Option Investor
Newsletter

Daily Newsletter, Sunday, 7/6/2014

Table of Contents

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

Leaps Trader Commentary

Targeting 2,000

by James Brown

Click here to email James Brown

Stocks delivered another week of record-breaking performances. It was a holiday shortened week for the U.S. market thanks to the 4th of July. The Dow Jones Industrial Average closed above the 17,000 mark for the first time in history. It only took seven months since crossing the 16,000 mark in November last year. The S&P 500 index closed at a record high and is fast approaching the 2,000 level. The S&P 500 also marked 1,000 days without a 10% correction.

The big cap indices were not alone hitting new highs. The Dow Transportation average, the Russell 1000, the Russell 3000, the NYSE Composite, XLE energy ETF, XHS healthcare services ETF, XLV healthcare ETF, and the Dow Jones railroad index all closed the week at record highs. Meanwhile the SOX semiconductor index, the NASDAQ composite both hit multi-year highs.

We are three days into the second half of 2014. Looking at the year to date performances so far the Dow Industrials is up +2.9%. The small cap Russell 2000 is up +3.8%. Both the S&P 500 and the NASDAQ composite are up +7.4%. The transportation average and the oil stock index are both up +12%. The SOX semiconductor index is up +21.5% and the biotechs are up +22.5%. Meanwhile silver is up +8.1% and gold is up +9.5%. Volatility has vanished. The VIX volatility index has plunged to new seven-year lows, which many would consider to be a warning signal for the health of the bull market.

Weekly chart of the Volatility (VIX) index

Economic Data

Last week was the beginning of a new month and that meant lots of economic data. The Chicago PMI retreated from 65.5 in May to 62.6 in June but it marked the third month in a row above 60.0. Numbers above 50.0 indicate growth. The national ISM manufacturing index slipped from 55.4 in May to 55.3 in June. While that is not much of a move it was below expectations for growth to 55.9. The ISM non-manufacturing (services) index inched down from 56.3 in May to 56.0 in June, only slightly below expectations.

U.S. construction spending in May rose +0.1% while April's reading was revised from +0.2% to +0.8%. Pending home sales hit a four-year high with June's +6.1% surge. June also delivered continued strength in vehicle sales with the seasonally adjusted annual rate coming in at 16.92 million autos. The ADP Employment Change report delivered its best reading since 2012 with a gain of +281,000 new private sector jobs. That was above expectations for 210K. Of course that leads us to the monthly government numbers in the nonfarm payrolls (jobs) report.

Economists had been expecting the U.S. Bureau of Labor Statics to report job growth of +215,000 for June. The latest numbers came in at +288,000 new jobs. The May jobs report was adjusted +7,000 to 224K and April's was revised up +22K to +304K. The three-month average is now +272,000 and we just experienced the strongest six-months of job growth since 2006. The current pace of job growth in 2014 is almost 20% higher than 2013.

The unemployment rate was revised down from 6.3% to 6.1%. The government said the labor force participation rate was unchanged at 62.8%. Altogether it was a bullish number and the market reacted positively. Unfortunately we still have a problem with job quality. Almost all of the jobs gains were part time or low paying jobs.

The accelerating job growth could start to put pressure on the Federal Reserve. The Fed claims any decisions they make will be data dependent. Last week Fed Chairman Janet Yellen basically reaffirmed the low rates for an extended period party line. There are a growing number of analysts predicting the fed will have to move faster. The Fed is on pace to end their current QE asset buying program this year. Most believe that the Fed will not start raising their interest rates until the middle or late 2015. However, this past week saw a couple of economists move that estimates up. They expect the Fed to start raising rates in the first or second quarter of 2015. In the past, when the "market" worried that the Fed might raise rates sooner than expected stocks tended to drop. We're not seeing that fear in stocks yet.

Overseas Data

The economic data out of Europe was uninspiring. The Eurozone's newest estimate on Q1 GDP was unchanged at +0.2% growth quarter over quarter. Eurozone retail sales were also unchanged month over month (-0.2%). Germany said they saw their retail sales fall -0.6% for the month, which follows last month's -1.5% drop. Germany unemployment also rose for the second month in a row. Yet Eurozone unemployment hit its lowest level since late 2012 at 11.6%.

European Central Bank President Mario Draghi made some interesting headlines on Thursday. Europe is desperately worried about their slowing economy. The ECB is trying to stimulate the economy by making it easier for banks to lend money. Initially the ECB's Targeted Long-Term Refinancing Operations was expected to lend out 400 billion euros. Draghi suggested the bank could eventually lend up to one trillion euros.

Economic data from Asia's biggest economies was mixed. Japan said their industrial production rose +0.5%. That's up from the prior month's -2.8% decline. Unfortunately Japan reported that housing starts plunged -15%, which was worse than expected. China reported their manufacturing PMI inched higher from 50.8 to 51.0. Yet the HSBC Chinese manufacturing PMI slipped from 50.8 to 50.7. Numbers above 50.0 suggest growth and below 50.0 indicate economic contraction.





Major Indices:

The large cap S&P 500 index has been sprinting higher with gains in five of the last seven sessions. The index rose +1.25% last week to extend its yearly gains to +7.4%. That's on top of last year's +29% gains.

Normally the stock market sees a -10% correction twice a year. The S&P 500 has now gone 1,006 days without a 10% correction. This is only the fifth time since 1928 it has managed this feat. It would be natural to think we are due for a pullback, and we are. However, stocks can keep running a lot longer than anyone expects. The longest streak on record without a -10% pullback was 2,553 days back in the 1990s.

I am concerned that the 2,000 level will prove to be significant round-number, psychological resistance. The index looks overextended so it's tough to say what real support would be. If we do see the S&P 500 hit 2,000 and then correct lower a -5% pullback would mean a drop to the 1900 level. A -10% correction would mean a drop to 1800. Such a move is not going to happen in a straight line but we all know stocks move faster going down than they do going up.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ raced higher last week with a +2.0% gain. After breaking out past its Marc highs and the 4400 level now it's quickly approaching potential round-number resistance at the 4,500 mark. This index is now up 7 out of the last 8 weeks.

If the NASDAQ does see a pullback from the 4,500 level we can look for support near 4400 and 4300.

Bespoke Investment noted some interesting numbers on the NASDAQ's performance. The NASDAQ plunged from 5,132 in March 2000 to a low of 1,108 in October 2002. That's a -79% drop. It's been 4,285 days since its closing low in 2002. Since then the index is up +302%. Believe it or not but the NASDAQ is only 12.5% away from its all-time highs.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index managed a +1.5% gain last week. Unfortunately the rally stalled right under its March 2014 highs in the 1210 area. That is a bit troubling. A failure here would look like a bearish double top pattern. If the small caps fail it will weigh on the entire market. Bears could argue the $RUT is overbought with a six-week surge from its May lows near 1090 to today near 1210 (+11%).

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

After last week's flurry of economic data this week is going to be pretty quiet. The FOMC minutes are the only real "event" to watch for. We are not expecting the minutes to be market moving. That means the market should start to focus on Q2 earnings.

Alcoa begins the Q2 earnings season on Tuesday. The pace of earnings does not really pick up speed until the following week.

Economic and Event Calendar

- Monday, July 07 -
(nothing significant)

- Tuesday, July 08 -
Alcoa (AA) kicks off Q2 earnings season

- Wednesday, July 09 -
FOMC minutes from the last meeting

- Thursday, July 10 -
Weekly Initial Jobless Claims
Wholesale inventory data

- Friday, July 11 -
Wells Fargo (WFC) the first big financial company to report Q2 earnings

Additional Events to be aware of:

July 18th - G20 Meetings
July 30th - FOMC meeting
Sept. 1st - U.S. market closed for Labor Day

Looking Ahead:

Corporations blamed the terrible winter weather on their disappointing Q1 earnings results. They will have no such excuse this time. Almost 20% of the S&P 500 companies have already warned about their Q2 results. That doesn't bode well. Then again it could be a blessing in disguise. If they have issued an earnings warning then they've set the bar low. Investor reaction could be muted since they are already expecting disappointing results. On the other hand if almost 100 of the 500 S&P 500 companies have warned, how many more are struggling and hoping to just meet estimates. Analysts have downgraded their estimates on earnings growth from +7.3% to +5.2% in the second quarter.

This week is going to be a quiet one for economic news and while earnings season will start the pace of earnings doesn't really pick up until the following week. This vacuum of information might let geopolitical concerns steal the spotlight.

