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Daily Newsletter, Wednesday, 11/5/2014

Table of Contents

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

Market Wrap

Bulls Get Their Republican Win

by Keene Little

Click here to email Keene Little
The rally from October was supposedly due to an expected win by Republicans in both Houses, which is supposed to be good for the stock market. But statistics show the bulls may have misplaced faith in this.

Wednesday's Market Stats

The Republicans will take over the Senate and they increased their control in the House, which was anticipated, and it's part of the reason why the market has rallied strongly in the past three weeks. The rally was also helped by Japan's surprise QE2IB (QE to Infinity and Beyond) program but now that the bulls have what they wanted we have to wonder what else will drive the market higher. Following this morning's gap up there was no follow through. And one problem with the idea that a Republican-controlled Senate and Congress is that statistics show it's actually not helpful to the market, especially right after the midterm elections.

Statistics show that over time the stock market has not done well under a Republican-controlled Congress but the market does supposedly likes the idea of gridlock. This of course begs the question: what the heck have we had for years now? But a Democratic president and Republican Congress will likely be even more gridlocked and that's what the market likes (stay out my business is the general feeling). But in the short term there's evidence (scant though it may be) that the weeks following this kind of an election are not favorable for the market, which suggests at least a larger pullback before heading higher into next year.

There's also a good chance we'll see a sell-the-news reaction soon after these elections. The market could push higher for another day or two (or not) but the rally priced in this win and with an extremely overbought and overbullish market it's ripe for at least a larger pullback. As I'll cover in the charts, the price pattern for the rally is looking close to complete, which is another reason I'm now looking for at least a correction to the rally before heading higher. There is a more bearish possibility that says the rally from October 15th, once completed, will also complete the 5-1/2 year bull market.

The market was more interested in the election results than any economic indicators this morning so the ADP Employment and ISM Services reports were generally ignored. The ADP report showed 230K jobs added, which was generally in line with expectations and an improvement over September's 225K (revised up from 213K). The ISM Services number was 57.1, a little less than the 58 that was expected and less than the 58.6 we had in September.

Because of the election results the futures had rallied strong in the overnight session and we started the day with a big gap up. It quickly turned into a gap n crap start and the techs quickly closed this morning's gap while it took until this afternoon's decline for the RUT to do the same thing. The blue chips held up better, indicating some defensiveness in today's market. Now the question is whether the bulls can add any more to the rally or if it's all baked into the cake and now we'll see profit taking.

I think it will be important to watch the DOW carefully here since it has pushed up to important trendline resistance and how it does here will tell us more about how well the bulls can be expected to do, even if it's just for a higher move only into next week. Starting off with the weekly chart of the DOW, you can see how the straight-up rally from October 15th has now slammed back into the trend line along the highs from May 2011 - May 2013. This trend line has stopped rallies since December 2013 (with minor pokes above the trend line. Interestingly, a trend line along those minor pokes is only marginally higher and it was tagged with today's high at 17485. From a purely trendline analysis perspective this is the perfect spot for a bear attack.

Dow Industrials, INDU, Weekly chart

The daily chart below is a closer view of the trend lines in play at the moment. You can see the trend line along the highs from December 2013 - July 2014 is where the September rally stopped. Will it have better luck this time? Tomorrow the trend line sits near 17500 so that's the level the bulls need to break through in order to open the gate to higher levels (such as 18K). Maybe they'll jump over resistance with a gap up after running the futures higher tonight (the usual method this market deals with resistance). Above 17500 the bears should stay away but with a rally that's gone too far too fast I would not want to chase it higher from here since any break of resistance could be just a stop run that gets reversed quickly.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,500
- bearish below 17,150

There's another trend line in play for the DOW right here -- using the log price scale (the weekly and daily charts above are using the arithmetic price scales) shows the uptrend line from November 2012 - February 2014, which is approaching 17540. So maybe a quick run up in the morning, nab some stops, ring the bell at the trend line and then reverse back down. Obviously I can only guess how much further this rally could run but for the sake of the bulls it should at least pull back soon. A rally that has gone too far too fast into a flameout would not be a good thing for investors, especially if they're chasing it higher and find no chairs when the music stops. But if the buyers can keep the market headed higher for the rest of the week I see upside potential first to the 17750 area and then 18K.

Dow Industrials, INDU, 60-min chart

SPX also has a few trend lines that are in play here but a bit higher than what we have for the DOW. Using the log price scale we have the uptrend line from November 2012 - February 2014 near 2042 on Thursday. Crossing the same level is the trend line along the highs from July-September. Slightly higher is the trend line along the highs from April 2010 - May 2011, currently near 2049. That gives us a trendline resistance zone at 2042-2049, about another 20-25 points above today's high. That would have the DOW up around the 17750 area that I mentioned above.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2055
- bearish below 1985

Above 2050 would have SPX looking bullish with the break above its trend lines but I have 2055 as the key level to the upside based on a price projection for its wave pattern, shown on the 60-min chart below. The 1st wave of the move up from October 15th extended and when that happens it's typical for the 3rd through 5th waves to achieve equality with the 1st wave, which is the 2055 projection. That opens up the upside target zone to roughly 2042-2055. An early warning for the bulls would be a break of the uptrend line from October 15th, which SPX has been walking up since testing it with Tuesday morning's low. Currently near 2017 it means the bulls need to keep at this and not let price break below this afternoon's low near 2016.

S&P 500, SPX, 60-min chart

NDX has been oscillating around the 4150 level since gapping up to it last Friday. The bulls will see the sideways choppy consolidation as a bullish continuation pattern while the bears see topping action. As for additional upside potential, there's a trend line along the highs from April 2010 - April 2012, currently near 4202. Century-level resistance at 4200 is also potential resistance. A little higher is the 127% extension of the September-October decline, a common reversal Fib. So watch that area for a possible top if reached. NDX would close last Friday's gap near 4100 and a drop below that level would be a good indication the top is in for now and we'll have to evaluate the pullback/decline for evidence for what will follow (the same as for the DOW and SPX).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4200
- bearish below 4100

Continue to keep a close eye on how the semiconductors are doing. The SOX has rallied strongly with the rest of the market, which supports the bullish move. But it's now having trouble with its broken uptrend line from November 2012 and is close to its September 19th high near 659 (about 10 points higher). I think it's going to form a double top (triple top if you include the double top in July and September) and the bearish divergence, as can be seen on the RSI on the weekly chart below) is calling out to the bulls "Danger Will Robertson, Danger!" This is looking like a short play just waiting to get triggered (with a decline below 640).

Semiconductor index, SOX, Weekly chart

After gapping up last Friday, like NDX, the RUT has stalled and hasn't been able to find enough buyers to push it higher. The underperformance by the techs and small caps is indicative of defensiveness following the strong rally off the October low. The RUT made it up to its broken uptrend line form March 2009 - October 2011 (green trend line on its chart below) and its 78.6% retracement of its July-October decline, at 1176. The RUT would turn at least short-term bullish above 1180 and it could make it back up to its March and July highs near 1213 (triple top?). But if it drops back down from here and closes last Friday's gap near 1155 I think it would be signaling the top is in place and we'll have to watch to see what kind of pullback/decline develops next. If we're getting ready to start the next bear market decline it will likely be the RUT out in front again.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1180
- bearish below 1155

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A week ago I had mentioned the TRAN's strong rally up close to its trend line along the highs from 2010-2011-2014, near 8833 at the time. With yesterday's rally it finally rang the bell at the trend line, now near 8870. With the overbought conditions I think it would be a risky bet on a breakthrough (for anything more than a minor poke above the line. The higher-odds scenario suggests at least a pullback before heading higher and the longer-term chart suggests we could now start back down to the bottom of the expanding triangle that has formed since July. One idea is that we'll see the right side of a diamond top form in the coming months, something I'll track until the idea is negated.

Transportation Index, TRAN, Daily chart

As I had mentioned last week, the U.S. dollar's rally pattern from May would look best with one more marginal new high to complete a 5-wave move up, which it has now done. If it gets above 88 it would look like something more bullish than a 5th wave to complete the leg up from May but at the moment, especially with bearish divergence against the September high, it looks like the dollar's rally could complete at any time now. The short-term pattern suggests it make it closer to the 88 area but it shouldn't push much higher than that. Dollar bulls need to pull stops up tight here. We should get at least a larger pullback to correct the rally from May and possibly something more bearish if the dollar is going to head back down to the bottom of a large sideways triangle since 2008-2009, which mean back down to the $75 area next year. But I continue to believe we'll get a larger rally in the dollar in the coming years, one that will take the dollar up to 110 if not 120. The dollar still smells "less bad" than the other fiat currencies.

