Option Investor
Newsletter

Daily Newsletter, Tuesday, 9/23/2014

Table of Contents

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

Market Wrap

Small Caps Still Leading

by Jim Brown

Click here to email Jim Brown

The Russell 2000 hit a new six-week low to lead the big cap averages lower.

Market Statistics

The Russell led the big caps lower once again despite an attempt by the Dow, Nasdaq and S&P to break into positive territory mid-morning. The effort was quickly reversed and the steady selling resumed. This is not a market crash. Selling has been steady with no sharp declines or sudden spikes in volatility. This has been orderly profit taking after the big cap indexes set new highs at the same time Alibaba was surging to $99 on Friday. All have rolled over with BABA now trading at $87 and a -12% decline from its highs.

Multiple market analysts have commented on the extreme bullishness seen in the BABA IPO as the reason for the market drop. Once the IPO is over the bullishness disappeared. One could make the case for the Alibaba hype dragging the market higher and probably a case for a sell the news event following that event.

However, the weakness in the small caps began in July not last Friday. The Russell 2000 and the S&P both set new highs on July 1st but that is where they parted company. The Russell immediately began underperforming the big cap indexes. The S&P went on to set several new highs and the Russell continued to lag. Since Labor Day the Russell has been in a steep decline that has accelerated over the last several days. While BABA may have created a sell the news event in the big caps the Russell already had a head start with a -7.2% decline since the high close at 1,208 on July 3rd.

The small caps typically lead on the way up and on the way down and they are definitely the weakest index in the current market. More than 45% of Russell stocks are in a bear market with more than 20% declines from their recent highs. Until the Russell finds a bottom we can expect the big cap averages to be lethargic at best and at the worst they will be followers.

The Dow declined -0.68%, Nasdaq -0.41%, S&P -0.57% and the Russell was hit the worst at -0.94%.


On the economic front the Richmond Fed Manufacturing Survey headline number rose from 12 to 14 and the highest level since March 2011. New orders rose to 14 and a multi-month high. Backorders declined from 15 to 6 but that was still the second highest level in the last eight months. Employment rose from 11 to 17 and also a multi-month high.

This was a good report although the price for raw materials also rose at a 2.1% rate, which was higher than the 1.39% rate in August.

The Richmond Services Survey was flat with August at 21. The retail portion of the index was also unchanged at 37 but that represents strong expansion underway.

Manufacturing Components


The FHFA Purchase Only Home Price Index rose +4.4% for July compared to +5.1% in June and forecasts for a +5.6% gain. Of the nine divisions only 2 posted declines in prices. Those were the middle Atlantic with a -0.5% decline and -0.3% in the Mountain division. This report was ignored as lagging data.

The calendar for Wednesday has New Home Sales and the NAHB Housing Market Index. With home sales falling in recent months these numbers will be critical for sector direction. Builder stocks are in decline and a gain in new home sales could help to reverse this trend. KB Homes (KBH) has earnings before the open and they are not likely to post the same good news that Lennar (LEN) did last week.

Hopefully the Kansas Fed Manufacturing Survey on Thursday will show similar gains to the Richmond survey. However, the Kansas survey is heavily impacted by auto manufacturing and auto sales have also begun to slow. This puts the Kansas numbers at risk of a decline.

The big number for the week is still the Q2-GDP revision on Friday. The official consensus is still 4.3% but there are estimates close to 5.0% growth. This number could be market negative if it came in too hot because it would suggest the Fed could raise rates sooner. If it came in to low if would be Fed positive but economically negative. Something in the 3.8-4.0% range would be the best outcome.

Next week is payroll week with those numbers key for Janet Yellen and Fed direction.


The U.S. and 5 Arab nations attacked Syrian sites on Monday night with 14 ISIL targets hit and 8 Khorasan targets destroyed. The Khorasan organization was made up of al-Qaeda veterans that were focused on attacking Europe and the U.S. and making bombs to be carried on airplanes that could not be seen by metal detectors. Jordan, Saudi Arabia, the UAE, Qatar and Bahrain were the countries participating in the attack. Iraq, Turkey and European allies were noticeably absent.

The U.S. said the Khorasan group was effectively decapitated because they were not expecting to be attacked and had not dispersed their people and assets. The group was targeted because they were actively seeking passport holders from western nations and their plotting was the reason airline security was increased over the last several months. The U.S. said it had intelligence the group was in the final stages of preparing an attack on the USA.

Within hours of the attacks ISIL posted a video saying the U.S. and its allies were embarking on Gulf War III and not since Vietnam has we witnessed such a potential mess in the making. They specifically threatened Saudi Arabia with retaliation for joining in the attacks.

Russia condemned the attacks saying they violated Syrian sovereignty and would "aggravate the situation even further." The further warned that "those who initiated one-sided military scenarios bear full international legal responsibility for the consequences." The U.S. did inform Syria ahead of the strikes and warned the Assad regime not to engage American aircraft. Syria has a sophisticated air defense system and it would have lost that system if it had been used to attack U.S. aircraft.

The market ignored the attack because it had been heavily discussed over the last several weeks. The fact there were five Arab countries involved in the attack blunted any concerns about the Syrian bombing.

One reason for the market's decline could have been the note from Goldman Sachs. Goldman said ten-year yields could rise to 4% over the next 12 months after the end of QE in late October. Goldman believes the end of QE purchases will spike rates and the economy will force the Fed to begin reducing its $4.45 trillion balance sheet sooner rather than later. Yellen said that after QE ends they would continue reinvesting principle that matured in order to maintain the stimulus that is already in the market. Once the Fed was forced to raise rates they would first halt the reinvestment of that principle and let the portfolio begin to decline. The next step would be to hike rates in a "gradual and predictable manner" according to Yellen.

Goldman said that once QE ended and the reinvestment of principle was halted it would turn into "quantitative tightening" and they believe this will occur sooner rather than later. "The impact will begin as soon as QE ends and reinvesting coupons alone will not be enough to offset the roll down of stock" They expect the Fed to begin tightening between June and September of 2015, if not sooner, and the ten-year yield could rise to 4% within 12 months.


Apple shares rallied $1.58 in a bad market after headlines broke that China was about ready to approve the license on the iPhone 6. That had not been expected until December. Opening up China to iPhone 6 sales would be a big boost for Apple sales.

On the negative side the new IOS 8 operating system is not functioning correctly. The new OS is causing apps to crash about 3.3% of the time or 67% more than the prior version. Facebook, DropBox and other heavily used apps are crashing repeatedly as a result of the new OS. The problem has caused DropBox to release a software fix that works around the errors in IOS 8 that are causing the crashes. Older phones are having the most problems. The new IOS includes more than 4,000 new functions and changes and developers are racing to adapt to the changes. According to Apple 46% of Apple devices connected to the App Store are now running IOS 8. Another big complaint is the massive amount of storage required for the new OS. Many users are being forced to delete pictures, videos and other apps from their phones in order to have enough memory to run IOS 8. Apparently users are fighting through the problems because Apple said it sold more than 10 million new phones over the weekend.

I was really hoping for a decline in Apple shares to something in the mid $90s but it does not look like it is going to happen.


Facebook (FB) announced a new ad program for mobile users in order to better compete with Google. The new platform, called Atlas, will be revealed next week. This is a new re-engineered version of the Atlas Advertiser Suite they purchased from Microsoft in 2013. The platform will allow marketers to know what ads Facebook users have seen and interacted with on third party websites. Google reported ad revenue in Q2 of $14.36 billion compared to Facebook's $2.68 billion. Shares of Facebook rallied +$1.50 on the news.


