Option Investor
Newsletter

Daily Newsletter, Thursday, 8/21/2014

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Good Data Brings Fresh Highs

by Thomas Hughes

Click here to email Thomas Hughes
A round of better than expected economic data lifted the markets to new highs in another day of light trading.

Introduction

A massive round of global economic data helped propel the equity markets to new highs today. Although there is still lingering softness in some regions, on a whole flash PMI readings from around the world show that the global economy is still expanding.

In Asia stocks were mixed as Chinese PMI dipped to a three month low of 50.5 and Japan's expanded more than expected to 52 from 50. European indices closed higher as PMI readings show that Germany is not slowing as much as feared and that France may be stabilizing. The news was enough to get the futures trading higher by a few points. Domestic data was even better, showing a surprise gain in several key monthly reports. Geopolitics was nowhere to be seen in today's action.

Market Statistics

Trading was light all day today but enough to get the indices up to new highs. The SPX opened marginally higher and gained 3 points in the first couple of minutes and 6 points by 10AM. There was a little resistance at the previous all time intraday high but after a quick retracement to today's opening levels the SPX marched right on up and through to a new high. Action in the other indices was much the same. There was a brief test of near term support and then a move to make a new high. The Dow Jones Transportation Average was the only major index that did not close in the green.

Economic Calendar

The Economy

Like I said, there was a massive round of data today that included 3 key US reports on top of the global flash PMI's and the weekly jobless claims. Initial claims for unemployment was the first to hit the wires , dropping -14,000, more than expected, to 298,000. Last weeks figure was revised upward by 1,000. The four week moving average also declined but remains above 300,000 for now. On a non adjusted basis claims fell by -20,709 or -7.7%. This is double what the seasonal adjustment factors were anticipating. California leads with 10,107 new claims followed by New York at 1,928. Connecticut and South Carolina have the biggest decreases in claims with -397 and -255 respectively.


Continuing claims fell as well, dropping -49,000 to 2.5 million. This is a new low for this figure dating back to 6/16/2007 and a more solid sign that jobs creation is gaining traction. The drop in this weeks data is a continuation in the long term down trend in claims that has been underway for over 6 months. Based on this figure alone I would expect to see a strong NFP number at the end of the month. The total number of unemployment claims for this week is 2.517 million, 18,965 less than weeks report.


Existing home sales jumped unexpectedly but is in line with housing starts and building permits data released earlier this week. The number of existing homes sold in the US rose to 5.15 million from the previous months 5.03 million. This is ahead of the expected decline to 4.9 million predicted by analysts. Permits, starts and existing sales are all above 5 million units and indicative of some strength in the housing sector. Last months figure was revised slightly higher from just below 5 million to just above.

The Index of Leading Indicators rose more than expected as well. The index, as prepared by the Conference Board, gained 0.9% last month suggesting that this month is growing at a rate greater than previously expected. This is ahead of the previous months reading of 0.6% and the expected gain of 0.7%. An economist at The Conference Board is quoted in the report saying “The LEI improved sharply in July, suggesting that the economy is gaining traction and growth should continue at a strong pace for the remainder of the year,” This statement echoes a similar statement given by Mark Zandi and Moody's in their weekly Survey of Business Confidence. The Coincident and Lagging indices also gained in this months reading suggesting that last month was also stronger than expected.

The Philadelphia Federal Reserve Survey of Business Conditions in the northeast also expanded more than expected. The index measuring the survey gained more than four points, rising from 23.9 to 28. This is the third month of expansion in the region. New orders, shipments and employment remain positive although they have all fallen from last month's levels. The future oriented leading components of the survey were all positive suggesting strength through the end of the year and into next.

Federal Reserve President Williams from California made some statements about interest rate hikes today. The remarks were not much different than what we've been hearing except they may be a little more dovish. He says that a rate hike in the summer of 2015 is a “reasonable guess”. I guess, that seems a little late compared to other indications it would happened before the end of the second half. He of course said that the fed would be and needed to be “data dependent”. The data shows that the economy is expanding and gaining traction, Williams himself said that the San Francisco Bay area was “booming” on many levels.

Janet Yellen is scheduled to speak tomorrow at the Jackson Hole conference.

The Oil Index

Oil prices firmed some today. The positive economic data helped to put a positive spin on future demand expectations even as global supply increases. Two such headlines in today's news include Libya and North Dakota. In Libya production continues to ramp up and now the largest port facility, which had been closed for many months due to political violence, is back in action. At the same time the North Dakota Bakken shale region reported a record month of production in June. WTI gained about 0.75% while Brent gained only about 0.5%.

The Oil Index gained about 0.35% in today's action. Low oil prices haven't hurt investor appetite for oil producers to badly. The index extended its move up from the short term moving average and is now trading above resistance at a previous all time high. The index is indicated higher with both MACD and stochastic moving higher, although neither are very strong at this time. There is resistance just above the current level around 17,000 which may keep prices contained in the near to short term.


The Gold Index

Gold dropped today. Spot gold was down over $15 in the earliest part of today's session and lost as much as $21 on an intraday basis. The geopolitical driver of the flight to safety was absent from the market while at the same time strong economic data led to a stronger dollar which equals weaker gold prices. Gold is not trading below $1280 and could move lower. The long term low in gold is just above $1190, nearly $100 below the current level, but I think that there will be some fairly strong support kicking in between $1225 and $1250, if prices even get that low. The market is currently trading just above $1275 which may also prove to be solid support. This is the level from which gold prices rocketed this past June when the Ukraine/Russia situation sent waves of fear through the market.

The Gold Index also fell today, dropping more than 2% on an intraday basis. Today's action initially broke the short term 30 day moving average but did not hold the break. This is not too surprising as the index is still within a tight range and zone of support and resistance. The indicators have just turned bearish and are giving a trend following sell signal. However, the caveat now is that the long term 150 day moving average is now just below the lower range of support in which the index has been trading. This may provide a rocky beach for whatever bearish wave crashes against it and could pause, halt or even reverse the index movement. On the other hand, gold prices are now below the average realized price received by the major gold miners last quarter and will hurt revenue and earnings if they remain where they are. If gold prices decline further, which could easily happen, the index will likely decline as well. The long term trends in gold and the index are down but I am vary wary of the current signal until a break below support and the long term moving average confirms it.


In The News, Story Stocks and Earnings

Bank Of American agreed to pay $17 billion to the Justice Department to settle charges dating back to the mortgage crisis and financial melt down. The charges were related to mortgages sold by Countrywide and Merril Lynch, mortgages that Bank Of America became responsible for when they took over those two companies as part of the whole bank bail out scenario. This latest settlement is the largest in US history and brings the cost of the mortgage crisis for BAC up to $80 million. The news was taken very well by the market as this is the last of any major damages to be incurred by the bank due to the past crisis. Shares of BAC jumped more than 4% today, breaking a long term resistance level.


Ebay shares got a big boost today when a new report suggested that there could be a PayPal spin off as early as next year. Independent news website TheInformation reported that executive candidates being screened to head up the PayPal business within Ebay are being cautioned that a spin off was a possibility in the near future. There are no details about when of how a spin off would take place or any official comments from Ebay itself. The news was enough to get the stock moving, sending it up more than 5% on an intraday basis. The move was halted by long term resistance which capped the move at just over 4.5%. The indicators are weak as is the news, so I don't think this is going to have much of a lasting effect unless, or maybe I should until, more concrete details come out.


Gap stores reported earnings after the bell today. The company reported revenues and earnings above expectations on a 3% rise in sales. Revenues were only slightly above estimates, earnings of $0.75 a little more so. The consensus estimate was around $0.69. The improvements were enough for company executives to raise full year guidance to the upper end of the previously estimated range. Shares climbed in after hours trading but are still below long term resistance.


At least 6 other clothing retailers reported today including Ross Stores, Cato and Aeropostale. The results were generally good but for some reason did not garner much attention from the media. There are some areas of weakness in the group still but that is the same across the market in general. Some are doing well, some really well, and others not so much. Ross Stores and Cato both beat expectations on stronger sales and were both able to increase full year guidance. Teen retailer Aeropostale was not as fortunate and lowered guidance. In between New York & Co was able to improve operations across its stores to reach a break even, much better than last years net operating loss. The Retail Spyder XRT traded down today in a move that appears to be confirming near term support. The ETF has been moving up toward the top of a long term range and is now within striking distance of that top. The indicators are bullish and gaining strength, suggesting that the ETF will indeed reach that level.


The Indices

The S&P 500 and NASDAQ Composite both reached new highs today and yet the transportation sector lost ground. The Dow Jones Transportation Average was the only of the major indices to close in negative territory today. The trannies lost -0.32%, dropping from resistance at the current all time high set last month. The indicators are bullish, strong and on the rise so it looks like the trannies could break out over the next few days if nothing crops up to spook the market.


The Dow Jones Industrial Average trade to the upside today, gaining 0.36%. The blue chips extended their move up from long term support are now approaching the current all time high level. The indicators here are also bullish, strong and on the rise so it looks likely the index will retest the high in the near term. If the trannies are any indication, the Dow will likely pause when it reaches resistance. This pause could last until the summer vacation is over and trading volume returns but that could really be any day now.


The S&P 500 gained 0.29% today, or about 6 points, setting a new all time intraday and new all time closing high in the process. The broad index is also showing some strength with rising momentum and strong stochastic despite the low trading volume of late. This is the 8th up day out of 10 and the 10th day the market has moved upward in a near straight line. This appears to be steady buying in the market and could be setting us up for a longer term movement. The trend is up and the current signal is a long term trend following buy that has been worth between 150 and 200 points in the past. The current bounce from the recent low to today has already produced 80 points of movement leaving up to 120 points more to go with a 2-3 month time horizon. Today's break to new highs was not very strong so there could be some backing and filling along this level or even a small pullback. Short and long term support is a short distance below the current index level around the 1960 region which is where I might look to get in if such a move were to happen.


The NASDAQ Composite closed in the green and set a new high today as well. The tech heavy index gained 0.12% in today's session after dipping into negative territory during the morning hours. Today's movement was not very strong and is the third day the index has traded at this level. Price action over the past three days appears to be a near term consolidation following the bounce from the long term moving average and could lead to another 100 points on the NASDAQ if it plays out. The trend is up, the indicators are strong and consistent with a rising market so I am expecting this index to move higher too.


Today's market action was not very strong but that is most likely due to light trade volumes. The economic data was pretty good and would likely have produced a stronger reaction otherwise. Regardless, the data is in line with the long term trend and pointing to a growing economy. These are the same trends that have driven the indices to new high after new high since breaking out of the secular bear market last year. I can't really think of a reason to be a seller right now, except for profit taking, and that may be enough reason for the market to keep moving higher, even on light volume. If no one is selling, or not many, it won't take very many buyers to drive the markets higher. Eventually market volumes will pick back up and then we'll know for sure. There is no economic data scheduled for tomorrow and only 6 earnings reports.

