Option Investor
Newsletter

Daily Newsletter, Thursday, 10/9/2014

Table of Contents

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

Market Wrap

The Volatility Coaster

by Thomas Hughes

Click here to email Thomas Hughes
The markets experienced another big day riding on the volatility coaster.

Introduction

Volatility is in the house, that is for sure. Today the market experienced yet another huge move and not one to the upside. Markets cooled off in the afterglow of yesterday's rally as traders and investors weigh the Fed Minutes against this mornings data, cautionary words from Mario Draghi, downgraded global growth prospects and earnings expectations to settle more than 2% lower.

Needless to say the Fed remains a mystery despite the transparency they strive for. A year ago the current unemployment rate, 5.9%, would have been seen as a reasonable trigger for the Fed to act on interest rates. Now the "threshold" has been reached but there is still no real indication of when rates will go up. The move is now tied to inflation with no concrete evidence of it rising or when rate hikes will be.

Market Statistics

Asian markets were largely higher this morning following the near 2% move in the US indices yesterday. The Japanese Nikkei was the only notable index to lose ground, due in large part to yen strength and dollar weakness. European indices were more mixed on the raft of central banking news. First off the Bank Of England held rates steady at historic lows. Second ECB chief Mario Draghi made some statements about the state of the EU economy and how no real recovery could happen without structural reforms, a call he has been making for quite some time. EU markets fell to break even following the statements and held those levels into the close.

Our own markets were modestly lower this morning, not too surprising following such a large move as we saw yesterday. The SPX was indicated about 6 points lower before the 8:30AM data release and then moderated that to about -3 afterward. Today's data was positive and in line with the trends. The employment picture continues to brighten and wholesale inventories are on the rise.

The markets remained negative into the open at which time they began a slow and steady decline. Then late morning, at the close of European trading, selling picked up and the market slide reached new lows. The SPX shed more than 40 points at the height of today's decline but as it has over the past week it found support along the long term trend line. The SPX and other indices bounced from support multiple times today before closing on a down beat near the days lows.

Economic Calendar

The Economy

Initial claims for unemployment fell this week versus an expected rise. Claims fell by -1,000 from last weeks upward revision of +1,000 to 287,000. This is now the 6th week that claims have been below 300,000 and trending near long term lows. The four week moving average also fell, by -7,250, to a new low not seen since February, 2006. Economist had been expecting a gain this week, if mild. On an unadjusted basis initial claims rose by just over 30,000, in line with seasonal adjustment factors. On a state by state basis NJ and IN led with increases of 615 and 482 respectively while CA and MI led with declines of -7,715 and -2,082.

I take this as a sign that job turnovers and job losses to the economy continue to decline as suggested by the last round of monthly data. Challenger says job cuts are at long term lows while JOLTs job openings are long term highs and the KC Fed Index Of Labor Market Conditions says improvement is gaining momentum.


The longer term gauges of employment claims, continuing and total claims, both also fell in this weeks data. Continuing claims fell by -21,000 to 2.381 million, a new low dating back to 5/27/2006. The moving average of this figure also fell to a new low. The total number of Americans fell by -44,363, also making a new low and now nearly 50% below last years levels. This is due in large part to benefit extensions that expired at the beginning of the year but also to the down trend in unemployment and uptrend in job creation. In any case, both of these figures are trending lower and setting new lows, in line with other data showing improvements in the labor market.


Wholesale inventories were released at 10AM and helped stop the market's fall, at least for a little while. The headline number showed an increase of +0.7%, about twice the expected growth. This is alongside a drop in wholesale sales of an equal amount, -0.7%. The previous month was also revised higher. On a year over year basis inventories are up 7.9% and sales are up 5.8%.

The Oil Index

Oil prices were under pressure yet again, losing another -1.86% and falling to near $85 a barrel for the first time in a year and half during the open session. After the close prices fell even further, dropping below $85 for the first time in about 2 years. Rising stockpiles and a lack of threat to global infrastructure are competing with a seeming schizophrenic Saudi Arabia and lowered global growth outlook to direct prices.

Low prices will spark moves by big players in the industry as proven by the Saudis. The two headlines focused on the Saudis that I saw today are at odds with each other and lead me to think...I don't know what. Maybe Art Cashin comment that there is an element of James Bond afoot is correct. The first headlined covered the Saudis announced supply cuts and how that is hoped to help stabilize prices while the second went over the Saudi scheme to maintain market share by discounting prices to China. Others in the industry that may be feeling the squeeze from low prices are the shale players. The lower oil prices get the more thier margins get squeezed; the break even point for fracking and shale oil production is roughly $80.

The Oil Index fell today, breaking long term support and setting a new 6 month low. The index has now been in decline for 5 straight weeks and is beginning to look a little extended. The indicators are still bearish but the MACD is spotty and a little divergent. The peaks are reflective of the volatility in the oil pits we've seen over the last few weeks. Today's candle opened just above 1,500, long term support, and moved steadily lower all day. The index is now below support and likely to remain there until oil prices stabilize and/or move higher.


The Gold Index

Gold prices surged yesterday after the FOMC minutes and were able to hold those gains today. The minutes revealed the Fed is bullish on the economy, wary of Europe, and incredibly non-committal on interest rate hikes with the latter most important for gold traders.With today's move gold prices have rebounded nearly 3% since hitting long term support earlier this week. My long term targets have been met so now it's time to look for the next near to short term mover of gold.

Fed policy and outlook for interest is the underlying current with stronger dollar coming in a close second from a long term perspective. Closer in will be inflation data. Of course other data will need to hold to current trends but it is the inflation data that the Fed is watching in terms of interest rates so that is the data I think will move gold. Inflationary data and a sooner hike to rates will likely be bearish while non-inflationary data and later rate hikes likely be bullish. Until then, and until the equities markets calm down, gold prices could remain volatile. Today's action was positive but came to a halt at a potential area of resistance, $1225.

The Gold Index moved lower, counter to today's bounce in the underlying commodity. The index is closely tied to gold prices so this is a little surprising. However, the gold stocks made their move yesterday and today sold off in line with the general market today. Today's move began just below the recently broken long term support which may now become resistance. The index is now just above long term lows set just this week and appears to be consolidating. The index is below resistance at this time but if the bounce in gold holds then I suspect that the index will not move lower. The indicators are the same as before, momentum is bearish but weak and weakening while stochastic shows a market that has been oversold for a month. Divergence in MACD adds to the idea the index is at a turning point but no guarantee of reversal. Current resistance is between $82.50 and $85 with support just below the current levels around $75.


In The News, Story Stocks and Earnings

Alcoa could not buck today's sell-off despite blowing away earnings projections. The aluminum giant and bell-weather of the economy beat on an increase of sales and decrease of costs that overcame a rise in aluminum prices. This sparked a rally in the stock yesterday in the after-hours session that carried into early trading this morning. The stock opened higher but then sold off hard throughout the day along with the broader market. The earnings were good but with the cloud that has grown over future global prospects maybe too good for the market to expect improvement in the near future. Shares are now trading below the long term trend but above short term support. Indicators are bearish but still consistent with support, stochastic in particular shows that there is some accumulation going on at these levels. Current support is at $15 with resistance at $16 and a short term target near $18 on a move higher.


Carl Icahn sent his letter to Apple today and moved the market, a little. He basically kissed Tim Cooks Apple and told him he was a great CEO and that shares of Apple were undervalued. He thinks the shares could be worth twice as much as they are now and spurred a 1% move higher. I sure wish I could do that, move the market in my favor, doesn't everybody think their shares are undervalued? The sell off in the broad market hurt the rally in Apple, which was capped at only 0.37% by the end of the day. Not discounting Mr. Icahn's view the stock looks like it is in a consolidation during an uptrend. The stock has been, split adjusted, trending higher all year and has been in this consolidation since moving above $100 post split. The indicators are neutral to bullish and consistent with a consolidation.


