Option Investor
Newsletter

Daily Newsletter, Thursday, 10/30/2014

Table of Contents

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

Market Wrap

What Happens Now

by Thomas Hughes

Click here to email Thomas Hughes
The FOMC ended QE and the market moved higher.

Introduction

The FOMC ended QE and the market moved higher. It took a moment of pause early in the day for the bulls to get it togehter but then they were able to timidly extended the rally. The strongest move was in the Dow Jones Industrial Average, due largely to Visa, but nearly all the indices were able to claw their above yesterday's close.

Market Statistics

Asian and European markets were mixed today. Both regions closed largely in the green with isolated areas of weakness following the Fed decision yesterday. Our own indices were indicated lower this morning as well. Traders were pondering the meaning of the hawkish changes to the Fed statement and waiting for the release of 3rd quarter GDP numbers.

The SPX and the Dow Jones Industrials were both indicated to open lower by nearly a full percent ahead of the GDP release. Then, a combination of strong economic data and positive earnings helped to halve the loss and more going into the open. By 9:30AM the indices were indicated to open flat. After the opening bell the market was a little volatile for the first half hour. Trading wasn't out of control but there was a quick test of resistance and support that resulted in a slow march higher into the early afternoon.

Economic Calendar

The Economy

The first estimate for 3rd quarter GDP was the focal point for the market today. The estimate is 3.5%, stronger than the 3.1% projected by analysts. This is the second quarter of strong growth since the first quarter of this year and the second quarter of growth above expectations. The economic activity leading to this number is likely a prime cause for the shift in stance taken by the Fed.

There is some speculation that the strong number this quarter may be taking away from 4th quarter GDP but there is equal talk of acceleration into the end of the year. I am in the acceleration camp due largely to improvements in labor. The price index, a measure of prices paid by US residents, only increased by 1.3%, less than the 2.0% expected and a sign low inflation. The report lists personal consumption expenditures, exports, fixed investments and government spending as the primary drivers of GDP growth this time around.

The jobless data remains steady at long term lows. Initial claims for unemployment rose, but by only 3,000, from an upward revision of 1,000. This weeks headline is 287,000, the third week of gains, but remains below 300,000 and in line with long term trends. The four week moving average fell to a new low this week. On an not adjusted basis claims rose by 5.5%, slightly ahead of the expected 4.5%. Even with the slight rise over the past few weeks claims are still at long term lows and holding steady. These levels are contributing to the decline in long term unemployment and should do so as long they continue to decline and/or hold steady. On a state by state basis CA and MI led with gains in claims of 2,754 and 1,609. Pennsylvania and New York led with declines of -3.459 and -2,965. Still no mention of layoffs, or hiring, due to the oil, fracking or shale business.

Continuing claims also rose slightly this week, reported at 2.384 million, a gain of 29,000. Last week's number was revised higher by 4,000 for a net gain of 33,000. The four week moving average fell however, reflecting the low set last week dating back to January of 2001. Continuing claims is still trending lower and in line with an improving labor market.


Total claims for unemployment fell by 12,366. This is another new low in this figure and a continuation of the downtrend in total claims that has been going on all year. Based on this, and the initial and continuing claims figures, I am expecting to see steady to good numbers next week when the NFP and unemployment figures are released. The Fed statement may in fact be foreshadowing it. The new tone, especially the parts about slack in the labor force, are especially leading.

The Oil Index

The Fed move helped to strengthen the dollar and put some pressure on commodities. Oil prices fell about 1% during the day but were able to hold steady around $81. Afternoon trading lifted prices off of the lows but the close was still down from yesterday. The direction oil prices will take in the future is still in question however because several factors are in play. One of the reasons why prices are low, high production levels, may be alleviating as several oil companies have issued lowered production guidance for next year. At the same time there were several headlines detailing the financial pain being felt among oil producing nations. Both are reasons to suspect prices will go up but when is the question. The combination may not be enough to lift prices now, but they are enough to think twice about how low prices may go.

The Oil Index fell today, losing about a half percent, but was able to regain most of the loss before the close of trading. A mix of earnings and the hazy outlook for oil prices contributed to today's action. Earnings from the sector have so far not been as bad as some may have feared but low oil prices are hurting projections for next quarter and next year. The index is now trading below below resistance with bullish indicators but isn't looking very strong. Additionally, I am still anticipating a retest of support down to a possible range between 1,350-1,400.