Geopolitical Concerns

The situation in Ukraine is escalating. After an unsuccessful ceasefire a week ago the Ukraine government has gone on the offensive. This weekend Ukraine forces have retaken a key rebel stronghold in the city of Slavyansk. Meanwhile there are new reports of Russian helicopters crossing over Ukraine's eastern border. It does not help when Ukraine's minister of the interior publically claims they will retake Crimea from Russia.

The fighting in Iraq continues. The ISIS Sunni insurgents are trying to solidify their positions while Iraqi forces regroup. Iraq has been using airstrikes thanks to Russian jets to pound rebel locations. ISIS leaders are calling for support from Sunnis around the world as they declare a new caliphate. Saudi Arabia, Iraq's southern neighbor, has moved 30,000 troops to its border with Iraq. Saudi claims it is an effort to protect themselves from the "terrorists" but other claim that the Sunni-dominated Saudi has actually been sponsoring the Iraqi insurgents. There is actually speculation that Saudi might make a land grab if Iraq starts to crumble.

North of Baghdad the Kurds are moving closer to their own independence. The semiautonomous region has been fighting a political battle with the Iraq government for months. Now that Iraq is struggling to stay alive the Kurds have decided that maybe now is a good time to declare their own separate statehood. New development suggest the Kurdish parliament could vote on their independence within the next two months.

We are also seeing a significant flare up in violence in Israel and Gaza. There is always a level of violence just simmering beneath the surface between the Israelis and Palestinians. Two weeks ago three Israeli teens were kidnapped. Their bodies were found last Monday and the blamed on Hamas. In response someone has killed a Palestinian teenager (blamed on Israelis). These killings have sparked a new level of violence. Rockets and mortars fired from Gaza continue to land in Israel and Israel has responded with new airstrikes. The dead teens have stirred up public passions on both sides.

The U.S. markets have so far turned a blind eye to all of these geopolitical events. Unfortunately we can never know when the next even might be the match that lights a sell-off in equities. The markets have also ignored the rising inflation in food prices in the U.S. and rising gasoline prices. Food is up significantly this year and while gasoline prices normally rise in summer they are at significant highs again.

The national average for gas in the U.S. is about $3.67 a gallon. On the west coast it's about $4.50 while drivers close to the Gulf of Mexico play about $3.25. Deutsche bank noted a while ago that every penny increase in the cost of gasoline costs the U.S. consumer about $1 billion (actually about $1.4 billion). That's a lot of disposable income that is going into the gas tank and not spent shopping elsewhere.

Stock market gains are supposed to be driven by corporate earnings. If Q2 earnings do not deliver we could see analysts start to revise their estimates lower for the rest of the year including their estimates on market performance. Most stock market analysts were not expecting the S&P 500 to rally past 2,000 this year. Now that we're almost there (at the 2,000 mark) do they raise their targets or tell clients to take some money off the table? Keep in mind that U.S. Q1 GDP growth was -2.9%. It certainly looks like the economy improved in Q2 but we will not meet current estimates for 2014 growth at the current pace. If you're a fund manager what would you do today?

Now consider that we are about to hit the worst two months of the year for stock performance in August and September. If that wasn't enough throw on top of that the facet of a mid-term election in November. Late summer will be filled with political noise, which tends to push consumer confidence lower.

I am not saying the rally is over. The S&P 500 could slice through 2,000 and keep right on trucking. Or it could reverse as everyone lightens up to take profits. As long as investors continue to ignore all of the geopolitical issues in the world, I suspect that Q2 corporate guidance will be the deciding factor on new highs above 2,000 or a correction that starts in the second half of July.

Individual investors will have to decide if you want to take some money off the table now or if you hang on and hope the ride continues.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks are surging into the second half of 2014. The S&P 500 and the Dow Industrials both ended the first week of July as new record highs.

BZH and WDC have graduated from the watch list to our active play list.

I have updated the stop losses on EXPE, HES, ITW, NS, PKG, and TPX

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

Finally Breaking Out

by James Brown

Click here to email James Brown


- New Trades -


The Hartford Financial Services Group - HIG - close: 36.85

Comments:
07/06/14: It looks like our patience with HIG might pay off. We've been waiting for the stock to breakout past major resistance near $36.50. The stock has been consolidating sideways beneath this level for months. The plan was to buy calls if HIG can close above $36.75. Shares met that entry point requirement with Thursday's close at $36.85. We want to open positions on Monday morning.

Investors should note that HIG is scheduled to report earnings on July 30th.

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.

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.

We want to buy calls on Monday morning

BUY the 2015 Jan $40 call (HIG150117C40) current ask $0.85

- or -

BUY the 2016 Jan $40 call (FFIV160115C40) current ask $2.97

07/03/14 triggered with a close at $36.85, above our trigger of $36.75
Option Format: symbol-year-month-day-call-strike

Chart of HIG:

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



Play Updates

Bulls March Stocks Higher

by James Brown

Click here to email James Brown

Editor's Note:

We added two more watch list candidates last week (BZH and WDC).


Closed Plays



None. No closed plays this week.




Play Updates


American Airlines Group, Inc. - AAL - $41.62

Comments:
07/06/14: Airline stocks underperformed last week thanks to a big drop on Wednesday. Delta (DAL) led the group lower after issuing an earnings warning and blaming lower airfares in Europe and the Mideast. DAL is currently holding support near $38.00 Meanwhile shares of AAL look like they are headed for what should be round-number support near $40.00.

I am not suggesting new positions at this time.

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 $3.30/3.40

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $6.50/7.50

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: 134.94

Comments:
07/06/14: AAP spent most of last week consolidating sideways near the $135.00 level. Shares did post another gain making it their sixth weekly gain out of the last seven weeks. Nimble traders could launch new positions on a dip near the 10-dma. If the market sees any weakness we might see AAP retest support near $130.00.

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 $6.50/7.60

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

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: 55.64

Comments:
07/06/14: AIG rebounded from technical support near its 30-dma and is now once again testing multi-year highs. A close above $56.00 could be used as an alternative entry point for bullish positions.

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 $1.43/1.51

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $4.15/4.40

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


Beazer Homes - BZH - close: 20.56

Comments:
07/06/14: BZH is a watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $21.10 and then buy calls the next morning. The stock continued its bullish reversal higher and closed at $21.21 on July 1st. Our trade opened the next morning with BZH gapping down to $20.87. The drop on Wednesday looks like a reaction to a downgrade.

I expect BZH to find support near $20.00. Investors could use a dip or a bounce near $20.00 as a new bullish entry point.

Earlier Comments: June 22, 2014:
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.

Our long-term target is the $26.00 area. Currently the Point & Figure chart is bullish and forecasting at $27 target.

- Suggested Positions -
Jul 01, 2014 - entry price on BZH @ 20.87, option @ 1.80*
symbol: BZH150117C22 2015 JAN $22 call - current bid/ask $1.60/1.80

- or -

Jul 01, 2014 - entry price on BZH @ 20.87, option @ 3.30*
symbol: BZH160115C25 2016 JAN $25 call - current bid/ask $2.30/3.00

07/02/14 trade begins. BZH gaps down at $20.87
*option entry price is an estimate since the option did not trade at the time our play was opened.
07/01/14 BZH closed @ 21.21, above our trigger of $21.10
Option Format: symbol-year-month-day-call-strike

Chart of BZH:

Current Target: BZH @ 26.00
Current Stop loss: 19.75
Play Entered on: 07/02/14
Originally listed on the Watch List: 06/22/14


Caterpillar Inc. - CAT - close: 111.08

Comments:
07/06/14: CAT continues to drive higher. This stock's relative strength has been a boon to the Dow Industrials Average. Shares of CAT broke through resistance near $110 last week.

CAT has resistance near $117.00. I am setting our exit target at $116.00.

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 $5.90/6.00

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $9.80/10.35

07/06/14 adjust exit target to $116.00
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 @ 116.00
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: 149.81

Comments:
07/06/14: I am urging caution on our CRR trade. The action last week is bearish. CRR broke through potential resistance at $150.00 and then reversed sharply. Traders did buy the dip at its rising 10-dma but it still looks like a potential short-term top. CRR should have support in the $140-142 area if this stock corrects lower.

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 $10.90/12.20

07/06/14 caution: CRR may have just formed a bearish reversal.
06/23/14 CRR hit our entry trigger at $143.50 (intraday)
Option Format: symbol-year-month-day-call-strike

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: 86.84

Comments:
07/06/14: The rally in DIS continues with shares up six out of the last seven sessions. The stock has closed right on a long-term trend line of higher highs. This could be resistance again. I am not suggesting new positions.

More conservative investors may want to 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 $12.95/13.25

07/06/14 DIS is testing a trend line of higher highs
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

Chart of DIS:

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: $52.05

Comments:
07/06/14: DOW has spent the last few days consolidating sideways following an earnings warning from DuPont (DD). DOW displayed some relative strength on Thursday but the $52.00 area is short-term resistance.

If the market dips I would expect DOW to retest the $50-51 zone again.

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 $1.81/1.84

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $3.90/4.05

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: 73.32

Comments:
07/06/14: DVA eked out another gain and another record high. Investors may want to wait for a pullback toward support in the $70-71 zone before considering new bullish positions.

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 $2.90/3.40

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.80/6.70

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: 82.21

Comments:
07/06/14: It was another strong week for EXPE. The stock garnered some bullish analyst comments and a new $90 price target. By Thursday's closing bell EXPE had broken out past its February 2014 highs.

Tonight we are moving our stop loss to $74.75.

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 $10.90/11.40

07/06/14 new stop @ 74.75
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: 74.75
Play Entered on: 06/09/14

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


F5 Networks - FFIV - close: 112.36

Comments:
07/06/14: FFIV has produced a big bounce off its late June lows. Yet the rally has stalled again at its trend line of lower highs dating back to the 2012 peak. 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 $7.10/7.30

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $11.75/12.05

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: 70.97

Comments:
07/06/14: HAL has been consolidating sideways just north of $70 but shares did manage a 50-cent gain for the week. The stock remains short-term overbought here. Nearest support looks like the $66 area.

I am not suggesting new positions at this time.

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 $5.25/5.35

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $9.10/9.25

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: 99.93

Comments:
07/06/14: Investors will want to seriously consider taking profits right now. HES is up seven weeks in a row and is currently testing round-number, psychological resistance at the $100.00 level. HES is due for a pullback and the nearest support is probably $95.00.

Tonight we're raising the stop loss to $92.25.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - current bid/ask $ 8.75/ 9.25

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $10.60/11.25

07/06/14 new stop loss @ 92.25
Investors may want to take profits now with HES testing $100
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: 92.25
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/06/14


Honeywell Intl. - HON - close: 94.88

Comments:
07/06/14: Once again HON looks like it's ready to rally to new highs. We'll have to see if it can push through resistance in the $95-96 level again. HON is scheduled to report earnings on July 18th. More conservative investors will want to consider exiting prior to the announcement.

- 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 $10.85/11.30

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: 87.70

Comments:
07/06/14: Hmm... ITW post another weekly loss. That's two down weeks in a row while the rest of the market is hitting new relative highs. This is a warning signal. Investors may want to abandon ship early. I am raising our stop loss to $84.85.

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 $ 2.70/ 2.80

- or -

MAY 13, 2014 - entry price on ITW @ 87.57, option @ 6.65*
symbol: ITW1615a90 2016 JAN $90 call - current bid/ask $ 6.20/ 6.40

07/06/14 new stop @ 84.85
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: 84.85
Play Entered on: 05/13/13
Originally listed on the Watch List: 05/04/14


Joy Global Inc. - JOY - close: 61.78

Comments:
07/06/14: Shares of JOY are still quietly consolidating sideways. I mentioned Freeport (FCX) last week as a potential candidate in the mining space. Now I wish we had added it considering FCX's big rally the last few days.

As far as JOY goes I am not suggesting new positions at this time.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - current bid/ask $ 3.05/ 3.20

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 4.40/5.00

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: 41.80

Comments:
07/06/14: After breaking out to multi-year highs two weeks ago shares of MSFT stalled last week. Shares drifted lower to test their 20-dma. Lack of follow through on the breakout past $42.00 is disappointing. Investors may want to wait for another dip near the 50-dma before considering new positions.

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 $ 0.96/1.01

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 2.49/2.58

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

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: 64.00

Comments:
07/06/14: The rally in NS accelerated last week. Shares were showing a lot of strength on Wednesday with a surge toward $65.00. These are multi-year highs for the stock. I am raising our stop loss to $59.25, which is just below the 50-dma.

Our target remains $69.00.

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 $ 8.80/10.10

07/06/14 new stop @ 59.25
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: 59.25
Play Entered on: 04/04/14
Originally listed on the Watch List: 03/23/14


Packaging Corp of America - PKG - $70.93

Comments:
07/06/14: PKG delivered a disappointing performance. Shares broke through resistance near $72.00 on Tuesday only to reverse immediately lower on Wednesday.

I am raising our stop loss to $65.75. More conservative investors may want to use a higher stop loss. I'm not suggesting new positions at this time.

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 $ 2.20/2.65

- or -

JUN 06, 2014 - entry price on PKG @ 70.82, option @ 6.60*
symbol: PKG160115c75 2016 JAN $75 call - current bid/ask $ 4.30/6.20

07/06/14 new stop @ 65.75
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: 65.75
Play Entered on: 06/06/14
Originally listed on the Watch List: 05/18/14


QUALCOMM Inc. - QCOM - close: 80.99

Comments:
07/06/14: It's amazing the difference a week can make. We were contemplating an early exit last week given QCOM's relative weakness. Suddenly shares are surging and up six days in a row. QCOM is now testing resistance at its April highs near $81.00. A breakout past $82 would be new 14-year highs for QCOM.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $7.65/7.80

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: 22.66

Comments:
07/06/14: SUNE received a new "buy" rating from an analyst last week. Unfortunately that didn't stop shares from seeing a little profit taking.

I would still consider new positions now but investors may want to wait and see if SUNE dips closer to the $20-21 zone first.

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 $2.69/2.76

- or -

JUN 27, 2014 - entry price on SUNE @ 23.00, option @ 3.85*
symbol: SUNE160115c30 2016 JAN $30 call - current bid/ask $3.30/3.70

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

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: 60.49

Comments:
07/06/14: Slow and steady is the winning combo in TPX. Shares continue to buy the dips. Shares of TPX bounced off their rising 10-dma on Thursday and rallied to a new two-year high. The close above potential resistance at $60.00 is bullish.

We are moving our stop loss to $54.75.

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 $6.30/6.70

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - current bid/ask $6.50/7.90

07/06/14 new stop @ 54.75
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: 54.75
Play Entered on: 05/28/14
Originally listed on the Watch List: 05/26/14


Western Digital Corp. - WDC - close: 92.90

Comments:
07/06/14: WDC is another watch list candidate that has graduated to our play list. The plan was to use an intraday trigger to buy calls when WDC hit $95.25. WDC hit our trigger on July 1st and continued to climb slowly the rest of the week. These are new all-time highs for the stock. I would consider new positions now at current levels.

Earlier Comments: June 22, 2014:
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.

- Suggested Positions -
JUL 01, 2014 - entry price on WDC @ 95.25, option @ 5.62
symbol: WDC150117C100 2015 JAN $100 call - current bid/ask $6.15/6.35

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $8.70/8.95

07/01/14 WDC hit our intraday trigger at $95.25
*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 WDC:

Current Target: WDC @ 110.00
Current Stop loss: 89.40
Play Entered on: 05/28/14
Originally listed on the Watch List: 06/22/14


Wells Fargo & Co. - WFC - close: 53.00

Comments:
07/06/14: WFC eked out another weekly gain by 10 cents. The company is scheduled to report earnings on Friday, July 11th. I would not be surprised to see WFC drift sideways from now into its report.

Our options have significant gains. More conservative investors will want to seriously consider taking some money off the table before WFC reports Friday morning.

I am not suggesting new positions at this time.

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 $ 3.80/3.95

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 5.30/5.40

07/06/14 investors may want to take profits before WFC reports earnings on July 11th.
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: 72.35

Comments:
07/06/14: WSM has spent the last couple of days consolidating sideways. The stock managed its third weekly gain in a row thanks to the rally on Tuesday.

If the market sees a decline I would watch the $70.00 level for short-term support.

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 $ 5.70/6.20

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 7.10/7.80

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: 102.59

Comments:
07/06/14: Investors finally jumped in to buy the dip in XOM. The stock is up three days in a row. I'd like to see a little more follow through higher before readers consider launching new positions.

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 $ 2.79/2.96

-- or --

JUN 23, 2014 - entry price on XOM @ 104.11, option @ 4.35
symbol: XOM160115c110 2016 JAN $110 call - current bid/ask $ 3.70/4.00

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

Transportation & Healthcare

by James Brown

Click here to email James Brown



New Watch List Entries

UNP - Union Pacific

WLP - WellPoint Inc.


Active Watch List Candidates

VFC - V.F. Corp.


Dropped Watch List Entries

BZH and WDC have graduated to our active play list.

HIG met our entry point requirement on Friday and has been moved to the new trades section.



New Watch List Candidates:


Union Pacific - UNP - close: 100.98

Company Info

UNP is in the transportation industry. They are one of the biggest railroads in the nation covering 23 states across the western two-thirds of the United States. UNP is also the only railroad that serves all six major Mexico-U.S. gateways.

Wall Street is bullish on the railroads. Rail traffic has been consistently growing. A Barclays analyst recently said, "asset-based transportation networks thrive in periods of stronger economic expansion and modestly rising inflation. With second quarter results ripe to usher in more bullish sentiment in the space, we expect valuations could have further to run as markets discount a more robust outlook."

Another analyst, Mr. Spracklin with RBC, recently said, "We continue to favor the rail sector, as we consider market fundamentals to be supportive of sustainable increases in both freight rates and volume levels for the next three to five years... Our positive thesis on United Pacific reflects the company's low-risk, high-growth profile, with limited coal exposure, a healthy balance sheet, unparalleled access to Mexico and unique growth opportunities in chemicals and intermodal."

Technically shares peaked a few weeks ago around its 2-for-1 stock split in June. It looks like the post-split depression might be over already. UNP has been consolidating sideways and currently looks ready to move higher again.

Wait for shares of UNP to close above $101.50 and then buy calls the next morning. I'm suggesting a short-term target of $115 for the 2015 calls and a target of $124 for the 2016 calls. Currently the point & figure chart is bullish and projecting at $135 target.

FYI: UNP is scheduled to report earnings on July 24th. More conservative investors may want to wait until after the earnings report before considering new positions.

Breakout trigger: Wait for a close above $101.50
then buy calls the next morning with a stop loss at $98.40.

BUY the 2015 Jan $105 call (UNP150117C105) current ask $3.05

- or -

BUY the 2016 Jan $110 call (UNP160115c110) current ask $5.45

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

Chart of UNP:

Originally listed on the Watch List: 07/06/14


WellPoint Inc. - WLP - close: 110.16

Company Info

WellPoint is one of the nation's leading health benefits companies. We believe that our health connects us all. So we focus on being a valued health partner and delivering quality products and services that give members access to the care they need. With nearly 67 million people served by our affiliated companies including nearly 37 million enrolled in our family of health plans (source: WLP website).

Healthcare stocks have been market leaders. Both the XLV healthcare ETF and the XHS healthcare services ETF are at all-time highs. One of the factors driving this move has been Obamacare. Love it or hate it the Affordable Care Act has generated more customers for the healthcare industry. The latest data would suggest about eight million people have signed up for Obamacare. It would appear that 60% of the people that have signed up did not previously have insurance.

A lot of insurance/healthcare firms expect their participation in the Obamacare program to either be a breakeven or end up with negative margins. WLP has been forecasting their Obamacare business should see 3% to 5% margins.

WLP has also done well focusing on the Medicaid business. They are currently the largest participant in Medicaid and they believe it will continue to grow for them at a double-digit rate.

Technically shares of WLP are hitting all-time highs. Shares produced a big rally higher in May and spent most of June consolidating gains in the $105-110 zone. Now WLP is on the verge of a breakout. Thursday's intraday high was $111.01. I am suggesting we wait for WLP to close above $111.00 and then buy calls the next morning with a stop loss at $104.75. Our long-term target is the $130.00 area. Currently the Point & Figure chart is bullish and forecasting at $149.00 target.

FYI: Investors should note that WLP is due to report earnings on July 30th.

Breakout trigger: Wait for a close above $111.00
then buy calls the next morning with a stop loss at $104.75

BUY the 2015 Jan $120 call (WLP150117C120) current ask $3.15

- or -

BUY the 2016 Jan $125 call (WLP160115c125) current ask $6.65

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

Chart of WLP:

Originally listed on the Watch List: 07/06/14


Active Watch List Candidates:



V.F. Corp. - VFC - $63.37

Comments:
07/06/14: VFC is slowly drifting higher. Shares are now up three weeks in a row yet they remain below resistance at $64.00.

I would not be surprised to see VFC drift sideways until the company reports earnings on July 18th. Readers may want to avoid launching positions on the 18th and wait for the dust to settle following the earnings announcement.

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