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Newsletter

Daily Newsletter, Tuesday, 10/14/2014

Table of Contents

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

Market Wrap

Slip Sliding Away

by Jim Brown

Click here to email Jim Brown

A sharp decline in oil prices greased the skids and the Dow slid back to negative territory after a +143 point intraday gain.

Market Statistics

The drop in oil prices helped power the Dow Transports to a +2.6% gain but that was also well off the highs. The markets roared off to strong gains at the open but could not hold them after Germany slashed its economic outlook for 2015.

Spiking to +143 intraday and then falling back to negative territory is a bearish event suggesting the selloff is not over despite the S&P and Nasdaq finishing slightly positive.

The only economic report this morning was the NFIB Small Business Optimism Index. The headline number declined in September from 96.1 to 95.3 and a 3-month low. Those businesses planning on making capital expenditures declined from 27% to 22%. Those planning to increase employment declined to a five month low down from 10% to 9%. The high was 13% in July. Those expecting earnings to improve declined to -19% and the lowest level since April.

This was not a positive report. Nearly all of the components declined slightly. The two positive components were "a good time to expand," which rose from 9% to 13% and those expecting the economy to improve rising to a net of -2% and the highest level since May. Available employment openings also declined from 26% to 21%. That is the lowest level in 8 months.

Overseas economic news from China was also weighing on the market. Light truck sales in China declined -16% in September. A competitor to Caterpillar said Q4 sales could be down -70% to -80%. China is clearly slowing and the government is refusing to add additional stimulus.

The economic calendar for Wednesday is highlighted by the Fed Beige Book, an update of the economic conditions in each of the Fed's districts.

The Producer Price Index (PPI) is expected to be flat to only slightly higher by +0.1%.

The Philly Fed Manufacturing Survey on Thursday is expected to decline from 22.5 to 19.5 in October. This is also a critical report considering the worries over slowing global economies.


The rest of the week has a flurry of Fed speakers with five on Thursday alone.


Crude prices plummeted again to levels not seen since June of 2012 for WTI and August 2010 for Brent. There were multiple catalysts but fears about shrinking global demand was the underlying theme. Germany cut its expected growth rate for 2014 from +1.8% to +1.2% and slashed 2015 estimates from +2.0% to +1.3%. With Germany the strongest economy in Europe the outlook for all of Europe is not good. The IEA cut its global growth estimates to 3.3% for 2014 and 3.8% for 2015, down from 3.4% for 2014 and 4.0% for 2015.

The IEA cut demand estimates for 2014 by -200,000 bpd to 92.4 mbpd. This is still a rise of +700,000 bpd for the full year. They cut 2015 demand growth estimates from +1.4 mbpd to +1.1 mbpd.

Global supplies rose +910,000 bpd in September to 93.8 mbpd and +2.8 mbpd more than the same period last year. Non-OPEC supply has risen sharply in 2014 by +2.1 mbpd. OPEC output surged to a 13-month high at 30.66 mbpd thanks to a recovery in Libya to 800,000 bpd and higher output from Iraq. Non-OPEC supply rose +495,000 bpd in September to 56.7 mbpd.

However, global refinery demand for crude oil rose to record highs in August to 79 mbpd, up +1.4 mbpd from the same period in 2014.

Demand is rising despite the headline cut by the IEA. They only cut their demand "growth" estimates. The problem today is more of a fear over global economic weakness and the potential for Europe to fall back into recession for the third time since 2008. Recessions weaken oil demand. China is also slowing and they are the second largest consumer of oil.

Saudi Arabia and Iran traded shots last week saying they were going to discount oil to Asia by the most since 2008. With Saudi discounting rather than cutting production to support prices it means a price war has begun. Saudi Arabia needs $86 a barrel to make their budgets and with prices under $86 they will have to produce more to make up the difference. More oil on an already flooded market will only push prices lower if they are serious about causing Iran and Russia pain. By pushing prices lower they are also going to pressure the U.S. shale market and retard future investment in drilling. If crude goes much lower it will force marginal producers to curtail production.

Iran and the six western nations meet again next week to discuss the nuclear problem. Iran claims it is not going to back down from its desire to continue enriching uranium and dissidents continue to claim Iran is working on a bomb in secret. The deadline for an agreement is November 24th and the western nations have said there will be no extension. If no agreement is reached the sanctions will immediately return and Iran's ability to ship oil will be drastically curtailed. This could help support oil prices but that is still over a month away.

The sharp drop in oil is great news for consumers because gasoline prices will be under $3 nationwide in the near future. This will put more money in their pockets for the holiday shopping season and increase profits for companies like the airlines where oil is a major expense.



The weak global economy and the sharply rising dollar continue to weigh on commodities in general. This will lower inflation pressures and make the Fed's job harder to hit their inflation targets at 2%. Once the current equity market weakness ends the metals prices will weaken and further depress the commodity index.


The sinking global economics and comments from Fed vice Chair Stanley Fischer sent treasuries to new highs and yields to new 15-month lows. The ten-year closed at 2.2% but several noted analysts said they expect this to be the high for bonds as long as U.S. economics continue to improve. I would not hold my breath on that with the rest of the world sinking.


The Q3 earnings cycle shifted into second gear today with several high profile reports. JP Morgan (JPM) reported adjusted earnings of $1.36 ($5.6 billion) compared to consensus estimates of $1.39. Legal costs knocked -26 cents off their earnings per share. Revenue rose +5.4% to $25.2 billion and beating estimates for $24.4 billion. Investment banking revenues declined -6% to $2.7 billion. Equity trading revenue declined -1% to $1.23 billion. Fixed income trading revenue rose +15% to $6.11 billion.

CEO Jamie Dimon said the bank would probably double its $250 million a year cyber-security budget within five years after hackers stole personal information from 76 million household accounts. Shares declined on the earnings news.


Citigroup (C) saw earnings increase +6.6% to $3.44 billion or $1.15 per share on an adjusted basis. Analysts were expecting $1.12. Consumer loans rose +2.8% and credit card debt rose +1.1%. Revenue from fixed-income markets rose +5% to $2.98 billion. Total trading revenue rose +6.7%. Equity trading revenue rose +14% to $763 million. Global consumer banking revenue rose +4.4% to $9.64 billion with North America bringing in $4.99 billion. Shares were up +$1.57 on the news.


Wells Fargo (WFC) reported earnings of $1.02 ($5.41 billion) despite completing 40% fewer home loans. They added $48 billion in mortgage loans and they projected lower volume for Q4 as well. Credit card balances rose +11% to $28.3 billion. Overall loans rose by +3.7% to $838.9 billion led by a +13% increase in commercial and industrial loans. Profits from the wealth management, brokerage and retirement segment rose +22% to $550 million. Investment banking fees declined -7% to $371 million. Shares of WFC fell -3% on the report.


Johnson & Johnson (JNJ) posted adjusted earnings of $1.50 ($4.75 billion) on a 5% rise in revenue to $18.47 billion. Consensus estimates were for $1.42 per share. The company sold more than $2 billion YTD in its new blockbuster Hepatitis C drug Olysio with $800 million in Q3. However, Olysio was taken in conjunction with Gilead's Sovaldi treatment and Gilead just released a new drug, Harvoni, which will no longer need the addition of Olysio. That is going to weigh on Olysio sales in the future. However, JNJ raised full year guidance for the third time to $5.92-$5.97, up from the July forecast of $5.85 to $5.92. Shares declined -$2 on the news to a six-month low.


After the bell Intel (INTC) reported earnings of 66 cents (+12% to $3.32 billion) compared to estimates of 65 cents. Revenue rose +7.9% to a record $14.6 billion and beating estimates of $14.4 billion. Intel said analyst estimates for Q4 may be low due to a strong refresh cycle in the corporate PC world. Intel is expecting revenue of $14.7 billion +/- $500 million. Analysts were expecting $14.5 billion. Gross margin is expected to be 64% compared to estimates of 62%.

The company shipped more than 100 million processors in Q3 and the first time over that 100 million level. Revenue for the PC processor division rose +8.9% to $9.19 billion. Server processor revenue rose +16% to $3.7 billion. Notebook processor revenue jumped +21% with desktops rising +6%. IDC reported last week that PC shipments fell -1.7% in Q3 but it did not appear to hurt Intel. Sales of desktops are increasing now that Windows XP is no longer supported. Intel is on track to ship more than 40 million tablet processors in 2014. That is a new market for Intel. They are giving manufacturers subsidies to entice them to use Intel chips. Those subsidies caused a $1.04 billion loss in that division in Q3. The CEO said they are about to begin shipping a new and faster tablet processor that will not include a subsidy. Shares rose about 50 cents in afterhours.


CSX Corp (CSX) reported earnings of 51 cents, up +12%, compared to estimates of 48 cents. Revenue rose +8% to $3.2 billion. Revenue and earnings were both records. CSX said it expected to "sustain double-digit earnings growth and margin expansion in 2015. Freight volumes rose +7% helped by shipments of oil, coal, drilling pipe and frac sand. Agriculture shipments rose +13%, autos +8% and coal +7%. He said they were moving 3 oil trains a day away from shale fields while delivering pipe and sand back to those fields. CSX operates more than 21,000 miles of track in 23 eastern states. Shares rose about 60 cents in afterhours.


The earnings cycle is just getting started and guidance has not been exciting. So far in October 17 companies have given positive guidance and 34 issued negative guidance with 30 reporting in line with estimates.

October Earnings Guidance

Earnings for the rest of the week are headlined by GS, EBAY, NFLX, GOOG, IBM and SNDK. However, all the companies reporting on Thursday are important to the overall earnings picture.


Markets

The Dow rallied from the open to +143 by noon and then rolled over on no specific news. The Dow declined to close down -6 points and was the weakest index. The S&P rallied to +25 points and then declined to close with only a +3 point gain. The Nasdaq rallied to a +68 point gain only to slide into the close with only a +13 point gain.

The Russell 2000 was the big winner with a +1.2% gain of +12 points. However, that was well off the +26 point intraday high. The spike in the small caps energized the market in the morning but it did not last. The small caps were also the most heavily shorted so any positive news would affect them the most.

The opening rally across all markets was mostly short covering. Numerous oversold stocks were up strongly at the open in typical short squeeze fashion but then faded quickly when there was no follow through.

There could have been some Intel earnings fear in the market after the very bearish forecast by Microchip Technology last Friday. Saying the semiconductor industry was entering a 2-3 quarter correction crushed the markets on Friday. With Intel reporting tonight there could have been a large number of investors afraid Intel was going to confirm that forecast. However, after the Intel earnings and positive comments the S&P futures were up strongly at +9 for a few minutes suggesting tomorrow's open will be positive. They have since faded to +6 and there is still a lot of darkness before the dawn.

The S&P broke below the 200-day average on Monday and did not even come close to that 1,905 level in today's rebound with the high at 1,898. The longer we stay under the 200-day the stronger that resistance will become. If we end the week under the 200-day it would suggest a much lower decline ahead.

The lack of any meaningful gains on the S&P is bearish. The lack of follow through on Monday afternoon's decline is somewhat bullish. However, giving back the intraday gains tilts the scales into the bearish category. The positive futures after Intel's earnings are the wildcard for Wednesday.

In technical speak the S&P made another lower high and lower low at 1,871 and that means the sellers were still active. The S&P is very short term oversold but nothing prevents it from becoming more oversold. We are due for a real short squeeze bounce instead of the half hearted one at today's open.

Resistance is going to be today's high at 1,899, round number resistance at 1,900 and the 200-day at 1,905. Initial support should be today's low at 1,871 followed by 1,865 and 1,840 if the initial support fails.


The Dow chart is also negative with another lower high, lower low. Support at 16,368 has failed and the next material support is 16,025. The key will be whether any opening bounce on Wednesday is sold. Traders defended yesterday's low at 16,310 with some dip buying at the close to end at 16,315. The Dow was helped by Boeing, 3M and Caterpillar and dragged down by Chevron, Johnson & Johnson and Visa.

If you looked only at the Dow chart without considering any external factors like Intel's earnings I would not be a buyer. The double close under 10,368 is bearish. Fortunately external events do matter and Intel will be a positive influence at Wednesday's open.



The Nasdaq set a new low by .05 of a point at 4,212. I don't think that qualifies as a technical breakdown. If anything that is a successful defense of Monday's support low. I know I am grasping at straws here but I will take what I can get. Prior support at 4,250 is now resistance and the high today was 4,246. Nasdaq futures are up +13 points late Tuesday and that is hardly a roaring reaction to the Intel earnings but it is positive.

If we move down from here there is little support before the 4000-4040 level. There is a lot of congestion between 4050-4150 that could act as eventual support but no clear levels exist at least in my opinion.



The Russell 2000 may have been the strongest index but it was also the most oversold. That means a short squeeze would lift it the most. The Russell could find weak support at 1,040 followed by 1,010.

The Russell is down -13% from its highs and could decide to rebound at any point now that the technical correction has been achieved. However, any further declines from here could target the bear market level at 966.


If the futures hold in positive territory overnight we should see a rebound at the open. The key question will be whether that rebound is sold again as it has been over the last two days or will it be the start of a recovery. We will not know that until next week.

I would not bet the farm on any new long positions but I feel the distinct need to nibble on longs at this level. However, I would close those positions if we start to make new lows on the S&P.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Hungry for Organic Foods

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

(bearish ideas)
CVD and LH



NEW DIRECTIONAL CALL PLAYS

The Hain Celestial Group, Inc. - HAIN - close: 98.19 change: +1.26

Stop Loss: 96.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 632 thousand
Entry on October -- at $---.--
Listed on October 14, 2014
Time Frame: 2 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Looking at the world economies the U.S. is the cleanest shirt in the dirty clothes hamper. Every economy needs to see improvement but the U.S. is looking the healthiest. If U.S. growth continues to improve it should bode well for consumer spending. That should lead to strength in organic food sales.

There has been a strong trend of consumers moving more and more toward natural and organic foods. That's where HAIN is a major player. The company website describes HAIN as, "The Hain Celestial Group, headquartered in Lake Success, NY, is a leading natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in almost all natural food categories with well-known brands that include Celestial Seasonings, Terra, Garden of Eatin', Health Valley, WestSoy, Earth's Best, Arrowhead Mills, DeBoles, Hain Pure Foods, FreeBird, Hollywood, Spectrum Naturals, Spectrum Essentials, Walnut Acres Organic, Imagine Foods, Rice Dream, Soy Dream, Rosetto, Ethnic Gourmet, Yves Veggie Cuisine, Linda McCartney, Realeat, Lima, Grains Noirs, Natumi, JASON, Zia Natural Skincare, Avalon Organics, Alba Botanica and Queen Helene."

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports. Their most recent report was August 20th. You can see the big move in the stock after HAIN reported a profit of 90 cents a share on revenues that rose +26% to $583.8 million. Analysts were only expecting $0.89 cents a share on revenues of $577 million.

HAIN's management then raised their guidance again. They expect 2015 earnings to be in the $3.72-3.90 range compared to analysts' estimates around $3.73. HAIN is anticipating sales growth of +27% to +30% in 2015.

The bullish outlook for 2015 did not completely protect HAIN from the market's recent sell-off. Shares broke support near $100 and dipped to their 50-dma before bouncing. Altogether the stock has weathered the market's correction pretty well. The point & figure chart is still bullish and forecasting a long-term target at $131.00.

We want to be ready to buy calls if HAIN can rally back above the $100 level. Tonight we're suggesting a trigger to buy calls at $100.25. Earnings are expected in November so this might only be a 2-to-4 week trade.

Trigger @ $100.25

- Suggested Positions -

Buy the NOV $105 call (HAIN141122c105) current ask $1.75

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Stall Three-Day Thrashing

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 and the NASDAQ composite both eked out gains to snap a three-day sell-off. Small caps actually outperformed with an oversold bounce.


Current Portfolio:


CALL Play Updates

Ambarella, Inc. - AMBA - close: 35.66 change: +0.42

Stop Loss: $31.90
Target(s): To Be Determined
Current Option Gain/Loss: -36.1%
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:
10/14/14: AMBA did retreat from its midday highs but so did the broader market. Shares did manage to outperform the major indices with a +1.1% gain. I'd be tempted to wait for a rally past today's high near $37.00 before initiating new 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: 141.87 change: +3.80

Stop Loss: 134.45
Target(s): To Be Determined
Current Option Gain/Loss: + 2.9%
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:
10/14/14: Crude oil continues to plunge. That should be bullish for transportation companies where fuel cost is a major expense. The IYT rallied +2.75% on today's big drop in oil.

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: 62.29 change: +0.92

Stop Loss: 64.51
Target(s): To Be Determined
Current Option Gain/Loss: +115.6%
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:
10/14/14: FLS' intraday bounce stalled near $63.50. Shares settled with a +1.49% bounce. More conservative traders may want to take profits now. 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: 74.58 change: +0.92

Stop Loss: 75.55
Target(s): To Be Determined
Current Option Gain/Loss: +61.5%
Average Daily Volume = 391 thousand
Entry on September 22 at $79.25
Listed on September 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/14/14: LII saw its oversold bounce struggle under round-number resistance at $75.00 today. Shares still managed to outperform the S&P 500 with a +1.2% gain.

Investors may want to take profits now. I'm not suggesting new positions.

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: 59.71 change: -0.54

Stop Loss: 62.10
Target(s): To Be Determined
Current Option Gain/Loss: +85.8%
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:
10/14/14: Another big drop in crude oil pushed energy stocks lower. OII lost -0.9% after reversing midday. 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: 61.81 change: +0.50

Stop Loss: 63.10
Target(s): To Be Determined
Current Option Gain/Loss: +113.8%
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:
10/14/14: PNR's midday bounce stalled under short-term resistance near $63.00. Shares pared their gains to +0.8%.

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: 72.74 change: +0.55

Stop Loss: 74.55
Target(s): To Be Determined
Current Option Gain/Loss: +45.6%
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:
10/14/14: The bounce in SBUX almost made it to $73.60 before rolling over. The stock settled with a +0.7% gain following yesterday's -3% plunge.

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: 67.83 change: +0.39

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:
10/14/14: TUP's bounce added +0.5% today. More conservative traders may want to take profits now. 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: 55.73 change: +0.45

Stop Loss: 58.10
Target(s): To Be Determined
Current Option Gain/Loss: +13.7%
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:
10/14/14: VMC dipped to new relative lows before the market's midday bounce. VMC saw its gains fade to just +0.8%. I am not suggesting new positions at this time.

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: 71.60 change: +0.16

Stop Loss: 73.75
Target(s): To Be Determined
Current Option Gain/Loss: +120.5%
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:
10/14/14: WCC failed to really participate in the market's bounce attempt today. That's good news for the bears. I would be tempted to take some money off the table here.

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