Until then, remember the trend!

Thomas Hughes


New Plays

Stocks Drift Higher

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's rally continued in the absence of any significant headlines. Investors are betting that Federal Reserve Chairman Janet Yellen will keep her dovish tone when she speaks in Jackson Hole, Wyoming, tomorrow morning.

Financials were showing strength today on news that Bank of America (BAC) finalized a $17 billion settlement with the U.S. government. Noticeably absent from the rally today were previous market leaders the transports and the biotechs.

Geopolitical risk remains in the background. Israel scored a win after killing three senior Hamas commanders in a predawn airstrike today. The U.S. is said to be considering sending troops to Iraq while American fighter jets continue airstrikes against Islamic State terrorists. The idea to send in troops follows the recent beheading of an American journalist by ISIS. It's important to note we're not talking a significant number of American troops. Estimates suggest fewer than 300 soldiers.

Meanwhile the conflict between Russia and Ukraine has cooled a bit. The Russian convoy of 260 trucks supposedly carrying humanitarian aid has been stuck at the Ukraine border for days. Ukraine border guards began inspecting the trucks today. Russian President Putin and Ukraine President Poroshenko are supposed to meet next Tuesday. Hopefully the region stays quiet until then.

We are not adding any new trades tonight. After another week of gains stocks could see some profit taking ahead of the weekend. A lot of market participants are on vacation so volume will likely be low, which could allow for unexpected volatility following Yellen's speech.




In Play Updates and Reviews

Financials Outperform

by James Brown

Click here to email James Brown

Editor's Note:
The financial sector outperformed today thanks to a big rally in shares of Bank of America (BAC). This helped push the XLF financial ETF to a +1.1% gain versus a +0.29% gain in the S&P 500.

Overall it was a relatively quiet session.

DAL hit our entry trigger.

We have updated a few stop losses tonight.


Current Portfolio:


BULLISH Play Updates

Delta Air Lines - DAL - close: 39.91 change: -0.61

Stop Loss: 37.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on August 21 at $40.75
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 11 million
New Positions: see below

Comments:
08/21/14: DAL rallied just enough to tag our suggested entry point at $40.75 and then reverse. The stock underperformed the broader market with a -1.5% decline. The relative weakness and close under $40.00 is short-term bearish. Wait for a bounce before considering new positions.

Earlier Comments: August 20, 2014:
Delta is the world's second biggest passenger airliner on the planet. They serve almost 165 million customers a year. Believe it or not but they started back in 1924 as an aerial crop dusting company called Huff Daland Dusters. Now they have almost 80,000 employees and a fleet of more than 700 planes that fly to 334 destinations in 64 countries on six continents.

A lot of investors look at the airline stocks as value plays. That's easy to see given their cheap multiples. DAL has a P/E of 3.1. Yet the company is seeing growth as well. Last year the airlines were big winners with the market's 2013 rally. This year could be another strong one thanks to falling oil prices. There has been a lot of geopolitical headlines but none of them seem to be pushing oil prices higher. Instead crude oil prices are falling. That's a huge deal for the airline companies because fuel is their largest expense. DAL has the lowest fuel costs in the business because they own their own refinery. The company expects that their fuel hedging and refinery operations should cut their fuel costs by $350 million this year.

More than 60% of DAL's business is in the U.S. The country's slow economic improvement has helped fuel gains for DAL. The airline has beaten Wall Street's bottom line estimates four quarters in a row. Back in June they raised guidance. Their most recent earnings report was July 23rd where they delivered a profit of $1.04 a share, one cent above estimates. DAL management that said their pre-tax profit was $1.4 billion, which is a +70% improvement from a year ago. They ended the second quarter with debt at less than $8 billion, which is a 20-year low. DAL's margins have been improving. Management expects margin improvement to continue and should see a jump from 13.5% to 15-17% in the third quarter.

Technically DAL saw a correction from $42 to $35 (-16%) from its June highs. Investors bought the dip again near $35.00 in early August. Now DAL has built what appears to be a bullish double bottom. The current bounce from its August lows is breaking through resistance.

If this trend continues we want to hop on board. Tonight we're suggesting a trigger at $40.75. The 2014 high near $42.50 could be short-term resistance but longer-term DAL looks poised to breakout.

- Suggested Positions -

Long DAL stock @ $40.75

- (or for more adventurous traders, try this option) -

Long 2015 Jan $45 call (DAL150117C45) entry $1.70*

08/21/14 triggered @ 40.75
*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


Green Plains Inc. - GPRE - close: 43.84 change: -0.12

Stop Loss: 39.25
Target(s): To Be Determined
Current Option Gain/Loss: +7.5%
Entry on August 11 at $40.77
Listed on August 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.4 million
New Positions: see below

Comments:
08/21/14: GPRE has spent the last couple of days consolidating sideways. I am not suggesting new positions at this time. Nimble traders may want to consider buying a dip near $42.00 or its 20-dma.

Earlier Comments: August 09, 2014:
GPRE has been a monster stock for investors over the last couple of years. Summer of 2012 the stock was trading for less than $5.00 a share. Today GPRE is trading at levels not seen since early 2006. The company is considered part of the basic materials sector. They're listed in the specialty chemicals industry. What they do is make ethanol and a lot of it.

According to the company website, "Green Plains is a vertically-integrated ethanol producer based in Omaha, Nebraska. We currently have an ethanol production capacity of approximately 1.0 billion gallons per year with our 12 plants." Another big part of their business is "Distillers grains are an important co-product of Green Plains’ ethanol production. At capacity our plants will produce approximately 2.9 million tons of distillers grains annually that will be used as a high-protein, high-energy animal fodder and feed supplement. Corn oil is also a co-product of ethanol production that is being extracted at all 12 of our plants."

Earlier this year GPRE made headlines when they purchased their own cattle-feed yard. Distiller's grain is a byproduct of the ethanol production process. Previously GPRE would try and sell it to ranchers as cattle feed. Sometimes that proved difficult to sell all of its distiller's grain. GPRE has decided a great way to handle the problem is buy their own cattle yard. They'll be able to raise their own cattle with the byproduct of their main business of ethanol production.

Of course ethanol is their main product and it could be a great year for GPRE. The company's input costs for their main ingredients of corn and natural gas have been falling in 2014. That's going to boost their ethanol margins. Piper Jaffray actually upgraded GBX in July on this dynamic and raised their price target on GPRE to $45.00.

It looks like the ethanol market is pretty healthy. The U.S. saw ethanol exports soar +56% in the first six months of 2014. Most of that went to Canada. Demand for ethanol could go up if some senators have their way. A handful of senators are pushing to boost the EPA's requirement on ethanol in our fuel. If they are successful it would raise the ethanol requirements by +40%.

The stock has displayed significant relative strength. The S&P 500 index is up +4.5% year to date. GPRE is up +108%. More and more mutual funds have been adding GPRE to their portfolio. Yet not everyone agrees with the bullish outlook on GPRE. Short interest is climbing as well. The most recent data listed short interest at 25% of the small 28.6 million share float. If this rally continues it could spark more short covering.

The last few days have seen GPRE consolidating sideways in the $39.50-40.60 zone. Tonight we are suggesting a trigger to open bullish positions at $40.75. We will try and limit our risk with a stop loss at $38.40.

We are not setting an exit target tonight but I will note that the point & figure chart is bullish and suggesting at $69.00 target.

- Suggested Positions -

Long GPRE stock @ $40.77

- (or for more adventurous traders, try this option) -

Long Dec $45 call (GPRE141220C45) entry $2.95*

08/14/14 GPRE announces $100 million buy back and doubles dividend to 8c.
08/13/14 new stop @ 39.25
08/11/14 trade opens on gap higher at $40.77, trigger was $40.75
*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


Microsoft Corp. - MSFT - close: 45.22 change: +0.27

Stop Loss: 41.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.6%
Entry on August 14 at $44.08
Listed on August 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 36 million
New Positions: see below

Comments:
08/21/14: The market reacted positively to Hewlett-Packard's (HPQ) earnings report last night. Shares of HPQ to new multi-year highs and that may have given MSFT a boost today.

I am not suggesting new positions in MSFT at this time.

More conservative investors may want to raise their stop closer to the simple 50-dma currently near $42.90.

Earlier Comments: August 13, 2014:
Microsoft Corp. is a technology behemoth. The company was founded in 1975. They have grown into a massive company with 128,000 employees around the world. Their software is used by billions of people every day. They also offer technology services, tablets, X-box gaming platform, networking and server software, and their Nokia division. MSFT has jumped head first into the cloud computing industry. Altogether MSFT generated almost $87 billion in sales the past 12 months with a net income of $22 billion.

Investors worried about MSFT and how the death of the PC would slowly chip away at its core products - mainly the Windows operating system and Microsoft Office. However, this past summer there has been evidence that the PC market isn't dead. Intel reported stronger than expected chip sales for PCs, especially to enterprise customers. Meanwhile MSFT stopped supporting the Windows XP operating system. MSFT released the XP system back in 2001. Their decision to stop providing updates means the XP system could become less secure to viruses, malware, and hacking. One analyst estimated that 25% of the PCs currently connected to the Internet were still running XP. That's millions and millions of computers that will need to either upgrade their software or likely be scrapped and upgraded to a new computer with a newer version of MSFT's software. The upgrade cycle could last a while.

Investors have been pretty optimistic since Satya Nadella was crowned CEO of MSFT back in February this year. He has been focusing the company on the cloud and it seems to be working. MSFT's commercial cloud revenues soared +147% with sales on track to exceed $4 billion a year. Even Bing, MSFT's search engine rival to Google, is improving. Bing's ad revenues rose +40% last quarter and snatched almost 20% of the search engine market. MSFT expects their Bing division to turn profitable in 2016.

MSFT's most recent earnings report on July 22nd was mixed. They missed the bottom line estimate by 5 cents. Yet revenues came in ahead of expectations. Wall Street was looking for quarterly revenues of $22.99 billion. MSFT reported $23.38 billion. Several analyst firms upgraded their outlook on MSFT following the earnings report. Many of the new price targets are in the $50 area.

Technically shares of MSFT have a bullish trend of higher lows. The stock saw some post-earnings depression in the second half of July but now that's over and investors are buying the dip.

Tonight I am suggesting investors open bullish positions tomorrow morning. We'll try and limit our risk with a stop loss at $41.75.

- Suggested Positions -

Long MSFT stock @ 44.08

- (or for more adventurous traders, try this option) -

Long 2015 Jan $50 call (MSFT150117c50) entry $0.45

08/14/14 trade begins. MSFT opens at $44.08
Option Format: symbol-year-month-day-call-strike


RF Micro Devices Inc. - RFMD - close: 11.99 change: +0.02

Stop Loss: 11.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 14.5 million
New Positions: Yes, see below

Comments:
08/21/14: RFMD spiked lower this morning but shares quickly bounced and spent the rest of the session hovering just below the $12.00 mark. I do not see any changes from my earlier comments.

Earlier Comments: August 19, 2014:
We are more than halfway through 2014 and it's shaping up to be another bullish year for stocks. The S&P 500 index is up +6.6% year to date. The NASDAQ composite is up +7.9%. That's because the NASDAQ is getting a boost from strong groups like biotechs and semiconductors. The SOX semiconductor index is up +17.2% in 2014. Yet one stock in this industry has been sprinting past the competition. That is RFMD with a +128% year to date gain.

According to the company website, "RF Micro Devices, Inc. is a global leader in the design and manufacture of high-performance semiconductor components. RFMD's products enable worldwide mobility, provide enhanced connectivity and support advanced functionality in the cellular handset, wireless infrastructure, wireless local area network (WLAN), CATV/broadband and aerospace and defense markets. RFMD is recognized for its diverse portfolio of semiconductor technologies and RF systems expertise and is a preferred supplier to the world's leading mobile device, customer premises and communications equipment providers."

What you may not know is that RFMD is a big supplier of components to Apple Inc. They provide components and chips for AAPL's iPhones. AAPL is expected to announce their iPhone 6 in September and could sell tens of millions of phones before year end. That could be a boon for companies like RFMD.

This year has also been bullish for mergers and acquisitions with Wall Street applauding a number of deals. One winning deal so far has been RFMD's merger with TriQuint Semiconductor (TQNT). RFMD announced this deal in February this year and the stock soared on this news. Since then both RFMD and TQNT stock have been outperformers. The company expects synergies of $150 million in just the first two years.

Meanwhile RFMD is developing a bullish trend of beating earnings estimates, rising margins, and raising guidance. Back in April they beat estimates and raised guidance. They did it again at their last report on July 24th. Wall Street expected a profit of $0.17 a share on revenues of $304.8 million. RFMD delivered $0.24 cents a share on revenues of $316.3 million. Margins surged to 42%. Management raised their EPS and revenue guidance for the current quarter.

Technically the stock is marching higher and just recently broke out from a two-week consolidation. Today's display of relative strength (+2.0%) left RFMD at multi-year highs. The shorts are getting killed. The most recent data listed short interest at 16% of the 266.7 million share float. If this rally continues the stock could get a boost from short covering.

Today's high was $12.10. We are suggesting a trigger to open bullish positions at $12.15.

NOTE: We will tentatively set a time frame of 8 to 12 weeks but we might choose to exit at Apple's iPhone 6 announcement in September.

Trigger @ $12.15

- Suggested Positions -

Buy RFMD stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the NOV $12 call (RFMD141122C12)

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


Skyworks Solutions - SWKS - close: 55.26 change: -0.56

Stop Loss: 49.95
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
Entry on August 07 at $52.65
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.3 million
New Positions: see below

Comments:
08/21/14: SWKS also saw some profit taking this morning. The stock found support before lunchtime and spent the rest of the session inside the $55.10-55.40 zone. Investors may want to start raising their stop loss.

Earlier Comments: August 2, 2014:
The semiconductor stocks have led the market higher most of the year but the SOX semiconductor index has reversed sharply in the last couple of weeks. This correction in the SOX has shaved its year to date gains to +13.9%. Shares of SWKS have not seen the same pullback and this semiconductor stock is up +82% this year and looks poised to keep the rally going.

Who is SWKS? According to the company website, " Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

SWKS is probably best known for being a component supplier for Apple's iPhones. SWKS is also supplying components to Amazon.com for that company's new Fire Phone.

SWKS soared in mid July following a better than expected earnings report. Wall Street was looking for a profit of 80 cents after SWKS guided higher to 80 cents in June. They still managed to surprise with a bottom line profit of 83 cents a share. Revenues soared almost 35% to $587 million, which was better than the $570 million estimate, up from $535 before SWKS's June guidance. SWKS management also raised their guidance going forward.

Following SWKS's much better than expected report there was a wave of bullish analyst comments. Several firms raised their SWKS price targets into the $60-65 zone. SWKS's bullish guidance is probably due to Apple's new iPhone 6, which is expected to be unveiled in September. Odds are good that SWKS will rally into Apple's product launch in September.

Shares of SWKS were showing relative strength on Friday with a bounce from support near $50.00 and a bullish engulfing candlestick pattern. We are suggesting a trigger to launch bullish positions at $52.65.

- Suggested Positions -

Long SWKS stock @ $52.65

- (or for more adventurous traders, try this option) -

Long Nov $55 call (SWKS141122C55) entry $2.86

08/13/14 new stop @ 49.95
08/07/14 triggered @ 52.65
Option Format: symbol-year-month-day-call-strike


WhiteWave Foods Co. - WWAV - close: 34.19 change: -0.99

Stop Loss: 31.40
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on August 19 at $34.91
Listed on August 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
08/21/14: I have been warning readers to expect a pullback in WWAV following its gap higher a couple of days ago. The pullback got some help today after WWAV was downgraded this morning. Shares look poised to test what should be short-term support at $34.00. If the $34 level doesn't hold then look for a dip to the simple 10-dma near $33.40.

Earlier Comments: August 16, 2014:
Consumer tastes and buying habits are changing and more people are opting for more natural and organic foods.

WWAV is in the consumer goods sector. You might not recognize the name but they're behind brands like Silk, Horizon Organic, Land-O-Lakes, International Delight, Alpro, and Earthbound Farm Organic.

WWAV considers themselves "a leading consumer packaged food and beverage company that manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, premium dairy products and organic produce throughout North America and Europe. The Company is focused on providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly-produced products. The Company's widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES* coffee creamers and beverages, Horizon Organic premium dairy products and Earthbound Farm' certified organic salads, fruits and vegetables. Its popular European brands of plant-based foods and beverages include Alpro and Provamel" (The Land-O-Lakes brand is licensed from the owners).

If you're looking for a company that is growing then keep an eye on WWAV. They have beaten Wall Street's estimates on both the top and bottom line at least four quarters in a row. The last three quarters management has been raising their guidance. In Q4 2013 WWAV's revenues were up +11.5%. The first quarter of 2014 saw revenues soared +36.5%.

Their latest report was August 7th. Analysts were looking for a profit of $0.22 on revenues of $815.6 million. WWAV delivered a profit of $0.23 with revenues climbing +39.5% to $837.9 million.

The natural and organic retailers might be facing tougher margins and stronger competition (WFM, SFM, TFM, NGVC) but that doesn't seem to be the case for a producer and distributor like WWAV.

You can see the big surge in the stock price on August 7th as traders reacted to the bullish earnings news and guidance. After consolidating gains the last few days shares of WWAV have started to push higher again. They have been outperforming the major market indices and WWAV closed at a new all-time highs on Friday.

We believe the rally continues but I am labeling this a more aggressive, higher-risk trade due to WWAV's recent volatility. The last several weeks have seen some significant swings.

Friday's intraday high was $34.06. We're suggesting a trigger to open bullish positions at $34.15.

- Suggested Positions -

Long WWAV stock @ $34.91

- (or for more adventurous traders, try this option) -

Long OCT $35 call (WWAV141018C35) entry $1.70*

08/19/14 trade opens on gap higher at $34.91, suggested entry point was $34.15.
*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




BEARISH Play Updates

Cepheid - CPHD - close: 38.06 change: -0.64

Stop Loss: 40.25
Target(s): To Be Determined
Current Option Gain/Loss: +2.9%
Entry on July 28 at $39.20
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 680 thousand
New Positions: see below

Comments:
08/21/14: CPHD did not see any follow through on yesterday's bounce. Shares reversed with a -1.65% decline.

More conservative traders might want to lower their stop loss.

I am not suggesting new positions at this time.

Earlier Comments: July 26, 2014:
CPHD is in the technology sector. If you look deeper the company operates in the scientific and technical instruments industry. According to the company's website, "Cepheid is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests. By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer."

CPHD, like most of the U.S. stock market, had a great 2013. Unfortunately the rally peaked in February-March 2014. This stock set its all-time highs in the $55-56 zone. Market watchers already know that momentum and high-growth names were crushed during the March-April market pullback. CPHD was no exception. The stock corrected from $55 to $40. It looked like CPHD was on the path to recovery but then the stock collapsed again in the last two weeks.

The problem is CPHD's earnings. The company reported earnings on July 17th. Their adjusted results for the second quarter of 2014 was a loss of 10 cents a share. That was better than Wall Street's estimate for a loss of 13 cents a share. CPHD delivered pretty solid revenue growth. Sales in the second quarter surged +21.4% to $116.5 million. That came in better than analysts were expecting. Yet CPHD's net results were down -40% from a year ago.

Listening to the company's management paints an optimistic outlook. CPHD's CEO John Bishop said they sold a record-setting 1,084 of their GeneXpert systems last quarter. That's more than all of 2012. Gross margins improved as well with margins rising from 45% to 49%. So why did the stock fall?

Investors sold the stock on disappointing guidance. CPHD expects 2014 revenues in the 4452-461 million zone. That's relatively close to Wall Street's $459 million estimate. Yet CPHD is forecasting EPS of 10 cents to 13 cents. That is significantly lower than analysts' estimates of 20 cents. You can see the reaction in CPHD stock with the big drop on July 18th.

The post-earnings sell-off continues and now CPHD is breaking down under significant support at the $40.00 level. The next stop could be the $36-35 area or lower. Currently the point & figure chart is bearish and forecasting at $29.00 target.

I would consider this a more aggressive trade. The latest data listed short interest at 16.8% of the 68.9 million share float.

Friday's low was $39.26. We're suggesting a trigger to open bearish positions at $39.00.

- Suggested Positions -

Short CPHD stock @ $39.20

- (or for more adventurous traders, try this option) -

Long SEP $40 PUT (CPHD140920P40) entry $2.35

08/13/14 new stop @ 40.25
07/31/14 new stop @ 40.51
07/28/14 triggered @ 39.20
Option Format: symbol-year-month-day-call-strike



Deutsche Bank - DB - close: 33.36 change: +0.32

Stop Loss: 33.55
Target(s): To Be Determined
Current Option Gain/Loss: +0.3%
Entry on August 04 at $33.45
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.9 million
New Positions: see below

Comments:
08/21/14: The German DAX index managed another bounce today, which may have helped shares of DB bounce. Plus we had the news that BAC had finalized a settlement deal with the U.S. government. Shares of BAC surged and that sparked a bounce in the financial sector.

DB is testing resistance near $33.50. Tonight we are adjusting our strategy and deciding to limit our risk with a tight stop loss at $33.55.

Earlier Comments: August 2, 2014:
Banking scandals continue to plague the financials. Most of us are familiar with the mortgage loan scandal that has haunted the major U.S. banks for the last few years and finally seems to be fading away. Then some of the biggest international banks were hit with the Libor rate fixing scandal. Now some of the big banks are suffering with a dark pool trading scandal. Dark pools are essentially institutional trading that is concealed from the public markets.

If that wasn't bad enough Europe's economy is slowing down. The region was already struggling before the Ukraine-Russian conflict arose. Now with a growing list of sanctions against Russia the impact is starting to accelerate the economic slowdown in Europe. Plus the specter of financial stress in the European financial system has risen again with the recent collapse of Portugal's Banco Espirito Santo, which recently filed for creditor protection.

Add all of these factors together and you can see why shares of DB, one of Germany's biggest banks, might be struggling. The stock Broke down back in March this year and it's been sinking every since. The month of July saw shares consolidate sideways but DB has started to break out of this trading range. The Point & Figure chart is pretty ugly and suggesting a long-term $14 target.

Friday's intraday low was $33.69. I am suggesting a trigger to open bearish positions at $33.45.

- Suggested Positions -

Short DB stock @ $33.45

- (or for more adventurous traders, try this option) -

Long Oct $33 PUT (DB141018P33) entry $1.45*

08/21/14 new stop @ 33.55
08/07/14 new stop @ 35.55
08/04/14 triggered @ 33.45
*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


Fifth Third Bancorp - FITB - close: 20.25 change: +0.15

Stop Loss: 20.51
Target(s): To Be Determined
Current Option Gain/Loss: - 3.6%
Entry on August 06 at $19.55
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.2 million
New Positions: see below

Comments:
08/21/14: The oversold bounce in FITB continues today thanks to a rebound in the financials. It is worth noting that FITB's rally stalled at technical resistance at its simple 300-dma.

Tonight we're going to try and reduce our risk by moving the stop loss down to $20.51. More conservative traders may want to move their stop loss closer to today's intraday high of $20.31.

Earlier Comments: August 5, 2014:
Fifth Third Bancorp started as the Bank of the Ohio Valley in Cincinnati back in 1858. According to the company's press release FITB is now "a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $133 billion in assets and operates 15 affiliates with 1,309 full-service Banking Centers, including 102 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,619 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has a 22.8% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest

The stock market's recent dip has reduced the S&P 500 index's 2014 gains to +4.9%. Yet the financial sector has been underperforming. The XLF financial ETF is only up +2.4%. Many of the banking stocks are weighing on the group. The regional banks have performed even worse with the KRE regional bank ETF down -6.9%. If you look at weekly chart of the KRE you'll notice a big bearish head-and-shoulders pattern that has formed over the last several months. This doesn't bode well for the group.

Banks have been struggling with little to no growth. Most are willing to lend but only to customers with the best credit ratings. Even if they do lend money the interest rates today are so low it's tough to make a profit. Housing prices continue to rise but the number of mortgages is shrinking.

FITB reported earnings on July 17th. Last quarter their mortgage banking revenues collapsed -67% from a year ago. FITB's profits plunged fro $591 million Q2 2013 to $439 million Q2 2014. The company did manage to beat Wall Street's estimates by 4 cents a share. Unfortunately FITB management lowered their revenue guidance.

Technically shares of FITB are bearish. They have broken the long-term bullish trend of higher lows (see the weekly chart). They have also recently broken below key support near $20.00.

Tonight we're suggesting bearish positions at current levels (no trigger). We'll try and limit our risk with a stop loss at $20.65.

- Suggested Positions -

Short FITB stock @ $19.55

- (or for more adventurous traders, try this option) -

Long Nov $20 PUT (FITB141122P20) entry $1.20*

08/21/14 new stop @ 20.51
08/06/14 trade begins. FITB gaps down at $19.55
*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


Financial Engines, Inc. - FNGN - close: 35.84 change: -0.05

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: -3.3%
Entry on August 15 at $34.70
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 663 thousand
New Positions: see below

Comments:
08/21/14: FNGN continues to hover just below resistance at $36.00. Tonight we're going to inch our stop loss down to $36.25.

I am not suggesting new bearish positions at this time.

Earlier Comments: August 12, 2014:
FNGN is in the financial sector. They provide investment advice, retirement planning services and more. According to the company's press release they describe themselves as "America's largest independent investment advisor, is dedicated to making high-quality retirement help available to everyone — regardless of how much money they have. We’re proudly independent, which means we don’t sell products or earn commissions based on our investment recommendations. The companies that choose to work with us offer our services to their workers as a valuable employee benefit."

Shares of FNGN went public back in 2010 at $12.00. They opened at $15.00 on their first day of trading. Since then the stock has definitely had its ups and downs. Shares took off in July 2012 and soared to a high of $70 in December last year thanks to a very bullish stock market performance in 2013.

Unfortunately 2014 has been a very disappointing year as FNGN continues to frustrate investors. When FNGN reported earnings on February 20, 2014 they missed estimates by a penny, missed the revenue number, and guided lower for 2014. When FNGN reported earnings in May they missed by 2 cents, missed the revenue number, and guided lower for 2014. Their most recent earnings report was July 31st and FNGN managed to beat Wall Street's bottom line estimate by 2 cents. Revenues were in-line with (lowered) expectations. Yet FNGN management lowered their guidance for 2014. Is anyone picking up on a trend here?

The disappointing earnings results have fueled a six-month decline. Shares are now in a bear market. FNGN is currently testing support near the $35.00 level. The recent low was $34.88. Tonight we're suggesting a trigger to open bearish positions at $34.70.

I am tempted to label this a more aggressive, higher-risk trade because of the short interest. The most recent data listed short interest at 16.7% of the 50.8 million share float. That does raise the risk of a short squeeze. If you have noticed investors have been using the rallies to exit.

You could try and limit your risk with put options but the option spreads are pretty wide so we're not listing them here.

We are not setting an exit target tonight but I will point out that the Point & Figure chart is bearish and forecasting a $24.00 target.

- Suggested Positions -

Short FNGN stock @ $34.70

08/15/14 triggered @ 34.70


Natural Grocers by Vitamin Cottage - NGVC - close: 18.29 change: -0.13

Stop Loss: 20.10
Target(s): To Be Determined
Current Option Gain/Loss: +6.0%
Entry on August 12 at $19.45
Listed on August 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 209 thousand
New Positions: see below

Comments:
08/21/14: NGVC continues to sink under its own weight. The stock is now down 10 out of the last 11 sessions.

Tonight we're moving our stop loss down to $20.10.

I am not suggesting new positions at this time.

Earlier Comments: August 11, 2014:
The last six to nine months have not been good for the natural food and organic-related retail chains. Whole Foods (WFM), The Fresh Market (TFM), Sprouts Farmers Market (SFM), and Natural Grocers have all underperformed the market by a wide margin.

According to NGVC's press release the company was "founded in Colorado by Margaret & Philip Isely in 1955, Natural Grocers was built on the premise that consumers should have access to affordable, high-quality foods and dietary supplements, along with nutrition knowledge to help them support their own health. The family-run store has since grown into a successful national chain with locations across Colorado, Texas, Utah, Wyoming, Oklahoma, Missouri, New Mexico, Montana, Kansas, Idaho, Nebraska, Arizona and Oregon, and employs over 2000 people. Although the company went public in July 2012, Isely family members continue to manage the company day to day, building on the foundation of their parents' business."

The good news is that the natural food and organic food craze is reaching a wider audience and more and more consumers are making healthier choices. The bad news is that this previously higher-margin business, in a notoriously low-margin industry, has drawn tons of competition. That has been the biggest challenge. Big players like Wal-mart and Target in addition to major regional grocery chains are all starting to offer more natural and organic wares. Meanwhile those already in the space are competing with each other as well. Margins are shrinking as competition heats up.

Shares of NGVC plunged back in May after the company lowered its same-store sales forecast for 2014. The stock dropped again on August 1st following its earnings report. Earnings were in-line with estimates but guidance was soft.

The path of least resistance is down and NGVG looks headed for its all-time lows in the $17.00 area.

The biggest risk with this bearish positions on NGVC is the crowd. There are a lot of investors already bearish on this stock. The most recent data listed short interest at 33.3% of the very, very small 5.1 million share float. That significantly raises the risk of a short squeeze.

We are suggesting bearish positions with a trigger to short NGVC at $19.45 but I am labeling this an aggressive, high-risk trade. NGVG does have options but most of the option spreads are too wide. We will try and limit our risk with a stop loss at $21.05.

*Aggressive Trade* Use small positions. - Suggested Positions -

short NGVC @ $19.45

08/21/14 new stop @ 20.10
08/12/14 triggered @ 19.45


Sprouts Farmers Market, Inc. - SFM - close: 29.60 change: -0.13

Stop Loss: 30.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

Comments:
08/21/14: SFM tried to rally this morning and failed under the $30.00 level. Yet there was no follow through lower. We are waiting for a new relative low. Our suggested entry point is $28.95.

Earlier Comments: August 18, 2014:
There is a growing pile of evidence that Americans are starting to eat healthier. It's about time. 66% of Americans are overweight and 33% of us are clinically obese. This new trend of healthier eating helps explain falling sales at restaurants like McDonalds and strong sales for rivals like Chipotle (which many consider to be a healthier choice). Today's trade isn't about restaurants. It's about the natural and organic trend in grocery stores.

Most people think of Whole Foods Market (WFM) when they consider natural and organic grocery chains. WFM is a dominant player with 388 stores. Sprouts (SFM) is catching up. The first Sprouts store started in Arizona back in 2002. Today they have more than 180 stores. Unfortunately for SFM they are facing the same issues WFM is.

Natural and organic foods used to offer higher margins in a notoriously low-margin business - grocery. It wasn't long before everyone has started promoting their natural and organic options. Traditional food chains as well as major nationwide players like Wal-Mart and Target. All of this competition is pressuring margins and sales growth.

Keep in mind, SFM is still growing. Their latest earnings report was August 7th and SFM beat estimates with a profit of 20 cents a share. That's a +43% jump in earnings from a year ago. Revenues were up +19.5% to 743.8 million, also above estimates. SFM management raised their 2014 guidance although this didn't have much impact since they only raised guidance to match Wall Street's consensus.

This issue doesn't seem to be growth. Investors are bearish on rising competition. It doesn't help that SFM isn't cheap with a current P/E of almost 52. It also didn't help that several major shareholders just sold 15 million shares at $30 a few days ago. This big sale doesn't breed confidence for investors.

Technically SFM appears to be in a major down trend of lower highs and lower lows. The P&F chart is bearish and forecasting at $23.00 target. SFM barely moved today in spite of a relatively widespread market rally.

Currently SFM is hovering just above support near $29.10. If this stock breaks down it could test its 2014 lows and potentially hit new ones. Tonight we're suggesting a trigger for bearish positions at $28.95.

Trigger @ $28.95

- Suggested Positions -

short SFM stock @ $28.95

- (or for more adventurous traders, try this option) -

Buy the DEC $27.50 PUT (SFM141220P27.5)

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