Option Investor
Newsletter

Daily Newsletter, Sunday, 7/27/2014

Table of Contents

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

Leaps Trader Commentary

Better Than Expected Is Not Enough

by James Brown

Click here to email James Brown

Better than expected earnings results managed to levitate the market near its highs most of the week. The S&P 500 index and the Dow Jones Transportation Average both tagged new record highs. Yet a round of disappointing earnings headlines on Thursday night and Friday morning helped spark some profit taking on Friday. Market watchers were pointing fingers at earnings results and guidance from Visa (V), Amazon.com (AMZN) and Starbucks (SBUX) as catalyst for the pullback. Simmering geopolitical risks with Russia and Israel added to the background noise.

The market's widespread pullback on Friday sliced the S&P 500's gain for the week to 1/10th of a point. The NASDAQ composite eked out a weekly gain but the Dow Industrials and the small cap Russell 2000 both posted losses. The transportation average extended their gain to 13.89% for the year. Biotechs bumped their gains to +17.8% for the year. The semiconductor SOX index had a really rough week with a -4.1% plunge but is still up +15% year to date.

Continued worries over the regional conflict between Ukraine and Russia is getting worse. Meanwhile the Israeli ground offensive in Gaza to shut down terrorist rocket attacks continues to draw a lot of attention. This has helped push the U.S. dollar higher and the dollar index is breaking out from a five-month base. At the same time the Euro currency is sinking. Crude oil futures inched higher while precious metals like gold and silver drifted lower in spite of the geopolitical worries.

Headlines that Goldman Sachs had downgraded equities over the next three months only added to the list of reasons for traders to take profits on Friday. Goldman's lead analyst for their portfolio strategy team commented on the seasonal trends for late summer weakness in equities and the rally in bonds as areas of concern. This is a short-term call. Goldman is still bullish on stocks and expect the market to rally +10% over the next 12 months.

The rally in bonds is noticeable and driving yields on the 30-year U.S. bond to 12-month lows. Meanwhile the yield on the 10-year note is nearing its May 2014 lows. If money is looking for safety in U.S. bonds what does that say about investor sentiment toward stocks? It's possible that we're seeing foreign investors buying U.S. bonds as a safe haven.

Weekly chart of the U.S. 10-year bond yield

Weekly chart of the U.S. 30-year bond yield



Economic Data

Economic data was mostly benign with the exception of new home sales. The Producer Price Index (PPI) report for June showed wholesale inflation up +1.6% thanks to a surge in energy costs. Yet the core Consumer Price Index (CPI), if you exclude food and energy, only rose +0.1% in June. That's down from a +0.3% increase in May. The U.S. saw durable goods orders rise +0.7% in June, which is improvement over the -1.0% drop in May.

Existing home sales for June rose from an upwardly revised 4.91 million SAAR in May to annual pace of 5.04 million in June. Yet the pace of new home sales declined. The Commerce Department reported an -8.1% drop in new home sales in June to 406,000. May's new home sales pace was revised lower from 504K to 442K. The price of new homes continues to rise with a +5.3% increase in June, year over year, to $273,500.

One of the more notable economic headlines last week was the weekly initial jobless claims, which plunged to 284,000. Economists were expecting a number around 307,000. The latest report is the lowest level for new claims since May 2007. The four-week moving average has fallen to 302,000. Analysts started to speculate if the job market was heating up faster than the Federal Reserve expects and if the Fed was behind the ball on its timetable to increase rates.

Overseas Data

Economic data overseas was mixed. The Eurozone manufacturing PMI inched up from 51.8 to 51.9. Germany's manufacturing PMI improved from 52.0 to 52.9 while France's PMI slipped from 48.2 to 47.6. Numbers above 50.0 suggest growth and under 50.0 indicate economic contraction. Elsewhere the German Ifo Business Climate Index declined from 109.7 to 108.0, which was worse than expected.

Peter Boockvar, with the Lindsey Group, noted that the Geopolitical tensions between the Europe and Russia over the Ukraine conflict and all the sanctions that have been placed on Russia are starting to affect the Germany economy. Germany's GDP growth is now expected to slide from +0.8% in Q1 to +0.3% in Q2.

The numbers out of Asia were also a mixed bag. The Japanese government reduced their 2014 GDP growth forecast from +1.4% to +1.2%. The main culprit was slowing demand from emerging markets. This was echoed in Japan's -2% drop in exports. Japan also reported their July manufacturing PMI reading slipped from 51.5 to 50.8. It was a different story in China with the latest China HSBC manufacturing reading hitting an 18-month high at 52.0. Remember, numbers above 50.0 suggest growth. Analysts believe China is seeing improvement thanks to the government's recent stimulus tactics.

The International Monetary Fund (IMF) reduced their global outlook last week. The sharp slowdown in the U.S. during the first quarter of 2014 has forced them to adjusted their U.S. growth estimates from +2.8% for 2014 to +1.7%. They are optimistically leaving their 2015 U.S. growth forecast at +3%. The IMF also revised their projections on China and now expect China's economy to grow at +7.4% in 2014. That's a small revision from +7.5% but the IMF estimates that China will slow to +7.1% growth in 2015. Worldwide the IMF has reduced their 2014 estimates from +3.6% to +3.4%.

Argentina continues to make headlines as well. We are now less than a week away from Argentina's second debt default in 13 years. The deadline was actually the end of June and July 30th will be the end of their 30-day grace period.





Major Indices:

The big cap S&P 500 index traded above 1,990 for the first time in history last week. Friday's profit taking pushed the index to short-term technical support at its 20-dma. If you look at the weekly chart below you can see how the S&P 500 has been hovering near the midline of its long-term bullish channel.

While the trend is obviously up I am still concerned that we might see the S&P 500 tag resistance at the 2,000 mark and then correct lower. Right now 2,000 is acting as a magnet. Yet once the index hits that level it could act as resistance.

If the market sees any significant pullback I would look for support near 1950 and 1900. Year to date the S&P 500 index is up +7.0%.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite came within 15 points of hitting the 4,500 level last week. Any further pullback from current levels and July will start to look like a short-term bearish double top pattern. I would look for support in the 4350-4375 area. The 4485-4500 zone remains overhead resistance.

If we see a significant market pullback then the NASDAQ will likely test the 4200 level. Below that it could be a drop to 4,000. Year to date the NASDAQ composite is up +6.5%.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index continues to march to the beat of a different drummer. It just happens to be playing a sad song as the $RUT continues to underperform its peers. The peak in March and now July certainly looks like it could be a major double top pattern.

While the S&P 500 hits record highs and the NASDAQ flirts with 14-year highs the $RUT is actually down -1.6% year to date and off -5.2% from its 2014 highs.

The current trend would suggest the $RUT is headed for support in the 1085 area. If small caps suddenly rally then look for resistance in the 1205-1210 zone.

chart of the Russell 2000 index

A month ago Wall Street was expecting +7.1% earnings growth in the second quarter. Thus far with about half of the S&P 500 companies reporting their Q2 results, the number has been an unexpected +8.3% growth. There are always big hits and misses that make headlines but overall the trend has been very positive. I cautioned readers that prior to earnings we saw analysts reducing their estimates and that might allow companies to come in ahead of expectations. This week we will see another 140 S&P 500 companies announce their Q2 results.


Economic Data & Event Calendar

It's a big week for economic news. Investors will be digesting the ISM manufacturing data, our first look at U.S. Q2 GDP growth, the jobs report on Friday, plus an FOMC meeting midweek.

The ADP Employment Change Report on Wednesday is expected to see private job growth fall to 200,000 in July from 281,000 in June. Economists are estimating the U.S. grew +2.5% in the second quarter. That compares to a dismal -2.9% contraction in the first quarter.

No one really expects any surprises from the Federal Reserve on Wednesday. Let's hope they do not surprise Wall Street. Right now everyone expects them to hold steady and end their current QE program in October this year.

Economic and Event Calendar

- Monday, July 28 -
Pending Home Sales for June

- Tuesday, July 29 -
Consumer Confidence for July
Case-Shiller 20-city Home Price index

- Wednesday, July 30 -
Debt default deadline for Argentina
ADP Employment Change Report
FOMC interest rate decision
Q2 GDP estimate

- Thursday, July 31 -
Weekly Initial Jobless Claims
China HSBC manufacturing PMI data
Chicago PMI data
Eurozone PMI

- Friday, August 1 -
Auto & truck sales for July
Construction spending for June
Nonfarm Payrolls (jobs) report for July
Unemployment Rate
Personal Income and Spending
University of Michigan Consumer Sentiment Survey
ISM Index

Additional Events to be aware of:

Sept. 1st - U.S. market closed for Labor Day

Looking Ahead:

As we look ahead the situation on the Ukraine-Russian border is not improving. There is growing evidence that Russian military has been firing artillery into Ukraine territory and moving Russian tanks across the border. There also appears to be more clues that the Ukraine separatists were using Russian surface to air missiles, which they quickly drove back across the Russian border after the Malaysian Airliner was shot down. As if this wasn't bad enough the Ukraine government is on shaky ground. Two parties, the UDAR and the Svoboda parties quit the Ukraine coalition. This forces a new election, likely scheduled for October. The Ukraine Prime Minister also quit, causing more disruptions for the struggling Ukraine government. Meanwhile the markets are worried that the U.S. and Europe could come out with another round of tougher sanctions against Russia at any time.

The fighting in Gaza continues. Multiple parties have been lobbying for a ceasefire. U.S. Secretary of State John Kerry was pushing for a ceasefire but Israel didn't like his terms. The U.N. has been pushing for a ceasefire. Israel was poised to provide a temporary ceasefire for humanitarian efforts. Even Hamas proposed a ceasefire for the upcoming Eid al-Fitr holiday, which signals the end of Ramadan. Yet Hamas has continued to fire rockets, ignoring their own ceasefire terms and the Israelis have resumed their anti-terrorist operations in Gaza.

Currently the global equity markets continue to ignore the situation in Israel. However, will markets ignore another terrorist attack in Europe? Over the weekend Bloomberg news reported that Norway went on high alert over new evidence that suggested terrorists were plotting to attack the country in the very near future.

Investors should note that calendar. Traditionally August and September are the worst two month of the year for stocks. Lipper reported that stock funds saw outflows of $8.6 billion last week. Is that a sign that traders are already pulling money out of the market ahead of this seasonal slow period? One issue we have not heard much about is the upcoming U.S. midterm elections that are just three months away. As the democrats and republicans turn up the volume on their bullhorns it tends to sour investor and consumer sentiment.

We also need to be aware of another seasonal issue. Post-earnings depressing. It's quiet common to see stocks rally up to and immediately after their earnings report (if it's a good report). Then once the report is over stocks fade lower in a post-earnings depression. Momentum traders move their money out of the winners (and losers) and move it to the next potential pre-earnings runner. We are about half way through the Q2 earnings season. While the results have been better than expected thus far we could see a tired market struggle to maintain the up trend.

Keep in mind that the S&P 500 index has gone 1,027 days without a -10% correction.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Upward momentum feels like it has stalled a bit even though the S&P 500 tagged another record high last week. Our plan was to exit the NS trade on Monday, July 21st.

AAP, CAT, and PKG were stopped out last week.

I have updated the stop losses on HAL, HES, HON, and MSFT.

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

A Parade of Economic Data

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(July 27, 2014)

Last week I cautioned investors that the market may be at an inflection point. Our situation hasn't changed much.

Overall the Q2 earnings season has been better than expected. That's the good news. Unfortunately we are still seeing growth forecasts being revised lower for the U.S. and the world. At the same time the situation between Ukraine and Russia seems to be escalating and the sanctions are starting to impact Europe, not just Russia.

Goldman Sachs just warned investors on Friday that they expect the next three months to be a struggle for stocks. Goldman remains bullish on stocks over the next 12 months but suspect the next three months could be challenging. I'm sure it's just a coincidence that August and September are historically the worst two months of the year. Plus we have midterm elections n the U.S. just three months away.

I do see a growing number of candidates I'd like to add to the newsletter. Several of them are scheduled to report earnings soon. Instead of risking a post-earnings meltdown I've published some of them on my radar screen below. I'm suggesting we be patient and see how the market performs after next week's parade of economic data including an FOMC meeting and the June jobs report.

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:

BWA, USB, BAC, THC, MRO, FLS, FSLR, HP, CTAS, WAB, TMO, IMOS, FISV, TRN, COST, CSCO, CVS, AKAM, AAPL

NOTES:
Watch for THC to retest the $50 area as support.

I'd like to see AKAM close above resistance at $63.00.

Keep an eye on AAPL, which has resistance in the $100.00-100.50 zone.



Play Updates

Earnings Season Casualties

by James Brown

Click here to email James Brown

Editor's Note:

We want to exit our 2015 calls on the HES trade immediately.


Closed Plays


The plan was to close our NS trade on Monday morning, July 22nd.

AAP, CAT, and PKG were stopped out.



Play Updates


American Airlines Group, Inc. - AAL - $41.68

Comments:
07/27/14: AAL reported earnings on the 24th. Bottom results beat estimates by three cents. Revenues were up +76% from a year to $11.36 billion, just a hair above consensus estimates. AAL management announced a 10-cent dividend, its' first dividend since 1980.

The stock is hovering in the $38-45 trading range. I'm still concerned AAL might be building a bearish head-and-shoulders pattern.

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 $2.87/3.05

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $6.00/6.50

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

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


American Intl. Group - AIG - close: 54.16

Comments:
07/27/14: AIG spent most of the week consolidating sideways in a narrow range. That changed on Friday with a -1.8% drop and a close below technical support at its 50-dma. I don't see any reason for the relative weakness. AIG should have support in the $52-54 zone.

The company is due to report earnings on August 4th. I am not suggesting new positions at this time.

- Suggested Positions -
May 14, 2014 - entry price on AIG @ 53.94, option @ 1.50*
symbol: AIG150117C60 2015 JAN $60 call - current bid/ask $0.88/0.94

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $3.50/3.55

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


CARBO Ceramics Inc. - CRR - close: 144.40

Comments:
07/27/14: CRR's pullback on Friday pushed shares into the red for the week. The stock did fail at round-number resistance near $150.00 on Wednesday, which is a bit of a warning signal.

The company is scheduled to report earnings on July 31st. I would not launch new positions until after we see the post earnings dust clear.

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 $ 7.20/ 8.80

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: 86.23

Comments:
07/27/14: Shares of DIS slowly drifted higher and eked a small gain for the week. Shares continue to build on its trend of higher lows.

Investors may want to take profits now before DIS reports earnings on August 5th.

I am not suggesting new positions at this time.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $12.20/12.50

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: $53.71

Comments:
07/27/14: DOW reported earnings on the 23rd and beat bottom line estimates by 2 cents. Revenues were in-line with estimates at $14.92 billion. Investors were happy with the results and DOW rallied to a new 52-week high.

I am not suggesting new positions at this time.

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

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

- Suggested Positions -
MAY 29, 2014 - entry price on DOW @ 51.78, option @ 1.95
symbol: DOW150117C55 2015 JAN $55 call - current bid/ask $2.10/2.17

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $4.45/4.65

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: 71.46

Comments:
07/27/14: Shares of DVA stumbled last week, falling almost $3.00 on a downgrade last Monday. DVA spent the rest of the week hovering near its 50-dma.

The company is scheduled to report earnings on July 31st. I would not launch positions ahead of the announcement.

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 $1.95/2.20

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.60/6.10

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: 79.67

Comments:
07/27/14: EXPE snapped a two-week losing streak. The month of July is starting to look like a bull-flag consolidation pattern. Yet I would not open new positions before EXPE reports 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 $ 9.70/10.30

07/06/14 new stop @ 74.75
06/09/14 trade begins. EXPE opens at $75.30
*option entry price is an estimate since the option did not trade at the time our play was opened.
06/06/14 EXPE closes above our trigger, above $75.00
Option Format: symbol-year-month-day-call-strike

Current Target: EXPE @ 90.00-100.00 zone
Current Stop loss: 74.75
Play Entered on: 06/09/14

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


F5 Networks - FFIV - close: 112.41

Comments:
07/27/14: It was a volatile week for shares of FFIV. The company reported earnings on the 23rd and beat estimates by 4 cents with a profit of $1.39 a share. Revenues also beat estimates at $440.3 million. Management issued bullish guidance for the next quarter. That send FFIV stock from $111 to almost $118 on Thursday. Unfortunately the gains didn't last. Shares are up for the week but FFIV remains underneath its long-term trend line of lower highs.

On a positive note one analyst firm upgraded their price target from $120 to $130.

More conservative investors may want to use a stop closer to the $108 level.

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 $5.85/6.00

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $10.95/11.25

07/24/14 reported strong earnings and raised guidance
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: 73.41

Comments:
07/27/14: HAL delivered another strong performance last week thanks to its earnings news. HAL's bottom line numbers were in-line with estimates at $0.91 a share. Revenues came in better than expected at $8.05 billion. Management upped their stock buyback program by $4.8 billion to a total of to $6 billion.

HAL looks a little short-term overbought here. Look for support near $70.00. We will raise the stop loss to $66.95.

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 $6.35/6.50

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $10.50/10.70

07/27/14 new stop @ 66.95
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: 66.95
Play Entered on: 06/04/14
Originally listed on the Watch List: 05/26/14


Hess Corp. - HES - close: 99.81

Comments:
07/27/14: HES continues to struggle with resistance near $100.00. The stock did tag multi-year highs but Friday's market-wide pullback trimmed its weekly gains.

HES is scheduled to report earnings on July 30th and I would not launch new positions ahead of the announcement.

Please note I am suggesting we exit our 2015 Jan $95 calls immediately to lock in potential gains.

We will keep the 2016 call trade open but move the stop loss to $94.75.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - current bid/ask $ 8.10/ 8.70

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $10.05/11.60

07/27/14 Exit the 2015 calls immediately
07/27/14 new stop @ 94.75
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: 94.75
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/06/14


The Hartford Financial Services Group - HIG - close: 35.25

Comments:
07/27/14: Shares of HIG, much like AIG, underperformed the market on Friday. I don't see any company-specific news to account for the relative weakness but Friday is a multi-week low.

Our stop loss is at $33.75. More conservative investors might want to bump their stop higher. I am not suggesting new positions ahead of HIG's earnings report 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 $ 0.42/ 0.59

- or -

JUL 07, 2014 - entry price on HIG @ 36.45, option @ 2.95
symbol: HIG160115c40 2016 JAN $40 call - current bid/ask $ 1.98/ 2.67

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: 95.76

Comments:
07/27/14: HON hit all-time highs near $98.00 before reversing. Last week's performance does look like a potential reversal so investors may want to take profits now. I am raising our stop loss to $91.75.

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 $11.40/12.05

07/27/14 new stop @ 91.75
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: 91.75
Play Entered on: 05/07/13
Originally listed on the Watch List: 05/04/13



Joy Global Inc. - JOY - close: 62.75

Comments:
07/27/14: JOY is still digesting its big gains from July 16th. Look for short-term support near $2.00.

I am not suggesting new positions at this time.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - current bid/ask $ 3.35/3.50

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - current bid/ask $ 4.05/4.60

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: 44.50

Comments:
07/27/14: MSFT reported earnings on the 22nd and missed estimates by 5 cents a share. Yet revenues were up +17.5% to $23.38 billion. Wall Street was only expecting revenues of $22.99 billion. In spite of the earnings miss the tone for MSFT remains bullish. The stock had rallied sharply the prior week and shares have been consolidating sideways.

If MSFT does see a pullback we can look for support near $42.00.

I am moving our stop loss to $39.75.

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 $ 1.93/1.95

- 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

07/27/14 new stop @ $39.75
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: 39.75
Play Entered on: 06/25/14
Originally listed on the Watch List: 06/15/14


SunEdison, Inc. - SUNE - close: 20.95

Comments:
07/27/14: It has been a rough two weeks for shares of SUNE. The profit taking continued and SUNE now sits on short-term support near $21.00 and its simple 50-dma. Nimble traders can watch for a bounce near $20.00 as a new bullish entry point. Keep in mind that SUNE is scheduled to report earnings in early August. There is not date yet but likely in the August 6-7th range.

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 $1.61/1.69

- or -

JUN 27, 2014 - entry price on SUNE @ 23.00, option @ 3.85*
symbol: SUNE160115c30 2016 JAN $30 call - current bid/ask $2.59/3.10

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: 55.75

Comments:
07/27/14: Ouch! TPX just erased nearly two months of gains with Friday's -8.7% plunge. I cautioned investors last week that you may want to take profits before TPX reported earnings on Thursday night.

TPX results were 2 cents worse than expected yet they beat the revenue estimate. Guidance was mixed, which probably helped fuel the sell-off.

Investors could choose to exit now but most of the damage is already done. Our stop loss is at $54.75. I am not suggesting new positions.

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 $3.20/3.90

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - current bid/ask $4.80/6.70

07/25/14 TPX plunges -8.8% following its earnings report
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: 101.66

Comments:
07/27/14: Hmm... is UNP forming a bearish double top? Shares rallied early last week and tagged a new high before reversing. The company reported earnings on the 24th. Revenues were up +10% for the quarter from a year ago. Everything was in-line with analysts' estimates.

I am not suggesting new positions at this time. We may need to see another strong bounce from $100 or a close above $103.00 before we consider new positions again.

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 $2.83/2.91

- or -

JUL 17, 2014 - entry price on UNP @ 100.97, option @ 5.50*
symbol: UNP160115C110 2016 JAN $110 call - current bid/ask $5.40/5.60

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

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: 99.36

Comments:
07/27/14: WDC is down 10 cents for the week thanks to shares hugging the $100.00 level. Investors are probably just waiting for WDC's earnings report, which comes out on July 30th.

WDC can be somewhat volatile and we have a wide stop loss at $89.40. More conservative investors will want to consider a much higher stop loss. I am not suggesting new positions in front of the earnings announcement.

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 $7.10/7.30

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $9.15/10.05

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: 51.60

Comments:
07/27/14: The post-earnings depression in WFC might be over. Shares managed a gain last week. There is still overhead resistance in the $52.00 area. 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 $ 2.73/2.79

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.45/4.60

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: 113.51

Comments:
07/27/14: WLP spent most of the week at new highs near $116.00. Then the stock spiked lower on Friday after a rival on the healthcare industry, WellCare Group (WCG), issued an earnings warning. Shares of WLP spiked down to $111.12 before paring its losses.

The trend for WLP is still up but earnings are coming on July 30th and the stock might see some profit taking. Currently we have a wide stop loss at $104.75. More conservative investors may want to use a stop loss closer to the simple 50-dma near $109.00.

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 $ 3.00/4.20

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 6.10/7.75

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

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: 68.69

Comments:
07/27/14: Most of retail continues to struggle. WSM has extended its pullback from all-time highs to three weeks in a row. Last week shares gave up -$1.30.

More conservative investors may want to abandon ship now since WSM is likely headed for what should be short-term support near $67.00. Our stop 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 $ 3.80/4.10

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 5.60/6.10

07/27/14 WSM not looking good. Investors may want to exit now
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: 103.18

Comments:
07/27/14: A number of the energy names were showing strength midweek. XOM was one of them but the stock was not immune to the market's widespread profit taking on Friday.

This could be a volatile week for shares of XOM with the company due to report earnings on July 31st. 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 $ 2.57/2.64

-- or --

JUN 23, 2014 - entry price on XOM @ 104.11, option @ 4.35
symbol: XOM160115c110 2016 JAN $110 call - current bid/ask $ 3.85/4.05

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


Advance Auto Parts Inc. - AAP - close: 125.55

Comments:
07/27/14: July has been a horrible month for shares of AAP. The stock peaked on the 1st of July and aside from a bounce on the 14th it has been a steady decline. That decline accelerated last week and AAP hit our stop loss at $123.25. The bullish breakout past resistance near $130 has been erased and suddenly the move looks like a bull trap pattern.

The overall bullish story for AAP remains unchanged so I am surprised by this relative weakness and would keep AAP on your watch list. The company reports earnings in mid August.

- Suggested Positions -
Jun 24, 2014 - entry price on AAP @ 131.00, option @ 6.35*
symbol: AAP150117C140 2015 JAN $140 call - exit $2.25 (-64.5%)

07//23/14 stopped out
06/24/14 AAP hits our intraday entry point at $131.00
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Chart

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


Caterpillar Inc. - CAT - close: 104.85

Comments:
07/27/14: Shares of CAT have weathered a number of negative headlines over the last several weeks but the stock just kept on climbing. That changed when CAT reported earnings on the 24th. Bottom line results of $1.69 a share managed to beat Wall Street's estimates by 16 cents. Yet revenues were a miss. More importantly the company guided lower for 2014. This warning produced a gap down and CAT actually gapped down below our stop at $105.60.

- Suggested Positions -
APR 03, 2014 - entry price on CAT @ 101.92, option @ 3.50*
symbol: CAT1517a110 2015 JAN $110 call - exit $3.12 (-10.8%)

- or -

APR 03, 2014 - entry price on CAT @ 101.92, option @ 7.40*
symbol: CAT1615a110 2016 JAN $110 call - exit $7.10** (-4.0%)

07/24/14 stopped out on gap down at $105.60
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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


NuStar Energy - NS - close: 65.35

Comments:
07/27/14: Our plan was to exit the NS trade on Monday, July 21st, at the opening bell. The stock opened at $64.71, down 40 cents. Our estimated exit was $9.30 (+200%).

- Suggested Positions -
APR 04, 2014 - entry price on NS @ 55.25, option @ 3.10*
symbol: NS1517a55 2015 JAN $55 call - exit $9.30** (+200%)

07/21/14 planned exit
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

Chart
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 - $67.78

Comments:
07/27/14: PKG ended Friday with a 12-cent gain for the week but that hardly tells the whole story. It was a very volatile week with big swings on Tuesday, Thursday and Friday.

Earnings were out on Monday, the 21st, and PKG beat estimates by six cents. The stock initially spiked higher but the rally failed at its 50-dma. Then post-earnings profit taking pushed PKG to a new three-month low and hit our stop loss at $65.75.

The correction from $72 to $65 was rough on our options.

- Suggested Positions -
JUN 06, 2014 - entry price on PKG @ 70.82, option @ 2.60*
symbol: PKG150117c75 2015 JAN $75 call - exit $0.75** (-71.1%)

- or -

JUN 06, 2014 - entry price on PKG @ 70.82, option @ 6.60*
symbol: PKG160115c75 2016 JAN $75 call - exit $2.85** (-56.8%)

07/22/14 stopped out following its earnings report
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart
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



Watch

Impressive Comparable Store Sales

by James Brown

Click here to email James Brown



New Watch List Entries

WAG - Walgreen Co


Active Watch List Candidates

IP - Intl. Paper Co.

NEM - Newmont Mining


Dropped Watch List Entries

None.



New Watch List Candidates:


Walgreen Co - WAG - close: 73.29

Company Info

According to WAG's press release the company describes itself, "As the nation's largest drugstore chain with fiscal 2013 sales of $72 billion, Walgreens (www.walgreens.com) vision is to be the first choice in health and daily living for everyone in America, and beyond.

Each day, in communities across America, more than 8 million customers interact with Walgreens using the most convenient, multichannel access to consumer goods and services and trusted, cost-effective pharmacy, health and wellness services and advice. Walgreens scope of pharmacy services includes retail, specialty, infusion, medical facility and mail service, along with online and mobile services. These services improve health outcomes and lower costs for payers including employers, managed care organizations, health systems, pharmacy benefit managers and the public sector.

The company operates 8,215 drugstores in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Walgreens digital business includes Walgreens.com, drugstore.com, Beauty.com, SkinStore.com and VisionDirect.com. Take Care Health Systems is a Walgreens subsidiary that manages more than 400 in-store convenient care clinics throughout the country."

While most of the retail industry seems to be struggling with slowing consumer sales this year, it's a different story for WAG. The company just reported a great month in June. Revenues surged +8.9% to $6.3 billion. That's up from $5.8 billion in June 2013. Granted WAG does have a few more stores today (about 117 more stores) the real key was same-store sales. WAG calls them comparable store sales and June's were +7.5%. That is impressive.

WAG is also building its Balance Rewards Program, which ended the last quarter with 81 million members. The company hopes to develop a strong, consistent customer base that continues to visit their locations on a regular basis.

Lately WAG has been in the news regarding its Alliance Boots merger. WAG spent $6.5 billion back in 2012 to buy a 45% stake in Alliance Boots, which is an international drug wholesaler and retailer. WAG has an option in 2015 to buy the rest of the company for $9.5 billion. If they acquire 100% of Boots then WAG could choose to do an "inversion", which is a hot topic right now.

There is a lot of confusion about just how an inversion works. Essentially WAG could move its corporate headquarters out of the U.S. and by doing so lower its tax bill. Barclays estimated that WAG could save $783 million in the first year of an inversion. Another analysts estimated WAG could save $4 billion in the first five years after an inversion. WAG is getting a lot of pressure to not do it. At the same time WAG's board has a responsibility to its shareholders and an inversion is currently legal.

Whether WAG does an inversion or not the company seems to be running on all cylinders. The stock is in a long-term up trend and appears to be finishing a four-week consolidation.

Tonight I'm suggesting we wait for WAG to close above $74.00 a share and then buy calls the next morning with a stop loss at $69.40. Our long-term target is the $90-100 zone. Currently the Point & Figure chart is bullish with a $103 target.

Breakout trigger: Wait for a close above $74.00
then buy calls the next morning with a stop at $69.40

BUY the 2015 Jan $80 call (WAG150117C80) current ask $2.99

- or -

BUY the 2016 Jan $80 call (WAG160115C80) current ask $6.55

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

Chart of WAG:

Weekly Chart of WAG:

Originally listed on the Watch List: 07/27/14


Active Watch List Candidates:



International Paper Co. - IP - close: 49.92

Comments:
07/27/14: Wow! It was a very volatile week for IP. Early in the week shares were down after one firm downgraded the paper and containerboard companies due to concerns over long-term demand. Shares of IP had plunged to technical support at its 200-dma. Then two days later the stock was soaring to new highs on new opinion of +50% to +100% upside. Bloomberg reported that one fund had increased their stake in the containerboard companies with the idea that companies like IP could fuel upside by turning their paper mills in master limited partnerships (MLPs).

The volatile felt a bit extreme. I am adjusting our entry point strategy. We want to see IP close above $52.00 before initiating positions.

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 $52.00
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)

07/27/14 adjust trigger to a close above $52.00 (instead of above 51.00)
Option Format: symbol-year-month-day-call-strike

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


Newmont Mining Corp. - NEM - close: 25.15

Comments:
07/27/14: This could be a volatile week for share of NEM. The company is scheduled to report earnings on July 29th.

Currently our plan is to buy calls if NEM can close above $26.75. I am setting a limitation on that entry requirement. I would not launch positions if we see NEM close above $28.00. Essentially I want to avoid buying a big spike higher.

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