Option Investor
Newsletter

Daily Newsletter, Sunday, 9/7/2014

Table of Contents

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

Leaps Trader Commentary

Stocks Shrug Off Jobs Miss

by James Brown

Click here to email James Brown

The first week of September 2014 was a busy one for economic data. The U.S. markets were closed last Monday for Labor Day and spent the last four days churning sideways. Only after a bounce from Friday's lows did the major indices manage to eke out another weekly gain. Now the S&P 500 is up five weeks in a row but still struggling to escape the gravitational pull of the 2,000 level.

The big events last week were a lot of central bank action overseas, a cease-fire in Ukraine, and the jobs report in the U.S. The ECB lowered rates and announced new asset purchases. Weakness in the euro helped lift the U.S. dollar index to 13-month highs. This in turn pressured commodities. Oil, gold, and silver all posted a loss for the week. Meanwhile the U.S. market managed to shrug off disappointing labor market news. The Dow Industrials inched up +0.2% for the week. The NASDAQ composite gained +0.06%. The S&P 500 closed up +0.22% while the small cap Russell 2000 lost -0.36% for the week. The Dow Transports were showing relative strength with a +2.3% gain.

Economic Data

U.S. economic data was mostly bullish with the exception of the jobs report. The ISM manufacturing index came in better than expected with a rise from 57.1 to 59. The ISM non-manufacturing index improved from 58.7 to 59.6. This is the best reading since January 2008. Numbers above 50.0 suggest growth and expansion. The Federal Reserve's Beige Book report was generally benign. The ADP employment change report said the U.S. gained 204,000 new private sector jobs in August. Unfortunately this wasn't reflected in the BLS report.

Friday's jobs data was a huge disappointment. Economists were expecting the U.S. to gain 230,000 new jobs in August. The headline number came in at 142,000. The unemployment rate inched down from 6.2% to 6.1% and nearing a six-year low. This is likely due to another drop in the labor-force participation rate, which fell to a 36-year low at 62.8%.

At 142,000 new jobs, the August nonfarm payroll report is the worst jobs report of the year and snapped a string of +200K jobs numbers. Out of the dozens of economists polled by the financial media no one was expecting a jobs number this low (at 142K).

The falling labor force participation rate is another worry. We dipped this low back in October but before that we haven't seen a participation rate this bad since the 1970s. There is a record 92.2 million Americans not in the labor force. Of the 150 million or so that are working about one third of them are working part time. The average workweek has been stuck at 34.5 hours for six months in a row.

Analysts have suggested that the August jobs number might mean the U.S. economy is still at risk for stagnation. This will likely keep the Federal Reserve on a dovish path. Fed Chairman Janet Yellen warned us that the labor market was still facing challenges and advised patience. Friday's disappointment reaffirms her outlook. Investors might interpret Friday's jobs number as a reason for the Fed to delay raising interest rates next year, which would be considered bullish for stocks.

Overseas Economic Data

There was a ton of economic data overseas. Germany's Q2 GDP estimate was left unchanged at -0.2% and the Eurozone's Q2 GDP was also left unchanged at +0.0% growth. Germany said their industrial production came in better than expected with +1.9% growth. French manufacturing PMI improved from 46.5 to 46.9 (still in contraction). Italy's manufacturing PMI and Spain's manufacturing PMI numbers both declined with Italy's falling into contraction territory.

Eurozone retail sales came in worse than expected with a -0.4% monthly decline. Their retail PMI slipped from 47.6 to 45.8 (in contraction territory). French unemployment worsened from 10.1% to 10.2%. The Bank of England left their interest rate policy unchanged. Yet the European Central Bank (ECB), in a widely telegraphed move, announced new asset purchases. What surprised some folks was the ECB's decision to lower interest rates. The ECB's main refinance rate has been adjusted from 0.15% to 0.05%. They also reduced the deposit facility rate and the marginal lending rate. Their plan to buy asset-backed securities is being called QE-light but there seems to be some confusion over just what kind of debt and how much ABS purchases the ECB might make and if it will have any impact on the Eurozone. The euro currency declined following the ECB's announcement with the currency hitting new 13-month lows.

The Bank of Japan left their interest rate policy unchanged. Japan said their manufacturing PMI declined from 52.4 to 52.2, which was a little worse than expected. China reported its manufacturing PMI declined from 51.7 to 51.1. The HSBC China manufacturing PMI slipped from 50.3 to 50.2. This is nearing contraction territory under 50.0. The services readings were healthier. China's official non-manufacturing PMI improved from 54.2 to 54.4. The HSBC China services PMI reading surged from 50.0 to 54.1.

Ukraine-Russian Conflict

While we are on the topic of overseas headlines I have to mention the latest developments in Ukraine. Wednesday last week there was some confusion surrounding a story of a potential ceasefire. Ukraine was talking about a permanent cease-fire deal between Ukraine and Russia. Then Russia countered saying how can we be part of a cease-fire deal if we're not involved in the conflict in Ukraine.

The next day (Thursday) began a two-day NATO summit in Wales. At the same time the U.S. and Europe were preparing another round of sanctions aimed at Russia. Naturally Russia tried to downplay both the NATO summit and the sanctions. Russia responded saying that NATO was supporting extremists in Ukraine and would interfere with the peace progress in the region.

On Friday there were new headlines of a cease-fire to begin at 6:00 p.m. in Ukraine. These new peace talks involved Ukraine, Russia, the Ukrainian rebels, and a representative of the Organization for Security and Cooperation in Europe (the OSCE). Sadly the cease-fire didn't seem to last very long. There was new artillery fire and shelling in Donetsk and Mariupol. The rebels claimed they were "taking Mariupol" through social media. Yet both sides accused the other of violating the cease-fire. It's being reported that Ukraine President Poroshenko spoke with Russian President Putin on Saturday to try and keep the cease-fire going. Tensions in the region remain elevated.





Major Indices:

The S&P 500 almost didn't make it but a decent bounce from its Friday morning lows pushed it to a meager gain for the week. That has extended its bounce from the August lows to five up weeks in a row. The S&P 500 ended the week at a new all-time closing high and up +8.6% year to date. The challenge right now seems to be breaking away from the 2,000 level, which is acting like a magnet.

If the S&P 500 can keep the rally going then I would look for resistance near 2020-2025. We can look for potential support in the 1970-1980 region. However, 1950 might be a better area to watch since it would currently line up with the bottom of the bullish channel on the weekly chart (see below).

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ's gain for the week was less than three points. Wednesday's move has produced a bearish engulfing candlestick reversal pattern. That might still be in play. If the NASDAQ does see a pullback we can look for support in the 4485-4500 area (prior resistance). If you believe in the measured move concept then the NASDAQ's current rally could be targeting 4800.

At the moment these are 14-year highs and the NASDAQ is up +9.7% year to date.

chart of the NASDAQ Composite index:

The small cap index snapped a four-week winning streak with a four-point decline last week. The $RUT did appear to find support near 1160 on Friday. If this index retreats lower we can look for potential support at 1140, 1120, and 1100. Likewise if the $RUT bounces then 1180, 1200 and the highs near 1210 are potential resistance.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows down this week. Investors might be nervous as we approach the 9/11 terror attack anniversary. Putting geopolitical fears aside the market will likely focus on Apple's product announcement September 9th and the next FOMC meeting on September 17th.

Economic and Event Calendar

- Monday, September 08 -
Consumer credit data
Japan Q2 GDP estimate (update)

- Tuesday, September 09 -
NFIB small business optimism survey
Japan consumer confidence
Apple's (AAPL) product announcement

- Wednesday, September 10 -
Wholesale inventory data

- Thursday, September 11 -
Weekly Initial Jobless Claims
13th anniversary of the 9/11 attacks

- Friday, September 12 -
U.S. retail sales data
Import/export data
University of Michigan consumer sentiment

Additional Events to be aware of:

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

Looking Ahead:

The last few weeks have seen very low trading volumes. Could this mean that institutional traders are sitting on the sidelines waiting for a pullback? The week ahead could also be a light-volume week as we near the 13th anniversary of the September 11th, 2001 terror attack on the U.S. We already know that the U.S. is picking up increased chatter among terrorist-affiliated communities as we near the anniversary. The U.S. government is concerned there could be an attack on or near our unsecured southern border with Mexico. Meanwhile Europe and the Middle East are probably worried about missing jetliners from a Libyan airport.

There has been some confusion over these missing airliners. Are they missing, have they been destroyed, or have they been stolen? About two weeks ago the rebel group Libyan Dawn gained control of a Tripoli airport. Supposedly they stole 11 jetliners. The worry is that they could use (or sell) these planes to terrorists hoping to duplicate the 9/11 attacks in the U.S.

Officially the U.S. says they can't confirm that these jetliners have been "stolen" but then the government probably doesn't want to cause a panic either. One argument is that these planes were merely moved to another airport but if that's true they still can't find nine of them. Southern Europe and the Mid East are all potential targets if terrorist do have these planes and can find pilots for them.

If we can set aside our concerns over terror threats and ISIS/ISIL then investors should be able to focus on the market. Right now stocks are arguably looking tired. The S&P 500 has gone almost 1,070 days without a -10% correction lower. This is also the second longest bull market in the last 85 years.

Fewer and fewer investors are bearish. The latest investor's intelligence advisor sentiment report saw bearish investors drop to just 13.3%. That is the lowest level since 1987. From a contrarian standpoint, if everyone is bullish, then this is very bearish signal. Of course these are sentiment indicators, which can stay at extremes and do not necessarily mean the market will reverse tomorrow.

While people point out some of the bearish warning signals there are also bullish signals. The Dow Transportation Average displayed relative strength last week and broke out to new all-time highs. Dow Theory would tell you that strength in the transports is bullish for the market. Basically if the transports are doing well then it's a bullish indicator on the broader economy. We'll have to keep an eye on the price of oil. Crude oil is down sharply from its June highs and could be due for a bounce. Yet a rising dollar will continue to pressure oil lower. If Ukraine and Russia make peace it should help push oil lower. On the other hand if we see a new terrorist attack there might be a knee-jerk reaction higher in oil prices.

Forgive me if I sound like a broken record but the path of least resistance is still higher.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

We had a very successful week with our watch list. All of our candidates graduated to the active play portfolio.

ATVI, MS, NUE, ORLY, and TMO have all joined the play list.

There are new stop losses on CSX, DIS, MSFT, NEM, 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

Finally, An Entry Point

by James Brown

Click here to email James Brown


- New Trades -


Nike, Inc. - NKE - close: 82.04

Company Info

Why We Like It:
We have had NKE on and off our radar screen for weeks. I've personally been watching this stock for months as it consolidated sideways under major resistance at the $80.00 level. Shares are finally breaking out.

The company is a powerhouse in the athletic apparel and footwear industry. NKE is targeting a pretty big demographic. According to the company's mission "to bring inspiration and innovation to every athlete* in the world" (*if you have a body, you are an athlete). Real athletes might not take to kindly to NKE's definition but it's great for marketing. The company is considered the world leader in athletic footwear, apparel, equipment, and accessories.

This company is poised to cash in on the latest fashion trend called "athleisure". Last year apparel sales were down -1%. Yet sales of activewear rose +7%. The activewear segment now accounts for 16% of the U.S. market and has grown to $34 billion a year. Athleisure is the growing trend of fashion and activewear.

NKE's most recent earnings report was better than expected. Wall Street was looking for a profit of $0.75 on revenues of $7.34 billion. The company beat estimates with $0.78 on revenues of $7.42 billion. Gross margins improved 170 basis points to 45.6 percent. Management reported that they spent $912 million on buying back 12.3 million shares of stock last quarter as part of their $8 billion stock buyback program.

Technically shares of NKE have been stuck under major resistance at the $80.00 level since December 2013. Investors have been slowing buying the dips and now the stock looks poised to breakout past resistance. The point & figure chart is bullish and currently forecasting at $98 target.

Friday's bullish breakout past resistance is an entry point. I am suggesting we buy calls immediately. If you have the patience then consider waiting for a dip back into the $80.00-81.00 zone as an alternative entry point. Broken resistance at $80.00 should be new support. We'll start this trade with a stop loss at $75.75.

- Suggested Positions -
SEP 07, 2014 - entry price on NKE @ 00.00, option @
symbol:NKE160115c90 2016 JAN $90 call - current bid/ask $5.00/5.20

Chart of NKE:

Current Target: $99.00
Current Stop loss: 75.75
Play Entered on: 09/08/14
Originally listed in the New Plays 09/07/14



Play Updates

A Lot Of New Additions

by James Brown

Click here to email James Brown

Editor's Note:

We had a very successful week for the watch list. ATVI, MS, NUE, ORLY, and TMO have all moved to our active play list below.


Closed Plays



None. No closed plays this week.




Play Updates


American Intl. Group - AIG - close: 55.04

Comments:
09/07/14: AIG slowly lost a dollar for the week. Technically shares have created a bearish engulfing candlestick reversal pattern on the weekly chart so that bears watching. I would expect support near its rising 200-dma near $52.00.

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 $0.63/0.69

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $3.30/3.50

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


Activision Blizzard, Inc. - ATVI - close: 24.02

Comments:
09/07/14: We had several stocks graduate from our watch list to our active play list. ATVI is one of them. The plan was to wait for shares to close above $23.80 and then buy calls the next day. Shares closed at $23.95 on September 3rd. Our trade opened on Thursday at $23.90. I would still consider new positions now at current levels.

Earlier Comments: August 31, 2014:
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.

- Suggested Positions -
SEP 04, 2014 - entry price on ATVI @ 23.90, option @ 1.05*
symbol: ATVI150117c25 2015 JAN $25 call - current bid/ask $1.01/1.05

- or -

SEP 04, 2014 - entry price on ATVI @ 23.90, option @ 2.79*
symbol: ATVI160115c25 2016 JAN $25 call - current bid/ask $2.74/2.81

09/04/14 trade begins. ATVI opens at $23.90
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/03/14 ATVI closes @ $23.95 above trigger of $23.90
Option Format: symbol-year-month-day-call-strike

Chart of ATVI:

Current Target: ATVI @ Yet to be determined
Current Stop loss: 21.95
Play Entered on: 09/04/14
Originally listed on the Watch List: 08/31/14


Celgene Corp. - CELG - close: 93.79

Comments:
09/07/14: Biotech stocks were hit with some profit taking on Friday. Shares of CELG spiked down to their 20-dma near $91.75 before paring its losses. Last week's dip snapped a three-week winning streak.

I am not suggesting new positions at this time. Watch for support in the $90-91 area.

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 $3.90/4.10

- or -

Aug 18, 2014 - entry price on CELG @ 91.00, option @ 10.00*
symbol: CELG160115c100 2016 JAN $100 call - current bid/ask $11.20/11.55

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: 142.62

Comments:
09/07/14: CMI spent most of last week consolidating sideways just above technical support at its 200-dma. Unfortunately shares broke this support on Friday. CMI's relative weakness last week could be a warning signal and more conservative investors might want to adjust their stop loss closer to $140.00. I am not suggesting new positions at this time.

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 $3.50/3.80

- or -

Aug 20, 2014 - entry price on CMI @ 144.19, option @ 9.50*
symbol: CMI160115c160 2015 JAN $160 call - current bid/ask $8.00/8.50

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: 31.49

Comments:
09/07/14: Transportation stocks were showing relative strength and the Dow Transportation average rallied to new all-time highs. CSX followed suit and ended the week at a record closing high. We will move the stop loss up to $28.95. More conservative investors may want to consider a stop closer to the $30.00 area.

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 $2.13/2.19

- or -

Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.14*
symbol: CSX160115C35 2016 JAN $35 call - current bid/ask $1.36/1.44

09/07/14 new stop @ 28.95
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: 28.95
Play Entered on: 08/15/14
Originally listed on the Watch List: 08/10/14


Deckers Outdoor Corp. - DECK - close: 95.24

Comments:
09/07/14: DECK garnered some bullish analyst comments from CNBC's Jim Cramer last week. This may have helped shares outperform the major indices and the stock added $3.00 for the week. DECK remains near resistance at $95.00 and its August highs.

A rally past $96.00 could be considered a bullish breakout but I am concerned that the $100.00 mark might be round-number resistance. More conservative investors may want to move their stop loss closer to the $90.00 level.

I do have good news on the options. The spreads for both the 2015s and 2016s have narrowed.

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 $5.10/5.60

- or -

AUG 06, 2014 - entry price on DECK @ 91.54, option @ 13.30*
symbol: DECK160115c100 2016 JAN $100 call - current bid/ask $12.10/14.40

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: 90.94

Comments:
09/07/14: DIS consolidation at its highs is now three weeks old. Shares did end the week on a strong note and look poised to breakout. Tonight I am going to take a more defensive posture and up our stop loss to $86.40.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $16.00/16.40

09/07/14 new stop @ 86.40
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: 86.40
Play Entered on: 10/23/13
Originally listed on the Watch List: 10/13/13


The Dow Chemical Co. - DOW - close: $54.80

Comments:
09/07/14: The rally in DOW continues with shares breaking out past its 2014 highs. Shares are now hitting levels not seen since 2005. The stock's all-time high is near $56.50, which could be resistance.

I am not suggesting new positions at this time.

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

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

- Suggested Positions -
MAY 29, 2014 - entry price on DOW @ 51.78, option @ 1.95
symbol: DOW150117C55 2015 JAN $55 call - current bid/ask $2.45/2.48

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $5.05/5.20

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: 74.30

Comments:
09/07/14: DVA tagged a new high on Tuesday and spent the rest of the week slowly fading lower. The pullback ended a four-week rally.

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 $2.50/2.80

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $2.35/6.90

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: 87.86

Comments:
09/07/14: The march of news highs continues for EXPE. Last week there were some headlines regarding EXPE's planned acquisition of Australian rival Wotif.com. The Australian Competition and Consumer Commission raised concerns. The ACCC has postponed their approval as they seek more feedback. If EXPE does acquire Wotif that would reduce the number of major competitors in Australia down to two - just EXPE and rival Priceline.com (PCLN).

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 $12.50/13.00

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: 123.71

Comments:
09/07/14: FFIV's breakout past $125.00 on Tuesday didn't last. Shares have pulled back and they are trading near short-term support at the 10-dma. I am not convinced the pullback is over and would not be surprised to see a dip near $120.00.

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 $10.40/10.55

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $15.55/15.80

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: 174.58

Comments:
09/07/14: LMT spent last week consolidating sideways near $175. Traders bought the dip on Friday at its rising 20-dma. A new close above $175 or $177 could be used as a bullish entry point. Or if you prefer a buy the dip entry point you could cross your fingers for a pullback toward $170.00.

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 $3.80/4.00

- or -

AUG 19, 2014 - entry price on LMT @ 172.02, option @ 7.00*
symbol: LMT160115C190 2016 JAN $190 call - current bid/ask $7.40/7.70

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


Morgan Stanley - MS - close: 34.63

Comments:
09/07/14: MS is a watch list candidate that has graduated to our active play section. The plan was to wait for shares to close over $34.60. The stock closed at $34.70 on September 4th. Our trade opened on Friday morning at $34.42. Traders bought the dip on Friday near $34.00 and I would still consider new bullish positions at current levels.

Earlier Comments: August 31, 2014:
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.

- Suggested Positions -
SEP 05, 2014 - entry price on MS @ 34.42, option @ 1.57*
symbol: MS150117C35 2015 JAN $35 call - current bid/ask $1.59/1.60

- or -

SEP 05, 2014 - entry price on MS @ 34.42, option @ 1.80*
symbol: MS160115C40 2016 JAN $40 call - current bid/ask $1.81/1.91

09/05/14 trade begins. MS opens at $34.42
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/04/14 MS closed @ 34.70, above our trigger of $34.60
Option Format: symbol-year-month-day-call-strike

Chart of MS:

Current Target: 2015 calls is MS @ 39.50, 2016 calls is MS @ 49.00
Current Stop loss: 30.90
Play Entered on: 09/05/14
Originally listed on the Watch List: 08/31/14


Microsoft Corp. - MSFT - close: 45.91

Comments:
09/07/14: Bulls should be happy with MSFT's performance. The stock has broken out past resistance near $45.50 and closed at multi-year highs. We will adjust the stop loss up to $41.90.

Please note that I am adjusting our exit strategy. We will plan to exit our 2015 calls when MSFT hits $49.50. We will leave the exit target on the 2016 calls undetermined at the moment.

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 $ 2.36/2.40

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 4.35/4.45

09/07/14 new stop @ 41.90
09/07/14 set exit target for 2015 calls: MSFT @ $49.50
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: Exit 2015 calls: MSFT @ $49.50
(no target yet to exit the 2016 calls)
Current Stop loss: 41.90
Play Entered on: 06/25/14
Originally listed on the Watch List: 06/15/14


Newmont Mining Corp. - NEM - close: 25.97

Comments:
09/07/14: NEM had good news on its business in Indonesia. The company signed a Memorandum of Understanding with the government to settle its dispute. NEM will start exporting copper again next week. Unfortunately shares of NEM appear to be reacting to the weakness in gold prices. Strength in the U.S. dollar has pressure most of the commodity index lower, including pressure metals. NEM followed gold lower.

Tonight we will adjust our stop loss up to $24.25. I am not suggesting new positions at this time.

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 $0.37/0.40

- or -

AUG 13, 2014 - entry price on NEM @ 27.14, option @ $2.73*
symbol: NEM160115c30 2016 JAN $30 call - current bid/ask $1.85/2.02

09/07/14 new stop @ 24.25
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: 24.25
Play Entered on: 08/13/14
Originally listed on the Watch List: 07/13/14


Nucor Corp. - NUE - close: 56.04

Comments:
09/07/14: Shares of NUE surged higher last week with a breakout past its 2013 and 2014 highs. We had NUE on our watch list with a plan to buy calls if shares closed above $55.25. That means our play was triggered on Thursday with a close at $55.79. The trade began on Friday morning at $55.69.

The stock is arguably short-term overbought with its three-day sprint higher. Shares are also up five weeks in a row (like the S&P 500). Investors may want to wait for a dip near $55.25 before launching new positions.

Earlier Comments: August 31, 2014:
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.

- Suggested Positions -
SEP 05, 2014 - entry price on NUE @ 55.69, option @ $3.35*
symbol: NUE160115c60 2016 JAN $60 call - current bid/ask $3.20/3.35

09/05/14 trade begins. NUE opens at $55.69
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/04/14 triggered. NUE closed @ 55.79, above our trigger of $55.25
Option Format: symbol-year-month-day-call-strike

Chart of NUE:

Current Target: exit calls NUE @ 69.00
Current Stop loss: 51.75
Play Entered on: 09/05/14
Originally listed on the Watch List: 08/31/14


O'Reilly Automotive - ORLY - close: 158.55

Comments:
09/07/14: ORLY is another watch list candidate graduate. The plan was to wait for shares to close above $157.25. The stock closed at $157.43 on Thursday. Our trade opened on Friday morning at $156.85. Traders bought the dip at ORLY's rising 10-dma and shares rebounded to a new all-time closing high. I would consider new positions at current levels.

Earlier Comments: August 31, 2014:
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.

- Suggested Positions -
SEP 05, 2014 - entry price on ORLY @ 156.85, option @ $5.95*
symbol:ORLY150117c160 2015 JAN $160 call - current bid/ask $5.50/6.50

09/05/14 trade begins, ORLY opens at $156.85
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/04/14 triggered. ORLY closed @ 157.43, above trigger of $157.25
Option Format: symbol-year-month-day-call-strike

Chart of ORLY:

Current Target: exit calls ORLY @ 185.00
Current Stop loss: 149.75
Play Entered on: 09/05/14
Originally listed on the Watch List: 08/31/14


Thermo Fisher Scientific - TMO - close: 124.63

Comments:
09/07/14: Shares of TMO finally decided to participate in the market rally and shares surged from technical support at its 100-dma. TMO was on our watch list with a suggested entry to wait for a close above $123.00. The stock closed at $123.75 on September 3rd. Our trade began on Thursday at $123.98. I would still consider new positions at current levels.

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.

- Suggested Positions -
SEP 04, 2014 - entry price on TMO @ 123.98, option @ $3.25*
symbol: TMO150117c130 2015 JAN $130 call - current bid/ask $2.90/3.40

- or -

SEP 04, 2014 - entry price on TMO @ 123.98, option @ $12.00*
symbol: TMO160115c130 2016 JAN $130 call - current bid/ask $10.00/11.90

09/04/14 trade begins. TMO opens at $123.98
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/03/14 triggered. TMO closed @ 123.75, above our trigger of $123.00
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

Chart

Current Target: exit calls TMO @ 150.00
Current Stop loss: 117.40
Play Entered on: 09/04/14
Originally listed on the Watch List: 08/10/14


Western Digital Corp. - WDC - close: 100.92

Comments:
09/07/14: WDC underperformed the market last week with some profit taking. Shares drifted toward round-number support at $100.00. 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 $6.45/6.55

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - current bid/ask $ 9.35/ 9.65

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: 51.65

Comments:
09/07/14: It was a quiet week for shares of WFC. The stock churned sideways between $52.00 overhead and technical support at its 50-dma directly below it. 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 $ 2.67/2.74

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.40/4.60

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: 118.97

Comments:
09/07/14: It was a good week for WLP. The stock rebounded off $115 and its 10-dma and surged to new all-time highs. The next obstacle is potential round-number resistance at the $120.00 mark.

We will raise the stop loss to $112.25.

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 $ 5.20/5.35

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 8.30/9.60

09/07/14 new stop @ 112.25
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: 112.25
Play Entered on: 07/15/14
Originally listed on the Watch List: 07/06/14



Watch

Defense & Apparel

by James Brown

Click here to email James Brown


New Watch List Entries

GD - General Dynamics

VFC - V.F. Corp.


Active Watch List Candidates

None, see below.


Dropped Watch List Entries

ATVI, MS, NUE, ORLY, and TMO have all graduated to our active play list.



New Watch List Candidates:


General Dynamics - GD - close: 125.45

Company Info

GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.

GD has beaten Wall Street's earnings estimates four quarters in a row. The company is also seeing margin improvement. Their latest report on July 23rd not only beat analysts estimates but management raised their EPS and revenue guidance for 2014. Multiple analysts raised their price target on GD following this announcement.

Technically shares of GD look like a buy right here at $125.45. I'd like to see a little bit of follow through. Wait for a close above $126.25 and then buy calls the next day. We'll start with a stop loss at $119.75. Our long-term target is the $140-150 zone.

Breakout trigger: Wait for a close above $126.25
Then buy calls the next day with a stop at $119.75

BUY the 2016 $140 call (GD160115c140) current ask $5.20

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

Chart of GD:

Originally listed on the Watch List: 09/07/14


V.F. Corp. - VFC - close: 65.32

Company Info

Wall Street remains concerned about the consumer, especially on apparel spending. Yet shares of VFC have managed to weather these concerns pretty well. The company offers a broad range of apparel, footwear, accessories, and more.

According to a company press release VFC describes itself as, "a global leader in the design, manufacture, marketing and distribution of branded lifestyle apparel, footwear and accessories. The company's highly diversified portfolio of 30 powerful brands spans numerous geographies, product categories, consumer demographics and sales channels, giving VF a unique industry position and the ability to create sustainable, long-term growth for customers and shareholders. The company's largest brands are The North Face, Vans, Timberland, Wrangler, Lee and Nautica." Sales are nearing $11.8 billion a year.

Management decided to split its stock 4-for-1 back in December 2013. Stocks splits are normally seen as a sign of confidence by the management. VFC missed earnings estimates and guided lower back in February 2014. Since then the earnings picture has improved. Investors have been buying the dips and the point & figure chart is bullish with a $77 target.

Technically the stock looks like a buy right now with Friday's bounce from its 10-dma and the close near all-time highs. I'd like to see a little bit more confirmation. Wait for a close above $65.75 and then by calls. We'll start with a stop at $60.75, just under the simple 200-dma.

Breakout trigger: Wait for a close above $65.75
Then buy calls the next day with a stop at $60.75

BUY the 2016 $70 call (VFC160115c70) current ask $4.10

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

Chart of VFC:

Originally listed on the Watch List: 09/07/14


Active Watch List Candidates:



Currently we do not have any active watch list candidates.

They have all graduated to our active play list.

Please see the new watch list candidates added (above).

In addition to the new watch list candidates above you may want to keep an eye on these stocks 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:

IACI, ACT, PANW, BLL, HBI, FB, CALM, CVS, SNA, FXI, AA, UAL, CHKP, BBY, FDX, CAH, ECL, GILD, AMGN, MCK, UNP, NSC, FLT, SWK, INGR, TPX, HOT