Pepsi reported earnings this morning. The Taste Born In The Carolina's reported organic revenue growth over 3% and delivered an earnings beat that may put critics to rest. The company was expected to report $1.29 on the high end of estimates and surpassed that with EPS of $1.36. The results to date are so good that the board has raised guidance for profit growth to 9% for the year. This may put an end to calls for the company to separate snacks and drinks segments of the company but probably not. Shares of Pepsi gapped at the open, moving nearly 3% higher at one point this morning before selling took over and brought prices below yesterday's close. The stock is in an uptrend and trading at all time highs but it may be at an end. The indicators are highly divergent from the highs and suggestive of a pull back.


The Indices

The indices were not able to hold yesterday's gains and fell hard in today's action. They began to fall and then slowly sank throughout the day until hitting bottom mid afternoon. From that point on the indices, led by the Dow Jones Transportation Average, bounced along support levels until the end of the day. The transports lost nearly -2.5% today, creating a long black candle and the third such in the last two weeks. The index is moving lower in the near term and that is supported by MACD. The momentum indicator is creating larger peaks in tandem with each new low in the transports and indicative of lower prices or at least holding along current lows. The index has broken the long term trend and is now in danger of confirming that move. Support is just below along 8,500 with next support around 7,825.


The S&P 500 fell -2.07%, coming to rest exactly on the long term trend line. Volatility in the broad market is increasing but has yet to break trend. The indicators are bearish but still in line with the underlying trend, unlike those on the trannies. MACD is a little spotty, like on the Oil Index mentioned earlier, no doubt a result of the backing-and-filling the market has been doing this week. Stochastic is meanwhile rolling over in the early stages of the trend following signal and appears to show support. If the index should move lower tomorrow it will break the trend line and could lead to a further correction, perhaps down to 1900 or lower. For now the trend is still in play with indicators that appear to be in line with a trend following entry.


The NASDAQ Composite is next up with a lost just over -2.00% for the day. The techs were hit as hard as any others today and set a new 6 week closing low. The index is now sitting exactly on support, as is the SPX, and is accompanied by indicators suggestive of support and the early stages of a trend following entry signal. Bearish MACD has peaked and is in decline while stochastic is rolling over. This is consistent with the index as it corrects to trend as it appears to be and have done. Support is at the current level, 4370. A break below here, with confirmation, could lead to a deeper correction down to near 4,200.


The Dow Jones Industrial Average was the mildest decliner of the day, losing only -1.97%. The blue chip index also created a long black candle and broke down to set a new low. The index is giving support a real testing but the indicators are still consistent with it holding. MACD is in decline as on the SPX and COMP and stochastic is rolling over, readings consistent with previous tests of support.


This has been a rockier correction than the last few but a correction to trend I think it is. It has been hard to maintain my stance recently but the indicators don't lie. I may not be reading them right but for now they suggest that the market is trading along support following a correction. Long term support could break down but it has not yet. Earnings season has just started and so far, based on Alcoa, things are good. The negative is that now future growth is in question with the blame laying in a couple of places.

China is slowing, but it has been for a couple of years and is still growing over 7%. Europe is slowing and that is a more pressing concern but again, it has been weak for a long time. Sanctions against Putin are in effect with no real indication on how they will affect global GDP. Additionally there are the mid term elections that we have scheduled just next month which could shift power in Congress. All things hanging over the market and that may weigh it down but there is still good in the economy too. We are still growing and there is of yet no sign of it stopping. In fact, based on the labor data, it appears as if the economy could be accelerating. Perhaps earnings season will give us a clue.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Elevated Volatility

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight.

Stocks are getting whipsawed back and forth, which can make trading exceedingly difficult. The Dow Jones Industrial Average just delivered its seventh triple-digit move in a row. The last three days have seen a surge in volatility with the Industrial average down -272 points, +275 points, and down -335 points today.

The S&P 500 has also been very choppy over the last several days. Both the S&P 500 and the NASDAQ have built a bearish trend of lower highs over the last three weeks. At the moment the S&P 500 sits on prior technical support on its simple 150-dma. I suspect we are going to see this large cap index drop toward round-number support at the 1900 level, which is also near stronger technical support at its simple 200-dma.

Such a drop might fuel a rally in the volatility index (VIX) toward its 2013-2014 highs in the 21-22 zone, which would hopefully signal a new market bottom.

Momentum would suggest we trade down tomorrow but there is a chance that bears do a little short covering ahead of the weekend. With so much uncertainty we are not adding new plays tonight.




In Play Updates and Reviews

Market Sell-off Accelerates

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market completely erased yesterday's short squeeze with another round of widespread declines on Thursday.


Current Portfolio:


CALL Play Updates

Ambarella, Inc. - AMBA - close: 41.88 change: -1.90

Stop Loss: $40.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.4 million
Entry on October -- at $---.--
Listed on October 08, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
10/09/14: AMBA reversed with the stock market. Shares came close to erasing yesterday's big gains. If this pullback continues we might see AMBA retest what should be short-term support near the $40.00 level and its simple 20-dma. We'll re-evaluate our entry point if AMBA bounces near $40. Currently our suggested entry point is $44.65.

Earlier Comments: October 8, 2014:
AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up +633% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June this year and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. AMBA happens to make the HD camera sensors in many of GPRO's products. As GPRO rallies it could be giving AMBA a boost and GPRO expects record sales this holiday season.

It's also worth noting that AMBA's rally has been helped by consistent earnings growth. The company has beat Wall Street's estimates on both the top and bottom line for the last four quarters in a row. Their most recent earnings report in September saw AMBA's management raise their revenue guidance.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 21.7% of the small 28.0 million share float.

We think the bullish momentum continues. Tonight we're suggesting a trigger to buy calls at $44.65.

Trigger @ $44.65

- Suggested Positions -

Buy the NOV $46 call (AMBA141122C46)

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


Mobileye N.V - MBLY - close: 54.19 change: -1.88

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: -24.4%
Average Daily Volume = 9.0 million
Entry on October 08 at $57.15
Listed on October 07, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/09/14: As momentum stock shares of MBLY saw an exaggerated move today. The NASDAQ fell -2.0% but MBLY gave up -3.3%. The trend of higher lows would suggest support in the $52.00-52.50 area.

Earlier Comments: October 7, 2014:
The future of hands free driving is a lot closer than you might think. MBLY is leading the charge. Its technology is already in more than three million cars made by companies like BMW, General Motors, and Tesla.

What exactly does this technology due? DAS stands for driver assistance systems. Sometimes you might see it called ADAS for advanced driver assistance systems. This new technology helps drivers avoid collisions with other vehicles, pedestrians, bicyclists, and more while also alerting the driver to road signs and traffic lights.

The company website describe Mobileye as "a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye's technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving."

MBLY said their technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016.

The company is already developing a system for autonomous driving or hands free driving. They currently plan to launch an autonomous system in 2016 that will work at highway speeds and in congested traffic situations.

MBLY stock came to market in August this year. Demand was strong enough that they upped the number of shares available from around 27 million to 35.6 million shares. They raised the IPO price from the $22 range to $25. This valued MBLY at $5.3 billion. The first day of trading saw MBLY opened at $36.00. Today shares are up more than 50% from their first day of trading and up about +120% from its IPO price of $25. On a side note the float is now 151.7 million shares with outstanding shares at 212 million.

It's easy to see why investors are optimistic on MBLY. Annual revenues have soared from $19.2 million in 2011 to about $120 million a year today. The stock's rally has soared past Wall Street's initial round of price targets in the $42-49 range. There have been a couple of firms raising their targets.

Bears have been arguing that the valuations on MBLY are insane. As of today MBLY's market cap is about $12 billion. Bulls would argue that MBLY has first-mover advantage in this field. That's true. MBLY has a near monopoly on the ADAS market. However, the bearish case here would mean any new competitors could quickly take market share.

The New York Post recently ran an article discussing how the White House might be a bullish tailwind for MBLY. The National Highway Traffic Safety Administration issued a research report that estimated ADAS type of technology could eliminate almost 600,000 left-turn and intersection crashes a year. Following this report the White House said they would draft new rules that required this sort of tech in new vehicles.

The momentum certainly favors the bulls. Traders bought the dip today in spite of the market's weakness. The stock can be volatile and the option spreads are a little wide. I would consider this a more aggressive trade.

We are suggesting a trigger to buy calls at $56.55.

- Suggested Positions -

Long NOV $60 call (MBLY141122c60) entry $4.50*

10/08/14 triggered on gap higher at $57.15, suggested entry was $56.55
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike


Mallinckrodt Public Limited Co. - MNK - close: 90.50 change: -2.01

Stop Loss: 89.45
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:
10/09/14: The stock market's widespread plunge today reversed yesterday's bounce in MNK. If the market continues to sink tomorrow we could see MNK break short-term support near $90.00 and hit our stop loss. I'm not suggesting new positions.

FYI: We have less than two weeks left on our October calls.

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*

10/07/14 new stop @ 89.45, potential bearish reversal pattern
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




PUT Play Updates

Flowserve Corp. - FLS - close: 64.98 change: -2.37

Stop Loss: 70.10
Target(s): To Be Determined
Current Option Gain/Loss: +68.7%
Average Daily Volume = 813 thousand
Entry on October 06 at $68.45
Listed on October 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/09/14: FLS did not see any follow through on yesterday's bounce. The stock reversed sharply with a -3.5% decline. These are new relative lows but the $65.00 level is potential round-number support.

Investors may want to start lowering their stop loss. I am not suggesting new positions at this time.

Earlier Comments: October 4, 2014:
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.

- Suggested Positions -

Long NOV $70 PUT (FLS141122P70) entry $3.20

10/07/14 new stop @ 70.10
10/06/14 triggered @ 68.45
Option Format: symbol-year-month-day-call-strike


Lithia Motors Inc. - LAD - close: 79.74 change: -1.94

Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: - 4.5%
Average Daily Volume = 384 thousand
Entry on October 07 at $81.40
Listed on October 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/09/14: LAD reversed near $83.00 and the close under $80.00 is good news for the bears. This move can be used as a new bearish entry point.

Earlier Comments: October 6, 2014:
LAD is part of the services sector. They run one of the largest auto dealerships in the U.S. with 28 brands and over 100 stores. That was before their recent merger news.

Back in June shares of LAD soared on news they were buying DCH Auto Group USA in a deal valued near $360 million. Purchasing DCH will add 27 more locations including some on the East Coast. Earnings are expected to rise about $0.70 a share (a year).

Car sales in the U.S. have been soaring. Consumers have been buying cars at the fastest pace since 2006. So why have auto-related stocks rolled over? It could be multiple factors.

CarMax (KMX), the one of the largest dealer in the U.S. recently saw its stock crash on a disappointing earnings report. The company said they were seeing consumers hit by tougher financing standards, which was impacting sales. If banks are getting tougher on car loans it's going to impact the whole industry.

LAD has had pretty strong revenue growth but now it's starting to face tougher year over year comparisons.

The group did see a bounce last week on news that Warren Buffett's Berkshire Hathaway was getting into the car business. Berkshire is buying the Van Tuyl Group of auto dealers, which is the country's biggest privately owned dealership. Van Tuyl has 75 dealerships, so it's smaller than LAD. What made the auto dealer stocks rally was Buffett's comments that he sees long-term value in the industry and plans to buy more over time. Berkshire certainly has the money to buy someone like LAD (current market cap about $2 billion) but that doesn't mean it's an immediate acquisition target.

Shares of LAD were breaking key support near $75.00 and its 200-dma before the Buffett-inspire bounce. Now the rebound is failing under resistance near $85.00.

Tonight we're suggesting investors buy puts immediately on Tuesday morning with a stop at $85.25.

- Suggested Positions -

Long NOV $80 PUT (LAD141122P80) entry $4.40*

10/07/14 trade begins. LAD gaps down at $81.40
*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


Lennox Intl. - LII - close: 77.07 change: +0.70

Stop Loss: 78.25
Target(s): To Be Determined
Current Option Gain/Loss: +38.4%
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:
10/09/14: Resistance at the 10-dma continues to hold. LII slipped -2.1% to set a new 2014 closing low today. A drop under $75.00 could be used as a new bearish entry point.

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


Oceaneering Intl. Inc. - OII - close: 61.13 change: -1.65

Stop Loss: 65.10
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Average Daily Volume = 1.6 million
Entry on October 06 at $62.35
Listed on October 04, 2014
Time Frame: We will likely exit prior to earnings on Oct. 29th
New Positions: see below

Comments:
10/09/14: OII underperformed the major indices with a -2.6% decline. We need to keep an eye on the $60.00 level, which could be round-number support. I'm not suggesting new positions at this time.

Earlier Comments: October 4, 2014:
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.

- Suggested Positions -

Long NOV $60 PUT (OII141122P60) entry $1.48

10/06/14 triggered @ 62.35
Option Format: symbol-year-month-day-call-strike


Pentair Plc - PNR - close: 62.72 change: -2.16

Stop Loss: 66.15
Target(s): To Be Determined
Current Option Gain/Loss: +102.7%
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:
10/09/14: PNR's sell-off accelerated today with a -3.3% drop and new 2014 lows. Tonight we're adjusting the stop loss to $66.15. More conservative investors might want to use a stop closer to $65.00.

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*

10/09/14 new stop @ 66.15
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


Starbucks Corp. - SBUX - close: 74.48 change: -0.78

Stop Loss: 76.51
Target(s): To Be Determined
Current Option Gain/Loss: - 5.6%
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:
10/09/14: SBUX held up reasonably well and only lost -1.0%. The stock is currently stuck in the middle of its $73.75-76.25 trading range.

I am not suggesting new positions at this time.

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: 68.48 change: -1.39

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: +50.5%
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:
10/09/14: The bounce in TUP reversed near $70.00. Today's -1.9% decline left TUP at new 2014 closing lows.

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


Vulcan Materials Co. - VMC - close: 57.33 change: -0.66

Stop Loss: 60.15
Target(s): To Be Determined
Current Option Gain/Loss: -28.1%
Average Daily Volume = 976 thousand
Entry on October 08 at $56.90
Listed on October 07, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/09/14: Two different analyst firms issued positive ratings on VMC this morning. That sparked a rally at the opening bell but the bounce failed at short-term resistance near the 10-dma. I would use this intraday reversal as a new bearish entry point.

Earlier Comments: October 7, 2014:
VMC is in the industrial goods sector. The are the largest producer of construction aggregates in the United States. They are also a major producer of aggregate-based construction materials. Put it altogether and VMC produces crushed stone, sand, gravel, asphalt and ready-mix concrete.

The stock has languished for years after peaking near $125 a share back in 2007. It looked like the stock has turned a corner back in 2011 but that rally now appears to be in trouble. More recently VMC peaked under $70 back in March this year. It's been slowly chopping sideways since then in the $60-70 zone. The recent weakness might suggest a trend change for the worse.

The selling pressure has pushed VMC stock under multiple layers of support. It could get a lot worse. The market's recent weakness has been stoked by fears of a global growth slowdown. Bulls could argue that nearly all of VMC's sales are inside the U.S. and the U.S. economy is still growing. That's true. Evidently investors don't care.

Today's display of relative weakness (-2.1%) left shares of VMC testing its long-term trend line of higher lows dating back to 2011. A breakdown here could mean a much longer and larger correction lower. Tonight we're suggesting a trigger to buy puts at $56.90.

- Suggested Positions -

Long NOV $55 PUT (VMC141122P55) entry $1.67*

10/08/14 triggered @ 56.90
*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


WESCO Intl. - WCC - close: 74.99 change: -3.20

Stop Loss: 80.55
Target(s): To Be Determined
Current Option Gain/Loss: +41.0%
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:
10/09/14: The bounce in WCC reversed at short-term resistance near its 10-dma. The sell-off in this stock certainly accelerated today with shares down -4.0%. It's worth noting that WCC closed near $75.00, which is potentially round-number support. I'm not suggesting new positions at this time.

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