Alibaba (BABA) may have had a successful IPO but the success ended at the close on Friday. Shares are now down 12% from its highs and -5.6% from Friday's close. There appears to be heavy institutional dislike for BABA after the company management hand picked the companies that would get BABA shares at the IPO price. The majority of companies that received shares got only 10% of what they asked for. The vast majority of companies asking for shares got none. Reportedly 25 companies received 50% or more of their requested allocations. This means the stock ownership is very narrow and in theory that should have led to a lot of demand from everyone that did not get an allocation. However, the process soured those that did not get any or very little and shares are being offered for sale but demand is weak. Volume today was 38 million shares and most of that volume was negative with the stock losing -$2.72 for the day to close at $87.

Jack Ma and his close associates may have tried to be too smart about the allocation process and it is coming back to haunt the share price.


The S&P is closing in on the 1980 support level and that is important short term support. This is the level that held the drop on August 15th. While this is being called crucial support it is not. It is only crucial for the very short term. Critical support is more in the 1950 range and the 100-day average or long term uptrend support in the 1930 range.

At this point we should see at least a temporary bounce from the 1980 level because the selling has been slow and steady and not fast and furious. The fast drops are the ones that blow through support and keep going. Steady selling tends to pause at interim support levels and dip buyers on the sidelines interpret those pauses as bottoms. Sometimes that is self fulfilling if enough buyers take the bait. Sometimes the bounces from those support levels just provide a higher entry point for sellers.

We don't know why the market is selling off this week. We only know that it is overdue and the week after option expiration in September is normally down. This is a portfolio restructuring week ahead of the Q3 earnings cycle.

There was a sharp downdraft right at the close and one commentator called it a potential flush. Sorry, a -5 point drop in the S&P is not a flush. We are not yet in flush mode. As long as the selling remains steady we are in distribution mode. When the drop accelerates into panic mode that is when we can start looking for a flush that signals capitulation. We are not there yet and we may not get there if 1980 pauses long enough for dip buyers to wake up from their nap and get back into the market.

Support in round numbers is 1980, 1950, 1930 with the 50-day average at 1976. I always laugh when someone says support is 1951.62 or something similar. Markets rarely stop on a penny, nickel, dime or quarter. They do stop on ranges and sometimes on round numbers like 1980. Don't be too concerned about the small increments and focus on the bigger picture.


The Dow dropped -50 points in the last 10 minutes of trading to close at the lows of the day at 17,058 and a loss of -117 points. This is the first back to back triple digit loss since June. It is also about -300 points off the high at 17,350 that was set on Friday. That is a pretty straight decline on moderate volume of 6.2 billion shares. This suggests the Dow is rapidly moving from overbought to oversold.

It has also reached the prior congestion range from 16,950 to 17,050. This should be decent support. The last decline in the 12th dipped to just below 16,950 and rebounded. Round number support at 17,000 was a price magnet for late August and early September and will likely be a magnet again.

Back to back triple digit declines sounds ominous but the Dow has only been declining for two days. Get a grip! Two days is not a trend. A two day dip is a blip in the long term trend. If the index moves below 16,950 and the 50-day average at 16,937 then we can start to worry.



The Nasdaq sell off has slowed. After two days of drops from 4,610 to a low of 4,513 the minor -19 point decline today was tame. You can see in the losers list below that there were very few big losses. The Nasdaq is closing in on the 4,500 level and it dipped to low of 4,499.87 on the 15th before rebounding to retest the September 3rd high of 4,610. What goes up fast sometimes comes down fast. Now that it is back at the starting point the number of sellers appears to be dwindling. There were numerous tech stocks that bucked the trend today and posted decent gains.

With the 50-day average at 4,489 and round number support at 4,500 it should take some concentrated selling to push the Nasdaq lower. It would have to be heavier than what we saw today. Anything is always possible but unless we are headed into correction territory the Nasdaq may be near a bottom.



The Russell is closing in on 1115 and support from early August. At the rate it is falling we could see an overshoot. There were two intraday dips to 1108 in August but both produce immediate rebounds. Let's hope that trend continues. The 1087 level is a 10% correction for the Russell. The 50-day is solidly under the 200-day for a death cross but of the last 11 times that has happened only 2 of them led to losses over the next 12 months. The average gain over the next 12 months was 11%.