Earnings from Conoco Phillips were better than expected on increased production, particularly in the Eagle Ford and Bakken Shale. The integrated oil company reported revenue and earnings that beat estimates along with reaffirming the companies projections for growth in 2015. The downside is that revenue and earnings are both down from last year due to lower realized prices for oil. Shares of the stock opened about a half percent lower but quickly regained the loss and moved into the green. By the end of the day COP Was up about 0.75% with rising indicators. Today's move was halted at $72.50, coincident with a long term support/resistance line and the short term moving average.


The Gold Index

Gold fell 2% after the Fed announcement. The end of QE is helping to boost dollar value and pressuring gold prices. Gold lost over $20 today and dipped briefly below $1200 where some buyers stepped in, enough to keep prices just at $1200. The approaching end of QE has pressured gold to the long term low, a move that has been developing for a long time. Now that it is here where can gold go now?

The Gold Index fell today as well. Losing a little of -6.0%, dropping down to $66.59 and a full 100% retracement of the 2008-2011 bull market in gold. I have to say I almost can't believe it actually happened. I have been watching this trade for a couple of years with this retracement as the long term target and I was beginning to think it wasn't going to happen. In any event it did, today's action brought the index down exactly to the 100% retracement level where it proceeded to bounce. The bounce was about as light as it could be but it was there before the index moved lower. The move however is looking very weak and extended and could possibly be a capitulation in the market. The MACD has just crossed below the zero line and stochastic is pointing lower with significant divergences in both. Current support is along the retracement level at $66.59.


GoldCorp reported earnings today and did not inspire much confidence. The company reported earnings that are about half what the street was expecting, due in part to low gold prices but also to one-off items that occurred during the quarter. Additional factors were a surprise increase in all-in costs that are more than 10% above the 1st half average. On the positive side production levels were up from last year despite some problems at currently operational mines. The street was expecting $0.18, the actual was $0.09. Shares of the stock fell more than 12% to a 5 year low.


In The News, Story Stocks and Earnings

Visa reported earnings yesterday after the bell and beat the expectations. The credit card and payment processor reported earnings of $2.18 per share, about ten cents above estimates, with a comparably small beat on the revenue side as well. The really good news was the outlook for earnings which resulted in several upgrades today. Analysts see Visa as well positioned to benefit from the shift to electronic payment from traditional forms and the growing amount of cross-border transactions. Shares of the stock jumped in the after hours and carried that momentum into today's trading, climbing more than 10%. Today's move carried the stock above resistance at the all-time high set earlier this year. The indicators were already bullish and are now showing some strength. MACD has jumped significantly and stochastic is crossing the upper signal line. $235 will be an import price level for this stock into the future and could provide support on a pull back.


Starbucks reported earnings after the bell and will likely affect trading tomorrow. Probably not as much as Visa did today though. The coffee maker extraordinaire reported earnings inline with expectations on a slight shortfall in revenue. One thing hurting profits was a rise in costs that is expected to hurt profits going into the next quarter and year. Along with the miss the company lowered guidance and sent shares of the stock sinking in the after hours trade.


The Indices

The morning started off at a low that we never saw again. This move was led by the Dow Jones Industrial Average and in turn Visa, which is credited for at least 150 points of the Dow move today. The blue chip index gained over 220 points, 1.30%, and broke above potential resistance. Today's move brings the index back above 17,000 but is still short of the current all time high. Resistance broken today is consistent with the all-time set in July which I think is fairly significant. Near term momentum is still to the upside with next target for resistance at the current all time high about 75 points above today's closing price. I am still expecting some kind of a retest of support but it is looking less and less like it will be a major event if and when it does come.


The S&P 500 made the next largest gain today, climbing 0.62%. The broad market moved up by just over 12 points at the close after briefly touching resistance at 2000. Today's move also carried the index above the July all-time highs and was able to stay there. The indicators are bullish and gaining strength although I still see a possibility for a retest of support in the near future. That being said near term momentum is to the upside, in line with the long term trend and economic data, and heading higher. Potential resistance is just above today's close at 2000 and needs to be broken to continue the rally. Support on a pullback will be found around 1950 and 1900.


The NASDAQ Composite made the smallest gains today, only 0.37%. The tech heavy index gained about 17 points and is looking strong into the near term. When I first looked at this chart today I thought to myself, something is happening here and it looks bullish to me. The index is gaining momentum with about 40 points of room before hitting resistance. Earnings could provide the catalyst to take it there. Price action is bullish but has been trading sideways over the past three days, possibly consolidating around the Fed decision. Earnings released after the bell today were positive and could help lift the index tomorrow. Resistance is the current all-time high and could prove to be strong so I would like to see it move above this level. If not broken a pull back could find support around 4,500 or just below that along the long term trend line.


