Option Investor
Newsletter

Daily Newsletter, Monday, 11/3/2014

Table of Contents

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

Market Wrap

Election Eve

by Thomas Hughes

Click here to email Thomas Hughes
The major indices wrestled with new all-time highs on mixed economic data ahead of tomorrow's general elections.

Introduction

A round of mixed economic data as well as anticipation for tomorrows elections combined to create a day of cautious trading. Not bearish, just weak; the indices held to near break-even levels for most of the day with light volumes. Some were able to move into the green and set new all-time intraday highs while others were not, but all closed off of the day's highs.

Weaker than expected, but still expansionary, data from Asia and Europe helped the market start of on a somber note. Flash PMI reading from both regions were slightly less than expected but still above the expansionary 50 level. In China the reading was 50.4, a three month high, and in Europe the reading was 50.6, flat from the previous month.

Market Statistics

Earnings news ahead of the opening bell was positive but not too exiting. Economic data was more in focus but again was not all that exiting. Auto sales figures were released throughout the morning and were basically in line with expectations. ISM manufacturing was in line with expectations with a positive look forward into the next month. Construction spending was down versus an expected gain but not by a large margin.

The economic data did not spark a rally but it did help the indices hold near Friday's closing prices once the open session began. The indices rose to near break-even ahead of the bell and then held those levels throughout the morning. There was a little bit of churn but trading was held to a fairly tight range all day. The SPX was held to a range of 5 points, between 2015 and 2020 for most of the day but was able to move as high 2024.46 on an intraday basis.

Economic Calendar

The Economy

ISM and Construction Spending figures were both released at 10AM. The ISM gauge of business strength rose to 59, a gain of 2.6%. This is up from last month's reading of 56.6 and matches the August reading, which was a 3 year high. Within the report new orders rose by 5.8% to 65.8. The report highlights an increase in demand for items going into the holiday, employment and production levels.

Construction spending fell unexpectedly by -0.4%. This is versus an expected gain of 0.7%. The previous month was revised higher to -0.5%. On a year over year basis spending in September 2014 is up 2.6% from last year. On a year to date basis spending is up 6.1%. This shows spending is slowing this year, but still above levels seen last year. Most of the decline this month is due to a drop in public building projects.

Moody's Survey Of Business Confidence is still strong. In the highlight Mark Zandi reports that confidence remains strong and firm, with no signs of an impact from market volatility or Ebola. He goes on to say that conditions are a little soft but the outlook going into the end of the year and first part of next year is still strong. Conditions overseas are still weak, especially in Europe and South America.

Auto sales were released throughout the day on a maker by maker basis. GM reported a little lighter than expected, only 0.2%, but for the most part all were inline or slightly ahead. Toyota reported +6.9% versus an expected +6.1%. Chrysler reported a strong +21.7% gains on sales of Jeep and Ram trucks. Ford sales fell-1.7%, weak but not as weak as the -2.7% expected. As a whole the reports put the market on track for an annualized rate of about16.4 million units. The national data, released at 2PM today, revealed that the sales rate topped 16.5 million units on an annualized basis.

The Oil Index

Today WTI fell below $80 to a new low near $78.50. Today's action was largely due to a new price list from Saudi Arabi. The latest price list, which is really a list of price differentials for Saudi costumers, has them raising prices for Asia and Europe while lowering them for the US. A stronger dollar is also putting pressure on oil prices but the Saudi and greater OPEC situation is still an unanswered question that could keep prices from falling to far. The next OPEC meeting is November 27th at which several members are expected to call for a defense of oil prices through production cuts. New evidence shows that OPEC production is already falling even though there has been no official action to do so. The latest Reuters survey shows that production was down more than 120,000 million bpd in Oct.

The Oil Index traded to the downside today. The index moved down from resistance at 1480 and could be moving lower. The indicators are bullish but are peaking at this level and could lead to consolidation or pullback. Caution is definitely warranted here, especially in light of the upcoming OPEC meeting and it's potential influence on oil prices and expectations for profits among oil producers. The oil companies have so far been able to meet street expectations but with prices so low future profit growth is in serious doubt. I am still expecting a retest of support, possibly as low as 1,400 or 1,350, based on the October correction so I will be watching 1480 very closely. Today's move might be confirming this theory but I'm not that bearish on the index either, with potential support close beneath today's closing prices.


The Gold Index

Gold prices held steady today after falling to a new low last Friday. All my theories were completely blown out of the water by the BOJ move to expand its QE programs. This move, along with the FOMC decision/statement and recent moves by the ECB, helped send dollar value soaring and gold prices sinking. Gold is now below the previous support level of $1180 with indicators pointing to lower prices.

The Gold Index traded higher today, gaining 3.5% from the long term low set last week, a low dating back more than 10 years. Last weeks drop in gold helped the index to complete a full retracement of its prior bull market and then drop below the 100% line. The index is trading below potential support with bearish indicators and an underlying commodity under serious pressure. The indicators are bearish on the daily charts, pointing to lower prices, and confirmed by complimentary indications on the weekly chart. The long term trend in the index is down and I don't see that changing now, so long as gold prices remain so low. On a contrarian note, the indicators are still showing fairly substantial divergence from the current lows, a sign of weakening trend.


In The News, Story Stocks and Earnings

Earnings are still in focus. As of Friday more than 74%, 362, S&P 500 companies have reported. 78% of those have reported earnings above the projected average and 59% have reported sales above the projected average. As of now average earnings growth is 7.3%, up from last weeks average 5.6% and the 4.5% projected at the beginning of the quarter.

Sysco, one of the nations largest food suppliers, reported earnings this morning. The purveyor reported 6% increases in revenue and profits despite a decline in margins. Along with the good news the company reported that ongoing issues with the FTC anti-trust review of its purchase of US foods will prevent the merger from going forward until after the holidays at the earliest. Shares of the stock traded lower on the news, coming to rest just above $37.50. This level was established as potential support/resistance just about a year ago when the purchase of US Foods was first announced.


Ryanair, discount air carrier, reported an increase in earnings above expectations and lifted its full year guidance. The company was able to increase traffic volumes and revenue per customer and is only the latest airline to report similar results. Shares of the stock moved higher by more than 6.5% after gapping up at the open to trade just below long term resistance near $60. The indicators are bullish and gaining strength so I would expect to see resistance tested again.


Sprint move pretty fast after the bell, lower, on a poor earnings report. Shares of the telecom giant fell more the -7.5% after reporting a shortfall on revenue and earnings. The shortfall is due in part to a decline in revenue from post-paid users and has resulted in a downsizing of the company. Sprint reported it was cutting 2,000 jobs to reduce costs and streamline operations.


AIG also reported after the bell. The insurance giant reported earnings and revenue above expectations and sent shares higher. The company reported EPS of $1.21 versus the consensus estimate of $1.09 on revenue of $8.6 billion. Share gained about 1% after the announcement and look like they will move higher in the near term. The indicators are bullish and on the rise with resistance 2.5-5-5% above current levels.


The Indices

The market more or less traded flat today. The SPX closest to flat line than any, with a loss of only -0.01%. The index traded in a very tight range, at current all time highs, setting a new intra-day all time high with bullish indicators. Momentum is very strong but may have peaked or be at a peak while stochastic is very high in the range. The index is moving up and looks good to keep moving higher. I still think a retest of support is due, maybe not down to last month's lows, but maybe down to 2,000 or to the long term trend line around 1,950 if at all. So far there is no real sign it is coming, other than previous divergence, so until then I'm holding my position with tight stops.


The Dow Jones Industrial Average was the other major index to close in the red. The blue chips lost 0.14% after briefly moving into the green and setting a new intra-day high. The index created a spinning top around Friday's all-time closing high while traders wait to see what happens with the elections. The indicators are bullish, but unlike the SPX which is showing a possible peak in momentum, the Dow Jones is still gaining momentum. MACD is at an extreme bullish peak, a sign of strength, and stochastic is crossing the upper signal line. Based on the indicators I would expect to see higher prices in this index over the next few weeks and months.


The Dow Jones Transportation Average was able to close with a small gain, 0.15%. The trannies made a new all time closing high, but not a new all time intraday high. Regardless, the index is making new highs and is beginning to for what looks like a near term consolidation. This is because the index has traded sideways over the past five days, with bullish indicators, at all time high levels during a strong bullish move just ahead of major elections and a round of macro-economic data. MACD and stochastic both indicate strength in the previous move as well. MACD is at an extreme peak and stochastic is high in the range. Both indicators are showing some near term weakening of the move but this is also possibly a good sign. Weakening indicators while the market continues to trade at or near all time highs allows market to cool off and set up for another leg higher. Of course, this theory requires a break above resistance which is currently right around 1,870. If this plays out, and the index does make a break to the upside, targets are as high as 1,000 points above the current all time high. I know that may sound a little ridiculous but the index has already made a move of that extent, we may be only be at the midpoint of a larger move.


The NASDAQ Composite made the largest gain at 0.18%. The tech heavy index set a new all time closing and intraday high with bullish and rising indicators. Momentum is on the rise and stochastic is moving higher in the upper signal zone. The index is moving higher in the near term, in line with the long term trend and looking strong.


The indices tread water today. The underlying reasons they are at current levels have not disappeared but tomorrow's elections and the upcoming round of macro-economic data has provided reason to pause. Once the smoke clears underlying fundamentals will remain. The trends are up, the indices are breaking out to new highs and the indications are strong. The elections or the data could put an end to that but until then I remain bullish.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Crumbling Chemicals

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

FMC Corp. - FMC - close: 56.26 change: -1.09

Stop Loss: 58.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.42 million
Entry on November -- at $---.--
Listed on November 03, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
FMC is in the basic materials sector. They are a diversified chemical company with agricultural chemicals, minerals, and health and nutrition businesses.

It has been a rough year for shareholders as FMC peaked in March this year and has been sliding lower every since. That's because the earnings picture has been deteriorating. You can see on the daily chart below where FMC issued an earnings warning in June. Then when they reported earnings in late July they missed estimates. It's not great when you warn about earnings and still miss Wall Street's lowered estimates.

FMC's most recent earnings report was October 29th. The company missed on both the top and bottom line. Analysts were expecting a profit of 96 cents a share on revenues of $1.06 billion. FMC only delivered 95 cents with revenues of $1.02 billion. The biggest part of their business, the Agricultural Solutions, which represents nearly half of FMC's sales, reported a small +2% revenue growth from a year ago.

In the company press release, Pierre Brondeau, FMC president, CEO and chairman, said: "In the third quarter, market dynamics continued to affect our portfolio. Agricultural markets were impacted by multiple factors around the world, a softening of demand in China affected parts of our Health and Nutrition portfolio, and Argentina continued to weigh on Lithium's results." Brondeau also noted they are concerned over some beverage products in China that have seen two quarters in a row of declining demand.

The weakness in shares of FMC have produced a -24% decline in 2014 versus the S&P 500's +10% gain. Meanwhile FMC's point & figure chart is suggesting the selling will continue and is pointing to a $25.00 target.

Tonight we are suggesting a trigger to buy puts at $55.85. More conservative investors might want to wait for a breakdown under $55.00 instead.

Trigger @ $55.85

- Suggested Positions -

Buy the 2015 Jan $55 PUT (FMC150117P55) current ask $1.95

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

Daily Chart:



In Play Updates and Reviews

Digesting Last Week's Big Gains

by James Brown

Click here to email James Brown

Editor's Note:

Monday was relatively quiet for stocks. After last week's big rally it was not surprising to see many stocks experiencing some profit taking. Most of the market seemed to be drifting sideways.

