Option Investor
Newsletter

Daily Newsletter, Wednesday, 9/24/2014

Table of Contents

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

Market Wrap

Dead Cat Bounce or New Rally

by Keene Little

Click here to email Keene Little
The stock market was short-term oversold heading into this morning and the sharp bounce off the morning low is either a dead cat bounce or it could be the start of the next rally leg. We should find out which in the next couple of days.

Wednesday's Market Stats

Tuesday afternoon's choppy decline, with the indexes finishing at their lows (except NDX), was a good setup for a reversal for at least a bounce to correct the decline from last Friday. The jab lower this morning likely pulled in a few more shorts and then the match was lit with a few buy programs to torch the bears and use the short-covering fuel to propel the market back up. The techs led the way with a +1% rally. Now the question is whether today's rally is just a dead cat bounce or something more. Depending on which index I'm looking at I can easily answer that question differently.

It was a relatively quiet day and there was only one important economic number this morning that had the potential to move the market. It was a positive report on new home sales with July's number revised higher from 412K to 427K and today's number showing a big jump up to 504K, quite a bit higher than the expected small jump up to 435K. Following the small decline in existing home sales the overall increase in home sales for August is a welcome sign. I don't think it will last for the longer term but it's at least good for now.

An improving housing market is needed to help improve the economy since there's so much economic activity around home buying. It's certainly a good sign when people are feeling confident enough to commit to a house although we know that can backfire on people, just as excessive bullishness can backfire on investors in the stock market.

I continue to look for other economic signs for a fundamental feel for the market (not that it has helped since the market has only cared about how much QE the Fed is doing) and then try to tie that in with my technical analysis. One of the indicators I've used is commodity prices since they're largely driven by demand and of course demand tends to increase when the economy is booming. Watching China's economics provides another source of information since they've become the manufacturing house for much of the world. But there have been many signs that China is slowing. One of those is shown below for iron ore prices.

China's Iron Ore Prices, chart courtesy BusinessInsider.com

As you can see above, prices have chopped their way lower since the start of this chart in 2011, with a drop to new lows in the past month. This is not a good sign about their economy and in turn the global economy. China has been encouraged to do more QE kinds of things to help their economy but so far they've resisted doing too much for fear of stoking inflation. That has not been a concern of the Fed or ECB.

The ECB has been threatening to do more QE for a long time and it could be getting close to where Draghi is going to have to stop threatening and actually start doing. BTW, his promise to buy $1T worth of bonds is more of an attempt to blow smoke up, I mean jawbone the market higher. Even if the ECB shoved out all other bond buyers there isn't a trillion available for them to buy. But I digress. The chart below shows the inflation picture for Europe.

European Inflation, 2009-present, chart courtesy BusinessInsider.com

Inflation expectations by bond buyers have dropped back down to or below levels last seen at the beginning of 2009. This is a very scary chart to central bankers and it shows Europe is within spitting distance of dropping into "disinflation" territory (dare I say deflation). The only ones who should be scared by this are those who have huge debt obligations (hmm, who might that be). The U.S. will likely be not far behind Europe and keep in mind that deflation is very bad for stock markets.

In the meantime the stock market continues to ignore all these signs of slowing and "disinflation," in spite of the multiple years the central banks have tried to stop the slide. Even with all of the money pumping by the Fed the money velocity (how much the money is turned over through lending) has continued to slow at a steady pace since 2000. The Fed is the perfect example of the definition of insanity. One of these days even Paul Krugman is going to have to eat his words.

Getting into the stock indexes, the SPX weekly chart below hasn't changed much in the past month as price has chopped up and down in about a 25-point range. This follows a couple of years now where price volatility has been decreasing. I don't show the Bollinger Bands on my charts (too crowded) but we're now at a point where the DOW has the narrowest band width seen since October 1964. That's certainly one for the record books. That doesn't tell us which direction the next big move for the market will be but it does give you sense of how little volatility we've had. It's my opinion that the narrowing price range, creating a long-term rising wedge pattern, is going to be followed by a violent breakdown. For the moment, the weekly chart is not indicating whether it's going to start down or hold up higher into October.

