Option Investor
Newsletter

Daily Newsletter, Sunday, 10/12/2014

Table of Contents

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

Leaps Trader Commentary

Worst Week In Two Years

by James Brown

Click here to email James Brown

Stock market volatility is soaring thanks to a tidal wave of negative headlines. The S&P 500 index suffered its worst weekly performance in two years as the volatility index (VIX) spikes to two-year highs. It was a rough week for stock markets around the world and an index of global stocks sank to eight-month lows. The U.S. dollar snapped a seven-week winning streak but was paring its losses to end the week with a two-day bounce. Meanwhile investors were desperate for safety, which fueled a rally in bonds and the yield on U.S. ten-year treasuries sank to 2.3%.

Stocks really tumbled on Tuesday following terrible industrial production numbers out of Germany. The IMF only added to the bearish tone when they lowered their 2015 global growth guidance that same day. Yet stocks bounced on Wednesday. The FOMC minutes from the last meeting were released on Wednesday afternoon and stocks surged on its contents. The key appeared to be that several fed governors have noted the slowdown in China, Japan, and Europe and they're concerned this global slowdown might impact U.S. growth. Investors chose to interpret that to mean the Fed would keep rates low for longer than previously expected. This sparked some serious short covering on Wednesday afternoon and the Dow Industrials had their best day of the year with a +275 point rally.

The Dow's best day of the year was immediately followed by its worst day of the year with a -335 point plunge on Thursday. Again economic data out of Europe sparked the sell-off. Germany reported that its exports crashed -5.8% in August. Stocks collapsed both in Europe and in the U.S. The selling continued on Friday after Microchip Technology (MCHP) issued an earnings warning and issued a warning for the entire semiconductor industry. This fuel massive selling in the SOX semiconductor index, which weighed heavily on the NASDAQ composite. Pouring salt in the wound was Standard & Poor's lowering its outlook on France from "stable" to "negative". S&P left their credit rating on France unchanged at AA but warned they might downgrade the country in the future.

The weekly performance numbers were terrible. The Dow Jones Industrial Average fell -2.74%. The S&P 500 dropped -3.1%. The NASDAQ lost -4.45%. The small cap Russell 2000 plunged -4.65%. Transports stumbled -6.9% and the SOX semiconductor index lost -9.9% on the week. WTI crude oil ended the week near $85 a barrel and Brent crude traded under $90 a barrel for the first time in more than two years. These are four-year lows for oil. The Mid cap index traded below its 200-dma for the first time in almost two years.

Economic Data

It was a quiet week for economic data in the U.S. We did see the four-week moving average on initial jobless claims drop to 287,750. That is the lowest reading since early 2006. Globally the IMF is expecting growth to slow. A few days ago the economists at the IMF adjusted their 2015 growth rates from +4.0% to +3.8%.

The whirlpool of bearish economic data out of Europe continues to drag equities lower. The Eurozone said their retail PMI dropped to 44.8. Numbers under 50.0 are bearish. Odds are growing the entire Eurozone will fall into their third recession thanks to a serious slowdown in Germany and ineffectual policies at the European Central Bank. Germany has long been the strongest economy in the EU but weakness in Asia and the economic sanctions against Russia are taking a toll.

Last week Germany reported a -4.0% drop in its industrial production numbers. That's significantly worse than expected (-1.5%) and the biggest drop in more than five years. German exports also plunged -5.8% in August, which is the biggest drop since January 2009. This all but guarantees that Germany will fall into a recession (two consecutive quarters of negative growth) following the -0.2% GDP growth in the second quarter. Evidence of the economic slowdown is showing up in shipping rates. The cost to ship goods between Europe and Asia plunged -10% to $738 per container. That's the fourth weekly drop in a row and the lowest level since October 2013.

Speaking of Asia, the news out of Japan was negative. The country said latest consumer confidence survey dropped to a four-month low. There was an upside surprise with their machine orders up +4.7% for the month but overall the country is slowing down. Economists are also expecting China to grow at its weakest pace in more than five years. Analysts expect that China will lower its 2015 growth forecasts soon.




Major Indices:

It doesn't look good for the S&P 500. The large cap index went 685 days without touching its simple 200-dma. The average hit this level of technical support on Friday. The S&P 500 is also down -5.2% from its all-time high set just four weeks ago so it wouldn't surprise me to see a bounce. Unfortunately the S&P 500 has broken down from its two-year bullish channel. That means the bottom of the channel is now new resistance.

We shouldn't be too surprised to see the S&P 500 finally start to pullback. Over the last 85 years the S&P 500 has averaged three -5% corrections every year. The current -5% pullback is the third one since November 2012. We were definitely due. Speaking of due it's been over 1,100 days since the S&P 500's last -10% correction so this pullback may not be over yet.

The 1900 level and the 200-dma near 1906 should offer some support. Yet broken support at 1925 and in the 1950-1970 area is new overhead resistance. If the S&P 500 breaks down under 1900 then the next key support area to watch is probably the 1850 region.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

A sharp sell-off in the SOX semiconductor index boosted the weakness in the NASDAQ. The technology-heavy NASDAQ composite lost -2.3% on Friday and sliced through potential support at 4300 and its 200-dma. This drop also puts the NASDAQ under a key trend line going back to the late 2012 lows (see weekly chart).

New data suggest the NASDAQ could be in for more declines. Nearly half of the NASDAQ stocks are already down -20% from their one-year highs. That means a huge chunk of the NASDAQ is already in a bear market.

Friday's close at 4276 leaves the NASDAQ -7% from its 2014 highs. A -10% correction would mean a drop toward 4,140.

chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index

The small cap Russell 2000 continues to lead the market lower. The $RUT lost -4.6% last week, which puts its 2014 performance at -9.48%. Last week was its sixth weekly loss in a row. One more weekly decline would be a record. This index is now down -12.8% from its 2014 closing high.

The breakdown under support near 1,080 was very bearish. If the 1,050 level fails then 1,000 is the next likely area to look for a bounce. That also means broken support at 1,080 is new resistance.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

We have a quiet week ahead of us for economic reports. Anyone paying attention will be watching the New York and Philadelphia fed surveys. Odds are the headlines will be filled with earnings results. This is the first full week of Q3 earnings season.

Economic and Event Calendar

- Monday, October 13 -
The first full week of Q3 earnings reports begins.

- Tuesday, October 14 -
German ZEW survey

- Wednesday, October 15 -
U.S. retail sales
Producer Price Index (PPI)
New York Empire State Fed survey
Federal Reserve Beige Book

- Thursday, October 16 -
Weekly Initial Jobless Claims
Philadelphia Fed survey

- Friday, October 17 -
Housing starts & Building Permits
University of Michigan Consumer Sentiment

Additional Events to be aware of:

October 29, FOMC policy update

Looking Ahead:

Several of the headlines last week were pretty ominous. The Microchip Technology (MCHP) earnings warning on Friday doesn't bode well for technology stocks. MCHP warned their Q3 sales would come in under estimates. More importantly MCHP warned that the semiconductor industry might see an inventory correction. A Citigroup analyst commented on MCHP's warning and said, "an inventory correction occurs whenever demand drops off for a moderate period of time and can occur during economic expansion or contraction." More importantly the Citigroup analyst said, "inventory corrections typically last 2-3 quarters with a step-down in demand and reduced visibility. The economic impacts are lower sales and margins."

Ebola Virus Outbreak

The Ebola virus outbreak doesn't have an immediate impact on the stock market but if it continues to spread it could definitely have consequences. The first patient diagnosed with Ebola in the U.S., Mr. Thomas Duncan, has died in Dallas, Texas. What is really making for scary headlines on Sunday night is news that one of the healthcare workers who was trying to save Mr. Duncan has now been diagnosed with Ebola. What makes this alarming is the nurse had a complete safety suit on to prevent infection and she got it anyway. It's possible she infected herself by removing her protective gear incorrectly but it does raise concerns. There have been new cases reportedly diagnosed in Spain and Brazil.

There are members in the U.S. government warning that if Ebola hits South or Central America it could spark another stampede of illegal aliens trying to get through the U.S. southern border. This is the worst Ebola outbreak in history and it's having a serious impact on the economy of western Africa. If we continue to see it spread the impact on the global economy could be huge. People will travel less. Consumers will shop less. Fear will keep more people indoors, which will encumber an already struggling global economy.

ISIS/ISIL Terrorists (Islamic State)

Last week we had more bad news on the war against ISIS. The terrorist fighters of this Sunni Muslim Al Qaeda offshoot were making progress on both their northern and southern borders. The U.S. led coalition to stop the spread of ISIS with air strikes is not having a big enough impact. Right now ISIS is on the verge of taking the Anbar province in Iraq. According to the Washington Post this would give ISIS control of Iraq's most important dam and several large army installations. It would also help ISIS create a strong supply line from Syria into Iraq and allow ISIS a much more strategic position to attack the Iraqi capital, Baghdad.

ISIS is also on the verge of capturing the Syrian city of Kobani. This city is located right on the northern edge of Syria and Turkey. The United Nations is warning that if ISIS wins Kobani they could massacre the civilians still in the city. So far the Kurdish defenses inside have already stopped five ISIS suicide car bomb attacks but the ISIS fighters are slowly gaining more and more ground.

Closer to home the U.S. State Department has issued a warning of a potential ISIS attack inside the U.S. There have already been several ISIS soldiers captured at the southern U.S. border with Mexico. Depending on who you listen to there could be dozens to hundreds of ISIS fighters already in the U.S. The State Department warned that terrorists could target "high-profile sporting events, residential areas, business offices, hotels, clubs, restaurants, places of worship, schools, public areas, shopping malls, and other tourist destinations both in the United States and abroad where U.S. citizens gather in large numbers, including during holidays."

Right now, assuming the Ebola outbreak does not spread in the U.S., the holiday shopping season could be a strong one for retailers. Yet if terrorist successfully stage a random attack it could hamstring holiday sales as fearful consumers stay inside. It might seem morbid but Amazon.com is probably the winner this season if we do see a terrorist attack inside the U.S.

Q4 Market Performance

On a much brighter note the stock market delivers some of its best performances in the fourth quarter. The folks at the Stock Trader's Almanac report that over the last 32 years there is a 75% chance of market gains if you bought the S&P 500 near the end of October and sold just before Christmas. However, this year the bulls have a significant wall of worry to climb. Europe's economy is sinking. China and Japan are slowing down. ISIS seems to be growing in spite of allied air strikes. West Africa is not showing much improvement in the fight against Ebola. Plus, U.S. corporate earnings could come in worst than expected. The key will be corporate guidance for the fourth quarter and into 2015.

I would not be in a rush to open new bullish positions. If the current market pullback is going to end it will probably be in the second half of October.

James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a horrible week for the bulls. Investors reacted to negative headlines with waves of selling. Volatility has spiked to two-year highs.

The market's volatility last week triggered some stops.
CSX, GD, and TMO were all stopped out.

We have multiple trades that are poised to hit our stop loss on Monday if the market continues lower.

There are new stop losses on DVA and VFC.

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

The Next Entry Point

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(October 12, 2014)

Whew! What an ugly week. Volatility has roared back to life and the VIX ended the week near two-year highs. The Dow Industrials are seeing triple-digit moves almost every day. The S&P 500 is now down -5% from its all-time high set four weeks ago. Meanwhile small caps are leading the market lower with the Russell 2000 down -12% from its 2014 highs.

Everything seems to be in free fall. The only exception appears to be utility stocks and U.S. bonds as investors look for dividend yields to protect themselves. That makes adding new plays rather challenging.

We don't know if a -5% pullback to technical support at the 200-dma on the S&P 500 is enough to satisfy the selling pressure or if it's just the beginning of a deeper -10% to -15% correction.

Looking at the calendar we are definitely due for a -10% correction. The S&P 500 hasn't seen one in over 1,100 days. Normally we see a -10% pullback about twice a year. Bears would argue the market is long overdue for a major sell-off. The current bull market is over 5 and 1/2 years old.

All year long the U.S. market has managed to ignore most of the bearish headlines that were not related to the Federal Reserve's monetary policy. Yet that seems to be changing. Now that the recent FOMC minutes noted the Fed is watching the economic slowdown overseas suddenly the market is noticing just how bad the economic picture is in Europe and the weakness in Asia. These are not new headlines but now they seem to matter.

Lack of any real help from the European Central Bank only adds fuel to the fire that Europe is headed for another recession.

A major factor will be corporate earnings results and guidance. We're going to see a lot of that over the next three or four weeks. Disappointing guidance will fuel the sell-off. Bullish guidance will help build a new trading bottom for the market.

I suspect the next two or three weeks could be challenging for traders. We're likely to see volatility remain elevated. As a LEAPS investors I'd be tempted to step away from the market and just watch it for the next couple of weeks and then consider market conditions at the end of October. I mentioned in the market commentary tonight that the last 32 years have shown a 75% chance of the S&P 500 rallying from the end of October up to Christmas.

I'm not adding any new trades tonight. Our next entry point might be near Halloween. I would like to load up the watch list with potential trades between now and Halloween but it would be nice to see the market find some sort of bottom first.



Play Updates

Stocks End Week At New Relative Lows

by James Brown

Click here to email James Brown

Editor's Note:

Friday saw the market close near its lows for the session. That does not bode well for Monday. We could see a handful of our current plays get stopped out on Monday morning should this weakness continue.


Closed Plays


CSX, GD, and TMO hit our stop loss last week.



Play Updates


Celgene Corp. - CELG - close: 90.93

Comments:
10/12/14: The stock market sell-off last week shaved off more than $4.00 from CELG's stock price. The close under its simple 50-dma is bearish and the weekly chart has created a bearish engulfing candlestick reversal pattern.

More conservative investors may want to move their stop loss closer to the $90.00 level. Currently our stop is just below the September low.

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 $2.86/3.05

- or -

Aug 18, 2014 - entry price on CELG @ 91.00, option @ 10.00*
symbol: CELG160115c100 2016 JAN $100 call - current bid/ask $11.25/11.65

10/12/14 Investors may want to raise their stop loss.
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


DaVita Healthcare Partners - DVA - close: 73.42

Comments:
10/12/14: DVA has weathered the market pullback reasonably well. The stock is still trading above technical support at its 100-dma.

Tonight we are adjusting our stop loss strategy. We will use a stop loss at $71.75 to exit our 2015 calls and keep the stop at $69.85 for the 2016 calls.

I am not suggesting new positions at this time.

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

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

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

- Suggested Positions -
JUN 04, 2014 - entry price on DVA @ 71.44, option @ 2.65*
symbol: DVA150117C75 2015 JAN $75 call - current bid/ask $2.05/2.50

- or -

JUN 04, 2014 - entry price on DVA @ 71.44, option @ 4.70*
symbol: DVA160115C80 2016 JAN $80 call - current bid/ask $3.50/5.00

10/12/14 adjusting stop loss strategy:
Use a stop at $71.75 for the 2015 calls.
Use a stop at $69.85 for the 2016 calls.
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 for the 2016 calls, $71.75 for the 2015s
Play Entered on: 06/04/14
Originally listed on the Watch List: 06/01/14


Expedia Inc. - EXPE - close: 81.00

Comments:
10/12/14: The stock market's volatility and weakness has helped EXPE produce a reversal from $88 to $81 in the last five days. Investors will want to seriously consider an early exit right now. I am not suggesting new positions. Our stop loss remains at $79.75.

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

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

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

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

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

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

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

- Suggested Positions -
JUN 09, 2014 - entry price on EXPE @ 75.30, option @ 8.20*
symbol:EXPE160115C90 2016 JAN $90 call - current bid/ask $ 9.20/ 9.70

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


Hanesbrands Inc. - HBI - close: 107.17

Comments:
10/12/14: The stock market's weakness has dragged HBI from new highs near $112 toward its 30-dma near $107. This pullback has also created a bearish engulfing candlestick on the weekly chart but these patterns need to see confirmation.

Keep an eye on the $105.00 level, which should be support. Nimble investors could use a bounce from $105 as a new bullish entry point. Our stop loss is at $104.95. More aggressive traders may want to put their stop under the 50-dma near $104.35 instead.

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 $2.75/3.10

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

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



Lockheed Martin Corp. - LMT - close: 174.47

Comments:
10/12/14: I fear our LMT remains in jeopardy. LMT almost hit our stop loss at $171.75 with Wednesday's intraday low at $171.83. Considering the market's widespread weakness on Friday there and LMT's failure at the 30-dma there is a good chance we're going to see LMT retest the $172.00 area.

I am not suggesting new positions at this time.

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 $4.10/4.50

- or -

AUG 19, 2014 - entry price on LMT @ 172.02, option @ 7.00*
symbol: LMT160115C190 2016 JAN $190 call - current bid/ask $7.90/ 8.80

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: 32.94

Comments:
10/12/14: MS is another trade that is in serious trouble. Thursday's drop left MS below its 50-dma. Friday's drop left MS just four cents above our stop loss at $32.90. Odds are really good we're going to see MS hit our stop on Monday morning.

If somehow MS doesn't get stopped out we then face earnings on October 17th. MS will announce before the opening bell. Analysts are expecting a profit of 54 cents a share.

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 $1.09/1.12

- or -

SEP 05, 2014 - entry price on MS @ 34.42, option @ 1.80*
symbol: MS160115C40 2016 JAN $40 call - current bid/ask $1.35/1.63

10/12/14 Expect to get stopped out on Monday morning
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: 44.03

Comments:
10/12/14: The MCHP earnings warning on Friday sent technology stocks into a tailspin. Shares of MSFT collapsed with a -3.96% drop toward $44.00. The intraday low on Friday was $43.95 and our stop loss happens to be at $43.90. I strongly suspect we will see MSFT hit our stop loss on Monday morning.

If somehow this trade survives the week then MSFT is scheduled to report earnings on October 23rd.

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

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

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

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

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

- Suggested Positions -
JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 1.05
symbol:MSFT150117c45 2015 JAN $45 call - current bid/ask $ 1.46/1.48

- or -

JUN 25, 2014 - entry price on MSFT @ 41.93, option @ 2.60
symbol:MSFT160115c45 2016 JAN $45 call - current bid/ask $ 3.35/3.55

10/12/14 MSFT will likely hit our stop on Monday, Oct 13th.
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: 87.19

Comments:
10/12/14: NKE is also in jeopardy of breaking down and hitting our new stop loss at $86.40. The stock is flirting with two-week lows and if the market continues to sink this week then NKE will likely follow it lower. The nearest support is the $83.00 area.

I am not suggesting new positions at this time.

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 $7.55/8.00

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


V.F. Corp. - VFC - close: 64.54

Comments:
10/12/14: The market's weakness last week produced a -$3.00 drop in VFC and shares ended the week on technical support at its simple 50-dma. Prior highs near $64.00 should also offer some support. The 200-dma is at $61.90 so we are moving our stop loss up to $61.75.

I'm not suggesting new positions at this time. VFC is scheduled to report earnings on October 20th. Results come out before the opening bell.

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 $4.70/5.40

10/12/14 new stop @ 61.75
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: 61.75
Play Entered on: 09/15/14
Originally listed on the Watch List: 09/07/14


Wells Fargo & Co. - WFC - close: 50.64

Comments:
10/12/14: I fear our WFC investment is not long for this world. Last week's drop in WFC left shares below a long-term trend line of support on its weekly chart. It is possible that WFC will find support at $50.00 but it better do so quickly. Our stop loss is at $49.90. Of course all of this depends on earnings.

WFC is scheduled to report earnings on Tuesday, October 14th. Results come out before the opening bell. Wall Street expects a profit of $1.02 a share.

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 $ 2.24/2.28

-- or --

DEC 26, 2013 - entry price on WFC @ 45.50, option @ 2.95*
symbol: WFC1615a50 2016 JAN $50 call - current bid/ask $ 4.20/4.30

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: 116.95

Comments:
10/12/14: Nothing was spared from the market's drop last week (except maybe utility stocks). Healthcare certainly followed the market lower. WLP lost about $5.00 for the week. Shares settled near short-term support in the $117.00 area. If the sell-off continues WLP might be headed for the 100-dma but should that occur the stock would hit our stop loss at $114.75 first.

I am not suggesting new positions at this time.

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

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

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

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

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

- Suggested Positions -
JUL 15, 2014 - entry price on WLP @ 113.05, option @ 4.00*
symbol:WLP150117c120 2015 JAN $120 call - current bid/ask $ 4.60/5.15

-- or --

JUL 15, 2014 - entry price on WLP @ 113.05, option @ 7.35*
symbol:WLP160115c125 2016 JAN $125 call - current bid/ask $ 8.60/11.15

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


CSX Corp. - CSX - close: 29.94

Comments:
10/12/14: Transportation stocks underperformed last week and CSX plunged from $32 to $30. Unfortunately the intraday low on Friday was just enough to tag our stop loss at $29.75.

- Suggested Positions -
Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.48
symbol: CSX150117C30 2015 JAN $30 call - exit $1.40** (-5.4%)

- or -

Aug 15, 2014 - entry price on CSX @ 30.29, option @ 1.14*
symbol: CSX160115C35 2016 JAN $35 call - exit $1.07 (-6.1%)

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

Chart

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


General Dynamics - GD - close: 121.22

Comments:
10/12/14: GD has managed to hold above round-number support near $120 and technical support at its 100-dma. Unfortunately the intraday volatility has been bad enough to push GD below $120 on Wednesday and shares hit our stop at $119.75.

Our play is closed but I would keep GD on your watch list.

- Suggested Positions -
SEP 10, 2014 - entry price on GD @ 126.13, option @ 5.60*
symbol: GD160115C140 2016 JAN $140 call - exit $3.60** (-35.7%)

10/08/14 stopped out @ 119.75
**option exit price is an estimate since the option did not trade at the time our play was closed.
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

Chart

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


Thermo Fisher Scientific - TMO - close: 116.47

Comments:
10/12/14: TMO's performance has mirrored the NASDAQ over the last six weeks or so. It has the same trend of a bearish double top and then a bearish trend of lower highs and lower lows. The big reversal on Thursday and Friday was too much for TMO. The stock broke down and hit our stop loss at $117.40 on Friday. The long-term up trend for TMO is now in jeopardy.

- Suggested Positions -
SEP 04, 2014 - entry price on TMO @ 123.98, option @ $3.25*
symbol: TMO150117c130 2015 JAN $130 call - exit $1.15** (-64.6%)

- or -

SEP 04, 2014 - entry price on TMO @ 123.98, option @ $12.00*
symbol: TMO160115c130 2016 JAN $130 call - exit $7.75** (-35.4%)

10/10/14 stopped out @ 117.40
**option exit price is an estimate since the option did not trade at the time our play was closed.
09/04/14 trade begins. TMO opens at $123.98
*option entry price is an estimate since the option did not trade at the time our play was opened.
09/03/14 triggered. TMO closed @ 123.75, above our trigger of $123.00
08/24/14 adjust entry strategy: wait for a close above $123.00 and then buy calls the next day (instead of a close above $122.50)
Option Format: symbol-year-month-day-call-strike

Chart

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



Watch

Pruning the Watch List

by James Brown

Click here to email James Brown


We are pruning some underperformers from the watch list tonight.



New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

CHKP - Check Point Software

LLY - Eli Lilly & Co

TGT - Target Corp.


Dropped Watch List Entries

BRCD, FSLR, and PII have been removed from the watch list.


Active Watch List Candidates:



Brocade Communications - BRCD - close: 9.35

Comments:
10/12/14: The sell-off in technology stocks has hit BRCD pretty hard. The stock is down more than 10% in the last two weeks and the breakdown under support near $10.00 looks ugly.

Our trade has not opened yet. Tonight we are removing BRCD as an active watch list candidate.

Trade did not open.

10/12/14 removed from the watch list.

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


Checkpoint Software Tech. - CHKP - close: 66.27

Comments:
10/12/14: CHKP has seen a $4.00 drop in the last two days. Friday's close under the simple 200-dma looks pretty bearish. If this weakness continues we will drop CHKP from the watch list next week. If shares can stabilize then we'll re-evaluate our entry point strategy next week.

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: 53.72

Comments:
10/12/14: Ouch! FSLR has collapsed with a -16% drop in one week. Shares are down even more from their September highs. This stock is off four weeks in a row and last week's plunge produced a breakdown under FSLR's longer-term trend of higher lows.

Our trade has not opened. Tonight we are removing FSLR from the watch list.

Trade did not open.

10/12/14 removed from the watch list.

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


Eli Lilly & Co - LLY - close: 64.15

Comments:
10/12/14: Drug stocks were not immune to the market's volatility last week. As expected LLY held up better than most with only a minor pullback. I don't see any changes from my prior comments. Although if the market weakness continues we might see LLY test the 100-dma.

Earlier Comments: October 5, 2014:
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)

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

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


Polaris Industries Inc. - PII - close: 142.59

Comments:
10/12/14: PII appears to be breaking down from its two-month trading range. It seems unlikely that shares will hit our suggested entry point at $153.50 any time soon. Tonight we are removing PII from the watch list. Yet I would keep it on your radar screen. A dip to the $135.00 level might prove to be a bullish entry point.

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

Trade did not open.

10/12/14 removed from the watch list.

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


Target Corp. - TGT - close: 60.59

Comments:
10/12/14: Investors were in a sell first and ask questions later kind of mood. TGT sliced through its 50-dma. Shares look headed for potential support at $60.00 and its simple 200-dma. If TGT can bounce near $60.00 then we might reconsider our entry point strategy. However, at the moment, our plan is unchanged.

Earlier Comments: October 5, 2014:
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)

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

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