Option Investor
Newsletter

Daily Newsletter, Thursday, 9/25/2014

Table of Contents

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

Market Wrap

The Bulls Duck For Cover

by Thomas Hughes

Click here to email Thomas Hughes
The markets reversed yesterday's gains in a rush for the exits ahead of tomorrow's GDP revision.

Introduction

The market reversed yesterday's gains today, diving for cover as investor weigh a variety of factors. Ongoing geopolitical events, largely out of the news of late, top the list. The standoff in the Ukraine continues to wear on while the international efforts to curb the ISIL threat seem to gain traction. Turkey is still wiffle waffling but other international partners are beginning to step forward to join the fight.

There was some hope that the bounce we saw yesterday would continue today and the early indications were good. Asian markets over 1% higher on hopes of further stimulus in both Japan and China and that euphoria carried into early trading in Europe. European markets were largely higher during the early hours on stim hopes and dovish comments from ECB president Mario Draghi. This did not last long though as fears brought on by the ongoing Russian incursion into the Ukraine sent investors seeking safer havens. The newest twist to the story is rumor of a freshly drafted law allowing Russia to seize foreign assets.

Market Statistics

The futures trade was largely flat in the early hours but that slipped into negative territory ahead of this mornings data. After the data, particularly durable goods, futures trading moved lower indicating an open around -5 on the SPX. The open of trading was weak with roughly half of S&P stocks trading lower. The SPX moved down to -7 or about -0.35% in the first few minutes and steadily extended that gain throughout the morning. Selling at the open was broad and heavy, never letting up all day. The 1990 support level did not hold as the SPX moved down to -9, -12,-16 and down to -26 points by 10:30 or so. At that point an intraday bottom was hit that lasted until the lunch hour. This held until early afternoon when the market began to drift lower, hitting new lows several times and sinking at the close of the day. The SPX lost over -1.60%.

Economic Calendar

The Economy

Mario Draghi was reported saying the ECB was ready to act further with its “unconventional measures” as needed by Reuters. He was quoted saying "We stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation,"

Durable goods orders fell more than expected, by a record setting -18.2%. This is of course from last months record setting advance of 22.5% so a pullback is not surprising. Analysts had been expecting a slightly smaller loss around -17.5%. The drop is due to a much smaller number of orders for new planes, ex-transportation orders for durable goods rose 0.7%. Key metrics within the report, business inventories and core capital goods purchases, both rose.

Initial claims for unemployment rose today, by 12,000 from an upward revision to last weeks number of 1,000 to 293,000. The analysts had expected the number to be higher, closer to 310,000. This keeps the number of first time claims below 300,000 as well as the four week moving average, which is 288,500. Initial claims have been relatively flat over the past two months but remains at low levels consistent with declining unemployment levels. On an not-adjusted basis claims fell by -3,533, less than the -13,000 expected by the seasonal adjustment factors. California led with new claims over 5,000 while Michigan had the biggest decline in claims at -2473.


Continuing claims rose as well, by a mild 7,000 from an upward revision of 3,000 to last weeks data. This is just off the long term low set last week. The four week average of continuing claims fell, counter to the headline number, and is in decline. This is a better gauge of employment conditions and has been trending lower all year. Likewise, the total claims figure fell this week, dropping over -42,000 to reach 2.222 million.

We'll get the next round of ADP/NFP/Unemployment figures next week. New jobs creation may remain low, below 200,000, but based on jobless claims numbers I expect to see overall unemployment decline. If job creation actually regained some of the strength lost last month unemployment could dip significantly.


Tomorrow is the 3rd and final revision to 2nd quarter GDP. The expectation is for an upward revision to above 4.5%. Current estimates for 3rd quarter growth stand near 3.6%, in line with full year growth estimates around 2.25%.

Also on tap tomorrow, Michigan Sentiment. Last month's reading of 84.6 is expected to stand.

Next week data heats up with the end of the month, and the end of the quarter. The usual lineup of monthly macroeconomic data including auto/truck sales, ADP, Challenger Job Cuts, ISM, Chicago PMI, Pending Home Sales and others.

Dallas Fed Presisdent Fisher may also have spooked the market today. He is one of the more hawkish Fed members and said that interest rates could be hiked as early as the spring of next year, about 3 months ahead of market projections.

Not particularly an economic event but one of importance anyway, Attorney General Eric Holder announced his resignation from the post today.

The Oil Index

Oil prices held steady today following yesterday's climb. WTI traded higher by about a quarter with Brent down about the same amount. Air strikes against ISIL raised some fear for the oil supply infrastructure in the region but high levels of supply are offsetting that trade. US strikes took out some low level refineries being used by ISIL for fuel and income but nothing major was hit. Oil prices may remain at these low levels but will be susceptible to news out of Iraq as well as rising supply and economic outlook.

The Oil Index traded lower today, extending the drop below the long term trend line begun earlier in the week. The index lost about -1.25% in today's action but is still exhibiting some signs of support. The indicators are bearish but divergence persists in the MACD and the stochastic is holding above the lower signal line so just how bearish is still in question. However, now that the index has moved below the trend line new resistance will be at the trend line and possibly below along the 1,600 level. The move below the trend line is yet to be confirmed so this could be an overextended near/short term decline. In any event the index is extended below the trend line with weak indications; a good time to sit back and wait to see what happens next.


The Gold Index

Gold prices were volatile today. Early this morning spot price was down as much as ten dollars or more, trading around $1210 and a new 9 month low. Later in the day that moderated to only down a few dollars and then as the equity market was reaching it's intraday low gold prices moved into the green. This could have been on a flight to safety move but if so was based on rumor (Russia seizing assets). Regardless, this is the 2nd time this week spot price has bounced from the $1210-$1215 region and indicative of support. I'd have though a hawkish comment like what Fed President Fisher said would have sent gold lower so perhaps my thought that rising interest rates are priced or being priced into the market has some weight to it.

The Gold Index traded in similar fashion to the underlying commodity. The index moved lower and then bounced off of long term support and back into the green. Today's candle has a long lower which with the body sitting on support near the $85.50 level. This is the top of an expected range of potential support between $82.50 and $85 that dates back to two previous bounces from this level earlier this year. The indicators are consistent with potential support; MACD is still diverging from price and stochastic indicates the market is oversold. Not to try calling the bottom but the Gold Index has reached a level at which long term buyers have stepped in before and where a near to short term bounce could be expected to form. The index could continue to move down to the $82.50 or $80 level but without another significant drop in gold I think these levels could hold.


In The News, Story Stocks and Earnings

Apple continued to feel the pressure as iPhone Bend Gate sent shares lower by more than 3% today. Sure, the thin phone is a little bendy, but my thing is, why would you put your $600 dollar computer device in your pocket and sit on it and/or try to bend it? Even my iPhone 4 is a little bendy when I tried to bend it. I think that this too will pass as will the iOS 8 snafu and in the end it may lead to more sales as the unwitting phone benders have to go back and buy a new one. Apple's response was that the phones are made to be “beautiful and sturdy”, citing 6000 series aluminum, stainless steel and titanium construction and going on to say that less than 10 people had actually complained about legitimate bends. Today's drop took the stock below the long term previous all time high and the short term 30 day moving average. This stock appears to be in a short term consolidation that has yet to break out.


Ford announced another expansion at its production plants. The company added another 1,200 jobs on top of the 14,000 they have already created since 2011. The new jobs are mainly in the Kansas City plant 2nd shift production of the Transit Van delivery vehicle. Along with the announcement Ford said that this addition puts it ahead of it's plan for new additions and its agreement with the UAW. Shares of the stock dropped over -1% today and are withing a long term support zone. The indicators are consistent with support at this level but not indicative of strength at this time. Ford is next scheduled to report earnings in four weeks.


Micron Technology reported after the bell. The US based chip maker was expected to earn $0.81 per share on rising sales and profits projections. The company reported better than expected revenue and earnings as well as provided strong guidance for Q1 earnings. The stock, which had been under pressure all day along with everything else, reversed in the after hours and surged more than 3.5%.


Nike also reported after the bell. The shoe and fitness giant was expected to report about $0.88 per shre although that estimate was called into question based on dollar strength, currency conversion and the companies exposure to foreign markets. The reported $1.09 per share was well above estimates and came on higher than expected sales and future orders. The stock surged to a new all time high in the after hours market and could be an indication of how earnings season will be when they start next month.


The Indices

The market began to fall at the open of trading today and kept falling. There were several temporary bottoms but no real effort at trying to rally. The NASDAQ Composite was today's leader in the decline, dropping just shy of -2%. The tech heavy index broke short term support and looks as if it is now headed down to longer term support around the 4,400 level. The indicators are weak and confirm the move, stochastic is moving lower and MACD is convergent with the new low set today. However, the longer term still shows support so I am still not overly bearish just yet. In the near term, unless the index snaps back up above support tomorrow, there will be resistance above 4,500.


The S&P 500 was next in line in terms of losses today. The broad market index fell -1.62% in today's action, the biggest negative move it has made in several months. Looking back over the charts, each time before this move has preceded a pull back to trend that lasted a week or two, and provided highly profitable entry points. The index broke near and short term supports in the forms of my support lines and the 30 day moving average but remains above more substantial longer term support. The indicators here are also weak and pointing to further downside in the near term. Short to long term support is still indicated but where it will step in exactly is yet to be seen. My targets are between 1960-1965 or below that along the long term trend line.


The Dow Jones Industrial Average fell -1.39%. The blue chip index fell below support at the previous all time high and the short term 30 day moving average just below that. The indicators have just turned bearish and point to a move down toward next support in the region of 16,750. The long term trend is still up and we are well above the trend line so there is a chance of correction with a drop to trend equaling roughly 5.5% below the current level. That being said support around 16,750 looks like it could be strong.


The Dow Jones Transportation Average fell the least today, only -1.39%, dropping from resistance and the short term moving average. The indicators are bearish and point to further near term weakness, but like the other charts, are also indicative of longer term support. The index looks set to head down to the 8,250 level where it will find the combined support of a previous all time high and the long term trend line. The next few days could be important as the index tests the trend.


I have to say that I did not see this sell off coming and I really don't see a reason for it now, other than profit taking. But I have come up with a variety of ideas that likely all have something to do with it. First up is the start of Rash Hashanah, a holiday affecting the markets that is not widely known. I admit that I didn't realize it, or remember it, no disrespect intended. It is the Jewish New Year and could be impacting trading by keeping observers out of the market until Yom Kippur, 9 days from now. I heard a new adage today “sell on Rash Hashanah, buy on Yom Kippur” and this fits the idea the markets could correct for a week or so before bouncing from trend.

Another possibility for the selling is that it is the end of the quarter, or approaching the end of the quarter. This could lead institutional investors and money managers to take profits and lock in gains realized over the summer.

Adding to the selling was the reaction to the supposed Russian law that would allow them to seize foreign assets. As of yet this is still just a rumor and largely unsubstantiated but that never stopped the market from selling off before.

The hawkish comments from Dallas Fed president Fisher probably didn't help either. They raise fear of rising rates, but also reinforce that the economy is back on solid footing.

On top of everything else tomorrow is the GDP revision, a big event even if it is the third estimate, and there is a wave of data next week. In an ordinary month the data bundle due out next week would be enough to keep the market in check. This month end of quarter portfolio reshuffling, the Rash Hashanah holiday and geopolitical knee jerk selling combined to send the market down to a level in which selling led to more selling and this may continue tomorrow. Tomorrow and next week could be rough but the trend is still up and I expect this to be another opportunity to buy on the dip ahead of the upcoming earnings season. Expectations for the current quarter are mixed but future expectations remain high.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Stocks Hit 5-Week Lows

by James Brown

Click here to email James Brown

Editor's Note:

Stocks retreated across the board on Thursday as the major indices delivered their worst one-day drop since July 31st. It's been volatile for the Dow Industrials, which turned in their fourth day in a row of triple-digit moves.

The weakness started overseas with European markets down. Russia played a role in the market's weakness. The country is considering a new law that would allow Russian courts to seize assets from foreign companies.

We also had very disappointing economic data in the U.S. in today's durable goods orders. The August reading for durable goods plunged -18.2%. That's the biggest one month drop on record, since they started recording this data back in 1992.

Yet another cloud over the market today were rumors that terrorists were planning attacks on the subways systems in New York and Paris (no time frame was provided).

There is also chatter that we could see a lot of earnings warnings in the next couple of weeks just ahead of the Q3 earnings season. Current earnings estimates may not be accounting for the huge rally in the U.S. dollar and how that's affecting profits for multi-national companies.

I expect stocks will continue to sink tomorrow morning. The question is if traders cover their shorts ahead of the weekend? Small caps have been leading the market lower and the Russell 2000 is nearing what could be significant support in the 1080-1100 zone. The S&P 500 is also nearing what could be significant support at the bottom of its bullish channel.

We're not adding any new trades tonight. If you have to trade we are seeing a lot of bearish candidates.

Here's a list of stocks that caught my eye today:

Some of these stocks may need to see a break past key support or resistance:

(bearish ideas)
TRIP, VIAB, CHRW, COP, PXD, PCP, AYI, ROK, EMR, OII, HP, EOG, CBI, PH, BWLD, DDS




In Play Updates and Reviews

Rough Day For The Bulls

by James Brown

Click here to email James Brown

Editor's Note:

Stock market bulls had a rough day with equities delivering one of their worst performances of the year.

AMGN and NKE were stopped out. DATA has been removed.
FB hit our entry trigger.


Current Portfolio:


CALL Play Updates

Facebook, Inc. - FB - close: 77.22 change: -1.32

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.0%
Average Daily Volume = 33 million
Entry on September 25 at $78.75
Listed on September 23, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
09/25/14: FB saw an early morning rally that almost hit $79 before the stock rolled over. Our suggested entry point was hit at $78.75. The rally might have been a reaction to news the EU is poised to approve FB's $19 billion deal to buy WhatsApp. Unfortunately the broader market weakness pulled FB lower.

I would wait for a new move past $78.75 before considering new positions.

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.

- Suggested Positions -

Long 2015 Jan $85 call (FB150117c85) entry $3.07

09/25/14 triggered @78.75
Option Format: symbol-year-month-day-call-strike


Mallinckrodt Public Limited Co. - MNK - close: 88.47 change: -0.72

Stop Loss: 86.45
Target(s): To Be Determined
Current Option Gain/Loss: -21.6%
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:
09/25/14: MNK is still hovering above short-term support near $88.00 and its simple 10-dma. I am adjusting our stop loss higher to $86.45. I'm 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*

09/25/14 new stop @ 86.45
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


Universal Health Services - UHS - close: 111.73 change: -3.11

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

Comments:
09/25/14: Ouch! UHS did not see any follow through on yesterday's rally. The stock reversed sharply with a -2.7% decline. If this weakness continues tomorrow we might drop UHS as a candidate.

Earlier Comments: September 24, 2014:
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)

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


Union Pacific Corp. - UNP - close: 107.19 change: -1.50

Stop Loss: 106.90
Target(s): To Be Determined
Current Option Gain/Loss: -25.1%
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:
09/25/14: It doesn't look good for our UNP trade. Transports were no exception in the market's broad-based decline. UNP fell -1.3% and hit an intraday low of $106.97. Our stop is at $106.90 so if there is any follow through lower tomorrow we'll be stopped out.

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: 95.05 change: -2.33

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: - 0.3%
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:
09/25/14: Good news! ALV completely erased yesterday's oversold bounce and closed at new multi-month lows. If the $95 level breaks the next support level could be $90.

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: 133.04 change: -1.17

Stop Loss: 138.25
Target(s): To Be Determined
Current Option Gain/Loss: +10.1%
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:
09/25/14: CMI is on a roll with shares falling five days in a row. Broken support near $135.00 could be new resistance.

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: 110.13 change: -1.89

Stop Loss: 113.05
Target(s): To Be Determined
Current Option Gain/Loss: +84.4%
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:
09/25/14: The IWM did not see any confirmation of yesterday's bullish reversal candlestick pattern. Instead the IWM lost another -1.6% and is testing its early August lows near $110. If the $110 level fails then $108 is the next support level.

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: 78.02 change: -0.23

Stop Loss: 80.25
Target(s): To Be Determined
Current Option Gain/Loss: + 2.5%
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:
09/25/14: Shares of LII were upgraded this morning, which helps explain the gap higher. Traders sold the rally and LII closed back in negative territory. I would consider new bearish positions at current levels.

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: 60.29 change: -1.18

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: +223.3%
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:
09/25/14: LVS' most recent attempt at a bounce from support might be failing. Shares lost -1.9%, underperforming the wider market. The stock now looks poised to breakdown under round-number support near $60.00.

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: 66.79 change: -0.49

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:
09/25/14: PNR only slipped -0.7% versus the -1.6% drop in the S&P 500. 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: 74.12 change: -1.20

Stop Loss: 76.51
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
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:
09/25/14: The sharp reversal in SBUX looks ugly. I would consider new bearish positions now at current levels. Or you could wait for a new drop under yesterday's low ($73.78) before buying puts.

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: 70.29 change: -0.88

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +15.8%
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:
09/25/14: TUP gapped down at the open and briefly traded under $70.00 before closing with a -1.2% decline. I am not suggesting new positions at the moment.

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

Amgen Inc. - AMGN - close: 139.85 change: -2.39

Stop Loss: 139.65
Target(s): To Be Determined
Current Option Gain/Loss: -13.3%
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:
09/25/14: The stock market decline today hit the biotechs hard with the BTK index losing -1.9%. Shares of AMGN fell -1.68% and broke support near $140.00. Our stop was hit at $139.65.

- Suggested Positions -

2015 Jan $150 call (AMGN150117C150) entry $3.30* exit $2.86** (-13.3%)

09/25/14 stopped out
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

chart:


Tableau Software, Inc. - DATA - close: 70.98 change: -2.04

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: , see below

Comments:
09/25/14: DATA has erased yesterday's gains and is once again testing support near $70.00. Our trade has not opened yet (suggested entry was $74.25). Tonight we're removing DATA as a candidate. We can revisit it if shares breakout higher.

Trade did not open.

09/25/14 removed from the newsletter
09/24/14 switch the October strikes for Novembers

chart:


Nike, Inc. - NKE - close: 79.85 change: -1.09

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: -25.6%
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:
09/25/14: We were planning to exit our NKE trade today at the closing bell to avoid holding over NKE's earnings report. Unfortunately the market's widespread weakness pulled NKE below support and shares hit our stop loss at $79.85 first.

Yesterday I mentioned how I wanted to hold over the report but there are too many variables that could send NKE's stock lower. Naturally the company blows away estimates. Wall Street was looking for a profit of $0.88 a share on revenues of $7.78 billion. The company reported a profit of $1.09 a share with revenues up +14.5% to $7.98 billion.

NKE management also offered an optimistic outlook and issued bullish guidance for 2015. The stock is now trading near $85.00 in after hours.

- Suggested Positions -

2015 Jan $85 call (NKE150117C85) entry $1.95* exit $1.45** (-25.6%)

09/25/14 stopped out @ 79.85
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

chart: