Option Investor
Newsletter

Daily Newsletter, Monday, 11/10/2014

Table of Contents

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

Market Wrap

Bulls March Higher

by Thomas Hughes

Click here to email Thomas Hughes
A quiet day for news, earnings and data opened the door to new highs.

Introduction

Today was pretty quiet in terms of news, data and earnings. The early morning hours were dominated by positive export data from China but even that was not too exiting. Chinese exports rose by 11.6%, less than the previous month but more than expected. Asian stocks were mixed on the news but it set the stage for a rally in Europe. European indices traded slightly above last week's closing prices for most of the day but rallied into their close aided by new all time highs on our indices.

There were some earnings reports this morning but nothing really exiting. Most of the S&P 500 has reported by this stage of the game with only about 30 left to go. Also missing today was US economic data. It's the second week of the November and the lightest data week of the monthly cycle. The NFP and unemployment data from last week helped to support the market today but were largely ignored by the media. There are a few reports later this week but nothing that I consider to have market reversing potential. Another noticeable item missing today was bad news. There just aren't any attention grabbing bad news stories for the market to worry about.

Market Statistics

Our own indices were indicated higher from the earliest part of the trading day but only marginally so. Futures trading held positive throughout the morning and into the open. At the bell the indices opened flat to last week's closing prices and hovered there for the first hour of trading. Around 10:35 the markets began to lift and then broke out to new all time highs. The intraday highs were reached around 12:30 and held through to the end of the day. There was a little churn in afternoon trading but only a few points, leaving the indices at or near the intraday high at the close of trading.

Economic Calendar

The Economy

There was no economic data released today. This week is also fairly light on releases, Thursday and Friday being the focus. Thursday is weekly jobless claims as well as monthly JOLTS job opening figures. Friday is Michigan Sentiment, National Retail Sales figures, Business Inventories and import/export prices.

There was not much mention of the NFP or unemployment numbers today but I am going to bring them up. The NFP was right in line with my estimates and consistent with the long term trends in labor we have been experiencing. Job creation remains steady while turnover is low, hiring intentions are high and the pace of layoffs is in a long term decline. These all add up to lower unemployment, evidenced by the -0.10% drop to 5.8% also reported Friday. While the quality of jobs may not be what some would like there are jobs and people are going to work.

Moody's Survey of Business Confidence, compiled and presented by Mark Zandi remains upbeat. This week's report is even a little more upbeat than it has been over the past few months. Aside from further notation of weak confidence in South American and Europe the report shows that “Businesses remain very upbeat in the U.S. Hiring intentions in the U.S. are especially strong, rising to a new record high in recent weeks. Hiring is robust and layoffs are very low. Confidence in the U.S. is consistent with an economy expanding well above its potential. Sentiment is slumping in South America and Europe, consistent with economies that are growing below their potential.”

The Oil Index

Oil prices experienced another wild day as yet another new twist in the ongoing oil price war unfolds. Prices for WTI first climbed by a full percent during the morning hours on disruption news until price news from Iraw sent them plunging later in the day.

Today Iraq joined with Saudi Arabia in offering a discount on prices to US based customers. Iraq also emulated the Saudis by raising prices for Europe and Asia in an attempt to offset losses. The announcement helped to send prices for WTI and Brent lower by nearly a full percent despite supply issues coming out of Libya.

The recently reopened Sharara oil field is reportedly taken over by rebel gunmen while the Hariga oil port is subject to a strike. While both news bits are important to oil prices I still think the upcoming OPEC meeting is more important in terms of long term direction. According to current speculation a production cut is not expected from OPEC despite many calls for such from some members. Until then oil prices could remain trapped in a range between the long term low and $80 with day to day direction driven by headlines.

Something I was reminded of today is that we are entering the cold winter period for the northern hemisphere. Oil and natural gas use will go up simply because of heating and it could be a cold one this year, the polar vortex is coming back. Cold snaps like the one forecast for this week will have some bearing on supply/demand level and energy prices, particularly if the season is colder/longer than estimated.

The Oil Index fell today, dropping from the 1885 resistance line. The index has now tested resistance at this level three times without breaking through. The indicators are bullish but in retreat and showing divergences which confirm resistance along this level. The divergence could lead to a retest of long term support as foreshadowed by the previous bearsish peak in MACD, the peak which is convergent with the October correction. Resistance is at 1,485 with potential support at 1430, 1400 and 1350.


The Gold Index

Gold prices fell -1.5% today after the impressive snap back rally last Friday. Economic trends and the labor data helped the market to see that inflation was a little closer than it might have thought, leading to what may have been a knee-jerk rally gold.

The steady NFP, lower unemployment rate and slight uptick in wages helps confirm that the economy and consumer is recovering and on the path to inflation but as of yet there is very little real evidence of it. Any inflationary worries there are were overshadowed by dollar strength which ultimately led to the decline in gold prices. Today's drop halted just above $1150 which may prove important over the next few days or week.

The Gold Index fell today, losing over -6%. The index is in a long term down trend and is trading below the 100% Fibonacci Retracement of the 2008-2011 uptrend. Today's move is a confirmation of resistance at previous long term support as represented by the 100% FR line, located at $66.59. The indicators are weak, in line with the down trend and setting up for another trend following signal. Using Fibonacci to project a downside target I come up with $50.80 with current support right around $60. Gold prices are driving poor earnings expectations in this sector and need to rise significantly to change that. Until then the down trend in the gold sector is likely to continue. <


In The News, Story Stocks and Earnings

Earnings season is still rolling on. According to FactSet as of Friday 446 of the 500 S&P 500 companies have reported. Out of those 77% of them have reported earnings above the estimated mean and 60% of them have reported revenue above the estimated mean. Both of these figures rose from last weeks data and have been on the rise since the reporting season began. The average earnings growth of those who have reported is 7.6%, also higher than last week and above the sub-5% growth expected at the end of the previous quarter. The Telecom sector is leading, as expected, and the Consumer Discretionary is lagging, as expected. Surprises from the Financial and Materials sectors are leading in terms of positive surprises and a big cause for the increase in mean earnings and revenue growth.

Dean Foods reported this morning. Dean Foods is the leading producer of dairy and dairy products in the US and reported a loss much smaller than expected. The company has been plagued by what it calls the “most difficult operating conditions it has ever experienced” but seems to be faring OK. Quarterly results are due to improvements to operations which may help spring board it to profit in the coming quarter. Executives were able to raise guidance from a slight loss to a range of $0.05-$0.15. Shares of the stock rallied on the news and gained more than 13% and climbed above the mid-point of the 12 month trading range. The indicators are bullish, strong and suggestive of higher prices. Support is now around $16 with next potential resistance near $17.


McDonald's reported October sales figures today. The global fast food chain reported slowing sales, but not as slow as some had feared. Corporate-wide sales fell by only -0.5%, versus an estimated -2.5%. This was aided by the US and Europe which both posted much smaller than expected gains of -1% and -0.7% respectively. China was the only region to experience significant decline, matching estimates at -4.2%. Shares jumped during the premarket session, gapped a little at the open and then fell back to close just above break even to last week. McDonald's is basically flat for the year, up for the past three weeks and trading above long term support.


The transportation and shipping sector was the leading sector today. Among them the rail carriers were particularly strong and among them CSX. The stock climbed more than 3% today driven on strong underlying fundamentals. The company reported earnings a few weeks ago and informed us that earnings are up, traffic is up and they expect next quarter and next year to be up. Current company estimates have earnings growth in the double digits for 2014 and 2015. Today's move takes the stock above resistance and set a new all time high. The indicators are turning bullish after a brief pull back last week and in line with a trending market.


Obama reiterated his position on net neutrality today. In his statement he called on the FCC to enact the toughest laws possible to protect net neutrality. He also put forward the idea that the internet should be regulated as a public utility. The internet and cable providers did not respond well to the news. Shares of Time Warner Cable and other lost over 5%. Time Warner issued a statement opposing the Presidents view. They say that changing the classification will lead to years of litigation and stunt the growth of the industry.


The Indices

The rally continued today. The bulls came out the gate, gathered themselves together and took a step forward. It was not a big step but an important one. The market is at all time highs and making new all time highs. As I mentioned before the transportation section was very strong today and led the market higher.

The Dow Jones Transportation Average gained more than 1.25% creating another long white candle. Today's move extends the break-out from the quick consolidation pattern I highlighted last week. This pattern and break out is supported by a trend following signal on MACD and stochastic. Bullish MACD momentum is back on the rise after a decline and stochastic is showing a bullish crossover high in the upper signal range. This break out has a target as high as 700 points above the current levels.


The NASDAQ Composite was the next best gainer today but only climbed by 0.41%. The tech heavy index was able to set a new 14 year intra-day and closing high. Today's action set a new high but the index is still basically trading sideways in a consolidation band akin to the one observed in the transportation average. The indicators are still in decline but beginning to rollover, in line with a trend following signal that could lead to a more pronounced break out. If so, this one would have an upside target around 5,300, about 700 points above today's close. Current support is at the 4,600 level and the September highs.


The S&P 500 gained 0.31% today, also setting a new all time high, both intraday and closing. The broad market gained just over 6 points and extended the bounce from 2,000 begun last week. The index is moving higher with bullish indicators but as of yet momentum is still in decline. Stochastic is showing a bullish crossover but is so high in the signal zone it is flat lining against the top of the range. This is a sign of overbought conditions but not necessarily a bearish sign or signal. The market could, theoretically, remain overbought indefinitely, or until the rally runs it course.


The Dow Jones Industrial Average was today's laggard but still made a gain of 0.23%. The blue chip index was also able to set a new all time high. Price action created a small bodied white candle indicative of slow and steady buying, a good sign I think for a Monday morning mid rally. The indicators are bullish and leading to higher prices but momentum is in decline. The current MACD peak is a +5 year extreme and as such an indication of strength in the market. The decline in MACD is suggestive of slowing and/or pause bot not overly bearish. Stochastic is still quite high in the range and supportive of trend continuation at this time. This index may consolidate or pull back a bit but such a move will more likely be an opportunity for bullish entry rather than a sign of impending reversal.


The indices are marching higher and led by the transports as they have been all year. Today's action is yet another example of many. The broad market moved slightly higher, along with the blue chips and the techs but it was the transports that led they way. The broad market and blue chips may be looking a little sluggish, the techs may still be in a consolidation band but if history repeats itself, and that is what technical analysis is all about, the transports are leading them all higher.

Current economic trends are up and expectations from the market are positive. So long as this continues the rally is on. Without bad news, and with earnings season on the way out the only thing standing in the bulls way is economic data and the holiday season.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Healthier Foods & Big Cap ETFs

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

The Hain Celestial Group, Inc. - HAIN - close: 109.21 change: +1.53

Stop Loss: 106.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 604 thousand
Entry on November -- at $---.--
Listed on November 10, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
"Our business continues to benefit from strong growth trends in the organic and natural, better-for-you segment of consumer packaged goods."

That quote is from HAIN's CEO after the company reported its latest earnings results just a few days ago. He's right. Consumers are choosing healthier foods and it looks like a major trend change that could benefit HAIN for a long time.

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

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports.

The Q4 report in late August this year saw revenues up +26% to $583.8 million. Management raised their guidance as they now expect sales growth of +27% to +30% in 2015.

The company reported their 2015 Q1 numbers on November 6th (last week) and sales are accelerating. Wall Street was expecting a profit of $0.67 on revenues of $640.27 million. HAIN delivered a profit of $0.68, which is a +31% increase from a year ago. Revenues were up +34.6% to $642.6 million. These are really impressive results when you consider that includes a voluntary recall of their HAIN nut butters back in August.

Commenting on their Q1 results, Irwin Simon, Founder, President, and CEO of the company said, "We are pleased with another strong start to our fiscal year across all of our segments on a worldwide basis with the highest quarterly net sales in the Company's history."

"Our diverse portfolio of brands and products across multiple categories and our customer base across various channels of distribution enabled us to deliver double-digit sales growth even with the impact of the nut-butter recall initiated in August."

Accompanying these results their Board of Directors also approved a 2-for-1 stock split but shareholders need to approve an increase in the number of shares outstanding first. That should happen at their annual meeting on November 20th, 2014.

Guidance was only in-line this time but that hasn't stopped shares of HAIN from climbing and two analyst firms raised their price target on the stock ($118 and $122). The point & figure chart is bullish and forecasting at $131.00 target.

Shares of HAIN have been consolidating under resistance in the $109.50-110 zone for the last several days. Tonight we are suggesting at trigger to buy calls at $110.25.

Trigger @ $110.25

- Suggested Positions -

Buy the 2015 Feb $115 call (HAIN150220C115) current ask $3.30

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

Daily Chart:

Intraday Chart:


PowerShares QQQ (ETF) - QQQ - close: 101.96 change: +0.36

Stop Loss: 99.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 38.1 million
Entry on November -- at $---.--
Listed on November 10, 2014
Time Frame: exit prior to December option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
The QQQ is the exchange traded fund (ETF) that mimics the NASDAQ-100 index, which is the largest 100 non-financial stocks on the NASDAQ exchange, including both foreign and domestic companies.

The NASDAQ-100 has been outperforming its index brethren this year with the QQQ up +15.5% in 2014 compared to a +9.9% gain in the S&P 500, a +9.4% gain in the S&P 100, a +6.0% gain in the Dow Industrials, and a +0.8% gain in the Russell 2000.

This leadership should continue. Seasonally this is a very bullish time of year for stocks. November is the third best month of the year. We just started the best six months of the year. Midterm years perform even better than normal. Corporate earnings has been strong. Interest rates are low. The Fed remains cooperative. Japan's central bank just announced a massive new QE program that will send more money into U.S. stocks. Europe is on the verge of more QE. There are plenty of reasons to be bullish.

Most of the market does look short-term overbought with a massive bounce from the October 15th low. Yet the QQQ has spent the last several days consolidating gains in a sideways move under short-term resistance near the $102 area. That consolidation is narrowing and the Qs look poised to breakout higher.

Tonight we are suggesting a trigger to buy calls at $102.35.

Trigger @ $102.35

- Suggested Positions -

Buy the DEC $102.63 CALL (QQQ141220C102.63) current ask $1.31

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

Daily Chart:

Intraday Chart:



In Play Updates and Reviews

All Major Averages Up On Monday

by James Brown

Click here to email James Brown

Editor's Note:

All of the major U.S. indices posted gains on Monday and the big cap S&P 500 and Dow Industrials both hit new records. It was encouraging to see the NASDAQ and small cap Russell 2000 both participating.

PSMT hit our entry trigger today.


Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 108.83 change: -0.18

Stop Loss: 106.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 55.5 million
Entry on November -- at $---.--
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
11/10/14: Cyber security firm FireEye (FEYE) announced on its blog today that it told AAPL back in July that devices like the iPhone and iPad were vulnerable to a new hack (virus/malware). Furthermore FEYE says AAPL has been unable to fix it. AAPL didn't respond to the story but shares of AAPL quietly churned sideways while most of the market trended higher today.

We are waiting for a breakout to new highs. Our suggested entry point is $110.25.

Why We Like It:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of almost $640 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit of $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $135 target. Shares have been outperforming the broader market and AAPL is currently up +36% year to date.

Currently AAPL is up three weeks in a row but it spent most of last week consolidating sideways and digesting its prior gains. As we approach the holiday shopping season AAPL is poised to benefit from what should be stronger than average consumer spending with the company's stable of new releases to tempt consumers to upgrade their older electronics.

The daily chart shows AAPL's intraday high to be $110.30 on November 3rd but that's actually a bad tick. The real intraday high is about $109.90. Tonight I am suggesting a trigger to buy calls on AAPL at $110.25. We will start with a stop loss at $106.45. More conservative traders may want to try a stop loss closer to last week's low near $107.70 instead.

Trigger @ $110.25

- Suggested Positions -

Buy the 2015 Jan $110 call (AAPL150117c110) current ask $3.20

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


Acuity Brands, Inc. - AYI - close: 139.88 change: -0.51

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:
11/10/14: AYI underperformed the major indices with a minor decline on Monday. Traders did buy the dip at short-term support on the rising 10-dma again. I am not suggesting new positions at this time.

More conservative traders may want to raise their stop loss again.

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: 137.69 change: -0.02

Stop Loss: 134.75
Target(s): To Be Determined
Current Option Gain/Loss: +162.9%
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:
11/10/14: COST garnered a new price target at $147 this morning. The "upgrade" didn't do much for the stock. COST actually spiked lower at the open but traders bought the dip near $136.00.

COST looks poised to breakout past short-term resistance at $138.00.

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

11/08/14 new stop @ 134.75
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: 94.02 change: +1.34

Stop Loss: 89.65
Target(s): To Be Determined
Current Option Gain/Loss: +12.5%
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:
11/10/14: It's a cold, snowy day outside my window. That's got me wishing I had some fluffy IHOP pancakes and a cup of coffee. It looks like Wall Street is also in the mood to buy more DIN with shares outperforming the broader market on Monday with a +1.4% gain.

I'm not suggesting new positions at the moment.

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

11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike


FedEx Corp. - FDX - close: 171.22 change: -0.48

Stop Loss: 165.50
Target(s): To Be Determined
Current Option Gain/Loss: +154.7%
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:
11/10/14: FDX bounced near short-term support at $170 this morning. The stock looks poised to breakout past the next hurdle, which appears to be $172.00.

More conservative traders may want to consider taking some money off the table.

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

11/08/14 new stop @ 165.50
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: 155.37 change: +2.47

Stop Loss: 148.65
Target(s): To Be Determined
Current Option Gain/Loss: +66.1%
Current Option/Gain loss if you sold the NOV $160 call: +776.0%
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:
11/10/14: GMCR displayed relative strength on Monday with a +1.6% gain. Shares also appear to be breaking out from its recent $150-155 trading range.

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

11/08/14 new stop @ 148.65
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: 162.47 change: +2.15

Stop Loss: 156.85
Target(s): To Be Determined
Current Option Gain/Loss: +402.9%
Current Option/Gain loss if you sold the NOV $159 call: +968.7%
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:
11/10/14: The recent oversold bounce in crude oil appeared to reverse lower today. That may have given the transport stocks a boost. The IYT soared to another new high with a +1.34% gain.

We have less than two 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

11/08/14 new stop @ 156.85
11/06/14 new stop @ 154.50
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: 68.91 change: +1.12

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
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:
11/10/14: The bounce in NOW continues with shares up three days in a row. The stock was showing some relative strength with today's +1.65% gain. NOW is nearing previous resistance at the $70.00 mark.

A breakout past $70.00 would be bullish. The next hurdle after that is the all-time highs in the $71.50-71.80 area.

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


PriceSmart Inc. - PSMT - close: 94.84 change: +2.39

Stop Loss: 89.45
Target(s): To Be Determined
Current Option Gain/Loss: +19.1%
Average Daily Volume = 156 thousand
Entry on November 10 at $92.75
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/10/14: Our bullish trade on PSMT is off to a strong start. Shares broke out past their recent highs and raced to a +2.5% gain today. Our trigger to buy calls was hit at $92.75.

Earlier Comments: November 6, 2014:
PSMT is in the services sector. The company is essentially the Costco of Latin America. A company press release describes them this way, "PriceSmart, headquartered in San Diego, owns and operates U.S.-style membership shopping warehouse clubs in Latin America and the Caribbean, selling high quality merchandise at low prices to PriceSmart members. PriceSmart now operates 34 warehouse clubs in 12 countries and one U.S. territory (six in Costa Rica; four each in Panama, Trinidad, and Colombia; three each in Guatemala, the Dominican Republic, and Honduras; two in El Salvador; and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands)."

A lot of PSMT's locations are in fast growing countries. Honduras has an annual growth rate of +3.1%. Costa Rica's is +4.2%. Columbia & Guatemala are growing at +4.3%. Panama latest GDP was +6.3%. Yet a few countries are struggling. Trinidad's growth rate is -1.2% while the Dominican Republic's plunged to an annual pace of -13%. Overall the consolidate trend is positive for PSMT's environment and they're building new stores in Columbia.

The company's latest earnings report was mixed. Their 73-cent earnings missed estimates by one cent but revenues were up +6.3% for the year and above Wall Street's estimate. This was PSMT's fourth quarter and they ended their fiscal year with sales of $2.4 billion, a +9.2% increase. Overall same-store sales rose +4.8%. Management reported double-digit sales growth for the year in Columbia, Panama, Trinidad, and Aruba.

Technically the stock has been in a bear market after a sharp decline from its late 2013 highs near $125 a share. PSMT appears to have built a base in the $80-92 range over the last few months. Now shares are starting to breakout from this significant consolidation pattern. Today's rally is significant because it's a bullish breakout above technical resistance at the 200-dma. The point & figure chart is bullish and forecasting a target of $102.

The October 29th intraday high was $92.68. Tonight I am suggesting a trigger to buy calls at $92.75.

- Suggested Positions -

Long 2015 Jan $95 call (PSMT150117C95) entry $3.44

11/10/14 triggered @ 92.75
Option Format: symbol-year-month-day-call-strike


The Sherwin-Williams Co. - SHW - close: 236.72 change: +0.68

Stop Loss: 229.75
Target(s): To Be Determined
Current Option Gain/Loss: +33.5%
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:
11/10/14: SHW started to see some profit taking this morning but shares bounced near $235.00 and rebounded to another high.

I am not suggesting new positions at this time.

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

11/08/14 new stop @ 229.75
11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike


Semiconductor ETF - SMH - close: 51.97 change: +0.39

Stop Loss: 48.85
Target(s): To Be Determined
Current Option Gain/Loss: +159.0%
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:
11/10/14: The SMH did not see any follow through on Friday's decline. Instead shares erased Friday's loss with a bounce back toward short-term resistance near the $52.00 mark.

I do not see any changes from my recent comments. The September highs near $52.60 could be a challenge for the bulls. 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: 113.70 change: +0.31

Stop Loss: 107.15
Target(s): To Be Determined
Current Option Gain/Loss: +13.3%
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:
11/10/14: I am urging caution here. URI might be setting up for a short-term pullback. The stock has failed at short-term resistance near $115.00 two days in a row. I would not be surprised to see URI pullback to test the 10-dma or the $110.00 area.

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

11/08/14 new stop @ 107.15
11/03/14 triggered @ 110.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

FMC Corp. - FMC - close: 56.79 change: -0.21

Stop Loss: 58.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.3%
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:
11/10/14: FMC is still not participating in the market's rally. Shares slowly drifted lower on Monday. The stock spent most of the session bouncing along the $56.70 area. It might be worth noting that FMC has failed at its 40-dma two days in a row.

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


Intl. Business Machines - IBM - close: 163.49 change: +1.42

Stop Loss: 165.75
Target(s): To Be Determined
Current Option Gain/Loss: -32.7%
Average Daily Volume = 4.1 million
Entry on November 06 at $160.90
Listed on November 05, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/10/14: The oversold bounce in IBM continued on Monday. Shares produced a $3.00 bounce in the first 95 minutes of trading. I don't see any specific news that might account for this relative strength. Fortunately the rally stalled and IBM spent the rest of the day drifting lower.

I am not suggesting new positions at this time.

Earlier Comments: November 5, 2014:
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.

- Suggested Positions -

Long 2015 Jan $160 PUT (IBM150117P160) entry $4.00

11/06/14 triggered $ 160.90
Option Format: symbol-year-month-day-call-strike