Option Investor
Newsletter

Daily Newsletter, Sunday, 7/13/2014

Table of Contents

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

Leaps Trader Commentary

Fly In Our Bull Market Soup

by James Brown

Click here to email James Brown

The U.S. stock market started the third quarter on an up note. Momentum faded and equities experienced a rocky week thanks to some troubling headlines out of Europe. Believe it or not but after last week's choppiness and widespread declines the S&P 500 index is still less than one percent from its all-time high set on July 3rd - just five trading days ago.

Stocks just delivered their worst weekly performance in three months. The small cap Russell 2000 index led the way with a -3.99% plunge. The NASDAQ composite fell -1.6% for the week. Both the Dow Industrials and the large cap S&P 500 managed to pare their weekly losses to less than 1%.

Tuesday and Thursday were pretty ugly considering the low-volatility environment. Yet traders are still in a buy-the-dip mood. The main stories fueling the market weakness was disappointing economic data out of Asia and Europe. Plus, a shocking revelation out of Portugal that resurrected all the worries about a financial meltdown in Europe but we'll talk more about that in a minute.

Money was searching for safety and U.S. bonds rallied. The yield on the 10-year note pierced 2.5% on Thursday and closed at 2.52% on Friday. Gold was also in rally mode and the GLD broke out to three-month highs. Gold is currently up six weeks in a row, which makes it the best streak since August 2011. Gold prices are up +6% in the last six weeks and up +10.9% for the year. Meanwhile gold miners are really outperforming. The GDX gold miner ETF is also up six weeks in a row. It has been a very volatile year for the GDX but it's currently up +29% year to date.

In contrast oil is down sharply. West Texas intermediate crude oil futures fell -2% to close at $100.83 a barrel. Oil is now down 9 out of the last 10 days and just marked its fourth weekly loss in a row. The International Energy Agency said Iraqi oil production fell -260,000 barrels a day last week but the difference was made up by other OPEC nations. Fighting continues in Iraq but the headlines are not making front page news so its impact is not having an effect on investor sentiment.

Economic Data

It was a quiet week for economic data in the United States. The only real event was the FOMC minutes from the June meeting. The message the market got from the minutes was that the Fed is likely to end its current QE program and reduce the stimulus by the last $15 billion in October. You could choose to interpret that as confidence that the U.S. economy is improving. Analyst are now looking beyond the end of QE and speculating on when the Federal Reserve will start to raise rates again.

Bloomberg noted some good news in consumer sentiment hitting the highest levels in six years. The Bloomberg Consumer Comfort Index rose +1.2 to 37.6 the week ending July 6th. The component that measures consumer outlook on the U.S. economy reached levels not seen since January 2008.

Overseas Data

With little economic news in the U.S. the markets looked overseas and what they saw was disappointing. Germany said their industrial production fell -1.8% for the month. That's down from a -0.3% reading the month before. Italy reported a -1.2% drop in their industrial production and Great Britain saw a -0.7% drop.

Japanese machinery orders plunged -19.5% for the month, which doesn't bode well. China said their exports rose +7.2% in June. That looks like good news but economists were expecting a +10% gain. Meanwhile Germany said their exports actually dropped -1.1% in May. That was worse than the -0.4% estimate.

The real story of the week was in Portugal. With a GDP of $212.5 billion and a population of less than 11 million people, Portugal is not a very big player on the world stage. Yet the European banking system is so interconnected that if Portugal were to see a dramatic failure the shockwave could affect the entire region. Espirito Santo International failed to make a short-term debt payment. ESI happens to own Espirito Santo Financial Group SA and Banco Espirito Santo. Suddenly the creditworthiness of both financial companies were in question. The two stocks plunged -9% and -14%, respectively, before the exchanges halted trading.

This news fueled a serious case of nervousness for the European financial system and European banks were hammered lowered. The Portuguese stock market fell -4.2% on Thursday while the country's bond yields soared. Portugal's central bank was trying to soothe investors' fears on Friday and the major European indices (Germany, France, and Britain) all bounced.





Major Indices:

The S&P 500 lost -0.9% for the week. The index pierced short-term support near 1960 and its 20-dma on Thursday. On a short-term basis the index looks like it wants to rally. Yet looking at the weekly chart you can see how over extended the index really is. The S&P 500 has gone more than 1,000 days without a -10% correction. In a normal market it would see a correction about once or twice a year.

I don't see any changes from my prior comments on the S&P 500. If the 1960 level fails then there might be support at 1940 and 1920. The real level to watch is most likely the 1900 area, which would coincide with the bottom of its long-term bullish channel on the weekly chart.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite posted a -1.6% loss for the week. The good news is that this index managed to bounce near its prior highs. There is no guarantee that "support" near 4370 is going to hold.

If the NASDAQ breaks down below the March peak then 4300 is the next likely level of support. A really ugly drop could pull the NASDAQ down to its long-term trend line of higher lows on the weekly chart.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

Right now there is a lot of focus on the small cap Russell 2000 index. This index just delivered its worst weekly performance in two years with a -4% plunge. The $RUT has clearly reversed at resistance near its March highs. This is starting to look like a bearish double top.

There is still potential support in the 1140-1150 zone. Below that the 1080-1100 area is probably decent support. The six-week up trend from the May lows is clearly broken.

The current sell-off in the $RUT has 39% of the Russell 2000 stocks trading in bear market territory.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

This week will see an increase in economic reports. We'll get two Fed surveys with the New York and Philadelphia reports. Plus, the wholesale look at inflation in the PPI.

The pace of Q2 earnings announcements will pick up speed.

Economic and Event Calendar

- Monday, July 14 -
Q2 earnings season announcements pick up speed.
Citigroup (C) reports earnings

- Tuesday, July 15 -
New York Empire State manufacturing data
Retail sales for June
Import/Export prices
JPM, GS, INTC, and JNJ reports earnings

- Wednesday, July 16 -
Producer Price Index (PPI)
U.S. Industrial Production data
Federal Reserve's Beige Book
BAC and EBAY report earnings

- Thursday, July 17 -
Weekly Initial Jobless Claims
Housing Starts & Building Permits
Philadelphia Federal Reserve survey
MS, IBM, and GOOG report earnings

- Friday, July 18 -
University of Michigan Consumer Sentiment
G20 Meetings
GE, HON, and KSU report earnings

Additional Events to be aware of:

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

Looking Ahead:

Looking ahead the market still faces potential geopolitical risks. The situation in Israel is slowly escalating. Hamas terrorists fired over 800 rockets and more than 60 mortars into Israel last week. The Israelis responded with airstrikes that hit more than 1,000 targets. On Friday Israeli commandos traded fire with Hamas fighters but it does not appear to be part of a full scale invasion. Israel has not ruled anything out and continues to build up its forces on the Gaza border. Israeli Prime Minister Netanyahu said he has spoken with several world leaders in the past week including U.S. President Obama and several European leaders. If the Israeli army does march into Gaza it might be negative for investor sentiment.

The situation in Ukraine is not improving either. On Friday the pro-Russian rebels killed almost two dozen Ukraine forces. This time they were using "heavy" weapons including what appear to be Russian rockets. Ukraine President Petro Poroshenko had declared that, "For every life of one of our soldiers, the militants will pay with dozens and hundreds of theirs." U.S. Vice President Biden spoke with Poroshenko on Saturday saying the U.S. would continue to pressure Russia to do more to stop the violence and remind them of the consequences if they do not. There will be an EU summit in the July 16-18 time frame and one of the main topics will be Russia and if the country has done enough to counter the rebels that Ukraine claims are being supplied by the Russians.

Overall little has changed from last weekend. August and September are historically the worst two months of the year for stocks. A midterm election in November could generate more market volatility.

The consumer got a bonus as gas prices have started to recede from their recent highs. That's great news if this trend continues. It should help offset the rising price of food, especially meats. Retail remains a tough place to be right now. The Container Store warned and management said they're in a "funk" right now. The Tractor Supply Co. (TSCO) just issued an earnings warning a couple of days ago. The only "retailers" who appear to be winning are Amazon.com, which saw strong sales growth compared to a year ago.

The market trend is up if you look at the S&P 500 and groups like the semiconductors and transportation sector ETFs support the trend. Yet the sharp reversal in the small cap Russell 2000 remains a fly in our bull market soup.

I suspect the next two weeks could be pivotal as the market digests a flood of Q2 earnings news. The key will be corporate guidance and what businesses are projecting for the rest of 2014.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The large cap indices like the S&P 500 are still holding up pretty well in spite of last week's declines. It's the small caps and the momentum names that are really underperforming.

I have updated the stop losses on SUNE

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

Volatility Up But No Correction Yet

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(July 13, 2014)

We saw volatility jump last week thanks to some market declines. Yet the VIX remains just a couple of points from its seven-year lows set last week. In spite of the market's weakness this past week the S&P 500 index is still less than 1% from its all-time high.

Have we seen the start of a market correction? Possibly. The key could be the small cap Russell 2000 index, which has reversed sharply at resistance and continues to underperform the rest of the market. It's the small caps and momentum names that are having the worst time of it. There are several groups in the market, like transports and semiconductors, that remain strong and still near their highs.

There is no correction yet in the S&P 500 and the NASDAQ composite. I suspect investors are waiting on Q2 earnings. The earnings reporting season begin this past week but the pace of announcements will pick up speed significantly this week.

The key will be corporate guidance. What does management expect in the second half of 2014. Are they confident or are they cautious?

The next couple of weeks could be a market top or they could provide the energy needed to propel stocks higher if corporate guidance is good enough. Given the pivotal nature of where we are in earnings season I am not adding any new plays tonight.

I've updated my radar screen. My favorites have an asterisk next to them.

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:

AA, CSX, PEP, CCE, GM, F, XRS, TRLA, EOG, APA, SLB, ORLY*, SAVE, SBUX, GMCR, COST*, ALK*, FDX, BRK.B, LEA* GILD, NKE*, AAPL, BHP, BBRY,



Play Updates

Recovering from Thursday

by James Brown

Click here to email James Brown

Editor's Note:

The broader market was choppy last week. Thursday's sharp drop at the opening bell produced a gap down in a lot of stocks.


Closed Plays


BZH hit our stop loss.



Play Updates


American Airlines Group, Inc. - AAL - $42.88

Comments:
07/13/14: The last couple of weeks have been volatile for the airline stocks. Shares of AAL pierced the $38.00 level and technical support at its simple 100-dma on Tuesday's market decline. Fortunately the group has bounced. It didn't hurt that Barclays came out and reaffirmed their bullish view on the airlines and raised their price target on AAL from $41 to $47.

I am not suggesting new positions at the moment.

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 $3.75/4.05

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $7.30/7.75

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: 133.29

Comments:
07/13/14: It was a quiet week for AAP. The stock has been consolidating sideways in the $132-134 area. If the market dips then I would consider buying a bounce from the $130 level. If the market rallies then a breakout past $134 could be used as an alternative entry point.

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 $5.60/6.80

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: 54.52

Comments:
07/13/14: The stock market's sharp decline on Thursday morning sent AIG toward $53.00. Shares managed to recover enough to close back above their 50-dma.

Look for support near $52.00 and resistance at $56.00. AIG is due to report earnings in early August.

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 $1.10/1.18

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $3.60/3.80

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

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


Caterpillar Inc. - CAT - close: 109.96

Comments:
07/13/14: Shares of CAT were upgraded earlier in the week but the stock failed to move on this news. Then the market's widespread drop on Thursday pushed CAT to its simple 30-dma. The stock has bounced back to testing round-number resistance near $110 again.

I am not suggesting new positions at this time.

CAT is scheduled to report earnings on July 24th.

- Suggested Positions -
APR 03, 2014 - entry price on CAT @ 101.92, option @ 3.50*
symbol: CAT1517a110 2015 JAN $110 call - current bid/ask $5.25/5.40

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $9.10/ 9.70

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: 141.95

Comments:
07/13/14: Warning! It was a rough week for CRR. The stock fell almost eight points or about -5%. If you look at a weekly chart of CRR the stock has formed a three-candle bearish reversal pattern. More conservative investors will want to seriously consider an early exit or raising their stop loss closer to $140.00, which I expect to be support (bolstered by its 50-dma).

I cautioned readers that CRR might correct lower toward $140 but the relative weakness is troubling. I am not suggesting new positions at this time.

FYI: CRR is due to report earnings on July 31st.

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 $ 7.60/ 9.00

07/13/14 the action last week was bearish. CRR has formed a three-candle reversal pattern on its weekly (candlestick) chart.
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: 86.89

Comments:
07/13/14: DIS weathered the market's volatility last week very well. Shares are hovering near their highs. The next challenge for the bulls is probably round-number resistance at $90.00.

I am not suggesting new positions at this time.

DIS is scheduled to report earnings on August 5th.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $12.80/13.20

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

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: $51.60

Comments:
07/13/14: DOW bounced twice near $50.50 last week. This is starting to look like a new short-term bottom for the stock. I would be tempted to buy calls again on a rally above $52.25. However, more conservative investors may want to wait until after we see how the market reacts to DOW's earnings report on July 23rd before initiating new 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 $1.57/1.60

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $3.65/3.80

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: 73.08

Comments:
07/13/14: DVA ignored the market's choppiness last week. Shares consolidated sideways near $73.00. I would hesitate to launch new positions here. If the market dips again we could see DVA test the $70-71 area, which would be a better entry point.

DVA is due to report earnings on July 31st.

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 $2.65/3.00

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.70/6.50

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: 79.73

Comments:
07/13/14: After a multi-week rally shares of EXPE encountered some profit taking last week. The stock fell to technical support at its rising 20-dma.

On Monday EXPE announced they would buy Wotif.com for $657 million. Wotif Group is an Australian company and will allow EXPE to boost growth in the Asia-Pacific region.

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 $ 9.50/10.00

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: 110.20

Comments:
07/13/14: FFIV continues to struggle with its long-term trend line of lower highs that I have outlined previously. Even a new analyst' buy rating last week failed to lift shares past this resistance. If FFIV does break through this trend line it will be very bullish.

FFIV is scheduled to report earnings on July 23rd.

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 $6.10/6.35

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $10.80/11.10

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

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: 68.99

Comments:
07/13/14: The price of oil has been falling for four weeks in a row. Oil accelerated lower on Friday and this weakness in the commodity is starting to weigh on the energy stocks.

Meanwhile HAL announced a joint partnership with Petrotech (Xinjiang) Engineering Co., a SPT Energy affiliate. Together they will form the Xinjiang HDTD Oilfield Services Co. Ltd. joint venture. This will bring HAL's expertise in hydraulic fracking to China.

Previously HAL had rallied seven weeks in a row. Last week's dip ends the streak. Support is probably near the 40-dma closer to $67.00.

HAL is due to report earnings on July 21st.

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 $4.15/4.25

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $7.95/8.10

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: 97.84

Comments:
07/13/14: HES is another high-flying energy stock that is starting to see some profit taking. Last week's decline snapped a seven-week winning streak. Support is probably the $95.00 level.

HES is scheduled to report earnings on July 30th.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - current bid/ask $ 7.05/ 7.40

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $ 9.25/ 9.75

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


The Hartford Financial Services Group - HIG - close: 36.85

Comments:
07/13/14: HIG graduated from our watch list a week ago. Our trade began on Monday morning. After consolidating sideways a few days HIG dropped with the market on Thursday morning and spiked down again on Friday possibly a reaction to WFC's earnings results. Traders bought the dip at its 50-dma.

Investors may want to wait for a new close above $37.00 before initiating new positions.

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.

- Suggested Positions -
JUL 07, 2014 - entry price on HIG @ 36.45, option @ 0.80
symbol: HIG150117c40 2015 JAN $40 call - current bid/ask $ 0.60/ 0.73

- or -

JUL 07, 2014 - entry price on HIG @ 36.45, option @ 2.95
symbol: HIG160115c40 2016 JAN $40 call - current bid/ask $ 2.23/ 2.90

07/07/14 trade begins. HIG opens at $36.45 (down 40 cents)
07/03/14 triggered with a close at $36.85, above our trigger of $36.75
Option Format: symbol-year-month-day-call-strike

Current Target: HIG @ 45.00
Current Stop loss: 33.75
Play Entered on: 07/07/14
Originally listed on the Watch List: 06/08/14


Honeywell Intl. - HON - close: 94.90

Comments:
07/13/14: HON is virtually unchanged for the week after bouncing from its 50-dma near $93 on Thursday morning. The stock looks poised to rally but shares are likely to continue sliding sideways until HON reports earnings on July 18th. The earnings announcement is Friday morning. Investors will want to seriously consider exiting positions before HON reports earnings.

I am not suggesting new positions at this time.

- 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 $10.55/11.15

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: 85.90

Comments:
07/13/14: Shares of ITW were upgraded again last week. Yet that didn't stop the profit taking. ITW is now down three weeks in a row. Shares really underperformed on Thursday with the market's gap down.

Currently ITW is hovering just above the $85.00 level. Our stop loss is at $84.85. Any further weakness will likely stop us out.

I am not suggesting new positions at this time.

ITW is due to report earnings on July 29th.

- Suggested Positions -
MAY 13, 2014 - entry price on ITW @ 87.57, option @ 3.40*
symbol: ITW1517a90 2015 JAN $90 call - current bid/ask $ 2.05/ 2.20

- or -

MAY 13, 2014 - entry price on ITW @ 87.57, option @ 6.65*
symbol: ITW1615a90 2016 JAN $90 call - current bid/ask $ 5.30/ 5.60

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: 60.29

Comments:
07/13/14: JOY is still underperforming. The stock is down three out of the last four weeks. JOY pierced what should have been support at its 50-dma and the $60.00 level. I am a little surprised that the recent rally in precious metals hasn't given JOY more of a boost since JOY tends to trade with the miners.

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 $ 2.27/2.49

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 3.85/4.25

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: 42.09

Comments:
07/13/14: The tech sector got some good news last week. The IDC Worldwide Quarterly PC Tracker said PC shipments in the second quarter of 2014 hit 74.4 million units globally. That's a -1.7% decline from a year ago. Why is that good news? Estimates were for a -7.1% decline.

Meanwhile shares of MSFT tested support near $41.00 and bounced. The stock looks ready to hit multi-year highs.

Earnings are due on July 22nd.

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 $ 0.98/1.01

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 2.56/2.66

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: 65.25

Comments:
07/13/14: NS continues to show relative strength. The stock is up three weeks in a row and looks poised to breakout past short-term resistance near $66.00. 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 $ 8.80/11.90

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 - $68.55

Comments:
07/13/14: I am urging caution on our PKG trade. The stock has really underperformed since peaking on July 1st with its breakout past resistance near $72.00. There was no follow through on the bullish breakout, which now looks like a bull trap. PKG has dropped toward support near $68 and its 150-dma.

More conservative investors may want to raise their stop closer to Thursday's low, which was $67.81. I am not suggesting new positions.

PKG is scheduled to report earnings on July 21st.

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 $ 1.35/1.70

- or -

JUN 06, 2014 - entry price on PKG @ 70.82, option @ 6.60*
symbol: PKG160115c75 2016 JAN $75 call - current bid/ask $ 2.20/6.70

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: 79.60

Comments:
07/13/14: With the market pulling back last week should we be surprised that shares of QCOM have reversed at resistance? Analysts seem cautious on the stock. Goldman Sachs trimmed their Q3 estimates. Tigress Financial downgraded QCOM from a strong buy to a buy on slower growth in China.

I am not suggesting new positions. We already have a tight stop at $77.90. QCOM is due to report earnings on July 23rd.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - current bid/ask $6.60/6.75

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: 24.05

Comments:
07/13/14: SUNE continues to show relative strength. Shares dipped to and bounced from its simple 30-dma on Tuesday. The stock has been up three days in a row since then. Friday's close at $24 is a multi-year high.

Tonight I am raising our stop loss to $19.65.

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 $3.25/3.50

- 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

07/13/14 new stop @ 19.65
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: 19.65
Play Entered on: 06/27/14
Originally listed on the Watch List: 06/22/14


Tempur Sealy Intl. - TPX - close: 60.80

Comments:
07/13/14: TPX found support multiple times near the $58.50 level. It's bounce back above $60.00 has extended its rally to four up weeks in a row.

Readers may want to raise their stop loss again. I am not suggesting new positions at this time.

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 $6.20/7.00

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - current bid/ask $7.30/8.30

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: 97.77

Comments:
07/13/14: It was a strong week for shares of WDC with the stock rising almost $5.00. Two analyst firms reiterated their bullish rating and one raised their price target to $110.

WDC is nearing what could be significant resistance at the $100.00 level. I would hesitate to launch new positions at current levels although nimble traders could buy another bounce from the rising 20-dma, which has been support the last couple of months.

FYI: WDC is due to report earnings on July 30th.

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 $6.65/6.85

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $9.20/9.50

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

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: 51.49

Comments:
07/13/14: After a seven week rally shares of WFC hit some profit taking last week. The stock fell every day of the week. The bank reported earnings on Friday morning. Wall Street was looking for a profit of $1.01 per share with revenues in the $20.7-20.8 billion range. WFC met expectations with a profit of $1.01 on revenues of $21.1 billion. Net income was $5.7 billion. That's up from $5.5 billion a year ago. Analysts are a little concerned about WFC's net interest margin. A year ago WFC's net interest margin was 3.40%. The first quarter it was 3.20%. Last quarter this fell to 3.15%. WFC is one of the biggest mortgage lenders in the country. The bank said its mortgage originations hit $47 billion in the second quarter. That's down from $112 billion a year ago but up from $36 billion in the first quarter.

The pullback in WFC is testing technical support at its 50-dma. If this level fails then $50.00 should be round-number support. A dip to and bounce from $50.00 could be a new bullish entry point.

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 $ 2.81/2.87

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.40/4.55

07/11/14 WFC reported earnings that were in-line with estimates
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: 71.77

Comments:
07/13/14: Shares of WSM gapped open higher last Monday thanks to an analyst upgrade. Since then WSM has experienced some profit taking. Its rivals in the retail industry have been struggling and their bad news might start to taint WSM. Yet so far this stock has been relatively resistant. Traders bought the dip on Friday near its 20-dma.

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 $ 5.40/5.70

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 6.70/7.30

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: 101.74

Comments:
07/13/14: Is XOM forming a head-and-shoulders top? It's starting to look that way with the pullback in the last two sessions. Crude oil has been slipping lower and just posted its fourth weekly loss. The sell-off in oil accelerated on Friday and is starting to weigh on the energy stocks.

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 $ 2.21/2.26

-- or --

JUN 23, 2014 - entry price on XOM @ 104.11, option @ 4.35
symbol: XOM160115c110 2016 JAN $110 call - current bid/ask $ 3.25/3.50

07/13/14 XOM might be forming an H&S top
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



CLOSED Plays


Beazer Homes - BZH - close: 19.29

Comments:
07/13/14: The rally in BZH reversed on us. This stock peaked on July 1st and has been down almost every day since. Our stop loss was hit at $19.75 on July 8th.

If you're bullish on the homebuilders I would watch for BZH to test support near $18.00 again and then consider buying a bounce.

- Suggested Positions -
Jul 01, 2014 - entry price on BZH @ 20.87, option @ 1.80*
symbol: BZH150117C22 2015 JAN $22 call - exit $1.25 (-30.5%)

- or -

Jul 01, 2014 - entry price on BZH @ 20.87, option @ 3.30*
symbol: BZH160115C25 2016 JAN $25 call - exit $2.15 (-34.8%)

07/08/14 stopped out at $19.75
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



Watch

Paper & Precious Metals

by James Brown

Click here to email James Brown



New Watch List Entries

IP - Intl. Paper Co.

NEM - Newmont Mining


Active Watch List Candidates

UNP - Union Pacific

VFC - V.F. Corp.

WLP - WellPoint Inc.


Dropped Watch List Entries

None.



New Watch List Candidates:


International Paper Co. - IP - close: 50.07

Company Info

IP has come a long way from its 2009 bottom at $4.00 a share. Today the stock is sitting on $50.00 and looks poised to hit new multi-year highs.

IP is not the same company they used to be. They have sold off their forestry, wood products, and chemical business. Earlier this month they just completed a spinoff of its distribution solutions business, xpedx. Now IP is focused on its core business of making paper and packaging.

IP is also focused on shareholder value. The stock currently sports a 2.9% dividend yield. Management recently announced they have doubled their stock buyback program to $1.5 billion. The company spent $461 million last year on stock buybacks.

Technically shares of IP have been consolidating sideways for months. It looks like the consolidation is about over. The early July high was $51.00. I am suggesting we wait for IP to close above $51.00 and buy calls the next morning with a stop loss at $47.40. Our long-term target is the $60.00 level.

FYI: IP is scheduled to report earnings on July 29th.

Breakout trigger: Wait for a close above $51.00
then buy calls the next morning with a stop at $47.40.

BUY the 2015 Jan $50 call (IP150117c50) current ask $2.52

- or -

BUY the 2016 Jan $55 call (IP160115c55) current ask $3.00

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

Chart of IP:

Originally listed on the Watch List: 07/13/14


Newmont Mining Corp. - NEM - close: 25.93

Company Info

According to the company website, Newmont Mining Corporation is primarily a gold producer, with significant assets or operations in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Mexico. Founded in 1921 and publicly traded since 1925, Newmont is one of the world's largest gold producers and is the only gold company included in the S&P 500 Index and Fortune 500. Headquartered near Denver, Colorado, the company has around 32,000 employees and contractors worldwide.

NEM also produces copper and silver but they are the second biggest gold producer on the planet by production. The biggest gold producer is Barrick Gold Corp. (ABX) and NEM almost merged with ABX in April this year but discussions fell apart. NEM investors either want the company to resume talks with ABX or break itself up to unlock shareholder value. That seems unlikely but JPMorgan believes the deal talks with ABX may not be dead.

I like NEM more for the technical set up on the charts. It's true that gold has been in rally mode, currently up six weeks in a row and up +10% for the year. Yet the gold miners have been outperforming and the GDX gold miner index is up +29% this year. NEM is only up +12.5% this year but it could play catch up if shares break out from its base.

The stock has been building a base in the $21-26 zone for months. I am suggesting we wait for NEM to close above $26.75 and then buy calls the next morning with a stop loss at $23.75. I would consider this a more aggressive, higher-risk trade because gold and the gold miners can be a volatile group. You may want to limit your position size to reduce your risk.

FYI: NEM is scheduled to report earnings on July 29th.

Breakout trigger: Wait for a close above $26.75
then buy calls the next morning with a stop at $23.75.

BUY the 2015 Jan $30 call (NEM150117c30) current ask $0.72

- or -

BUY the 2016 Jan $30 call (NEM160115c30) current ask $2.33

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

Chart of NEM:

Originally listed on the Watch List: 07/13/14


Active Watch List Candidates:



Union Pacific - UNP - close: 100.27

Comments:
07/13/14: Transportation stocks are actually holding up pretty well. UNP is still consolidating sideways near the $100 level. I don't see any changes from last week's comments.

Keep in mind that UNP is scheduled to report earnings on July 24th.

Earlier Comments: July 6, 2014:
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 $2.64

- or -

BUY the 2016 Jan $110 call (UNP160115c110) current ask $5.15

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

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


V.F. Corp. - VFC - $62.20

Comments:
07/13/14: It was a relatively quiet week for VFC with shares drifting sideways. That could change this week. The company is scheduled to report earnings on July 18th. Investors may want to wait until after we see how the market reacts to VFC's earnings report before considering new positions.

Currently we are still on the sidelines. Our suggested entry point is a close above $64.25.

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


WellPoint Inc. - WLP - close: 110.90

Comments:
07/13/14: WLP has been showing strength and continued to push higher last week. The stock is very close to meeting our entry point requirements. I don't see any changes from my earlier comments.

FYI: WLP is scheduled to report earnings on July 30th.

Earlier Comments: July 6, 2014:
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 $3.35

- or -

BUY the 2016 Jan $125 call (WLP160115c125) current ask $6.95

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

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