U.S. Dollar contract, DX, Weekly chart

The metals have been hammered the past two weeks and gold dropped $118 from a high near 1255 on October 21st to today's low near 1137. In so doing it gave up price-level support near 1180, a level that has supported gold since 2010. It could be heading for the next price-level support line near 1000. It's not likely to be a straight move down to there and with gold now significantly oversold on its daily chart we could see a bounce start at any time. But as depicted on the weekly chart below, I see the potential for gold to hit 1090 before it gets a bigger bounce/consolidation into early 2015. At that level it would retrace 50% of its 2001-2011 rally and it would likely be a good setup for an oversold bounce. Then another leg down towards the 1000 support line in 2015, potentially lower towards the 62% retracement of its 2001-2011 rally, near 893.

Gold continuous contract, GC, Weekly chart

Silver has dropped down to an older broken downtrend line from November 2012 - August 2013, currently near 15.15 (this morning's low was 15.12). This downtrend line was broken in February, acted as support during the pullback into April and is now being tested again. Stronger support should be a price-level S/R near 14.65 and being as oversold as it is on the daily chart we could see a stronger bounce start at any time. As with gold, I think silver will work its way lower into at least early 2015 but we could first see a bounce back up to price-level S/R at 18.60 before dropping again into early next year. The downside target I'm projecting on its weekly chart below is 12.25 by the end of April 2015 where it would find trendline support and potentially put in its final low for its 2011-2015 bear market.

Silver continuous contract, SI, Weekly chart

Along with most commodities, oil has dropped sharply since June and especially since its little consolidation in September. I've had a downside projection for the leg down from June at 74.60, which is where the 2nd leg of the decline from August 2013 would achieve 162% of the 1st leg down. That's also near the prior low at 74.95 in October 2011 so there's reason to expect support in the %75 area and we're now close enough to suggest oil bears need to be very careful -- it's time to draw stops tight. If the 3-wave move down from August 2013 is the completion of another leg inside its larger sideways triangle following the May 2011 high then we'll see the start of another choppy rally to the top of the triangle, currently near 110. But as labeled in red, if the decline from August 2013 is going to turn into a 5-wave move down we'll get just a choppy bounce correction over the next few months for the 4th wave before heading lower in the 5th wave, potentially down to the $70 area by mid-2015.

Oil continuous contract, CL, Weekly chart

Thursday has no market-moving economic reports but Friday will be important as we get the NFP numbers. Before the open tomorrow, at 7:45 AM ET, we'll get to hear what the ECB rate decision will be. While it's not expected, they could surprise the market with some kind of QE announcement. After all, it's important to keep up with the Jones's (Japan in this case).

Economic reports and Summary

On the charts I have us in the 5th waves for each of the indexes for the rally from October's low. The final 5th wave is commonly put in on a news-related spike, which we got with this morning's gap up. So was that it? Is the top in place? It's too early to tell and with some upside potential shown for the different indexes I'm certainly not ready yet to declare a top in place. But it's probably very close, as in hours or days away. Be careful about chasing this rally any higher from here. Whether a high will be THE high or just another in what will become a much larger rally can't be known yet. That will become clearer only after evaluating the pattern of the next pullback/decline. In the meantime the short-term outlook says be prepared for at least a larger pullback.

Depending on your trading/investing horizon, now is a good time to pull stops up tight on long positions if you'd rather not give up all of the gains since October 15th since that's the level, if broken, would indicate the longer-term uptrend has been broken. In other words, longer-term investors can wait for that break before abandoning ship. But if you don't want to give back that much then pull your stops up tight and use the key levels I've given on the charts to trigger your exit. For short traders, use the key levels to indicate when it's safe to get back in the water and trade with the bears (how's that for a mixed metaphor?). If you're following the markets during the day, use the uptrend lines from October 15th, a break of which would be a good signal we hit the bend at the end of the trend.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Declining Sales, New Lows

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Intl. Business Machines - IBM - close: 161.82 change: -0.83

Stop Loss: 165.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.1 million
Entry on November -- at $---.--
Listed on November 05, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
IBM is considered a bellwether in the technology sector. The company was founded back 1910 and has been known as IBM since 1924. They've grown into a powerhouse of information technology, hardware, software, and services. Unfortunately for IBM and its shareholders the company's business seems to have stalled as it faces tougher competition across all of its products.

Big Blue, the company's nickname, was a master manipulator of the Wall Street earnings game. IBM has for years massaged its earnings per share results with massive stock buybacks. This wasn't a big secret. Then finally their strategy started to stall. IBM's stock struggled for years after its 1999 peak under $140 a share.

The stock market's QE fueled rally from the 2008 low fueled a massive run in IBM and shares grew from $70 late 2008 to over $215 in early 2013. While the U.S. market continued to run higher in 2013 and 2014 IBM did not participate. That's because revenues have been flat or declining since mid 2013. At the same time investors became more suspicious of the financial engineering of IBM's earnings results with its massive stock buybacks.

Big Blue has spent $108 billion on stock buybacks since 2000. About $12 billion of that was just in the first six months of 2014. IBM has also spent $30 billion on dividends since 2000. Now normally stock buybacks and dividends are shareholder friendly but critics argue that IBM has financed a lot of these expenses with debt. Meanwhile IBM's revenues have fallen to levels not seen since 2008.

IBM's most recent earnings report was October 20th and the results were a big disappointment that sent shares plunging to multi-year lows. Wall Street was looking for a profit of $4.32 per share on revenues of $23.37 billion. IBM reported $3.68 per share, a 64 cent miss. Earnings dropped -4% to $22.4 billion, another miss.

Management said revenues declined across all of their major product lines and geographies. EPS results were down -10%. Net income was down -18%. Gross margins were down 90 basis points to 49.2%. Revenues in the Americas, Europe, Middle East, and Africa were all down -2%. Revenues in Asia-Pacific slipped -9%.

IBM said they saw a significant slowdown in September and the sharp rise in the dollar played a big impact on its results. Furthermore management has removed their previous earnings guidance of $20 per share in 2015. Multiple analyst firms have lowered their price target on IBM following this report.

Bullish investors will argue that IBM has been steadily raising its dividend over the last several years, which is true. The stock currently has a respectable yield of 2.7%. Unfortunately, high-yield stocks are going to look less attractive when the Federal Reserve starts raising rates in 2015. Bulls will also argue that IBM is cheap on a valuation basis with its P/E down to 10. We also know a cheap stock can always get a lot cheaper. A value play could turn into a value trap.

Currently shares of IBM have already seen their oversold bounce roll over. If shares breakdown under their October lows the next support level could be the $140 area. Tonight we are suggesting a trigger to buy puts at $160.90. More conservative traders may want to use a trigger under $160.00 instead.

Trigger @ $160.90

- Suggested Positions -

Buy the 2015 Jan $160 PUT (IBM150117P160) current ask $4.20

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Big Caps Continue To Climb

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 and the Dow Industrials set new highs. Meanwhile the media was dissecting last night's election results.

DIN and SHW hit our entry triggers. GILD hit our stop loss.


Current Portfolio:


CALL Play Updates

Acuity Brands, Inc. - AYI - close: 138.89 change: +0.60

Stop Loss: 135.25
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:
11/05/14: Shares of AYI are still consolidating sideways beneath round-number resistance at the $140.00 level.

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: 136.50 change: -0.05

Stop Loss: 130.75
Target(s): To Be Determined
Current Option Gain/Loss: +130.5%
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:
11/05/14: COST hit new highs this morning but gains faded. Shares closed virtually unchanged on the session. Investors will be looking for positive same-store sales figures tomorrow.

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


DineEquity, Inc. - DIN - close: 92.34 change: +0.96

Stop Loss: 87.45
Target(s): To Be Determined
Current Option Gain/Loss: -4.1%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/05/14: Many of the restaurant names continued to rally on Wednesday. Shares of DIN broke out to new highs and hit our suggested entry point at $91.55.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike


FedEx Corp. - FDX - close: 169.42 change: +2.46

Stop Loss: 163.45
Target(s): To Be Determined
Current Option Gain/Loss: +128.3%
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:
11/05/14: The transportation stocks continued to rally and FDX displayed relative strength with a +1.47% gain. The stock is nearing what could be round-number resistance at the $170.00 mark.

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


Keurig Green Mountain, Inc. - GMCR - close: 150.46 change: -1.65

Stop Loss: 144.90
Target(s): To Be Determined
Current Option Gain/Loss: +28.8%
Current Option/Gain loss if you sold the NOV $160 call: +579.4%
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:
11/05/14: Uh-oh! The action in GMCR today looks troubling. The early gains faded and GMCR underperformed the market with a -1.0% decline. Today's session has created a bearish engulfing candlestick reversal pattern.

Traders may want to exit immediately to lock in potential gains.

Tonight I'm moving the stop loss to $144.90. You may want to move your stop closer to the 10-dma near $148.30 instead.

I am not suggesting new positions at this time.

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

11/05/14 new stop @ 144.90
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: 158.25 change: +0.71

Stop Loss: 151.85
Target(s): To Be Determined
Current Option Gain/Loss: +326.4%
Current Option/Gain loss if you sold the NOV $159 call: +806.2%
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:
11/05/14: The IYT tagged a new high this morning but gains faded as crude oil bounced. There is no change from my prior comments.

We have less than 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: 65.55 change: -1.33

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: -36.8%
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:
11/05/14: I'm starting to worry about our NOW trade. Shares underperformed the market today with a -1.98% decline. Today marks a close below its simple 10-dma.

The $65.00 level should offer some support so we will raise our stop loss to $64.90. I'm not suggesting new positions at this time.

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

11/05/14 new stop @ 64.90
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: 93.35 change: -0.72

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: -12.2%
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:
11/05/14: The rally in NTES seems to be losing momentum. The early morning gains faded and shares lost -0.7%.

The company has earnings coming up on November 12th. We will plan on exiting the 11th. That means we have four trading days left.

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: 230.39 change: +2.12

Stop Loss: 224.75
Target(s): To Be Determined
Current Option Gain/Loss: -10.9%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/05/14: Our bullish play on SHW has been triggered at $231.00. The stock rallied just high enough to hit a new all-time high before paring its gains. SHW still managed to outperform the market with a +0.9% gain.

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.

- Suggested Positions -

Long 2015 Jan $240 call (SHW150117c240) entry $3.37

11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike


Semiconductor ETF - SMH - close: 52.04 change: +0.35

Stop Loss: 48.85
Target(s): To Be Determined
Current Option Gain/Loss: +163.6%
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:
11/05/14: The SMH continues to defy gravity as shares post another gain. This ETF is on track for its fourth weekly gain in a row.

The September highs near $52.60 could be resistance. 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


United Rentals, Inc. - URI - close: 111.17 change: +1.57

Stop Loss: 104.90
Target(s): To Be Determined
Current Option Gain/Loss: - 4.4%
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:
11/05/14: URI recovered a decent chunk of yesterday's losses. Shares outperformed the market with a +1.4% gain today.

More conservative traders may want to start raising their stop loss.

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

FMC Corp. - FMC - close: 56.62 change: +0.84

Stop Loss: 58.85
Target(s): To Be Determined
Current Option Gain/Loss: -23.0%
Average Daily Volume = 1.42 million
Entry on November 04 at $55.85
Listed on November 03, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/05/14: FMC snapped a three-day losing streak with today's +1.5% bounce. I don't see any changes from yesterday's comments. More conservative traders might want to wait for a breakdown under $55.00 instead.

Earlier Comments: November 3, 2014:
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.

- Suggested Positions -

Long 2015 Jan $55 PUT (FMC150117P55) entry $1.95

11/04/14 triggered @ $55.85
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Gilead Sciences Inc. - GILD - close: 109.72 change: -0.26

Stop Loss: 107.65
Target(s): To Be Determined
Current Option Gain/Loss: -51.8%
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:
11/05/14: Biotech stocks have stopped participating in the market's rally. The IBB biotech ETF and the BTK biotech index are both down three days in a row, four days if you count the intraday reversal on Friday. GILD is no different but the moves in GILD have been bigger.

Today saw shares of GILD underperform with a -3.3% decline. Our stop was hit at $107.65. The bullish story on GILD has not changed. We will revisit the stock once the current volatility has subsided.

- Suggested Positions -

2015 Jan $120 call (GILD150117c120) entry $5.50 exit $2.65 (-51.8%)

11/05/14 stopped out @ 107.65
10/31/14 triggered on gap higher at $115.90, suggested trigger was $114.45
Option Format: symbol-year-month-day-call-strike

chart: