Option Investor
Newsletter

Daily Newsletter, Monday, 10/13/2014

Table of Contents

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

Market Wrap

Market Falls In Quiet Trade

by Thomas Hughes

Click here to email Thomas Hughes
The market fell again as traders await the deluge of data and earnings scheduled for later this week.

Introduction

The market fell in a day of quiet holiday trading. The Columbus Day holiday had market volumes down and possibly accelerated this mornings fall. The major indices moved lower in the range of -1% during the early half of today's session but bounced from the early lows to hover around break even most of the day. A number of global events impacted trading today, as well as anticipation for earnings and economic data later this week.

First up was better than expected trade data from China; data that was unable to reverse bearish sentiment. Exports rose by more than 15% on a year-over-year basis, outpacing imports and leaving the trade balance a positive $31 billion. Despite this news Asian indices fell, led by the Nikkei's loss of -1.15%. The news was able to lift European indices, which also received a dose of good news from closer to home. Reports say Putin has ordered Russian troops to return to their bases now that “training exercises” are over helped to lift EU indices into the green.

Market Statistics

Our own indices were indicated to open flat to negative for most of the early session. The markets opened marginally lower, bounced into positive territory within the first 5 minutes and then fell back to test early support by 10:15AM. The indices traded sideways for most of the morning, hitting the daily low around 10:45AM. From that point until late in the day the indices traded in a range right around break even with the bias toward the upside. Then, late in the day, I think it was the Ebola headlines that sent the market lower.

There were a few major headlines from that front today starting with the CDC chief blaming a break down of protocols on the Texas nurse contracting the disease. The next was outcry from nursing unions and hospital organizations that claim they have received no training and no support, effectively shifting the blame back to the CDC. Then, around 3PM the CDC announced that there could be more cases showing up in the next couple of days. The Ebola effect on the market is an unknown at this time but something we will be dealing with into the foreseeable future.

Economic Calendar

The Economy

Not much data today but of course the weekly Survey Of Business Confidence conducted by Moody's and Mark Zandi. This week's summary is a little different than it has over the past few months. It leads off with a notable decline in foreign business sentiment, particularly in South American and to a lesser degree Europe. After that it picks right up where it has been all summer. Mr. Zandi reports that business sentiment is notably high, as it has been all year, and that hiring intent remains strong. Planned lay-off's are also low and expectations into the end of the year remain high.

The Oil Index

Oil prices took a big hit today as OPEC's stance toward oil prices became a little more official. WTI fell by -1% but Brent took the biggest hit, falling more than -2%. OPEC, which is suffering deep division within its ranks over oil prices, is not planning on cutting production in order to support prices, according to statements from the Kuwait oil minister. This is along with Saudi Arabia's willingness to accept lower prices in order to retain market share. WTI traded just below $85 in today's session with Brent hovering just above $88. OPEC is scheduled to meet next month so I expect to hear a lot more about these stories before then.

The Oil Index sank to a new low today, falling about a half percent in today's action. The index had at first surged higher but downward pressure caused by falling oil prices pushed the index below support. The index is now trading along the 1430 support line with increasingly bearish indicators. Stochastic is oversold and may remain that way into the short term but it is the MACD that is the most troubling. Downward momentum has been increasing with each leg of the decline and is convergent with lower prices or a retest of the current lows following a bounce. There could be a bounce or consolidation from the current level but it would face resistance around 1480. A break below current support could take it down to 1400 and 1350 in the near term.


The Gold Index

Gold prices climbed about 0.60% today, adding $7 to Friday's closing price. Today's action took the metal up to $1230 and higher in electronic trading. The metal has been bouncing from the long term lows around $1190 and is being buoyed by the Fed's lack of direction on interest rates. Rates are surely going up, which is why gold has fallen to these levels, but when is still in question and the Fed really isn't giving us any concrete clues. Momentum is currently to the upside so gold will likely move higher into the near term until the next major catalyst emerges. The Beige Book could be it, along with the data coming out this week.

The Gold Index traded to the upside today, in line with the upward trajectory of gold. The index gained over 4% in today's action but is still below long term support. The index has been consolidating for about a week, ever since gold hit bottom last week, and is winding up for a move. Direction is unclear and tied to gold prices but I think that long term buyers may be in this market. A break out of the current consolidation pattern will be the tell. A break back above support will help to confirm this theory. An upside target, provided the index can break the $82.50-$85 level, is around $110 with a downside target near the the $65 level. The senior miners are scheduled to report around the end of the month and into the first week of November.


In The News, Story Stocks and Earnings

Earnings season is definitely in the news. The season began last week but really starts in earnest this week. The financial sector will be the focus but there are still enough other reports to give meaningful insight into sectors ranging from technology to the consumer to transportation and others. According to data from FactSet the expectation for earnings growth stands at 4.5%. This is about half the expectations at the beginning of the quarter due to downgrades in 9 out of 10 S&P sectors. We can expect this number to be beaten based on past performance. Over the past 12 quarters 72% of companies reported above average for both sales and earnings resulting in an increase of average earnings of 2.3% by the end of each quarter. So far 27 S&P 500 companies have reported with 19 of those beating the average estimate for earnings and 19 beating the average estimate for sales. With this in mind earnings growth this quarter could be as strong as 6.8% or more, in-line or slightly below the last quarter. The telecom sector is still expected to lead with the largest increase in earnings.

The Financial Sector is also expected to post impressive bottom line gains. The average expected increase in EPS for the banking sector is nearly 11%. If this sector beats by 2.3% they could report earnings improvements of over 13%. Today the Banking Index traded to the downside, along with the broader market. The index fell about a quarter percent in today's trading. The index is near to a two month low and trading beneath the 150 day moving average. The indicators are bearish and point to lower prices with a target about a dollar below the current prices. It looks like the banks are moving lower in the near to short term but the index may also be at a bearish peak. Based on price action over the past year the index has been in similar situations several times before only to bounce right back.


JP Morgan lost about -0.40% today, after trading positive for much of the afternoon. The bank is below the resistance of the long term high and now trading near long term support. The stock is still trading above the long term moving average but has bearish indicators. Momentum is not strong but to the downside and convergent with a further test of support. Support is now indicated around $57.50 with earnings being reported in the morning.


Wells Fargo is also reporting tomorrow. This bank traded lower as well, losing about -0.63% in today's action. The stock is trading in a similar pattern to JPM and is below recently set long term highs and above long term support. The indicators are convergent with lower prices with the current target along support about a quarter below today's close.


The Indices

The markets moved lower today and appeared to have found support until late day news sent traders seeking the exits. The late afternoon drop was accelerated by a new announcement from the CDC that more Ebola cases related to the Texas nurse could pop up. I am not surprised by this, a little shocked, but that is all I will say about that.

Today's move lower was led by the Dow Jones Transportation average and is the third day of losses greater than 2%. The index, and the others, has now formed 3 long black candles in a row and is gaining momentum. MACD increased with today's move and is convergent with lower prices, or a retest of current lows should a bounce occur. Stochastic is moving lower but still holding on to a little strength as it has not yet crossed the lower signal line. If the selling continues my targets are 250, 500 and 750 points lower... but with earnings season at hand the market could reverse at any time.


The S&P 500 fell -1.65% today, extending its move below the long term trend line. The broad market was the second biggest loser today and is also gaining momentum. The index broke support at 1,900, creating a third long black candle and creating a 5 month low. MACD momentum is on the rise and convergent with low or lower prices in the near and short term. Stochastic is low in the range, oversold in the near term but still holding above the lower signal line. The break of 1,900, if confirmed, could take the index as low as 1800 in the near term with possible support around 1,850.


The NASDAQ Composite fell -1.46% today, extending its move below support and the long term moving average. The index is moving lower in identical fashion to the other indices and is gaining momentum. The MACD peaks are converging with price action along with weak and down trending stochastic. Stochastic is still holding on to a little strength, like the others, but is very close to breaking the lower signal line. The index is about 115 points above support with no indication of this move halting at this time.


The Dow Jones Industrial Average had the smallest decline of the day, only -1.35%. The blue chips fell after breaking support are gaining momentum, as are the other indices. The MACD peaks are increasing along with each new low in the index, pointing to lower prices and/or retesting current lows. The index is about 100 points above next estimated support with resistance above 16,500. If the index moves lower from here it will set a lower low and be in danger of a more prolonged downward movement.


It looks like traders and investors are still waiting for something and the waiting is adding to the depth of the correction. The more market participants wait, and the longer they wait, the deeper the correction could go. Today the Ebola news helped the correction reach new levels and may have provided another reason to wait. The only thing I can see that is causing the correction is mounting fears, one fear after another, mounting one after another smothering bullish perceptions. Each fear is short term in nature, although important, while the underlying trends are long term. The long term US economic trends are still up and as yet, un-impacted by global events.

No doubt this week will be dominated by the Fed's Beige Book, earnings, expectations, economic data and how the market interprets all of it. In between it all global growth and geopolitical issues will add their twist to market action as well as the spreading Ebola story. Tomorrow there is no data so unless there is a major international headline I think market action will be dominated by earnings. Expect to hear from JP Morgan, Wells Fargo and Citigroup before the opening bell and then Intel after the close. Others reporting tomorrow worth taking note of include CSX, JB Hunt, Dominos and Johnson&Johnson.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Stocks Cut Through Support Levels

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight.

The major U.S. stock market indices are slicing through support levels. Volume is surging as the selling feeds on itself.

We could be nearing a capitulation sell-off. That's when investors start puking up their stocks to sell them at any cost. You can see the surge in "fear" as the volatility index spikes to new two-year highs.

The stock market's close on its lows this afternoon would suggest a weak open tomorrow morning. I would not be surprised to see a drop to 1,850 on the S&P 500 before bouncing. The bounce could be big that's why we lowered all of our stop losses on current put plays.

Currently the S&P 500 is down -6.8% from its all-time high at 2,011 set about four weeks ago. A drop to 1,850 would be a -8.0% pullback.

chart of the Volatility Index:

chart of the S&P 500 Index:




In Play Updates and Reviews

Worst Three-Day Slide In Years

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market has delivered its worst three-day drop in years as the S&P 500 slices through technical support at its 200-dma and the 1900 level.

AMBA and IYT have been triggered. GBX was stopped out.
We closed the LAD trade this morning.

Most of our stop losses have been updated.


Current Portfolio:


CALL Play Updates

Ambarella, Inc. - AMBA - close: 35.24 change: -1.18

Stop Loss: $31.90
Target(s): To Be Determined
Current Option Gain/Loss: -30.5%
Average Daily Volume = 2.4 million
Entry on October 13 at $35.25
Listed on October 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/13/14: As expected shares of AMBA continued to sink. What surprised me was the drop to $33.71 intraday. We were expecting the $35.00 level to be stronger support. Our new buy-the-dip trigger was hit at $35.25 early on.

The stock market's widespread rollover this afternoon is bearish for tomorrow. More conservative traders may want to wait for signs of a bounce in AMBA before considering new bullish positions.

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.

- Suggested Positions -

Long NOV $40 call (AMBA141122C40) entry $1.80*

10/13/14 triggered at $35.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
10/11/14 new entry strategy: move the entry trigger from $44.65 to $35.25 and move the stop loss from $40.45 to $31.90.
We will adjust the option strike from the NOV $46 call to the NOV $40 call
Option Format: symbol-year-month-day-call-strike


iShares Transportation ETF - IYT - close: 138.07 change: -2.83

Stop Loss: 134.45
Target(s): To Be Determined
Current Option Gain/Loss: -30.8%
Average Daily Volume = 320 thousand
Entry on October 13 at $138.75
Listed on October 11, 2014
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
10/13/14: Our new trade on IYT has been triggered. We expected the breakdown under $140.00. This ETF hit our aggressive entry point to buy calls at $138.75 this afternoon.

Considering how the market was accelerating lower this afternoon odds are good we'll see more weakness tomorrow morning. Traders may want to wait on adding new positions. Nimble traders might get a chance to buy calls on a dip near $135.00 although it might pay off to wait for a bounce first.

Earlier Comments: October 11, 2014:
The IYT is an exchange traded fund (ETF) that tries to mimic the performance of the Dow Jones Transportation Average index.

Stocks have been sinking as investors worry about a global slowdown, especially in Europe. Yet the U.S. economy is still growing. Plunging oil prices should be great news for both business and consumers. Lower fuel costs means more money to spend elsewhere. Lower fuel prices also mean better margins for transportation companies.

The IYT has hit correction territory with a -10% pullback from its September highs about four weeks ago. When the market finally bounces the transports should lead the market higher thanks to the U.S. economy and low oil prices.

It looks like IYT's current drop could be near a bottom. Volume was almost three times the norm on Friday and shares settled near technical support at its simple 200-dma. We suspect the market will see another push lower before bouncing. That could see the IYT pierce the $140 level.

Tonight we're suggesting a trigger to buy calls at $138.75 with a stop loss at $134.45. This should be considered a higher-risk, more aggressive trade. You've heard the term "catching a falling knife" and that's what we're trying to do. You may want to wait for the IYT to pierce $140.00 and then buy the rebound back above this level as an alternative strategy.

*Higher-risk, more aggressive trade* - Suggested Positions -

Long NOV $143 call (IYT141122c143) entry $3.40*

10/13/14 triggered @ 138.75
*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




PUT Play Updates

Flowserve Corp. - FLS - close: 61.37 change: -2.72

Stop Loss: 64.51
Target(s): To Be Determined
Current Option Gain/Loss: +106.0%
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:
10/13/14: The sell-off in FLS is accelerating. We could be nearing a capitulation bottom soon. Shares lost another -4.2% today. I would not be surprised to see FLS bounce near $60.00. Therefore investors may want to take profits on their puts when FLS near the $60 area.

Tonight we are moving our stop loss down to $64.51, just above today's high. 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

10/13/14 new stop @ 64.51, consider taking profits near $60.00
10/11/14 new stop @ 66.55, traders may want to take profits early
10/07/14 new stop @ 70.10
10/06/14 triggered @ 68.45
Option Format: symbol-year-month-day-call-strike


Lennox Intl. - LII - close: 73.66 change: -0.98

Stop Loss: 75.55
Target(s): To Be Determined
Current Option Gain/Loss: +46.1%
Average Daily Volume = 391 thousand
Entry on September 22 at $79.25
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/13/14: The intraday bounce failed and LII lost another -1.3%. Tonight we're moving the stop loss down to $75.55.

Please note that LII has earnings coming up on October 20th. We will likely exit prior to the announcement.

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

10/13/14 new stop @ 75.55
10/11/14 new stop @ 77.15
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: 60.25 change: -0.56

Stop Loss: 62.10
Target(s): To Be Determined
Current Option Gain/Loss: +38.5%
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:
10/13/14: OII is still trying to hold support at the $60.00 level. If the market continues to sink tomorrow we could see OII finally break this level.

Tonight we are adjusting the stop loss to $62.10. 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

10/13/14 new stop @ 62.10
10/11/14 new stop @ 62.75
10/06/14 triggered @ 62.35
Option Format: symbol-year-month-day-call-strike


Pentair Plc - PNR - close: 61.31 change: -0.84

Stop Loss: 63.10
Target(s): To Be Determined
Current Option Gain/Loss: +108.3%
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:
10/13/14: PNR found support near $61.80 most of the day. This level failed when the market accelerated lower in the last thirty minutes of trading.

It is possible that the $60.00 level is round-number support for PNR. Investors may want to consider taking profits as PNR near the $60 area.

We are moving the stop loss down to $63.10.

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*

10/13/14 new stop @ 63.10
10/11/14 new stop @ 64.75, traders may want to take profits now
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: 72.19 change: -2.27

Stop Loss: 74.55
Target(s): To Be Determined
Current Option Gain/Loss: +68.1%
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:
10/13/14: It was a satisfying day for SBUX bears with the stock finally breaking down under the bottom of its trading range. Shares plunged -3.0% to close at new four-month lows.

We are moving the stop loss down to $74.55, just above today's high.

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*

10/13/14 new stop @ 74.55
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: 67.44 change: -0.82

Stop Loss: 70.15
Target(s): To Be Determined
Current Option Gain/Loss: +66.0%
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:
10/13/14: TUP ended the session with a -1.2% decline. We will try and limit our risk by moving the stop loss down to $70.15. I'm not suggesting new positions.

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

10/13/14 new stop @ 70.15
10/11/14 new stop @ 71.05
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: 55.28 change: -1.24

Stop Loss: 58.10
Target(s): To Be Determined
Current Option Gain/Loss: + 4.7%
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:
10/13/14: VMC broke down under short-term support near $56.00 and closed at new 2014 lows. We will try and limit our risk by moving the stop loss to $58.10, just above the simple 10-dma.

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*

10/13/14 new stop @ 58.10
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: 71.44 change: -1.48

Stop Loss: 73.75
Target(s): To Be Determined
Current Option Gain/Loss: +94.8%
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:
10/13/14: WCC continues to plummet. The stock is looking a bit oversold here. The $70.00 level could be round-number support. Investors may want to take profits soon as WCC nears the $70.00 level. We will try and protect our trade by moving the stop loss down to $73.75, just above today's high.

Please note that WCC is scheduled to report earnings on October 23rd and we will most likely exit prior to the announcement.

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*

10/13/14 new stop @ 73.75
10/11/14 new stop @ 76.25, traders may want to take some money off the table here.
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



CLOSED BULLISH PLAYS

The Greenbrier Companies - GBX - close: 48.52 change: -5.56

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -30.4%
Average Daily Volume = 711 thousand
Entry on October 13 at $52.50
Listed on October 11, 2014
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
10/13/14: Our aggressive, buy-the-dip, or more accurately try-to-catch-the-falling-knife trade did not pan out. We did expect a drop into the $50.00-52.50 area but we did not expect a -10.2% plunge that sliced through what should have been support near $50.00.

Our trade was triggered at $52.50 and stopped at $49.65.

- Suggested Positions -

NOV $55 call (GBX141122C55) entry $3.45* exit $2.40** (-30.4%) 4.20

10/13/14 stopped out at $49.65
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/13/14 triggered @ 52.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

chart:


CLOSED BEARISH PLAYS

Lithia Motors Inc. - LAD - close: 64.01 change: -16.85

Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: +175.0%
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:
10/13/14: Sometimes the stock market hands you a gift. We were lucky today.

We had already decided in the weekend newsletter to exit our LAD positions at the opening bell this morning. Fortunately for us LAD lowered its earnings guidance before the market opened. Shares collapsed. The stock gapped down at $67.50. LAD initially tried to bounce but rolled over under the $70.00 level and plunged to $64 to close down -20.8%.

- Suggested Positions -

NOV $80 PUT (LAD141122P80) entry $4.40* exit $12.10** (+175.0%)

10/13/14 planned exit this morning, gap down at $67.50
**option exit price is an estimate since the option did not trade at the time our play was closed.
10/11/14 prepare to exit on Monday morning
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

chart: