Option Investor
Newsletter

Daily Newsletter, Sunday, 9/21/2014

Table of Contents

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

Leaps Trader Commentary

FOMC, Scottish Vote, and Alibaba, Oh My!

by James Brown

Click here to email James Brown

The trend of rising stocks, a rising dollar, and falling commodities continued last week. The S&P 500 and the Dow Industrials both ended Friday at new all-time highs. Just about every sector posted gains for the week. The exception remains the small cap index. The Russell 2000 stuck out like a sore thumb with a -1.1% weekly decline.

The rising U.S. dollar continues to pressure commodity prices. Crude oil, gold and silver all posted another week of losses. Silver broke down to lows not seen since early 2010. Meanwhile the U.S. dollar is on track for its longest rally since 1967.

Chart of the U.S. Dollar index (UUP)

There were three main stories last week. We had the FOMC meeting, the Scottish vote on independence, and the Alibaba (BABA) IPO on Friday. We will talk about the FOMC meeting in a moment. The vote in Scotland had serious implications for the United Kingdom and after going into the vote with the yes and no camps both near 50/50 it was a nail biter. By the end of the day the no vote won 55-45 in favor of staying in the United Kingdom. Those seeking independence blamed the over 60 crowd for not wanting to disrupt their national insurance benefits (a.k.a. social security).

We had the FOMC meeting conclusion on Wednesday. The Scottish vote on Thursday. Friday was Alibaba day - all day long. It was the biggest IPO event in history. The night before they raised the IPO price from the mid $60s to $68. The IPO was oversubscribed by a factor of 10. The underwriters boosted the number of shares to 368.1 million. The stock's first trade (symbol: BABA) was $92.70. Shares almost hit $100 on the initial surge. Midday BABA fell back toward $90.00 before bouncing back into the closing bell for a one-day gain of +38%.

Chart of the Alibaba's first day (BABA)

Economic Data

The two-day federal reserve open market committee (FOMC) ended on Wednesday. As expected the Fed did not alter interest rates and they announced another $10 billion taper to their asset buying program. That leaves just $15 billion a month left in their QE program and most believe the Fed will announce the end of QE at the next meeting in October. The prior two weeks there was speculation that the Fed might remove its "considerable time" language. However, prior to the meeting the tide had change and analysts were expecting the Fed to keep this language in their policy statement, which they did. This helped soothe the market since it means the first rate hike is not imminent and probably in mid 2015.

The economic data in the U.S. last week was mixed. The consumer price index look at inflation (the CPI) dropped -0.2% in August, mainly due to falling energy prices. The New York Empire State Fed manufacturing survey soared from 14.7 in August to 27.5 in September. This is the highest reading since October 2009. Yet the Philly Fed survey dropped from 28.0 in August to 22.5 in September, which was worse than expected.

The NAHB housing market index improved from 55 in August to 59 in September. This same enthusiasm was not evident in the monthly housing starts and building permit data. Housing starts dropped from a seasonally adjusted annual pace of 1.117 million in July to 956,000 in August, that's a -14% drop. Building permits were adjusted from a 1.05 million pace in July to 998K in August.

In positive news the price of gasoline continues to fall inside the U.S. The latest data showed a -4.1% drop month over month. The national average on Friday morning was $3.36 a gallon. That's down 16 cents from a year ago. The chief analyst at GasBuddy.com is predicting that the national average could fall into the $3.15 to $3.25 a gallon range by Halloween, which could be a new four-year low. The same analyst is forecasting that we could see gas priced at or below $3.00 a gallon by Christmas time. There are already 17 states with gas near $3.00 a gallon and it could widen to 30 states by yearend. This is a huge bonus for the U.S. consumer and will likely be a nice boost for retailers. Every one cent drop in gasoline prices makes another $1 billion worth of consumer spending money available for other purchases in the U.S.

Overseas Economic Data

Overseas data was mostly negative. The Organization for Economic Co-operation and Development (OECD) lowered their 2014 GDP forecast for the U.S. from +2.6% growth down to +2.1% growth. They also lowered their forecast on the European Union from +1.2% growth to +0.8%. It was a really quiet week for economic data out of Europe. Everyone was focused on the Scottish vote for independence anyway. Most of the headlines were coming out of Asia.

Japan lowered its economic forecast for 2014 as consumer spending has failed to recover once the government started a new spending tax in April this year. China reported its industrial production only rose +6.8%, which was below expectations and marked its slowest pace since December 2008. Retail sales in China rose +11.9% year over year, which looks strong but still below forecasts. China also reported that foreign direct investment declined from -0.4% to -1.8%. The country made the decision to inject 500 billion Yuan into the banking system last week, which doesn't project a lot of confidence. The latest housing price report in China showed that 68 out of 70 cities reported a drop in home prices.




Major Indices:

The large cap S&P 500 index added +1.25% for the week and closed at a new all-time high. This has boosted its year to date gain to +8.8%. The index almost hit 2,020 on Friday before paring its gains. A breakout past 2020 probably sets up for a run toward the 2040-2050 zone. If stocks weaken then the 1980 level is still short-term support. The bottom of its bullish channel on the weekly chart should also offer support in the 1950-1960 zone.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

As expected the NASDAQ found support near the 4,500 area. The index has bounced back toward resistance near 4,600 and closed near new 14-year highs. For the week the NASDAQ only added +0.27% but it's year to date gain is +9.7%.

A breakout past 4600 probably signals a run toward 4700. If the 4500 level fails as support then I would expect a drop toward the 4300 area, which would line up with the NASDAQ's long-term trend line of higher lows (see weekly chart below).

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index continues to underperform. The $RUT lost -1.1% last week, which puts its 2014 gains at -1.6%. The index is down three weeks in a row and just closed under several key moving averages. The early September high looks like a lower high. For the moment the long-term trend for the $RUT still has higher lows but if that changes and we see a new lower low it would be bearish. In the mean time the $RUT is stuck inside a wide range from support near 1080 to resistance near 1210.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week we will hear from two more federal reserve regions: Chicago and Richmond. Their activity and manufacturing surveys will lead the week. Later on the third estimate on U.S. Q2 GDP growth will come out on Friday. Estimates are rising. Consensus estimates are suggesting a revision up to +4.3% growth last quarter but some economists are estimating +4.8% growth. These seems pretty optimistic. Keep in mind the OECD just lowered their 2014 GDP estimates on the U.S. a few days ago.

We are less than three weeks away from Alcoa (AA) kicking off the Q3 earnings season on October 8th.

Economic and Event Calendar

- Monday, September 22 -
Existing home sales
Chicago Fed national activity index
HSBC China manufacturing PMI data

- Tuesday, September 23 -
Richmond Fed manufacturing survey
Eurozone PMI data

- Wednesday, September 24 -
New Home Sales

- Thursday, September 25 -
Weekly Initial Jobless Claims
Kansas City Fed manufacturing survey
Durable Goods Orders

- Friday, September 26 -
Q2 GDP estimate (third estimate)
University of Michigan Consumer Sentiment

Additional Events to be aware of:

Looking Ahead:

Looking out at the rest of the year (about 16 weeks left) the situation in the U.S. does seem to be improving. I am encouraged by the falling price of gasoline and what that should do for consumer spending. We're approaching the holiday season and that means seasonal employment will pick up. Retailers will be hiring more people, deliver companies like UPS and FedEx will higher tens of thousands of seasonal workers. Walmart (WMT) said they plan to hire about 60,000 people for the holiday season, which is a +10% jump from last year.

Ebola Outbreak

One thing we do want to keep an eye on is the Ebola outbreak. Last week the United Nations (UN) called the world's worst Ebola outbreak currently happening in Africa a threat to international peace and security. The UN health chief, Dr. Margaret Chan, said, "This is likely the greatest peacetime challenge the United Nations and its agencies have ever faced." The UN held an emergency meeting last week and 130 countries approved it.

World powers need to move fast. The number of infected is doubling every three weeks. The CDC is warning that over 500,000 people could be infected by January 2015. Sierra Leone is trying to curtail the spread of the virus with a nationwide three-day curfew. They're asking all six million citizens to stay indoors through the weekend. The U.S. CDC is estimating an 18% chance the virus makes it to the U.S. in the next three months. This is why investors may want to keep an eye on the issue.

It is conceivable that if the Ebola virus jumps to the U.S. it will have an impact on consumer spending. Right now the U.S. economy seems to be picking up speed. If suddenly there is an outbreak in the U.S. we could see fear keep consumers indoors.

Geopolitics

Another reason stocks were able to rally last week was the lack of geopolitical headlines. Stories about ISIS and the simmering conflict in Eastern Ukraine with Russia were missing from the front page news. That could change. Russian President Putin was flexing his military muscles the last week and we're just now hearing about it.

Russian military planes, many of them bombers, were intercepted in international airspace last week. Six Russian planes were intercepted in Alaskan airspace. Two Russian bombers crossed into Canadian air. Two more Russian bombers were intercepted in Dutch airspace. There were another two Russian bombers encountered over Scotland's airspace. Sweden said they intercepted two Russian bombers in their air. The U.S. said there were 16 interceptions of Russian military planes in U.S. airspace in a ten-day period in August.

Clearly Putin is trying to show the world he isn't afraid of anyone. Like a bully he was caught threatening that the Russian army could be in Kiev in two days if they wanted to. Not only that Putin said Russia could claim the capitals of Latvia, Lithuania, Estonia, Poland, and Romania in a matter of days.

At the moment Russia's slow-motion invasion of Ukraine is not affecting the markets but that could change if Putin gets greedy. The combination of Russian aggression, ISIS, and all the other threats have turned the world a lot more dangerous. According to James Clapper, the Director of National Intelligence, said, "The United States is facing the most diverse set of threats I've seen in my 50 years in the intelligence business."

Market

Thankfully the U.S. equity market continues to shrug off just about everything. The large cap indices are hitting new highs. The transports are leading the charge. Financials are showing strength again. Semiconductor stocks are flirting with 14-year highs. The big picture trend for stocks is higher.

I will note that on a short-term basis we might see some profit taking. Friday's session looks short-term bearish. We noticed a lot of one-day bearish reversal patterns on Friday. That could mean the rally is a little bit tired. If we see a pullback in the next week or two I would use it as a new bullish entry point. Although you may want to wait until mid October before launching new positions.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The S&P 500 and the Dow Industrials both ended the week at new highs but small caps continue to spoil the party.

AKAM has graduated from our watch list to our active play list.

ATVI, CMI, NEM, and WDC hit our stop loss last week.

There are new stop losses on AIG, DOW, LMT, MS, MSFT, NUE, WFC, 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

Market Internals

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 21, 2014)

Last we added VFC as a new play from our watch list. We also saw AKAM graduate from our watch list to our active play section (updates).

Tonight we're adding FSLR as a new watch list candidate as it looks ready to resume the long-term up trend.

I wanted to add more stocks to our watch list because I am bullish on the stock market, especially through the end of 2014. Yet nearly all of the candidates I looked into either needed a breakout or they needed a pullback after recent gains. Another challenge was earnings. The Q3 earnings season is fast approaching. Some had earnings coming up and holding over earnings announcements can be hazardous.

Another challenge was the market internals. It's true that the S&P 500 ended the week near new all-time highs. The S&P 500 is also up six out of the last seven weeks. Yet market internals look challenging. The advance/decline line, which measures how many stocks are advancing versus declining has turned bearish for a large portion of the market (that would be the small caps, mid caps, and the NASDAQ composite. Only the S&P 500 A/D line is holding up.

You can view these A/D lines below:

Advance/Decline chart of the S&P Small Cap index:

Advance/Decline chart of the S&P Mid Cap index:

Advance/Decline chart of the NASDAQ index:

And now the

Advance/Decline chart of the S&P Large Cap index:

I'm not adding any new trades tonight but I have 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:

SNDK, PRU, ITW, A, WHR, TGT, ALL, BAC, HPQ, GPC, FISV, JPM, GS, GILD, AAPL, UNP, AMGN, HBI, CVS, FDX, NSC, FB, XRT, SWKS, ARII, GBX, STZ



Play Updates

Stock Potpourri

by James Brown

Click here to email James Brown

Editor's Note:

We had a little bit of everything last week. New highs, breakouts, breakdowns, reversals and more.

AKAM has graduated from our watch list to our active play list below.


Closed Plays


ATVI, CMI, NEM, and WDC all hit our stop loss last week.



Play Updates


American Intl. Group - AIG - close: 55.24

Comments:
09/21/14: Even with Friday's painful -1.9% decline shares of AIG still eked out a weekly gain. Unfortunately Friday's session has created a bearish engulfing candlestick reversal pattern. These patterns need to see confirmation but it is a warning signal.

Tonight I am adjusting the stop loss to $51.75. More conservative investors may want to use a higher stop loss.

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 $0.62/0.66

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - current bid/ask $3.35/3.60

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: 51.75
Play Entered on: 05/14/14
Originally listed on the Watch List: 05/11/14


Akamai Technologies - AKAM - close: 62.42

Comments:
09/21/14: AKAM is a new candidate. We added it to the watch list last weekend with a trigger to buy calls if shares closed above $63.25. AKAM surged on Thursday the 18th and closed at multi-year highs at $64.38. Our trade opened on Friday morning. Unfortunately, like so many stocks on Friday, the rally reversed and AKAM plunged to close down sharply on Friday. AKAM lost -2.99%.

At this time I would wait for a new close above $63.00 before considering new bullish positions.

Earlier Comments: September 14, 2014:
This company handles one third of the traffic on the Internet and yet most people have probably never heard of them. Who are they? According to the company website, "Akamai is the leading provider of cloud services for helping enterprises provide secure, high-performing user experiences on any device, anywhere. If you've ever shopped online, downloaded music, watched a web video or connected to work remotely, you've probably used Akamai's cloud platform."

The company has been growing. AKAM has beaten Wall Street's estimates every quarter this year. Back in May they raised guidance. Their latest quarterly results came out on July 30th and revenues were up +26%.

Bloomberg recently ran an article suggesting AKAM is a potential takeover target by Chinese Internet giant Alibaba (BABA). After BABA IPOs later this month they company will be flush with cash and might spend some of its $8 billion on acquisitions.

atvires of AKAM were also upgraded recently with a $70 price target. Currently shares are in a long-term up trend and nearing 14-year highs.

I am suggesting we wait for AKAM to close above $63.25 and then buy calls the next morning. I prefer the 2016 calls. If you choose the 2015s we'll have to exit in a few months.

- Suggested Positions -
SEP 19, 2014 - entry price on AKAM @ 64.38, option @ 3.50*
symbol: AKAM150117C65 2015 JAN $65 call - current bid/ask $2.87/3.05

- or -

SEP 19, 2014 - entry price on AKAM @ 64.38, option @ 7.60*
symbol: AKAM160115C70 2016 JAN $70 call - current bid/ask $6.35/6.75

09/19/14 Trade begins. AKAM opens at $64.38
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/18/14 triggered with a close at $64.35, above the $63.25 trigger
Option Format: symbol-year-month-day-call-strike

Chart of AKAM:

Current Target: AKAM in the $75-85 zone (using the 2016 calls)
Current Stop loss: 59.45
Play Entered on: 09/19/14
Originally listed on the Watch List: 09/07/14


Celgene Corp. - CELG - close: 93.85

Comments:
09/21/14: CELG gave us a scare on Monday with a spike down past support near $90 and its 50-dma. Tech stocks and biotech stocks in particular were hit with some ugly profit taking on Monday. Shares of CELG spiked down to $88.22 but they have been bouncing higher since its Monday low (our stop loss is at $88.00).

Investors could use the bounce as a new entry point to buy calls. I suggest the 2016 calls.

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 $3.40/3.50

- or -

Aug 18, 2014 - entry price on CELG @ 91.00, option @ 10.00*
symbol: CELG160115c100 2016 JAN $100 call - current bid/ask $11.15/11.40

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


CSX Corp. - CSX - close: 32.46

Comments:
09/21/14: Transportation stocks were showing relative strength last week. The railroads helped lead the way. CSX rallied to new highs.

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 $2.75/2.93

- or -

Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.14*
symbol: CSX160115C35 2016 JAN $35 call - current bid/ask $1.72/1.78

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: 99.15

Comments:
09/21/14: Traders bought the dip in DECK near the $95.00 level on Tuesday. Shares have been rebounding since. Now DECK is poised to test round-number resistance at the $100.00 mark. A breakout past $100 could spark a short squeeze.

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 $6.70/7.20

- or -

AUG 06, 2014 - entry price on DECK @ 91.54, option @ 13.30*
symbol: DECK160115c100 2016 JAN $100 call - current bid/ask $14.70/16.40

09/14/14 new stop @ 89.75
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: 89.75
Play Entered on: 08/06/14
Originally listed on the Watch List: 08/03/14


The Walt Disney Co. - DIS - close: 90.49

Comments:
09/21/14: DIS has been consolidating sideways for the last four weeks in a row. Friday saw the stock testing resistance in the $91.15 area. As long as the market cooperates we should see DIS breakout and make a run towards $100. Our exit target is $98.50.

I am not suggesting new positions at this time.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - current bid/ask $15.55/16.20

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: $53.49

Comments:
09/21/14: Thankfully DOW did not see any follow through on the prior week's sell-off. Unfortunately DOW encountered new resistance near $54.50.

I am turning more defensive on this trade. We are moving the stop loss up to $51.40.

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 $1.59/1.61

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - current bid/ask $4.20/4.35

09/21/14 new stop @ 51.40
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: 74.88

Comments:
09/21/14: Shares of DVA were downgraded on the 17th but traders jumped in and bought the spike lower near its 50-dma. DVA ended the week with a gain but is still struggling with resistance near $75.00.

A close above $75.25 could be used as a new entry point.

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 $2.70/3.00

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $4.60/6.10

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: 85.16

Comments:
09/21/14: EXPE spent most of the week churning sideways in the $84.50-86.50 zone. A breakdown below $84.00 and its simple 50-dma would be bearish. More conservative investors might want to raise their stop loss.

I am not suggesting new positions at this time.

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 $10.80/11.50

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: 124.84

Comments:
09/21/14: If the week ended on Thursday then FFIV would have closed at two-year highs. Unfortunately FFIV was one of several stocks that gapped higher on Friday morning only to see the rally reverse. FFIV has produced a bearish engulfing candlestick reversal pattern. This pattern needs to see confirmation but it's a potential warning signal.

More conservative investors may want to raise their stop loss.

I am not suggesting new positions at this time.

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 $10.55/10.80

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - current bid/ask $15.60/15.95

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


General Dynamics - GD - close: 129.45

Comments:
09/21/14: Defense contractors like GD were showing relative strength. Shares of GD were up every day of the week and closed at new highs.

I am not suggesting new positions at this time.

Earlier Comments: September 7, 2014:
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.

- Suggested Positions -
SEP 10, 2014 - entry price on GD @ 126.13, option @ 5.60*
symbol: GD160115C140 2016 JAN $140 call - current bid/ask $6.20/6.60

09/10/14 trade begins. GD opens at $126.13
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/09/14 GD closed @ 126.25, above our trigger of $126.25
Option Format: symbol-year-month-day-call-strike

Current Target: GD in the $140-150 zone
Current Stop loss: 119.75
Play Entered on: 09/10/14
Originally listed on the Watch List: 09/07/14



Lockheed Martin Corp. - LMT - close: 180.74

Comments:
09/21/14: LMT is another defense name that was up every day last week. This is a new record high for the stock. Tonight we'll move the stop loss to $168.45.

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 $6.00/6.40

- or -

AUG 19, 2014 - entry price on LMT @ 172.02, option @ 7.00*
symbol: LMT160115C190 2016 JAN $190 call - current bid/ask $9.50/10.00

09/21/14 new stop @ 168.45
09/14/14 new stop @ 164.75
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: 168.45
Play Entered on: 08/19/14
Originally listed on the Watch List: 08/17/14


Morgan Stanley - MS - close: 35.76

Comments:
09/21/14: MS saw some profit taking on Friday (-1.0%) but shares posted their seventh weekly gain in a row. I would not be surprised to see a pullback toward support near $35.00.

We will move the stop loss to $32.40.

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 $2.11/2.15

- or -

SEP 05, 2014 - entry price on MS @ 34.42, option @ 1.80*
symbol: MS160115C40 2016 JAN $40 call - current bid/ask $2.11/2.18

09/21/14 new stop @ 32.40
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

Current Target: 2015 calls is MS @ 39.50, 2016 calls is MS @ 49.00
Current Stop loss: 32.40
Play Entered on: 09/05/14
Originally listed on the Watch List: 08/31/14


Microsoft Corp. - MSFT - close: 47.52

Comments:
09/21/14: MSFT is also up seven weeks in a row. Shares ended the week with a bullish breakout past resistance near $47.00. Tonight we are raising the stop loss to $43.90. More conservative traders may want to raise their stop even higher.

Don't forget that we recently updated 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 $ 3.30/3.35

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 5.05/5.25

09/21/14 new stop @ 43.90
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: 43.90
Play Entered on: 06/25/14
Originally listed on the Watch List: 06/15/14


Nike, Inc. - NKE - close: 81.81

Comments:
09/21/14: Investors bought the dips in NKE near $81.00 most of the week. Shares closed virtually unchanged on a weekly basis. The stock looks poised to breakout to new highs soon. However, NKE might continue churning sideways as investors wait for the earnings report.

NKE is scheduled to report earnings on Thursday, September 25th, after the closing bell. Analysts are expecting a profit of $0.88 a share.

Investors may want to wait and see how the market reacts to earnings before launching new positions.

Earlier Comments: September 7, 2014:
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 @ 81.92, option @ $5.20*
symbol: NKE160115c90 2016 JAN $90 call - current bid/ask $4.85/5.05

09/21/14 earnings are coming up on Sept. 25th
09/08/14 Trade begins. NKE Opens at $81.92
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/07/14 NKE is added to our new play section

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


Nucor Corp. - NUE - close: 57.64

Comments:
09/21/14: It was a bullish week for shares of NUE thanks to strong guidance. On Wednesday morning the company issued new guidance for the third quarter. Management is expecting a profit in the $0.70-0.75 per share range. Wall Street was only expecting a 61-cent profit. Naturally the stock rallied on this news. Actually shares gapped higher and have spent the last couple of sessions digesting gains in a sideways move.

There is always the chance that NUE will fill the gap. I am not suggesting new positions. We will move the stop loss up to $54.90.

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 $4.00/4.20

09/21/14 new stop @ 54.90
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

Current Target: exit calls NUE @ 69.00
Current Stop loss: 54.90
Play Entered on: 09/05/14
Originally listed on the Watch List: 08/31/14


O'Reilly Automotive - ORLY - close: 153.82

Comments:
09/21/14: It may be a bad tick but it looks like shares of ORLY spiked down toward their 100-dma on Friday morning and immediately rebounded. Shares did close down on the session so ORLY might be headed for the 100-dma anyway. The $150-151.50 area should be support.

I am not suggesting new positions at this time.

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 $3.80/4.80

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

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: 123.24

Comments:
09/21/14: TMO is virtually unchanged for the week. That's after shares bounced near technical support at the 50-dma and then reversed on Friday. Friday's session did see a bearish engulfing candlestick reversal pattern. Thus I'm not suggesting new positions at this time. The $125.00-125.50 area appears to be short-term resistance.

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 $2.45/2.80

- or -

SEP 04, 2014 - entry price on TMO @ 123.98, option @ $12.00*
symbol: TMO160115c130 2016 JAN $130 call - current bid/ask $11.00/12.30

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

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


V.F. Corp. - VFC - close: 67.17

Comments:
09/21/14: VFC is our new play for the week. We had it on the watch list but shares met our entry point requirements on Friday, September 12th. The rally continued and VFC is now up five weeks in a row.

If you're looking for an entry point I suggest waiting for a pullback.

Earlier Comments: September 7, 2014:
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.

- Suggested Positions -
SEP 15, 2014 - entry price on VFC @ 65.85, option @ 4.50*
symbol: VFC160115C70 2016 JAN $70 call - current bid/ask $4.80/5.00

09/15/14 trade begins. VFC opened at $65.85
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/12/14 VFC met our entry requirement with a close above $65.75
Option Format: symbol-year-month-day-call-strike

Current Target: VFC 85-90.00 zone
Current Stop loss: 60.75
Play Entered on: 09/15/14
Originally listed on the Watch List: 09/07/14


Wells Fargo & Co. - WFC - close: 53.36

Comments:
09/21/14: Financial stocks displayed some relative strength last week with the XLF hitting multi-year highs. WFC was leading the way with a surge past its 2014 highs near $53.00. This is a record high for WFC. After its sprint from $51 to $53 WFC looks a bit extended. I would expect a dip soon.

We will move the stop loss to $49.90. More conservative investors may want to use a stop closer to $51.00 instead.

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 $ 3.85/4.10

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 5.40/5.60

09/21/14 new stop @ 49.90
09/14/14 a close above $52.10 could be a new bullish entry point to buy 2016 calls.
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: 49.90
Play Entered on: 12/26/13
Originally listed on the Watch List: 12/08/13


WellPoint Inc. - WLP - close: 122.04

Comments:
09/21/14: WLP extended its rally to gains in five of the last six weeks. This is a new record high. We are raising the stop loss to $114.75. More conservative investors might want to use a higher stop.

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 $ 6.65/7.40

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $10.85/12.35

09/21/14 new stop @ 114.75
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: 114.75
Play Entered on: 07/15/14
Originally listed on the Watch List: 07/06/14



CLOSED Plays


Activision Blizzard, Inc. - ATVI - close: 21.82

Comments:
09/21/14: Shares of ATVI had a terrible week. Investors didn't care to hear about the strong sales of ATVI's new Destiny game. I do think there might be some confusion on just how strong sales are. Two weeks ago there was a big deal that first-day sales for the game hit $500 million. Then last week the headlines were $325 million in sales worldwide during the first five days. The $500 million number was probably what ATVI sold to retailers. The $325 million is what consumers actually forked out to buy the game. At any rate, the sell-off in shares of ATVI could be a typical sell-the-news reaction.

Our stop loss was hit on September 17th at $21.95.

- Suggested Positions -
SEP 04, 2014 - entry price on ATVI @ 23.90, option @ 1.05*
symbol: ATVI150117c25 2015 JAN $25 call - exit $0.38** (-63.8%)

- or -

SEP 04, 2014 - entry price on ATVI @ 23.90, option @ 2.79*
symbol: ATVI160115c25 2016 JAN $25 call - exit $1.75** (-37.2%)

09/17/14 stopped out at $21.95
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

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


Cummins Inc. - CMI - close: 137.89

Comments:
09/21/14: CMI is another victim of last week's volatility. Of course the stock was already looking weak before last week's spike down toward $135.00. Our stop loss was hit at $137.90 on Monday, September 15th. CMI is in serious danger of breaking down below its long-term up trend.

- Suggested Positions -
Aug 20, 2014 - entry price on CMI @ 144.19, option @ 4.75*
symbol: CMI150117c150 2015 JAN $150 call - exit $2.10 (-55.7%)

- or -

Aug 20, 2014 - entry price on CMI @ 144.19, option @ 9.50*
symbol: CMI160115c160 2016 JAN $160 call - exit $6.40 (-32.6%)

09/15/14 stopped out
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

Chart

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


Newmont Mining Corp. - NEM - close: 24.21

Comments:
09/21/14: The rising dollar is pushing gold prices lower. This weakness in gold is weighing on the gold miners. Shares have NEM are down three weeks in a row. Unfortunately last week the stock accelerated lower and hit our stop loss at $24.25.

- Suggested Positions -
AUG 13, 2014 - entry price on NEM @ 27.14, option @ $0.91*
symbol: NEM150117c30 2015 JAN $30 call - exit $0.16** (-82.4%)

- or -

AUG 13, 2014 - entry price on NEM @ 27.14, option @ $2.73*
symbol: NEM160115c30 2016 JAN $30 call - exit $1.30** (-52.3%)

09/18/14 stopped out at $24.25
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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


Western Digital Corp. - WDC - close: 98.52

Comments:
09/21/14: The profit taking in WDC continued last week. Shares hit our stop loss at $97.45 on Monday the 15th. I would keep WDC on your watch list. A pullback into the $90-95 zone might be another entry point for long-term bullish positions.

- Suggested Positions -
JUL 01, 2014 - entry price on WDC @ 95.25, option @ 5.62
symbol: WDC150117C100 2015 JAN $100 call - exit $4.45* (-20.8%)

- or -

JUL 01, 2014 - entry price on WDC @ 95.25, option @ 8.00*
symbol: WDC160115C110 2016 JAN $110 call - exit $7.90* (-1.25%)

09/15/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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



Watch

Getting Warmer

by James Brown

Click here to email James Brown


New Watch List Entries

FSLR - First Solar Inc.


Active Watch List Candidates

CHKP - Check Point Software


Dropped Watch List Entries

AKAM graduated to our active play list.



New Watch List Candidates:


First Solar, Inc. - FSLR - close: 70.87

Company Info

FSLR was founded in Arizona back in 1999. Since then the company has grown into a global leader for photovoltaic (PV) solar energy solutions. They have installed more than eight gigawatts (GW) of solar energy around the world.

The acceptance and application of solar energy around the world is growing. FSLR is trying to capitalize on that trend. The company recently announced they're expanding into India.

It has been a bumpy ride for FSLR investors this year with big swings up and down. That's probably thanks to the volatile nature of FSLR's earnings reports. The company has announced some pretty big hits and misses this year. In spite of all the volatility shares of FSLR are up +29.7% in 2014 and they look poised to breakout to new multi-year highs soon.

A rally past $74.00 would generate a new buy signal on the point & figure chart. It could also spark some short covering since the most recent data listed short interest at 12% of the 73.3 million share float.

I am suggesting we wait for FSLR to close above $75.00 and then buy calls the next morning with a stop loss at $69.40. Our long-term target is the $95-100 zone.

Breakout trigger: Wait for FSLR to close above $75.00
Then buy calls the next morning with a stop at $69.40

BUY the 2016 Jan $80 call (FSLR160115C80) current ask $11.30

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

Chart of FSLR:

Originally listed on the Watch List: 09/21/14


Active Watch List Candidates:



Checkpoint Software Tech. - CHKP - close: 70.40

Comments:
09/21/14: Broken resistance near $70.00 should be support and that's where traders bought the dip in CHKP last week. The current two-week pullback might just be a bull-flag consolidation. However, we are on the sidelines and waiting for a close above $72.50.

Earlier Comments: September 14, 2014:
CHKP is another technology stock and it is similar to AKAM in that both have beaten earnings estimates every quarter this year and both are trading near 14-year highs. While AKAM facilitates Internet traffic, CHKP seeks to guard its clients against Internet hazards.

The company describes itself as, "the worldwide leader in securing the Internet, provides customers with uncompromised protection against all types of threats, reduces security complexity and lowers total cost of ownership. Check Point first pioneered the industry with FireWall-1 and its patented stateful inspection technology."

"Today, Check Point continues to develop new innovations based on the Software Blade Architecture, providing customers with flexible and simple solutions that can be fully customized to meet the exact security needs of any organization. Check Point is the only vendor to go beyond technology and define security as a business process. Check Point 3D Security uniquely combines policy, people and enforcement for greater protection of information assets and helps organizations implement a blueprint for security that aligns with business needs. Customers include tens of thousands of organizations of all sizes, including all Fortune and Global 100 companies. Check Point's award-winning ZoneAlarm solutions protect millions of consumers from hackers, spyware and identity theft."

It feels like a week doesn't go by that we don't hear about another major hacking scandal in the business world. It's not going away and corporations have to constantly update their cyber defense. CHKP has been working cyber security since 1993.

Shares of CHKP spent much of this year consolidating gains from 2013. However, the last week of August produced a crucial breakout past resistance near $70.00. Tonight I am suggesting a trigger to buy calls if CHKP can close above $72.50. We'll start with a stop at $69.45. The point & figure chart is bullish and currently forecasting an $89.00 target. We'll start with a long-term target in the $95-100 zone (our target to exit the 2015 calls will be lower).

Breakout trigger: Wait for a close above $72.50
Then buy calls the next morning with a stop at $69.45

BUY the 2015 Jan $75 call (CHKP150117C75)

- or -

BUY the 2016 Jan $80 call (CHKP160115c80)

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

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