Option Investor
Newsletter

Daily Newsletter, Sunday, 8/3/2014

Table of Contents

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

Leaps Trader Commentary

Hurricane of Headlines

by James Brown

Click here to email James Brown

Stocks were battered by a hurricane of bearish headlines. The Dow Jones Industrial Average fell more than 460 points last week. The S&P 500 index delivered its worst weekly performance in two years. Argentina officially defaulted on its debt again. A major bank in Portugal is failing and raising worries about the European financial system.

The EU launched tougher sanctions at Russia. Yet Russia continues to ignore sanctions and the situation with Ukraine is escalating. Fighting between Israel and Hamas continues with a ceasefire failing within the first two hours.

New worries about the U.S. Federal Reserve might need to raise rates sooner than expected weighed on equities. The markets tried to digest a number of negative news stories and ended up with indigestion. The Dow Jones Transportation Average fell -3.65% for the week. Banks were down -3.4%. Housing stocks were off -3.5%. Oil stocks down more than 3%. Oil services plunged -4.5%. Crude oil slipped -4.2%. Gold and silver were no safe havens - both producing declines. Even the bond market sold off with the yield on the 10-year bond settling at 2.5%.

Russian & Israeli Headlines

Russia seems to be growing even more belligerent. The country is once again moving more troops toward Ukraine's eastern border. There is more evidence that Russian soldiers, not just Russian-backed separatists, have been operating inside Ukraine. NATO has scrambled jets as Russian fighters taunt their neighbors by violating non-Russian airspace.

Meanwhile in Gaza a 72-hour ceasefire lasted all of 90 minutes before Hamas started firing rockets again. Israel has intensified its pressure after an Israeli soldier was captured. U.S. President Obama has called for Gaza to release any captured Israeli soldiers. After 25 days of fighting the situation seems to be getting worse, not better.

Both the Ukraine-Russian conflict and the Israel-Gaza conflict are still just background noise for the market. Although the sanctions against Russia are starting to have an impact on the global economy. More on that in a moment.

Economic Data

It was a very busy week for economic data. The Chicago PMI manufacturing data deteriorated from 62.6 in June to a reading of 52.6 in July. The national U.S. ISM manufacturing index rallied from 55.3 in June to 57.1 in July. This is the fastest pace of manufacturing growth in three years. Numbers above 50.0 suggest growth. U.S. pending home sales fell -1.1% in June after a +6.0% gain in May. The Case-Shiller 20-city Home Price Index said prices rose +9.3% in May 2014 from a year ago. That's down from +10.8% the prior month.

The Conference Board's Consumer Confidence Index hit its highest level in almost seven years with a surge from 86.4 to July's reading of 90.9. The University of Michigan Consumer Sentiment Index also improved from its initial reading of 81.3 to a final July reading of 81.8. The consumer sentiment present conditions component inched higher from 96.6 to 97.4.

The annual pace of vehicle sales in the U.S. retreated from 17.0 million in June to a still healthy 16.5 million in July. General Motors had its best July sales since 2007 but they were outsold by Chrysler, Nissan, and Toyota. The market share held by U.S. brands fell below 45% and the lowest level this year.

One of the biggest surprises of the week was the advance Q2 U.S. GDP estimate. Economists were expecting Q2 growth of +3.0%. The government reported a +4.0% growth number. They revised the Q1 numbers from -2.9% to -2.1%. This much better than expected Q2 GDP estimate suddenly cast doubt on the Federal Reserve as analysts pondered if an accelerating U.S. economy might force the Fed to raise rates sooner than expected to avoid a surge in inflation.

Fortunately the jobs report on Friday helped soothe fears about the Fed, if only for the moment. The U.S. nonfarm payroll report came in at +209,000 jobs in July. That was below analysts' estimates of +235,000 and down from June's +298,000. The unemployment rate worsened from 6.1% to 6.2%. The labor force participation rate inched to a four-month high with an increase from 62.8% to 62.9%. The growth in private payrolls was disappointing with only +198K in July. That's a big drop from June's +270K in private job growth. On a positive note the U.S. economy has now added more than +200,000 jobs a month for six months in a row. We haven't done that since 1997.

The worst than expected jobs data gives the Fed some room to not rush a hike in interest rates. That is probably the main market concern right now - the Fed raising rates and when they do it. The FOMC held a two-day meeting last week. As expected the Fed reduced its QE purchase program to $25 billion a month. This stimulus program is expected to end in October this year. Most market participants expect the Federal Reserve to start raising interest rates in 2015. Many of these estimates have moved from late 2015 to now the first half of 2015. A few analysts are estimating the Fed might start in Q1 2015.

Last week the analysts at the Stock Trader's Almanac noted that every time the Fed starts tightening monetary policy (raising rates) the stock market declines. History says the stock market has never gone up the month after the Fed started raising rates. Three months after the Fed starts raising rates the market was still negative. Investors know that the Fed will raise rates next year, assuming our economy doesn't fall off a cliff again. The market feels a shiver down its back any time a piece of economic data suggest the Fed might need to raise rates faster than previously expected.

Overseas Data

Most of the economic data overseas was negative. Japan reported that retail sales dropped -0.6% year over year, which was worse than expected. Household spending in Japan was worse with a -3.0% decline. Their unemployment rate also worsened with a rise from 3.5% to 3.7%. China was a bright spot with better than expected manufacturing data. The official Chinese purchasing managers index (PMI) was reported at 51.7, the fastest pace in two years. That was above estimates and up from June's 51.0. The HSBC manufacturing PMI reading remained near an 18-month high at 51.7. Numbers above 50.0 indicate growth.

The news was not so great in Europe. European stock markets are slipping with a -3.2% drop in just the last two days. The broad-based European market index is now negative for 2014. The Eurozone manufacturing PMI data came in below estimates at 51.8. Germany's PMI dropped from 52.9 to 52.4. Portuguese bank Banco Espirito Santo has filed for creditor protection after losing 3.6 billion euros in the first six months of 2014. The central bank of Portugal is trying to cobble together a bailout but the situation may be too big for a bailout. This has reawakened all the fears of the European debt crisis and throws doubt on the health of the European financial system.

If that wasn't enough the situation with Russia is beginning to take a toll. Last week the EU launched tougher sanctions on Russia for continuing to support the Ukraine separatists. Unfortunately the European economy is starting to suffer the side effects of the previous financial sanctions against Russia. Companies are starting to issue earnings warnings. Germany, the EU's biggest economy and the biggest trading partner with Russia (in the EU), will see an economic drag due to the sanctions.

The European economy was already slowing down before sanctions with Russia. The impact of the sanctions will merely accelerate the slowdown and odds of another recession in Europe are growing. If Europe falls back into recession it's going to impact both the U.S. and Asia. Another big worry is deflation. If the region slows down any more then deflation becomes an even bigger threat.

Another thorn in the side of the global economy is Argentina. It was widely anticipated that Argentina would default on its debt again. July 31st was the end of its 30-day grace period after not making a debt payment in June. This new default will trigger $1 billion worth of credit-default swaps, which could pressure many of the large international banks.





Major Indices:

The S&P 500's -2.69% drop last week marked its worst weekly performance in two years. The index sliced through potential support at 1950 and its simple 50-dma with Thursday's big drop. Now the big cap index looks headed for round-number support at the 1900 level.

I do expect the S&P 500 to bounce near 1900. The question is whether or not this is a bounce that reinforces the longer-term up trend or if it's a temporary, oversold bounce that rolls over in a couple of days. You can see on the weekly chart below that the bottom of its long-term, bullish channel lines up nicely with the 1900 area.

Currently the S&P 500 is down 63 points or -3.1% from its all-time high set just two weeks ago. Until the trend actually breaks the path of least resistance should be up. Regular readers know that we're due for a correction. The S&P 500 has gone more than 1,000 days without a typical -10% pullback.

Hypothetically if we are seeing the beginning of a correction than a -10% pullback would mean a drop to 1,789. Over the last few years the average correction has been closer to -13%. That would suggest a drop toward 1,729.

If the S&P 500 index does break support near 1900 I would expect a bounce near 1850 and its simple 200-dma and near the 1800 level.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite fell almost 100 points last week. It traded below support near 4350 on an intraday basis Friday and did close under its 50-dma. If the NASDAQ does not recover soon I suspect we will see it correct toward its long-term trend line of higher lows near 4200 and its simple 200-dma (currently 4175).

If we are seeing a market correction in process than a -10% pullback would mean a drop toward 4,036. A -13% correction would be closer to the 3,900 level.

Should the NASDAQ break support near 4200 then a drop toward 4000 is probably a good bet.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index continues to underperform and lost -2.6% last week. That pushed its loss for the year to -4.19%. The $RUT is now down four weeks in a row and looks headed for support in the 1080-1085 region. The bad news is that the $RUT has formed what looks like a major bearish double top with the peak in March and July. Even if we see a bounce from the 1080-1100 area I would not trust it for more than a temporary rebound. The 1140-1160 area is now overhead resistance.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

After last week's parade of economic data the pace of reports slows down significantly. The only event of note is probably the ECB meeting on Thursday. We're still in Q2 earnings season but the number of earnings announcements is dwindling.

Economic and Event Calendar

- Monday, August 04 -
Eurozone Producer Price Index (PPI)

- Tuesday, August 05 -
Factory orders (June)
ISM Services (for July)
Eurozone Retail Sales

- Wednesday, August 06 -
(nothing significant)

- Thursday, August 07 -
Weekly Initial Jobless Claims
European Central Bank interest rate decision

- Friday, August 08 -
Wholesale inventories (June)

Additional Events to be aware of:

Aug. 28th - 2nd estimate on U.S. Q2 GDP growth
Sept. 1st - U.S. market closed for Labor Day

Looking Ahead:

Looking ahead the stock market continues to ignore geopolitical risks. The conflict between Israel and Gaza and between Ukraine and Russia will make headlines but unless something really unexpected happens they are unlikely to hurt stocks. That's aside from the economic impact that sanctions against Russia might have on companies. It is worth noting that we could see more headlines out of Libya and Iraq. The fighting in Libya is escalating and other countries have started evacuating personnel out of Libya, which is never a good sign. Plus the ISIS, now calling themselves the Islamic State, in mid Iraq and Syria appear to be gearing up again for another push towards Baghdad.

The stock market internals have deteriorated rapidly in the last several days. This chart shows the number of S&P 500 components that are still above their simple 50-dma. Investors should consider this a warning signal.

chart of the S&P 500 stocks above their 50-dma

I've mentioned several times that historically August and September are normally the worst months of the year for stocks. There are always exceptions but August has been down four out of the last five years. The fact that we have so many different issues pressing on investor sentiment it is a bit surprising that the market weakness hasn't been worse. The NASDAQ composite is only -2% from its 2014 high. The S&P 500 is only down about -3% from its high. Looking at the big picture these are minor dips.

This is hardly time to panic. Yet there are plenty of warning signals. I must have seen a dozen articles and opinions this weekend about how the market has topped and we're about to head into a new bear market. The funny thing is how this stock market has shrugged off every call for a market top for the last couple of years. That doesn't mean stocks can't see a painful pullback. Sometimes we forget that pullbacks are normal. Think of the next correction is a great entry point.

Now is a good time to consider your risk on any current bullish positions. You may want to consider taking some money off the table or reconsidering your stop loss placement. You might want to free up some cash so when the correction does happen you have the money available to put it to work. There is a big difference between fearing the correction and welcoming it and that depends on if you're watching your positions decline or poised to jump in and take advantage of the sell-off.

The number of issues that could be pressuring investor sentiment seems to be growing. I would hesitate to launch new bullish positions at this time. Why buy stocks (or LEAP options) now if we might have a significantly better entry point four to six weeks down the road?

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

European markets led a global market sell-off. The U.S. market rushed lower on Thursday, delivering one of their worst weeks of the year.

Our plan was to exit the HES 2015 calls trade on Monday, July 28th.

CRR, HIG, HON, JOY, SUNE, TPX, UNP, and XOM all hit our stop loss last week.

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

Searching For A Catalyst

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 03, 2014)

Hopefully readers were not too surprised that the market is pulling back. I've been cautioning investors that stocks were at an inflection point and likely to see some volatility. A barrage of negative headlines finally solidified enough to spark some profit taking last week.

I do want to point out that for the S&P 500 and the NASDAQ composite the longer-term trend is still higher. If we see the S&P 500 break down below 1900 and the NASDAQ under 4200 then we'll start to worry about a real correction. Until then we're merely experiencing a pullback within the larger up trend.

I am a little bit surprised at the violence of the pullback this past week. I looked at more than one thousand stocks this weekend and it was shocking to see how many had been crushed in the last several days.

I remain cautious on adding new plays. The combination of factors I mention in tonight's LEAPS trader market commentary are not going away any time soon. Now that the Q2 earnings season is about over investors could be lost looking for a new catalyst to drive stocks higher.

We're not adding any new plays tonight. I did post two new candidates to the watch list and I've combed through my radar screen symbols again.

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:

FSLR, TMO, COST, V, MA, NKE, GILD, NOC, LMT, SLXP, FB, AA, DAL, WLL,



Play Updates

A Rough Week For The Bulls

by James Brown

Click here to email James Brown


Closed Plays


The plan was to exit our HES 2015 calls on Monday, July 28th.

CRR, HIG, HON, JOY, SUNE, TPX, UNP, and XOM hit our stop loss last week.



Play Updates


American Airlines Group, Inc. - AAL - $39.43

Comments:
08/03/14: AAL continued to drift lower until shares tagged support near $38.00 on Thursday. Our stop loss is at $37.40. If the market continues to sink this week AAL could break support and stop us out.

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 $2.11/2.19

- or -

Jun 03, 2014 - entry price on AAL @ 41.13, option @ 6.20*
symbol: AAL160115C45 2016 JAN $45 call - current bid/ask $5.15/5.45

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: 52.05

Comments:
08/03/14: Financial stocks were hit hard last week and AIG fell toward short-term support near $52.00. I would expect to additional support near the simple 200-dma around $51.00. AIG could see more volatility this week. The company reports earnings on Monday, August 4th, after the closing bell.

More conservative investors may want to raise their stop loss closer to the $51.00 area. 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 $0.52/0.57

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $2.75/2.91

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


The Walt Disney Co. - DIS - close: 85.38

Comments:
08/03/14: DIS spent most of the week churning sideways. Investors are waiting for the company's earnings report, which will be announced on Tuesday, August 5th, after the closing bell.

More conservative investors will want to seriously consider exiting prior to DIS' earnings announcement and protect your profit.

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 $11.60/12.15

08/03/14 Investors will want to consider taking profits now before DIS reports earnings.
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: $50.97

Comments:
08/03/14: DOW hit some profit taking midweek and shares eventually gave up nearly three points before Friday's closing bell. Shares are testing support near $50.00, support near its 100-dma, and support near the bottom of its multi-month bullish channel.

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 $1.28/1.31

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $3.50/3.60

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: 71.38

Comments:
08/03/14: DVA is virtually unchanged for the week after investors bought the dip on Friday. The company reported earnings on Thursday. Wall Street was looking for a profit of $0.90 on revenues of $3.08 billion. DVA delivered a profit of $0.95 with revenues hitting $3.17 billion.

DVA appears to be trading in a $70.00-72.25 trading range. I am not suggesting new positions at this time.

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 $1.85/2.55

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.40/5.20

07/31/14 DVA reports better than expected bottom and top line results
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: 84.46

Comments:
08/03/14: EXPE displayed relative strength and ended the week at all-time highs thanks to strong earnings results.

EXPE reported earnings on Thursday night. Analysts were expecting a profit of $0.75 a share with revenues of $1.44 billion. EXPE reported a profit of $1.03 and revenues soared +24% to $1.49 billion.

Tonight I'm raising the stop loss to $76.75.

Earlier Comments: June 1, 2014:
EXPE is in the services sector. The company is in the super competitive online travel industry with rivals like Priceline.com (PCLN) and Orbitz Worldwide (OWW).

EXPE is developing a trend of beating analysts' estimates with strong profit and revenue growth. This past quarter EXPE reported revenues of $1.2 billion. That is the fifth quarter in a row that EXPE has delivered double-digit year over year revenue growth. The company has also seen surging growth in its bookings. Q3 2014 saw 15% bookings growth. Q4 2014 was +21%. Q1 2014 was +29%.

Analyst firm Cantor Fitzgerald recently offered bullish comments on EXPE and raised their price target. The company is having success with its Expedia Traveler Preference program. In Q3 2013 there were about 35,000 hotels in the program. By Q1 2014 that has grown to 51,000 hotels. As more hotels join it will boost EXPE's room nights metric and sales.

Billionaire hedge fund manager David Tepper's Appaloosa Management is also bullish on EXPE. The latest 13F filing showed that Appaloosa had initiated a new stake in EXPE in the first quarter of 2014.

Bears could argue that EXPE, PCLN and OWW could face competition from companies like Google and Facebook as they seek to boost their ad revenues to their large audiences. Reuters has reported that Google is experimenting with some programs with a few hotels. This threat is probably a few years away and could eventually make EXPE as potential takeover target.

Technically EXPE experienced a correction from $81 to $67 earlier this year. The stock found support in the $67 area and just recently EXPE has broken out past some key resistance. Currently shares hover just below short-term resistance at $74.00.

Our long-term target is the $90-100 zone.

- Suggested Positions -
JUN 09, 2014 - entry price on EXPE @ 75.30, option @ 8.20*
symbol:EXPE160115C90 2016 JAN $90 call - current bid/ask $11.60/12.30

08/03/14 new stop @ 76.75
07/31/14 EXPE delivers better than expected earnings and revenue growth
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: 76.75
Play Entered on: 06/09/14

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


F5 Networks - FFIV - close: 112.20

Comments:
08/03/14: It was another volatile week for shares of FFIV with spikes down to its 100-dma and a rally past $115.00. Unfortunately the stock actually settled close to unchanged for the week.

We might need to see a close above $116.00 before considering new bullish positions.

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 $5.90/6.10

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $11.15/11.45

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: 68.72

Comments:
08/03/14: HAL has gone from short-term overbought to oversold with the stock down six out of the last seven days. Traders finally bought the dip on Friday after HAL slipped to $67.37 intraday. Our stop loss is at $66.95.

HAL's close under the 40-dma and the $70.00 level is short-term bearish. More conservative investors may want to exit early now.

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 $3.85/4.00

- or -

JUN 04, 2014 - entry price on HAL @ 65.46, option @ 6.40*
symbol: HAL160115C70 2016 JAN $70 call - current bid/ask $ 7.95/ 8.15

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: 98.00

Comments:
08/03/14: We expected HES to be volatile this week due to its earnings report and the stock did not disappoint. Our plan was to exit the 2015 January $95 calls on Monday, July 31st to lock in potential gains. That position was closed with an exit near $8.00 (see below).

HES reported earnings on July 30th. Wall Street was looking for a profit of $$1.18 on revenues of $2.49 billion. HES blew those numbers away with a profit of $1.38 a share on revenues of $2.85 billion. The stock gapped open higher at $104.00 on Wednesday morning. Unfortunately, profit taking has pushed shares beneath the $100 level and under several key moving averages.

The intraday low on Friday was $96.97. Our stop loss is at $94.75. More conservative investors may want to raise their stop loss.

Currently our only position is the 2016 calls.

- Suggested Positions -
APR 22, 2014 - entry price on HES @ 87.50, option @ 3.15*
symbol: HES1517a95 2015 JAN $95 call - exit $8.10** (+157.1%)

- or -

APR 22, 2014 - entry price on HES @ 87.50, option @ 5.80*
symbol: HES1615a100 2016 JAN $100 call - current bid/ask $ 9.10/10.40

07/28/14 planned exit for 2015 calls
**option exit price is an estimate since the option did not trade at the time our play was closed.
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



Microsoft Corp. - MSFT - close: 42.86

Comments:
08/03/14: Shares of MSFT were down every day last week. I cautioned readers to look for support near $42.00 and MSFT is nearing this level. I would wait for a bounce from $42.00 before considering bullish positions.

Earlier Comments: June 15, 2014:
Shares of semiconductor giant Intel (INTC) soared on Friday (June 13th) when the company surprised investors by raising its revenue guidance the night before. INTC said they were seeing stronger sales of PCs. That's right. They said PCs. The sale of personal computers has been falling for several quarters as consumer spend the money on laptops, tablets, and smartphones. To be fair INTC did say they were seeing stronger sales of PCs to businesses but it's still good news for INTC but it could be great news for MSFT.

INTC hinted that when MSFT stopped supporting the Windows XP operating system in April this year it has sparked an upgrade cycle. XP has been around for years. One analyst estimated that 25% of the PCs currently connected to the Internet are running XP. That's a huge number of computers and now they're at risk for virus and hacking attempts that MSFT will no longer try to patch.

As businesses and consumers upgrade their PC it should mean strong sales for MSFT's Windows 8 operating software. This upgrade cycle could last a while.

Currently shares of MSFT are in a long-term up trend (see chart) and they closed near 14-year highs on Friday. There is short-term resistance at $41.65. I am suggesting we wait for MSFT to close above $42.00 and then buy calls the next day with a stop loss at $38.40.

I am listing the 2015 and 2016 calls but my preference is for the 2016s.

- Suggested Positions -
JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 1.05
symbol:MSFT150117c45 2015 JAN $45 call - current bid/ask $ 1.34/1.40

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 3.00/3.15

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


Western Digital Corp. - WDC - close: 100.30

Comments:
08/03/14: WDC reported earnings on Wednesday night. The market was expecting a profit of $1.74 a share on revenues of $3.6 billion. WDC beat estimates with a profit of $1.85 a share on revenues of $3.65 billion. The stock was volatile on Thursday with a swing from $98 to almost $103. Traders bought the dip on Thursday and Friday and WDC managed a gain for the week.

I am raising our stop loss to $92.40. More conservative traders may want to use a significantly higher stop loss.

I am not suggesting new positions at this time.

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 $7.50/7.60

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $9.95/10.40

08/03/14 new stop at $92.40
07/30/14 WDC delivered better than expected earnings and revenue results
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: 92.40
Play Entered on: 05/28/14
Originally listed on the Watch List: 06/22/14


Wells Fargo & Co. - WFC - close: 50.35

Comments:
08/03/14: The financials were not performing well on the market's Thursday-Friday decline. WFC dipped to technical support at its 100-dma. The stock should find significant support at $50.00. If not the stock could hit our stop loss at $49.40. 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 $ 2.31/2.33

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.10/4.25

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: 111.00

Comments:
08/03/14: It was a volatile week for shares of WLP as the market digested the company's earnings report. WLP reported on July 30th. Analysts were expecting a profit of $2.26 a share with revenues of $18.21 billion. WLP beat estimates with a profit of $2.44 a share and revenues of $18.23 billion. Management then raised its 2014 guidance. Unfortunately the stock didn't react as we might have hoped. The stock rallied but failed at resistance near $116.00 and then plunged past support near $110 and its 50-dma.

I am concerned that the last few days are developing a bearish trend of lower highs and lower lows.

I am not suggesting new positions at this time. Our stop loss remains at $104.75.

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 $ 2.58/3.25

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 5.30/6.80

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: 67.20

Comments:
08/03/14: WSM is about due for a bounce. The stock peaked in early July and shares have fallen four weeks in a row. Shares did manage a bounce on Friday after testing its simple 100-dma. If there is any follow through lower we'll see WSM hit our stop loss 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 $ 2.80/3.30

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - current bid/ask $ 4.60/5.40

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



CLOSED Plays


CARBO Ceramics Inc. - CRR - close: 123.25

Comments:
08/03/14: CRR was crushed last week with a drop from $144 a week ago to Friday's low of $119.71. The big drop happened on Thursday. CRR reported earnings Thursday morning and beat the bottom line estimate by 2 cents. CRR also beat the top line estimate. Overall it appeared to be a bullish earnings report. So why did investors sell the news? To make matters worse Thursday was the stock market's big down day last week so CRR's decline was exaggerated.

The stock's $24 drop has broken tons of support. Our stop loss was would have been hit at $134.90 but CRR gapped down at $133.61 on Thursday morning.

- Suggested Positions -
JUN 23, 2014 - entry price on CRR @ 143.50, option @ 9.00*
symbol: CRR150117C160 2015 JAN $160 call - exit $4.70** (-47.7%)

07/31/14 CRR gapped down below our stop at $133.61
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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 Hartford Financial Services Group - HIG - close: 34.03

Comments:
08/03/14: Weakness in financials weighed on HIG all week long. Although shares have been drifting lower for four weeks in a row. This past week saw HIG breakdown under what should have been support near $35.00 and its 200-dma and exponential 200-dma. Our stop loss was hit on Friday at $33.75.

- Suggested Positions -
JUL 07, 2014 - entry price on HIG @ 36.45, option @ 0.80
symbol: HIG150117c40 2015 JAN $40 call - exit $0.20 (-75.0%)

- or -

JUL 07, 2014 - entry price on HIG @ 36.45, option @ 2.95
symbol: HIG160115c40 2016 JAN $40 call - exit $1.28* (-56.6%)

08/01/14 stopped out at $33.75 (low of the day)
*option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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: 91.57

Comments:
08/03/14: We have had this HON trade for a long time. Things were looking up after a bullish breakout in mid July. Unfortunately the industrial stocks have started underperforming the rest of the market. HON reversed from an all-time high near $98.00 and has gone almost straight down for the last two weeks. The stock hit our new stop loss at $91.75 on Friday at the opening bell.

- 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 - exit $8.40* (+104.8%)

08/01/14 stopped out at $91.75 (opening bell)
*option exit price is an estimate since the option did not trade at the time our play was closed.
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.

Chart

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: 58.54

Comments:
08/03/14: JOY is another industrial sector stock that has gone nearly straight down in the last two weeks. The selling pressure accelerated the last few days and JOY broke down under $60 and its 100-dma. Our stop loss was hit at $59.25 on Thursday.

- Suggested Positions -
APR 08, 2014 - entry price on JOY @ 60.75, option @ 4.40
symbol: JOY1517a65 2015 JAN $65 call - exit $2.09 (-52.5%)

- or -

APR 08, 2014 - entry price on JOY @ 60.75, option @ 6.05
symbol: JOY1615a70 2016 JAN $70 call - exit $3.25 (-46.2%)

07/31/14 stopped out @ 59.25
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

Chart

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


SunEdison, Inc. - SUNE - close: 19.47

Comments:
08/03/14: SUNE delivered another disappointing performance last week. The stock was hitting multi-year highs in mid July. Something changed because the selling has been relentless. SUNE is down sharply three weeks in a row. The stock broke down under what should have been support at $20 and its 100-dma on Friday. Our stop loss was hit at $19.65.

- Suggested Positions -
JUN 27, 2014 - entry price on SUNE @ 23.00, option @ 3.00
symbol: SUNE150117c25 2015 JAN $25 call - exit $1.35 (-55.0%)

- or -

JUN 27, 2014 - entry price on SUNE @ 23.00, option @ 3.85*
symbol: SUNE160115c30 2016 JAN $30 call - exit $2.15** (-44.1%)

08/01/14 stopped out @ 19.65
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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: 54.46

Comments:
08/03/14: Our TPX trade was in trouble on Friday, July 25th when shares erased two months of gains in a painful one-day drop. That drop was a reaction to earnings. The selling continued this week and TPX hit our stop at $54.75.

- Suggested Positions -
MAY 28, 2014 - entry price on TPX @ 55.86, option @ 4.75*
symbol: TPX150117C60 2015 JAN $60 call - exit $2.85** (-40.0%)

- or -

MAY 28, 2014 - entry price on TPX @ 55.86, option @ 6.50*
symbol: TPX160115C70 2016 JAN $70 call - exit $4.30** (-33.8%)

07/28/14 stopped out at $54.75
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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: 97.91

Comments:
08/03/14: Transportation stocks, which had been leading the market higher, were hammered lower in a an almost nonstop pummeling last week. UNP followed the group lower and broke down below support. Shares hit our stop at $98.40 on July 31st.

- Suggested Positions -
JUL 17, 2014 - entry price on UNP @ 100.97, option @ 2.75
symbol: UNP150117C105 2015 JAN $105 call - exit $1.80 (-34.5%)

- or -

JUL 17, 2014 - entry price on UNP @ 100.97, option @ 5.50*
symbol: UNP160115C110 2016 JAN $110 call - exit $4.35** (-20.9%)

07/31/14 stopped out at $98.40
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

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


Exxon Mobil Corp. - XOM - close: 98.80

Comments:
08/03/14: Mega-cap oil stocks like CVX and XOM did not have a good week. Both reported earnings and both reported falling production numbers.

XOM reported earnings on Thursday morning. Bottom line results were $2.09 a share, which was 19 cents better than expected. Revenues also came in better than expected. It should have been a bullish report. Yet XOM said its production levels fell -5.7%. Oil and gas output fell to 3.84 million barrels of oil equivalent a day. That's the lowest production levels for XOM since late 2009.

Investors were not happy with this headline and shares plunged. It did not help that Thursday was the market's big drop so XOM's decline was likely exaggerated. The stock hit our stop loss at $99.25.

- Suggested Positions -
JUN 23, 2014 - entry price on XOM @ 104.11, option @ 3.45
symbol: XOM150117c105 2015 JAN $105 call - exit $1.44 (-58.2%)

-- or --

JUN 23, 2014 - entry price on XOM @ 104.11, option @ 4.35
symbol: XOM160115c110 2016 JAN $110 call - exit $2.90* (-33.3%)

07/31/14 stopped out at $99.25
*option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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



Watch

Healthcare & Outerwear

by James Brown

Click here to email James Brown



New Watch List Entries

BCR - C.R.Bard Inc

DECK - Deckers Outdoor Corp.


Active Watch List Candidates

NEM - Newmont Mining

WAG - Walgreen Co


Dropped Watch List Entries

IP has been removed.



New Watch List Candidates:


C. R. Bard Inc. - BCR - close: 149.48

Company Info

C.R. Bard (a.k.a. BARD) is "a leading multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the product fields of vascular, urology, oncology, and surgical specialty. BARD markets its products and services worldwide to hospitals, individual health care professionals, extended care facilities, and alternate site facilities. BARD pioneered the development of single-patient-use medical products for hospital procedures; today BARD is dedicated to pursuing technological innovations that offer superior clinical benefits while helping to reduce overall costs (source: company website)."

Thus far 2014 has been a bit of a roller coaster ride for BCR investors. That is a bit surprising considering that BCR has significantly beaten Wall Street's earnings estimates two quarters in a row. The company saw its Q2 revenues rise +8.8% to $827 million. BCR's Q2 profit soared +29.6% to $2.06 a share. Management then raised guidance and the stock broke out past major resistance near $150.00.

The broader market's recent weakness has pulled BCR back toward the $150 area, which should be support. If the stock bounces we want to be ready to hop on board.

Wait for a close above $152.00 and then buy calls the next morning with a stop loss at $146.95. I am not setting an exit target tonight but I'll note that the point & figure chart is bullish and forecasting at long-term target of $194.

Breakout trigger: Wait for a close above $152.00
Then buy calls the next day with a stop at $146.95.

BUY the 2015 Jan $160 call (BCR150117C160) current ask $5.20

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

Chart of BCR:

Weekly Chart of BCR:

Originally listed on the Watch List: 08/03/14


Deckers Outdoor Corp. - DECK - close: 88.74

Company Info

The 40-year old Deckers Corp. is headquartered in California. The company considers itself "a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG®, Teva®, Sanuk®, TSUBO®, Ahnu®, MOZO®, and HOKA ONE ONE®. Deckers Outdoor products are sold in more than 50 countries and territories through select department and specialty stores, 126 Company-owned and operated retail stores, and select online stores, including Company-owned websites."

DECK might also be an exception to the struggling retail space this year. The company just reported its 2015 fiscal year first quarter on July 24th. Spring happens to be the worst season for DECK's sales but they still turned in a strong report. Wall Street was expecting a loss of $1.29 a share. DECK reported a loss of $1.07. Revenues soared +24.3% from a year ago to $2.11.5 million, significantly above expectations. Their Q1 gross margins were 41.% Management raised their 2015 guidance and expect gross margins to rise to 49%. DECK is still planning on adding 30 to 35 new stores this year. Management is also forecasting +18% sales growth for the year. Altogether it was a bullish report and shares soared to new multi-year highs and almost tagged $95 a share.

The post-earnings profit taking is normal. Prior resistance in the $87.50-90.00 zone should be support. Seeing DECK rebound from its 10-dma on Friday is encouraging if you're bullish. If you're bearish, well, it could be a painful year. The long-term trend is bullish with a strong pattern of higher lows. The most recent data listed short interest at 19% of the small 33.4 million share float. If the up trend continues it could pressure more shorts to cover.

I am cautious on the broader market so we want to be patient with our entry point on DECK. I am suggesting we wait for DECK to close above $91.25 and then buy calls the next morning with a stop loss at $86.90. I'm suggesting a target in the $110-115 zone.

If the market continues to sink then we'll see if DECK will retest its long-term trend of higher lows and re-evaluate our entry point.

Breakout trigger: Wait for a close above $91.25
Then buy calls the next day with a stop at $86.90.

BUY the 2015 Jan $100 call (DECK150117C100) current ask $4.10

- or -

BUY the 2016 Jan $100 call (DECK160115C100) current ask $12.40

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

Chart of DECK:

Weekly chart of DECK:

Originally listed on the Watch List: 08/03/14


Active Watch List Candidates:



International Paper Co. - IP - close: 47.45

Comments:
08/03/14: IP has produced two very volatile weeks in a row. Last week shares plunged back toward technical support at its 200-dma. We are removing IP as a watch list candidate. It seems unlikely that shares will meet our entry point requirement any time soon.

Trade did not open.

08/03/14 removed from the newsletter, suggested trigger (a close above $52.00) was not met
07/27/14 adjust trigger to a close above $52.00 (instead of above 51.00)

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


Newmont Mining Corp. - NEM - close: 25.20

Comments:
08/03/14: Gold retreated last week but NEM did not see the same decline. Shares of NEM actually managed a fractional gain. We'd be better off to say NEM was unchanged on the week.

NEM's earnings results on July 29th were slightly ahead of expectations but not dramatic enough to move the stock either direction. I do not see any changes from my prior comments. We want to wait for NEM to close above $26.75 before launching positions.

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


Walgreen Co - WAG - close: 70.53

Comments:
08/03/14: The stock market's widespread decline last week weighed heavily on WAG. Shares fell from $73 on Monday to an intraday low of $68 on Friday. However, it's worth noting that Friday's session is technically a bullish reversal pattern.

I am suggesting we be patient and stick to the plan. Wait for a close above $74.00.

Earlier Comments: July 27, 2014:
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)

- or -

BUY the 2016 Jan $80 call (WAG160115C80)

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

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