Option Investor
Newsletter

Daily Newsletter, Sunday, 10/5/2014

Table of Contents

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

Leaps Trader Commentary

Stocks Experience Some Turbulence

by James Brown

Click here to email James Brown

There was no shortage of headlines as the market transitioned from the end of the third quarter and into the fourth. Volatility spiked toward six-month highs as markets and the media reacted to the first official case of Ebola in the United States. This generated turbulence for the airline stocks as traders speculated that fearful consumers may choose to travel less. Elsewhere banking titan JP Morgan Chase (JPM) unveiled that hackers had gained access to contact information to about 76 million customers and 8 million small businesses. Clues suggest the massive hack may have been done by teams in Russia. Another major story was the week-long student protests in Hong Kong.

Economic data was mixed. The data out of Europe continues to stink as the region sinks deeper into a widespread recession. Markets were unhappy with ECB President Mario Draghi's performance last week. Yet economic data in the U.S. was mostly positive. Friday's jobs number was considered a goldilocks report. Unfortunately the labor participation rate fell to lows not seen since February 1978.

The keen-eyed data miners at Bespoke Investment noted that Wednesday's widespread market decline was the 10th worst start to October for the S&P 500 since 1928. Thankfully stocks bounced on the jobs data but it was still a down week. The S&P 500 lost -0.75%. The NASDAQ composite fell -0.8%. The small cap Russell 2000 index slid -1.3% for the week. Transports held up relatively well with Friday's bounce pushing almost back to unchanged for the week. The Dow Jones Transportation Average is still up +14.6% year to date. Biotech stocks lost -1.0% as a group and the semiconductors lost -3.1%. Yet year to date the biotechs are still up +32.7% and the chip stocks are up +16.4%. That compares to the S&P 500's +6.47% 2014 gain.

The surge in the U.S. dollar continues to weigh on commodities. Crude oil lost -3.88% last week and is now down -9% for the year. This drop in oil crushed the energy stocks. The oil index fell -4.5% and the oil service index plunged -6.3%. Dollar strength is also pushing precious metals lower. Gold prices declined -2.3% last week, which pushed gold into the red for the year. Silver prices were hammered with a -4.59% loss and silver's 2014 weakness grew to -13.7%.

chart of the U.S. dollar (UUP) index

The gold ETF (GLD) is testing significant support near its 2013 lows. A breakdown here could spark the next big leg lower. You can see the trend lines crossing across the bottom of the chart. These are long-term bullish trend lines of support dating back to 2005 (now broken).

chart of the gold ETF (GLD)

Economic Data

There was a steady parade of economic data in the U.S. last week. The Chicago PMI data came in worse than expected with a drop from 64.3 in August to 60.5 in September but it is still a healthy level in positive territory (above 50.0). The Conference Board's consumer confidence index was a disappointment with a drop from 93.4 to end September at 86.0. This is the lowest reading since May. Pending home sales data was also a miss with a -1% monthly decline and a -4.1% drop year over year, both numbers below estimates.

Another disappointment was the U.S. ISM manufacturing (PMI) data, which dropped to 56.6. Economists were looking for 58.2 after the prior month's 59.0 reading. Construction spending also slipped -0.8% in August when analysts were looking for a +0.5% gain. The ISM services (nonmanufacturing) index slipped from 59.6 to 58.6, retreating from multi-year highs.

Now on to the good news. The U.S trade deficit hit its lowest level in nine months with the August reading falling to $40.1 billion thanks to an increase in exports (kind of surprising considering the rising dollar). The Association of American Railroads (AAR) said September's rail traffic numbers were bullish. The industry reported +2.7% growth in rail cars shipped compared to a year ago. This is the seventh consecutive month of year over year gains for railroad traffic. The last three weeks of September were all record-breaking highs for rail traffic in the U.S. This is bullish for the overall economy.

Of course the big report was Friday's nonfarm payrolls number. The Bureau of Labor Statistics said the U.S. added +248,000 jobs in September. That was better than Wall Street's estimates for +215,000. The August report of +142K was revised up to +180K and July's was revised up from +212K to +243K. The last twelve months have seen U.S. job growth of +2.635 million jobs. That's a monthly average of almost 220,000. Bill McBride at the CalculatedRisk blog said 2014 is shaping up to be the best year for both total and private sector job growth since 1999.

The report also showed that the average weekly hours improved to 34.6, which is the highest level since May 2008. This is good news. While the improvement was small, an uptick in hours worked normally precedes new job growth. The unemployment rate fell from 6.1% to 5.9%, which is the lowest reading since July 2008. Unfortunately this improvement was all thanks to plunging labor force participation, which dropped to a new 36-year low. Almost 93 million people in the U.S. are not in the labor force.

Overseas Economic Data

The economic slowdown in Europe continues. The Eurozone said their manufacturing PMI slipped from 50.5 to 50.3 That's awfully close to no growth (which would be 50.0). Germany's manufacturing PMI has turned negative with a drop from 50.3 to 49.9. This hasn't happened since June 2013. Germany said their services PMI rose from 55.4 to 55.7. Meanwhile France and Italy reported their service PMI's declined with France now at 48.4 and Italy at 48.8.

There was a big focus on the European Central Bank last week. The ECB left rates unchanged at 0.05%. Unfortunately ECB President Mario Draghi disappointed investors who expected him to announce some serious stimulus or QE type of program to lift Europe from this slowdown. Instead Draghi only provided a few details on their asset backed security buying program.

Economic headlines out of Asia were relatively quiet. China did see their services PMI slide to an eight-month low in September. Their manufacturing PMI data was unchanged at 51.1.




Major Indices:

The large cap S&P 500 index broke support at the bottom of its two-year bullish channel last week but thankfully the bounce on Friday lifted the index back into the range. The last three days on the daily chart do look like a bullish reversal pattern. Unfortunately if you drill down and look at an intraday chart you can see that the rebound has stalled at its short-term down trend resistance line. Thus the pullback may not be over yet.

The 50-dma at 1975, the 1980 level and the 2000 level are all overhead resistance for the S&P 500. Thursday's low hit 1926 before bouncing near its rising 150-dma.

I'm concerned that if we see the S&P 500 close back under the 1940-1950 area again it could signal a deeper correction. Currently this index has gone almost 1,100 days without a normal -10% correction so it's definitely due for one.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

Intraday chart of the S&P 500 index

The NASDAQ composite sliced through potential support near 4400 on Thursday but bounced back by the closing bell. Just like the S&P 500, the Friday rebound in the NASDAQ has stalled near its new trend of lower highs. That doesn't bode well but a breakout could spark more buying and short covering.

The 4500 level is immediate resistance. Beyond that is resistance near 4600 and its 2014 highs. If this bounce rolls over we could see the NASDAQ dip toward 4300 and its 200-dma.

chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index

The small caps stocks continue to underperform the broader market. Last week saw the Russell 2000 index drop toward support near 1,080 and bounce. Yet even with the bounce this was the fifth weekly loss in a row for the $RUT. That hasn't happened since August 2011. The rebound from Thursday's intraday low stalled on Friday under short-term resistance at its 10-dma.

A Fibonacci retracement of the five-week decline in the $RUT would suggest potential resistance near 1118, 1131, and 1144. I would just adjust those to the nearest round number like 1120 and 1130.

If this bounce does roll over then everyone will be watching for a breakdown under major support near the 1,080 level. Should that breakdown occur it will be very bearish for the small caps, which could drag the market down with it.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index

Intraday chart of the Russell 2000 index

Another troubling observation is weakness in the S&P 400 midcap index. The chart below shows the midcap ETF (MDY). After a long rally higher the midcaps have produced a bearish double top. This past week has produced a breakdown under technical support at the 200-dma (not shown). What you do see on the weekly chart is a breakdown under its long-term trend of support.

Weekly chart of the S&P 400 Midcap index



Economic Data & Event Calendar

After last week's flood of economic data this week is pretty slow. The only report that market participants will likely pay attention to is the FOMC minutes released on Wednesday. If that wasn't enough there was will be herd of Federal Reserve governors speaking at various locations around the country this week. Even former Fed chairman Bernanke speaks on Wednesday.

We could get a few more earnings warnings this week. Alcoa kicks off earnings season on October 8th. The real pace of earnings reports will pick up the following week.

Economic and Event Calendar

- Monday, October 06 -
Moody's business confidence survey
German factory orders

- Tuesday, October 07 -
China HSBC services PMI

- Wednesday, October 08 -
California manufacturing survey
FOMC minutes
Alcoa (AA) reports earnings - kicks off earnings season

- Thursday, October 09 -
Weekly Initial Jobless Claims
Bank of England interest rate decision
Wholesale inventory data

- Friday, October 10 -
Import/Export prices

Looking Ahead:

The week ahead might be the calm before the storm at least as earnings are concerned. The slow and steady improvement in the U.S. economy should be healthy for earnings growth. However, about 50% of sales for the S&P 500 companies come from outside the U.S. The huge surge in the U.S. dollar could negatively impact their earnings growth. Investors and analysts will be keenly focused on corporate guidance executives look out to the fourth quarter and into 2015.

As we look ahead we should consider how the market will react to the end of the Federal Reserve's QE program. We are only about three weeks away from the Fed finally announcing the end of the program. It's no secret but stocks could still react negatively if history is any guide. The folks at Comstock funds noted that when the first QE program ended in 2010 the stock market fell -13.2% in three months. When the second QE program ended in 2011 the stock market crashed -18% in the next three months. What will happen when this QE program ends? Everyone knows it's coming. Months ago the answer seemed to be that if the Fed ends QE for the right reason (i.e. the U.S. economy is improving) then the market will accept it and we shouldn't see a negative reaction. Are investors still feeling that optimistic as they look past QE and toward the Fed's first rate hike in years (expected in 2015)?

Long-term chart of the S&P 500 index & QE

Last week one of the big stories was the first official Ebola case in the U.S. The patient, Thomas Duncan, is currently in serious condition in a Dallas hospital. The government has several people in quarantine and over 50 people being monitored to see if Duncan infected anyone else. There are also new reports of patients with Ebola-like symptoms in a Washington D.C. hospital. Another man in the state of Georgia is being monitored with Ebola-like symptoms. While this shouldn't be too surprising considering the amount of travelers America sees every day it is not a reason to panic. The U.S. is not West Africa. We have a significant healthcare system and plenty of healthcare staff to treat patients. I have no doubt we will hear about more Ebola cases in the U.S. but it will be contained. The bigger question is if Africa and the U.N. can stop the spread of the disease in Africa.

There is a good chance we could see ISIS back in the headlines. The terrorist group beheaded a British hostage last week. Alan Henning was an aid worker in Syria when he was captured by ISIS. The constant beheadings might backfire as the world public grows more insensitive to all the gory news. Let's just hope ISIS doesn't search for more depraved acts to try and grab headlines.

A beheading is not going to affect the stock market. Yet capturing Iraq's capital Baghdad might. The ISIS military is getting closer and closer to an assault on Baghdad. As many have already speculated Allied airstrikes on ISIS targets will not be enough to stop the Sunni terrorists. The group has renewed their fighting with Kurds in northern Iraq and the Shia-dominated cities in central Iraq. New reports suggest ISIS has captured the Iraqi city of Anbar and are preparing to assault Northern Baghdad soon.

In much happier news we continue to see the price of gasoline fall. We've been noting this drop in gas prices for weeks now. The good news is that as gas prices fall it gives the American consumer a little bit more breathing room. This should be great news for the upcoming holiday shopping season. We only have about 80 days left until Christmas.

Rolling the calendar over into October should also be good news. If stocks are in a decline the weakness normally ends in October. Further weakness in the next couple of weeks might be an entry point for a run towards yearend. I would suggest waiting for the bounce instead of trying to catch any falling knives.

James


Mark Twain's Wisdom on the Stock Market:





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a choppy week for stocks. Disappointing economic headlines out of Europe and ECB President Draghi's disappointing press conference fueled some profit taking.

The market's volatility last week triggered some stops.
AIG, AKAM, DECK, DIS, DOW, and FFIV were all stopped out.

There are new stop losses on MS and NKE

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

Breakout In Progress

by James Brown

Click here to email James Brown


- New Trades -


Hanesbrands Inc. - HBI - close: 111.16

Comments:
10/05/14: HBI is one of last week's new watch list candidates. Normally we have been using an entry point requirement for our candidates to close above a certain price. HBI was different. We listed an intraday trigger to buy calls at $110.50. Shares hit that entry on Friday morning thanks to a new "outperform" rating and a $125 price target by Credit Suisse. HBI soared +2.8% and broke out from its $105-110 trading range.

We are adding HBI to the new play list in case you missed the entry point. We would still consider new positions now at current levels.

Keep in mind this is a shorter-term trade. We're using the 2015 January calls, which only have about three and a half months left.

Earlier Comments: September 27, 2014:
HBI is in the consumer goods sector. With almost 56,000 employees in more than 35 countries the company is growing into a global apparel giant.

According to a company press release "HanesBrands is a socially responsible leading marketer of everyday basic apparel under some of the world's strongest apparel brands in the Americas, Asia and Europe, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nür Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company's low-cost global supply chain."

HBI has also been making acquisitions. They recently announced the completion of its DBApparel acquisition. HBI commented on the deal saying, "the purchase of DBA is Hanes' second major acquisition in its core innerwear categories in the past year, making it one of the largest innerwear companies in the world. Maidenform, a leading seller of bras, shapewear and panties primarily in the United States under brands such as Maidenform and Flexees, was acquired Oct, 7, 2013. By contrast, DBApparel is a leading seller of bras, hosiery and underwear primarily in Europe under such strong European consumer brands as DIM, Playtex, and Wonderbra."

Shares of HBI have also been on the war path. The stock popped to new all-time highs back in April when HBI beat EPS estimates and raised their guidance. The stock soared again in June on the announcement of the DBA merger. HBI reported earnings again in July that beat estimates and management raised their guidance again.

Technically shares have been consolidating sideways the last three weeks under resistance near $110. We want to be ready to hop on board if shares breakout again. I am suggesting a trigger to buy calls if HBI trades at $110.50. This is an intraday trigger.

- Suggested Positions -
OCT 03, 2014 - entry price on HBI @ 110.50, option @ 3.80*
symbol: HBI150117c115 2015 JAN $115 call - current bid/ask $3.80/4.30

10/03/14 Triggered. Credit Suisse tags a $125 price target on HBI, shares soar and breakout past resistance near $110.00. Stock hits our intraday trigger at $110.50.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Chart of HBI:

Current Target: HBI in the $125.00 area
Current Stop loss: 104.95
Play Entered on: 10/03/14
Originally listed on the Watch List: 09/28/14



Play Updates

Market Suffers A Volatile Week

by James Brown

Click here to email James Brown


Closed Plays


We have been updating stop losses over the last few weeks over concerns the market might correct lower. The volatility last week took out several trades.

AIG, AKAM, DECK, DIS, DOW, and FFIV all hit our stop loss.



Play Updates


Celgene Corp. - CELG - close: 95.21

Comments:
10/05/14: Traders bought the dip in CELG near its 50-dma on Thursday. The rebound continued on Friday with a +2.5% gain. Shares of CELG look poised to breakout to new highs soon. The stock just has to get past resistance near $96.50. It didn't hurt that last week two analysts upgraded their price targets on CELG. One firm upped their CELG target to $112 and the other to $115.

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 $3.95/4.15

- or -

Aug 18, 2014 - entry price on CELG @ 91.00, option @ 10.00*
symbol: CELG160115c100 2016 JAN $100 call - current bid/ask $12.10/12.50

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: 31.93

Comments:
10/05/14: CSX also found support at its simple 50-dma last week. Shares are building on their bullish trend of higher lows. I would be tempted to buy calls on this rebound but investors may want to wait until after the earnings report before initiating new positions. CSX is scheduled to report earnings on October 14th.

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 $2.50/2.55

- or -

Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.14*
symbol: CSX160115C35 2016 JAN $35 call - current bid/ask $1.54/1.66

09/28/14 new stop @ 29.75
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: 29.75
Play Entered on: 08/15/14
Originally listed on the Watch List: 08/10/14


DaVita Healthcare Partners - DVA - close: 74.45

Comments:
10/05/14: DVA rebounded off its trend of higher lows. Shares look ready to tackle their recent highs and breakout past resistance near $75.00. A close above $75.50 could be used as a new bullish entry point. Sadly the bid/ask spread on the 2016 calls are still outrageous. This might be a shorter-term trade with the 2015s.

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 $2.45/2.55

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.20/7.00

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: 85.47

Comments:
10/05/14: It was a bit of a roller coaster week for shares of EXPE. The Monday-Tuesday rally reversed sharply and shares dropped from north of $88 to almost $82 by Thursday's low. The stock did garner some bullish analyst attention and EXPE was given a $100 price target.

Our stop loss is at $79.75 but more conservative investors might want to move their stop closer to $82.00 instead.

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

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

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

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

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

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

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

- Suggested Positions -
JUN 09, 2014 - entry price on EXPE @ 75.30, option @ 8.20*
symbol:EXPE160115C90 2016 JAN $90 call - current bid/ask $11.20/11.70

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


General Dynamics - GD - close: 123.54

Comments:
10/05/14: The high-flying defense stocks were a target for profit taking last week. Fortunately GD bounced near technical support at its 100-dma and near the $120.00 mark. I would wait for a new close above $125.00 before considering new bullish positions.

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 $4.30/4.70

09/28/14 Friday's bounce looks like a new entry point
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: 178.34

Comments:
10/05/14: LMT managed to tag a new record high near $184.00 before the profit taking began. Shares declined under their 30-dma by Thursday. More conservative investors may want to raise their stop closer to the 50-dma or close to the $175.00 level. I am not suggesting new positions at the moment.

Please note that LMT is scheduled to report earnings on October 21st.

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 $5.00/5.40

- or -

AUG 19, 2014 - entry price on LMT @ 172.02, option @ 7.00*
symbol: LMT160115C190 2016 JAN $190 call - current bid/ask $8.70/ 9.30

09/28/14 new stop @ 171.75
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: 171.75
Play Entered on: 08/19/14
Originally listed on the Watch List: 08/17/14


Morgan Stanley - MS - close: 35.05

Comments:
10/05/14: MS found support near its September lows and shares outperformed when the market bounced on Friday. I am adjusting our stop loss up to $32.90. I would hesitate to launch new positions ahead of earnings. MS is scheduled to report on October 17th.

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 $1.73/1.78

- or -

SEP 05, 2014 - entry price on MS @ 34.42, option @ 1.80*
symbol: MS160115C40 2016 JAN $40 call - current bid/ask $1.87/1.96

10/05/14 new stop @ 32.90
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: 32.90
Play Entered on: 09/05/14
Originally listed on the Watch List: 08/31/14


Microsoft Corp. - MSFT - close: 46.09

Comments:
10/05/14: MSFT weathered the market's volatility last week relatively well. Traders bought the dip near its rising 40-dma. Meanwhile in the news MSFT confirmed that its next operating software will be called Windows 10 (what happened to nine?).

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 $ 2.32/2.34

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 4.35/4.55

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: 90.29

Comments:
10/05/14: Traders had plenty of opportunity to sell NKE and take profits last week. Yet the stock managed to defy gravity and hover near its post-earnings high. Shares ended the week at a record and closed above potential resistance at $90.00.

I am not suggesting new positions at this time.

Considering last week's relative strength we will raise our stop loss to $86.40.

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 $9.05/9.25

10/05/14 new stop @ 86.40
09/28/14 new stop @ 79.45, set exit target at $99.00
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: 86.40
Play Entered on: 09/08/14
Originally listed in the New Plays 09/07/14


Thermo Fisher Scientific - TMO - close: 121.29

Comments:
10/05/14: TMO ended the week virtually unchanged after traders bought the dip near its rising 200-dma. I am not suggesting new positions. TMO still has a bearish three-week trend of lower highs.

Please note that TMO is scheduled to report earnings on October 22nd.

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 $1.70/1.90

- or -

SEP 04, 2014 - entry price on TMO @ 123.98, option @ $12.00*
symbol: TMO160115c130 2016 JAN $130 call - current bid/ask $ 8.50/11.80

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: 67.30

Comments:
10/05/14: This is a new closing high for VFC. Traders were buying the dips last week near short-term support in the $65.50 area. The Thursday-Friday bounce lifted VFC to a new record close.

More conservative investors might want to consider a stop loss closer to support near $64.00.

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 $5.20/5.70

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: 52.10

Comments:
10/05/14: It was a volatile week for many of the financial stocks. WFC briefly flirted with a breakdown under its 50-dma, under its 100-dma, and under its long-term trend line of support (higher lows) on the weekly chart.

More conservative investors might want to adjust their stop closer to the $51.00 level. I am not suggesting new positions.

WFC is scheduled to report earnings on October 14th.

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 $ 2.94/3.05

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.75/4.90

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.
...please see earlier updates for older comments...

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: 122.07

Comments:
10/05/14: Shares of WLP found support near its July highs. The stock soared on Friday following news out Thursday night that WLP had increased its stock buyback program by $5 billion. The total buyback program is now up to $6 billion.

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 $ 7.10/7.45

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 9.40/11.80

10/02/14 WLP increases its stock buyback program from $1 billion to $6B
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


American Intl. Group - AIG - close: 53.35

Comments:
10/05/14: Financial stocks did not fare well last week. Shares of AIG pierced technical support at its rising 200-dma on Thursday. Our stop loss was hit at $51.75 during the meltdown.

- Suggested Positions -
May 14, 2014 - entry price on AIG @ 53.94, option @ 1.50*
symbol: AIG150117C60 2015 JAN $60 call - exit $0.25** (-83.3%)

- or -

May 14, 2014 - entry price on AIG @ 53.94, option @ 4.35*
symbol: AIG160115C60 2016 JAN $60 call - exit $2.35** (-45.9%)

10/02/14 stopped out @ 51.75
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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: 59.74

Comments:
10/05/14: AKAM ended the with a minor loss but that doesn't describe the volatility this stock saw. Shares dipped to $57.44 on Thursday. Our $59.45 stop was hit days before with Monday's drop under $60.00 and its 50-dma. Or at least it would have been AKAM actually gapped down on Monday at $58.93.

- Suggested Positions -
SEP 19, 2014 - entry price on AKAM @ 64.38, option @ 3.50*
symbol: AKAM150117C65 2015 JAN $65 call - exit $1.66** (-52.5%)

- or -

SEP 19, 2014 - entry price on AKAM @ 64.38, option @ 7.60*
symbol: AKAM160115C70 2016 JAN $70 call - exit $5.30** (-30.2%)

09/29/14 stopped out on Monday's gap down
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

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


Deckers Outdoor Corp. - DECK - close: 94.36

Comments:
10/05/14: The market sell-off on Wednesday really hurt shares of DECK. I couldn't find any other headlines to explain the relative weakness. DECK was actually upgraded that morning (October 1st) and given a $121 price target. Unfortunately our stop loss was hit at $92.40.

I would keep DECK on your radar screen.

- Suggested Positions -
AUG 06, 2014 - entry price on DECK @ 91.54, option @ 5.05*
symbol: DECK150117c100 2015 JAN $100 call - exit $4.00** (-20.7%)

- or -

AUG 06, 2014 - entry price on DECK @ 91.54, option @ 13.30*
symbol: DECK160115c100 2016 JAN $100 call - exit $11.50** (-13.5%)

10/01/14 stopped out @ 92.40
**option exit price is an estimate since the option did not trade at the time our play was closed.
09/28/14 new stop @ 92.40
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

Chart

Current Target: DECK @ 110-115
Current Stop loss: 92.40
Play Entered on: 08/06/14
Originally listed on the Watch List: 08/03/14


The Walt Disney Co. - DIS - close: 88.45

Comments:
10/05/14: DIS only lost about 30 cents for the week thanks to the sharp rebound. Unfortunately the stock market's big drop on Wednesday and Thursday pierced DIS' long-term up trend. Our stop loss was hit at $86.40. I've been warning investors for weeks to consider taking profits early.

- Suggested Positions -
OCT 23, 2013 - entry price on DIS @ 68.81, option @ 3.70
symbol: DIS1517a75 2015 JAN $75 call - exit $12.05** (+225.6%)

10/02/14 stopped out @ 86.40
**option exit price is an estimate since the option did not trade at the time our play was closed.
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...

Chart

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: $50.62

Comments:
10/05/14: It turned out to be an ugly week for shares of DOW. The stock market's big drop on Wednesday sparked a sharp sell-off in DOW. Shares hit our stop loss at $51.40.

- Suggested Positions -
MAY 29, 2014 - entry price on DOW @ 51.78, option @ 1.95
symbol: DOW150117C55 2015 JAN $55 call - exit $1.28** (-34.3%)

- or -

MAY 29, 2014 - entry price on DOW @ 51.78, option @ 3.90*
symbol: DOW160115C55 2016 JAN $55 call - exit $3.30** (-15.3%)

10/01/14 stopped out @ 51.40
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

Current Target: DOW @ 60.00
Current Stop loss: 51.40
Play Entered on: 05/29/14
Originally listed on the Watch List: 05/26/14


F5 Networks - FFIV - close: 122.65

Comments:
10/05/14: FFIV delivered a volatile week. Shares fell to new multi-week lows and hit our stop loss at $116.40. After a two and a half week drop from $128 to almost $116 FFIV bounced on Thursday and Friday. Our play was closed October 1st thanks to the market's sharp decline that day. I would keep FFIV on your radar screen.

- Suggested Positions -
JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 8.20*
symbol:FFIV150117C120 2015 JAN $120 call - exit $5.85 (-28.6%)

- or -

JUN 11, 2014 - entry price on FFIV @ 111.96, option @ 12.55*
symbol:FFIV160115C130 2016 JAN $130 call - exit $11.00** (-12.3%)

10/01/14 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 @ 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

Chart

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



Watch

Drugs & Retail

by James Brown

Click here to email James Brown



New Watch List Entries

LLY - Eli Lilly & Co

TGT - Target Corp.


Active Watch List Candidates

BRCD - Brocade Communications

CHKP - Check Point Software

FSLR - First Solar Inc.

PII - Polaris Industries Inc.


Dropped Watch List Entries

HBI has graduated to our new plays section.



New Watch List Candidates:


Eli Lilly & Co - LLY - close: 65.67

Company Info

You may have noticed that stocks have turned a bit more volatile recently. That could be a new trend after as investors try to look ahead into 2015 and ponder a market environment without a QE program by the Federal Reserve. That's why tonight we're looking at a stock like LLY, which is traditionally considered a more safe haven trade.

LLY has been building on its longer-term trend of higher lows. Plus the company has seen some good news. The U.S. FDA recently approved LLY's new once-a-week injectable diabetes drug for adults with type 2 diabetes. This new treatment, Trulicity, helps improve the patients blood sugar levels. There are an estimated 26 million Americans who suffer with type 2 diabetes. LLY is also teaming up with AstraZeneca to work on a Alzheimer's treatment.

The two-week pullback in shares of LLY was pretty mild and investors are already buying the dip. We want to hop on board if this rebound continues. Tonight we are suggesting investors wait for LLY to close above $66.25 and then buy calls the next morning with a stop loss at $61.90.

Please note that LLY is due to report earnings on October 23rd. You may want to wait on launching any positions until after we see how the market reacts to LLY's results.

trigger: Wait for LLY to close above $66.25
Then buy calls the next morning with a stop at $61.90

BUY the 2016 $70 call (LLY160115c70) current as $3.40

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

Chart of LLY:

Originally listed on the Watch List: 10/05/14


Target Corp. - TGT - close: 63.07

Company Info

It has been an ugly couple of years for shares of TGT as the company deals with the fallout from the massive data breach and hacking scandal from late 2013. It would appear that the damage is done. TGT has produced a major double bottom with its 2014 lows. Shares have been churning through resistance over the last few months.

Nowadays we seem to hear about another data breach or corporate hacking issue once a month if not more often. Their impact might be losing its effect on the consumer. Yet TGT is still dealing with the aftermath of the attack. The most recent quarterly report was only in-line with estimates. Management guided lower for its third quarter. After the initial knee-jerk reaction down on the earnings warning investors have been buying TGT. It might be a case of all the bad news is already priced in. I have seen some comments that TGT's margins might be under pressure due to their heavily promotional activity to get customers back in the story. That doesn't seem to deter the bulls.

TGT had a relatively mild two-week pullback and traders were buying the dip the last couple of days. The stock is poised to rally toward new 2014 highs. The point & figure chart looks very bullish with a quadruple top breakout buy signal that is currently forecasting at $79.00 target.

Friday's intraday high was $63.45. I am suggesting we wait for TGT to close above $63.60 and then buy calls the next morning with a stop loss at $59.85.

Breakout trigger: Wait for a close above $63.60
Then buy calls the next morning with a stop at $59.90

BUY the 2016 $65 call (TGT160115c65) current ask $3.90

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

Chart of TGT:

Originally listed on the Watch List: 10/05/14


Active Watch List Candidates:



Brocade Communications - BRCD - close: 10.61

Comments:
10/05/14: BRCD spent last week ricocheting between short-term resistance at $11.00 and short-term support near $10.50. We are waiting for a breakout past $11.00.

Earlier Comments: September 27, 2014:
BRCD is in the technology sector. They make products for computer networking. According to the company website, "Brocade leads the industry in providing comprehensive network solutions that help the world’s leading organizations transition smoothly to a virtualized world where applications and information reside anywhere. As a result, Brocade facilitates strategic business objectives such as consolidation, network convergence, virtualization, and cloud computing. Today, Brocade solutions are used in over 90 percent of Global 1000 data centers as well as in enterprise LANs and the largest service provider networks."

The stock is a long way from the Internet bubble days where BRCD traded near $130 a share back in 2001. When the bubble popped shares spent years trading under $10 a share. Now the stock appears to be recovering as the company builds on its earnings momentum.
BRCD has beaten Wall Street's earnings estimates four quarters in a row. This past week saw two analyst firms upgrade their price targets on BRCD thanks to improvement in revenue growth and margins.

Technically BRCD just spent the last three weeks consolidating sideways above the $10.00 level, which as prior resistance is now new support. The 2014 high is potential resistance at $11.00. Tonight I'm suggest we wait for BRCD to close above $11.00 and then buy calls the next day.

Breakout trigger: Wait for a close above $11.00
Then buy calls the next morning with a stop at $10.35

BUY the 2016 Jan $12 call (BRCD160115c12)

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

Originally listed on the Watch List: 09/28/14


Checkpoint Software Tech. - CHKP - close: 70.00

Comments:
10/05/14: Friday's display of relative strength in CHKP (+1.95%) might signal the end of its three-week consolidation lower. The pullback in September almost looks like a bull-flag consolidation pattern. Friday's high was $70.39. More aggressive traders may want to consider new bullish positions above $70.50. I am suggesting we stick with the plan and wait for a close above $72.50 before buying calls.

Be aware that CHKP is scheduled to report earnings on October 23rd.

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)

10/05/14 Friday's move might signal the end of the pullback.
Option Format: symbol-year-month-day-call-strike

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


First Solar, Inc. - FSLR - close: 64.10

Comments:
10/05/14: This is a pivotal week for FSLR. Last week shares retreated toward support near its rising 200-dma and its long-term trend of higher lows. A breakdown here would be very bearish. Naturally a rebound will reaffirm the up trend. Aggressive investors may want to consider new positions on a bounce from current levels. If we do see a rebound we'll reconsider our entry point strategy. At the moment we're waiting for a close above $75.00.

Earlier Comments: September 21, 2014:
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)

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

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


Polaris Industries Inc. - PII - close: 145.60

Comments:
10/05/14: PII was flirting with new highs on Monday and Tuesday last week. Unfortunately the market sell-off sent shares back toward the bottom of its recent trading range (and worse if you look at Thursday's intraday move).

If PII recovers this week then we'll keep our suggested entry point as a close above $153.50. If not then we'll likely remove PII as a watch list candidate.

FYI: PII is scheduled to report earnings on October 22nd.

Earlier Comments: September 27, 2014:
PII is considered part of the consumer goods sector. They are a leader in the powersports industry. The company manufacturers all manner of off-road vehicles, motorcycles, snowmobiles, electric (low-speed) vehicles, a new three-wheeled vehicle called the slingshot, and more. Altogether the company has sales of more than $4 billion a year.

More importantly sales have been improving. The stock soared back in July when PII beat estimates on both the top and bottom line and then raised their 2014 guidance. Now after several weeks of consolidating sideways PII is breaking out to new all-time highs. The point & figure chart is bullish and suggesting a long-term target of $206.

I am suggesting we wait for PII to close above $153.50 and then buy calls the next morning.

Breakout trigger: Wait for a close above $153.50
Then buy calls the next morning with a stop at $146.00

BUY the 2016 Jan $170 call (PII160115c170)

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

Originally listed on the Watch List: 09/28/14