Option Investor
Newsletter

Daily Newsletter, Monday, 9/1/2014

Table of Contents

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

Leaps Trader Commentary

S&P 500 Hits 2,000 As Stocks Plod Higher

by James Brown

Click here to email James Brown

The last week of August 2014 had plenty of headlines. Yet traders either were not interested or not paying attention. Volume was low, hitting the lowest levels of the year. Bloomberg reported that volume over the last eight trading days has seen the longest stretch of low volume since 2008. Are investors just on the sidelines or is everyone already in?

One scenario suggested in last week's market commentary was a sideways consolidation at resistance. That's what we got with the S&P 500. The large cap index traded above and closed above the 2,000 mark for the first time in history. The index spent the last few days hovering near the 2,000 mark. That was in spite of a growing chorus of geopolitical risk.

There was some hope that the Ukraine region might cool off when Russian President Putin and Ukraine President Petro Poroshenko met on Tuesday in Minsk, Belarus. Unfortunately, two days later there were new reports of Russian troops and Russian military vehicles crossing into Ukraine. The U.S. Ambassador in Ukraine said there is no doubt left that Russia is directly involved in the fighting. Poroshenko called it an invasion.

The U.S. markets ignored this escalation in Ukraine. Normally August is one of the worst months of the year for stocks but this year the seasonal patterns did not hold up. The S&P 500 climbed +3.6% making it the second best month for 2014 and the best August performance in 14 years. A parade of mostly positive U.S. economic data helped buoy equities.

The Dow Industrials added +0.5% for the week and ended August up +3.1% for the year. The NASDAQ is up +0.9% for the week and up +9.6% in 2014. The S&P 500 added +0.75% last week, boosting its 2014 gains to +8.3%. The small cap Russell 2000 index added +1.2% last week, which put it back into the green, ending August up +0.9% for the year. Transports underperformed for the week but are still up +13.6% in 2014. The SOX semiconductor index is up +20.6% year to date. Biotechs are still the best performer with a +34.3% rally this year.

Economic Data

The Chicago PMI came in at 64.3, significantly better than the 56.5 economists were expecting. The Richmond Federal Reserve manufacturing index hit 12, which is the best reading since March 2011. One surprise was the U.S. Q2 GDP estimate. The latest estimate was revised up from +4.0% to +4.2% growth. This was due to a revision in the real final sales that was adjusted from +2.3% to +2.8%.

One mystery last week is the divergence between consumer confidence and consumer spending. Normally analysts like to equate rising confidence with rising spending but isn't the case. Consumer confidence rose from 90.3 in July to 92.4 in August, which happens to be the highest reading since October 2007. The Consumer Sentiment survey also rose with an improvement from 81.8 to 82.5. Yet consumer spending dropped for the first time in six months.

Bloomberg surveyed almost 80 economists and no one expected consumer spending to drop. The consensus estimate was for a +0.2% gain. The Commerce Department reported a -0.1% drop in July following a +0.4% jump in June. Evidence suggests that the American consumer is postponing purchases and boosting their savings rate, which hit the highest level since late 2012. This might be problematic since almost 70% of the U.S. economy is consumer spending.

Elsewhere the pending home sales came in better than expected with a +3% gain. The Durable Goods number for July soared +22.6%, the biggest jump since 1992, following record-setting orders for aircraft. Yet if we subtract the transportation numbers then durable goods orders actually dropped -0.8%.

The weekly initial jobless claims continue to drop. The most recent data showed a -1,000 drop in new claims but that was enough to push the 4-week moving average to less than 300,000. There is going to be a lot of focus on the labor market this week with the ADP report and the Nonfarm payroll report.

Overseas Economic Data

The Eurozone continues to be a sinkhole for economic data. Right now Europe is deathly afraid of deflation. It's an issue that has been haunting the region for years. Last week they saw their inflation rate hit five-year lows. Germany reported that their retail sales declined -1.4% month over month. Spain also reported a drop in retail sales of -0.5%, which was worse than expected. All the geopolitical risk has investors seeking safety in German bonds and the yield on the 10-year German Bund hit a record low of 0.87%. Europe does not have a monopoly on disappointing economic data. Japan said their housing spending report fell for the fourth time in a row. Brazil has dropped back into an economic recession.

Ukraine-Russian Conflict

There is a growing mountain of evidence that Russia is actively involved inside Ukraine. At least 1,000 Russian soldiers, 100 tanks, 500 armored personnel carriers, and 200 artillery units have crossed into Ukraine. That's on top of what has already been smuggled across in the last few months. Russian President Putin is calling the satellite image proof of their invasion into Ukraine to be fakes.

NATO is getting nervous. One of the main reasons the North Atlantic Treaty Organization was created was to deter the Soviet's expansion plans. Now that Putin has reignited plans for a great Russian federation the 28 members of NATO are sitting uneasy. No one wants to get involved in a military conflict with Russia.

Right now there are at least three Russian neighbors that used to be satellites of the prior Soviet empire, Latvia, Lithuania, and Estonia, that are praying NATO's threat of collective defensive will be a big enough deterrent. Ukraine would love to join NATO right now but that's not going to happen. NATO would not be in a rush to accept their application to join the club. We could hear more about NATO as the organization has a two-day summit coming up later this week.

Several of the eastern NATO members are fortifying their military defenses just in case Russia decides to test NATO's mettle. Speaking of testing, Russia has been testing (a.k.a. invading) the airspace of several neighbors including Finland and the U.S. Russia crossed into Finland air space multiple times last week.

The conflict with Russia is not just on the ground. Last week it was unveiled that several major U.S. banks had been hacked. The biggest was banking giant JP Morgan (JPM). Research on who did the hacking traces it back to Russia. According to the story the hackers were able to steal gigabytes of data including personal information. On a side note, security specialists disclosed that there are 650,000 hacking attempts against U.S. targets, including businesses, every single hour! Fortunately the vast majority are not successful but it only takes one success to do significant damage.

There is also a public relations battle going on. One of Russia's reaction to U.S. sanctions has been to target McDonald's restaurants in Russia. Suddenly Russia has had to shut down 12 of the biggest McDonald's in their country due to "health reasons". There are over 400 McDonald's stores in Russia and the government has targeted the busiest locations for closure.

The economic sanctions that the U.S. and Europe have levied against Russia are having an impact. Money has been fleeing the country. The ECB said over $220 billion exited Russia last quarter. The Russian economy is expected to drop -6% to -10% this year. There have been food shortages due to the lack of European imports. The real impact could be 12-24 months down the road. Almost 25% of the foreign debt of Russian banks and businesses, about $157 billion, is scheduled to come due in 2014. They will not be able to refinance this debt on the global market. They'll have to try and do it internally or with help from someone like China. There is even more debt coming due in 2015. Some of the companies affected are major corporate like Rosneft, Russia's national oil company.

No one expects the West to get involved in a military conflict with Russia. That doesn't mean this fight can't go one for a long time, especially if the West starts secretly supporting Ukraine with military aid. Some have suggested that Russia merely wants a big enough chunk of land to access their newly annexed Crimea state. The stakes are going to get higher as we get closer to winter. Europe depends on Russia for about 33% of its natural gas and a significant chunk of its crude oil supplies. Almost 2/3rds of the natural gas Europe does import from Russia runs through Ukraine. Russia could choose to raise prices or cut off supplies if the Ukraine situation drags on into the winter. Russia has already warned that Ukraine might try and siphon gas meant for Europe to supply their own needs.





Major Indices:

The S&P 500 index saw its upward momentum stall a little bit as the index tried to break through round-number, psychological resistance at the 2,000 mark. Traders were in a buy the dip mood and the S&P 500 bounced near its rising 10-dma on Thursday.

The trend is clearly higher but after a four-week surge from almost 1900 to 2000 you could argue that stocks are short-term overbought here. Of course we all know that stocks can remain overbought (or oversold) a lot longer than we think might be normal.

If the rally continues then look for potential resistance in the 2020-2025 area. If the 10-dma fails to hold as support then watch for potential support near 1985. If the S&P 500 falls below 1985 then the next stop might be the 1950 region.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ continues to show relative strength. This tech-heavy index is up more than 250 points or +5.8% from its August lows. The index is now up four weeks in a row and above resistance near 4500. These are new 14-year highs for the NASDAQ composite.

The next resistance level might be 4600. I would look for support in the 4485-4500 region.

chart of the NASDAQ Composite index:

The small cap Russell 2000 has delivered a strong four-week bounce from its early August lows. The $RUT has found support near its rising 10-dma the last few weeks. Now it looks poised to breakout past potential resistance near 1180. If this rally continues then the 1200-1210 zone could be overhead resistance.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's a new month and that means lots of economic data. The big reports will be the ADP employment change report on private payrolls and the U.S. government's nonfarm payrolls (jobs) report. Economists are looking for +200,000 new jobs in August. The U.S. Federal Reserve is keenly focused on the labor market. Any big miss or big increase could influence the timing on when the Fed starts raising rates, or at least the market's perception on when the Fed might start raising rates.

It's also a big week for central bank moves. The Bank of Japan, Bank of England, and the European Central Bank will all announce their latest interest rate decisions on Thursday. ECB President Draghi will hold a press conference afterward. If Draghi doesn't deliver on some sort of stimulus package the markets could be disappointed.

The U.S. market will be closed on Monday, September 1st for the Labor Day holiday. Also worth noting is the next U.S. Fed meeting the 16-17th this month. In corporate news Apple (AAPL) will be holding a big event on September 9th, presumably to unveil their latest iPhone and other product launches.

Economic and Event Calendar

- Monday, September 01 -
U.S. market closed for Labor Day
Eurozone GDP estimate

- Tuesday, September 02 -
ISM index (for August)
Construction spending

- Wednesday, September 03 -
Factory orders
Federal Reserve Beige Book
Auto and truck sales for August

- Thursday, September 04 -
Weekly Initial Jobless Claims
ADP Employment Change report
Bank of Japan interest rate decision
European Central Bank (ECB) interest rate decision
ECB President Mario Draghi press conference
ISM Services

- Friday, September 05 -
Unemployment rate
Nonfarm payrolls (jobs) report for August

Additional Events to be aware of:

Sept. 17th - FOMC meeting and updated economic forecast
Sept. 17th - Fed Chairman Yellen press conference

Looking Ahead:

Congratulations! We are eight months into 2014 and stocks continue to perform with the S&P 500 at record highs. Now what? Seasonally this is not a good time of year for stocks. September is actually the worst month of the year for the Dow Industrials and the S&P 500 going back almost 65 years. The same holds true for the NASDAQ over the last 40 years. It's also the worst month for the small cap Russell 2000 since 1979.

The average monthly loss for September is only about -1% but that doesn't tell you the whole story. Septembers have a history of being more volatile than other months with nearly 5% swings. Of course August just proved that seasonal patterns can be broken so there is no guarantee that stocks are going down in September. However after a four-week rally we might be due for a pullback.

You and I look at the calendar and see four months left for 2014. Yet a lot of mutual funds have their yearend on October 31st. That means they only have two months left. A recent survey found that over 80% of fund managers are underperforming the market. That's going to put a lot of pressure on them to try and catch up to the major indices in the next several weeks, which could mean more money to buy the dips.

Last weekend we talked a little bit about terrorist attacks. This past week there have been new developments. David Cameron, the Prime Minister of the United Kingdom raised his government's terror threat level to "severe", which means an attack is "highly likely". Severe is just below the highest level of "imminent". Europe, the U.K., and to a lesser extent the U.S. have seen hundreds of citizens travel to Syria or Iraq to join ISIS (the Islamic State terrorists). The U.S. defense minister has recently stated that ISIS represents the most extreme threat we have seen yet. They are the most funded and best trained terrorists to date. The risk is that the American or British citizens fighting for ISIS could get training, return home and perform terrorist acts domestically.

The U.S. has already warned that its intelligence machine is picking up a high amount of chatter among terrorist organizations as we approach the 9/11 anniversary. There is always a risk that we could see another attack near the anniversary. Just this past week Homeland security has warned that we could have a serious threat to our southern border (like we didn't already know that). This time the attack could actually be at our southern border, most likely a car bomb of some kind. A couple of days ago the King of Saudi Arabia has also warned terrorists could attack Europe and the U.S. soon. The White House has no plans to raise the U.S. terror threat level and the National Terrorism Advisory System (NTAS) is currently blank.
http://www.dhs.gov/national-terrorism-advisory-system

On a short-term basis the market looks poised to rally after a three-day consolidation sideways. Bigger picture the market direction could depend on geopolitical headlines. Fortunately stocks have managed to ignore geopolitical risks for most of this year.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Big cap stocks continue to lead the market higher but it was encouraging to see the small caps actually participating last week.

Keep an eye on the QQQ NASDAQ 100 ETF, which is currently at 14-year highs but it's also testing potential round-number resistance at the $100.00 mark.

Last week we closed the HES trade and the 2015 WSM calls on Monday, August 25th. WSM was later stopped out on Thursday's gap down.

There are new stop losses on CELG, FFIV, WDC, and WLP.

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

U.S. Stocks Push Higher

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(August 31, 2014)

The U.S. market continues to rally in spite of an escalation in the conflict between Russia and Ukraine. The relative strength in stocks is encouraging but now the S&P 500 is arguably short-term overbought with a four-week bounce from its August lows. We're probably due for a pullback but given last week's rebound from the simple 10-dma the S&P 500 looks poised to rally higher.

September is traditionally the worst month of the year for stocks but seasonal patterns are not set in stone. Currently the S&P 500 is sitting right at significant round-number resistance at the 2,000 mark.

We are not adding any new trades tonight but we are adding four new watch list candidates: ATVI, MS, NUE, ORLY.

I have also updated my radar screen below.

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:

ARII, AMBA, CHKP, CAH, NATI, LNC, HCLP, HCP, LEG, LEA, DLX, NKE, PRI, MRK, ODFL, EVEP, CVI, IACI, FB, LOW, PSX, VFC



Play Updates

Locking In Potential Gains on HES and WSM

by James Brown

Click here to email James Brown


Closed Plays


Our plan was to exit the HES trade on Monday, August 25th and the WSM 2015 calls. The rest of our WSM trade was stopped out on Thursday.



Play Updates


American Intl. Group - AIG - close: 56.06

Comments:
08/31/14: AIG has extended its rally to four weeks in a row and a breakout to new multi-year highs. Shares are probably due for a pullback. I would look for potential support near $54.00.

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 $0.87/0.93

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $3.80/3.95

08/24/14 new stop @ 51.25
08/04/14 AIG beats earnings estimates, announces $2 billion stock buyback
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: 51.25
Play Entered on: 05/14/14
Originally listed on the Watch List: 05/11/14


Celgene Corp. - CELG - close: 95.02

Comments:
08/31/14: Biotech stocks continue to outpace the broader market. Shares of CELG added $3.40 last week and tagged new all-time highs. The next level of significant resistance is probably the $100 mark.

Tonight we'll move the stop loss up to $88.00.

Earlier Comments: August 17, 2014:
If you're looking for opportunity it's hard to beat some of the biotech names. CELG is one of the strongest. According to their press release, "Celgene Corporation, headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation."

What makes CELG so attractive is the company's pipeline. Developing drugs is an expensive business. A lot of older firms are buying other companies for their pipeline. Meanwhile CELG is developing a very strong pipeline. You can view the company's current progress on this webpage.

CELG is also growing earnings. Their most recent earnings report was July 24th. Wall Street was looking for a profit of 89 cents a share on revenues of $1.84 billion. CELG beat estimates with a profit of 90 cents and revenues rising +17.1% to $1.87 billion. Earnings per share are up +18% from a year ago. Management raised their guidance for 2014. Wall Street was a little disappointed with the guidance because analysts are more optimistic.

Big picture, CELG is a strong company and the stock looks poised to breakout. Shares have been consolidating sideways under resistance at $90.00 for the last six weeks. Now it's poised to breakout. The stock is only up +6.0% year to date versus a +16% gain for the IBB biotech ETF and a +19% gain in the XBI biotech ETF. CELG could be poised to catch up with its peers.

Technically the point & figure chart is also bullish with a quadruple top breakout buy signal.

The 2014 high is $90.50. I am suggesting an intraday trigger to buy calls at $91.00. More conservative traders could instead choose to wait for a close above $90.50 as an alternative entry point. If triggered we'll start with a stop loss at $85.75, under the 50-dma. I do expect the $100 level to offer some resistance but our long-term target is the $110-120 zone.

- Suggested Positions -
Aug 18, 2014 - entry price on CELG @ 91.00, option @ 3.45*
symbol: CELG150117c100 2015 JAN $100 call - current bid/ask $4.60/4.75

- or -

Aug 18, 2014 - entry price on CELG @ 91.00, option @ 10.00*
symbol: CELG160115c100 2016 JAN $100 call - current bid/ask $11.85/12.05

08/31/14 new stop @ 88.00
08/18/14 CELG hit our trigger at $91.00 (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: CELG 110-120 zone
Current Stop loss: 88.00
Play Entered on: 08/18/14
Originally listed on the Watch List: 08/17/14


Cummins Inc. - CMI - close: 145.11

Comments:
08/31/14: CMI has spent the last few days consolidating its mid August gains. The stock found short-term support near $144.00 and its simple 200-dma. We can use this pullback as a new entry point but more conservative traders may want to wait for a new close above $146 before launching positions.

Earlier Comments: August 10, 2014:
Cummins Inc. was founded back in 1919 by its namesake Clessie Lyle Cummins. The company has four businesses: engines, power generation, components, and distribution. They're headquartered in the state of Indiana with about 48,000 employees worldwide. They do business in 190 countries.

According to the company website CMI describes themselves as "a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems."

CMI reported Q1 earnings on April 29th. They crushed the earnings number and beat the revenue estimates with revenues up +12.3% for the quarter. CMI management raised their 2014 guidance by +6% to +10% (about $18.3-19.0 billion).

When CMI reported Q2 earnings on July 28th Wall Street was expecting a profit of $2.39 a share on revenues of $4.82 billion. CMI beat those numbers with a profit of $2.43 on revenues of $4.84 billion. Profits were up +10.5% from a year ago. Management raised their 2014 guidance again. This time they see revenues up +8% to +11% in 2014. That's about $18.7-19.2 billion.

CMI's Chairman and CEO Tom Linebarger said, "Demand is growing in on-highway markets in North America this year as the economy improves and we have gained market share in medium duty truck and bus markets." Their North American sales surged +14% last quarter versus a -1% pullback in international sales.

That's two quarters in a row that CMI has beat Wall Street's top and bottom line estimates and raised guidance. Yet the stock was crushed following the July earnings number. It appears the upgraded revenue guidance wasn't good enough and analysts were expecting more.

CMI reported sales of $17.3 billion in 2013. Now they're approaching $19 billion. They've already approved a $1 billion stock buyback program to replace their current $1 billion buyback program once it's complete. They have also raised their dividend this year.

The company has rising sales, rising market share, rising profits, and rising dividends. It has a trailing P/E of 17 and a forward P/E of 12.8. That sounds like a pretty good combination.

Technically the stock has fallen to its long-term trend line of support (see the weekly chart below). Last week shares have started to rebound from this trend. However, on a short-term basis the breakdown under its 200-dma looks pretty ugly. The bounce last week failed near $144.00 and its 10-dma. Therefore tonight we are suggesting investors wait for CMI to close above $144.00 and then buy calls the next morning with a stop at $137.90.

- Suggested Positions -
Aug 20, 2014 - entry price on CMI @ 144.19, option @ 4.75*
symbol: CMI150117c150 2015 JAN $150 call - current bid/ask $4.70/4.90

- or -

Aug 20, 2014 - entry price on CMI @ 144.19, option @ 9.50*
symbol: CMI160115c160 2015 JAN $160 call - current bid/ask $9.00/9.60

08/20/14 trade begins. CMI opens at $144.19
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/19/14 CMI closed at $144.40 above our trigger at $144.00
Option Format: symbol-year-month-day-call-strike

Current Target: CMI 160-200 zone
Current Stop loss: 137.90
Play Entered on: 08/20/14
Originally listed on the Watch List: 08/10/14


CSX Corp. - CSX - close: 30.91

Comments:
08/31/14: Last week was a quiet one for shares of CSX. The stock churned sideways inside the $30.50-31.00 zone.

Investors may want to wait for a close above short-term resistance at $31.00 before initiating new positions.

Earlier Comments: August 10, 2014:
The transportation group has been leading the stock market higher until about two weeks ago. That's then the group peaked. Since then the Dow Jones Transportation Average has seen a -6% pullback. It looks like the profit taking might be over as the group helped lead the bounce on Friday.

The railroads have delivered a similar performance. We want to take advantage of the pullback with CSX. According to the company's website, " CSX Corporation, together with its subsidiaries based in Jacksonville, Fla., is one of the nation's leading transportation suppliers. The company’s rail and intermodal businesses provide rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers. CSX Transportation network encompasses about 21,000 route miles of track in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec. Our transportation network serves some of the largest population centers in the nation. Nearly two-thirds of Americans live within CSX's service territory."

The rebound in the U.S. economy should be great news for the railroads. Rising consumer demand would mean more shipments. A healthy automobile market means more auto shipments. The oil and gas shale boom means more energy shipped by rail. Record harvests mean more grain shipments. A stabilizing coal industry will also help put a floor under the railroads.

Altogether the future looks bullish for the railroad companies. That's why we want to take advantage of this post-earnings profit taking in CSX. The stock has retreated to its long-term trend line of support and started to bounce. More aggressive investors may want to buy calls now. I am suggesting we wait for CSX to close above $30.00 and then buy calls the next morning with a stop loss at $28.40.

Our long-term target for the 2016 calls is CSX in the $37-40 zone. Currently the Point & Figure chart is $38.50. If you buy the 2015 calls plan on exiting sooner.

- Suggested Positions -
Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.48
symbol: CSX150117C30 2015 JAN $30 call - current bid/ask $1.80/1.85

- or -

Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.14*
symbol: CSX160115C35 2016 JAN $35 call - current bid/ask $1.15/1.25

08/15/14 trade begins. CSX opens at $30.29
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/14/14 CSX meets our entry point requirement with a close above $30.00 (closed at $30.16)
Option Format: symbol-year-month-day-call-strike

Current Target: CSX in the $37-40 zone
Current Stop loss: 28.40
Play Entered on: 08/15/14
Originally listed on the Watch List: 08/10/14


Deckers Outdoor Corp. - DECK - close: 92.24

Comments:
08/31/14: The action in DECK last week was bearish. After coiling for a bullish breakout past resistance near $95.00 DECK finally broke through the $95.00 level on August 25th. Unfortunately shares reversed lower the very next day.

Technically last week's pullback has created a bearish engulfing candlestick reversal pattern on DECK's weekly chart. We'll have to wait and see if this week confirms the reversal. More conservative investors may want to move their stop loss closer to the $90.00 level.

On a side note the option spreads on the 2016 call has exploded wider. I would consider these untradeable at the moment.

Earlier Comments: August 3, 2014:
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.

- Suggested Positions -
AUG 06, 2014 - entry price on DECK @ 91.54, option @ 5.05*
symbol: DECK150117c100 2015 JAN $100 call - current bid/ask $4.00/4.90

- or -

AUG 06, 2014 - entry price on DECK @ 91.54, option @ 13.30*
symbol: DECK160115c100 2016 JAN $100 call - current bid/ask $10.30/14.90

08/06/14 trade begins @ 91.54
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/05/14 triggered with a close at $91.71 (above trigger $91.25)
Option Format: symbol-year-month-day-call-strike

Current Target: DECK @ 110-115
Current Stop loss: 86.90
Play Entered on: 08/06/14
Originally listed on the Watch List: 08/03/14


The Walt Disney Co. - DIS - close: 89.88

Comments:
08/31/14: The rally in DIS has paused with shares trading sideways for almost two weeks. The stock could be setting up for a pullback. I would look for support near $88.00 or the simple 50-dma near $87.00.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $15.25/15.45

08/24/14 new stop @ 83.75
08/17/14 new stop @ 82.95, adjust exit target to $98.50
08/05/14 DIS delivers better than expected earnings and revenues
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
...please see older updates for earlier adjustments...

Current Target: DIS @ 98.50
Current Stop loss: 83.75
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


The Dow Chemical Co. - DOW - close: $53.55

Comments:
08/31/14: Last week the headlines for DOW focused on a story that the company might be selling two of its businesses for $1.75 billion. It looks like they might sell their Angus Chemical business and AgroFresh business. Meanwhile the stock is nearing resistance at its late July highs around $54.00.

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 $1.80/1.86

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $4.30/4.45

08/17/14 new stop @ 49.75
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: 49.75
Play Entered on: 05/29/14
Originally listed on the Watch List: 05/26/14


DaVita Healthcare Partners - DVA - close: 74.68

Comments:
08/31/14: The rally in DVA continues with the stock up four weeks in a row. Shares hit resistance near $75.00 this past week. A reversal here could look like a potential bearish double top.

I am not suggesting new positions. Unfortunately the option spread on our 2016 call has grown seriously distorted over the past week. These are untradeable at the moment.

Earlier Comments: June 1, 2014:
DVA is in the healthcare sector. The company provides kidney dialysis services and related lab services. The most recent earnings report was lackluster but DVA did report revenue growth above Wall Street estimates. Management has been buying up smaller domestic rivals and expanding overseas into countries like China, Columbia, Germany, India, Malaysia, Portugal, Saudi Arabia, and Taiwan. In the U.S. DVA has about 35% of the outpatient dialysis market.

Bears on this stock would argue the company is at risk for pricing pressures from Medicare. About 90% of its total U.S. dialysis patients are on some form of government-assisted program. Nearly 80% of are part of Medicare. The latest rules from Medicare said there would be no price changes in 2014 and 2015 but there could be reimbursement reductions in 2016 and 2017.

This pressure from Medicare has not stopped Warren Buffet's Berkshire Hathaway from raising its stake in DVA. Berkshire started investing in DVA back in Q4 2011. They have been slowly building a position and this past quarter (Q1 2014) Berkshire added another 1.1 million shares. Their total position is now 37.6 million shares worth about $2.6 billion. Berkshire tends to be a long-term investors, longer than our timeframe but it is still a vote of confidence for DVA.

- Suggested Positions -
JUN 04, 2014 - entry price on DVA @ 71.44, option @ 2.65*
symbol: DVA150117C75 2015 JAN $75 call - current bid/ask $2.75/3.30

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $2.50/7.10

08/24/14 new stop at $69.85
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: 69.85
Play Entered on: 06/04/14
Originally listed on the Watch List: 06/01/14


Expedia Inc. - EXPE - close: 85.90

Comments:
08/31/14: The action in EXPE was bearish last week. Shares underperformed the broader market. Last week's dip has created a bearish engulfing candlestick reversal pattern on the weekly chart. We'll have to see if shares confirm the reversal this week. If this pullback continues I would watch for support in the $82.50 area.

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

08/24/14 new stop @ 79.75, adjust target to $98.00
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 @ 98.00
Current Stop loss: 79.75
Play Entered on: 06/09/14

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


F5 Networks - FFIV - close: 124.19

Comments:
08/31/14: FFIV spent most of last week consolidating sideways but shares still hit new two-year highs. I am not suggesting new positions at this time. We are moving the stop loss to $116.40.

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 $10.95/11.10

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $15.95/16.20

08/31/14 new stop @ 116.40
08/24/14 new stop @ 112.40
08/10/14 new stop @ 107.40
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: 116.40
Play Entered on: 06/11/14
Originally listed on the Watch List: 06/08/14



Lockheed Martin Corp. - LMT - close: 174.00

Comments:
08/31/14: LMT began trading ex-dividend on Thursday morning, which explains the gap down in the daily chart. Overall the stock spent last week consolidating sideways. Broken resistance near $170 should be new support.

Earlier Comments: August 17, 2014:
LMT is considered part of the industrial goods sector. According to their press release, "Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation’s net sales for 2013 were $45.4 billion."

That's a pretty brief summary for such a large company. Their aerospace and defensive business is extensive covering aircraft, ground vehicles, missiles, missile defense, naval systems, radar systems, sensors, tactical communications, training & logistics, transportation, and unmanned systems.

Their information technology business works in biometrics, cloud computing, cyber security, health and life sciences, and more. Their space division includes satellites, exploration, and launch vehicles. Plus their emerging technologies operations covers exciting fields like robotics, nanotechnology, and advanced aeronautics.

Fundamentally the company has managed to navigate both the economy's ups and downs and the constantly stormy political weather in Washington. LMT has managed to beat Wall Street's earnings estimates the last four quarters in a row. Management has raised their guidance three out of the last four quarters. LMT's most recent earnings report was July 22nd. Analysts were expecting a profit of $2.66 a share on revenues of $11.15 billion. LMT delivered $2.76 a share with revenues of $11.31 billion.

If you look at the world today there seems to be a growing number of conflicts, not less. Just this past week U.S. Defense Secretary Hagel was speaking and said, "The world is exploding all over." Sadly that's probably bullish for LMT's military business.

The stock has spent almost six months consolidating its very impressive 2013 gains. Now it looks ready to breakout. Shares are hovering just below resistance in the $170-171 area. Tonight I am suggesting we wait for LMT to close above $171.00 and then buy calls the next morning with a stop loss at $161.95.

The point & figure chart is bullish with a $196.00 target. We'll start this trade with a potential exit target at $199.00.

- Suggested Positions -
AUG 19, 2014 - entry price on LMT @ 172.02, option @ 3.40*
symbol: LMT150117C180 2015 JAN $180 call - current bid/ask $3.80/4.10

- or -

AUG 19, 2014 - entry price on LMT @ 172.02, option @ 7.00*
symbol: LMT160115C190 2016 JAN $190 call - current bid/ask $7.40/7.80

08/19/14 trade begins. LMT opens at $172.02
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/18/14 LMT closed at $171.52, above our trigger at $171.00
Option Format: symbol-year-month-day-call-strike

Current Target: LMT @ 199.00
Current Stop loss: 161.95
Play Entered on: 08/19/14
Originally listed on the Watch List: 08/17/14


Microsoft Corp. - MSFT - close: 45.43

Comments:
08/31/14: MSFT recovered from its midweek lows. Shares now look poised to breakout past short-term resistance near $45.50. I am not suggesting new positions at this time.

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

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

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

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

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

- Suggested Positions -
JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 1.05
symbol:MSFT150117c45 2015 JAN $45 call - current bid/ask $ 2.16/2.18

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 4.10/4.20

08/24/14 new stop @ 41.45
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: 41.45
Play Entered on: 06/25/14
Originally listed on the Watch List: 06/15/14


Newmont Mining Corp. - NEM - close: 27.09

Comments:
08/31/14: Last week NEM withdrew its arbitration case against the country of Indonesia. The two were fighting over mining rules but it looks like a compromise has been reached. Some see this story as bullish since it removes a black cloud of uncertainty over NEM's Indonesian operations. The stock is looking healthier with a bounce from support near $26.00.

I would still consider new positions at current levels.

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.

- Suggested Positions -
AUG 13, 2014 - entry price on NEM @ 27.14, option @ $0.91*
symbol: NEM150117c30 2015 JAN $30 call - current bid/ask $0.61/0.63

- or -

AUG 13, 2014 - entry price on NEM @ 27.14, option @ $2.73*
symbol: NEM160115c30 2016 JAN $30 call - current bid/ask $2.37/2.48

08/13/14 trade begins. NEM opens at $27.14
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/12/14 NEM meets our entry point requirement with a close above $26.75 (closed @ 27.06)
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 23.75
Play Entered on: 08/13/14
Originally listed on the Watch List: 07/13/14


Western Digital Corp. - WDC - close: 103.01

Comments:
08/31/14: WDC spent last week fighting its way higher and ended the week at all-time highs. A close above resistance near $103.50 could be used as a new bullish entry point. We are moving our stop loss to $97.45.

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 $7.80/7.95

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $10.45/10.70

08/31/14 new stop @ 97.45
08/24/14 new stop @ 94.75
08/17/14 WDC looks poised for a pullback
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: 97.45
Play Entered on: 05/28/14
Originally listed on the Watch List: 06/22/14


Wells Fargo & Co. - WFC - close: 51.44

Comments:
08/31/14: The bounce in WFC stalled last week. If this pullback continues I would watch for a bounce in the $50.50 area. I am not suggesting new positions.

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 $ 2.60/2.66

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.30/4.50

08/24/14 new stop @ 49.25
08/10/14 adjust stop loss to $48.80
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: 49.25
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13


WellPoint Inc. - WLP - close: 116.51

Comments:
08/31/14: Shares of WLP were in rally mode last week with the stock up five days in a row. WLP broke out to a new all-time high.

I'd like to try and reduce our risk by moving the stop loss up to $109.45.

I am not suggesting new positions at this time.

Earlier Comments: July 6, 2014:
WellPoint is one of the nation's leading health benefits companies. We believe that our health connects us all. So we focus on being a valued health partner and delivering quality products and services that give members access to the care they need. With nearly 67 million people served by our affiliated companies including nearly 37 million enrolled in our family of health plans (source: WLP website).

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

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

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

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

- Suggested Positions -
JUL 15, 2014 - entry price on WLP @ 113.05, option @ 4.00*
symbol:WLP150117c120 2015 JAN $120 call - current bid/ask $ 4.25/4.55

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 7.70/8.70

08/31/14 new stop @ 109.45
08/10/14 technically WLP is showing weakness and investors might want to raise their stop loss.
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: 109.45
Play Entered on: 07/15/14
Originally listed on the Watch List: 07/06/14



CLOSED Plays


Hess Corp. - HES - close: 101.10

Comments:
08/31/14: HES had been stuck churning sideways near resistance at $100 for weeks. Last weekend we decided to just exit this trade to protect ourselves. Naturally shares of HES decided to rally after we exited. The stock is now poised to breakout from its recent trading range.

Our plan was to exit positions on Monday, August 25th at the open. HES did gap higher on Monday at $99.39. That allowed us to exit the 2016 option at $9.25** (+59.4%).

- Suggested Positions -
Closed 2015 calls on July 28, 2014
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 - exit $9.25** (+59.4%)

08/25/14 Planned exit at the opening bell. HES gapped higher.
**option exit price is an estimate since the option did not trade at the time our play was closed.
08/24/14 prepare to exit tomorrow morning
08/17/14 new stop loss @ 96.75
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

Chart

Current Target: HES @ 109.00
Current Stop loss: 96.75
Play Entered on: 04/22/14
Originally listed on the Watch List: 04/06/14


Williams Sonoma - WSM - close: 65.77

Comments:
08/31/14: Some times stop losses don't work!

We knew that holding a position over WSM's earnings report was risky, which is why we planned to exit our 2015 calls on Monday, August 25th. That proved to be a smart idea. WSM continued drifting higher into its earnings report. The company delivered results that were in-line with Wall Street's estimates. The problem was their outlook. WSM lowered their guidance. Shares collapsed the next morning with a drop from almost $75.00 to gap down at $67.25 and closed at $65.93 on Thursday.

Our 2015 call trade was already closed (see below) but we still had the 2016 calls. Our stop loss was $69.45 so the gap down immediately triggered our stop.

- Suggested Positions -
MAY 13, 2014 - entry price on WSM @ 64.36, option @ 2.95*
symbol: WSM1517a70 2015 JAN $70 call - exit $6.80** (+130.5%)

-- or --

MAY 13, 2014 - entry price on WSM @ 64.36, option @ 4.70*
symbol: WSM1615a75 2016 JAN $75 call - exit $4.99 (+6.1%)

08/28/14 Stopped out! WSM gaps down from $74.89 to $67.25
08/27/14 WSM reports earnings and lowers guidance.
08/25/14 planned exit for 2015 calls (exit +130.5%)
**option exit price is an estimate since the option did not trade at the time our play was closed.
08/24/14 Prepare to exit the 2015 calls immediate (Monday, Aug 25th)
Raise the stop loss to $69.45
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

Chart

Current Target: Our target is WSM at $79.00
Current Stop loss: 69.45
Play Entered on: 05/13/14

Originally listed on the Watch List: 05/04/14



Watch

Video Games, Financials, Steel, and Auto Parts

by James Brown

Click here to email James Brown



New Watch List Entries

ATVI - Activision Blizzard

MS - Morgan Stanley

NUE - Nucor Corp.

ORLY - O'Reilly Auto


Active Watch List Candidates

TMO - Thermo Fisher Scientific


Dropped Watch List Entries

BCR has been removed.



New Watch List Candidates:


Activision Blizzard, Inc. - ATVI - close: 23.54

Company Info

Under promise and over deliver. That appears to be ATVI's model. They consistently offer cautious or lowered guidance and yet continue to beat Wall Street's profit and revenue estimates. ATVI has bested analysts' estimates for at least the last four quarters in a row. Their latest report was August 5th. Management offered EPS guidance below Wall Street's estimates but ATVI raised their revenue guidance significantly above estimates.

If you didn't know ATVI is a giant in the video game industry. They make games like "Call of Duty" and "World of Warcraft". They're about to launch a brand new game called "Destiny" in September this year. Plus, they'll release a new update to Call of Duty in November.

Analysts have been raising their price targets and investors have been buying the dips. This stock ended the week at all-time highs. I am suggesting we wait for the stock to close above $23.80 and buy calls the next morning with a stop loss at $21.95. I prefer the 2016 calls but we'll list the 2015s as well.

Breakout trigger: Wait for a close above $23.80
Then buy calls the next morning with a stop at $21.95

BUY 2015 Jan $25 call (ATVI150117C25) current ask $0.88

- or -

BUY 2016 Jan $25 call (ATVI160115C25) current ask $2.59

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

Chart of ATVI:

Originally listed on the Watch List: 08/31/14


Morgan Stanley - MS - close: 34.31

Company Info

MS is in the financial sector. They're one of the biggest players in the financial services industry. The stock has been outperforming its peers with a +9.4% gain this year versus a +6.8% gain in the XLF financial ETF. MS has managed to beat Wall Street's earnings estimates four quarters in a row.

Technically shares just recently broke through significant resistance in the $33.50 level this past week. This leaves MS at new multi-year highs.

Currently MS is testing short-term resistance at $34.50. I'm suggesting a trigger to buy calls if MS can close above $34.60.

Breakout trigger: Wait for a close above $34.60
Then buy calls the next morning with a stop at $30.90

BUY the 2015 Jan $35 call (MS150117C35) current ask $1.50

- or -

BUY the 2016 Jan $40 call (MS160115C40) current ask $2.67

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

Chart of MS:

Originally listed on the Watch List: 08/31/14


Nucor Corp. - NUE - close: 54.32

Company Info

NUE is in the basic materials sector. The company makes steel and steel-related products. The stock has been dead money for months as NUE consolidating sideways n the $48-54 zone since its 2013 peak but that could be changing soon.

NUE's latest earnings report in July beat Wall Street's estimates on both the top and bottom line. Management issued an optimistic outlook. In August there was good news for domestic steel makers. The U.S. International Trade Commission (ITC) ruled in favor of American companies who make oil country tubular goods (OCTG) after foreign steel makers dumped a ton of product in the U.S. back in 2013. This ITC decision will levy duties against certain steel imports from South Korea, India, Taiwan, Turkey, Ukraine, and Vietnam. While this particular decision doesn't impact NUE's business that much it is a bullish undercurrent for the broader industry as a whole.

Technically NUE has been looking stronger. On August 19th the stock produced a spread-triple top breakout buy signal on its point & figure chart, which is now forecasting at $65 target.

At the moment NUE is hovering just below resistance near $55.00. I am suggesting we wait for NUE to close above $55.25 and then buy calls the next morning with a stop loss at $51.75.

Breakout trigger: Wait for a close above $55.25
Then buy calls the next morning with a stop at $51.75

BUY the 2016 $60 call (NUE160115C60) current ask $2.68

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

Chart of NUE:

Originally listed on the Watch List: 08/31/14


O'Reilly Automotive - ORLY - close: 155.98

Company Info

The U.S. economy is slowly improving. We are seeing slow but consistent job growth. Yet consumers remain cautious. While there has been a healthy trend of new car sales this year most consumers are keeping their old cars. Of the 247 million cars in the U.S. the average age is at a record high. Passenger cars have hit an average age of 11.4 years while light trucks are at 11.3. If consumers are keeping their cars this long that is going to mean more replacement parts and repairs. That has been good news for the auto part companies.

ORLY is one such company. According to their company website, "O'Reilly Automotive, Inc. is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, serving both professional service providers and do-it-yourself customers. Founded in 1957 by the O'Reilly family, the Company operated 4,257 stores in 42 states as of June 30, 2014."

One analysts on Wall Street called ORLY a "well-oiled machine." It's easy to see why. The company has delivered four years of consistent double-digit earnings growth. Steady same-store sales are impressive considering the tough retail environment we've seen over the last few years. The company's margins are expected to grow over the next 12-18 months. ORLY is on track to open 200 new stores in 2014. They have also boosted their stock buyback program. On August 13th ORLY announced an additional $500 million, which bumps their total stock repurchase program to $4.5 billion.

Technically shares have been consistently bouncing off their long-term trend of higher lows (on the weekly chart below). ORLY did spent the last few months consolidating sideways but it has started to breakout past resistance. This is our chance to hop on board. A rally past $158.00 could create a new point & figure chart buy signal.

Friday's high was $157.18. I am suggesting we wait for ORLY to close above $157.25 and then buy calls the next morning with a stop loss at $149.75.

NOTE: I am labeling this a more aggressive trade due to the relatively wide option spreads. Consider reducing your normal position size to limit risk.

Breakout trigger: Wait for a close above $157.25
Then buy calls the next morning with a stop at $149.75

BUY 2015 Jan $160 call (ORLY150117C160) current ask $5.60

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

Chart of ORLY:

Originally listed on the Watch List: 08/31/14


Active Watch List Candidates:



C. R. Bard Inc. - BCR - close: 148.44

Comments:
08/31/14: BCR has spent the entire month of August consolidating sideways with shares finding support near the $147.00 mark. Last week I suggested that if BCR didn't move we would drop it. Thus tonight we are removing BCR as a watch list candidate. However, I would keep it on your radar screen for a close above $152.00. Nimble investors might want to consider buying a dip or a bounce from the $145.00 area, which should line up with one of BCR's long-term trend lines of support (if you do I would use a relatively tight stop loss).

Trade did not open.

08/31/14 removed from the watch list, trade did not open.

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


Thermo Fisher Scientific - TMO - close: 120.21

Comments:
08/31/14: TMO has spent the last four weeks consolidating sideways in the $119-123 area. The stock just tested technical support at its 100-dma and should bounce. We are suggesting a trigger to buy calls if TMO closes above $123.00.

Earlier Comments: August 10, 2014:
TMO is considered part of the healthcare sector. They provide products and services in their analytical instruments, laboratory services, specialty diagnostics, and their new Life Sciences division.

According to the company website, "Thermo Fisher Scientific Inc. is the world leader in serving science, with revenues of $17 billion and 50,000 employees in 50 countries. Our mission is to enable our customers to make the world healthier, cleaner and safer. We help our customers accelerate life sciences research, solve complex analytical challenges, improve patient diagnostics and increase laboratory productivity. Through our four premier brands – Thermo Scientific, Life Technologies, Fisher Scientific and Unity Lab Services – we offer an unmatched combination of innovative technologies, purchasing convenience and comprehensive support."

TMO is developing a trend of beating Wall Street's estimates. Back in April they reported their first quarter results that beat estimates on both the top and bottom line. Management then raised their guidance for 2014. TMO did it again when they reported Q2 earnings on July 23rd. However, this report is significant because it's the first earnings report including its new Life Sciences acquisition.

Wall Street was expecting TMO to report earnings of $1.63 a share on revenues of $4.25 billion. The company beat these expectations. Earnings rose +30% to $1.72 a share. Revenues soared +33% to $4.32 billion. Gross margins improved 154 basis points to 45.4%. Management then adjusted their revenue guidance higher.

TMO's management has also upgraded their expected synergies from the Life Sciences acquisition. They now expect to reap $350 million in synergies over the next three years. That's up from $300 million.

The stock has reflected TMO's bullish performance with big gains over the past couple of years. Yet the rally peaked in March 2014 and shares have been digesting gains for months. This past week saw TMO testing significant support near its long-term trend of higher lows. This looks like an opportunity to hop on board.

I am suggesting we wait for TMO to close above $122.50 and then buy calls the next morning with a stop loss at $117.40. The $127.00 level is overhead resistance but we're betting on a bullish breakout to record highs.

Breakout trigger: Wait for a close above $123.00
then buy calls the next morning with a stop at $117.40

BUY the 2015 Jan $130 call (TMO150117c130)

- or -

BUY the 2016 Jan $130 call (TMO160115c130)

08/24/14 adjust entry strategy: wait for a close above $123.00 and then buy calls the next day (instead of a close above $122.50)
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 08/10/14