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Daily Newsletter, Saturday, 10/4/2014

Table of Contents

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

Market Wrap

Job Squeeze

by Jim Brown

Click here to email Jim Brown

The payroll report energized the market for a Dow gain of +208 points but all the indexes rallied only to downtrend resistance.

Market Statistics

The Nonfarm Payrolls for September came in much better than expected at +248,000 compared to estimates for +215,000. Even better the unexpectedly low August reading of +142,000 was revised to +180,000 and the +212,000 reading for July was revised up to +243,000. This was a total gain of +671,000 jobs for the last three months. Over the last 12 months the gain was 2.635 million jobs or an average of roughly 219,000 jobs per month with the Q3 average at +224,000 and Q2 average at +267,000. This year is on pace to be the best year for jobs since 1999.

The unemployment rate declined from 6.1% to 5.9% thanks to a gain of +232,000 jobs in the separate Household survey and a decline of -97,000 in the workforce. Unfortunately the workforce participation rate fell to 62.7% and a new 36 year low. More than 92.6 million people are not in the labor force and that was an increase of +315,000 over August. Yes, 232,000 people found jobs but another 315,000 dropped out of the workforce. There are officially 9.3 million unemployed but the U6 number that includes all categories of unemployed declined only slightly to 11.8% or 18.6 million.

Click here for bigger charts


Sectors contributing to the payroll gains included retail +35,000, business and professional services +81,000, leisure and hospitality +33,000. Government payrolls rose by +12,000. While the rising number of jobs is slightly Fed negative the average hourly earnings were flat at zero. Over the last three months the average is only +0.1% growth thanks to a +0.3% rise in the prior month. Without wage inflation the Fed will not be in any hurry to raise rates.

The BLS has a "diffusion index" that covers 249 component industries and supplemented by a 141 industry index for manufacturing. The index is helpful in assessing the overall state of the economy and functions as a leading indicator of manufacturing employment levels. I explained this index because it is going in the wrong direction. The index declined from 62.7 last month and 67.8 the prior month to 57.8 in September. This indicates the breadth of job creation is narrowing. We got good news in the number of new jobs but bad news that the number of industries that are hiring is shrinking.

The majority of the new jobs in September went to the age 55 and older category. The number of unemployed in that age group declined from 1.549 million to 1.332 million. The unemployment rate for that category fell from 4.6% in August to 3.9% in September.

While there were things not to like about the payroll report the majority of it was positive. Jobs are increasing and the economy continues to strengthen. September's headline number will be revised again next month but nobody will care. The headline was all that mattered.


If you are really into the numbers here is a snapshot of the changes since December 2007 and just before the recession.

Number of total jobs 146.3 million vs 146.6 million today. A +300,000 gain.

Total number of unemployed 7.6 million vs 9.3 million today, +1.7 million more.

Unemployment rate of 5.0% compared to 5.9% today.

U6 unemployment 8.8% vs 11.8% today, +3 points higher today.

Average hourly earnings $24.33 vs $24.53 today, up a whopping 20 cents.

Employed part time for economic reasons 4.6 million vs 7.1 million today, up +2.5 million.

Employed part time for economic reasons as % of labor force 3.0% vs 4.6%.

Labor force participation rate 66.0% vs 62.7% today, -3.3%.

There was another economic report on Friday but the news was trumped by the reaction to the payroll report. The ISM Nonmanufacturing (Services) Index for September declined slightly from 59.6 to 58.6. The index was poised to break out to a five year high last month but the September weakness killed that possibility for at least another month.

On the component front the new orders declined from 63.8 to 61.0 and backorders fell from 54.5 to 52.0. Anything over 50 is still expansion. Employment rose from 57.1 to 58.5 and the highest reading since 2005 and exports spiked from 52.5 to 57.5. Overall business activity declined from 65.0 to 62.9. Prices paid fell from 57.7 to 55.2 and confirming there is no inflation in sight.

This was still a decent report despite the minor declines. The economy in the services sector is still growing but painstakingly slow. Twelve of the 17 industries reporting said they expanded in September. The five that contracted were arts, entertainment and recreation, mining, educational services, public administration, and other services.

The ISM Manufacturing on Wednesday declined from 59.0 to 56.6. New orders declined from 66.7 to 60.0 and order backlogs fell from 52.5 into contraction at 47.0. Employment declined from 58.1 to 54.6. Clearly the manufacturing sector is softening a little faster than the services sector but still moving slowly higher.


The economic calendar for next week is fairly bland on economic reports. There are several but nothing the market really worries about. The big event is the FOMC minutes on Wednesday. This was the last meeting before QE is to end later this month so the minutes will be scanned for references to ending QE and what happens after QE is over. The "considerable period" phrase was undoubtedly discussed. This is the most important event for the week.

Earnings begin for Q3 with YUM Brands on Tuesday and Alcoa, Costco and Monsanto on Wednesday. This is the preshow ahead of act one that begins the following week.


There were so many Fed speakers next week I had to put them in a separate calendar. There are two notable speakers. Bernanke will speak on Wednesday and the new Vice Chairman Stanley Fischer will speak on Thursday. I view Fischer as the biggest speech of the week. He has been relatively quiet since his addition to the Fed and I see him as Yellen's successor. I personally don't see Yellen staying around too long because the kitchen is going to heat up relatively quickly and I think she will decide the hot seat is more than she bargained for and announce her retirement. I could be wrong but I am betting the new president in 2017 will get to appoint a new Fed head as one of his/her first duties.


There were two new splits announced last week by SNN and CALM. Of the two the CALM split may be worth playing. Shares jumped on the announcement to a new high.


The payroll report overshadowed all the regular news but reporters still managed to slip in an Ebola story a couple times an hour. The patient in Dallas, Thomas Duncan, is still in the hospital in serious condition. His partner and her 13-year-old son and two 20-something nephews left their apartment where they had been quarantined for 4 days and are now living in a donated private residence. In the apartment they had been sleeping on the three beds where the infected patient had slept along with piles of dirty linen and infected surfaces in every direction.

On Friday a hazmat team in full body suits showed up to decontaminate the apartment. They filled several 55 gallon drums with the contaminated linens and clothing and removed three mattresses from the apartment before they hosed it down with disinfectant. Duncan had thrown up outside the apartment on the way to the ambulance so all traces of that had to be disinfected as well.

A doctor studying Ebola said an infected person is a virus factory producing up to a hundred million virus particles per milliliter of blood. Coughing, sneezing, spitting, vomiting, etc puts everyone around them at risk of a stray splatter that could infect them.

More than 50 people are being isolated and "monitored" as a result of some serious mistakes in the patient's diagnosis and treatment. Monitoring means a health care professional shows up twice a day to take their temperature and ask them questions about how they feel.

The patient's partner, identified as Louise Troh, has a daughter who is married. The daughter and husband both helped care for the patient in the days before he was hospitalized and are now reported to be showing signs of Ebola. That suggests there will be another circle of contacts to be monitored.

Elsewhere Howard University Hospital in Washington has admitted two patients with Ebola like symptoms had traveled to Nigeria recently. Officials in Georgia have isolated a man with Ebola like symptoms that had recently been in Africa. An NBC News cameraman with a confirmed case of Ebola is on his way back to the U.S. and will be hospitalized in Nebraska.

I strongly believe that other than a few random cases there will not be an epidemic in the USA. Now that the event in Dallas has awakened the healthcare community they should be a lot more proactive about questioning and testing anyone showing symptoms even close to those with Ebola. Right now, bad news sells, and the news agencies are blasting the headlines to capture viewer attention.

Sales of 3M particulate respirators, starting at $22, were up +4,004% over the last month according to Amazon. Soap.com said sales of hand sanitizers rose 20% over just the last week. Dupont said sales of gloves, eye protection, face masks and fluid resistance gowns and suits were soaring. They were doing everything they could to assure supplies and were shifting inventories from other locations to areas of need. Production has been tripled on some items. Amazon said multiple books dealing with surviving Ebola had risen 49% over just the last 24 hours. Sales of Tyvek suits and respirators were soaring. Lifesecure, sellers of pandemic-protection products saw a "several hundred percent" increase in sales.

Stock news

Tesla (TSLA) was up for the second day after Elon Musk tweeted on Thursday "About time to unveil the D and something else." That prompted a new wave of speculation on what that could mean. Some believe it is a new model. Others believe it refers to "dual motor" or all-wheel drive. Currently Tesla's are two-wheel drive. The Model X SUV due out in late 2015 is dual motor all-wheel drive. The picture he tweeted with it had a date of Oct 9th, which is assumed to be the date of an announcement.


Tesla shares had declined from $285 when Musk made the comment about being overpriced to $235 on Wednesday. His tweet caused a $15 bounce and added $1.8 billion to Tesla's market cap. Elon was smart and made the Tweet just as shares returned to their long term uptrend support. If you are a gambler you still have three days to enter a position ahead of Tesla's Oct 9th announcement.


Musk gets more headlines for Tesla with a single tweet than Nissan can get with millions of dollars in advertising. You probably don't know this but the Nissan sells about twice as many of its Leaf electric vehicle than Tesla sells Model S vehicles. Of course the Leaf is $35,000 and the Model S $85,000. According to Claudia Assis at MarketWatch the numbers below are the sales figures for September for all of the major electric car models.


Palo Alto Networks (PANW) rallied $6.50 on Friday after Piper Jaffray gave it a buy rating with a $110 price target. After JP Morgan's giant hacking disaster the new field of security technology companies are seeing money flow their way. Piper surveyed 39 resellers and found that PANW and FireEye (FEYE) were clearly outperforming the rest of the group. Other recent ratings on PANW were Janney Capital and Roth Capital both with buy ratings.


GoPro shares recovered slightly from their Thursday crash but there is still a cloud hanging over the stock. GoPro crashed -6.9% on Thursday after JP Morgan said it was releasing 5.8 million shares from lockup in order to gift the Jill and Nicholas Woodman Foundation. Traders immediately thought the stock was going to be sold and they hit the sell button. After the crash the bank and the founder Nich Woodman said the shares were not going to be sold. The timing of the gift was for tax reasons and there was a short window of opportunity to gift the shares before the lockup expired in December.

Some analysts have claimed as much as 40% of the GoPro float is short. That is a huge amount especially on a stock that up until Thursday only went up. The lackluster +$1.50 gain on Friday suggests the GoPro bulls are still cautious. There was actually positive news on Friday as well. The company said it was releasing its new HERO4 premium camera with sales to begin this weekend. They announced a new deal with Best Buy that will triple GoPro's in-store presence with a 12-foot display and a 40-inch monitor. Jonathan Harris, Senior Vice President of Intergalactic Sales, the additional space would provide a compelling experience for customers in Best Buy stores.


Apple (AAPL) shares continue to struggle despite positive news about China and the new iPad announcement due out on October 16th. On Friday Deutsche Bank cut Apple's rating to hold saying Apple is running out of catalysts. Apple has a very large installed base of iPhone 4s that should be prime upgrade candidates. However, the analyst felt estimates for iPhone sales were still too optimistic. "We expect supply constraints to limit unit shipments through year-end."

Jefferies analyst, Sundeep Bajikar, initiated coverage on Monday with a hold rating. He said Apple's premium products has served them well but overall device growth is slowing and weighted towards the lower price points.

Apple is also expected to announce a delay in delivery of the Apple Watch. Reportedly there are manufacturing problems that are slowing development.

While Apple is expected to announce a larger 12.9 inch iPad the iPhone 6+ is expected to cannibalize iPad sales. The 6+ is huge and nearly the size of a mini tablet.

Another problem facing Apple today is the high radio frequency (RF) output of the new iPhone 6 units. The web is buzzing with worries over the RF dangers. Apple has warned repeatedly about the dangers of RF in its prior phones. Analysts believe these warnings ar ejust insurance against some future suit if somebody came down with cancer.

However, the FCC has a legal limit of 1.6 watts per kilogram (W/kg). The iPhone 6 and 6+ have a 1.18 W/kg rating when positioned near a users head. However, when Wi-Fi and Bluetooth are running simultaneously the rating jumps to 1.58 W/kg and just barely below the legal limit. For comparison the Samsung Galaxy Note 3 has a rating of 0.35 W/kg. The buzz on the Internet is a caution against carrying an iPhone 6 in your pocket where your organs don't have a thick skull to protect them from RF radiation.

Apple shares have fallen out of their uptrend support channel and could be headed to $95 soon.


Global Payments (GPN) reported earnings on Thursday of $1.22 compared to estimates for $1.15. In addition they raised their full year guidance. Shares spiked about $4 on a bad day in the market. On Friday Morgan Stanley upgraded GPN to neutral and raised the price target from $66 to $74. While that was not a glowing upgrade the stock rallied another $4 to close at $76 and a new high.


JP Morgan (JPM) disclosed that 76 million customers and 8 million small businesses had their contact information stolen in the data breach between June and August. The data stolen was names, addresses and email addresses but account numbers, passwords and personal information like social security numbers were not. Despite the inability to get the account numbers the breach is still a significant problem. Having 84 million email addresses and the name/address to go with it is a perfect opportunity to setup numerous phishing operations in an attempt to get the good stuff.

A phishing email is a fake email sent to you that appears to come from a reputable source. In this case they could send you an email with your identifying information and format the email to look like it came from JP Morgan Chase. "We would like to warn you that we experienced a data breach and we are emailing all our customers asking them to validate their accounts. Please click this link and log into your account and verify your identity." By clicking their link to a phony JP Morgan/Chase website where you put in your login id and password they have effectively stolen that info and now they can access your account and remove all the money.

Late Friday we learned that multiple state Attorneys General are launching inquiries into the breach and we know they will eventually find some way to fine or penalize the bank for billions of dollars.


I think we have a bigger problem than just some hackers trying to steal and sell financial information. The New York Times said nine other banks were also infiltrated by the same group of hackers. The tracks they left point to a group working out of Russia that appears to have connections to the Russian government according to administration officials briefed on the matter.

Some American officials speculate the breaches were intended to send a message to Wall Street and the U.S. about the vulnerability of the digital network and some of the world's most important banking institutions. One senior intelligence official said "It could be retaliation for the sanctions" but they could also have mixed motives with the intention of profiting off the data they stole.

JP Morgan's security team first learned about the intrusion in late July but it took them until late August to close all the entry points and delete the code left by the hackers across 90 different servers. Analysts are still puzzled on how the hackers gained administrative privileges that allowed them access to that many servers. The Treasury Dept and Secret Service have been working with JPM since the hack was discovered to try and track down the perpetrators.

Here is the challenge nobody is talking about. If they had administrative privileges they could have deleted every file on the servers forcing JP Morgan to reload backups and rebuild databases. Even worse, instead of deleting the files they could have simply modified the information in every record and the changes might not have been apparent for days or weeks and could have been propagated into the daily backups making them worthless as well. Changing email addresses, street addresses, etc, would make the records worthless and things like bank statements, updated credit cards, etc, would have been mailed to the wrong addresses and cause all kinds of problems. Having to get in touch with 76 million customers and have them correct their information on file would be an insurmountable task. Basically, with administrative access they could have caused JPM and the other nine banks significant amounts of grief that could have taken years to correct. NYT article here

If you have recently been turned down for a mortgage loan don't feel too bad. Ben Bernanke revealed in an appearance on Thursday that he was recently turned down for a loan to refinance his house. In the interview he told Mark Zandi he was "unsuccessful" in trying to refinance his mortgage. When the audience laughed he said, "I am not making this up. I think it is entirely possible that lenders have gone a little bit too far on mortgage credit conditions."

He bought his house in 2004 with two loans with one of them an ARM. The five year ARM was scheduled to adjust higher in 2009 and he refinanced his mortgage of $685,000 into a new loan. In Sept 2011 he refinanced again with a 30-year at 4.25%. He did not say why he was refinancing again or for how much only that he was turned down. With the iron clad qualification rules today he had two strikes against him. He recently left his job of 8 years so a lender could not verify employment. Since his main form of income is speaking engagements where he gets $50,000 for an hour of work he is now self employed and that requires two years of history and more stringent credit guidelines. He also received more than $1 million for a book deal with publisher W.W. Norton. I am sure Bernanke is credit worthy but the current mortgage application process has been called the equivalent of a "financial colonoscopy."

Markets

A +200 point rally is normally a good thing but under some conditions it is not enough. The market was significantly oversold and given the depth of the drop on Thursday to 16,675 you would have expected a stronger bounce. This would be especially true since traders should have wanted to close short positions before the weekend. Friday was a short squeeze that halted at downtrend resistance on all the major indexes.




The Russell 2000 decline to 1,078 and -10.7% from its 1,208 high on July 3rd was much sharper than the declines in the big cap indexes. If the rebound on Friday had legs we should have seen the Russell post larger percentage gains than the big caps. That did not happen with a +0.76% rebound compared to +1.24% on the Dow, +1.11% on the S&P and a whopping +2.12% spike on the Dow Transports.

Also, the Russell rebound was strictly a short squeeze. The Russell gapped open to 1,106 and closed at 1,105. The late morning creep higher to 1,109 evaporated almost immediately while the Dow and S&P actually rose in the afternoon. If the small caps are going to continue to lead you would have wanted them to climb into the close.

The S&P broke through multiple support levels to hit 1,926 on Thursday. The rebound recovered 41 points to 1,967. That is still well below the prior support, now resistance, at 1,980. The S&P did retest the bottom of the uptend channel I diagrammed last week. In theory this was a perfect retest of the long term trend because the low was right to that long term support and the rebound was immediate as in each of the last several tests. That also corresponds to the support of the 150 day average at 1,928. However, if these levels are tested again and do not hold it would suggest a much lower low and longer period of contraction.



The Dow plunged to 16,674 on Thursday and rebounded back over 17,008 on Friday. Despite that +334 point rebound it still finished the week with a -103 point loss. I would be thrilled if the rebound continued but it would encounter strong resistance again at 17,150.

The Dow was helped by monster gains in Goldman Sachs of +$5 and $2 gains in Visa, Boeing and IBM. Only one stock was negative and that was Caterpillar.

The only moving average that counts on the Dow is the 200-day currently at 16,578. That average has halted every dip over the last two years. Since the decline stopped about 100 points shy of that level we could see some further weakness. It is not mandatory but the risk is there.

Interim support is 16,800 with resistance 17,150.




The Nasdaq chart is still bearish with strong resistance at 4,485 and 4,510. The decline to 4,367 was intraday with a return to a positive close on Thursday. The rebound was led by the Nasdaq big caps. The payroll report caused a short squeeze on Friday with the opening high at 4,471 and the close at 4,474. That is a text book short squeeze pattern with no follow through.

I will remain bearish on the Nasdaq until it moves back over 4,510. A further decline to 4,344 would be buyable.



The Nasdaq 100 ($NDX) was my canary for the market last week and the support at 4,000. When that level broke I thought we would see a bigger drop. The NDX panic low on Thursday at 3,934 was instantly bought and the index rebounded to close the day with a gain but with a second consecutive close under 4,000. The 3,885 close appeared to be a negative omen but the short squeeze on Friday overwhelmed the sellers.

However, the NDX, which had been somewhat bullish until last week now has the same bearish chart pattern as the Composite and series of lower highs and lower lows. This is not a good sign for next week and another close under 4,000 would be a strong sell signal.


The Russell declined to levels that produced a rebound over the last year. However, after a 40% gain in 2013 it remains at risk for further profit taking. The 1,087 level was a 10% correction and the 1,082 level was the low on the prior two dips.

On the weekly chart the lower high in August suggests stronger negative bias exists that could push us lower. Any break of that 1,082 support level could prompt a much stronger decline possibly to bear market territory at 965.

The Russell 2000 has declined for five consecutive weeks and the worst streak since August 2011.


The Dow Transports rocketed higher as oil prices declined under $90. The index declined to the long term support of its 100-day average which has been a buy point in each of the last eight dips. Clearly investors bought that dip once again.

However, the transport rebound stopped at the 8,500 resistance level and that is where it will have to start on Monday. There is no room for a running start unless it pulls back at the open to build up some momentum for the next push higher.

The fourth quarter is normally bullish for the transports because of all the air travel around the holidays and the number of packages being shipped. This is a bullish index and could help offset the drag from the Russell 2000.


The NYSE Composite Index briefly traded below support at 10,500 before a lackluster rebound of 0.7%. The NYSE is in the same downward trend as the Russell 2000 and a return dip under 10,500 could be a trigger for an acceleration in selling. The 150-day average that is normally support has failed.


I would like to think the rebound on Friday stalled because traders did not want to go long over the weekend with an abundance of geopolitical headlines possible. Of course what I would "like" to think does not matter. The Russell and the NYSE Composite charts are still negative. Only the big cap indexes like the Dow and Nasdaq 100 still retain any bullish points.

The afternoon stall worries me and that could suggest another move lower on Monday. Whether it has any legs is the big question. At this point heading into the earnings cycle we could see the dip buyers turn aggressive and short circuit any major declines.

Random Thoughts

We are three weeks away from the end of QE and the current market weakness is probably related to that event although market commentators are not yet focused on it. The strong jobs report is just one more reason the Fed will have to modify their forward guidance at the October 28th meeting. Bullard said there is no way the Fed can not alter guidance, which means they have to get rid of the considerable period language and start suggesting the first rate hike will be in March instead of June. The end of every QE program has brought significant market declines. Why would this time be different? The market has now gone 1,100 days without a 10% correction. Fun times ahead!

The end of QE1 in 2010 caused a -13.2% decline in the S&P. QE2 ended in 2011 and the market declined -18% over the next three months.


Mario Draghi and the ECB failed to live up to expectations when they met last week. The tough talk by Draghi is no longer having any impact on the market and the declining European economy is going to be a drag on the world. This had one commentator saying Mario was Draghi-ing on the market.

Common is rotten to the Core. The vast majority of people reading this newsletter probably learned to add and subtract in math class by borrowing and carrying numbers. It was simple and quick and we all do it even to this day. However, that system is no longer taught or accepted in schools using the Common Core curriculum. This link is for everyone that does not understand why parents are so up in arms over Common Core. Can you subtract 38 from 325? This is how third graders are being taught to do this. Picture worth 1000 words

Inflation in Venezuela hit 63% last week with the bolivar currency exchange rate at 100 to $1 except you can't actually exchange them except on the black market. President Maduro continues to blame the "capitalist economic war" on the U.S. but he still accepts our dollars for the one million barrels of oil we buy from him every day. Airlines have quit flying there because the government won't give them the money paid for the fares and there is no jet fuel to refuel the planes.

In Iraq the ISIS army is on the move with the capture of two more cities close to Baghdad. It is only a matter of time before Baghdad itself is captured. Iraqi troops are melting into the desert to avoid confrontations with the ISIS army. A large number of Shiite civilians have been conscripted and armed to help defend Baghdad against the coming attack. However, there is no way to really defend against an army of suicide bombers that are willing to drive trucks filled with explosives into critical checkpoints and defense positions.

The $2 billion U.S. Embassy has 1,300 soldiers and special operations forces on hand for protection but once ISIS secures the outer edges of Baghdad they can lob artillery and mortar fire into the embassy at will. There is a real crisis brewing in Baghdad and a couple bombing strikes a day is not going to solve it. Once inside Baghdad's perimeter and the fighting goes house to house the airstrikes will be even more ineffective. Most of the military strategists in Washington believe time is running out to reinforce Baghdad with boots on the ground OR begin the evacuation of the embassy and all the personnel.

Additional payroll numbers. What is wrong with this picture?

In the last year the working age population rose by 2,278,000.

In the last year the labor force rose by 389,000.

In the last year those "not" in the labor force rose by 1,889,000.

That is a lot of people not working but not included in the unemployment rate. Over 100% of the decline in the unemployment rate over the last year has been from people dropping out of the labor force rather than strength in employment. The labor force increases by 217,000 people per month. We would have to create 217,000 jobs per month for the unemployment rate to remain flat. It is declining because fewer people are looking for jobs.

The Association of American Railroads (AAR) reported U.S. rail traffic for September was up significantly. Railroads originated 1,190,431 carloads in September, up +2.7% or 30,837 carloads over the same period in 2013. This was the seventh consecutive month of year-over-year gains and something that has not happened since early 2011. Intermodal traffic totaled 1,073,042 containers, up +4.5% or 45,803 units. The last three weeks of September were the three highest volume intermodal weeks in history for U.S. railroads. More info here

Q3 earnings are just ahead and with it comes Q4 guidance. That is expected to be rocky because of the sharp rise in the dollar. This impacts sales of products overseas and 50% of the S&P profits come from overseas sales. We can expect plenty of guidance warnings as a result of "currency translation" issues. Estimates for earnings growth for Q3 have declined from about +10% to +6.5% so the bar is not set too high.

A recent survey showed that 72% of Americans believe we are still in a recession. Wage growth over the last five years has been nonexistent and in many cases has declined because of the large number of workers competing for too few jobs. Home prices have not risen over mortgage balances in many areas and have trapped consumers in their existing homes. With one person in ten not working everyone knows somebody that is out of work. When a new McDonalds opens and gets 1,800 applicants for 40 positions you know the job market is tight.

The biggest fat finger trade ever happened in Tokyo last week. The trade resulted in orders for $617 billion in stock being cancelled. Shares in 42 major Japanese companies were hit by the error. The biggest single order was for 1.96 billion shares of Toyota worth 12.68 trillion yen. The trader initiating the bogus trade was not identified.

Pyongyang North Korea was said to be under lockdown as rumors swirled about a coup. Kim Jong-un has not been seen in public since September 3rd. Supposedly he is ill and some believe he has gout, diabetes and lung problems. Reportedly the Organization and Guidance Department (OGD) has stopped taking orders from Kim and are running the country. This is not a big change since they normally run the country anyway with little input from the figurehead in charge. However, it seems Kim may have overstepped his authority and has been cut out of the loop. There are so many rumors it is tough to know what is real.

With crude prices falling to less than $90 gasoline prices are plunging. The average price in the U.S. fell to $3.33 on Thursday and a four year low for this time of year. Gasoline prices are expected to decline to $3 or less in the coming weeks.

On the bright side October is normally the month where the market rebounds into year end. Market lows are typically made in October and rebounds then push it higher. October is known as the bear killer month because so many bear markets end in October.

Only 81 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"What's money? A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do."

Bob Dylan

 


Index Wrap

Upside Reversal

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

It was a matter of WHEN not IF as to getting into bullish positions again for those many sitting this recent correction out. 'It's a bull market stupid' might apply as it is and corrections remain buying opportunities.

I was over-optimistic on buying Nasdaq 100 (NDX) calls in the 4000 area, as it did touch 3935 intraday and Closed at 3985 (Thursday) before rebounding.

There was no mistaking bottoming type action: V-shaped bottoms quite apparent in the S&P and Dow; retracements of 2/3rds/66% and one of my favorite buy 'signals' in the Dow and Nas 100; oversold RSI readings in the S&P 500 and the Nasdaq Composite and a fairly low Call to Put (CPRATIO) reading on Thursday at 1.28 versus a 'typical' 'oversold-bearish extreme' zone of 1.0-1.2.

As is usually if not often the case, technical/chart/indicator patterns 'FORECAST' the upside reversal that was seen as fundamentally 'justified' by the employment report on Friday.

I think options traders are a more savvy lot as they never got OVERLY bearish in terms of my sentiment indicator which uses daily equities call to put volume ratios to forecast bullish/bearish 'extremes' in sentiment.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

SPX looks to be back on a bullish track, having reversed in a V-bottom pattern, in the area of its long-term up trendline; in terms of the support trendline we have to 'discount' the intraday climax low of Thursday which was below this line. Not the Close however. This looks like this will be the low for this recent pullback.

Support is seen at 1945, at the current intersection of SPX's up trendline, with fall back support at the this past week's intraday low at 1925. Unless the lows of early-August in the low-1900 area are pierced decisively, the intermediate trend remains UP.

Resistance is three-fold: initial resistance at 1980, then pivotal resistance again in the 2000 area, extending to 2020.

The Relative Strength Index (RSI) got within a hair's breath of its 'typical' oversold zone on Wed/Thurs and trader bearishness showed a fairly extreme bearish outlook (on my CPRATIO 'sentiment' indicator) on Thursday when it looked like the sky was falling on the US Market from European recession talk.

S&P 100 (OEX) INDEX; DAILY CHART

OEX also reversed in the area of the low (support) end of its uptrend price channel on a Closing basis. It has a typical V-bottom pattern like SPX after reversing from an area above it prior downswing low of early-August.

Suggested near support is highlighted at the current intersection of the OEX's up trendline in the 870 area. Lower support is in the 860 area of the recent intraday low. 850 should offer fairly major support as it did in August.

Resistance is seen at 880, extending to 890 and finally at pivotal resistance around 900, a milestone level for OEX.

We can't rule out another dip to the 870 area or a bit under but it should be well supported again.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

INDU retraced 66% of its prior advance and is one of my favorite 'signals' to look for the end of a decline in a bull trend. Moreover, this retracement came in at support implied by the Dow's up trendline as seen on the chart.

Support is highlighted at the current intersection of the INDU's up trendline at 16695-16700. I've highlighted major support at 16400, but realistically I don't current anticipate more than a further dip to the 16550 area if that.

The Dow didn't get 'fully' oversold at the recent apparent upside reversal but its also true that INDU has lagged the S&P and didn't get as 'extreme' on the upside in terms of being overbought either.

Dow stocks DD, HD, GS, INTC, KO, JNJ, MRK, MSFT, NKE, TRV, and UNH all look capable of working higher.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

COMP also looks like it may have finished correcting as it fell to just above my re-drawn up trendline dating back to the mid-November lows of 2012.

Support implied by its support/up trendline comes in around 4355 currently and support implied by the line of the prior cluster of lows comes in at 4325.

Resistance is at 4500, extending to 4520, then back at the line of prior intraday highs in the 4600 area.

Adding an ancillary indicator pattern to the apparent upside price reversal was seen with the Relative Strength Index (RSI) having finally gotten 'fully' oversold this past week.

Moreover, at the same time trader sentiment got close to a level of bearishness that I associate with upside reversals; again, within the context of a bull market trend. In bear market trends, bearish sentiment gets more extreme as you might imagine.

NASDAQ 100 (NDX); DAILY CHART:

NDX appears to have had an upside reversal relative to its recent short-term down trend within the context of the still bullish intermediate-term uptrend. This was most strongly suggested to me by the fact of the Index having retraced 66% or 2/3rds of its prior advance. In strong bullish trends, we rarely see more than a 50 to 62-66 percent retracement.

Moreover, NDX rebounded this past week at just above its up trendline, the intersection of which currently implies near support at 3925 as highlighted on the daily chart below. Next support comes in at 3900-3880, extending to 3850 as highlighted (by the green up arrow) at the line of support seen at the prior (early-August) cluster of lows that ended the last downswing.

The RSI indicator was nearly at what I consider a fully oversold reading but in the area of the RSI low associated with the last upside reversal (early-August).

VXN, or implied NDX volatility, sometimes referred to as a 'fear index', had been rising toward the extremes we've seen before at Nasdaq 100 correction lows.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

QQQ remains within its broad uptrend price channel at recent lows and the apparent upside reversal from the 96 level. 96 was and is current support going into the coming week. Major support is seen at 94 even.

Resistance is highlighted in the 99 area, extending to 100, then 100.6 which represents the prior intraday high in the Q's.

Daily trading volume was mostly well above average this past week as fear gripped investor outlook related to even the high-tech/internet darlings. The On Balance Volume (OBV) line appears to have leveled off and looks to be ready to resume moving up again. Stay tuned.

RUSSELL 2000 (RUT); DAILY CHART:

Even a dog has its day and I was writing last time that when RUT gets to an oversold extreme in the 13-day Relative Strength Index or RSI, its time to look to come in bullish again.

RUT didn't rally from its early-August lows but did from its mid-May bottom in the low-1080 area.

The pattern in the Russell 2000 now looks like a broad double bottom.

Key technical support is highlighted in the 1080-1083 area. Resistance is suggested at 1120, then at and just over 1140 and finally at the resistance/down trendline.


GOOD TRADING SUCCESS!




New Option Plays

Industrial Goods & Oil Services

by James Brown

Click here to email James Brown




NEW DIRECTIONAL PUT PLAYS

Flowserve Corp. - FLS - close: 68.77 change: -1.07

Stop Loss: 71.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 813 thousand
Entry on October -- at $---.--
Listed on October 04, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
FLS is part of the industrial goods sector. The company is headquartered in Texas and has grown to 16,000 employees in over 50 countries. The company makes pumps, valves, seals, and provides services to the power generation, oil & gas, chemicals, and general industries.

FLS' rally from its 2011 low peaked back in early 2014. A slowdown in the global economy is impacting sales. The last couple of quarters have seen FLS miss revenue estimates and report declining sales. Now after six months of lower highs shares of FLS has broken down from a huge consolidation pattern. Goldman Sachs may have seen this coming when they put a "sell" rating on the stock back in June.

FLS is currently down four weeks in a row and the last few days have seen the stock break down under support near $70.00. More importantly it has broken support at its long-term trend line of support dating back to its 2011 low.

FLS was also showing relative weakness on Friday. Instead of bouncing with the market shares underperformed with a -1.5% decline on almost double its average volume. The point & figure chart has turned bearish and is forecasting at $60 target.

Tonight we are suggesting a trigger to buy puts at $68.45.

Trigger @ $68.45

- Suggested Positions -

Buy the NOV $70 PUT (FLS141122P70) current ask $3.20

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

Daily Chart:

Weekly Chart:


Oceaneering Intl. Inc. - OII - close: 62.58 change: -1.46

Stop Loss: 65.10
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.6 million
Entry on October -- at $---.--
Listed on October 04, 2014
Time Frame: We will likely exit prior to earnings on Oct. 29th
New Positions: Yes, see below

Company Description

Why We Like It:
The price of crude oil hits its 2014 peak in late June. The steady decline in crude oil has pressure nearly all of the energy-related stocks lower including oil services names. As a matter of fact the oil service names have fared even worse with the OSX oil service index down -9.4% for the year.

OII is underperforming its peers with a -20% decline this year. The company provides an array of oil services with hundreds of remotely operated vehicles (ROVs). A company press release describes OII as "a global oilfield provider of engineered services and products, primarily to the offshore oil and gas industry, with a focus on deepwater applications. Through the use of its applied technology expertise, Oceaneering also serves the defense, entertainment, and aerospace industries."

The weakness in oil is expected to get worse, which should keep the pressure on oil and oil service stocks like OII. Shares of OII recently broke support near $65.00. The oversold bounce has already rolled over and shares are hitting 18-month lows. The point & figure chart is bearish and forecasting at $47.00 target.

Friday's intraday low was $62.47. We're suggesting a trigger to buy puts at $62.35.

Trigger @ $62.35

- Suggested Positions -

Buy the NOV $60 PUT (OII141122P60) current ask $1.45

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Jobs Data Fuels A Bounce

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. jobs data on Friday morning helped fuel a bounce. This helped soften a down week for equities.


Current Portfolio:


CALL Play Updates

Centene Corp. - CNC - close: 82.19 change: +1.50

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on September -- at $---.--
Listed on September 29, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
10/04/14: It might be tempting to buy this bounce in CNC but I'm worried about the broader market's performance. Let's keep our entry trigger on CNC at $84.05 for now.

Earlier Comments: September 29, 2014:
Managed healthcare companies are finally starting to reap the benefits of the Affordable Care Act. Shares of CNC have soared +40% in 2014 and ended today's session at another record high.

Who is CNC? According to a company press release, "Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and services to government sponsored healthcare programs, focusing on under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children's Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and Long Term Care (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans). The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, care management software, correctional systems healthcare, in-home health services, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.

The Affordable Care Act could add up to seven million new healthcare clients to the system. That number is expected to surge to nearly 25 million new healthcare clients in the next decade.

At the same time there are 26 states expanding their Medicaid coverage. Right now companies like CNC are in the sweet spot as more and more states turn over their Medicaid patients over to managed-care firms like CNC. The IBD reports that CNC could see increased business from Texas, Michigan, South Carolina.

CNC has been consistently beating Wall Street's earnings estimates (at least the last four quarters). Their earnings report in April beat estimates on both the top and bottom line. They did it again in July with earnings and revenues coming above expectations. Management then raised their 2014 guidance. Since that report FBR Capital has raised their price target on shares of CNC to $90 and Oppenheimer has raised their price target to $93. The point & figure chart is even more bullish and forecasting a long-term $108 target.

We like the relative strength and the healthcare market trends certainly favor CNC. We're suggesting a trigger to buy calls at $84.05.

Trigger @ $84.05

- Suggested Positions -

Buy the NOV $85 call (CNC141122c85)

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

chart:


iShares Russell 2000 ETF - IWM - close: 109.65 change: +0.82

Stop Loss: 106.35
Target(s): To Be Determined
Current Option Gain/Loss: +15.1%
Average Daily Volume = 36.8 million
Entry on October 02 at $108.35
Listed on October 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/04/14: The oversold bounce in the IWM is testing short-term resistance near $110 and its simple 10-dma. We are not suggesting new positions at this time. More conservative investors may want to consider a stop closer to Thursday's intraday low ($106.94).

Earlier Comments: October 1, 2014:
Buy low, sell high. That's the traditional form of investing boiled down to its essence. The challenge can be the buy low part. Market pundits like to say buy when everyone else is selling. That was definitely the case today with the entire market in sell mode. All the major U.S. indices were down more than -1.3%. The only bright spot seemed to be utilities, which investors were using as a safe haven trade.

People were blaming a parade of negative headlines behind the market weakness. The day started off okay with a better than expected showing in the monthly ADP Employment change report came in at +213,000 new private-sector jobs in September. That was above estimates for +205K. Unfortunately the U.S. ISM manufacturing gauge dropped to 56.6 when economists were expecting 58.2. Germany's PMI slipped into negative territory (below 50.0) for the first time since June 2013. Then there were all the headlines about the first official case of the Ebola virus in the U.S. and how many people the infected person may have exposed before being quarantined in the hospital in Dallas. The market is made up of people and people tend to be irrational. A widespread outbreak of Ebola in the U.S. is extremely unlikely but it makes for great headlines on your TV screen.

The small cap index and ETF are in correction territory. IWM is only down -5.2% year to date but down -10% from its June closing high near $120. Make no mistake - the daily and weekly charts for the IWM look bearish. If this sell-off continues it would paint a very ugly technical picture. However, the IWM is short-term oversold and due for a bounce. If you were going to bet on a rebound then buying at support is the place to do it. That's why we are proposing tonight's trade.

I do consider this a more aggressive trade since normally when you try to catch a falling knife you get hurt. We're suggesting a trigger to buy calls on the IWM at $108.35 with a stop loss at $106.35.

- Suggested Positions -

Long DEC $110 call (IWM141220c110) entry $3.11

10/02/14 triggered @ 108.35
Option Format: symbol-year-month-day-call-strike

chart:


Cheniere Energy, Inc. - LNG - close: 77.33 change: +1.31

Stop Loss: 76.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.5 million
Entry on October -- at $---.--
Listed on October 01, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
10/04/14: Friday turned out to be a relatively quiet session with LNG drifting sideways inside the $76-78 zone most of the day. I do find it interesting that shares failed to reclaim the simple 50-dma. This moving average is now immediate overhead resistance.

We are currently on the sidelines with a suggested entry point at $80.35.

Earlier Comments: October 1, 2014:
According to LNG's website, Cheniere Energy, Inc. is a Houston-based energy company primarily engaged in LNG-related businesses, and owns and operates the Sabine Pass LNG terminal and Creole Trail Pipeline in Louisiana. Cheniere is pursuing related business opportunities both upstream and downstream of the Sabine Pass LNG terminal. Through its subsidiary, Cheniere Energy Partners, L.P., Cheniere is developing a liquefaction project at the Sabine Pass LNG terminal adjacent to the existing regasification facilities for up to six LNG trains, each of which will have a design production capacity of approximately 4.5 mtpa ("Sabine Pass Liquefaction Project"). Cheniere has also initiated a project to develop liquefaction facilities near Corpus Christi, Texas. The Corpus Christi Liquefaction Project is being designed and permitted for up to three LNG trains, with aggregate design production capacity of up to 13.5 mtpa of LNG and which would include three LNG storage tanks with capacity of approximately 10.1 Bcfe and two berths.

Why is Cheniere's ability to turn natural gas into liquefied natural gas (LNG) important? Natural gas has to be turned into LNG to be transported. The oil and natural gas boom in the United States, thanks to technology and hydraulic fracturing rigs that access tight oil in shale rock formations, has generated a huge supply. Right now the price of natural gas in the U.S. is less than $5.00 per million British thermal units (BTUs) or mmbtu. In Europe the cost per mmbtu is over $10.00 and in Japan the cost is almost $16 per mmbtu. There is a huge opportunity if producers can export natural gas to these markets. Unfortunately, building an LNG terminal that can export natural gas is a massive undertaking. It takes years to build them and there is a very long permit process from the government. Cheniere is quickly becoming the major player in this space in the U.S.

Cheniere recently moved one step closer to a FERC approval on the Corpus Christi LNG facility. The Federal Energy Regulatory Commission draft review said the project will result in the permanent loss of more than 25 acres of wetlands, but measures Cheniere plans to take will minimize any further disturbance. FERC will take public comments until August 4th and then issue a final review by Oct 8th.

They are building the largest LNG facility in the U.S. and it takes time. They are building six trains with annual production of 4.5 million tons per annum each (MTPA). Trains 1&2 began in August 2012 and are 63% complete. First production is expected in late 2015. Trains 3&4 began construction in May 2013 and are 27% complete. First production is expected in late 2016, early 2017. Purchase orders for 7.7 MTPA have been received for trains 1&2 and another 8.3 MTPA for trains 3&4. Trains 5&6 are still in permit mode with 3.75 MTPA of purchase agreements already being approved to Free Trade Agreement (FTA) countries and the non FTA authorization is pending. Trains 1-4 already have that authorization.

The three trains to be constructed in Corpus Christi for 13.5 MTPA are nearing the end of the permit approval process. Full approvals are expected not later than January 6th 2015. Purchase agreements for 5.53 MTPA have already been signed and the DOE has approved 767 Bcf per year for export to FTA countries with the authorization for non FTA countries still pending.

You might be wondering, "what is an LNG train?" According to Cheinere, The LNG industry has adopted the analogy of a "train" meaning the series of processes and equipment units that individually remove elements from raw inlet natural gas that would otherwise plug or freeze the small passages in the downstream heat exchangers that in a cascade fashion reduces the temperature from ambient to -260 F. Each of these processes and equipment units are sequentially arranged, similar to cars of a railroad train.

A couple of months ago the House of representatives voted to fast track more LNG export projects, which if signed into law, should be beneficial for Cheniere's current projects under review.

Technically shares of LNG have been stair-stepping higher with a rally to new record highs and then a correction and then do it again. Investors have been consistently buying the pullbacks near LNG's rising 50-dma. Shares just tested their 50-dma again today and naturally bounced. We want to hop on board the LNG natural gas train if this rebound continues.

Tonight we're suggesting a trigger to buy calls at $80.35. We'll start this trade with a stop loss at $76.35.

Trigger @ $80.35

- Suggested Positions -

Buy the DEC $85 call (LNG141220c85)

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

chart:


Mallinckrodt Public Limited Co. - MNK - close: 92.93 change: +2.01

Stop Loss: 87.70
Target(s): To Be Determined
Current Option Gain/Loss: +26.6%
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:
10/04/14: MNK displayed significant relative strength on Friday with a +2.2% gain. The rally looks like it's picking up speed. Shares ended the week at a record high.

Tonight we'll move the stop loss up to $87.70.

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*

10/04/14 new stop @ 87.70
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

chart:




PUT Play Updates

Harley-Davidson, Inc. - HOG - close: 59.39 change: +1.28

Stop Loss: 60.05
Target(s): Exit when HOG hits $55.50
Current Option Gain/Loss: + 8.1%
Average Daily Volume = 1.6 million
Entry on September 29 at $59.75
Listed on September 27, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/04/14: HOG shot higher on Friday morning but the rally ran out of steam 30 minutes later. Shares spent the day drifting sideways near $59.50. Even with Friday's bounce HOG still posted its fourth weekly loss in a row. The $60.00 level and the simple 10-dma (also near $60) should be overhead resistance. Traders could use a failed rally near $60 as a new bearish entry point. Keep in mind our stop loss is at $60.05.

Earlier Comments: September 27, 2014:
It looks like shares of HOG have run out of gas. The company is an American icon. Their website describes themselves as "Harley-Davidson Motor Company produces custom, cruiser and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear and apparel, and general merchandise." The made in America label still resonates with many consumers, especially overseas. Unfortunately sales appear to have hit a pothole.

HOG's Q1 results were reported back in April and the numbers were better than expected. The stock gapped higher and hit new multi-year highs. Yet a week later HOG had peaked. Shares have been building a trend of lower highs ever since its late April high.

The latest earnings report was in July. While earnings were above expectations HOG's revenues were a hair below estimates. Management said that market share fell 260 basis points to 50.3%. More importantly management lowered their 2014 full year shipping guidance from a range of 279K-284K down to 270K-275K. This has resulted in some analysts lowering estimates and their ratings on the stock. Shares have also struggled.

HOG is now trading new 2014 lows. It's also testing significant support in the $60.00 level. A breakdown under $60 could send HOG toward $55 or even $50. The point & figure chart is bearish and currently suggesting at $49.00 target.

Technically shares of HOG have built a bearish head-and-shoulders pattern (easily seen on the weekly chart). The $60 level support is the neckline for this bearish sell signal. Tonight we're suggesting a trigger to buy puts at $59.75.

- Suggested Positions -

Long NOV $60 PUT (HOG141122P60) entry $2.33

10/01/14 new stop @ 60.05
09/30/14 plan to exit puts when HOG hits $55.50
09/30/14 new stop @ 60.55
09/29/14 triggered @ $59.75
Option Format: symbol-year-month-day-call-strike

chart:


Lennox Intl. - LII - close: 77.22 change: +0.45

Stop Loss: 78.25
Target(s): To Be Determined
Current Option Gain/Loss: +10.2%
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:
10/04/14: LII's bounce stalled near its simple 10-dma. The trend would suggest shares will rollover from here. I'm not suggesting new positions at the moment.

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

10/01/14 new stop @ 78.25
09/30/14 new stop @ 79.55
09/23/14 new stop @ 80.25
09/22/14 triggered @ 79.25
Option Format: symbol-year-month-day-call-strike

chart:


Pentair Plc - PNR - close: 65.14 change: +0.48

Stop Loss: 67.05
Target(s): To Be Determined
Current Option Gain/Loss: +41.6%
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:
10/04/14: It was a good week for PNR bears. The stock broke down to new multi-week lows and reaffirmed the bearish trend. I'm not suggesting new positions at this time. Earnings are coming up on October 21st.

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*

10/01/14 new stop @ 67.05
09/06/14 new stop @ 68.65
08/26/14 triggered @ 68.90
Option Format: symbol-year-month-day-call-strike

chart:


Starbucks Corp. - SBUX - close: 75.89 change: +1.44

Stop Loss: 76.51
Target(s): To Be Determined
Current Option Gain/Loss: -36.2%
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:
10/04/14: The tug of war in shares of SBUX continues. The stock has spent nearly three weeks churning sideways in the $73.75-76.30 zone. Currently SBUX is testing the top of this range. I would hesitate to launch new bearish positions here. We have a stop at $76.51. More aggressive traders may want to move their stop above the 50-dma near $76.77.

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

chart:


Tupperware Brands Corp. - TUP - close: 70.11 change: +0.24

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:
10/04/14: TUP managed to push past the $70.00 level but I've been telling readers the real resistance to watch is $72.00. A bearish reversal in the $71.50-72.00 zone can be used as a new bearish entry point.

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

chart:


WESCO Intl. - WCC - close: 78.43 change: +0.73

Stop Loss: 80.55
Target(s): To Be Determined
Current Option Gain/Loss: -25.6%
Average Daily Volume = 306 thousand
Entry on October 01 at $77.75
Listed on September 30, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/04/14: WCC added +0.9% thanks to the relatively widespread market bounce on Friday. Shares should have resistance near $80 or its 10-dma. If you are looking for a new entry point you could choose a bounce or a failed rally near $80.00 or a new drop under $77.75.

Earlier Comments: September 30, 2014:
WCC is part of the services sector. They distribute industrial equipment. Their website describes WCC as "WESCO Distribution is a leader in industrial supply with an extensive offering of electrical, data communications, general maintenance, repair, and operating (MRO) and electrical OEM products. We are more than just an electrical distributor; we are a company of procurement specialists, helping customers lower supply chain costs, increase efficiency through WESCO Value Creation and save energy with green and sustainability initiatives. Our network of branches delivers industrial supply products fast, and our vast catalog of supplier partners enables WESCO to be your one-stop shop for electrical and MRO products."

Unfortunately for shareholders the stock peaked back in January this year. WCC produced a lower high in June. After a two-month drop WCC bounced but the bounce failed early September under resistance near $86.00, resistance at its simple 200-dma and resistance at the 50% retracement of the decline.

This trade isn't just about the technical picture. WCC has missed Wall Street's earnings estimates every quarter this year starting with its quarterly report announced in January, then April, and most recently in July. When WCC reported its July results management also lowered their 2014 guidance.

We are not the only ones who think WCC is bearish. The most recent data listed short interest at 13% of the 44.1 million share float. The point & figure chart is bearish too and forecasting at $64.00 target.

Today's drop was fueled by strong volume and shares are poised to break down under its late July low. Tonight we are suggesting a trigger to buy puts at $77.75.

- Suggested Positions -

Long NOV $75 PUT (WCC141122P75) entry $1.95*

10/01/14 triggered @ 77.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

chart: