out to have been a pretty strong one. The markets have been trading sideways to down for just over three weeks now and it looks like this will keep up at least until then, the FOMC meeting that is.

A lot of this market weakness is also due to soft commodity prices as well. Low oil and low gold are hurting their respective sectors and adding downward pressure to the indices. This may not let up for a while and could be amplified by Fed speak.

The long term trends in stocks and the economy are up are and I don't see that changing. There are near term and even short term reasons to be wary but when aren't there? It is possible that the market will sell off after the Fed announcement but if there is I still see it as a potential opportunity to buy on the dip.

Until then, remember the trend!.

Thomas Hughes


New Option Plays

Breaking The Long-term Trend

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Autoliv, Inc. - ALV - close: 98.84 change: -1.25

Stop Loss: 101.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 392 thousand
Entry on September -- at $---.--
Listed on September 15, 2014
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The auto part makers have been a bright spot in the market over the past year and a half or so. It looks like the group is starting to diverge. Stocks like DLPH, TRW, and LEA still look relatively strong. Yet BWA and ALV have broken down.

Who is ALV? According to their website, "For over 60 years, Autoliv has focused on one very important issue: saving lives. Our innovative products save 30,000 lives every year and prevent 10 times as many injuries. We are first and foremost a safety technology company. In the world of automotive occupant safety, we were the first to introduce the two- and three-point seat belt system and airbags for front and side impacts. We were also the first to launch pyrotechnic belt pretensioners and pedestrian protection systems. We develop, manufacture and market airbags, seatbelts, steering wheels, passive safety electronics and active safety systems such as radar, night vision and camera vision systems. We also produce anti-whiplash systems, pedestrian protection systems and integrated child seats. Autoliv Inc. is the result of a merger in 1997 of the Swedish company Autoliv AB, and the U.S. company Morton ASP."

Earnings momentum may have peaked. The company's most recent earnings report back in July was a miss. Wall Street expected a profit of $1.55 a share but ALV only delivered $1.45 with profits falling -2% from a year ago. Revenues did come in above expectations at $2.38 billion. Yet the sell-off on earnings may have started the current correction in ALV stock.

Technically shares look bearish. ALV produced a double top with the peaks in June and July. The bullish breakout past resistance near $104 in early September proved to be a bull trap. Now ALV is breaking support at its simple 200-dma and its long-term bullish trend (see weekly chart below).

Tonight we're suggesting a trigger to buy puts at $98.45.

Trigger @ $98.45

- Suggested Positions -

Buy the OCT $95 PUT (ALV141018P95) current ask $1.50

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Momentum Names Hit Hard

by James Brown

Click here to email James Brown

Editor's Note:

Momentum and growth stocks were hit hard today. Many were blaming Alibaba's (BABA) upcoming IPO. The idea is that investors need to raise cash to participate in BABA's IPO on Friday and to do that they sold other tech stocks.

NOC hit our entry point. SAVE was stopped out.


Current Portfolio:


CALL Play Updates

Amgen Inc. - AMGN - close: 137.97 change: +0.08

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:
09/15/14: Biotech stocks were some of the market's worst performers today. Yet AMGN held up reasonably well. We are still waiting for a breakout past resistance. 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


Concur Technologies - CNQR - close: 107.32 change: -2.74

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +56.4%
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:
09/15/14: Growth and momentum names were hit hard today and CNQR lost -2.48%. The close below its simple 10-dma is short-term bearish.

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


F5 Networks, Inc. - FFIV - close: 123.87 change: -1.21

Stop Loss: 121.95
Target(s): To Be Determined
Current Option Gain/Loss: -37.6%
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:
09/15/14: FFIV received a price upgrade this morning with one firm raising their target price to $151 a share. Shares briefly spiked higher at the open but the sell-off in technology stocks drug FFIV lower. The stock lost -0.96%.

I am not suggesting new positions at this time.

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


Lockheed Martin - LMT - close: 175.60 change: +1.17

Stop Loss: 169.75
Target(s): To Be Determined
Current Option Gain/Loss: - 4.3%
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:
09/15/14: LMT displayed relative strength today with a +0.6% gain. The stock saw slow and steady buying all session today. Today's move looks like a new entry point.

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


Mallinckrodt Public Limited Co. - MNK - close: 85.78 change: -0.47

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:
09/15/14: Shares of MNK quietly consolidated sideways in a narrow range. They did test their 10-dma intraday. We're on the sidelines waiting for a new high. Our suggested entry point to buy calls is $87.25.

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)

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


Nike, Inc. - NKE - close: 81.61 change: -0.23

Stop Loss: 77.95
Target(s): To Be Determined
Current Option Gain/Loss: +20.0%
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:
09/15/14: NKE dipped toward $81.00 and its 10-dma before trimming its losses today. If you believe the market has further to fall then wait for a dip into the $80.50-80.00 zone as our next entry point on NKE.

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


Northrop Gruman - NOC - close: 130.57 change: +0.58

Stop Loss: 127.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.8%
Average Daily Volume = 870 thousand
Entry on September 15 at $130.55
Listed on September 13, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/15/14: Our new play on NOC has been triggered. Defense names were showing relative strength and NOC rallied to a new high. Our entry point was hit at $130.55.

Earlier Comments: September 13, 2014:
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.

- Suggested Positions -

Long NOV $135 call (NOC141122C135) entry $1.82*

09/15/14 triggered @ 130.55
*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


Splunk, Inc. - SPLK - close: 55.64 change: -3.38

Stop Loss: 53.95
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

Comments:
09/15/14: It was a rough day for many tech stocks on the NASDAQ. SPLK was one of them with profit taking shaving off -5.7%. The stock traded down to $54.00 intraday. We think the sell-off is overdone. We'll try and take advantage of this weakness and move the entry trigger to buy calls down to $57.25. We'll adjust the stop loss to $53.95.

We will also change the strike price from the Nov. $65 call to the Nov. $60 call.

Earlier Comments: September 13, 2014:
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 @ $57.25 *smaller positions, higher risk*

- Suggested Positions -

Buy the NOV $60 call (SPLK141122C60) current ask $3.60

09/15/14 Strategy update: Change the entry point trigger from $61.55 to $57.25 and change the stop loss from $57.90 to $53.95
Adjust the strike price from Nov. $65 to Nov $60 call
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Chart Industries - GTLS - close: 64.74 change: -0.09

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:
09/15/14: GTLS didn't see a lot of movement today. The stock gapped down at the open but pared its losses by the close.

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


Herbalife Ltd. - HLF - close: 45.32 change: -0.71

Stop Loss: 50.55
Target(s): To Be Determined
Current Option Gain/Loss: +13.9%
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:
09/15/14: Bill Ackman isn't the only one who believes HLF is a big pyramid scheme. Five former HLF distributors have been suing HLF claiming the same thing. The New York Post ran a story today saying that HLF and the former distributors were nearing a settlement. Meanwhile shares of HLF continued resumed their sell-off after a two-day pause.

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: 114.11 change: -1.26

Stop Loss: 118.15
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
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:
09/15/14: The small caps continued to sink and the IWM has broken down below several key moving averages including the 50-dma, 100-dma, and 200-dma.

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: 62.15 change: -1.05

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +170.0%
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:
09/15/14: Casino stocks were showing relative weakness. Both LVS and WYNN look fragile here. LVS is poised to breakdown under support near $62.00 soon.

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: 67.33 change: -0.06

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:
09/15/14: PNR did not see a lot of movement today and closed virtually unchanged. I suggest waiting for a drop under today's low (67.80) before considering new positions.

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

Spirit Airlines - SAVE - close: 68.36 change: -1.81

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -67.1%
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:
09/15/14: It was a rough day for airline stocks. The XAL underperformed the wider indices with a -2.0% decline. Shares of SAVE lost -2.5% and broke support near $70.00. Our stop was hit at $69.75.

- Suggested Positions -

OCT $75 call (SAVE141018C75) entry $2.13* exit $0.70** (-67.1%)

09/15/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
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: