Option Investor
Newsletter

Daily Newsletter, Sunday, 7/20/2014

Table of Contents

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

Leaps Trader Commentary

The Bull Market Endures Another Tumultuous Week

by James Brown

Click here to email James Brown

The stock market endured a tumultuous week of headlines and the most of the major averages still managed to post weekly gains. Q2 earnings announcements generated individual stock volatility. Federal Reserve Chairman Janet Yellen made headlines with her Humphrey-Hawkins testimony. There was a wave of merger and acquisition news. The big stories of the week were the downing of a Malaysian Airliner over Ukraine and the Israeli ground offensive into Gaza. The cascade of negative news late in the week sparked a +22% surge in the volatility "fear" index and the S&P 500 broke its streak of 62 consecutive days without a 1% move. It was the longest streak since 1995.

Investors continue to applaud the parade of M&A news. AbbVie (ABBV) is paying $53 billion to buy Shire Pharmaceuticals (SHPG). The company will move its headquarters overseas to pay less corporate taxes. Whiting Petroleum (WLL) is paying $6 billion to buy Kodiak Oil & Gas (KOG). A long-rumored merger between tobacco giants Reynolds American (RAI) and Lorillard (LO) became a reality. Meanwhile shares of Time Warner (TWX) soared from $71 to $83 after it rejected an $80 per share buyout offer from 21st Century FOX (FOXA).

Economic Data

The U.S. digested plenty of economic news as well. The New York Empire State manufacturing survey improved from 19.3 in June to 25.6 in July. This is the highest reading since 2010. The Philly Fed survey improved from 17.8 to 23.9 and marked the best reading since March 2011. Economists had been expecting a drop to 16. U.S. industrial production only increased +0.2% in June after a +0.5% improvement in May. The wholesales Producer Price Index rose +0.4% in June following a -0.2% drop in May.

Fed Chairman Janet Yellen appeared before congress and the senate for the Fed's semi-annual Humphrey-Hawkins testimony. By law her presentation was identical to each committee so any surprises would likely come from the Q&A sessions afterwards. Yellen helped spark some selling in the biotechs and the social media names when she mentioned these areas as possibly being overvalued.

The monthly U.S. retail sales data rose +0.2% in June following an upwardly revised +0.5% increase in May. The latest University of Michigan consumer sentiment survey declined from 82.5 to 81.3, a new four-month low. Analysts were expecting sentiment to improve to 83.0. Homebuilder sentiment improved with the July reading of the NAHB housing market index rising from 49 to 53, which was better than expected. At the same time housing starts plunged -9.3% in June from 985,000 in May to an annual pace of 893,000. June's drop follows a -2.6% decline in May.

Overseas Data

There were a number of big headlines overseas. Two weeks ago worries over the Portugal banking system sparked some nervousness as market participants pondered the financial health of Espirito Santo International Bank and its parent company ESI. It looks like those worriers were right. A few days ago Espirito Santo International Bank filed for the equivalent of chapter 11 bankruptcy and said it could not make its debt payments. This is not good news for Greece. A banking failure in Portugal turns the spotlight back on struggling southern European countries. There is new speculation that Greece may need another bailout yet again. Meanwhile the central bank of Italy reduced their GDP estimates from +0.7% in 2014 to +0.2%. The Eurozone reported industrial production dropped -1.1% last month.

The Russian stock market has been in rally mode with a +32% surge from its March lows. That changed last week with big losses across the board following the Malaysian Airline disaster in Ukraine and new sanctions from America announced last Wednesday. Believe it or not but Russian President Vladimir Putin's approval ratings actually hit a 6-year high last week (I suspect that poll was taken before the Malaysian airline event).

Japan reported their industrial production rose +0.7% for the month. China said retail sales came in as expected with a +12.4% year over year improvement. Chinese industrial production surged +9.2%, which was better than expected. China's GDP growth came in at +2.0% quarter over quarter, which put its year over year reading right at the official target of +7.5%.

Malaysian Air Flight 17

The market has actually held up pretty well considering Thursday's disaster of Malaysian Airline Flight 17 being shot down over Ukraine, near the Russian border. The jet was flying from Amsterdam to Kuala Lumpur with almost 300 people on board. Currently all of the clues point to pro-Russian rebels as the ones who shot down the plane. That poses a problem for Russia since the rebels used a Russian surface-to-air missile and needed training to be able to use it. Furthermore there is growing evidence that the insurgents were told by a Russian "advisor" to fire on the plane. The equity markets have been calm because the current belief is the event was an accident. The Ukraine separatists probably thought it was a Ukraine An-26 transport plane and not an international passenger jet.

The event is not a mortal blow to President Putin's designs on Ukraine but it has generated a lot of fresh anger around the world at Russia's support for the Ukraine rebels. That anger is only getting worse as the pro-Russian rebels interfere with the investigation and emergency crews trying to work around the crash site.

Israel & Gaza

The situation in Israel has escalated significantly. News of a ground offensive was major headlines on Thursday and Friday. The Palestinian region of Gaza is controlled by Hamas, a terrorist organization that does not support Israel's right to exist. A few weeks ago three Israeli teenagers were kidnapped and later found dead, believe to be the work of Hamas. This appeared to be the spark for the last round of violence.

Hamas has been launching rockets and mortars into Israel for the last three weeks and in just the last ten days alone Hamas had fired more than 1,600 rockets at Israel's cities. Fortunately Israel's Iron Dome anti-missile system has been very effective and shooting down about 85% of the Hamas rockets. Those that have gotten through the defense system have not done that much damage. The Egyptians suggested a ceasefire that Israel accepted but Hamas ignored it and continued to fire rockets. Israel decided enough was enough.

Israel has been using its air force to target launch sites but it wasn't doing enough. Thus the Israeli government called up their reserves and launched a ground offensive on Thursday. Their plan is to target underground tunnels leading into Israel and all the weapon launch sites and storage areas they can find in Gaza. Normally the stock market is immune to headlines regarding decades-long violence between Israel and the Palestinians but this is the first time in years that the Israelis have used a ground offensive with troops in Gaza so it does ratchet up the intensity level.

I found a great online video about the situation in Israel. It's short - less than six minutes long. If you're not familiar with the history it is a great summary on the Jewish-Palestinian conflict.

Video on the Middle East Problem
click here





Major Indices:

As mentioned earlier the S&P 500's drop on Thursday broke its trend of more than 60 days in a row without a 1% move either direction. There was no follow through lower on Friday. Instead traders bought the dip and the S&P 500 closed the week with a +0.5% gain. It's only seven points away from the July 3rd all-time closing high of 1,985 and the index ended the week with a 7.0% year to date gain.

Technically Friday's move is an inside day, which suggest investor indecision. We can argue there is short-term support in the 1950 area and overhead resistance in the 1985 area. I suspect that a breakout past 1985 would signal a run towards the 2,000 mark. I am a bit concerned the 2,000 level could be tough, psychological, round-number resistance. If stocks retreat then a drop below 1950 might signal a correction toward the 1900 level, which should be round-number support.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ ended the week with a +0.38% gain thanks to a +1.5% bounce on Friday. This follows a -1.6% loss the prior week. The early July highs near 4457 is a 14-year high. On a short-term basis the NASDAQ might be in a 4350-4450 trading range. I suspect a breakout past 4450 would spark a rally to 4500. Meanwhile a breakdown under 4350 could signal a deeper correction. 4300 and 4200 are likely levels of support. Year to date the NASDAQ is up +6.1%.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index remains the problem child for the U.S. markets. It has continued to plunge after reversing at resistance near 1210 in early March. However, there is hope. Friday's +1.5% gain has created a bullish engulfing candlestick reversal pattern on the daily chart of the $RUT. This pattern needs to see confirmation. Otherwise the path of least resistance remains lower and the $RUT could be headed for support near 1080. Last week the $RUT posted a -0.7% decline and its year to date loss is -1.1%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is a quiet one for economic data. The CPI and the durable goods numbers will be the ones to watch but I doubt either will be market moving.

The biggest events could be geopolitical as the Israeli ground offensive continues.

It will also be a very busy week for corporate earnings, potentially the biggest week for earnings with over 550 companies announcing quarterly results. Thursday alone will have more than 250 companies reporting earnings.

Economic and Event Calendar

- Monday, July 21 -
Chicago Fed survey

- Tuesday, July 22 -
Consumer Price Index (CPI)
Richmond Fed survey
Existing Home Sales data

- Wednesday, July 23 -
HSBC China manufacturing PMI data

- Thursday, July 24 -
Weekly Initial Jobless Claims
New Home Sales data
(Huge day for corporate earnings with over 250 companies announcing)

- Friday, July 25 -
Durable Goods Orders

Additional Events to be aware of:

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

Looking Ahead:

It feels like summer just got here but school starts in just a few weeks. Retailers are gearing up for the back-to-school shopping rush (BTS). The BTS season is the second biggest event for retailers behind Christmas. Some analysts use the BTS spending numbers as a guide for how the Q4 holiday season might pan out. That is not good news this year. Fortune.com recently published an article suggesting consumers remain cautious and likely to spend less this year. The National Retail Federation estimates that the 2014 BTS season could see spending fall to $26.5 billion, which is a little behind last year. The NRF also noted that more shoppers were planning to wait in hopes of catching promotional and discounted deals before school begins. That's not good news for retailer margins.

There have been some interesting and somewhat conflicting numbers on investor sentiment. The most recent Investors Intelligence survey said the stock market's bull/bear ratio was 4-to-1. That's very bullish. Yet a Bloomberg Global Poll noted that 47 percent of investors surveyed felt that stocks were near unsustainable levels and 14 percent felt stocks were already in a bubble. The Investors Intelligence number (4:1) is the highest reading this year and nearing levels not seen since 1987. Contrarians use extreme (bullish) sentiment indicators as a warning signal that stocks could be near a top.

Another sentiment indicator of a different sort is the Merrill Lynch Fund Manager Survey. This survey found that 61 percent of global fund managers were already overweight equities. That is notable because fund managers haven't been that bullish on stocks since February 2011. That was just before the Eurozone financial crisis started heating up. Merrill Lynch went on to speculate that any summer rally would likely be followed by an autumn correction lower.

Here's one more warning to keep in mind. The good folks at the Stock Traders Almanac have pointed out that:

"On average, the year prior to a Fed Funds rate increase has been positive. However, one month after a major shift in policy to tightening, the market has never been up, and averaged a loss of 2.8%. Three months later has been even more negative with an average loss of 4.9%. From six months to one year later, the averages are still negative, but a few modest gains have occurred. Also notable are that the last two times that tightening occurred with DJIA at or near all-time highs (1973 and 1999) the impact was clearly negative."

We already know that the Federal Reserve is planning to end its current QE program in October. Right now analysts are speculating if the Fed will start raising interest rates in the first half or the second half of 2015. Of course the Fed's response would be any decision is "data dependent". The historical data above would suggest that 2015 could be a down year for stocks. Meanwhile the most hated bull market in history continues to climb the wall of worry.

Let's assume for the moment that no one is going to war with Russia any time soon. Let's also assume that in spite of a wave of negative headlines surrounding Israel's foray into Gaza the Israelis will be done in the 10 to 14 days they estimated for the ground offensive and then they pull out. That means the current geopolitical hotspots are unlikely to impact the market's rally. Stocks will be left to move on earnings news alone.

This is a huge week for earnings with over 550 companies reporting. The overall tone of earnings results and guidance could determine market direction for the next few weeks.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Large cap stock indices continue to outperform the small cap index. How long this bifurcated market will last is a good question. UNP and WLP have graduated from our watch list to our active play list.

ITW and QCOM were stopped out.

I have updated the stop losses on DOW, DVA, HES, JOY

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

Busy Week Ahead

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(July 20, 2014)

I am suggesting caution when it comes to launching new trades this week. It is true that the U.S. large cap indices managed to post a gain last week in spite of all the geopolitical headlines. That could be interpreted as bullish.

This week the market will be digesting the aftermath of the downed Malaysian Airliner and the ongoing Israeli ground offensive into Gaza. Investors will also be wading through a tidal wave of earnings news.

The week ahead will be the busiest yet for Q2 earnings with over 550 companies reporting their quarterly results. These results and corporate guidance could set the tone and the market direction for the weeks ahead.

Therefore we are not adding any new trades tonight.

I will note some of the stocks on my radar screen and their earnings dates.

-symbol, (earnings date)-

AAPL (July 22)
GILD (July 23)
ALK (July 24)
XRX, (July 25)
LVLT, (July 29)
FISV (July 29)
TRN (July 29)

COST looks interesting but I'd like to see a close above resistance at $120.00.



Play Updates

Updating Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

We added UNP and WLP from our watch list.

We want to exit our NS trade on Monday morning.

I have also updated several stop losses below (DOW, DVA, HES, JOY)

Several of our active candidates are reporting earnings this week. Make sure you are comfortable with your stop loss. An earnings miss or weak guidance could send stocks plunging.


Closed Plays


ITW and QCOM hit our stop loss.



Play Updates


American Airlines Group, Inc. - AAL - $42.92

Comments:
07/20/14: AAL mirrored the move in the XAL airline index with a lower high on Wednesday and then a big drop on Thursday. AAL also bounced on Friday with a +2.9% gain. The longer-term trend is up but upward momentum has stalled. I am growing concerned that AAL is building a bearish head-and-shoulders pattern and may have just completed the top of the right shoulder.

Earnings are coming up this week on July 24th (Thursday morning). I would expect shares to be volatile on Thursday.

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 $3.75/4.00

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $7.20/7.70

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: 130.47

Comments:
07/20/14: AAP suffered a three-day decline midweek. Traders bought the dip on Friday near its 40-dma. The $130 area should be support so a bounce from here could be used as a new bullish 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 $4.50/5.40

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: 55.20

Comments:
07/20/14: AIG garnered some bullish analyst comments last week. Yet the stock merely traded sideways in the $54.50-55.50 zone. I am not suggesting new positions at this time. 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 $1.12/1.20

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $3.75/3.95

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: 110.17

Comments:
07/20/14: Last Wednesday's rally in CAT pushed the stock to multi-year highs. Unfortunately the market-wide drop on Thursday essentially erased it. The stock did manage a gain for the week.

CAT is scheduled to report earnings this coming Thursday on July 24th before the opening bell. More conservative investors will want to consider taking profits in our option positions before CAT reports earnings.

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 $5.50/5.65

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - current bid/ask $9.65/ 9.80

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: 144.74

Comments:
07/20/14: It was another volatile week for shares of CRR. Shares produced a big bounce from support near $140 but the rally stalled near $148.50.

I would hesitate to launch new positions today. We might want to wait for a close above $148.50 before initiating positions again.

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 $ 7.80/ 8.90

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: 85.81

Comments:
07/20/14: There is a lot of speculation in the media industry after 21st Century Fox made an $80 per share bid for Time Warner (TWX). This doesn't really affect DIS. The stock tested support near $85.00 last week.

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 $11.75/12.30

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: $51.69

Comments:
07/20/14: It was a quiet week for DOW with shares closing virtually unchanged for the week. Investors are probably in a wait and see mode as they look for DOW's earnings. The company will report on July 23rd (this Wednesday) before the opening bell.

I am raising our stop loss to $49.00 just in case DOW reports terrible numbers and breaks support near $50.00.

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 $1.56/1.60

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $3.70/3.85

07/20/14 new stop @ 49.00
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: 49.00
Play Entered on: 05/29/14
Originally listed on the Watch List: 05/26/14


DaVita Healthcare Partners - DVA - close: 73.85

Comments:
07/20/14: DVA traded above short-term resistance near $74.00 but the rally failed under the $75.00 mark. I am raising our stop loss to $69.00.

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 $2.90/3.20

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $4.00/5.30

07/20/14 new stop @ 69.00
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: 69.00
Play Entered on: 06/04/14
Originally listed on the Watch List: 06/01/14


Expedia Inc. - EXPE - close: 78.79

Comments:
07/20/14: EXPE's +1.8% bounce on Friday reduced its loss on the week to just under a dollar. The stock is down two weeks in a row but it's starting to look like a bull-flag consolidation pattern.

I am not suggesting new positions at this time.

EXPE is scheduled to report earnings on July 31st.

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 $ 8.90/ 9.40

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: 110.19

Comments:
07/20/14: FFIV drifted sideways and closed essentially unchanged for the week. Shares remain stuck under its long-term trend line of lower highs. If FFIV reports bullish earnings numbers I would expect a breakout higher. If not then a potentially sharp drop lower. That makes this week an exciting one.

FFIV is scheduled to report earnings on Tuesday, July 23rd, after the closing bell. I am not suggesting new positions at this time. More conservative investors may want to raise their stop loss before the announcement.

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

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

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

- Suggested Positions -
JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 8.20*
symbol:FFIV150117C120 2015 JAN $120 call - current bid/ask $5.70/5.85

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $10.35/10.70

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: 70.93

Comments:
07/20/14: HAL rivals like BHI and SLB have reported generally bullish earnings results and offered optimistic view points on the oilfield services industry. HAL will report earnings on Monday, July 21st before the opening bell so Monday could be a volatile session. We have our stop loss at $64.75 but more conservative investors may want to use a stop loss closer to the simple 50-dma, currently at $67.15.

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 $5.00/5.15

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $8.95/9.25

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: 98.72

Comments:
07/20/14: HES briefly traded to a new high but the rally stalled at resistance near the $100.00 mark. I would be tempted to buy calls on a close above $100 but earnings are coming up on July 30th and readers may want to wait until after we hear HES' earnings results.

The simple 50-dma has risen to $94.36. We will move our stop loss to $93.95.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - current bid/ask $ 7.50/ 7.75

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $ 9.50/10.30

07/20/14 new stop @ 93.95
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: 93.95
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/06/14


The Hartford Financial Services Group - HIG - close: 36.10

Comments:
07/20/14: Shares of HIG drifted lower last week but traders bought the dip at its simple 50-dma on Friday.

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 $ 0.51/ 0.64

- or -

JUL 07, 2014 - entry price on HIG @ 36.45, option @ 2.95
symbol: HIG160115c40 2016 JAN $40 call - current bid/ask $ 2.06/ 2.71

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: 96.82

Comments:
07/20/14: HON ended the week on an up note thanks to better than expected earnings out Friday morning. This is a new all-time high for the stock. Shares appear to be breaking out from a six-month consolidation in the $90-96 zone. The next obstacle for the bulls is potential resistance at the $100.00 mark.

More conservative investors may want to take profits now or near the $99.00 area. Our long-term target is currently $109.00.

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 $12.20/12.65

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



Joy Global Inc. - JOY - close: 64.27

Comments:
07/20/14: JOY was a strong performer last week thanks to an 8% surge higher on Wednesday (from $60 to $65). The stock's rally was attributed to takeover speculation that JOY might be a target.

The $65.00 level remains short-term resistance. I am raising our stop loss to $59.25, just below the July low.

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 $ 4.35/4.80

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 4.55/5.60

07/20/14 new stop @ 59.25
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: 59.25
Play Entered on: 04/08/13
Originally listed on the Watch List: 04/06/14


Microsoft Corp. - MSFT - close: 44.69

Comments:
07/20/14: Shares of MSFT soared to multi-year highs last week following bullish earnings numbers from Intel (INTC). MSFT also announced they were laying off 18,000 employees.