S&P 500, SPX, Weekly chart

The daily chart below shows Monday's break down through the 20-dma and Tuesday's break down through its uptrend line from November 2012 - February 2014 (log scale). Today it recovered back above the trend line near 1992, leaving a head-fake break, but stopped at its 20-dma, near 1998. If this is a back-test of the 20-dma that's followed by a bearish kiss goodbye on Thursday and a drop below this morning's low it could result in a stronger decline to follow. It's possible we'll see a decline to the 1966 area before heading back up. The pattern for this is discussed more thoroughly a little later with the ES chart.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2011
- bearish below 1966

Today's bounce is a sharp 3-wave move up and it would have two equal legs at 2004, only slightly above the 62% retracement of its decline, at 2003.74. A rally to 2004 and a rollover from there would be worthy of a short play but keep your stop tight since we have bullish potential into October. We might get a larger a-b-c bounce (red dashed line on the 60-min chart below) so be careful about shorting a rollover -- don't get complacent about it since it might whip around and spike higher before rolling over for good. A 78.6% retracement, at 2010.57, is also where it would close Monday's gap down at 2010.54. Nice correlation there for a possible reversal if tested and rolls back over.

S&P 500, SPX, 60-min chart

I was looking over the ES chart (continuous contract) without all the wave counts in an attempt to look at just trend lines/channels, MAs and oscillators to see what patterns jump out at me. I noticed that it has testing its 50-dma at 1971.50 (the after-hours low on Tuesday was 1968.25 and this morning's RTH low was 1970.50), whereas the 50-dma for SPX is a little lower, near 1977 and about 2 points below this morning's low. Other than a few breaks this year (Jan-Feb, Apr, Jul-Aug) the 50-dma has held most pullbacks, as can be seen on the ES daily chart below.

S&P 500 e-mini, ES, Daily continuous contract

It was looking at these tests of the 50-dma that I noticed a repeating pattern that led to breaks of the 50-dma, starting with the December 2013 - January 2014 highs. The initial highs (Dec 2013, Mar, Jul and Sep) were followed by marginal new highs (Jan, Apr, Jul and Sep) with bearish divergence. These are shown with the brown lines across the price highs and lower RSI highs. These led to breaks of the 50-dma but then were repeatedly followed by recoveries back above the 50-dma.

For the latest pattern, if it leads to another break of the 50-dma and is an expanded flat a-b-c pullback off the September 3rd high (instead of something more bearish, and one of the options shown as a possibility on the SPX chart), we could see the leg down from September 19th achieve 1945, which is where it would be 162% of the first leg down from September 3rd. Interestingly, that would coincide with a test of the uptrend line from October 2011 - June 2013, which supported the previous decline into the August 8th low. The 1945 projection crosses the uptrend line on October 1st. If this repeating pattern follows through we'd then have another buying opportunity near 1945. It will certainly be something to be thinking about if it plays out.

The DOW's strong bounce today brought it back up to its trend line along the highs from May-November 2013. This is one of those "internal" trend lines and it's not as strong a trend line as others but you can see how price has reacted around it and today it closed on it. If last Friday's high was THE high, this is a good setup for a back-test/bearish kiss goodbye, to be followed by a stronger decline. With today's high at 17226 it was only 3 points shy of achieving a 62% retracement of its decline with a sharp 3-wave bounce. A drop back below this morning's low near 17034 would likely bring in a flood of selling. But the larger trend remains to the upside and therefore bears need to play it cautiously.

