Option Investor
Newsletter

Daily Newsletter, Sunday, 6/22/2014

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Stocks Ignore Iraq Risk

by James Brown

Click here to email James Brown

Geopolitical risks from Iraq and Russia failed to slow the stock market's march higher last week. Generally bullish economic data and a friendly Federal Reserve helped boost the market's advance. The S&P 500 large cap index closed at a record high while the NASDAQ composite closed at 14-year highs. Geopolitical issues helped generate a fear trade in precious metals with gold up +3.3% for the week to close at $1,316 an ounce. Silver surged +6.6% to close near $21 an ounce. Crude oil remains high at $106.81 a barrel. Yet there was no fear in the equity markets with the volatility index (VIX) falling to a new seven-year low, closing under 11.

The week started with Russia and Ukraine failing to agree on a price for natural gas and Russia's OAO Gazprom, the country's largest energy producer, cut off natural gas supplies to Ukraine. Meanwhile in Iraq the fighting continues with ISIS insurgents laying siege to the country's biggest oil refinery, north of Baghdad. The equity markets shrugged off these events and stocks continued to drift higher ahead of the FOMC meeting.

The two-day FOMC meeting concluded on Wednesday. As expected the Fed tapered their QE program by another $10 billion, reducing their monthly asset purchases to $35 billion. The Federal Reserve also released their latest economic forecasts and cut their 2014 GDP estimate from 2.9% to 2.3% growth. Fed Chairman Janet Yellen soothed investors worries saying that even after the Fed ends its QE program they would likely keep interest rates extremely low for an extended period of time.

The market surged higher following the Fed's announcement, likely due to some short covering. Hedge funds are not having a good year and many are short the S&P 500 and the small cap Russell 2000, which has not been a very good trade. Meanwhile the AAII bullish sentiment weekly survey plunged with its biggest drop since January. Normally new market highs tend to fuel bullish sentiment so this was a surprising drop.

Economic Data

Overall the economic data last week was encouraging. The New York Empire State manufacturing index hit its highest level since 2010 with an improvement from 19.0 to 19.3. The Philadelphia Fed survey improved from 15.4 in May to 17.8 in June. Industrial production improved +0.6% in May following a -0.3% drop in April. The Consumer Price Index (CPI) rose +0.4% in May following a +0.3% rise in April.

Data out of the residential real estate industry was mixed. Homebuilder sentiment improved from 45 to 49. Yet housing starts plunged -6.5% in May to an annual pace of 1.001 million. The drop was fueled by a -5.9% decline in housing starts for single-family construction.

Overseas Data

Data was mixed overseas. Great Britain said their retail sales fell -0.5% last month, which was worse than expected. Germany reported their PPI wholesale inflation gauge dropped -0.2%. Spain said their industrial new orders climbed +6.9%, which was ahead of expectations. Italy also saw a +3.8% gain in their industrial new orders last month. Unfortunately Italy is still struggling with a recession.

Japan reported their exports dropped -2.7% year over year, which was worse than the -1.3% expected. China said their housing prices rose +5.6% year over year, which is a decline from the prior reading of +6.7%. The Moody's rating agency said the slowdown in China's property market could negatively impact China's GDP. An official from the People's Bank of China countered saying a pullback in their housing market would be reasonable.





Major Indices:

After a three-day pullback in mid June the S&P 500 is now up six days in a row. Last week's rally added +1.38%. Year to date the index is up +6.2%. The breakout past potential resistance at 1950 should set up for a run towards round-number resistance at the 2,000 mark.

The 1980 level could be short-term resistance but we are so close to the 2,000 level it will act like a magnet. Getting past the 2,000 area could be a challenge. If something were to spark some profit taking we can look for support at 1940 and 1920.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite added +1.3% last week, pushing its year to date gain to +4.5%. You can see on the daily chart how it bounced from short-term support along its simple 10-dma. The index ended the week at a new 14-year closing high but remains just under resistance in the 4,371 area.

Looking ahead, if this rally continues, the 4400 and 4500 levels will probably be round-number resistance. If stocks see a pullback the NASDAQ should find support near 4300 and 4250.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index ($RUT) also found support at its rising 10-dma. The bounce pushed it through resistance at 1180. Last week's +2.2% gain lifted the index into positive territory for the year (+2.1%).

The 1200 level and the 2014 highs near 1210 are overhead resistance. Investors can watch for short-term support at 1180 and 1160.

chart of the Russell 2000 index



Economic Data & Event Calendar

It is another relatively quiet week for economic data. The Chinese HSBC PMI manufacturing number on Sunday will be watched. It has been stuck under the 50.0 mark for months. In the U.S. we'll see more data on residential home sales. Plus we'll hear the latest consumer confidence and consumer sentiment survey numbers. Midweek will be the third estimate on U.S. Q1 GDP growth. The first estimate was +0.1%. That was revised lower to -1.0%. Now Moody's is estimating a -1.9% as the third reading.

Economic and Event Calendar

- Monday, June 23 -
Existing home sales for May
Eurozone PMI manufacturing data

- Tuesday, June 24 -
Case-Shiller 20-city home price index
Consumer Confidence survey
New Home Sales data

- Wednesday, June 25 -
Durable Goods Orders
Q1 GDP growth (third estimate)

- Thursday, June 26 -
Weekly Initial Jobless Claims
Personal Income & Spending

- Friday, June 27 -
University of Michigan Consumer Sentiment Survey

Additional Events to be aware of:

July 3rd, U.S. markets close early
July 4th, U.S. markets closed for holiday

Looking Ahead:

Iraq

Looking ahead we are still more than two weeks away from Q2 earnings season. The market might focus on geopolitical headlines and that could be bad news. Iraq remains a quagmire and the government is requesting aid in the form of airstrikes against ISIS insurgents. President Obama said he will consider airstrikes if necessary and announced we are sending 300 "military advisors" (a.k.a. special forces) instead. There has been a lot of speculation about what these 300 men are supposed to accomplish. Some have suggested they are going to help pack up the $1 billion U.S. embassy (they should call it a fortress) before the U.S. pulls out its remaining personnel. If the U.S. does leave completely it's a bad sign for the future of Iraq.

The situation is Iraq is getting worse and it's starting to look like Iraq will not survive from this conflict in its current form. We could see three new "countries" emerge with one country in the north controlled by the Kurds, one country in the middle controlled by Sunnis, and one country in the southeast controlled by Shias.

Mike Shedlock noted some "Absurd and Conflicting Realities" on his blog on Friday. Here is his list:

  • The US wants to overthrow Syrian president Bashar al-Assad.
  • US ally, Saudi Arabia, also wants to overthrow the Syrian president.
  • The rebels fighting Assad are primarily Al Qaeda and Isis. Thus the US is in alignment with Al Qaeda and Isis.
  • The US and Iran want Isis out of Iraq.
  • The US refuses help from Iran out of fear of making Iran and Iraq allies.
  • Iran supports Syrian president Bashar al-Assad.
  • Saudi Arabia is ruled by Sunnis.
  • Isis consists primarily of extreme Sunnis.
  • Iran is ruled by Shias.
  • The US overthrew Saddam Hussein, a secular ruler whose party was dominated by Sunnis.
  • The US helped install Nouri al-Maliki, who is a Shia, even though the US is at severe odds with Iran.
  • Maliki is politically aligned with Iran.
  • Under Maliki's regime, extreme Sunnis got fed up with political oppression, giving rise to Isis.
  • Maliki accuses Saudi Arabia of sponsoring Isis and genocide.

Mike has a lot more information. You can check out his post here.

If you're never heard of the ISIS rebels in Iraq then here's a detailed list to get you up to date: 16 things you need to know about the ISIS

If you are in a rush and just want the highlights then here is a quick, four-minute video explaining the current conflict in Iraq. 4-minute Video

Ukraine-Russian Conflict

Ukraine could return to the headlines as a potential market moving event. The new Ukraine president has announced plans for a 10 kilometer "no man's land" along its eastern border with Russia while also declaring a unilateral cease-fire as they try to negotiate with the pro-Russian rebels. The Ukraine rebels suffered heavy losses last week so they might be willing to talk. Unfortunately Russian President Putin is stirring up more trouble by sending tens of thousands of troops back to the Ukraine border. This follows last Monday's deadline for Russian energy company Gazprom to cut off natural gas supplies to Ukraine.

Putin is also sticking his nose into the Iraq crisis. Iraqi leader Nouri al-Maliki has been asking for help from Iran to fight the Sunni rebels. The U.S. does not want Iran to have any more influence in Iraq. The U.S. has essentially said they want Maliki to step down since he has done such a terrible job governing his country. Maliki has refused to step down and now Putin has offered his support to help Maliki fight the insurgents.

As Russia sends more troops toward the Ukraine border the U.S., Canada, France, and Germany have warned Russia they will announce tougher sanctions if Putin doesn't deescalate the situation in Ukraine.

Argentina

We could have another country making headlines this week. That would be Argentina. Back in 2001 the country defaulted on almost $100 billion worth of government bonds. They managed to negotiate with most of their bondholders with a debt restructuring in 2005 and 2010. These bondholders took a 70 percent haircut on their investment. Yet a few bondholders have never agreed to anything less than full payment. These holdouts, or as Argentina calls them, bond "vultures", are led by U.S. hedge funds.

This past week the U.S. Supreme Court rejected an appeal from Argentina over a recent court decision that says the country has to pay both the bondholders who agreed to the restructured debt and the bondholders who did not agree (the holdouts). Argentina admitted on Wednesday that they can't afford to pay both and would miss its payment due on June 30th. Standard & Poor's followed this news by downgrading Argentina's credit rating two notices to triple C- on worries the country will default. Argentina will have a 30 day grace period after the June 30th deadline before technically defaulting.

The Argentine government has threatened to move the entire issue to Argentine law, which would allow them to circumvent the U.S. court orders. Yet doing so would severely damage their credit standing. The country has been locked out of the global lending markets since 2001 and they would love to start selling bonds on the world market again.

In other news a professor at Harvard business school has issued a warning about the current stock market rally. Matthew Rhodes-Kropf warns that the surge in merger and acquisition activity is a sign the market rally is peaking. He claims the last five "great merger waves" in the market all preceded a peak and a major downturn in equities. The current pace of M&A activity will hit $3.51 trillion in 2014. That's the highest since 2007, right before the 2008 bear market.

We are about three weeks away from Q2 earnings season. That tends to be an inflection point for the market each summer. It could be a top for the market or better than expected earnings news and guidance could launch stocks into the next leg of a summer rally. Currently analysts are expecting +7.1% earnings growth in the second quarter. That is up significantly from Q1's +3.5% earnings growth. Let's hope Wall Street isn't too optimistic here and sets the market up for a sell-off on disappointing numbers.

On a short-term basis we only have six more trading days left in the second quarter of 2014. Normally you might think stocks would see some end of quarter window dressing, especially with the market hitting new highs. However, the week after June option expiration has been down 21 out of the last 24 years. That's a pretty strong record. I would be cautious on launching new bullish positions this week.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The stock market continues to rally and volatility fades in spite of rising geopolitical risks that could drive oil prices higher.

Now would be a good time to double check your stop loss placement and maybe take some money off the table.

I have updated the stop losses on AAL, CAT, HAL, HES, ITW, JOY, and QCOM.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Energy Graduation

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new play, I am updating my radar screen.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

RIG, URI, PPC, AA, CSX ,MYL, LM, WCN, USB, XYL, BITA, CRM, SANM, THC, MRO, PDS, PXD, CLR, CXO, XEC, OXY, NBL, EPD, SAVE, WLP, SIAL, FLR, MNST, FLS, NOC, LMT, WLP, CE, FSLR, SPW,



- New Trades -


Exxon Mobil Corp. - XOM - close: 103.83

Comments:
06/22/14: XOM is a watch list candidate that met our entry point requirements with Friday's rally. The plan was to wait for shares to close above $103.75 and then buy calls the next day. Shares closed at $103.83 on Friday. That means our entry point will be Monday morning.

I do not see any changes from last week's new watch list candidate description below.

Earlier Comments:
XOM is the largest publicly traded oil company on the planet. They're actually one of the largest companies on the planet with more than 75,000 employees and a market cap of more than $440 billion.

This company is so big they've got their hands in just about every region of the world, anywhere from U.S. shale region, Canadian oil sands, West Africa, Kazakstan, everywhere. Of course being every does pose a risk to geopolitical tensions. XOM has some significant deals with Russia. If the situation between Russia and the West were to worsen it could spell trouble for XOM's investments in Russia. The same holds true in Iraq. Right now violence in Iraq is driving oil prices higher but it poses a risk for XOM's investments in the country. Currently most of the fighting is in the northern half of Iraq and most of the oil fields and infrastructure is in the south. There is no guarantee the Iraq fighting couldn't move south.

Technically shares look great. The stock hit all-time highs in early May and spent the rest of the month consolidating gains. Now shares are bouncing from technical support at its rising 50-dma. XOM looks poised to breakout higher soon. Not only does XOM have a strong stock buyback program but they're currently yielding 2.7%. That's more than a U.S. ten-year bond's 2.6% yield.

Tonight I am suggesting we wait for XOM to close above $103.75 and then buy calls the next morning with a stop loss at $99.25. Our long-term target is the $125-130 zone. The point & figure chart is bullish and forecasting at $133 target.

Breakout trigger: Wait for a close above $103.75
then buy calls the next day with a stop at $99.25.

BUY the 2015 Jan $105 call (XOM150117C105) current ask $3.45

- or -

BUY the 2016 Jan $110 call (XOM160115c110) current ask $4.35

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

Chart of XOM:

Originally listed on the Watch List: 06/15/14



Play Updates

Raising Stop Losses Again

by James Brown

Click here to email James Brown

Editor's Note:

Tonight I have updated stop losses on AAL, CAT, HAL, HES, ITW, JOY, and QCOM.


Closed Plays



None. No closed plays this week.




Play Updates


American Airlines Group, Inc. - AAL - $44.55

Comments:
06/22/14: It was a big week for AAL with shares surging about 10% higher. The stock has erased its mid-June pullback and closed at multi-year highs again. You could argue AAL is now short-term overbought.

We are moving the stop loss to $37.40.

Earlier Comments: May 18, 2014:
AAL is in the services sector. AAL is the merger between US Airways and American Airlines (AMR). The new company, American Airlines Group, is the largest carrier with nearly 6,700 flights a day, over 330 destinations, to more than 50 countries, with over 100,000 employees worldwide.

Wall Street was worried about the merger between these two big airlines as the U.S. Justice Department initially tried to block the deal. Regulators feared that new company would be too big, hold too much power, and reduce competitiveness and thus impact pricing for consumers. Fortunately, a U.S. district judge just recently approved a settlement worked out between AAL and the Justice Department where the new company agreed to sell certain assets to competitors. Getting the legal hurdle for its merger out of the way it's one more worry that investors can forget.

Summer is almost here and should mean good news for airlines. In addition to more vacation travelers the industry won't have to worry about so many cancellations. The 2014 winter season was brutal. In January and February the Bureau of Transportation Statistics said 6.05% of all domestic flights were cancelled. That number dropped to 4.6% of all flights cancelled in March. Put them all together and you have the worst winter cancellation rate in 20 years.

The Wall Street crowd is bullish on shares of AAL. Goldman Sachs recently put a $46 price target on the stock. In the latest 13F filings it was revealed that Paulson & Co had raised their stake in AAL from 8.5 million shares to 12.2 million. Meanwhile David Tepper is the hot fund manager everyone loves and his Appaloosa Management has AAL as its second largest holding. In the last quarter Appaloosa increased their AAL stake by 22.5%.

- Suggested Positions -
Jun 03, 2014 - entry price on AAL @ 41.13, option @ 3.00*
symbol: AAL150117C45 2015 JAN $45 call - current bid/ask $4.00/4.70

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $8.00/8.40

06/22/14 new stop @ 37.40
06/03/14 trade begins. AAL opens at $41.13
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/02/14 AAL closed at $41.22, above our trigger of $40.25
Option Format: symbol-year-month-day-call-strike

Current Target: AAL 50.00
Current Stop loss: 36.40
Play Entered on: 06/03/14
Originally listed on the Watch List: 05/18/14


American Intl. Group - AIG - close: 55.58

Comments:
06/22/14: AIG slowly drifted higher and managed to close the week at a new multi-year high.

More conservative investors might want to move their stop loss closer to the $52.00 level.

Our long-term target is the $65-70 zone. Currently the point & figure chart is bullish with a $64 target.

- Suggested Positions -
May 14, 2014 - entry price on AIG @ 53.94, option @ 1.50*
symbol: AIG150117C60 2015 JAN $60 call - current bid/ask $1.78/1.83

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $4.60/4.85

05/14/14 trade opens. AIG opens at $53.94
*option entry price is an estimate since the option did not trade at the time our play was opened.
05/13/14 AIG closed at $53.96, above our suggested trigger above $53.75
Please note I'm listing the standardized option symbol:
symbol-year-month-day-call-strike

Current Target: AIG 65.00
Current Stop loss: 49.75
Play Entered on: 05/14/14
Originally listed on the Watch List: 05/11/14


Caterpillar Inc. - CAT - close: 109.38

Comments:
06/22/14: CAT spent most of the week bouncing along support near $106.00. The real surprise was CAT's +1.9% rally on Friday after announcing a sales decline the night before.

Sometimes the stock market isn't very logical. CAT reported that its trailing three-month sales ending in May were down -12% worldwide. This drop was fueled by a -30% drop in sales in Asia; a -22% drop in Africa, Europe, and the Middle East (EAMA); and a -23% drop in Latin America. The only good news was a +14% jump in North America. Drilling down into the numbers CAT said its resource industries business was down -69% in Asia-Pacific and -47% in EAMA, and -62% in Latin America.

These numbers are horrific. Why would the stock rally unless the market expected them to be even worse! Whatever the reason I do not trust this rally. More conservative investors may want to exit immediately. I am raising our stop loss to $105.70, just below the mid-June low.

- Suggested Positions -
APR 03, 2014 - entry price on CAT @ 101.92, option @ 3.50*
symbol: CAT1517a110 2015 JAN $110 call - current bid/ask $5.35/5.40

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $8.75/9.65

06/22/14 new stop @ 105.70, more conservative investors may want to just exit immediately following CAT's terrible sales numbers.
04/27/14 new stop @ 98.45
04/03/14 trade opens. CAT @ 101.92
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/02/14 CAT meets our entry trigger with a close above $101.00

Current Target: CAT @ 115.00-125.00 zone
Current Stop loss: 105.70
Play Entered on: 04/03/14
Originally listed on the Watch List: 03/30/14


The Walt Disney Co. - DIS - close: 82.82

Comments:
06/22/14: DIS delivered a disappointing performance last week. Shares struggled to make gains and then reversed at resistance near $84.00. Friday's move is technically a bearish engulfing candlestick reversal pattern.

I strongly suspect we will see DIS dip into the $80-82 zone again. More conservative investors may want to just take profits now.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $10.05/10.25

06/15/14 new stop @ 79.00
05/26/14 new stop @ 77.75
05/11/14 new stop @ 75.75, adjust exit target from $89 to $97.50
04/27/14 DIS looks poised to hit new relative lows and our stop loss
04/13/14 investors may want to take profits now. DIS could be headed for $70.00
03/09/14 new stop loss @ 74.75, traders may want to take some money off the table here. DIS is overbought and due for a dip.
03/02/14 new stop loss @ 71.75
02/16/14 more conservative traders may want to take profits now.
We are adjusting our long-term target from $84 to $89
01/05/14 new stop loss @ 69.40
12/29/13 new stop loss @ 67.40
12/08/13 new stop loss @ 65.75
11/24/13 new stop loss @ 64.75

Current Target: DIS @ 97.50
Current Stop loss: 79.00
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


The Dow Chemical Co. - DOW - close: $52.47

Comments:
06/22/14: It was a quiet week for DOW. The stock consolidated sideways and essentially closed unchanged for the week. I am not suggesting new positions at this time. If the market dips we could see DOW retest support in the $50-51 zone.

Earlier Comments:
DOW is in the basic materials sector. The company supplies chemical products as raw materials. The stock is currently in a long-term bullish channel. Investors have lifted shares to multi-year highs as market participants search for yield. DOW currently offers a 3.0% annual yield. Plus, they have an aggressive stock buyback program and plan to buy back $4.5 billion in stock this year.

DOW's business is doing well too. They have faced some rising prices for feedstock and energy costs. Yet they have managed to grow margins in the rest of their business. Management believes this margin growth will continue in 2014. Their Q1 2014 earnings were up +75% from a year ago and marked their sixth quarter in a row of year-over-year earnings growth.

- Suggested Positions -
MAY 29, 2014 - entry price on DOW @ 51.78, option @ 1.95
symbol: DOW150117C55 2015 JAN $55 call - current bid/ask $2.02/2.08

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $4.20/4.40

05/29/14 trade begins. DOW opens at $51.78
*option entry price is an estimate since the option did not trade at the time our play was opened.
05/28/14 DOW closed at $51.77, above our trigger of $51.25
Option Format: symbol-year-month-day-call-strike

Current Target: DOW @ 60.00
Current Stop loss: 47.75
Play Entered on: 05/29/14
Originally listed on the Watch List: 05/26/14


DaVita Healthcare Partners - DVA - close: 71.83

Comments:
06/22/14: Last weekend I suggested investors buy calls on a dip near $70.00. The stock was kind enough to dip to $70 and rebound. Given the intraday bounce on Friday's session I would still consider new positions at current levels.

Earlier Comments: June 1, 2014:
DVA is in the healthcare sector. The company provides kidney dialysis services and related lab services. The most recent earnings report was lackluster but DVA did report revenue growth above Wall Street estimates. Management has been buying up smaller domestic rivals and expanding overseas into countries like China, Columbia, Germany, India, Malaysia, Portugal, Saudi Arabia, and Taiwan. In the U.S. DVA has about 35% of the outpatient dialysis market.

Bears on this stock would argue the company is at risk for pricing pressures from Medicare. About 90% of its total U.S. dialysis patients are on some form of government-assisted program. Nearly 80% of are part of Medicare. The latest rules from Medicare said there would be no price changes in 2014 and 2015 but there could be reimbursement reductions in 2016 and 2017.

This pressure from Medicare has not stopped Warren Buffet's Berkshire Hathaway from raising its stake in DVA. Berkshire started investing in DVA back in Q4 2011. They have been slowly building a position and this past quarter (Q1 2014) Berkshire added another 1.1 million shares. Their total position is now 37.6 million shares worth about $2.6 billion. Berkshire tends to be a long-term investors, longer than our timeframe but it is still a vote of confidence for DVA.

- Suggested Positions -
JUN 04, 2014 - entry price on DVA @ 71.44, option @ 2.65*
symbol: DVA150117C75 2015 JAN $75 call - current bid/ask $2.35/2.75

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.90/4.80

06/04/14 trade begins. DVA opens at $71.44
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/03/14 DVA closed at $71.47, above our trigger of $71.25
Option Format: symbol-year-month-day-call-strike

Current Target: DVA @ 85.00
Current Stop loss: 66.40
Play Entered on: 06/04/14
Originally listed on the Watch List: 06/01/14


Expedia Inc. - EXPE - close: 78.32

Comments:
06/22/14: Last week saw EXPE rally from $74 to $80 in just three days thanks to an upgrade. The stock hit some profit taking on Thursday. I would not chase it here at current levels. If the market dips we could see EXPE retest what should be short-term support in the $75-76 area.

Earlier Comments: June 1, 2014:
EXPE is in the services sector. The company is in the super competitive online travel industry with rivals like Priceline.com (PCLN) and Orbitz Worldwide (OWW).

EXPE is developing a trend of beating analysts' estimates with strong profit and revenue growth. This past quarter EXPE reported revenues of $1.2 billion. That is the fifth quarter in a row that EXPE has delivered double-digit year over year revenue growth. The company has also seen surging growth in its bookings. Q3 2014 saw 15% bookings growth. Q4 2014 was +21%. Q1 2014 was +29%.

Analyst firm Cantor Fitzgerald recently offered bullish comments on EXPE and raised their price target. The company is having success with its Expedia Traveler Preference program. In Q3 2013 there were about 35,000 hotels in the program. By Q1 2014 that has grown to 51,000 hotels. As more hotels join it will boost EXPE's room nights metric and sales.

Billionaire hedge fund manager David Tepper's Appaloosa Management is also bullish on EXPE. The latest 13F filing showed that Appaloosa had initiated a new stake in EXPE in the first quarter of 2014.

Bears could argue that EXPE, PCLN and OWW could face competition from companies like Google and Facebook as they seek to boost their ad revenues to their large audiences. Reuters has reported that Google is experimenting with some programs with a few hotels. This threat is probably a few years away and could eventually make EXPE as potential takeover target.

Technically EXPE experienced a correction from $81 to $67 earlier this year. The stock found support in the $67 area and just recently EXPE has broken out past some key resistance. Currently shares hover just below short-term resistance at $74.00.

Our long-term target is the $90-100 zone.

- Suggested Positions -
JUN 09, 2014 - entry price on EXPE @ 75.30, option @ 8.20*
symbol:EXPE160115C90 2016 JAN $90 call - current bid/ask $9.10/9.60

06/09/14 trade begins. EXPE opens at $75.30
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/06/14 EXPE closes above our trigger, above $75.00
Option Format: symbol-year-month-day-call-strike

Current Target: EXPE @ 90.00-100.00 zone
Current Stop loss: 69.25
Play Entered on: 06/09/14

Originally listed on the Watch List: 06/01/14


F5 Networks - FFIV - close: 108.81

Comments:
06/22/14: Uh-oh! FFIV underperformed the market with a reversal at a trend line of lower highs dating back to 2012 (see chart). This relative weakness is a warning signal. More conservative investors might want to exit early now or raise their stop closer to $108.00. I am not suggesting new positions at this time.

Earlier Comments: June 8th, 2014:
FFIV is in the technology sector. The company sells networking equipment and software. The company is seeing a strong turnaround after introducing a new good/better/best pricing model for its products last year. Customers have responded well to the strategy. FFIV said products in this pricing model saw a +83% increase in sales quarter over quarter.

FFIV is also seeing strong sales demand from its telecom customers. The company also announced that it is seeing double-digit growth in America, Europe, Middle East, Africa and Japan. FFIV's most recent earnings report beat Wall Street's estimates on both the top and bottom line. Management then raised their guidance (for FFIV's third quarter).

Our long-term target is the $135 region. Currently the point & figure chart is bullish and forecasting at $138 target.

- Suggested Positions -
JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 8.20*
symbol:FFIV150117C120 2015 JAN $120 call - current bid/ask $5.95/6.25

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $10.20/11.10

06/22/14 Caution! FFIV has reversed at a trend line of resistance.
06/11/14 trade begins. FFIV opens at $111.96
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/10/14 FFIV closed @ 112.59, above our trigger of $112.50
Option Format: symbol-year-month-day-call-strike

Chart of FFIV:

Current Target: FFIV @ 135.00
Current Stop loss: 104.75
Play Entered on: 06/11/14
Originally listed on the Watch List: 06/08/14


Halliburton Co. - HAL - close: 70.24

Comments:
06/22/14: The rally in energy stocks continued last week. HAL got a boost after one analyst raised their price target to $75.00. Shares have rallied to potential round-number resistance at $70.00. I would not chase it here.

Tonight we are moving the stop loss to $63.90.

Earlier Comments:
HAL is in the basic materials sector. The company is part of the oil equipment and services industry. They are considered one of "the big three" in the oilfield services industry, competing with Schlumberger (SLB) and Baker Hughes (BHI). Believe it or not but HAL was the first company to "frack" a well in the U.S. over sixty years ago.

The stock is in a long-term up trend. HAL did see a little correction in November-December 2013 but has since been stair-stepping higher. The company has been consistently buying back stock. They repurchased nine million shares in the first quarter and still have $1.2 billion left on their current buyback program.

Earnings have been strong. Their Q4 results beat Wall Street's top and bottom estimates. HAL managed to do it again with their Q1 results and beat analysts' earnings and revenue estimates in spite of a slowdown in Brazil and Mexico drilling activity.

Some would consider HAL cheap with a forward-looking P/E of 12.4 based on its 2015 earnings estimates of $5.07 a share. Many Wall Street firms have price targets in the $80 range. Speaking of Wall Street, the current golden boy of Wall Street David Tepper and his Appaloosa Management fund raised their stake in HAL in the first quarter of 2014. This stock was their sixth largest holding.

- Suggested Positions -
JUN 04, 2014 - entry price on HAL @ 65.46, option @ 2.90*
symbol: HAL150117C70 2015 JAN $70 call - current bid/ask $4.95/5.10

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $8.70/9.05

06/22/14 new stop @ 63.90
06/04/14 trade begins. HAL opens at $65.46
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/03/14 HAL closed at $65.57, above our trigger of $65.50
Option Format: symbol-year-month-day-call-strike

Current Target: HAL @ 80-85 zone
Current Stop loss: 63.90
Play Entered on: 06/04/14
Originally listed on the Watch List: 05/26/14


Hess Corp. - HES - close: 97.96

Comments:
06/22/14: HES is another winner in the energy industry. Traders bought the dip near its rising 10-dma and HES pushed to new multi-year highs. The stock is now up five weeks in a row.

I am warning you now that the $100.00 level could be round-number resistance. I do expect HES to trade close to $100 and then pullback. Tonight we are adjusting our stop loss to $89.65. More conservative investors may want to use a higher stop loss and/or take profits as HES nears the $99-100 area.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - current bid/ask $ 7.15/ 7.55

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $ 9.30/9.85

06/22/14 new stop loss @ 89.65
Investors may want to take profits as HES near the $100 mark
06/08/14 new stop loss @ 85.75
05/22/14 stock spikes as HES announces $2.6 billion deal to sell its gas station business to Marathon.
05/04/14 new stop @ 83.45
04/30/14 HES delivered better than expected earnings and revenues
04/22 trade opened. HES opens at $87.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/21 HES closes at $87.78, above our entry trigger of $87.50

Current Target: HES @ 109.00
Current Stop loss: 89.65
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/06/14


Honeywell Intl. - HON - close: 94.82

Comments:
06/22/14: HON continued to find support near $93.40-93.50 last week and managed to rebound above its simple 10-dma on Friday.

The stock has been consolidating sideways for about four months. Shares look ready to begin their next leg higher. I am adjusting our exit target. We have been planning to exit at $99.00. Tonight I am raising that target to $109.00. Readers may want to go ahead and exit now or exit near $99.00 instead since the $100.00 could be round-number resistance.

- Suggested Positions -
(closed the 2014 calls on May 20th at the open)
MAY 07, 2013 - entry price on HON @ 76.20, option @ 2.68
symbol: HON1418a80 2014 JAN $80 call - exit $5.10 (+90.2%)

- or -

MAY 07, 2013 - entry price on HON @ 76.20, option @ 4.10
symbol: HON1517a85 2015 JAN $85 call - current bid/ask $10.80/11.50

06/22/14 adjusting the exit target to $109.00
The $100.00 level is still potential resistance.
04/27/14 investors may want to just take profits now!
03/02/14 new stop loss @ 89.75, adjust target to $99.00
02/09/14 new stop loss @ 87.45
12/29/13 new stop loss @ 84.85
12/22/13 adjust the exit target to $98.00
...please see earlier newsletter for prior comments...
The plan was to use small positions to limit our risk.

Current Target: exit when HON hits $109.00
Current Stop loss: 89.75
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Illinois Tool Works, Inc. - ITW - close: 89.38

Comments:
06/22/14: ITW quietly drifted higher. Shares ended the week at a new all-time closing high. The $90.00 level is potential round-number resistance so do not be surprised if ITW dips again after tagging $90.

Tonight we are moving our stop loss to $83.90.

- Suggested Positions -
MAY 13, 2014 - entry price on ITW @ 87.57, option @ 3.40*
symbol: ITW1517a90 2015 JAN $90 call - current bid/ask $ 3.40/ 3.60

- or -

MAY 13, 2014 - entry price on ITW @ 87.57, option @ 6.65*
symbol: ITW1615a90 2016 JAN $90 call - current bid/ask $ 6.80/ 7.30

06/22/14 new stop @ 83.90
05/13/14 trade begins. ITW opens at $87.57
05/12/14 ITW closes @ 87.17, above our suggested entry above $86.50

Current Target: ITW @ $98.00
Current Stop loss: 83.90
Play Entered on: 05/13/13
Originally listed on the Watch List: 05/04/14


Joy Global Inc. - JOY - close: 63.31

Comments:
06/22/14: JOY investors were in a buy-the-dip mood last week. Shares rebounded off support near $60.00 and closed up four days in a row. It has been a volatile month for shares of JOY. I'm not suggesting new positions.

We will move the stop loss to $57.75.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - current bid/ask $ 4.00/ 4.25

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 5.05/5.80

06/22/14 new stop @ 57.75
06/05/14 JOY reports better than expected bottom line results and sparks a short squeeze
06/01/14 adjust stop loss to $55.45
04/08/14 JOY hit our entry trigger at $60.75

Current Target: We're aiming for the $75-80 zone
Current Stop loss: 57.75
Play Entered on: 04/08/13
Originally listed on the Watch List: 04/06/14


NuStar Energy - NS - close: 58.79

Comments:
06/22/14: Hmm... I am starting to worry about our NS trade. Shares are down two weeks in a row. This past week saw shares breakdown under $60.00 and dip toward technical support at the 50-dma.

I do expect the $55-56 area to act as support but I am not suggesting new positions at this time.

Earlier Comments:
Our target is $64.50. More aggressive investors with a longer time frame may want to aim higher since the point & figure chart is targeting an $87 target.

- Suggested Positions -
APR 04, 2014 - entry price on NS @ 55.25, option @ 3.10*
symbol: NS1517a55 2015 JAN $55 call - current bid/ask $ 5.00/6.20

06/08/14 new stop @ 54.95
05/18/14 new stop @ 53.75
04/04/14 our play opens. NS @ 55.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
04/03/14 NS closes above $55.25
Current Target: exit calls when NS hits $64.50
Current Stop loss: 54.95
Play Entered on: 04/04/14
Originally listed on the Watch List: 03/23/14


Packaging Corp of America - PKG - $71.62

Comments:
06/22/14: PKG is bouncing from a test of its 100-dma. Shares are once again nearing the $72.00 level. Investors may want to wait for a close above $72.00 before considering new bullish positions.

Earlier Comments: May 18, 2014:
PKG is in the consumer goods sector. The company makes containerboard and corrugated packaging materials in the U.S., Canada, Europe, and Mexico. The stock was a big winner last year thanks in large part to PKG's accelerated growth. The company saw 2013 earnings surge to $436 million, up from $164 million in 2012.

PKG just recently acquired Boise and the new merged company is now the fourth-largest containerboard and corrugated packaging maker in the U.S. Management said they expected significant synergies with the acquisition but the results have actually been better than expected.

The last couple of earnings reports from PKG were both bullish with the company beating Wall Street's estimates on the top and bottom line. The latest announcement for the first quarter reaffirmed their full-year 2014 guidance.

Technically the stock has seen a $10 correction (about -13%) with the pullback from $75 to $65. Now shares are starting to rebound from support near $65 and its long-term trend line of higher lows (see weekly chart below). There is potential resistance at the 50-dma and the $70.00 level.

- Suggested Positions -
JUN 06, 2014 - entry price on PKG @ 70.82, option @ 2.60*
symbol: PKG150117c75 2015 JAN $75 call - current bid/ask $ 2.35/2.90

- or -

JUN 06, 2014 - entry price on PKG @ 70.82, option @ 6.60*
symbol: PKG160115c75 2016 JAN $75 call - current bid/ask $ 4.80/6.40

06/06/14 trade begins. PKG opened at $70.82
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/05/14 PKG closed at $70.71, above our trigger of $70.50
Option Format: symbol-year-month-day-call-strike
Current Target: PKG @ 90.00
Current Stop loss: 64.75
Play Entered on: 06/06/14
Originally listed on the Watch List: 05/18/14


QUALCOMM Inc. - QCOM - close: 79.86

Comments:
06/22/14: I remain disappointed with QCOM's performance. Shares managed a 75-cent gain for the week and still trade below resistance in the $80.00-81.50 area. The market's major indices are hitting new relative highs and QCOM seems lost and meandering sideways.

More conservative investors might want to just abandon ship. You could re-enter this trade later on a breakout past $82.00. I am inching our stop loss higher to $77.90.

I am not suggesting new positions at this time.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $6.90/7.15

06/22/14 new stop @ 77.90
06/15/14 new stop @ 77.65
06/08/14 QCOM is not participating in the market rally like it should. Investors may want to exit early right now.
05/18/14 new stop @ 75.75, more conservative traders may want to take some money off the table.
04/24/14 QCOM's earnings were a disappointment and they disclosed a Wells Notice. Investors may want to exit now and wait for the dust to clear.
04/20/14 new stop @ 74.70
03/30/14 new stop @ 73.75
03/23/14 new stop @ 71.75
03/04/14 QCOM raises dividend and buyback program
02/19/14 QCOM being investigated by Chinese authorities
01/19/14 new stop loss @ 69.45
12/08/13 new stop loss @ 67.75
11/15/13 trade opens. QCOM @ 71.34
11/14/13 QCOM closes above entry trigger (above 70.50)

Current Target: $85.00
Current Stop loss: 77.90
Play Entered on: 11/15/13
Originally listed on the Watch List: 11/03/13


Tempur Sealy Intl. - TPX - close: 58.08

Comments:
06/22/14: Last week was a quiet one for TPX. Shares slowly melted higher. The $60.00 level remains overhead resistance.

Earlier Comments: May 26, 2014:
TPX is in the consumer goods sector. The company manufactures and markets bedding products including mattresses, pillows, and other bed-related hardware. The stock has been slowly recovering from its disastrous 2012 performance. Tempur purchased its rival Sealy in 2013 and this virtually doubled its overall sales. Yet margins retreated from 50% to 40% due to Sealy's lower margins.

TPX has managed to build on its acquisition of Sealy. Both the Q4 and Q1 earnings results delivered better than expected performance on both the top and bottom line. TPX management believes they will continue to see margins improve in 2014 as they focus on synergies from their Sealy acquisition. They just recently purchased the Sealy brand rights in Japan and Continental Europe, which "represent significant future growth" for the company.

The stock's trend is higher but I'll confess TPX doesn't move super fast. We'll need to be patient with this trade. The point and figure chart is bullish and is currently forecasting at $70 target.

- Suggested Positions -
MAY 28, 2014 - entry price on TPX @ 55.86, option @ 4.75*
symbol: TPX150117C60 2015 JAN $60 call - current bid/ask $5.30/6.00

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - current bid/ask $6.40/7.60

06/08/14 new stop @ 51.75
05/28/14 trade begins. TPX opens at $55.86
05/27/14 TPX closed at $56.03, above our trigger of $55.50
Option Format: symbol-year-month-day-call-strike

Current Target: TPX @ 69.00
Current Stop loss: 51.75
Play Entered on: 05/28/14
Originally listed on the Watch List: 05/26/14


Wells Fargo & Co. - WFC - close: 52.89

Comments:
06/22/14: The rally in the financial sector seemed to stall on Thursday and Friday. Not so for WFC, which outperformed the market with a +1.6% gain on Friday. Shares ended the week at a new all-time high.

I would not chase WFC at current levels.

Earlier Comments:
(June 1, 2014) WFC's management also said they would love to boost the amount of capital they return to shareholders. They'd like to pay out 55% to 75% of their net profits back to shareholders as dividends and stock buybacks. That's up from 34% in 2013. Any changes still have to be approved by regulators.

- Suggested Positions -
DEC 26, 2013 - entry price on WFC @ 45.50, option @ 1.50
symbol: WFC1517a50 2015 JAN $50 call - current bid/ask $ 3.90/4.00

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 5.15/5.50

06/08/14 new stop loss @ 47.45
05/26/14 adjust long-term target from $54.50 to $59.00
04/06/14 WFC looks poised for a pullback
03/30/14 new stop loss @ 44.80
03/09/14 new stop loss @ 43.90
01/19/14 new stop loss @ 42.90
12/26/13 trade opens with WFC @ $45.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
12/24/13 WFC closed @ 45.39, above our trigger at $45.25

Current Target: Exit WFC hits $59.00
Current Stop loss: 47.45
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13



Williams Sonoma - WSM - close: 69.74

Comments:
06/22/14: WSM is outperforming many of its peers in the home-furnishings industry. The stock has pushed its way back toward resistance near $70.00 and looks poised for a bullish breakout to new all-time highs. I will point out that WSM is trading just below a trend line of higher highs (resistance) from the August 2013 peak. I breakout would be significant.

I am not suggesting new positions at this time.

- Suggested Positions -
MAY 13, 2014 - entry price on WSM @ 64.36, option @ 2.95*
symbol: WSM1517a70 2015 JAN $70 call - current bid/ask $ 4.30/4.70

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 5.80/6.40

06/08/14 new stop @ 61.75
05/13/14 trade begins. WSM opened at $64.36
*option entry price is an estimate since the option did not trade at the time our play was opened.
05/12/14 triggered. WSM closed at $64.55, above our trigger of $64.50

Current Target: Our target is WSM in the $75-85 zone.
Current Stop loss: 61.75
Play Entered on: 05/13/14

Originally listed on the Watch List: 05/04/14



Watch

Specialty Retail, Ceramics, & Solar

by James Brown

Click here to email James Brown



New Watch List Entries

AAP - Advance Auto Parts

CRR - CARBO Ceramics

SUNE - SunEdison


Active Watch List Candidates

EVEP - EV Energy Partners

HIG - Hartford Financial Group

MSFT - Microsoft Corp.

VFC - V.F. Corp.


Dropped Watch List Entries

XOM met our entry point requirements on Friday and has been moved to the new play section.



New Watch List Candidates:


Advance Auto Parts Inc. - AAP - close: 129.80

Company Info

AAP is in the services sector. The company is one of the largest auto parts retailers in the nation. They recently bought General Parts International for $2.08 billion in a cash deal that closed early this year. That added 1,233 Carquest stores and 103 Worldpac branches.

AAP believes they will be able to achieve about $190 million in synergies over the next three years. Analysts believe that AAP, now even bigger, will be able to negotiate better prices with wholesalers and rev up its supply-chain efficiencies.

The company delivered strong gains in the first quarter in spite of the lousy weather. That's a feat many retailers failed to accomplish with same-store sales up +4%. The company is also seeing improvement in its gross margins.

While the U.S. economy is slowly improving we are not seeing significant wage inflation. Consumers are still looking for bargains. That means more older cars on the road and more consumers buying auto parts to keep their older cars running.

Technically shares of AAP are poised for a bullish breakout over resistance near $130.00. Tonight I am suggesting an intraday trigger to buy calls at $131.00 (don't wait for a close above this level). If triggered our long-term target is the $150 area.

I am listing the 2015 calls. AAP does have 2016 calls but the bid/ask spreads are too wide.

Start with a stop loss at $123.25.

Breakout trigger: Buy calls at $131.00

BUY the 2015 Jan $140 call (AAP150117C140) current ask $5.60

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

Chart of AAP:

Originally listed on the Watch List: 06/22/14


CARBO Ceramics Inc. - CRR - close: 141.86

Company Info

CRR is part of the basic materials sector. The company operates in the oil field services industry. Their main product is ceramic proppants. These are resin-coated ceramic and resin-coated sand proppants used in the process of hydraulic fracturing of natural gas and oil wells in "tight oil" formations (a.k.a. shale).

Normal sand is a cheaper proppant but ceramic proppants from CRR deliver better results in the fracking process. The U.S. fracking industry is picking up speed. We're also seeing other countries start to develop their own fracking industries. CRR's sales should grow worldwide.

Technically CRR is in a significant up trend and coiling for a bullish breakout past resistance near $142.00. If shares do breakout it could see a sharp move higher thanks to short interest at almost 22% of the very small 19.7 million share float.

I am suggesting an intraday trigger at $143.50. Do not wait for a close above this level since CRR might spike higher. We will try and limit our risk with a stop loss at $134.90. Our target is the $160-170 zone. Currently the P&F chart is bullish with a $168 target.

Breakout trigger: Buy calls at $143.50

BUY the 2015 Jan $160 call (CRR150117C160) current ask $8.60

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

Chart of CRR:

Originally listed on the Watch List: 06/22/14


SunEdison, Inc. - SUNE - close: 22.38

Company Info

Based in Belmont, California, SunEdison claims 50 years of scientific research and over 750 patents in their solar PV technology. Solar energy stocks as a group have had a volatile year if you look at the TAN solar ETF but investors are returning as money looks for growth, especially as the price of oil rises.

Shares of SUNE were not immune to the group's spring sell-off but they held up better than most. SUNE is certainly outperforming the broader market with almost 70% gains this year already and that's after consolidating sideways the last three months.

SUNE is a high-growth, momentum play. Analysts are expecting the company's earnings to rise +60% this year and surge +140% in 2015. The stock got a big boost this past week after Deutsche Bank upgraded their price target on SUNE from $13 to $35. They believe SUNE is on track to deliver significant multiple expansion and positioned to grow. This is bad news for all the shorts in this stock. The most recent data listed short interest at 27% of the 250 million share float. Further gains could fuel more short covering.

Due to the high amount of short interest I am suggesting an intraday trigger to buy calls at $23.00. More conservative investors might want to consider a slower approach and wait for a close above $23.00 instead as your entry point. I'm not setting an exit target tonight but the point & figure chart is bullish and suggesting at $29.50 target.

We will start with a stop loss at $18.95.

Breakout trigger: Buy calls at $23.00

BUY the 2015 Jan $25 call (SUNE150117C25) current ask $2.89

- or -

BUY the 2016 Jan $30 call (SUNE160115c30) current ask $3.80

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

Chart of SUNE:

Originally listed on the Watch List: 06/22/14


Active Watch List Candidates:



EV Energy Partners - EVEP - close: 38.05

Comments:
06/22/14: After a five-week climb shares of EVEP saw their rally stall this past week. We are currently on the sidelines. I do not see any changes from my earlier comments.

Earlier Comments:
EVEP is in the energy industry. They are a master limited partnership and one of the largest operators of onshore oil and gas assets. They have properties in the Utica Shale, Barnett Shale, the Appalachian Basin, the Mid-Continent area, the San Juan Basin, the Monroe Field in Louisiana, the Permian Basin, Central and East Texas, and Michigan.

Shares of this company have spent the last several months building a bottom. If the market turns more volatile then investors could turn to EVEP to capture the stock's 8% dividend yield. If oil prices continue to climb it should also give EVEP a boost.

More aggressive investors may want to consider bullish positions now. I am suggesting we wait for EVEP to close above $40.25 and then buy calls the next morning with a stop loss at $35.75.

Breakout trigger: Wait for a close above $40.25
then buy calls the next day with a stop at $35.75.

BUY the 2015 Jan $40 call (EVEP150117C40)

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

Originally listed on the Watch List: 06/15/14


The Hartford Financial Services Group - HIG - close: 36.02

Comments:
06/22/14: Shares of HIG were little changed for the week. If the trend of higher lows continue we could see the stock challenge resistance near $36.50 soon.

Earlier Comments: June 8, 2014:
Financial stocks helped lead the market higher last week. If this bull market continues then the financials should remain part of the leadership group. HIG has been making progress in its transformation. The company is focusing more on its property and casualty insurance business, its Group Benefits business, and its mutual fund business. They just recently sold their Japan annuity company, which has reduced the company's risk profile.

This turnaround has been productive. Their most recent earnings report came in 25 cents better than Wall Street estimates with a profit of $1.18 per share. This net income of $495 million compares to a $241 million loss in Q1 2013. HIG has also been making improvements in its insurance combined ratio, which is essentially their gross margin on their insurance business. They've also been buying back stock.

Technically the three-week bounce from HIG's rising 200-dma has pushed shares toward resistance near $36.50. This is also the top of a five-month consolidation range. A breakout here should signal the next leg higher.

Tonight I am suggesting we wait for HIG to close above $36.75 and then buy calls the next morning with a stop loss at $33.75. Our long-term target is the $45.00 region.

Breakout trigger: Wait for a close above $36.75
buy calls the next day with a stop loss at $33.75

BUY the 2015 Jan $40 call (HIG150117C40)

- or -

BUY the 2016 Jan $40 call (FFIV160115C40)

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

Originally listed on the Watch List: 06/08/14


Microsoft Corp. - MSFT - close: 41.68

Comments:
06/22/14: MSFT spent the week consolidating sideways just under resistance near $42.00. The stock looks like it's building up steam for a bullish breakout higher. There is no change from my earlier comments.

Earlier Comments:
Shares of semiconductor giant Intel (INTC) soared on Friday (June 13th) when the company surprised investors by raising its revenue guidance the night before. INTC said they were seeing stronger sales of PCs. That's right. They said PCs. The sale of personal computers has been falling for several quarters as consumer spend the money on laptops, tablets, and smartphones. To be fair INTC did say they were seeing stronger sales of PCs to businesses but it's still good news for INTC but it could be great news for MSFT.

INTC hinted that when MSFT stopped supporting the Windows XP operating system in April this year it has sparked an upgrade cycle. XP has been around for years. One analyst estimated that 25% of the PCs currently connected to the Internet are running XP. That's a huge number of computers and now they're at risk for virus and hacking attempts that MSFT will no longer try to patch.

As businesses and consumers upgrade their PC it should mean strong sales for MSFT's Windows 8 operating software. This upgrade cycle could last a while.

Currently shares of MSFT are in a long-term up trend (see chart) and they closed near 14-year highs on Friday. There is short-term resistance at $41.65. I am suggesting we wait for MSFT to close above $42.00 and then buy calls the next day with a stop loss at $38.40.

I am listing the 2015 and 2016 calls but my preference is for the 2016s.

Breakout trigger: Wait for a close above $42.00
then buy calls the next morning with a stop loss at $38.40.

BUY the 2015 Jan $45 call (MSFT150117C45) current ask $1.06

- or -

BUY the 2016 Jan $45 call (MSFT160115C45) current ask $2.60

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

Originally listed on the Watch List: 06/15/14


V.F. Corp. - VFC - $62.15

Comments:
06/22/14: If VFC doesn't start showing more strength we'll probably drop it soon. The stock is bouncing from last Friday's lows but the rebound didn't make it very far.

Overall I don't see any changes from my earlier comments.

Earlier Comments: May 18, 2014:
VFC is in the consumer goods sector. The company makes apparel and footwear for sale in the U.S. and Europe. Products include handbags, luggage, backpacks, accessories. Major brands include The North Face, Vans, Timberland, Kipling, Jansport, Reef, Smartwool, Eastpak, Wrangler, Lee, just to name a few.

After big gains in 2013 shares of VFC have been consolidating sideways. The company split their stock 4-for-1 back in December 2013. VFC guided lower back in February but the market reaction was a one-day event. Shares have since recovered. Their most recent report was bullish with VFC beating estimates. That's significant since so many apparel makers blamed the weather on a terrible Q1.

There has been growing speculation that VFC might be Lululemon (LULU) or another athletics apparel brand. Normally the acquiring company's stock goes down on a merger announcement but lately Wall Street has been sending the acquirer's stock higher on positive M&A news.

Technically shares look poised to breakout from their five-month consolidation. The Point & Figure chart is already bullish and forecasting an $80 target.

I am suggesting we wait for VFC to close above $64.25 and then buy calls the next day with a stop loss at $59.75. Our long-term target is the $75.00 region.

Breakout trigger: Wait for a close above $64.25
buy calls the next day with a stop loss at $59.75

BUY the 2015 Jan $70 call (VFC150117C70)

- or -

BUY the 2016 Jan $70 call (VFC160115C70)

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

Originally listed on the Watch List: 05/18/14