Option Investor
Newsletter

Daily Newsletter, Monday, 6/30/2014

Table of Contents

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

Leaps Trader Commentary

Another Quarterly Gain

by James Brown

Click here to email James Brown

The U.S. stock market ended the week with widespread gains and a burst of volume thanks to the annual Russell indexes rebalancing. Volatility remains low with the S&P 500 index trading without a 1% (daily) move for 50 days in a row. That's a 19-year record.

The S&P 500 could mark another record on Monday. June 30th ends the second quarter and the index is poised to hit its longest run of quarterly gains in 16 years. Of course this is one of the most hated bull markets in history. Investors continue to pull money out of the equity market. The Investment Company Institute said equity funds saw outflows for the eighth week in a row.

Year to date the S&P 500 large cap index is up +6.0%. The NASDAQ composite is up +5.3% and the small cap Russell 2000 index is up +2.2%. The transportation average is up +10.4%. The SOX semiconductor index is up +17.6%. Biotechs are some of the best performers with the group up +18.6% in 2014. The recent rise in crude oil has boosted energy stocks. Crude oil is up +7.2% this year. Oil stocks are up +12.0% and oil service companies are up +9.9%. Meanwhile silver prices are up +7.6% and gold is up +9.2% for the year.

Economic Data

Economic data remains mixed. The shocking headline of the week was the third estimate on U.S. Q1 GDP growth. The first estimate was +0.1%. The second estimate was revised to -1.0%. The third estimate last week was revised lower again to -2.9%. That is the worst quarterly reading in five years and a big drop from Q4 2013's +2.6% growth. The revision between the second and third estimates on Q1 growth was the biggest drop on record. You don't go from +2.6% growth to -2.9% growth on a cold winter. Blaming the drop on the weather doesn't hold water any more. They say two negative quarters in a row is a recession. The U.S. tends to see a recession every five to seven years. Guess what? The last recession ended around June 2009. That was five years ago.

There was some good news for the residential real estate market. Existing home sales in May surged +4.9%. That's the biggest gain since 2011. The seasonally adjusted annual rate rose from 4.66 million to 4.89 million. New home sales surged +18.6%, which was the biggest one-month jump since January 1992. New home sales in May came in at 504,000. That is up from 425,00 and the first month above 500K since May 2008.

The University of Michigan Consumer Sentiment survey's final reading for June was revised from 82.0 to 82.5. The Conference Board's Consumer Confidence index rose from 82.2 to 85.2. That is a six-year high.

Overseas Data

The Eurozone's manufacturing PMI dropped to a six-month low with a move from 52.2 to 51.9. Numbers above 50.0 still indicate growth. France said their Q1 GDP grew at +0.0%. In Asia there was some improvement in manufacturing. The Chinese HSBC manufacturing PMI jumped to an eight-month high and hit growth territory with a move from 49.4 to 50.8. Japan said their manufacturing PMI also move into growth territory with improvement from 49.9 to 51.1. Unfortunately, Japan also reported that household spending crashed -8.0%, following the sales tax hike in April.





Major Indices:

The S&P 500 has a 25-year trend of trading down the week after June option expiration. Last week it did it again with a -0.1% decline. With the bounce from Thursday's low the S&P 500 looks poised to breakout to new highs again.

If the market does see a pullback then the 1920 and 1900 level are likely support. I'd focus on 1900 as the level to watch. If this rally continues then 1980 and 2000 are overhead resistance. The 2,000 mark is key and could be significant round-number resistance.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite bounced off short-term technical support near its rising 10-dma again. This rebound lifted the index past resistance at its March highs. The NASDAQ ended the week at new 14-year highs. It also closed just below potential round-number resistance at 4,400.

If stocks correct I would look for support near 4300 and 4200. If the rally continues we can look for resistance near 4450 and 4500.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index eked out a +0.09% gain last week. The index managed a bounce off a trend line from its May lows. There is still overhead resistance near 1200 and its March highs around 1210. If the $RUT breaks down below its new trend line of support I would not be surprised to see it drop towards the 1140 area.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's a busy week for economic data. The U.S. stock market closes early on Thursday and is closed all day on Friday for the July 4th holiday. The non-farm payrolls (jobs) report that normally comes out on a Friday will be released early on Thursday. Current estimates are for +213,000 new jobs in June.

We'll also see the ISM index and ISM services index released this week. The European Central Bank will update their interest rate policy. After that announcement will be a press conference with ECB President Mario Draghi.

Economic and Event Calendar

- Monday, June 30 -
Chicago PMI for June
Pending Home Sales

- Tuesday, July 01 -
ISM Index
Eurozone unemployment
Auto and truck sales

- Wednesday, July 02 -
ADP Employment Change Report

- Thursday, July 03 -
Weekly Initial Jobless Claims
ECB interest rate decision
ECB President press conference
Non-farm payrolls (jobs) report
Unemployment rate for June
ISM services

U.S. markets close early

- Friday, July 04 -
U.S. markets closed for holiday

Additional Events to be aware of:

July 30th - FOMC meeting
Sept. 1st - U.S. market closed for Labor Day

Looking Ahead:

As we look at the week and month ahead the market's focus should turn toward earnings. Q2 earnings season will begin on July 8th but they will start to pick up steam the following week. TrimTabs noted that stock buybacks have slowed down. The massive amount of buybacks in the first quarter helped corporations meet or beat earnings estimates. A slowdown in buybacks might jeopardize corporate earnings results.

Corporate guidance will be a big deal. After the disastrous Q1 GDP growth everyone will want to know what corporate America expects Q3 and Q4 growth to look like. A couple of months ago everyone was expecting a sharp snapback surge in Q2 growth as the weather improved. Now that enthusiasm has waned significantly. The Federal Reserve recently lowered their full-year 2014 growth estimate from +2.9% to +2.2%. Yet after the Q1 GDP drop of -2.9% the U.S. would have to see almost +4.0% growth the next three quarters in a row to meet the Fed's estimates. That is not going to happen. You can bet the Fed will lower their estimate again.

Looking at the calendar we're at the start of a new month and a new quarter. On a short-term basis mutual funds should have new money to put to work on Monday. July is normally the best month of the third quarter but that's only because August and September have such terrible records. Speaking of the calendar, June 30th is Argentina's deadline to make its debt payments. They're not going to make it and will have a 30-day grace period before technically defaulting (again). Odds are we'll hear more about Argentina in July.

Saturday June 28th was the beginning of Ramadan. This is the holy month for Muslims around the world. Will this have any effect on the violence in Iraq? Will there be more violence or less violence? Unfortunately the Sunni jihadists in the ISIL continue to push south toward Baghdad, the capital of Iraq. The latest information would suggest that half of the official Iraqi army has either been defeated or they have quit. The Baghdad government will have to depend on foreign help to defend themselves. Russia has already delivered fighter jets to Iraq since the U.S. has failed to deliver on its promise for jets. Odds are growing quickly that the borders of Iraq will not return to normal. The Kurds are likely to carve out their own country to the north. That will leave the Shias and the Sunnis to fight it out in the south.

Looking back to the U.S. markets, the major indices continue to trend higher. We might continue to melt up for the next two weeks. At that point market direction will likely depend on corporate guidance. The wild card would be some new unexpected development in Iraq or Ukraine.

Normally the stock market tends to see a -10% correction about twice a year. Thus far the S&P 500 has gone 999 days without a -10% correction. How much longer can this trend last? It's a terrible market cliché but "the trend is your friend - until it's not!"

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The NASDAQ ended the week at a new 14-year high. The S&P 500 looks poised to hit an all-time high. Will the jobs report slow this market down or give it a boost?

AAP, CRR, MSFT, and SUNE have all moved from the watch list to our active play list.

I have updated the stop losses on HAL, NS, WFC, and WSM.

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

Another Successful Week For The Watch List

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(June 29, 2014)

We had a very successful week with our watch list. AAP, CRR, MSFT, and SUNE all graduated from our watch list to our active play list. All four of those stocks look strong but I am urging a little caution when it comes to new plays.

We are not adding any new trades tonight. I did add BZH and WDC to the watch list. The next couple of weeks could be quiet as investors look towards Q2 earnings season. Then we are likely to see a lot of individual stock volatility as traders punish those who disappoint or issue an earnings warning.

The market is overdue for another pullback so a little post-earnings sell-off might be healthy.

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:

GILD, GLW, IP, MPWR, TRLA, CRK, ATVI, AAPL, GMCR, WLP, UNH, SAVE, DAL, JBLU, SBUX, MLM, DECK, IR, FDX, HD, PEP, KO, MYL, PBA, AA, CSX, TAN, SLXP, GM, F, TM, NEM, URI, COL, ROK, RIG, USB, VLCCF, TK, ORLY, LEA, DLPH, BWA, TIF, STX,



Play Updates

Several New Highs

by James Brown

Click here to email James Brown

Editor's Note:

We added several new plays. Our XOM trade began last Monday. AAP, CRR, MSFT, and SUNE all graduated from our watch list to our active play list last week.


Closed Plays



None. No closed plays this week.




Play Updates


American Airlines Group, Inc. - AAL - $44.00

Comments:
06/29/14: AAL spent last week consolidating sideways between short-term support near its 10-dma and 20-dma and overhead resistance near $45.00. A breakout past $45.00 could signal a run towards $50.00.

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 $4.40/4.60

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $7.80/8.50

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


Advance Auto Parts Inc. - AAP - close: 133.48

Comments:
06/29/14: We had multiple watch list candidates graduate to our active play list last week. AAP is one of them. The plan was to wait for shares to buy calls if AAP traded at $131.00. The stock met our entry requirement on June 24th. Shares then reversed the next day but bounced off short-term support at its 10-dma. Friday's display of relative strength (+2.2%) left AAP at a new all-time closing high.

I would consider new positions now at current levels of you could wait for another dip in the $130-131 area.

Earlier Comments: June 22, 2014:
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.

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.

- Suggested Positions -
Jun 24, 2014 - entry price on AAP @ 131.00, option @ 6.35*
symbol: AAP150117C140 2015 JAN $140 call - current bid/ask $5.80/6.70

06/24/14 AAP hits our intraday entry point at $131.00
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Chart of AAP:

Current Target: AAP 150.00
Current Stop loss: 123.25
Play Entered on: 06/24/14
Originally listed on the Watch List: 06/22/14


American Intl. Group - AIG - close: 54.61

Comments:
06/29/14: AIG underperformed the market last week. Shares retreated from $56.00 and almost hit $54.00 but seemed to be finding some support near its simple 30-dma.

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 $1.32/1.40

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $4.05/4.20

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: 108.78

Comments:
06/29/14: Investors continue to ignore the disappointing sales declines in CAT's resources segment. Traders bought the dip midweek and CAT looks poised to challenge resistance near $110.00 soon.

I am not suggesting new positions at this time.

- Suggested Positions -
APR 03, 2014 - entry price on CAT @ 101.92, option @ 3.50*
symbol: CAT1517a110 2015 JAN $110 call - current bid/ask $4.85/5.00

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $8.70/9.20

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


CARBO Ceramics Inc. - CRR - close: 149.94

Comments:
06/29/14: CRR rallied $8.00 for the week and closed at multi-year highs. We added CRR to our watch list last week. The plan was to buy calls if shares traded at $143.50 (intraday). CRR met our entry requirement on June 23rd.

It was a volatile week for CRR with Tuesday's big drop but CRR recovered. The stock is now testing potential round-number, psychological resistance at $150.00. I would not be surprised to see a little pullback before moving higher.

Our initial stop loss is at $134.90. More conservative investors may want to use a higher stop loss.

Earlier Comments: June 22, 2014:
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.

Our target is the $160-170 zone. Currently the P&F chart is bullish with a $168 target.

- Suggested Positions -
JUN 23, 2014 - entry price on CRR @ 143.50, option @ 9.00*
symbol: CRR150117C160 2015 JAN $160 call - current bid/ask $10.70/11.40

06/23/14 CRR hit our entry trigger at $143.50 (intraday)
Option Format: symbol-year-month-day-call-strike

Chart of CRR:

Current Target: CRR @ 160.00-170.00 zone
Current Stop loss: 134.90
Play Entered on: 06/23/14
Originally listed on the Watch List: 06/22/14


The Walt Disney Co. - DIS - close: 85.30

Comments:
06/29/14: There was a lot of focus on TV broadcasters and content providers with the Supreme Court's ruling on Aereo. Aereo lost 6-3. That helped boost a lot of TV-related stocks. One of DIS' biggest assets is its ESPN channel.

Shares of DIS are near an all-time high and look poised to keep marching higher.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $11.55/12.05

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: $51.61

Comments:
06/29/14: It was a volatile week for shares of DOW after its rival chemical maker DuPont (DD) issued an earnings warning. This news sent DOW spiking lower on Friday morning but traders bought the dip. Technically DOW has created a bearish reversal pattern on its weekly chart but it needs to see confirmation. I would wait on launching new bullish positions.

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 $1.70/1.77

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $3.75/3.90

06/27/14 DOW declines after DuPont issues an earnings warning
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: 72.95

Comments:
06/29/14: DVA ended the week at record highs. The stock's rally accelerated late Friday afternoon and shares were sprinting past the broader market. I would not be surprised to see a little pullback on Monday morning. The $72.00 level could be short-term support.

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 $2.40/3.20

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.70/6.60

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: 78.95

Comments:
06/29/14: Last week I cautioned readers to look for EXPE to dip into the $75-76 area. The low on Wednesday was $75.42. The stock's rebound on Friday outperformed the market with a +2.5% gain. EXPE looks poised to test its highs in the $81 area soon.

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 $9.30/9.80

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: 111.11

Comments:
06/29/14: Our FFIV trade was looking ugly with Thursday's breakdown below the 50-dma. Fortunately FFIV reversed sharply higher on Friday with a +3.6% gain and a close above all of its short-term moving averages.

FFIV remains under the long-term trend line of lower highs I pointed out last week. Investors might want to wait for a close above $115.00 before considering new bullish positions.

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 $6.75/6.90

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $10.90/11.60

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

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: 70.47

Comments:
06/29/14: HAL bounced from short-term support near $68.00 and rallied back toward its recent highs. We are raising the stop loss again, this time to $64.75.

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 $5.15/5.25

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $8.95/9.10

06/29/14 new stop @ 64.75
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: 64.75
Play Entered on: 06/04/14
Originally listed on the Watch List: 05/26/14


Hess Corp. - HES - close: 98.29

Comments:
06/29/14: The trading in HES looks very similar to HAL. The stock pierced its 10-dma on Wednesday but traders bought the dip. Shares are bouncing back toward their recent highs. HES is now up six 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. More conservative investors may want to 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/ 7.80

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $ 9.05/10.05

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: 93.26

Comments:
06/29/14: HON delivered a disappointing week. Shares are breaking down under short-term support near $93 and its 100-dma.

I do not see any changes from my prior comments. 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 $ 9.65/ 9.95

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: 88.55

Comments:
06/29/14: ITW found support at its simple 30-dma this past week. Shares appear to be churning sideways inside the $87.00-89.50 zone over the last three weeks.

I am not suggesting new positions at this time.

- Suggested Positions -
MAY 13, 2014 - entry price on ITW @ 87.57, option @ 3.40*
symbol: ITW1517a90 2015 JAN $90 call - current bid/ask $ 3.10/ 3.40

- or -

MAY 13, 2014 - entry price on ITW @ 87.57, option @ 6.65*
symbol: ITW1615a90 2016 JAN $90 call - current bid/ask $ 6.70/ 6.90

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:
06/29/14: JOY did not see any follow through on the prior week's rally. I remain cautious given JOY's recent volatility.

If you like this industry consider looking at shares of Freeport McMoRan (FCX), which looks poised to breakout past short-term resistance. It is worth noting that JOY makes mining equipment and provides related services. FCX is actually a miner. The two companies face different risks.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - current bid/ask $ 3.20/ 3.40

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 4.50/4.95

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


Microsoft Corp. - MSFT - close: 42.25

Comments:
06/29/14: MSFT is another watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $42.00 and then buy calls the next morning. MSFT closed at $42.03 on June 25th. Our trade opened on Thursday morning with the gap down. Fortunately, MSFT found short-term support near $41.50 all week long.

Friday's breakout is a bullish signal and I would launch positions at current levels.

Earlier Comments: June 15, 2014:
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.

- Suggested Positions -
JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 1.05
symbol:MSFT150117c45 2015 JAN $45 call - current bid/ask $ 3.20/ 3.40

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 3.20/ 3.40

06/26/14 Trade begins. MSFT opens down at $41.93
06/25/14 MSFT closes at $42.03, above our trigger of $42.00
06/23/14 MSFT closes at $41.99
Option Format: symbol-year-month-day-call-strike

Chart of MSFT:

Current Target: MSFT @ $50.00
Current Stop loss: 38.40
Play Entered on: 06/25/14
Originally listed on the Watch List: 06/15/14


NuStar Energy - NS - close: 61.92

Comments:
06/29/14: Utility stocks continue to rally. Shares of NS traded just above its 2012 highs before paring its gains on Friday.

The trend looks strong but I would not launch new positions at the moment.

Please note that I am raising our exit target from $64.50 to $69.00. We'll move the stop loss to $55.85.

Earlier Comments:
The point & figure chart is suggesting 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 $ 6.60/8.50

06/29/14 adjust exit target from $64.50 to $69.00
new stop @ 55.85
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 $69.00
Current Stop loss: 55.85
Play Entered on: 04/04/14
Originally listed on the Watch List: 03/23/14


Packaging Corp of America - PKG - $71.19

Comments:
06/29/14: PKG lost just over 40 cents for the week. The good news is that shares found support near $70.00. Meanwhile the $72.00 level is still short-term overhead resistance. 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 $ 2.40/2.80

- or -

JUN 06, 2014 - entry price on PKG @ 70.82, option @ 6.60*
symbol: PKG160115c75 2016 JAN $75 call - current bid/ask $ 4.90/6.80

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: 78.99

Comments:
06/29/14: The last two months have been very frustrating in QCOM. The broader market indices are hitting new relative highs but QCOM has gone nowhere. Shares have actually been trending lower the month of June.

The stock almost hit our stop loss on Wednesday with an intraday low of $77.91. Our stop is at $77.90.

Readers may want to exit early now. I am not suggesting new positions.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $6.30/6.45

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


SunEdison, Inc. - SUNE - close: 22.87

Comments:
06/29/14: SUNE is another watch list candidate that has graduated to our active play list. The plan was to buy calls if shares hit $23.00. The stock rallied to new multi-year highs on Friday and hit $23.00. I would still consider new bullish positions at current levels.

Earlier Comments: June 22, 2014:
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. The point & figure chart is bullish and suggesting at $29.50 target.

- Suggested Positions -
JUN 27, 2014 - entry price on SUNE @ 23.00, option @ 3.00
symbol: SUNE150117c25 2015 JAN $25 call - current bid/ask $2.79/2.95

- or -

JUN 27, 2014 - entry price on SUNE @ 23.00, option @ 3.85*
symbol: SUNE160115c30 2016 JAN $30 call - current bid/ask $3.35/3.80

06/27/14 SUNE hit our entry trigger at $23.00 (intraday)
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Chart of SUNE:

Current Target: $29.50
Current Stop loss: 18.95
Play Entered on: 06/27/14
Originally listed on the Watch List: 06/22/14


Tempur Sealy Intl. - TPX - close: 59.23

Comments:
06/29/14: TPX spent last week slowly drifting higher. I don't see any changes fro mmy prior comments. 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 $5.50/6.10

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - current bid/ask $6.60/7.60

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: 52.90

Comments:
06/29/14: WFC is virtually unchanged for the week. Shares have been consolidating sideways inside the $52.00-53.00 zone. WFC does look poised to breakout past $53.00 soon.

Investors should note that WFC is scheduled to report earnings on July 11th. You might want to take profits ahead of the announcement to avoid any post-earnings sell-off.

We are moving the stop loss to $49.40.

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 $ 3.85/3.95

-- 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

06/29/14 new stop loss @ 49.40
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: 49.40
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13



Williams Sonoma - WSM - close: 71.87

Comments:
06/29/14: You could make an argument that rising gasoline prices and little to no wage growth are squeezing an already struggling consumer. Yet shares of WSM continue to soar. The stock has broken out past potential round-number resistance at $70.00.

Tonight we are moving the stop loss to $66.40. Given WSM's relative strength I am moving our exit target to $79.00.

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 $ 5.20/5.80

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 6.80/7.30

06/29/14 new stop @ 66.40
adjust the exit target to $79.00
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 at $79.00
Current Stop loss: 66.40
Play Entered on: 05/13/14

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


Exxon Mobil Corp. - XOM - close: 101.21

Comments:
06/29/14: A week ago XOM was hitting all-time highs. The market reversed sharply lower on Tuesday, June 24th. XOM followed the market lower and has not recovered. The relative weakness could be a reaction to changes in the oil industry. The U.S. Energy Department's decision to let oil condensates to be exported is putting a lot of pressure on domestic oil refiners. XOM is one of the largest energy companies in the world. They do a lot of exploration and production. They also have very significant refining operations. Investors could be worried that an increase in oil exports could squeeze margins for U.S. refiners.

Technically shares of XOM just produced a big bearish engulfing candlestick reversal pattern on its weekly chart. The close under its 50-dma doesn't look good either. I am not suggesting new positions at this time.

Earlier Comments: June 15, 2014:
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.

The point & figure chart is bullish and forecasting at $133 target.

- Suggested Positions -
JUN 23, 2014 - entry price on XOM @ 104.11, option @ 3.45
symbol: XOM150117c105 2015 JAN $105 call - current bid/ask $ 2.27/2.35

-- or --

JUN 23, 2014 - entry price on XOM @ 104.11, option @ 4.35
symbol: XOM160115c110 2016 JAN $110 call - current bid/ask $ 3.20/3.50

06/23/14 Trade begins. XOM opens at $104.11
06/20/14 XOM closes above our trigger of $103.75
06/15/14 added to the watch list
Option Format: symbol-year-month-day-call-strike

Current Target: XOM at $125.00
Current Stop loss: 99.25
Play Entered on: 06/23/14
Originally listed on the Watch List: 06/15/14



Watch

Homes & Hard Drives

by James Brown

Click here to email James Brown



New Watch List Entries

BZH - Beazer Homes

WDC - Western Digital Corp


Active Watch List Candidates

HIG - Hartford Financial Group

VFC - V.F. Corp.


Dropped Watch List Entries

AAP, CRR, MSFT, and SUNE all graduated to our active play list.

EVEP has been removed.



New Watch List Candidates:


Beazer Homes - BZH - close: 20.88

Company Info

BZH is in the industrial goods sector. They are a residential home builder. BZH has been building homes in the U.S. for 35 years and consider one of the top ten homebuilders in the country. Since going public in 1994 the company has built more than 170,000 new homes.

The company's latest earnings report, back in May, was a disappointment. BZH missed analyst estimates on both the top and bottom line. Yet long-term investors are still willing to give BZH time to develop their multi-year plan 2B-10. This is BZH's goal of hitting $2 billion in annual revenues and increasing margins (EBITDA) to 10%.

The stock seems to have found a bottom with support near $18.00 and recent data suggest the housing market continues to improve. On June 23rd the existing home sales numbers rose a better than expected +4.9% in May to an annual rate of 4.89 million units. More importantly the new home sales figures soared +18.6% n May to 504,000, which was significantly better than expected. May 2014 was the first month new home sales were above 500,000 since 2008. At the same time we just saw consumer confidence hit a six-year high.

There are plenty of pundits who believe the housing market is not that healthy. One concern has been the plunge in mortgage applications, which fell -4% last week and is down -15% from a year ago. Considering the still very low mortgage rates that is somewhat troubling.

There is also the risk of shadow inventory coming to market. A number of markets are very hot right now. Example in Denver the average length of time for a home to sell is less than one month. That's because inventory is so low. Yet as home prices rise there are a lot of homeowners who have been underwater on their mortgage. If the value of their home rises above what they owe on it there could be a surge in inventories. That increases competition for new home sales as well.

Technically shares of BZH are breaking out past resistance near $20.00 and past technical resistance at the simple 200-dma. I would like to see some follow through higher.

Tonight I'm suggesting we wait for BZH to close above $21.10 and then buy calls the next morning with a stop loss at $19.75. Our long-term target is the $26.00 area. Currently the Point & Figure chart is bullish and forecasting at $27 target.

Breakout trigger: Wait for a close above $21.10
then buy calls the next day with a stop at $19.75

BUY the 2015 Jan $22 call (BZH150117C22) current ask $1.85

- or -

BUY the 2016 Jan $25 call (BZH160115C25) current ask $2.95

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

Chart of BZH:

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


Western Digital Corp. - WDC - close: 92.90

Company Info

WDC is in the technology sector. The company manufacturers data storage devices. They make hard drives and solid state drives. The company has about a 45% market share in the hard drive market, just ahead of its biggest rival Seagate Technology (STX). WDC has managed to grow in spite of long-term decline in PC sales. Today WDC's non-PC related devices account for 53% of its sales.

There has been a new development in the death of the PC story. A couple of weeks ago Intel reported that they were seeing growth in PC sales, mostly for business/enterprise use. That could be great news for WDC, who has developed a stronger solid-state drive business focused on enterprise.

The acceptance of cloud storage continues to surge. All of those cloud storage networks need hard drives to store that data, which should benefit WDC.

Technically shares of WDC have been consolidating sideways the last three weeks. The stock closed up on Friday and looks poised to breakout past short-term resistance near $93.00. More aggressive traders may want to launch positions above $93.50. I am suggesting an intraday trigger to buy calls at $95.25.

There is a good chance that $100.00 could be round-number, psychological resistance. Eventually I do expect WDC to rally past the $100 mark. Our long-term target is $110. Currently the Point & Figure chart is bullish and forecasting at $118 target.

We will start with a stop loss at $89.40.

FYI: Seagate (STX) looks bullish too but WDC has a better balance sheet and larger market share.

Breakout trigger: Buy calls when WDC hits $95.25 (intraday)

BUY the 2015 Jan $100 call (WDC150117c100) current ask $4.70

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BUY the 2016 Jan $110 call (WDC160115c110) current ask $7.40

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

Chart of WDC:

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


Active Watch List Candidates:



EV Energy Partners - EVEP - close: 39.40

Comments:
06/29/14: EVEP is slowly creeping higher. Shares look like they might breakout past resistance near $40.00 soon. Unfortunately, I am worried that EVEP just moves too slowly.

Tonight we are removing EVEP as a watch list candidate. We will leave it for investors with more patience.

Trade did not open.

06/29/14 removed from the newsletter. suggested entry was a close above $40.25

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


The Hartford Financial Services Group - HIG - close: 35.66

Comments:
06/29/14: HIG is still consolidating sideways. Fortunately it looks like the consolidation is narrowing. I don't see any changes from my earlier comments.

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)

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BUY the 2016 Jan $40 call (FFIV160115C40)

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

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


V.F. Corp. - VFC - $62.72

Comments:
06/29/14: VFC has been bouncing along technical support at its 50-dma. We are still waiting for a breakout past resistance at $64.00. 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)

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BUY the 2016 Jan $70 call (VFC160115C70)

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

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