Dow Industrials, INDU, Daily chart

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

I see bullish possibilities for NDX. Looking at the rally from April I've got the 5th wave as the leg up from September 16th and a possible completion of the rally at last Friday's high. But the 5th wave in this case appears too short (possible but not probable until NDX drops below its September 16th low near 4010). I see the potential for NDX to chop its way higher in an ending diagonal (rising wedge) and potentially make it up to the 4209 projection by mid-October where the 5th wave would then equal the 1st wave. While RSI is warning of trouble for the bulls, with the significant bearish divergence at recent highs, if MACD turns back up from the zero line it will have "reset" itself in the sideways chop and now ready for another rally (likely to a lower high if price makes a new high).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4120
- bearish below 4010

I also see bullish potential for the RUT. It's been such a weak index this month and it's hard to start thinking bullish about this one but I want to point out the pattern that supports another rally leg and potentially a strong one (not a choppy one as depicted on the NDX chart above). Since first climbing above 1100 in October 2013 (a year ago) the RUT has been a very whippy pattern, with highs and lows roughly 140 points apart. But since March high we've seen a contraction in price swings and this has created a sideways triangle pattern, the bottom of which is the uptrend line from May. It's a messy daily chart below but so is the price action.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1164
- bearish below 1124

Yesterday's decline and close dropped the RUT below the bottom of the sideways triangle and it was very important for the bulls to see a recovery back inside the triangle today, which it did and that actually creates a buy signal based on this pattern. The trouble is we have competing patterns. Its broken uptrend line form October 2011 - November 2012 was broken yesterday and today's bounce didn't quite make it back up to the trend line, which is near 1132. It's possible we'll see just a back-test followed by a bearish kiss goodbye and a drop below this morning's low at 1116 would create a sell signal.

A look at the RUT's weekly chart below shows an idea for a larger ascending triangle (flat top, ascending bottom), which would mean choppy price action into the end of the year to complete a larger consolidation pattern before heading higher into early next year. That's enough to give bears some severe agita even thinking about it. But it's important to see the potential, even if it seems unbelievable.

Russell-2000, RUT, Weekly chart

Bonds sold off today, which helped provide some funds to rotate into stocks, and that could continue. The chart of TLT, the 20+ year Treasury ETF, shows the breakdown from its up-channel, on September 11th and yesterday it made it back up to the bottom of the up-channel, which coincided with a back-test of its crossing 20- and 50-dma's as well, all near 115.50. I'm looking for a multi-month correction of the rally we've had this year before bonds head higher next year. How much the selling over the next few months will help the stock market is debatable.

20+ Year Treasury ETF, TLT, Daily chart

With the September highs the TRAN finally rang the bell at its projection to 8590.98, which is where the c-wave in the a-b-c move up from 2011 equals 162% of the a-wave. It doesn't mean it is obligated to drop from here but that's the EW setup. It also poked one more time at the trend line along the highs from April 2010 - July 2011 as well as the shorter-term one from May 2013. The wave count can be considered complete at the test of the trend lines and with weekly bearish divergence I would not want to be long the Trannies now. A drop below its uptrend line from June 2013, currently near 8275, would also be a strong break of its 50-dma and reason enough to believe the top is in place.

Transportation Index, TRAN, Weekly chart

The U.S. dollar has run almost straight up for about 3 months now. One would think it's due a restful pullback. It is currently testing its July 2013 highs near 85 but it appears to be consolidating instead of getting ready for a larger pullback. There could be a lot more short covering if it rallies above 85 and starts heading for its 2009-2010 downtrend line, currently near 86.92. A strongly rallying dollar is another sign of deflation.

U.S. Dollar contract, DX, Weekly chart

Just as I've been waiting for a pullback in the dollar, I've been waiting for a bounce in gold. I'm still waiting for both and they might not happen, especially if gold also drops below 1194. That's where the decline from March would have two equal legs down and it would hit the bottom of a descending triangle, which I've been showing on the gold weekly chart for weeks. If it is a triangle pattern it needs one more leg up to complete it, which is what I'm depicting. A rally back up to the intersection of the top of its triangle and its broken uptrend line form 2001-2005, near 1330 by the end of January, would be a good long trade followed by an even better short trade.

Gold continuous contract, GC, Weekly chart

A big strike against gold's short-term bullish pattern is what's happening in silver. Last week it snapped support near 18.60, which fit as the bottom of its descending triangle. At best I would expect a bounce back up to the 18.60 area for a back-test and then continue lower. A good downside target for now is price-level support near 14.65 but very likely lower prices into 2015 in another A-B-C down from the x-wave high in July.

Silver continuous contract, SI, Weekly chart

Oil's pattern remains a mystery because of the big messy pattern since its May 2011 high. It could be a large bullish sideways consolidation or it could be a much more bearish pattern that's looking for a bounce and then crash lower. If it does bounce in the next month or two, I'll be looking for a rally up to its broken uptrend line from 2012-2014, near 100 by the end of November.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic report of interest will be the Durable Goods, which is expected to show a significant decline of about -16.3% but after the +22.6% in July it evens out a bit. Ex-transportation the number is much less volatile and is expected to be +0.7%, which would negate July's -0.7%.

Economic reports and Summary

Today's bounce will be viewed differently depending on the color of your glasses. Bears see a dead-cat bounce whereas bulls see the start of the next rally. The repeating pattern I showed on the ES chart certainly supports the bulls, although that might mean a further pullback first before the next rally leg gets going. NDX shows the idea for a choppy rally over the next couple of weeks while the indexes make minor new highs in an ending pattern. SPX supports the idea for only a minor new high tomorrow morning followed by the start of a strong decline.

Needless to say, there are too many opposing possibilities, especially with different patterns on different indexes. That means it's a time for caution while we wait for at least a few ducks to get in a row. Right now all we're doing is trying to herd cats and they're not being cooperative. Know when to trade and more importantly when not to trade. Right now I think it's the latter. Stay safe.

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

Keene H. Little, CMT

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


New Option Plays

Healthcare Highs

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Universal Health Services - UHS - close: 114.84 change: +2.05

Stop Loss: 111.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.6 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:
Love it or hate it the Affordable Care Act (ACA) also known as Obamacare has been a boon for some hospitals, increasing the number of patients they see.

UHS is one of the biggest hospital companies in the U.S. with 225 facilities, including 25 acute care hospitals. According to a company press release, "Universal Health Services, Inc. (UHS) is one of the nation's largest hospital companies, operating acute care and behavioral health hospitals and ambulatory centers nationwide and in Puerto Rico and the U.S. Virgin Islands."

At Deutsche Bank analyst recently issued a bullish report on the top five U.S. hospital companies in the U.S. and how Obamacare was going to help drive earnings growth in 2015. UHS was the top of the list and Deutsche bank raised their price target from $115 to $125.

That analyst may be on to something as UHS has seen some earnings growth acceleration in just the last two quarters. UHS' most recent earnings report was July 25th. Wall Street expected a profit of $1.25 a share on revenues of $2.21 billion. UHS reported a profit of $1.55 a share with revenues up +5.5% to $2.2 billion. UHS management then raised their 2014 guidance significantly above consensus estimates.

Right now shares of UHS are testing resistance in the $115.00-115.65 zone. I am suggesting a trigger to buy calls at $115.75.

Trigger @ $115.75

- Suggested Positions -

Buy the 2015 Jan $120 call (UHS150117C120) current ask $4.20

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

Daily Chart:


In Play Updates and Reviews

Stocks Snap Three-Day Slide

by James Brown

Click here to email James Brown

Editor's Note:

The market delivered a widespread bounce as equities ended a three-day slide.

We want to exit our NKE trade tomorrow at the close.


Current Portfolio:


CALL Play Updates

Amgen Inc. - AMGN - close: 142.24 change: +1.56

Stop Loss: 139.65
Target(s): To Be Determined
Current Option Gain/Loss: + 4.5%
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:
09/24/14: AMGN erased yesterday's decline with a nice bounce from support near $140.00. Yet shares failed to keep pace with the BTK biotech index, which surged +2.75%.

The bounce today looks like a new entry point in AMGN.

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: 73.02 change: +2.11

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:
09/24/14: DATA rebounded from support near $70 with a +2.9% gain but shares remain under resistance near $74.00.

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

Please note I'm switching the October calls for Novembers.