Shares look short-term overbought here and the company is scheduled to report earnings on Tuesday, July 22nd, after the closing bell. Odds are good that MSFT could see some post-earnings profit taking. I would not be surprised to see a dip back toward $42.00, which should be support.

Our 2015 call option has essentially doubled in value and readers may want to take some money off the table before MSFT reports earnings.

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 $ 2.04/2.10

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 3.65/3.75

07/20/14 Our 2015 call option has almost doubled in value and investors may want to take some money off the table.
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: 65.11

Comments:
07/20/14: NS spent most of the week at new highs in the $67-68 region. Profit taking on Friday sent NS back to technical support at its 10-dma.

The company is scheduled to report earnings on Friday, July 25th, before the opening bell.

The trend is still up but I am suggesting an immediate exit to lock in gains. Plan on exiting positions Monday morning, July 22nd. More aggressive traders may want to hold on. Keep in mind that the $70.00 area is major resistance.

- Suggested Positions -
APR 04, 2014 - entry price on NS @ 55.25, option @ 3.10*
symbol: NS1517a55 2015 JAN $55 call - current bid/ask $ 9.60/12.40

07/20/14 prepare to exit on Monday morning
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: 59.90
Play Entered on: 04/04/14
Originally listed on the Watch List: 03/23/14


Packaging Corp of America - PKG - $67.67

Comments:
07/20/14: Buckle your seat belt. Tuesday could be volatile. PKG is scheduled to report earnings on Monday, July 21st, after the closing bell.

I'm crossing my fingers for a good report because shares have been underperforming with its fourth weekly decline in a row. The stock came close to testing technical support at its 200-dma on Thursday's market decline.

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 $ 1.10/1.40

- or -

JUN 06, 2014 - entry price on PKG @ 70.82, option @ 6.60*
symbol: PKG160115c75 2016 JAN $75 call - current bid/ask $ 2.80/4.90

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


SunEdison, Inc. - SUNE - close: 22.65

Comments:
07/20/14: SUNE spent last week slowly consolidating lower from $24 to $22. Investors were probably waiting to see how the TERP IPO went. TerraForm Power Inc. (symbol: TERP) owns and operates solar power farms built by SUNE. SUNE still owns 61% of the company. Early investors got an IPO price of $25 a share (unit) and TERP closed its first day of trading at $33.09. Bloomberg describe TERP as a "so-called yieldco model is an increasingly common way for renewable-energy developers to raise capital at lower costs. Developers sell new projects to their yieldco, using the proceeds to fund additional plants. Revenue from selling power provides funds for the yieldco to buy more plants as they are built and also pay dividends to investors."

I am not suggesting new positions at this time.

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 $2.45/2.58

- or -

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

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: 60.19

Comments:
07/20/14: Last week saw shares of Select Comfort (SCSS) rally sharply following its earnings report. I'd like to see TPX do the same thing but after a three-month rally from its April lows you could argue TPX looks a little overbought and might see some post-earnings profit taking.

TPX is scheduled to report earnings on Tuesday, July 24th, after the closing bell. I am not suggesting new positions at this time. More conservative investors may want to take profits early or raise their stop loss.

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

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

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

- Suggested Positions -
MAY 28, 2014 - entry price on TPX @ 55.86, option @ 4.75*
symbol: TPX150117C60 2015 JAN $60 call - current bid/ask $5.80/6.50

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - current bid/ask $6.90/7.90

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


Union Pacific - UNP - close: 101.34

Comments:
07/20/14: UNP is a watch list candidate that has graduated to our active play list. The plan was to wait for shares to close above $101.50 and then buy calls the next morning. UNP closed at $101.78 on July 16th. Our trade opened the next morning with the gap down at $100.97.

Overall the transportation stocks have continued to show relative strength. Shares of UNP look like they are starting to breakout from a four-week consolidation near the $100.00 level.

I would consider new positions now but given the market's recent volatility more conservative investors might want to wait for a close above $102.00 or above the June high of $103.00 before considering new positions.

Investors will also want to keep in mind that UNP reports earnings on Thursday, July 24th, before the opening bell so this Thursday could be volatile.

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.

- Suggested Positions -
JUL 17, 2014 - entry price on UNP @ 100.97, option @ 2.75
symbol: UNP150117C105 2015 JAN $105 call - current bid/ask $2.77/2.92

- or -

JUL 17, 2014 - entry price on UNP @ 100.97, option @ 5.50*
symbol: UNP160115C110 2016 JAN $110 call - current bid/ask $5.25/5.45

07/17/14 trade begins. UNP gaps down at $100.97
07/16/14 UNP closes at $101.78, above our trigger of $101.50
*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 UNP:

Current Target: exit 2015 calls with UNP @ 115.00
exit the 2016 calls when UNP hits $124.00
Current Stop loss: 98.40
Play Entered on: 07/17/14
Originally listed on the Watch List: 07/06/14


Western Digital Corp. - WDC - close: 99.46

Comments:
07/20/14: Some of the big cap tech stocks were leading the market higher last week and that gave WDC a boost. Positive analyst comments on WDC didn't hurt either. The stock hit new all-time highs above $100 a share and posted its fourth weekly gain in a row. Altogether the trend is bullish but on a short-term basis last week looks like a short-term top. I would not be surprised to see WDC dip back toward the $95.00 level, which should be new support.

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 $7.35/8.00

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $8.80/11.10

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: 51.28

Comments:
07/20/14: After earnings on July 11th, shares of WFC spent the last few days consolidating sideways near $51 and its simple 50-dma.

If the market continues to dip look for support near $50.00 and its 100-dma. 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 $ 2.55/2.59

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.15/4.30

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


WellPoint Inc. - WLP - close: 114.93

Comments:
07/20/14: WLP was a strong performer with shares rising $4.00 last week. We had WLP on the watch list. The plan was wait for the stock to close above $111.00 and buy calls the next day. Shares raced higher on Monday and closed at $113.15. Our trade opened the next day at $113.05. Today WLP is challenging the $115.00 level and closed at all-time highs.

Investors may want to wait for a dip (maybe near $112.00) before initiating new positions. Also keep in mind that WLP is scheduled to report earnings on July 30th and the stock could see some post-earnings profit taking.

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.

- Suggested Positions -
JUL 15, 2014 - entry price on WLP @ 113.05, option @ 4.00*
symbol:WLP150117c120 2015 JAN $120 call - current bid/ask $ 4.35/4.55

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 7.05/7.95

07/15/14 trade begins. WLP opens at $113.05
07/14/14 triggered. WLP closed at $113.15, above our $111.00 trigger
*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 WLP:

Current Target: Exit WLP hits $130.00
Current Stop loss: 104.75
Play Entered on: 07/15/14
Originally listed on the Watch List: 07/06/14


Williams Sonoma - WSM - close: 69.99

Comments:
07/20/14: A new analyst buy rating on WSM couldn't stop the profit taking last week. Shares broke down under what should have been short-term support near $70.00. The next level of support could be $67.00 and our stop loss is at $66.40.

I am not suggesting new positions at this time.

- Suggested Positions -
MAY 13, 2014 - entry price on WSM @ 64.36, option @ 2.95*
symbol: WSM1517a70 2015 JAN $70 call - current bid/ask $ 4.20/4.70

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 5.80/6.50

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: 102.73

Comments:
07/20/14: As a group the energy stocks have struggled to keep the upward momentum going. Shares of XOM chopped sideways inside the $102-104 zone and managed to end the week with a $1.00 gain. That's a bit surprising. The White House leveled new sanctions at Russia on Wednesday and included the Russia's biggest oil company Rosneft. If Russia decides to respond with their own sanctions it could be bad news for XOM.

Exxon is currently in a partnership with Rosneft to explore the Arctic circle north of Russia. This is a very tough environment to work in and the project could cost $700 million to complete. However, the rewards are huge. The area Exxon and Rosneft are targeting could hold more crude oil than all of Norway's North Sea deposits.

I would be a little cautious on launching new positions in XOM. Investors might want to wait for a new close above $105.00 before considering positions.

Keep in mind that XOM is scheduled to report earnings on July 31st.

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 $ 2.40/2.48

-- or --

JUN 23, 2014 - entry price on XOM @ 104.11, option @ 4.35
symbol: XOM160115c110 2016 JAN $110 call - current bid/ask $ 3.60/3.75

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


Illinois Tool Works, Inc. - ITW - close: 85.20

Comments:
07/20/14: The stock market's widespread drop on Thursday was enough to put ITW to our stop loss at $84.85. ITW was already in a short-term down trend and shares ended the week with their fourth weekly loss in a row.

- Suggested Positions -
MAY 13, 2014 - entry price on ITW @ 87.57, option @ 3.40*
symbol: ITW1517a90 2015 JAN $90 call - exit $1.65 (-51.4%)

- or -

MAY 13, 2014 - entry price on ITW @ 87.57, option @ 6.65*
symbol: ITW1615a90 2016 JAN $90 call - exit $4.80 (-27.8%)

07/17/14 stopped out at $84.85
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

Chart of ITW:

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


QUALCOMM Inc. - QCOM - close: 79.39

Comments:
07/20/14: QCOM has been dead money the last four months. It looked like shares might breakout from this sideways trading range in early July but the rally failed. Last Thursday's market-wide sell-off pushed QCOM just low enough to hit our stop loss at $77.90.

I would keep QCOM on your watch list or a close above $82.00 as a potential bullish entry point.

- Suggested Positions -
NOV 15, 2013 - entry price on QCOM @ 71.34, option @ 4.90
symbol: QCOM1517a75 2015 JAN $75 call - exit $5.55 (+13.2%)

07/17/14 stopped out
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)

Chart of QCOM:

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



Watch

Might Be Time For A Pause

by James Brown

Click here to email James Brown



New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

IP - Intl. Paper Co.

NEM - Newmont Mining


Dropped Watch List Entries

UNP and WLP have graduated to our active play list.

VFC has been removed.



New Watch List Candidates:


No new watch list candidates tonight.

This week could be an inflection point for the market. Hundreds of companies will report earnings. Most of the watch list candidates I would like to add will be announcing earnings in the next two weeks. It might be best to wait for the post-earnings dust to settle before adding new trades.

Active Watch List Candidates:



International Paper Co. - IP - close: 49.70

Comments:
07/20/14: IP is holding up reasonably well. The stock has been consolidating sideways near resistance around the $50.00 level. I don't see any changes from my earlier comments.

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

Earlier Comments: July 13, 2014:
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.

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)

- or -

BUY the 2016 Jan $55 call (IP160115c55)

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

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


Newmont Mining Corp. - NEM - close: 25.42

Comments:
07/20/14: Gold prices were crushed lower last Monday but the commodity was starting to rebound toward the end of the week. Meanwhile the weakness in gold didn't have that big of an impact on NEM.

This stock is still consolidating sideways below resistance near $26.00. I don't see any changes from my earlier comments.

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

Earlier Comments: July 13, 2014:
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.

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)

- or -

BUY the 2016 Jan $30 call (NEM160115c30)

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

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


V.F. Corp. - VFC - $60.95

Comments:
07/20/14: I am pulling the plug on our VFC watch list candidate. We've been patiently waiting for a breakout past resistance near $64.00 but that seems unlikely any time soon. Shares started underperforming last week.

Trade did not open.

07/20/14 removed from the watch list, suggested entry point was a close above $64.25

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