URI hit our entry trigger.


Current Portfolio:


CALL Play Updates

Acuity Brands, Inc. - AYI - close: 138.27 change: -1.16

Stop Loss: 135.25
Target(s): To Be Determined
Current Option Gain/Loss: +10.5%
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:
11/03/14: Shares of AYI briefly traded above resistance near $140 again this morning but the rally didn't last. This stock spent most of the day slowly fading lower. I am not suggesting new positions at this time.

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

11/01/14 new stop @ 135.25
10/28/14 triggered @ $136.25
Option Format: symbol-year-month-day-call-strike


Costco Wholesale - COST - close: 134.27 change: +0.90

Stop Loss: 130.75
Target(s): To Be Determined
Current Option Gain/Loss: +47.4%
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:
11/03/14: COST displayed some relative strength today with a +0.6% gain. The stock ran into resistance at the $134.00 level most of the session. Eventually overhead supply at $134 ran out and COST raced higher near the close.

I am not suggesting new positions at the moment.

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

11/01/14 new stop @ 130.75
10/30/14 triggered @ 132.25
Option Format: symbol-year-month-day-call-strike


FedEx Corp. - FDX - close: 167.20 change: -0.20

Stop Loss: 163.45
Target(s): To Be Determined
Current Option Gain/Loss: + 96.2%
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:
11/03/14: Another drop in oil prices failed to lift the transportation stocks on Monday. FDX did managed to pare its losses from its Monday morning lows.

A couple news agencies mentioned a story about the upcoming holiday shopping season and how it's supposed to be a record. Forrester Research estimates online shopping will surge +13% from a year ago to a record-breaking $89 billion worth of goods. This is bullish news for the likes of FDX and UPS.

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*

11/01/14 new stop @ 163.45
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


Gilead Sciences Inc. - GILD - close: 109.98 change: -2.02

Stop Loss: 107.65
Target(s): To Be Determined
Current Option Gain/Loss: -41.8%
Average Daily Volume = 13.8 million
Entry on October 31 at $115.90
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/03/14: GILD is having a rough couple of days. The profit taking continued on Monday as shares underperformed the broader market. GILD is now down more than $4.00 from the Friday morning gap higher.

If you were hoping for a dip to $110 you got it although I'd probably wait for a new bounce above $110.50 or $111 before initiating new positions.

Earlier Comments: October 30, 2014:
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.

- Suggested Positions -

Long 2015 Jan $120 call (GILD150117c120) entry $5.50

10/31/14 triggered on gap higher at $115.90, suggested trigger was $114.45
Option Format: symbol-year-month-day-call-strike


Keurig Green Mountain, Inc. - GMCR - close: 151.90 change: +0.15

Stop Loss: 143.25
Target(s): To Be Determined
Current Option Gain/Loss: +48.2%
Current Option/Gain loss if you sold the NOV $160 call: +682.0%
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:
11/03/14: GMCR held up pretty well today. The stock consolidated sideways and eked out a small gain.

We are not suggesting new positions at this time. In the weekend newsletter we suggested an adjustment in this trade to boost our profit by selling the November $160 call. That option opened at $5.00 today.

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 (GMCR141122C150) entry $6.17

- plus -

(On November 3rd, 2014, Sell the November $160 call)
Short NOV $160 call (GMCR141122C160) sold short @ $5.00

11/03/14 Sold short the NOV $160 call
11/01/14 Strategy Update: Sell the Nov $160 call on Monday morning, November 3rd
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: 156.99 change: +0.29

Stop Loss: 151.85
Target(s): To Be Determined
Current Option Gain/Loss: +261.7%
Current Option/Gain loss if you sold the NOV $159 call: +668.7%
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:
11/03/14: A late day plunge in crude oil prices helped the IYT to a very minor gain. This ETF looks like it wants to breakout past short-term resistance in the $157.50 area.

We have three weeks left on our November options.

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 -

(sell short the Nov $159 call on October 29th)
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


ServiceNow, Inc. - NOW - close: 67.93 change: +1.51

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: -28.0%
Average Daily Volume = 1.4 million
Entry on October 31 at $67.46
Listed on October 30, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/03/14: NOW bounced off its Monday morning lows but the bounce failed midday. I warned readers that shares might fill the gap before moving higher but today's decline (-2.5%) is worse than expected. The next area of potential support could be $65.00 and its simple 10-dma.

Earlier Comments: October 30, 2014:
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.

- Suggested Positions -

Long DEC $70 call (NOW141220c70) entry $2.85

10/31/14 triggered on gap higher at $67.46, suggested entry was $67.25
Option Format: symbol-year-month-day-call-strike


NetEase, Inc. - NTES - close: 93.83 change: -0.89

Stop Loss: 91.45
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:
11/03/14: NTES saw some profit taking today with a -0.9% decline. Shares could be headed for the simple 10-dma near $92.80.

Keep in mind we do not have a lot of time left. There are only six trading days left before NTES reports earnings on November 12th. I'm not suggesting new positions.

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

11/01/14 new stop @ 91.45
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


The Sherwin-Williams Co. - SHW - close: 229.28 change: -0.28

Stop Loss: 224.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 526 thousand
Entry on November -- at $---.--
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
11/03/14: SHW managed to trade above resistance near $230 intraday but the stock failed to hit our suggested entry point at $231.00. I do not see any changes from the weekend newsletter's new play description.

Earlier Comments: November 1, 2014:
It's not very often you see a company about to celebrate its 150th birthday. For SHW that will be the year 2016. The company has been in business since 1866. The Company's core business is the manufacture, distribution and sale of coatings and related products. SHW is headquartered in Cleveland, Ohio. They sell through over 4,100 company-operated stores. Their global group has sales in more than 115 countries. Sherwin-Williams is also a very well known dividend payer and has annually increased dividends since 1979.

The slow and steady economic improvement in the U.S. has been beneficial. The real estate market has also helped SHW. New homes need new paint. The pace of new home sales in the U.S. hit six-year highs last month. While home sales do tend to slow down a bit in the winter months SHW should benefit from lower input costs. Crude oil and natural gas are big components in the paint and coatings industry. The severe drop in oil the last few months is a blessing for SHW.

The company raised their earnings guidance back in July. They issued bullish guidance again in their latest quarterly report. SHW announced earnings on October 28th. Wall Street was expecting a profit of $3.22 per share on revenues of $3.18 billion. SHW said their earnings rose +31.4% to a record-setting $3.35 per share. Revenues were up +10.6% at $3.15 billion, which missed the estimate.

SHW's remodeling business saw growth. The real driver was paint sales. Their paint stores account for the lion's share of sales, which saw revenues up +20%. SHW also purchased 2.0 million shares of their stock last quarter and still have 6.8 million yet to buy in their stock buy back program.

Management was optimistic. SHW's Chairman and CEO MR. Christopher Connor, said,

"We are pleased to report record sales and earnings per share in the third quarter and first nine months of 2014 on the continued positive sales volume and strong operating results of our Paint Stores Group. The Paint Stores Group architectural volume growth was positive across all end market segments. The Comex acquisition continues to perform better than expected in the year. Our Consumer Group improved its operating results through higher volume sales and operating efficiencies. Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies."

Management raised their 2014 EPS guidance above Wall Street's estimates. They also raised their revenue guidance but this was only in-line with consensus. SHW now expects Q4 sales in the +6% to +8% range. They expect earnings to be in the $1.30-1.40 range versus $1.14 in the fourth quarter of 2013.

The stock's relative strength has driven shares to new all-time highs and a +25% gain in 2014. The point & figure chart is bullish and forecasting at long-term target at $286.

Tonight we are suggesting a trigger to buy calls at $231.00.

Trigger @ $231.00

- Suggested Positions -

Buy the 2015 Jan $240 call (SHW150117c240) current ask $3.50

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


Semiconductor ETF - SMH - close: 51.71 change: +0.29

Stop Loss: 48.85
Target(s): To Be Determined
Current Option Gain/Loss: +150.0%
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:
11/03/14: Semiconductor stocks continued to show relative strength with the SMH up another +0.5%. This ETF remains very short-term overbought and approaching potential resistance in the $52.00-52.50 area.

I am not suggesting new positions.

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

11/01/14 new stop @ 48.85
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: 119.91 change: -0.90

Stop Loss: 117.85
Target(s): To Be Determined
Current Option Gain/Loss: -25.8%
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:
11/03/14: ULTA saw some volatility this morning with a nearly $3.00 swing but traders bought the dip at its simple 10-dma.

I am not suggesting new positions at this time.

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

11/01/14 new stop @ 117.85
10/29/14 triggered @ 121.75
Option Format: symbol-year-month-day-call-strike


United Rentals, Inc. - URI - close: 111.81 change: +1.75

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.2%
Average Daily Volume = 1.6 million
Entry on November 03 at $110.55
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/03/14: Our new play on URI has been triggered at $110.55. The stock has broken out past resistance near $110.00 and its simple 50-dma. Shares rallied up to $113.61 intraday. If looks like URI could retest the $110 level, which should be support, and a dip near $110 could be used as a new entry point to buy calls.

Earlier Comments: November 1, 2014:
URI is a company that is gaining market share. Traditionally the equipment rental business has been a very fragmented industry with a lot of mom and pop stores. URI has decided that being the biggest offers a better selection to their clients. Today URI is the biggest equipment rental company in the world.

Twenty years ago commercial construction clients only accounted for about 15% of the equipment rental market. Today that number is closer to 50%. The last few years have seen a strong trend of construction companies choosing to rent equipment instead of buy new equipment due to an uncertain economic outlook.

According to URI's website they were founded in 1997 and have grown into a network of 832 rental locations in 49 states and 10 Canadian provinces. Their rental fleet includes 3,100 classes of equipment.

Earnings are improving. The last couple of quarterly reports have been strong. In the July 16th report URI beat Wall Street estimates with a profit of $1.65 per share on revenues of $1.399 billion. That was a +47% improvement from a year ago and management raised their guidance.

The most recent report was October 15th. Again URI beat estimates. Analysts were looking for a profit of $2.12 per share on revenues of $1.51 billion. URI delivered $2.20 per share with revenues up +17.8% to $1.54 billion. This was a +34% jump in URI's earnings from a year ago. Margins hit a record +49.3% in the third quarter. They reaffirmed their guidance.

URI's CEO Mr. Michael Kneeland commented on his company's report and said,

"The third quarter provided further confirmation that our strategy and the North American construction recovery are both solidly on track. Our end markets are continuing to rally, creating numerous opportunities for well-managed, profitable growth. We reported a robust 16% increase in rental revenue for the quarter— and more importantly, the discipline behind that growth is evident in our record EBITDA margin and gains in volume, utilization and rates."

Technically the stock experienced a painful correction from $120 to $90 during the market's pullback in September-October. The bounce back stalled at resistance near $110 and its 100-dma and 50-dma. However, after a two-week consolidation in the $105-110 zone, shares of URI now look poised to breakout. Shares were showing relative strength on Friday with a +3.7% gain.

The 50-dma is directly overhead at $110.17 and the intraday high on Friday was $110.39. Tonight we are suggesting a trigger to buy calls at $110.55.

- Suggested Positions -

Long 2015 Jan $115 call (URI150117c115) entry $4.50

11/03/14 triggered @ 110.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates


Currently we do not have any active put trades.