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 NOV $75 call (DATA141122C75)

- or -

Buy the 2015 Jan $80 call (DATA150117C80)

09/24/14 switch the October strikes for Novembers
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 78.54 change: +0.25

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

Comments:
09/24/14: I was surprised to see FB fail to follow through on yesterday's bounce. The stock underperformed the wider market, which produced a broad-based rebound. The intraday high in FB was only $78.62.

Our suggested entry point is $78.75.

Earlier Comments: September 23, 2014:
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 $2.99

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


Mallinckrodt Public Limited Co. - MNK - close: 89.19 change: +0.61

Stop Loss: 85.65
Target(s): To Be Determined
Current Option Gain/Loss: -15.0%
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:
09/24/14: The bid/ask spread on MNK's calls has been a lot more volatile than expected. I would hesitate to open new positions here.

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: 80.84 change: +0.72

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: - 4.1%
Average Daily Volume = 2.8 million
Entry on September 05 at $80.50
Listed on September 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/24/14: NKE is bouncing from support near $80 as expected. Unfortunately we have to make a decision about tomorrow. NKE reports earnings tomorrow night (Sept. 25th) after the closing bell.

I am seriously tempted to hold positions over the announcement but the smarter, more defensive move is to just exit ahead of the earnings report. That way we have limited our risk just in case NKE disappoints. We can always re-enter the trade after the earnings results are out and we see the market's reaction.

We'll plan on exiting tomorrow at the closing bell.

- Suggested Positions -

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

09/24/14 prepare to exit tomorrow (Sept. 25th) at the closing bell
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: 108.69 change: +0.89

Stop Loss: 106.90
Target(s): To Be Determined
Current Option Gain/Loss: - 2.3%
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:
09/24/14: UNP is bouncing from support near $108.00. This move looks like a new bullish entry point to buy calls.

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: 97.38 change: +1.79

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: -36.3%
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:
09/24/14: The stock market's widespread bounce helped ALV surge +1.8%. The stock is nearing what should be short-term resistance near $98.00. We have a stop at $98.25. The $100 level should be stronger resistance and more aggressive traders may want to use a stop above $100.00 instead.

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: -1.6%
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:
09/24/14: CMI continued to underperform the market and lost -0.28%. I would still consider new positions now at current levels.

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: 112.02 change: +1.01

Stop Loss: 113.05
Target(s): To Be Determined
Current Option Gain/Loss: +32.2%
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:
09/24/14: After a sharp three-day drop the IWM bounced and almost completely erased yesterday's losses. I do want to warn readers that technically today's rebound has created a bullish engulfing candlestick reversal pattern but it needs to see confirmation.

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: 78.25 change: +0.07

Stop Loss: 80.25
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
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:
09/24/14: The bounce in LII was struggling today. Shares barely closed in positive territory.

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: 61.47 change: +0.47

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: +166.6%
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:
09/24/14: Shares of LVS slowly drifted higher all day long. We can look for short-term resistance near $62.00. 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: 67.28 change: +0.47

Stop Loss: 68.65
Target(s): To Be Determined
Current Option Gain/Loss: +11.1%
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:
09/24/14: PNR followed the market higher with a +0.7% gain. I don't see any changes from my prior comments. 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: 75.32 change: +1.36

Stop Loss: 76.51
Target(s): To Be Determined
Current Option Gain/Loss: -25.0%
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:
09/24/14: SBUX served up a steaming hot rebound on Wednesday with a +1.8% gain. The move appears to have been boosted by last night's announcement that SBUX is buying its Japan business. Bloomberg noted last night that SBUX will pay $914 million for the 60.5% of Starbucks Japan it did not already own. This will give SBUX full control of its brand and business in Japan. The Asia region only accounts for 6% of SBUX annual sales but many of its most profitable stores are in Japan. The analysts comments we did see today were bullish on the purchase.

Keep an eye on the $76.00 level, which should be resistance.

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: 71.17 change: +0.76

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: + 2.3%
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:
09/24/14: TUP snapped its three-day decline with a +1.0% bounce. Broken support near $72.00 should be new resistance.

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