The Dow Jones Transportation Average did not make a gain today. The trannies lost nearly a full percent today as they retreat from the new all time high set earlier this week. Today's move shows there is some resistance to new highs but based on the extent of the move over the last three weeks could simply be profit taking. Momentum is still bullish and stochastic is indicating strength although both are confirming the peak. 8,500 looks good for support at this time. The long term trend is up and I think it is still intact, a pull back to support would be a potential entry.


The Fed gave the all-clear but I think maybe we already knew that. Economic data has been steadily improving and today's GDP confirmed it. The market responded by moving higher but doing so with a couple of quick tag-backs to support.

Now that QE is over market participants can actually begin to look at the economy and earnings. The economy is growing and by all accounts gaining momentum. We'll get a real good look at how the 4th quarter is shaping up next week with the first round of monthly data. If there is reason to be think things are changing we'll find out next week. So far earnings are pretty good on average and the projections for next quarter are shaping up OK as well.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Biotech & Software

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Gilead Sciences Inc. - GILD - close: 114.22 change: +3.50

Stop Loss: 107.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 13.8 million
Entry on October -- at $---.--
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
GILD seems to be everyone's favorite biotech stock. I only hear bullish opinions about the future of the company, and for good reason. They have some pretty amazing treatments with products for HIV/AIDS, liver diseases, oncology, cardiovascular, respiratory, and more. GILD has essentially revolutionized how we treat major diseases like HIV and Hepatitis C.

According to the company website, "Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. We strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer and inflammation, and serious respiratory and cardiovascular conditions."

This year everyone has been raving over GILD's hepatitis C treatment called Sovaldi. Hepatitis C is a form of viral hepatitis that causes chronic inflammation of the liver. About 185 million people currently suffer with hepatitis C. Previously the most common treatment for hepatitis C had serious side effects and was less than 50% successful. GILD changed that with their Sovaldi drug that not only treats the symptoms but actually cures the patient. The company has drawn some negative publicity over the cost since GILD charges $84,000 for a 12-week course of Sovaldi in the United States. The fact that 80% to 90% of patients who take Sovaldi are cured is a major milestone.

The Financial Times noted that before Sovaldi the impact of hepatitis C in the U.S. took a heavy toll on the healthcare system. The disease can lead to liver failure and cancer, both of which cost significantly more than Sovaldi's $84,000 price target. Hepatitis C is the leading cause for liver transplants in the U.S., which can cost a minimum of $145,000. One consulting firm estimated that the annual cost of hepatitis C to the U.S. healthcare system was going to surge from $30 billion to $85 billion in the next twenty years. Sovaldi has the potential to change. that.

Stocks move on earnings and GILD has plenty of them. Their Q2 report on July 23rd was a blowout. Wall Street was expecting a profit of $1.80 a share on revenues of $5.86 billion for the second quarter. GILD delivered a profit of $2.36 a share with revenues soaring +136% to $6.53 billion. Last quarter Sovaldi accounted for $3.5 billion in sales. Management issued bullish guidance on revenues and margins.

After the Q2 earnings surprise the market's expectations for GILD were a lot higher this time around. GILD reported earnings on October 28th. They missed Wall Street's EPS number by 6 cents with a profit of $1.84 per share. Quarterly revenues soared +117% to $6.04 billion, which did surpass expectations. Sovaldi sales were a disappointment at $2.80 billion against the street's estimates for $3.1 billion. The EPS number was also negatively impacted by the Obamacare's Branded Prescription Drug Fee.

Most of the analyst commentary on GILD following the third quarter results remain positive. The market is looking forward to GILD's next treatment, Harvoni, which is another drug for chronic hepatitis C infection in adults. Harvoni appears to be off to a strong start, which won FDA approval on October 10th.

Technically shares of GILD have seen a huge rebound from the market-induced October sell-off. A few days ago the stock broke out past resistance near $110 and traders bought the dip. The stock was showing relative strength today with a +3.1% gain. The Point & Figure chart is very bullish and forecasting at long-term target of $159.00.

Tonight we are suggesting a trigger to open bullish positions at $114.45. We'll start this trade with a stop loss at $107.65.

Trigger @ $114.45

- Suggested Positions -

Buy the 2015 Jan $120 call (GILD150117c120) current ask $4.85

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

Daily Chart:

Weekly Chart:


ServiceNow, Inc. - NOW - close: 66.42 change: +1.39

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.4 million
Entry on October -- at $---.--
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
NOW is in the technology sector. The company provides cloud-based IT solutions across most of the world. According to the company website, "ServiceNow is the enterprise IT cloud company. We transform IT by automating and managing IT service relationships across the global enterprise. Organizations deploy our service to create a single system of record for IT and automate manual tasks, standardize processes, and consolidate legacy systems. Using our extensible platform, our customers create custom applications and evolve the IT service model to service domains inside and outside the enterprise."

NOW is less than three years old as a public company. Their IPO price was $18.00 and they opened at $23.75 back June 2012. It's been a roller coaster ride for investors but the trend is higher. NOW is one of the fastest-growing enterprise software companies. They're stealing market share from older, larger firms like CA Technologies, Hewlett-Packard, and BMC Software.

NOW is developing a very bullish pattern of strong revenues and raising guidance. The last four quarterly reports in a row have seen NOW meet or beat Wall Street's earnings estimate, beat the revenue estimate, and raise guidance every time.

Their most recent quarterly report was October 22nd. Wall Street expected a profit of $0.01 per share on revenues of $174.4 million. NOW delivered $0.03 with revenues rising +60% to $178.7 million. They added 150 new customers in the quarter, which puts their total at 2,514 clients. Their renewal rate is 98%. NOW raised their Q4 guidance above Wall Street's estimates.

NOW's President and CEO Frank Slootman said, "We had a solid third quarter as we continued to help our customers extend service management across the enterprise. The opportunities for us to expand within IT, as well as deliver value throughout the business, significantly broaden our addressable market and growth potential." Michael Scarpelli, their CFO, said, "Our strong third quarter performance included a record 11 deals greater than $1 million in annual contract value. We also achieved our first quarter of billings greater than $200 million."

Technically shares of NOW have broken out past resistance in the $65.00 area. The Point & Figure chart is bullish and forecasting at $74 target. The highs this past week have been near $67.00. Tonight I am suggesting a trigger to buy calls at $67.25.

Trigger @ $67.25

- Suggested Positions -

Buy the DEC $70 call (NOW141220c70) current ask $2.55

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

The Non-stop Rebound

by James Brown

Click here to email James Brown

Editor's Note:

The market's nearly non-stop rebound from its October lows continued on Thursday.

Our COST trade was triggered. MON hit our stop loss.


Current Portfolio:


CALL Play Updates

Acuity Brands, Inc. - AYI - close: 138.32 change: +0.36

Stop Loss: 131.25
Target(s): To Be Determined
Current Option Gain/Loss: - 7.8%
Average Daily Volume = 485 thousand
Entry on October 28 at $136.25
Listed on October 27, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/30/14: AYI was underperforming earlier today but traders bought the dip again and the stock made it back into positive territory by the closing bell.

Investors may want to wait for a new rally past $140.50 before considering new positions.

Earlier Comments: October 27, 2014:
AYI is part of the technology sector. The company considers itself the North American market leader and one of the world's biggest providers of lighting solutions. Headquartered in Atlanta, Georgia, AYI does business in North America, Europe, and Asia. Their fiscal 2014 sales hit $2.4 billion.

It has been a rocky year for AYI's stock price but the August low definitely looks like a bottom. Shares have rebounded sharply and investors have been buying the dips. As of today's close AYI is up +23% in 2014.

The last few weeks have been volatile. The early October rally was a reaction to AYI's earnings results. The company reported on October 1st with a profit of $1.26 per share on revenues of $668.7 million. That beat Wall Street's estimates on both the top and bottom line. Sales were up +15% from a year ago and profits were up +22%. The company said they are seeing strong adoption of their LED lighting solutions, which saw sales almost double from a year ago.

AYI said their Q4 and full year 2014 results were both records. AYI's Chairman, President, and CEO, Vernon Nagel, was very optimistic in his outlook. Mr. Nagel said,

"We remain very bullish about our prospects for future profitable growth. Third-party forecasts as well as key leading indicators suggest that the growth rate for the North American lighting market, which includes renovation and retrofit activity, will be in the mid-to-upper single digit range for fiscal 2015 with expectations that overall demand in our end markets will continue to experience solid growth over the next several years.

We believe the lighting and lighting-related industry will experience solid growth over the next decade, particularly as energy and environmental concerns come to the forefront along with emerging opportunities for digital lighting to play a key role in the Internet of Things. We believe we are well positioned to fully participate in this exciting industry."

Since the report Goldman Sachs has added AYI to their conviction buy list and Oppenheimer has raised their price target on AYI to $160. The point & figure chart is bullish and forecasting at $162 target. Zacks is bullish on the account they are seeing analysts revising their earnings estimates for AYI higher.

Currently shares of AYI have been hovering near resistance in the $135.00 area. Today's move is starting to look like a bullish breakout. We are suggesting a trigger to buy calls at $136.25.

- Suggested Positions -

Long DEC $140 call (AYI141220c140) entry $3.80

10/28/14 triggered @ $136.25
Option Format: symbol-year-month-day-call-strike


Costco Wholesale - COST - close: 133.00 change: +1.07

Stop Loss: 128.90
Target(s): To Be Determined
Current Option Gain/Loss: +13.6%
Average Daily Volume = 1.9 million
Entry on October 30 at $132.25
Listed on October 29, 2014
Time Frame: Exit prior to earnings in December
New Positions: see below

Comments:
10/30/14: Our new bullish play on COST is off to a strong start. Shares broke out past the $132 level and hit our suggested entry point at $132.25. This is a new all-time high for COST.

Earlier Comments: October 29, 2014
COST is part of the services sector. The company runs a discount, membership sales warehouse. The company's latest earnings report said Costco currently operates 664 warehouses, including 469 in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, six in Australia and one in Spain.

The company has struggled to hit Wall Street's bottom line estimates for over a year but steady improvement in their same-store sales have helped drive the stock higher. A strong back to school shopping season and higher membership fees fueled a better than expected quarterly report.

COST reported their Q4 numbers on October 8th. After missing estimates for five quarters in a row the company finally beat estimates. Analysts were expecting a profit of $1.52 a share on revenues of $35.3 billion. COST delivered $1.58 a share with revenues up +9.3% to $35.52 billion. The net profit number was up +13% and gross margins improved 15 basis points.

COST also reported that their e-commerce sales continue to grow at a brisk pace and their online sales rose +18% in their fourth quarter. Same-store (comparable store) sales remain a key metric to watch. COST's Q4 same-store sales were up +4% yet if you back out falling gasoline prices and currency effects their comparable store sales were up +6% for the quarter versus +4.5% a year ago. Membership renewal rates remain very strong at 91% in the U.S. and 87% globally. COST plans to open up to eight more locations before the end of the 2014 calendar year.

The company also recently announced their first foray into China. COST has entered the Chinese market with an online store through Alibaba Group's (BABA) Tmall Global platform.

The holiday shopping season is almost upon us with less than 60 days before Christmas. COST is poised to do well since the company caters to the higher-end more affluent customer.

Shares are hovering just below the $132.00 level. Tonight we are suggesting at trigger to buy calls at $132.25. We will plan on exiting positions prior to their December earnings report.

- Suggested Positions -

Long DEC $135 call (COST141220c135) entry $1.54

10/30/14 triggered @ 132.25
Option Format: symbol-year-month-day-call-strike


FedEx Corp. - FDX - close: 165.29 change: -0.48

Stop Loss: 162.65
Target(s): To Be Determined
Current Option Gain/Loss: + 73.5%
Average Daily Volume = 1.5 million
Entry on October 17 at $155.50
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/30/14: Most of the market managed to recover from yesterday's pullback. The transports were one of the exceptions and continued to sink today. FDX briefly traded below $164 but managed to trim its losses.

I am not suggesting new positions at this time.

Earlier Comments: October 15, 2014:
Last year a last minute surge of online shoppers overwhelmed the system and thousands of Christmas presents were delivered late. Part of the problem was terrible weather. The other challenge was the growth in online shopping. Amazon.com (AMZN) blamed UPS for the mass of delayed deliveries last year. You can bet that UPS' rival FDX has taken notice and plans to be ready this year.

Market research firm EMarketer is estimating that retail online shopping will surge +17% in 2014 to $72.4 billion. That might be under estimating the growth, especially this year as many consumers might opt to shop online instead of face the crowds and risk being a target for terrorism or catching Ebola. Granted neither a terrorist event inside the U.S. and a widespread outbreak of Ebola in the states has happened yet but people are already afraid with the daily headlines about the virus.

UPS and FDX hope to be ready. UPS is hiring up to 95,000 seasonal workers and FDX is hiring 50,000 holiday workers this year. That's 10K more than last year for FDX.

In addition to the surge in online shopping FDX should also benefit from the multi-year lows in oil prices. Low oil prices means lower fuel costs, one of FDX's biggest expenses.

It would appear that FDX has fine tuned its earnings machine as well. Their latest earnings report was September 17th. Wall Street was expecting a profit of $1.95 a share on revenues of $11.46 billion. FDX delivered a profit of $2.10 a share with revenues up to $11.7 billion. That's a +24% increase in earnings from a year ago and the second quarter in a row that FDX beat EPS estimates.

FDX chairman, president, and CEO Frederick Smith said, "FedEx Corp. is off to an outstanding start in fiscal 2015, thanks to very strong performance at FedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in U.S. domestic volume at FedEx Express." Business has been strong enough that a few weeks ago FDX started raising prices on some services.

Since that September earnings report Wall Street analysts have been raising price targets. Some of the new price targets for FDX stock are $175, $180 and $183 a share.

The recent sell-off in the market and FDX could be an opportunity. FDX has already seen a -10% correction from its intraday high near $165 to today's low near $149. Right now FDX sits just below resistance near $155.

We're suggesting a trigger to buy calls at $155.50.

- Suggested Positions -

Long 2015 Jan $160 call (FDX150117c160) entry $5.30*

10/28/14 new stop @ 162.65, traders may want to take profits now!
10/25/14 new stop @ 157.85
10/23/14 new stop @ 155.90
FDX is nearing resistance at $164.00. Traders may want to take profits now.
10/21/14 new stop @ 153.45
10/17/14 triggered @ 155.50
Option Format: symbol-year-month-day-call-strike


Keurig Green Mountain, Inc. - GMCR - close: 149.98 change: +2.11

Stop Loss: 143.25
Target(s): To Be Determined
Current Option Gain/Loss: +30.4%
Average Daily Volume = 1.68 million
Entry on October 28 at $145.75
Listed on October 25, 2014
Time Frame: Exit PRIOR to earnings on November 19th
New Positions: see below

Comments:
10/30/14: GMCR announced another licensing deal. This time the deal is with Supervalu and GMCR will make Supervalu's Java Delight brand coffee in K-cup servings for GMCR's brewing machines.

Investors applauded the news and GMCR displayed relative strength with a +1.4% gain. The stock is now testing round-number, psychological resistance at the $150.00 level.

We will raise the stop loss to $143.25. More conservative traders may want to raise their stop higher.

Earlier Comments: October 25, 2014:
GMCR is labeled as part of the consumer goods business. GMCR describes their company as "a leader in specialty coffee, coffee makers, teas and other beverages, Keurig Green Mountain (Keurig), is recognized for its award-winning beverages, innovative brewing technology, and socially responsible business practices. The Company has inspired consumer passion for its products by revolutionizing beverage preparation at home and in the workplace." GMCR makes almost 300 varieties of coffee, hot cocoa, teas, and other beverages in K-cup and Vue portion packs.

The company's latest earnings report back in August were better than expected but revenues were a disappointment and management guided lower. Yet the stock did see much follow through on the initial post-earnings drop. Then a couple of weeks later shares of GMCR soared to new highs on news it had finally signed a licensing deal with Kraft Foods, the second largest food and beverage company in the world. GMCR already had licensing deals with all the major coffee brands but Kraft was the lone holdout.

Several weeks later shares of GMCR soared again after Goldman Sachs slapped a buy rating on the stock and gave it a 12-month $166 price target. The Goldman analyst believes GMCR will see sales rise at a compounded annual growth rate of almost 30% and profits will soared at 23% per year through 2017.

On a short-term basis the middle of last week was starting to look like a top, especially with Thursday's bearish engulfing candlestick reversal pattern. Yet there was no confirmation on Friday.

Friday's intraday high was $145.54. We are suggesting a trigger to buy calls at $145.75. We'll try and limit our risk with a stop loss at $141.90. We are not setting an exit target yet but I will note the point & figure chart is suggesting a $182.00 target.

Earnings are coming up on November 19th. We will plan on exiting prior to the announcement. More aggressive traders may want to take a longer-term approach and hold over the announcement (and use longer-dated calls).

- Suggested Positions -

Long NOV $150 call (GMCR141122C160) entry $6.17

10/30/14 new stop @ 143.25
10/28/14 triggered @ $145.75
Option Format: symbol-year-month-day-call-strike


iShares Transportation ETF - IYT - close: 154.50 change: -1.67

Stop Loss: 151.85
Target(s): To Be Determined
Current Option Gain/Loss: +226.4% (not including new spread position)
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:
10/30/14: Crude oil saw new price declines today yet the weakness failed to lift the transportation stocks. The IYT continued to sink after yesterday's pullback. This shouldn't be too surprising given the huge bounce from the IYT's October lows. The group was due for a little profit taking.

I'm not suggesting new positions at this time.

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

- plus -

Short NOV $159 call (IYT141122c159) entry $1.80

10/29/14 IYT gapped open higher at $157.44 (+56 cents)
10/28/14 Strategy Update: new stop @ 151.85, Plus, we want to sell the November $159.00 call (current bid is $1.75).
10/25/14 new stop @ 148.65, traders may want to take some money off the table now
10/23/14 new stop @ 147.25
10/21/14 new stop @ 144.65
10/18/14 new stop @ 141.75
10/13/14 triggered @ 138.75
Option Format: symbol-year-month-day-call-strike


NetEase, Inc. - NTES - close: 94.01 change: +2.00

Stop Loss: 89.40
Target(s): To Be Determined
Current Option Gain/Loss: + 2.0%
Average Daily Volume = 430 thousand
Entry on October 21 at $91.59
Listed on Exit PRIOR to earnings on November 12th
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/30/14: Shares of NTES were downgraded today but the stock didn't care. NTES rallied toward resistance near $95.00 before paring its gains. Shares still outperformed the major indices with a +2.1% gain.

Earlier Comments: October 20, 2014:
NTES is in the technology sector. They are part of the Chinese Internet space. The company operates online video games, an Internet portal and email services in China. Technically the stock has been outperforming most of its peers in the Chinese Internet industry (compare to the performance of the KWEB ETF of which NTES is a component).

Their most recent earnings report was healthy. NTES' quarterly profit was in-line but revenues were up +21% to $475.8 million, beating Wall Street's estimates. NTES' Chief Executive Officer Mr. Ding said, "This quarter we have achieved in three business areas MoM and YoY increase revenue total revenue growth of 17.2%, an increase of 22.3 percent compared with the same period last year, gaming revenues grew 13.1%, advertising services revenue grew 42.9%, mailboxes, electricity suppliers and other business income increased 201.5 percent."

After an initial rally on these results NTES share price stalled out at resistance near $90-91. Here we are more than two months later and NTES is testing resistance near $90-91 again. This time the point & figure chart is suggesting at $102 price target.

We are suggesting a trigger to buy calls at $91.15.

- Suggested Positions -

Long NOV $95 call (NTES141122C95) entry $2.45

10/23/14 new stop @ 89.40
10/21/14 triggered on gap higher at $91.59, trigger was $91.15
Option Format: symbol-year-month-day-call-strike


Semiconductor ETF - SMH - close: 49.45 change: -0.81

Stop Loss: 47.85
Target(s): To Be Determined
Current Option Gain/Loss: +36.3%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/30/14: After bouncing back toward resistance near $50 and its 50-dma the SMH finally saw a little profit taking. Shares dipped toward short-term support at the rising 10-dma before trimming its losses.

More conservative investors may want to raise their stop again or take some money off the table.

I'm not suggesting new positions at the moment.

Earlier Comments: October 16, 2014:
It looks like the correction in the semiconductor stocks might be done.

The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index. Semiconductors as a group had been strong performers with the SMH up +73% from its late 2012 lows.

A few weeks ago the industry started to see some profit taking. MCHP issued an earnings warning last week that that sparked the massive plunge in the SMH. The SMH has witnessed a -15% correction from its 2014 closing high to the closing low on Monday this week. Now it has started to bounce. It's possible all the panic selling is over.

Intel (INTC), a much bigger company than MCHP, just reported earnings on October 14th and the results were better than Wall Street expected. More importantly INTC offered slightly bullish guidance.

Bloomberg noted that INTC said its PC-processor business rose +8.9% last quarter. Sales for INTC's chips for notebook computers soared +21%. Even chips for desktop PCs rose +6% in the third quarter.

The strong results from INTC have helped buoy the SMH, which is starting to rebound after testing (and piercing) long-term support on its weekly chart (shown below).

We suspect the worst might be over. However, this could be a volatile trade. There are a lot of semiconductor companies who have yet to report their results.

The SMH saw its rally stall under $47 and near its 200-dma. Tonight we are suggesting a trigger to buy calls at $47.15.

- Suggested Positions -

Long 2015 Jan $50 call (SMH150117c50) entry $1.10

10/25/14 new stop @ 47.85
10/21/14 new stop @ 46.35
10/17/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike


ULTA Salon - ULTA - close: 120.56 change: -1.00

Stop Loss: 116.90
Target(s): To Be Determined
Current Option Gain/Loss: -14.5%
Average Daily Volume = 925 thousand
Entry on October 29 at $121.75
Listed on October 28, 2014
Time Frame: Exit PRIOR to earnings on December 4th
New Positions: see below

Comments:
10/30/14: ULTA found support near the $120 level around lunchtime. The early afternoon bounce stalled about $121.60. I am suggesting readers look for a new rally above $121.60 before initiating new positions.

Earlier Comments: October 28, 2014:
ULTA is in the services sector. They're considered a specialty retailer. Founded in 1990 the company is headquartered in Chicago. According to the company website, "ULTA Beauty is the largest beauty retailer that provides one-stop shopping for prestige, mass and salon products and salon services in the United States. Ulta Beauty provides affordable indulgence to its customers by combining unmatched product breadth, value and convenience with the distinctive environment and experience of a specialty retailer. ULTA Beauty, through its stores and ulta.com, offers a unique combination of over 20,000 prestige and mass beauty products across the categories of cosmetics, fragrance, haircare, skincare, bath and body products and salon styling tools, as well as salon haircare products. ULTA Beauty also offers a full-service salon in all of its stores."

The stock had a rough time late last year when ULTA missed earnings estimates and guided lower back in December 2013. Shares collapsed from the $120 area toward the $90-95 zone. They missed and warned again in March. Yet it would appear that ULTA has worked out the kinks as the company's last two earnings reports have been strong. In June and in September ULTA reported quarterly results that were above Wall Street's estimates on both the top and bottom line. More importantly management guided higher for the next quarter both times.

Investors were really impressed with the latest quarterly report in September. You can see the huge gap higher in the stock price. Analysts were expecting a profit of $0.83 a share on revenues of $713.3 million. ULTA delivered $0.94 a share with revenues up +22.2% to $734.2 million. They also reported a very strong +9.6% same-store sales growth versus a tough +8.4% sale growth against the year ago period. Margins also saw improvement in the quarter.

ULTA management also laid out their long-term, five-year estimates. The company is forecasting annual comparable store sales growth in the 5% to 7% range. They expect EPS growth to be in the low 20% area. Their expansion plans include opening 100 stores a year. Jim Cramer lists ULTA as one of his best picks in this industry.

Mary Dillon, ULTA's Chief Executive Office, said, "A significant improvement in traffic, successful new product and brand launches, and rapid e-commerce growth drove better than expected top line performance. As a result, the Ulta team delivered healthy operating margin expansion in the second quarter. We are raising our outlook for the year and now expect to achieve sales and earnings per share growth in the 20% range, reflecting our confidence in continued strong market share gains."

The company is definitely seeing growth in its online sales. Their second quarter saw e-commerce sales soar almost 55%. They plan to grow their e-commerce sales to 10% of total revenues.

Technically shares of ULTA dipped toward support during the market's September-October pullback. Now shares have rebounded back toward resistance in the $120 area. Today saw ULTA showing relative strength and a new 2014 closing high. We want to hop on board if ULTA can breakout past the $120-121 area. We are suggesting a trigger to buy calls at $121.75.

- Suggested Positions -

Long DEC $125 call (ULTA141220C125) entry $6.20

10/29/14 triggered @ 121.75
Option Format: symbol-year-month-day-call-strike




PUT Play Updates


Currently we do not have any active put trades.



CLOSED BEARISH PLAYS

Monsanto Co. - MON - close: 112.18 change: -1.30

Stop Loss: 115.15
Target(s): To Be Determined
Current Option Gain/Loss: -36.6%
Average Daily Volume = 4.1 million
Entry on October 29 at $111.90
Listed on October 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/30/14: It has been tough to make bearish plays worth with the stock market in a nearly non-stop rally from its October lows. This morning, before the bell, rival company Mosaic (MOS) reported earnings and missed estimates on both the top and bottom line. Yet shares of MOS rallied and this may have influenced MON.

Shares of MON were climbing all day long and looked like they might fail under the $114.40 level and technical resistance at its simple 200-dma. Then an intraday spike pushed shares toward $115.50 and just as quickly faded. Not surprisingly our put option did not trade during this erratic activity.

(If you're curious, MON traded from $114.19 to $115.47 and back to $114.27 from 01:35 p.m. to 01:36 p.m. today. Actually, there appeared to be a couple of trades as high as $116.74 in this time frame but these must have been backed out as bad ticks.)

- Suggested Positions -

2015 Jan $110 PUT (MON150117P110) entry $3.00 exit $1.90 (-36.6%)

10/30/14 stopped out
10/29/14 triggered @ 111.90
Option Format: symbol-year-month-day-call-strike

chart: