Option Investor
Newsletter

Daily Newsletter, Thursday, 11/13/2014

Table of Contents

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

Market Wrap

Market Touches New Highs

by Thomas Hughes

Click here to email Thomas Hughes
Steady labor data and positive earnings from Wal Mart helped the bulls reach new highs but weak oil prices pulled them back.

Introduction

Steady labor data and positive earnings helped the bulls reach new highs. Jobless claims and a surprise report from Wal Mart added lift while plunging oil prices pulled lower.

Futures trading was positive all morning despite weaker than expected data from China. Industrial Production and Retail Sales for the country were both good, just not quite as good as forecast. Production rose by 7.7% and retail sales by 11.5%. Asian markets were largely mixed on the news but the Nikkei is surged higher on weak yen and expectations of further easing. European markets were largely unfazed by the Chinese data, trading higher for most of the day, until low oil prices hit the energy sector and caused them to fall back to break even.

Market Statistics

The major indices were indicated higher all morning but moderated to just above break even ahead of and following the 8:30AM data release. At the bell the market opened positive and quickly began to move higher, making new all time highs within the first 10 minutes of trading. Intra-day high was hit about 5 minutes before 11AM at which time the market fell back to break even and lower. Most of the afternoon session was spent testing support as oil prices fell through the floor but a late day rally helped the indices climb back to positive territory.

Economic Calendar

The Economy

Initial claims for unemployment rose by 12,000 this week to 290,000. This is slightly above estimates but still below the 300,000 level. The four week moving average of claims rose 6,000 to 285,000. This is the first up tick in the moving average for two months and still at historic lows. On an not adjusted basis claims rose by 15%, versus an expected 10%, to 306,899. While the down trend in claims appears to have stalled out they are still at long term lows and at levels in line with steady improvement in labor. Michigan and New York led with increases in claims of 1,921 and 1,006 respectively. California and Ohio led with decreases of -3850 and -2,325.

Continuing Claims also rose, by 36,000, to 2.392 million. This is also slightly above expectations and also still near historic low levels. The four week moving average rose marginally but is basically flat for the last four weeks. The downtrend in continuing claims also appears to have stalled but this is not surprising as a seasonal uptick in layoff's is predicted by ADP and jobless claims data. In any event continuing claims are at long term low levels and in line with current labor trends.


Total claims for unemployment fell this week, shedding -36,654, to 2.101 million. This is just off the long term low set two weeks ago and in line with the long term downtrend. This figure may stall in the coming weeks as well but is still at levels conducive to a decline in overall unemployment. Looking back, it is almost 12 months since the unemployment claims extensions expired and total claims shed 1 million overnight. Since then the total claims figures has drifted even lower and is now nearly 50% lower than last year at this time.

JOLTS job opening data was released at 10AM. The Bureau of Labor Statistics reports that the number of job openings fell by 0.2 million to 4.7 million this month. This puts us on pace for 3.3% growth in jobs openings. Hiring and Separations are both up, separations due to an increase in quits. A high rate of quits is seen as a strong sign of worker confidence and a healthy labor market as workers are more likely to seek voluntary separation when they are confident of finding a new/better job or are more confident of retirement prospects.

The positive trends in labor are spurring speculation of when the Fed will raise interest rates. Estimat pushed out to late 2015 and even early 2016 are now being pulled back in. Consensus seems to be back in line with a mid-2015 target with the risk being a possible earlier hike. This is driving a lot of speculation in both the dollar and gold.

The dollar index is trading just beneath four year highs and could move higher if expectations for the ECB and BOJ play out. Both banks are expected to continue with current easing policy if not increase it in the near future, while at the same time we are looking at tightening and rate hike expectations moving closer in rather than farther out.

The newest twists in the Japanese recovery effort, which may also impact the dollar index, is that Prime minister Shinzo Abe may seek a larger mandate through a new vote. The purpose of this would be to enact a second round of stimulus measures and postpone an expected tax rate hike intended to pay for spending measures.


The Oil Index

Oil prices crubmled today, dropping more than 3.5%. WTI and Brent are both trading at four year lows, WTI near $74 and Brent around $78. A number of factors are at play here including the possibility of price wars, market share wars and/or a conspiracy to break the shale oil/gas industry. Another possibility I have thought of is a conspiracy to break OPEC apart because the members sure don't seem to be on the same page. Whatever the case I expect to see more volatility in oil prices in the near future.

The Oil Index fell by 2% as well. The index is now trading at near term support around 1420 with rapidly declining indicators. It looks like the index could continue lower and retest longer term support around 1,350. Oil prices are having a big impact on producer profits and putting big pressure on the sector but at the same time are aiding refining margins which could help with longer term support. Support looks like it could be strong but with future oil price so uncertain, and the OPEC meeting coming up, I'm feeling very cautious about this sector.


The Gold Index

Gold prices held steady around $1160 today. Interest rate speculation, positive US economic data, anticipation for upcoming FOMC minutes and possible action in Japan canceled each other out in today's session. The strong dollar is a primary reason gold has sunk to current long term lows and could send gold even lower while positive economic trends are helping to support gold. Economic trends are pointing to higher interest rates and rising inflation, reasons to get long gold. We know these two events will happen, the question is when, what we don't know for sure is if there will be more QE.

It looks like gold is winding up for something with $1150 as near term support. The minutes from the last FOMC meeting are due out next Tuesday and could be a catalyst.

The Gold Index also appears to be winding up for something. It has been trading in a narrowing band over the past two weeks and is below long term resistance. Low gold prices are driving the trend in this sector and that isn't going to change soon. Even if gold prices were to bottom from current levels it will take a massive increase in gold prices to help earnings and outlook for the miners. The long term trend in the index is down and it appears to be setting up for another leg lower. Resistance is the 100% retracement of the 2008-2012 bull market in gold with near term support around $60. Downside target, on a break of support, is near $50.


In The News, Story Stocks and Earnings

Wal Mart pleased the street today with a top and bottom line beat on earnings. On top of this the company reported the first increase in comp store sales for 7 quarters and was cautiously optimistic about the upcoming holiday season. Comps and sales were driven by strong back to school sales. Net sales increased by 2.8% to $118.1 billion. Company execs narrowed guidance to within the previously reported range and announced the closure of under performing stores in Japan. Shares of the stock surged more than 4% to a new all time high.


Hasbro and Dreamworks made the news when an independent source announced a possible deal for the toy maker to buy the animation studio. The deal would be worth about $30 a share but was met with a lot of skepticism. First, there was no consensus on whether it was a good more or not, or even what the goal was. Second, the validity of the news and the likelihood it would come to fruit are dubious. Hasbro sank on the news but Dreamworks jumped more than 15% to just below long term resistance. The stock gapped open but then sold off throughout the day on high volume.


JC Penny reported a much smaller loss than expected, cutting it by more than 60% from the same quarter last year. The problem is that revenue was also smaller than expected. Analyst had expected a loss of -$0.81 per share, actual was -$0.61. Shares of the stock sank more than 8% to trade along long term support near $7.00.


The Indices

The bulls tried to rally today but couldn't quite hold onto to the gains. Neither did the bears gain the upper hand. At the end of the day most of the indices closed in the green, at new highs, but closer to break even than not. The Dow Jones Transportation was the notable exception, falling by -0.20%.

This is the fourth day of trading above 9,000 and the third day in which 9,000 appears to have been tested. So far the testing is weak but could continue tomorrow. The trend is up and the indicators are bullish but momentum is still declining. This could lead to a stronger test of 9,000 or even lower with the target for support around 8,750.


The Dow Jones Industrial Average was today's biggest gainer, climbing a little more than 0.25% to set new intra-day and all time closing highs. The blue chip index created a small bodied white candle with a long upper wick suggestive of resistance to higher prices. So far the candle signal is very weak but could be indicating a near term top, pause or consolidation. The trend is up but like with the transports is losing momentum. The indicators are bullish but also suggest a near term top could be in place. This isn't a time to reverse position but is one to tighten stops. Support targets are 17,500 and 17,250 on a pullback.


The NASDAQ Composite gained a tenth of a percent today, rising 5.01 points. The tech heavy index made a new all time and intraday high but barely, and created a small doji that could have some mildly bearish implications. The index is moving higher after breaking above a small congestion band but is losing momentum. The combination of declining momentum and doji aren't a bearish signal but provide reason to think the index could move down to test support along 4,600.


The S&P 500 made the smallest gains today but gains it did make. The broad market rose just over 1 point, or 0.05%, to a new all-time closing and intra-day high. Market action was fairly balanced today, after first moving higher and then lower, creating a doji similar to the one on the NASDAQ chart. The length of the upper and lower wicks are nearly even, adding to the appearance of market balance. The indicators are bullish but like with the other three indices also showing declining momentum and suggestive of a near term top or consolidation. Support is about 20 points below today's close around 2020. The longer the index trades at or near current high levels while MACD declines the greater the chance that bullish momentum will return.


The trends are up and the indices are moving higher but there is evidence on the charts a consolidation, test of support or pull back could be in the works. Momentum is waning but that is not surprising given the amount the indices have moved in the last month. I don't see a major correction on the way but this could be a good time to lock in some profits and get ready to buy on the next dip.

Earnings season has past, now it's down to economics and outlook. Tomorrow there is some economic data that could provide catalyst including Retail Sales, Business Inventories, Michigan Sentiment and KC Fed Index of Labor Market Conditions. Next week there is a little more for the market to chew on including the FOMC minutes, housing data and leading indicators.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Healthcare Technology

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Cerner Corp. - CERN - close: 64.53 change: +0.72

Stop Loss: 62.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.7 million
Entry on November -- at $---.--
Listed on November 13, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CERN is part of the technology sector. The company sells healthcare information technology solutions. According to a company press release, "Cerner's health information technologies connect people, information and systems at more than 14,000 facilities worldwide. Recognized for innovation, Cerner solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company also offers an integrated clinical and financial system to help health care organizations manage revenue, as well as a wide range of services to support clients' clinical, financial and operational needs. Cerner's mission is to contribute to the improvement of health care delivery and the health of communities."

CERN's most recent earnings report was October 23rd. The results bottom line results were in-line with estimates and the revenue number was a miss. Yet these headlines don't tell the whole story. Analysts were expecting CERN to deliver a profit of $0.42 a share on revenues of $857 million.

The company met the EPS number of 42 cents but that's a +20% improvement from a year ago quarter. Revenues were only $840 million, which missed Wall Street's estimate but revenues still grew +15.4%. The company's last quarter saw a record $1.1 billion in bookings, the most ever for a third quarter.

CERN is very profitable. Their gross margins are above 80%. CERN's backlog soared +21% to $10.16 billion. It was a pretty good quarter considering they also announced on August 5th they were buying Siemens Health Services for $1.3 billion. This deal has already been approved by the U.S. FTC and should close in February 2015.

CERN's Q4 guidance expects revenues to grow +13% from a year ago to $880-915 million. Adjusted diluted earnings per share should come in the $0.46-0.47 range. New bookings are expected to hit the $1.15-1.25 billion zone. All of these show additional growth but they're largely in-line with analysts' estimates.

The stock has seen a significant bounce from its October low and the late October rally produced a breakout past its 2014 high. Now CERN has spent about two weeks digesting its gains and it's starting to breakout again. Today saw shares outperform the broader market and close above short-term resistance at $64.00.

More aggressive traders may want to buy calls now. We are suggesting a trigger to buy calls at $65.10.

Trigger @ $65.10

- Suggested Positions -

Buy the 2015 Jan $65 call (CERN150117c65) current ask $1.95

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

Daily Chart:

Intraday Chart:



In Play Updates and Reviews

Early Gains Fade

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's Thursday morning gains faded but traders bought the dip this afternoon. The major indices closed in positive territory with the exception of the small cap Russell 2000.

BCR hit our entry point.

We want to close our AYI trade tomorrow morning.


Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 112.82 change: +1.57

Stop Loss: 106.45
Target(s): To Be Determined
Current Option Gain/Loss: + 38.4%
Average Daily Volume = 55.5 million
Entry on November 12 at $110.25
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/13/14: Shares of AAPL continue to lead the market higher. The stock garnered a lot of positive analyst comments today. One of them was from analyst firm Bernstein who upgraded their price target on AAPL to $120 and said the company should see gross margin improvement. Dan Niles was on CNBC saying this is AAPL's best product cycle in four years. There was a separate report that orders have hit 40 million for Apple's smart watch that is expected to launch next year.

Today's gain pushed AAPL to a new market cap record, above $665 billion.

Earlier Comments: November 8, 2014:
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.

- Suggested Positions -

Long 2015 Jan $110 call (AAPL150117c110) entry $3.90

11/12/14 triggered @ 110.25
Option Format: symbol-year-month-day-call-strike


ASML Holding - ASML - close: 101.92 change: +0.09

Stop Loss: 98.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on November -- at $---.--
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
11/13/14: ASML is still flirting with a bullish breakout. Shares hit $102.73 intraday before retreating. Our suggested entry point is $102.75.

Earlier Comments: November 11, 2014:
We are surrounded by electronics. There are mini-computers in just about every appliance we use. Our lifestyles are built on the magic of semiconductors. ASML makes the equipment for companies to build semiconductor circuits.

The company describes itself as "ASML makes possible affordable microelectronics that improve the quality of life. ASML invents and develops complex technology for high-tech lithography machines for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. We are a multinational company with over 70 locations in 16 countries, headquartered in Veldhoven, the Netherlands. We employ more than 13,800 people ASML is traded on Euronext Amsterdam and NASDAQ under the symbol ASML."

Currently the company is working hard on the future of semiconductor fabrication with a new system for lithography. ASML is calling it EUV, which stands for "extreme ultraviolet", which is a reference to the light source used to etch the semiconductor wafers.

Here's an excerpt from ASML's website:

For the past decades, the semiconductor industry has been driven by what is called "Moore's Law". It goes back to Intel co-founder Gordon Moore, who observed in the 1960s that the amount of transistors that could be fit on a chip of a given size at an acceptable cost doubled roughly every year. (He later revised the period to two years.)

The entire semiconductor industry operates to this model, which requires chip makers to pack transistors more tightly with every new generation of chips, shrinking the size of transistors. Smaller transistors mean that semiconductor lithography machines must be able to print finer features with every new generation of chips as well.

Since lithography is an optical technology, one of the things that limits the resolution of the equipment is the wavelength of the light that is used. Shortening the wavelength of the light means higher resolution and smaller features. Lithography machines have gone from using ultraviolet light with a wavelength of 365 nanometers to "deep ultraviolet" light of 248 nanometers and 193 nanometers, improving the resolution at every step. EUV is the next step, with light of a wavelength of 13.5 nanometers. (An analogy is painting: we use a smaller brush to paint the finer details)"

Shares of ASML plunged back in July on a disappointing guidance. Yet a couple of weeks later the stock soared following an update on its EUV system. ASML said their latest test showed their EUV system "reached a throughput of 637 wafers per day, ahead of the target of 500 wafers it gave in its Q2 earnings report this month." The company's target is processing 1,500 wafers a day by 2016.

ASML's most recent earnings report was October 15th, and coincidentally the market's recent bottom. Wall Street was expecting a profit of € 0.57 per share with revenues of €1.41 billion. ASML missed with a profit of only €0.56 a share and revenues of only €1.32 billion. Management said the miss was due to a couple of shipments that were pushed back to the fourth quarter. They also reported strong gross margins of 43.7%, which was above their estimate of 42%.

ASML raised their Q4 guidance and expects revenues of €1.3 billion, which was above Wall Street's €1.19 billion estimate. Their backlog soared almost 40% to €2.4 billion, not counting their EUV systems. ASML's President and CEO Peter Wennink said, "We are on track to meet our full-year 2014 forecast of at least EUR 5.6 billion of net sales. In the third quarter, we delivered a good profit margin on net sales that fell just short of our previous guidance due to a couple of system shipments shifting into Q4, which does not impact our full-year guidance. Looking ahead, we see a solid start to 2015. In memory, we expect higher sales in H1 driven by the strong backlog. In logic, the ramp of 20/16/14 nanometer nodes is expected to continue, but the timing and volume depends on the business allocations by our customers' customers."

ASML is also shareholder friendly with a steady dividend they have increased every year since 2009. In the third quarter they purchased 2.3 million shares of their stock. In the last two years they have spent €776 million to buy back 11.8 million shares of company stock. They still have €224 million left to spend on their buyback program before 2014 ends.

Shares of ASML have been very strong during the market's rebound off its October lows. Shares are in the process of breaking out past resistance at its 2013-2014 highs. A breakout here would be new record highs. The point & figure chart is bullish and forecasting at $129 target.

There should be a steady news flow from ASML to support the stock. The company is presenting at several conferences between now and year end. Their investor day is November 24th.

Tonight I am suggesting a trigger to buy calls at $102.75.

Trigger @ $102.75

- Suggested Positions -

Buy the 2015 Jan $105 call (ASML150117c105) current ask $2.70

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


Acuity Brands, Inc. - AYI - close: 138.03 change: -0.68

Stop Loss: 136.65
Target(s): To Be Determined
Current Option Gain/Loss: -21.0%
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:
11/13/14: AYI spent today's session drifting sideways with a downward bias. The stock closed near its lows and looks poised for more weakness.

We are suggesting an immediate exit tomorrow morning to cut our losses.

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

11/13/14 prepare to exit tomorrow morning
11/12/14 new stop @ 136.65
11/01/14 new stop @ 135.25
10/28/14 triggered @ $136.25
Option Format: symbol-year-month-day-call-strike


CR Bard Inc. - BCR - close: 165.59 change: +0.38

Stop Loss: 161.60
Target(s): To Be Determined
Current Option Gain/Loss: - 1.1%
Average Daily Volume = 538 thousand
Entry on November 13 at $165.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/13/14: Our brand new bullish play on BCR is open. The plan was to buy calls at $165.60 but BCR saw a small gap higher intraday so our trade opened at $165.65. More importantly BCR has broken out past short-term resistance near the $165.00 level.

Earlier Comments: November 12, 2014:
BCR is in the healthcare sector. The company makes medical supplies. According to the company website, "C. R. Bard, Inc. is a leading multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the product fields of vascular, urology, oncology, and surgical specialty. BARD markets its products and services worldwide to hospitals, individual health care professionals, extended care facilities, and alternate site facilities."

The company has been on a roll with its earnings reports. BCR has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. The last couple of quarters have seen some pretty big beats and management has raised guidance.

BCR's most recent earnings report was October 22nd. Wall Street expected a profit of $1.87 a share on revenues of $818.8 million. BCR said earnings rose +28% from a year ago to $2.15 a share. Revenues were up +9% to $830 million. Inside the U.S. net sales were up +13%. Management raised their Q4 EPS guidance above analysts' estimates.

The stock has been struggling to breakout past major resistance near the $150-155 range but the October earnings results launched shares of BCR higher. The last couple of weeks have seen BCR consolidating sideways under resistance near the $165.00 level. We think it's about to break out. The point & figure chart is bullish and forecasting at long-term target of $194.00.

Tonight we are suggesting a trigger to buy calls at $165.60

- Suggested Positions -

Long 2015 Jan $170 call (BCR150117c170) entry $2.63

11/13/14 triggered @ 165.65, suggested entry was $165.60
Option Format: symbol-year-month-day-call-strike


Costco Wholesale - COST - close: 138.71 change: +1.81

Stop Loss: 134.75
Target(s): To Be Determined
Current Option Gain/Loss: +211.6%
Average Daily Volume = 1.9 million
Entry on October 30 at $132.25
Listed on October 29, 2014
Time Frame: Exit prior to earnings in December
New Positions: see below

Comments:
11/13/14: Wal-mart (WMT) reported better than expected earnings this morning and the stock soared. This helped lift shares of COST, which broke out past resistance at the top of its short-term trading range near $138.00.

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: 94.99 change: -0.34

Stop Loss: 92.25
Target(s): To Be Determined
Current Option Gain/Loss: +37.5%
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:
11/13/14: DIN tagged another new high this morning but gains faded. Shares settled near the $95.00 level.

The stock does look a little short-term overbought here so we shouldn't be surprised if DIN sees any profit taking. The good news is that the $100 mark should act like a magnet for the price.

Tonight we will move the stop loss to $92.25. The 10-dma should offer some support near $92.60. 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

11/13/14 new stop @ 92.25
11/12/14 new stop @ 91.45
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: 171.57 change: -0.23

Stop Loss: 165.50
Target(s): To Be Determined
Current Option Gain/Loss: +145.2%
Average Daily Volume = 1.5 million
Entry on October 17 at $155.50
Listed on October 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/13/14: Another big drop in crude oil today should be bullish for the transportation stocks. Yet they failed to move on oil's slide this afternoon. The weakness today was likely due to UPS who issued downside guidance in their 2015 outlook. FDX dipped toward short-term support near $170 before paring its losses.

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: 153.91 change: +1.18

Stop Loss: (removed)
Target(s): To Be Determined
Current Option Gain/Loss: +37.7%
Current Option/Gain loss if you sold the NOV $160 call: +626.4%
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:
11/13/14: GMCR spent the session consolidating sideways. Traders bought the late morning dip and GMCR closed up on the session (+0.7%).

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

11/12/14 removed the stop loss
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: 162.69 change: -0.20

Stop Loss: 156.85
Target(s): To Be Determined
Current Option Gain/Loss: +432.3%
Current Option/Gain loss if you sold the NOV $159 call: + 900.0%
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:
11/13/14: The IYT briefly tagged another record high before reversing lower. Shares dipped toward its Tuesday and Wednesday lows near $161.65 before paring its losses.

The big drop in crude oil today should be bullish for the transportation stocks.

I am not suggesting new positions at this time. Investors may want to take profits early. We have less than two weeks left on our November options.

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: 66.97 change: -0.71

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: -38.5%
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:
11/13/14: Caution! The action in NOW is starting to worry us. The stock is down three days in a row. Today is a close beneath its simple 10-dma.

Traders will want to seriously consider an immediate exit. I am 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

11/13/14 Caution! NOW looks vulnerable here. Readers may want to exit early now!
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: 95.24 change: +0.04

Stop Loss: 89.45
Target(s): To Be Determined
Current Option Gain/Loss: +22.0%
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:
11/13/14: Thursday was a quiet session for PSMT. The stock bounced near $94.00 midday and rebounded back to virtually unchanged.

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


PowerShares QQQ (ETF) - QQQ - close: 102.90 change: +0.44

Stop Loss: 99.95
Target(s): To Be Determined
Current Option Gain/Loss: +10.7%
Average Daily Volume = 38.1 million
Entry on November 12 at $102.35
Listed on November 10, 2014
Time Frame: exit prior to December option expiration
New Positions: see below

Comments:
11/13/14: The tech-heavy NASDAQ continued to push higher and the NASDAQ 100 outperformed all the major indices. The QQQ closed up +0.4%.

Earlier Comments: November 10, 2014:
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.

- Suggested Positions -

Long DEC $102.63 CALL (QQQ141220C102.63) entry $1.49

11/12/14 triggered @ 102.35
Option Format: symbol-year-month-day-call-strike


The Sherwin-Williams Co. - SHW - close: 239.63 change: +1.53

Stop Loss: 229.75
Target(s): To Be Determined
Current Option Gain/Loss: +81.0%
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:
11/13/14: Alert! SHW is testing potential resistance at $240. Investors will want to seriously consider raising their stop loss on SHW. More conservative traders may want to just take some money off the table now.

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

11/13/14 SHW is hitting potential resistance at $240. Traders may want to take profits now.
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: 51.83 change: +0.01

Stop Loss: 50.85
Target(s): To Be Determined
Current Option Gain/Loss: +145.4%
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:
11/13/14: The SMH is still hanging in there. The ETF displayed some relative strength this morning but gains faded. This may not be a short-term top. Instead the SMH could be building a sideways consolidation pattern to work off its big gains from the October low.

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

11/12/14 new stop @ 50.85, readers may want to just take profits now!
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: 113.55 change: -0.88

Stop Loss: 111.75
Target(s): To Be Determined
Current Option Gain/Loss: + 6.6%
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:
11/13/14: Resistance at $115.00 continues to hamper the rally in URI. The stock pulled back toward short-term support near $112.50.

I am not suggesting new positions at this time.

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

11/12/14 new stop @ 111.75
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: 56.39 change: -0.37

Stop Loss: 58.85
Target(s): To Be Determined
Current Option Gain/Loss: -30.7%
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:
11/13/14: The slow decline in FMC continues with a -0.65% drop today. All of the momentum indicators are suggesting FMC should be poised to trade lower

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: 162.79 change: +0.87

Stop Loss: 165.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.0%
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:
11/13/14: Hmm... yesterday shares of IBM bounced twice near $161.75. Today the stock found support near $161.80. These are very short-term observations but it's making more cautious on this IBM trade.

No 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