I believe the selling may be drawing to a close. That does not mean there is an instant rebound in our future and we could trade lower for the rest of the week but I think the majority of the decline is over UNLESS we are headed for correction territory. Every three day decline in the last year has been bought even if it was just an oversold short squeeze. I would tighten your stops on any bearish plays because you know there is a short squeeze lurking in our future.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Ignoring The Market's Weakness

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Facebook, Inc. - FB - close: 78.29 change: +1.49

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 33 million
Entry on September -- at $---.--
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Facebook is the dominant social media company on the planet. Their social networking platform has 1.23 billion monthly active users and hundreds of millions of daily active users.

The stock was showing relative strength today and appears to be ignoring the market's three-day decline. Helping fuel the rally today (+1.9%) was news of a new ad platform. The Wall Street Journal broke the story and CNBC followed up with news on FB's new ad platform called Atlas. This new program will provide marketers with more tools on measuring the impact of their advertisements' success and helping them better target the right audience. The Atlas program will also tracks users across the web.

Google is the king of online advertising and its sales are about five times what FB's are currently. Yet FB has a huge advantage because they have so many details about each of its users. Plus, FB can track users across multiple devices from desktop PCs to mobile devices like your smartphone.

Yesterday FB was making headlines with news on its virtual reality system. Many pundits harpooned FB for spending $2 billion to buy Oculus, a leading VR design firm, back in March. Proponents say FB is planning ahead for the long-term future were VR could be huge. FB did unveil a new prototype VR headset called "Crescent Bay" and the company plans to launch a new full-scale consumer device in 2015.

This is a new all-time closing high for FB. If this rally continues we want to hop on board. Tonight I'm suggesting a trigger to buy calls at $78.75. We're not setting an exit target yet but I will note the point & figure chart is bullish and forecasting at $91.00 target.

Trigger @ 78.75

- Suggested Positions -

Buy the 2015 Jan $85 call (FB150117c85) current ask $3.05

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Traders Turning Nervous?

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 posted its third loss in a row and closed at five-week lows on Tuesday. Are traders turning nervous with the disappointing economic data in Asia and Europe?

LMT, NOC, GTLS and HLF all hit our stop loss today.

CMI and SBUX hit our bearish entry points.


Current Portfolio:


CALL Play Updates

Amgen Inc. - AMGN - close: 140.68 change: -1.50

Stop Loss: 139.65
Target(s): To Be Determined
Current Option Gain/Loss: - 6.0%
Average Daily Volume = 3.0 million
Entry on September 17 at $140.25
Listed on September 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: The profit taking in shares of AMGN continued on Tuesday with a -1.0% decline. The stock is nearing what should be support at the $140.00 level. A dip near the $140.00 mark could be used as a new bullish entry point although given the market's recent weakness investors may want to wait and buy a bounce from $140 instead.

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.

- Suggested Positions -

Buy the 2015 Jan $150 call (AMGN150117C150) entry $3.30*

09/22/14 new stop @ 139.65
09/20/14 new stop @ 138.25
09/17/14 triggered @ 140.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Tableau Software, Inc. - DATA - close: 70.91 change: -1.16

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on September -- at $---.--
Listed on September 16, 2014
Time Frame: 4 to 12 weeks
New Positions: Yes, see below

Comments:
09/23/14: There was a column on the Bloomberg.com website today suggesting that in the wake of news that HPQ and EMC would not be merging (evidently they talked about it for months) that EMC might choose to bolster its business by buying growth with a company like DATA. Normally M&A rumor about a potential buyout is bullish but shares of DATA did not react. Instead DATA flirted with a breakdown under support near $70 and its 200-dma.

We are still on the sidelines with a suggested entry point at $74.25.

Earlier Comments: September 16, 2014:
"Put together an Academy Award-winning professor, a brilliant computer scientist at the world's most prestigious university, and a savvy business leader with a passion for data. Add in one of the most challenging problems in software - making databases and spreadsheets understandable to ordinary people. You have just recreated the fundamental ingredients for Tableau's products." That's how DATA introduces itself on the company website.

"Tableau Software helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 21,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The company's business is growing. Back in May this year the company reported earnings that beat estimates on both the top and bottom line. Management then raised their guidance. They did it again in July. DATA reported its Q2 results on July 31st. Analysts were expecting a loss of $0.04 a share on revenues of $79.4 million. DATA delivered a profit of $0.05 with revenues soaring +81.8% to $90.7 million.

According to the company's earnings release they saw license revenues up +80% year over year to $60.4 million. They added over 2,200 new customers, which surpassed their four-quarter average of 1,650. They also closed 157 deals worth more than $100,00 each, which is a +96% increase from a year ago. Management then raised their 2014 revenue guidance well above Wall Street's estimates.

On September 16th a Credit Suisse analyst adjusted their rating from "neutral" to "outperform" and bumped their DATA price target from $87.50 to $100 thanks to the company's technology advantage and strong international sales. The point & figure chart is eve more positive with a $119.00 target.

Bears should be worried, The recent breakout past technical resistance at its simple 200-dma is bullish. Traders just bought the dip near this moving average today. The most recent data listed short interest at 11% of the small 41.1 million share float. That might be enough to spark some short squeezes.

Tonight we're suggesting a trigger to buy calls at $74.25. I'm listing both the October calls and the 2015 January calls. Which one depends on your time frame.

Trigger @ $74.25

- Suggested Positions -

Buy the OCT $75 call (DATA141018C75)

- or -

Buy the 2015 Jan $80 call (DATA150117C80)

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


Mallinckrodt Public Limited Co. - MNK - close: 88.58 change: -0.37

Stop Loss: 85.65
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
Average Daily Volume = 4.85 million
Entry on September 17 at $87.25
Listed on September 11, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: MNK produced a quiet session. Traders bought the dip twice near $88.00 on Tuesday. I am not suggesting new positions at this time.

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.

*consider smaller positions* - Suggested Positions -

Long OCT $90 call (MNK141018C90) entry $3.00*

09/22/14 new stop @ 85.65
09/20/14 new stop @ 84.65
09/17/14 triggered @ 87.25
Option Format: symbol-year-month-day-call-strike


Nike, Inc. - NKE - close: 80.12 change: -0.59

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: -13.8%
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:
09/23/14: NKE is testing prior resistance and what should be significant support at the $80.00 level today. Normally I would consider this pullback to support a new bullish entry point. However, NKE is scheduled to report earnings on Thursday evening. Thus I'm not suggesting new positions at this time.

We may choose to exit prior to the announcement.

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*

09/20/14 new stop @ 79.85
09/20/14 FYI: NKE earnings are coming up on Sept. 25th.
09/16/14 new stop @ 79.40
09/05/14 triggered @ 80.50
Option Format: symbol-year-month-day-call-strike


Union Pacific Corp. - UNP - close: 107.80 change: -0.70

Stop Loss: 106.90
Target(s): To Be Determined
Current Option Gain/Loss: -17.6%
Average Daily Volume = 2.5 million
Entry on September 17 at $108.25
Listed on September 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: The transportation average just posted its third decline I a row and fell to new two-week lows. UNP is down four days in a row but it's holding up better than the transportation average. What is troubling is today's breakdown below support at $108.00 in UNP.

I am not suggesting new positions at this time.

Earlier Comments: September 16, 2014:
If you believe the U.S. economy is getting better then transports should perform well. Dow Theory suggests we can't have a significant rally without the transports. Thus far the group has shown leadership this year with the Dow Jones Transportation average up +15.1% in 2014. The railroads have been a strong part of that leadership.

UNP is one of the biggest. The company has been around for 150 plus years. They have over 46,000 employees, more than 8,200 locomotives, and pull nine million carloads a year.

According to the company website, "Union Pacific operates North America's premier railroad franchise, covering 23 states in the western two-thirds of the United States. Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner."

Believe it or not but the shale gas and shale oil energy boom in the U.S. has played a part in the railroad strength. U.S. energy production has soared with the Energy Information Administration reporting U.S. crude oil production at 8.5 million barrels a day in June. That's the highest production since July 1986. A lot of that crude oil gets moved by train.

Back in 2008 only 9,500 carloads a year were crude oil. Today that has surged to over 407,000 railcars of crude oil a year.

The railroad group continues to see strong traffic in 2014. The upcoming harvest will also put more demand on the railroads. American farmers are looking at a record-breaking crop this year.

Currently shares of UNP Have been consolidating sideways at all-time highs just under the $108.00 level. Tonight we're suggesting a trigger to buy calls at $108.25.

- Suggested Positions -

Long NOV $110 call (UNP141122C110) entry $2.15*

09/20/14 new stop @ 106.90
09/17/14 triggered @ 108.35, gap higher. Trigger was $108.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Autoliv, Inc. - ALV - close: 95.59 change: -0.95

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +12.1%
Average Daily Volume = 392 thousand
Entry on September 16 at $98.45
Listed on September 15, 2014
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/23/14: The sell-off in ALV continues with a -0.98% decline on Tuesday. Shares are nearing what might be technical support at the simple 300-dma. I would not be surprised to see a bounce.

Earlier Comments: September 15, 2014:
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.

- Suggested Positions -

Long OCT $95 PUT (ALV141018P95) entry $1.65*

09/22/14 new stop @ 98.25
09/16/14 triggered @ 98.45
Option Format: symbol-year-month-day-call-strike


Cummins Inc. - CMI - close: 134.59 change: -1.45

Stop Loss: 138.25
Target(s): To Be Determined
Current Option Gain/Loss: -3.3%
Average Daily Volume = 1.26 million
Entry on September 23 at $134.65
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: CMI ended the day at new seven-month lows. Shares also hit our suggested entry point at $134.65. I would still consider new positions now at current levels.

We are moving our stop loss down to $138.25.

Earlier Comments: September 22, 2014:
CMI is in the industrial goods sector. The stock has been in a long-term albeit choppy up trend since mid 2012.

Company describes itself as, CMI, "a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 48,000 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 6,800 dealer locations. Cummins earned $1.48 billion on sales of $17.3 billion in 2013."

CMI is actually developing a bullish trend of beating Wall Street's estimates and raising guidance. Unfortunately investors seem to have forgotten about this growth. Shares have been underperforming since CMI peaked in June. It's been a steady trend of lower highs.

It does not help that Dow-component Caterpillar (CAT), considered a competitors for CMI, recently warned of slowing sales around the world.

Technically CMI's recent oversold bounce just failed at the $140.00 level. The stock has also broken down below a long-term trend line of support (see the weekly chart below).

Last week's low was $134.77. Tonight we're suggesting a trigger to buy puts at $134.65. We are not setting an exit target yet but the point & figure chart is bearish with a $114.00 target.

- Suggested Positions -

Long DEC $135 PUT (CMI141220P135) entry $5.90*

09/23/14 new stop @ 138.25
09/23/14 triggered @ 134.65
*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


iShares Russell 2000 ETF - IWM - close: 111.32 change: -1.05

Stop Loss: 113.05
Target(s): To Be Determined
Current Option Gain/Loss: +70.0%
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:
09/23/14: The relative weakness in the small caps continues. Today the IWM fell another -0.9% and closed below potential technical support at the simple 300-dma.

Tonight we are moving the stop loss down to $113.05.

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

09/23/14 new stop @ 113.05
09/22/14 new stop @ 114.35
09/10/14 triggered @ 114.85
Option Format: symbol-year-month-day-call-strike


Lennox Intl. - LII - close: 78.18 change: -0.58

Stop Loss: 80.25
Target(s): To Be Determined
Current Option Gain/Loss: - 5.1%
Average Daily Volume = 391 thousand
Entry on September 22 at $79.25
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: Today's -0.7% decline is LII's fourth drop in a row. I would not chase it here. We are lowering our stop loss to $80.25.

Earlier Comments: September 20, 2014:
LII is in the industrial goods sector. Unfortunately for shareholders the stock is significantly underperforming with a -6.1% decline in 2014. That compares to a +4.1% gain in the XLI industrials ETF and a +4.2% gain in the Dow Industrials.

This is a simple momentum trade. After a three-year rally from its 2011 lows near $25 the stock traded near $95.00 in early 2014. Shares have since been struggling. Traders started selling the rallies. Now LII has broken down below its simple 200-dma and its long-term up trend (see weekly chart below). The last few days have seen LII create a "death cross" with the 50-dma crossing under the 200-dma.

This past week saw the oversold bounce in LII fail near prior support near $82.00 and its 300-dma. Friday's low was $79.33. I'm suggesting a trigger for bearish positions at $79.25. Potential support looks like $75.00 and $70.00. Currently the Point & Figure chart is suggesting at $68.00 target.

- Suggested Positions -

Long DEC $80 PUT (LII141220P80) entry $3.90

09/23/14 new stop @ 80.25
09/22/14 triggered @ 79.25
Option Format: symbol-year-month-day-call-strike


Las Vegas Sands - LVS - close: 61.00 change: +0.76

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: +196.6%
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:
09/23/14: LVS is still finding support near $60.00. The stock managed a +1.26% bounce today. 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*

09/22/14 new stop @ 62.65
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: 66.81 change: -0.26

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +16.6%
Average Daily Volume = 2.0 million
Entry on August 26 at $68.90
Listed on August 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: PNR is still fading lower with a -0.38% decline today. While the larger trend still looks bearish I'd like to see a drop under $66.00 before initiating 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


Starbucks Corp. - SBUX - close: 73.96 change: -0.64

Stop Loss: 76.51
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
Average Daily Volume = 3.6 million
Entry on September 23 at $74.25
Listed on September 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: Our new trade on SBUX is now open. The stock gapped down at $74.29 this morning but SBUX didn't hit our suggested entry point at $74.25 until after 11:00 o'clock. I would still consider new bearish positions at current levels.

Earlier Comments: September 22, 2014:
Summer is over and fall is officially here. That has many consumers thinking of hot coffee and seasonal fare like SBUX's pumpkin spice lattes. Unfortunately Wall Street doesn't appear too keen on SBUX, if you're looking at the share price action.

This company is in the services sector. They are a global power house as a specialty retailer of what some might consider overpriced coffee and sugary drinks with too many calories. After 30 years in business they have grown to more than 20,000 stores and over 180,000 full time employees.

The stock peaked in late 2013. It looked like the correction was over back in April this year and SBUX did rally from $68 to $79 by July. Yet the stock has been dead money the last several weeks and now it's starting to underperform the market.

That spike you see on the daily chart was a reaction to its Q2 earnings results. The recent breakdown under $76 is bearish and the oversold bounce just failed near this level. Today's intraday low was $74.33. We're suggesting a trigger to buy puts at $74.25.

- Suggested Positions -

Long NOV $72.50 PUT (SBUX141122P72.5) entry $1.60*

09/23/14 triggered @ 74.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Tupperware Brands Corp. - TUP - close: 70.41 change: -1.20

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +13.8%
Average Daily Volume = 399 thousand
Entry on September 22 at $71.75
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/23/14: The breakdown in TUP is accelerating. Shares lost -1.6% today and closed at new 18-month lows.

Tonight we're adjusting our stop loss down to $72.25.

Earlier Comments: September 20, 2014:
TUP was founded back in 1946 and over the last 60 years the company has grown from their plastic food prep and storage line into multiple brands.

According to the company website, "Tupperware Brands Corporation is the leading global marketer of innovative, premium products across multiple brands utilizing a relationship based selling method through an independent sales force of 2.9 million. Product brands and categories include design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware brand and beauty and personal care products through the Armand Dupree, Avroy Shlain, BeautiControl, Fuller Cosmetics, NaturCare, Nutrimetics, and Nuvo brands."

Unfortunately this year has not been the best for TUP's stock price. The company missed earnings expectations and lowered guidance back in January. You can see the market's reaction with the big drop in late January on the chart.

It took three months but TUP slowly clawed its way back toward resistance near $85 and its simple 200-dma. That area proved to be a lid on the stock price. Then in July the company disappointed again. It's Q2 earnings report disclosed that profits fell -38% to $47.6 million, down from $76.3 million a year ago. Management then lowered its full year guidance when they reported earnings and shares plunged again.

The weekly chart has produced a bearish head-and-shoulders pattern. The daily chart doesn't look healthy either. The Point & Figure chart is bearish and suggesting at $58.00 price target.

There is short-term support near $72.00. I'm suggesting a trigger to buy puts at $71.75.

- Suggested Positions -

Long 2015 Jan $70 PUT (TUP150117P70) entry $2.59

09/23/14 new stop @ 72.25
09/22/14 new stop @ 72.80
09/22/14 triggered @ 71.75
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Lockheed Martin - LMT - close: 176.34 change: -2.65

Stop Loss: 177.25
Target(s): To Be Determined
Current Option Gain/Loss: + 8.6%
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:
09/23/14: LMT suffered its second day of profit taking and the pullback accelerated with a -1.48% decline. Shares hit our new stop loss at $177.25.

The story has not changed for LMT. We are still long-term bullish here but we might get a better entry point on a dip near $170 if this market weakness continues.

- Suggested Positions -

DEC $180 call (LMT141220C180) entry $3.45* exit $3.75** (-8.6%)

09/23/14 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
09/22/14 new stop @ 177.25
09/20/14 new stop @ 173.75
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:


Northrop Gruman - NOC - close: 128.84 change: -3.06

Stop Loss: 130.85
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
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:
09/23/14: Previously the defense-related names had been showing relative strength. Stocks like LMT and NOC were hitting all-time highs last week. This week has been nothing but profit taking. NOC hit our new stop loss at $130.85 today.

- Suggested Positions -

NOV $135 call (NOC141122C135) entry $1.82* exit $1.79 (-1.6%)

09/23/14 stopped out
09/22/14 new stop @ 130.85
09/20/14 new stop @ 128.95
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

chart:


CLOSED BEARISH PLAYS

Chart Industries - GTLS - close: 63.14 change: +1.27

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: +12.0%
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:
09/23/14: It was shaping up to be another lackluster session for shares of GTLS. Then something happened about 2:49 p.m. The stock reversed sharply higher and rallied from $61.30 to almost $64. There was a new rumor that GTLS was a takeover target and it was enough to spark some short covering.

Our new stop loss was hit at $63.65.

- Suggested Positions -

OCT $65 PUT (GTLS141018P65) entry $2.50* exit $2.80** (+12.0%)

09/23/14 stopped out
09/22/14 new stop @ 63.65
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: 44.09 change: +3.88

Stop Loss: 44.25
Target(s): To Be Determined
Current Option Gain/Loss: + 30.8%
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:
09/23/14: HLF dropped more than $4.00 yesterday (-10%). Today it nearly reversed that move with a +9.6% gain. Shares were higher at their best levels of the session but the bounce stalled near resistance at $45.00 and its simple 10-dma.

HLF hit our new stop loss at $44.25.

(small positions) Suggested Positions -

Oct $45 PUT (HLF141018P45) entry $2.37 exit $3.10* (+30.8%)

09/23/14 stopped out
09/22/14 new stop @ 44.25
09/09/14 triggered @ $47.90
Option Format: symbol-year-month-day-call-strike

chart: